On Wednesday, JPMorgan upgraded Antero Resources (NYSE:AR), a company specializing in natural gas and natural gas liquids (NGLs), shifting its stock rating from Neutral to Overweight. The firm also increased the price target for Antero Resources to $30.00, up from the previous $27.00.
The upgrade reflects JPMorgan's confidence in Antero Resources' positioning in the event of a stronger natural gas and NGL pricing environment. The company's low gas price breakeven and minimal hedging for 2024 and beyond make it a favorable choice for investors, according to the firm. Antero Resources is expected to leverage improving natural gas fundamentals in 2025 and maintain positive momentum in the field.
Antero Resources' stock is seen as having a compelling relative valuation at current pricing. JPMorgan anticipates a favorable risk-reward setup for the stock in 2025, citing potential upside in gas pricing next year. This outlook is based on a more bullish view of 2025 natural gas fundamentals following the industry supply response and the anticipated startup of significant new liquefied natural gas (LNG) capacity.
The company is also poised to benefit from premium pricing due to its firm transportation exposure to the LNG corridor, where it can market approximately 75% of its net gas production.
Additionally, Antero Resources expects propane pricing tailwinds in 2024 for Marcus Hook supply, as expansions of Gulf Coast export capacity are not expected to be completed until 2025. This scenario supports strong international demand for Marcus Hook propane barrels and premium pricing compared to Mont Belvieu.
JPMorgan concludes that this backdrop could result in a differentiated free cash flow (FCF) profile for Antero Resources next year, which would support deleveraging efforts, the addressing of near-term maturities, and buybacks under the company's cash return framework.
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