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A look at North American equities heading in both directions

On the rise

TC Energy Corp. (TRP-T) beat analysts’ estimates for first-quarter profit on Friday as elevated energy prices boosted demand for the pipeline operator’s services, sending its shares higher by 2.1 per cent.

While global oil prices have on average declined 20 per cent from peaks hit last year when the Ukraine crisis fueled supply concerns, the levels are still high enough for energy producers to drill profitably, thus boosting demand for pipeline operators.

West Texas Intermediate Crude averaged US$75.75 per barrel during the first quarter.

The company’s U.S. Natural Gas Pipelines averaged at 28.5 billion cubic feet per day with several assets performing at near-record levels during peak demand, the company said.

The Calgary-based company reported comparable earnings of $1.21 per share for the three months ended March 31, while analysts on average had expected earnings of $1.15 per share, according to Refinitiv data.

Toromont Industries Ltd. (TIH-T) rose 0.6 per cent after beating the Street with its first-quarter results.

After the bell on Thursday, the Toronto-based dealer for Caterpillar heavy construction equipment reported revenue and earnings per share of $1.061-billion and $1.16, respectively, both topping analysts’ expectations ($938-million and 85 cents).

“Following a strong 4Q22 print, the start of 2023 did not disappoint,” said Raymond James analyst Bryan Fast in a note. “Toromont pushed past both our estimate and the street consensus on the back of sizeable gains in product support and new equipment sales. The continued out-performance supports Toromont’s premium valuation and we would remind investors it is the most defensive name amongst the peer group. The macro backdrop continues to shift and we recognize the cyclicality of the equipment market is not immune to the impacts of a potential recession. However, we find comfort in Toromont’s long track record of value creation through impressive operational execution, prudent capital allocation, and well-timed M&A. Also providing support is the company’s solid balance sheet that not only provides a buffer for market shocks but optionality for growth not captured in our forecasts. With our view on the long-term potential of this story intact, we continue to see this as a textbook buy-and-hold stock. We maintain our Outperform rating.”

Cameco Corp. (CCO-T) was up 2.9 per cent after it reported its first-quarter profit more than doubled compared with a year ago, while its revenue rose more than 70 per cent, helped by higher deliveries and higher average realized prices in both its uranium and fuel services businesses.

The uranium miner also raised its revenue outlook for the full year to between $2.22-billion and $2.37-billion compared with its earlier expectations for between $2.12-billion and $2.27-billion.

Cameco says its profit amounted to $119-million or 27 cents per diluted share for the quarter ended March 31, up from $40-million or 10 cents per diluted share a year ago.

Revenue totalled $687-million, up from $398-million in the first three months of 2022.

On an adjusted basis, Cameco says its profit amounted to 27 cents per diluted share, up from an adjusted profit of four cents per diluted share a year earlier.

Analysts on average had expected a profit of 25 cents per share, according to estimates compiled by financial markets data firm Refinitiv.

Alimentation Couche-Tard Inc. (ATD-T) rose 0.1 per cent after announcing it has signed a deal to buy 112 gas station and convenience store sites in the United States from MAPCO Express Inc.

Financial terms of the agreement were not immediately available.

The deal is contingent on a separate transaction that will see MAPCO and its other locations acquired by Majors Management LLC.

Couche-Tard says the sites it is buying are mostly in Tennessee and Alabama, but also in Kentucky and Georgia.

It says the locations are company-operated and most of the real estate is owned.

The transaction also includes surplus property and a logistics fleet.

Oil major Chevron Corp. (CVX-N) beat market expectations on Friday as profit nudged higher in the first quarter, with earnings from refining compensating for slides in energy prices as well as oil and gas production.

Net profit climbed 5 per cent to US$6.57-billion or US$3.46 per share. Results beat consensus by 4 per cent, according to Refinitiv data. The company’s standout business was refining, where higher margins helped income surge more than five-fold to US$1.8-billion.

Shares were up 1 per cent in Friday trading.

Chevron’s oil and gas production division, on the other hand, saw its net profit tumble 25 per cent on big year-over-year declines in prices.

“Brent prices are high, yet down quite a bit. But you are still seeing mid-double-digit returns” for every dollar spent by the company, Chief Financial Officer Pierre Breber told Reuters.

The second-largest U.S. oil firm ended the quarter with US$15.8-billion in cash, down 12 per cent from a year ago but some US$10-billion above what it needs run the business, Mr. Breber said.

Capital spending jumped 55 per cent from a year ago to US$3-billion, primarily driven by investments in U.S. projects.

