Shares of natural gas producers Antero Resources (NYSE: AR) and EQT (NYSE: EQT) have rallied over higher average realized prices. Furthermore, the rising global energy demand and higher U.S. LNG (Liquefied natural gas) exports in the wake of Russia’s invasion of Ukraine have supported the rally.
Thanks to the favorable demand and price environment, shares of Antero and EQT have surged about 123% and 91%, respectively, this year alone.
However, a recent fire incident at the Freeport LNG export terminal (one of the largest LNG export terminals in the U.S.) led to a decline in natural gas prices and, in turn, resulted in a pullback in the stock prices of Antero and EQT.
For instance, Antero stock is down about 17% in the last five trading days. Meanwhile, EQT stock dropped nearly 16% during the same period.
Freeport stated that the facility will not be fully operational until late 2022. However, partial operations would resume in about 90 days.
Notably, this raised concerns over future export capability. Moreover, lower exports will result in a demand-supply imbalance in the domestic market, eventually hurting prices.
Now What?
Gas prices dipped on Freeport’s export outage but regained momentum on Wednesday, which added support to AR and EQT’s stocks.
Meanwhile, the undersupply in the global gas market, higher prices, and lower production of its substitute (coal) could continue to keep natural gas prices elevated, noted Vincent Lovaglio of Mizuho Securities.
Lovaglio is bullish on Antero and EQT and expects these companies to generate strong cash flows and return solid cash to their shareholders.
Bottom Line
While the Freeport incident raises concerns, Antero and EQT are well-positioned to enhance their shareholders’ returns through share buybacks and dividend payments. Also, these companies are lowering their debt at an accelerated pace on the back of solid free cash flows.
During the Q1 conference call, EQT’s CEO Toby Rice stated, “We achieved several significant milestones during the first quarter, including attaining investment grade credit ratings, paying down all of our 2022 senior note maturities, repurchasing a significant amount of shares under our buyback authorization and returning cash to our shareholders through our recently instated base dividend.”
The company also raised its free cash flow outlook for 2022.
On TipRanks, EQT shares sport a Strong Buy consensus rating based on 12 Buy and two Hold recommendations. Meanwhile, the average EQT price target of $53.43 indicates 29.6% upside potential from current levels.
Like EQT, Antero is also paying down debt and buying back shares. It has received six Buy and two Hold recommendations for a Strong Buy consensus rating. Further, the average Antero price target of $46.50 indicates 19.4% upside potential.
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