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

With Algonquin Power and Utilities Corp.’s (AQN-N, AQN- T) management remaining committed to the sale of its renewable energy business, RBC Dominion Securities’ Nelson Ng expects its shares to remain range-bound in the near term as investors debate the value the division can attract in a high interest rate environment.

While he sees “upside in the shares with respect to valuation,” the analyst warned recent sector weakness has also “tempered investors’ expectations.”

“The focus continues to be divesting the entire renewables business rather than individual assets because management believes the platform (team and development pipeline) can attract significant value,” said Mr. Ng. “Due to the timing of the process, we believe the investment environment (interest rates and inflation expectations, and sentiment in the renewables sector) in H1/24 will determine the final price for AQN’s Renewables division.

“The Renewable division continues to develop projects, and management is seeing strong demand for renewable energy. Contracted power prices and project returns are moving higher to reflect project cost inflation and a higher cost of capital. We note that management expects to spend $300 million of capex in the Renewables division in 2023 ($288 million spent in the first nine months), and we expect capex to rise in 2024. Due to the financing structure employed during construction, there is a lag between when costs are incurred and when the capex is recognized. We estimate that at the end of Q3/23, $712 million of capex incurred will eventually make its way onto AQN’s balance sheet after the projects are commissioned. We expect that tax equity will be utilized to fund a significant portion of the capex, and the company has flexibility to defer capex in the regulated division if needed.”

Shares of the Oakville, Ont.-based company closed flat on Friday despite the premarket release of weaker-than-anticipated third-quarter results. Both adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and earnings per share (EPS) of US$281-million and 11 US cents, respectively, fell below Mr. Ng’s estimates (US$289-million and 12 US cents) and the consensus projections on the Street (US$299-million and 12 US cents). It attributed the misses to unfavourable weather and high interest rates.

To reflect the impact of higher interest rates, Mr. Ng lowered his 2024 EPS projection by 1 US cent to 53 US cents. He also introduced a 2025 estimate of 44 US cents, which assumes the sale of its renewables business and interest in Atlantica Sustainable Infrastructure (AY-Q) at the end of 2024.

Maintaining a “sector perform” rating, Mr. Ng cut his target for Algonquin shares to US$7 from US$8. The average is US$7.64.

“Our $7 price target is based on 16 times (prior $8 implied 18 times) our 2025 EPS forecast. The target valuation multiple is a discount to peers, which we believe is appropriate given the uncertainty we see over the next 12 months in relation to the potential sale of the Renewables division,” he concluded.

Others making target adjustments include:

* National Bank’s Rupert Merer to US$7.50 from US$8.50 with a “sector perform” rating.

“We believe the renewable division could fetch a purchase price between $2.5-3-billion, though there could be moving parts given a weaker M&A backdrop,” said Mr. Merer. “We believe it is unlikely that a deal is done in the next few quarters for AQN’s assets and its 42-per-cent stake in Atlantica Sustainable Infrastructure (AY; Outperform, US$24 target). AQN will not rush a sale and will demand an appropriate valuation for its assets, but with AY trading at 8.2 times EV/EBITDA on 2024E, it could be difficult to fetch a fair price. Proceeds from the sale of AQN’s renewables division and the potential sale of its AY stake would be used to reduce the debt load and fund share repurchases.”

* BMO’s Ben Pham to US$7 from US$8 with a “market perform” rating.

“While the market remains skeptical of AQN’s ability to execute on the sale of its renewable power business (timing and sale multiple) given recent precedents and the rise in interest rates, we believe the current 9 times P/E valuation (following recent significant share price underperformance) creates an interesting opportunity for investors with a multi-year time horizon,” he said. “We are maintaining our Market Perform rating and target moves down ... (on recent valuation compression) as we believe potential positive catalysts will take time to surface (renewable sale expected during 2024).”

* CIBC’s Mark Jarvi to US$7 from US$7.50 with a “neutral” rating.

