Index falls as earnings results weigh; pound above $1.33, Bodycote soars
On Friday, JPMorgan initiated coverage on South Bow Corporation (NYSE:SOBO) with a Neutral rating and a price target of $28.00. The firm highlighted the company’s competitive position due to its primary asset, the Keystone Pipeline, which connects the Western Canadian Sedimentary Basin (WCSB) crude oil production with U.S. refining and export demand markets. With a market capitalization of $5.5 billion and trading near its 52-week high of $27.60, InvestingPro analysis suggests the stock is currently trading above its Fair Value.
The Keystone Pipeline’s long-term take-or-pay contracts were noted for providing durable cash flows, which in turn support an impressive 7.68% dividend yield that stands above the benchmark index. However, the analyst at JPMorgan pointed out that South Bow’s reliance on a single asset, the Keystone Pipeline, introduces a heightened risk to the business. InvestingPro data shows a debt-to-equity ratio of 2.2x and an overall Financial Health Score of "FAIR," while potential issues such as accidental releases or negative regulatory developments could impact the company’s operations.
Despite these risks, the analyst remarked that ongoing tariff disputes between Canada and the U.S. might temporarily affect crude flows and pricing dynamics, but these are expected to be immaterial over the long term. South Bow has a strategy focused on organic brownfield expansions, aiming for a modest 2-3% annual EBITDA growth over the long term.
The company’s guidance suggests a slight year-over-year EBITDA decrease in 2025, but JPMorgan anticipates that the Blackrod connection project, which is expected to come online in 2026, will catalyze growth for South Bow. The analyst’s comments reflect a balanced view of the company’s prospects, acknowledging both the strengths of its current operations and the potential challenges it faces.
In other recent news, South Bow Corporation reported a strong inaugural quarter, although the 2025 EBITDA outlook fell short of expectations due to weaker spot volumes and marketing margins. Despite the solid quarterly results, CIBC (TSX:CM) analysts downgraded South Bow Corporation’s stock rating from Outperformer to Neutral, citing a weaker-than-anticipated guidance for 2025. Meanwhile, Scotiabank (TSX:BNS) increased the company’s price target to $27.00, maintaining a Sector Perform rating, reflecting expectations of a faster debt reduction. Wolfe Research also adjusted its stance, downgrading South Bow from Outperform to Peerperform following a 6% reduction in EBITDA guidance, highlighting concerns about risks tied to reliance on a single asset. TD Cowen initiated coverage with a Hold rating and a price target of C$34.00, noting South Bow’s high yield and crucial North American crude oil pipeline. Analysts from Wolfe Research pointed out potential tariff risks that might delay growth opportunities, while emphasizing the company’s investment-grade credit rating and yield. Investors are closely monitoring South Bow’s strategic adjustments in response to market volatility and its focus on debt reduction. These developments come as the company navigates a challenging market landscape, balancing growth opportunities with financial resilience.
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