Appalachian Oversupply Will Squeeze Margins Though Data Centers Assist

Key Takeaways

• Structural decline in natural gas demand and rising renewables adoption threaten long-term revenue, cash flow, and pricing for CNX Resources.
  
• Regulatory, geographic, and competitive pressures increase cost, risk, and earnings volatility, limiting margin expansion and capital returns.
  
• Rising AI data center demand, operational efficiency, policy incentives, and low-carbon product innovation position CNX for margin expansion, diversified revenue, and resilient long-term growth.

Catalysts

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

• Accelerating global energy transition and stringent decarbonization initiatives are likely to erode long-term demand for natural gas, undermining CNX Resources' ability to grow revenue and sustain margins even as the company develops new demand channels like remediated mine gas for data centers.
  
• Increased adoption and cost competitiveness of renewable energy and direct electrification may result in a structural decline in natural gas usage, creating persistent downward pressure on natural gas prices and exposing CNX's earnings and free cash flow to prolonged headwinds.
  
• Heightened regulatory scrutiny and rapidly tightening methane and CO2 emission standards will add substantial compliance costs and operational risk for CNX, likely compressing net margins and requiring sustained capital allocation that reduces available free cash flow.
  
• Continued geographic concentration in the Appalachian Basin leaves CNX vulnerable to localized regulatory changes, infrastructure bottlenecks, and market access limitations, which could lead to unpredictable production volumes and more volatile revenues.
  
• Ongoing basin oversupply risks, especially given strong competition from Marcellus and Permian producers, may keep commodity prices depressed and extend periods of subpar industry profitability, undermining CNX's ability to meaningfully grow net income or return cash to shareholders.

CNX Resources Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on CNX Resources compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming CNX Resources's revenue will grow by 4.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 8.6% today to 36.5% in 3 years time.
• The bearish analysts expect earnings to reach $760.3 million (and earnings per share of $5.33) by about August 2028, up from $155.7 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 bearish analyst cohort, the company would need to trade at a PE ratio of 4.9x on those 2028 earnings, down from 26.4x today. This future PE is lower than the current PE for the US Oil and Gas industry at 13.2x.
• Analysts expect the number of shares outstanding to decline by 6.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.79%, as per the Simply Wall St company report.

CNX Resources Future Earnings Per Share Growth

Risks

• The rapid growth in AI-powered data centers, particularly in Appalachia, is creating substantial new in-basin demand for natural gas, which could lead to higher regional gas prices and directly boost CNX Resources' revenues and profitability over the long term.
  
• CNX's strategic focus on operational efficiency and cost reductions in both the core Marcellus and newer Utica plays has resulted in well performance exceeding expectations and declining development costs, supporting improved net margins and future earnings resilience.
  
• Government tax incentives such as the 45Z tax credit, along with state renewable energy credits, offer substantial incremental free cash flow for CNX Resources through at least 2029, supporting stronger cash flow generation and potentially higher shareholder returns.
  
• The company is leveraging its unique Remediated Mine Gas (RMG) product to access premium pricing in low-carbon and voluntary carbon markets, and is well positioned to benefit if sustainable energy solutions remain in high demand among tech sector clients, which could provide differentiated revenue streams and higher margins.
  
• Strong repeatability and competitiveness of new Utica well results, demonstrated with successful production and further potential cost improvements, expand CNX's inventory and could increase total production, supporting future revenue and EBITDA growth over the long term.

Valuation

• The assumed bearish price target for CNX Resources is $26.0, which represents the lowest price target estimate amongst analysts. 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 more bearish 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 $26.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $2.1 billion, earnings will come to $760.3 million, and it would be trading on a PE ratio of 4.9x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $29.03, the bearish analyst price target of $26.0 is 11.7% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.