Key insights
- Goldman Sachs initiated coverage on South Bow Corporation (SOBO) with a Sell rating and a $29 price target, citing valuation concerns. The stock is trading above Goldman's target and InvestingPro's fair value. While acknowledging the strategic importance of the Keystone pipeline and management's execution, Goldman Sachs is cautious about the stock's multiple expansion and limited shareholder return growth until 2029. The firm awaits commercial support for the Prairie Connector project.
Investing.com - Goldman Sachs initiated coverage on South Bow Corporation (NYSE:SOBO) with a Sell rating and set a price target of $29.00. The stock currently trades at $32.07, above both Goldman’s target and InvestingPro’s Fair Value of $29.04, suggesting the shares may be overvalued at current levels.
Analyst John Mackay said the company’s primary asset, the Keystone pipeline system, is a strategic asset as one of the few major outlets for Canadian crude production. South Bow also has unused capacity upstream and downstream of Keystone on its secondary assets, which could provide small though high-return organic growth.
The firm said management has executed well since the spin-out from TC Energy in October 2024, particularly given a challenging starting point on leverage and dividend payouts. The company maintains a "GOOD" financial health score and offers a 6.2% dividend yield. Goldman Sachs said it is less constructive at current share price levels.
The firm cited concerns that a new major growth project, the Prairie Connector, could be transformative but awaits commercial support from the open season and a path to final investment decision. Goldman Sachs views the stock’s recent multiple expansion as premature.
The price target is based on a 10x multiple on the firm’s 2027 EBITDA estimates. Goldman Sachs said it sees capital allocation flexibility as restricted relative to the rest of its coverage and sees limited shareholder return growth until 2029.
In other recent news, South Bow Corporation reported its fourth-quarter adjusted EBITDA at $252 million, slightly surpassing both Scotiabank’s estimate and consensus expectations of $250 million. The company also reaffirmed its 2026 EBITDA guidance outlook and successfully launched the Blackrod project. Additionally, Wolfe Research raised its price target for South Bow to $27.00 from $24.00, maintaining an Underperform rating. This adjustment followed the confirmation of the Prairie Connector project, which is linked to the revival of the Keystone XL pipeline. Meanwhile, Scotiabank increased its price target for South Bow to $34 from $30, while maintaining a Sector Perform rating. These developments reflect South Bow’s recent strategic moves and financial performance.
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