Goldman Sachs: Maintaining the EQT Energy (EQT.US) “Buy” Rating Mountain Resources Acquisition Case Is Strategically Significant

The Zhitong Finance App learned that Goldman Sachs pointed out in the latest research report that despite the weak gas pricing environment in the Appalachian region, EQT Energy (EQT.US) still showed strong free cash flow resilience in the third quarter of fiscal year 2026. Based on the current attractive risk-reward ratio, Goldman Sachs maintains a “buy” rating for EQT Energy and a target price of $62. Furthermore, Goldman Sachs believes that EQT's acquisition of Mountain Resources (RRC.US) is strategically significant, and after the merger, it will create a natural gas giant worth over 50 billion US dollars.

Q3 results: Production was suppressed, but free cash flow greatly exceeded expectations

Against the backdrop of weak gas pricing in the Appalachian region, EQT cut production by about 230 million cubic feet/day in Q3, resulting in a total production of 6.34 billion cubic feet/day for the quarter. This figure is lower than the market consensus estimate of 6.61 billion cubic feet/day, and is also at the lower limit of the company's guidelines.

Although production fell short of expectations, EQT's free cash flow (FCF) for the quarter reached US$397 million, significantly higher than Goldman Sachs's estimate of US$308 million and market consensus of US$277 million.

M&A Transactions: A Giant Building Over $50 Billion in Corporate Value

The market's focus this week is on EQT's pending acquisition of Mountain Resources (RRC.US). According to the announcement, this is an all-share transaction, and the consolidated enterprise value (EV) will exceed $50 billion. Mountain Resources shareholders will exchange 1 share for 0.987 EQT shares, and after the transaction is completed, they will hold about 27% of the combined company's shares.

Goldman Sachs sees the deal as strategic:

Lower break-even point: The combined business will have more than 30 years of inventory and unleveraged free cash flow to below $2.00 per million British thermal units.

Synergies: Management expects to generate $325 million in basic synergy effects each year (mainly from enterprise and operating cost efficiency), and over the long term, bring incremental synergies of more than $300 million through infrastructure optimization, increased marketing margins, and premium supply agreements.

Increased production capacity: The combined production capacity is approximately 17 billion cubic feet/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 implement these synergies, and notes that since the announcement of the deal on October 23, EQT shares have remained flat, while historical acquirers in the industry usually fall after announcing major deals.

Accelerated commercial expansion: LNG, gas storage and pipeline projects are in full bloom

While promoting mergers and acquisitions, EQT's commercial expansion in the LNG, gas storage and midstream pipeline sectors has also made many advances:

LNG supply: A 10-year agreement was signed with the Lithuanian Ignitis Group to supply it with one ship of LNG every year starting 2027.

Gas storage capacity: Successfully locked in 11 billion cubic feet (11 Bcf) of storage capacity along the Gulf Coast.

Pipeline Project: Launch of the “POWER Pipeline” opening season, which will go directly to the Clarington, Ohio Emerging Demand Hub. EQT expects demand growth potential in the region to exceed 5 billion cubic feet per day.

Furthermore, due to the strengthening of global LNG pricing, EQT raised the anticipated contribution of the previously announced 0.5 MTPA LNG bridging agreement to FCF in 2028 from about 45 million US dollars to about 175 million US dollars. Management also raised estimates (not adjusted for risk) of potential demand in Appalachia and pipeline outbound projects from approximately 20 billion cubic feet/day to nearly 25 billion cubic feet/day.