On Wednesday, JPMorgan (NYSE:JPM) adjusted its stance on EQT Corp. (NYSE:EQT (ST:EQTAB)), the largest U.S. gas producer, moving from an 'Overweight' to a 'Neutral' rating. The firm also revised its price target to $37.00 from the previous $39.00. The revision comes amidst EQT's recent strategic moves, including the completion of its acquisition of Tug Hill and XcL Midstream in August 2023 and a significant merger with ETRN announced in March 2024.
The merger with ETRN, valued at $12.50 per share, includes the assumption of approximately $7.5 billion in debt. This move is seen as a step by EQT to consolidate its operations and reduce costs in anticipation of potential market volatility.
While management has indicated plans to deleverage by more than $5 billion within 12-18 months through free cash flow (FCF) generation and asset sales, this deal is expected to delay any potential shareholder cash returns, such as buybacks, until the company achieves its long-term debt target of around $7.5 billion.
JPMorgan has expressed concerns that the timing of EQT's merger might lead to a diversion of funds from the stock, given the usual market turbulence associated with large-scale mergers and acquisitions. There is also uncertainty about how investors will react to EQT's shift towards an integrated business model, as there is a general preference for pure-play companies in the market.
Despite these concerns, JPMorgan maintains a positive long-term outlook on the transaction. The firm anticipates that EQT could significantly lower its long-term NYMEX breakeven gas price to below $2.00 per Mcfe from approximately $2.55 per Mcfe today, particularly if the company successfully realizes its deleveraging and synergy capture goals. Against this backdrop, the 'Neutral' rating reflects a cautious yet optimistic view of EQT's future performance.
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