Inside the Market’s roundup of some of today’s key analyst actions
Desjardins Securities analyst Chris Li thinks Canadian Tire Corp. Ltd. (CTC.A-T) is “off to a good start” in the current fiscal year, seeing it “controlling the controllables.”
However, following Thursday’s earnings release that sent its shares soaring 6.9 per cent, he warned near-term visibility for the retailer “remains limited” with an inflection likely coming in the second half of the year.
“As expected, 1Q results reflected softness in discretionary spending, limited dealer inventory replenishment, and higher net impairment losses and funding costs for FS [Financial Services],” said Mr. Li. “These pressures were mitigated by strong margin improvement and cost control. Management is cautious about 2Q as demand visibility is limited, but inflection should come in 2H, supported by declining rates, demand improvement and dealer restocking. FS monetization is also a potential catalyst. We maintain our positive long-term view.”
Given the “challenging” retail environment, Mr. Li saw the same-store sales growth decline of 0.6 per cent from its flagship Canadian Tire stores as “solid” given his expectation of a 3-per-cent drop and the consensus forecast of a 2-per-cent decline. He attributable the resullt to “stable stable traffic reflecting CTR’s diversified product mix with high-margin automotive (approximately 24 per cent of sales) up 7 per cent and seasonal/gardening (21 per cent of sales) up 3 per cent, Triangle Rewards, omnichannel and owned brands.”
“Product mix and lower freight costs drove the strong gross margin (up 193 basis points year-over-year ex-petroleum),” he added. “SG&A expenses fell 3.5 per cent year-over-year, driven by lower supply chain costs from lower inventories and headcount reduction.
“While 1Q was solid, it is the smallest Retail quarter, and management is cautious about 2Q given strong year-ago comps for gross margin, one-off catch-up of shipments due to the DC [distribution centre] fire last year and discretionary accounting for 65 per cent of sales in 2Q, with visibility on demand remaining limited. We expect the outlook to improve in 2H as dealer inventory for winter products is well-balanced and yearago comps get easier. But the wildcard is the health of the consumer, impacted by high inflation and expensive mortgage renewals.”
To reflect the “strong” retail results and in-line contributions from its Financial Services business, Mr. Li raised his 2024 and 2025 revenue and earnings expectations with his earnings per share projections increasing to $11.56 and $13.74, respectively, from $10.63 and $13.44. That led him to bump his target for Canadian Tire shares to $165 from $160, reiterating a “buy” recommendation. The average target on the Street is $155.40, according to LSEG data.
“We expect further share price volatility until earnings visibility improves. We maintain our positive long-term view,” Mr. Li concluded.
Elsewhere, other analysts making target adjustments include:
* Scotia’s George Doumet to $151 from $150 with a “sector outperform” rating.
“Q1 results were certainly better than feared,” said Mr. Doumet. “IBT [Income Before Income Taxes] eat consensus expectations by 36 per cent - driven mainly by seasonally unusual strength at the retail segment. This was the result of stronger gross margins, as they expanded materially (we were looking for a modest contraction), aided by mix (HSD growth in the higher margin automotive segment) and lower freight costs. Momentum into Q2 is expected to moderate (on comps and margins). While we see limited visibility on the duration of the continued revenue/sales mismatch as dealers are nimble with inventories amid macro uncertainty, we do see improving SSSG outlook in the 2H across all banners and continued cost discipline and margin management. Valuation remains undemanding and a potentially favourable outcome on CTFS’s strategic review should serve as a positive catalyst.”
* Canaccord Genuity’s Luke Hannan to $144 from $137 with a “hold” rating.
“We’re coming away from the quarter incrementally positive. Granted, it doesn’t sound like Q2/24 is shaping up to be a stellar quarter, but the prospect of comping against periods of softer consumer demand beginning in June is noteworthy, in our view, and along with better product margin and 3PL exits sets the stage for Canadian Tire to potentially surface meaningful operating leverage in H2. We’ll wait to see whether early signs of this begin to play out in Q2/24 before revisiting our rating, but Q1/24 was certainly a step in the right direction,” said Mr. Hannan.
* RBC’s Irene Nattel to $190 (Street-high) from $195 with an “outperform” rating.
* National Bank’s Vishal Shreedhar to $149 from $144 with a “sector perform” rating.
* TD Cowen’s Brian Morrison to $160 from $153 with a “hold” rating.
* CIBC’s Mark Petrie to $153 from $150 with a “neutral” rating.
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In a research note released Friday titled A sweet time to take another look at Rogers Sugar, Desjardins Securities analyst Frederic Tremblay upgraded his recommendation for shares of the Montreal-based company (RSI-T) to “buy” from “hold” in response to a second-quarter earnings beat and a stronger-than-expected outlook.
“Our constructive view is also supported by Maple’s well-executed recovery and positive outlook,” he said. “In both segments, we believe that RSI is making the right moves to drive solid profitable growth. The icing on the cake is an attractive valuation and 6.8-pr-cent dividend yield.”
After the bell on Thursday, Rogers reported adjusted EBITDA soared 52.3 per cent year-over-year to a record of $38.1-million, easily topping both Mr. Tremblay’s $30.1-million estimate and the consensus projection of $29.2-million.
“Positive demand and pricing conditions in the sugar market and company-wide operational improvements have contributed positively to recent performance and support a positive outlook,” said the analyst.