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In the wake of its third-quarter earnings per share falling short of the Street’s expectations, Park Lawn Corp.’s (PLC-T) “depressed” valuation offers investors an “attractive entry point,” according to Stifel analyst Martin Landry.

“U.S. mortality rates continue to decline year-over-year and weigh on PLC’s funeral call volumes (down 5 per cent year-over-year) and at-need property sale,” he said. “The COVID overhang on mortality rates appears longer than expected and management expect death rates to decline low-single-digits in 2024. While these results are not encouraging, Park Lawn’s valuation at 8 times EV/EBITDA is not demanding, supported by the 8 times EV/EBITDA multiple received for the divestiture of lower-margin assets. We expect M&A activity to pick up next year as the acquisition pipeline appears healthy and valuation multiples return to normalize levels.”

After the bell on Thursday, the Toronto-based operator of funeral homes and cemeteries reported revenue of $87.5-million, up 8 per cent year-over-year and in line with both Mr. Landry’s $86-million estimate and the consensus projection of $87-million. However, earnings per share slid 31 per cent to 15 cents per share, missing expectations (19 cents and 21 cents, respectively) due to higher finance costs and tx rate consequences.

“In October, PLC announced the divestiture of 72 cemeteries and 11 funeral homes, which do not fit the company’s long-term goals anymore,” said Mr. Landry. “This will create near-term noise in Park Lawn’s financial results but should allow the company to build off a stronger base, in our view. This should translate into improvements in PLC’s financial performance starting with a higher and more stable margin profile. Additionally, the implementation of FaCTS [a new funeral and cemetery technology solution] should continue to enable significant margin benefits as visibility on field margins improves, enabling management to better manage KPIs on a rooftop by rooftop basis.

“Clear focus on high return on investments. Recent decisions made by management such as asset divestitures and the cancelation of a cemetery development project, suggests a stronger focus on ROIC [return on invested capital]. We would expect to see PLC’s depressed ROIC increase over time as management redeploys capital into high ROIC initiatives. Internal ROIC threshold targets are mid-to-high teens vs. the current ROIC level of mid-single-digits.”

Citing the weaker-than-expected results as well as rising interest payments as a result of increased effective interest rates and higher debt levels, Mr. Landry reduced his 2023 EPS estimate by 7 per cent to 82 cents from 88 cents. His 2024 projection is now 80 cents, down from 96 cents previously, while he introduced a 2025 expectation of 86 cents.

Maintaining a “buy” recommendation for Park Lawn shares, Mr. Landry dropped his target to $22 from $30. The average target on the Street is $25.50.

Elsewhere, others making changes include:

* Scotia’s George Doumet to $24 from $28 with a “sector outperform” rating.

“Q3 adj. EBITDA missed expectations, driven by lower revenue from comparable operations (in cemetery) and lower EBITDA margins,” he said. “Looking ahead, while recent moves (step up in corporate G&A and divestiture of lower-margin businesses) have a dilutive impact on estimates, we believe they are the right moves to better position the business to increase efficiencies and balance sheet optionality. From a stock perspective, we can argue that shares are undervalued (trading at approximately 1.5 times discount to SCI vs. historically closer to 0.5 times discount), and anticipate a strong recovery once we gain more visibility around the extent/scope of the normalization of the death rate. PLC remains a preferred small-cap idea.”

* Acumen Capital’s Jim Byrne to $24 from $28 with a “buy” rating.

“Margins will remain under pressure in the near term as the market ‘normalizes’ and the company optimizes both their remaining asset base, and their corporate cost structure,” he said. “With improved financial flexibility following the close of the disposition we anticipate further M&A and evidence of improved margins will renew investor interest.”

* CIBC’s John Zamparo to $20 from $23.50 with a “neutral” rating.

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Desjardins Securities analyst Benoit Poirier called Stantec Inc.’s (STN-T) third-quarter earnings release “a delicious appetizer” ahead of its “main course” Investor Day event in Boston on Dec. 5, where it is expected to unveil its guidance for 2024 as well as a new three-year strategic plan.

