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Gas Stocks to outperform Oil Shares, Says Bank of America

Shares of companies that drill primarily for natural gas are poised to outperform their oil-focused counterparts by multiples, according to Bank of America analysts.

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Their argument is based on the assumption that future prices of natural gas will equal or exceed the current futures curve, which slopes upward.

Natural gas for delivery this June costs roughly $2.50 per million British thermal units.

Prices for June 2024 and June 2025 gas are about 35% and 57% higher than that, respectively.

The situation is the reverse in oil, where international benchmark Brent crude for June delivery is currently trading for about $77 a barrel. Crude for delivery a year from now costs nearly $5 a barrel less.

The BofA analysts used those prices to estimate the future free cash flows of companies. They argue that natural gas futures prices are elevated for good reason: Europe’s new dependence on the U.S. for natural gas with Russia out of the picture.

As a result, they say share prices for natural-gas producers such as Southwestern Energy, Chesapeake Energy, EQT and Range Resources could appreciate by 80% to 175% with limited downside.

*By comparison, the share prices of oil-focused exploration and production companies have an average upside of 28%.


Image: Gas facilities