BUSINESS
Antero Resources Corporation, an independent oil and natural gas company, acquires, explores for, develops, and produces natural gas, natural gas liquids, and oil properties in the United States. As of December 31, 2021, it had approximately 502,000 net acres in the Appalachian Basin; and 174,000 net acres in the Upper Devonian Shale. The company also owned and operated 494 miles of gas gathering pipelines in the Appalachian Basin; and 21 compressor stations. It had estimated proved reserves of 17.7 trillion cubic feet of natural gas equivalent, including 10.2 trillion cubic feet of natural gas; 718 million barrels of assumed recovered ethane; 501 million barrels of primarily propane, isobutane, normal butane, and natural gasoline; and 36 million barrels of oil.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to be above the cost of capital, AR is expected to continue to be a Value Builder.
Antero Resources has a current Value Trend Rating of C (High Neutral).
The Value Trend Rating reflects very contradictory signals from PTR’s two proprietary measures of a stock’s attractiveness. Antero Resources has a very high Appreciation Score of 86 but a slightly negative Power Rating of 39, and the High Neutral Value Trend Rating results.
Antero Resources’ stock is selling well below targeted value. The current stock price of $21.21 compares to targeted value 12 months forward of $67.
Antero Resources’ very high appreciation potential results in an appreciation score of 86 (only 14% of the universe has greater appreciation potential.)
Antero Resources has a Power Rating of 39. (This slightly negative Power Rating indicates that AR’s chances of enjoying favorable investment performance over the near to intermediate term are only average.)
Factors contributing to this slightly negative Power Rating include: AR’s earnings estimates have fallen very significantly in recent months; and the Crude Petroleum & Natural Gas comparison group is in a slightly weakened position currently. An offsetting factor is recent price action has been neutral.
INVESTMENT PROFILE
AR’s financial strength is above average. Financial strength rating is 69.
Relative to the S&P 500 Composite, Antero Resources Corporation has significant Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that AR is higher risk. High expected growth is a positive for AR. Relative weaknesses include: low forecasted profitability, low historical profitability, high stock price volatility, low historical growth, and high earnings variability. AR’s valuation is low: low dividend yield, low P/E ratio, and low price/book ratio. AR has unusually low market capitalization.
CURRENT SIGNALS
Antero Resources’ current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; and falling leverage.
Antero Resources’ current technical position is mixed. The stock price is in a 1.2 month down move. The stock has declined 23.9% from its prior high. The 200 day moving average is in an uptrend. The stock price is below its 200 day moving average.
ALERTS
Important negative changes in Antero Resources Corporation (NYSE: AR) fundamentals have recently occurred: the consensus estimate for December, 2023 decreased significantly, and the consensus estimate for December, 2024 decreased significantly.
In light of this new information we are reviewing our current Overall Rating of C. This review will be completed in the next several days.
Antero Resources Corporation (NYSE: AR) has reported E.P.S. of $0.31 for its fourth fiscal quarter (ending December 31) versus $2.44 for the same period a year ago. For the latest four quarters through December 31, E.P.S. were $0.81 compared to $6.18 a year ago.
Antero Resources Corporation (NYSE: AR) stock closed at $21.21 on 2/14/24 after a modest gain of 1.0%. Moreover, trading volume in this advance was unusually high at 176% of normal. The stock has declined -1.5% during the last week and has performed in line with the market over the last nine months.
CASH FLOW
In 2022, Antero Resources experienced a very significant reduction in cash of $0 million ( ). Sources of cash were much lower than uses. Cash generated from 2022 EBITDA totaled +$3,434 million. Non-operating uses consumed -$127 million (-4% of EBITDA). Cash taxes consumed -$7 million (-0% of EBITDA). Re-investment in the business amounted to -$1,358 million (-40% of EBITDA). On a net basis, debt investors pulled out -$1,041 million (-30% of EBITDA) while equity investors removed -$901 million (-26% of EBITDA).
Antero Resources’ Non-operating Income, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Antero Resources Peer Group. (Since 2020 Non-operating Income, %EBITDA has experienced a very sharp recovery.) In most years, Antero Resources was in the top quartile and second quartile. Currently, Antero Resources is above median at -4% of EBITDA (-$127 million).
Antero Resources’ Cash Taxes, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Antero Resources Peer Group. In most years, Antero Resources was in the second quartile and top quartile. Currently, Antero Resources is at the upper quartile at -0% of EBITDA (-$7 million).
Antero Resources’ Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Antero Resources Peer Group. In most years, Antero Resources was in the lower quartile and top quartile. Currently, Antero Resources is slightly above median at -40% of EBITDA (-$1,358 million).
Antero Resources’ Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Antero Resources Peer Group. In most years, Antero Resources was in the top quartile and lower quartile. Currently, Antero Resources is below median at -30% of EBITDA (-$1,041 million).
Antero Resources’ Equity Investors, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Antero Resources Peer Group. (Since 2020 Equity Investors, %EBITDA has experienced a very sharp decline.) In most years, Antero Resources was in the top quartile and third quartile. Currently, Antero Resources is slightly above median at -26% of EBITDA (-$901 million).
Antero Resources’ Change in Cash, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by a downtrend for the Antero Resources Peer Group. In most years, Antero Resources was in the third quartile and second quartile. Currently, Antero Resources is above median at 0% of EBITDA ( $0 million).
