Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial’s Richard Tse thinks Shopify Inc.’s (SHOP-N, SHOP-T) better-than-anticipated first-quarter results, workforce reduction strategy and plan to sell its delivery and warehousing operation reflect its “continued (strong) market position that’s complemented by a recognition that efficient capital deployment matters, particularly under the current market backdrop.”
Following Thursday’s announcements, which sent its TSX-listed shares soaring by 23.2 per cent, Mr. Tse was one of a large group of equity analysts on the Street to applaud the Ottawa-based e-commerce giant and raised their target prices.
“Aside from the solid Q1 results, the big news was the announced divestiture and concurrent headcount restructuring across all of Shopify. First, Shopify will be divesting its Logistics Assets to Flexport (a current partner) in exchange for shares representing 13-per-cent equity in Flexport,” he said. “At the same time, Shopify will divest 6 River Systems (6RS) to Ocado (terms undisclosed). Both transactions are expected to close in the latter half of FQ2. In our view, while fulfillment was a meaningful opportunity for Shopify, it had been an overhang for the stock given the significant financial and operating commitment. Second, Shopify announced a 23-per-cent reduction in its workforce, which we estimate the annualized cost savings from those reductions will be around $270-million.
“Collectively, we see the above as positive. When it comes to SFN, the Logistics divestiture lifts what had been an increasing financial and operating burden to scale, and while potentially positive to driving value, it was margin dilutive. At the same time, we see the divestiture and overall headcount restructuring reflecting more discipline to capital allocation in what had been growing concern around a growth-at-all-cost approach. In our view, the combined notable pivots will undoubtedly have a positive valuation re-rating impact for SHOP.”
In a research note titled Playing to its Strengths, Mr. Tse emphasized Shopify now expects to reach free cash flow profitability in each quarter of the current fiscal year on capex of approximately US$100-million. That is “well below” his previous Street-low estimate of US$425-million.
“We continue to believe Shopify is in the early stages of a market that’s structurally changing,” he said. “We believe Shopify remains a leading on and offline Commerce disruptor and believe upside in the stock will come from a number of different incremental growth drivers such as: 1) International; 2) increased take rate with new services; 3) large enterprise (Shopify Plus); and now 4) POS for SMB retail.”
Reiterating his “outperform” recommendation for Shopify shares, Mr. Tse hiked his target to US$80 from US$60. The average target on the Street is now US$55.22.
Elsewhere, UBS analyst Kunal Madhukar upgraded Shopify to “neutral” from “sell” and hiked his target to US$64 from US$34.
Other analysts making target changes include:
* RBC’s Paul Treiber to US$75 from US$65 with an “outperform” rating.
“Shopify’s Q1 improves the investment thesis in a number of ways: 1) share gains are offsetting macro headwinds; 2) profitability is likely to be sustained going forward; 3) the sale of logistics eliminates business model uncertainty; and 4) increased probability of long-term success for Shopify’s “main quest”. Maintain Outperform, as we believe Shopify is one of the most compelling growth stories in our coverage,” said Mr. Treiber.
* ATB Capital Markets’ Martin Toner to $90 (Canadian) from $82 with an “outperform” rating.
“We believe, exiting a challenging business, that investors were highly skeptical about while producing outstanding results on the top and bottom line has created confidence in the stock,” said Mr. Toner. “The Company’s strong results confirm that it remains a share gainer and winner in a large and growing market and has a strong business model.”
* Citi’s Tyler Radke to US$65 from US$51 with a “neutral” rating.
“These changes are a sudden shift in strategy, but are unquestionably positive in our view as it simplifies the narrative and unleashes higher medium-term profitability/FCF,” he said. “While we raised numbers ahead of Q1, flagging a positive set-up, we further increase estimates, particularly on profitability. With the stock up 24 per cent on 5/4, 65 per cent year-to-date and trading at the highest growth-adjusted gross profit multiple (14.4 times 24) across the software universe (9.0 times 24E avg.), we maintain our Neutral/High Risk rating given a less attractive 2H set-up with uncertain macro/discretionary spending environment + tough comps.”
* Scotia Capital’s Kevin Krishnaratne to US$60 from US$46 with a “sector perform” rating.
