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Inside the Market’s roundup of some of today’s key analyst actions

Canadian Imperial Bank of Commerce (CM-T) is “hitting its stride,” according to RBC Dominion Securities’ Darko Mihelic.

He was one of several equity analysts on the Street to raise target prices for the bank’s shares a day after the release of impressive second-quarter financial results.

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CIBC reported nearly $1.7-billion in profit or $3.55 a share for the quarter, up from $392-million or 83 cents in the second quarter of 2020. The bank’s adjusted earnings per share was $3.59, exceeding the forecasts of both Mr. Mihelic ($3.08) and the consensus on the Street ($3.01).

“Q2/21 results were better than expected showing strong credit performance, continued loan growth momentum, and strong wealth results,” said Mr. Mihelic.

“We revise our EPS estimates upwards ... Changes in our model largely reflect Q2/21 actual results, lower assumed PCLs and higher assumed revenue growth. We increase our AUA growth assumptions for the Canadian Commercial Banking and Wealth Management segment, assuming stronger wealth results. We also increase our net interest margin (NIM) forecasts in the Canadian and U.S. Commercial Banking and Wealth Management segments to assume relatively stable NIMs from this quarter’s level but this was partly offset by slightly lower NIMs in the Canadian Personal and Small Business Banking segment. Overall, our core EPS estimates move to $13.76 in 2021 (was $12.43) and $14.94 in 2022 (was $13.41).”

Keeping an “outperform” recommendation for CIBC shares, Mr. Mihelic hiked his target to $157 from $141. The average on the Street is $146.33, according to Refinitiv data.

Other analysts making target adjustments include:

* Desjardins Securities’ Doug Young to $145 from $135 with a “hold” rating.

“Pre-tax, pre-provision (PTPP) earnings surpassed our expectations, and the market share loss in Canadian mortgages seems to have abated. However, non-interest expense (NIX) growth could ramp up in 2H FY21. We increased our estimates,” said Mr. Young.

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* Canaccord Genuity’s Scott Chan to $149 from $138 with a “buy” rating.

“We remain impressed on the firm’s solid momentum and look for that to continue post quarter,” said Mr. Chan. “In Canada, we suggest that CM is making strides on market share gains (evident in residential mortgages at up 9 per cent year-over-year) and positive quarters at Capital markets and Wealth Management. For the U.S., CM continues to drive above-average growth (PPPT: up 27 per cent year-over-year) with better margin stability and outlook for commercial loan growth.”

* BMO Nesbitt Burns’ Sohrab Movahedi to $160 from $142 with an “outperform” rating.

“We see CM as a ‘self-help’ story over the next year given its sharpened focus on maximizing returns from its organic operations. The total return potential is compelling (improving momentum in its domestic operations, less likelihood of inorganic growth and downside protection provided by its valuation),” said Mr. Movahedi.

* Credit Suisse’s Mike Rizvanovic to $142 from $131 with a “neutral” rating.

“While it was primarily a PCL-driven EPS beat, we view the bank’s strong top-line growth and expense control as clear positives in the quarter,” he said.

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* Scotia Capital’s Meny Grauman to $157 from $156 with a “sector outperform” rating.

“Another quarter and another proof-point that CIBC continues to execute on the turnaround of its core domestic business while continuing to deliver across the rest of the enterprise as well including Wealth and Capital Markets,” he said..

“The bank highlighted an encouraging outlook for both NII and fee income as the post pandemic recovery takes hold on both sides of the border. Coupled with ongoing expense discipline, Management believes that this should lead to better-than-expected PTPP earnings growth and operating leverage for the year as a whole even as CIBC continues to focus on investing in the future. For our part we believe that this result further supports our thesis that the relative discount that this name trades at still has further room to narrow through this post-pandemic cycle.”

* TD Securities’ Mario Mendonca to $150 from $145 with a “buy” rating.

* National Bank Financial’s Gabriel Dechaine to $156 from $140 with an “outperform” rating.


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A strong performance from Royal Bank of Canada (RY-T), propelled by a plunge in provisions for credit losses and record Capital Market earnings, prompted analysts to raise their targets for its shares on Friday.

