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Construction on an earlier phase of the Keystone pipeline
Construction on an earlier phase of the Keystone pipeline

Eye on Equities

TransCanada's time has finally come: analysts Add to ...

After several years of lacklustre performance, analysts are gaining confidence TransCanada Corp. is back in the game and poised to start delivering impressive earnings growth as new projects ramp up.

On Friday, TransCanada reported first-quarter earnings per share of 61 cents, a penny better than consensus estimates and 27 per cent higher than a year earlier.

UBS analyst Chad Friess says the energy infrastructure giant is now "at the inflection point," and he expects earnings growth to accelerate over the next few years as the Keystone pipeline and Bruce Power nuclear projects proceed. "In our view, this growth is not fully reflected in the company's forward trading multiple which, at 16.7 times 2012 estimate price-to-earnings, is only modestly above the five-year average of 16.2 times," he said.

Desjardins Securities Inc. analyst Pierre Lacroix found encouragement in TransCanada's decision to no longer issue shares from treasury under its Dividend Reinvestment Plan, which had diluted earnings. Mr. Lacroix noted that the final go-ahead of the Keystone project later this year will remove significant uncertainty on the large-scale growth project.

TransCanada "is on track to grow earnings materially in the next several years, and has the ability to self-finance its growth for many years to come," said Mr. Lacroix. "We believe investors should take advantage of current levels to build positions in the upcoming growth story."

Upside: Both analysts reiterated "buy" recommendations and raised their price targets by $3 to $45. Even more optimistic was Canaccord Genuity analyst Juan Plessis, who maintained his "buy" recommendation and $48 price target.

Microsoft Corp.'s Windows sales are suffering because of the slowdown in the PC market, but the company's business elsewhere is humming, commented UBS analyst Brent Thill. Meanwhile, the software giant is taking a disciplined approached to its operating expenses and there are signs PC demand should improve in the second half of the year, he said.

Downside: Mr. Thill reiterated his "buy" rating, although he lowered his 12-month price target by $3 (U.S.) to $32.

Related: Microsoft Windows sales slip, shares down

Caterpillar Inc. has now announced four quarters of earnings per share growth exceeding 80 per cent. While year-over-year gains are going to start to get more difficult, there's still plenty of upside, as replacement demand for machinery is strong, demand is growing in developing economies, and the pending Bucyrus International Inc. acquisition will bolster CAT's profile in the thriving mining space, said Raymond James Ltd. analyst Theoni Pilarinos.

Upside: Mr. Pilarinos raised his six- to 12-month price target by $19 (U.S.) to $135 and rates the stock as an "outperform."

Related: Caterpillar profit leaps, hikes full-year outlook

Osisko Mining Corp. has revealed a revised mine plan for its Canadian Malartic gold project in Quebec that will result in less output in the earlier years of production and lower grades. But Raymond James analyst Brad Humphrey contends the company's current trading range, while above its peers based on price-to-net-asset-value, is justifiable because of low project and political risks and Malartic's large size.

Downside: Mr. Humphrey lowered his six- to 12-month target price by $1.75 to $16.25.

PepsiCo Inc. delivered first-quarter earnings per share that were in line with expectations, despite fewer-than-anticipate stock repurchases, commented UBS analyst Kaumil S. Gajrawala. "We believe sentiment on PEP is improving as they meet and eventually exceed guidance, while returning an expected $5-billion in cash to shareholders," he said.

Upside: Mr. Gajrawala raised his 12-month target price by $4 (U.S.) to $76 and reiterated a "buy" rating.

Related: PepsiCo profit falls as costs increase


Follow Darcy Keith on Twitter for more of the latest analyst actions from the Street and exclusive investing news from The Globe and Mail.

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