Below are the valuation targets for Inter Pipeline Ltd. (IPL.TO) for the next 10 years.
Our valuation targets for Inter Pipeline Ltd. (IPL.TO) in 2021 are:
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$32.76 (overvalued)
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$25.83 (fair value)
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$18.90 (undervalued)
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$12.46 (extreme undervalue)
The valuation targets for Inter Pipeline Ltd. (IPL.TO) are based on the data prior to the dividend cut and applied to Edson Gould’s Altimeter. A graphical representation of the overvalued, fair value, and undervalued levels are below.
The above Altimeter translates into the following undervalued and overvalued ranges since 2003:
10-Year Targets
Observations
Because of the beating that the oil sector has taken, we’ve put particular emphasis on the undervalued level for the stock price as a potential upper limit on the stock price until more stability in the sector is achieved.
While we understand that the dividend cut (-72%) is significant and management didn’t take the buyout offer at $30 a share in 2019, there are some who will continue to consider this stock and there is potential that after oil achieved a negative near-term price that the price of oil will rise and stabilize.
It is important to note that a dividend cut is good when it preserves the financial condition of the company to get through tough times. Additionally, management not accepting a buyout offer makes sense because it could be the equivalent of selling low, which is not a good investment strategy, overall.
Much of what happens going forward relies on management demonstrating that the cut in the dividend and not selling low was justified. Some signs of this might be buyback of stock with cash, insider buying, and incremental dividend increases based on earnings that can support hiked payouts.
Our expectation is that there will be some inflation coming down the road and that the fair value targets are reasonable for long-term investors.
Last updated: January 21, 2021.