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

Following fourth-quarter results that displayed “strong” capital and a “less than expected” reserve build, RBC Dominion Securities analyst Darko Mihelic lowered his 2024 and 2025 estimates for Canadian Imperial Bank of Commerce (CM-T), expecting weaker revenue moving forward.

Shares of CIBC jumped 5.1 per cent on Thursday after it reported underlying earnings per share of $1.75, exceeding both Mr. Mihelic’s $1.44 estimate and the consensus projection of $1.53. He attributed the beat to lower performing provisions for credit losses of $541-million, down 26 per cent quarter-over-quarter but up 24 per cent year-over-year and $224-million below his estimate.

“CM guided to 2024 impaired PCLs in the mid-30 basis points range (from its previous 25-30 bps guidance for 2023), the lowest upward revision in PCL guidance among peers that have reported so far,” said Mr. Mihelic.

“We attribute some of this to CRE losses that are likely to be lower in 2024. CM disclosed a 20 basis points net benefit to its CET 1 ratio next year from the U.S. IRB transition, which we view positively.”

After pre-provision pre-tax (PPPT) earnings fell narrowly lower than his expectation, due to weaker-than-anticipated revenue, Mr. Mihelic trimmed his forecast, expecting “slower revenue growth next year mainly due to lower loan growth (Canada P&C loan growth decelerated to 2.7 per cent year-over-year versus 3.8 per cent year-over-year last quarter) and muted fee income.”

Mr. Mihelic’s core EPS projection for 2024 fell to $7.05 from $7.29. He maintained an estimate for 2025 of $7.54.

Keeping a “sector perform” recommendation for CIBC shares, he lowered his target to $63 from $66. The average is $59.45.

Other analyst making target changes include:

* Desjardins Securities’ Doug Young to $58 from $55 with a “hold” rating.

“Adjusted pre-tax, pre-provision (PTPP) earnings and cash EPS fell short of our estimates,” said Mr. Young “However, cash EPS was above consensus, and while this was partially driven by lower provisions for credit losses (PCLs), it also included severance costs. The outlook for FY24 isn’t bad, and the bank enters FY24 with a stronger-than-anticipated CET1 ratio.”

* BMO’s Sohrab Movahedi to $67 from $65 with an “outperform” rating.

“. We see CM as a ‘self-help’ story over the next year given its focus on maximizing returns from organic operations. The total return potential is driven by momentum in domestic operations and lower inorganic growth focus; valuation offers downside protection,” he said.

* TD Securities’ Mario Mendonca to $56 from $54 with a “hold” rating.


National Bank Financial analyst Gabriel Dechaine warns Toronto-Dominion Bank (TD-T) is likely to see notable expense growth in 2024 compared to its peers.

“TD recorded a $363-million restructuring charge and expects to announce a similar charge during H1/24,” he said. “It guided to $400-million of pre-tax savings during fiscal 2024, increasing to $600-million on a fully realized basis. Despite these savings, the bank’s expense growth will likely outpace the peer group’s in 2024 due to investments in risk & control systems, the result of a DoJ investigation into TD’s AML [anti-money-laundering] controls. These expenses will be borne by the Corporate segment, resulting in an earnings hit of $500-million per year, which may extend into fiscal 2025.”

On Thursday, shares of TD slid 0.7 per after it reported fourth-quarter cash earnings per share of $1.83, falling below both Mr. Dechaine’s $2 estimate and the consensus of $1.90. He attributed the miss to weaker net interest income (a 15-cent impact) and higher expenses (4 cents).

The analyst also placed blame on contributions from its U.S. business for its “soft” quarter.

“PTPP in TD’s U.S. banking segment fell 13 per cent year-over-year on the heels of 9-per-cent negative operating leverage. Revenues fell 3 per cent year-over-year, a reflection of tighter NIM and lower other income, which included the impact of TD’s updated (i.e., lower) overdraft fee structure. Though not a purely U.S. business, TD’s Wholesale operation was also weighed down by performance ‘South of the Border.’ Wholesale PTPP was down 35 per cent year-over-year, the third consecutive quarter of this type of performance, which coincides with the inclusion of Cowen in TD’s Wholesale segment.”

