Morgan Stanley has designated EQT Corp. (NYSE:EQT) as a "Top Pick" following a series of positive developments and strategic moves by the company.
The bank said in a client note that it sees significant potential for EQT due to its strong free cash flow (FCF) generation, strategic asset sales, and synergies from recent acquisitions.
Analysts from Morgan Stanley highlighted that EQT's recent acquisition of ETRN, completed in late July, has created a vertically integrated natural gas producer with a leading cost structure.
"[The] ETRN transaction creates peer-leading cost structure and FCF," they noted.
The integration of ETRN is expected to lower the breakeven from $2.50 to $2.00 per MMBtu, with further reductions anticipated as synergies are fully realized.
Morgan Stanley also reported that EQT is on track with its planned asset sales, aiming to generate $3 to $5 billion in proceeds.
"[The] asset sales [are] on track," added the bank. "Management expects the midstream selldown and NE PA divestiture to be enough to achieve $5B of total proceeds (on top of $500 MM to-date)."
On top of the $500 MM of proceeds realized so far, management expects the planned selldown of regulated midstream assets and the remaining non-operated Northeastern PA acreage to achieve the high end of this goal. Consistent with the messaging on the 2Q call, both processes should conclude by around year-end."
These sales are intended to reduce EQT's debt from approximately $13.5 billion to around $8.5 billion, potentially paving the way for share buybacks in 2025.
In addition, EQT's strategic focus on rising LNG and power demand is seen as positioning it well for future growth. Morgan Stanley says the company's vertically integrated operations and extensive pipeline access offer competitive advantages in addressing increasing demand for natural gas in power generation and LNG exports.
Morgan Stanley's analysts maintained an Overweight rating and $45 target price on EQT, citing its current valuation as reflecting a lower Henry Hub price than expected.