Inside the Market’s roundup of some of today’s key analyst actions
Following Friday’s release of second-quarter results that “handily” exceeded expectations, National Bank Financial analyst Cameron Doerksen believes “strong air travel demand and constrained industry supply” is likely to drive “meaningful” earnings and cash flow improvement for Air Canada (AC-T) through the remainder of 2023 and through 2024, leading to a further reduction in leverage.
“Investor concerns for Air Canada centre on the potential for slowing air travel demand in the context of weaker economic conditions, but there are few if any signs so far of slowing demand,” he said. “The other major concern is growing competition from rapidly expanding carriers (Porter, Flair, Lynx) that will pressure domestic profitability, but the more important driver for Air Canada’s profits is its international franchise where industry capacity remains rational (international travel was the biggest driver of AC’s growth in Q2, accounting for approximately 70 per cent of the year-over-year growth in passenger revenues). We also believe that the domestic competitors will face constraints on their growth that Air Canada will not, including capital and availability of pilots.
“A recent surge in jet fuel prices is perhaps more concerning with the current spot price sitting at $1.20 per litre versus the $1.01 per litre Air Canada paid in Q2. Air Canada has hedged a portion (30 per cent) of its Q3 fuel cost at 80 cents per litre so the near-term impact will be somewhat limited if jet fuel prices stay elevated. In addition, Airlines are typically able to adjust for higher fuel prices by raising fares over time.”
Shares of the airline jumped 3.2 per cent following the premarket earnings release, which included revenue of $5.4-billion, up 14 per cent from the second quarter of 2019 and easily topping Mr. Doerksen’s $5.1-billion estimate. He emphasized an “exceptionally strong” load factor of 87.9 per cent, exceeding his 84.0-per-cent projection, noting it was “well ahead of typical Q2 levels pre-pandemic.”
“Yields were up in all markets with the Atlantic (up 19.9 per cent) notably strong again,” he added. “Bookings continue to look solid with advanced ticket sales at the end of Q2 sitting at $5.7 billion, up from $5.3-billion at the end of Q1 and management indicates that demand for air travel still looks strong through the remainder of 2023 and into Q1/24. We also note that free cash flow generation in Q2 was excellent, coming in at $965-million versus our forecast for $184 million while the company’s leverage continues to come down faster than anticipated, sitting at 1.7 times compared to 3.2 times at the end of Q1.”
“EBITDA guidance for 2023 is now $3.75-$4.0-billion as Air Canada increased the lower end of the previous range of $3.5-$4.0-billion. The company also increased its full-year cost guidance and now expects adjusted CASM [cost per available seat mile] to increase 0.5-1.5 per cent year-over-year compared to a year-over-year decrease of 0.5-2.5 per cent previously. The higher cost guidance reflects a lower capacity growth assumption (now 21 per cent versus 23 per cent previously) as well as higher costs related to more passengers and a higher employee headcount.”
Mr. Doerksen thinks Air Canada’s valuation currently “looks attractive,” raising his target for its shares to $35 from $32 with an “outperform” recommendation after increases to his financial forecast. The average target on the Street is $31.06, according to Refinitiv data.
Elsewhere, others making changes include:
* Scotia Capital’s Konark Gupta to $34 from $31 with a “sector outperform” rating.
“We are further raising our target ... not because AC beat our EBITDA estimate by a wide margin or raised 2023 guidance again, but primarily due to its rapid deleveraging over the past three quarters,” said Mr. Gupta. “We believe this is just the beginning of a multi-year deleveraging cycle, not the end. Patient investors who can look through the day-to-day macro noise and unnecessary read-throughs from U.S. domestic airlines could be significantly rewarded by holding the stock for just 1-2 years, given AC is trading at only 3.6x on mid-point of 2023 EBITDA guidance, even before considering future FCF or EBITDA. If our projections prove accurate over time, its valuation would be even more attractive at 3.1 times/2.5 times on our 2024E / 2025E, well below AC’s pre-pandemic multiple of 4.6 times (peak EV over 2019 EBITDA) and current U.S. comps at 4.3 times (on 2024 consensus). To be clear, we are modelling yield normalization over the next two years along with higher wage inflation to reflect the upcoming labour contract renewals. We continue to believe with high conviction that AC’s FCF and leverage ratio targets look quite conservative. We re-iterate our Sector Outperform rating and continue to view AC as our top pick.”
* TD Cowen’s Helane Becker to $32 from $26 with an “outperform” rating.
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Believing material catalysts are “imminent” and touting a “rock bottom valuation,” Raymond James analyst David Quezada raised his recommendation for shares of Northland Power Inc. (NPI-T) to “strong buy” from “outperform” in response to Friday’s 6.4-per-cent share price drop following weaker-than-anticipated second-quarter results.
“Now pushing new lows for valuation, we see recent weakness in shares of NPI as materially overdone. Further, we affirm our view of Northland as sporting among the best long term growth in its peer group,” he said.
