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Fortis primed for big boost in earnings, dividends Add to ...

Inside the Market's roundup of some of today's key analyst actions

Looking for a stock that will significantly grow both its earnings and dividends in coming years? Consider Fortis Inc., suggests Industrial Alliance Securities analyst Al P. Nagaraj.

Utility firms are reliable income producers that tend to hold up well in the stock market during periods of economic contraction, making for good long-term holdings.

Fortis is the largest investor-owned distribution utility in Canada and has seen its earnings per share rise at a compounded annual growth rate of 7 per cent over the past 10 years. Its average annualized total return has been 15 per cent over that period, well ahead of the 11 per cent return of the S&P/TSX capped utilities index.

With its pending acquisition of CH Energy Group Inc. in New York state, Fortis is now expanding and diversifying into the much bigger regulated U.S. gas and electric utility markets. That means a lot of possible assets to snap up, considering that there are more than 200 investor-owned utilities in the U.S. with combined annual revenue of $400-billion, Mr. Nagaraj notes.

“We expect Fortis, through a combination of acquisitions and organic growth, to significantly boost its assets, earnings and dividends in the next few years,” said Mr. Nagaraj. He forecasts revenues to grow to $5.1-billion from the current $3.7-billion by 2016. And he expects the utility’s dividends to grow from $1.20 to $1.52 over that same time frame, representing compounded annual growth of 9 per cent.

Upside: Mr. Nagaraj initiated coverage with a “buy” rating and 12-month price target of $40.


Goldman Sachs has upgraded Yum Brands Inc. to “buy” from “neutral,” believing that recent softness in Chinese same-store sales is just temporary and based on macroeconomic matters rather than a deterioration in its business there. The stock’s selloff provides for a good entry point, Goldman analysts said.

Upside: Goldman hiked its price target by $10 to $77 (U.S.).


IBI Group Inc. will greatly improve its cash flow and debt-servicing obligations after deciding to halve its dividend, Canaccord Genuity analyst Yuri Lynk said.

“While our leverage worries have been at least partially addressed by this move, we wish to see improved free cash flow before potentially becoming more constructive,” Mr. Lynk added. “The new dividend appears sustainable, and the healthy 8.5 per cent yield should provide downside support.”

Upside: Mr. Lynk raised his rating on the stock to “hold” from “sell” and his target price to $7 from $6.50.


Canam Group Inc. has secured $55-million in new contracts, which highlight the company’s ability to grasp opportunities on both sides of the border, said Raymond James analyst Frederic Bastien.

“They also reinforce our view that the hard hit US commercial construction and infrastructure markets are in the early stages of a cyclical recovery that should push Canam’s sales and profitability higher over our forecast horizon,” he wrote in a research note.

Upside: Mr. Bastien rates Canam “outperform” and has a $7 target price on the stock.


TransGlobe Energy Corp. forecast higher production and cash flow, which gives it “good momentum going into 2013,” said CIBC World Markets analyst Ian Macqueen.

The company plans to spend $54-million on new exploration and $75-million on development and facilities, he said.

Upside : Mr. Macqueen raised his target price from $12.50 to $13.25 and his rating from “sector perform” to “sector outperform.”


For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities

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