RBC earned $4-billion or $2.76 a share for the quarter ending April 30, compared with profit of $1.5-billion or $1 in the same quarter last year. Adjusted earnings were $2.79 a share, exceeding the Street’s projection of $2.51.

“In our view Q2 may mark an important turning point for Royal Bank stock, which despite continuing to trade at a premium to the group on forward consensus EPS, came into reporting season trading at a discount to TD,” said Scotia Capital’s Meny Grauman. “RY’s share price performance has done well in absolute terms but has lagged the peer group for some time now. Past results here have been good, but largely uninspiring leaving investors to wonder about a catalyst.

“The good news is that catalyst may have come. The Q2 results themselves were solid even looking past a PCL reversal, with encouraging signs of momentum in the Canadian Banking segment in particular which delivered sequential margin expansion, strong fee income growth, and positive operating leverage. More encouraging than all that though is management’s commentary on the call which was very bullish about the outlook for revenue growth across the bank but particularly in Canadian Banking and US Wealth as the post-pandemic recovery gathers steam. We were also encouraged to hear an upgraded outlook for operating leverage, and the most vocal confirmation we have heard regarding the potential for capital deployment as the bank’s CET1 ratio is poised to climb to over 13 per cent on a pro forma basis.”

Keeping a “sector outperform” rating for RBC shares, he increased his target to $144 from $140. The average is $121.93.

Those making changes include:

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* Desjardins Securities’ Doug Young to $138 from $129 with a “buy” rating.

“We like RY’s scale, ACL coverage, expense focus and growth prospects,” he said.

* Credit Suisse’s Mike Rizvanovic to $132 from $125 with an “outperform” rating.

“RY’s adjusted EPS of $2.79 was well ahead of expectations (we had $2.50; consensus was $2.51) driven mostly by lower PCLs, although we note that fee-based revenue outperformed, while expenses were in line with what we view as another solid quarter overall for the bank,” he said.

* BMO Nesbitt Burns’ Sohrab Movahedi to $139 from $131 with a “market perform” rating.

* Canaccord Genuity’s Scott Chan to $134.50 from $129.50 with a “buy” rating.

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* BoA Securities’ Ebrahim Poonawala to $134 from $132 with a “neutral” rating.

* National Bank Financial’s Gabriel Dechaine to $137 from $130 with an “outperform” rating.


There was less enthusiasm on the Street for the better-than-projected quarterly results from Toronto-Dominion Bank (TD-T).

Shares of TD slid 2.5 per cent following Thursday’s release amid concerns about the outsized impact of lower provisions for credit losses on its earnings.

“Q2/21 results were better than our forecast mainly driven by a net recovery in total PCLs but TD’s relative performance on revenues and expenses was not as strong as peers,” said RBC Dominion Securities analyst Darko Mihelic. “We believe TD’s relative performance can improve meaningfully with higher interest rates and higher consumer activity

Before the bell on Thursday, TD recorded the largest reversal of provisions among its peers thus far at $377-million, well below Mr. Mihelic’s forecasted charge of $262-million.

“Our estimates for TD increase .... Updates to our model mainly reflect Q2/21 actual results and lower assumed provisions for credit losses (PCLs) across all segments, partly offset by a softer revenue outlook,” he said. “We also made some adjustments to our net interest margin (NIM) forecast to reflect our expectations of higher rates in 2022 for both Canada and the U.S. based on RBC Economics forecasts and to factor in TD’s disclosed net interest income (NII) sensitivity. Notably, TD disclosed that a 25 bps increase in short-term rates would increase NII by $275-million in Canada and US$220-million in the U.S.”

Keeping a “sector perform” rating for TD shares, Mr. Mihelic raised his target to $91 from $82. The average target on the Street is $91.10.

Other changes include:

* Credit Suisse’s Mike Rizvanovic to $85 from $84 with an “underperform” rating.

“TD reported adjusted EPS of $2.04 in Q2, which was ahead of our estimate of $1.71 and consensus of $1.76, but was driven entirely by an unexpected sizable PCL recovery, which in our view reduces earnings quality in the quarter,” said Mr. Rizvanovic.

“Total PCLs in the quarter amounted to a sizable $377-mm net recovery, while management noted a more favorable credit outlook on macroeconomic improvement. We have reduced our PCL forecasts accordingly through F2022 to reflect a loss ratio below pre-pandemic levels.

