EQT: Initiating Coverage With No-Moat Rating; Slightly Overvalued

We have initiated coverage of EQT with a $36 fair value estimate and a no-moat rating. Currently, EQT is a stand-alone natural gas producer in the Appalachian region and has not been able to generate consistent returns above its cost of capital. We do not believe that it will be able to do so going forward, either. Equitrans is a midstream company that gathers and processes molecules and then moves them out of the basin toward consumers. In March, EQT announced that it would purchase Equitrans in an all-stock transaction. This is a natural acquisition, since the vast majority of business for Equitrans is servicing EQT's operations and it was spun out of EQT several years ago. We rate Equitrans as having a narrow moat as a stand-alone company . However, the way that exploration and production companies account for their midstream operations is to report them as savings on cost of goods sold and not revenue-generating assets.