“SHOP’s Q1 was a big beat, but the bigger news was its decision to shift away from its logistics strategy and return focus on its leadership in commerce software,” said Mr. Krishnaratne. “We believe some key questions investors have had on SHOP revolved around the rationale behind SFN, related capex/opex, and the timing of the network’s path to profitability. Our SP rating considered several factors including the SFN strategy, in addition to stock’s valuation, competition from Amazon, and SHOP’s exposure to discretionary goods. With one of the larger concerns now out of the way (SFN), and same-store sales trends coming in better than expected, we’re getting more positive on SHOP. However, we continue to maintain our Sector Perform rating, mainly due to valuation and with the stock up 28 per cent on [Thursday’s] news.
* TD Securities’ Daniel Chan to US$60 from US$47 with a “hold” rating.
“While we like the strategic shift and expect it to drive considerably higher margins and cash flow, we remain concerned of the macro backdrop combined with Shopify’s high relative valuation,” said Mr. Chan.
* Credit Suisse’s Timothy Chiodo to US$53 from US$40 with a “neutral” rating.
* Barclays’ Trevor Young to $50 from $40 with an “equal-weight” rating.
* CIBC’s Todd Coupland to US$75 from US$65 with an “outperformer” rating.
* DA Davidson’s Gil Luria to US$67 from US$50 with a “buy” rating.
* Evercore’s Mark Mahaney to US$69 from US$56 with an “outperform” rating.
* Baird’s Colin Sebastian to US$65 from US$55 with an “outperform” rating.
While warning its first-quarter results are “unlikely to be pretty,” Citi analyst Stephen Trent raised his recommendation for Air Canada (AC-T) in response to a sizeable increase to its 2023 guidance and near-term share price weakness, seeing “a buying opportunity” for investors.
After the bell on Thursday, the company hiked its full-year EBITDA outlook by $1-billion, or approximately 36 per cent, to a range of $3.5-$4.0-billion. That exceeds the consensus estimate on the Street of $2.6-billion.
Mr. Trent said “it is hard to ignore the (at least) half billion dollars-worth of higher EBITDA guide for this year,” prompting him to upgrade the airline’s shares to “buy” from “neutral” previously.
“Had we not changed anything, the share price pullback translated into an expected total return of 17 per cent, using Thursday’s close,” he said. “In addition to this supportive backdrop, forecast adjustments for Air Canada include the incorporation of stronger, ‘23E revenue per available seat mile or RASM, available seat mile or ASM growth from 24 per cent to 23 per cent, fuel from $1.30 to $1.09 per litre and slightly higher, expected ex-fuel cost per available seat mile or CASM ex-fuel into our model.”
Raising his 2023, 2024 and 2025 earnings per share estimates (to $3.04, $3.88 and $4.83, respectively, from $1.10, $3.26 and $4.68), Mr. Trent hiked his target for Air Canada shares to $25 from $21.50. The average target is $26.98.
“Volaris, Copa, Delta and Azul remain Citi’s Americas Airline favorites, in descending order,” he said. “However, Frontier now jumps ahead one notch, to fifth place, on the back of what looks like an unreasonable sell-off. From there, it’s Buy-rated United, GOL, Alaska Air and now Air Canada - with no actual change in the latter’s ranking. From there, Neutral-rated American Airlines moves ahead of Southwest, with Spirit Airlines, LATAM Airlines and then Neutral/High Risk-rated JetBlue unchanged.”
“We rate Air Canada Buy, which is based on strong, global potential for a continued recovery in international long-haul passenger revenue, and what looks to be a stock price dip. Although the carrier’s margins seem unlikely to catch those of several of its Southern peers’, this carrier has the most international long-haul exposure among Citi’s Americas Airilne coverage.”
Others making changes include:
* ATB Capital Markets’ Chris Murray to $38 from $31 with an “outperform” rating.
“While our thesis has been that leisure and business travellers would be returning to the skies in an environment which is capacity constrained, the market appears to be about a year or more ahead of how we previously saw the post-COVID recovery shaping up. With expectations for a more substantial recovery and rapidly improving earnings and free cash flow generation, and expecting a strong market reaction at the open, we still see shares as attractive at current levels.”
* Scotia’s Konark Gupta to $30 from $29 with a “sector outperform” rating.
