Tuesday’s analyst upgrades and downgrades

ShareSave for laterPlease log in to bookmark this story.Log InCreate Free AccountInside the Market’s roundup of some of today’s key analyst actionsTD Cowen analyst Aaron Bilkoski thinks Shell plc’s (SHEL-N) $22-billion deal to acquire ARC Resources Ltd. (ARX-T) “fairly values” the Canadian company under his current commodity price outlook. While he acknowledges the possibility of competing offers, he seems other bids as “a low probability event,” leading him to move his rating for ARC shares to “sell” from “hold” previously.“The implied acquisition price of $32.80 equates to transaction metrics of 5.6 times 2027 estimated EV/DACF [enterprise value to debt-adjusted cash flow] or a 10-per-cent 2027 sustaining FCF [free cash flow] yield,” he explained. “The takeout metrics are roughly in line with the average of midcap E&P peers (average 10-per-cent 2027E FCF yield on a sustaining basis) and modesty above the average of the more oil-weighted Canadian large-cap and integrated producers (average 11-per-cent 2027 FCF yield on a sustaining basis).“Could there be any competing offers? Possible, but unlikely at a material premium, In Our View: ARX offers a strategically important position within the basin as Canada’s largest C5+ producer. In our view, the C5+ supply/demand balance will become increasingly tight with incremental new oil egress pipelines. It is possible another offer emerges; however, given the $22-billion EV, the list of potential buyers is short. At the takeout valuation, it would be a challenge for domestic E&Ps [i.e., Whitecap (WCP-T) or Canadian Natural Resources (CNQT)] to make a superior offer that would be accretive to their current valuations, in our view.”Mr. Bilkoski moved his target for Arc shares to $32.80 from $32 to reflect the offer. The average target on the Street is $28.60, according to LSEG data.“ARC offers 40-per-cent liquids exposure, a quality asset portfolio, a sustainable base dividend, the ability to meaningfully reduce share count, and low financial leverage,” he added.Elsewhere, others making rating adjustments include: * ATB Cormark’s Patrick O’Rourke to “tender” from “outperform” with a $31 target.“Overall, we view the event as positive, and given the clear synergies with SHEL’s integrated natural gas business and strong value realization relative to prior PDP + Risked Upside intrinsic value NAV of $36.37/sh (90 per cent), we are updating our rating to Tender (from Outperform). The ARX Board has unanimously approved the transaction and recommends that ARX shareholders vote in favor at a special meeting expected to be held in July,” he said.* BMO’s Randy Ollenberger to “market perform” from “outperform” with a $32 target, rising from $30.“Another high-quality Canadian company is set to disappear with Shell plc’s offer to acquire ARC Resources for roughly $22 billion,” he said. “The implied transaction metrics screen better than recent Montney deals; however, we believe Shell is getting a good deal given ARX’s size/scale and high-quality asset base.“The transaction also appears to imply that Shell-operated LNG Canada Phase 2 could proceed, which could support a re-rating of other gas-weighted companies. We downgrade ARX to Market Perform but increase our target price to $32.”* Canaccord Genuity’s Mike Mueller to “hold” from “buy” with a $32 target, up from $31. (function(t) { t.Hotline = t.Hotline || []; t.Hotline.push({ "id": "men9r926", "version": "1.3.3", "period": "YTD", "series": [ { "ticker":…

This excerpt is published under fair use for community discussion. Read the full article at The Globe and Mail.