We saw a bullish thesis on EQT Corporation (EQT) on ValueInvestorsClub by MTHD. We like VIC because the ideas on their site are generally posted by aspiring analysts who produce quality research. We find the ideas presented on the site well thought out and worthy of a serious look. Click here for the full article. Below we summarized the EQT bullish thesis:
Founded in 1888, the Pittsburgh, Pennsylvania- headquartered EQT is the largest and probably the oldest producer of natural gas in the USA. Company’s main businesses are hydrocarbon exploration and pipeline transportation. It has natural gas liquids and crude oil reserves across 1.3 million acres, and 17.5 trillion cubic feet of proven natural gas. EQT also owns about 25 million shares of Equitrans Midstream, currently valued around $240 million.
EQT has been working on deleveraging its oversized balance sheet ($5 billion) to reduce operating costs and maintenance capex. In 2020, the company was able to extend the maturity of its next sizeable debt to 2022 and most of its debt to 2025-2030 using the proceeds of new long-dated $2.25 billion convertible to pay off the maturities over the next two years. In the recent analysts call, EQT has hinted the current year free cash flow could be around $700 million that could be used to further reduce its debt. A sale of Equitrans Midstream shares could bring EQT closer to its 2021-yearend debt reduction target of $1 billion.
The recent rally in the natural gas prices off the depressed levels after 2018 peak should improve EBITDA. If price strength could sustain for another year, EQT could see its revenue overtake $4 billion. As per the latest filings, the company has hedged 50% of its gas production between $2.50 and $2.90 thereby giving it a soft moat. With debt reduction, higher cash flow, asset sale and better earnings, EQT has the potential to print $30 stock price, doubling its market cap. EQT shares currently trade at $18, giving it an upside potential of more than 65%.