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A look at North American equities heading in both directions

On the rise

Shares of Fairfax Financial Holdings Ltd. (FFH-T) gained 7.4 per cent following the late Thursday release of better-than-anticipated fourth-quarter financial results.

The Toronto-based company reported earnings per share of $78.33, up from $33.64 a year ago and well ahead of the Street’s forecast of $68.33. Book value per share rose to $657.83 from $630.60 and also topped the consensus analyst estimate of $640.02.

“The company ended the year with a solid fourth quarter likely characterized by robust underwriting profitability and outsized gains that lifted book value per share by 15.4 per cent from last quarter,” said Scotia analyst Phil Hardie. “Based on the significant rise in BVPS, we estimate it closed at just under 1 times P/B based on February 16th closing price.

“Q4/22 EPS came in about 15 per cent ahead of consensus and about 6 per cent ahead of our expectations, benefiting from a combination of stronger-than-forecast underwriting profitability and investment gains. The stronger earnings contributed to the better-than-expected growth in BVPS in the quarter.”

Superior Plus Corp. (SPB-T) jumped 1.3 per cent with the release of its fourth-quarter results and appointment of a new president and CEO after the bell on Thursday.

The Toronto-based company reported adjusted EBITDA of $183-million, exceeding the Street’s expectation of $174-million as its U.S. propane and wholesale propane segments outperformed estimates.

The Board of Directors also announce the appointment of Allan MacDonald as the company’s new president and chief executive officer commencing April 3. Previously, he was executive vice president and chief operations officer of Canadian Tire Corp. Ltd. and most recently CEO of Alpha Auto Group.

“We believe the slightly better-than-expected Q4/22 results, in-line 2023 guidance, and the announcement of a new CEO will have a positive impact on the shares of Superior Plus,” said RBC analyst Nelson Ng.

“We believe the appointment of a seasoned CEO (Allan MacDonald) removes the leadership uncertainty, but investors will assess whether there will be a change in corporate strategy.”

Uni-Select Inc. (UNS-T) was up 3.1 per cent with the early Friday release of better-than-anticipated fourth-quarter results, calling 2022 a “turning point” as it “gradually transitioned to growth, completing strategic acquisitions in Canada and opening select greenfield stores in the U.K.”

The Boucherville, Que.-based distributor of auto parts reported quarterly adjusted EBITDA of US$39-million, topping the Street’s expectation of US$37-million driven by gains in revenue and organic growth at GSF Car Parts . Adjusted fully diluted earnings per share of 32 US cents matched the consensus estimate.

In a research note, Desjardins Securities analyst Benoit Poirier said: “Overall, we are pleased with the impressive FCF generation and performance of the GSF segment (sales up 20.7 per cent year-ove-year excluding the impact of unfavourable fluctuations of the GBP/US$), given UNS had been guiding for the magnitude of improvement to likely be more moderate in 4Q. This keeps us on the lookout for strategic acquisitions as the company’s balance sheet position is solidifying (likely FinishMaster first, based on our deep dive). For a larger deal, management did not provide a leverage target, but we believe approximately US$300-million would be reasonable while keeping the balance sheet healthy.”

“These results further strengthen our bullish stance on UNS.”

TransAlta Corp. (TA-T) increased 0.9 per cent after saying it will acquire a 50-per-cent interest in an early-stage pumped hydro energy storage development project in southwest Alberta.

The Calgary company says Montem Resources Limited currently owns the Tent Mountain Renewable Energy Complex the two companies will jointly manage with TransAlta acting as project developer.

Under the deal, TransAlta will pay Montem about $8-million, when the deal closes, with additional payments of up to $17 million contingent on the achievement of development and commercial milestones.

The deal is subject to closing conditions, including approval from Montem shareholders, but is expected to close next month.

The deal includes land rights, fixed assets and intellectual property associated with the pumped hydro development project.

The project will be developed over the next four years, with construction targeted to start as early as 2026 and operation not expected to start until sometime between 2028 and 2030.

