A survey of North American equities heading in both directions
On the rise
Shares of Thomson Reuters Corp. (TRI-T) rose 4.3 per cent on Thursday after it reported higher-than-expected quarterly profit, and said it struck deals to license its content to help train large AI language models.
The Toronto-based news and information provider reported a fourth-quarter revenue rise of 3 per cent to US$1.8-billion, largely in line with analyst estimates, according to LSEG data. It reported adjusted fourth-quarter earnings of 98 US cents per share. Wall Street expected 90 UScents per share, according to LSEG data.
“We’re in growth and investment mode. 2024 is an investment year for us,” Steve Hasker, CEO of Thomson Reuters said in an interview on Thursday, highlighting increases in capital expenditure this year. “We see growth opportunities in 2025, 26 and beyond around generative AI, but not exclusively generative AI.”
Mr. Hasker added, “It is not a cost-cutting year.”
The company said it expected to end its US$1-billion share buyback by the end of the second quarter and will increase its annualized dividend by 10%.
Thomson Reuters anticipates 2024 revenue to rise by about 6 per cent, or slightly ahead of estimates of 5.7 per cent, according to LSEG data.
Operating profit fell 11 per cent to US$558-million, factoring in gains from divestitures last year, but rose 12 per cent excluding one-time gains from higher revenue and lower costs.
Revenue at three of the five divisions of Thomson Reuters rose in the quarter with a decline in the legal segment, impacted by the sale of business management software company Elite in 2023.
Canada Nickel Co. (CNC-X) gained 1.5 per cent after saying it is looking to raise $1-billion to build a nickel-processing plant, as it seeks to position itself as an alternative supplier of the metal used in car and electric battery vehicles.
The processing plant in Ontario is expected to begin production in 2027 and process 80,000 tonnes of nickel annually. Nickel production is currently concentrated in Asia, and the company hopes that the new plant will help increase supplies from cleaner sources.
The company is in discussions with the Canadian government, the United States Department of Defense and other partners in the battery manufacturing sector to raise the funding, CEO Mark Selby told Reuters.
The miner, which counts Samsung SDI and Agnico Eagle Mines (AEM-T) as shareholders, is also building a nickel mine in Ontario and hopes to integrate the battery supply chain with the proposed processing plant, according to Selby.
Sun Life Financial Inc. (SLF-T) finished higher in volatile trading after it reported a quarterly core profit that topped analysts’ estimates, boosted by strong demand for personal insurance in its home market and the United States.
Canada’s second-biggest life insurer has benefited from a slew of acquisitions, partnerships and deals to sell through bank’s sales channels, that has helped it add thousands of clients and grow its reach globally.
CEO Kevin Strain in a statement said the results were driven by “exceptional sales for individual protection” and “good momentum” in its group health and protection businesses.
The partnerships, including with Hong Kong’s virtual insurer Bowtie and Canada’s Scotiabank, to distribute alternative investment options comes as it also competes with bigger rival Manulife.
In Canada, it bought virtual care provider Dialogue Health Technologies and made an investment in virtual pharmacy Pillway.
Those moves helped Sun Life record 32-per-cent growth in core profit in its Canadian operations, also driven by higher volume and yields. In the U.S., core profit rose 8 per cent.
Mr. Strain said the company would continue to focus on digital innovation and partnerships.
Earnings from the wealth and asset management unit rose 7 per cent, helped by higher fee-related revenue and investment income.
Overall, underlying profit was $983-million, or $1.68 a share, in the three months ended Dec. 31, compared with $892-million, or $1.52, a year earlier.
Analysts had expected a profit of $1.58 a share, according to LSEG data.
Shares of BlackBerry Ltd. (BB-T) was up 1.4 per cent following the premarket announcement of the resignation of Prem Watsa from its board of directors.
The departure of Mr. Watsa was connect to the company’s repayment at maturity of its $150-million principal amount convertible debentures held by affiliates of Fairfax Financial Holdings Ltd. (FFH-T), of which Mr. Watsa is chairman and CEO.
