Our target price of $40/sh is based on the stock achieving an EV/DACF multiple of ~5.5x on 2025E accounting for downside pressure on natural gas and natural gas liquids pricing. We assign this multiple in line with historical averages as well as relative valuation among peers and the wider industry, all of which have a correlative function against commodity pricing expectations.

Risks to our target price include:

Drilling Results – Production stability and capital/operational efficiency gains, the main components of our thesis, depend heavily on drilling results. Any unexpected increases to well costs could impact AR’s share performance.

Volatile Commodity Prices – Hydrocarbon prices have shown increased volatility in recent years, directly flowing to both cash flows and earnings. This volatility will likely continue to materially impact sector stock performance, both positively and negatively.

Concentrated Asset Base – Although we think AR has assembled an attractive portfolio in its core of Marcellus and Utica, the undiversified nature of its asset base increases the company’s exposure to locational fundamentals related to supply constraints, regulatory issues, and weather conditions. Each of these could materially impact cash flow and potentially have a negative impact on its share performance.

If the impact on the company from any of these factors proves to be less than we anticipate, the stock could materially outperform our target. Conversely, if the impact on the company from any of these factors proves to be greater than we anticipate, the stock could underperform our target price.