Deere & Co. (DE-N) raised its annual profit forecast on Friday after beating Wall Street quarterly earnings estimates on robust demand for its high-horsepower tractors and an increase in spending from construction customers.

Shares of the world’s largest farm equipment maker were higher by 7.5 per cent.

The industrial bellwether, a barometer for the global economy, has maintained strong profit margins despite recession concerns. Demand from farmers has been strong, after elevated crop commodities last year left producers with income to purchase new equipment or upgrade their fleets.

Executives said last quarter that Deere’s North American order books were full for the year for its large tractors and that the machinery-maker had sold out of combines ahead of planting season.

Deere’s margins have remained high as it has been able to raise prices across its equipment divisions, offsetting rising shipping costs and tight supply chains.

The Moline, Illinois-based company’s equipment sales rose 34 per cent, while its production and precision agriculture division saw the most growth with quarterly sales increasing 55 per cent from the year prior.

Net sales for the machinery-maker’s construction and forestry segment rose 26 per cent year-over-year.

The company’s financial services business has been resilient, however, income for the segment in the latest quarter fell to US$185-million from US$231-million previously.

The company expects net income of US$8.75-billion to US$9.25-billion for the year, higher than US$8-billion to US$8.5-billion estimated previously. Deere’s equipment revenue for the quarter came in at US$11.4-billion, topping Refintiv analysts estimates of US$11.28-billion.

Net income attributable to the company rose to US$1.96-billion, or US$6.55 per share, outpacing analysts’ estimates of US$5.57 earnings per share.

Total net sales and revenue rose to US$12.65-billion from US$9.57-billion for first fiscal quarter ending in January.

Top U.S. auto retailer AutoNation Inc. (AN-N) reported a better-than-expected quarterly profit on Friday as demand for new vehicles, spare parts and services offset a poor performance in the used-vehicle segment.

Shares of the company rose 11.4 per cent in Friday trading.

The automotive industry is starting to show signs of a gradual recovery from a global supply-chain crisis that had curtailed production, enabling dealers such as AutoNation to boost their new-vehicle deliveries to customers.

New vehicle prices are trending down from record-high levels as supply chain bottlenecks ease and inventory rebuilds, AutoNation Chief Executive Mike Manley told Reuters.

Revenue from new vehicles and after-sales rose 8 per cent and 7 per cent, while used-vehicle sales fell 8 per cent.

Still, Mr. Manley does not expect the new-vehicle momentum to last.

“The peak we had post-pandemic was an unsustainable peak,” Manley said. Consumer interest in buying new vehicles is strong, but high prices and high interest rates mean “that interest is not translating through to sales,” he added.

Used-car retailer CarMax Inc. (KMX-N) had also reported an 86-per-cent slump in third-quarter profit in December, along with pausing some hiring, halting certain share buybacks and cutting expenses.

Excluding items, AutoNation earned US$6.37 per share, ahead of analysts’ average estimate of US$5.83 per share, according to Refinitiv IBES data.

Its overall fourth-quarter revenue rose 2 per cent to US$6.7-billion, compared with estimates of US$6.52-billion.

U.S. gambling giant Penn Entertainment Inc. (PENN-Q) finished up 0.6 per cent after announcing it has acquired the remaining stake in Barstool Sports that it doesn’t already own for approximately US$388-million.

Penn and Barstoo first announced an exclusive sports betting and iCasino partnership in early 2020. Penn took a 36-per-cent stake of Barstool Sports in February 2020 for approximately US$163-million, comprised of about US$135-million in cash and US$28-million in non-voting convertible preferred stock.

The initial deal included a path for Penn to gain full ownership of Barstool Sports.

Barstool was founded in 2003 by Dave Portnoy as a free sports and gambling newspaper. It is now a digital platform that covers sports, lifestyle, and entertainment with more than 200 million followers.

