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On Tuesday, Scotiabank (TSX:BNS) analyst Kevin Fisk upgraded Whitecap Resources Inc . (TSX:WCP:CN) (OTC: SPGYF) from Sector Perform to Sector Outperform, setting a new price target of C$12.00. Fisk cited the recent all-stock merger with VRN as a key driver for the upgrade, highlighting the potential for significant synergies that could benefit shareholders. The upgrade aligns with InvestingPro analysis showing the stock trading at an attractive P/E ratio of 5.42x and currently being undervalued based on its Fair Value model.
The transaction is seen as a positive development for Whitecap Resources (OTC:SPGYF), with Fisk noting it should lead to strong cash flow per share (CFPS) and free cash flow per share (FCFPS) accretion. Specifically, the analyst projects a 6% increase in CFPS and a 13% increase in FCFPS by 2026, despite a lower production outlook due to weaker commodity prices. The company already demonstrates strong financial performance with a 13% free cash flow yield and maintains an impressive 8.7% dividend yield.
The merger is expected to bring about $210 million in synergies, although this will be somewhat offset by the revised production forecasts. Fisk’s optimism about the stock is rooted in the anticipated financial benefits and strategic advantages stemming from the merger, making the company more appealing to a broader investor base. InvestingPro data supports this view, showing the company maintains a "GOOD" overall financial health score and operates with moderate debt levels.
In addition to the upgrade, Whitecap Resources also announced its updated 2025 budget earlier in the day. The new budget indicates that production and capital expenditure guidance are both slightly lower than the consensus, with a 1% reduction in production and a 3% cut in capital expenditures.
Moreover, Whitecap has completed $270 million in non-core asset sales, with the proceeds earmarked for debt repayment. This move is part of the company’s broader strategy to strengthen its financial position following the merger with VRN.
In other recent news, Whitecap Resources Inc. has been upgraded by Raymond (NSE:RYMD) James from a Market Perform to an Outperform rating. This upgrade follows the announcement of Whitecap’s merger with Veren, which positions the company as the 7th largest oil and gas producer in Canada. Analyst Luke Davis from Raymond James emphasized the strategic nature of this merger, suggesting that it has been anticipated for some time and could enhance operational performance. The price target for Whitecap remains unchanged at Cdn$13.00. Davis expressed confidence in the management team’s ability to realize synergies and improve the company’s standing among Canadian large-cap peers. The merger is expected to strengthen Whitecap’s position within the industry, with potential long-term benefits. While some market adjustments might occur as details of the merger are absorbed, the outlook is positive. This development marks a significant step for Whitecap Resources as it aims for growth and improved market positioning.
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