JotCast | Conrad's Utility Investor Online Chat

Return to

Conrad's Utility Investor Online Chat

Prev Page View Full Chat Next Page

Roger Conrad

4:47

If you're referring to ONE Gas (NYSE: OGS) as I believe you are, my problem is still very high valuation (25X expected 12 months earnings. As my current URC comments, it's hard to find fault in recent business results and I think we'll see another upper single digit dividend increase announced in January. But at this level, the stock in my opinion is pricing in a high premium takeover already, which I believe caps the upside. Shares are down a bit from the highs last month. But I think they have to fall more to reach an attractive price. That also seems to be the Street analyst consensus with no buys, 6 holds and 1 sell.

Lawman

4:50

Did you like PBA's recent purchase? Do you prefer PBA to American pipeline companies? Is PBA a buy at this level and, if so, why?

Roger Conrad

4:50

I do like the purchase of Kinder Morgan Canada assets and the US portion of the Cochin pipeline by Pembina. That deal now looks set to close next month by the way as the Canada Competition Bureau announced yesterday that it won't challenge the deal. Like Pembina's other acquisitions over the 16 or so years I've covered the company, this is strategic--management isn't doing it to raise earnings near term but as a way of expanding its business, which is increasingly about moving gas and liquids out of Alberta and to global markets. It's financed conservatively as well.

Roger Conrad

4:52

I like Pembina as a buy up to 38--a price it's only below because the Canadian dollar sells for only about 74 US cents. That currency does have an impact on US investor returns in Canadian stocks, though I think it will be more of a positive going forward than a negative as it's been in recent years.

4:56

As for an advantage over US midstreams, I would say the biggest is that the Canadian midstream sector has consolidated over the past decade, which has been a major factor in its resiliency while the Alberta oil and gas industry has been in a depression. PBA has continued to find projects to raise cash flow and distributions, even as many producers have floundered.

Lawman

5:01

SZEVY seems to be going nowhere. What do you see as the prospects for this company, and should I buy more, hold, or bail out?

Roger Conrad

5:01

No change in the advice on Suez from the November issue, which includes extensive comments on the company's Q3 earnings in the Utility Report Card comments. Still a buy up to 7.50. I think we saw some momentum in the shares this summer in the wake of positive earnings news, which has since stalled somewhat in part because of weakness in the Euro (now $1.11). But the most important thing going forward is going to be executing on the recently announced 3-year plan that will result in much reduced leverage and a return to dividend, provided it continues to be well executed. I think they're off to a good start getting there, which is why we still hold Suez in the Aggressive Holdings, though as you rightly point out it's been a relative laggard for us.

Lawman

5:12

I have read may negative reports on T suggesting it is being strangled by too much debt, and by bad assets such as DirecTv. Your thoughts on T, and whether your prefer it to VZ.

Roger Conrad

5:12

I gave an extensive answer on AT&T earlier in the chat. But the long and short of it is that after the agreement with activist investor Elliott Management last month, they've actually committed to faster debt reduction than they had planned when they bought Time Warner Inc. And that's helped immeasurably by the $28.8 billion in free cash flow (after industry leading CAPEX) they generated the last 12 months. And again, there is a pretty clear example of how marrying network and content can succeed, namely Comcast, and AT&T[s Q3 results show at least so far it's following that example. Finally, it only trades at 10.4X expected 12 months earnings per share--so expectations are still very low. Buy under 38.

Lawman

5:32

Any take on UNP?

Roger Conrad

5:32

Union Pacific has been a solid winner for us in CUI Plus--which for those unfamiliar is a managed portfolio of dividend paying stocks outside the utility and essential services sectors. I think it's a bit rich right now but the company itself is successfully executing on PSR--precision scheduled railroading. That means basically aligning operating equipment with demand for capacity in a way that's never before been possible. And the result is UNP earnings are much more resilient in the face of declining loads, such as we saw in Q3. I'll revisit the buy target again after the February dividend increase, Meanwhile, look for updates on UNP in the CUI Plus update, which comes out every two weeks.

Lawman

5:33

You previously recommended Visteon, which I bought and still hold. Any current thoughts on this company?

Roger Conrad

5:33

It's not one that I personally cover. Elliott can update you on the EIA webchat this coming Tuesday starting at 2 pm.