After reducing his estimates “primarily to reflect higher expenses,” Mr. Dechaine trimmed his target for TD shares to $86 from $90 with a “sector perform” rating. The average is $90.76.

Elsewhere, other changes include:

* Scotia’s Meny Grauman to $95 from $101 with a “sector outperform” rating.

“TD’s year-end results missed expectations largely due to higher than expected loan loss provisions, although both revenues and expenses also missed expectations albeit by a relatively modest amount,” said Mr. Grauman. “More significant than the earnings result itself were a number of other items, including news that the bank took a $363-million pre-tax (non-core) restructuring charge in the quarter, and expects to take a similar change in the first half of next year as well. TD estimates that on a combined basis those charges will drive run-rate savings of about $600-million pre-tax. However, we learned that those savings would not fall to the bottom line in either F24 or F25 as the bank ramps up spending to boost its risk and control infrastructure. It can reasonably be assumed that these investment needs are another ripple effect from the bank’s regulatory issues in the U.S. — the same issues that led to the termination of the First Horizon transaction. This additional investment requirement that we learned about today is apart from any fines that may be levied on the bank by U.S. regulators, the timing and size of which are both highly uncertain.”

* BMO’s Sohrab Movahedi to $86 from $83 with a “market perform” rating.

“While the bank is well-capitalized, approximately 55 per cent of revenues are spread based. Rate uncertainty and fee revenue risks in U.S. retail remain headwinds in the near term,” he said.

* CIBC’s Paul Holden to $84 from $86 with a “neutral” rating.

“Updates on capital, expenses and PCL guidance were incremental negatives relative to our expectations. We have revised down our estimates and our price target,” said Mr. Holden.


Citi’s James Hardiman admits he was “very much surprised” by BRP Inc.’s (DOO-T) significant reduction to fiscal 2025 financial guidance, which caused its shares to plummet 11.8 per cent on Thursday.

While he was one of several equity analysts on the Street to cut their forecasts and target prices for the Valcourt, Que.-based recreational vehicle manufacturer, Mr. Hardiman emphasized a 20-per-cent upside to his revised $100 target for BRP and now sees “significantly less inventory risk, multiple compression risk, and earnings revision risk to DOO numbers relative to most of our other powersports names.”

BRP reported third-quarter 2024 adjusted earnings per share of $3.06 was a decline of 43 per cent year-over-year, matching the Street’s projection but 16 cents lower than Mr. Hardiman’s estimate. Sales fell 9 per cent to $2.47-billion, which is 3 per cent below the analyst’s expectation and 2 per cent under the consensus due to “a softening in industry demand in international markets.”

While Mr. Hardiman saw the third-quarter retail results as “solid,” he thinks trends in October and November are a “cause for concern” after BRP lowered its normalized EBITDA guidance from a 9-13-per-cent increase in the next fiscal year to flat to 2 per cent. It now expects EPS of $11.10-$11.35 from $12.35-$12.85 previously due to weakening demand and after it “proactively adjusted production and deliveries to manage network inventory and protect [its] dealer value proposition.”

“More importantly, management took FY25 targets off the table, as they now believe that powersports industry retail will be down next year, with a double-digit inventory reduction and a 100 basis point EBITDA margin compression, which by our math equates to EPS in the $9 range (vs. $14-$14.50 previously targeted),” he said.

“While we hesitate to ever use the term ‘worst case scenario’, BRP’s outlook is far and away the most conservative of any of the leisure companies that we follow. This is somewhat surprising given what appears to be just two months of weak retail data as we make our way into the offseason. While investors seem to generally favor companies expressing a conservative outlook in the current environment and doing what they can to de-risk 2024, the magnitude of the cut is somewhat alarming. This is especially the case for a company that continues to gain share, outgrow the market, and expand margins, and so if this outlook (as conservative as it may be) proves to be accurate, we shudder to think what this could mean for other powersports peers, particularly other ORV peers.”

