Barlow’s Research Roundup: BMO analyst’s top picks in REITs as refinancing costs climb

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Top REITs

BMO analyst Tom Callaghan provided top picks in REITs as rates climb,

“The recent rise in benchmark interest rates has renewed investor focus on refinancing risk, valuations, and REIT positioning. While higher borrowing costs create earnings headwinds, our analysis suggests the direct impact on most Canadian REITs remains manageable given wellladdered debt maturities, largely fixed-rate balance sheets, and strong property fundamentals across most subsectors. Importantly, we believe recent volatility in rates is often just as relevant as the absolute level, as uncertainty around the cost of capital can weigh on price discovery, valuations, and investor sentiment. Against the current backdrop, we prefer names with strong balance sheets, limited nearterm refinancing needs, and the ability to generate above-average SP-NOI [same property net operating income] growth to neutralize (or counteract) any rate impacts. Across our roster of Outperform recommendations and preferred subsectors, we believe seniors housing (CSH, EXE, SIA), PMZ, GRT, and MHC are all names that screen well”

Targets cut on financials

Scotiabank analyst Phil Hardie reduced price targets on diversified financial stocks,

“We are updating our forecasts for Intact and Definity ahead of what we expect to be an unusually weak quarter. Headwinds include elevated catastrophe losses and the negative impact from a rapid rise in bond yields. That said, we expect the higher yields to support a tailwind in 2027 through higher investment income. We have cut our Q3/26E EPS estimates and made a low-single-digit downward revision to our BVPS forecasts for both companies. We have also revisited several forecast assumptions over the next 12 to 24 months, with modest upward changes for Definity but downward revisions for Intact reflecting a more conservative stance on the improvement trajectory of its UK&I platform. Although we expect a lacklustre third quarter, we believe valuations look attractive with both stocks trading below the low end of the expected range given their ROE outlook and would look to buy on weakness.

“Trimming targets but no change to ratings. Given the downward revisions to our BVPS forecasts, we have trimmed our target for Definity to $83 (was $84) and our target for Intact to $315 (was $325)”

Power shortage

Morgan Stanley’s summary of prominent research highlighted the U.S. electricity shortage,

“MS Research Analysts Andrew Percoco and Dave Arcaro highlight that AI infrastructure is approaching a physical tipping point. They explain that the power shortfall is growing, inference is increasingly suited to smaller nodes closer to users, and political resistance is making the mega-campus data centers harder to scale. The team believes that the result is a structural shift toward distributed behind-the-meter (BTM) power. They mention that time-to-power is becoming as important as cost-of-power. … Bloom Energy’s (OW, $310 PT) SOFC ranks #1, BorgWarner’s (OW, $95 PT) Turbine Generator #2, and FTAI’s (OW, $360 PT) aeroderivative solution #3 for behind-the-meter power today. They note that growth in BTM power for data centers is driving manufacturing scale and innovation across fuel cells, turbines, microgrids, and storage, lowering costs and expanding the addressable market into commercial and industrial applications. … They expect US energy storage system deployments will reach 279 GWh in 2030, including 169 GWh of annual data-center demand. They note that Virtual Power Plants (VPPs), which involve aggregating home solar, storage, and EV battery capacity as a flexible source of power for the grid during peak demand periods, remain a small but growing part of the equation. They mention that physical AI creates a new distributed infrastructure layer. They estimate robot/EV compute capacity could grow to ~1.0TW by 2040. The team highlights top ideas for on-site power equipment suppliers, such as Bloom Energy, Baker Hughes (OW, $70 PT), Cummins (OW, $761 PT), ERock (OW, $23 PT), FTAI Aviation, INNIO (OW, $47 PT), and Rolls Royce Holdings PLC (RR/ LN OW, GBp 2000 PT). They add top ideas within on-site power developers, including Solaris (OW, $90 PT), Liberty (OW, $30 PT), Halliburton (OW, $40 PT), and Williams (OW, $103 PT). They note key ESS/VPP providers, like Tesla (EW, $400 PT), Ford (EW, $14 PT), Fluence (EW, $15 PT), BorgWarner, and Sunrun (EW, $15 PT). “

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Diversion

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