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  5. ARX: Arc has been rising steadily for some months now, and has been outperforming many of its peers. [ARC Resources Ltd.]
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Q: Arc has been rising steadily for some months now, and has been outperforming many of its peers. It has now grown to my largest holding at over 7% of the portfolio. I would appreciate your view of the reasons for its seeming outperformance. It is in an unregistered portfolio so cutting back would generate substantial capital gains.
Asked by Peter on August 04, 2023
5i Research Answer:

Natural gas prices have been breaking out recently, and ARX has been following suit, alongside reporting strong earnings. Analyst estimates call for a drop in sales and earnings this year, but with earnings growth expected thereafter. Debt levels are low, profit margins are strong, its valuation continues to be cheap (7.1X forward earnings and 1.7X book), and its solid free cash flows are being used towards aggressive share repurchases and some debt repayments. For the first six months of 2023, ARC has returned 107% of free funds flow to shareholders, and it plans to renew its buyback plan for an additional 10% of the public float on September 1, 2023. This is substantial, given over the past 12 months the company has bought back ~10% of its public float. If natural gas prices remain strong, we continue to like this name here.