Wednesday, December 17, 2014
- PG&E (PCG +0.3%) is downgraded to Hold from Buy with a $52 price target, down from $54, at Deutsche Bank, which says it is now clear that the California Public Utilities Commission will not issue final decisions in the San Bruno investigations by year-end; previously, the firm had believed the CPUC would feel some pressure to resolve the cases by then.
- The firm feels PCG eventually can regain its premium valuation, but such a path continues to be uncertain and potentially lengthy.
- "Our broader sector call is that enterprise spending on security IT will again be very strong in 2015, if not stronger than in 2014. Throughout 2014, we flagged PANW, FTNT and PFPT as our top security picks and we’re now adding CHKP to this short-list," says Deutsche's Karl Keirstead. He's upgrading the firewall/security software vendor to Buy, and hiking his target by $20 to $90.
- Keirstead considers Check Points's (CHKP +1.9%) multiples (18x and 11.7x 2015E EPS and free cash flow, respectively) attractive given its security exposure and accelerating growth (potentially 11% Y/Y in Q4 vs. 3%-4% for much of 2013).
- With the aforementioned peers having significantly outperformed Check Point this year, Keirstead thinks "investors are likely to look more aggressively at CHKP shares as a cheaper way to play the security theme with more limited downside risk."
- Shares are $2 away from a high of $78.78. They rallied in October in response to a Q3 beat and healthy Q4 guidance. A weak euro and Palo Alto Networks' firewall share gains have been seen as potential headwinds.
- Teck Resources (TCK +10.2%) is upgraded to Buy from Hold with a C$20 price target at UBS, which believes its dividend can be funded at lower prices.
- UBS thinks TCK's Fort Hills oil sands project in Alberta should realize net backs of ~C$45/bbl vs. C$65/bbl previously, adding that while project economics deteriorate with lower oil prices, Fort Hills could benefit from other factors including a lower oil differential, lower diluent, and likely a lower Canadian dollar.
- To fund the dividend, cover capex, and pay debt, the firm estimates TCK needs to generate C$7.3B during 2015-17 and that TCK can generate ~C$6B in operating cash flow, indicating that, while it would have to draw on the revolving credit facility, TCK could maintain the dividend (if it choose to) given cash of $1.7B and undrawn credit of $3B as of Sept. 30.
- Separately, TCK also announces the first shipment of zinc and lead in concentrate from its restarted Pend Oreille operations in Washington state to its nearby Trail perations in B.C. for processing.
- FBR Capital chooses Noble Energy (NBL +8.8%), Schlumberger (SLB +4.6%), Synergy Resources (SYRG +6%), Consol Energy (CNX +3.4%) and SunEdison (SUNE +0.7%) as its top energy and natural resources stocks for 2015.
- FBR likes NBL's strong combination of shale assets that are still immature in their adoption and application of technology, which is scalable; a strong balance sheet; and a portfolio that offers abundant exploration risk/reward potential.
- SLB is FBR's favorite energy stock among those whose secular earnings power is clearly the most likely to significantly expand over the next five years and/or is underestimated at current market multiples.
- SYRG offers investors exposure to industry-leading production growth and a solid balance sheet, a unique combination for a small-cap equity, the firm says.
- The fundamentals underlying oil and gas pipeline MLPs have fallen much less than energy stocks in recent days, acording to Forbes' John Dobosz, who suggests seeking out MLPs with a long history of rising distributions, payouts well covered by cash flow, a strong balance sheet and an investment-grade credit rating.
- Two MLPs that fit these criteria, Dobosz writes, are Enterprise Products Partners (EPD +3.2%) and Magellan Midstream Partners (MMP +3.9%); he also likes Sunoco Logistics Partners (SXL +5.2%), which is expected to increase revenue 15% to $22B in 2015, with EBITDA rising 20% and distributions growing 18% this year.
- Spectra Energy Partners (SEP +2.3%), Western Gas Partners (WES +2.7%) and Energy Transfer Partners (ETP +2.4%) are appealing because of consistently rising distributions and revenues, Dobosz adds.
- Previous rating was Hold.
- Price target remains $60. Implied downside -6.5%.
- Says ED is unlikely to fare well in a rising rate environment, and notes NY regulators are likely to take steps that will be unfavorable for NY utilities.
- Previously: Con Ed cut to Sell at UBS, as earnings pressure could send ROE below 9% (Nov. 19)