On Friday, BMO Capital Markets adjusted its outlook on Canadian Utilities shares (CU:CN) (OTC: CDUAF), increasing its price target to C$35.50, up from the previous C$35.00, while keeping a Market Perform rating on the stock. The revision follows the company's announcement of the $2 billion-plus Yellowhead Mainline project, a significant investment in natural gas transmission infrastructure.
The analyst from BMO Capital Markets provided insights into the rationale behind the updated price target. The firm's financial models have been updated to account for the anticipated growth stemming from the Yellowhead Mainline project. This project is expected to contribute to a higher three-year capital program and an increased rate base compound annual growth rate (CAGR).
The project, with a deemed equity of 37% and an allowed return on equity (ROE) of 9% plus, is projected to add at least $65 million in regulated earnings once it becomes fully operational in the fourth quarter of 2027. This anticipated increase in earnings is a key factor in the revised price target.
Despite the positive outlook on the Yellowhead Mainline project and its impact on Canadian Utilities' earnings, BMO Capital Markets has chosen to maintain a Market Perform rating for the utility company. This decision is influenced by a comparative analysis with its parent company, ACO.X. The parent company, which owns 52% of Canadian Utilities, is preferred by BMO Capital and holds an Outperform rating.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.