The Toronto-based company reported adjusted EBITDA for the quarter of $232-million, below both Mr. Quezada’s $244-million estimate as well as the consensus forecast of $250-million. It was a significant drop from the $335-million logged during the same period a year ago, which the analyst attributed to regulatory changes in Spain and “more normal” power prices.
“Baltic Power and Hai Long financial close should represent a catalyst,” he said. “At the Baltic Power offshore wind project, NPI has advanced to the final stages of confirmatory due diligence and has signed all requisite supply chain contracts. At Hai Long, progress continues on credit approval and NPI secured changes to the Corporate PPA— including an extended tenor from 22 years to 30 years. In the wake of material cost inflation, concerns remain as to the returns on these projects. However, we believe costs and project returns are largely locked-in and see potential for optimization at Hai Long as the extended PPA facilitates a longer amortization of the project loan (which could occur post financial close). We believe the enhanced disclosure that will come with financial close on each project represents a key de-risking event and reaffirm our expectations of a high single digit return at Hai Long (before optimization) and low double digits at Baltic Power.”
Mr. Quezada maintained his target for Northland shares of $43. The average is $37.93.
“With shares down 39 per cent year-to-date (vs. the TSX up 5 per cent), Northland has meaningfully lagged peers and now trades at just 9.1 times 2024 EV/EBITDA, a new low point relative to its historical range,” he said. “With the financial close for the two large scale offshore wind projects, and increased disclosure regarding economics, we expect the market will come to increasingly ascribe value to them as uncertainty is addressed. Further, with a 19 GW development pipeline, we believe Northland has among the best long term growth in our coverage and can selectively pursue higher return projects. We further stress that, at NPI’s current valuation, investors essentially receive upside associated with projects under construction and development for free.”
Others making changes include:
* iA Capital Markets’ Naji Baydoun to $38 from $42 with a “buy” rating.
“NPI reported Q2/23 results on August 10 after market close that were mixed, with EBITDA missing estimates while FCF came in ahead of expectations,” said Mr. Baydoun. “The Company provided several updates on its growth projects, including (1) securing a further 8-year extension for the Hai Long CPPA (positive), (2) achieving final COD on the La Lucha solar project (neutral), and (3) exiting the Suba solar projects in Colombia (minor negative). NPI continues to progress large-scale offshore wind projects towards financial close in 2023, with recent financing initiatives helping secure all equity funding needs for current organic growth initiatives. NPI is tracking towards the lower end of its 2023 financial guidance, and the recent share price decline represents a compelling buying opportunity for long-term investors (in our view).”
* ATB Capital Markets’ Nate Heywood to $42 from $44 with an “outperform” rating.
“In general, the miss was attributable to softer pricing in the EU and lower merchant pricing in Spain,” said Mr. Heywood. “While the share performance is partly attributable to the miss, we would expect the clarity on the Spanish regulatory changes and the expected financial impacts were the main driver. Management is now pointing to a $90mm impact to EBITDA from its Spanish asset portfolio following the change to regulatory pricing. Despite the forward-looking headwinds, NPI left guidance unchanged and still expects 2023 Adjusted EBITDA of $1.2-billion-$1.3-billion (ATB estimate $1.21-billion). Growth and development milestones could be a potential catalyst for the stock going forward, especially on large-scale offshore wind projects like Hai Long and Baltic Power.”
* RBC’s Nelson Ng to $31 from $36 with an “outperform” rating.
“The shares of NPI have declined by 50 per cent in the past year and 40 per cent year-to-date as investors remain concerned about the Hai Long project, and lack enthusiasm for the rest of the company’s development pipeline. We believe management needs to reach financial close on its Hai Long and Baltic Power developments before investors can get more constructive on the name. We see good value in the shares of NPI and are reiterating our Outperform rating, but reducing our Price Target to $31 (from $36) mainly to reflect no value for the rest of the development pipeline,” said Mr. Ng.
* CIBC’s Mark Jarvi to $35 from $36 with an “outperformer” rating.
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TD Securities analyst David Kwan recommends investors would “do well” to begin to accumulate shares of Softchoice Corp. (SFTC-T) at current levels “ahead of an expected rebound in demand/organic growth and margins next year.”
He raised his rating for the Toronto-based company to “buy” from “hold” on Monday, acknowledging his upgrade “could be a quarter (or two) early” but emphasizing its shares’ low trading liquidity.
“We admit that the near-term outlook could be better, as we are only forecasting low single-digit organic growth in H2/F23 with flattish margins for the year,” he said in a note titled It’s Best Not to Wait. “Weak hardware demand has been a key headwind in recent quarters, and this weakness could possibly continue through year-end, with industry analysts forecasting a rebound in F2024.
“However, Software & Cloud demand remains robust across all customer segments (double-digit organic growth this quarter) despite the ongoing deceleration in cloud growth. There are signs that cost optimization activity is starting to wane, while new customer spend, including on new GenAI offerings (particularly for Microsoft and Google’s GenAI additions to their workplace software suites), could start to drive stronger growth later this year and in F2024, where it faces easier year-over-year comps. We believe this should also coincide with the potential realization of the benefits from Softchoice’s current acceleration of growth investments (sales and technical experts) that could result in achieving its target of double-digit organic growth.”
