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A look at North American equities heading in both directions

On the rise

Shares of Air Canada (AC-T) jumped 11.6 per cent after it raised its full-year forecast for core profit, citing a stronger-than-anticipated demand environment and lower-than-expected fuel costs.

The move comes as easing restrictions spurred leisure and international travel demand, helping carriers to mitigate cost pressures even as rising inflation is making leisure activities more expensive.

Reaction from the Street: Friday's analyst upgrades and downgrades

Canada’s largest carrier said it now expects 2023 adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) at about $3.5-$4.0-billion, up from prior outlook of about $2.5-$3.0-billion.

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

The carrier said it expects its 2023 capacity to increase by about 23 per cent from a year earlier to hit 90 per cent of pre-pandemic levels, but down from 24-per-cent forecast earlier.

Enbridge Inc. (ENB-T) was higher by 0.5 per cent in the wake of reporting a rise in first-quarter adjusted profit on higher delivery volumes of oil and gas amid sustained fuel demand.

The company, which moves about 30 per cent of the crude oil produced in North America and nearly a fifth of the natural gas consumed in the U.S., said earnings from its gas transmission and midstream business jumped about 19 per cent in the quarter.

While global oil prices have declined considerably from peaks hit last year after Russia launched a full-scale invasion of Ukraine, prices are still high enough for companies to produce profitably, boosting demand for pipelines.

Enbridge’s Mainline system, which ships the bulk of Canadian crude to the United States, transported 3.1 million barrels per day (bpd) in the first quarter, compared with 3.0 million bpd a year earlier.

Credit Suisse analyst Andrew Kuske was positive on the results. He said the earnings were largely driven by the core pipeline business and highlight ENB’s ability to expand its business in an attractive and de-risked fashion.

However, the company saw a decline in net income in the quarter mainly due to a $638 million hedging loss. Oil companies use hedging to guard against sudden price downturns.

First-quarter results were in line with expectations, despite extreme volatility in financial and commodity markets, partly benefiting from high utilization across our systems and record volumes on the Mainline, CEO Greg Ebel said.

On an adjusted basis, Enbridge reported a profit of $1.73-billion, or 85 cents per share, for the three months ended March 31, compared with $1.71-billion, or 84 cents per share, last year.

This was at par with analysts’ average expectation, according to Refinitiv data.

Magna International Inc. (MG-T) soared 6.3 per cent after it slightly raised its full-year sales forecast as the Aurora, Ont.-based auto parts maker expects light vehicle production to improve in its two biggest markets of North America and Europe.

The global auto industry is recovering from chip shortages and elevated prices for raw materials, freight and labor that had shackled efforts to meet customer demand.

Automakers are also revving up production to meet a strong order backlog and get enough vehicles to dealers on time

Magna’s customer General Motors recently lifted its full-year profit and cash flow forecasts as demand remained strong in spite of a dour economic outlook.

Revenue for the year is now expected to be between US$40.2-billion and US$41.8-billion, Magna said, up from its previous forecast of US$39.6-billion to US$41.2-billion.

On an adjusted basis, the company reported earnings per share of US$1.11 for the first quarter, beating analysts’ average estimate of 83 US cents .

Sales of US$10.67-billion for the three months ended March 31 also topped expectations of US$9.86-billion, according to Refinitiv data.

In a research note, Citi analyst Itay Michaeli said: “The guidance raise reflects stronger Q1 performance, higher NA/Europe production estimates and new restructuring efforts. New margin guide implies that Magna will operate back above 5 per cent for the rest of the year. We had previewed the name more favorably in part because of low Q1 margin expectations and favorable regional mix, with execution being the key. Initial impression is that results do evidence better execution, and stand out as one of the better outcomes across auto suppliers this reporting season. We expect a favorable share price reaction.”

With the release of a first-quarter earnings beat and raise to its 2023 guidance before the bell, shares of TransAlta Corp. (TA-T) rose 2.3 per cent on Friday.

The Calgary-based company reported adjusted EBITDA of $503-million, up 94 per cent year-over-year and a 38-per-cent beat on the Street’s forecast of $365-million as the performance of its portfolio in Alberta (both gas and hydro) blew past expectations on strong production and higher production.

It also raised the mid-point of its full-year EBITDA guidance by 19 per cent to a range of $1.45-billion to $1.55-billion, up from $1.2-billion to $1.32-billion previously and also well ahead of the consensus estimate of $1.37-billion.

Subsidiary TransAlta Renewables Inc. (RNW-T) was narrowly lower following its quarterly release.

Waterloo, Ont.-based Open Text Corp. (OTEX-T) increased 12.1 per cent following the release of better-than-anticipated third-quarter results after the bell on Thursday, featuring strong organic growth and a higher contribution from Micro Focus.