With the reduction to its fiscal 2024 guidance and the implied impact on the last quarter of this year, Mr. Hardiman cut his estimates “substantially.” He’s now projecting fourth-quarter EPS of $2.66, down from $4.02. His 2025 forecast dropped to $9.11 from $14.21.

“Even despite the big cut to our numbers, BRP’s valuation was such that there was an extreme degree of skepticism with regards to the earnings outlook, with the previous P/E multiple not making much sense (just approximately 7 times FY25 consensus numbers as of yesterday) if estimates were to be believed,” he said.

Maintaining a “buy” recommendation for BRP shares, Mr. Hardiman now has a $100 target, down from $128. The average target on the Street is $119.17.

“There is a great deal to like about the BRP story, as the company’s powersports portfolio features both defensible leadership positions and substantial market share opportunities,” he said. “In both cases, BRP’s long track record of high-quality products and consistent innovation should (in our view) allow it to gain share for the foreseeable future, even if the market itself is difficult to handicap.”

Elsewhere, Canaccord Genuity’s Luke Hannan downgraded his recommendation to “hold” from “buy” with a $90 target, down from $136.

“Higher interest rates have been wreaking havoc on results across our coverage universe, and BRP is no exception,” he said. “Not only are BRP’s dealers paying more in floorplan financing because of higher rates, making them cautious on taking on more inventory, but dealers are also seeing softer end user demand for powersports products in general.

“While these dynamics aren’t overly surprising (management has called out these trends multiple times over the last several quarters, with peers such as PII also alluding to this), the magnitude of the impact on the business, particularly for next year (and relative to our/consensus expectations), came as a surprise to us and investors.

“We’re hesitant to downgrade when the stock’s trading at close to trough multiples, particularly when we’re still bullish on BRP’s ability to drive product innovation and capture share across key powersports categories, even in a softer macroeconomic environment. That said, in our view, the stock is unlikely to witness multiple expansion until (1) we receive more dovish commentary from central banks on the path of interest rates, and (2) investors gain more confidence that F2025 estimates have troughed, which we expect could happen in the latter half of F2025 at the earliest.”

Others making changes include:

* Stifel’s Martin Landry to $100 from $150 with a “buy” rating.

“Management is taking a conservative approach to face industry demand softness and intends to reduce its inventory at dealerships,” said Mr. Landey. “This combined with weak retail sales expected in FY25 results in a significant reversal in the revenue outlook. While BRP’s valuation was already depressed and this downward earnings revision was long anticipated by some, the stock nonetheless reacted negatively given the magnitude of the change. We have reduced our FY25 EPS estimate by 38 per cent which drives a reduction in our target price of $50 to $100. Despite the earnings shock and higher volatility than expected in earnings, we remain constructive on DOO long-term. There is a risk for further downside earnings revision, but revised consensus estimates should now look more realistic in light of the macroeconomic backdrop.”

* National Bank’s Cameron Doerkson to $107 from $136 with an “outperform” rating.

“We believe that BRP shares have been pricing in a powersports market downturn for more than a year, but retail demand for the company’s products has remained resilient,” said Mr. Dorkeson. “BRP finally started to experience a slowdown in retail demand late in fiscal Q3 and has taken the prudent action to reduce production rates to maintain dealer inventories at the appropriate level (thus minimizing future sales programs to clear older inventory). While we expect the industry slowdown will persist through much of F2025, we continue to see BRP gaining market share and outperforming its powersports peer group. Furthermore, we have argued that the stock was already pricing in a significant slowdown and, while the stock may remain under pressure in the short term, we view BRP as a compelling value play for longer-term oriented investors.”

* Desjardins Securities’ Benoit Poirier to $117 from $168 with a “buy” rating.

“While we had highlighted our cautious view earlier this week, we believe the magnitude of the guidance cut for FY24 and management’s comments on FY25 were much more bearish than both we and the Street were expecting,” he said. “Now that we have significantly reset our estimates and with the stock trading near trough levels, we expect a rebound similar to RV players WGO and THO (both up double digits in 2023).”

