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Shares of Spectra Energy (SE - Analyst Report) hit a 52-week high of $35.52 on Jul 8, 2013. The shares closed at $35.43, 27.2% above the year-earlier share price of $27.85. Spectra Energy is one of North America’s premier natural gas infrastructure plays with a strong presence in growth markets. These positions should lead to value-accretive growth opportunities in the coming years.

Though we believe commodity price concerns remain for the near term, the company’s core fee-based businesses of storage, transmission, distribution and Canadian gathering and processing have the potential to move the needle toward solid earnings and cash flow growth in the long run. Spectra acquired the Express-Platte pipelines from Kinder Morgan and two Canadian pension funds in Mar 2013. This acquisition will shift Spectra’s portfolio from the commodity risks related to natural gas liquids to a growing market of crude oil pipeline business. Moreover, the acquisition will likely add 3 cents to 5 cents per share to annual earnings in the first year. Going forward, Spectra intends to increase its presence in the oil and refined products pipelines, storage tanks and terminals business.

Management remains optimistic on its future performance based on its expansion program, which remains on track. With its market leading position, diversified asset portfolio and strong investment opportunities, we expect Spectra Energy to sustain the growth momentum. Additionally, Spectra plans to invest $1 billion per year through 2015 on fee-based gas infrastructure growth projects. The company expects to commission around 8 projects through 2016. Among these projects – Southern Hills and Sand Hills Pipelines, Front Range Pipeline, and Texas Express Pipeline, are expected to be come online by 2013.

However, Spectra’s results are vulnerable to fluctuations in natural gas markets. The proposed liquid-rich drilling activities by the company clearly suggest that volatility in natural gas prices will change little going forward. Major investments in several projects in Canada also expose Spectra to fluctuations in currency rates that may affect the results of its operations. The company presently retains a Zacks Rank #3 (Hold).

The Zacks Consensus Estimate for 2013 and 2014 is $1.53 and $1.61 per share, reflecting year-over-year growth of 7.06% and 5.36%, respectively. Pipeline operator stocks worth considering at the moment are Atlas Energy, L.P. (ATLS - Snapshot Report), Cheniere Energy Partners L.P. (CQP), and Oiltanking Partners, L.P. (OILT - Snapshot Report), all with a Zacks Rank #1 (Strong Buy).


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