BlackBerry also announced the appointment of Philip Brace, who was the president and CEO of Sierra Wireless Inc., to its board.
Aurora Cannabis Inc. (ACB-T) rose 5.8 per cent after announcing a deal to buy the 90 per cent stake they don’t already own in medical cannabis company MedReleaf Australia.
The deal valued the Australian medical cannabis distribution company at AUD$50-million or about $44-million Canadian.
Edmonton-based Aurora says it paid A$9.45-million in cash with the balance in common shares issued.
The deal came as the company reported a third-quarter net loss from continuing operations of $25.2 million compared with a net loss of $62.4-million a year earlier.
Aurora says the lower net loss stemmed from a $32.7-million increase in gross profit and a $10.4 million decrease in operating expenses.
Its total net revenue for the period ended Dec. 31 hit $64.4-million compared with $61.1-million a year prior.
Walt Disney (DIS-N) CEO Bob Iger hit back at activist investors on Wednesday with a slew of announcements, including a splashy investment in Fortnite maker Epic Games and plans to launch an ESPN streaming service in 2025.
Mr. Iger revealed the plans after Disney’s board of directors authorized a US$3-billion share repurchase program for the current fiscal year, and declared a dividend of 45 US cents a share, a 50-per-cent increase from the dividend paid in January. Earnings-per-share topped Wall Street forecasts.
Shares of the stock surged 11.4 per cent on Thursday, the day after its earnings report, gaining more than 10 per cent in what would be their best day in more than three years. Analysts at Wolfe Capital said in a research note that Mr. Iger had “adapted to accelerating industry change” since his return in late 2022.
The company has been under pressure from activist investor Nelson Peltz, who is seeking Netflix-like profit for its streaming business, better box-office performance of its movies and more details about its plans to make ESPN a dominant digital platform.
Mr. Peltz is asking shareholders to add himself and former Disney executive Jay Rasulo to the company’s board.
A spokesman for Mr. Peltz’s Trian Fund Management said of Disney’s earnings on Wednesday: “It’s déjà vu all over again. We saw this movie last year and we didn’t like the ending.”
Among the new initiatives, Mr. Iger said Disney would take a US$1.5-billion stake in Epic Games. The companies will work together to create a “huge Disney universe” where consumers can interact with characters and stories from Disney, Pixar, Marvel, Star Wars and Avatar, he said.
Mr. Iger also offered details about the long-anticipated streaming launch of the flagship ESPN sports network, which would be bundled with Disney+ and Hulu, and integrate features such as ESPN Bet, fantasy sports and e-commerce. He said it is likely to launch in August 2025.
For the just-ended quarter, Disney posted earnings of US$1.22 per share, excluding certain items, ahead of analysts’ consensus forecast of 99 US cents per share.
Arm Holdings (ARM-Q) surged 49.1 per cent on Thursday driven by strong forecasts as customers aim to design new chips for artificial intelligence work that could bump up royalties for the British tech firm.
The company, which sells blueprints and other intellectual property for creating computing chips that power most of the world’s mobile phones including Apple (AAPL-Q), has been a key beneficiary of rising demand for AI-powered devices.
The stock surge was set to add roughly US$50-billion to the British chip designer’s market value at US$125.27, taking it past the US$100-billion level. Only 9.5 per cent of Arm’s outstanding shares are publicly traded, making it susceptible to sharp moves.
Arm executives said on Wednesday customers were flocking to Arm-based central processors to complement Nvidia’s (NVDA-Q) chips for AI work in data centers, and it was working on new laptops and smartphones that can handle chatbots and other AI features.
Its model of creating and licensing semiconductor designs rather than manufacturing chips meant Arm was able to grow fast without employing a lot of capital, Russ Mould, investment director at AJ Bell, said.
“These attributes still exist and are now being supercharged by AI ... that is reflected in the substantially higher royalty and licensing revenue being reported by the company,” Mr. Mould added.