Mr. Kwan raised his target for Softchoice shares to $24 from $21. The average is $20.36.
“We downgraded Softchoice to Hold in early-March 2023, given our concerns for the F2023 outlook and consensus looking too high (our estimates were approximately 5 per cent below consensus then and are now down another 3-4 per cent),” he said. “Since then, Softchoice’s shares are down 2 per cent vs. an average increase of 24 per cent for its software-focused ITSP/VAR peers. With the stock now trading at the bottom end of its historical range and its software-focused ITSP/VAR peer group, we believe the risk/reward profile is favourable despite the challenging near-term outlook.”
Elsewhere, ATB Capital Markets’ Martin Toner trimmed his target to $21 from $21.50 with a “sector perform” rating.
“Softchoice is managing through a difficult macro environment well, proof of a strong business model and management,” said Mr. Toner. “The Company put a pause on spending and AE growth, and delivered a strong EBITDA beat, a good sign for investors craving EBITDA leverage. Software revenue has decoupled from economically sensitive hardware revenues, driven by the migration to the cloud, something encouraging for long-term focused investors. Near term, topline headwinds keep us at Sector Perform.”
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Following weaker-than-expected second-quarter results, Stifel analyst Martin Landry sees a risk shares of Sleep Country Canada Holdings Inc. (ZZZ-T) will remain range-bound “given depressed consumer spending combined with margin erosion,” leading him to reduce his forecast for the retailer.
“New acquisitions (Silk&Snow and Casper) are weighing on profitability and resulted in a 300 basis points EBITDA margin erosion, the largest decline of the last five years,” he said. “Integration work has started and synergies should start yielding results this fall with most of the impact to be felt in 2024. Management has several projects on the go with new retails stores for Endy and Silk&Snow and a new concept store selling high-end mattresses. We like the potential for Sleep Country’s DTC brands to transpose into the brick & mortar channel and see this as an interesting growth avenue for the company.”
After the bell on Thursday, the Toronto-based company reported revenue of $217-million, down 4.6 per cent year-over-year and lower than both Mr. Landry’s $231-million estimate and the consensus forecast on the Street of $228-million as same-store sales slipped 10.9 per cent. Adjusted earnings per share fell 39 per cent to 42 cents, also missing expectations (47 cents and 48 cents, respectively).
“We are reducing our forecasts for 2023 and 2024 to reflect (1) the profitability pressure stemming from new acquisitions, and (2) lower same-store-sales growth assumptions to reflect a softer demand dynamic in Canada for the remainder of 2023,” said the analyst. “We now expect same-store-sales to decline by 8 per cent year-over-year in H2/23 vs a growth of 2 per cent year-over-year previously.”
With his 2023 and 2024 EPS estimates sliding to $2.10 and $2.40, respectively, from $2.45 and $2.79, Mr. Landry cut his target for Sleep Country shares to $28 from $30, keeping a “buy” recommendation. The average target is $29.83.
“With limited revenue growth and margin pressure, ZZZ is not expected to return to earnings growth until 2024,” he concluded. “Hence, this may test investors’ patience and keep shares range bound in the coming months. However, we see several catalysts to earnings in 2024 and believe that with earnings growth, strong balance sheet and reasonable valuation, investors are likely to revisit the story early in 2024.”
Elsewhere, other changes include:
* BMO’s Stephen MacLeod to $32 from $34 with an “outperform” rating.
“While we expect the macro backdrop to remain challenging through 2023E (although comps in seasonally strong H2 ease considerably), Sleep Country is well-positioned to weather the weakness and achieve market share gains for everything ‘sleep.’ Acquisitions and other strategic initiatives position Sleep Country well for 2024+. We estimate the stock is discounting a 15-20% 2023E revenue decline and see attractive risk-reward,” said Mr. MacLeod.
* CIBC’s John Zamparo to $31 from $30 with an “outperformer” rating.
* RBC’s Sabahat Khan to $27 from $26 with a “sector perform” rating.
* TD Securities’ Brian Morrison to $32 from $33 with a “buy” rating.
* National Bank’s Vishal Shreedhar to $29 from $30 with a “sector perform” rating.
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Seeing its booking trends as “encouraging,” Scotia Capital analyst Kevin Krishnaratne raised his recommendation for Altus Group Ltd. (AIF-T) to “sector outperform” from “sector perform” previously.
“Our upgrade follows on the 30-per-cent quarter-over-quarter rebound in recurring Analytics bookings in Q2 which signaled strength across multiple areas including software/cloud, data/analytics, and, importantly, VMS (Valuation Management Solutions), the latter which showed a pause in activity in Q1 on regional banking issues,” he said.
“Recall how in Q1, management reiterated its view that the company is poised to benefit from CRE volatility given its position as the de facto source of truth for related valuations and transactions, and that the pause in bookings in the quarter was temporary. This now does appear to be the case, and we see many ways for the Analytics division to continue to deliver double-digit recurring revenue growth at a strong margin profile (was 23.8 per cent in Q2).”