* Desjardins Securities’ Doug Young to $97 from $92 with a “buy” rating.

“We like the set-up for TD over the coming year. But, short-term patience is required,” Mr. Young said.

* Canaccord Genuity’s Scott Chan to $89 from $89.50 with a “hold” rating.

* National Bank Financial’s Gabriel Dechaine to $89 from $87 with a “sector perform” rating.

* BMO Nesbitt Burns’ Sohrab Movahedi to $96 from $90 with a “market perform” rating.


Citing increased oil prices and downstream margins, Citi analyst Prashant Rao raised his second-quarter financial expectations for a trio of large-cap Canadian integrated oil companies on Friday, leading to target price changes for their shares.

For Cenovus Energy Inc. (CVE-T), which remains his preferred stock, Mr. Rao hiked his funds from operations per share estimate to 87 cents from 65 cents, pointing to its “strong” core first-quarter performance that led him to increase his production volume projections for both the second quarter and full year.

“Deleveraging remains CVE’s priority and to this end, the company sold its Marten Hills royalty interest for $100-million earlier this month. That said, on our estimates, further asset disposals are needed for CVE to meet its interim net debt target of $10-billion; we continue to expect more on this front as the year progresses,” he said.

However, keeping a “buy” recommendation, the analyst trimmed his target for Cenovus shares by $1 to $12, citing “slightly lower out year cash flows and terminal volume.” The average target on the Street is $11.99.

“CVE’s superior oil sands SAGD assets are disproportionately discounted in the equity’s valuation (20-plus year reserve life at implied sub-5 times EV/DACF using Citi’s proprietary Oil Vision analysis). Furthermore, we see a softer, firmer path for Canadian commodity price resolutions in the coming quarters,” he said.

Mr. Rao raised his FFO per share for Imperial Oil Ltd. (IMO-T) to $1.78 from $1.21, which prompted him to raise his target to $44 from $32 “on higher out year CFs & terminal value, driven by the greatest sensitivity to our updated commodity and operating assumptions.” The average is currently $35.50.

He kept a “neutral” recommendation.

“IMO’s strong balance sheet and ample liquidity should allow the company to maintain its dividends during this downturn. After a significant pullback in IMO’s stock price, current risks/rewards appear to be balanced,” the analyst said.

Mr. Rao’s Suncor Energy Inc. (SU-T) FFO per share estimate jumped to $1.71 from $1.28.

“We are updating our model to incorporate SU’s Investor Day updates from earlier this week,” he said. “We conservatively assume the company can achieve at least 50 per cent of its 9 initiatives to an incremental C$2B in free funds flow improvement by 2025. Our model now assumes no dividend increase in 2021, and follows annual 25% growth starting in 2022 to breach $2 per share in 2025.

Also keeping a “neutral” rating for Suncor, Mr. Rao’s target rose to $30 from $27. The average is $32.95.

“We think the company’s strong balance sheet and integrated model will give it breathing room to complete major growth projects and withstand the ongoing trough in the Canadian oil cycle, while being best positioned among its peers to drive capital returns to shareholders through dividends and share buybacks,” said Mr. Rao. “That said, given our outlook for global transition to clean energy, SU’s current risks/rewards appear to be balanced on our negative terminal growth assumption for the company.”


CIBC World Markets analyst Kevin Chiang thinks Transat AT Inc.’s (TRZ-T) second-quarter results, scheduled to be released on June 10, will be “a dose of reality for a stock that has done well in the last four weeks on the broader optimism around the aviation sector and after receiving government aid.”

He notes shares of Transat are up 18 per cent since April 28, outperforming both Air Canada (up 9 per cent) and the XAL Airline Index (up 3 per cent).

“What makes this outperformance even more remarkable was that during this period, Mr. Péladeau announced he had walked away from his $5 per share bid for TRZ, which removed a potential near-term catalyst for the stock. Despite this development, TRZ’s share price is above Mr. Péladeau’s offer price. While we are optimistic about the medium- to long-term recovery in air passenger demand, we believe TRZ’s current share price reflects a poor risk/reward set-up,” said Mr. Chiang.

