Inside the Market’s roundup of some of today’s key analyst actions
Desjardins Securities analyst Chris Li thinks the fourth-quarter 2023 financial results and management commentary from Canadian Tire Corp. Ltd. (CTC.A-T) “suggest challenging discretionary spending is expected to weigh on revenue for at least the next couple of quarters.”
“We model a low-single-digit percentage Retail revenue decline, with a mid- to high-single-digit percentage decline in 1H as pressures on discretionary spending persist before this turns positive in 2H as interest rates start to fall (we acknowledge visibility is low at this point),” he said in a research report. “Given revenue pressures, continuing good margin management and expense control are key to keeping earnings stable. Management expects to keep Retail margins largely in line vs 2023, helped by lower freight and product costs (lower commodities with good line of sight), partly offset by increased promotional intensity. While SG&A expenses surprised positively, declining 4 per cent year-over-year (first decline since 2Q20), we model expense being up 1 per cent in 2024, with headcount reduction, lower supply chain costs (3PL exits and more than 20-per-cent reduction in corporate inventory in 2023), productivity savings (DC automation for SportChek and Mark’s), One Digital Platform, etc, offsetting growth investments and inflation. We expect Financial Services earnings to decline by 5 per cent in 2024 due to higher net impairment losses.”
On Thursday, shares of the Canadian retail giant slipped a mere 0.3 per cent after it reported normalized diluted earnings per share for the quarter of $3.38, down from $9.34 a year earlier and well below the Street’s expectation of $4.86.
“Mid- to high-single-digit negative SSSG [same-store sales growth] at CTR [Canadian Tire Retail], SportChek and Mark’s led to an 18-per-cent decline in total Retail revenue (vs our negative 10 per cent expectation),” said Mr. Li. “Approximately half of the 4Q SSSG decline was attributable to adverse weather conditions. March is usually the most significant month for 1Q (45–50 per cent of 1Q); however, data for 1Q to date reflects a continuation of the challenging top line. At CTR, January saw positive mid-single-digit comps due to snowy weather; this declined in the first half of February, also due to unseasonal weather. On a consolidated basis, Retail sales in February were down due to softness in the outerwear and winter categories at SportChek and Mark’s. Overall, for 1Q to date, CTR is trending flattish while other banners are down. In the current consumer spending environment, weaker dealer demand for discretionary categories is expected to continue to pressure revenue in 1Q.”
“CTC is controlling the controllables through continuing strong margin management and SG&A expense reduction. It is still in the early stages of potentially finding a new partner for Financial Services (potential catalyst). While we maintain our positive long-term view, we expect further share price volatility until earnings visibility improves.”
After reducing his 2024 and 2025 EPS projections to $10.38 and $13.36, respectively, from $12.85 and $15.07 previously, the analyst lowered his target for Canadian Tire shares to $160 from $170, keeping a “buy” recommendation. The average target on the Street is $157, according to LSEG data.
“Despite the lower-than-expected results and management’s cautious outlook, the share price reaction was muted (down 0.3 per cent) as near-term challenges were likely reflected in the valuation (approximately 10 times P/E),” said Mr. Li. “Based on our reduced estimates, CTC now trades at 13.5 times forward P/E (vs 12–13 times average) on likely trough earnings. We expect the shares to be range-bound in the near term until earnings visibility improves and investors start to look to 2025 for normalized earnings.”
Elsewhere, other analysts making adjustments include:
* Scotia’s George Doumet to $150 from $158 with a “sector outperform” rating.
“We were expecting a weak Q4 (soft macro, increasing competitive activity, poor weather) - but the magnitude of the decline was much more pronounced,” said Mr. Doumet. “Revenues (ex-fuel) declined ~20% (well below our 9-pr-cent estimate) leading to a 28-per-cent miss on Retail IBT. Retail gross margin performance was largely in line with expectations, while opex came in well ahead (down 4-per-cent year-over-year). Softness is expected into Q1 (poor weather in Feb and weak consumer in March) - and we expect the sales/revenue mismatch to continue through the 1H/24. Net, net our 2024 estimates are down 27 per cent, representing a year-over-year decline of 4 per cent (largely in the 1H).
“While we acknowledge that visibility around the timing of trough earnings is cloudy, we see significant value in CTC.a shares today (trading at 10.5 times 2025 estimated EPS), especially when accounting for a potentially positive outcome from the CTFS strategic review.”
