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Investing.com - JPMorgan downgraded South Bow Corporation (NYSE:SOBO) from Neutral to Underweight on Thursday, setting a price target of $27.00. According to InvestingPro data, the stock appears overvalued at current levels, trading near its 52-week high of $28.22.
The downgrade comes as JPMorgan cited South Bow’s "more muted EBITDA growth profile" and "fewer near-term catalysts" compared to its midstream peers. The firm noted these factors collectively create a less attractive outlook for the company. Current EBITDA stands at $950 million, with the company maintaining a P/E ratio of 18.85x.
JPMorgan highlighted South Bow’s limited financial flexibility to deploy additional growth capital or increase shareholder returns as key concerns weighing on the company’s outlook. Despite these concerns, the company maintains a significant 7.12% dividend yield. The firm also pointed to SOBO’s significant year-to-date outperformance, with a 23% total shareholder return versus just 3% for the broader AMNA index. InvestingPro analysis indicates the stock’s RSI suggests overbought conditions.
The Milepost 171 pipeline rupture in April was mentioned as another factor in the downgrade decision, with JPMorgan noting "single asset risk concern stands out in our minds," despite limited financial impact to South Bow from the incident.
While acknowledging a modest expected improvement from the Blackrod in-service coming next year, JPMorgan concluded that South Bow presents "a lower risk/reward proposition overall" compared to industry peers.
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