Uncertain Markets And Regulatory Delays Threaten New Tech Growth And Profit Margins

Key Takeaways

• Uncertainty in capital expenditure and regulatory programs may hinder production volumes and New Tech sector growth, affecting future revenues and margins.
  
• Dependence on volatile natural gas pricing and inefficiencies in stock buybacks could impact operating revenues and earnings per share growth.
  
• CNX Resources' adaptive production strategy, cost improvements, and strategic capital allocation position it for revenue growth and enhanced financial stability.

Catalysts

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

• The removal of CNX Resources' 2025 capital expenditure guidance may indicate uncertainty or fluctuations in projected production volumes, which could impact future revenue streams if the company scales back its activities in response to pricing.
  
• The potential delay and uncertainty around the regulatory clarity for 45V and 45Q programs can affect growth in the New Tech sector, impacting future revenues and net margins due to possible missed opportunities in capturing additional coal mine methane or CO2 sequestration.
  
• The shift of some operational activities, such as the AutoSep project, to future periods suggests potential delays in realizing expected efficiencies and revenues, which may impact short-term earnings growth negatively.
  
• The high dependency on future natural gas pricing for determining production levels introduces a risk that could adversely affect future operating revenues and margins, given market volatility and potential price weaknesses.
  
• If the company's stock buyback program is continued at higher stock price levels, it might not be seen as an efficient allocation of capital, possibly impacting earnings per share growth negatively as the share count decreases less effectively.

CNX Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CNX Resources's revenue will grow by 18.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 41.5% today to 16.7% in 3 years time.
• Analysts expect earnings to reach $377.8 million (and earnings per share of $2.1) by about October 2027, down from $568.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $499 million in earnings, and the most bearish expecting $315 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.7x on those 2027 earnings, up from 9.2x today. This future PE is greater than the current PE for the US Oil and Gas industry at 10.8x.
• Analysts expect the number of shares outstanding to grow by 6.43% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 7.9%, as per the Simply Wall St company report.

CNX Resources Future Earnings Per Share Growth

Risks

• CNX Resources has significant flexibility in its production profile with deferred 11 DUCs, meaning it can adjust production based on favorable gas pricing, potentially stabilizing or increasing revenue.
  
• The New Tech segment, particularly the AutoSep program, has shown strong customer interest and potential for expansion, indicating an avenue for revenue growth despite being in the early stages.
  
• There are multiple pathways being explored for capturing coal mine methane (CMM), including opportunities under ATS, 45V for hydrogen generation, and 45Q for CO2 sequestration, which could enhance future cash flows and revenue.
  
• The cost improvements in the deep Utica play, with significant reductions in drilling costs, allow it to compete favorably with existing plays like Marcellus, which could positively impact net margins.
  
• CNX's capital allocation process is consistent and adaptable, allowing for strategic decisions such as buybacks or potential M&A opportunities that can strengthen earnings and overall financial stability.

Valuation

• The analysts have a consensus price target of $29.82 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 $20.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $2.3 billion, earnings will come to $377.8 million, and it would be trading on a PE ratio of 17.7x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of $35.05, the analyst's price target of $29.82 is 17.5% lower.
  
• 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.