ARC Resources Ltd. 2

On my other blog I am today writing about Making Money on a Dividend Portfolio continue...

I do not own this stock of ARC Resources Ltd. (TSX-ARX, OTC-AETUF). When TFSA first came out, this stock was recommended for this account as it was an income trust at that point and most of the distributions were taxable. This stock is no longer an income trust and the distributions are now dividends and taxed as normal Canadian dividends.

When I look at insider trading over the past year, I find insider selling of $3.4M and insider buying of $3.2M. Insiders not only have Stock Options, but also option like vehicles called Performance Share Units, Restricted Share Units and Deferred Share Units. Outstanding shares were increased by 0.568M shares in 2013 with a book value of $14.7M.

The 5 year low, median and high median Price/Earnings per Share Ratios are 20.18, 24.58 and 28.67. The current P/E Ratio is 31.36 based on a stock price of $29.79 and 2014 EPS estimate of $0.95. This stock test suggests that the stock price is relatively high. However, the low P/E Ratios over the past two years are 18.50 and 30.26. These are quite high P/E Ratios.

I get a Graham Price of $15.20. The 10 year low, median and high median Price/Graham Price Ratios are 0.93, 1.16 and 1.48. The current P/GP Ratio is 1.96 based on a stock price of $29.79. This stock price test suggests that the stock price is relatively high.

I get a 10 year Price/Book Value per Share Ratio of 2.25. I get a current P/B Ratio of 2.75 based on a stock price $29.79 and a Book Value of $10.81. The current P/B Ratio is 23% higher than the 10 year P/B Ratio. This stock test suggests that the stock price is relatively high.

I get a 5 year median dividend yield of 5.33%. The current dividend yield bases on a dividend of $1.20 and a stock price of $29.79 is 4.03%. The current yield is some 24% lower than the 5 year median dividend yield. This stock price test suggests that the stock price is relatively high.

When I look at analysts' recommendations, I find Buy, Hold and Underperform recommendations. Most of the recommendations are a Buy recommendation, so the consensus recommendation is a Buy. The 12 month consensus stock price is $31.60. This implies a total return of $10.10% with 4.03% from dividends and $6.08% from capital gains.

A couple of analysts have raised their target price on this stock recently. On this site it says that dividend is $0.0913, but everywhere else, including ARC Resources' site, the dividend is $0.10. On Stock Chase, Don Vialoux talks about this company having seasonal strength from the 3rd week in January right through until April each year.

All my stock tests suggest that the stock price is relatively high. The price of this stock is in the high range for this stock. It was only higher and slightly at that in 2006 and 2008. With the 12 month consensus stock price giving only a total return of 10%, you have to wonder if the risk is worth the return. It might do well in the short term, but it is not a long term buy at this price. See my spreadsheet at arx.htm.

This is the second of two parts. The first part was posted on Thursday, February 20, 2014 and is available here.

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. Industry: Oil and Gas (Oil and Gas Producers) Its web site is here ARC Resources.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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