EQUITY RESEARCH February 11, 2022 Earnings Update ARC RES.ARC posted Q4 production and cash flow that came in ahead of expectations. Capex came in higher, as ARC spent an additional $50MM in Q4/21 on long-lead items for Attachie, which resulted in its 2022 spending guidance being commensurately reduced. While a dividend increase did not accompany this update, we still see ample financial flexibility for an increase occurring in 2022. The company’s FCF allocation priorities are shareholder friendly, with 50%-80% of free cash flow being returned to shareholders through dividends and share repurchases. On recent strip, the stock is trading at 3.1x EV/DACF in 2022 (peers at 3.0x) and a 21% FCF yield (peers at 19%). We maintain our Outperformer rating and $18 price target.
"While a dividend increase did not accompany this update, we still see ample financial flexibility for an increase occurring in 2022."