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A look at North American equities heading in both directions

On the rise

Shares of Canadian Imperial Bank of Commerce (CM-T) rose 2.1 per cent after it reported higher second-quarter profit that beat analysts’ estimates as a boost in its domestic personal and business banking unit offset higher loan loss provisions and slowdowns in other sectors.

CIBC earned $1.69-billion, or $1.76 per share, in the three months that ended April 30. That compared with $1.52-billion, or $1.62 per share, in the same quarter last year.

Canadian banks bent on international expansion lag those that stay home, Veritas report argues

Adjusted to exclude certain items, the bank said it earned $1.70 per share. That edged out the $1.62 per share analysts expected, according to Refinitiv.

“We continued to execute on our client-focused strategy, delivering solid financial results in the second quarter by leveraging the investments we’ve made in high-touch, high-growth markets and furthering our strengths in talent and technology,” said CIBC chief executive officer Victor G. Dodig. “In a more fluid economic environment we remain well capitalized and our well-diversified business provides resilience

The bank raised its quarterly dividend to $0.87 per share from $0.85 per share.

In the quarter, CIBC set aside $438-million in provisions for credit losses - the funds banks set aside to cover loans that may default. That was higher than analysts anticipated, and included $59-million against loans that are still being repaid, based on models that use economic forecasting to predict future losses. In the same quarter last year, CIBC reserved $303-million in provisions.

Total revenue rose 6 per cent in the quarter, to $5.7-billion as expenses edged slightly higher to $3.14-billion from $3.11-billion in the same period a year earlier.

Profit from Canadian personal and small business banking was $637-million, up 28 per cent from a year earlier, on higher revenue and a lower loan loss provisions, which were partially offset by rising expenses.

In a note released before the bell, Credit Suisse analyst Joo Ho Kim said: “Despite the headline beat against consensus (more in line with us), we believe CIBC delivered a modest set of results in Q2 especially given the small PTPP beat to our estimates. The results included a beat on Canadian P&C NIMs (and a flattish all-bank NIMs), some signs of expense management (down 1 per cent quarter-over-quarter, flat operating leverage, and year-over-year outperforming peers), and a sequential uptick in the CET1 ratio. The key sticking point in the results (and what could potentially limit the upside for the shares today despite the headline beat) was the weaker-than-expected earnings from U.S. Commercial and Wealth business, that was impacted by both rising performing PCLs and impaired PCLs (partly reflecting worsened outlook and impairments in office CRE). Some of that increase was offset by reversal in performing PCLs from the domestic P&C business.”

- Stefanie Marotta

Nvidia Corp. (NVDA-Q) soared on Thursday taking it closer to a market value of US$1-trillion after its stellar revenue forecast showed that Wall Street has yet to price in the game-changing potential of AI.

The surge added to a more than two-fold rise in the stock this year and was set to increase the chip designer’s value by about $196 billion to nearly $951 billion, putting Nvidia on course for the largest single-day value gain for a U.S. firm.

That market capitalization makes Nvidia twice the size of the second-largest chip firm, Taiwan’s TSMC. In the United States, it trails only the trillion-dollar value companies Apple Inc, Alphabet Inc (GOOGL-Q),, Microsoft Corp (MSFT-Q) and Amazon (AMZN-Q).

The rosy earnings also sparked a rally in the chip sector and for AI-focused firms, lifting stock markets from Japan to Europe. In the U.S., Big Tech companies other than Amazon rose.

Analysts rushed to raise their price targets on Nvidia stock, with 27 lifting their view on the idea that all roads in AI lead to the company as it dominates the market for chips used to power ChatGPT and many similar services.

The mean price target has more than doubled this year. At the highest view, a US$644.80 price target from Elazar Advisors, Nvidia will have a value of US$1.59-trillion, around that of Alphabet.

“In the 15+ years we have been doing this job, we have never seen a guide like the one Nvidia just put up with the second-quarter outlook that was by all accounts cosmological, and which annihilated expectations,” Stacy Rasgon of Bernstein said.

Nvidia, the fifth-most valuable U.S. company, on Wednesday projected quarterly revenue more than 50 per cent above the average Wall Street estimate and said it would have more supply of AI chips in the second half to meet a surge in demand.

CEO Jensen Huang said US$1-trillion worth of current equipment in data centers would have to be replaced with AI chips, as generative AI is applied into every product and service.

The results bode well for Big Tech companies, which have shifted focus to AI on hopes the technology would help attract demand at a time their profit engines of digital advertising and cloud computing are under pressure from a weak economy.

Best Buy Co Inc. (BBY-N) posted a smaller-than-expected drop in comparable sales and said inflation-induced weakness in electronics should bottom out by the end of the year, sending shares of the top U.S. electronics retailer up 3.1 per cent.

