EQT Reiterated at Neutral - Analyst Blog


We maintained our recommendation on EQT Corporation ( EQT ) at Neutral on Nov 6, 2013. The company's increased drilling and investment in the deeper Marcellus gas shale play will stand as the main growth driver. However, we remain worried about susceptibility of the company to erratic energy sector fundamentals and its lack of a well diversified asset portfolio that would result in operational hindrances. EQT carries a Zacks Rank #3 (Hold).

Why the Downgrade?

EQT, an integrated energy company, is a low-cost producer with a strategic midstream presence. The company's superior cost structure and above-average growth may ease concerns related to struggling natural gas prices.

EQT increased its 2013 production sales volume guidance to 366 Bcfe from its earlier guidance of 360-365 Bcfe, representing an estimated 42% rise year over year. We expect EQT to exceed its guidance, aided by the low-risk and high-growth drilling locations in the Marcellus Shale, where sales volume more than doubled year over year in the first half of 2013.

The company has also initiated 2014 production expectations at 445 Bcfe, representing an estimated 22% rise year over year, taking the mid-point of the guided range. The Marcellus is expected to remain EQT's esteemed asset and a potential Upper Devonian/Utica program will likely complement its growth.

We remain optimistic on EQT's strategy of divesting the expensive yet less profitable assets and concentrate on more cost-effective and lucrative investment opportunities. EQT's move to sell its gas distribution utility sale to privately held Peoples Natural Gas for $720 million and the transfer of certain pipeline assets owned by Peoples are also in sync with its strategic focus to become a production and pipeline energy company beyond 2013.

However, EQT remains highly exposed to volatile natural gas fundamentals and weak commodity prices, which might result in a lower-than-expected performance. EQT's various multilateral drilling programs across its oil and gas fields face operational headwinds, such as rising service costs, completion delays and equipment failure.

Other Stocks to Consider

While we prefer to remain on the sidelines for EQT, Zacks Ranked #1 (Strong Buy) stocks - SM Energy Company ( SM ), Western Gas Partners LP ( WES ) and Abraxas Petroleum Corp. ( AXAS ) - could be good buying options for the short term.

ABRAXAS PETE/NV (AXAS): Free Stock Analysis Report

EQT CORP (EQT): Free Stock Analysis Report

SM ENERGY CO (SM): Free Stock Analysis Report

WESTERN GAS PTR (WES): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: AXAS , EQT , SM , WES



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