ARC RESOURCES $21.81

ARC RESOURCES $21.81 (Toronto symbol ARX; Shares outstanding: 350.3 million; Market cap: $7.6 billion; TSINetwork Rating: Speculative; Dividend yield: 2.8%; www.arcresources.com) produces oil and natural gas in Western Canada. Its average daily output of 124,224 barrels of oil equivalent is 66% gas and 34% oil.

In the three months ended March 31, 2016, the company’s cash flow per share dropped 24.6%, to $0.43 from $0.57 a year earlier. Production increased 3.2%, but its realized oil and gas price fell 27.7%.

Like Enerplus, ARC is cutting exploration and development spending. In 2016, it will devote $390.0 million to this purpose. That’s down 29.1% from $550.0 in 2015.

To further conserve cash while it waits for oil and gas prices to rebound, the company cut its monthly dividend by 50.0% with the March 2016 payment, to $0.05 from $0.10. The shares now yield 3.0%.

The stock trades at 12.1 times ARC’s forecast 2016 cash flow per share of $1.80. That’s high, but it’s not unreasonable for a company with ARC’s long-term growth potential.

ARC Resources is a buy.

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