“We were expecting a Q1 beat and guidance raise based on our tracking of demand indicators and jet fuel,” he said. “The company did confirm our thesis, citing better-than-expected demand and fuel price. However, AC did not revise 2024 guidance, which is prudent in our view, considering the consumer sentiment remains in flux and fuel/FX tend to be volatile. We significantly raised our recently revised 2023 estimates while modestly tweaking our 2024/2025 outlook. Although 2023 and 2024 EBITDA guidance are now essentially the same, we don’t think 2023 would be the peak year, as long as jet fuel price doesn’t rebound significantly, given corporate travel and Asia have yet to catch-up with leisure and other regions.”
* BMO’s Fadi Chamoun to $33 from $29 with an “outperform” rating.
“Investor sentiment has been generally very negative, particularly as macro concerns have become more pronounced in recent months,” said Mr. Chamoun. “This backdrop has been a source of significant pressure on the stock. While we do not anticipate macro concerns to dissipate, the stronger free cash flow and lower financial leverage as a result of the stronger performance in 2023 have positive implications to valuation in our opinion.”
* RBC’s Walter Spracklin to $22 from $20 with an “outperform” rating.
“AC is capitalizing on very solid near team demand trends that is allowing the company to raise prices in excess of rising costs, while benefiting from the drop in fuel prices,” said Mr. Spracklin. “While we remain concerned regarding the post summer demand and pricing, we believe management efforts to regain its footing post-COVID are commendable.”
* CIBC’s Kevin Chiang to $31 from $30 with an “outperformer” rating.
A pair of analysts upgraded Canadian National Railway Co. (CNR-T) on Friday in response to its Investor Day event earlier this week.
Touting above average earnings per share growth potential, CIBC’s Kevin Chiang raised his recommendation to “outperformer” from “neutral” with a $185 target, rising from $175 and above the $165.07 average on the Street.
“Key takeaways from CN’s investor day were: 1) its scheduled operating plan is driving improved network fluidity and asset utilization. 2) CN has a deep revenue pipeline. 3) CN’s EPS CAGR [compound annual growth rate target from 2024-2026 of 10-15 per cent was better than expected, but this will come with some additional capex spend,” said Mr. Chiang. “Net-net, we believe the improved alignment between operations and marketing will drive strong incremental earnings growth and more consistent service. We have adjusted our estimates to reflect CN’s outlook.”
Morgan Stanley’s Ravi Shanker moved CN to “overweight” from “equalweight” with a $200 target, up from $154.
The firm said: “He leaves CNR’s 2023 Investor Day more bullish on normalized earnings power. The event was a much-anticipated capstone to CEO Tracy Robinson’s first year at CN and was set to be an unveiling of her “new” management team and long term vision. He notes that the event did not disappoint, from the scale of the presentation, to the attention to detail, the tone, credibility and content of the plan and indeed, the financial targets. Ravi is particularly encouraged that: a) CNR’s plan is simple and credible; b) the management team has a good balance of experience and fresh talent; and c) the plan is to grow earnings through revenue rather than cost cuts (unlike U.S. peers). The stock has outperformed U.S. peers (year-to-date flat vs. U.S. Rail average down 8 per cent, since 1/1/22 up 3 per cent vs. US Rail average down 24 per cent) and valuation is higher as well (high teens vs mid teens PE) but he believes it is more than justified given the successful pivot to growth (which U.S. Rails are in the very early innings of), more structural growth opportunities in Canada vs. U.S., and potentially fewer inflationary and regulatory overhangs. Following the Investor Day, Ravi raises his estimates by approximately 9 per cent.”
AutoCanada Inc. (ACQ-T) is “not the right name to own at this point of the cycle,” according to National Bank Financial analyst Maxim Sytchev, who warned near-term performance “will be a grind” as “overstretched consumers [are] creating a tough operating environment.”
“Consumers are trading down (creating an inventory mismatch), OEMs are likely introducing incentives that are bound to compress margins and floorplan financing squeezing the EPS from the bottom,” he said. “This is not a great combination. While 5.1 times (ex IFRS) 2024 estimated EV/EBITDA does not sound egregious, we do not have a lot of confidence in our forecasts (while consensus numbers are simply too high). We are not convinced that we are anywhere close to the resolution of the credit cycle and hence see little reason to be long a discretionary name at the moment.”