“Given the infrastructure spend backdrop in North America and STN’s positioning, we expect the plan to be well-received by investors,” he said. “We see a path to a 10-per-cent-plus CAGR [compound annual growth rate] potential return without capital deployment (share buybacks and M&A), thanks to mid-single-digit organic growth and the potential for 30–40 basis points of margin improvement per year.

Shares of the Edmonton-based engineering services firm soared 8.6 per cent on Friday after its quarterly release, which Mr. Poirier called “outstanding.” Revenue of $1.317-billion, adjusted EBITDA of $241-million and adjusted earnings per share of $1.14 also topped the expectations on the Street ($1.274-billion, $218-million and 98 cents, respectively).

“STN’s beat was despite an expense related to the revaluation of the long-term incentive plan (C$7.1m in 3Q), primarily due to the strong share price appreciation,” the analyst noted. “Excluding this revaluation, 3Q adjusted EBITDA margin would have been 18.9 per cent and adjusted EPS would have been $1.19.”

“2023 guidance raised once again despite the incentive plan headwind. While we believe continued margin expansion is on the table for 2024 and over the new three-year plan, we do not consider the 18.3-per-cent level as a permanent step change and new base (some quarter- and project-specific items likely played a positive role—for example, recoveries and risk releases boosted EBITDA margin by 20 basis points). We are maintaining our 2024 margin forecast of 16.8 per cent.”

He also touted a balance sheet that is “now primed” for M&A activity.

“Previous discussions were mostly centred on less than 1,000-employee firms, but the multiple expansion since the beginning of the year is a clear competitive advantage,” he said. “STN should have a much easier time making a large acquisition work financially (accretive to shareholders) and open up a larger pool of M&A candidates.”

After raising his revenue and earnings expectations through 2024, Mr. Poirier reiterated his bullish stance on Stantec, increasing his target for its shares to $102 from $96 with a “buy” recommendation. The average target on the Street is $102.55.

“We are pleased with the continued momentum building in the U.S., the evolution of the M&A strategy toward larger transactions and the accretion opportunities available following STN’s multiple expansion,” he said.

Elsewhere, ATB Capital Markets’ Chris Murray upgraded Stantec to “outperform” from “sector perform” with a target of $110, up from $90.

“Stantec’s results were impressive, as better-than-expected organic growth and project margin underpinned a large beat,” said Mr. Murray. “Organic growth of 9.0 per cent exceeded ATB’s estimate by 70 basis points, led by the strength in the US. Strong Q3/23 results and a constructive outlook led management to increase full-year guidance. While formal revised financial targets are expected to be released at STN’s upcoming investor day, management was upbeat on the 2024 outlook across its regions/end markets and the opportunity for incremental margin expansion. Given the expected impact of US infrastructure spending on organic growth over a multi-year period, better project execution, and the Company’s stable leveraged operating model, we have become increasingly constructive on STN.”

Others making target changes include:

* National Bank’s Maxim Sytchev to $109 from $105 with an “outperform” rating.

“We have identified STN as our preferred engineering consulting idea for 2023 and results year-to-date have been more than delivering on those hopes (hence share price up 44 per cent vs. 1 per cent for TSX YTD),” said Mr. Sytchev. U.S. at 54 per cent of top line is the company’s geographic engine while Environmental/Water skew as a percentage of revenue is in the sweet spot where funds are flowing at the moment; importantly, we don’t believe this set-up will change over the next 24 - 36 months, barring a severe recession (as public funds are committed). We also believe that M&A once again will become part of the story in 2024E (market is very active now, according to CEO); management also appears comfortable with seeing margins moving further up from already current healthy levels, something that we incorporated in our future projections.”

* Scotia’s Michael Doumet to $104 from $99 with a “sector perform” rating.

