We maintain a long-term Neutral rating on Questar Corporation (STR
<http://www.zacks.com/stock/quote/str> ) based on its strong earnings and
dividend growth potential, partially offset by unstable natural gas
fundamentals, the domestic imbalance of supply/demand and political
headwinds in certain regions.
Questar delivered mixed results in the first quarter of 2011, with earnings
of 39 cents falling short of both the Zacks Consensus Estimate and
prior-year quarter's result. Total revenue ($470 million), however,
comfortably moved ahead of our projection and the year-ago figure.
Management's confidence in Questar's business units is highlighted through
the various development projects that are expected to drive high production
and reserve growth rate in the years to come. With a focused and experienced
managerial team, manageable debt maturities and long-term contracts, the
company will likely sustain its profitability in the coming quarters.
We appreciate Quarter's efforts to broaden its market exposure for liquefied
natural gas (LNG) products and services. In this regard, the company has
formed an alliance with Applied LNG Technologies LLC to jointly look for new
market opportunities for LNG in the Rockies.
Despite all these positive aspects, Questar is unable to avoid the risks
associated with the global economic volatility. The supply-demand imbalance,
resulting from the flood of natural gas in the domestic market, will likely
continue to weigh down the stock in the near to medium term.
With returns from Questar's regulated businesses (interstate natural gas
transportation and storage and retail gas distribution) likely to suffer
from disallowance of costs and lower usage, the company's growth prospects
remain clouded.
Moreover, we believe that Questar will take some time to fully absorb the
outcome of the spin-off. Until then, the business profile of the company is
exposed to greater competitive risks from peers such as Anadarko Petroleum
Corporation (APC <http://www.zacks.com/stock/quote/apc> ) and Cabot Oil &
Gas Corporation (COG <http://www.zacks.com/stock/quote/cog> ).
ANADARKO PETROL (APC): Free Stock Analysis Report
CABOT OIL & GAS (COG): Free Stock Analysis Report
CHENIERE ENERGY (LNG): Free Stock Analysis Report
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