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More top picks for 2013

Three FirstEnergy analysts share their top picks in the intermediate space

Jan 9, 2013

by Max Fawcett

With the markets mostly calm so far this week, we return to FirstEnergy’s top picks for 2013. In the large cap space, Michael Dunn prefers Canadian Natural Resources (TSE:CNQ) because of its leverage to narrowing spreads between WTI and Canadian heavy crude. “The stock typically trades at an EV/DACF multiple of 6.0 to 6.5 times forward cash flow. If we use futures strip pricing, combined with our Canadian crude differential fore­casts for 2014e, our $38.00 per share target price would represent a 6.0 times multiple on our 2014 estimates.”

In the intermediate space, Katrina Karkkainen likes ARC Resources (TSE:ARX) for its combination of yield and production growth and Enerplus (TSE:ERF) for its recently reinforced balance sheet and the possibility of either a joint venture partnership on or an outright sale of its Montney and Duvernay acreages. “With a 50/50 natural gas/liquids mix and a strong hedge position, we expect the positive momentum will continue for the company and view it as an attractive option for yield orientated investors as the stock trades at a discount to the group average in combination with an above average 8 per cent yield.” She has an $18 price target on Enerplus shares.

Cody Kwong reaffirms his preference for Crescent Point Energy (TSE:CPG), noting that “with the Crescent Point stock price knocking on lows not observed since June 2012, when the price of oil was US $80/bbl, we view this as a rare opportunity to accumulate a position in a company that is firing on all cylinders operationally while also hosting one of the best balance sheets in the intermediate group.” He has a $49.50 price target on Crescent Point shares.

Kwong also likes Legacy Oil and Gas (and really, within the analyst community, who doesn’t?) for its discounted valuation and growth prospects. “We believe when year-end reserves are rolled-out, we will observe a marked improvement on FD&A (finding, development and acquisition) results over last year on the strength of increased resource exposure, ideally paired with well type curves that will have meaningfully outperformed throughout the year on most of its core areas of focus.” He has a $13.50 price target on Legacy’s shares.

Finally, Robert Fitzmartyn likes two gas-weighted intermediates in Peyto Exploration (TSE:PEY) and Tourmaline Oil (TSE:TOU). He picks Peyto for its best-in-class cost structure and leverage to the possibility (one that may be remote for the first half of 2013, at least) of rising natural gas prices, and Tourmaline Oil (TSE:TOU) for its triple-threat combination of a solid balance sheet, strong growth prospects and a superior cost structure, and has price targets of $35 per share and $49 per share respectively.




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