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Inside the Market’s roundup of some of today’s key analyst actions

National Bank Financial analyst Gabriel Dechaine called the fourth-quarter results from Canadian Western Bank (CWB-T) a “strong end to the year,” emphasizing net interest margins are “on the upswing.”

Shares of the Edmonton-based bank rose 2.9 per cent on Friday after it reported adjusted earnings per share of 94 cents in its latest quarter, up from 7 per cent (from 88 cents) during the same period a year ago and 6 cents above the consensus expectation on the Street due to an increase in net interest margin and “prudent” expense management.“ Revenue of $291.763-million also topped analysts’ projection of $291.1-million.

“3 basis points of NIM expansion was slightly above forecast, with Q4/23′s 2.40-per-cent NIM up 14 bps from the trough level set during Q2/23,” said Mr. Dechaine. “Improvement has come mainly from asset yield improvement finally catching up to (and exceeding) funding cost increases. The bank expects gradual NIM improvement in 2024, moving into the 2.40s in the first half and to the 2.50s in the second. Securities repricing will be the main tailwind for NIM in the first half, with loan spread improvement driving second-half momentum. CWB’s guidance is impacted more by spreads and the yield curve movements, as opposed to BoC rate actions (and timing thereof), with CWB downplaying these actions as a major NIM driver.”

The analyst also pointed to “another quarter of impressive cost control” after the bank kept its adjusted cost base “pretty flat” year-over-year.

“Considering the recent trend, we would normally be concerned that an upswing in expenses lay ahead,” he said. “However, CWB recorded a $17-million restructuring charge. The bank didn’t quantify savings. Rather, management indicated that the restructuring would enable it to maintain planned investments, while also delivering expense growth in the mid-single digits (i.e., comparable to 6 per cent in 2023).”

Raising his forecast on the back of higher NIM and lower expense, Mr. Dechaine bumped his target for shares of Canadian Western Bank, which raised its quarterly dividend by a penny to 34 cents, to $34 from $33, keeping an “outperform” recommendation. The average target on the Street is $33.91.

Elsewhere, others making target adjustments include:

* Scotia’s Meny Grauman to $33 from $31 with a “sector perform” rating.

“Our one key concern keeping us from getting more constructive on this name remains the bank’s ROE, which we expect to remain in the 10-per-cent range throughout our forecast horizon, and so we see more upside elsewhere in the space especially given the stock’s revaluation this year,” he said.

* Desjardins Securities’ Doug Young to $37 from $33 with a “buy” rating.

“Wrapping up FY23 on a high note, the bank delivered two back-to-back solid quarters, setting a promising tone for FY24,” said Mr. Young.

“We find the current valuation compelling. The company is attractively positioned to deliver further NIM expansion, cost controls, and disciplined credit and capital management.”

* TD Securities’ Marcel McLean to $34 from $32 with a “buy” rating.

* CIBC World Markets’ Paul Holden to $32 from $30 with a “neutral” rating.

* Raymond James’ Stephen Boland to $37 from $34 with an “outperform” rating.


EQB Inc.’s (EQB-T) 2024 guidance “appears reasonable from a loan and earnings growth perspective,” according to TD Securities analyst Graham Ryding.

“Loan growth of 8-12 per cent in F2024 appears reasonable, in our view,” he said. “This includes 5-10-per-cent growth for uninsured personal and commercial growth, and 40-60 per cent for decumulation (reverse mortgages and insurance lending). Notably, multi-unit insured loans are expected to grow by 20-25 per cent as the Department of Finance looks to ramp up its Canada Mortgage Bond (CMB) program, which funds multiunit insured lending, from $40-billion to $60-billion annually.”

“Our F2024 EPS forecast is at the low-end of guidance. We are forecasting loan growth in-line with guidance, modest NIM compression (assuming interest rates decline), and slightly higher PCLs vs. F2023 (12 basis points overall vs. 10 basis points in F2023, and implies mortgage PCLs of 8 basis points, in-line with EQB’s long-term average). We estimate the mid-point of guidance implies 9bps overall. We are modeling constructive ROE of 15.7 per cent, and BVPS growth of 14 per cent.”

