Buoyed by robust operating results and an enhanced guidance by management, we have upgraded natural gas-focused energy firm Questar Corporation (STR) to Outperform from Neutral.
Founded in 1922, Salt Lake City, Utah-based Questar operates under three principal subsidiaries – Wexpro Company, Questar Pipeline, and Questar Gas Company. In June 2010, Questar completed the spin-off of its unregulated exploration and production business as well as its gas gathering and marketing segment into a separate, independent and publicly traded company – QEP Resources Inc. (QEP).
Following the separation, Questar has transformed itself into a natural gas-operated energy company, which focuses exclusively on exploring natural gas resources while serving customers domestically and worldwide. The business units of Questar demonstrate strong development prospects, which are expected to drive a high growth rate of production and reserve in the years to come.
Late last month, Questar reported robust third quarter 2011 results, reflecting strong transportation revenues and solid contribution from its expansion venture. Earnings per share came in at $0.20, surpassing both the Zacks Consensus Estimate of $0.17 and prior-year result of $0.16. Total revenue came in at $146.7 million, up a modest 1.0% from the year-ago level of $145.2 million. The results reflect higher production volumes across most of the business segments.
(Read our full coverage on this earnings report: Questar Beats EPS, Raises Outlook)
Other positives in the Questar story include its focus on long-term contracts and the efficient managerial team. Lastly, Questar continues to reap the rewards of its prudent cost cutting initiatives. As a result of its cost efficiency gains, the company has been able to reduce operating expenses, thereby improving its profitability.
As such, we believe Questar is favorably positioned to continue accelerating revenue and earnings growth over the next few quarters. Additionally, at current multiples – significantly lower than peers – we see Questar shares offering significant upside and are confident of its total return potential.
Our new long-term Outperform recommendation is supported by a Zacks #2 Rank (short-term Buy rating).
QEP RESOURCES (QEP): Free Stock Analysis Report
QUESTAR (STR): Free Stock Analysis Report
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