David Hay — Friday POW! — Expand Energy (EXE)
"Dirt cheap free cash flow priced for permanent decline — with two demand catalysts the market is ignoring."
One-line take: The Friday Pick of the Week and a new Buy-list add: Expand Energy (EXE) — the largest independent US natural-gas producer (the Oct-2024 Chesapeake + Southwestern merger) at ~$93–95, ~$22.5B cap, down ~24% from its high. The case is cheap, fast-growing free cash flow (forward P/E ~10, 2026 EV/EBITDA ~4.2x on ~$6B forward EBITDA, ~15% FCF yield) attached to rapid deleveraging (gross debt cut $1.3B in Q1 — the full-year target hit in one quarter; net debt $2.805B from $4.409B) and two demand catalysts the market is ignoring: AI data-center power (continuous, dispatchable gas) and LNG export (US Gulf capacity doubling to ~28 Bcf/d by 2030; the Delfin 20-yr SPA signed Apr 22). Goehring & Rozencwajg flag US gas at an 85–90% discount to global prices. Consensus Buy, target $130–132 (~33–36% upside; a re-rate to ~5.5x EBITDA, still below sector acquisition multiples). "We will add them to the main list next week." Risks: Henry Hub <$2.50, the Delfin/2031 timeline, and an interim CEO.
1. Stocks & names mentioned
| Ticker | Name | Research | View | What he said | At |
|---|
| EXE | Expand Energy | QT · SA · STK · FA | Positive | Pick of the Week + Buy-list add. Largest independent US gas producer (~$93–95, ~$22.5B cap, –24% from high). Q1: revenue $4.39B (+24%, beat), FCF $1.7B, gross debt cut $1.3B (full-year target in one quarter). Forward P/E ~10, 2026 EV/EBITDA ~4.2x, ~15% FCF yield, 76.5% gross margin. Delfin 20-yr LNG SPA (Apr 22). Demand: AI-power + LNG export; US gas an 85–90% discount to global. Consensus Buy, PT $130–132. "We will add them to the main list next week." | read |
2. Talking points
The pick — largest US gas producer, dirt cheap
- Expand Energy (EXE) is this week's POW and a Buy-list add — the largest independent US natural-gas producer, formed by the October 2024 Chesapeake + Southwestern merger. ~$93–95/share, ~$22.5B cap, 52-week range $81.66–123.35, down ~24% from the high.
- "We will add them to the main list next week" — formally onto the Haymaker Buy list.
Q1 2026 — a beat and a deleveraging story
- Revenue $4.39B (+24%, beating the $3.53B estimate), EPS $3.83 (vs $3.70 expected), net income $1.16B, FCF $1.7B.
- Gross debt cut $1.3B in the quarter — the full-year debt-reduction target met in a single quarter. Net debt down to $2.805B from $4.409B at year-end.
The asset base
- Production 7.44 Bcfe/d (93% gas) — about 6.3% of total US gas output — across Appalachia and the Haynesville.
- 2026 guide ~7.5 Bcfe/d, 11–12 rigs, $2.85B capex; Haynesville breakevens below $2.75. Owned sand mine, investment-grade ratings, >20 years of Tier-1 inventory; $500M incremental-EBITDA target from marketing/infrastructure over 3–5 years.
The Delfin LNG deal — repositioning to integrated gas + LNG
- A 20-year LNG sale-and-purchase agreement with Delfin FLNG signed April 22, 2026 (1.15 Mtpa from 2031) — a foundational LNG contract.
- It moves Expand toward an integrated gas-plus-LNG model with exposure to international pricing rather than just domestic Henry Hub.
Valuation — cheap on every line
- Forward P/E ~10, 2026 EV/EBITDA ~4.2x on ~$6B forward EBITDA, 76.5% gross margin.
- FCF yield ~14.9% ($3.2B FCF vs ~$21.5B cap), normalizing to ~10–15% even at $3.50–4.00 mid-cycle gas.
Shareholder returns
- Base dividend $0.575/quarter ($2.30 annualized, ~2.45% yield); $150M buybacks YTD; $290M returned to shareholders in Q1.
Demand driver 1 — AI data-center power
- Data centers need continuous, dispatchable power — gas is the fuel that fits, the bridge while nuclear scales.
Demand driver 2 — LNG export
- US Gulf Coast export capacity is set to roughly double to ~28 Bcf/d by 2030; Haynesville Louisiana gas sits near every Gulf terminal.
The 85–90% discount — the catalyst
- Per Goehring & Rozencwajg, US gas trades at an 85–90% discount to global prices — an anomaly likely rectified by much higher US pricing rather than left to persist. That re-pricing is the core thesis.
The Street and the target
- Consensus is a Buy (21 Buy / 5 Hold / 0 Sell), target $130–132 (~33–36% upside) — implying a re-rate to ~5.5x forward EBITDA, still below sector acquisition multiples. Buyers at current levels.
Risks & governance
- Gas-price risk: Henry Hub below $2.50 would compress FCF; the Delfin FID / 2031 start is not guaranteed.
- Governance: HQ moving OKC → Houston mid-2026, new CFO Marcel Teunissen (Apr 2026), and an interim CEO. Below the 200-dma (~$105); beta 0.34; next earnings ~July 28.
3. In plain English
EXE — Expand Energy Positive
Expand Energy is America's biggest independent natural-gas driller (it's what you get when Chesapeake and Southwestern merged in late 2024). The stock has fallen about 24% from its high, and at ~$93–95 it's strikingly cheap — roughly 10x earnings and about 4.2x a common cash-flow yardstick (EV/EBITDA), throwing off a ~15% free-cash-flow yield. Cheap usually means the market expects the business to wither. Hay's argument is the opposite is coming.
Two things the market is underweighting. First, the company is paying down debt at a startling clip — it cut $1.3B of gross debt in a single quarter, hitting what was supposed to be a full-year goal in three months, so the balance sheet is getting safer fast. Second, two new sources of demand for US gas are arriving at once: AI data centers need power that's on 24/7 (gas, not intermittent wind/solar), and the US is building export terminals to ship gas overseas as LNG — capacity roughly doubling by 2030. Expand just signed a 20-year deal to supply one of those export projects (Delfin).
The kicker is price. US gas sells for a fraction of what the rest of the world pays — an 85–90% discount, per the energy research shop Goehring & Rozencwajg. Hay thinks that gap is too big to last: as exports and data centers soak up US gas, the US price should rise toward the world price, and a cheap producer like Expand re-rates higher. Wall Street already rates it a Buy with a $130–132 target (~one-third upside), and even that only takes the valuation to ~5.5x cash flow — still below what acquirers pay for whole companies. The main risks: if US gas falls below ~$2.50 the cash flow shrinks, the export project could slip, and the CEO seat is currently filled on an interim basis.
Summary & excerpts derived from the paid Haymaker Substack post (saved text in transcript.txt) for personal study. Not investment advice. © Haymaker / David Hay for source material.