A survey of North American equities heading in both directions
On the rise
Shares of Canadian oil and gas pipeline company TC Energy Corp. (TRP-T) were higher by 1.5 per cent on Tuesday after it said it expects adjusted core earnings for 2024 to be 5 per cent to 7 per cent higher than 2023.
While global natural gas prices have slumped compared to last year, prices are still high enough for companies to produce profitably, boosting demand for pipelines.
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TC Energy’s capital expenditure is expected to be between $8-billion and $8.5-billion next year, lower than its estimated cost of $12-billion to $12.5-billion in 2023.
It said it also expects comparable core profit in 2023 to be 8 per cent higher than last year’s $9.90-billion.
The company, best known for its Keystone oil pipeline, is undergoing an overhaul. In July, it said it would spin off its liquids business to focus on transporting natural gas, and sold a 40-per-cent interest in its Columbia Gas Transmission and Columbia Gulf Transmission pipelines for $5.3-billion to Global Infrastructure Partners (GIP).
Calgary-based TC Energy had said in November it was open to joint ventures in Mexico and Canada as part of the pipeline operator’s $3-billion divestiture program, looking to limit annual net capital expenditures to between $6-billion and $7-billion post-2024.
Canada Goose Holdings Inc. (GOOS-T) was higher by 1.5 per cent with the premarket announcement of the operating assets of Romania’s Paola Confectii Manufacturing, which will become the luxury clothing company’s first European facility.
The Toronto-based company said the deal “supports [its] Strategic Growth Plan, specifically expanding existing categories and increasing year-round relevance.”
Shares of Boeing Co. (BA-N) jumped 1.4 per cent after an analyst at RBC Capital Markets upgraded its shares to an “outperform” recommendation from “sector perform” previously, citing “execution stability, strong demand an improving MAX outlook.”
“After another year of supply chain disruptions and lowered expectations, we believe the set-up into 2024 is favorable,” said Ken Herbert. “We are maintaining our 2023 FCF estimate of $3.5-billion, and adjusting our 2024 and 2025 FCF estimates to now $5.5-billion and $8.5-billion, respectively. We expect the strong demand to sustain for both the commercial and defense business, and as production and delivery ramps continue to improve, we believe investor confidence in the FCF outlook will improve.”
“We believe we are in the early stages of a significant shift in sentiment on BA stock. With a strong demand backdrop, we believe investors are positively biased towards Boeing and its exposure to the commercial aerospace cycle. However, execution and supply chain challenges have limited the pace of the FCF improvement, and under-performance to 2022 and 2023 expectations have kept the stock in check. However, we believe buy-side expectations for 2024-2025 FCF reflect conservatism, and as execution on the MAX and 787 continue to gradually improve, we believe the potential for positive revisions is growing.”
Shares of San Francisco-based Affirm Holdings Inc. (AFRM-Q) continued to rally, closing up 11.5 per cent on Tuesday following a rating upgrade and data that showed more price-conscious shoppers had turned to buy now, pay later (BNPL) services during Cyber Monday.
BNPL usage in the U.S. hit an all-time high on Cyber Monday, contributing US$940-million in online spend, up 42.5 per cent from a year earlier, according to data from Adobe Analytics.
Overall, sales in the U.S. during one of the biggest online shopping days hit a record of US$12.4-billion, the data showed.
The number of items per order rose 11 per cent, according to Adobe, as shoppers used BNPL for increasingly larger carts.
Affirm’s shares were up a day after closing 12 per cent higher. The stock has more than tripled in value in 2023 as BNPL gained popularity from customers struggling with high interest rates and red-hot inflation.
On Tuesday, Jefferies upgraded the stock to “hold” from “underperform,” saying data points to “stable, if not improving, credit performance over the last several months which distinguishes AFRM from peers.”
The brokerage also sharply raised its price target to US$30 from US$9.50.
The average rating of 18 brokerages covering Affirm is “hold.” While analysts’ median target price has moved up to US$20.50 from US$16.25 a month earlier, it still implies a 30-per-cent downside in the next 12 months from the stock’s last close.
However, shares remain just a fraction of the all-time high of US$176.65 from two years ago.
Temu parent PDD Holdings (PDD-Q) beat third-quarter revenue forecasts on Tuesday as heavy discounting boosted sales across its e-commerce platforms in China and overseas, sending its U.S.-listed shares soaring over 18 per cent.
PDD, home to Chinese discount online retailer Pinduoduo as well as cross-border international platform Temu, has received a big boost from the growing popularity of its international e-commerce arm, which is known for selling $4 earphones and $15 hoodies.
Analysts expect Temu, launched in September last year, to generate more than US$16-billion in revenue this year. Since launching in the United States, Temu is now available in 48 countries, including across Europe and the Middle East, as well as South East Asia and Australia.
“PDD’s overseas initiative Temu was the major driver for revenue growth,” said Xiaoyan Wang, analyst at 86Research, who added that domestic Chinese revenue also outstripped growth at rivals Alibaba and JD.com by a “large margin.”
