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On Tuesday, JPMorgan analyst Arun Jayaram increased the price target on Antero Resources (NYSE:AR) shares to $38.00 from the previous $36.00, while maintaining an Overweight rating on the stock. The stock, currently trading at $38.30, is approaching its 52-week high of $39.43, having delivered an impressive 63.33% return over the past year.
According to InvestingPro analysis, the stock's RSI suggests it's in overbought territory. Jayaram expects a solid operational performance from the company in the fourth quarter of 2024, with production volumes in line with the Street estimates (STe) but with slightly higher capital expenditure due to the timing of completions.
Antero Resources had previously announced the delay of a 5-well dry gas pad from the third to the fourth quarter, and then potentially to 2025, citing weak gas prices. However, with an increase in strip pricing over December, the analyst believes that the company likely completed the pad before the end of the year. This assumption has led to a total capital expenditure estimate for fiscal year 2024 of $749 million, which is slightly above the Street's estimate of $742 million.
For the fourth quarter, JPMorgan forecasts production volumes of 3.37 billion cubic feet equivalent per day (Bcfe/d) with a total capital expenditure of $180 million, matching the Street's volume estimate but exceeding its capital expenditure expectation by $10 million. The analyst projects fourth-quarter gas realizations before hedging at $2.79 per thousand cubic feet (Mcf), in line with the benchmark Henry Hub bid-week price, and C3+ natural gas liquids (NGL) realizations of $42.91 per barrel.
Looking ahead to 2025, Jayaram anticipates that Antero Resources will maintain a production level of 3.40 Bcfe/d with a total capital expenditure of $818 million, supporting approximately $1.1 billion of free cash flow at recent strip pricing. With a market capitalization of $11.92 billion and a notably high beta of 3.38, investors should note the stock's significant volatility. The company's next earnings report is scheduled for February 12, 2025.
The company is expected to prioritize paying down its credit facility and the remaining 2026 senior notes, with plans to restart its shareholder return program in the latter half of the year. The analyst also noted the company's increased inclination to hedge some of its gas price risk, a shift from the limited hedging activity seen since 2023.
In conclusion, the updated model reflects the recent strip pricing, and JPMorgan reiterates its Overweight rating on Antero Resources, with the revised December 2025 price target of $38 per share, which is based on the stock trading at approximately 90% of the firm's updated blended net asset value (NAV).
Based on InvestingPro Fair Value calculations, the stock appears overvalued at current levels. Investors seeking deeper insights can access 14 additional ProTips and comprehensive valuation metrics through InvestingPro's detailed research report, which provides expert analysis on this and 1,400+ other US stocks.
In other recent news, Antero Resources has reported significant gains in operational efficiency in its Q3 earnings call. The company has achieved a 22% reduction in drilling time and an 8% decrease in total well costs. Furthermore, it has set its 2024 capital budget at $650 million, marking a 28% reduction from 2023.
These recent developments indicate a strong financial strategy for Antero Resources. The company has also highlighted a robust demand for propane from Asia and favorable natural gas power burn demand. These factors, coupled with the company's strategic positioning and operational efficiencies, are expected to result in considerable increases in cash flow in 2025.
Antero Resources has also confirmed a second pad trial is underway, and the company is closely monitoring gas prices for potential hedging opportunities in 2026. Despite the deferral of the completion of two DUC pads and an expected $30 million reduction in drilling carry benefit in 2025, the company is strategically positioned to capitalize on the robust demand for propane and meet the increasing demand from LNG exports and data centers.
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