On Thursday, shares of the Edmonton-based automobile dealership group plummeted 17.2 per cent after it reported revenue of $1.539-billion, up 14.7 per cent year-over-year and above the Street’s expectation of $1.398-billion. However, adjusted EBITDA dropped 28 per cent to of $45-million, missing the consensus expectation of $53.5-million. The miss was attributed to lower margins from used cars with consumers preferring lower-priced vehicles as well as limited volume recovery for its new car business.
“Higher financing rates are making themselves known,” said Mr. Sytchev. “In addition to compressing ACQ’s bottom line, higher rates have significantly exacerbated consumer affordability challenges and significantly cut down buying power for new and used vehicles. As such, consumers gravitated towards relatively more affordable options, compounding pressures on ACQ’s gross and EBITDA margins. Furthermore, the company saw a bit of a mismatch between client demand and its existing higher price inventory and shifting towards a more balanced mix will take time and resources.
“Used car demand expected to remain elevated for the foreseeable future. Due to the aftereffects of constrained OEM production over the last few years, management expects demand for used vehicles to stay strong over the next few years. Once again, consumers will gravitate to more affordable options where possible, even more so when the average new car costs over $60,000 in Canada and US$48,000 in the U.S. Management will lean into this dynamic, as a higher proportion of used sales will drive incremental (and arguably stickier) revenue in the parts, service and repair businesses”
Emphasizing the credit cycle is “tightening” and consumer discretionary spending power has been “materially impacted,” Mr. Sytchev cut his revenue and earnings estimates through 2024, leading him to drop his target for AutoCanada shares to $18 from $26 with a “sector perform” rating. The average on the Street is $30.75.
Elsewhere, “moving to the sidelines on elevated opex,” Canaccord Genuity’s Luke Hannan downgraded AutoCanada to “hold” from “buy” and dropped his target to $18 from $26.
“Q1/23 results were, by and large, in line with our expectations,” said Mr. Hannan. “GPU for both new and used vehicles were lower year-over-year, while PS&CR [Parts, service & collision] and F&I [Finance, insurance & other] gross profit growth remained healthy. The biggest divergence vs. our model (and where we now believe improvement will take time to flow through the P&L) was in SG&A. Taken on its own, the higher costs might not be enough to justify a downgrade. That said, when taken together with (1) consumers seeking lower-priced vehicles, which is compressing GPUs, and (2) higher floorplan costs, which present a material headwind to both EBITDA and FCF generation, it’s difficult to see what the source of near-term catalysts/upward revisions to estimates will be.
“On most metrics, the shares appear inexpensive; that said, we believe a multiple rerating is unlikely to take place until (1) central banks begin the interest rate easing cycle, which will both stoke demand for vehicles and reduce floorplan costs, and (2) visibility into cost rationalization improves. As a result, we’re reducing our rating to HOLD (from Buy).”
Others making changes include:
* ATB Capital Markets’ Chris Murray to $65 (remaining a high on the Street) from $80 with an “outperform” rating.
“While margins continued to normalize in Q1/23, we remain encouraged by the transaction velocity in a seasonally weak quarter, which continues to drive volumes to higher-margin ancillary activities. Valuations remain attractive, and we view the post-earnings selloff as overdone,” said Mr. Murray.
* Scotia’s Michael Doumet to $27 from $34 with a “sector outperform” rating.
“In our view, the 1Q trends were largely as expected, aside from the (i) higher opex and (ii) step down in profit levels in the U.S. On the call, ACQ discussed how profit normalization had a larger impact to the US business in the seasonally softer Jan/Feb months (but noted a recovery in March),” said Mr. Doumet. “On the operating costs, while SG&A-to-gross is expected to remain above those of its US peers, the company appears committed to driving productivity gains. Otherwise, new/used GPUs were largely as expected and F&I & PS&CR gross profits continue to trend up; incrementally, we think the agreement with Kijiji (and potentially others) could further accelerate the sale of used/F&I/PS&CR without requiring any material investment in storefronts or inventory.”
* CIBC’s Krista Friesen to $22 from $27 with a “neutral” rating.
