This TSX oilsands major could jump as much as 20% on the Iran war and Strait of Hormuz crisis, analyst says

Imperial Oil Ltd.'s site in Sarnia, Ont. Photo by Paul Morden/Postmedia files

Article content

RBC Capital Markets updates its Top 30 global stock ideas for the second quarter, the strange case of falling valuations and rising earnings outlooks and more from The Week in Stocks. 

Article content

Stock of the week: Imperial Oil Ltd.

Article content

Article content

Imperial Oil Ltd. (IMO:TSX) closed Friday at $178.93, well above its 12-month price target of $139.71 based on the forecasts of 17 analysts tracked by Bloomberg. That didn’t stop some analysts from hiking their price targets for the oilsands major. UBS Global Research analyst Manav Gupta hiked his target on April 9 to $206 from $185 after increasing his estimates for refining and extraction results. Gupta said he is modelling capital investment spending of $475 million in the first quarter and post-dividend free cash flow of $825 million and expects that to translate into share buybacks at the end of 2026. At National Bank of Canada Capital Markets, analyst Travis Wood hiked his price target for Imperial to $212 from $139 on the expectation that the disruption in the flow of oil through the Strait of Hormuz sets Imperial up as among the names best positioned to benefit from the risks to global refining markets. BMO Capital Markets analyst Randy Ollenberger raised his price target to $185 from $129 on April 7. However, some analysts have a different view. RBC Capital Markets analyst Greg Pardy has a price target on Imperial of $126 and an underperform rating based on the belief that the value of shares have “disconnected” from company fundamentals and on a worry that the major reorganization of the company, which will involve layoffs and the transfer of work to overseas centres, could hurt the company’s operating performance.

Article content

Article content

Keeping score

Article content

Article content

Article content

Article content

Article content

Here are selected names RBC added, and dropped, from its best global ideas

Article content

RBC Capital Markets’ basket of 30 top investing ideas had a rough ride in the first quarter, with only nine of the companies, including Loblaw Cos. Ltd. (L:TSX), posting gains as names such as Airbnb Inc. (ABNB:US), Amazon.com Inc. (AMZN:US), Shopify Inc. (SHOP:US) and Microsoft Corp. (MSFT:US) posted losses. For the first three months of the year, the Top 30 list was down 4.6 per cent compared with a loss of 3.7 per cent on the S&P 500 index and a gain of 3.2 per cent on the S&P/TSX composite index. With the second quarter fresh out of the starting gate, RBC has revised its list. Graeme Pearson and Mark Odendahl, co-heads of global research, dropped L’Oreal SA (OR:FP) in favour of Diageo PLC (DGE:LN) as their top consumer pick in Europe. In the health-care sector, they added Merck & Co. Inc. (MRK:US) on the expectation that the company will direct its free cash flow to research and development and acquisitions. In information technology, they added Applied Materials Inc. (AMAT:US) as they believe it is benefiting from strong generative AI spending, and dropped a few companies, among them Shopify. In utilities, they added AltaGas Ltd. (ALA:TSX), backed by the company’s liquid petroleum gas export terminals and high energy prices. They dropped Engie SA (ENG:FP), feeling it has topped out following a 24 per cent increase in the shares in the first quarter.

Article content

Article content

Article content

Stranger things: valuations are falling, while earnings estimates rise, says Purpose

Article content

As another earnings season nears, something strange is happening: Stock valuations are falling while earnings estimates are climbing, Craig Basinger, chief market strategist of Purpose Investment Inc., said in a note on April 6. “That’s not supposed to happen,” he said, adding he expects the dynamic to right itself with rising stocks prices. To be sure, the Middle East conflict is a complication and the inflationary forces it has unleashed on energy and commodity prices could end up eating into margins, he said. “For now, the base case remains intact, just with a slimmer margin for error than we had in January,” Basinger said. Where should investors be looking? TSX energy stocks’ forward earning have risen more than 10 per cent in the past month, while S&P 500 index energy stocks posted a one-month forward earnings increase of more than 20 per cent, he said. Basinger thinks energy is at “peak momentum” and Purpose has been trimming back. The TSX’s materials sector has posted a 20 per cent earnings revision over the past three months on a commodity “tailwind.” Even though gold has pulled back, the bigger picture looks good, Basinger said.  “Industrials, meanwhile, are steady, with recent momentum intact. Nothing flashy, but nothing to worry about, either. Sometimes boring is good,” he said.