Scotia Capital Inc. said Tuesday it is revisiting the Canadian power equities universe in light of significant multi-year underperformance relative to other Canadian energy infrastructure equities.
Scotia analyst Matthew Akman said the investment firm is upgrading
Capital Power Corp.(TSX: T.CPX,
Stock Forum) and
Northland Power Inc. (
TSX: T.NPI,
Stock Forum) to sector outperform from sector perform and launching coverage on
TransAlta Renewables Inc. (
TSX: T.RNW,
Stock Forum) with a sector outperform rating and a one-year target price of $12 per share.
Scotia has assigned a sector perform rating to
Pattern Energy Group Inc. (
NASDAQ: PEGI,
Stock Forum) and a one year target price of US$31.5- per shares.
“Lower power prices, stricter environmental regulations, and fewer renewable subsidies all weighed on Canadian power stocks over the past three years,’’ Akman said in a research report.
“In our opinion, factors contributing to poor performance are bottoming out as Aberta power prices are likely at or close to lows, and revised environmental and renewable subsidy policies have been implemented.’’
Akman went on to say that valuations have adjusted to a much more reasonable level; many of the companies are trading at below what we consider fundamental value with free cash yields in the 6% to 8% range for other Canadian energy infrastructure, he said.
“There is a promise for positive catalysts among the Canadian power stocks for the first time in years, such as drop-downs of assets and increased dividends.’’