Jimmy

5:37

What, no questions about T? How does a minor analyst have so much influence over a stock like T? Is it not telling that no other analyst has followed him in his downgrade?

Roger Conrad

5:37

Well, as i pointed out in an answer to an AT&T question earlier in the chat, the downgrading analyst was rating the company sell back when the stock was trading under 30 earlier this year. That's actually less a knock against him personally--he's been around a while and as I well know that means you're going to have mistakes on your record--than the fact that too much attention is paid to who says something rather than what's actually being said. Anyway, again my advice has been buy up to a highest recommended entry point of 38 for quite some time.

Guest

5:48

EXC is down 2% today and resting on a 52 month low. Is it time to step in or wait?

Roger Conrad

5:48

I've been pretty consistent with my advice on Exelon Corp, which is basically a buy with a highest recommended entry point of 48. I think the downside action today was more or less what was happening in the sector in general, which could be attributed to the bounce in the 10-year Treasury note yield. In terms of specific news on Exelon, there was an item that the company is negotiating to buy out EDF interest in three US nuclear plants over the next two years. The impetus is EDF wanting to sell but a deal could be solidly accretive depending on the price. The most important catalyst for Exelon the next 12 months, however, is going to be whether or not Illinois passes legislation that extends the ZECs (zero emission credits) to the rest of its nuclear fleet in the state. That was thrown into doubt by the US investigation of company lobbying, which appears to be targeting Democrats in the legislature. The odds still appear to favor approval. But in any case. the shares at 13.6X expected 12 months earnings are p

Roger Conrad

5:49

pricing in very low investor expectations. There's still headline risk to them. But this is clearly one of the cheapest utilities for anyone looking to add to the sector.

Don

5:53

Roger--I purchase Algonquin (AQN) when you first recommended and have done well and love the rising stream of dividends. Would you say that another Canadian ute, Fortis (FTS) has the same potential. Thanks for all that you do, sir

Roger Conrad

5:53

You're very welcome. My only problem with Fortis has been price. But now selling back under 40, I think it's solid value. Q3 results were solid and there's a great deal of visibility for solid mid to upper single digit earnings growth. I also heard some good answers from management on a range of issues, including the ITC power transmission CAPEX plans. Could have been an EEI pick, though I continue to prefer AQN.

5:57

Current thoughts on WEC please. thank you

Roger Conrad

5:57

WEC has come down a bit from its highs even while continuing to report pretty solid results. I think we'll get another mid to upper single digit dividend increase announced next month. On the other hand, the share still trade for 26X expected next 12 months earnings. That 's too rich, even for a company with such a clear line of sight based on utility rate base growth for 5-7% annual earnings per share growth through 2024. I'm always looking for a good time to recommend this stock again for CUI readers, which has been a huge winner for us. But at this time, I expect to have more opportunities to recommend taking a partial profit/money off the table than buying more.

Tom

5:59

Re-regarding BEP: "...it looks like all that will change for us is a new share will show up in our accounts." If memory serves, we get 1 share of the new stock for each 4 shares of BEP we own. And as the new shares will be priced the same as current BEP shares (right?), does this amount to a one-time 25% dividend? What am I getting wrong here?

Roger Conrad

5:59

One way to think about it would be basically as a 5-for-4 stock split. There's no creation or loss of value, which is why there's no tax. Just that one of the shares you own will be a C-Corp share.

Dan

6:05

Hi Roger, Your thoughts on when the Saudi Aramco IPO takes place, would that be a headwind for CVX's share price. More competition for the investors wanting exposure to integrated oil firms?

Roger Conrad

6:05

That's a very good question. One reason to expect an Aramco listing would not really be much of a headwind for CVX or XOM shares is that so many actively managed non-US institutions have already exited energy companies, and that the three biggest owners of CVX are actually passive pools of capital controlled by Vanguard, Blackrock and State Street. CVX also has a relatively deep pool of retail investors, many of whom are likely to be more comfortable owning a US company than a small piece of what will still be a government owned Saudi company. In any case, I think the more important issue for CVX shares is going to be how well it produces to generate free cash flow after dividends.

Roger Conrad

6:07

I also think these super majors don't get nearly enough credit for resiliency, regardless of oil price. My buy target remains 125 for those who don't already own CVX, or anytime through its DRIP--which is how I've personally owned the stock since the 1990s.