The guidance release came alongside the late Thursday release of the Toronto-based bank’s fourth-quarter results, including adjusted earnings per share of $3.80 that exceeded both Mr. Ryding’s $3.60 estimate and the consensus projection on the Street of $3.65. The beat came largely from higher-than-anticipated non-interest income.

“In our view, more muted EPS growth in F2024 (vs. recent years) appears reasonable in the context of an environment that could reflect lower loan growth, flat to modestly declining NIMs, and higher PCLs,” he said. “Nonetheless, EQB has a strong credit track record, and has consistently delivered solid earnings growth, ROE, and BVPS growth. Valuation at 6.8 times 4QF P/E is attractive, in our view, relative to its regional and BigSix bank peers.”

With a “buy” recommendation for EQB shares, Mr. Ryding raised his target to $94 from $90. The average on the Street is $99.

Others making target changes include:

* Raymond James’ Stephen Boland to $110 from $97 with an “outperform” rating.

“While on-balance sheet loan growth continues to be impacted by a slower housing market, the bank continues to see strong activity across its securitized multi-unit residential portfolio,” said Mr. Boland. “This led to significant gains on sale this quarter. On EQ Bank, customer growth remains robust, with the customer count up 9 per cent quarter-over-quarter to 400k. This continues to be an important part of the EQB story and has been core to the NIM expansion we have seen in recent years. In an interesting development, EQ Bank expects to launch a small business banking product in 2024 — offering a similar no-fee, digitally-focused offering as the current personal banking solution. EQ Bank also recently launched in Quebec, and the company is targeting further customer growth of 30-40 per cent in 2024.”

* BMO’s Étienne Ricard and Sohrab Movahedi to $102 from $97 with an “outperform” rating.

“EQB is executing on-strategy, providing shareholders with an increasingly diversified bank, both on the asset and liability sides of the balance sheet. In addition, the acquisition of Concentra is strategically enhancing, providing scale, funding, and revenue diversification. The net result is we believe EQB’s relative valuation to other Canadian banks has the potential to expand,” they said.

* Cormark Securities’ Lemar Persaud to $97 from $92 with a “buy” rating.

“Our positive view on EQB is leveraged to the bank’s strong earnings growth profile, solid capital position and the benefits associated with the Concentra acquisition,” he said. “Over the short term, increased macroeconomic uncertainty could result in softer share price performance; however, we believe this is more than offset by the very attractive valuation in the context of a 16-per-cent-plus ROE.”


Canadian Apartment Properties Real Estate Investment Trust (CAR.UN-T) is “executing on CAPREIT 2.0,” according to Desjardins Securities’ Kyle Stanley, who sees improved market fundamentals leading to portfolio-wide leasing momentum and a continued decline in turnover.

Last week, the analyst hosted the Toronto-based REIT’s management team for marketing meetings in the United States.

“As CAR is the largest and most liquid of the Canadian apartment peers, we believe the meetings were well-timed, with institutional capital beginning to flow back to REITs in recent weeks with the decline in 10-year bond yields (CAR has delivered 13-per-cent total return since October 1 vs 8.5 per cent for apartment peers),” he said.

Mr. Stanley said the focus of investors was on market fundamentals as well as “the sustainability of the rent growth story and potential changes to the immigration picture.”

“According to management, leasing momentum has remained robust thus far in 4Q,” he said. “According to the December report (data as of November), market rent growth was down 2.4 per cent year-over-year in the GTA, up 0.7 per cent year-over-year in Vancouver and 8.5 per cent year-over-year in Montreal.