For the quarter, the analyst is forecasting revenue of $6-million, down from $571-million during the same period a year ago and below the consensus estimate of $7-million. He’s projecting an EBITDA loss of $62-million, falling from a profit of $21-million in 2020 but above the Street’s view (a $67-million loss).

“We do not expect a pickup in international leisure travel until the Canadian Government eases travel and quarantine restrictions, which will hopefully be later this year,” said Mr. Chiang. “We currently expect a pickup in international travel beginning this winter. We would point out though that the winter has historically been a weak earnings period for TRZ. Looking back prior to the pandemic, TRZ was consistently reporting an earnings loss during the winter. This suggests TRZ’s financial position may not begin to see an improvement until the summer of 2022. In other words, TRZ is further away from becoming cash-burn neutral, given its structurally lower margin profile and limited exposure to domestic travel.”

Mr. Chiang estimates Transat possesses pro-forma liquidity at the end of second quarter that leaves it with a year’s worth of liquidity at its current cash burn rate, calling it “not a lot of wiggle room if TRZ’s earnings recovery does not begin to take hold until next summer.”

Seeing its valuation as “stretched” based on current earnings, he trimmed his target to $3 from $4, keeping a “sector perform” rating. The average is $3.60.


Interfor Corp.’s (IFP-T) US$375-million acquisition of four U.S. sawmill operations from Georgia-Pacific Wood Products LLC and GP Wood Products LLC is “fairly priced, given the high asset quality and the point in the cycle,” according to Raymond James analyst Daryl Swetlishoff.

“We estimate modest synergies in the $5-10-million range, offset by modest near term capital requirements,” he said in response to the deal, announced late Thursday.

“The transaction will easily be funded with cash on hand and we highlight that post acquisition, our model forecasts Interfor to remain in a net cash position. While we previously forecast $5 per share in special dividends we now expect further specials will be contingent on the length of the lumber rally.”

Touting its “incredibly inexpensive valuation (1.2 times 2021 and 2.4 times 2022 EV/EBITDA) with an anticipated blowout 2Q21 on deck,” Mr. Swetlishoff hiked his target for Interfor shares to $63.50 from $60 with a “strong buy” recommendation, emphasizing: “we continue to advocate investors opportunistically take advantage of potential volatility introduced by volatile lumber pricing.” The average is $49.50.

“A pure-play lumber producer with attractive regional diversity, demonstrated growth ability and strong ESG credentials, Strong Buy rated Interfor is a top pick featured on the Raymond James’ Annual Best Picks list for 2021,” he added.

Elsewhere, CIBC’s Hamir Patel reduced his target to $54 from $56 with an “outperformer” rating.

“While Interfor is clearly buying assets near the top of the market (and just as SYP lumber prices appear to be pulling back), we believe valuation is reasonable given above mid-cycle medium-term cash flows and the company’s strong track record of execution on the M&A front,” he said. “The transaction will also reduce the company’s exposure to U.S. lumber duties as 77 per cent of the company’s lumber capacity will be U.S.-based (up from 72 per cent presently).”


In other analyst actions:

* UBS analyst Thomas Wadewitz upgraded Canadian National Railway Co. (CNR-T) to “buy” from “neutral” with a $162 target, up from $141 and above the $151.11 average on the Street.

* In a research note on North American railway companies, Barclays analyst Brandon Oglenski cut his CN Rail target to $119 from $122 with an “equal-weight” rating and his Canadian Pacific Railway Ltd. (CP-T) target to $112 from $550, accounting for the recent stock split, with an “overweight” rating.

“Current railroad volume is tracking up 24 per cent in the second quarter given the lapping of 2020′s pandemic related economic shutdowns,” he said. “However, compared to the same period in 2019, current volume trends remain a bit more subdued at roughly equivalent levels. We note the 2019 rail environment was challenged by the then ongoing US-China trade war, suggesting current volume outcomes are a bit less robust than some prior bullish expectations. Nonetheless, the North American supply chain remains under pressure from significant retail sales, low inventories and capacity constraints spanning containers, ports and trucking.