The midpoints of Arm’s fourth-quarter sales and adjusted profit forecasts range of US$875-million and 30 US cents per share, respectively, beat LSEG estimates.
“Arm is riding on the coattails of demand for Nvidia’s technology, particularly its datacentre systems,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
SoftBank Group-controlled Arm trades at 56.46 times its 12-month forward earnings estimates, versus investor darling Nvidia’s 32.66 and Advanced Micro Devices’ 43.61.
On the decline
BCE Inc. (BCE-T) was lower by 3.8 per cent after revealing it is reducing its workforce by 9 per cent, or 4,800 positions, its largest restructuring initiative in nearly 30 years amid what it describes as a difficult economic and regulatory environment.
The Montreal-based telecom announced the job cuts on Thursday as it reported a 23-per-cent drop in its fourth-quarter profit, to $435-million.
The announcement marks the second round of restructuring at the telecom giant in eight months. In June of 2023, BCE announced that it was reducing its headcount by roughly 1,300 positions, primarily in management, as a result of declining legacy phone revenues and losses in its news and radio operations.
In an open letter to employees on Thursday, BCE’s president and CEO Mirko Bibic called the decision “incredibly tough” and said that wherever possible, the telecom would use vacancies and natural attrition to reduce its workforce.
“We continue to face a difficult economy and government and regulatory decisions that undermine investment in our networks, fail to support our media business in a time of crisis and fail to level the playing field with global tech giants,” Mr. Bibic wrote.
“Of particular concern is a recent decision by the CRTC forcing Bell to provide third party resellers access to our high-speed fibre network before we have even had an opportunity to recoup our multi-billion dollar investment.”
Mr. Bibic added that BCE expects to lose over $250-million in legacy phone revenues every year and that advertising revenues at its Bell Media subsidiary declined by $140-million in 2023 compared to the previous year.
“Across Bell Media’s news operations, we continue to incur over $40 million in annual operating losses despite having the most-watched network of local TV stations.”
- Alexandra Posadzki
Short seller Muddy Waters has placed bets against the shares of Fairfax Financial Holdings Ltd. (FFH-T) alleging manipulation in its asset values, sending the shares of the property and casualty insurer down almost 12 per cent.
Fairfax has struggled since 2017 when they recorded huge losses due to billions of dollars in payouts on catastrophes.
“This underperformance pressured Fairfax into becoming aggressive in pulling accounting levers starting in 2018,” Muddy Waters said in a research note.
“We find that Fairfax has consistently manipulated asset values and income by engaging in often value destructive transactions to produce accounting gains,” it said.
Fairfax disagreed with the report, while assuring shareholders that it “has prepared its financial statements and reporting in accordance with all applicable accounting principles.”
Reuters was not immediately able to verify the allegations made in the report. Short sellers make money by betting that the price of a security (such as a stock) will decrease.
Fairfax was founded in 1985 by Canadian-Indian billionaire Prem Watsa, who is also its chairman and CEO. He is also known as ‘Canada’s Warren Buffett’.
“We see Fairfax as far more akin to GE than to Berkshire Hathaway,” the hedge fund said.
It also alleged that Fairfax carried several of its investments at “unrealistic” carrying values. According to the hedge fund, the market value of its shares in Indian outsourcing provider Quess Corp was $477.2 million, while Fairfax continued to carry it at about $1 billion.
Bombardier Inc. (BBD.B-T) forecast 2024 free cash flow, a metric watched closely by investors, that was below analysts’ estimates and its shares tumbled almost 15 per cent.
The Montreal-based planemaker said it expected free cash flow of $100-million to $400-million for the year, falling well short of the $552 million, on average, expected by analysts, according to LSEG data.
The company did forecast stronger 2024 revenue as private jet deliveries rise.
Business jet makers have been boosted in the last two years by a switch to private flying during the pandemic, which allowed companies such as Bombardier to increase prices. But supply chain challenges, labor shortages and softening global economic growth remain headwinds.
