On Wednesday, analyst firm Bernstein revised its rating on EQT Corporation (NYSE:EQT (ST:EQTAB)) stock, shifting from an Underperform to a Market Perform stance, with a new price target set to $34.00, up from the previous $27.00. The updated outlook reflects a change in the market conditions that previously underpinned a more bearish view.
Bernstein's earlier skepticism was based on three key concerns: a bearish outlook on gas prices, negative expectations for in-basin pricing, and the anticipated negative impact of the Mountain Valley Pipeline (MVP) startup costs. These factors, according to the firm, have largely manifested over the past six months. However, the medium-term commodity prices did not impact gas equity valuations as much as anticipated.
Two primary factors prompted the upgrade to Market Perform. Initially, the Marcellus production cuts have favored in-basin pricing, with the basis outlooks improving since these cuts were announced. The firm also suggests that the upcoming earnings season might lead to further production cuts, which were previously well-received by investors.
Another significant consideration is the growing investor interest in AI/data center demand, which has become a top concern in recent discussions. While data center demand is not expected to drastically drive gas prices, its geographic concentration, particularly in Ohio and Northern Virginia, could influence in-basin pricing and MVP-related costs over an extended period.
Bernstein notes that third-party estimates project Northern Virginia data center power additions could range between 0.3 to 1 billion cubic feet per day by 2032. Although the Transco pipeline is the primary direct connection to this demand, EQT could benefit significantly from better uplift and potential connections to MVP Southgate and MVPX.
The firm acknowledges that while the outcomes are uncertain and may take time to materialize, EQT could be positioned as a winner if the AI revolution unfolds as some predict.
InvestingPro Insights
In light of Bernstein's rating upgrade on EQT Corporation, recent data from InvestingPro offers additional context for investors considering EQT's stock. The company's market cap stands at a robust $16.73 billion, with a P/E ratio of 8.23, indicating a potentially attractive valuation relative to earnings. This is further substantiated by an adjusted P/E ratio for the last twelve months as of Q4 2023 at 8.86. Despite a significant revenue decline over the last year, EQT has maintained a high gross profit margin of 53.44%, reflecting efficient cost management.
InvestingPro Tips highlight that while 10 analysts have revised their earnings estimates downwards for the upcoming period, there is still an expectation of profitability this year, which is consistent with the company's performance over the past twelve months. This juxtaposition of analyst sentiment and historical profitability suggests that investors should keep a close eye on upcoming earnings reports and management guidance to gauge the company's trajectory.
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