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EQT Corp. (EQT) Downgraded To 'Hold' By Brean Murray

 May 02, 2012 02:52 PM

(By Balachander) Brean Murray, Carret & Co. (BMC) downgraded its rating on shares of EQT Corp. (NYSE:EQT) to "Hold" from "Buy", saying the energy company's main 2012 catalyst, the upcoming IPO of an MLP containing its midstream assets, has already been priced into the stock at current levels.

"Moreover, the delay of the Logansport processing facility into the fourth quarter (from July) defers the $1.50/Mcf of incremental liquids pricing uplift we had seen as a second major catalyst for the company," the brokerage wrote.

Although EQT is focusing 75 percent of its 2012 drilling activity in high EUR and liquids-rich portions of its Marcellus acreage, BMC is of the view that the company has been slow to address the very real possibility of prolonged sub-$3/Mcf gas prices by articulating a more focused strategy to capitalize on the 35 percent of its acreage that lies within the Marcellus's wet window.

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"We would prefer Range Resource (RRC $68.34, Buy) for the company's liquids-driven development strategy and visible near-term drilling catalysts or Cabot (COG $35.93, Buy) for its more aggressive growth profile and liquids-rich opportunities in the Eagle Ford and Marmaton, both of which also offer high quality assets and natural gas exposure," BMC wrote.

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BMC also lowered its 2012 and 2013 EPS estimates to $1.76 and $2.49, from $2.26 and $2.66 respectively, due to lower natural gas benchmark forecasts in its price deck. The brokerage has reduced its NYMEX benchmark gas price estimates to $2.40 and $3.20 in 2012 and 2013, from $3.50 and $3.90 respectively. "The reduction to our 2012 estimate also accounts for the deferral of liquids uplift from the Logansport gas processing plant, while both estimates reflect higher DD&A charges," BMC wrote.

Pittsburgh, Pennsylvania-based EQT operates in three segments: EQT Production, EQT Midstream, and Distribution.

The stock, which has been trading in the 52-week range of $45.19 to $73.10, dropped 3.98 percent to trade at $49.46 on Wednesday.

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