On Thursday, Piper Sandler adjusted its stance on CNX Resources (NYSE:CNX) stock, moving from a Neutral to an Underweight rating. The firm also revised its price target for CNX Resources to $20.00, a decrease from the previous target of $22.00. The action follows a reassessment of long-term natural gas price expectations, now set at $3.25, down from $4.00.
CNX Resources recently posted second-quarter results that surpassed consensus estimates despite increased capital expenditures and reduced volumes. The company has confirmed its full-year 2024 production guidance, albeit with a narrower range, while maintaining its capital expenditure budget between $525 million and $575 million. Notably, 58% of the year's midpoint capital expenditure was allocated in the first half of 2024.
The firm has also reiterated its fiscal year 2025 plan, which anticipates an additional $50 million in spending above the maintenance level of $500 million. This investment would be used to complete 11 deferred drilled but uncompleted (DUC) locations, aiming to achieve a production target of 580 billion cubic feet equivalent (bcfe) for the year.
In the second quarter of 2024, CNX generated $21 million of New Tech Free Cash Flow and stands by its forecast to reach $75 million for the full year, supported by the current market conditions and production of 15-18 billion cubic feet of coalbed methane (CBM).
Despite the downgrade, CNX Resources has demonstrated defensive qualities, outperforming its gas peers year-to-date. This is partly due to a robust hedging strategy, with 88% of its projected gas for the second half of 2024 hedged at $2.94, and 75% for fiscal year 2025 at $2.75.
However, concerns linger regarding the duration and long-term reinvestment opportunities in the Appalachian region. Piper Sandler projects the company's leverage ratio to increase to 2.8 times by the end of 2025, up from 2.7 times at the end of 2024.
In other recent news, CNX Resources Corporation held its Q2 2024 Earnings Conference Call, highlighting a revenue increase driven by environmental attribute sales and water revenue. The company's 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.
Other significant developments include the initiation of third-party CNG sales and an anticipation of guidance for the 45V hydrogen tax credit in the coming months.
Despite these developments, CNX Resources did not provide specific details on the performance and costs of the deep Utica wells, deferring this to future quarters. The company also noted that the impact of third-party CNG sales on 2024 revenue is not expected to be significant.
However, the company remains optimistic about its strategic plan, maintaining balance in its operations, and adopting a cautious approach to future production growth and capital investments. These are among the recent developments in the company's strategic outlook.
InvestingPro Insights
Following Piper Sandler's recent adjustment of CNX Resources' rating and price target, it's worth noting some key metrics and insights from InvestingPro that may provide additional context for investors. CNX Resources currently holds a market capitalization of approximately $3.98 billion and trades at a price-to-earnings (P/E) ratio of 7.85, which reflects its profitability relative to its share price. The company's shares are trading near their 52-week high, with a price 96.41% of the peak, indicating a strong recent performance.
InvestingPro Tips suggest that management's aggressive share buyback strategy could be a sign of confidence in the company's value. Additionally, CNX Resources has experienced a notable price uptick over the last six months, with a 31.88% total return, which aligns with the firm's outperformance mentioned in the article. However, analysts have tempered expectations, predicting a sales decline for the current year and revising earnings downwards for the upcoming period.
For investors seeking a deeper analysis, InvestingPro offers additional tips, with 12 more insights available for CNX Resources, including expectations on profitability and liquidity concerns. These additional tips can be found at https://www.investing.com/pro/CNX and may help investors make more informed decisions in light of the recent rating downgrade and the company's financial outlook.
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