EQT Corporation (NYSE:EQT), a Pittsburgh-based natural gas company, is poised to generate significant free cash flows (FCF) next year with a high-end FCF yield at 30%.

The BMO Capital Analyst: Phillip Jungwirth upgraded the rating from Market Perform to Outperform and raised the price target from $50 to $65.

The EQT Takeaways: Following EQT's $5.2 billion acquisition of Tug Hill, an oil and gas exploration company, the analyst expects EQT to reach a free cash flow inflection in 2023 as hedges roll off and financial performance reflects improved operating costs, better capital efficiency and lower leverage.

Jungwirth expects near- and long-term gas prices to remain elevated, contributing to the rise in price forecast and free cash flow generation. The analyst forecasts EQT's free cash flow range to double from $3 billion in 2022 to between $6 billion and $7.7 billion in 2023.

Additionally, Jungwirth believes EQT shares are undervalued compared to peers and a premium is warranted, which may not be fully realized until 2023.

Key Catalyst: As hedges of $6.1 billion roll off, EQT should see a step-up in free cash flows enabling it to increase capital returns with a $28 billion buyback upside potential. A $5/$0.25 (oil/gas) positive change to current strip commodity price forecasts could result in an upside scenario of $75 per share.

Furthermore, utility bills are set to rise across the U.S., as the Russia-Ukraine war has contributed to the global supply shortage of oil and gas, sending natural gas prices to more than double in the past year.

Due to supply constraints, utility companies are already seeking approval for rate hikes ahead of the winter season. During testimony before the Indiana Utility Regulatory Commission, an AES Corp (NYSE:AES) official said there could be "an increase of $24.39 or 18.90%, for an average residential [Indiana] customer using 1,000 kWh per month" with the majority of the hike coming from the projected increase in fuel costs.

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Competitors: Jungwirth recommends Antero Resources Corp (NYSE:AR) and Chesapeake Energy (NYSE:CHK) as the top-performing natural gas picks with more upside in 2022.

On the other hand, EQTs 2023 outlook and valuation are equally or more compelling, while near and long-term gas price forecasts have improved, Jungwirth commented.

Photo: Michael Schwarzenberger from Pixabay