Inside the Market’s roundup of some of today’s key analyst actions
Desjardins Securities analyst Brent Stadler initiated coverage of three well-known Canadian utility companies on Tuesday.
Calling it a “top-quality utility offering a combination of best-in-class execution, balance sheet strength and growth,” he expressed a preference for Hydro One Ltd. (H-T), giving it a “buy” recommendation and seeing it as “peer-leading across the board.”
“We refer to H as a ‘wagon’ given its exceptional execution,” he said.
“We believe H has best-in-class defensive attributes as well as best-in-class offensive attributes,” he said. “Given utilities have historically performed best during times of uncertainty and volatility, we believe investors should migrate to quality when seeking safety—therefore, H is our preferred utility name. H’s strong balance sheet (rated A (Stable)), low payout ratio (64 per cent vs peers at 85 per cent) and predictable, stable earnings profile with the potential for upside under the five-year joint rate application (JRAP) provides strong defensive attributes. Its largely self-funded growth model, peer-leading EPS growth (7.4-per-cent under the current JRAP; we forecast 8.0 per cent over the next JRAP) and 6-per-cent annual dividend growth provide attractive offensive attributes. While we acknowledge that H trades at a solid premium to peers (23.0 times vs 17.7 times), we believe this is warranted given its execution track record, lower risk profile and positive outlook."
He set a Street-high target of $58, exceeding the average of $47.27, according to LSEG data.
Mr. Stadler sees Fortis Inc. (FTS-T) as a “consistent performer,” giving it a “hold” recommendation and $70 target. The average is $66.54.
“We view FTS as a relatively consistent utility,” he said. “The company has a solid track record, with consistent rate base and earnings growth of 6.9 per cent and 5.2 per cent, respectively, over the past five years,” he said. “We believe investors can expect CAGRs of at least 6.5 per cent in rate base and 5–6 per cent in EPS over the next five years. We currently model the lower end of these ranges; however, when FTS provides its update in the fall, it is possible that our numbers will move higher given we see the possibility for an incremental $800-million of spend in 2029. Overall, we expect middle-of-the-pack earnings growth relative to Canadian and U.S. utilities. We like that FTS’s transmission lines receive a premium ROE (10.73 per cent) and equity thickness (60 per cent) and are relatively lower risk. We also like that its utlities in Arizona provide exposure to potential upside from load growth, including data centres (in addition to manufacturing and mining), with the potential to reduce regulatory lag in the region, which could benefit our forward numbers. We believe FTS has a strong investment-grade balance sheet of A- (Negative), with a large buffer in the event that S&P downgrades it to BBB+ (given a strict view on wildfire risk), which would not have a material impact on its cost to borrow. Given that FTS’s utlities are located in the U.S. and given the stock trades at a 1.0 times premium to US peers (a reasonable proxy of value), we are initiating coverage of Fortis Inc. with a Hold–Average Risk rating."
The analyst also pegged Emera Inc. (EMA-T) with a “hold” rating alongside a $62 target, believing “recent deleveraging should drive improvements going forward.” The average target is $60.
“We believe the EMA story has improved following the recent asset sales that are expected to delever the balance sheet and improve EMA’s credit metrics so they are in line with rating agency thresholds, thereby maintaining its investment-grade balance sheet, which is currently BBB- (Stable) under S&P,” he said. “We see EMA with roughly middle-of-the-pack rate base and earnings growth at 6.0 per cent and 5.6 per cent, respectively, over the next five years and believe the earnings trajectory could be more volatile. We like EMA’s exposure to Florida given the fast-growing nature of the state, which makes up 75 per cent of our 2025 earnings estimate. On the other hand, we are lukewarm on Nova Scotia given the recent rate cap that was in place as customers struggled with affordability issues; we expect to get regulatory clarity this year—we currently model an earnings improvement in Nova Scotia. Given EMA’s utilities are largely located in the U.S. and given it trades at a 1.0 times premium to US peers (a reasonable proxy of value), we are initiating coverage of Emera Incorporated with a Hold–Average Risk rating."
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When TransAlta Corp. (TA-T) reports its results on Wednesday, Mr. Stadler is expecting a “weaker quarter on a soft Alberta power market.”
“We reduced our 1Q25 estimates for recent Alberta power market data and we are now at the low end of TA’s full-year guidance,” he said. “Investor focus will be on the Alberta power market outlook for the rest of 2025, Centralia recontracting update and the Alberta data centre opportunity, including signing an MOU by mid-2025.”