“The Sugar segment has stepped up its game and is advancing a major expansion project. Sugar’s 2Q margins were spectacular and, based on management’s comments, look poised to remain at attractive levels thanks to supportive market conditions and a higher contribution from refining activities. Looking further ahead, we are pleased that the expansion project calling for a 20-per-cent production capacity increase at the Montréal plant (100,000MT) is progressing and is still scheduled to start up in 1H FY26.”
Seeing a profitability recovery in the Maple segment and the company “well-funded for expansion,” Mr. Tremblay raised his earnings and revenue expectations through the next fiscal year, leading him to hike his target for Rogers Sugar shares to $7.50 from $6.25. The average target is $6.25.
Elsewhere, TD Cowen’s Michael Van Aelst raised his target to $7 from $6.50 with a “buy” rating.
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Scotia Capital analyst Himanshu Gupta upgraded Sienna Senior Living Inc. (SIA-T) to “sector outperform” from “sector perform” on Friday, touting a bullish view stemming from a “big” first-quarter earnings beat and a raise to its guidance for its LTC segment.
“SIA stock is already up 20 per cent year-to-date,” he said. “We might have missed on the first 20-per-cent move, but we want to capture the next 20-per-cent upside on the stock. We see stock moving towards $16.50 mark over the next one year, which is closer to our previously published forward NAV.
“We are now clearly overweight Seniors Housing sector (with SO-rating on both CSH and SIA).”
His target for the Markham, Ont.-based company’s shares jumped to $16.50 from $14.50, which is the current average on the Street.
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A pair of equity analysts on the Street upgraded their recommendations for Vancouver-based decision analytics software company Copperleaf Technologies Inc. (CPLF-T) on Friday in response to better-than-expected first-quarter results.
“After nine months on the sideline, we’re moving back to an Outperform rating,” said National Bank’s John Shao, moving his recommendation from “sector perform” previously.
“If anything, our previous concerns have largely faded, and we’ve gathered some incremental considerations in the past two quarters that eventually led to our upgrade decision: • The Company has successfully refreshed its operating model and go-tomarket strategy which resulted in accelerated pipeline conversion and upselling. The strong performance in the past two quarters spoke to its ability to execute and drive that strategic realignment. • Copperleaf has made inroads into two new verticals. For a company that essentially “owns” the asset planning & analytics market with limited competition, we believe those new vertical wins would meaningfully expand its addressable market and also serve as a longer-term growth driver. • A growing partnership ecosystem with high-profile partners such as SAP and Siemens expected to play a significant role in winning new deals. • Last but not least, we believe the momentum is building around CPLF stock with a YTD performance of 22 per cent. When Tech stocks exhibit improved execution and price momentum, it usually suggests more upside. In our view, that’s even more so for a high-quality SaaS name such as CPLF.”
Seeing Copperleaf “firing on all cylinders” after its revenue and earnings results topped his expectations, Mr. Shao raised his target for its shares to $9, matching the average on the Street, from $7.
“We continue to believe Copperleaf has a highly scalable and industry-leading platform. We’re moving to an Outperform rating,” he concluded.
Elsewhere, Canaccord Genuity’s Doug Taylor raised to “speculative buy” from “hold” with a $10 target, up from $7.
“Copperleaf’s Q1 results were significantly ahead of expectations on all metrics, in part due to an upswing in perpetual licenses,” said Mr. Taylor. “The company delivered on what we were looking for: Improved flow through from accelerating ARR expansion (up 32 per cent year-over-year) to revenue growth, and with a more modest cash burn profile in the context of that growth. As a result, we believe that the risk/reward profile for a story exposed to strong thematic trends with enviable competitive positioning now tilts more positively.”
Others making target changes include:
* CIBC’s Todd Coupland to $9 from $7 with a “neutral” rating.
“The company continued to benefit from a series of operational changes it implemented over the last 12 months which are producing improved outcomes. A record backlog, improved ARR and revenue growth, as well as reduced EBITDA losses, build confidence in our thesis and forecast. We expect these results to be well received,” said Mr. Coupland.
* RBC’s Maxim Matushansky to $10 from $8 with an “outperform” rating.
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With its first-quarter results exceeding his expectations in a “seasonally” soft period and “justifying [its] dividend increase in parallel,” Leede Jones Gable analyst Doulas Loe raised his rating for Medical Facilities Corp. (DR-T) to “buy” from “hold” previously.
“South Dakota-based specialty surgical hospital operator Medical Facilities reported FQ124 financial data for the March-end period that were predictably soft by comparison to seasonally strong FQ423 data, but were solidly above our expectations on virtually all metrics by the standards of historic Q1 performance and we are upgrading DR to Buy from a Hold as a consequence,” he said.
“A newly announced upward shift in dividend payout, beginning with the current quarter, reinforces our investment thesis and annual return implied in our revised price target.”
Before the bell on Thursday, the Toronto-based company reported revenue and EBITDA of US$108.3-million and US$22.3-million, which Mr. Loe said was “unsurprisingly” down from the previous quarter ($122.3-million and US$30.5-million) buy “solidly” above the same period a year ago.
“Most recent FQ1 EBITDA data, excluding the most pandemically-impacted periods in F2021, have in recent years generated EBITDA in the US$19.0-million-to-US$20.0-million range, and thus FQ124 EBOTDA is not just up year-over-year but is up in comparison to most FQ1 data that came before it. FQ124 revenue data excludes KS-based Nueterra Capital (private) and divested in FQ323. Quarterly revenue from this ASC alliance was usually in the US$5-milion-to-US$6-million range (US$5.6-million specifically in FQ123, accounting for the year-over-year revenue decline), but with diminishing EBIT contribution in recent periods.
