On Tuesday, JPMorgan updated its stance on CNX Resources (NYSE:CNX), increasing the price target to $32 from $27, while maintaining a Neutral rating on the stock. The firm's analyst noted that CNX Resources shares have surged by 75% year-to-date (YTD), outperforming the broader market indicated by the XOP's mere 1% increase YTD and an average 12% rise among natural gas peers.
The analyst attributed the stock's exceptional performance to the market's valuation of CNX's emerging technology business. Specifically, the potential for CNX to capitalize on additional coal mine methane (CMM) production if it is accepted as a qualifying feedstock for 45-V credits, which are related to hydrogen production. Although the latest Department of Energy regulations did not include CMM, CNX is actively lobbying for its inclusion and is waiting for final regulatory decisions.
CNX has forecasted a production of 15-18 billion cubic feet (Bcf) of CMM in fiscal year 2024, which is consistent with the 2023 production level and represents approximately 3% of the company’s total volumes. The anticipated free cash flow (FCF) from new technology operations is expected to be around $75 million, driven by the credits from CMM production. However, CNX has not yet provided details on the potential to capture additional CMM or the capital costs involved, which is information that investors and analysts are keen to understand.
Looking ahead, JPMorgan is also interested in updates regarding CNX’s other technological initiatives. The company has indicated that its AutoSep technology will start providing flowback services to third-party customers in the second half of 2024. Additionally, CNX's compressed natural gas (CNG) business has already started delivering gas to its first third-party customer since July. The firm is closely watching these developments for further insight into CNX's growth trajectory and the impact of its new tech business on its financials.
In other recent news, CNX Resources has been the subject of significant developments. Piper Sandler recently downgraded CNX Resources stock from a Neutral to an Underweight rating, citing a reassessment of long-term natural gas price expectations. The firm also adjusted its price target for CNX Resources to $20.00, down from the previous target of $22.00.
CNX Resources' second-quarter results exceeded consensus estimates despite higher capital expenditures and reduced volumes. The company also confirmed its full-year 2024 production guidance and maintained its capital expenditure budget between $525 million and $575 million. CNX Resources expects to generate $75 million of New Tech Free Cash Flow for the full year, supported by current market conditions and production of 15-18 billion cubic feet of coalbed methane.
The company's Q2 2024 Earnings Conference Call revealed a revenue increase driven by environmental attribute sales and water revenue. The New Tech division's volume met yearly projections at 4.5 Bcf, and it is expected to significantly contribute to future revenue and cash flows. Additionally, CNX Resources has initiated third-party CNG sales and anticipates guidance for the 45V hydrogen tax credit in the coming months.
InvestingPro Insights
CNX Resources' recent performance aligns with several key metrics and insights from InvestingPro. The stock's 75% year-to-date increase, as mentioned in the article, is precisely reflected in InvestingPro's data, which shows a 75.25% YTD price total return. This exceptional performance is further supported by strong returns over various timeframes, including a 28.2% increase over the last month and a 47.39% gain over the past six months.
InvestingPro Tips highlight that CNX is trading near its 52-week high, with the current price at 94.83% of its 52-week peak. This corroborates the stock's strong momentum discussed in the JPMorgan analysis. Additionally, the company's profitability over the last twelve months, with a P/E ratio of 10.08, suggests that despite the significant price increase, the stock may still be reasonably valued relative to its earnings.
It's worth noting that while CNX has shown impressive returns, InvestingPro Tips also indicate that analysts anticipate a sales decline in the current year. This could be an important factor for investors to consider alongside the potential growth from CNX's emerging technology business and CMM production initiatives mentioned in the article.
For readers interested in a more comprehensive analysis, InvestingPro offers 13 additional tips for CNX Resources, providing a deeper understanding of the company's financial health and market position.
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