On August 21, 2023, EQT Corp (EQT, Financial) saw a daily gain of 1.98%, contributing to a 3-month gain of 22.96%. With an impressive Earnings Per Share (EPS) of 8.89, the question arises: Is the stock significantly overvalued? This article aims to provide an in-depth valuation analysis of EQT Corp (EQT). We invite you to read further to understand the intrinsic value of the company.
Understanding EQT Corp (EQT, Financial)
EQT Corp is an independent natural gas production company with operations focused on the Marcellus and Utica shales in the Appalachian Basin, located in the Eastern United States. The company executes combo-development projects to develop multiwell pads to meet supply needs, emphasizing operational efficiency, technology, and sustainability. Its primary customers include marketers, utilities, and industrial operators in the Appalachian Basin. The company's operating revenue is generated entirely in the U.S., with a significant portion flowing from the Marcellus Shale field and through the sale of natural gas.
Decoding the GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. It is computed based on historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future business performance estimates.
The stock of EQT Corp (EQT, Financial) appears to be significantly overvalued, according to GuruFocus' valuation method. The GF Value estimates the stock's fair value at $29.45, considering historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $44.33 per share, EQT Corp (EQT) has a market cap of $16 billion and appears to be significantly overvalued.
Given that EQT is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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Financial Strength of EQT
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it is crucial to carefully review the financial strength of a company before deciding to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. EQT has a cash-to-debt ratio of 0.26, which is worse than 64.07% of 1016 companies in the Oil & Gas industry. GuruFocus ranks the overall financial strength of EQT at 6 out of 10, indicating fair financial strength.
Profitability and Growth of EQT
It is less risky to invest in profitable companies, especially those with consistent profitability over the long term. A company with high profit margins is usually a safer investment than those with low profit margins. EQT has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $9 billion and Earnings Per Share (EPS) of $8.89. Its operating margin is 52.69%, which ranks better than 91.32% of 968 companies in the Oil & Gas industry. Overall, the profitability of EQT is ranked 7 out of 10, indicating fair profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long-term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of EQT is 26.1%, which ranks better than 79.25% of 853 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 137.6%, which ranks better than 97.46% of 826 companies in the Oil & Gas industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, EQT's return on invested capital is 16.78, and its cost of capital is 7.3.
Conclusion
In conclusion, the stock of EQT Corp (EQT, Financial) appears to be significantly overvalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 97.46% of 826 companies in the Oil & Gas industry. To learn more about EQT stock, you can check out its 30-Year Financials here.
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