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By Bloomberg

OAO Gazprom rose to a six-week high in New York after Renaissance Capital Ltd. recommended buying the stock, saying the gas producer’s improving growth outlook and low price relative to peers is “a deep value opportunity.”

The American depositary receipts advanced 3.1 percent to $5.25, the highest level since Feb. 19. Russia’s biggest natural gas producer is priced at 3.2 times projected earnings, close to a record low and the cheapest valuation among its global peers which trade at an average multiple of about 17.

The stock has failed to capture Gazprom’s improved outlook for growth and dividend payouts as oil prices stabilize, exports to Europe rise and the company seeks to expand into China, Renaissance Capital analysts including Ildar Davletshin wrote in a note on Monday. They raised Gazprom to buy from hold with a $7.10 price target a year after cutting their recommendation as the stock tumbled amid an economic slowdown tied to a rout in crude and sanctions linked to the Ukraine conflict.

“The upgrade reflects an extraordinarily cheap level compared to Gazprom’s peers, and I believe that the positive developments are not included,” Davletshin, an oil and gas analyst at Renaissance Capital, said by phone from New York on Monday. “The company’s fundamentals have leaped far ahead as the company is expanding into China while making effort to keep costs under control, the potential for growth is clearly there.”

China Deal

The state-run gas exporter signed a 30-year supply contract with China National Petroleum Corp. in 2014 and seeks a second agreement before July, Energy Minister Alexander Novak said last month. Gazprom’s annual dividend could increase to 8.30 rubles per share, up from 7.20 rubles in 2013 and 60 percent above the Bloomberg consensus estimate, according to Renaissance Capital.

This year’s gas exports to Europe will be 155 billion cubic meters, a 5.5 percent increase from 2014 amid the need to replenish inventories as the euro zone recovers, Davletshin said. Deliveries to Europe should rebound in the next three years as the region’s gas output decreases, Gazprom’s Deputy Chief Executive Officer Alexander Medvedev said in February.

Gazprom’s dividend payout is uncertain amid capital expenditure programs and the geopolitical situation in Ukraine, according to Andrey Polischuk, an oil analyst at Raiffeisenbank ZAO, who has a hold rating on the stock.

“Gazprom will have strong arguments in order not to pay high dividends this year -- the conflict in Ukraine, declining commodity prices, a vast ongoing investment program,” Polischuk said by phone from Moscow on Monday. “The program in China that Gazprom is developing may ultimately be successful but won’t have much upside in the near term.”

Lower Dividend

The Russian government, Gazprom’s controlling shareholder, said the dividend may drop to about 5.2 rubles, according to the country’s revised budget submitted to the parliament in March.

Goldman Sachs Group Inc. raised Gazprom to buy from neutral in March, saying the company’s export volumes will pick up over the next months. The growth will drive “strong share price performance” after the stock tumbled amid pessimism over this year’s export volumes to Europe, Goldman Sachs analysts Geydar Mamedov and Elena Malareva said in a note to clients.

Gazprom has advanced 16 percent in 2015 after tumbling 48 percent last year in New York. A Bloomberg gauge of the most- traded Russian stocks in the U.S. rallied 3 percent on Monday while the dollar-denominated RTS index rose 4.4 percent.

“We view Gazprom as a deep value opportunity,” the Renaissance Capital analysts wrote in their note. “The company’s stock has reached pre-1998 levels, while its fundamentals are now much stronger.”