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We reaffirmed our Neutral recommendation on integrated energy company EQT Corporation (EQT - Analyst Report), on Aug 8, 2013. The company posted decent second quarter earnings attributable to higher production, prices, gathered volumes, and transmission capacity sales and throughput. The company holds a Zacks Rank #3, which is equivalent to a short-term Hold rating.

Why Maintained?

Based in Pittsburgh, Pa., EQT Corp. focuses on natural gas supply activities in the Appalachian area. The company also engages in production and gathering, natural gas distribution and transmission and energy efficiency solutions, primarily in the eastern and western coastal regions of the United States.    

EQT is a low-cost producer with a strategic midstream presence. The company's superior cost structure and above-average growth may help alleviate concerns related to struggling natural gas prices. With an increasing reserve structure and a projected higher number of Marcellus wells to be drilled in the coming five years (around 132 wells drilled in 2012 and 153 expected in 2013), we believe that the company exhibits industry-leading organic growth momentum.

Recently, EQT increased its 2013 production sales volume guidance to the range of 340 billion cubic feet equivalent (Bcfe) to 350 Bcfe from its earlier guidance of 335 Bcfe, representing an estimated 33% rise year over year. We expect EQT to exceed its guidance, aided by the low-risk and high-growth drilling locations in the Marcellus Shale, where sales volume more than doubled year over year in the first half of 2013.

The company has also initiated 2014 production expectations at 445 Bcfe, representing an estimated 30% rise year over year, taking the mid-point of the guided range. We believe EQT will be able to exceed its guidance, aided by the low-risk and high-growth drilling locations in the Marcellus Shale. We believe that the Marcellus will remain EQT's esteemed asset and a potential Upper Devonian/Utica program will likely complement the company’s growth.

However, with most of its resources concentrated in the Appalachian Basin, we believe that EQT has a weak geographically spread asset base. Hence, any disruption in the region will affect the company’s results.

Additionally, EQT’s various multilateral drilling programs across its oil and gas fields face operational headwinds, such as rising service costs, completion delays and equipment failure.

Other Stocks to Consider

There are other stocks in the sector that appear more rewarding. These include Cabot Oil & Gas Corporation (COG - Analyst Report), Range Resources Corporation , and Dril-Quip, Inc. (DRQ - Analyst Report). These are expected to perform impressively over the next few months and carry a Zacks Rank #1 (Strong Buy).
 

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