Chevron has been increasing production in the United States while decreasing it elsewhere. Total output fell 3 per cent from a year ago to 2.98 million barrels of oil and gas per day on a contract expiration in Thailand and the sale of South Texas shale properties.

The decrease was partially offset by a 4-per-cent production growth in the Permian, the largest shale basin in the United States. The company is also starting up a new platform in the Gulf of Mexico.

Exxon Mobil Corp. (XOM-N) made a record first-quarter profit by pumping more oil and gas, beating analyst estimates and taking shares to an all-time high.

Exxon doubled profits from the same quarter last year as higher output more than compensated for lower energy prices.

Shares rose 2.3 per cent to a record high of US$119.52 per share after Exxon reported its results on Friday. They finished 1.3 per cent higher on the day.

“We delivered a first-quarter record despite the fact that energy prices and refining margins are softening a bit,” Chief Financial Officer Kathryn Mikells said in an interview.

Oil companies are riding a wave of strong demand and have held the line on cost-cutting implemented when fuel demand collapsed during COVID-19 lockdowns.

The biggest contributor to the better-than-expected earnings came from strong production growth, RBC research analysts Biraj Borkhataria said. Exxon’s oil and gas output rose to the highest level in almost four years.

Net profit rose to US$11.43-billion, or US$2.79 per share, compared to US$5.48-billion a year ago that included a US$3.4-billion after-tax writedown to exit Russia. Results beat consensus by 9 per cent, according to Refinitiv data.

Exxon’s output rose in the largest U.S. oilfield, the Permian Basin, and in Guyana, where the company started pumping from a second production platform last year that added about 240,000 barrels of oil equivalent per day (boepd) to output. Higher volumes partially offset a 16-per-cent drop in oil prices from a year ago.

First-quarter results also reflected the expansion of Exxon’s fuels production. The company finished the startup of a new crude processing unit last quarter at its Beaumont, Texas, plant that added 250,000 bpd of oil refining capacity.

Exxon’s oil and gas production rose to the most since 2019 to 3.83 million barrels of oil equivalent per day (boed), up by 160,000 boed from the previous quarter.

The producer ended the first quarter with US$32.7-billion in cash, but it has no urge to tap it for mergers or acquisitions, Ms. Mikells said.

Colgate-Palmolive Co. (CL-N) raised its full-year organic sales forecast on Friday, betting on consistent price hikes and steady demand for its pet nutrition products.

The company’s shares gained 2.4 per cent after it also beat first-quarter revenue and profit expectations.

Like many consumer product makers, Colgate-Palmolive has been raising prices to battle higher raw material, packaging and labor costs resulting from pandemic-induced supply chain disruptions and the Russia-Ukraine crisis.

It has also been bolstering its pet food business, Hill’s Pet Nutrition, which comprised 22 per cent of total sales in the reported quarter and has seen resilient demand in the United States and Europe.

The company now expects full-year organic sales growth of 4 per cent to 6 per cent, compared with its prior expectations of 3-per-cent to 5-per-cent range.

It expects 2023 adjusted profit to grow in the mid-single-digit range, compared with its earlier forecast of low to mid-single-digit growth.

Peer Kimberly-Clark Corp. (KMB-N) also raised its full-year profit forecast on Tuesday, helped by consistent price hikes.

Colgate said sales in its oral care and personal care business in North America rose in the first quarter, but organic sales declined in its home-care segment due to the voluntary recall of its Fabuloso multi-purpose cleaners in February.

Its adjusted earnings per share of 73 US cents also topped analysts’ expectations of 70 US cents.

Chipmaker Intel Corp. (INTC-Q) shares jumped 4.1 per cent as the once-dominant chipmaker’s quarterly print indicated “baby step progress” in efforts to turn around its business after ceding market share to rivals and struggling with all-time low margins.

At least 13 brokerages raised their target price on the stock that has underperformed rivals this year, encouraged by CEO Pat Gelsinger’s remarks the PC market - on which Intel built its reputation - was stabilizing after multiple quarters of decline.

“While the future pace of the sector’s recovery is uncertain, we do believe that Intel has reached a revenue, gross margin, and profit trough through this first half of 2023,” said Benchmark analyst Cody Acree, upgrading the stock to “buy.”

Intel on Thursday projected adjusted gross margins will climb above 40 per cent in the second half, and said it had ramped up shipments of a key data center chip after a more than one-year-long delay had allowed rivals to take its market share.

TD Cowen analysts said the company “was not out of the woods yet but this was a starting point.”

Intel’s market capitalization is set to rise by nearly US$8-billion to more than US$130-billion, if premarket gains hold. But a tough few years mean that its valuation widely trails that of rival Nvidia Corp. (NVDA-Q) and Taiwan’s TSMC (TSM-N), which are valued at about US$672-billion and US$420-billion, respectively.

