Apex Wells And TILs Will Secure Future Gas Efficiency

Key Takeaways

• Strategic management of activities and financial liabilities aims to stabilize revenue while enhancing future earnings through tax deferrals and targeted production efficiency.
  
• Confidence in undervaluation leads to substantial stock buybacks, potentially boosting shareholder value and EPS by reducing outstanding shares.
  
• Volatility in gas prices and heavy reliance on hedging positions may limit CNX Resources' profit growth potential and impact financial stability amid shifting market conditions.

Catalysts

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

• CNX Resources is looking to maintain robust free cash flow per share by optimizing activities such as turn-in-lines (TILs), focusing on first-half completion activity and maintaining flexible activity levels depending on gas price volatility. This strategy could stabilize or increase revenue and earnings by maximizing production efficiency and cost management.
  
• The commitment to remain a de minimis cash taxpayer despite cash taxes paid suggests strategic management of financial liabilities and cash flow, potentially enhancing net margins and future earnings by deferring significant tax expenses until 2027/2028.
  
• The company has committed to substantial stock buybacks, spending $125 million in Q1. A continuation of this strategy reflects confidence in undervaluation, potentially increasing earnings per share (EPS) and shareholder value by reducing outstanding shares.
  
• CNX anticipates potentially increased in-basin demand driven by new power generation and data center developments, which could bolster future revenue by securing long-term demand for gas production and producing favorable pricing differentials.
  
• The successful performance of Apex wells exceeding expectations could catalyze increased production levels and improve overall revenue generation, enhancing the company’s growth prospects into 2026 and beyond.

CNX Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CNX Resources's revenue will grow by 15.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from -18.7% today to 42.7% in 3 years time.
• Analysts expect earnings to reach $1.0 billion (and earnings per share of $4.37) by about May 2028, up from $-295.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 4.3x on those 2028 earnings, up from -15.4x today. This future PE is lower than the current PE for the US Oil and Gas industry at 11.3x.
• Analysts expect the number of shares outstanding to decline by 5.56% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.91%, as per the Simply Wall St company report.

CNX Resources Future Earnings Per Share Growth

Risks

• The volatility in gas prices and the company’s decision-making timeline for potential activity adjustments could impact revenue stability and free cash flow if prices drop unexpectedly.
  
• Concerns about production decline in the second half of 2025 and into 2026 may affect future revenue and earnings potential if the production cannot be maintained at desired levels.
  
• The widening natural gas differentials and declining NYMEX and NGL pricing could challenge free cash flow projections, as only 15% of volumes remain exposed but still subject to market fluctuations.
  
• The reliance on large hedging positions (85%) to manage price volatility limits the company's ability to capitalize on favorable market movements for uncovered volumes, potentially impacting net margins and profit growth.
  
• With cash taxes potentially increasing slightly due to state taxes and deferred taxes arising from hedging, net margins and overall financial health might face pressures, affecting earnings stability.

Valuation

• The analysts have a consensus price target of $30.417 for CNX Resources based on their expectations of its future earnings growth, profit margins and other risk factors. 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 $21.0.
• In order for you to agree with the analyst's consensus, 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 4.3x, assuming you use a discount rate of 6.9%.
• Given the current share price of $31.44, the analyst price target of $30.42 is 3.4% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.