“Most surgical hospitals in Medical Facilities network experience surgical revenue growth, driven in most cases by higher acuity cases and higher procedural volumes in the quarter.”
With the results, the firm raises its quarterly dividend by 11.8 per cent to 9 cents per share (from 8.05 cents), representing a dividend yield of 3.2 per cent based on the last close.
“The firm can clearly support further augmentation of quarterly dividend at its discretion based solely on existing operations, without any revisions to operating expense dynamics or surgical services offered,” said Mr. Loe, who emphasized its “strong” operating cash flow during the quarter.
After introducing his 2025 and 2026 financial projections, he hiked his target for the company’s shares to $15 from $10.
“We believe that the firm has abundant operational capabilities to meet or exceed our FQ224-to-FQ426 forecasts based on surgical volume and case mix dynamics already on display in FQ124, a historically seasonally soft period for the firm,” said Mr. Loe.
Elsewhere, RBC Dominion Securities’ Douglas Miehm, the other analyst on the Street covering the stock, raised his target by $1 to $13, maintaining a “sector perform” recommendation. The average target is currently $14.
“We have revised our forecasts to account for the stronger than expected Q1/24 results and as we build-in a delayed impact from the increased competition, said Mr. Miehm.
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After a “stellar” 2023, Stantec Inc. (STN-T) is “still building positive momentum,” according to National Bank Financial analyst Maxim Sytchev.
“Good organic growth, margin improvement year-over-tear, backlog visibility = all the reasons why we continue to advocate for sticking with the engineering consulting cohort even if there is no obvious mispricing – we are paying up for growth but when the latter is predictable, compounding dynamic sets in and the opportunity cost of not being exposed to the thematic is simply too painful,” he said. “[Thursday’s] downdraft in the shares is reminiscent of 2023 when a number of times post strong prints shares sold off only to resume their ascendency in subsequent days. Buy here.”
Shares of the Edmonton-based engineering firm slid 3.5 per cent despite the premarket release of better-than-anticipated first-quarter results and a reaffirmation of its full-year guidance. Net revenue rose 11.5 per cent year-over-year to $1.370-billion, ahead of both Mr. Sytchev’s $1.339-billion estimate and the consensus of $1.362-billion. Adjusted earnings per share of 94 cents topped the analyst’s estimate by 16 cents and the Street’s expectation by 6 cents, which he attributed to “strong organic revenue growth (double-digit organic growth momentum in the U.S. continues), across all business lines.”
“Management sees gradual build as the year progresses, with peak taking place likely next year and staying at elevated levels into 2028,” he said. “Given over 50-per-cent revenue exposure, this means sustained and predictable growth for years to come.
“Design centres should provide meaningful upside, over time. STN has three centres globally and continues to add capacity, especially in India. While some Federal work does not allow non in situ engineering, management believes that there is more upside from deployment here as some industry peers are at a higher level of penetration of design centres as a proportion of total employee count/revenue.”
Mr. Sytchev expects further M&A activity from Stantec, despite a “strong start to the year.”
“While the timing of deals is always hard to predict, STN has the internal capacity to integrate and onboard more M&A. With a strong balance sheet, we should see more capital deployment as the year progresses,” he said.
Raising his revenue and earnings expectations for both 2024 and 2025, Mr. Sytchev increased his target for the company’s shares to $128 from $125 “on incorporation of higher pace of M&A” and reiterated his “outperform” recommendation. The average on the Street is $125.18.
Elsewhere, other changes include:
* Desjardins Securities’ Benoit Poirier to $126 from $125 with a “buy” rating.
“STN reported robust in-line 1Q results,” said Mr. Poirier. “Given management’s comments, adding the Hydrock acquisition to our numbers and considering the potential tailwind of a stronger U.S. dollar, we have high conviction that STN should be in a position to increase its guidance when it reports 2Q results (same thesis as for WSP). We were surprised by the negative stock reaction as all the growth drivers remain intact and plenty of M&A upside potential is still on the table; we would be buyers amid the pullback.”
“Reiterating our bullish stance. We are pleased with the continued momentum building in the U.S., the evolution of the M&A strategy toward larger transactions and the accretion opportunities available following STN’s multiple expansion.”
* ATB Capital Markets’ Chris Murray to $125 from $120 with a “sector perform” rating.
“Better-than-expected levels of organic growth, recent M&A activity, and strong project execution supported top-line growth and margin expansion, consistent with guidance. Management remained positive on overall market trends and the state of its M&A pipeline after completing three mid-sized transactions in H1/24, with the balance sheet supportive of further inorganic growth. Book-to-bill trends remained firm in Q1/24, providing visibility into near-term growth trends. The CFO search process remains ongoing, and additional details will be provided. While STN reported solid results and maintained its outlook for double-digit growth in 2024, we see valuations fairly reflecting STN’s growth outlook,” said Mr. Murray.
* RBC’s Sabahat Khan to $125 from $123 with an “outperform” rating.
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Separately, Mr. Sytchev called Stelco Holdings Inc. (STLC-T) “cheap, very cheap” following its earnings release, seeing the Hamilton, Ont.-based “staying focused on efficiency amid a stable industry backdrop.”
“HRC [Hot-rolled coil] showed a wide amplitude over the last five to six months, i.e., directly impacting Q1/24 performance, by definition,” he said. “That being said, margins are robust, and the balance sheet certainly affords optionality, whenever it comes (or whatever guise it will assume – return of capital, M&A, etc.). Management has proven to be strong capital allocators and with the U.S. manufacturing renaissance, with Section 232 providing a backstop, we are comfortable being long a steel producer. At 3.4 times 2025 estimated EV/EBITDA we believe shares present a very attractive risk/reward skew.”
