© Reuters.
On Friday, JPMorgan altered its stance on Kodiak Gasoline Companies Inc (NYSE:KGS), shifting its inventory score from Obese to Impartial, whereas growing the value goal on the shares to $37.00 from the earlier $35.00. The adjustment comes after Kodiak’s shares demonstrated appreciable outperformance, which the agency believes now presents a extra balanced danger/reward profile for traders.
The corporate’s robust efficiency within the fourth quarter of 2023 was acknowledged, together with its constant natural progress and the advantages gained from the acquisition of CSI, which has improved scale. The acquisition has additionally led to enhanced monetary flexibility and a extra numerous buyer base for Kodiak.
Regardless of these positives, JPMorgan pointed to the latest share outperformance as a limiting issue for additional upside. Additionally they famous potential considerations over future sponsor sell-downs, which may supply a extra enticing entry level for brand spanking new traders.
Since its preliminary public providing in late June, Kodiak’s shares have outperformed the AMNA index by roughly 45% on a complete return foundation. The acquisition of CSI has launched variables such because the uncertainty of CSI unitholder sell-down, a decrease focus within the Permian area, a rise within the common fleet age from about 4 years to roughly 6 years, and the dangers related to integrating the 2 corporations.
JPMorgan acknowledged that if Kodiak efficiently leverages the anticipated DCF accretion from the CSI deal, there might be potential for dividend will increase or a share repurchase program, which might be just like the mannequin adopted by HESM. Nonetheless, the present inventory ranges are believed to mirror a few of this potential already.
Kodiak continues to work in direction of a leverage goal of three.5x by the top of 2025 and has just lately accomplished an unsecured word providing to simplify its capital construction. With these concerns, JPMorgan has opted to elevate its year-end 2024 worth goal to $27 per unit, but has downgraded the inventory to a Impartial score, indicating a extra balanced danger/reward situation going ahead.
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