A survey of North American equities heading in both directions
On the rise
Shares of pipeline operator TC Energy Corp. (TRP-T) were higher by 2.5 per cent after it beat fourth-quarter profit estimates on Friday, boosted by high demand for transporting natural gas.
The United States was the world’s top liquefied natural gas (LNG) exporter last year, however President Joe Biden paused in January approvals for pending and future applications for export projects.
Adjusted core profit from TC Energy’s U.S. natural gas pipelines rose to $1.23-billion in the quarter from $1.14-billion a year earlier.
Adjusted core profit in the company’s Canadian natural gas pipelines segment climbed 35 per cent to $1.03-billion.
Even if the U.S. LNG pause is prolonged, TC sees LNG demand delivering significant growth, CEO Francois Poirier said on a call with analysts, noting that TC also owns gas pipelines in Canada and Mexico.
The company said last year it would spin off its oil pipeline business and focus on transporting natural gas.
TC is aiming to sell at least $3-billion worth of assets this year to reduce debt, likely through two to four sales, Poirier said. It is likely to complete at least one sale in the first half, he added.
TC said completion of construction and commissioning of its $14.5-billion Coastal GasLink pipeline triggered a $200-million payment from LNG Canada, the British Columbia export company that will receive gas via Coastal.
The Calgary-based company raised its dividend 3 per cent and said it expects 2024 capital spending of between $8.5-billion and $9.0-billion.
TC Energy reported adjusted profit of $1.35 per share for the quarter, compared with analysts’ average estimate of $1.11, according to LSEG data.
Adjusted core profit from TC’s liquids pipelines was up 4 per cent from the previous year, at $379-million.
The company reiterated guidance for EBITDA of $11.2-billion to $11.5-billion this year.
Agnico Eagle Mines Ltd. (AEM-T) gained 2.6 per cent with the release of better-than-expected fourth-quarter results.
After the bell on Thursday, the Toronto-based miner reported adjusted earnings per share of 57 US cents, above the Street’s expectations of 49 US cents. Both production and costs fell in line with its full-year 2023 guidance.
In a research note, BMO analyst Jackie Przybylowski called Agnico the “quintessentional go-to senior miner.”
“Agnico Eagle delivered a strong quarter and continues to progress low-risk, value-creating projects in safe jurisdictions - including production growth to help fill our previously-anticipated production dip,” she said. “We continue to expect that Agnico Eagle will be a go-to gold investment for large funds and generalist investors who appreciate the company’s low risk profile and growth outlook. Agnico Eagle is our ‘Best of BMO’ gold miner; we maintain our Outperform rating.”
Think Research Corp. (THNK-X), a Toronto-based company using artificial-intelligence technology to help health-care officials make decisions on patient treatment, soared 90.6 per cent after announcing a definitive agreement to be acquired by Beedie Capital for 32 cents per share in an all-cash transaction, which represents a 100-per-cent premium to Thursday’s closing price and a 75-per-cent premium to the stock’s 30-day volume-weighted average price.
“The acquirer has a significant understanding of THNK’s business as it has been a longtime lender to the company,” said Desjardins Securities analyst Jerome Dubreuil. “Given THNK’s high leverage and given it has been breaching its debt covenants for several quarters now, we believe Beedie Capital likely had significant leverage in the negotiations. Our forecast, although more conservative than management’s, implied that it would have taken years for the profitability covenant to be met. While the purchase price is lower than our previous target price, we believe the company’s credit situation makes it very likely that the deal will close at the offer price. Beedie Capital is a multi-strategy direct investment platform which manages alternative investments for one of the largest private companies in western Canada.”
“We believe THNK has an attractive set of assets, but being part of a larger group should make it easier for the company to manage its debt and diverse set of operations; a focus on Software and Data Solutions is required at this time, and the alleviation of the financial management burden should help management execute on its plan. Given the covenant breaches, lenders could technically have pulled the loans at any time. The 32 cents per share offer limits the upside but provides shareholders with immediate value and should be seen in the context of high financial risk.”