Deep discounts ahead of the Singles Day shopping event in China helped lift demand for products on Pinduoduo, which was able to leverage its reputation for low prices to capture more value-conscious consumers in the world’s second-largest economy.
Though the retail market in China was initially expected to bounce back strongly when strict COVID-19 curbs were lifted late last year, Chinese consumers have remained cautious as the country faces macroeconomic headwinds, including a property market downturn and record high youth unemployment.
Chinese retail sales in September rose 5.5 per cent, following 4.6-per-cent growth in August.
PDD’s revenue was 68.84 billion yuan (US$9.62-billion) in the quarter ended Sept. 30, compared with analysts’ average estimate of 54.59 billion yuan, according to LSEG data.
The company’s net income attributable to ordinary shareholders rose to 15.54 billion yuan in the third quarter, from 10.59 billion yuan a year earlier.
Zscaler (ZS-Q) forecast quarterly revenue above analysts’ estimates on Monday, but indications of strong cybersecurity spending were overshadowed by rising operating expenses.
Shares of Zscaler erased an early decline and rose 1 per cent on the day as the cloud security company’s operating expenses for the first quarter jumped by about 24 per cent to US$431.4 -million.
A push towards cyber security and drastic developments in artificial intelligence across industries employing vast, vulnerable data have led to increased costs for firms like Zscaler, as they rush to develop new offerings.
“In order to meet this growing need, we are scaling our go-to-market and R&D organizations,” Zscaler Chief Executive Jay Chaudhary said in a statement.
Total calculated billings in the first quarter grew about 34 per cent to US$456.6-million but declined 37 per cent from the preceding quarter. CFO Remo Canessa attributed the fall to “a difficult comparison to the fourth quarter which had a US$20-million upfront billing on a multiyear deal.”
For the second quarter, Zscaler expects revenue between US$505-million and US$507-million, above analysts’ average estimate of US$496.7-million, according to LSEG data. The company’s forecast for profit also topped expectations.
Global spend on cloud security is expected to rise nearly 25 per cent in 2024, according to research firm Gartner.
Zscaler also raised its annual revenue and profit forecasts.
The company’s annual revenue is now estimated to be between US$2.09-billion and US$2.10-billion, compared to its previous forecast of US$2.05-billion to US$2.07-billion.
The California-based company revised its annual adjusted profit expectations to US$2.45 to US$2.48 per share, from US$2.20 to US$2.25 per share.
The company also beat first-quarter profit and revenue estimates.
On the decline
Bank of Nova Scotia (BNS-T) dropped 4.5 per cent after it reported lower fourth-quarter profit that missed analysts’ estimates as a jump in loan loss reserves and mounting expenses weighed on the lender’s financial results.
Scotiabank earned $1.4-billion, or $1.02 per share, in the three months that ended Oct. 31. That compared with $1.63 per share, in the same quarter last year. Adjusted to exclude certain items, the bank said it earned $1.26 per share. That fell below the $1.65 per share analysts expected, according to Refinitiv.
Canadian banks looking at weak profits as fiscal year wraps up
The lender also booked more than $590-million in charges as it cuts 3 per cent of its global work force, trims its real estate premises, and took a write down of the value of an investment in China-based Bank of Xi’an Co. Ltd. The cost-cutting measures, previously announced in October, mark chief executive officer Scott Thomson’s first major move to slash costs since taking on the top job in February.
It also posted a gain of $319-million on the sale of its stake in Canadian Tire’s Financial Services business.
The moves come as Scotiabank prepares to unveil its strategic overhaul plan in December.
“I am encouraged by the results of our focused efforts on strengthening the bank’s balance sheet as we prepare to manage through heightened macroeconomic uncertainty,” chief executive officer Scott Thomson said in a statement. “Strong capital and liquidity ratios, improving loan to deposit ratios and increased allowance for credit losses coverage ratios, position us well as we enter the next phase of our growth strategy.”
The bank kept its quarterly dividend unchanged at $1.06 per share.
In a research report reviewing the release, RBC Dominion Securities analyst Darko Mihelic said: “Overall, we have a mixed to slightly negative view as Q4/23 results missed our expectations across the board (but perhaps some one-offs to consider). We view the large performing PCL build positively as it suggests that the bank has taken on a more conservative stance with respect to reserves as the economic environment is expected to become weaker. The unexpectedly high capital hit in Q1/24 is a negative. There is still a chance the regulator may increase capital requirements again in December and unless other banks have a similarly significant capital impact in Q1/24, it might look like BNS’s pro-forma capital ratio will look relatively light.”
- Stefanie Marotta
First Quantum Minerals Ltd. (FM-T) declined 0.8 per cent after Panama’s Supreme Court declared its contract to operate a lucrative copper mine in the country unconstitutional following weeks of protests against the deal, putting the company on the long and unpredictable road of international arbitration.
First Quantum on Tuesday said it company had suspended commercial production and is applying a “program of Preservation and Safe Maintenance.”
Challenges against the company’s new contract, approved on Oct. 20, piled up in court amid public anger over the deal, which opponents regard as too generous. Reuters reported earlier this month that the court was likely to rule against First Quantum.
