Natural gas prices are currently hovering near three-year highs, driven by the rising demand in the recent quarters and limited drilling and production activities. The front-month futures gas prices (delivered at Henry Hub) hit $3.95 per British thermal unit on July 22.
An unprecedented heat wave across the United States this summer has increased the demand for energy due to increased usage of air conditioning units.. The markets are expected to remain undersupplied until the end of next winter, as the March 22 gas premium over April futures were hovering near record $0.629 highs as of July 23.
Given the tight supply conditions and market levels, natural gas prices are likely to remain in contango in the near term. Thus, Wall Street analysts expect popular natural gas stocks EQT Corporation (EQT) and Cabot Oil & Gas Corporation (COG) to rally more than 25% in the near term.
EQT Corporation (EQT)
EQT is a natural gas production company that is based in Pittsburgh, Pa. and operates through the Appalachian Basin. The company has an ISS Governance QualityScore of 1, indicating minimal governance risk.
EQT’s total sales volume increased 21.7% year-over-year to $421 million in its fiscal second quarter, ended June 30, 2021. Its non-GAAP adjusted EBITDA increased 33.2% from the same period last year to $445 million. Its non-GAAP adjusted net income stood at $20 million, reflecting a 144.4% improvement from its negative year-ago value. And its non-GAAP adjusted EPS increased 138.9% from the prior-year quarter to $0.07, beating the $0.03 consensus estimate.
EQT is committed to reducing its carbon footprint. For example, on June 23, the company joined the Oil & Gas Methane Partnership 2.0 initiative to deploy a modernized approach and best available technology to reduce emissions during the exploration and production of natural gas. This should de-risk long-term demand and increase its access to domestic and global markets.
A $4.37 billion consensus revenue estimate for its fiscal year 2021 indicates a 23% improvement year-over-year. Analysts expect EQT’s EPS to rise 478.9% year-over-year to $0.72 in the current year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. EQT has gained 50.1% over the past year and 63.3% year-to-date.
Of the 12 Wall Street analysts that rated the stock, 10 rated it Buy while two rated it Hold. The $26.67 12-month median price target indicates a 28.5% potential upside from yesterday’s $20.75 closing price. The price targets range from a low of $24.00 to a high of $33.00.
Cabot Oil & Gas Corporation (COG)
COG is an independent oil and gas exploration company that focuses on Marcellus shale. The Houston, Tex., company’s integrated operations include production, marketing, and crude oil to industrial customers and local distributors.
For the fiscal first quarter, ended March 31, COG’s net revenues increased 18.9% year-over-year to $459.68 million. This can be attributed to a 27.7% rise in natural gas revenues. Income from operations rose 103.1% from the same period last year to $175.44 million, while net income improved 134.4% from the prior-year quarter to $126.35 million. Its EPS came in at $0.32, up 128.6% from the year-ago value.
Also, COG has increased its quarterly dividends by 10% in the first quarter to $0.11, marking its sixth dividend increase since May 2017.
On May 24, COG agreed to combine its operations with Cimarex Energy Co. in an all-stock merger of equals. With a $17 billion enterprise value, the merger is expected to create a free cash flow-focused diversified energy company that can thrive across commodity price cycles.
The Street expects COG’s revenues and EPS to rise 47.4% and 520%, respectively, year-over-year to $447.14 million and $0.31 in the about-to-be-reported quarter (ended June 2021). Furthermore, COG surpassed consensus EPS estimates in each of the trailing four quarters. COG has gained 3.8% since hitting its 52-week low of $15.28 on June 18.
Of the eight Wall Street analysts that rated COG, three rated it Buy, while four rated it Hold, and one rated it Sell. The $21.71 12-month median price target indicates a 36.9% potential upside from yesterday’s closing price of $15.86. The price targets range from a low of $18.00 to a high of $25.00.
EQT shares were trading at $18.59 per share on Thursday afternoon, down $2.16 (-10.41%). Year-to-date, EQT has gained 46.26%, versus a 18.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More…
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