Monday, March 2, 2015

ARC Resources Ltd. 2

On my other blog I am today writing about possible cheap dividend stocks for March 2015 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.

In 2014 outstanding share were increased by around 1.26M shares for stock options. The book value of these shares was $35.1m. This number of shares was worth $31.7M by the end of 2014. Since this this is 0.39% of the shares outstanding it is relatively a small amount.

When I look at insider trading I find $4M of insider buying and a minimal amount of insider selling. Net insider buying is $3.8M. Net Buying is around 0.05% of the market cap so is a relatively small amount. There is insider ownership with the CEO owning shares worth around $7.7M, a director owning shares worth $10.1M and the chairman owning shares worth around $18.1M. This is a relatively small amount and is way less than 1% of the outstanding shares.

The 5 year low, median and high median Price/Earnings per Share Ratios are 20.48, 24.58 and 28.67. These are higher than the corresponding 10 year Ratios of 15.73, 20.12 and 24.52. The current P/E Ratio is 302.13 based on a stock price of $24.17 and 2015 EPS estimate of $0.08. This company is not expected to earn much over the next few years. You really cannot do stock price testing using EPS.

I get a current Graham Price of $4.47 (down from $17.33 of 2014). The 10 years Price/Graham Price Ratios are 1.06, 1.29 and 1.57. The current P/GP Ratio is 5.40. This is very high as is the current EPS.

When you look at Price/Book Value per Share Ratio for the 10 years median ratio the value is 2.35. The current P/B Ratio is 2.17 a value some 7.5% lower than the 10 year ratio. This stock price test suggests that the stock price is reasonable.

The problems with using the dividend yield for stock price testing is that this company used to be an income trust company that has converted to a corporation. Income trust companies had quite high dividend yields which will not be repeated for corporations. However if you look at dividend yields for just the last 5 years, the 5 year median dividend yield is 4.88%. The current dividend yield is higher by 1.7% at 4.96% and suggests the stock price is reasonable.

It does not really help to do stock price testing using the P/CF Ratios or the P/S Ratios as both show that by these standards the stock price is relatively expensive. The only real check is with the Dividend yield and it just shows the price as reasonable.

When I look at analysts' recommendations, I find Strong Buy, Buy, Hold and Underperform recommendations. Most of the recommendations are a Buy and the consensus recommendation is a Buy. The 12 month stock price is $28.10. This implies a total return of 21.22% with 4.96% from dividends and 16.26% from capital gains.

Joseph Solitro of Motley Fool thinks that ARC is a good long term investment. Arc Resources announced via newswire the closing of over-allotment option on bought deal financing. Dakota Financial News says that ARC Resources has been given a buy rating by eleven brokerages.

Sound bite for Twitter and StockTwits is: For oil and gas stock, price is just reasonable. The price on this stock has not really fallen much because of low oil prices. It is down just 4% in 2015 so far and down by just 14.9% in 2014. From this I would think that the stock price is reasonable. It is not cheap. Personally, I would be only interested in Oil and Gas stocks that are currently cheap. See my spreadsheet at arx.htm.

This is the second of two parts. The first part was posted on Friday, February 27, 2015 and is available here. The first part talks about the stock and the second part talks about the stock price.

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.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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