“We have decided to unanimously declare unconstitutional the entire law 406 of October 20, 2023,” Supreme Court President Maria Eugenia Lopez said.
First Quantum acknowledged the ruling and affirmed its “unwavering commitment to regulatory compliance in all aspects of our operations within the country.”
Panama President Laurentino Cortizo said the country will abide by the court ruling.
Protester groups on social media after the ruling said they will keep demonstrating in the streets until the ruling is published in the country’s official gazette.
The company’s shares have lost more than $10-billion of its market value since the protests started and the mine was forced to suspend production.
Shares of Calgary-based MEG Energy Corp. (MEG-T) declined 0.6 per cent following Monday’s post-market release of its 2024 production and capital guidance, which fell in line with expectations on the Street.
The Calgary-based company announced capital guidance of $550-million, narrowly above the consensus forecast of $538-million. That includes $450-million for maintenance and $100-million aimed at supporting “multi-year capacity growth.”
Its production expectation is 102,000-108,000 barrels per day, which is 4-per-cent growth from 2023 and “incorporates reduced turnaround activities spread more evenly throughout the year.” Analysts were projecting 104,700 barrels.
“Overall, we view the release as neutral to modestly positive, with the modest growth path and associated capital spend previously well telegraphed (including in Q3/23 earnings call commentary),” said ATB Capital Markets analyst Patrick O’Rourke in a note.
Vancouver-based American Lithium Corp. (LI-X) dipped after saying it submitted an early environmental permit study for its Falchani lithium project in southern Peru and expects approval in coming months, which could help fast-track construction permits.
American Lithium said its semi-detailed environmental impact assessment already allows for the drilling of up to 420 platforms across the project.
CEO Simon Clarke said the process had started in July last year under the previous government in what he described as “a difficult time for permitting in Peru.”
“The support of the new authorities in Peru in helping us fast-track this process with the common goal of seeing lithium production in the country as quickly as reasonably possible,” Mr. Clarke added.
The ouster of former Peruvian President Pedro Castillo in December 2022 triggered months of deadly social protests, notably across the country’s southern mining region, causing many miners there to halt operations.
Last month, American Lithium hiked its estimates for the project by 476 per cent from 2019, saying it could hold 5.53 million metric tons of lithium carbonate equivalent, which would make it one of the world’s largest hard-rock lithium projects.
Earlier this year, Mr. Clarke said construction could begin next year or in 2025.
Israeli defence electronics firm Elbit Systems Ltd. (ESLT-Q) was down in the wake of saying it has boosted supplies to Israel’s military due to the country’s war with Hamas militants, as it reported on Tuesday higher quarterly profit.
Over the past six weeks, Elbit - one of Israel’s largest defense contractors - has had to contend with 2,000 of its staff, or 15 per cent of its workforce in Israel, being called into reserve duty to slightly disrupt its supply chain.
But deputy CEO Joseph Gaspar said the company has been working 24 hours, seven days a week to meet demand by Israel’s military and other customers.
He noted that the Defence Ministry asked the firm to “increase quantities and urging us to earlier deliveries of existing contracts” and taking development programs and shift them for field use.
“They are asking us to do that and we do our best of course to support it,” he told Reuters.
“That actually accelerates the introduction of new products into the Army, Air Force etc...Looking forward this will probably continue in the near future as well.”
Still, more than 80 per cent of Elbit’s revenues are outside of Israel and Mr. Gaspar said the company was working to ensure supplies are delivered from Israel and via subsidiaries in Europe, where one-third of sales are from, and the United States.
“We remain focused on maintaining our commitments to our customers around the world,” said CEO Bezhalel Machlis.
Israel supplies hundreds of products to Israel’s Defence Ministry, including unmanned aerial vehicles (UAVs), artillery, munitions and electronic warfare systems.
“Following the brutal attack on Israel, the outbreak of war on the 7th of October and the increase in demand for our solutions by the Israel Ministry of Defence, Elbit Systems has ramped up its production in support of the Israel MOD and Israel’s security forces,” said Machlis.
In the third quarter, Elbit said it earned US$1.65 per diluted share excluding one-time items, up from US$1.40 per share a year earlier but lower than expectations of US$1.70 based on LSEG data.
Due to higher interest rates, financial expenses rose to US$35.7-million from US$16.4-million a year earlier.
Revenue increased to US$1.5-billion from US$1.35-billion, with aerospace revenue up 24 per cent.
Elbit’s board said the company would pay a dividend of 50 US cents per share for the third quarter, the same as in the second quarter, to be paid on Jan. 8.
Its backlog of orders reached US$16.6-billion, up nearly US$2-billion over the past year and Mr. Gaspar said this will be “transformed into the revenue and eventually to the bottom line.”
Through the first nine months, Elbit recorded revenue of US$4.4-billion. Mr. Gaspar said the company was on track to reach annual sales of US$6.5-7-billion by early 2026, along with an operating margin of 10 per cent.
With files from staff and wires
David Leeder