On Wednesday, Wolfe Research raised its rating on shares of Antero Resources (NYSE:AR), moving from Peer Perform to Outperform with a price target of $37.00. The firm's decision came after a notable pullback in the stock's value, which saw a nearly 16% decline since their initial coverage began on July 17.
The research firm highlighted that the current stock price now factors in the near-term risks associated with gas prices. They foresee an improved gas market outlook for 2025, which, combined with Antero Resources' low portfolio breakeven costs and robust balance sheet, presents an attractive risk-reward scenario for investors.
Antero's portfolio is seen as having significant advantages, particularly with 75% of its direct exposure to liquefied natural gas (LNG) hub pricing and half of its C3+ volumes tied to international indices. These indices are currently about 30% higher than Mont Belvieu prices, suggesting a buffer against gas and natural gas liquids (NGL) price volatility.
Wolfe Research's analysis points to a sector-low breakeven cost of $1.90 per thousand cubic feet (mcf) for Antero Resources. With a ten-year inventory, the firm believes that a fair value of around $37 per share is justifiable, representing competitive upside when compared to other top gas companies like CHK and EQT (ST:EQTAB).
In other recent news, Antero Resources has reported substantial operational efficiency gains and robust well performance during its Q2 2024 earnings call. The company set a record in drilling and completion efficiencies, outperforming peers in well productivity by 24%. Despite the current soft natural gas pricing, Antero anticipates a tightening of inventories and a rise in prices starting in 2025, supported by low rig counts and growing demand.
Antero Resources has also managed to reduce its debt by $2 billion since 2019, a development that has earned it an investment-grade credit rating. These are recent developments that suggest Antero's strategic positioning in anticipation of favorable market shifts. The company has maintained its ethane production guidance and expects annual production between 3.375 to 3.425 Bcfe.
In addition, Roth/MKM has backed Antero Resources shares with a Buy rating, highlighting the company's consistent performance and its potential to benefit from an anticipated recovery in natural gas prices.
The firm's price target for Antero Resources is based on a multiple of 7.2x the firm's 2025 Debt Adjusted Cash Flow (DACF) estimate, which stands at $1.64 billion. Finally, Antero is considering the deployment of an e-fleet, which may become the main base fleet if it performs well.
InvestingPro Insights
In line with Wolfe Research's optimistic view on Antero Resources (NYSE:AR), real-time data from InvestingPro further enriches the investment narrative. The company's market capitalization stands at $7.85 billion, signaling a substantial presence in the sector. Despite a high P/E ratio of 91.76, indicating a premium market valuation, Antero Resources has demonstrated profitability over the last twelve months. This profitability aligns with analysts' expectations that the company will remain profitable this year.
InvestingPro Tips suggest caution due to Antero Resources operating with a significant debt burden and trading at a high EBIT valuation multiple. Additionally, the company's stock price has been quite volatile, with a 28.61% decline over the last three months, which may have contributed to the recent downgrade by analysts. However, the company's strong return over the last five years and the fact that it does not pay a dividend, reinvesting earnings back into operations instead, could be seen as a sign of a growth-focused strategy.
For those considering Antero Resources as a potential investment, there are many more InvestingPro Tips available that can provide deeper insights into the company's financial health and future prospects. For instance, there are additional tips on the company's liquidity position and earnings revisions, which could be crucial for making an informed decision.
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