Antero Resources’ Cash, %Revenue has experienced a small downtrend over the period. This downtrend was accompanied by an opposite trend for the Antero Resources Peer Group. In most years, Antero Resources was in the lower quartile. Currently, Antero Resources is lower quartile at 0%.
PROFITABILITY
Antero Resources’ return on equity has eroded very significantly since 2014. The current level is 12.8% versus the high of 15.3% and the low of -13.6%.
The key to the story for AR is a very strong negative trend in pretax operating return significantly offset by a very strong positive trend in non-operating factors.
The productivity of Antero Resources’ assets rose over the full period 2013-2023: asset turnover has enjoyed a very strong overall uptrend.
Antero Resources’ pretax margin experienced a volatile overall downtrend over the period 2013-2023.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
Antero Resources’ return on equity is above median (12.8%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is above median (8.8%) reflecting asset turnover that is above median (0.41X) and above median pretax margin (21.6%).
Tax “keep” rate (income tax management) is lower quartile (72.8%) resulting in after tax return on assets that is above median.
Financial leverage (leverage) is slightly above median (2.00X).
GROWTH RATES
There are no significant differences between Antero Resources’ longer term growth and growth in recent years.
Antero Resources’ historical income statement growth and balance sheet growth have diverged. Revenue growth has exceeded asset growth; earnings growth has fallen short of equity growth.
Annual revenue growth has been 11.4% per year.
Total asset growth has been 2.6% per year.
Annual E.P.S. growth has been -5.4% per year.
Equity growth has been 2.9% per year.
Antero Resources’ consensus growth rate forecast (average of Wall Street analysts) is 14.1% — substantially above the average of the historical growth measures.
Relative to the Antero Resources Peer Group, Antero Resources’ historical growth measures are erratic. Revenue growth (11.4%) has been upper quartile. Total asset growth (2.6%) has been slightly above median. Equity growth (2.9%) has been above median. E.P.S. growth (-5.4%) has been substantially below median.
Consensus growth forecast (14.1%) is at median.
PRICE HISTORY
Over the full time period, Antero Resources’ stock price performance has been variable and significantly below market. Between October, 2013 and February, 2024, Antero Resources’ stock price fell -62%; relative to the market, this was a -87% loss. Significant price moves during the period: 1) March, 2020 – May, 2022: +5914%; 2) December, 2019 – March, 2020: -75%; 3) May, 2016 – November, 2019: -93%; and 4) April, 2015 – November, 2015: -53%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -22.5% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through January, 2024 of -22.5% is lower quartile relative to Antero Resources Corporation Peer Group.
Current 5-year total return performance of 17.3% is upper quartile relative to the S&P 500 Composite.
Through January, 2024, with upper quartile current 5-year total return of 17.3% relative to S&P 500 Composite, Antero Resources’ total return performance is at the upper quartile relative to Antero Resources Corporation Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, AR’s overall valuation is exceptionally low. Four of five factors are lower quartile. The highest factor is the ratio of enterprise value/revenue, followed by the ratio of enterprise value/assets, then by the ratio of enterprise value/earnings before interest and taxes, then by the price/earnings ratio. The lowest factor, price/equity ratio, is lower quartile.
Relative to Antero Resources Peer Group, AR’s overall valuation is low. The highest factor, the price/equity ratio, is slightly below median. Ratio of enterprise value/assets is below median. Ratio of enterprise value/revenue is at the lower quartile. Price/earnings ratio is at the lower quartile. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is at the lower quartile.
Antero Resources has a major value gap compared to the median. For AR to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 1.99X to 3.18X. If AR’s ratio of enterprise value/revenue were to rise to 3.18X, its stock price would be higher by $22 to $43.
For AR to achieve upper quartile valuation relative to the Antero Resources Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 1.99X to 3.82X. If AR’s ratio of enterprise value/revenue were to rise to 3.82X, its stock price would increase by $34 from the current level of $21.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to be above the cost of capital, AR is expected to continue to be a Value Builder.
Antero Resources’ current Price Target of $66 represents a +211% change from the current price of $21.21.
This very high appreciation potential results in an appreciation score of 86 (only 14% of the universe has greater appreciation potential.)
Notwithstanding this high Appreciation Score of 86, the moderately low Power Rating of 39 results in an Value Trend Rating of C.
Antero Resources’ current Price Target is $66 (-2% from the 2022 Target of $68 but +211% from the 02/14/24 price of $21.21). This plateau in the Target is the result of a +1% increase in the equity base and a -3% decrease in the price/equity multiple. One Driver has a positive impact on the price/equity multiple, one has a negative impact, and one has no effect. The forecasted decline in cost of equity has a very large positive impact on the price/equity multiple. The forecasted flat growth has no impact. The forecasted decline in return on equity has a very large negative impact.
PTR’s return on equity forecast is 9.1% — significantly below our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is well above the 2017 low of 4%.
PTR’s growth forecast is 6.0% — in line with our recent forecasts. Forecasted growth suffered a dramatic, variable decline between 2014 and 2022. The current forecast is significantly below the 2015 peak of 72%.
PTR’s cost of equity forecast is 5.0% — below recent levels. Forecasted cost of equity erratic but little changed between 2014 and 2022. The current forecast is steady at the 2015 peak of 6.3%.
At Antero Resources’ current price of $21.21, investors are placing a negative value of $-18 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 6.0% per year, and a return on equity of 19.4% versus a cost of equity of 10.3%.
PTR’s 2024 Price Target of $66 is based on these forecasts and reflects an estimated value of existing assets of $27 and a value of future investments of $39.
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