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Investing.com -- JP Morgan downgraded South Bow Corp to Underweight from Neutral, saying the pipeline operator faces slower earnings growth and has a greater reliance on a single asset. The shares have also rallied this year leaving less room for upside.
South Bow shares are up 23% in 2025, far ahead of the 3% rise in the broader midstream index. The stock now looks less attractive after the rally, as per JPM analysts.
The brokerage pointed to weaker growth in earnings from South Bow’s Keystone pipeline, which makes up nearly all of the company’s business.
Marketing income and spot shipments are expected to fall in 2025, while management’s forecast for 2-3% annual growth in core earnings trails industry peers.
South Bow’s $180 million Blackrod project in Alberta is expected to help earnings in 2026, but the company has little else under development.
Its priority to reduce debt also limits how much it can spend on new projects or return to shareholders, JP Morgan said.
Safety was another concern. In April, a rupture at Milepost 171 added to a string of incidents on Keystone since 2011.
Although insurance softened the financial impact, JPMorgan said the event highlights the risks of relying on one pipeline system for nearly all profits.
South Bow’s long-term contracts remain a strength, the bank noted, but with slower growth ahead and fewer expansion opportunities, it now sees the shares as less appealing than other midstream stocks.