Investors are hoping Temple Hotels Inc.'s strategy to diversify its property holdings outside of the lucrative yet volatile Fort McMurray market will help to wake up the company's slumbering stock price.
Shares in the Winnipeg-based small-cap company – which owns all or part of 30 hotels in smaller cities across Canada, including nine in oil-focused Fort McMurray, Alta. – haven't moved much over the past two years, underperforming the broader market.
Most analysts have positive reviews on the stock, citing Temple's aggressive acquisition of hotels in other resource-reliant regions of Western Canada, such as the Hotel Saskatchewan in Regina, and a few markets in Ontario and Nova Scotia in recent years, including the Cambridge Suites hotel in both Halifax and Sydney, N.S., and the Holiday Inn Express in west Ottawa.
M Partners analyst Brendon Abrams has a "buy" on the stock and a $6.75 price target, believing the hotel industry is gaining momentum, especially in Western Canada where the economy is strongest.
Still, he and other analysts believe the company needs to deliver more consistent earnings growth to draw investor interest, even though the stock pays an attractive dividend that yields 9.5 per cent.
"Investors are waiting to see better, more normalized results from the company," said Mr. Abrams. "They want to see Temple put together one or two or three solid quarters before rewarding them with a strong share price."
Temple shares hit a 52-week high of $6.25 in November after the company reported a 58-per-cent increase in operating income for the third quarter of 2013 compared to the year earlier, driven by revenue from new acquisitions.
The stock has since had two major pullbacks: following a $50-million share offering in December, and again in May after its first-quarter results came in lower than analysts had expected. Temple said the severely cold winter caused utility costs to increase at its properties, while delays in major oil sands projects and increased competition from new work camps led to lower-than-expected revenue at its Fort McMurray properties.
After those results were released, both Laurentian Bank Securities analyst Nelson Mah and National Bank Financial analyst Trevor Johnson lowered their price targets on Temple to $6.25 from $6.50.
Mr. Mah kept his "buy" rating, while Mr. Johnson downgraded the stock to "sector perform," which is equivalent to a "hold."
"My only concern really is – is this a longer term trend of Fort McMurray occupancy deteriorating or is this a short term gyration?" said Mr. Johnson, noting that Fort McMurray accounted for 36 per cent of Temple's total net operating income over the past four quarters.
"Until we see the overall earnings momentum come back … it's going to be really hard to get excited about the story," he said.
Investors may also be concerned about the company's debt load, but analysts believe it's manageable.
Cormark Securities analyst Hilda Maraachlian has a "buy" rating and $7 price target on the stock, saying growth in oil sands activity in Western Canada, alongside recent acquisitions in other markets, should help to "drive considerable growth."
Temple owns 100 per cent of 28 hotels across Canada, and 50 per cent of two hotels – one in London, Ont., and another in Ottawa.
Paradigm Capital analyst Corey Hammill said the latest acquisitions will add value to Temple's shares, which he rates a "buy" with an $8 target price.
"The stock trades at a significant discount to its peers and we believe increased size and scale, combined with increased investor exposure, will drive a multiple expansion," he said in a recent note.