With a daily loss of 2.38%, a 3-month gain of 34.33%, and an Earnings Per Share (EPS) standing at 8.89, EQT Corp (EQT, Financial) presents an intriguing case for investors. Given these metrics, the question arises: is EQT significantly overvalued? This article aims to provide a comprehensive valuation analysis to answer this question.
Company Overview
EQT Corp is an independent natural gas production company with a primary focus in the Marcellus and Utica shales in the Appalachian Basin, Eastern United States. The company is dedicated to executing combo-development projects for developing multiwell pads to meet supply needs, with a focus on maximizing operational efficiency, technology, and sustainability. Its main customers include marketers, utilities, and industrial operators in the Appalachian Basin.
At a current price of $43 per share, EQT's stock price significantly exceeds its estimated fair value of $29.82, as calculated by GuruFocus' proprietary method, GF Value. This discrepancy suggests that EQT may be significantly overvalued.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's ideal fair trading value.
According to this method, EQT's stock is significantly overvalued. This suggests that the long-term return of its stock is likely to be much lower than its future business growth.
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Evaluating EQT's Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Hence, it is crucial to carefully review a company's financial strength before investing. EQT's cash-to-debt ratio stands at 0.26, which is lower than 64.98% of companies in the Oil & Gas industry. GuruFocus ranks EQT's overall financial strength at 6 out of 10, indicating fair financial strength.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. EQT's profitability has been fair, with the company being profitable 5 out of the past 10 years. Its operating margin of 52.69% ranks better than 90.8% of companies in the Oil & Gas industry.
In terms of growth, EQT's average annual revenue growth is 26.1%, which ranks better than 79.25% of companies in the Oil & Gas industry. The 3-year average EBITDA growth is 137.6%, which ranks better than 97.58% of companies in the Oil & Gas industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide valuable insights into its profitability. EQT's ROIC stands at 16.78, while its WACC is 7.15, indicating that the company is likely creating value for its shareholders.
Conclusion
In conclusion, EQT Corp (EQT, Financial) appears to be significantly overvalued. Despite fair financial strength and profitability, its current stock price significantly exceeds its estimated fair value. However, its growth ranks better than 97.58% of companies in the Oil & Gas industry. For further details about EQT stock, you can check out its 30-Year Financials here.
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