Questar Corp. (NYSE:STR), like most oil and gas companies, has been hit hard by falling crude prices. But when the market recovers, says Barron's Christopher C. Williams, Questar is poised to rebound, and could rally past the $50/share mark from its current $34.18.
In November, Questar presented promising results from one of its wells in the Haynesville Shale, considered one of the largest gas finds in the U.S. Coupled with other promising reports, Questar seems to have found a promising source for long-term growth. Alongside quality reserves, Questar boasts low-cost production, a successful hedging strategy and strong management. The company operates three subsidiaries, and its integrated model helps it outperform industry pure plays, making it one of the most compelling mid-cap plays on gas recovery. Fans expect share price to rise dramatically in the coming years.
In the short term, however, the slide of natural gas to less than half of what it reached last summer has some analysts questioning Questar's value. Analyst Robert L. Christensen, Jr. rates the stock as only Neutral because over 85% of Questar's production is nat-gas related. CEO Keith Rattie expressed his concern over the company's depressed stock price, confessing that a split-up is an oft-discussed issue. Rattie believes there's a 'great chance' the company will restructure in the next five years.
Questar trades for just 8.4 times 2008 expected earnings, cheap by its historical standards. And as American's main alternative to oil energy, natural gas prices will likely recover at some point.
Questar raised its 2008 guidance to $3.70-$3.80/share, vs. $2.88 in 2007. Revenue is expected to increase to $3.4B vs. $2.7B in 2007. 2009 earnings are expected to fall to $3.05-$3.25/share on lower commodity prices.
- Lowell Miller of Miller/Howard Investments, a longtime holder of Questar, believes "the stock has bottomed." He expects shares to trade between the high-20s and high-30s in 2009, and to rise to $50-$60 afterwards.
- Todd Lowenstein of HighMark Capital Management, another longtime holder, sees shares worth at least $47, based on $7 gas and $70 oil.