Coinbase Global (COIN-Q) shares jumped 8.8 per cent on Friday as strong trading volumes due to optimism around spot bitcoin exchange-traded funds (ETFs) helped the cryptocurrency exchange post its first profit since 2021.
The stock closed at US$180.31, adding nearly US$5-billion to the company’s market value.
Fervent investor interest in popular crypto tokens since the second half of 2023 on anticipation of the U.S. Securities and Exchange Commission’s approval for spot bitcoin ETFs drove a 57-per-cent rally in the price of bitcoin in the fourth quarter, helping Coinbase’s trading fees.
The company also quashed worries about the ETFs cannibalizing its fees. Some analysts have been concerned that users may tilt toward the low-cost ETFs instead of holding the assets directly.
“While we believe that the bitcoin ETFs could take some trading volumes away from Coinbase, their injection into the market, driving higher overall spot prices and trading volumes provide momentum to Coinbase’s business,” analysts at Canaccord Genuity wrote in a note.
Even after the approval of the ETFs last month, Coinbase has generated transaction revenue of $320 million during the first quarter as of Feb. 13, already more than 60% of what analysts are expecting for the entire three-month period.
However, others remain cautious. “While Coinbase continues to state they have not seen fee pressures to date, we believe it is unlikely they will be able to maintain their elevated take-rates in the medium to long term as competition intensifies,” said Michael Elliott, equity research analyst with CFRA Research.
The company on Thursday reported a profit of US$1.04 per share for the fourth quarter, compared with a loss of US$2.46 per share a year earlier.
Applied Materials (AMAT-Q) shares rose 6.4 per cent on Friday after the semiconductor equipment supplier forecast a better-than-expected second quarter on strong demand from customers looking to make AI-enabled chips.
The outlook was also supported by improvement in certain electronics end-markets like smartphones and personal computers, and analysts highlighted a diversified portfolio that sets up the company for further gains.
“Applied is well-positioned to benefit from multiple upcoming technology inflections that should drive outperformance vs WFE (wafer fab equipment) over the next several years,” said analysts at J.P. Morgan.
Applied Materials forecast second-quarter revenue of US$6.5-billion, plus or minus US$400-million, and adjusted profit per share of US$1.79 to US$2.15 or the quarter ending April, above market expectations.
It also topped expectation for first-quarter revenue.
“Management noted recovery in utilization across leading edge logic and memory customers which increases our confidence in “V” shaped recovery,” said analysts at Jefferies.
Applied Materials, which supplies to Intel and Samsung among others, expects high-bandwidth memory (HBM) packaging revenues to be four times larger than last year.
HBM packaging uses a special stacking arrangement of memory chips for better performance and is suitable for high-performance computing.
At least four analysts raised their ratings and eight bumped up their price targets, according to LSEG data.
On the decline
Air Canada (AC-T) was down 6.5 per cent despite swinging to a profit of $2.28-billion in 2023, reversing a $1.7-billion loss in the year before and signalling Canada’s flag carrier has left behind the pandemic.
Montreal-based Air Canada had operating revenues of almost $22-billion for the year, an increase of 32 per cent from 2022. Seat capacity rose by 20 per cent from the year earlier, Air Canada said in its earnings statement, released before markets opened on Friday morning.
On a per share basis, profit for 2023 was $5.96, compared with a loss of $4.75 in 2022.
Michael Rousseau, chief executive officer of Air Canada, said the carrier worked to reduce debt, contain costs and strengthen its balance sheet.
“The focus on operational improvements was evident as, even with the growth in traffic and ongoing supply chain challenges, our key operational metrics and customer satisfaction improved year over year,” he said in a press release.
For the fourth quarter, profit rose by 9 per cent to $184-million, or 41 cents a share, from the same period in 2022. Operating revenues increased by 11 per cent to $5.2-billion, from a year ago.
