On Aug 11, 2014, we issued an updated research report on
Spectra Energy Corporation
). The company is one of North America's premier natural gas
infrastructure plays. It has a strong presence in growth markets
that should lead to value-creating investment opportunities over
the coming years. Also, the acquisition of the Express-Platte
Pipeline System has enabled the company to diversify its portfolio
to a growing market of crude oil pipeline businesses. The company's
core fee-based businesses have the potential to move the needle
toward solid earnings and cash flow growth.
Spectra Energy has delivered positive earnings surprises in three
of the last four quarters, with an average beat of 6.31%. The
company reported weak financial results for the second quarter of
2014 with both the top and bottom lines missing the Zacks Consensus
Estimate. The downside came from the Distribution and Western
Canada Transmission & Processing segments.
Though we believe that commodity price concerns remain for the near
term, the company's core fee-based businesses of storage,
transmission, distribution and Canadian gathering and processing
have the potential to generate solid earnings and cash flow growth
in the long run. Going forward, Spectra intends to increase its
presence in the oil and refined products' pipelines, storage tanks
and terminals business.
Management remains optimistic on its future performance as its
expansion program is on track. With its market leading position,
diversified asset portfolio and strong investment opportunities, we
expect Spectra Energy to sustain the growth momentum. Additionally,
Spectra plans to invest $1 billion per year through 2015 on
fee-based gas infrastructure growth projects.
The company expects to commission around 8 projects through 2016.
Among these, Southern Hills and Sand Hills Pipelines, Front Range
Pipeline, and Texas Express Pipeline, are expected to come online
in the near future.
However, Spectra's results are vulnerable to fluctuations in
natural gas markets. The proposed liquid-rich drilling activities
by the company clearly suggest that volatility in
will change little going forward. Major investments in several
projects in Canada also expose Spectra to fluctuations in currency
rates that may affect its operations.
Stocks That Warrant a Look
Spectra Energy carries a Zacks Rank #3 (Hold). Some better-ranked
stocks in the oil and gas sector include Sunoco Logistics Partners
), Sasol Ltd. (
) and Western Gas Equity Partners, LP (
). All of these sport a Zacks Rank #1 (Strong Buy) and would offer
above-average returns to investors.
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