Upgrade In a separate report released before the bell, Mr. Foscolos (iA Capital) said he’s “become more cautious” on energy infrastructure companies heading into earnings season.
After a period during the quarter in which the sector’s “positive momentum essentially stalled in our coverage universe in tandem with the TSX,” he now sees share prices for a group of Pipeline and Midstream companies advancing “without any corresponding macro or fundamental improvement in outlook.”
“Focusing on the upcoming Q3 earnings, we are expecting a quarter devoid of surprises, and we do not expect those results to move share prices,” said Mr. Foscolos. “Perhaps our outlook will change with information from upcoming investor days which commence with force after mid-November. We slightly favour select Pipelines and Utilities, and for risk-neutral investors, Fuel Distributors.”
The analyst said he’s now “in a unique position,” projecting identical 14-per-cent returns for Pipelines, Utilities and Midstreamers over the next 12 months.
Secure Energy Services Inc. with a $6.75 target from $6.50. Average: $6.96.
“As this is the first quarter since the Company merged with its single largest competitor, Tervita (delisted), we believe that the results and, more importantly, the outlook commentary, will provide a signal to the market of things to come,” he said. “Our estimates for the quarter are slightly above consensus. Besides the merger and initial synergy capture, we expect tailwinds from industry activity, both in the oilfield and environmental sides. Rig counts were strong during the quarter, averaging 150 compared to 129 in the comparable pre-pandemic quarter in 2019. Strong natural gas and liquids prices should continue to drive strong free cash flow for WCSB producers, particularly as hedges roll off, providing the backdrop for a constructive activity outlook. Strong ferrous metals prices should also benefit the metals recycling business, and we should start to see increased environmental service activity driven by the federal government’s accelerated wellsite reclamation and remediation program. Partially offsetting these tailwinds, we expect a continuation of limited crude oil marketing revenue opportunities. We continue to see room for multiple expansion in the context of industry tailwinds and the Company’s strong free cash flow outlook.”