Walter Spracklin, a stock analyst at Royal Bank of Canada, said the quarterly results fell short of his and Bay Street’s expectations. He pointed to lower margins stemming from higher costs.
The airline attributed its strong performance to a range of factors, including the easing of pandemic restrictions as much of the increase in ticket sales occurred in the first half of the year. Demand for international travel rebounded sharply, as revenue for overseas fares rose by 50 per cent on a 26-per-cent rise in capacity. Additionally, higher fares boosted revenue per passenger by 6 per cent.
Air Canada carried 44.8 million passengers in 2023, up from 36 million in 2022. It reduced its net debt by almost $3-billion to $4.7-billion.
In a research note, Citi analyst Stephen Trent said: “Air Canada highlighted their expectation of continued strong operating cash flow this year, even though higher capex commitments this year should mean positive but lower FCF y-o-y. Although the call included more focus on 2024′s ex-fuel seat mile costs than we had anticipated, this year’s FCF generation still appears to be trending well above the carrier’s average pre-pandemic historical levels. Meanwhile, Buy-rated Air Canada’s share price remains well below pre-pandemic levels.”
- Eric Atkins
Canadian insurer Fairfax Financial Holdings Ltd. (FFH-T) slipped 1.8 per cent after it beat estimates for fourth-quarter profit, helped by higher gains from investments.
Firming bets that central banks will cut rates this year are fueling a stock market rally, which has driven strong gains on investments for companies with substantial exposure to equities.
Fairfax’s equity exposure drove net gains from investments to $2.13-billion in the fourth quarter, up from $1.09-billion last year.
The earnings beat comes just a week after Muddy Waters said it had taken a short position in Fairfax, citing manipulation in its asset values.
Fairfax has rejected the short seller’s report, calling it “false and misleading.”
Net insurance revenue was up at $5.68-billion from $5.31-billion in the year-ago period.
The Toronto-based insurance company posted a consolidated combined ratio of 89.9 per cent in its property and casualty insurance and reinsurance segment, compared with 90.9 per cent a year earlier.
A ratio below 100 means that the insurer earned more in premiums than it paid out in claims for the period.
Net earnings were $1.67-billion, or $52.87 per share, for the three months ended Dec. 31. Analysts on average expected a profit of $52.15 per share, as per LSEG estimates.
Dream Office REIT (DIR-UN-T), once one of Canada’s leading real estate investment trusts, fell 11.9 per cent after slashing its monthly distribution in half, as higher interest rates bite and management comes to terms with a slower return to office than originally envisioned.
The payout cut, announced late Thursday, will conserve $19-million annually for Dream Office. The REIT’s total occupancy now sits at 82 per cent, down from 90 per cent at the start of 2020 and in line with the national office average, according to real-estate consultancy CBRE.
“With all the news and all the frustration around offices, it’s better to keep cash,” said Michael Cooper, the REIT’s chief executive officer, on a conference call with analysts.
A decade ago, Dream Office was the envy of many commercial landlords, with quality skyscrapers in major cities such as Toronto and Calgary. But the past decade has been humbling for the REIT, which first struggled after oil prices crashed in 2014, when Calgary’s office market was hit hard. It has also struggled since the COVID-19 pandemic erupted, as office vacancies across Canada are rising because tenants choose either to not renew their leases or they ask for only a fraction of the space they used to rent.
Dream Office has tried different tactics to boost its market value, including buying back millions of units, but little has worked. The REIT’s units closed at $9.10 on Thursday, the same level they traded for in December, 2008 in the thick of the global financial crisis, according to Refinitiv.
- Tim Kiladze
Aimia Inc. (AIM-T) declined 4.5 per cent after Mithaq Capital SPC says it’s dropping its hostile takeover offer after not enough shares were tendered before the bid expired on Thursday.
As a result, no shares were acquired under the proposal and any shares that had been deposited under the bid will be returned, the company says.
