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Analysts downgrade TransCanada after earnings come up short

TransCanada Corp. has been slapped with at least two analyst downgrades in the wake of the company's disappointing first-quarter earnings last week.

Earning per share came in at 52 cents, down from 61 cents a year earlier and below the consensus estimate of 56 cents. Among the factors hurting performance were scheduled outages at the Bruce nuclear power operations in Ontario and unseasonably warm weather, which impacted the results of several U.S. natural gas pipelines and power operations.

CIBC World Markets Inc. analyst Paul Lechem downgraded the stock to "sector performer," while Desjardins Securities Inc. analyst Pierre Lacroix similarly cut his recommendation to a "hold" from "buy."

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Nevertheless, neither analyst sees significant downside from here. In fact, Mr. Lacroix sees several potential positive catalysts for TransCanada later this year that could propel the shares higher.

Most importantly, TransCanada intends to start work on the southern leg of the Keystone XL pipeline this year and on the northern leg likely early next year. Meanwhile, Bruce A power units 1 and 2 will gradually be brought back online, and it's possible a long-term favourable restructuring of Canadian mainline pipeline tolls could be approved late this year or in early 2013, Mr. Lacroix points out.

But both analysts suspect that the stock doesn't have much upside potential in the short term.

Upside: Mr. Lacroix maintained a $46 price target, Mr. Lechem cut his target by $1 to $45, and Canaccord Genuity analyst Juan Plessis maintained a "hold" rating and $44 price target.


BMO Nesbitt Burns Inc. analyst Dan McSpirit has upgraded Chesapeake Energy Corp. to "outperform," noting that the embattled natural gas producer underperformed its peers by more than 20 per cent since the start of April. While there's no shortage of reasons why shares have suffered -- including claims of poor corporate governance and alleged potential conflict of interest involving CEO Aubrey McClendon's personal finances -- he thinks the company will eventually recover from its woes given its "deep and wide asset base."

"We believe the risk/reward at current price levels presents an attractive opportunity for investors looking to venture out on this risk curve," Mr. McSpirit said.

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Upside: Mr. McSpirit raised his price target to $25 (U.S.).


BPZ Energy has secured Pacific Rubiales, termed by Canaccord Genuity analyst Frederick Kozak as "a great new partner," for its Z-1 block offshore Peru. Pacific Rubiales will get a 49 per cent interest in the block and pay BPZ $150-million in cash while funding the next $185-million of capital expenditures. The deal also "gives BPZ the lifeline to continue exploration of the company's onshore Peru assets," he said.

Upside: Mr. Kozak raised his price target by $2.50 to $7 and maintained a "buy" rating.

Also see:

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Versant Partners analyst Tom Liston upgraded Constellation Software Inc. to a "buy," believing that its growth profile will continue to be robust thanks to a solid acquisition strategy. "While we have always considered CSU a core holding, we would also recommend overweighting the stock," he said, noting that if acquisition opportunities slowed, it has the ability to "dramatically" increase its dividend.

Upside: Mr. Liston raised his price target by $12 to $107.


Plazacorp Retail Properties Ltd. , which has a portfolio that includes interests in 115 properties, has been "flying under the radar in Atlantic Canada," where most of its assets are, said M Partners analyst Brendon Abrams. It's currently valued below peers but he sees several catalysts that may boost the share price within the next year, including increased analyst coverage, conversion to a REIT structure, and moving its listing from the venture exchange to the TSX.

Upside: Mr. Abrams initiated coverage with a "buy" rating and $5.25 price target.

Also see:

Why big investors are eyeing real estate investment trusts

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About the Author
Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More

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