On Monday, Scotiabank maintained a Sector Outperform rating for Keyera Corp. shares (TSX:KEY) (OTC: KEYUF), with a revised price target of C$42.00, up from the previous C$40.00. The adjustment reflects a positive outlook for the energy infrastructure company, with the anticipation of several potential catalysts that could enhance the company's forecasts and valuation in the latter half of the year.
Keyera, which has been the best-performing stock in Scotiabank's coverage universe year-to-date, is expected to continue its strong performance. The company is likely to maintain its self-funding equity model and low leverage, while still having the capability to repurchase shares. Keyera is projected to profit from an increase in gas and natural gas liquids (NGL) volumes starting in 2025.
The increase in the price target to C$42.00 is also justified by a more tangible growth outlook, implying a 10.4x 2026 estimated enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) ratio.
This is compared to the recent 2025 estimated trading levels of 10.0x. The company's financial strategy includes maintaining low leverage, with management forecasting a 2.2x adjusted debt to EBITDA ratio in the first quarter of 2024, which is well within their target range of 2.5x to 3.0x.
The company's low payout ratio, which is expected to be 59% in 2024, falls within the targeted range of 50%-70%. This, along with the anticipated volume growth, is predicted to drive improved returns on existing assets. Moreover, the market is looking forward to new project announcements that could further bolster Keyera's value and performance.
In summary, Keyera Corp. remains one of Scotiabank's preferred midstream companies due to its strong financial position, growth prospects, and potential upcoming positive developments. The raised stock price target reflects confidence in Keyera's future performance and growth trajectory.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.