As a polar vortex grips the United States, natural gas (NGG25) prices are surging, reflecting the market's response to the prospect of the coldest January in over a decade. Natural gas prices have risen 4% this week, and futures briefly surpassed $4 per million British thermal units, driven by fears of plummeting temperatures and potential supply disruptions.
Analysts warn that the severe cold could not only stoke record demand but also freeze critical infrastructure, tightening supplies further.
In this frigid backdrop, companies like Coterra Energy Inc. (CTRA) and EQT Corporation (EQT) are thriving. Both are key players in the natural gas sector, with Coterra’s diversified operations and EQT’s dominant position in Appalachian shale making them particularly resilient amid rising demand.
For investors seeking to capitalize on the season’s chill, these dividend-paying stocks could be wise picks amid surging winter-driven energy prices.
Natural Gas Stock #1: Coterra Energy
Incorporated in 1989, Texas-based Coterra Energy Inc. (CTRA) emerged from the combination of Cabot Oil & Gas (CBT) and Cimarex Energy, becoming a major player in oil (CBH25), natural gas, and NGL production.
With strategic operations in prime areas like the Permian Basin, Anadarko, and Marcellus Shale, Coterra holds top-tier acreage with over a 15-year lifespan. Boasting a market capitalization of $19.4 billion, Coterra is positioned for sustained growth, leveraging its expansive resources and deep industry expertise to navigate the energy landscape.
The energy giant is regaining its spark. After a modest 2.5% gain over the past year, the stock has surged 6.8% in the last five sessions, fueled by rising energy prices and bullish sentiment on natural gas demand. Now nearing its 52-week high of $28.90 set in April, CTRA’s momentum suggests renewed investor confidence.
CTRA has a forward non-GAAP P/E ratio of 16.22x, which is higher than the sector average of 12.20x. Despite this premium, its 3.48 times sales valuation trades below historical norms, presenting a compelling opportunity.
For over three decades, Coterra has prioritized shareholder rewards. On Nov. 27, it distributed a quarterly dividend of $0.21 per share. This translates to an annualized $0.84 dividend per share and a 3.2% yield. With a 22.6% payout ratio, Coterra balances sustainable growth and shareholder returns. In the last reported quarter, the company returned $265 million to the shareholders - $154 million from dividends and $111 million from buybacks.
Coterra Energy’s third-quarter earnings release on Oct. 31 showcased robust performance with $1.36 billion in revenue, surpassing estimates. Adjusted earnings came in at $0.32 per share. The company produced 2,682 million cubic feet (Mmcf) of natural gas daily in Q3, fetching $1.41 per thousand cubic feet.
Cash flow from operations hit $755 million, while capital expenditures totaled $393 million for drilling and development. Free cash flow stood strong at $277 million, bolstered by a solid cash position of $843 million as of Sept. 30, positioning Coterra for continued stability amid fluctuating energy markets.
Coterra Energy is advancing its strategic footprint with a bold $3.95 billion acquisition of assets from Franklin Mountain Energy and Avant Natural Resources, bolstering its dominance in the Permian Basin. This acquisition complements Coterra’s diversification strategy, epitomized by three newly signed LNG agreements set to lock in natural gas sales at premium international prices by 2027 and 2028.
With a robust capital expenditure forecast between $1.75 billion and $1.85 billion for fiscal 2024, Coterra anticipates a discretionary cash flow of $2.9 billion, with a free cash flow estimate nearing $1.1 billion. Production estimates for natural gas in fiscal 2024 range between 2,735 and 2,775 Mmcf per day, solidifying Coterra’s growth trajectory.
Analysts tracking the company anticipate its fiscal 2024 EPS to amount to $1.55 and surge by 80% to $2.79 in fiscal 2025.
Given its achievements, Wall Street analysts are highly bullish on the stock's prospects. With a “Strong Buy” rating from the 24 analysts covering the stock, 19 recommend a “Strong Buy,” one suggests a “Moderate Buy,” and the remaining four analysts advise a “Hold.”
