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On Tuesday, Raymond (NSE:RYMD) James analyst upgraded CNX Resources shares (NYSE:CNX) from Underperform to Market Perform. The adjustment follows a reassessment of the company's financial outlook in light of the current natural gas market conditions. The company, currently trading at $30.19 with a market capitalization of $4.5 billion, has shown a remarkable 51.4% return over the past year. According to InvestingPro analysis, CNX currently appears slightly undervalued based on its Fair Value metrics.
The analyst noted that CNX Resources' extensive hedging strategy has previously limited its ability to benefit from the positive natural gas market outlook. For fiscal year 2025, CNX has approximately 85% of its volumes hedged at an average price of $2.58 per thousand cubic feet (mcf), and for fiscal year 2026, around 75% at an average of $2.67 per mcf. These figures are significantly lower than the current natural gas strip, which is about 50% higher than CNX's hedged prices. This discrepancy poses a substantial challenge for the company compared to its peers in the natural gas sector. InvestingPro data reveals that despite these challenges, analysts expect strong sales growth of 71% for the current year, with the company projected to return to profitability.
Despite the headwinds from its hedging strategy, the analyst believes that CNX Resources could still benefit if the bullish outlook for natural gas materializes. The firm acknowledges that while CNX may not gain as much as its less-hedged peers, the company's stock should no longer be considered a sell. The analyst expects CNX's discounted cash flow (DCF) to increase along with the improving gas strip, allowing the stock to perform in line with the broader market.
Raymond James also pointed out that on a free cash flow to enterprise value (FCF/EV) basis, CNX Resources trails behind the analyst's higher-rated natural gas companies by approximately 30% over the coming years. However, the firm's positive outlook on natural gas suggests that even companies with significant hedging, such as CNX, will see some benefit from the overall upward movement in the market.
The upgrade to Market Perform reflects Raymond James' view that CNX Resources' stock is expected to align with market performance, as the sector adapts to changing natural gas prices. The firm's revised stance signals a neutral position on the company's shares, indicating neither a particular endorsement for buying nor selling at this time. InvestingPro subscribers can access additional insights through the comprehensive Pro Research Report, which includes detailed analysis of CNX's financial health, scoring FAIR on InvestingPro's overall health assessment, along with analyst price targets ranging from $22 to $35.
In other recent news, CNX Resources reported a significant earnings miss for Q4 2024. The company posted an earnings per share (EPS) of -$0.97, falling short of the forecasted $0.43. Revenue also missed expectations, coming in at $136.58 million against a forecast of $424.4 million. Despite these disappointing results, CNX Resources remains focused on its operational strategy, maintaining flat production throughout 2024 with potential production acceleration expected in the latter half of 2025. The company is exploring new revenue streams through environmental attributes and leveraging its strong position in coal mine methane monetization. The company also reported a robust free cash flow for Q4 2024 at $30 million. These developments highlight the company's resilience and adaptability in navigating financial challenges.
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