CNX Resources (CNX) PT Lowered to $33 at JPMorgan

JPMorgan analyst Zach Parham lowered the price target on CNX Resources (NYSE: CNX) to $33.00 (from $37.00) while maintaining a Underweight rating.

The analyst comments "JPM View: CNX was the top performing E&P in 2024, up 83% vs. the XOP -3% and gas peers +33%, which in our view was driven by speculation that CNX could generate significant future FCF growth through its environmental attributes business. However, shares are down 19% since January 2 (compared to the XOP +5% and natural gas peers +2%), when guidance from the U.S. Department of Treasury was released for the 45V Hydrogen Production Tax Credit. In a press release, CNX confirmed that the 45V regulations did not provide “sufficient economic incentives” for the company to capture incremental coal mine methane (CMM), though recent messaging indicates that CNX will continue to pursue other regulatory pathways to deliver incremental FCF from CMM capture (including 45Q). We’ll be looking for updated management commentary on the earnings call on the potential for CNX to grow its new tech FCF, including the potential for growth from AutoSep (CNX’s flowback JV with Deep Well Services) and the CNG business. As a reminder, on the 2Q24 call CNX had cited that AutoSep would provide flowback to third parties in 2H24, though the company seemed to back away from that timeline on the 3Q24 call as the AutoSep equipment was being utilized on CNX’s internal flowback operations. For FY26, we have maintained our estimates for $75 MM in new tech FCF, which is flat vs the FY25 guidance. After marking to market our estimates, we expect CNX to deliver CFPS and EBITDA 1% below the STe for 4Q24. We model CFPS of $1.21, which compares to the STe at $1.23. Our EBITDA estimate of $252 MM compares to the STe at $254 MM. We estimate CNX will deliver 4Q production of 1,525 MMcfe/d (140 Bcfe), which is up 4% QoQ and in-line with the STe at 1,516 MMcfe/d. We forecast 4Q capex of $106 MM, which is on top of the STe and puts our FY24 capex estimate at $541 MM (in-line with CNX’s $525-$550 MM guidance range). Our 4Q24 pre-hedged gas price realization is $2.42 per Mcf, a $0.37 per Mcf differential vs. the NYMEX benchmark price of $2.79 per Mcf. We estimate that CNX will generate $108 MM in FCF in 4Q ($148 MM including WC changes), and we forecast $74 MM in buybacks during the quarter (50% of FCF). We note that CNX cited $7 MM in share repurchases in October at the time of 3Q earnings (0.2 MM shares at $33.46 per share). CNX reiterated $300 MM in FY24 FCF guidance with the 3Q release, though we estimate $280 MM in FY24 FCF (inclusive of a $40 MM WC tailwind in 4Q). For new tech, we are modeling FCF of $22 MM for 4Q24 to reach the guided run-rate of $75 MM of annual FCF. After updating our model for recent strip pricing and shifting our new tech FCF multiple to 6x (from 8x), we reiterate our Underperform rating and reduce our Dec-25 PT to $33 (from $37), which is based on 80% of our blended NAV."

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