Some analysts, however, said Intel’s predicted recovery could run into hurdles.

“We see gross margin pressured for the foreseeable future reflecting aggressive process and new product spend as well as IFS (Intel Foundry Services) investment,” Oppenheimer said.

Intel posted its biggest quarterly loss in the first quarter as it ramped up production and investments in manufacturing plants.

“Cash remains problematic,” said Rosenblatt Securities, adding that “capacity investments really do not solve in a monumental effort to catch up to TSMC and Samsung; as if dealing with AMD, Broadcom and Nvidia as a group were not enough.”

On the decline

Imperial Oil Ltd. (IMO-T) reported weaker than expected quarterly cash flow on Friday that weighed on shares, even as its profit beat expectations.

Signs of slowing global inflation and optimism around China’s economy have lifted fuel demand, while crude supplies are tight.

Imperial’s cash flow per share, a measure of financial flexibility, was $2.65, about 2 per cent less than analysts expected, TD Securities said in a note. The reason was an income-tax catch-up payment, BMO Capital Markets said.

Imperial’s shares dipped while its Canadian peers’ stocks rose 2 per ent to 4 per cent.

Chief Executive Officer Brad Corson said record-high quarterly production at Kearl, Imperial’s biggest Alberta oil sands facility, and high refinery utilization rates boosted profits.

The company’s crude capacity utilization stood at 96 per cent, resulting in a total throughput of 417,000 thousand barrels per day (bpd) for the quarter, higher than 399,000 bpd a year earlier.

Refining margins remained high due to low inventory of petroleum products, the company added.

Calgary-based Imperial, majority-owned by Exxon Mobil Corp , said first-quarter upstream production averaged 413,000 gross barrels of oil equivalent per day (boepd), up from 380,000 boepd.

The company raised its quarterly dividend by 14 per cent to 50 cents per share.

On an adjusted basis, the company earned $2.13 cents per share in the quarter, compared with estimates of $1.94, according to Refinitiv data.

Industrial wastewater containing toxins including arsenic and dissolved iron has been seeping from tailings ponds at Kearl since at least May last year.

Corson said the company expected to complete mitigation efforts by the end of May.

Imperial said monitoring shows there have been no impacts to local drinking water sources or wildlife.

Pathways Alliance, a group of oil sands producers that includes Imperial, has begun designing a carbon capture hub and intends to apply to regulators this year, Imperial said.

Growth in Amazon’s (AMZN-Q) lucrative cloud business is slowing and investors are worried.

Shares fell 4.1 per cent on Friday as Amazon’s cloud business slowed in April after posting its weakest quarterly growth since the company began breaking out the unit’s sales in 2015.

Amazon, one of the largest companies in the world by market capitalization, is on track to shed about US$50-billion from its valuation of US$1.126-trillion, if losses hold.

Mega tech stocks lure back investors for all seasons

Atlantic Equities analyst James Cordwell said the downturn reflected Amazon Web Services’ greater exposure to technology companies and start-ups, which have slashed spending in recent months in the face of rising interest rates and high inflation.

“This makes it more difficult to have confidence that Q2 will be the bottom in terms of the decline,” Cordwell said.

Amazon’s finance chief, Brian Olsavsky, told a post-earnings call on Thursday that growth in the cloud business would fall by 5 percentage points this month from the 16 per cent recorded in the first quarter as Amazon helps clients lower their bills.

The results are in contrast to those of Microsoft Corp’s Azure cloud business, which grew at 27 per cent.

Synergy Research Group said Microsoft had increased its share of the cloud infrastructure market by a percentage point to 23 per cent in the quarter, while market leader Amazon stayed within its long-standing share band of 32 per cent to 34 per cent.

Still, analysts were largely upbeat about Amazon’s cloud prospects, with about 17 raising their price targets on the stock, compared with the 10 that lowered their view.

CFRA Research analyst Arun Sundaram said the slowdown was largely a result of Amazon helping its clients move to lower-price tiers, and the company was not losing customers to other big players.

“Amazon is the clear market share leader in cloud computing and they will remain that way,” Sundaram said.

Snap Inc. (SNAP-N) on Thursday missed analyst expectations for quarterly revenue as changes to its advertising platform hurt demand for ads, and warned results in the next quarter could fall below Wall Street’s targets.

Shares of Snap tumbled 17.1 per cent in Friday trading.

