JotCast | 7/31/24 Capitalist Times Live Chat

Return to

7/31/24 Capitalist Times Live Chat

powered by

Prev Page View Full Chat Next Page

Roger Conrad

3:56

Hi Susan. I think it would be a lot harder for Icahn to exercise that level of influence with American Electric Power as he had with Southwest Gas Holdings--mainly because it's about 10 times larger.

Activist investor action tends to get investors excited. For example, we were able to recommend Conrad's Utility Investor readers take a partial profit in SWX over $90 at the height of Icahn expectations--and I think we'll get another opportunity in the next 12-18 months. And there may be an opportunity in AEP as well, with the stock now 10% above my highest recommended entry point of 90. I would rate AEP a hold at this point, however.

As for utilities in general, my advice for companies selling above highest recommended entry points is to hold if you have and wait to add to positions if you don't--other than through regular dividend reinvestment. And as always, I will discuss profit taking opportunities in the August CUI Portfolio section, which posts on the 5th.

JT

4:00

Elliot, can we get your thoughts on PBF? The stock continues its downward spiral breaking it's $40 support for new yearly lows before peaking above it today.

Elliott Gue

4:00

Refiners all got hit by the decline in refining margins from March into June; PBF got hit harder because it's a smaller name with more direct leverage to refining margins. However, crack spreads appear to have bottomed and refiners that have reported to date -- VLO and PSX -- have both seen nice upside following earnings +5.5% and +4.8% respectively. PBF reports tomorrow (August 1) and we're looking for more of the same. Technically, PBF tried to break below support at $40, but that move failed to gain momentum and the name is back over $41. If margins continue to drift higher as we expect, we see significant upside for PBF. In longer-term services, we recommend VLO, which we see ultimately north of $200/sh. PBF is in our trading service and we're watching it through EPS; if the stock holds up, we may recommend adding a bit for a trade back over $50 this summer/early fall.

Jon B

4:03

I saw your previous comment on CTRI. The recent quarterly report seemed quite surprising. CTRI cited a pullback in utility spending due to negative regulatory decisions, higher interest rates, cancelled projects, etc. This contradicts the daily news stories about how utilities are spending to harden the grid, increase transmission, etc. What do you make of this disconnect? Is there something awry with CTRI's business? Did they build up the numbers pre-spin to generate enthusiasm only to now report something closer to the status quo? Thanks for your thoughts.

Roger Conrad

4:03

Hi Jon. Centuri's business is diverse but it's also contract dependent. And that means results tend to be very lumpy. I think that fact had been obscured with CTRI a unit of a utility (Southwest Gas).

I note that the company's 2024 guidance pretty much matches up with what Southwest was saying prior to the spinoff. And much of the shortfall at the top and bottom line had to do with a high margin contract not repeating. But I think if you're going to own this stock, you'll have to get used to ups and downs in quarterly results. And it's pretty clear this is not what investors expected when the stock price was getting bid up following the spinoff.

Bottom line: I'm not convinced there's hidden weakness here. but it may be a while before the price revisits the high 20s as investors digest what kind of company Centuri is.

Hans

4:05

Elliott, In April you had a strong buy for PBF, year to date the stock is considerably down, what is the reason and should I hold on. Thanks

Elliott Gue

4:05

Just answered a question on that -- just above in the chat. To summarize, refining margins came down counter-seasonally from March-JUne, which hit all the refiners. PBF is more leveraged to margins than a name like VLO/MPC, so it got hit harder than others. That said, refining margins have moved higher since and the other refiners to report earnings to date -- VLO and PSX -- have both seen nice pops after their results. So, we're looking for PBF to follow suit, rallying off technical support at $40. PBF is in the trading services and we may look to add to the position if it moves off support as we expect. For longer term holders VLO remains the best of breed name in our view.

Jon B

4:07

Another question: Roger, can you comment on Algonquin's prospects, assuming the Atlantica sale goes through? Do you think there is a chance for a dividend cut? Most solid utilities do not yield above 7%. And Atlantica was hardly an albatross, but a pretty solid cash-generating asset. Assuming the Atlantica sale goes through, are the remaining assets sufficient to cover dividends and debt?

Roger Conrad

4:07

I think Algonquin has already "right sized" its dividend for being a pure regulated utility--which was the stated objective of the strategic review. And following the divestiture of its unregulated generation business as well as the 42.16% of Atlantica, its debt will be right sized as well to the utility business.

My view is the yield is high/stock price low primarily because of remaining execution risk--that is getting the asset sales done at prices where the company is able to meet debt reduction targets. But at this price, the stock reflects the risk and I think Q2 results August 9 will show the recovery is on track.

Lawman

4:11

What is your take on Archrock (AROC)?.

