While shares of Antero Resources popped earlier this week thanks to higher oil prices, they've been on a seemingly never-ending downward slide over the past few years. In 2019 alone, shares have tumbled about 65%. Despite that much lower share price, an analyst at Goldman Sachs downgraded shares of the natural gas driller today from buy to neutral. The analyst made that move citing its less attractive valuation compared to its peers. In the analyst's estimation, Antero trades at 5.5 times its projected EBITDA for next year, which is largely in line with those of other gas-focused drillers.
Adding even more weight to Antero's slump today is some weakness in the oil market, where crude prices have fallen about 2%. That's mainly because of lower-than-expected growth in the U.S. jobs market, which hints at a potentially weaker economy that could weigh on oil demand. While Antero doesn't produce much crude, it is the nation's second-largest natural gas liquids (NGLs) producer. Since NGLs derive their price from oil, its slump will have a notable impact on Antero's cash flow. That's why its stock tends to ebb and flow with crude prices.
Oil and gas companies continue to grow their production even though demand seems to be slowing down. In Antero's case, it has to keep drilling since it signed up for capacity on new pipelines that it needs to fill. Because drillers plan to continue increasing production in an already saturated market, the pressure will remain on oil and gas prices until demand starts heating back up.