Stelco shares rose jumped 5.1 per cent on Thursday despite a first-quarter earnings miss, due largely to lower-than-expected shipments “amid volatile HRC backdrop” that led to revenue of $746-million, missing both Mr. Sytchev’s $829-million estimate and the Street’s projection of $771-million. Adjusted EBITDA and earnings per share of $160-million and $1.27, respectively, both also missed expectations ($188-million and $1.74, respectively, and $161-million and $1.56).
“Management aims to increase the run rate of value-added production by 15 per cent on an annualized basis by the end of this year, which should help margin incrementally,” he said. “As currently only 50 per cent of associated production capacity is being utilized, any gains should flow directly through to the bottom line as there is little incremental CapEx required. Despite industry-leading margins, further improvements should help close STLC’s valuation gap to its peers. On the cost side of the equation, moderating coal and natural gas prices is expected to incrementally lower production costs on a sequential basis.
“End-market demand is stable. Management noted stable end-market demand, with resilience in both industrial and residential construction, automotive and the O&G sectors. The current level of demand should support near-term prices despite the recent pullback (limited Q2 impact due to lag in price realization), and visibility is solid as currently production is being sold through June. The most recent federal and provincial budgets also provide a conducive backdrop for supporting underlying demand for steel.”
Also seeing Stelco’s “substantial” cash balance leaving “material optionality” for the company, including the potential for special dividends, share buybacks or M&A activity, Mr. Sytchev trimmed his target to $52 from $54 after modest reductions to his estimates to reflect “recent HRC volatility.” The average is $52.25.
“With current HRC at US$800/st (from US$950/st at the beginning of the year) and volumes expected to be 2 per cent lower in Q2/24, we reflected the aforementioned changes in our estimates which slightly bring down our forecasts. Given the higher proportion of CRC and Coated within the shipment mix, margins should be healthy as the year progresses in addition to some of the costs coming off vs. 2023 spike (although some HRC pricing related dip is inevitable),” said Mr. Sytechv, keeping an “outperform” rating.
Elsewhere, Stifel’s Ian Gillies cut his target to $47 from $49 with a “buy” rating.
“Our thesis on Stelco remains unchanged as we continue to believe there is significant stock returns to be derived from share price appreciation, annual dividends, potential special dividends and the NCIB. We believe the current share price is attractive given an 18.5-per-cent implied return based on our TP and a potential special dividend of $3.00/sh can provide another 7.3% of return. The company’s impressive ability to provide industry-leading margins and return capital back to shareholder is what gives us the confidence that this is achievable. Moreover, we view $40.00/sh as a floor, as we believe the company will be active with buy backs around this level,” said Mr. Gillies.
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Desjardins Securities analyst Benoit Poirier sees WSP Global Inc. (WSP-T) “back on the M&A track after a year of consolidation.”
“We are pleased with the encouraging 1Q results,” he said. “While it is still early in the year, when analyzing the results, considering management’s comments, adding the acquisition of AKF Group to our numbers and given the potential tailwind of a stronger U.S. dollar (WSP generates 36 per cent of its net revenue from the U.S.), we have high conviction that WSP should be in a position to increase its guidance when it reports 2Q results.”
The Montreal-based professional services firm reported adjusted EBITDA including IFRS 16, which Mr. Poirier calls investors’ main focus, of $446-million, exceeding both his estimate of $438-million and consensus of $440-million. Adjusted EPS, excluding the impact of amortization of intangibles, of $1.55 also came in better than anticipated ($1.46 and $1.47, respectively), despite net revenue of $2.793-billion (up 5 per cent year-over-year), falling in line with expectations ($2.769-billion and $2.759-billlion).
“2024 guidance reaffirmed despite stronger-than-expected 1Q organic growth and the closing of four tuck-ins — we expect an increase with 2Q,” said Mr. Poirier. “WSP confirmed that the migration of its UK division to its new global cloud-based ERP solution was completed at the beginning of 2Q24; with its three largest regions (Canada, the U.S. and the UK) complete, WSP now has more than 70 per cent of its EBITDA or more than 50 per cent of its employees on the new system. For 2024, we now forecast net revenue of $11.8-billion (up from $11.7-billion), with adjusted EBITDA of $2.13-billion (up from $2.10-billion; 18.0-per-cent margin) and adjusted EPS of $7.97 (up from $7.90).
“2023 was a year of consolidation, but management signalled that the M&A faucet would be open once again in 2024. We welcome this return to a more aggressive stance and are confident given WSP’s proactive approach to M&A over the years, which will likely serve as a key competitive advantage in an environment with higher multiple expectations from potential targets. For 2024, we now forecast WSP ending the year with FCF of $861-million and net leverage of 1.1 times, leaving plenty of room for a larger deal (we calculate that WSP should have the balance sheet capacity to potentially acquire up to $3.0-billlion of EV in 2024 without having to issue equity).”
With increases to his revenue and earnings estimates for both 2024 and 2025, Mr. Poirier bumped his target for WSP shares to $246 from $245 after also adding acquisition of AKF Group to his projections, keeping a “buy” rating. The average is $239.71.
“We continue to like the name for many reasons: (1) a disciplined approach to M&A and the ability to take advantage of opportunities that could arise from a potential slowdown; (2) organic growth opportunities; and (3) a push toward a 20-per-cent EBITDA margin in the long term,” he concluded.
Other changes include:
* Stifel’s Ian Gillies to $235 from $245 with a “buy” rating.