* RBC’s Irene Nattel to $195 from $199 with an “outperform” rating.
“While we expected lower shipments to dealers on weaker consumer spending, shift in timing favouring Q3, and unseasonable weather, the actual impact was greater than expected. At this time, we are further moderating our street-low 2024 EBITDA forecast by 7 per cent, EPS by 15 per cent, with H1 likely marking trough earnings assuming RBC Economic forecasts for modest GDP growth, stabilizing unemployment, and moderating interest rates proves correct. While valuation appears attractive, investor sentiment is likely to remain tepid until visibility improves,” said Ms. Nattel.
* CIBC’s Mark Petrie to $150 from $153 with a “neutral” rating.
* TD Securities’ Brian Morrison to $155 from $150 with a “hold” rating.
* National Bank’s Vishal Shreedar to $146 from $152 with a “sector perform” rating.
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Following better-than-expected fourth-quarter 2023 results, Desjardins Securities analyst Doug Young upgraded Manulife Financial Corp. (MFC-T) to “buy” from “hold” previously, citing “momentum in Asia, excess capital + buybacks, valuation, improved sentiment and the potential for more legacy reinsurance transactions similar to what transpired last December although the timing on these is tough to gauge.”
Shares of Canada’s largest insurer jumped 8.7 per cent on Thursday after it reported core earnings per share for the quarter of 92 cents, exceeding the 85-cent forecast of both Mr. Young and the Street.
In a note released before the bell on Friday, Mr. Young pointed to several “positives” stemming from the release. They are: “(1) Each division beat our core earnings estimate. (2) The LICAT [Life Insurance Capital Adequacy Test] ratio of 137 per cent was at the higher end of our estimate range. (3) Asia core earnings increased 14 per cent year-over-year (constant FX), with strong results in Hong Kong. (4) GWAM [Global Wealth and Asset Management] core earnings and core EBITDA margin improved vs last year, although the division recorded net outflows of $1.3-billion. (5) Canada core earnings benefited from group long-term disability claims gains; however, this was offset by negative individual insurance mortality experience (eg more larger claims). (6) U.S. long-term care insurance experience was a net positive.”
After modest increases to his earnings forecast for fiscal 2024 and 2025, Mr. Young raised his target for Manulife shares to $36 from $29. The average is $32.67.
Elsewhere, Cormark Securities’ Lemar Persaud raised Manulife to “buy” from “market perform” and increased his target to $36 from $33.
Others making target adjustments include:
* RBC’s Darko Mihelic to $38 from $34 with an “outperform” rating.
“MFC had a solid quarter in all segments except for Canada (modestly below expectations),” said Mr. Mihelic. “Although Asia was solid, MFC extended its 50-per-cent earnings contribution from Asia target date to 2027 from 2025, suggesting growth expectations should be tempered somewhat. We still model double-digit growth in Asia, just not as high as before. Long-term care (LTC) reduction is ahead of schedule and during the conference call, management provided some hope that future opportunities to reinsure LTC risks look promising as the market may be opening up. We increase our price target (lower risk premium).”
* Scotia’s Meny Grauman to $40 from $35 with a “sector outperform” rating.
“With MFC up 28 per cent over the past three months, and up nearly 9 per cent on earnings day, the obvious question is where do the shares go from here? Our generic answer is higher, but more specifically we see a path to $40 per share,” said Mr. Grauman. “And while another LTC transaction would certainly be a notable catalyst (although hard to time), we feel that the company can get there the old-fashioned way — through earnings growth and multiple expansion. Even before Q4′s big beat, consensus EPS for MFC in 2025 was already around $4.00, and we expect it to move up on the back of these strong results. For our part we are now forecasting EPS of $4.10, a conservative outlook that assumes an EPS CAGR of 9 per cent vs Manulife’s medium-term core EPS growth target of 10-12 per cent. ... MFC’s valuation (P/B nor P/E) has not kept up with its improving (core) ROE. The issue has been elevated tail risk, but we believe that has now shrunk materially. Put that all together, and we can see the shares trading at 10.0 times 2025 EPS through the course of this year, especially considering that this translates to just under 1.8 times book, which is roughly where GWO trades with a similar ROE.”
