Shares in transport fuel supplier Caltex Australia Limited (ASX: CTX) have been upgraded to buy from neutral by Citi today, with share prices down half a percent to $33.24 at the time of writing.
Citi suggests the stock has underperformed since its full-year results were handed down on February 27, which saw Caltex come in marginally above guidance, with a replacement cost operating profit up 18% to $621 million.
The Citi broker suspects the market has underestimated the medium-term outlook for earnings growth out of Caltex and has kept the price target steady at $39.71 labelling the company’s earnings outlook as “a little uncertain”, but maintaining that “prudent capital allocation” had consistently seen Caltex deliver “top-quartile returns historically.”
Caltex has declared a fully-franked dividend of 61c per share to be paid out on April 6 and the company peg its improved results to strong performance out of its Lytton refinery which managed to up earnings by 50% for FY17.
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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.