Decarbonization Will Drive Natural Gas Expansion In Marcellus And Utica

Key Takeaways

• CNX Resources is positioned to benefit from rising regional natural gas demand, stronger pricing, and growing export opportunities due to energy market shifts.
  
• Operational discipline, technical improvements, and share buybacks support enhanced profitability, improved margins, and stronger earnings per share growth.
  
• CNX Resources faces significant long-term risks from regulatory pressures, energy transition trends, and investor sentiment, all threatening profitability and growth potential.

Catalysts

An independent natural gas and midstream company, engages in the acquisition, exploration, development, and production of natural gas properties in the Appalachian Basin.

• Growth in power generation and data center construction in the Southwest and Central Pennsylvania region is expected to drive a structural increase in local natural gas demand, shrinking regional price differentials and supporting stronger realized pricing for CNX Resources, which could directly boost future revenue growth.
  
• The global move toward decarbonization and energy security is elevating the value of domestic natural gas, positioning CNX Resources—operating in the prolific Marcellus and Utica Shales—to capitalize on rising demand and potentially benefit from export market growth, which may lead to higher volumes sold and increased revenue over time.
  
• The company’s operational flexibility and disciplined focus on maximizing free cash flow per share, rather than simply pursuing production growth, enables CNX to dynamically allocate capital and optimize profitability, likely supporting higher earnings and net margin expansion as market conditions evolve.
  
• Continued technological improvement and superior well performance, as evidenced by recent Apex wells outperforming expectations, signal improved resource recovery and efficiency, which can bolster production capacity while reducing per-unit costs, translating into better operating margins and cash flows.
  
• Aggressive share repurchases at current valuation levels indicate management’s confidence in the company’s intrinsic value and ability to generate excess cash, setting CNX up for outsized earnings per share growth as buybacks reduce share count and amplify the impact of operational improvements.

CNX Resources Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on CNX Resources compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming CNX Resources's revenue will grow by 17.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -18.7% today to 40.9% in 3 years time.
• The bullish analysts expect earnings to reach $1.0 billion (and earnings per share of $8.6) by about July 2028, up from $-295.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 6.0x on those 2028 earnings, up from -16.4x today. This future PE is lower than the current PE for the US Oil and Gas industry at 12.3x.
• Analysts expect the number of shares outstanding to decline by 4.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.14%, as per the Simply Wall St company report.

CNX Resources Future Earnings Per Share Growth

Risks

• The company’s geographic concentration in the Appalachian Basin exposes it to region-specific regulatory and commodity price risks, which could increase volatility in earnings and constrain potential revenue growth over time.
  
• Long-term global decarbonization trends and escalating policy mandates such as carbon taxes and stricter emissions limits threaten to erode demand for natural gas and pressure realized pricing, potentially reducing both revenues and net margins for CNX Resources.
  
• The rapid adoption and declining costs of renewable energy technologies like solar, wind, and battery storage increases the risk that natural gas-fired generation will be displaced in key markets, placing long-term pressure on CNX’s volumes and revenue.
  
• Rising compliance costs and regulatory scrutiny aimed at methane emissions and flaring, especially at legacy coalbed methane and shale operations, may drive up operating expenses and result in one-time charges, negatively impacting net profits and overall margins.
  
• Heightened ESG-focused investor activism and broad industry divestment trends could raise CNX’s cost of capital and place sustained downward pressure on valuation multiples, which may depress share price appreciation over the long term.

Valuation

• The assumed bullish price target for CNX Resources is $40.3, which represents two standard deviations above the consensus price target of $32.15. This valuation is based on what can be assumed as the expectations of CNX Resources's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $41.0, and the most bearish reporting a price target of just $25.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $2.5 billion, earnings will come to $1.0 billion, and it would be trading on a PE ratio of 6.0x, assuming you use a discount rate of 7.1%.
• Given the current share price of $33.35, the bullish analyst price target of $40.3 is 17.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.