“Management indicated that within its portfolio, the slight moderation of rent growth in the GTA has been (1) seasonal in nature; and (2) due to the already elevated rent levels which are stretching affordability in some pockets. In some instances, management is seeing evidence of tenants looking to double up. While this could moderate rent growth in the very near term, underlying population growth combined with the lack of new supply completions and increased purchasing power from a greater number of tenants residing in an individual unit is likely to make this a temporary phenomenon.”

Expecting turnover to level off at 10-11 per cent, down from 12-13 per cent this year, Mr. Stanley thinks management’s commentary hinted at “an environment of prolonged, predictable and stable top-line growth.”

“The mantra of ‘a dollar is a dollar’ was repeated several times throughout the meetings, implying that the accounting treatment of CAR’s investment (capex run through the balance sheet or R&M run through the income statement) is less important, and instead, the goal is maximizing project and corporate-level IRR,” he said. “CAR is looking to rein in spending; through 9M23, CAR’s total other operating costs combined with capex (excluding development and energy investments) as a percentage of revenue is 42 per cent (vs 45 per cent in 9M22).”

Reiterating a “buy” recommendation, the analyst raised his target to $58 from $54. The average on the Street is $54.47.


While he sees a “strong growth profile,” Raymond James analyst Michael Glen initiated coverage of Aritzia Inc. (ATZ-T) with a “market perform” recommendation, believing the Street’s expectations for the Vancouver-based clothing retailer are “elevated.”

“Aritzia has posted some very impressive growth since its IPO in late 2016, and the company expects strong growth to continue with medium-term (4-year) growth targets for F2027 including net revenue of $3.5-3.8-billion (12-15-per-cent CAGR [compound annual growth rate] from F2023 sales of $2.2-billion), with an 19-per-cent adjusted EBITDA margin (which compares versus our 8.7 per cent margin in F2024),” he said. “We view these targets as attainable (aggressive, but attainable).

“That said, we must acknowledge that current investor focus for the name appears to be very near-term oriented. In that regard, despite what we would describe as low expectations for the stock, we would note that Aritzia will continue to face tough comparables through 2HFY24 on the back of two very high growth years seen in FY22 and FY23, which saw boost from post-pandemic spending. Additionally, we believe that warmer-weather conditions that persisted through the very important F3Q will represent a headwind to fall sales. With that, our F2024 adjusted EBITDA forecast is $200-million which stacks versus consensus of $216.6-million with full-year adjusted EPS forecast is $0.89 which stacks against consensus of $0.91.”

Mr. Glen views Aritzia as a “reasonably valued” stock, pointing to its historical valuation, growth targets, and same-store sales growth. He also sees it sitting “very much at the bottom of the list from a price performance perspective, essentially giving us a strong indication that expectations are quite low.”

“That said, despite some favourable characteristics to consider with respect to valuation and low investor expectations, we do see risk to current consensus estimates, a factor which we believe will present a risk in the short-term,” he said.

Emphasizing the release of its third-quarter 2024 financial results in early January will be “an important data point towards setting a base level for forecasts,” Mr. Glen set a target of $32 per share, matching the average on the Street.

“Given the size of the company and growth profile, and in addition to the company’s presence and strategy in both the U.S. and Canada, we see the company with an expansive list of potential peers,” he concluded. “As such, these peers have been categorized into Canadian discretionary stocks, premium apparel and accessories, large apparel brands, and active apparel and footwear brands. Overall, when we look at the company’s 14.7 times P/E multiple and 7.0 times our FY2025E EBITDA, we believe this represents a reasonable valuation given current consumer sentiment, macro-environment, and growth stage as the company expands its operations geographically and spends to streamline its costs.”


Scotia Capital analyst Orest Wowkodaw remains “highly concerned” about First Quantum Minerals Ltd.’s (FM-T) balance sheet and liquidity outlook, seeing no visibility on a potential restart of its Cobre Panama mine.