As of writing, the average price target of $32.79 implies upside of 25% from the current price levels. The Street-high target of $40 suggests this energy stock could rally as much as 52.4%.
Natural Gas Stock #2: EQT Corporation
Pittsburgh, Pennsylvania-based EQT Corporation (EQT) is a pioneer in the natural gas industry, with a market cap of $28.1 billion. As the largest pure-play Appalachian producer, EQT operates across 1.1 million net acres, boasting an inventory of 4,000 drilling sites that secures a robust long-term production outlook.
Beyond production, EQT provides marketing services and pipeline capacity management, serving utilities, marketers, and industrial customers. Renowned as one of North America’s lowest-cost natural gas producers, EQT thrives even in volatile markets, exemplifying resilience and strategic foresight.
EQT hit a high note, touching a 52-week peak of $48.33 on Jan. 3. With a 23% gain over the past year and a stellar 27% climb in just six months, the momentum of this energy powerhouse is undeniable.
EQT commands a premium, currently priced at 35.65 times forward adjusted earnings and 4.72 times sales, well above the energy sector peers and its own historical averages. Its valuation mirrors soaring investor confidence, fueled by EQT’s promising outlook and profitability.
EQT’s dividend comeback story shines, with two consecutive years of growth after a pandemic pause. On Dec. 2, EQT paid a quarterly dividend of $0.158 per share, translating to an annualized $0.63 dividend per share and a 1.34% yield. With a payout ratio of 15.7%, the energy giant’s balanced approach reflects its commitment to sustainable growth while rewarding shareholders with consistent returns.
EQT's fiscal Q3 earnings results, released on Oct. 29, sparked a 3.4% rally, with operating revenues climbing 8.2% year over year to $1.3 billion, although slightly falling short of Wall Street's expectations. Its adjusted EPS of $0.12 stunned analysts, surpassing forecasts by a remarkable 140%. In Q3, sales volume surged to 581 billion cubic feet equivalent (Bcfe), outpacing projections. Capital expenditures of $573 million were under guidance while operating costs stood at a favorable $1.07 per thousand cubic feet equivalent (Mcfe).
EQT's strategic divestiture of non-operated assets in Northeastern Pennsylvania for $1.25 billion marked a 3.3x return on investment since 2021. With a focus on debt reduction, the company is executing strategic asset sales to solidify its balance sheet.
EQT’s growth trajectory is underscored by two pivotal moves. The Equitrans Midstream acquisition has positioned EQT as America's only large-scale, vertically integrated natural gas giant. This strategy controls the full pipeline – from drilling to delivery - driving efficiency and projecting a $2.00 per MMBtu breakeven price for free cash flow. With savings exceeding $425 million annually, EQT has cemented its financial fortitude.
As the largest natural gas producer in the U.S., EQT’s free cash flow outlook remains robust, especially as natural gas prices stay above breakeven levels. Further fueling growth, EQT is making strides into clean hydrogen and low-carbon aviation fuel, tapping into fresh revenue streams and sustainability.
The rising demand for natural gas, bolstered by power sector transitions and energy-hungry data centers, gives EQT an edge. With its dominance in the resource-abundant Appalachian region, EQT is poised to capitalize on this surge, benefiting from retiring coal plants and growing energy demands.
Analysts tracking EQT anticipate its profit to be $1.41 per share in fiscal 2024 and surge by a whopping 128.4% to $3.22 per share in fiscal 2025.
Analysts are bullish about EQT stock’s prospects, with a consensus “Moderate Buy” rating overall. Among the 23 analysts covering the stock, 13 are highly bullish with a “Strong Buy,” one advises a “Moderate Buy,” and the remaining nine analysts are playing it safe with a “Hold” rating.
The average analyst price target of $48.43 indicates a potential upside of 3% from the current price levels. Meanwhile, the Street-high target of $59 suggests that the stock could surge as much as 25.5%.
