EQT Forensic Analysis

📈 Executive Summary

Analysis Date: 2025-12-09

EQT's recent performance is impressive, driven by a +43% YoY surge in natural gas prices, leading to strong operating cash flow of $4.0B YTD. However, the current valuation at $58.66 appears to fully price in a bullish commodity outlook, implying a 5.5% FCF growth rate that is aggressive for a cyclical producer. The $2.06B in goodwill from the Equitrans merger presents a significant impairment risk if synergies underwhelm or gas prices weaken, creating a compelling asymmetric short opportunity.

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⚡ Recent Material Events (8-K Analysis)

• •2025-10-16 (Dividend Declaration): The Board of Directors declared a quarterly cash dividend of $0.165 per share. ✅ This signals management's confidence in near-term cash flow stability.
• •2025-07-01 (Olympus Energy Acquisition): EQT closed its acquisition of Olympus Energy's upstream and midstream assets for ~$1.47B in stock and ~$475M in cash. This adds significant production (~500 MMcf/day) and acreage, but also integrates another large asset base.

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🤵 Insider Trading Activity

Recent Form 4 filings in October and November 2025 show activity from insiders, but details are not specified as buys or sells. The lack of any significant open-market purchases by key executives following a strong quarter and at current price levels is a soft warning sign. ⚠️ It suggests insiders may not see substantial further upside from the current valuation.

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📰 Current News & Market Context

• •Natural Gas Prices: The primary driver of EQT's recent success has been the strong recovery in natural gas prices, with Q3 2025 NYMEX prices averaging $3.07/MMBtu versus $2.15/MMBtu in Q3 2024. The investment thesis is highly sensitive to this single variable.
• •Strategic Curtailments: Management has guided for 15-20 Bcfe of strategic production curtailments in Q4 2025. This is a disciplined move to avoid selling into a weak spot market but also signals that near-term growth is not the priority, which contrasts with the growth implied by the valuation.
• •Favorable Tax Law Changes: The MD&A highlights the "One Big Beautiful Bill Act," which reinstates 100% bonus depreciation. ✅ This is a significant tailwind for cash flow, as it will defer a substantial portion of federal income taxes.

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🏢 Business Model Analysis

### Revenue Mix

• •Primary Revenue: ~90% of revenue comes from the sale of natural gas, NGLs, and oil from its Production segment.
• •Integrated Operations: Following the Equitrans Midstream Merger, EQT now has significant Gathering and Transmission segments. This provides some vertical integration, but the company's profitability remains overwhelmingly tied to upstream commodity prices.

### Pricing Power

• •Price Taker: As a pure-play natural gas producer, EQT has virtually no pricing power and is subject to the volatility of Henry Hub and regional basis differentials.
• •Hedging: The company actively hedges to protect cash flow. As of October 15, 2025, a significant portion of Q4 2025 production is hedged with swaps at $3.28 and put protection at $3.35, providing a solid floor for near-term cash flow.

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💰 Financial Health

### Revenue Quality

• •Accounts Receivable stood at $803.9M against quarterly revenue of $1.68B, a ratio of 48%. This is a healthy level and indicates strong collection practices. ✅

### Cash Flow & Balance Sheet

• •Operating Cash Flow (YTD): A very strong $4.0B, up 93% YoY.
• •Free Cash Flow (YTD): $2.32B (CFO of $4.0B minus CapEx of $1.68B). This robust FCF is being used for debt reduction and shareholder returns.
• •Debt Reduction: Total debt has been reduced from $9.32B at YE 2024 to $8.22B as of September 30, 2025. ✅

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⚖️ Valuation Analysis

### Reverse DCF

At a current price of $58.66, the market is implying a Free Cash Flow growth rate of approximately 5.5% for the next decade (assuming a 9% WACC and 2% terminal growth). This is a demanding growth rate for a company in a volatile commodity market that is currently curtailing production.

### Price Context

• •The current price is nearly identical to the $58.32 price used for the all-stock portion of the Olympus acquisition in July, suggesting the market has not meaningfully re-rated the stock despite strong Q3 results.

### Comparables

• •EQT trades at a premium to its Appalachian peers, likely due to its scale and integrated model, but this premium also makes it more vulnerable to a correction.

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🏆 Competitive Position

EQT is the largest natural gas producer in the United States, with a dominant and contiguous acreage position in the core of the Marcellus Shale. The recent merger with Equitrans provides vertical integration, giving it more control over its midstream operations and theoretically lowering costs. However, this integration also adds complexity and assets that are not its core competency.

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👔 Management Quality

Management has successfully executed on deleveraging the balance sheet and integrating large-scale acquisitions. The decision to curtail production in a weak price environment shows discipline. However, the large goodwill balance from the Equitrans deal places a heavy burden on management to deliver on promised synergies to justify the premium paid.

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⚠️ Risk Factors

• •High Severity (🔴): A sustained downturn in natural gas prices would severely impact cash flow, profitability, and the stock's valuation.
• •Medium Severity (⚠️): Failure to realize projected synergies from the Equitrans merger could lead to a significant goodwill impairment charge, damaging investor confidence.
• •Medium Severity (⚠️): Execution risk associated with integrating the large Olympus Energy acquisition while still digesting the Equitrans merger.

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🕵️ Forensic Accounting Flags

• •🔴 Goodwill Impairment Risk: A massive $2.06B in goodwill was booked from the Equitrans merger, representing ~5% of total assets. $1.23B of this is attributed to ambiguous "synergies." This is a large, non-productive asset that is highly susceptible to impairment if the outlook for natural gas or midstream assets deteriorates.
• •✅ Share-Based Compensation: SBC expense is down dramatically to $43.8M YTD from $141.6M in the prior year period. This is a strong positive, reducing dilution and signaling better cost control.

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📉 Short Thesis

EQT is a well-run operator benefiting from a cyclical upswing in natural gas prices. However, the current valuation is pricing in a continuation of this favorable environment, with an implied FCF growth rate of 5.5% that seems unsustainable. The stock is trading at a premium to peers, making it vulnerable to a sector-wide de-rating.

The primary catalyst for a short position is the extreme sensitivity to natural gas prices. A reversion of Henry Hub prices to the $2.50 - $3.00/MMBtu range would cause a significant compression in cash flow and expose the lofty valuation. Furthermore, the $2.06B goodwill from the Equitrans deal is a ticking time bomb; any sign that synergies are not meeting targets could trigger a large impairment and a sharp sell-off.

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🗓️ Catalysts & Timeline

• •Q4 2025 Earnings (Est. Feb 2026): Will provide an update on synergy realization from the Equitrans merger and production results post-Olympus acquisition.
• •Natural Gas Storage Reports (Weekly): Weekly inventory data will heavily influence sentiment and pricing. A series of bearish reports could trigger the thesis.
• •Goodwill Impairment Test (Annual - Q4): The company's annual impairment testing could formally recognize a write-down if market conditions worsen.

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🎯 Price Targets

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💡 Investment Recommendation

SHORT with a medium-high conviction (7/10). The stock is priced for a perfect execution and a bullish commodity cycle. The significant downside asymmetry stems from its high valuation premium and direct exposure to volatile natural gas prices, coupled with the latent risk of a major goodwill impairment.

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💬 One-Liner Thesis

EQT is a well-run producer whose premium valuation is unsustainably dependent on high natural gas prices, creating a compelling short opportunity on any reversion to mean pricing or failure to deliver on lofty merger synergies.