On Thursday, Citi upgraded EQT Corp. (NYSE:EQT (ST:EQTAB)) stock, the largest natural gas producer in the United States, from Neutral to Buy, increasing the price target to $44 from the previous $37. This move comes amid expectations of a tightening U.S. gas market by 2025, according to insights from Citi Commodities.
The upgrade reflects a positive outlook on low-cost producers in the energy sector, with EQT Corp. positioned to benefit from several catalysts. Citi anticipates that EQT will experience growth through asset sales and debt reduction in the short term, as well as improved base decline rates and lower maintenance capital expenditures in the longer term.
Citi's analysis suggests that even a modest reallocation of market capital from large-cap oil companies, excluding International Oil Companies (IOCs), to a smaller number of large-cap U.S. gas stocks could have a significant impact. With a market capitalization of less than $40 billion among U.S. gas companies, a shift from the larger $325 billion oil market cap could be meaningful for companies like EQT.
The financial firm also points to EQT's potential for high cash conversion, given its scale within the industry. Citi believes that EQT is capable of trading at an 8% free cash flow yield based on normalized gas prices, which are projected to be around $3.50.
This upgrade and price target adjustment by Citi reflect a broader sentiment that, despite potential weakening in oil fundamentals and ongoing geopolitical risks, certain segments of the energy market, particularly those involving low-cost gas producers, are poised for growth. EQT Corp.'s strategic position within this market segment appears to align with Citi's criteria for a stock with strong upside potential.
In other recent news, EQT Corporation (NYSE:EQT) has announced a significant workforce reduction following its acquisition of Equitrans Midstream (NYSE:ETRN) Corporation. The move is part of an integration process and is expected to result in a 15% cut in the company's employee base. This reduction will lead to pre-tax charges between $165 million to $185 million, largely due to severance and termination benefits. The majority of these expenses are projected to be recorded in the third quarter of 2024.
EQT Corporation's actions are aimed at eliminating roughly $80 million in annualized general and administrative costs. JPMorgan has raised its price target on EQT Corp, maintaining an Overweight rating due to confidence in the company's deleveraging strategy. The firm expects EQT to successfully complete the sales of its non-operational exploration and production assets and regulated midstream assets by year-end, generating approximately $4.5 billion in cash.
Concurrently, Wells Fargo upgraded EQT Corp's stock from Equal Weight to Overweight, following the successful merger with Equitrans and the company's strong quarterly performance. Piper Sandler adjusted its stance on EQT Corp from Overweight to Neutral, reflecting changes in long-term natural gas price assumptions. In response to falling natural gas prices, EQT Corp has planned strategic curtailments of approximately 90 billion cubic feet equivalent this fall. These are the latest developments for EQT Corporation.
InvestingPro Insights
To complement Citi's bullish outlook on EQT Corp. (NYSE:EQT), recent data from InvestingPro provides additional context for investors. Despite the challenging market conditions highlighted in the article, EQT has maintained profitability over the last twelve months, with a P/E ratio of 22.08. This suggests that while the company is trading at a relatively high earnings multiple, it continues to generate profits in a volatile energy market.
An InvestingPro Tip indicates that EQT operates with a moderate level of debt, which could be seen as a positive factor in light of Citi's expectation for debt reduction in the short term. This aligns with the company's potential for improved financial health and flexibility to capitalize on market opportunities.
Another relevant InvestingPro Tip notes that EQT has shown a strong return over the last five years, which supports Citi's view on the company's potential for growth and its ability to benefit from industry trends. This long-term performance metric may provide additional confidence to investors considering EQT as a buy opportunity.
For readers interested in a more comprehensive analysis, InvestingPro offers 7 additional tips that could further inform investment decisions regarding EQT Corp.
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