We reaffirmed our Neutral recommendation on Texas-based natural
gas pipeline company Spectra Energy Corporation (
SE ), on May 9, 2013.
The company posted stable profits boosted by higher customer usage
but lower transportation revenues dragged down the top line in the
first quarter. The company holds a Zacks Rank #2, which is
equivalent to a short-term Buy rating.
Spectra Energy is one of North America's premier natural gas
infrastructure plays with a strong presence in growth markets.
These positions should lead to value-creating growth opportunities
in the coming years.
Though we believe 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 move the needle toward solid earnings and
cash flow growth in the long run. Spectra acquired the
Express-Platte pipelines from Kinder Morgan and two Canadian
pension funds in Mar 2013. This acquisition enables the company to
diversify its portfolio from the commodity risks related to natural
gas liquids to a growing market of crude oil pipeline business. The
acquisition will likely add $0.03 to $0.05 per share to annual
earnings in the first year. 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 on the
back of its expansion program, which remains 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 projects - Southern Hills and Sand Hills
Pipelines, Front Range Pipeline, and Texas Express Pipeline, are
expected to be come online by 2013.
However, Spectra's results are vulnerable to fluctuations in
natural gas markets. The proposed liquid-rich drilling activities
by the company clearly suggests that volatility in natural gas
prices will change little going forward. Major investments in
several projects in Canada also expose Spectra to fluctuations in
currency rates that may affect the results of its operations.
Other Stocks to Consider
There are other stocks in the sector that appear more rewarding.
These include EPL Oil & Gas, Inc. ( EPL ), Dawson
Geophysical Company ( DWSN ) and SM
Energy Company ( SM ) , which are
expected to perform impressively over the next few months and carry
a Zacks Rank #1 (Strong Buy).DAWSON GEOPHYS (DWSN): Free Stock Analysis
ReportEPL OIL&GAS INC (EPL): Free Stock Analysis
ReportSPECTRA ENERGY (SE): Free Stock Analysis ReportSM ENERGY CO (SM): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment