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A look at North American equities heading in both directions

On the rise

TSX-listed energy stocks enjoyed gains on Monday after surprise cuts to OPEC+ group’s output targets, which analysts and traders think could push oil prices towards US$100 a barrel and set the scene for another clash with the West grappling with higher interest rates.

The decision signals unity within OPEC+ despite Washington’s pressure on its Gulf allies to weaken their ties with Moscow, while also undermining the West’s efforts to limit Russia’s oil income.

Oil prices jumped over 6 per cent on Monday after the Organization of the Petroleum Exporting Countries and their allies including Russia announced further production target cuts of about 1.16 million barrels per day (bpd) from May through the rest of the year.

The pledges will bring the total volume of cuts by the group known as OPEC+ since November to 3.66 million bpd according to Reuters calculations, equal to 3.7 per cent of global demand.

OPEC+ had been expected to hold output steady this year, having already cut by 2 million bpd in November 2022.

Large caps Canadian Natural Resources Ltd. (CNQ-T), Suncor Energy Inc. (SU-T) and Cenovus Energy Inc. (CVE-T) were among those seeing gains.

Shares of Teck Resources Ltd. (TECK.B-T) jumped 18.7 per cent on Monday after it said it has rejected an unsolicited takeover proposal from Swiss mining giant Glencore PLC.

Calling the offer opportunistic and not ESG friendly, considering Glencore’s considerable exposure to thermal coal and oil, Vancouver-based Teck said it had no interest in being acquired.

“The board is not contemplating a sale of the company at this time,” said Sheila Murray, Teck’s chair, in a statement.

Teck earlier this year said it plans to separate its metallurgical coal business from its copper business and collapse its dual share class structure. If the deal closes as planned, cash flow from Teck’s coal business would also be funneled back into the copper segment for the foreseeable future,

The split was necessary because investors have long given a much lower valuation to Teck’s legacy dirty coal business compared to its growing copper segment.

Teck said that Glencore’s offer amounted to a 20 per cent premium to the market price on the day it was made, consisting of 7.78 Glencore shares for each class B share, and 12.73 Glencore shares for each Class A share.

- Niall McGee

Shale producer Ovintiv Inc. (OVV-T) increased over 11 per cent after it agreed to buy oil-related assets in the Permian Basin from entities controlled by private-equity firm EnCap Investments for about US$4.3-billion in cash and stock.

The move is part of Ovintiv’s efforts to expand its operations in the Permian basin, where the company has already committed to undertaking additional drilling work.

The assets being bought are located in the Midland portion of the Permian Basin in Texas and are currently owned by three companies controlled by EnCap - Black Swan Oil & Gas, Piedra Resources and PetroLegacy II.

Ovintiv is also selling its entire Bakken oil assets to Grayson Mill Bakken, a portfolio company of funds managed by EnCap, for about US$825-million.

The company sold parts of its oil and gas assets in the Uinta and Bakken basins last year.

Under the transaction terms for the Permian assets, Ovintiv will offer about 32.6 million common shares and pay US$3.13-billion in cash, a portion of which will come from the sale of its Bakken assets.

The Permian deal would add about 1,050 net well locations to Ovintiv’s Permian inventory and about 65,000 net acres in the core of the Midland Basin, the company said.

Burger chain McDonald’s Corp. (MCD-N) was higher by 0.9 per centon a Wall Street Journal report that it is temporarily closing its U.S. offices this week as it prepares to inform corporate employees about its layoffs as part of a broader company restructuring.

In an internal email last week to U.S. employees and some international staff, McDonald’s asked them to work from home from Monday through Wednesday so it can deliver staffing decisions virtually, the report said. It is unclear how many employees will be laid off.

“During the week of April 3, we will communicate key decisions related to roles and staffing levels across the organization,” the Chicago-based company said in the message viewed by the Journal.

McDonald’s also asked employees to cancel all in-person meetings with vendors and other outside parties at its headquarters, the report added.

The fast-food chain said in January that it would review corporate staffing levels as part of an updated business strategy, which could lead to layoffs in some areas and expansion in others.

On the decline

Montreal-based Saputo Inc. (SAP-T) was lower by 0.3 per cent after announcing it has entered into a definitive agreement to sell two fresh milk processing facilities in Laverton North, Victoria, and Erskine Park, New South Wales, to Australian retailer Coles Group Ltd. in a deal worth approximately $95-million.

The transaction is subject to clearance from the Australian Competition and Consumer Commission, and is expected to close in the second half of 2023.

Endeavor Group Holdings Inc. (EDR-N), the parent of the popular UFC mixed martial arts franchise, slipped 5.8 per cent after it said on Monday it will acquire entertainment firm World Wrestling Entertainment Inc. (WWE-N) in a deal valued at US$9.3-billion.

The deal unites two of the biggest names in wrestling and entertainment and caps a months-long sale process for WWE, overseen by its co-founder and executive chairman Vince McMahon who returned to the company’s board in January.

“This is a once-in-a-lifetime opportunity to bring together two leading pure-play sports and entertainment companies,” Endeavor CEO Ari Emanuel said on an investor call, describing the deal as a “transformational step” for Endeavor.

Mr. Emmanuel said he would capitalize on Endeavor’s expertise in securing media deals, sponsorships and new forms of distribution to fuel growth at the new company, which he will lead as chief executive officer while continuing in his role at Endeavor.

McMahon will retain his role in the new company, which will be majority owned by Endeavor with a 51-per-cent stake, while WWE investors will own the rest.

Hollywood power-broker Emanuel has transformed Endeavor, which has its roots in representing film and television talent, into a sports and entertainment powerhouse with more than 20 acquisitions. He has invested in bull riding events, fashion shows and the Miami Open and Madrid Open tennis competitions.

Endeavor said it would run the same playbook it employed with the UFC, the world’s largest martial-arts organization, improving operating efficiency, negotiating lucrative media deals and striking licensing deals.

Tesla Inc. (TSLA-Q) was dragged down 6.3 per cent by growing worries about the electric-vehicle maker’s profit margins after aggressive price cuts led to only a modest increase in quarterly deliveries.

After slashing prices on its vehicles by as much as 20 per cent in January, Tesla posted record deliveries of 422,875 vehicles in the first quarter but they were up just 4 per cent on the prior quarter.

Several analysts said the figures raised questions about whether more price cuts would be needed this year to achieve CEO Elon Musk’s target of 2 million deliveries for 2023.

“Tesla’s price reductions are clearly having the desired effect for now, but there’s a limit to how many times prices can be cut,” said Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown.

“With delivery targets for the year looking slightly tough to achieve, there could yet be further pressure on the group’s valuation despite its sharp falls in the last couple of years.”

Although Tesla’s price war, which was started in January, has put pressure on money-losing EV startups such as Rivian Automotive Inc and Lucid Motors and legacy automakers including Ford Motor Co, it has also raised fears about the company’s industry-leading margins.

Bernstein analysts said Tesla “will need to further lower prices this year and/or next year to achieve its volume targets, incrementally pressuring margins.”

“We maintain that price cuts have and will undermine industry profitability (including Tesla’s), but that incumbents are deep pocketed and not likely to back down,” they added.

Tesla shares were trading at US$200, having gained 9 per cent last week in the run-up to the deliveries report.

Some analysts, however, pointed out that falling prices of materials used in EVs, especially battery metal lithium, could help lower the cost of production and offset the hit from price cuts.

Rivian Automotive Inc. (RIVN-Q) on Monday missed first-quarter production estimates as the electric-vehicle maker grappled with supply chain constraints, sending its shares down almost 2 per cent.

Calling supply chain hurdles as Rivian’s “biggest constraint” in February, CEO R.J. Scaringe had flagged that the company did not have components to fully run its Normal, Illinois, plant across all lines and multiple shifts.

The Amazon-backed company had said it stopped its commercial production line for the majority of the first quarter of 2023 to introduce new technologies including lithium iron phosphate (LFP) battery packs.

Rivian produced 9,395 vehicles at its Normal plant in the quarter ended March, compared with Visible Alpha’s consensus estimates of 10,030 vehicles. In the fourth quarter, it built 10,020 vehicles.

The Irvine, California-based company, however, reiterated its annual production target of 50,000.

“We expect full-year production to be back-end weighted due to supply constraints...and the commercial line downtime we’re taking in Q1 2023,” finance chief Claire McDonough said on an earnings call in February.

The electric-vehicle maker has been losing money on every vehicle it builds, and narrowly missed its annual production target of 25,000 units last year.

The company said it delivered 7,946 vehicles in the reported quarter, compared with estimates of 7,090 vehicles. It delivered 8,054 vehicles in the fourth quarter.

With files from staff and wires

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

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