“Although it remains unclear when CP will be able to restart (if at all given the current risks to its social license), the company anticipates negotiating a new operating and fiscal stability agreement with the next government (presidential elections are scheduled in May 2024),” said Mr. Wowkodaw. “FM has formally initiated two parallel routes of international arbitration (under the Canada–Panama free trade agreement and via ICC arbitration) to protect its asset rights.”

In a note released Monday, he cut his forecast for the Vancouver-based miner to reflect an assumption of a 13-month suspension for the mine, leading him to emphasize balance sheet risks having escalated.

“At Q3/23, FM had cash of $1.3-billion and net debt of $5.6-billion (forecast at $6.1-billion at Q4/23 due to CP tax payments),” he said. “The company had $1.6-billion of available credit facilities but upcoming 2024-2026 debt maturities of $0.6-billion, $1.8-billion, and $1.0-billion. Assuming CP remains closed in 2024 and corporate capex is cut to $1.1-billion (vs. guidance of $1.8-billion), we anticipate that FM’s liquidity could be exhausted by mid-2025 with a likely debt covenant breach at Q4/24 (we estimate net debt to EBITDA of 5.0 times vs. limit of 3.5 times). ... Moreover, should an extended CP operating suspension be deemed a material adverse event by the company’s lenders, any remaining credit under the existing facility could no longer be available. Given the elevated liquidity risks, we believe FM should strongly consider selling assets to fortify the balance sheet; divesting 40 per cent of the Zambian assets to ABX-T [Barrick Gold Corp.] or Jiangxi Copper (not covered) could yield potential proceeds of $3.6-billion for example.”

After reducing his full-year EBITDA projections through 2025 by an average of 25 per cent per year, Mr. Wowkodaw dropped his target for First Quantum shares to $14 from $20, keeping a “sector perform” recommendation. The average is $20.30.


Calling it “a thoughtfully assembled company” and see its acquisition of Yamana Gold’s South American assets as “transformational,” BMO Nesbitt Burns analyst Jackie Przybylowski initiated coverage of Pan American Silver Corp. (PAAS-Q, PAAS-T) with an “outperform” rating.

“Pan American has a clear identity and vision, which has informed strategic portfolio assembly though successful M&A, committed precious metals exposure, specialization in Latin America which provides license to operate in difficult jurisdictions, and a successful track record of mine operation and optimization,” she said. “Our Outperform rating also reflects attractive valuation; Pan American is well-valued compared with many of its silver-exposed peers and compared with other large-cap precious metals peers.”

Warning of her “cautious” near-term outlook for silver, Ms. Przybylowski set a US$25 target for Pan American shares. The average is US$25.42.

“Silver exposure is hard to find, especially in a relatively large and liquid North American equity,” she said. “Silver mines tend to be smaller than gold mines, which limits scalability of the company. Even when mines are relatively large, the defined mine lives are often shorter; the veiny nature of the deposits adds cost and difficulty to drilling out long mine lives (and therefore mines are less likely to be credited with value in share price compared to assets with longer mine lives). Because of the difficulty in finding silver in scale and the market’s overall preference for gold at certain points in the cycle, many silver companies have diversified into gold or other metals.

“Pan American Silver is the world’s premier silver producer on the balance of silver production, overall size, and exposure to the metal.”


Following the announcement of the mutual decision to terminate the implementation of its strategic partnership with SNDL Inc. (SNDL-Q), Nova Cannabis Inc. (NOVC-T) shares now offer “asymmetric risk-reward profile today,” according to Eight Capital analyst Ty Collin.

“We viewed the original transaction as favourable for Nova because it involved expanding Nova’s store network, bolstering its balance sheet, extending the shared services agreement with SNDL, and increasing Nova’s public float,” he said. “In our view, this plan went a long way towards addressing the major reasons that Nova has traded at a discount to its intrinsic value, namely the stock’s low trading liquidity, closely-held ownership, and a tentative debt capital structure. Moving ahead, we expect that Nova and SNDL will continue to seek strategic alternatives focused on alleviating these valuation overhangs and unlocking Nova’s intrinsic worth.”

