Goldman Sachs: Maintains "Buy" rating for EQT Energy (EQT.US); Mountain Resources acquisition has strategic significance

Zhitong Finance APP has learned that according to Goldman Sachs' latest research report, despite the weak natural gas pricing environment in the Appalachian region, EQT Energy (EQT.US) demonstrated strong free cash flow resilience in the third quarter of fiscal year 2026. Given the current attractive risk-reward ratio, Goldman Sachs maintains a "Buy" rating on EQT Energy with a target price of $62. In addition, Goldman Sachs believes EQT’s acquisition of Range Resources (RRC.US) is strategically significant, and following the merger, will create a natural gas giant with an enterprise value exceeding $50 billion.

Q3 Results: Output Constrained but Free Cash Flow Significantly Beats Expectations

Against the backdrop of weak natural gas pricing in the Appalachian region, EQT reduced production by about 230 million cubic feet per day in Q3, resulting in a total quarterly output of 6.34 billion cubic feet per day. This figure falls below the market consensus of 6.61 billion cubic feet per day and is at the lower end of the company’s guidance.

Despite the lower-than-expected output, EQT’s free cash flow (FCF) for the quarter reached $397 million, significantly exceeding Goldman Sachs’ expectation of $308 million and the market consensus of $277 million.

M&A Deal: Creating a Giant with Over $50 Billion Enterprise Value

The market’s focus this week has been on EQT’s pending acquisition of Range Resources (RRC.US). According to the announcement, this is an all-stock transaction, and after the merger the enterprise value (EV) will exceed $50 billion. Range Resources shareholders will receive 0.987 shares of EQT stock for each share held and will own about 27% of the combined company upon completion of the transaction.

Goldman Sachs considers this deal to be strategically meaningful:

Lowering Breakeven: The merged business will have more than 30 years of inventory, with a leverage-free free cash flow breakeven below $2.00 per million BTU.

Synergy: Management expects to generate $325 million in annual base synergies (mainly from corporate and operational efficiency), and, in the long term, more than $300 million in incremental synergies through infrastructure optimization, improved marketing margins, and premium supply agreements.

Capacity Enhancement: The merged production capacity will be about 17 billion cubic feet per day, providing the company with differentiated capabilities to pursue demand-linked growth in the Appalachian region.

Goldman Sachs has a constructive view of EQT’s ability to deliver these synergies and points out that since the deal was announced on October 23, EQT’s share price has remained steady, while historically, acquirers in this sector often see share declines after large acquisition announcements.

Accelerated Commercial Expansion: LNG, Storage, and Pipeline Projects in Full Bloom

In parallel with advancing its M&A activities, EQT has also made several breakthroughs in the commercial expansion of LNG, storage, and midstream pipeline segments:

LNG Supply: Signed a 10-year agreement with Lithuania’s Ignitis Group to deliver one LNG cargo per year starting in 2027.

Storage Capacity: Successfully secured 1.1 billion cubic feet (11 Bcf) of storage capacity on the Gulf Coast.

Pipeline Project: Launched the “POWER Pipeline” open season; this pipeline will connect directly to the emerging demand hub in Clarington, Ohio. EQT expects the region to have more than 5 billion cubic feet per day of demand growth potential.

Furthermore, due to stronger global LNG pricing, EQT has raised its anticipated 2028 FCF contribution from the previously announced 0.5 MTPA LNG bridge agreement from about $45 million to approximately $175 million. Management has also increased the estimate for potential demand and outbound pipeline projects in Appalachia (unadjusted for risk) from about 20 billion cubic feet per day to nearly 25 billion cubic feet per day.