Shares of the Toronto-based provider of asset and fund intelligence for commercial real estate soared 16.1 per cent on Friday after its second-quarter financial results soared past expectations, headlined by a 25-per-cent adjusted EBITDA beat driven by the performance of its Property Tax segment.
“It was the 31-per-cent quarter-over-quarter uptick in recurring Analytics bookings and management’s comments on the multiple drivers within recurring Analytics revenue that have turned us positive on the stock,” said Mr. Krishnaratne. “Analytics revenue itself was close to in line (2-per-cent beat), though Adj. EBITDA was better at $23.8-million vs. consensus of $21.9M. However, recurring Analytics bookings rebounded to $18.4-million vs. $14.1-million in Q1 and $20.8-million in Q4, which was a very positive surprise we were not anticipating. Recall Q1 bookings disappointed as banking crisis concerns slowed decision-making at larger clients for the company’s VMS offering. Encouragingly, Q2′s q/q bookings momentum is broad based and reflects strength in software, growth in data, and an increase in VMS. Furthermore, growth is being driven by both debt and equity funds, with AIF signing its largest debt valuation contract ever in Q2. Additionally, relatively new offerings, such as Market Insights Premium, are already adding significantly to the Analytics pipeline. Management also noted that it is now cautiously optimistic about recent Q2 CRE trends that suggest an increase in capital inflows vs. Q1. All of these data points lead us to believe there are multiple ways for Analytics recurring revenue to continue to deliver double-digit growth (19 per cent ex-FX in Q2), including the very likely prospect of large clients adding new CRE assets to existing portfolios being served by Altus’ VMS solutions.”
Raising his forecast “on Property Tax outperformance,” he increased his target for Altus shares to $66 from $59. The current average is $65.11.
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While its second-quarter financial results fell in line with expectations, Eight Capital analyst Ralph Profiti lowered his recommendation for Wesdome Gold Mines Ltd. (WDO-T) to “neutral” from “buy” based on valuation concerns.
“We estimate WDO now trades at a modest P/NAV premium of 0.77 times vs. the peer group of Mid-Tier Precious Metals Producers (0.1-0.5Moz) of 0.61 times, with the spread likely to tighten into YE23 as capital spending ramps up in Q3/23 at Kiena and potential downside to Kiena gold grades in H2/23 that are currently tracking ahead of FY23 guidance,” he said. “As such, we remain cautious on shares ahead of clarity on positive gold grade reconciliation at Kiena and favor K92 Mining (KNT-T, BUY, TP $14.00) for Mid-Tier Precious Metals exposure.”
Mr. Profiti’s target slid to $8.75 from $10. The current average is $9.47.
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With structural headwinds continuing to weigh on its financial results, Eight Capital analyst Adhir Kadve lowered his recommendation for East Side Games Group Inc. (EAGR-T) to “neutral” from “buy,” seeking “greater clarity on the company’s ability to both grow and monetize its portfolio.”
On Thursday after the bell, the Vancouver-based software developer reported revenue of $21.3-million, down 28 per cent year-over-year and below both Mr. Kadve’s $26-million estimate and the consensus projection of $26.4-million. Adjusted EBITDA of $2.5-million was also lowered than the $2.6-million expectation of both the analyst and the Street as both daily and monthly active users declined.
“Revenues once again declined as the company continued to pullback on UA spending (to that end, the company YTD has spent $11.6-million on UA vs. $24.0-million year-to-date in Q2/F22) and significantly decreased its game production; to that end, the company did not launch any new titles in Q2/F23,” said Mr. Kadve. “ESGG further continues to face structural headwinds stemming from ongoing low UA ROI and consumers favoring platforms such as console gaming over mobile. While we applaud management’s ability to source and secure strong IP talent for its portfolio, we continue to see the company facing challenges in acquiring users, thus limiting growth.”
Cutting his forecast for the remainder of 2023 and 2024, Mr. Kadve lowered his target for East Side shares to 75 cents from $1.75. The average is $2.29.
Elsewhere, Haywood Securities’ Neal Gilmer reduced his target to $2 from $2.50 with a “buy” rating.
“We have revised our estimates following the Q2 results, lowering our revenue due to the shortfall this quarter. Offsetting this to a degree is lower operating expenses that cushion the revenue decline with EBITDA unchanged this year and down only marginally in 2024. With our lower estimates, we are lowering our target,” said Mr. Gilmer.
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In other analyst actions:
* CIBC’s Dean Wilkinson downgraded Northwest Healthcare Properties REIT (NWH.UN-T) to “neutral” from “outperformer” with a $9 target, down from $11. The average target on the Street is $8.64.