Mr. Collin sees Calgary-based Nova, which owns and operates 92 cannabis locations across Alberta, Ontario, and Saskatchewan, possessing “strong an improving fundamentals with durable free cash flow” and touted a “long runway for growth with the doubling of the Ontario store cap and ebbing competition.”

“Nova has achieved more than 600 basis points of gross and EBITDA margin expansion over the last four quarters, and is now generating durable free cash flow that can be used to self-fund growth,” he said. “We expect Nova will grow sales at a 10-per-cent CAGR [compound annual growth rate] 2023-25 driven by NTI store openings/maturation, and build on recent margin and cash flow momentum through pricing, data sales, private label penetration, and scale.”

“On December 1, Ontario announced plans to double its single-owner store cap from 75 to 150, creating room for Nova to eventually quintuple its footprint in the province, and signaling a business-friendly shift in regulation that we expect to continue over time. At the same time, we see the industry in the early innings of a rationalization and consolidation cycle, with new store growth slowing and profitability improving for leading operators.”

Seeing an “attractive” valuation, he raised his target to $3.75 from $2.50, keeping a “buy” rating. The average is $3.63.


Citi analyst Scott Gruber thinks the macro backdrop for North American energy exploration and production companies “appears challenging” heading into 2024.

“Oil and gas markets appear adequately supplied, recession risk is still lingering, cost deflation appears modest and efficiency gains likely moderate,” he said. “With OPEC cohesion risk now also casting a cloud over the E&P sector, selective stock picking is likely to remain the optimal strategy in 2024. Trends in capital efficiency should continue to drive stock performance, while we also prefer a bent toward gas later in the year.”

In a report released Monday, he named Ovintiv Inc. (OVV-N, OVV-T) as one of his top large-cap picks for the year ahead, citing its “improving operational efficiency and under-appreciated portfolio.”

“OVV appears set to demonstrate better capital efficiency, while we also foresee better appreciation for the company’s portfolio unfolding in 2024,” he said. “The waters will likely be muddied on capital efficiency given the Midland acquisition in 2023 and transitioning that asset from growth to maintenance. However we foresee an uplift in average Midland well productivity (2H v 2H) as OVV designs and executes the D&C program on the new acreage. The company should also benefit from $100mm in lower GP&T costs as a legacy transport contract on the REX pipeline expires. In addition, OVV has historically been placed in the ‘poor inventory’ camp, but we think the U.S. oil position is solid post the Midland acquisition and given its position in the Uinta. OVV’s Montney position in Canada has rightfully been under-appreciated given gas oversupply in the U.S. However, local NGL sales received robust pricing given diluent demand while both TMX and Coastal Link pipelines to the West Coast start up in 2024 improving the demand picture. Further, greater gas market tightness overall in N. America should drive better appreciation for the depth of OVV’s inventory position in the Montney. "

He maintained a “buy” rating and US$52 target for its shares. The average is US$57.25.

Mr. Gruber’s other pick is Coterra Energy Inc. (CTRA-N), which he upgraded to “buy” from “neutral” with a US$30 target, up from US$28. The average is US$32.65.

“Capital efficiency improvement should occur within both Delaware (large row developments focused on core zones) and Marcellus operations (stable lower/upper mix and freeing up $200mm of capital on optimizing locations),” he said.


Calling it “an attractive margin recovery story in a choppy macro,” Citi analyst Paul Lejuez upgraded Nike Inc. (NKE-N) to “buy” from “neutral” on Monday.