* CIBC’s Paul Holden to $34 from $20 with a “neutral” rating.
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While investors were not impressed by the fourth-quarter results from Mullen Group Ltd. (MTL-T), National Bank Financial analyst Cameron Doerksen focused on a “more positive tone” to the start of 2024.
The Alberta-based transportation company fell 4.9 per cent on Thursday after it reported adjusted earnings of 34 cents per share, exceeding the Street’s expectation by 2 cents but down 41.4 per cent (from 58 cents) during the same period a year ago due to weaker demand.
“Mullen Group reported Q4 results [Thursday] morning that were slightly below (although still roughly in line with) the preliminary expectation that management provided in mid-December as volumes slowed toward the end of the year due to the timing of holidays,” said Mr. Doerksen.
‘In 2023, Mullen faced headwinds as demand for freight slowed and pricing came under pressure. Despite this, EBITDA in 2023 was essentially flat year-over-year, which is a materially better performance than most other North American trucking companies. Despite this financial outperformance, Mullen shares have underperformed its trucking peers.”
Mr. Doerksen emphasized a change in tone with management’s commentary, seeing it “more optimistic entering 2024 than was the case a year ago” and believing there’s upside from current fiscal projections.
“For one, management believes that the inventory rebalancing cycle is essentially complete, implying that shipper inventory will be more balanced in 2024 as opposed to a drag on freight volumes in 2023,” he said. “In addition, management believes that many smaller trucking competitors are struggling financially, which will lead to additional M&A opportunities for Mullen or the exit of competitive capacity, which will be positive for industry pricing.”
“Mullen continues to target 2024 revenue of $2,025 million and EBITDA of $325 million. We note that the company’s assumptions appear to be conservative as they do not incorporate any material improvement in end-market demand or the competitive environment, both of which we think could be tailwinds in the latter half of 2024. In addition, the acquisition of ContainerWorld Forwarding announced in January represents upside to the 2024 targets.”
Seeing its valuation as “compelling,” the analyst raised his target to $19.50 from $19, reiterating an “outperform” recommendation. The average is $18.25.
“Valuation for Mullen shares continues to be well below the peer group averages,” he said. “On our updated 2024 estimates, Mullen trades at 5.9 times EV/EBITDA versus its five-year forward average of 7.2x (weighted average peers currently at 10.9 times). On P/E, the stock currently trades at 10.2 times next year estimates versus its historical forward average of 14.8 times (peers at 24.0 times). Based on 2023 results that were impacted by softer market conditions, Mullen’s free cash flow was $188 million for an attractive FCF yield of 14 per cent.”
Elsewhere, CIBC’s Kevin Chiang upgraded Mullen to “outperformer” from “neutral” with a $17 target, up from $16.50.
“MTL reported a generally in-line quarter but the 5-per-cent drop in its share price creates a buying opportunity, in our view. We are optimistic the freight cycle has found a bottom and view MTL’s 2024 outlook as being conservative. The company is trading at sub-6 times EBITDA and this has been a good floor (outside of the depths of the pandemic),” said Mr. Chiang.
Other changes include:
* Scotia’s Konark Gupta to $20 from $19.50 with a “sector outperform” rating.
“We think the market likely reacted negatively (stock down 5 per cent) to the headline miss (including one-time costs) and the company’s cautious tone on 1H (prudent), while not giving any credit to the improved LTL [less-than truckload] margin guidance,” he said. “Although we raised our EBITDA estimates to reflect the updated LTL guidance and our revised timing assumption for the ContainerWorld acquisition, we believe our estimates could prove conservative, especially if MTL executes on more M&A this year. While its competitors are struggling due to pricing pressure and stretched balance sheets, the company remains well-positioned to make accretive acquisitions with a solid FCF yield of mid-teens, a reasonable leverage ratio of 2.3x and access to more than $300-million liquidity. Valuation was already depressed and has now become even more attractive at 6.1 times EV/EBITDA on our 2024 estimated, near its pre-pandemic trough of 6.0x and well below Canadian trucking & logistics peers at 8 times. We expect MTL to remain quite active on share buybacks.”
* Raymond James’ Michael Barth to $17 from $16.75 with a “market perform” rating.