“[Thursday’s] drawdown creates a compelling entry point as we see limited downside. Placing BRP’s 2015–16 and COVID-19 trough P/E FY2 multiple of 8 times on our revised FY25 estimate, we calculate a share price of $74, not far below current levels.”

* BMO’s Tristan Thomas-Martin to $115 from $150 with an “outperform” rating.

“DOO shares were down meaningfully following weaker-than-expected FY3Q24 results and significantly talking down its FY25 guidance. While we wouldn’t be surprised if the stock is in the penalty box for the short term given the ongoing retail uncertainty and overall magnitude of the reduction, we’d rather DOO cut too aggressively and early than too passively and late. We remain Outperform-rated given ongoing ORV market share capture and DOO’s history of strong product innovation, but are trimming our estimates and target price to reflect the updated guidance,” he said.

* RBC’s Sabahat Khan to $110 from $147 with an “outperform” rating.

“The negative share price reaction, in our view, reflects the downward revision to the F25 outlook (official guidance expected in conjunction with Q4/F24 reporting), which now points to lower YoY revenue and earnings. Given today’s meaningful share price pullback and re-based F25 forecasts which reflect a softer macro/consumer outlook, we believe the shares have been de-risked to a large extent,” said Mr. Khan.

* CIBC’s Mark Petrie to $106 from $138 with an “outperformer” rating.

“The expectations of slower consumer demand that has weighed on BRP’s stock finally arrived – ORV industry volumes turned negative in October and  have continued into November. BRP is being proactive in managing inventory and this should pay dividends in the long term. BRP is still gaining market share, but our model assumes industry volumes down 10 per cent in F2025. Though this will limit growth and defer achievement of M25 targets, we believe this is more than reflected in the stock today,” said Mr. Petrie.


Citi’s Paul Lejuez expects Lululemon Athletica Inc. (LULU-Q) to report a third-quarter earnings beat and raise its full-year guidance when releases its financial results on Dec. 7.

In a research note released Friday, the analyst reaffirmed his earnings per share projection for the quarter of US$2.32, which exceeds the Street’s expectation by 4 US cents, based on higher sales (up 19 per cent versus the consensus estimate of 18 per cent) driven by “strong” China growth and “stronger” gross margins (a 200-basis-points improvement versus 180 basis points).

“We believe LULU is driving strong new innovation across both men’s and women’s this fall/holiday which is helping drive growth across markets,” said Mr. Lejuez. “And we expect int’l to put up another strong quarter led by China. We expect management to raise F23 guidance by the 3Q beat and guide 4Q in-line with cons. We expect 3Q to support our view that LULU is in the early stages of significant international growth, particularly in China, supporting consistent double-digit top- and bottom-line growth annually. We acknowledge shares are up almost 25 per cent since early Oct and expectations are high, which may limit upside in the very near term.”

While he’s maintaining his full-year 2023 EPS projection of $12.35, he expects the Vancouver-based company to raise its guidance by the amount of the third-quarter beat from its current range of $12.02-$12.72. However, Mr. Lejuez did lower his 2024 estimate to US$14.54 from US$14.98, citing higher expenses as its “continues to invest behind key growth initiatives.”

Reaffirming his “buy” recommendation for Lululemon shares, he raised his target to US$520 from US$450. The average is currently US$437.45.

“Investment highlights that support our Buy rating include: (1) inventory to sales gap narrowed (with limited markdown pressure); (2) U.S. is positioned to grow low double-digits-plus in F23, underscoring LULU’s brand strength/momentum in its largest market; (3) China is poised to rapidly grow in F23 and become a much more meaningful long-term growth driver (just 8 per cent of sales in F22 going to 22 per cent by F27); and (4) we model 20-per-cent-plus EPS growth annually through F27 as LULU unlocks its global growth potential (and it is not “over-earning” despite doubling sales from 2019 to 2022),” he said.