“There is a common generalization on the gridiron that there are two types of quarterbacks: those who scramble to the sidelines and those who lower their shoulder and run up the middle,” he said. “While we’re not insinuating that we’re staring down a 250 lb linebacker and about to get sacked, in this case we are choosing to move to the sidelines and wait for the field to clear a bit. Given the recent C-suite turnover (a process just beginning) and the U.K. joint venture falling through, we no longer believe that we have sufficient visibility into the very near-term outlook for the REIT. While we view the recently announced strategic review as a step in the right direction, there are perhaps too many unpredictable outcomes on which we cannot, with certainty, provide commentary. To be clear we don’t believe there are underlying issues with the real estate (or the REIT for that matter), we simply prefer to take a knee for the time being as the plan evolves.”
* In a report on the North American agribusiness sector, Barclays’ Benjamin Theurer downgraded Nutrien Ltd. (NTR-N, NTR-T) by two levels to “underweight” from “overweight” with a US$68 target, down from US$70. The average is US$74.73.
“Price-supporting events such as pipeline and gas curtailments should continue into 2H but so will deferred purchases, higher interest rates, and potash port issues. Valuations look full,” he said.
* CIBC’s Jacob Bout increased his Ag Growth International Inc. (AFN-T) target to $78, above the $74.75 average, from $72 with an “outperformer” rating. Other changes include: Scotia’s Michael Doumet to $82 from $76 with a “sector outperform” rating, Desjardins Securities’ Gary Ho to $84 from $75 with a “buy” rating and ATB Capital Markets’ Tim Monachello to $78.50 from $70 with an “outperform” rating.
“2Q beat – all from higher margins. AFN sales grew 50 per cent in 2021 and 2022 (combined) on an organic basis,” said Mr. Doumet. “And, while we remain optimistic on its growth prospects, the 2Q beat highlights the more meaningful upside potential from (ongoing) margin expansion. Margin expansion has come more quickly than anticipated and, given the underlying momentum, likely has more room to go. The margin expansion goes to the essence of our bull thesis: higher margins and rightsized capital outlays (capex/WC) will drive a significant increase in FCF generation and an acceleration of the B/S deleveraging. Higher returns and lower debt should lead to multiple expansion.
“We see material upside in the shares: (i) AFN shares are up 85 per cent in the LTM [last 12 months], but its multiple remains at the lowest level in the decade and (ii) at current levels, AFN shares are below their 2019 level, despite the company nearly doubling its EBITDA (and having the same net debt). With positive momentum in terms of growth opportunities, margin upside, and FCF, we believe AFN shares, which trade at 7 times EV/EBITDA on our 2023 estimates, are undervalued.”
* BMO’s Tamy Chen raised his Autocanada Inc. (ACQ-T) target to $26 from $20 with a “market perform” rating. The average is $31.05.
“What has kept us from becoming more positive on the stock is the uneven management execution since H2/22, so Q2/23 results were encouraging to see,” she said. “Following recent notable jump, the stock is trading around the midpoint of its historical average on our increased 2024E EBITDA, which we do not consider to be a trough level. Further, we believe not all the strong trends in Q2/23 will extend into H2/23 and 2024. Thus, we await for a better entry point, assuming no notable step back in execution or
the macro outlook.”
* CIBC’s Dean Wilkinson raised his target for Boardwalk REIT (BEI.UN-T) to $70 from $68, keeping a “neutral” rating. Other changes include: iA Capital Markets’ Gaurav Mathur to $73 from $68 with a “buy” rating, Desjardins Securities’ Kyle Stanley to $77 from $75.50 with a “buY” rating and National Bank’s Matt Kornack to $79 from $77 with an “outperform” rating. The average is $72.41.
“We believe we are still in the early days of strengthening rental fundamentals in Alberta,” said Mr. Stanley. “Despite BEI’s outperformance (32-per-cent year-to-date total return vs 10 per cent for peers) and its relative valuation that is in line with the peer average (both at 17.5 times 2024 FFO), it offers an attractive 9-per-cent and 11-per-cent annualized FFOPU and NAVPU growth profile, respectively, among the best in the apartment space.”
* Canaccord Genuity’s Doug Taylor cut his Calian Group Ltd. (CGY-T) target to $75 from $83 with a “buy” rating. Other changes include: Desjardins Securities’ Benoit Poirier to $78 from $85 with a “buy” rating and RBC’s Maxim Matushansky lowered his target to $70 from $75 with an “outperform” rating. The average is $78.50.
* CIBC’s Hamir Patel cut his CCL Industries Inc. (CCL.B-T) target to $74 from $77 with an “outperformer” rating. The average is $75.89.
* RBC’s Pammi Bir increased his Chartwell Retirement Residences (CSH.UN-T) target to $13 from $12, which is the current average, with an “outperformer” rating. Other changes include: National Bank’s Tal Woolley to $11.50 from $10.50 with an “outperform” rating and CIBC’s Dean Wilkinson to $13 from $12 with an “outperformer” rating.
“After a lengthy period of challenges, CSH seems to be finally finding its footing. Notably, more effective operating strategies and macro tailwinds are collectively driving stronger occupancy traction. Indeed, we believe the rehabilitation of operating metrics is in the early days, with a compelling earnings recovery about to take hold. Investors may need some more convincing, but we think current levels provide an attractive risk-adjusted entry point,” said Mr. Bir.