The company expects to see margin expansion in 2024 and 2025, and predicted revenue this year of $8.4-billion to $8.6-billion, above analysts’ expectations of $8.27-billion, according to LSEG data.
But the free cash guidance for 2024 “could result in skepticism” on a stronger free cash flow target of above $900-million for next year, Desjardins analyst Benoit Poirier wrote in a note to clients.
Bombardier CEO Eric Martel said that while the supply chain has improved, the company had to slow some production to allow suppliers to get back on track.
“Some of the significant suppliers, I would say, are still in a catch-up mode, but we have less issues,” Martel said.
Bombardier expects to deliver between 150 and 155 jets this year, compared with 138 last year.
The company reported a lower fourth-quarter adjusted net income of $135-million, down from $205-million a year earlier, amid lingering supply snags.
On a per share basis, adjusted profit was $1.37, one cent below Wall Street expectations.
Revenue rose 15.3 per cent to $3.06-billion in the quarter through December, beating estimates of $2.88-billion, helped by higher deliveries and record revenue from aftermarket services.
Lightspeed Commerce Inc. (LSPD-T) plummeted over 24 per cent as it continues to exceed its own projections amid what CEO Jean Paul Chauvet has called a year of “execution,” reporting third quarter earnings Thursday that were ahead of expectations and slightly improving its fiscal year outlook.
The Montreal commerce software company said it generated US$239.7-million in revenue during its fiscal third quarter ended Dec. 31, above its previously forecast range of US$232-million and US$237-million and up 27 per cent from the same period a year earlier.
For its second quarter in a row – and second time since going public – Lightspeed also hit a key profitability target: positive earnings before interest, taxes depreciation and amortization and further adjustments for items including share-based compensation and related payroll taxes. The measure, known as “adjusted EBITDA,” is not a recognized accounting standard, but the company has said it will achieve break-even or better results by that measure for the year, and it is a key yardstick for analysts. Lightspeed made US$3.6-million in adjusted EBITDA, above its $2-million prediction. It also slightly improved its revenue forecast for the year to between US$895-million and US$905-million in revenues, up from a previous range of US$890-million to US$905-million.
Lightspeed’s net loss for the quarter was US$40.2-million, or 26 US cents a share. It lost US$S841.8-million in the same quarter a year ago, largely due to a goodwill impairment charge as it wrote down the value of companies it had purchased during an earlier acquisition spree.
After digesting the quarter’s numbers analysts will be looking ahead to the next fiscal year. Lightspeed, which went public in 2019, typically publishes forward guidance with its fourth quarter report, and chief financial officer Asha Bakshani said in a release the company in its next fiscal year “will focus on growing our top line without sacrificing the progress we have made on adjusted EBITDA profitability.”
- Sean Silcoff
Cineplex Inc. (CGX-T) declined 6.8 per cent after reporting a fourth-quarter loss of $9-million compared with a profit of $10.2-million a year earlier as its revenue edged higher.
The movie theatre company says the loss amounted to 14 cents per diluted share for the quarter ended Dec. 31 compared with a profit of 16 cents per diluted share a year earlier.
Revenue for the quarter totalled $315.1-million, up from $309.9-million in the last three months of 2022.
The increase in revenue came as theatre attendance rose to 9.6 million patrons compared with 9.2 million a year earlier.
Box office revenue per patron was $12.90, down from $13.06 a year earlier, while concession revenue per patron was $9.28, up from $8.93 in the same quarter in 2022.
Cineplex also announced a refinancing plan it says will improve its financial flexibility and reduce the dilutive impact of its convertible debentures.
Cameco Corp. (CCO-T) lost 6.9 per cent after reporting a fourth-quarter profit miss before the bell on Thursday.
Despite seeing year-over-year rise in both revenue and profit, the Saskatoon-based company logged adjusted earnings per share of 21 cents per share, a penny lower than the Street had anticipated.