“Barstool is a proven, powerful media brand with an authentic voice and vast, loyal audience that provides us with a strong top of funnel for new customer acquisition and organic cross-selling opportunities across our growing interactive division,” Penn Entertainment Inc. CEO Jay Snowden said in a statement on Friday.

In 2021, the company, then known as Penn National Gaming Inc., acquired Toronto-based Score Media and Gaming Inc. for approximately US$2-billion in a cash-and-stock deal.

On the decline

Air Canada (AC-T) underscored the financial toll of the pandemic on Friday, posting a $1.7-billion loss for 2022, almost three years after COVID-19 roiled the aviation sector.

Its shares fell 8.4 per cent after it said it would return to 2019 capacity levels next year on strong travel demand, after reporting a larger-than-expected quarterly loss per share.

North American carriers are adding seats to meet surging travel demand after a pandemic-induced slump, despite global economic uncertainty, while also wrestling with higher labor costs.

“We’re seeing significant inflationary pressures, again, because of labor shortages a little bit around the world,” Air Canada’s Chief Financial Officer Amos Kazzaz told analysts.

Prices for ground handling contracts, labor and catering are rising, he added.

Air Canada’s cost per available seat mile (CASM) is expected to rise about 13 per cent to 15 per cent above 2019 levels this year.

Canada’s largest carrier said it expects its 2023 capacity to increase by about 24 per cent from a year earlier to hit 90 per cent of pre-pandemic levels, after reporting record fourth-quarter revenue.

While corporate demand in North America has stabilized, international business travel is picking up, said Air Canada’s Chief Commercial Officer Lucie Guillemette, who is retiring in the spring.

“What we are seeing is a steady growth on corporate for international markets,” she said.

Air Canada Chief Executive Michael Rousseau said travel demand for leisure and visiting friends and relatives is making up for lower demand by business travelers.

Montreal-based Air Canada’s fourth-quarter operating revenue rose nearly 71 per cent to $4.68-billion. Analysts, on average, were expecting operating revenue of $4.4-billion according to IBES data from Refinitiv.

The carrier’s fourth-quarter adjusted net loss came in at $217-million, or 61 cents per share, compared with an adjusted loss of $577-million, or $1.61 per share, a year earlier.

Analysts were expecting a loss of 21 cents per share.

Agnico Eagle Mines Ltd. (AEM-T) dropped 6.1 per cent in response to a fourth-quarter earnings miss and underwhelming guidance.

After the the bell, the Toronto-based miner reported adjusted earnings per share of 41 cents, matching the cosnensus estimate, however cash flow per share of 84 cents fell short of the Street’s expectation of $1.08.

“AEM posted a weaker than expected operating quarter in 4Q22 with the main variance from our expectations coming from the Amaruq and Kittila mines,” said Raymond James analyst Farooq Hamed. “The weak operating results drove an earnings and operating cash flow miss versus our expectations. Overall, 2022 production results were in-line with guidance while costs missed to the high side.

“AEM provided updated 3-year production guidance which shows slightly increasing production. However, the increases are primarily driven by the soon-to-close consolidation of the Canadian Malartic mine while revisions to expectations across the rest of the portfolio would actually suggest flat to lower production in 2023 and 2024 as compared to 2022 levels.”

First Quantum Minerals Ltd (FM-T) closed down 0.8 per cent after Reuters reported it has warned employees it may have to shutter operations in Panama if the government does not allow its copper exports to resume by next week.

A long-running contract dispute between the Canadian miner and Panama officials centers on disagreements over tax rates and royalties at the Cobre Panama mine.

In the latest twist, Panama’s maritime authority last month ordered First Quantum to suspend copper concentrate loading operations at a major port, essentially blocking the company from shipping and selling its copper.

The Vancouver-based company said the maritime authority had told it that the suspension was due to the scale it was using not being properly calibrated.

Alan Delaney, the mine’s general manager, in a Thursday memo to employees described the suspension as an “unprecedented and totally surprising action,” and said the scale was measuring accurately.