“WSP reminds us of Michael Jordan coming out of retirement in 1995,” said Mr. Gillies.. A little break was needed from the game (in this case M&A), but the future outcomes were still titles (accretive M&A). It might look a little different than previous, but we expect a similar outcome (significant EPS accretion aka championships). Our key takeaway from the quarter was that WSP intends to ramp up its well-defined M&A playbook after integrating two very large acquisitions during 2023. We believe this will continue to underpin a premium valuation for the stock, with announcements acting as positive catalysts for the stock later this year. Our target price falls to $235/sh from $245/sh, largely due to below the line tax changes. Despite this reduction, we find our conviction increasing in the stock.”
* ATB Capital Markets’ Chris Murray to $225 from $220 with a “sector perform” rating.
“WSP delivered solid results, as organic growth rates across core regions and margin trends remain intact, with M&A activity beginning to re-accelerate in early 2024. While Company reaffirmed 2024 guidance calling mid-to-high single digit organic growth and further margin expansion, management confirmed that guidance will be revisited in due course to account for recent M&A activity. The backlog provides good visibility for organic growth with the balance sheet supportive for M&A. While WSP delivered solid results and maintained a strong outlook for 2024, we continue to see valuations adequately reflecting the Company’s growth outlook, keeping us neutral on the shares.,” said Mr. Murray.
* Scotia’s Michael Doumet to $241 from $239 with a “sector outperform” rating.
“We view 1Q as an in-line quarter,” said Mr. Doumet. “Relative to our expectations, organic growth and margin expansion were stronger in North America but weaker in EMEIA and APAC. Encouragingly, the Americas (40 per cent of revenues) recorded the highest margin expansion and organic increase to the backlog; and demand trends, aided by the IIJA, should drive optimism for outsized profit growth in this region in 2024. While WSP did not update its 2024 guidance, we believe it remains well-positioned to reach the upper end of its 2024 guidance (before additional M&A) and should be in a position to raise its guidance by 2Q (or 3Q). To us, WSP’s trading multiple, which is at the high end of its historical range despite higher 10YY, embedded higher expectations. With that in mind, while 1Q results suggested that WSP is on track to reach the upper end of its guide, we do not think the quarter was sufficient to raise expectations higher. We view the potential for stronger margin expansion in 2024 and/or additional M&A as catalysts.”
* RBC’s Sabahat Khan to $245 from $237 with an “outperform” rating.
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Ahead of the start of second-quarter earnings season for Canadian banks, TD Cowen analyst Mario Mendonca made a series of target price adjustments. They are:
- Bank of Montreal (BMO-T, “buy”) to $142 from $145. The average is $133.42.
- Bank of Nova Scotia (BNS-T, “hold”) to $69 from $72. Average: $67.68.
- National Bank of Canada (NA-T, “buy”) to $121 from $118. Average: $113.92.
- Royal Bank of Canada (RY-T, “hold”) to $156 from $153. Average: $142.94.
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In other analyst actions:
* Citing recent unit price weakness, Canaccord Genuity’s Mark Rothschild upgraded Canadian Apartment REIT (CAR.UN-T) to “buy” from “hold” with a $53.50 target (unchanged), while RBC’s Jimmy Shan lowered his target to $58 from $60 with an “outperform” rating. The average is $56.29.
“CAP REIT’s units currently trade at a 3.7-per-cent discount to our NAV estimate, or an implied cap rate of 5.2 per cent,” said Mr. Rothschid. “On a cash flow multiple basis, CAP REIT is trading at 19.2 times our 2025 AFFO estimate, compared to the weighted average of 18.6 times for its Canadian residential REIT peers.
“REIT unit prices have been negatively impacted by the rent increase in bond yields, residential REITs in particular. We view the drop in the unit price as an attractive entry point for a large, high-quality rental apartment REIT and upgrade our rating.”
* Scotia Capital’s Divya Goyal downgraded Telus International Inc. (TIXT-N, TIXT-T) from “sector outperform” to “sector perform” and cut her target to US$10 from US$13. Other changes include: Canaccord Genuity’s Aravinda Galappathige to US$13.50 from US$16 with a “buy” rating, CIBC’s Stephanie Price to US$18.50 from US$20 with an “outperformer” rating, National Bank’s Richard Tse to US$7.50 from US$10 with a “sector perform” rating and RBC’s Daniel Perlin to US$10 from US$11 with an “outperform” rating. The average is US$10.64.
“EPAM [EPAM Systems Inc., EPAM-N] and TIXT, two key CX/DX players in our coverage universe, reported their Q1/24 results,” said Ms. Goyal “While the Q1 results for both the companies were either in line or slightly beat our and Street estimates, the companies noted caution on demand outlook with EPAM revising down guidance for full year. Although TIXT reiterated full year outlook and expects demand to recover in H2/24, we consider 6-per-cent-plus implied rev growth in Q3/Q4 (assuming 3 per cent in Q2), a lofty goal.
“While both companies are committed to their strategic initiatives and have been diligently executing on their growth investments and cost optimization programs, we believe sustained macroeconomic pressure exacerbated by delay in potential rate cuts will likely continue to dampen the demand environment for the sector, restraining the revenue growth across these companies. While we believe AI remains a tailwind for the sector, we expect macro headwinds to also create a drag on AI-led investments. Hence, given the lack of demand visibility, we are taking a bearish stance on all DX companies across our coverage universe in the short-term and moving EPAM, TIXT and GLOB (reporting next week) to Sector Perform rating, and see better risk/reward elsewhere in the space.”
