In response to its recent share price performance and seeing “better relative value elsewhere” in his coverage universe, Credit Suisse analyst Andrew Kuske downgraded Hydro One Ltd. to “underperform” from “neutral” with a target of $36, rising from $34 and above the $33.61 average on the Street.
He also made these target adjustments in a research note released Wednesday:
- Algonquin Power & Utilities Corp. to US$18 from US$16. Average: US$17.
“For our Utilities sub-sector coverage, we view some competing tensions in the sector as being interesting and translating into potential investment themes,” he said. “In particular, we note the tension around rising interest rate expectations that is typically a negative performance factor for the Utilities sector, however, de-risking markets along with geopolitical risks can result in a flight to safety generating upside. In this context, we highlight the significant divergence of performance with an indexed view of S&P/TSX Utilities and S&P 500 Utilities against inverted 10-year bond yields from both Canada and the US. Over 20 years of data, there is a negative correlation of approximately 0.8 with yields and sector performance moving in opposite directions (e.g., rising yields equate to negative sector performance (and vice versa)). Notably, for the year-to-date, the correlation is unusually positive at 0.8 – this reality is partly reinforced with an inverted 10-year visual and sector performance for Canada and the U.S.”