The company, which beat its first-quarter profit estimates, also maintained its full-year profit and revenue forecasts, joining retailers Home Depot (HD-N) and Target Corp. (TGT-N), as inflation-hit Americans cut spending on non-essential goods.

“Expectations into the (Best Buy) print were low ... and the reiterating of the full-year guide should be considered as not as bad as feared,” Evercore analysts said in a note.

Steep discounts have helped retailers of discretionary items lure in budget-conscious customers looking for cheaper deals on TVs and laptops among other big-ticket items.

Best Buy’s adjusted net earnings stood at US$1.15 per share in the quarter ended April, above the average analyst estimate of US$1.11 per share, according to IBES data from Refinitiv.

Discounts helped Best Buy arrest the decline in its first-quarter comparable sales to 10.1 per cent, compared with analysts’ average estimate of a 10.3-per-cent fall.

It expects a smaller decline in second-quarter comparable sales in the range of 6 per cent to 8 per cent compared to the prior quarter.

“Customers are clearly feeling cautious and making tradeoff decisions as they continue to deal with high inflation,” said Chief Executive Officer Corie Barry.

Shares of the company fell nearly 14 per cent so far this year amid a volatile macro and consumer industry backdrop.

“We expect the macro environment to continue to pressure demand in our industry this year. However, our guide for the year implies that we expect year-over-year comparable sales performance to improve as we move through the year,” CFO Matthew Bilunas said on a post-earnings

Ralph Lauren Corp. (RL-N) reported a surprise rise in fourth-quarter revenue and easily beat profit estimates on Thursday, as its new seasonal collections and Polo bags resonated with affluent shoppers when luxury spending has cooled in U.S.

The company also benefited from a strong recovery in demand in China after the easing of COVID-19 restrictions, with sales in the country jumping more than 30 per cent.

Ralph Lauren’s shares jumped 5.4 per cent in Thursday trading.

Revenue in North America - the company’s biggest market - decreased a smaller-than-expected 3%, also due to some post-holiday season sales shifting to the prior quarter.

Asia revenue rose 13 per cent to US$390-million, riding the surge in China.

Ralph Lauren said it expects revenue to increase in the low-single digits range for fiscal 2024, on a constant currency basis, while analysts were expecting a 5.56-per cent rise to US$6.73-billion, according to Refinitiv IBES data.

Luxury companies ranging from LVMH and Gucci-owner Kering to Coach handbag maker Tapestry (TPR-N) have flagged softer demand in the U.S. as consumers turn cautious after a post-pandemic spending spree.

Net revenue rose to US$1.54-billion in the fourth quarter, compared with analysts’ estimates for a drop to US$1.47-billion, according to Refinitiv IBES data.

Excluding one-time items, Ralph Lauren earned 90 US cents per share, beating estimates of 61US cents.

On the decline

Royal Bank of Canada (RY-T) was lower by 1.8 per cent after it reported a drop second-quarter profit and missed analysts’ estimates as a worsening economic outlook drives lenders to set aside more money for loans that could turn sour.

RBC profit fell 14 per cent from a year earlier to $3.6-billion, or $2.58 per share, in the three months that ended April 30. That compared with $4.25-billion, or $2.96 per share, in the same quarter last year.

From Wednesday: BMO and Scotiabank earnings disappoint as economic hurdles weigh on growth

Adjusted to exclude certain items, the bank said it earned $2.65 per share. That fell below the $2.80 per share analysts expected, according to Refinitiv.

“As our second quarter results demonstrate, RBC will never compromise on doing right by our clients and delivering sustainable, long-term value to them, our communities and shareholders,” RBC chief executive officer Dave McKay said in a statement. “Our focused growth strategy, prudent risk and capital management, and diversified business mix exemplify our strength and stability amidst a complex macro environment.”

The bank raised its quarterly dividend by 3 cents to $1.35 per share.

In the quarter, RBC set aside $600-million in provisions for credit losses - the funds banks set aside to cover loans that may default. That was higher than analysts anticipated, and included $173-million against loans that are still being repaid, based on models that use economic forecasting to predict future losses.

In the same quarter last year, RBC had a recovery of $342-million in provisions, as loan loss reserves began to edge higher from the reversals issued last year during the COVID-19 pandemic, when default rates were more resilient than expected.

Total revenue rose in the quarter, to $13.52-billion from $11.22-billion a year earlier, but expenses also edged higher to $7.49-billion.