Roger Conrad

4:11

Hi Lawman. It's a company we should probably pick up at some point in our MLPs and Midstream coverage universe. Management affirmed its 2024 guidance today, and posted solid EBITDA growth in Q2--indicating its gas compression business is still healthy despite the relapse in natural gas prices this summer. If gas stays weak that could change as producers cut back further. And that could hit the stock as happened today. But we would see it moving higher longer term--either on its own or as a takeover for a larger more diversified player.

Victor

4:12

Hello Guys and thank you for this service. I just joined the chat and I'm not sure that CCJ has been covered. Do you see upside potential from this level or do you see more downside? Thanks.

Elliott Gue

4:12

Thanks for joining the chat and the questions. Cameco, fundamentally the story is intact in my view and the stock performed well after reporting results today. My view at this time is that we're just seeing some consolidation in the uranium names following that big run-up (+160% since the end of 2022). CCJ is above our buy target at the moment, so we wouldn't recommend adding, but we're holding for now.

Harvey

4:15

Good Afternoon, I have been following BCE and some recent reviews mention that the dividend may not be supported by the reported income (as listed in CUI, it indicates that it is covered by the current income) - so it boils down to, is the future dividend fairly stable ? ...Ouestion #2: If a Trump Administration takes the White House (domestic 'Drill baby Drill' policy) what is the scenario for future oil prices - - How will it change your investment orientation here ? ? Thank you.

Roger Conrad

4:15

Hi Harvey. I think we'll get a much better picture of how BCE is performing tomorrow when the company reports Q2 results and updates guidance. And I will have a recap in the August CUI Utility Report Card and possibly the text if developments are significant enough. That will come out August 5. At this point, based on results at Rogers, I think management will affirm 2024 guidance, which is supportive of the dividend.

Regards the second question, I think far too much is being made of this election's potential impact on the energy business. The bottom line is companies are only going to produce oil and gas if selling prices make sense--and that has absolutely zero to do with who's president.

Alex M.

4:21

Hi Roger. Has your opinion on MRK changed at all after the recent earnings report? Thanks.

Roger Conrad

4:21

Hi Alex. My view when we sold our last batch of Merck from the CUI Plus/CT Income portfolio at $130 plus was investor expectations were far too high--and the buying momentum in the stock had run too far in one direction. The response to the company's Q2 results definitely confirm that was the case. The super pharma did cut its 2024 guidance for adjusted FFO fairly significantly. But it actually raised sales guidance, as Keytruda continues to hit the cover off the ball. And free cash flow looks extremely robust.

This stock still yields less than 3%--which is below the threshold for entering a new position in the CUI Plus/CT Income Portfolio. But with another payout increase ahead for November, I'll be a great deal more interested if it dips further.

Hans

4:22

Elliott, SW, since the merger recently, what do you expect of their future outlook. Thanks

Elliott Gue

4:22

For those on the chat unfamiliar with SW, they basically make cardboard boxes. Sounds like a pretty boring business I know, but it really saw a boom in 2020 when everyone was ordering stuff online and there was a shortage of boxes. Subsequent to that, as COVID online shopping trends faded there's been excess inventory of boxes. We're now working through that and prices are gradually improving. SW is the produce of a recent acquisition of an American company (WestRock) by a London-listed name Smurfitt-Kappa. WestRock wasn't a great operator in terms of profitability but Smurfitt Kappa is a global leader. This is actually a theme I look for -- High Quality UK-listed companies that acquire US-listed companies and switch their listing to New York. Or, in some cases, just UK companies that delist London and list NYSE. This is an angle that's worked for us on several occasions, most recently with CRH last year. The basic idea is that these are good companies but they just don't get the visibility or index inclusion

Elliott Gue

4:22

in London as they get in New York. So, they trade at a valuation discount, which closes once the deal is done. That's exactly what I'm looking for here. SW hit a near-term high in early June, but has pulled back into support and I believe ethe stock will hold support in the mid $40s. If the cardboard box market continues to heal as I expect I think SW closes the valuation gap to peers and trades over $60.

Joseph

4:26

What is the difference between Plains GP Holdings and Plains GPHLDGS PA

Roger Conrad

4:26

Hi Joseph. It looks like they're both the same company--but with the name typed in differently.

Victor

4:28

Hi Elliott, I believe that XOM is reporting on Friday and the analyst have been revising their estimates on the downside. Is this an indication that they may report a weak quarter? Are you concerned about it? Thanks,

Elliott Gue

4:28

XOM earnings are sensitive to commodity prices since they don't hedge production and also to factors like refining margins. SO, I don't think recent earnings downgrades represent anything more than just mark-to-market on oil/natural gas prices and refining margins. As a result, I don't think there's anything in results this week that'll be a surprise. Generally, there has been a tendency for XOM to rally into earnings and then pull back for a day or two after the results come out. So, I wouldn't be surprised to see some near-term noise like that. From a technical/trading perspective, XOM looks constructive to me -- in fact I have a trade on it in my options service. Huge base there under about $124 and I'm looking for it to break out in the next month or two.

