On July 14, Senator Joe Manchin, Democrat of West Virginia, didn’t play ball with his own party regarding a climate bill proposal, in part because he wanted to protect his state’s hydrocarbon business. Though this narrative theoretically helped natural gas and oil firm Antero Resources (AR), Manchin recently reversed course, announcing a deal with Senate Majority Leader Chuck Schumer. Despite the about-face, I am bullish on AR stock.
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While the flip-flopping in Washington might be a distraction for those seeking clarity on AR stock and its ilk, it’s important to remember that core fundamentals still support the bullish thesis. On the domestic front, while the Democrats finally secured a victory, the battle is only halfway complete.
The proposed climate and healthcare bill still faces significant opposition from House Republicans, who generally favor hydrocarbon infrastructure along with renewable energy sources.
Further, the American people cannot reasonably absorb sustained lofty energy costs. While the consumer price index for June jumped by 9.1% over the trailing year, energy-related costs represented the lion’s share of the inflationary pressure. Therefore, outright ignoring hydrocarbon development would arguably be catastrophic for Democrats come the midterm elections.
Irrespective of the domestic political rumblings, though, the main catalyst for AR stock continues to be Russia’s military aggression in Ukraine.
Antero Resources Stock Analysis
On TipRanks, AR has a 6 out of 10 Smart Score rating. This indicates strong potential for the stock to outperform the broader market.
AR Stock and the Rising Global Storage Crisis
Since the start of Russia’s invasion, the response by the European Union has been swift, albeit with some reluctance. Moral outrage has led to regional leaders declaring that they will block Russian oil imports arriving by sea. Further, the EU has also committed to reducing natural gas imports from Russia by two-thirds within a year. Though perhaps constructive over the long run, in the near term, such actions may create a global storage crisis.
Indeed, circumstances have not exactly gone the way western leaders had hoped. For one thing, the Kremlin continues to stubbornly engage in what it terms a “special military operation,” with economic sanctions appearing to have little effect.
Second, Europe’s heat wave has done nothing to help support energy conservation efforts. With Russia recently cutting off gas supplies to Germany, western nations and Moscow appear headed for a fierce battle of attrition.
Cynically, though, this backdrop buoys AR stock. Back in May of this year, Antero Resources CEO Paul Rady stated that low global storage levels of natural gas should keep demand elevated, thus benefitting its core business. With no end in sight to the conflict – both the military and ideological components – Antero appears poised to rise as a matter of necessity.
It’s All in the Numbers
Investors that are still not convinced with the upward potential of AR stock really only need to look at the numbers, specifically its revenue breakdown by segment.
In the second quarter of 2022, Antero Resources generated natural gas sales of $1.56 billion, up a staggering 149% from the year-ago level. Back then, natural gas sales represented 48% of total revenue before accounting for losses from derivatives, deferred revenue, and other sources. However, in Q2 of this year, natural gas sales represented over 63% of Antero Resources’ total revenue prior to the aforementioned line-item deductions.
Interestingly, in Q2 2019, natural gas sales tallied up to $553.4 million, representing 57% of total revenue before certain adjustments. Two factors stand out. First, natural gas sales have jumped nearly three-fold from three years ago. Second, gas is increasingly becoming a much larger component of Antero’s growth narrative.
Again, with the Ukraine crisis presenting no discernibly immediate solution, AR stock could keep marching higher based on cynical realities.
Wall Street’s Take on AR
Turning to Wall Street, AR stock has a Strong Buy consensus rating based on six Buys, two Holds, and no Sells assigned in the past three months. The average Antero Resources price target is $51.38, implying 34.6% upside potential.
Takeaway – Natural Gas Prices Will Rise, Antero Resources Will Benefit
While the latest rumblings in Washington might dissuade some investors from trusting in AR stock, the bigger impact lies in the global arena. With western European nations facing off with Russia in a sharp ideological battle, natural gas prices seem destined to move in only one direction – up. Therefore, market participants shouldn’t fight the obvious tape and instead consider a long-term bullish position in Antero.