“Forward-looking commentary suggests that organic growth in 2024 is likely to be nonexistent, but that demand should hold up well across each business segment,” he said. “Overall, our thesis remains unchanged: we expect demand for MTL’s services to remain relatively healthy through our forecast period, but see very little opportunity for notable organic growth in the aggregate; and, we expect that MTL will continue to pursue acquisitions that should be modestly accretive and help drive margin expansion, particularly around LTL. In our view, these expectations are largely priced in, and we don’t appear to have a meaningfully differentiated view relative to the market. We therefore maintain our Market Perform rating, and see better risk-adjusted returns elsewhere (our return-to-target at the time of writing is 17 per cent, which is considerably lower than other businesses in our coverage universe).”
* TD Securities’ Tim James to $22 from $21 with a “buy” rating.
* Acumen Capital’s Trevor Reynolds to $19 from $19.50 with a “buy” rating.
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Touting its low cost structure and seeing “improved runway for growth, ATB Capital Markets analyst Amir Arif initiated coverage of Peyto Exploration & Development Corp. (PEY-T) with an “outperform” recommendation on Friday.
“Our thesis on PEY revolves around three key points,” he said in a research report. “First of all, the low cost structure positions PEY at the low end of the gas supply cost curve. This allows the Company to be better positioned than most gas weighted producers in generating positive margins regardless of the natural gas price cycle. Secondly, the recent acquisition of Repsol enhances the near-term and long-term outlook. The better capital efficiencies on the acquired asset will allow for less capex needed to achieve similar near-term production growth. The underutilized facilities allow for longer-term growth without requiring meaningful incremental infrastructure capex. Finally, the eventual expected improvement in natural gas outlook (as reflected in the futures curve) positions the Company well heading into 2025 as North American gas production begins to reflect the impact of the reduced U.S. gas rig counts while, at the same time, new U.S. and Canadian LNG projects improve the structural demand.”
Mr. Arif said the Calgary-based company faces only a “limited” near-term impact from the current low natural gas prices, pointing to its high level of fixed price hedges. Accordingly, he thinks its dividend yield is “fully sustainable” and faces no risks.
“PEY maintains one of the lowest operating cost structures in the industry .. This ensures that PEY has a greater ability to maintain positive margins relative to other gas weighted producers regardless of the cyclical nature and volatility of natural gas prices,” he added.
He also touted the impact of last year’s acquisition of Repsol SA’s assets in Alberta’s Deep Basin for US$468-million, noting: “The inventory provides additional running room and longevity to the resource base. The relatively low level of drilling activity on the acquired lands provides the opportunity to drill better well locations. The associated infrastructure allows operating costs to remain low as utilization and facility throughput is improved over time with higher volumes. One key negative relative to the acquisition is a higher operating cost structure on the acquired assets along with ARO liabilities that are being assumed by PEY.”
Expecting structural improves in natural gas fundamentals by late 2024, Mr. Arif set a target of $15 per share. The average target is $15.68.
“The long-term running room and ability to improve capex efficiency relative to PEY standalone has been improved,” he said. “The improved capex efficiencies and increased inventory following the acquisition, the sustainability of the dividend down to US$1.50/mmbtu Henry Hub, the limited CF sensitivity to current weak gas prices in 2024 due to the hedge book, along with the Company’s solid track record on opex and value creation, are the key reasons behind our Outperform rating. In addition, the contango in the gas futures market suggests an eventual improvement coming for gas.”
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While acknowledging the broader headwinds facing Canada’s banks and emphasizing his expectation for a “Hard Landing” for the sector, Veritas Research analyst Nigel D’Souza expects EQB Inc.’s (EQB-T) “growth in net interest income driven by margin expansion, particularly in FY25, to more than offset higher credit losses.”
In a research report released Friday titled Can’t Beat ‘Em, Can’t Join ‘Em, he initiated coverage with a “buy” recommendation.
“While EQB lags peers on diversification, with the bank primarily a Real Estate Secured Lender concentrated in Ontario, it leads on operational efficiency as a digitally focused bank, on credit loss experience, and on excess capital,” said Mr. D’Souza. “That said, EQB’s funding costs are structurally higher than domestic systemically important banks (DSIBs) due to a limited ability to attract uninsured deposits. In our view, structurally higher funding costs will limit EQB’s ROE and ability to compete on rates even after transitioning to the less capital-intensive Advanced Internal Ratings Based (A-IRB) approach for regulatory capital.
