EQT CEO Sees Major AI Opportunity in $5.5B Equitrans Deal
EQT Corporation EQT has announced its agreement to acquire Equitrans Midstream Corporation ETRN in an all-stock deal valued at approximately $14 billion, including debt. The merger came amid a surge in merger activity within the U.S. shale oil and gas industry, with companies seeking greater scale and cost efficiencies to withstand volatile commodity prices.
EQT aims to enhance its position as a low-cost natural gas producer by leveraging Equitrans Midstream's assets, which include more than 2,000 miles of pipelines. This move is anticipated to result in cost reductions in both production and transportation of natural gas to the market, providing the company with a competitive edge.
EQT's chief financial officer, Jeremy Knop, emphasized the importance of being at the low end of the cost curve in the current market environment during a conference call with analysts. However, investors’ response to the deal has been mixed, with concerns raised about the combined company's $13.4 billion in debt and potential synergies of $250 million per year.
EQT's CEO, Toby Rice, expressed confidence in the vertical integration achieved through the deal, positioning the company as the lowest-cost natural gas producer in the United States. The move is expected to provide better control over pipeline costs and processing, facilitating exposure to liquefied natural gas export markets.
Rice highlighted that EQT stands to benefit from the increasing power demand stemming from data centers in Virginia. According to the Virginia Economic Development Partnership, Virginia has emerged as one of the fastest-growing AI data center hubs and hosts over a third of the world's hyperscale data centers, with nearly 150 currently operational. One particular region in the northern part of the state is recognized as Data Center Alley.
The CEO pointed out the potential of the domestic power generation market, especially within the southeastern market served by Mountain Valley Pipeline (“MVP”). He also noted the additional opportunities arising from the power demand from AI, a service provided by MVP in Data Center Alley.
The deal is scheduled to be closed in the fourth quarter. EQT shareholders are set to own approximately 74% of the merged entity, with Equitrans shareholders holding the remaining 26%. Each Equitrans common stock share will be converted to 0.3504 shares of EQT, resulting in an equity value of approximately $5.5 billion for the deal.
Zacks Rank & Key Picks
Currently, EQT carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the energy sector are Sunoco LP SUN and Murphy USA Inc. MUSA, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Sunoco is among the biggest motor fuel distributors in the U.S. wholesale market in terms of volumes. By distributing more than 10 fuel brands via 10,000 convenience stores under long-term distribution contracts, the partnership will continue to generate stable cash flow.
The Zacks Consensus Estimate for SUN’s 2024 EPS is pegged at $4.89. The stock has witnessed upward earnings estimate revisions for 2024 and 2025 in the past 30 days.
Murphy USA is a leading independent retailer of motor fuel and convenience merchandise in the United States.
The Zacks Consensus Estimate for MUSA’s 2024 EPS is pegged at $25.58. The company has a Zacks Style Score of B for Growth and B for Value. It has witnessed upward earnings estimate revisions for 2024 and 2025 in the past 30 days.
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