The cost of wholesale European gas has increased by 572% this year to 276.23 euros per megawatt-hour, or approximately $274.70. Analysts predict that price increases will continue as winter approaches, fueling inflationary fears as Europe battles to cope with Russia's interruption of natural gas supplies.
Earlier in the summer, Gazprom, the state-owned energy company of Russia, said that natural gas exports through the crucial Nord Stream pipeline to Germany would fall to around 20% of the pipe's capacity. The company attributed the decline to issues with a turbine, which stoked new concerns about Europe's ability to store enough gas for the winter.
That reduction in July did take the pipeline’s capacity from 40% to 20% — but, the pain didn’t stop there. This past weekend, Gazprom said the Nord Stream 1 pipeline will be shut down for three days starting Aug. 31 through Sept. 2, citing compressor maintenance.
Unscheduled maintenance on the Nord Stream, which crosses the Baltic Sea to reach Germany, intensified the energy impasse between Moscow and Brussels (the de facto capital of the European Union), which has already increased the likelihood of winter rationing.
Following the announcement, shares of U.S natural gas companies, specifically EQT Corporation EQT, America’s largest natural gas producer, jumped around 4%, and analyst Gianni Di Poce saw a 26% upside potential on the stock.
“EQT has some of the lowest production costs in the natural gas industry, a boon for its profit margins.” Di Poce said in his weekly “Benzinga Pro Insider Report.”
“Revenue is set to grow even more once its natural gas hedges expire and they can realize price increases from the commodity’s price rally.”
The company recently raised its dividend from $0.125 per share to $0.15 per, but it has a mixed valuation. “Price-to-Sales is a low 1.66, but EV to EBITDA is a bit higher, coming in at 20.03,” the analyst said.
On a technical level, the stock is coiling under a saucer pattern, “a close above the upper horizontal trendline acting as resistance would be very bullish, and could lead to an explosive rally higher,” Di Poce wrote.
Action plan: 26% return: “I am bullish on EQT as long as the stock remains above $40-$41,” the analyst said. “Upside target $60-$62.”
Photo: Itsanan via Shutterstock
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.