* Citing improving earnings per share and a low valuation, CIBC’s Paul Holden upgraded IA Financial Corp. Inc. (IAG-T) to “outperformer” from “neutral” with a $100 target. Other target changes include: RBC’s Darko Mihelic to $102 from $101 with an “outperform” rating and TD Cowen’s Mario Mendonca to $108 from $105 with a “buy” rating. The average on the Street is $100.63.
“IAG has lagged the group year to date and is trading at the lowest valuation multiples among Canadian peers. We expect a better year for EPS growth in 2024 premised on improved sales, cost discipline and ongoing share buybacks. The stock is trading at an 8.5 times P/E (NTM [next 12-month] consensus) vs. the group average of 9.5 times (10-per-cent discount),” said Mr. Holden.
* RBC’s Robert Kwan downgraded Tidewater Midstream and Infrastructure Ltd. (TWM-T) to “sector perform” from “outperform” and reduced his target to 80 cents from $1. Elsewhere, CIBC’s Robert Catellier cut his target to 95 cents from $1.10 with a “neutral” rating and ATB Capital Markets’ Nate Heywood trimmed his target to $1.10 from $1.25 with an “outperform” rating. The average is $1.06.
* RBC’s Matthew McKellar raised his Acadian Timber Corp. (ADN-T) target to $20, matching the average, from $18, keeping a “sector perform” rating, while Raymond James’ Daryl Swetlishoff bumped his target to $20 from $18.50 with an “outperform” rating .
* CIBC’s Kevin Chiang increased his Airboss of American Corp. (BOS-T) target to $5.75 from $4.75, remaining below the $6.89 average, with an “underperformer” rating.
* CIBC’s Jamie Kubik moved his target for Arc Resources Ltd. (ARX-T) to $31 from $30 with an “outperformer” rating. The average is 429.38.
* Desjardins Securities’ Kyle Stanley increased his target for units of Boardwalk Real Estate Investment Trust (BEI.UN-T) to $88 from $86 with a “buy” rating. Other changes include: RBC’s Jimmy Shan to $88 from $85 with an “outperform” rating and Scotia’s Mario Saric to $82.50 from $80 with a “sector perform” rating. The average is $85.56.
“BEI kept its streak of beat and raises alive in 1Q24,” he said. “The robust leasing outlook into the summer months, combined with strategic lease moderation, should preserve the elevated growth prospects in the medium term and drove a 3-per-cent increase in our 2024–25 earnings outlook. As a result, we have increased our target ... In our view, BEI’s underperformance following the solid print (up 0.0 per cent vs peers up 2.7 per cent) is unwarranted and we see any unit price weakness as a buying opportunity.”
* KBW’s Michael Brown bumped his Brookfield Corp. (BN-N, BN-T) target to US$46 from US$45 with a “market perform” rating. Other changes include: Scotia’s Mario Saric to US$49.50 from US$50 with a “sector outperform” rating and CIBC’s Dean Wilkinson to US$53 from US$52 with an “outperformer” rating. The average is US$52.21.
* Echelon Capital’s David Crystal lowered his BSR REIT (HOM.UN-T) target to US$15 from US$16 with a “buy” rating. The average is US$14.60.
“We expect BSR’s units will continue to trade at a NAV discount in the near-term, owing to muted NOI growth expectations over the next few quarters,” said Mr. Crystal. “However, we continue to believe that the REIT’s valuation is compelling, as BSR trades at a NAV discount of 34 per cent, compared to its U.S. and Canadian residential REIT peers, which trade at a discount of 11 per cent and 16 per cent, respectively.”
* RBC’s Walter Spracklin raised his CCL Industries Inc. (CCL.B-T) target to $83 from $81 with an “outperform” rating. Other changes include: Raymond James’ Michael Glen to $80 from $78 with an “outperform” rating, Stifel’s Darryl Young to $83 from $79 with a “buy” rating and Scotia’s Jonathan Goldman to $80 from $79 with a “sector outperform” rating. The average is $82.30.
“The modest beat belies several underlying positive trends that should accelerate through 2024 and into 2025. These include: 1) several end-markets starting to rebound from low levels (CPG volumes, electronics, apparel, pressure-sensitive labels); 2) positive momentum in RFID (with a new facility coming online in 2H that should 3x capacity); 3) benefits from the Innovia restructuring (with the full impact to be realized in 2H); and 4) new business wins and announced greenfields in emerging markets. Momentum is expected to continue into 2Q,” said Mr. Goldman. “On the call, management noted April was ‘very strong’ and that it expects profitability to improve sequentially in 2Q (consensus has EBITDA margins/dollars down q/q). Organic comps also ease through the back nine months. We attribute the muted share price reaction to the more modest beat (see above) and potential profit-taking as shares ran up into the quarter, beyond the large move when the company reported 4Q results. But, we like the current entry point.”
* Scotia’s Maher Yaghi trimmed his Cineplex Inc. (CGX-T) target to $11 from $11.25 with a “sector outperform” rating. The average is $12.79.
“Overall results were inline with expectations however Q2 is starting on a slightly weaker than expected note as April revenues were only 48 per cent of their 2023 levels due to weaker film release schedule as timelines got pushed out due to the Hollywood strike. As we discussed in previous notes we continue to expect 1H24 results to lag given the lower release movie schedule however we see improvement in the second half taking shape. The company is in a stronger position now to benefit from improving theater attendance given its lower cost structure vs pre-pandemic. In addition to movies theaters, management is planning to slowly expand the Rec Rooms over the coming years, a strategy that we believe is well suited to benefit from continued strong consumer demand. Overall the weak start to Q2 will likely weigh on the stock until we see improved performance, but we continue to believe that the stock is fundamentally undervalued and maintain our Sector Outperform rating,” said Mr. Yaghi.
