EQT Corporation (NYSE:EQT), a Pittsburgh-based natural gas company, is poised to generate significant free cash flows (FCF) next year with a high-end FCF yield at 30%.

The BMO Capital Analyst: Phillip Jungwirth upgraded the rating from Market Perform to Outperform and raised the price target from $50 to $65.

The EQT Takeaways: Following EQT’s $5.2 billion acquisition of Tug Hill, an oil and gas exploration company, the analyst expects EQT to reach a free cash flow inflection in 2023 as hedges roll off and financial performance reflects improved operating costs, better capital efficiency and lower leverage.

Jungwirth expects near- and long-term gas prices to remain elevated, contributing to the rise in price forecast and free cash flow generation. The analyst forecasts EQT's free cash flow range to double from $3 billion in 2022 to between $6 billion and $7.7 billion in 2023.

Additionally, Jungwirth believes EQT shares are undervalued compared to peers and a premium is warranted, which may not be fully realized until 2023.

Key Catalyst: As hedges of $6.1 billion roll off, EQT should see a step-up in free cash flows enabling it to increase capital returns with a $28 billion buyback upside potential. A $5/$0.25 (oil/gas) positive change to current strip commodity price forecasts could result in an upside scenario of $75 per share.

Furthermore, utility bills are set to rise across the U.S., as the Russia-Ukraine war has contributed to the global supply shortage of oil and gas, sending natural gas prices to more than double in the past year.

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On the other hand, EQTs 2023 outlook and valuation are equally or more compelling, while near and long-term gas price forecasts have improved, Jungwirth commented.

Photo: Michael Schwarzenberger from Pixabay