* BMO’s Tamy Chen to $20 from $25 with a “market perform” rating.
After its first-quarter results came in “better than feared,” Stifel analyst Martin Landry thinks Spin Master Corp.’s (TOY-T) 2023 guidance “appears increasingly attainable” and the valuation for its shares currently “does not properly reflect the company’s strong balance sheet optionality.”
“Revenues from the Toy segment decreased by 47 per cent year-over-year, offset by a strong performance in both the Digital Games segment and the Entertainment segment,” he said. “Strong profitability levels in the Entertainment segment drove the earnings beat. Industry POS decreased by 3.1 per cent globally, not surprising given the macroeconomic environment. Spin Master’s global POS lagged the industry in Q1/23 and declined by 4.8 per cent, which management attributes to the timing of toy launches. Nonetheless, POS significantly outperformed shipments, suggesting healthier inventory levels at retail, which could result in strong shipments in H2/23.”
Touting its “solid” growth prospects and “strong balance sheet optionality,” Mr. Landry raised his target for the toymaker’s shares to $50 from $49 with a “buy” rating. The average is $49.11.
“Spin Master continues to have the strongest balance sheet within the Canadian consumer sector with a net cash balance of $569 million and available liquidity of over $1 billion,” he said. “The company also generates healthy free cash flow, creating significant optionality for management to act on M&A or return capital to shareholders through its NCIB or a dividend reinvestment program, which will be introduced in Q2/23. In our view, the strength of Spin Master’s balance sheet is not fully captured in its valuation currently.”
Elsewhere, CIBC’s John Zamparo upgraded Spin Master to “outperformer” from “neutral” with a $47 target, up from $42.
“TOY is up 9 per cent since peers reported last week, but we believe the stock has been de-risked and that material upside exists from here,” said Mr. Zamparo. “Another tough year-over-year comparison awaits in Q2, but we believe industry conditions (related to retailers’ inventories) are improving, TOY has a content-rich calendar of properties launching later this year, and further M&A seems inevitable. The primary risk, in our view, is a further downturn in consumer spending, but guidance and consensus seem achievable, and valuation at less than 6 times EBITDA is attractive. We also see appealing downside protection with approximately $7 per share in net cash. Increasing our target multiple to 6.5 times, and now looking to the average of 2023 and 2024, we arrive at our new price target.”
Raymond James analyst Brian MacArthur thinks Lithium Royalty Corp. (LIRC-T) provides investors “a good way to get lower-risk exposure to lithium and indirectly the electrification and decarbonization of the global economy.”
Pointing to “its high-margin business model, its diversification, near-term growth profile, longer-term optionality, favourable mine life, jurisdictional risk, and strong balance sheet,” he initiated coverage of the Toronto-based company, which began trading on the TSX following the completion of its initial public offering on March 15, with an “outperform” recommendation.
“We believe royalty companies like LIRC offer equity investors diversified exposure to commodity prices while mitigating downside risk given limited exposure to operating and capital costs,” said Mr. MacArthur. “At the same time, upside optionality exists through exploration and asset expansion potential. The large projected growth in lithium demand to supply EVs is likely to require substantial new lithium supply and numerous lithium companies exist with potential projects; however, we question how many projects will be developed on the timeline and capital budgets that are currently being projected. The royalty model also provides diversification from these development risks. LIRC’s royalty portfolio is focused on lithium assets with lower jurisdictional risk, higher grade (and therefore lower costs), longer duration, and backed by some strong operators. Post the IPO, LIRC has a strong balance with no debt, but we note it does not currently pay a dividend.”
He set a target of $19.50 per share. The current average is $21.44.
In other analyst actions:
* CIBC’s Jamie Kubik initiated coverage of Hammerhead Energy Inc. (HHRS-T) with an “outperformer” rating and $17 target.
“Hammerhead Energy is a Montney oil pure-play growth story, offering inventory depth, a 45-per-cent liquids weighting (Montney peers at 30 per cent), and a net zero strategy,” said Mr. Kubik. “We find the business intriguing and the stock is attractively priced on strip (2023E EV/DACF: 2.8 times vs. Montney gas peers at 4.5 times). We expect the valuation discount to peers could remain given Hammerhead’s limited public float size and reduced free cash flow yield (2023E: down 1 per cent vs. Montney gas peers 5 per cent) as the company is outspending cash flow this year in order to increase its infrastructure capacity. The free cash flow profile screens as being more competitive in 2024 as infrastructure capital winds down and Hammerhead’s increased productive capacity should set up the business for an unimpeded growth runway to grow production volumes over the next three years. We expect share liquidity could improve with future issuances or as existing holders sell shares once lock-up terms are achieved.”