* National Bank’s John Shao raised his Converge Technology Solutions Corp. (CTS-T) target to $7 from $6 with an “outperform” rating, while Canaccord Genuity’s Robert Young increased his target to $6.75 from $6 with a “speculative buy” recommendation. The average is $6.93.
“Converge reported its FQ1 with key metrics in line with our forecasts and annual financial guidance reiterated,” said Mr. Shao. “While this quarter’s numbers suggest the Company continues to execute, the real surprise comes from the strong operating cash flow to bring the leverage ratio below the Company’s 1.0x target. In our view, the better-than-expected balance sheet coupled with interest savings could open the door for more optionality such as increased shareholder returns (through NCIB and dividends) and investments in products and sales channels. That said, at the time of writing, the stock was down 10% on the back of decent results. If anything, we consider today’s stock performance an anomaly unrelated to the Company’s fundamentals, and we expect the stock to regain ground as Converge seems to double down on share buybacks as a priority of capital allocation. All in, Q1 results support our investment thesis as we believe a consistent track record of execution and a simplified growth story will drive a re-rating to close the valuation gap.”
* Desjardins Securities’ Lorne Kalmar lowered his target for Crombie REIT (CRR.UN-T) to $15.50 from $16 with a “buy” rating, while CIBC’s Sumayya Syed trimmed her target to $16 from $17 with an “outperformer” rating. The average is $15.90.
“1Q saw CRR firing on all cylinders,” he said. “SP NOI [same property net operating income] came in ahead of CRR’s 2024 target (2–3 per cent), the residential portfolio achieved stabilization, development fees contributed and the pipeline advanced, it disposed of non-core development density and completed a debenture offering, which was the primary driver of the upward revision to our forecast. In light of the REIT’s relative valuation and year-to-date underperformance vs its peers, we view the current unit price as an attractive entry point.”
* Mr. Kalmar also trimmed his SmartCentres REIT (SRU.UN-T) target by 50 cents to $24.50 with a “hold” rating, while CIBC’s Dean Wilkinson lowered his target to $28 from $30 with an “outperformer” rating. The average is $25.41.
“While the REIT continues to execute well both operationally and from a development perspective, its elevated AFFO [adjusted funds from operations] payout (2024 99 per cent), current leverage profile, limited near-term FFOPU growth profile (2024/25 2 per cent) and relative valuation keep us on the sidelines for now,” said Mr. Kalmar.
* CIBC’s Nik Priebe moved his target for ECN Capital Corp. (ECN-T) to $2 from $1.90 with a “neutral” rating. The average is $2.25.
* CIBC’s Anita Soni cut her Equinox Gold Corp. (EQX-T) target to $8.75 from $9.25 with a “neutral” rating. Other changes include: National Bank’s Michael Parkin to $10 from $10.25 with an “outperform” rating and Desjardins Securities’ John Sclodnick to $10.25 from $10.50 with a “buy” rating. The average is $9.72.
* Canaccord Genuity’s Mark Rothschild cut his Granite REIT (GRT.UN-T) target to $90 from $96.50 with a “buy” rating, while CIBC’s Sumayya Syed bumped her target to $85 from $84 with an “outperformer” rating. The average is $87.67.
* CIBC’s Mark Jarvi raised his Innergex Renewable Energy Inc. (INE-T) target to $10 from $9.50 with a “neutral” rating. The average is $10.95.
* RBC’s Tom Callaghan increased his Jamieson Wellness Inc. (JWEL-T) target to $32 from $31 with an “outperform” rating, while CIBC’s John Zamparo trimmed his target to $27 from $28 with a “neutral” rating. The average is $35.15.
* Raymond James’ Brad Sturges trimmed his Killam Apartment REIT (KMP.UN-T) target to $21.50 from $21.75 with an “outperform” rating. The average is $22.19.
* Evercore ISI’s Thomas Gallagher raised his Manulife Financial Corp. (MFC-T) target to $37 from $36 with an “in line” rating. Other changes include: CIBC’s Paul Holden to $36 from $34 with a “neutral” rating and Desjardins Securities’ Doug Young to $39 from $36 with a “buy” rating. The average is $36.41.
* Canaccord Genuity’s Doug Taylor raised his MDA Space Ltd. (MDA-T) target to $17 from $16 with a “buy” rating. The average is $16.29.
“We maintain our BUY rating on MDA Space after a quarter that, despite exceeding management’s internal expectations, fell short of Street models with Q2 guidance that suggests a more back-end-loaded year. With shares trading down today, we point to both the strong bookings and pipeline through the unchanged 2024 guidance suggesting improved visibility, which in our view, presents a compelling entry point. We are raising our target price to $17.00, with our positive thesis on MDA unaffected as a name primed to continue benefitting from numerous government and commercial awards as the broader investment in the space economy ramps,” said Mr. Taylor.
* Scotia’s Phil Hardie raised his Power Corp. of Canada (POW-T) target to $47 from $46.50 with a “sector perform” rating, while Desjardins Securities’ Doug Young bumped his target to $43 from $42 with a “buy” rating. The average is $43.63.