While he is thinks the profitability improvement displayed by Transat A.T. Inc. (TRZ-T) recently “can be sustained” and views its recently announced joint venture with Porter Airlines as “highly positive,” National Bank Financial analyst Cameron Doerksen said he remains “cautious” on the stock ahead of its Dec. 14 quarterly release “pending an expected comprehensive refinancing plan that could have implications for equity holders.”

“Although the company’s financial position is much better than was the case several quarters ago, in our view net debt remains too high sitting at approximately $1.4-billion at the end of Q3 with estimated leverage on a trailing basis as of the end of F2023 at 6.1 times based on our forecast,” he said. “We believe a refinancing will include an equity component that could be dilutive to shareholders.”

Mr. Doerksen also expressed concerns about the level of industry capacity growth this winter to warmer destinations, which he emphasized are Transat’s core markets in the first two quarters of its fiscal year.

“In reporting its Q3 results in September, Transat management noted that the company plans a 23-per-cent increase in ASM capacity year-over-year (up 16 per cent in seats), and, at that time, the booked load factor was running 2-points ahead of last year at the same time with yields up 7 per cent year-over-year. ... Overall industry capacity from Canada to sun destinations in Mexico, the Caribbean and Central America is up 20.4 per cent year-over-year this winter and up 24.0 per cent versus the last pre-pandemic winter,” he said. “We view this level of capacity growth as aggressive, and historically during winters with outsized industry capacity growth, we normally observe downward pressure on prices to sun destinations. Demand for sun travel still appears to be strong, but growing pressure on consumer finances is also a concern for pricing this winter.”

With adjustments to his fuel price assumption and depreciation and financial expense forecasts, Mr. Doerksen is now projecting fourth-quarter earnings per share of 21 cents versus a 16-cent loss previously. His full-year 2024 estimate is now a loss of 27 cents, falling from a 3-cent profit previously due to an “incrementally more cautious view on the winter season.”

With those “slightly lower” earnings estimates, he cut his target for Transat shares by $1 to $3, keeping an “underperform” recommendation. The average is $4.20.

“Based on our updated F2024 forecast (which assumes ongoing EBITDA improvement), Transat shares are trading at 6.0 times EV/EBITDA versus Air Canada (which has significantly lower leverage, much stronger free cash flow, and margins that are more than double Transat’s) that is trading at 3.3 times EV/EBITDA. As such, the current valuation premium for Transat also explains our Underperform rating on the stock,” he said.


In other analyst actions:

* BMO’s Sohrab Movahedi was the lone analyst to adjust a target price for shares of Royal Bank of Canada (RY-T) following its earnings release, raising his target to $140 from $132 with a “market perform” recommendation. The average is $133.52.

“RY is a G-SIB (Bucket 1) universal bank with scale advantages in Canadian mass market banking and is committed to gaining market share in Canada by investing in technology as it balances its business mix between retail and wholesale. We believe the bank currently trades at a full valuation and leaves limited upside for investors,” he said.

* In a report of U.S. software companies, Barclays’ Raimo Lenschow raised his targets for Descartes Systems Group Inc. (DSGX-Q/DSG-T, “underweight”) to US$71 from US$65, Lightspeed Commerce Inc. (LSPD-N/LSPD-T, “overweight”) to US$20 from US$19 and OpenText Corp. (OTEX-Q/OTEX-T, “equalweight”) to US$44 from US$40. The averages are US$85.44, US$18.79 and US$50.25, respectively.

“It seems we are in the middle of a year-end rally in software. Looking at current valuation levels shows that EV/Sales multiples are up by a full turn since early November, but still below the long-term average, which could provide further support. We move to CY25 for our new base year, which lowers multiples further,” he said.

* In response to the release of its 2024 budget and updated three-year plan, National Bank’s Dan Payne raised his target for Advantage Energy Ltd. (AAV-T) to $12 from $11 with an “outperform” rating. The average is $12.76.

