Shares of CNX Resources (CNX 2.98%) sank more than 14% by 10:45 a.m. EDT on Tuesday. A few factors are pushing down the natural gas driller's stock, including an analyst downgrade and a convertible note offering. This sell-off has reversed much of yesterday's rally.
CNX Resources stock soared yesterday after the company updated investors on its long-term plan. The natural gas producer expects to transition into a maintenance mode, which will keep its production roughly flat through 2026. That strategy will enable it to generate about $500 million in annual cash flow, which it will use to create a fortress-like balance sheet.
In the interim, however, the company still needs to shore up its financial profile. That led it to issue $300 million of convertible senior notes due in 2026. The company will use some of those funds to repay existing debt. It had $437 million outstanding on its credit facility, for example, which lenders recently reduced from $2.1 billion to $1.9 billion due to lower commodity prices.
Some analysts, meanwhile, aren't thrilled with the company's decision to turn off its growth engine. MKM Partners downgraded CNX Resources' stock from buy to neutral while setting its price target at $12 a share. That's because it sees the company's gas output declining by 4% next year and at a 3% yearly rate from 2022 to 2024. That leads it to believe the company won't generate as much as free cash flow as it currently projects during that timeframe.
Investors initially loved CNX Resources' new strategy since it would enable the company to generate lots of cash to bolster its balance sheet in the coming years. However, they're starting to have some second thoughts since it will take the company a long time before it starts delivering results. Furthermore, its outlook assumes some improvement in commodity prices, which might not happen given the current glut of oil and gas on the market.