“Power Corp. delivered a solid quarter with adj. EPS coming in roughly in line with the Street but slightly ahead of our forecast,” said Mr. Hardie. “A highlight from the quarter was the robust earnings contribution from the public subsidiaries. From a capital management perspective, an area of interest for investors was the repatriation of proprietary capital from a private equity fund. The capital can be redeployed to either (1) seed new strategies to accelerate growth in third-party AUM to generate fee-related earnings, or (2) return capital to shareholders, such as share buybacks. We believe this serves as an example of what is likely overlooked optionality embedded within Power Corp.’s “private stub”. POW shares trade at an attractive 25-per-cent discount to their current NAV and roughly 30 per cent below the value of our forward NAV estimate. The shares also offer a healthy 5.7-per-cent dividend yield. We believe these characteristics offer solid appeal to value investors, and we have POW on our radar. Our key holdbacks include a challenging operating environment for asset and wealth management and relatively tepid sentiment toward GWO.”
* National Bank’s Adam Shine cut his Quebecor Corp. (QBR.B-T) target to $37 from $38 with an “outperform” rating. Other changes include: Canaccord Genuity’s Aravinda Galappathige to $34 from $34.50 with a “buy” rating and Desjardins Securities’ Jerome Dubreuil to $41 from $40 with a “buy” rating. The average is $38.50.
“We have increased our target to reflect the recent deleveraging, which we believe should alleviate some of the capex concerns down the road,” said Mr. Dubreuil. “We expect the company to have ample flexibility to eventually accelerate network deployments and accelerate shareholder distributions at the same time. While we anticipate Internet net additions will be under pressure for a long time, the strong wireless net adds reported are a sign that the Freedom integration is progressing well.”
* Raymond James’ Steve Hansen raised his RB Global Inc. (RBA-N, RBA-T) target to US$95 from US$90 with an “outperform” rating, while National Bank’s Maxim Sytchev increased his target to US$87 from US$85 with an “outperform” recommendation. The average is US$82.
“This was a great quarter and balance sheet being stronger by 12 months post IAA deal is a substantial achievement. Talk of any M&A should be taken in stride and feels more in-fill by management’s commentary. When looking at our and consensus forecasts, H2/24E does seem to be conservative, so perhaps there is a bit more torque there as well. All in, RBA remains one of our top ideas in our coverage, trading at only 20.2x 2025E P/E for a countercyclical (equipment) and a-cyclical biz (collision) that should be closer to a 30x range (would imply US$100 share price in that case). We continue to advocate for investors to build / grow their positions in RBA,” said Mr. Sytchev.
* Scotia’s Michael Doumet raised his Savaria Corp. (SIS-T) target to $22 from $21.50 with a “sector outperform” rating, while Raymond James’ Michael Glen increased his target to $22 from $19 with an “outperform” rating. The average is $22.43.
“Following several operational challenges in 2023, we believe the Savaria One targets are largely regarded as overly ambitious by investors. In a single quarter, we think SIS showed it is much more so on track than previously thought. As such, we see upside to the shares from continued positive surprises and multiple expansion,” said Mr. Doumet.
* RBC’s Geoffrey Kwan moved his target for Sprott Inc. (SII-T) to $61 from $59 with a “sector perform” rating. The average is $59.
* Stifel’s Cole Pereira bumped his Step Energy Services Ltd. (STEP-T) target to $4.75 from $4.50 with a “hold” rating. Other changes include: ATB Capital Markets’ Waqar Syed to $7 from $6.50 with an “outperform” rating and Raymond James’ Michael Barth to $6 from $5.50 with an “outperform” rating. The average is $5.91.
“STEP delivered a record quarter, representing a significant rebound after a challenging 4Q23,” Mr. Pereira said. “STEP’s Canadian business posted revenue and EBITDAS records, and is expected to remain strong through 3Q24 despite volatile natural gas prices, helping offset a year-over-year contraction in the U.S. Our EBITDAS forecasts increase 4 per cent in 2024 ($189-million) and 5 per cent in 2025 ($204-million), which bumps our target price to $4.75/sh as we reiterate our Hold rating. We downgraded the stock post-4Q23 on concerns about the U.S. fracturing market, though the company has been able to partially offset these thus far with its Canadian business. While we expect its U.S. business to worsen in upcoming quarters, if continued strength from its Canadian business helps offset this, it could see its earnings profile remain more resilient and warrant a revisit - though we remain cautious near-term. STEP’s valuation remains inexpensive.”
* National Bank’s Gabriel Dechaine cut his Sun Life Financial Inc. (SLF-T) target to $72 from $73 with a “sector perform” rating. The average is $76.54.
“SLF reported Q1/24 underlying EPS of $1.50, compared to our $1.64 forecast (consensus of $1.65). On a reported basis, EPS of $1.40 compared to our $1.74 (consensus of $1.71). The miss on underlying was mainly due to experience losses and softer asset management results,” said Mr. Dechaine.
* National Bank’s Adam Shine cut his Telus Corp. (T-T) target by $1 to $25, below the $25.48 average, with an “outperform” rating. Other changes include: Desjardins Securities’ Jerome Dubreuil to $25.50 from $26.50 with a “buy” rating and Canaccord Genuity’s Aravinda Galappathige to $25 from $26 with a “buy rating.
“T provided an update which was generally aligned with expectations. More capex declines are expected, suggesting that consensus FCF for the coming years could be too conservative. The company continues to invest significantly in digitization, which will help it withstand top-line pressure. Improvement in tech ventures is not yet reflected in results, and we have delayed our growth expectations for those segments,” said Mr. Dubreuil.
* CIBC’s Todd Coupland raised his Verticalscope Holdings Inc. (FORA-T) target to $12 from $9 with an “outperformer” rating. The average is $13.06.
David Leeder