Mizuho Securities analyst Nitin Kumar downgraded EQT Corporation ( EQT ) to Neutral from Buy and cut the price target to $39 from $46.

The rating downgrade reflects the company’s FY23 reserves, 2024 guidance, and the proposed merger with Equitrans Midstream Corporation ( ETRN ) .

Under the terms of the agreement, EQT will acquire Equitrans in an all-stock transaction, which will create a combined company with an enterprise value of over $35 billion. 

Also, last month, the company reported fourth-quarter revenue of $1.549 billion, which fell short of expectations, and adjusted EPS at $0.48, which came below consensus estimates.

The company had a total proved reserves of 27.6 Tcfe in 2023, which was up 10% Y/Y, reflecting the Tug Hill and XcL Midstream Acquisition.

For FY24, EQT expects sales volume of 2,200 – 2,300 Bcfe and maintenance capital expenditures of $1.950 billion– $2.050 billion.

The analyst writes that the FY24 guidance and FY23 reserves were modestly dilutive to NAV on higher operating expenses.

Related: These Analysts Revise Their Forecasts On EQT Following Merger News

Kumar expects EQT to focus on debt reduction and asset integration, which can lead to ‘excess’ cash flows to cash returns. 

Also, the analyst estimates a 2025 FCF breakeven of $2.20/mcf for the combined company, which is about $0.30/mcf below the standalone estimate for EQT. 

Apart from this, the analyst estimates a PDP decline of ~25% in 2024 (exit-to-exit) and ~19% in 2025.

Also, Kumar estimates EBITDAX to be $3.162 billion (vs. $3.386 billion prior) for FY24 and $5.100 billion for FY25.

Price Action: EQT shares are down 0.70% at $34.28 on the last check Wednesday.