On Monday, Mizuho (NYSE:MFG) Securities adjusted its stance on CNX Resources (NYSE:NYSE:CNX), downgrading the stock from Neutral to Underperform. The new price target set by the firm is $38.00, reflecting a cautious outlook on the company's New Business Ventures.
CNX Resources has been benefiting from approximately $75 million in annual EBITDA, primarily from Pennsylvania state credits linked to its Coal Mine Methane (CMM) production. These credits are currently valued similarly to other voluntary carbon abatement credits.
The company's attempts to qualify its CMM for 45V (Hydrogen) and 45Q (Carbon Capture) credits under the Inflation Reduction Act (IRA) have been a contributing factor to its robust performance.
However, Mizuho expressed skepticism about this inclusion in the near term, especially under a Trump administration. Additionally, CNX Resources has explored other revenue sources, such as its proprietary flowback (AutoSep) and CNG/LNG (ZeroHp CNG) technologies, but these have yet to generate significant third-party revenues.
Despite a roughly 15% increase in the net asset value (NAV)-based price target, Mizuho sees approximately 1% downside from the stock's current levels. The analysis indicates that CNX Resources is trading at a premium compared to its peers based on 2025/26 estimated EV/EBITDA multiples and offers a lower free cash flow to enterprise value ratio. Furthermore, the firm's year-end 2025 net debt to EBITDA ratio is projected to be higher than the peer average, prompting the downgrade.
Mizuho applied a 5x EV/EBITDA multiple to the company's current cash flows in their NAV calculation, which led to the updated price target. The report highlighted that while there may be potential for growth in the volume of CMM, it is likely to require capital investments that could be less competitive compared to the company's core gas drilling business.
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