On Wednesday, Barclays began coverage on Antero Resources (NYSE:AR), assigning the stock an Equal Weight rating and setting a price target of $32.00. The firm's analysis suggests that Antero Resources' cash flow is highly sensitive to fluctuations in gas prices, more so than other companies in their coverage due to several factors.
These include the absence of hedge protection, lower unhedged cash margins because of elevated gathering and transportation expenses, and direct exposure to Henry Hub-linked prices through its gas transportation agreements.
Antero Resources is noted for its significant exposure to natural gas liquids (NGLs), which make up approximately 50% of its revenue. This exposure, coupled with a higher realized gas differential from firm transportation agreements, lowers the company's unhedged NYMEX gas cash breakeven price to an estimated $2.20 per thousand cubic feet equivalent (Mcfe) in 2024.
This price is one of the lowest in the gas exploration and production (E&P) sector, surpassed only by Coterra Energy (NYSE:CTRA)'s Marcellus assets.
Despite these advantages, Barclays expresses concern over Antero Resources' long-term competitiveness, highlighting that the company's liquids-rich Marcellus inventory depth is below average, with only about ten years of inventory at its current maintenance pace.
This is contrasted with the longer inventory lifespans of its peers, Range Resources (NYSE:RRC) and Chesapeake Energy (NYSE:CHK), which have more than 30 and approximately 13 years respectively in their liquids windows.
The report also notes that while Antero Resources has been successful in replenishing its liquids inventory through organic land acquisition, ongoing efforts in this area will be necessary to maintain its competitive edge.
Additionally, the firm points out that Antero's shares are trading at a premium on enterprise value to EBITDA (EV/EBITDX) compared to diversified or oil-weighted exploration and production companies.
Barclays' price target of $32.00 for Antero Resources is derived from a blended target multiple of 6 times the firm's estimated 2025 enterprise value to EBITDA (EV/EBITDX) and 1 times net asset value (NAV).
This valuation reflects the current market expectations for gas prices, which are approximately $3.86 per million British thermal units (MMBtu), in line with the back end of the gas price curve.
InvestingPro Insights
As Antero Resources (NYSE:AR) garners attention with Barclays' recent coverage, current InvestingPro data and tips offer additional context for investors weighing the stock's potential. With a market capitalization of $9.18 billion and a trailing P/E ratio of 33.78, Antero Resources presents a significant presence in the sector. The company's revenue for the last twelve months as of Q4 2023 stands at $4.49 billion, although it has experienced a substantial revenue decline of 48.55% during the same period. Notably, the stock has achieved a strong return over the last three months, climbing 30.93%, and is trading near its 52-week high, at 96.99% of this peak.
Investors should consider two InvestingPro Tips that could influence their assessment of Antero Resources' prospects. Firstly, the stock is currently trading at a high earnings multiple, which may suggest it is priced optimistically relative to its earnings. Secondly, the stock's price movements have been quite volatile, a factor that risk-averse investors might need to take into account. For those seeking to delve deeper into Antero Resources' outlook, InvestingPro offers additional insights, including a total of 11 InvestingPro Tips. To access these valuable tips and make a more informed investment decision, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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