Future Earnings Will Decline Due To Operational And Regulatory Uncertainties

Key Takeaways

• Uncertainty in capital expenditure, production volumes, and regulatory clarity could lead to volatile revenue growth and impact potential new revenue streams.
  
• Strategic caution and focus on internal operations might slow near-term revenue and diversification opportunities, affecting earnings growth expectations.
  
• Exploring new technologies and environmental markets, improving drilling efficiency, and disciplined capital allocation could enhance earnings, diversify revenue, and stabilize investor returns.

Catalysts

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

• Uncertainty around capital expenditure and production volumes for 2025 may indicate potential volatility in future revenue growth, as decisions will depend on gas prices and other market conditions.
  
• Delays in regulatory clarity for programs like 45V and 45Q create uncertainty for potential revenue streams and cost offsets associated with coal mine methane capture and possible tax incentives.
  
• The deferral of turn-in-line schedules to 2025 suggests potential operational hurdles or strategic caution, which may slow near-term revenue and impact earnings growth expectations.
  
• The focus on expanding AutoSep operations primarily for internal use could limit immediate third-party revenue opportunities, impacting near-term earnings from possible diversification.
  
• Dependence on future infrastructure needs and pricing conditions for expanding prolific plays like deep Utica may lead to irregularities in scaling production, affecting revenue and earnings predictability.

CNX Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CNX Resources's revenue will grow by 24.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 41.5% today to 20.2% in 3 years time.
• Analysts expect earnings to reach $540.1 million (and earnings per share of $3.16) by about January 2028, down from $568.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $378 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.2x on those 2028 earnings, up from 7.7x today. This future PE is lower than the current PE for the US Oil and Gas industry at 12.6x.
• Analysts expect the number of shares outstanding to grow by 4.62% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.21%, as per the Simply Wall St company report.

CNX Resources Future Earnings Per Share Growth

Risks

• CNX Resources is exploring new technologies and environmental markets, such as AutoSep and coal mine methane (CMM) capture. Success in these ventures could diversify revenue streams and increase earnings.
  
• The company has significant flexibility in capital expenditures and could adjust production based on gas pricing trends, potentially stabilizing revenue and net margins even with fluctuating market conditions.
  
• CNX Resources has enhanced drilling efficiency in the deep Utica play, reducing costs significantly. This improved cost structure might positively impact net margins and profitability.
  
• The potential availability of tax credits under the 45Q and 45V programs could create substantial financial incentives, enhancing earnings and improving overall financial performance.
  
• The company continues to execute a disciplined capital allocation process, including share buybacks, suggesting a confidence in long-term value, which could support share price stability and improve overall investor returns.

Valuation

• The analysts have a consensus price target of $30.62 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 $35.0, and the most bearish reporting a price target of just $23.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.7 billion, earnings will come to $540.1 million, and it would be trading on a PE ratio of 12.2x, assuming you use a discount rate of 8.2%.
• Given the current share price of $29.25, the analyst's price target of $30.62 is 4.5% higher. 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.