* RBC’s Paul Treiber raised his Constellation Software Inc. (CSU-T) target to $3,300 from $3,200 with an “outperform” rating. Other changes include: Raymond James’ Steven Li to $2,850 from $2,750 with a “market perform” rating and BMO’s Thanos Moschopoulos to $3,150 from $2,950 with an “outperform” rating. The average is $3,164.96.
“We remain Outperform on CSU and have raised our target price following Q2/23 results, which were slightly ahead of consensus on both revenue and EBITDA with solid M&A and organic growth during the quarter,” said Mr. Moschopoulos. “We’ve modestly raised our estimates. The key takeaway from the quarter, in our view, is that CSU continues to achieve a robust level of y/y EBITDA growth, despite its growing size, even excluding the spinoffs. We believe the stock’s valuation remains attractive relative to our forecasts for growth.”
* National Bank’s Jaeme Gloyn bumped his Definity Financial Corp. (DFY-T) target to $53 from $52 with an “outperform” rating. The average is $42.23.
“Definity delivered a strong second quarter, summed up by the massive 27-per-cent EPS beat,” said Mr. Gloyn. “The stock responded with an immediate 11-per-cent jump, and then followed with another 7-per-cent positive move in the few days since. We continue to see upside in the shares as we come away from post-Q2 investor meetings more confident in the company’s long-term outlook. As important, investors shared our positive assessment of the meetings, including management’s ability to execute.”
* CIBC’s Mark Jarvi lowered his Emera Inc. (EMA-T) target to $56 from $58 with a “neutral” rating. Other changes include: BMO’s Ben Pham to $60 from $61 with an “outperform” rating and Maurice Choy to $66 from $68 with an “outperform” rating. The average is $59.21.
“As Cdn. energy infrastructure peers announce corporate restructurings and noisy results, EMA is sticking to its key strengths of investing in utility rate base and managing regulatory rewards. This has resulted in a more consistent and growing EPS growth trend: EPS grew by 2 per cent year-over-year and 5 per cent year-to-date and 2023E CFO is tracking to $2.1-billion (11.5-per-cemt FFO/debt). With the 10-per-cent discount to Cdn. utility peers, we continue to see value and combined with 22-per-cent potential total return to slightly revised target,” said Mr. Pham
* Scotia’s Konark Gupta bumped his Exchange Income Corp. (EIF-T) target to $66 from $65 with a “sector outperform” rating. The average is $67.14.
“EIF posted continued solid double-digit EBITDA growth, beating expectations, despite y/y headwinds at Northern Mat that were offset by growth in other areas,” he said. “While Northern Mat’s year-over-year headwinds peak in Q3, management maintained guidance, which suggests EBITDA growth will remain strong in 2H. EIF continues to target $600-million-plus EBITDA in 2024 and is now eyeing $700-million over time. We have slightly raised our 2024/2025 outlook, reflecting the recent Manitoba medevac contract, and we continue to see further upside risk from potential contracts and/or M&A. In the near term, we think EIF is very likely to raise the dividend within months, given the payout ratio remains low and the last hike was a year ago.”
* RBC’s Geoffrey Kwan cut his Fiera Capital Corp. (FSZ-T) target to $7, below the $7.59 average, from $8 with a “sector perform” rating.
“While Q2/23 EPS was in line with our forecast and consensus and had included the positive surprise of a significant improvement Q/Q in Adjusted EBITDA margin, the main takeaway for us is there are indications that net redemptions at PineStone sub-advised funds are likely to persist, which incrementally reduces visibility regarding when Fiera can return to sustained positive quarterly net sales (net sales have been negative for 9 consecutive quarters). Fiera’s share price has declined significantly this year, which we think in part reflects the disappointing net sales performance, but we don’t view the risk-reward profile as attractive enough yet,” said Mr. Kwan.
* RBC’s Pammi Bir moved his Granite REIT (GRT.UN-T) target to $97 from $103, maintaining an “outperform” rating, while Raymond James’ Brad Sturges trimmed his target to $94 from $96 with a “strong buy” rating.. The average is $96.40.
“We would hardly characterize Granite as a reckless driver – rather, quite the opposite, as we view management’s capital allocation as highly disciplined,” said Mr. Bir. “Our title is more in reference to rising investor concerns around decelerating industrial fundamentals, particularly in the US. Frankly, moderation from exceptionally tight conditions should be expected. Yet, moderation does not equate to slow growth. Indeed, our forecasts continue to reflect an above average earnings CAGR. Together with a hardly demanding valuation, Outperform intact, PT to $97 (-$6).”
* CIBC’s Sumayya Syed cut her H&R REIT (HR.UN-T) target to $13.50 from $14 with an “outperformer” rating, while RBC’s Jimmy Shan reduced his target to $13 from $14 with a “sector perform” rating. The average is $13.29.
* TD Securities’ Steven Green reduced his Iamgold Corp. (IMG-T) target to $5.50 from $6, remaining above the $4.38 average, with a “buy” rating.