Revenue rose 41 per cent year-over-year to US$1.25-billion, exceeding the Street’s expectation of US$1.18-billion. Adjusted earnings per diluted share were 73 US cents, also well above the consensus estimate of 47 US cents.

“OpenText reported a strong Q3 beat as both organic growth and the contribution from Micro Focus exceeded expectations,” said RBC Dominion Securities analyst Paul Treiber. “OpenText’s revised FY23 targets appear achievable and upside in OpenText’s typically seasonally strong Q4 is possible. The solid start with Micro Focus is likely to sustain the valuation multiple re-rating in OpenText’s shares.”

Apple Inc.’s (AAPL-Q) results beat expectations on Thursday, showing off the tech giant’s resilience in a slowing global economy thanks to better-than-expected iPhone sales and notable inroads in India and other newer markets.

Shares of the largest U.S. company by market value rose 4.6 per cent after Apple exceeded Wall Street’s expectations for revenue and profit for the April 1 quarter. The company’s results contrast with disappointing figures out of big chipmakers due to a slower-than-expected rebound in China’s economic growth.

Apple executives on Thursday said gross profit margins for the current quarter would be better than forecast despite an expected dip in revenue as supply-chain issues have improved.

Apple said sales for its fiscal second quarter ended April 1 fell 2.5 per cent to US$94.8-billion, ahead of expectations for a 4.4-per-cent decline, according to Refinitiv data. Profit was flat at US$1.52 per share, compared with estimates of US$1.43 per share.

IPhone sales were up 1.5 per cent to US$51.3-billion, besting expectations for a 3.3-per-cent drop even as consumers and businesses tightened up spending due to rising inflation. Global smartphone shipments fell 13 per cent during the first three months of 2023, according to research firm Canalys, which said Apple gained market share against Android rivals.

Chief Financial Officer Luca Maestri said Apple’s gross margin will be between 44 per cent and 44.5 per cent, above estimates of 43.7 per cent, according to Refinitiv data. But he also said Apple’s revenue will likely decline slightly. Analysts were expecting a 2.1-per-cent increase to US$84.7-billion for the company’s June-ending fiscal third quarter.

Apple’s stock has outperformed most of Wall Street in 2023, up 28 per cent year-to-date. Investors see the company as a defensive play during a time of economic uncertainty.

Apple raised its dividend to 24 US cents a share, up from 23 US cents a share a year ago. The board authorized a US$90-billion share repurchase program, same as a year ago.

DoorDash Inc. (DASH-N) raised its annual core profit forecast after beating quarterly revenue expectations on Thursday, benefiting from an increase in orders for food, groceries and convenience products despite stubbornly high inflation.

The food delivery company’s shares reversed course in late Friday trading and closed up 0.1 per cent.

DoorDash and its competitors such as UberEats have gained from a pandemic-driven trend of consumers ordering from the comfort of their homes that has continued to thrive as the companies offer deals and free deliveries with membership passes.

DoorDash now projects annual adjusted EBITDA, a measure of profitability, between US$600-million and US$900-million, compared to its previous outlook range of US$500-million to US$800-million.

As part of its cost-saving initiatives, the firm in November decided to cut about 1,250 jobs, or 6 per cent of its total workforce.

“Consumer engagement and spending on the platform continues to be very strong,” said finance chief Ravi Inukonda, adding “(customer) retention this past quarter is higher than the prior quarter.”

In the first quarter, total orders surged 27 per cent to US$512-million from the prior year.

“We believe (total order volumes in Q1 2023) reflects continued market share gains by DoorDash across categories,” Northcoast Research analyst Jim Sanderson said.

DoorDash now expects gross order value, a key industry metric which is a total value of all app orders and subscription fees, to be between US$63-billion and US$64.5-billion for 2023, compared to previous forecast of US$60-billion to US$63-billion.

On Tuesday, Uber Technologies said it expected “strong growth” in its food delivery unit over the next few quarters.

DoorDash’s revenue rose 40 per cent to US$2.04-billion in the quarter ended March 31, compared to analysts’ estimate of about US$1.93-billion.

Net loss attributable to DoorDash narrowed to US$161-million, or 41 US cents per share, from US$167-million, or 48 US cents, a year earlier.

On the decline

Hydro One Ltd. (H-T) declined 0.9 per cent after it reported its first-quarter profit fell compared with a year ago due higher operation, maintenance and administrative costs, offset in part by higher revenues.

The power utility says it earned $282-million or 47 cents per diluted share for the quarter ended March 31.

The result compared with a profit of $310-million or 52 cents per diluted share a year earlier.

Revenue totalled $2.07-billion, up from nearly $2.05-billion in the first three months of 2022.

Revenue less the cost of purchased power was $1.06-billion, up from $1.03-billion a year earlier.

