Barlow’s Research Roundup: Scotiabank analyst sees Brookfield Infrastructure Partners as undervalued

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

Unfairly sold

Scotiabank analyst Robert Hope is bullish on Brookfield Infrastructure Partners (BIP.UN-T),

“BIP’s units were down 2 per cent following an in-line quarter and initiation of a formal review regarding a simplification of the BIP/BIPC structure. The review is not a surprise to us given prior commentary regarding the structure and the recent BBU/BBUC simplification. That said, we believe the BIP units are being unfairly dragged down by weakness in the BIPC shares (down 11 per cent). Management remains confident in its 10-per-cent-plus FFO growth target for 2026, with the 10-per-cent growth in Q1 being a good start. We believe BIP’s valuation will expand as the market gains confidence in this outlook. Our estimates do not materially move. Trading at an attractive multiple of 8 times 2028 estimated P/FFO and 12.8 times 2028E EV/EBITDA, and offering a 5-per-cent dividend yield, we see the units as undervalued relative to their growth potential. We maintain a Sector Outperform rating and $44 target price as BIP continues to capitalize on secular tailwinds in digitalization and AI infrastructure”

Alphabet wins quarter

Morgan Stanley’s daily research summary declares Alphabet Inc. (GOOGL-Q) the winner among hyperscaler profit reports,

“MS Research Analyst Brian Nowak detailed why hyperscaler revenue is likely to be the most important incremental signal of GenAI ROIC this year, and results showed it last night with accelerating growth, better-than-expected backlogs, and product expansions (confirmed chip sales). He highlights that Google Cloud (GOOGL, ‘overweight’, $375 price target) accelerated to 63-per-cent year-over-year growth (better than his 60-per-cent growth). He points out that demand was driven by growth in Gemini Enterprise, which saw 40-per-cent quarter-over-quarter growth in paid MAUs [monthly active user] and now processes more than 16bn tokens per minute via direct API. He adds that AWS’ (AMZN OW, $330 PT) 28-per-cent year-over-year growth was below buy-side expectations (30 per cent). He notes that growth was driven by continued demand for AI and core services (across multiple models) and AWS’s budding chip business. Stepping back, he reminds investors that AWS still accelerated 480bp from 4Q, and he sees even faster growth ahead as capacity opens. That said, in his view, this quarter goes to GOOGL as it added $2.3-billion of sequential Revenue, vs $2.0-billion/$1.9-billion from AWS and Azure (Covered by MS Research Analyst Keith Weiss, MSFT OW, $650 PT). He highlights that the surprise of the evening was Google Cloud’s nearly doubling of backlog q/q (from $243-billion to $462-billion) as the business benefited from large private lab contracts, confirmed third-party data center TPU [tensor processing unit, an AI-focused chip] sales and other new business/workloads. He had performed multiple analyses sizing the potential third-party TPU contribution, and depending on chips sold and price per chip, it could have added anywhere from $20-billion-$100-billion to the 1Q backlog. His Base Case assumes it adds $55-billion. He mentions that AWS’s $364-billion backlog (up $120-billion quarter-over-quarter) was also better than his $350-billion driven by large private lab contracts and other new business.”

Physical Crude Market ‘messy’

RBC Capital Markets commodity strategist Christopher Louney assessed global crude markets,

“There may be some physical messiness in the near term as some physical indicators have moderated from crisis peaks amid less intense bidding activity. Yet, physical prices will likely find renewed support as summer approaches and incremental product demand converges with supply constraints … A summer crunch looms as a potential inflection point, with refinery outages persisting, export restrictions in place, and seasonal demand rising; tighter product markets will likely require more significant consumer demand destruction. Overall, physical markets remain a better indicator of market tightness, not fully reflected in paper [futures] currently. With physical prices most directly exposed to availability issues and incremental refinery runs, we view their strength relative to paper prices as durable as the current “no-war, no-peace, no-energy” scenario”.

Bluesky post of the day

Diversion

“This Summer, the American Water Crisis Becomes Real” - Wired