* iA Capital Markets’ Gaurav Mathur raised his Killam Apartment REIT (KMP.UN-T) target to $19.50 from $18.50 with a “hold” rating. Other changes include: BMO’s Michael Markidis to $21 from $20 with an “outperform” rating and Raymond James’ Brad Sturges to $23 from $22 with an “outperform” rating. The average is $21.57.
* Canaccord Genuity’s Carey MacRury moved his target for Kinross Gold Corp. (K-T) to $9.50 from $9 with a “buy” rating. The average is $8.57.
* CIBC’s Hamir Patel raised his KP Tissue Inc. (KPT-T) target to $11 from $10.50 with a “neutral” rating. The average is $11.10.
* Canaccord Genuity’s Yuri Lynk raised his Mattr Infrastructure Technologies (MAR-T) target to $24.50 from $24 with a “buy” rating, while Stifel’s Ian Gillies increased his target to $24 from $22 with a “buy” rating. The average is $22.17.
“MATR delivered a strong 2Q23, even after adjusting for profitable one-time sales in the quarter,” said Mr. Gillies. “The company has also done an excellent job outlining how it believes it can double the revenue in both of its Composite Technologies businesses, while its Connection Technologies is also benefiting from a number of different secular growth trends. We remain confident that a pipecoating asset sale will be executed, resulting in an attractively capitalized entity with significant flexibility for M&A, organic growth and share buybacks.”
* Canaccord Genuity’s Doug Taylor raised his MDA Ltd. (MDA-T) target to $14 from $10.50 with a “buy” rating. Other changes include: BMO’s Thanos Moschopoulos to $12 from $8.50 with a “market perform” rating, Scotia’s Konark Gupta to $13.50 from $12 with a “sector outperform” rating and RBC’s Ken Herbert to $14 from $12 with an “outperform” rating. The average is $12.21.
“MDA reported an in-line 2Q23, but the stock is up 25 per cent on a $2.1-billion contract announcement with Telesat for 198 satellites in support of its Lightspeed program,” said Mr. Herbert. “The company was reluctant to provide too much around the financial implications of the contract, but it did indicate that it did not see a significant increase in investment spending, and it is not providing vendor financials to Telesat. We continue to see the valuation as attractive even with the strong move in the stock.”
* CIBC’s John Zamparo reduced his Park Lawn Corp. (PLC-T) target to $29 from $30 with a “neutral” rating. Other changes include: Stifel’s Martin Landry to $32 from $34 with a “buy” rating and RBC’s Irene Nattel to $33 from $36 with an “outperform” rating. The average is $32.50.
“Park Lawn reported Q2/23 results which were in-line with expectations. Market share gains continued for a fourth consecutive quarter with Q2/23 call volumes down 2 per cent vs industry volumes down 3 per cent,” said Mr. Landry. “Elevated death rates, which have caused fluctuations in at-need revenues in H1/23, appear to be abating. However, management continues to expect a decline in mortality throughout 2023, which will likely lead to lower call volumes than previously expected. Additionally, cemetery sales appear softer than expected. This combined with a difficult year-over-year comparable in H2/23, could continue to pressure comparable revenue growth in the second half of the year. On a positive side, PLC’s acquisition pipeline looks healthy as the company remains on track to spend between $75 million to $125 million on acquisitions this year.”
* Canaccord Genuity’s Robert Young reduced his Pivotree Inc. (PVT-X) target to $4.50 from $5.50 with a “buy” rating, National Bank’s John Shao trimmed his target to $5 from $7 with an “outperform” rating. The average is $5.50.
“Pivotree reported Q2 results that were below our and the consensus estimates mainly due to a challenging macro environment with customers essentially delaying or suspending their eCommerce-related IT spending,” said Mr. Shao. “Despite the pressure on top-line growth, we see a healthy shift in revenue mix towards the recurring Managed Services revenue, and the continued OpEx management to drive a balanced growth model still has the Company deliver an EBITDA breakeven. While macro challenges could persist in the near term, we still believe this name is well positioned to harvest the long-term opportunities given its deep expertise in eCommerce, a base of stable enterprise customers and a growing partnership ecosystem.”
* CIBC’s Nik Priebe increased his target for Power Corp. of Canada (POW-T) to $42 from $39 with a “neutral” rating. Other changes include: Barclays’ John Aiken to $43 from $40 with an “equal weight” rating, Scotia’s Phil Hardie to $43.50 from $44 with a “sector perform” rating, Desjardins Securities’ Doug Young to $40 from $38 with a “hold” rating, TD Securities’ Graham Ryding to $43 from $41 with a “buy” rating and RBC’s Geoffrey Kwan to $45 from $41 with a “sector perform” rating. The average is $42.44.
