CNX: Cash Flow Stability And Gas Market Volatility Will Shape Outlook Ahead

Key Takeaways

• Increasing natural gas demand and new environmental revenue streams are set to boost CNX Resources' margins and long-term cash flow.
  
• Operational efficiencies and product diversification position the company for sustained, high-quality earnings and premium market opportunities.
  
• Regulatory uncertainty, speculative demand growth, and operational constraints create volatility in revenues and margins, while new expansion opportunities carry unproven long-term potential and cost competitiveness risks.

Catalysts

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

• Anticipated growth in power demand from AI-driven data centers and broader electrification is expected to materially increase in-basin natural gas consumption, which could provide long-term pricing support and bolster CNX Resources' revenue and cash flow.
  
• Favorable policy and regulatory shifts towards cleaner-burning natural gas-including programs like 45Z tax credits and renewable energy attribute markets-are creating new, high-margin revenue streams (e.g., RMG sales, environmental credits), potentially enhancing both net margins and free cash flow.
  
• Ongoing operational improvements, particularly efficiency gains and cost reductions in Utica and Marcellus wells, are lowering capital and operating expenditures per unit, supporting structurally higher margins and improved earnings sustainability over the long term.
  
• Strategic focus on capital discipline and share repurchases is set to drive higher earnings per share (EPS), potentially resulting in valuation re-rating as free cash flow generation grows.
  
• Expansion into differentiated products (RNG, blue hydrogen, carbon-linked derivatives) and flexible participation in voluntary and compliance environmental markets position CNX to capture diversified, premium-priced revenue streams, underpinning long-term top-line and earnings growth.

CNX Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CNX Resources's revenue will grow by 8.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.6% today to 36.7% in 3 years time.
• Analysts expect earnings to reach $859.1 million (and earnings per share of $4.76) by about September 2028, up from $155.7 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 5.6x 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 12.6x.
• Analysts expect the number of shares outstanding to decline by 5.26% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.92%, as per the Simply Wall St company report.

CNX Resources Future Earnings Per Share Growth

Risks

• The company's ability to fully realize anticipated tax credits (such as 45Z) and other environmental attribute revenues is subject to final regulatory rulemaking and eligibility uncertainties, creating risk to the predictability and sustainability of free cash flow and earnings.
  
• In-basin demand growth, such as from AI-driven data centers, remains speculative and contingent on a number of external factors like actual project construction and timing; this uncertainty may limit future demand uplift, resulting in sustained or depressed regional natural gas prices and impacting revenue.
  
• Ongoing capital discipline and running a one-rig program, coupled with sequencing of well turn-in-lines, results in periods of production decline and operational lulls, which could constrain scale benefits and create volatile quarterly revenues and net margins.
  
• Expansion into the Utica shale represents a promising growth avenue, but longer-term performance and repeatability of results remain unproven over broader acreage, increasing risk around future production volumes and the company's ability to keep costs competitive for sustainable earnings growth.
  
• Participation in voluntary or compliance environmental credit markets for products like RMG is dependent on evolving market values, regulatory regimes, and stackability limitations; changes in demand or rule interpretation could reduce realized attribute pricing, compressing forecasted margin and free cash flow improvement.

Valuation

• The analysts have a consensus price target of $31.692 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 $24.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.3 billion, earnings will come to $859.1 million, and it would be trading on a PE ratio of 5.6x, assuming you use a discount rate of 7.9%.
• Given the current share price of $29.1, the analyst price target of $31.69 is 8.2% 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.