* CIBC’s Scott Fletcher reduced his Altus Group Ltd. (AIF-T) target to $58 from $62 with a “neutral” rating. Other changes include: BMO’s Stephen MacLeod to $66 from $73 with an “outperform” rating, Eight Capital’s Christian Sgro to $65 from $70 with a “buy” rating and National Bank’s Richard Tse to $65 from $75 with an “outperform” rating. The average is $66.78.
* National Bank’s Endri Leno cut his Andlauer Healthcare Group Inc. (AND-T) target to $58.75 from $60 with an “outperform” rating. Other changes include: CIBC’s Kevin Chiang $50 from $54 with a “neutral” rating and RBC’s Walter Spracklin to $51 from $53 with a “sector perform” rating. The average is $56.68.
“AND has traded at a significant premium relative to peers due to: 1) attractive end-markets; 2) stable (and until now growing) margin; 3) clean balance sheet; 4) M&A upside; and 5) strong mgmt ownership. As a result, our thesis has been that these factors would persist, the valuation premium is justified ... but at recent valuation levels, the shares fully valued,” said Mr. Spracklin. “The Q1 results however suggested that 2022 margins were buoyed by rate premiums in US TL which have ‘diminished.’ This rare miss and lowered expectations are being reflected in the share price performance today.”
* CIBC’s Krista Friesen moved her Badger Infrastructure Solutions Ltd. (BDGI-T) target to $33 from $36 with a “neutral” rating, while Scotia’s Michael Doumet raised his target to $33.50 from $32.50 with a “sector perform” rating. The average is $36.22.
“While revenues were in-line with RBC estimates (below consensus), Adj. EBITDA missed RBCe and consensus estimates by more than 10 per cent,” he said. “As such, we believe BHC shares strongly underperformed related to BLCO distribution concerns (in a timely manner or at all) given the Q1 EBITDA weakness, ability to achieve the 2023 EBITDA guidance range and implications for generating the adj cash flow guide of $625-million($70-million in Q1). We note management reiterated that it believes separation of B+L makes strategic sense, although refrained from giving a timeline. We continue to believe the upcoming Xifaxan ‘skinny label’ court decision is of significant importance.
* TD Securities’ Vince Valentini raised his target for BCE Inc. (BCE-T) to $65 from $64 with a “hold” rating. Other changes include: BMO’s Tim Casey to $67 from $64 with an “outperform” rating, Desjardins Securities’ Jerome Dubreuil to $65 from $66 with a “hold” rating and Canaccord Genuity’s Aravinda Galappatthige $63 from $61 with a “hold” rating. The average is $65.87.
“BCE now has a slightly more complicated path to reaching its annual guidance, but we nonetheless expect the company to meet its initial objectives,” said Mr. Duberuil. “Telcos generate the bulk of their growth in 2H, working capital (a significant drag in the quarter) tends to revert to the mean and the company is now lapping several year-over-year cost headwinds.”
* National Bank’s Travis Wood trimmed his Canadian Natural Resources Ltd. (CNQ-T) target to $105 from $110, above the $91.50 average, with an “outperform” rating, while Stifel’s Michael Dunn raised his target to $97 from $95 with a “buy” rating.
* CIBC’s Hamir Patel cut his target for Canfor Corp. (CFP-T) to $27 from $28 with an “outperformer” rating, while RBC’s Paul Quinn reduced his target to $27 from $30 with an “outperform” rating. The average is $29.50.
“Tough decisions taken over the past few quarters have helped align the company with the reality of operating in fiber-challenged BC for the longer term, although sliding pulp prices and slow housing starts pose near-term challenges,” said Mr. Quinn. “However, we like Canfor’s valuation and geographic diversification, and think it has the liquidity to pursue potentially meaningful strategic opportunities should the downturn bring attractive assets to the market.”