Mr. Stadler dropped his first-quarter EBITA estimate to $281-million from $293-million, falling in line with the consensus on the Street of $284-million.
“We have reduced our 1Q25 estimates to reflect: (1) 1Q25 average spot pricing of $40/MWh, generation per the AESO website and expectations for lower power price volatility; and (2) expectations for higher corporate expenses related to the data centre opportunity,” he said. “Our FCF/share estimate declined to $0.44 (from $0.47) following the lower EBITDA.
“After revising our 1Q25 estimates and making some modest tweaks to pricing assumptions for the rest of the year, we now model EBITDA of $1.154-billion for the full year, which is at the low end of TA’s 2025 guidance range of $1.150–1.250-billion. Our FCF estimate of $467-milllion ($1.58/share) is also at the lower end of the $450–550-million full-year guidance range. As we enter the shoulder season for power prices, it is possible they will remain a bit depressed until the summer. We believe warm weather could help ensure TA hits its guidance.”
Keeping his “hold” rating for TransAlta shares, Mr. Stadler lowered his target to $14 from $16 based on adjustments to his discount rates. The average is $17.82.
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Following a “sound” first quarter, National Bank Financial analyst Dan Payne sees Baytex Energy Corp. (BTE-T) displaying “sustainability through volatility” with the Calgary-based company continuing to “manage capital and production towards highest sustainability as a means to defend its long-term value proposition.”
After the bell on Monday, Baytex reported operating and financial results that he deemed “solid” versus expectations, including daily average production of 144,194 barrels of oil equivalent, up 2 per cent year-over-year, and cash flow per share of 60 cents, topping the Street’s expectation by 4 per cent.
“As commodity prices through the period proved relatively stable (WTI up 2 per cent quarter-over-quarter), its realizations remained in-hand (up 6 per cent), which in association with its relatively static cash cost structure (up 6 per cent), saw its cash netback remain intact at $36/boe (up 9 per cent),” said Mr. Payne. “The cash returns therein continue to see its production supported negative 3-per-cent net of dispositions and outages within a 90-per-cent payout ratio that implied a 10-per-cent FCF yield. Those returns continue to be redirected towards its 4-per-cent cash yield, return of capital (less than 1-per-cent outstanding buyback) and balance sheet (1.3 times D/CF; down 2 per cent quarter-over-quarter, incl. FX).”
“Key outcomes of its active capital program and prospective opportunities include a) Continued advancement of capital efficiency tailwinds in the Eagle Ford, with 35 wells to be brought on stream through the remainder of the program, b) Its Duvernay program continues to advance steadily, with its longest ERH well recently drilled, and c) High returns in the Clearwater continue to be noted at Peavine (production down 8 per cent quarter-over-quarter). Notably, each of its Duvernay and Heavy Oil (incl. Clearwater) assets remain structural within its budget.”
Given the lingering commodity price volatility, Mr. Payne noted Baytex is indicating towards the low end of its 2025 capital range (of $1.2-billion), which he thinks should continue to “see emphasis oriented towards high-sustainability production management.”
“To that end, the budget remains focused on delivering average production of 148 mboe/d (FLAT) within the context of an 85-90-per-cent payout ratio to suggest a 10-15-per-cent FCF yield ($60/bbl WTI), which remains biased towards Q4/25,” he said. “To that end, and with reduced free cash seen under current pricing, it will prioritize free cash towards the balance sheet relative to its buyback. Optimistically, its balance sheet remains in good stead, with leverage trending around 1.3 times (and falling through year-end), while liquidity remains in hand as debt is materially termed out and little is drawn on its credit facility. Notably, it is insulated by solid hedges, while upside remains topical into a more favourable environment (i.e., 15-20-per-cent sensitivity to a $5/bbl WTI).”
After updating his forecast to adjust to the difficult industry conditions, Mr. Payne trimmed his target for the company’s shares to $5 from $5.50, keeping an “outperform” rating. The average target on the Street is $4.38.
Elsewhere, others making target changes include:
* Raymond James’ Luke Davis to $3.50 from $4 with a “market perform” rating.
“Baytex’s 1Q25 results were generally as expected with the company moving to a more defensive tact, messaging capital at the lower end of guidance, while pausing share buybacks in favour of more rapid debt repayment,” said Mr. Davis. “The stock has been under significant pressure, down more than 40 per cent year-to-date, primarily driven by its higher (and degrading) leverage profile, coupled with positioning in higher cost shale plays. That said, debt is termed out with 2028 marking the first maturity on the credit facility, providing plenty of time to assess options and focus on improving longer-term sustainability. While the optics are currently unfavourable and higher pricing is ultimately needed to right the ship, we do not believe the company is at immediate going concern risk and would not expect any knee-jerk reactions from management.”
