Friday, March 15, 2013

ARC Resources Ltd

I do not own this stock ARC Resources Ltd. (TSX-ARX, OTC-AETUF). I first reviewed this stock in January 2009 when it was an Income Trust and it was a recommended stock for TFSA accounts. The stock converted to a corporation in January 2011.

This is an oil and gas company. These sorts of companies, if they paid good dividends, tend to have fluctuating dividends. Over time you can make good dividends, but you have to be prepared for fluctuations. Current the dividend yield is 4.45% and the 5 year median dividend yield is 5.43%.

This company has always paid out more in dividends or distributions than its earnings. The 5 year median Dividend Payout Ratio for earnings is 121%. However, the DPR for cash flow is much better at 52%. There are some 15 analysts following this stock and the consensus is an expected decrease in dividend by 7.4% to $1.11 this year.

The Liquidity Ratio has always been quite low and the current one is 1.08. However, this company does have strong cash flows. The Debt Ratio has always been good and the current one is 2.52. The current Leverage and Debt/Equity Ratios are good at 1.66 and 0.66.

The outstanding shares have increased by 8% and 9.6% per year over the past 5 and 10 years. The shares have increased due to stock options and the issuance of shares. Shares issues have been used for capital expenditures and acquisitions. When looking at growth, the 10 year growth figures are better than the 5 year figures.

The 10 year growth figures are in the 2% to 3% range, and the 5 year figures are negative. For example, the 5 year growth in Revenue per Share is a negative 4.8% per year. The 10 year growth in Revenue per Share is 2.6% per year.

When I look at analysts' recommendations, I find Strong Buy, Buy and Hold recommendations. The consensus recommendation is a Buy and most analysts are recommending a Buy. The 12 month stock price consensus is $26.80. This is just slightly less than the current stock price of $26.95. This implies that the total return over the next 12 months will all be from dividends.

A recommendation of a Buy and little total return over the next 12 months does not really match up. The high stock price given for the next 12 months is $31 which would suggest a total return of $19.48% with 15.03% from capital gains and 4.45% from dividends. The low 12 month stock price is $24.00 and this implies a loss over the next year.

There is a positive report on this sock from Utility Forecaster via MPL Communication Buy-Sell Adviser email. This report recommends paying no more than $25 a share for this company.

Some analysts like the yield and feel that this should be a core oil and gas stock holding in any portfolio. Some mention that the stock is expensive. It currently has a Price/Earnings Ratio of 46.47 based on a stock price of $26.95 and earnings for 2013 of $0.58. The Price/Graham Price Ratio at 2.25 is also very high.

The relative price moderates a bit looking at dividend yield and P/B Ratios, but does not moderate that much. The current dividend yield is 4.45% is 18% lower than the 5 year median 5.43%. The 10 year Price/Book Value per Share Ratio is 2.21 and the current P/B Ratio at 2.25 is 11% higher.

However, if you look at Price/Cash Flow per Share I get a 5 year median P/CF Ratio of 8.25 and a current P/CF Ratio of 11.67. The current one is based on the current stock price of $26.95 and a 2013 CFPS of $2.13. The current ratio is 42% higher than the 5 year median ratio. The stock price, no matter how you look at it is rather pricey.

So, it would appear that this is a good solid company. However, again, no matter how I look at the stock price, the stock price is relatively high.

ARC Resources Ltd. is one of Canada's leading conventional oil and gas companies. Its focus is on acquiring and developing long-life oil and gas properties across western Canada. Its web site is here ARC. See my spreadsheet at arx.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

No comments:

Post a Comment