EQT, DVN: These Natural Gas Stocks Could Keep Your Portfolio Cozy This Winter

Winter is coming, and the only thing that is expected to remain red hot is natural gas prices. With demand for natural gas likely to remain high this season, producers like EQT Corporation (NYSE:EQT) and Devon Energy (NYSE:DVN) could emerge as its biggest beneficiaries.

The Russia-Ukraine war has led to a deep gas shortage in Europe, as the continent tries to wean itself off Russian gas. Record amounts of fuel are being exported as a result, which means lower reserves for domestic consumption. Needless to say, this is keeping natural gas prices from coming down.

Here, it is important to understand that about 37% of electricity production in the U.S. is dependent on natural gas. So, if fuel costs rise, running power plants becomes more expensive. Inevitably, this rise in costs will be passed on to consumers.

However, the likelihood of Americans risking their comfort to save on electric bills is very low as temperatures start to drop.

Also, as the U.S. prepares to keep its homes warm, gas consumption is more likely to remain high as power plants now have permission to burn only a limited amount of coal for power generation.

As per the Energy Information Administration, this winter, the U.S. may see a 7.5% year-over-year rise in residential electricity bills, hitting 14.8 cents per kilowatt-hour on an average for 2022.

These factors make us believe that gas companies are likely to have been offered an opportunity to mint money. In this context, stocks like EQT and DVN could look attractive to prospective investors.

EQT Corporation (NYSE:EQT)

Natural gas producer EQT Corporation is gaining traction on the back of the high demand for natural gas. With gas prices skyrocketing, EQT is poised for some serious gains this winter.

The recent acquisition agreement to take over shale producer Tug Hill may be making EQT’s pockets lighter by $5.2 billion, but the acquisition will only help the company in expanding its natural gas production capacity.

RBC Capital Markets analyst Scott Hanold said, “The acquisition is likely to take EQT’s free cash flow to $6 billion in 2023 as well as boost earnings by 10%-15%.”

Hanold expects the additional FCF to be used to reduce the company’s debt burden, which is a big positive for EQT stock.

“EQT is well positioned with a large asset base focused in the Appalachian Basin. We think the company has some of the most economic natural gas assets in North America and benefits from low royalty rates, low operating costs, and premium geology. Its development program should provide a significant amount of FCF going forward,” Hanold added.

Is EQT Stock a Buy? (NYSE:DVN)

On TipRanks, EQT commands a Strong Buy consensus rating based on 13 resounding Buys. EQT’s average price target currently stands at $60.92, with chances of moving 32.26% higher.

Devon Energy

Another natural gas producer on our list is Devon Energy. The company’s biggest asset is its geographical location. DVN’s core operation lies in the Delaware basin, Eagle Ford basin, Anadarko basin, Powder River, and Williston basin.

Devon Energy is currently in the limelight for its liquid natural gas partnership with a midstream company, Delfin, which is expected to help Devon boost its natural gas production capacity.

Mizuho analyst Vincent Lovaglio points out that Delfin is focused on repurposing “existing offshore gas pipelines to develop low-cost floating LNG projects in the Gulf of Mexico.”

Among other things, this effort will help Delfin to “receive, treat, and liquefy pipeline quality gas, making them a more flexible, re-deployable, and cheaper solution” than the traditional well operating gas producers.

Once the partnership project goes online, Devon is also expected to achieve reduced sustaining CapEx and FCF.

Is DVN Stock a Good Buy?

These detailed estimates by Lovaglio make us look at a strong year ahead for Devon. The analyst has reiterated a Buy rating on the stock with a price target of $91.

Nonetheless, Wall Street is cautious but optimistic about Devon Energy, which carries a Moderate Buy consensus rating based on seven Buys and seven Holds. Devon’s average price forecast of $82.71 reflects an upside of 24%.

Final Thoughts

As of now, utility bills are so high that one in six U.S. households has failed to honor them on time, according to the National Energy Assistance Directors Association (NEADA). The NEADA estimates that defaulters owe utility companies at least $16 billion in total.

However, despite a few hiccups like residents falling behind on bill payments, natural gas stocks are more likely to gain than lose as gas prices and demand remain locked in an economic paradox.

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