“The outlook for compounding returns through prudent reinvestment complemented by buybacks remains the theme, and which continues to emphasize a high-efficiency value proposition even through a restrained gas price environment,” he said. “AAV is poised for a 22-per-cent return profile (vs. peers 20 per cent) on leverage of 0.5 times (vs. peers 0.0 times), while trading at 3.6 times 2024 estimated EV/DACF [enterprise value to debt-adjusted cash flow] (vs. peers 3.4 times).”

* Jefferies’ Christopher LaFemina cut his target for First Quantum Minerals Ltd. (FM-T) to $12 from $22 with a “hold” rating. The average is $23.22.

* Mr. LaFemina also reduced his Teck Resources Ltd. (TECK.B-T) target to $65 from $75 with a “buy” rating. The average is $64.43.

* Following the release of better-than-expected fourth-quarter revenue and in-line earnings, National Bank’s Zachary Evershed trimmed his Rogers Sugar Inc. (RSI-T) target to $5.50 from $6.25 with a “sector perform” rating. Other changes include: Scotia’s George Doumet to $6 from $6.50 with a “sector perform” rating and BMO’s Stephen MacLeod to $6 from $6.50 with a “market perform” rating.. The average is $6.05.

“RSI’s Q4 results were largely in line with our expectations – with some puts and takes,” said Mr. Doumet. “Performance at Sugar was softer due to lower volumes and higher operating (largely one-time in nature) and distribution costs. The Maple segment saw a material improvement in margins. The blemish in the quarter came from the outlook: management expects sugar volumes to be down in F24 (strike in Vancouver) and for the Eastern Canada expansion to start ramping up in 1H/F26 (we expected an earlier start).

“We have reduced our F24 estimates to reflect the impact of the strike (which we have low visibility on, at this point). Our view on RSI remains unchanged: we like it for stability and dividend yield (approximately 6.7 per cent) but we see limited upside to the shares given its current valuation (8.7 times EBITDA F24E). Furthermore, we see an overhang as the company evaluates its financing options for the Montreal expansion.”

* Stifel’s Suthan Sukumar lowered his target for Tribe Property Technologies Inc. (TRBE-X), a Vancouver-based property management services software company, to $3.25 from $4 with a “buy” rating. The average is $2.52.

“TRBE reported a generally in-line FQ3 print, reflecting continued healthy go-to-market momentum across both new construction activity and competitive displacements in existing communities, offset slightly by ongoing pruning of low-margin business to drive a higherquality revenue mix,” said Mr. Sukumar. “We believe this underscores strong execution and demand for TRBE’s differentiated technology in digitizing and automating the full end-to-end building lifecycle and property management workflow, a value proposition that we believe is increasingly more valuable in the current macro backdrop given potential to unlock greater operating efficiencies. While we continue to see an outlook for stronger and more profitable organic growth (H2/F24 profit guide reiterated), we note that M&A remains a key catalyst and an expanding pipeline with a bolstered nationwide presence, coupled with a new acquisition debt facility, suggests potential for more near-term activity. We see an attractive risk-reward on shares.”

* Raymond James’ Brian MacArthur lowered his Triple Flag Precious Metals Corp. (TFPM-T) target to $23.50 from $24 with an “outperform” rating. The average is $23.17.

“We believe TFPM’s high-margin, scalable business model offers investors exposure to precious metals while mitigating risk. Triple Flag has a high-quality, diversified asset base with a favourable mine life and jurisdictional risk. The company also has near-term growth, longer-term growth optionality, as well as a strong balance sheet to support future investments and its dividend,” he said.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 05/03/24 9:30am EST.

SymbolName% changeLast
Brp Inc
Canadian Imperial Bank of Commerce
Descartes Sys
First Quantum Minerals Ltd
Lightspeed Commerce Inc.
Lululemon Athletica
Open Text Corp
Rogers Sugar Inc
Royal Bank of Canada
Teck Resources Ltd Cl B
Toronto-Dominion Bank
Transat At Inc
Tribe Property Technologies Inc
Triple Flag Precious Metals Corp

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