* TD Cowen’s Menno Hulshof to $4.50 from $4.75 with a “buy” rating.
“Q1 reflected operating consistency and cost structure improvements (opex down 10 per cent year-over-year), but we worried results would get overshadowed by ’25 guidance risk,” said Mr. Hulshof. “Given sig. macro uncertainties, BTE now expects ’25 capex/production to fall to the lower-end of guidance. Further, 100 per cent of near-term FCF will now be allocated to debt repayment vs. its formal 50/50 debt/buybacks framework.”
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Macroeconomic conditions and access to the U.S. market are likely to be focus of investor attention when Premium Brands Holdings Corp. (PBH-T) reports its first-quarter financial results on Wednesday before the bell, according to RBC Dominion Securities analyst Ryland Conrad, who sees the Vancouver-based company “balancing accelerated growth with elevated leverage and near-term headwinds.”
“Despite the still challenged operating environment (value-seeking consumer behavior, underperforming lobster fisheries, sales headwinds for a major foodservice customer and tariff uncertainty), we believe management continues to execute on U.S. growth initiatives with significant capacity expansions, new customer wins and a healthy sales pipeline setting the foundation for the next phase of accelerated growth beginning in earnest in H2/25,” he said. “While we remain on the sidelines given the still challenged operating/macro backdrop in combination with elevated leverage (4.5 times pro forma excluding leases), we continue to have confidence in management’s execution and see potential upside in the shares at 9.1 times FTM [forward 12-month] EV/EBITDA (versus a historical range of 8-16 per cent) as U.S. initiatives continue to scale with any meaningful macro improvement being an incremental tailwind”
For the quarter, Mr. Conrad is currently forecasting revenues and adjusted EBITDA of $1.595-billion and $133-million, up 9.1 per cent and 10.1 per cent year-over-year, respectively, versus the consensus projections of $1.598-bilion and $134-million. His earnings per share estimate is 71 cents, a rise of 32.6 per cent an a penny ahead of the Street’s expectation.
“Looking for an update on the demand environment and U.S. sales pipeline amidst elevated macro uncertainty,” he said. “With Q4/24 results in late March, management reiterated that the company is well-positioned to manage through any potential tariff impacts with: (i) majority of inputs sourced domestically; (ii) strategies being implemented to mitigate potential impacts on the less than 10 per cent of consolidated revenues that are exposed to U.S. tariffs; and (iii) no changes to consumer behaviour observed across both the U.S. and Canada through Q1/25. While we do not anticipate any revisions to the 2025 outlook, we expect management to provide an update on the extent to which tariff-induced macro headwinds are having (or are expected to have) an impact on the demand environment and the pace of new customer onboardings within the U.S. sales pipeline. That said, we have modestly lowered our revenue and adjusted EBITDA forecast to the low-end of the previously provided 2025 guidance ranges given elevated macro uncertainty.”
Maintaining a “sector perform” recommendation, Mr. Conrad trimmed his price target by $1 to $97 after reductions to his estimates and an update to his valuation. The average is $102.50.
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Following last week’s first-quarter earnings release and a meeting with its management on Monday, RBC Dominion Securities analyst Walter Spracklin continues to see Westshore Terminals Investment Corp. (WTE-T) as “less impacted” by tariffs, but he thinks its shares are fairly valued at current prices.
“In summary, Q1 was negatively affected by U.S. rail service issues due to tough winter weather, which impacted throughput and operating costs during the quarter,” he said. “From an outlook perspective, management maintained volume guidance, but decreased its loading rate guidance due to FX and mix; accordingly, we have reduced our estimates to align with the updated guidance.”
The Vancouver-based company reported quarterly EBITDA of $28-million, well below Mr. Spracklin’s $47-million due to “tough winter operating conditions, which impacted U.S. rail service that led to more than a week of interrupted service at one point - and therefore negatively affected throughput in the quarter”
“Management lowered their 2025 loading rate guidance to $13.20, from $13.55, due to FX and mix.” he added. “We adjusted our 2025 estimate to align with the updated guide, which represented roughly a 5-per-cent headwind vs. our prior 2025 EBITDA estimate. Management maintained 2025 throughput guidance at 26.5Mt, in line with our estimates coming into the quarter of 26.5Mt; and our throughput estimate remains unchanged post quarter despite Q1 coming in below.”
