Company capsules on banks and utilities

A sampling of company updates, including target price and recommendation, by major brokerage houses. We mainly cover stocks from Canada, and U.S., but also some from Europe and Asia. Here we cover two banks and two utility firms.


Updates on 2 utilities
 2 banks (1 from U.S.)

Pembina Pipeline Corp. (TSX—PPL; NYSE—PBA)

Management complemented the company’s 2022 second-quarter financial results by raising full-year guidance for the second time year-to-date based in part on a joint venture with global investment firm KKR.

ATB Capital Markets analysts Nate Heywood and Ryan Bannerman stand by an Outperform recommendation for Pembina and assign a target share price of $53. The analysts say that, “While the business continues to perform strongly given its heavily-contracted cash flows through the pipelines and facilities business units, the guidance increase was largely attributable to continued optimism for the marketing business and the expected benefits of recent financial engineering initiatives such as the (KKR deal).”

Messrs. Heywood and Bannerman raised their target share price for Pembina from $52 to $54.
In recent reports, the analysts noted that the company planned to raise its dividend and further return value to shareholders through $350 million in share buybacks after the creation of PGI — Pembina Gas Infrastructure.

Telus Corp. (TSX—T; NYSE—TU)

Telus Corp. will significantly expand its Telus Health offering with the acquisition of LifeWorks, nearly doubling its revenue base, state CIBC World Markets analysts Stephanie Price and Kirill Kozyar. They are retaining a Neutral recommendation on Telus, and a share price target that moved from $34 to $33 per share, due to overall economic uncertainty.

LifeWorks is an employee assistance program, providing individual, social, financial and mental wellbeing as well as employee support consulting. It is the largest provider of employee and family assistance plans in Canada and hold a significant standing in the U.S. as well.

Telus is now forecasting $170 million to $200 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) within the next three years to five years. To break down revenue growth, CIBC’s forecast includes integrated health solutions to generate around 50 percent in 2023. Administrative solutions (pensions and benefits administration) will generate around 39 per cent of revenue, and retirement and financial solutions (Canadian-only) will contribute 11 per cent of 2023 revenue.

Canadian Imperial Bank of Commerce (TSX—CM; NYSE—CM)

Canadian Imperial Bank of Commerce’s fiscal 2022 third-quarter results (period ended July 31) included many promising figures but lacked excitement nonetheless, especially since staid margins suggest constrained future earnings. Commenting on the results in an August 26 report, Scotiabank analyst Meny Grauman reiterates a Sector Outperform recommendation along with a target share price of $83 for the bank.

Mr. Grauman says that “Running up against all positives is the fact that three basis points of margin expansion (per Scotiabank’s calculations) at the top of the house is not particularly exciting, and three basis points of sequential margin contraction for CIBC in the U.S. goes against the narrative of aggressive Fed rate hikes boosting bank NIMs (net interest margins).

A year ago, Mr. Grauman also considered CIBC a Sector Outperform and he stood by a far-loftier target share price of $168 for it. The bank revealed at the time that it would become the exclusive Canadian Costco Mastercard provider starting in early 2022.

Bank of America Corp. (NYSE—BAC)

Credit Suisse analyst Susan Roth Katzke met with Bank of America Corp. chief financial officer Alastair Borthwick during the last week of August. Her discussion began with the macro outlook, which is supportive. Talks progressed to a deeper dive into fundamentals and competitive dynamics i.e., the net interest revenue trajectory, and credit quality.

Observed activity across the bank’s customer base shows the consumer to be “in great shape”, despite continued Fed tightening/higher interest rates into year-end. Higher rates would naturally limit loan-growth demand, says Ms. Katzke.

Bank of America generated four per cent loan growth in the business units in the second quarter. She is forecasting two per cent in the third quarter as demand for mortgages falls industry-wide.

“As we heard it, management remains intensely focused on the sustainability of risk-adjusted returns, on more capital, with risk appetite stable and return objectives unchanged,” Ms. Katzke comments. Her $43 target price and outperform recommendation are unchanged.

This is an edited version of an article that was originally published for subscribers in the October 2022/First Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.

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