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M&A activity drives big swings in Canadian power stocks in Q1'16

led the list of top-performing Canadian power company stocks, recording thehighest gains in the first quarter of 2016, according to data compiled by SNLEnergy.

Capstone'sstock was up 33.88% quarter over quarter to close at C$4.86 per share on March31, as the Toronto-headquartered company nears the completion of its pendingC$480 millionsale to IrvingInfrastructure Corp. for C$4.90 in cash for every Capstone stock and Class Bexchangeable unit of its subsidiary MPTLTC Holding LP.

shares opened Feb. 9 afterannouncing an US$11.3 billion deal to acquire U.S. transmission developerITC Holdings Corp.But analysts said the cold reception was no reason for concern, and indeed, BMOCapital Markets Corp. upgraded Fortis to "outperform" from "marketperform," based on the ITC deal, and raised its price target to C$44 fromC$43. "We believe this increased footprint and scale provides [Fortis] anice platform to source additional growth opportunities over the [long term]not only in its traditional hunting ground in North America, but also possiblyon a global basis," BMO analyst Ben Pham wrote on Feb. 10.

Fortisshares closed the first quarter 8.82% higher at C$40.71.

shares gained 24.54% toclose at C$14.11 per share. The generator's stock price rose steadily throughthe first quarter, and continued to climb after raising its annual dividend rate by 3% to 64 Canadiancents per share.

BMOCapital Markets Corp. lifted its investment opinion on Innergex shares in earlyFebruary to "outperform" with a C$14.50 price target, noting "fewcompanies can boast a visible organic growth program like INE in the currentmarket context — that growth profile in particular should drive a materialincrease in contracted free cash flow next year that is likely not being fullyappreciated by the market."

shares saw a23.01% gain in the first quarter to close at C$6.04 per share, as the companyprecluded the need to tap equity markets in 2016 following its move toslash its dividend by78% and cut other investor programs to shore up its balance sheet.

Thedividend cut will give TransAlta C$150 million in incremental cash. Earlier inJanuary, TransAlta closed a C$540 million drop-down with

S&PCapital IQ analyst Christopher Muir rates TransAlta shares at "hold,"expecting revenues at the power producer will rise 7% in 2016. "Lowerpower prices in Alberta will more than offset benefits from new projectsentering service," Muir noted.

Amongother top-performing stocks, TransCanadaCorp. shares gained 12.99% to land at C$51.06 per share at the endof the first quarter. The energy giant, which announced the of towardthe end of the first quarter, is reportedlyplanning to sell more than US$7 billion worth of assets, including its merchantpower fleet in the U.S.'s Northeast, to fund the CPG .

Moody'ssaid March 18 it expects the acquisition will be successfully executed, as willthe planned asset divestitures that would be used to help fund it. "Thetransaction is a modest credit positive for TransCanada over the long-termhorizon, because the business risk profile will improve thanks to the purchaseof the low risk Columbia Pipeline Group and the sale of the higher riskgeneration assets," said Gavin MacFarlane, vice president and senioranalyst at Moody's.

Bottom-performing stocks

AlgonquinPower & Utilities Corp. shares closed the first quarter down0.37% at C$10.87 as investors digested the company's U.S. utility ina US$2.4 billion all-cash deal.Algonquin Power shares fell on Feb. 10 a day after the deal was announced, andrecovered somewhat in early March after the company secured .

"At this point, the market has been slow to digest theEDE acquisition and concurrent financing," Desjardins Capital Marketsanalyst Bill Cabel said in an April 13 note. "We believe the currenttrading range is an attractive entry point and investors should add topositions in advance of the next dividend increase, which is expected to beannounced with 1Q16 (May) or 2Q16 (August) results."

Energy retailer JustEnergy Group Inc. saw a 21.86% drop in its stock price to close atC$7.72 per share on March 31. The company's shares tumbled on Feb. 11 afterreporting fiscal third-quarter 2016 EPS from continuing operations of 4 centsper share, well below the S&P Global Market Intelligence consensusnormalized mean EPS estimate of 18 cents. Looking ahead, the company's growthplans aim at geographic expansion, particularly in Europe where the companyexpects to expand into two new nations in fiscal 2017 and 2018.

The company expects to achieve the high end of its 2016 baseEBITDA guidance range of C$193 million to C$203 million. In fiscal year 2017,Just Energy expects to achieve double-digit percentage base EBITDA growth overfiscal 2016.

Looking ahead

Desjardinson April 13 named Algonquin Power and BoralexInc. as its top-picks, citing valuation and the companies' growthoutlook.

Commentingon the Canadian power sector, Desjardins expects returns will be driven in partby mergers and acquisitions, dividend hikes and project developments.

"Additionally,there continues to be favourable policy environments both in Canada and the USthat should support continued growth of renewables for the foreseeable future,"Cabel said. "Overall, our outlook for the sector and names under coverageremains constructive."

SNL Energy is an offering ofS&P Global Market Intelligence.