“Top-line challenges remain, but we are more optimistic about NKE’s ability to protect EPS in F24/F25 despite a choppy macro, driven by its: (1) GM recovery starting in 2Q24 thru F25 from freight (estimated 300 basis points), leaner inventory/lower promos, and DTC [direct-to-consumer] mix benefit (that has been temporarily hidden); (2) New innovation in calendar 2024 ahead of Paris Olympics; and (3) Solid position in China despite the volatile macro,” he said. “We expect a 2Q24 rev miss (down 1 per cent vs consensus up 1 per cent) but a GM beat (up 140 basis points vs consensus up 100 basis points). “Management is likely to take a more conservative view on 2H24 sales (which the market anticipates) but also communicate an ability to hit EPS targets with more visible GM gains coming and better SG&A management.”

Believing the “gross margin recovery story for NKE is compelling,” Mr. Lejuez raised his earnings per share estimate for its second quarter of fiscal 2024 to 86 US cents from 84 US cents, which is the current consensus, due to lower expenses. His full-year projection increased by 3 US cents to US$3.71, a penny below the Street’s expectations.

“Given the difficult comparisons in the NAM wholesale channel, challenging macro, challenging trends from NKE’s key retail partners in NAM and expected strong 2H sales recovery embedded in current guidance, we believe it is likely that management will take a more conservative view toward 2H sales (and lower F24 sales guidance from mid single digits to low single digits). However, we believe stronger GM/tight expense control will protect from an EPS reduction,” he said.

Mr. Lejuez raised his target for Nike shares to US$135 from US$100. The average is currently US$119.92.

“A one-of-a-kind brand with visible margin recovery creates a favorable risk/reward in our view,” he concluded.

“Nike is the dominant player in the global athletic footwear and apparel market. Over the last several years, higher freight/product costs and elevated promotions have weighed on NKE’s margins. Beginning in 2Q24 we see gross margin inflecting for the first time in 7 qtrs and believe NKE is on track to capture at least 300 basis points in EBIT over the next two years. Additionally, we see stronger innovation driving stronger top line growth in F25 after several years of lackluster performance.”


In other analyst actions:

* TD Securities’ Vince Valentini raised his target for BCE Inc. (BCE-T) to $56 from $54 with a “hold” rating. The average is $57.23.

* JP Morgan’s Bill Peterson initiated coverage of Lithium Americas Corp. (LAC-T) with a “neutral” rating and $10 target. The average is $15.63.

* While its 2024 guidance largely fell in line with expectations, Stifel’s Michael Dunn trimmed his Surge Energy Inc. (SGY-T) target to $12 from $12.50, keeping a “buy” rating, in response to a recent pullback in oil prices. The average is $12.90.

“We rate the shares a BUY. Surge offers significant exposure to very attractive rate of return oil plays in the Sparky in Eastern Alberta and the Frobisher and Midale in SE Saskatchewan, from which it now derives three-quarters of its production following the recent acquisition of Enerplus assets, and offers a high-torque vehicle for investing in higher oil prices,” he said. “We would not be surprised to see Surge continue to transition its asset base from here, while it looks to trim debt following the recent acquisition.”

* CIBC’s Kevin Chiang raised his target for TFI International Inc. (TFII-N, TFII-T) to US$152, above the US$144 average, from US$147 with an “outperformer” rating.

“We are adjusting our estimates to reflect the recent operational updates provided by a number of U.S. LTL [less-than-truckload] companies. While our Q4/23 estimated EPS moves lower, we remain optimistic about TFII’s earnings recovery into next year given company-specific levers. TFII remains a preferred name among the freight companies we cover,” he said.

* Ahead of Wednesday’s release of its fourth-quarter results, Mr. Chiang cut his Transat AT Inc. (TRZ-T) target to $3 from $4.25 with an “underperformer” recommendation. The average is $3.95.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 24/05/24 3:53pm EDT.

SymbolName% changeLast
Aritzia Inc
CDN Apartment Un
CDN Western Bank
Coterra Energy Inc
First Quantum Minerals Ltd
Lithium Americas Corp
Nike Inc
Nova Cannabis Inc
Ovintiv Inc
Pan American Silver Corp
Surge Energy Inc
Tfi International Inc
Transat At Inc

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