However, Mithaq says it still has concerns with the strategic direction of the company and is evaluating all options available to it in connection with Aimia’s upcoming annual meeting of shareholders.
From January: Aimia CEO resigns after lengthy campaign by activist shareholde
Mithaq, a segregated portfolio company and affiliate of Mithaq Holding Co., a family office based in Saudi Arabia, is Aimia’s largest shareholder with a 28-per-cent stake in the company.
It had offered $3.66 per share in cash for the stake in Aimia it does not already own.
However, Aimia recommended shareholders reject the offer because it said it undervalued the company and was not compelling.
B2Gold Corp. (BTO-T) was lower by 1.2 per cent after it said late Thursday that three of its employees died after sustaining injuries in an attack on an employee transport convoy in Mali.
A bus transporting B2Gold employees from the Fekola Mine to Bamako was attacked approximately 75 kilometres west of Bamako, the Canadian miner said.
Mining and processing activities at the Fekola mine have not been impacted by the incident, B2Gold said, adding that it is working with the Malian government to understand further details of the attack.
Initial reports indicate several other employees travelling on the bus were wounded, all of whom have been transported to a local hospital, the company said.
Nike Inc. (NKE-N) slipped on news it will cut about 2 per cent of its total workforce, or more than 1,600 jobs, to lower expenses as demand for its shoes and sneakers comes under pressure.
Higher rental and interest rates have led customers to cut back spending on high-priced goods, resulting in sportswear companies such as Nike and Adidas warning that retailers are lowering their orders through wholesale channels.
Nike had in December outlined a US$2-billion savings plan over the next three years, which included tightening the supply of some products and reducing management layers.
The cost cuts would include about US$400-million to US$450-million in employee severance costs in third quarter, it had said. Nike had about 83,700 employees as of May 31, 2023.
The job cuts are Nike getting out in front of the fear that demand “could soften still further,” said GlobalData managing director Neil Saunders.
Nike has also lost some retail shelf space to newer brands like Decker Outdoors’ (DECK-N) Hoka and On Holding (ONON-N) as their running shoes resonate with customers looking for catchy and innovative styles.
“Nike also wants to invest more in areas like running so it can gain market share, to do that it needs to balance the additional expenses with some reductions elsewhere,” Mr. Saunders said.
DoorDash (DASH-Q) forecast a quarterly profitability metric below Wall Street expectations, hurt by higher labor costs that overshadowed a surge in delivery orders, sending its shares down in Friday trading.
The delivery firm, which also reported a wider-than-expected loss for the fourth quarter ended Dec. 31, has increased minimum pay for its delivery workers, following new regulations.
“We are absorbing some of the regulatory costs in Q1,” chief financial officer Ravi Inukonda said on a post-earnings call. He said these costs would decrease over time.
To attract more customers, the company has been spending heavily on marketing and expanding its core restaurant delivery business to include grocery, convenience and alcohol.
Its total costs and expenses climbed 9.3 per cent in the fourth quarter.
DoorDash said it expects current-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) between US$320-million and US$380-million, compared with an average analyst estimate of US$355.3-million, according to LSEG data.
Uber (UBER-N), which has a delivery business that competes with DoorDash, said last week that quarterly revenue in that segment grew 6 percent. On Wednesday, Uber announced its first-ever share buy-back of US$7-billion, boosting its stock to a record high.
DoorDash, too, said on Thursday it would buy back up to US$1.1-billion in shares this year. In 2023, the company’s stock price more than doubled.
“Expectations for DoorDash may have been a bit inflated on the heels of Uber’s earnings,” said Insider Intelligence analyst Blake Droesch.
In the December quarter, DoorDash’s total orders rose 23 per cent to US$574-million from a year earlier. Revenue rose 26.7 per cent to US$2.30-billion, compared with an estimate of US$2.24-billion.
It reported a loss of 39 US cents per share compared with LSEG estimates of a 16-US-cents loss.
With files from staff and wires
David Leeder