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Investing.com -- Desjardins Capital Markets downgraded three Canadian oil companies: Imperial Oil Ltd (TSX:IMO), Tamarack Valley Energy Ltd (TSX:TVE), and Whitecap Resources Inc . (TSX:WCP); citing bearish commodity forecasts and tighter capital returns amid softening oil prices and a stronger Canadian dollar. The firm now favors natural gas–weighted and integrated producers with downside protection.
Imperial Oil was downgraded to “Sell” from “Hold” with a price target of C$89, reflecting elevated valuation and diminished free cash flow expectations under a weaker commodity backdrop. Analyst Chris MacCulloch said the company is “generating sufficient FCF to retire only ~1.5% of outstanding shares through buybacks in 2026 after funding the 2.9% dividend yield, a far cry from recent years when it routinely exhausted a 5% NCIB while executing the occasional SIB.”
Desjardins also downgraded Tamarack Valley Energy to “Hold” from “Buy” with a target price of C$5, pointing to heavier leverage and exposure to discounted heavy crude. “Downgrade is primarily commodity price-driven,” MacCulloch wrote, “which disproportionately weighs on the company’s FCF generation relative to peers given its elevated heavy oil exposure and balance sheet leverage.”
Whitecap Resources received a similar downgrade to “Hold” from “Buy,” with its price target revised to C$10. The firm’s generous dividend appears vulnerable amid falling crude price forecasts, with MacCulloch stating it “now appears increasingly stretched with a 2026 capex-adjusted payout ratio of ~110% based on current strip prices.”
The revised outlook follows Desjardins’ commodity price reset, which lowered its 2026 WTI assumption to US$55/bbl from US$60/bbl, citing accelerating supply from OPEC+ and lingering demand uncertainty. The forecast for the Canadian dollar was also raised to C$0.74/US$1 for 2026, further squeezing revenue assumptions for Canadian exporters.
Despite broad 1Q25 cash flow beats among Canadian producers, Desjardins is bracing for sharply lower cash generation in the current quarter. The combination of April’s surprise OPEC+ supply hike and the impact of U.S. tariffs is expected to compress margins and reduce share buyback activity across the sector.
Desjardins continues to prefer natural gas–exposed and integrated producers such as Suncor (TSX:SU), ARC Resources (TSX:ARX), Topaz Energy (TSX:TPZ), and Sparta Energy, which it believes offer more resilient returns under updated price deck assumptions. Natural gas markets are expected to remain tighter, buoyed by upcoming LNG Canada commissioning and firm global prices.
Overall, Desjardins’ recalibrated price targets and ratings suggest a shift away from oil-heavy names in favor of diversified or gas-weighted players. With the sector facing both macro headwinds and capital allocation strain, investors are being urged to tread carefully amid heightened volatility.