On Wednesday, JPMorgan (NYSE:JPM) updated its stance on CNX Resources Corp (NYSE: NYSE:CNX), increasing the price target to $25.00 from the previous $23.00, while keeping a Neutral rating on the stock. The adjustment follows CNX Resources' announcement to decrease its fiscal year 2024 activities, marking the fifth U.S. natural gas producer to scale back due to current weak natural gas prices.
CNX plans to defer 11 Marcellus well completions, which were initially scheduled to come online during lower-demand periods, resulting in a 31% reduction in the planned turn-in-line (TIL) count for FY24.
The company has indicated that there are no current volume curtailments, although it had previously suggested that first-quarter 2024 volumes would be the lowest for the year, with an expectation to end the year at production peaks.
Due to the altered TIL schedule, CNX's production is anticipated to drop sequentially in the second and third quarters of 2024, with a slight rebound in the fourth quarter. The production is then expected to increase, reaching approximately 145 billion cubic feet equivalent (Bcfe) quarterly run-rate by the second quarter of 2025.
Furthermore, CNX has trimmed its FY24 capital expenditure (capex) budget by $50 million, a decrease of about 8% from prior guidance. This reduction is predicted to be reallocated into the 2025 budget, leading to an increase in both production and capex projections for that year. The company's updated outlook for 2025 estimates nearly 580 Bcfe of production with less than $550 million in capex, compared to the prior forecast of the same production volume at less than $500 million.
After revising its financial model, JPMorgan anticipates CNX will achieve 553 Bcfe at $554 million of capex for 2024, and 580 Bcfe at $597 million of capex for 2025. The firm's updated free cash flow (FCF) estimates for CNX are now $225 million for 2024 and $264 million for 2025, an increase of roughly $27 million in total compared to previous models.
This revision is attributed to the lower capex expectations for 2024 and tighter basis differentials of about $0.10 per Mcf, following an update to basis assumptions in line with recent market trends. The new December 2024 price target reflects these changes in guidance and assumptions.
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