2 ‘top ten buys’ from over 1,000 Canadian stocks

Every month, Investor’s Digest of Canada reports on published securities analysts’ ‘buy’, ‘sell’, ‘hold’ advice and their earnings estimates for more than 1,000 Canadian companies. Here are an oil and gas stock and a consumer stock that made the most recent top-10 ‘buy’ list from more than 1,000 Canadian stocks.

bargain_stockCanadian Natural Resources Ltd. (TSX—CNQ; NYSE—CNQ) is an oil and natural gas producer in Western Canada. Its portfolio includes light and medium oil, heavy oil, bitumen, synthetic oil, natural gas liquids, and natural gas.

Canadian Natural has completed its deal to buy a 70 per cent stake in the Athabasca Oil Sands Project. The remaining 30 per cent interest is owned by Chevron Canada Ltd. (20 per cent) and Shell Canada Ltd. (10 per cent).

The aggregate consideration under the agreement was comprised of 97,560,975 common shares of Canadian Natural issued to Shell, a combined pre-adjustment cash payment of $8.24 billion to Shell and Marathon Oil Corp. and a deferred payment of US$375 million to Marathon Oil, due in the first quarter of 2018. Pursuant to the terms of the acquisition, Canadian Natural was slated to assume full operation of the project as of June 1 and it anticipates producing between 173,000 and 191,000 barrels per day.

Q1 results hurt by unplanned outage

AltaCorp Capital analysts Nick Lupick and Daniel Morgan say in a research note that Canadian Natural’s results for the first quarter of 2017 were, in their words, “mixed”. They explain that the miss during the first quarter was a function of an unplanned outage that took place at its Horizon project in March.

“However, debottlenecking and the start-up of Phase 3 and the recent acquisition of the Albian Mine will result in strong operational momentum in the second half of 2017,” say the analysts. “We calculate the stock’s selling-off point being the low-$40 per share level.”

Messrs. Lupick and Morgan add that Horizon still achieved another quarterly production record with 192,500 barrels per day in the first quarter of 2017—up eight per cent quarter-over-quarter and up 50 per cent year-over-year.

For the quarter, Canadian Natural’s diluted cash flow per share came in at $1.46 or $1.639 billion, up from $657 million a year prior. Messrs. Lupick and Morgan keep their ‘outperform’ recommendation and their $55-per-share 12-month target price for this oil and gas stock.

Five analysts surveyed rate Canadian Natural a ‘buy’, which puts the company in a tie with Canadian Pacific Railway Ltd., Raging River Exploration Inc. and Tourmaline Oil Corp. at number one on our top-10 ‘buy’ list.

In-house successor to Aeroplan a value creation strategy

Air Canada (TSX—AC) provides scheduled passenger services in the Canadian domestic, Canada-US trans-border and international markets to and from Canada.

The airline dealt its loyal frequent flyers a blow recently when it announced plans to scrap Aimia’s Aeroplan and start up its own frequent flyer program in 2020.

To allay customers, the company informed them that they can continue to rack up and redeem Aeroplan miles for travel with the airline and its Star Alliance network through June 2020, and it added that more information on the transition will be released over time.

Aeroplan Miles earned up to June 2020 will remain in customers Aeroplan accounts and can be used for Aeroplan rewards. After June 2020, the airline anticipates continuing to make flights available for Aeroplan redemption.

Will added value make AC seem like a bargain stock now?

BMO capital markets analyst Fadi Chamoun says in a May 11 research note that Air Canada projects that the airline will create value of more than $2 billion by moving its frequent flyer program in house. He adds that the company will offer up further details as per the financial benefits and costs associated with starting up a loyalty program on its investor day on Sept. 19.

“While there are likely some upfront costs associated with this transition, this is a significant ‘value-creation’ step that will support an upward re-rating in the company’s valuation,” says Mr. Chamoun. “The stock reacted positively to the announcement, but we suspect that there is significant more upside when additional details regarding this valuable opportunity become available.

“Rewards are important to credit card loyalty, and frequent flyers tend to be more loyal and affluent customers; both coveted characteristics for credit card issuers. We would expect the Canadian banks to be looking to play a role in Air Canada’s frequent flyer program in 2020.”

The analyst keeps his ‘outperform’ recommendation and his $20-per-share 12-month target price for this consumer stock. Four of the analysts who cover Air Canada rate the company a ‘buy’ and one rates it a ‘hold’ which puts the company in a tie in the number five slot with Crescent Point Energy Corp. and Whitecap Resources Inc. on our top-10 ‘buy’ list.

This is an edited version of an article that was originally published for subscribers in the June 23, 2017, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.

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