It also said full-year 2023 uranium production of 17.6 million pounds was slightly lower than expected.
Looking ahead, Cameco said it expects a “strong financial performance” in 2024 as it begins to realize the benefits from its stake in nuclear company Westinghouse Electric Co.
“Our 2023 financial performance benefitted from higher sales volumes and realized prices in our uranium and fuel services segments,” said president and CEO Tim Gitzel in a release. “Our net earnings, adjusted net earnings, and cash from operations all more than doubled compared to 2022, with adjusted EBITDA up 93 per cent. ... We plan to continue to transition to our tier-one cost structure and make the capital and other expenditures we believe are necessary to position the company for continued sustainable growth. Growth that will be sought in the same manner as we approach all aspects of our business; strategic, deliberate, disciplined, and with a focus on generating full-cycle value,” said Tim Gitzel, Cameco’s president and CEO.”
New York Community Bancorp (NYCB-N) faced its third credit-rating cut on Thursday while defaults worries from exposure to the beleaguered U.S. commercial real estate (CRE) took its toll on lenders in Europe and Asia.
Morningstar DBRS on Thursday downgraded NYCB’s credit rating due to “outsized” exposure to CRE, which the embattled lender has pledged to reduce in the coming months. Rating agencies Fitch and Moody’s have already cut their ratings.
The bank’s shares shuffled between gains and losses on Thursday and were recently down around 3 per cent. They have fallen around 60% since last week, when the lender posted a surprise fourth-quarter loss and cut its dividend to deal with tough regulations.
“Liquidity appears sufficient, but given the bank failures last spring, we remain cautious given that the adverse headline risk, including a significant decline in NYCB’s stock price, could eventually spook customer and depositor confidence,” Morningstar DBRS said.
The bank’s management has tried to bolster investor confidence. NYCB’s newly appointed executive chairman Alessandro DiNello on Wednesday said the bank will consider the sale of loans in its CRE portfolio or allow them to run off the balance sheet naturally.
If needed, the lender would also shrink its balance sheet by selling non-core assets to bolster its common equity tier 1 ratio, a key measure of financial strength.
Some analysts have been encouraged by the bank’s recent messaging.
“Announcements on strategic priorities and progress thus far are positive and have helped provide some transparency,” wrote Bernard von-Gizycki of Deutsche Bank, calling the recent updates “a step in the right direction.”
Analysts have for months warned that CRE-tied borrowers are at the risk of defaulting on loans due to high interest rates and low occupancies.
The week-long sell-off in NYCB shares has soured sentiment on banks both in the U.S. and abroad while stirring worries over global contagion from CRE exposure.
Germany’s Deutsche Pfandbriefbank (PBB), whose 15 per cent of total loans is tied to the CRE sector, termed the situation as “the greatest real estate crisis since the financial crisis.” The lender said it has enough funds to cope with a downturn in the real estate segment, even as its shares and bonds fell again.
PayPal Holdings Inc. (PYPL-Q) shares fell 11.2 per cent on Thursday after it forecast a flat adjusted profit for 2024, disappointing investors who had hoped the payments firm’s newly appointed CEO will reignite its growth.
On a post-earnings call, CEO Alex Chriss laid out a strategic plan to turn the company leaner in its pursuit towards profitable growth as well as ease pressure on its shares, which were one of the worst performers on the Nasdaq 100 Index in 2023.
Wall Street analysts said the outlook will weigh on shares in the near term but the new initiatives would likely bear fruit in time and benefit the company.
“It’s clear that 2024 will be more of a transition year than we were expecting, with previously targeted operating leverage coming after 2024. We expect pressure on the stock as estimates come down,” J.P.Morgan wrote in a note.
At current levels, if losses hold, the stock would lose roughly US$6-billion in market value.
It trades at a forward price-to-earnings ratio - a widely-used benchmark for valuing stocks which compares its share price with projected future earnings - of 11.64, compared with rival Block’s 21.08, according to LSEG data.
With files from staff and wires
David Leeder