The Canadian oil and gas service sector will report weak second-half results because of a protracted spring break-up in Canada and persistent natural gas weakness in the United States, says Desjardins Securities Inc. analyst Jamie Murray.
Canada-focused companies are at “highest risk of a miss [in expectations],” Mr. Murray warned in a report on Monday.
Drilling and completions activity were down in Canada, he said. There were on average 194 rigs active in the second quarter, down from 205 in the year-ago period, according to data from Nickle’s Energy Group.
The second quarter is seasonally the weakest in Canada as road bans from wet conditions limit drilling activity.
“This year, the wet weather extended right through the end of June, wiping out a couple of weeks of potential activity,” he noted.
“U.S. activity fell through the quarter as new oil drilling failed to offset natural gas declines,” he added.
“We like Trinidad Drilling Ltd. going into the quarter due to its relatively high U.S. contract exposure, which should provide a good stable earnings base to offset the impact from the volatile Canadian operations.”
While the analyst said he has tweaked his estimates in his preview for the quarter, he is currently maintaining his ratings and targets.
Trinidad Drilling is rated a “buy” with a one-year target of $7.75 a share.
Cathedral Energy Services is rated a “buy” with a one year target of $7.25 a share
Enseco Energy Services is rated a “speculative buy” with a one-year target of $1.75 a share.
Essential Energy Services is rated a “top pick” with a one-year target of $3 a share.
PHX Energy Services is rated “hold” with a one-year target of $8.75 a share.
Precision Drilling Corp. is rated a “buy” with a one-year target of $11.50 a share.
Savanna Energy Services is rated “hold” with a one-year target of $9.50 a share.
West Fraser Timber Co. Ltd.
CIBC World Markets analyst Mark Kennedy raised his target on the lumber producer by $10 a share to $65 on improving U.S. demand.
“We expect U.S. housing starts will exceed 900,000 in 2013 and one million in 2014,” he said.
Upside: He maintains a “sector outperform” rating.
IGM Financial Inc.
IGM, which owns Investors Group Inc. and Mackenzie Financial Corp., is expected to report rising net redemptions in mutual funds to around $927-million and lower revenue in the second quarter from a year ago, said Canaccord Genuity Corp. analyst Scott Chan.
Downside: He maintains a “hold” rating, and cut his one-year target to $43 a share from $44.
The property manager’s second-quarter results will be affected by its Field Asset Services unit's decision to end its contract with Fannie Mae due to the soft U.S. foreclosure market, said CIBC World Markets analyst Stephanie Price.
Downside: She cut her one-year target to $34.50 a share from $37, but maintains a “sector outperform” rating.
RBC Dominion Securities analyst Robert Stallard downgraded the corporate jet maker to “sector perform” after a strong run-up in the firm’s share price. “The next six months or so could be tricky, particularly with its limited backlog,” he said.
Downside: He also cut his one-year target to $28 (U.S.) a share from $32.
Editor's note: An earlier online version of this article incorrectly stated the target price for Essential Energy Services. This has been corrected.
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