The Toronto Stock Exchange 300 Composite Index (^GSPTSE) lost 1.6% during last week as geopolitical risks and poor local employment statistics weighed on the market.
The overall market momentum continues to be positive, but some valuations are starting to look stretched. Good results from a whole raft of companies reporting this week will be required to support the ongoing bull market. We have selected some of the highlights for further elaboration below.
Encana Corporation (TSX: ECA)(NYSE: ECA), the Canadian-based natural gas producer, is expected to report quarterly results on Tuesday. The market consensus expectation is a profit of $0.50 per share compared to $0.24 a year ago with the improvement derived from lower operating costs and higher product prices. Other gas producers have produced first-quarter results, offering hope for good results from Encana as well.
The recently appointed CEO, Doug Suttles, announced in November last year that his turnaround strategy for the company would include a capital spending focus on the expansion and development of oil and liquid rich assets in six selected areas, strengthening the balance sheet by selling non-core assets, reducing the workforce by 20% and cutting the quarterly dividend.
Recent divestitures of non-core assets raised roughly $2.5 billion, a proposed IPO of bundled rights to mineral fee titles and royalties including 5.2 million acres of land in Southern Alberta is expected to raise substantial further capital, and the acquisition of the Eagle Ford assets from Freeport-McMoran will set the company back $3.1 billion. The first quarter results will provide some indication whether the strategy is working.
Air Canada (TSE: AC.B) is expected to announce on Thursday a loss of $0.45 per share for the first quarter compared to a loss of $0.52 a year ago. The slight improvement is expected despite the harsh winter conditions, weaker Canadian dollar and higher fuel prices countered by higher traffic and ongoing cost control.
The Air Canada share price has improved by more than 300% since the start of 2013 to the current price of $8.10. The company has a four-point strategy to further improve its operating results including additional cost reductions and revenue enhancements. Given the impressive record of delivery of the current CEO, one cannot rule out further improvements in profitability over the next few years.
I have previously written about the possibility that the share price could reach $10 and it seems to be within reach, but the operational improvements of the past few years will have to continue for this target to be reached.
Also on Thursday, Power Corporation (TSX: POW) and Power Financial (TSX: PWF) are expected to report a profits per share of $0.61 and $0.67 respectively. This will represent increases of 13% and 18% compared to the same quarter last year. The bulk of the asset value of Power Corporation consists of the 66% holding in Power Financial, which in turn has major holdings in Great-West Lifeco (TSX: GWO) and IGM Financial (TSX: IGM).
Great West recently announced good results buoyed by increased profits from the recently acquired Irish Life subsidiary while IGM also reported a profit increase although slightly below consensus expectations.
The Power companies have not performed well so far this year and with substantial discounts built into the share prices relative to the underlying asset values, positive results may contribute to an improvement in the performance of the shares.