“Our forecast for adjusted EPS implies material upside for EQB even after applying a 30-per-cent discount for EQB’s P/E multiple relative to DSIBs to reflect EQB’s lack of diversification and structurally higher funding costs. While EQB can be a leader among non-DSIBs, in our view, EQB cannot successfully compete directly against DSIBs due to structural disadvantages.”
He set an intrinsic value of $97 per share. The average is currently $100.
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In other analyst actions:
* TD Cowen’s Stacy Ku cut her Aurinia Pharmaceuticals Inc. (AUPH-Q) target to US$11 from US$15 with an “outperform” rating. Other changes include: Jefferies’ to US$9 from US$9.50 with a “hold” rating and RBC’s Douglas Miehm to US$8 from US$13 with an “outperform” rating. The average is US$11.86.
“While Q4 results and 2024 guidance were in line and unchanged, the shares weakened materially on the lack of a positive outcome to the strategic review which we believe is tied to pharma’s view of the IP estate on LUPKYNIS, competitive environment and the lack of a pipeline/ platform (we had no take-out premium incorporated),” said Mr. Miehm. “Recognizing the patent issue, we had previously applied a 10-per-cent probability of early genericization but have now increased this amount to 50 per cent and expect investor concern over a potential PIV ANDA/IPR filing to remain an overhang.”
* RBC’s Maxim Matushansky raised his Calian Group Ltd. (CGY-T) target to $72 from $65 with an “outperform” rating. Other changes include: Desjardins Securities’ Benoit Poirier to $86 from $78 with a “buy” rating and CIBC’s Scott Fletcher to $75 from $67 with an “outperformer” recommendation. The average is $75.75.
“We have just returned from CGY’s well-attended investor day, where management outlined its new capital strategy and how it will achieve $1-billion in revenue by FY26,” said Mr. Poirier. “Our takeaway is positive as it seems management will take a more aggressive approach on the M&A front, with acquisitions driving the majority of the growth. Greater leveraging of the balance sheet should be welcomed by investors as CGY has historically been quite conservative with its use of debt, which has likely hurt from a return perspective.”
“We encourage investors to revisit the CGY story given the potential for significant value creation associated with the company’s growth aspirations, recurring revenue and proven M&A strategy.”
* In response to “constructive” fourth-quarter results, Desjardins Securities’ Chris MacCulloch raised his Cenovus Energy Inc. (CVE-T) target to $28 from $27.50 with a “buy” rating, while BMO’s Randy Ollenberger moved his target to $29 from $28 with an “outperform” rating. The average is $29.94.
“The update was favourably received by the market after several months of disappointing performance vs peers and we expect the positive momentum to continue through the March 5 investor day presentation in Toronto, where CVE is expected to provide additional colour on planned growth and optimization projects over the next five years,” Mr. MacCulloch said.
* Desjardins Securities’ Lorne Kalmar raised his Choice Properties REIT (CHP.UN-T) target by $1 to $15.50 with a “buy” rating. The average is $15.14.
“CHP reported another solid quarter,” he said. “SPNOI came in at an impressive 4.2 per cent while occupancy ticked up to 98.0 per cent. The REIT also delivered two industrial developments and a 126-unit multi-family project, along with an acceleration of capital-recycling activity. Our revised 2024 FFOPU estimate is at the top end of management’s $1.02–1.03 guidance range. We continue to view CHP as a high-quality name with a defensive, in-demand portfolio deserving of a premium valuation.”
* Following its late Thursday earnings release, RBC’s Geoffrey Kwan raised his Definity Financial Corp. (DFY-T) target to $49, exceeding the $44.55 average, from $48 with an “outperform” rating, while Raymond James’ Stephen Boland increased his target to $46 from $42 with a “market perform” rating.
“While the Canadian P&C stocks have performed strongly since 3Q23, sector conditions remain favourable,” said Mr. Boland. “The benefits of easing inflation, firm market conditions, and strong investment yields are likely to support stable-to-strong industry returns in 2024. In the case of DFY, we see the added benefit of an improving ROE and a more favourable business mix as the company optimizes its capital structure and continues its shift away from Personal Auto.”