‘Q2/23 EPS was ahead of our forecast primarily due to better-than-forecast investment income and gains from monetization, which can vary significantly quarter-to-quarter,” said Mr. Kwan. “Although not every transaction is material and the timing of transactions are hard to predict, POW continues to take steps to simplify its structure, surface value, etc. such that we think POW is a much more attractive story today. The sheer number of changes in the past few years suggests POW is taking a very pro-active approach to create shareholder value. POW’s shares trade at a 22-per-cent discount to NAV, narrower than its 1-year average of 23 per cent and its 5-year average of 26 per cent and also offers an attractive 5.5-per-cent dividend yield. We see the stock as appealing to income-oriented investors with a longer-term investment horizon as they could benefit from material valuation upside from positive catalysts as we think POW is likely to continue to pursue transactions to simplify the structure and surface value, which we think would positively impact NAV growth and narrow the discount to NAV.”
* RBC’s James McGarragle raised his Russel Metals Inc. (RUS-T) target to $42 from $40 with a “sector perform” rating. Other changes include: BMO’s Devin Dodge to $41 from $40 with a “market perform” rating, Stifel’s Ian Gillies to $44.50 from $44 with a “buy” rating and Scotia’s Michael Doumet to $44 from $40 with a “sector perform” rating. The average is $41.81.
“Though the sustainability of recent financial performance remains uncertain, RUS continues to execute well and is capitalizing on the opportunities in its markets. The company has started to utilize its spare balance sheet capacity which bodes for lifting the base earnings power of the business. Valuation appears undemanding but there is limited visibility into a potential re-rating,” said Mr. Dodge.
* National Bank’s Vidal Shreedhar cut his Saputo Inc. (SAP-T) to $36, below the $36.33 average, from $37 with an “outperform” rating, while Scotia’s George Doumet bumped his target to $34 from $33 with a “sector perform” rating.
* CIBC’s Dean Wilkinson cut his Sienna Senior Living Inc. (SIA-T) target by $1 to $13, below the $13.43 average, with a “neutral” rating, while National Bank’s Tal Woolley bumped his target to $13.50 from $12.50 with an “outperform” rating.
* RBC’s Pammi Bir lowered his SmartCentres REIT (SRU.UN-T) target to $31 from $33 with an “outperform” rating, while National Bank’s Tal Woolley cut his target to $27 from $25.50 with a “sector perform” rating. The average is $28.81.
“As anxiety around an economy shifting to lower gear persists, we expect SRU’s defensive, value-focused portfolio to remain operationally resilient. Indeed, traction in occupancy is encouraging, along with rising demand for new retail space. Mixed-use developments are progressing as expected, with a disciplined approach to new starts. Near-term catalysts to narrow the gap to NAV are likely limited. Still, at a near-8% implied cap rate, we see steady growth at a very reasonable price,” said Mr. Bir.
* Scotia’s Michael Doumet dropped his Stelco Holdings Inc. (STLC-T) target to $42.50 from $53 with a “sector perform” rating. The average is $46.15.
“STLC’s 2Q EBITDA missed consensus largely due to higher costs. We expect higher-priced coal/coke inventories (which was purchased in the LTM [last 12 months]) to lead to above-average costs for the company – at least until the 1H24 (when it may begin to moderate more meaningfully as lower-priced coal/coke purchases filter through). Combined with the decline in HRC prices through the latter part of 2Q and into 3Q, we expect margins to come under pressure in 3Q – and likely through the 1H24, unless HRC prices rebound,” said Mr. Doumet.
* KBW’s Jade Rahmani raised his Tricon Residential Inc. (TCN-N, TCN-T) target to US$9 from US$8.50 with a “market perform” rating. The average is US$10.25.
* Scotia’s Phil Hardie raised his target for Trisura Group Ltd. (TSU-T) to $55 from $53 with a “sector outperform” rating, while BMO’s Tom MacKinnon increased his target to $50 from $49 with an “outperform” rating. The average is $54.43.
“We continue to see solid upside potential, and Trisura remains our top small-cap growth play,” he said.
* iA Capital Markets’ Ronald Stewart initiated coverage of Vizsla Silver Corp. (VZLA-X) with a “speculative buy” rating and $2.90 target. The average is $3.52.
“Vizsla Silver has one of the best, new silver-gold discoveries anywhere in the world today on its 100-per-cent owned Panuco project located in Sinaloa, Mexico,” he said. “At 476 g/t silver-equivalent (AgEq), the average grade of the combined indicated and inferred resource has the second highest among single asset, silver developers. At 224M oz AgEq, Panuco ranks as the fourth largest in terms of contained metal, using iA long-term metal prices. Panuco is and epithermal, lode vein style deposit that is dominated by precious metals with silver and gold accounting for 58 per cent and 35 per cent of the contained metal, respectively. Our analysis of the recent drilling since the resource was published in January 2023 indicates the likelihood of a material increase is virtually assured when VZLA releases its planned update in H2/23. While much remains to be done to establish the project’s economics and recent changes to the Mexican mining laws might impact market enthusiasm, we consider the risk/reward favours an investment in Vizsla. We recommend ‘Loding up’ on Vizsla Silver Corp.”
* Haywood Securities’ Gianluca Tucci increased his Well Health Technologies Corp. (WELL-T) target to $8.60 from $8 with a “buy” rating. The average is $8.21.
David Leeder