* Scotia’s Phil Hardie lowered his IGM Financial Inc. (IGM-T) target to $47 from $49 with a “sector perform” rating. Other changes include: Canaccord Genuity’s Scott Chan to $45 from $48 with a “buy” rating and BMO’s Stephen MacLeod to $44 from $46 with a “market perform” rating. The average is $46.25.
“We think the highlights for IGM over the first few months of 2023 have been (1) its continued evolution and (2) the relative resilience of its flows against a challenging backdrop,” said Mr. Hardie. “Its recent evolution included an investment stake that provides it with a gateway into the coveted U.S. high-net-worth market, double the size of its position in a leading Chinese asset manager and the announced sale of IPC that enables it to strengthen its focus on IG Wealth in Canada and redeploy capital into higher growth opportunities.
“The near-term environment remains challenging, but we believe the combination of its strategic progress and continued relative operational momentum positions IGM for growth once market conditions improve and sow the seeds for long-term expansion and shareholder value creation. Reflecting a tough environment for retail flows, we have made downward revisions to our near-term AUM outlook and earnings forecasts.”
* RBC’s Sabahat Khan bumped his Jamieson Wellness Inc. (JWEL-T) target to $42 from $41, remaining below the $43.60 average, with an “outperform” rating, while Scotia’s George Doumet raised his target to $39 from $38.50 with a “sector perform” rating.
“JWEL’s Q1 results came in ahead of our (and company) guidance driven by a stronger than expected performance at Youtheory and to a lesser extent China and SP,” said Mr. Doumet. “The company maintained 2023 guidance (with the biggest swing factor being 2H performance at Jamie Canada). Youtheory is expected to continue to ramp up (new products are shipping in Q2) and should hit its $155-million revenue run-rate in Q4. China remains on track to deliver 25-30-per-cent growth in revenues and Canada has not experienced any material trade-down or increased promotional activity. While all signs point in the right direction, we see the current risk/reward picture as balanced.”
* CIBC’s Dean Wilkinson increased his Killam Apartment REIT (KMP.UN-T) target to $22 from $21.50 with an “outperformer” rating. Others making changes include: Desjardins Securities’ Kyle Stanley to $22 from $21.50 with a “buy” rating and RBC’s Jimmy Shan to $23 from $22 with an “outperform” rating. The average is $21.29.
* ATB Capital Markets’ Martin Toner raised his Kinaxis Inc. (KXS-T) target to $220, matching the average, from $210 with an “outperform” rating, while BMO’s Thanos Moschopoulos bumped his target to $205 from $200 with an “outperform” rating.
“Results were in line on total revenue, a modest beat on SaaS revenue and a hair light on EBITDA, while management raised FY2023 revenue guidance by 1 per cent and EBITDA guidance by 8 per cent,” said Mr. Moschopoulos. “We believe the stock’s valuation remains attractive relative to enterprise SaaS peers given KXS’s growth rate, competitive position, and consistent execution. Further, the results support our view that KXS’s end market will prove to be more macro-resilient than other pockets of enterprise software.”
* RBC’s Sam Crittenden raised his Lundin Mining Corp. (LUN-T) target to $12 from $11 with a “sector perform” rating. The average is $10.89.
* BMO’s Peter Sklar trimmed his Martinrea International Inc. (MRE-T) target to $17 from $18 with an “outperform” rating. The average is $18.88.
“Martinrea reported Q1/23 adjusted EPS of $0.54, below BMO Research/Mean estimate of $0.62/$0.59,” he said. “The underperformance versus our expectations was largely due to disappointing European segment results, which recorded moderate commercial settlements compared to Q4/22 and experienced production volatilities during the quarter. The North American segment delivered positive results on the back of improving volumes, ramp of new programs, and favorable commercial settlements.”
* CIBC’s Stephanie Price raised her target for Open Text Corp. (OTEX-Q, OTEX-T) to US$41 from US$40 with a “neutral” rating. Other changes include: TD’s Daniel Chan to US$52 from US$50 with a “buy” rating, BMO’s Thanos Moschopoulos to US$43 from US$39 with an “outperform” rating, Raymond James’ Steven Li to US$50 from US$42 with an “outperform” rating, Citi’s Steven Enders to US$41 from US$40 with a “neutral” rating. and Barclays’ Raimo Lenschow to US$43 from US$41 with an “equalweight” rating. The average is US$45.70.
