Raymond James lowers target price to 19.00 AltaGas Ltd. (ALA-T) is in search of a new CEO to help right the ship and Raymond James has cut its target price on the stock until it sees more signs of a turnaround for the company.
“The upcoming strategy/funding update in November will be a key catalyst to watch, as it could potentially reflect an inflection point for the story. Two dynamics give us hope. First, early indications suggest the company is willing to take the necessary steps today, to right the ship for the future. Second, to be frank, mismanagement over the past few years has resulted in a fairly low bar for the future CEO. Admittedly, that combination could represent an attractive set-up for investors,” said analyst Chris Cox.
“However, the story isn’t fixed – far from it. At this juncture, investors still need to have faith that the Board will select the ‘right’ candidate for CEO. Additionally, very tough decisions need to be made, requiring investors today to have faith that the company can successfully execute on a new strategy after a number of strategic missteps in recent years. Both of these criteria implicitly require faith in the Board, which, outside of a few new members, largely consists of the same individuals that oversaw the strategic decisions that got the company to where it is today,” he said.
“In retrospect, there should have been stronger oversight of this company. While past decisions can’t be reversed, investors can demand better oversight going forward. In this respect, we note that it would be out of the norm for a public company to undertake what amounts to a large shift in strategy following sizeable underperformance (-40 per cent vs. peers since WGL acquisition announcement), without also realizing changes in governance and/or leadership, and believe that such changes could be required for the company to present a more credible turnaround case to investors,” he said.
“AltaGas plans to pursue a further $1.5-billion to $2-billion of asset sales, including additional interest in the NW Hydro assets. Management commentary suggested announcements before the end of 1Q19, while the timing of a CEO announcement should come in a matter of weeks,” he said.
He cut his price target to $19 from 22 and kept his rating at “underperform.”