ARC Resources Ltd. (AETUF) is a leading oil and gas company headquartered in Calgary, Canada. The company’s activities focus on developing, exploring, and producing conventional crude oil, condensate, and natural gas liquids (NGLs).

For the third quarter of 2022, AETUF delivered production of 342,034 boe per day (60% natural gas and 40% crude oil and liquids). The company generated free funds flow of $580 million. It distributed 94%, or $544 million, of free funds flow to shareholders during the quarter through a combination of dividends and share repurchases under its normal course issuer bid (NCIB).

Furthermore, the company increased its targeted return to 50-100% of free funds flow to shareholders, up from its prior target of 50-80%. Also, it approved a preliminary 2023 capital budget of $1.80 billion. The capital program balances profitable growth with the flexibility to increase capital returns to shareholders as net debt is reduced.

AETUF’s board of directors approved a 25% increase to its quarterly dividend from $0.12 to $0.15 per share. The dividend increase will take effect in the fourth quarter of 2022. The company pays an annual dividend of $0.44, yielding 3.03% at the current share price.

Shares of AETUF have gained 58.8% in price year-to-date and 35.8% over the past year to close the last trading session at $14.32.

Here is what could influence AETUF’s performance in the upcoming months:

Solid Financials

AETUF’s net income increased 1,519% year-over-year to C$867.80 million ($644.01 million) for the fiscal 2022 third quarter ended September 30, 2022. Its net income per share grew 1,785.7% from the year-ago value to C$1.32. The company’s funds from operations were C$953 million ($707.24 million), up 24.5% year-over-year. Its free funds flow improved by 16.7% from the prior-year period to C$580.10 million ($430.50 million).

Furthermore, the company’s net debt came in at C$1.13 billion ($838.60 million), down 20% year-over-year. In addition, cash inflow from investing activities increased 53.8% from the year-ago value to C$351.90 million ($261.15 million).

Favorable Analyst Estimates

Analysts expect AETUF’s revenue for the fiscal year 2022 (ending December 31) to come in at $51.62 billion, indicating an increase of 51.6% from the prior-year period. The consensus EPS estimate of $2.36 for the ongoing year indicates a 139.9% year-over-year increase. 

In addition, the company’s revenue in the next fiscal year is expected to grow 9.2% year-over-year to $2.57.

High Profitability

AETUF’s trailing-12-month gross profit margin of 64.98% is 66.2% higher than the industry average of 39.11%. Its trailing-12-month EBITDA margin of 49.29% is 80.4% higher than the industry average of 27.32%. Moreover, the stock’s trailing-12-month net income margin of 26.67% is 137.9% higher than the industry average of 11.21%.

In addition, AETUF’s trailing-12-month levered FCF margin of 21.62% is 226.6% higher than the industry average of 6.62%. The stock’s trailing-12-month ROCE, ROTC, and ROTA of 38.14%, 22.38%, and 19.44% compare to the industry averages of 19.98%, 7.70%, and 6.61%, respectively.

Discounted Valuation

In terms of forward non-GAAP P/E, AETUF is currently trading at 6.03x, 25.5% lower than the industry average of 8.09x. The stock’s forward EV/Sales of 1.95x is 6.6% lower than the industry average of 2.09x. And its forward EV/EBITDA multiple of 3.52 compares with an industry average of 5.76.

Furthermore, the stock’s forward Price/Cash Flow multiple of 3.50 is 21% lower than the industry average of 4.43.

Consensus Rating and Price Target Indicate Potential Upside

Each of the six Wall Street analysts that rated AETUF rated it Buy. The 12-month median price target of $18.89 indicates a 31.9% potential upside. The price targets range from a low of $17.04 to a high of $21.48.

POWR Ratings Show Promise

AETUF has an overall B rating, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. AETUF has a grade of A for Momentum. The stock is currently trading above its 50-day and 200-day moving averages of $13.50 and $13.25, respectively. In addition, it has a B grade for Quality, in sync with its higher-than-industry profitability metrics.

AETUF is ranked #10 out of 94 stocks in the B-rated Energy – Oil & Gas industry.

Beyond what I have stated above, we have also given AETUF grades for Sentiment, Growth, Value, and Momentum. Get access to all AETUF ratings here.

Bottom Line

AETUF’s business continues to perform well, as evidenced by impressive third-quarter financials. The company’s financial strength enabled it to increase its quarterly dividend by 25%. Moreover, the stock is currently trading above its 50-day and 200-day moving averages, indicating an uptrend.

Given AETUF’s solid financials, promising growth prospects, low valuation, high profitability, and attractive dividend, we think it could be wise to invest in this under-$15 stock.

How Does ARC Resources Ltd. (AETUF) Stack up Against Its Peers?

AETUF has an overall POWR Rating of B. One could also check out these other stocks within the Energy-Oil & Gas industry with an A (Strong Buy) rating: Marathon Petroleum Corp. (MPC), Valero Energy Corp. (VLO), and PrimeEnergy Resources Corporation (PNRG).

AETUF shares were trading at $13.36 per share on Wednesday afternoon, down $0.96 (-6.70%). Year-to-date, AETUF has gained 51.03%, versus a -20.19% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

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