Dwayne

6:08

Is T still a buy up to 38 considering the recent downgrade?

Roger Conrad

6:08

I won't repeat everything I've said about AT&T answering previous questions during the chat. But suffice to say, the important thing about an analyst opinion isn't who said it but what was said and does it make sense. And the claim AT&T's valuation is "stretched" at just 10.4 times expected next 12 months earnings is a bit stretched in my view.

Rob

6:14

NFG has struggled the past 6 months or so despite a decent earnings report recently. Is there cause for concern? Does this have anything to do with the political showdown with Gov Cuomo?

Roger Conrad

6:14

The company with the worse political problems in New York is actually National Grid Plc, which operates the utility the governor is threatening. But National Fuel Gas has certainly not been helped by the difficulty routing natural gas pipelines through New York, as well as anywhere out of Appalachia. I think business has been helped immeasurably by the fact that it's still an integrated company, combining E&P, midstream and a regulated utility. That's helped stabilize earnings in a way that's been impossible for EQT, for example, which in contrast split off its integrated businesses in hopes of getting a higher valuation from investors. NFG' hasn't been unscathed by a tight market. But its decision to stay integrated has certainly been vindicated. And I think it's still a buy up to 55.

Richard

6:18

Roger, I always ask about SO. How are you feeling about Southern? Thanks as always

Roger Conrad

6:18

You're very welcome. I think Southern Company is a very high quality utility with a stock that's gotten a bit ahead of itself in the low 60s, given there are still bridges to cross to get the Vogtle nuclear power plant up and running. They continue to make solid progress and lead contractor Bechtel still appears to be running ahead of the revised schedule. But until we get closer to the finish line, there will at least be headline risk for Southern shares--even the threat of higher costs will bring out the sellers--and I'm not raising my recommended entry point above the current level of 50.

Dwayne

6:23

ATGFF has recouped off its lows, but do you think we'll ever see the stock int he 20's again.

Roger Conrad

6:23

I think we will. The important thing for Altagas is the recovery plan laid out by management a year or so ago is still on track, including the successful startup of the propane export facility on Canada's west coast, asset sales that have significantly derisked operations and provided funds to cut debt, and generally solid performance by regulated utilities in rate cases. The company's CAD2.2 bil in asset sales through Sept 30 beat its target of CAD1.5 to CAD2 bil, and it's on track to meet its CAD3 bil in debt reduction. i think we're probably at least a year away from a return to dividend growth. But the bad days appear to be behind this company.

mkay74

6:30

Any views on MIC? THanks

Roger Conrad

6:30

My problem with Macquarie Infrastructure Corp over the years has been that the company has its hands in so many things but lacks real scale in any of them. That's no so bad when things are good but when market gets tight it's very tough to manage. I suspect that's why MIC hasn't raised its dividend since cutting in May 2018, and why it's now launched a "strategic review" that's likely to end with a number of asset sales. Considering what happened to the dividend and the weakness in several businesses including storage, the share price has been remarkably stable of late--and I suspect that's thanks to excitement about the strategic review. But I don't see much to get pumped about here, especially with leverage expected to rise.

Michael L

6:37

On SOHO, the quarterly earnings looked okay to me but we're not seeing much movement. Any context on that? Thanks.

Roger Conrad

6:37

Hi Michael. I'll have more of an update on this one in the CUI Plus update, which I expect to send out this weekend. I think the important elements here were the increases we saw in basic nuts and bolts metrics like revenue per available room--as refurbished hotels continued to increase occupancy. That's a pretty good indication management is executing on building this business, which is the best possible sign they''ll be able to weather the ups and downs of the cycle. I also liked the boost in funds from operations guidance for 2019, which should ensure another half cent boost in the quarterly payout in January. This is not a big cap stock and it's fairly tightly held. We'd also been seeing downward pressure up until these results came in--so maybe the win here is really that this has reversed somewhat. But I've always seen this REIT as one that will sink or swim on its own merits, rather than follow averages. That means a bigger payoff at some point. But for now we have to be patient and collect the high yi

Roger Conrad

6:37

yield

Connecting…

Your current subscriptions

None

E-mail Address	Chat Owner	Status	Remove

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