Scotia downgrades Home Capital following blistering 35 per cent rally

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Home Capital Inc. was downgraded by Scotiabank Thursday following a blistering rally this year.

Analyst Phil Hardie downgraded the stock from sector outperformer to sector perform, but maintained his $38 target. Shares were last trading at $35.65 on Thursday, a gain of five cents, or 0.14 per cent.

Home Capital would be a favoured stock for brief sellers last year, following a revelation it had fired dozens of brokers for fraud. However the stock has bounced back from last year’s losses and it is now up 35 per cent for 2016.

“With an expected one-year rate of return eight per cent, we are downgrading HCG to sector perform,” Hardie said inside a note to clients.

Hardie notes the company, that is one of the largest alternative lenders in Canada, has gained more than 30 per cent against Canadian banking stocks, which it tends to historically trade for a cheap price to. The rally has narrowed its price-to-earnings discount from the group to 5 percent. While that’s better than the 2 per cent before last year’s broker firings, Hardie notes it is still lower than the historical nine per cent discount.

Home Capital announced last month that leader Gerald Soloway will step down from the company after leading it for pretty much 30 years. He will give leadership to company president Martin Reid on May 11.

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