* Mr. Kwan also increased his target for IGM Financial Inc. (IGM-T) to $44, above the $42.17 average, from $43 with a “sector perform” rating.
“Q4/23 results were largely in line with our forecast. We like IGM’s business mix and stronger competitive position within the industry and that the shares offer significant upside when substantial industry net redemptions,” he said.
* Previewing the release of its fourth-quarter 2023 results, Desjardins Securities’ Gary Ho bumped his Dentalcorp Holdings Ltd. (DNTL-T) target to $11.50 from $11 with a “buy” rating. The average is $9.93.
“We expect 4Q revenue, SSSG and EBITDA/margin to be within guidance, and made small tweaks to our 2024/25 forecasts,” he said. “The setup for the quarter looks favourable, and management’s execution of its guidance should be viewed positively. We are hopeful that 2024 will have less noise, with margin expansion and decent FCF to self-fund acquisitions and help further deleverage.”
* Canaccord Genuity’s Mark Rothschild cut his Dream Office REIT (D.UN-T) target to $7 from $10 with a “hold” rating. Other changes include: TD Securities’ Sam Damiani to $10 from $11.50 with a “buy” rating and Desjardins Securities’ Lorne Kalmar to $8.50 from $10 with a “buy” rating. The average is $10.25.
“4Q results were overshadowed by a 50-per-cent reduction in the REIT’s distribution,” said Mr. Kalmar. “Given the uncertainty in the office space, the current leasing environment, and the REIT’s elevated payout and leverage ratios, we believe this to be a prudent move by the trust, with management now prioritizing liquidity. That said, we expect the units to react negatively and we remain cautious on the name given the high level of uncertainty currently facing the office market.”
* Raymond James’ Brad Sturges cut his Dream Residential REIT (DRR.UN-T) target to US$8.50 from US$9 with an “outperform” rating, while TD Securities’ Jonathan Kelcher lowered his target to US$10 from US$10.50 with a “buy” rating. The average is US$9.44.
* CIBC’s Paul Holden raised his Great-West Lifeco Inc. (GWO-T) target to $46 from $44, keeping a “neutral” rating. The average is $43.75.
* Scotia’s Mario Saric trimmed his H&R REIT (HR.UN-T) target to $11 from $11.75 with a “sector perform” rating. The average is $11.17.
“We still view H&R as a late 2024/early 2025 story as two key unit price catalysts become ‘near-term’,” he said..” First, we believe U.S. Sunbelt Residential sentiment needs to improve (33 per cent of H&R NOI in CAD and driver behind H&R Transformational Plan; 2024 outlook is modest - see below) on peak supply absorption. Second, we think the disposition of CAD Office properties re-zoned with residential intensification is critical, something that may also be 9-12 months out (given applications re-submitted for incremental density and 40-50-per-cent drops in land values from peak; i.e., $150-$200/sf vs. $325/sf). In essence, H&R’s Transformational plan involves selling Office and Retail to become a “Growth” REIT focused on U.S. Sunbelt Residential and CAD Industrial, both asset classes dealing with mixed investor sentiment presently. Once that changes, we think H&R’s unit price will as well (perhaps on a lagged basis) as valuation has room to move higher.”
* BMO’s Ben Pham reduced his Innergex Renewable Energy Inc. (INE-T) target to $10 from $14 with an “outperform” rating. The average is $13.06.
* RBC’s Jimmy Shan bumped his Killam Apartment REIT (KMP.UN-T) target to $23.50 from $23 with an “outperform” rating. Other changes include: Desjardins Securities’ Kyle Stanley to $23 from $22 with a “buy” rating, National Bank’s Matt Kornack to $22.75 from $22 with an “outperform” rating, TD Securities’ Jonathan Kelcher to $23 from $21 with a “buy” rating and CIBC’s Dean Wilkinson to $22 from $20 with an “outperformer” rating. The average is $22.08.
“Q4 results were strong, particularly so on operations and margins as the REIT saw continued acceleration in turnover spreads, which is likely to be sustained in 2024 with higher allowable increases on renewal in rent-controlled geographies,” said Mr. Kornack. “Operating expense growth has been moderating despite persistent market rent growth and guidance is for inflationary increases in 2024 (with lower utilities offsetting higher property taxes). KMP’s initial guidance for FY24 is a ‘minimum of 6 per cent’ SPNOI growth, a figure which we believe has room to move higher, particularly given this year’s milder winter and the expectation for a moderation in expense growth. Despite turnover declining (17 per cent expected this year vs. 20+ per cent historically), Killam benefits from 43 per cent of its portfolio in non-rent control markets and step changes in allowable increase. The REIT was our top apartment pick heading into the quarter and these strong results reaffirm our positive bias.”