Hydro One is Ontario’s largest electricity transmission and distribution provider.

Altus Group Ltd. (AIF-T) dropped 14.8 per cent with the release of weaker-than-anticipated first-quarter results as new bookings for both its Analytics business fell by almost 24 per cent.

Late Thursday, the Toronto-based real estate software and analytics provider reported adjusted EBITDA of $26.5-million, up 49.5 per cent year-over-year but below the Street’s estimate of $29.6-million due, in part, to higher corporate expenses. Adjusted earnings per share of 33 cents missed the consensus forecast by 6 cents.

“Q1 reflected another period of strong Analytics growth (adj. EBITDA up 80 per cent); however, we expect the stock to be soft on lower new bookings, as some customers paused decision-making following the banking crisis that unfolded in Q1,” said BMO analyst Stephen MacLeod in a note. “While a near-term headwind, we do not think this detracts from the underlying value Altus provides—providing transparency and CRE portfolio intelligence, with market volatility driving demand for Altus Analytics offerings. Reiterated F2023E Analytics outlook for DD revenue growth and EBITDA margin expansion, Tax cycle reset.”

Lyft Inc. (LYFT-Q) shares tumbled 19.3 per cent on Friday as the ride-hailing company’s strategy to claw back market share from rival Uber (UBER-N) with lower fares stoked concerns about a hit to its profit margins.

At least nine analysts slashed their price targets on a stock that has widely underperformed the market this year.

The company’s market capitalization was set to decline by nearly US$700-million to about US$3.3-billion, a far cry from the over $24 billion valuation it commanded in its 2019 stock market listing. Uber has a valuation of more than US$75-billion.

Lyft gave a disappointing adjusted core earnings forecast for the second quarter on Thursday as efforts to add more riders with price cuts take a toll on profitability, underscoring the hurdles new CEO David Risher’s faces in turning around Lyft.

“Given how dynamic pricing is, Lyft’s report highlights how little it controls the destiny of its own profit and loss statement in the event Uber wanted to cause more damage,” said RBC Capital Markets analyst said Brad Erickson.

Uber CEO Dara Khosrowshahi this week indicated the company would not start a price war with Lyft, saying that “the days of paying for share and essentially using shareholder money to buy share temporarily .. are over.”

That has allowed Lyft, which has aggressively matched prices since the beginning of the year, increase its U.S. market share to about 30 per cent from the mid-to-high 20 per cent at the start of 2023.

The company plans to offset the lower prices with annual cost savings of about US$330-million from moves such as its April decision to lay off over 1,000 employees, or 26 per cent of its staff.

But Wall Street remains skeptical on whether the gains can be maintained.

“It is still very unclear as to whether any recovery can be maintained given significant advantages of Uber,” Atlantic Equities analysts said.

The 72-per-cent quarterly surge in Uber’s ride-share business had outperformed Lyft’s 14-per-cent growth, showing the advantages of its presence in key international markets. Uber also has a sprawling food-delivery operation that helps support its business.

“This looks like an Everest-like uphill battle ahead for Lyft in our opinion,” said Dan Ives of Wedbush Securities.

AMC Entertainment Holdings Inc. (AMC-N) beat Wall Street estimates for first-quarter revenue on Friday, as a string of hit films including the latest installment of Marvel’s Ant-Man drove more moviegoers to theaters.

Shares of the Leawood, Kansas-based company, which operates over 900 theaters globally, gave back early gains and slipped 0.5 per cent. The stock, which is a favourite of retail investors, has risen more than 45 per cent so far this year.

The company in its earnings report also signaled a boost to its current quarter from the release of the much-awaited The Super Mario Bros. Movie and said it expected The Little Mermaid, Guardians of the Galaxy Vol. 3 and Spider-Man: Across the Spider-Verse to be a box-office driver for the remainder of the year.

“The first quarter North American box office easily surpassed 2022 by some 29 percent, totaling more than $1.7 billion,” CEO Adam Aron said, adding that the European market showed strong recovery to reach pre-pandemic levels, compared with the United States.

Movie theater operator Cinemark Holdings Inc also posted a 33-per-cent rise in first-quarter revenue earlier in the day, driven by a stronger-than-expected box-office performance.

AMC has been trying different combinations to attract audiences to its theaters, including options where moviegoers can choose different seating options to meet their viewing preferences.

Revenue for the quarter was US$954.4-million, compared with analysts’ expectation of US$948.5-million, according to Refinitiv IBES data.

Net loss attributable to AMC Entertainment Holdings was US$235.5-million, or 17 US cents per share, during the quarter ended March 31 from a loss of US$337.4-million, or 33 US cents per share, a year earlier.

With files from staff and wires

Follow David Leeder on Twitter: @daveleederOpens in a new window

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