We are downgrading Questar (STR) shares to Underperform from Neutral, due to the weak natural gas fundamentals and the company’s clouded post-split outlook. The continued glut in domestic gas supplies continues to weigh on the company, and storage levels remain above their five-year average.
This translates into a bearish near- to medium-term outlook for natural gas-weighted companies like Questar. The transfer of the low-cost and high-growth E&P assets (post-split) have also held back the stock.
These factors are reflected in our downgrade of the company’s shares to Underperform from Neutral. Our $16 price objective reflects 2010 P/E multiple of 14.6x.