“While we still expect a recovery in more industrial related shipments later in 2021, the current tight capacity environment should drive solid pricing gains for the railroads, following a less inflationary period in 2020. Railroad volume in 2Q21 tracking equal to depressed levels in 2019, but with a few caveats. Quarter to date trends are mimicking railroad demand from 2019, but with a few specific challenges. Finished vehicle demand remains depressed given ongoing global manufacturing challenges; auto volume in 2Q21 down 28 per cent relative to 2019. Further, coal headwinds persist, with volume tracking down 21 per cent compared to 2019. Industrial related shipments also remain down midsingle digits, but we suspect this category should gain momentum as reopening of economies continues in 2021.”

* Following a virtual analyst and investor update on Thursday, BMO Nesbitt Burns analyst Randy Ollenberger raised his Arc Resources Ltd. (ARX-T) to $12 from $11 with an “outperform” rating, while Scotia Capital’s Cameron Bean bumped up his target to $15 from $14, maintaining a “sector outperform” recommendation. The average is $12.63.

“The company plans to sanction Attachie West Phase I in Q4/21 and is targeting an on-stream date in Q3/23,” said Mr. Ollenberger. “ARC also outlined its plans to prioritize sustainable dividend increases and initiate a buyback program later this year while also considering strategic M&A. We believe ARC is uniquely positioned to generate considerable free cash flow which allows for growth optionality and further ability to increase returns to shareholders sustainably.”

* Though its first-quarter earnings fell below expectations, Canaccord Genuity analyst Derek Dley said Cresco Labs Inc. (CL-CN) exhibited “solid” top-line growth and is positioned for further expansion. However, he trimmed his target to $19 from $22, falling short of the $23.12 average, with a “speculative buy” rating.

“In our view, Cresco is well positioned to capitalize on the increasing acceptance of cannabis within its core states, boasts a best-in-class management team, and offers investors a differentiated cannabis opportunity through its focus on both wholesale and retail,” said Mr. Dley.

* After “solid” first-quarter results, Echelon Capital Markets analyst Andrew Semple hiked his target for Ayr Wellness Inc. (AYR.A-CN) to $74 from $70 with a “buy” rating, exceeding the $61.80 consensus.

“We forecast steep growth ahead, with our forecast calling for sales to surpass $120-million by Q420, more than double Q121 levels,” he said. “In the quarters ahead, Ayr will benefit from first full quarter of contribution from its acquired Arizona and Florida businesses, closing of the Garden State Dispensary acquisition in New Jersey (expected Q321), significant capacity expansions across Arizona, Pennsylvania, Florida, New Jersey, and Nevada (as well as MA/OH to turn online in 2022), and 14 new dispensaries in operation by year-end 2021 relative to quarter-end Q121.”

* RBC Dominion Securities analyst Sam Crittenden raised his Champion Iron Ltd. (CIA-T) target to $7.50 from $7, reiterating an “outperform” rating. The average is $7.95.

“We continue to like Champion for its strong leverage to high quality iron ore and near-term growth via the Phase 2 expansion, which we expect to be completed in mid-2022,” he said. “In the meantime, Champion is benefiting from the tight iron ore market generating strong FCF and we expect the company to be in a position to return capital to shareholders within the next 12-months. We have updated our model marking-to-market for iron ore prices and rolling our NAV calculation as growth from Phase 2 gets closer.”

* TD Securities analyst Graham Ryding raised his Power Corporation of Canada (POW-T) target by $1 to $43 with a “buy” rating. The average is $41.50.

* National Bank’s Richard Tse initiated coverage of Telus International Inc. (TIXT-N, TIXT-T) with an “outperform” rating and US$40 target. The average is US$37.

* Mr. Tse also initiated coverage of Thinkific Labs Inc. (THNC-T) with an “outperform” rating and $20 target, exceeding the $19.50 average.

* IA Capital Markets analyst Neil Linsdell trimmed his EnWave Corp. (ENW-X) target to $1.10 from $1.80 with a “hold” rating, while Raymond James’ Steve Hansen cut his target to $1.45 from $1.85 with a “market perform” recommendation. The average is $1.35.

“While we continue to admire EnWave’s accelerating machine order prospects, we have elected to trim our target price ... to account for a slower-than-expected sales transition at the company’s NutraDried segment,” said Mr. Hansen.

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