* Scotia’s George Doumet cut his target for MTY Food Group Inc. (MTY-T) to $55 from $62 with a “sector perform” rating. Other changes include: TD Securities’ Derek Lessard to $60 from $65 with a “hold” rating, Acumen Capital’s Nick Corcoran to $75 from $60 with a “buy” rating, National Bank’s Vishal Shreedhar to $59 from $71 with an “outperform” rating, Raymond James’ Michael Glen to $60 from $65 with a “market perform” rating and RBC’s Sabahat Khan to $58 from $66 also with a “sector perform” recommendation. The average is $65.71.
“Q4 normalized EBITDA missed consensus by 11 per cent,” said Mr. Doumet. “Looking beyond the one-timers, results reflected a consumer who is more restrained in discretionary spending with lower average check and negative comps in fast casual and casual dining concepts. On the network growth, MTY continues to register record new openings, but the net opening remains just shy of break-even for the third consecutive quarter. Furthermore, efficiency initiatives and implementation of a new ERP system, while highly beneficial to the company in the longer term, are going to be a source of performance (and EBITDA) risk over the next 12-18. In that context, despite an undemanding valuation (shares trading at 9 times vs. historical average closer to 11 times) we need to see a period of sustained SSS growth (in the low single digit range) and flat to positive net closures to get more constructive.”
* CIBC’s Sumayya Syed trimmed her Primaris REIT (PMZ.UN-T) target by $1 to $17 with an “outperformer” rating. Other changes include: Raymond James’ Brad Sturges to $17.25 from $17 with an “outperform” rating, Desjardins Securities’ Lorne Kalmar to $17 from $16.50 with a “buy” rating and National Bank’s Matt Kornack to $16 from $15.50 with an “outperform” recommendation. The average is $17.
“PMZ had strong performance in Q4 as the existing portfolio and acquired properties benefited from holiday season strength,” said Mr. Kornack. “While management left guidance unchanged, we expect outperformance. Our outlook for growth in 2024 remains constructive on lease-up at Halifax Shopping Centre, development completions and sustained occupancy / lease conversion trajectories. Lower leasing spreads in the quarter don’t fully capture the drivers to organic growth available to PMZ providing upside potential vs. other retail names. Management continues to think there is leverage to the scale of the platform from an accretive growth standpoint with undermanaged malls in target markets continuing to present themselves.”
* JP Morgan’s John Ivankoe moved his Restaurant Brands International Inc. (QSR-N, QSR-T) target to US$82 from US$78 with an “overweight” rating. The average is US$84.02.
* BMO’s Michael Markidis raised his RioCan REIT (REI.UN-T) target to $19 from $18.50 with a “market perform” rating. The average is $21.53.
“Operating performance should remain healthy even if leasing demand moderates, as new supply of high-quality retail space in core markets remains limited. Capital spending is moderating as REI increasingly prioritizes debt reduction in a persistently high and volatile interest rate environment,” said Mr. Markidis
* CIBC’s John Zamparo lowered his Spin Master Corp. (TOY-T) target to $44 from $47 with an “outperformer” rating. The average is $47.13.
* BMO’s Greg Jones initiated coverage of Standard Lithium Ltd. (SLI-X) with an “outperform” rating and $3.75 target. The average is $6.70.
" Standard Lithium has assembled a portfolio of high-grade lithium brine projects located within the Smackover Formation in the Southern U.S.,” he said. “It plans to apply direct lithium extraction (DLE) technology to develop an integrated lithium business and produce battery-grade lithium carbonate and hydroxide. In our view, the company’s phased development approach, along with extensive multi-year demonstration plant testing and strategic partnerships, mitigate DLE technology and project execution risk and should accelerate the timeline to production.”
* CIBC’s Hamir Patel cut his West Fraser Timber Co. Ltd. (WFG-T) target to $131 from $142 with an “outperformer” rating. The average is $141.71.
David Leeder