“If concentrate is not shipped by next week, these technical frustrations may force Cobre Panama to enter care and maintenance or suspend operations,” he said.

Panama’s maritime authority did not immediately reply to a request for comment. It has not commented publicly on the reason for the port suspension. Panama’s trade minister, Federico Alfaro, said on Tuesday that both parties had made “significant progress” on negotiations.

First Quantum said it was appealing the maritime authority’s decision.

The company has, meanwhile, stopped recruiting for 595 open positions in the Central American nation, imposed overtime restrictions, and put in place additional leave provisions, according to the memo.

The mine, First Quantum’s largest, produced 351,000 tons of copper last year and executives had forecast 2023 production of 350,000 to 380,000 tons.

Asked about whether the mine would be forced to suspend operations next week, a First Quantum spokesperson referred Reuters to remarks by Chief Executive Officer Tristan Pascall during an earnings call on Wednesday.

“It is the government’s decision. If they say, ‘Okay, you can ship’, we could be shipping extremely quickly, within a matter of hours,” Pascall said on Wednesday, adding that the firm remains committed to reaching an agreement.

DoorDash Inc. (DASH-N) said late Thursday it would buy back US$750-million worth of stock and projected a key profit measure above Wall Street estimates, following strong fourth-quarter growth thanks to a surge in orders for food, groceries, and petcare items.

Shares in the San Francisco-based company plummeted 7.6 per cent on Friday.

DoorDash and its rivals such as UberEats benefited from the pandemic-led trend of people ordering in, a habit that has lingered as these companies offer deals and free deliveries with subscription passes.

DoorDash expects gross order value – the total value of all app orders and subscription fees – to rise to US$60-billion to US$63-billion in 2023, from US$53.4-billion in 2022. It expects adjusted EBITDA, a measure of profitability, between US$500-million and US$800-million, well ahead of analysts’ expectations of US$591.8-million.

The company is gaining market share in the United States, “driven by increasing scale in non-restaurant categories,” said Angelo Zino, senior equity analyst at CFRA Research.

“DASH is seeing sustained elevated orders in its core food delivery business, showing the stickiness of that business and the value consumers place on that service despite more challenging macro trends.”

The top U.S. food delivery company said orders in the fourth quarter surged 27 per cent to 467 million from the prior year.

Revenue in the fourth quarter jumped 40 per cent to US$1.82-billion in the quarter ended Dec. 31, beating estimates of US$1.77-billion, according to Refinitiv.

However, net loss widened to US$642-million, or US$1.65 per share, from US$155-million, or 45 US cents a year earlier, due to costs related to stock-based compensation and staff cuts announced earlier in November.

The company named Ravi Inukonda as its new chief financial officer, effective March 1. Current finance chief Prabir Adarkar will take over as chief operating officer from Christopher Payne, who is retiring.

Manchester United Ltd. (MANU-N) lost ground after hitting a record close in the previous session. The Telegraph reported on Thursday that Saudi Arabia has submitted a bid for the British soccer club ahead of Friday’s deadline.

Multiple private groups in Riyadh have made formal inquiries, the report added.

British billionaire Jim Ratcliffe, a life-long supporter of the club and founder of chemicals firm INEOS, is a likely bidder, along with U.S. private equity firms, sources told Reuters.

Qatari Royals are readying an opening bid of roughly 5 billion pounds (US$6-billion) for the club, according to a report by Bloomberg News on Thursday citing people with knowledge of the matter.

The Bloomberg report said a consortium including Hamad bin Jassim bin Jaber Al Thani, the country’s former prime minister and ex-head of the Qatar Investment Authority, is putting the final touches on a proposal to acquire the club.

The Office of the Qatari Royal and Manchester United did not immediately respond to a Reuters request for comment on the Bloomberg report.

A deal for the record 13-times English Premier League winners will likely exceed the biggest sports deal so far, the US$5.2-billion - including debt and investments - paid for Chelsea, the sources added.

With files from staff and wires

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