Raymond James Raymond James analyst Michael Barth resumed coverage of a trio of pipeline and midstream companies on Friday:
* Gibson Energy Inc. with a “buy” rating and $28.50 target. The average is $26.04.
“GEI is trading at the highest distributable cash flow yield in its peer group, despite a strong balance sheet, highly contracted cash flows, and option value for future growth,” he said.
“Our model suggests there is 23-per-cent upside to the current share price (38 per cent if we include unrisked option value). Approached differently, the company is trading at an 11-per-cent and 12-per-cent distributable cash flow (DCF) yield on our 2024 and 2025 estimates, which is the high end of the historical range. Similarly, GEI is trading at the low end of the historical EV/EBITDA range despite the significant shift to contracted infrastructure exposure. We view these DCF yields and EV/EBITDA multiples as attractive given the high quality cash flows (backed by contracted infrastructure assets), a strong balance sheet, and plenty of option value for growth.”
* Keyera Corp. with an “outperform” rating and $47 target. Average: $42.83.
“While not a pound-the-table idea, valuation appears reasonable for a business with high quality cash flows, exposure to important macro tailwinds, spare capacity in prolific producing regions, and a very strong balance sheet,” he said.
* Pembina Pipeline Corp. with an “outperform” rating and $63 target. Average: $59.93.
“We expect that PPL will be one of the prime beneficiaries from growing natural gas and NGL volumes in the WCSB that should materialize as new LNG capacity comes online,” said Mr. Barth. “While not a pound-the-table idea, it’s our view that valuation is undemanding for a business with clear macro tailwinds, highly contracted existing assets, and an exceptional balance sheet.”