On Friday, BMO Capital Markets adjusted its price target for ATCO Ltd (ACO/X:CN) (OTC: ACLLF), a company operating in the utilities sector, increasing it to C$50.00, up from the previous C$49.00. The firm has kept its Outperform rating on the stock.
ATCO's first-quarter earnings for 2024 have reinforced BMO Capital's view that the Alberta-based utility is on a path to earnings growth. The company is expected to benefit from higher regulated Returns on Equity (ROE) and an expansion of its rate base. The positive earnings report has prompted the price target adjustment.
Furthermore, ATCO's Structures division has shown an improved earnings profile. The division has diversified its sector involvement, which has resulted in a more consistent performance, avoiding the periodic earnings drops it has seen in the past.
BMO Capital highlights that the fundamental improvements in ATCO’s business justify a reevaluation of the company's valuation. The analyst suggests that ATCO's forward Price-to-Earnings (P/E) ratio stands at approximately 10 times, which is significantly lower compared to the large cap utility average of around 15.5 times.
The new price target reflects a potential total return of roughly 37%, which includes a 5% dividend yield. The dividend is considered to be well supported, with coverage of approximately two times. This financial metric indicates a solid dividend payout that is less likely to be cut in the future.
InvestingPro Insights
ATCO Ltd (ACLLF) has recently caught the attention of investors and analysts alike, with BMO Capital Markets adjusting its price target upwards. Supporting this optimistic outlook, InvestingPro data reveals a robust financial profile for the company. The adjusted P/E ratio for the last twelve months as of Q1 2024 stands at an attractive 9.69, indicating a potential undervaluation when compared to the industry average. Additionally, the company boasts a solid dividend yield of 5.17%, which is particularly appealing to income-focused investors.
Complementing these metrics, two InvestingPro Tips highlight the company's shareholder-friendly actions: ATCO Ltd has been not only raising its dividend for 30 consecutive years but also has a history of maintaining dividend payments for 44 consecutive years. Such a track record suggests a reliable income stream for investors. Moreover, the company's stock is known for low price volatility, providing a degree of stability in an investor's portfolio.
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