InterRent REIT’s unit price has fallen by 14 per cent since May 21, the most severe drop within our coverage universe. Despite posting sector-leading same-property net operating income growth which has also driven strong growth in cash flow per unit, InterRent’s units currently trade at a steep 22 per cent discount to our estimate of NAV. The REIT’s 4.7-year weighted average debt term to maturity is among the longest for multi-family REITs/REOCs under coverage, providing some protection from rising interest rates. We also note that, with the benefit of CMHC-insured debt financing, InterRent should have ample access to debt capital. Our $7.15 (Canadian) target price, combined with an annual distribution of $0.20 per unit equates to a 12-month forecast total return of 32 per cent.
Killam Properties’ share price has fallen by 11 per cent since May 21, and currently trades at a 19 per cent discount to NAV. Despite a relatively short weighted average term to maturity of 3.4 years, Killam’s weighted average in-place interest rate is 4.45 per cent, the highest among multi-family REITs/REOCs. In a rising interest rate environment, we expect that Killam’s high in-place average cost of debt would still allow the company to realize interest rate savings when refinancing, while many of its peers could be refinancing maturing debt at higher rates. Combined with an annualized dividend of $0.56 per share, our target price of $13.60 (Canadian) equates to a 12-month forecast total return of 29 per cent.
Pure Industrial REIT’s unit price has fallen by 11 per cent since May 21, and is, in our view, compelling at current levels. The REIT’s units trade at a 17 per cent discount to our estimate of NAV, and at a 2014E AFFO multiple of only 11.9x, among the lowest within our coverage universe. Industrial fundamentals remain strong, and we believe that Pure is well positioned relative to its peers. Combined with an annual distribution of $0.31 per unit, our target price of $5.70 (Canadian) equates to a 12-month forecast total return of 31 per cent.
CIBC World Markets upgraded WestJet Airlines Ltd. to "sector outperformer" from "sector performer," noting that the stock has lost significant altitude since first-quarter results were reported in early May.
That has made the stock more attractive based on valuation metrics. But analyst Kevin Chiang also tied the upgrade to the company's "compelling growth story."
"Over the last 12 to 18 months, WestJet has outlined its growth strategy (to be rolled out over the balance of this decade), including premium economy, fare bundling, the launch of Encore later this month, and partnership agreements with other airlines," he said. "While there are concerns that WJA is adding a significant amount of new capacity, we do not believe this is a sign that irrational pricing will return. WJA and AC.B are growing capacity in different markets and both carriers have significant flexibility around fleet expansion plans.
"WJA's focus will be on execution, and so far it is progressing smoothly. Premium economy has been rolled out and WestJet's IT upgrade is complete. And looking back, this company has successfully executed on some of its more recent growth platforms, including WestJet Vacations."
Target: Mr. Chiang maintained a $27 price target. The average target among analysts is $27.20, according to Bloomberg data.
RBC Dominion Security downgraded U.S. insurer Prudential Financial Inc. to "outperform" from a "top pick" rating.
RBC analyst Eric N. Berg is still bullish on the stock, but notes that it has been among the strongest performers among U.S. insurance companies since November of last year.
"We still see substantial, long-term upside to the stock as large companies across corporate America slowly look to transfer their liabilities to emerging leaders in this growing market like Prudential," he said.
Target: Mr. Berg maintained a $92 (U.S.) price target. The average target is $75.26.
Surge Energy Inc.'s decision to buy a crude oil producing asset in Saskatchewan and convert to an income-producing company is largely winning applause from analysts, who note that a new equity financing will help sustain the dividend.