On Wednesday, Mizuho Securities adjusted its stance on EQT Corporation (NYSE:EQT (ST:EQTAB)), the largest natural gas producer in the United States, by lowering its stock rating from Buy to Neutral. The firm also revised the price target for EQT shares to $39.00, a decrease from the previous target of $46.00.
The downgrade comes as a result of Mizuho's updated model for EQT, which now incorporates the company's year-end 2023 reserves, its guidance for 2024, and the implications of its proposed merger with Equitrans Midstream Corporation (NYSE:ETRN).
"We downgrade EQT to Neutral given NT leverage overhang, NAV dilution and a premium pro forma valuation," said the analysts.
Mizuho's analysis indicates that while the fiscal 2024 guidance and year-end 2023 reserves were only slightly dilutive to the firm's NAV estimate—shifting from $46 to $45 per share—the proposed merger with ETRN is expected to further reduce the NAV by approximately 13% to $39 per share. This is attributed to an increase in leverage and equity value dilution resulting from the merger.
The report also highlighted that EQT's pro forma trading multiples are projected to be around 6.2 times and 6.9 times enterprise value to EBITDA (earnings before interest, taxes, depreciation, and amortization) for 2025 and 2026 estimates, respectively. This is significantly higher than the industry peer average of approximately 4.2 times and 4.9 times. Additionally, EQT's year-end 2024 net debt to EBITDA ratio is expected to be around 2.2 times, compared to an average of about 1.3 times for its peers.
Given these factors and the relatively modest 11% upside potential to Mizuho's new price target compared to the more than 20% upside seen for EQT's industry peers, the firm said it has decided to adopt a more cautious stance on the stock.
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