retiredcf wrote: Stifel analyst Cole Pereira reiterated his bullish view on the Canadian Energy Infrastructure sector, however he warned the recent shift in interest rate expectations has been a drag on valuations heading into earnings season.
In a research report released Thursday, he expressed a preference for companies featuring strong return on invested capital and “solid per-share growth rates that should reinforce long-term dividend growth.”
“Share price performance year-to-date has been mixed for our large and mid-cap coverage names, ranging from GEI up 13 per cent to TRP down 6 per cent vs. the TSX Composite up 4 per cent and the S&P 500 up 6 per cent,” said Mr. Pereira. “On the small-cap side, LCFS is down 7 per cent YTD while TWM is down 29 per cent. In particular, the delay in interest rate cut expectations has been a drag on valuations over the past few weeks, with the market now pricing in only 50 basis points of rate cuts from the Federal Reserve in 2024 vs. 200 bps in January. We would use this recent pullback opportunistically.”
“Our 1Q24 EBITDA estimates are largely in line with the Street, except for TWM, for which we are 15 per cent below. Outside of quarterly financial results, we expect investors to be focused on ENB’s pending gas utility acquisitions, GEI’s STGT re-contracting and CEO search, KEY’s next phase of growth projects, potential FIDs on Cedar and ethane infrastructure and its Alliance/Aux Sable acquisitions for PPL, the SOBO spin-off and further asset sales for TRP, and operational and financial results for TWM/LCFS’s renewable diesel facility. We also expect PPL to increase its dividend by 4 per cent (Street: 2 per cent-3 per cent).”
Noting oil prices have been largely stable in the quarter while natural gas “remains volatile,” Mr. Pereira made minor adjustments to his projections for both quarter and beyond, leading to a series of target price adjustments. They are:
- Enbridge Inc. (“hold”) to $51 from $52. The average on the Street is $53.41.
- Keyera Corp. ( “buy”) to $38 from $32. Average: $36.43.
- Tidewater Renewables Ltd. (“hold”) to $9 from $10. Average: $13.08.
- Tidewater Midstream and Infrastructure Ltd. ( “hold”) to 90 cents from $1.25. Average: $1.19.