On Thursday, BMO Capital Markets revised its rating on Gibson Energy (TSX:GEI:CN) (OTC: GBNXF), elevating the stock from Market Perform to Outperform. The firm also increased its price target to Cdn$28.00, up from the previous Cdn$25.50. The upgrade comes in response to Gibson Energy's 2025 capital budget announcement, which underscored the potential of its Gateway Terminal.
The Gateway Terminal's contract extension is expected to generate significantly higher revenue for a key customer. Additionally, the approval of a new project is seen as a positive move, enhancing the company's visibility towards achieving a 15-20% increase in Gateway Terminal EBITDA by the end of 2025. BMO Capital's analyst cited these developments as key drivers for the upgrade.
The firm also highlighted Gibson Energy's commitment to cost management and the anticipation of share buybacks in 2025. The company's current valuation, with an estimated 2026 EV/EBITDA multiple of approximately 9x compared to the peer average of around 11.5x, suggests a relative undervaluation, according to the analyst's assessment.
The analyst's comments emphasize the company's strategic initiatives and their potential impact on financial performance. "GEI's 2025 capital budget release highlights the optionality of its Gateway Terminal, with a contract extension driving significantly higher revenue for that customer and sanctioned a new project supporting visibility to achieving 15-20% Gateway Terminal EBITDA growth by end of 2025.
Combined with a sharp focus on cost containment, share buybacks expected in 2025 and relative valuation discount (2026 EV/EBITDA of ~9x vs. ~11.5x peer average), we are upgrading shares to Outperform (vs. Market Perform) with an attractive ~23% potential total return to our new target of $28 (vs. $25.50)."
The new price target represents an approximate 23% potential total return, indicating a bullish outlook for the stock by BMO Capital Markets. This revision in the stock's rating and price target reflects the firm's confidence in Gibson Energy's growth prospects and financial strategies moving forward.
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