The Santa Monica, California-based company, which owns photo messaging app Snapchat, has long been known to jumpstart new trends in social media that have been copied by larger rivals, but has faced investor questions about whether it can turn its investments in new technology like augmented reality (AR) into revenue growth.

While Snap said it was not providing formal financial guidance, its internal revenue forecast for the second quarter is US$1.04-billion, which would be a 6-per-cent decline year-over-year. The internal forecast is below analyst expectations of US$1.13-billion, according to IBES data from Refinitiv.

In a letter to investors, Snap said it was taking steps to improve the relevance of ads shown to users and simplify how people can interact with Snapchat ads.

As a result of the changes, a small number of Snap’s largest advertisers are seeing fewer “actions,” such as users tapping on ads, than they did previously, Snap said.

The company said it would take time for its advertising systems to adjust to the updates and result in better performing ads.

“We are optimistic that our ad platform improvements are laying the foundation for future growth,” said Snap Chief Executive Evan Spiegel, during an earnings conference call with analysts.

Snap’s net loss was US$329-million during the quarter, narrowing from a net loss of US$360 -illion the previous year.

Daily active users on Snapchat rose 15 per cent year-over-year to 383 million, in line with Wall Street expectations.

Snap said it expects between 394 million and 395 million daily active users in the second quarter.

Pinterest Inc. (PINS-N) forecast second-quarter revenue growth below Wall Street estimates on Thursday, as the image-sharing platform grapples with a pullback in advertising spending, sending its shares down 15.7 per cent.

While Pinterest said that the ad market was stabilizing, it warned the market was still uncertain.

Smaller digital ad sellers such as Pinterest and Snap are losing ground in a weak economy to big tech rivals Alphabet and Meta Platforms as advertisers stick with tried and tested platforms. This follows strong pandemic era sales when advertisers spent heavily to reach customers online.

In a bid to beef up its ad business, Pinterest also announced that it was opening up third-party ad demand, which would allow other parties to deliver ads on its platform. It announced Amazon as its first partner, as it looks to bring more brands and products onto its platform.

“We believe recently appointed CEO Bill Ready is looking for ways to better leverage its platform on the e-commerce side, creating more shoppable experiences for customers that utilize the platform,” said Angelo Zino, senior equity analyst at CFRA Research.

CEO Ready said that the company was using next-generation AI to bring better recommendations and ads among other things to the platform.

Global monthly active users (MAUs) on the image-sharing platform that lets users create online pinboards grew by 7 per cent to 463 million, above estimates of 454.03 million, according to Refintiv data.

The company’s revenue rose 5 per cent to US$602.58-million in the first quarter ended March 31. Analysts on average had expected US$592.99-million, according to Refinitiv data.

Pinterest said it expected revenue growth in the current quarter to be in line with revenue growth in the first quarter and the fourth quarter of 2022. Fourth quarter revenue grew 4 per cent. Wall Street was estimating growth of 6.15 per cent, according to Refinitiv data.

Shares of First Republic (FRC-N) plunged 44.6 per cent after a CNBC report that the lender was likely headed for receivership under the U.S. Federal Deposit Insurance Corporation (FDIC), worsening a rout that has wiped out 75 per cent of the stock’s value this week.

U.S. Federal Reserve faults Silicon Valley Bank executives, itself in bank failure

If the San Francisco-based lender falls into receivership, it would be the third U.S. bank to collapse since March. First Republic said earlier this week its deposits had slumped by more than US$100-billion in the first quarter.

The stock lost more than half of its value on Friday and touched a record low of US$2.99. Trading in the bank’s shares was halted multiple times.

At its lowest, the bank had a market capitalization of nearly US$557-million, a far cry from its peak valuation of more than US$40-billion in Nov. 2021.

Short sellers - investors who set up bearish trades with the aim of booking profits from falling stock prices - have raised their bets against the bank by US$63-million to US$376-million over the past 30 days, according to Ihor Dusaniwsky, managing director of Predictive Analytics at S3.

A Reuters report of a government-brokered rescue deal for First Republic had pushed its shares up by as much as 6.6 per cent earlier in the session.

According to the report, the FDIC, the Treasury Department and the Federal Reserve are among the government bodies that have started to orchestrate meetings with financial companies about a lifeline for the bank.

The government’s involvement was helping bring more parties, including banks and private-equity firms, to the negotiating table, the report said.

“The potential worst-case scenario stemming from the collapse of Silicon Valley Bank appears to have been averted,” said Mark Haefele, chief investment officer at UBS Global Wealth Management, in a note.

“But the problems at First Republic are a reminder that further problems remain possible.”

With files from staff and wires

Follow David Leeder on Twitter: @daveleederOpens in a new window

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