Canadian equity research

A summary of Morningstar analyst reports from our Canadian coverage universe

Morningstar 1 September, 2017 | 5:00PM
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At the heart of our valuation system is a detailed projection of a company's future cash flows, resulting from our analysts' research. Analysts create custom industry and company assumptions to feed income statement, balance sheet and capital investment assumptions into our globally standardized, proprietary discounted cash flow (DCF) modelling templates. We use scenario analysis, in-depth competitive advantage analysis and a variety of other analytical tools to augment this process. Moreover, we think analyzing valuation through discounted cash flows presents a better lens for viewing cyclical companies, high-growth firms, businesses with finite lives (e.g., mines) or companies expected to generate negative earnings over the next few years. That said, we don't dismiss multiples altogether but rather use them as supporting cross-checks for our DCF-based fair value estimates. We also acknowledge that DCF models offer their own challenges (including a potential proliferation of estimated inputs and the possibility that the method may miss short-term market price movements), but we believe these negatives are mitigated by deep analysis and our long-term approach.

Morningstar's equity research group believes that a company's intrinsic worth results from the future cash flows it can generate. The Morningstar Rating for stocks identifies stocks trading at a discount or premium to their intrinsic worth -- or fair value estimate, in Morningstar terminology. Five-star stocks sell for the biggest risk-adjusted discount to their fair values, whereas 1-star stocks trade at premiums to their intrinsic worth.

Four key components drive the Morningstar rating: (1) our assessment of the firm's economic moat, (2) our estimate of the stock's fair value, (3) our uncertainty around that fair value estimate, and (4) the current market price. This process ultimately culminates in our single-point star rating.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
BlackBerry Ltd12.82 CAD-0.23Rating
BRP Inc121.00 CAD1.29Rating
Cameco Corp28.61 CAD-6.10
Canadian Tire Corp Ltd Class A195.26 CAD-0.59Rating
Canfor Corp26.25 CAD0.42
Crescent Point Energy Corp4.97 CAD-1.97
Inter Pipeline Ltd19.90 CAD-0.25Rating
Precision Drilling Corp43.47 CAD-0.02
Quebecor Inc Class B30.58 CAD-0.71
Restaurant Brands International Inc80.13 CAD0.15Rating
Ritchie Bros Auctioneers Inc78.57 CAD-1.60Rating
Shaw Communications Inc Class B36.19 CAD0.03Rating
Thomson Reuters Corp149.32 CAD-0.25Rating
West Fraser Timber Co.Ltd99.31 CAD0.80

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