Zacks_Analysts' Blog : Questar Reaffirmed at Neutral - Analyst Blog

We maintain a long-term Neutral rating on Questar Corporation (STR) based on its strong earnings and dividend growth potential, partially offset by unstable natural gas fundamentals, the domestic imbalance of supply/demand and political headwinds in certain regions.



Questar delivered mixed results in the first quarter of 2011, with earnings of 39 cents falling short of both the Zacks Consensus Estimate and prior-year quarter's result. Total revenue ($470 million), however, comfortably moved ahead of our projection and the year-ago figure.



Management's confidence in Questar's business units is highlighted through the various development projects that are expected to drive high production and reserve growth rate in the years to come. With a focused and experienced managerial team, manageable debt maturities and long-term contracts, the company will likely sustain its profitability in the coming quarters.



We appreciate Questar's efforts to broaden its market exposure for liquefied natural gas (LNG) products and services. In this regard, the company has formed an alliance with Applied LNG Technologies LLC to jointly look for new market opportunities for LNG in the Rockies.



Despite all these positive aspects, Questar is unable to avoid the risks associated with the global economic volatility. The supply-demand imbalance, resulting from the flood of natural gas in the domestic market, will likely continue to weigh down the stock in the near to medium term.



With returns from Questar's regulated businesses (interstate natural gas transportation and storage and retail gas distribution) likely to suffer from disallowance of costs and lower usage, the company's growth prospects remain clouded.



Moreover, we believe that Questar will take some time to fully absorb the outcome of the spin-off. Until then, the business profile of the company is exposed to greater competitive risks from peers such as Anadarko Petroleum Corporation (APC) and  Cabot Oil & Gas Corporation (COG).