Victor

4:31

Elliott, Do you still see CrownRock as a catalyst for OXY? Do you expect any movement on this name from here to the end of this year? Thanks.

Elliott Gue

4:31

That stock is like watching paint dry sometimes -- a range between the mid $50s and the mid-60s. In my view that reflects the fact it's a quality company that's just lacked near-term upside catalysts. I do think the CorwnRock properties add value for them, but it could still take a few quarters for that to become fully apparent in results/free cash flow. My view is that ultimately we break higher in OXY as they pay down debt, accelerate capital returns for shareholders, but the timing of that happening is uncertain.

Frank

4:31

I understand that BSM cut the dividend so that they could put the capital to use in more acreage, management stating that they were intending to get the divvy back up to $1.90 soon. With Gas in the doldrums I am concerned that after this year the $1.50 dividend might be in jeopardy. What's your take

Roger Conrad

4:31

Hi Frank. That's what Blackstone said earlier this year. They report again (Q2) on August 5 and I expect them to say pretty much the same thing then in terms of objectives. The current rate appears to be set for natural gas prices earlier this year--which as you'll recall were around $1.50 per million BTU. So I would be surprised if the payout were reduced again, especially since BSM doesn't carry any debt and has minimal CAPEX.

That said, when you buy an oil and gas royalty trust, you should be prepared for dividends to be cut as well as increased from quarter to quarter in line with commodity prices. We look for the energy upcycle to carry prices much higher the next several years, which means much higher dividends for BSM and others eventually. But it's entirely possible given the current weakness that royalty trusts including very strong ones like BSM will cut again later this year.

Joseph

4:33

What is the difference between Plains All American P PL and Plains GP Holdings

Roger Conrad

4:33

They're essentially two ways to play the same company's assets and earnings. Plains (PAA) is the operating company, Plains GP's only asset is 33.19% of PAA. Dividends are the same.

Victor

4:33

Elliott, SLB seems to be reversing from the June lows. Do you expect this trend to continue? Thanks.

Elliott Gue

4:33

I thought their recent report was solid and the stock isn't expensive at less than 14 times forward earnings. I continue to look for international CAPEX/spending to provide positive surprises for names like SLB over the next few quarters and am looking for SLB to move higher over time.

John C

4:36

Thoughts on APA and Suriname which reports today.

Roger Conrad

4:36

If you're talking about APA Group--the Australian natural gas midstream and renewable energy company--earnings are due out August 28. As I said answering a pre-chat question, the company's share price has been weak because of concerns about when a recent asset purchase would be accretive to earnings. But everything at this point suggests the company will meet guidance for cash flow and dividends--with steady growth ahead for the current fiscal year (start July 1).

Hans

4:40

Roger, Are you still suggesting WPC as a buy, it has not done much lately. Thanks

Roger Conrad

4:40

Hi Hans. Yes. The negative reaction in the share price today appears to be due to a 2 cents per share reduction in the low end of 2024 adjusted FFO per share guidance, with the upper end left the same ($4.63 to $4.75) per share. But otherwise the recovery and refocus to industrial and single tenant properties (exiting office) appears to be well on track. Higher for longer interest rates are still a hurdle to financing, as is the case with all REITs. But I think if you've stuck it out with WPC, there's no reason to sell with its recovery/restructuring just starting to take shape and dividends growing again.

Eric

4:43

Any new thoughts on NFE? Can they handle their debt, some of which are due in the next year or two? Thanks!

Roger Conrad

4:43

Hi Eric. They report earnings on August 9, which should give us a pretty good idea of how they're handling the currently weaker conditions in global LNG. The company closed a new $700 mil loan about a week ago to held fund a second floating LNG unit--as the first unit is on track to deliver first cargo next month. It's definitely a low point for the stock. But I think the financing and the fact the company is still expanding are very good signs we'll eventually see a recovery. And our advice of buy at 35 or lower for aggressive investors holds.

Randy D

4:47

Good afternoon to both of you. What are your thoughts on HF SINCLAIR CORP (DINO), and HESS MIDSTREAM LP (HESM). Both have hit some recent highs in the last few months but have backed off. Just wondering if they have much more room to run or maybe it's time to take some profit. Thank you.

Roger Conrad

4:47

Hi Randy. We don't currently track HF Sinclair. I would expect to see some pressure on refining margins in earnings to be announced tomorrow, judging from results at other energy companies. But the dividend should be well covered.

Hess Midstream has pushed well above our highest recommended entry point of 32 and is currently a defacto hold. The key factor going forward in our view is whether the Chevron/Hess Corp merger happens. If it does, we would expect Chevron to buy in the rest of HESM it does not acquire with HES--probably at a price in the low 40s. But HESM is a hold at this point.

Connecting…

Your current subscriptions

None

Register now to continue managing your subscriptions

E-mail Address	Chat Owner	Status	Remove

Enter your email address to be notified when Sherry Roberts hosts a chat