In a research note, Credit Suisse analyst Joo Ho Kim said: “RY posted a weak set of results in Q2, with a miss on both headline (even with the benefit of lower taxes) and underlying (PTPP) basis versus our numbers. While we did see good results from Capital Markets (even with the tough operating environment, expenses were well managed here), we saw disappointing results from its core Canadian Banking business, with NIMs in particular underperforming our expectation (down 8 basis points quarter-over-quarter). A part of that was due to increased liquidities that weighed on the results (CNB results as well were down 22 bps Q/Q). Expenses were sequentially down but up 16 per cent year-over-year (or up 8 per cent excluding the Brewin acquisition, FX, and share-based compensation related impact), which was disappointing as well given the miss vs. our numbers and the negative surprise we saw on this line in Q1. Finally, capital results were solid with the CET1 ratio climbing 100 bps Q/Q.”

- Stefanie Marotta

Toronto-Dominion Bank (TD-T) also slid, closing down 4.2 per cent, after saying it expects to miss its growth targets amid the fallout from its cancelled takeover of Tennessee-based First Horizon Corp. and a worsening economic outlook.

The lender said in its second quarter earnings release Thursday that it does not expect to meet its target range for growth in earnings per share over the medium term of 7 to 10 per cent, “in light of the mutual termination of the First Horizon merger agreement, and the deterioration in the macroeconomic environment.”

Canada’s second-largest lender called off the US$13.4-billion in early May, scrapping its most significant acquisition in years after difficulties in securing regulatory approvals delayed the deal closing.

The cancelled deal also allows TD to reallocate the peer-leading capital reserves that it had earmarked for the deal. The bank added that it plans to repurchase 30-million shares, representing 1.6 per cent of its outstanding shares.

TD’s chief financial officer Kelvin Tran said that the bank is returning capital to shareholders through the buyback plan, and that it is also considering raising its dividend and looking at other growth opportunities.

“There are plenty of opportunities and white space, especially in the U.S. for growth. And then for M&A, we always look at whether we have the opportunity to add capabilities or new customers or stores,” Mr. Tran said in an interview. “The First Horizon issues were related to the uncertainty on the timing of the regulatory approvals, so we continue to look for opportunities for growth.”

TD joined many of its peers in reporting worse-than-expected second-quarter profit as loan loss provisions surged on the threat of a recession and heated borrowing costs weigh on consumers.

TD earned $3.35-billion, or $1.72 per share, in the three months that ended April 30. That compared with $3.81-billion, or $2.07 per share, in the same quarter last year.

Adjusted to exclude certain items, the bank said it earned $1.94 per share. That fell below the $2.08 per share analysts expected, according to Refinitiv.

Credit Suisse analyst Joo Ho Kim said: “TD’s Q2 results missed on both the Street and our estimates, with weaker than expected segment results from both Canadian P&C and Wholesale Banking in particular. Net interest margins results were lower than expected, with both P&C segments posting sequential declines. Expenses were also disappointing, climbing 2 per cent quarter-over-quarter (up 11 per cent year-over-year) and missing our estimate by 3 per cent. Similar to peers, loan growth also slowed down for the bank in both Canada and the U.S. (up 0.7 per cent and 2.1 per cent quarter-over-quarter, respectively). The bigger question still remains for the bank, on where all the excess capital could go (the bank announced 2-per-cent buyback along with the quarter) and if their strategic direction could change in light of the terminated merger agreement with FHN (the bank does not expect to meet its medium-term core EPS growth target of 7-10 per cent for F2023; consensus is looking for 3-per-cent growth).”

- Stefanie Marotta

Dollar Tree Inc. (DLTR-Q) on Thursday cut its annual profit forecast as high inflation dampens demand for higher-margin items such as party supplies and fashion accessories, sending shares of the company plummeting.

A fall in demand for higher-margin discretionary goods, typically more profitable than perishables like snacks and cookies, has further dented margins at a time when freight and labor expenses remain elevated despite easing from their highs.

“We expect the elevated shrink and unfavorable sales mix to persist through the balance of the year,” CEO Rick Dreiling said in a statement.

Chesapeake, Virginia-based Dollar Tree said it now expects fiscal 2023 earnings of US$5.73 to US$6.13 per share, compared with its prior outlook of between US$6.30 and US$6.80 per share.

Analysts on average were expecting a per-share profit of US$6.68 for the year, according to Refinitiv IBES.

Nikola Corp. (NKLA-Q) said on Thursday Nasdaq gave the electric truck maker a delisting notice for not meeting its minimum bid price requirements.

Shares of the company were down 20.4 per cent.

Nikola has been trying to raise cash for operations by selling equity, like other electric vehicle (EV) firms, in a turbulent market, and on Wednesday urged shareholders to vote in favor of increasing the number of shares at its annual shareholder meeting next month.

EV startup Lordstown Motors Corp. (RIDE-Q) last month received a similar notice and effected a reverse stock split this week to meet the exchange’s rules.

Earlier this month, Nikola said it would pause production to streamline the assembly line at its Coolidge, Arizona factory amid sluggish demand for its battery-powered trucks.

With files from staff and wires