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Here's Why Hold Strategy Is Apt for Antero Resources (AR) Stock

Antero Resources Corporation’s AR stock has surged significantly over the past year. The company has also outperformed the Oil/Energy space, its subindustry and the S&P 500 composite during the same period.

Price Performance

Over the past year, Antero Resources’ stock has jumped 56.7% compared with the broader sector’s rise of 11.5% and the Zacks Oil and Gas-U.S. Exploration and Production industry’s growth of 13.5%. Above all, the S&P 500 has jumped 17.5%.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

Given this outperformance, we believe that Antero Resources is one of the best-positioned oil companies for sustainable production growth, underpinned by a robust business model. The company, which carries a Zacks Rank #3 (Hold) at present, undoubtedly merits a place in your portfolio.

Robust Outlook

The Zacks Consensus Estimate for Antero Resources’ 2024 earnings is pegged at 53 cents per share, suggesting growth of 3.9% from the year-ago reported figure.

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The consensus mark for 2025 earnings is pegged at $2.98 per share, indicating an improvement of 462.5%, while the same for revenues is pinned at $5.4 billion, hinting at a 19.6% year-over-year increase.

Key Business Tailwinds

Antero Resources is among the fastest-growing natural gas producers in the United States. Its strategic acreage position in the low-risk/long reserve-life properties of the Appalachian Basin is a major positive.

The company boasts more than 20 years of premium inventory, ensuring sustained production and growth potential. This extensive reserve base underpins long-term operational viability and supports continuous revenue generation, which is attractive for long-term investors.

With approximately 75% of its natural gas production linked to premium LNG pricing markets, Antero Resources benefits from higher realized prices. This strategic market positioning is bolstered by its integrated midstream operations, ensuring reliable and efficient transport and processing capabilities, which support higher margin realization.

Antero Resources demonstrates superior capital efficiency with the lowest CAPEX per Mcfe among its peers, marked at 55 cents/Mcfe as of the first quarter of 2024. This positions the company advantageously in terms of cost management, a critical factor in sustaining profitability and competitive edge, particularly in volatile market conditions.

AR generated more than $10 million in free cash flow in the first quarter of 2024, with a natural gas price breakeven of 85 cents/Mcf, the lowest among its peers. This strong cash flow performance, bolstered by efficient operations and strategic capital allocation, supports the potential for shareholder returns and debt reduction, enhancing its investment attractiveness.

Antero Resources has effectively managed its debt profile, reducing its net debt significantly from $3.16 billion in August 2020 to $1.51 billion in the first quarter of 2024. This aggressive debt reduction strategy not only improves the balance sheet but also reduces financial risk and enhances creditworthiness.

Risks

The growing emphasis of the government, investors and stakeholders on addressing climate change and lowering carbon emissions is shifting the energy demand toward renewable sources. This could have a detrimental impact on Antero Resources’ exploration and production business, thereby affecting its operating revenues.

Stocks to Consider

Investors interested in the energy sector may look at some better-ranked companies mentioned below. The three companies presently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ProPetro Holding Corporation PUMP is an oilfield service provider operating primarily in the Permian Basin spread over West Texas and New Mexico. PUMP’s strategic transition to next-generation equipment, including FORCE electric fleets, underscores its market leadership and cutting-edge technology.

The Zacks Consensus Estimate for PUMP’s 2024 and 2025 earnings per share (EPS) is pegged at 67 cents and 83 cents, respectively. The company has a Zacks Style Score of A for Value and B for Growth. It has witnessed upward earnings estimate revisions for 2024 and 2025 in the past 30 days.

USA Compression Partners, LP USAC is one of the largest independent natural gas compression service providers across the United States in terms of fleet horsepower. USAC earns its revenues from the overall horsepower use of natural gas transported rather than the price. As such, the partnership is largely insulated from fluctuations in commodity prices.

The Zacks Consensus Estimate for USAC’s 2024 and 2025 EPS is pegged at 77 cents and 98 cents, respectively. The company has a Zacks Style Score of B for Growth. It has witnessed upward earnings estimate revisions for 2024 and 2025 in the past 30 days.

Enterprise Products Partners EPD is among the leading midstream energy players in North America. It has an extensive network of pipelines that spreads across more than 50,000 miles.

The Zacks Consensus Estimate for EPD’s 2024 and 2025 EPS is pegged at $2.73 and $2.87, respectively. The company has a Zacks Style Score of A for Value and Momentum. It has witnessed upward earnings estimate revisions for 2024 and 2025 in the past seven days.

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Enterprise Products Partners L.P. (EPD) : Free Stock Analysis Report

USA Compression Partners, LP (USAC) : Free Stock Analysis Report

Antero Resources Corporation (AR) : Free Stock Analysis Report

ProPetro Holding Corp. (PUMP) : Free Stock Analysis Report

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