“We do not expect Westshore to be materially affected by tariffs, with only 14 per cent of volumes exported from the terminal landing in China, most of which we believe is met coal. We therefore see Westshore as less impacted by evolving trade policy compared to the other companies in our industrials coverage.”
Reducing his estimates, due largely to changes to his loading rate forecast driven by Canadian dollar appreciation, Mr. Spracklin, currently the lone analyst covering Westshore, lowered his target to $23 from $25, keeping a “sector perform” rating.
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In a report titled Making Merchants More Agile in Uncertain Times, BMO Nesbitt Burns analyst Thanos Moschopoulos initiated coverage of Shopify Inc. (SHOP-N, SHOP-T) with an “outperform” rating.
“SHOP has achieved better growth and operating leverage in recent quarters, since divesting logistics in 2023,” he said. “Looking forward, we see substantial runway for growth on several fronts—which we believe SHOP can successfully capitalize on given the strength of its market position.
“While tariffs create near-term risk, we believe SHOP’s core strength is the agility that its platform provides to merchants. In our view, tariff-related disruption will make this competitive differentiator all the more relevant, driving accelerated share gains.”
He set a target of US$120 per share. The current average is US$120.36.
Elsewhere, ATB Capital Markets’ analyst Martin Toner reduced his target to $155 from $170 with a “sector perform” rating.
“We reduced our 2025 and 2026 GMV [gross merchandise] and revenue estimates ahead of the Q1 results, as we express caution heading into the quarter amidst the uncertain impact global tariffs could have on SHOP’s top and bottom-line,” he said.
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In other analyst actions:
* Seeing balance sheet concerns and operational issues weighing on its outlook, Canaccord Genuity’s Yuri Lynk lowered Green Impact Partners Inc. (GIP-X) to “hold” from “speculative buy” with a $3 target, down from $6, which is the current average, following the release of its fourth-quarter 2024 results.
“The quarter featured disappointing updates including a going concern disclosure and continued issues at Colorado RNG that drove management to withdraw 2025 guidance for the project,” he said. “While we are positive on the potential valuation upside afforded by the expected financial close of the $2.0-billion FEP project, the company burnt $12-million in FCF in 2024 and we see a limited path for near-term profitability improvements given the operational challenges facing Colorado RNG. This, combined with a strained balance sheet with $27-million in net debt ($1.6-million in cash) and a credit facility in default triggered by the going concern disclosure, leaves GIP with limited financial flexibility. We therefore feel that moving to the sidelines is prudent.”
* In response to Monday’s announcement of a friendly takeover bid from Dallas-based Sunoco LP, TD Cowen’s Michael Van Aelst moved Parkland Corp. (PKI-T) to a “sell” recommendation from “buy” with a $44 target, down from $50, while Scotia’s Ben Isaacson dropped his target to $44 from $52 with a “sector outperform” rating. The average is $45.
“With Q1 adj. EBITDA of $375-million (well below prior guidance but 15 per cent year-over-year on an easy comp) having been pre-released, results should be a non-event,” said Mr. Van Aelst. “Investors are now focusing on Sunoco’s cash & equity offer for PKI and Simpson’s next steps. We think a competing bid is unlikely, and resisting tendering in the hope of PKI being sold in pieces for more comes with transaction, operational and timing risk.”
* CIBC’s Mark Petrie cut his A&W Food Services of Canada Inc. (AW-T) target to $36 from $38 with a “neutral” rating. The average is $35.
* Scotia’s Himanshu Gupta bumped his CT REIT (CRT.UN-T) target to $16.50 from $16 with a “sector outperform” rating. The average is $15.91.
* Desjardins Securities’ Chris MacCulloch hiked his Imperial Oil Ltd. (IMO-T) target to $89 from $85 with a “hold” rating following “constructive” first-quarter results. The average is $98.79.
“While oil sands operations faced hiccups during the February deep freeze, the company’s low-decline and vertically integrated asset base provided stability in a volatile market. That said, we view the extremely rich valuation and limited visibility on a SIB as detracting from an otherwise defensive story, highlighting more attractive opportunities elsewhere in the Canadian energy sector,” he said.
* CIBC’s Hamir Patel lowered his target for Vancouver-based Mercer International Inc. (MERC-Q) to US$5 from US$6 with a “neutral” rating. The average is US$4.75.