RBC downgradeInterestingly, it reads like the analyst still loves the stock for the long term. His target is in USD, so 21% higher than today's close... After a stronger 2018 than its peers, RBC Dominion Securities analyst Geoffrey Kwan downgraded Brookfield Business Partners LP (BBU-N, BBU-UN-T) to “sector perform” from “outperform” based on its current relative return.
"BBU’s units outperformed in 2018 relative to our coverage universe (down 3 per cent vs. the median of a 17-per-cent decline) and now offer an implied total return that is more in line with the average of our coverage universe," he said. "Furthermore, we think increased market volatility could reduce the earnings visibility and ultimately the estimated values of BBU’s investments, particularly given higher financial leverage and as some of them tend to be cyclical, purchased as turnaround stories, etc. We think increased disclosures regarding financial performance at BBU’s investments could help reduce some of the unit price volatility during times like this."
Mr. Kwan's target fell to US$42 from US$46, which below the average of US$47.60.
“We continue to like BBU’s long-term growth potential, diversified portfolio of businesses and strong investment track record and believe the shares could be attractive for those with a longer investment horizon,” he said. “As we have previously discussed, we think BBU has a narrower unitholder base in part due to its $1.5-billion float market cap and lower unit liquidity. However, we think BBU has the potential to become a core holding, assuming BBU’s investment track record continues, which could increase BBU’s market cap, broaden unitholder ownership and increase unit liquidity.”