Globe & Mail IA Capital Markets analyst Matthew Weekes said AltaGas Ltd.’s (
) first-quarter beat reinforces his “constructive” outlook for the company, pointing to its “low-risk commercial model and constructive growth outlook driven by investment in gas and NGL infrastructure, which we believe is experiencing improved sentiment, and opportunities to expand the global exports platform.”
Shares of the Calgary-based energy infrastructure company rose 1.5 per cent on Thursday following the premarket release, which included normalized earnings before interest, taxes, depreciation and amortization of $574-million, topping the estimates of both Mr. Weekes ($552-million) and the Street ($554-million).
He attributed the strong performance, which resulted in a decision to maintain its guidance, to AltaGas’ Utilities segment, noting: “Beyond organic growth andasset optimization, Utilities experienced tailwinds in the retail business, including the timing of certain swap gains which had the effect of moving some profitability into Q1 from Q2. As such, we would expect some of the Utilities strength to reverse going forward.”
Reaffirming his “buy” recommendation, Mr. Weekes raised his target by $1 to $33. The average on the Street is $33.16.
“Potential catalysts include resolution of negotiations between the government and First Nations leading to improved development visibility in northeast BC, and additional permitting progress leading to improved visibility on the completion and sale of ALA’s interest in the MVP,” he said.
Elsewhere, RBC’s Robert Kwan raised his target to $33 from $31 with an “outperform” rating, while TD Securities’ Linda Ezergailis bumped her target to $33 from $32 with a “buy” rating.
“AltaGas delivered a solid quarter that helped underscore why we view it as our favourite ‘utility’ stock given its above-average rate base growth (8-10-per-cent CAGR through 2026E), Midstream torque with respect to growing volumes and commodity prices/spreads, and favourable valuation relative to both utility and midstream peers,” said Mr. Kwan. “However, our enthusiasm is somewhat tempered as we believe some investors were hoping for a greater sense of urgency to take advantage of currently attractive gas utility M&A valuations in a bid to more quickly achieve the company’s leverage target of under 5 times debt/EBITDA.”