Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Real Estate
CIBC analyst Dean Wilkinson identified the winner from the recent M&A boom in REITs,
“Over the past two years, we have seen in excess of $21B of M&A activity in the REIT sector. While the sector is no stranger to acquisition activity (in fact, one could argue it’s a cornerstone of the industry), the recent increase in both pace and size of transactions begs the question, who’s right? Is it private market capital that would appear to be valuing the long-term steady nature of the real estate cash flows at a premium to current prices, or the public markets that appear to be implying either lower valuations or less robust financial performance? … We do not think rates alone are driving activity in the sector: divergent NOI [net operating income] expectations between public and private markets seems more probable … The most recent, and largest, deal to hit the tape is the pending acquisitions of First Capital REIT by Choice Properties and Kingsett Capital. We believe there is a decent probability that these funds stay in the retail subset, which could represent in excess of 10% incremental demand for the remaining retail REITs in Canada. The first-order beneficiaries from this funds flow are likely to be those REITs that have similar attributes as First Capital REIT, to which we would point to RioCan and to a lesser degree, Primaris, followed by Smart Centres and Crombie. With respect to takeout activity, many retail REITs have control positions or existing relationships that limit takeover interest (e.g., CHP, CRT, CRR, and to a lesser extent, APR)”
TSX
Scotiabank strategist Hugo Ste-Marie updated his targets for the S&P/TSX Composite,
“Model derives EPS forecasts of C$2,086 (+26%) this year, C$2,160 (+4%) in 2027, and C$2,450 (+13%) in 2028. That’s above our former earnings forecasts and above current bottom-up EPS forecasts of C$1,975 (+19%) for 2026 and C$2,229 (+13%) in 2027.Targets. If we apply P/Es of 16.8x on our 2027E earnings and 16.4x on 2028E, we could derive targets of 36.3k for 2026, and around 40k for 2027. If you think using 16.8x looks stretched, we would argue that we have foreign companies snapping CDA oil stocks at a 30% premium (what does that tell you about valuation in the sector - on resource stocks more broadly?). If commodity prices remain high, or rise further, the TSX has further upside potential with valuation metrics probably far exceeding the long-run average of 14.5x. Our new 2026 year-end target implies an upside potential of 8% from current levels (33.7k), for a return of 14% in 2026. Our 2027 target suggests an 11% return. We have TSX valuation discount relative to the S&P 500 tightening a tad over the forecast horizon … Unfortunately, the macro outlook could deteriorate quickly if the Strait of Hormuz were to remain closed for much longer than expected and energy infrastructure sustained additional damage. In such a scenario, investor focus would likely shift rapidly from inflation concerns to growth fears. A material oil price spike (US$150+), sharply higher fertilizer and chemical prices, and renewed supply‑chain disruptions would meaningfully weigh on global growth.”
Economic update
RBC analyst Maurice Choy discussed the implications of new federal government initiatives,
“The Spring Economic Update noted that it will soon release a discussion paper seeking input on how it can work with provinces and territories, Indigenous partners, and other stakeholders to strengthen efforts to connect, modernize and expand the country’s power grid. Separately, given the importance of nuclear energy to Canada’s electricity system and economy, the government will soon release a Nuclear Energy Strategy to provide its perspective on the sector’s future development. Last, the government unveiled six pillars of its forthcoming National AI Strategy (“AI for All”), being: (1) protecting Canadians and safeguarding its democracy; (2) empowering Canadians; (3) powering AI adoption for shared prosperity; (4) building the Canadian sovereign AI foundation; (5) scaling Canadian champions; and (6) building trusted partnerships and global alliances. On the fifth pillar, the government seeks to unlock growth capital and leverage itself as a strategic anchor customer. Within our coverage, we see these as being positive for Hydro One, Alberta power generators (e.g., TransAlta, Capital Power, as well as Pembina via Greenlight), nuclear energy-exposed entities (TC Energy and Brookfield Renewables), Brookfield Infrastructure (via its Data infrastructure platform), and Hammond Power Solutions (electrical equipment … Defence and housing: Directionally positive for ATCO. Like past updates and federal budgets, the government highlighted various defence and housing initiatives, which we view as favourable for ATCO’s Structures & Logistics (S&L) business.”
Diversion
“Woman Convicted for Attacking Police With Swarm of Furious Bees” - Futurism