* IA Capital Markets’ Matthew Weekes raised his Parkland Corp. (PKI-T) target by $1 to $42 with a “buy” rating. The average target is $39.62.
* Mr. Weekes also increased his Pembina Pipeline Corp. (PPL-T) target to $50 from $49, keeping a “buy” rating. The average is $52
* IA Capital Markets’ Gaurav Mathur lowered his Slate Grocery REIT (SGR.UN-T) target to US$13, below the US$11.71 average, from US$14 with a “buy” rating.
* Scotia’s Orest Wowkodaw cut his Taseko Mines Ltd. (TKO-T) to $2.50 from $2.75 with a “sector perform” rating. The average is $3.
* Canaccord Genuity’s Aravinda Galappatthige cut his Telus Corp. (T-T) target to $32, above the $31.43 average, from $33 with a “buy” rating. Other changes include: TD’s Vince Valentini to $32 from $31 with a “buy” rating, Desjardins Securities’ Jerome Dubreuil to $31 from $32 with a “buy” rating and Scotia’s Maher Yaghi to $31 from $30.50 with a “sector outperform” rating.
“T reported decent results as strength in the telecom segment offset pressure in DLCX,” said Mr. Dubreuil. “As the market turns its attention to competitive dynamics, investors are hopeful that the industry’s relatively high leverage could help keep competitive dynamics in check. We maintain our Buy rating on T given its attractive asset mix, but we highlight competitive headwinds in telecom and a more uncertain demand environment for DLCX.”
* JP Morgan’s Sebastiano Petti cut his Telus International Inc. (TIXT-N, TIXT-T) target to US$21 from US$25 with a “neutral” rating. Others making changes include: BMO’s Tim Casey to $33 from $32 with an “outperform” rating, Scotia’s Divya Goyal to US$24 from US$26 with a “sector perform” rating, Credit Suisse’s Kevin McVeigh to US$22 from US$25 with a “neutral” rating and Citi’s Ryan Potter to US$24 from US$26 with a “buy” rating and RBC’s Daniel Perlin to US$24 from US$29 with an “outperform” rating. The average is US$26.58.
“TELUS International reported a slight top-line miss, tax-aided EPS beat, and left its 2023 outlook unchanged,” said Mr. Potter. “Growth headwinds in the quarter came from largely-as-expected areas including continued softness in Europe (driven by reduced volumes from its large social media client and fintech vertical, also some increased offshoring impact) and an elongated decision-making process. Despite the unchanged outlook, we view the lower-end of the full-year range as more appropriate until we get proof points on a 2H23 growth acceleration (would come from stabilization of current headwinds as well as achievement of WillowTree cross-sell and up-sell synergy opportunities). We view the expansion into Africa as a good client scaling opportunity and see continued growth opportunities at its largest client as well as secular growth tailwinds from content moderation, AI, and digital transformation services. We continue to like the faster-than-peers growth expected in 2023 and view the current valuation as attractive.”
* Following the termination of its First Horizon merger, Desjardins Securities’ Doug Young trimmed his Toronto-Dominion Bank (TD-T) target to $104 from $106 with a “buy” rating. Other changes include: RBC’s Darko Mihelic to $95 from $110 with an “outperform” rating and BMO’s Sohrab Movahedi to $85 from $91 with a “market perform” rating. The average is $96.81.
“FHN was an accretive deal and was strategically important to TD’s U.S. strategy,” said Mr. Mihelic. “Apart from lower earnings expectations, other questions and concerns will remain for TD shareholders. We may never know the precise reasons for the regulatory resistance, but it must more serious than we had assumed, and we therefore believe TD’s future ability to close U.S. deals may be in doubt and TD’s credibility as an acquirer has been dealt a blow. We lower our 2024 EPS estimate and our target P/E multiple falls a half turn.”
* Desjardins Securities’ Frederic Tremblay raised his 5N Plus Inc. (VNP-T) target to $4.50 from $4 with a “buy” rating, while National Bank’s Rupert Merer bumped his target to $4.25 from $4 with an “outperform” rating. The average is $4.15.