“3Q (i.e., beat and raise) was an all-around positive,” he said. “Organic growth was better than expected in Canada and was strong in the U.S. (as expected). To keep up with unprecedented levels of demand, STN is hiring at 2 times the pre-pandemic pace (while voluntary turnover is back to pre-pandemic levels). Higher utilization rates combined with cost discipline and a higher-than-normal volume of change order approval drove higher project and EBITDA margins. Following the strong performance and the favorable outlook, STN raised its 2023 revenue (up 1.5 per cent vs. previous guide), adj. EBITDA (up 4 per cent), and adj. EPS (up 9 per cent) guidance. Continued momentum in Water/Environment Services across all regions, overall solid growth in the U.S., improving hiring/retention across the organization, provide encouraging signs that STN will be able to duplicate its 2023 success in 2024. STN scheduled an Investor Day on December 5, where we expect the company to provide medium-term organic growth and margin expectations as well as discuss its strategic initiatives.”

* RBC’s Sabahat Khan to $106 from $96 with an “outperform” rating.

“We believe Stantec is well positioned heading into 2024 given its favourable geographic/end-market exposure and sizeable backlog,” said Mr. Khan. “The balance sheet is also in good shape, which positions the company well to pursue M&A opportunities.”

* TD’s Michael Tupholme to $115 from $105 with a “buy” rating.

* Canaccord Genuity’s Yuri Lynk to $97 from $92 with a “hold” rating.

* CIBC’s Jacob Bout to $101 from $97 with an “outperformer” rating.

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Desjardins Securities’ Chris Li thinks “challenging market conditions” will likely bring “muted” earnings and share price growth for Saputo Inc. (SAP-T) in the near term.

“While market factors are impossible to forecast and remain a key risk, the earnings set-up for next year looks favourable, supported by an improving supply-demand balance in exports and network optimization benefits,” he said. “This should drive 13-per-cent EBITDA growth next year.”

He was one of very equity analysts on the Street to reduce his financial forecast for the Montreal-based dairy giant following last week’s release of weaker-than-anticipated quarterly results, which sent its shares falling 5.9 per cent on Friday.

“Despite largely in-line 2Q results, we attribute the negative share price reaction to a ‘beat and raise’ quarter that did not materialize due to tougher near-term market conditions (lower export sales volumes and pricing, volatile dairy commodities, highcost inventory and softening consumer demand in the UK, etc),” said Mr. Li. “Even though SAP is controlling the controllables, persistent market headwinds mean that FY24 EBITDA will likely be flat vs our previous expectation of 6 per cent. Encouragingly, management is seeing early signs of an improved balance between supply and demand in the export market, supporting a stronger outlook for next year.

“Assuming market conditions improve, we expect strong EBITDA growth next year (13 per cent), driven partly by benefits from network optimization. Management is targeting $195-million of EBITDA benefits (FY25–27) from various network optimization initiatives in the US. We estimate $75-million should be achieved in FY25 (skewed toward 2H), representing 40 per cent of the total announced benefits. Our downside scenario assumes very limited EBITDA growth in FY25 (2 per cent vs 13-per-cent base case) as unfavourable and uncontrollable market factors largely offset benefits from network optimization.”

Reducing his 2024 and 2025 EPS expectations to $1.58 and $1.90, respectively, from $1.76 and $2.10, Mr. Li lowered his target for Saputo shares to $33 from $35, maintaining a “buy” recommendation. The average is $34.61.

“While risk/reward skews to the positive, we believe the stock will likely remain rangebound until there is better earnings visibility,” he concluded.

Other target changes include:

* Scotia Capital’s George Doumet to $31.50 from $34 with a “sector perform” rating.

