Despite concerns over rising coronavirus cases as the Delta variant spreads, along with falling bond yields, stocks are still marching higher. Last week, the S&P/TSX Composite Index inched up 99 points or 0.5 per cent. Year-to-date, the S&P/TSX Composite Index is now up 16.4 per cent with all 11 sectors reporting positive price returns.
This week, the earnings season heats up. So far, 70 companies have confirmed that they will be releasing their quarterly financial results. In order to keep the positive price momentum going for stocks, investors will be looking for strong earnings results and guidance when companies report their quarterly results. Once companies report their financial results, earnings expectations, multiples, and target prices could be adjusted meaningfully depending on the reported earnings and management’s outlook (if provided).
Last week, 51 out of the 230 stocks in the S&P/TSX Composite Index reported their earnings results. Consequently, numerous stocks experienced material changes to their target prices over the past week. Worth mentioning are four stocks, three stocks with significant increases to their target prices and one stock whose average target price was slashed after reporting disappointing earnings results.
Notable positive revisions
Loblaw Companies Ltd. (L-T).
The average target price increased 11 per cent to $88.67 from $80. The company reported second-quarter earnings results that topped the Street’s expectations. Adjusted earnings per share came in at $1.35, well above the consensus estimate of $1.21. Analysts bumped their target prices. Here are a few major changes in expectations were made:
- BMO’s Peter Sklar increased his target price to $85 from $71.
- CIBC’s Mark Petrie hiked his target price to $96 from $87.
- National Bank’s Vishal Shreedhar raised his target price to $91 from $84.
- TD Securities’ Mike Van Aelst lifted his target price to $95 from $80.
TFI International Inc. (TFII-T)
The average target price increased 17 per cent to $146.41 from $125.47. On July 26, the company reported second quarter earnings results that exceeded expectations. Adjusted earnings per share came in at US$1.44, well above the consensus estimate of US$1. Here are a few of the revised forecasts:
- BMO’s Fadi Chamoun raised his target price to US$110 from US$100.
- Morgan Stanley’s Ravi Shanker increased his target price to US$120 from US$110.
- RBC’s Walter Spracklin lifted his target price to US$126 from US$107.
- Scotiabank’s Konark Gupta took his target price up to $150 from $120.
- TD’s Tim James raised his target price by $10 to $150.
Westshore Terminals Investment Corp. (WTE-T)
The average target price increased 24 per cent to $25.60 from $20.70. What prompted the higher valuation was a news announcement. On July 22, management announced that it had entered into an agreement with BHP Group to provide port services for its proposed Jansen potash project. RBC’s Walter Spracklin took his target price up to $44 from $27 and is an outlier. The four other analysts covering the company have target prices of $19, $19.50, $22 and $23.50.
Notable negative revisions
Real Matters Inc. (REAL-T)
The average target price decline 23 per cent to $18.94 from $24.75. The company missed the Street’s expectations, reporting adjusted earnings per share of 9 US cents, falling short of the consensus estimate of 13 US cents. Here are a few changes analysts made to their forecasts.
- BMO’s Thanos Moschopoulos cut his target price to $15 from $18.
- Canaccord’s Robert Young trimmed his target price by $3 to $22.
- Scotiabank’s Paul Steep reduced his target price to $17 from $22.
- TD’s Daniel Chan lowered his target price to $15 from $22.
Listed below are analysts’ target prices, recommendations, and forecast returns for all 230 securities in the S&P/TSX Composite Index grouped by sector and ranked according to their expected price returns, excluding dividend and distribution income. The posted target price for each security is an average of all available target prices from analysts. A target price typically reflect an expected share or unit price 12 months from now based on an analyst’s financial modelling such as a discounted cash flow model or sum-of-the-parts model. All data is as of Fri. July 30.
It’s important to note that high target prices which imply stellar returns that seem unbelievable may be just that - unrealistic. At times, when a stock price falls analysts may maintain their bullish expectations, inflating the forecast return. In addition, an outlier (extreme target price) can skew the average target price, to the upside or downside, particularly when the number of analysts covering a stock is low. Don’t let a huge projected gain lure you into a position – it is critical to look at the company and industry fundamentals.
If you wish to compare the target prices and recommendations to the previous week, here is last week’s report.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.