Is Spectra Energy Headed toward Recovery?
(Continued from Prior Part)
Canadian dollar exchange rate
One of the factors impacting Spectra Energy’s (SE) stock price is the value of the Canadian dollar. Nearly 60% of Spectra Energy’s 2014 revenues came from its Canadian operations. Thus, the US-Canadian exchange rate impacts Spectra Energy’s results and thereby its stock price in the long-run.
The correlation coefficient between Spectra Energy’s stock price and the US-Canadian exchange rate for the last nine years is 0.45. This indicates a fair degree of correlation between the US-Canadian exchange rate and SE’s stock price. Spectra Energy separated from Duke Energy (DUK) to trade independently in December 2006.
Crude oil prices
The above graph shows the normalized prices for SE’s stock, natural gas, WTI, and the Canadian dollar. WTI prices, too, impact Spectra Energy’s stock price. During the last nine-year period, the correlation coefficient between SE and WTI prices was 0.34. This indicates a low positive correlation between the two.
It’s worth noting that though the correlation between crude oil prices and SE’s stock price in the long-run is not very high, SE and most other energy stocks tend to fall significantly in extended periods of very low energy commodity prices. This is the case currently. This is also reflected in the correlation coefficient between SE and WTI since the beginning of 2014, which is 0.79.
Spectra Energy’s Field Services segment is exposed to fluctuations in crude oil prices. According to the company’s sensitivity analysis, a $10 per barrel change in oil prices would affect its annual earnings by ~$25 million in 2015.
Natural gas prices
The correlation coefficient between natural gas prices and SE’s stock price, on the other hand, is -0.24. Since the beginning of 2014, the coefficient between the two variables has been 0.69.
Spectra Energy’s predominantly fee-based operations possibly explain its low correlation with crude oil and natural gas prices over the long term. 88% of the company’s earnings for 2014 were fee-based. Moreover, it seems that even though natural gas prices impact SE’s operating performance, its stock price is driven more by crude oil prices and the Canadian dollar exchange rate.
According to the company’s sensitivity analysis, a $0.50 per MMBtu (million British thermal units) change in natural gas prices would affect its annual earnings by ~$23 million in the Field Services segment and by ~$6 million in the Western Canada Transmission and Processing segment. SE forms ~2.3% of the First Trust North American Energy Infrastructure ETF (EMLP).
Low commodity prices have impacted most infrastructure MLPs, including Plains All American Pipeline (PAA) and Magellan Midstream Partners (MMP). In addition to the above factors, a number of other factors such as movements in broader equity markets may impact a company’s stock price.
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