“. Q2/F24 adj. EBITDA was in line with expectations – strong margin performance in the U.S continued solid results in Canada were offset by lower international and Europe performance,” he said “That said, the outlook did get in the way of any relief for the shares. SAP called for Q3 (and to some extent Q4) adj. EBITDA to have a negligible impact from optimization, to be up in Canada (in Q3 from seasonality) and with more muted growth for the U.S, International, and Europe. Street expectations were looking for a 12-per-cent quarter-over-quarter improvement in Q3. F25 looks to be the ‘inflection year’, when we anticipate a step up in earnings from the strat plan, normalized (we hope) commodity markets, and improved FCF conversion from improved w/cap and lower capex leading to improved balance sheet optionality (raising the prospects for capital returns to shareholders).”

* National Bank’s Vishal Shreedhar to $35 from $36 with an “outperform” rating.

“While Q2/F24 outlook commentary in the disclosure material was largely unchanged (SAP did note it now expects the Europe sector to be negatively impacted by lower prices and higher cost inventory), we interpreted conference call commentary to be cautious, with SAP citing volatility in the backdrop (commodities, demand). We have moderated our estimates accordingly,” he said. “As a result, F2024 EPS goes to $1.68 from $1.81, and F2025 EPS goes to $2.02 from $2.12.”

“We recognize that investor questions on SAP’s ability to achieve targets and deliver relatively consistent growth have intensified, particularly given heightened commodity volatility. We believe that attractive valuation sufficiently compensates the investor.”

* BMO’s Tamy Chen to $34 from $37 with an “outperform” rating.

“Valuation at a 10-year low (8 times our forward EBITDA),” she said. “This likely reflects investors now regarding SAP as more exposed to commodity fluctuations than previously appreciated and some skepticism on the execution of the GSP. Reflecting on our decision to remain Outperform rated since FQ4/23, it has become apparent that we underestimated the duration of commodity-related headwinds. We do expect a better macro environment into F2025, which should improve earnings. Further, management’s historical track record suggests the GSP should grow EBITDA from current levels.”

* TD Securities’ Michael Van Aelst to $40 from $42 with a “buy” rating.

* CIBC’s Mark Petrie to $37 from $38 with an “outperformer” rating.

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Pointing to the “uncertainty driven by elevated interest rates,” Acumen Capital analyst Trevor Reynolds downgraded AutoCanada Inc. (ACQ-T) to “speculative buy” from “buy” following mixed third-quarter results.

The Edmonton-based company reported revenue of $1.657-billion, up 2.1 er cent year-over-year and narrowly ahead of Mr. Reynolds’s $1.653-billion estimate but below the Street’s expectation of $1.699-billion. Adjusted EBITDA of $66.7-million fell below the projections ($70.6-million and $72.1-million, respectively).

“Revenue for the quarter was as expected while Adj. EBITDA was negatively impacted by U.S. Operations and increased floor plan financing,” he said. “Margins on new, used and F&I are expected to be challenged in the near term by increased rates while PS&CR is well positioned.”

“Moving forward the question remains as to how resilient the market for vehicles will be with elevated interest rates for longer. While PS&CR [Parts, Service and Collision Repair] remains very well positioned to benefit as cars are maintained for longer, new, used and F&I [Finance and Insurance] are facing increased head winds. Project Elevate, a new 5-year strategic initiative, was developed over the summer and is focused on substantially closing the gap to normalized peer (U.S.) profitability and capturing market share.”

With reductions to his full-year 2023 and 2024 revenue and earnings forecast, Mr. Reynolds trimmed his target by $1 to $32. The average is $28.73.

Elsewhere, Scotia Capital’s Michael Doumet dropped his target to $26 from $35, keeping a “sector outperform” rating.

“The ‘magic’ of last quarter did not reappear this quarter,” said Mr. Doumet. “While there were some positives (i.e. new GPU, new volumes, F&I, and PS&CR) and negatives (i.e. used vehicle units, U.S. operations), 3Q results, by and large, landed where we would have expected were it not for the standout performance 2Q.

“ACQ kicked-off ‘Project Elevate’ – an operational excellence program. If you asked us, we would describe the previous plan, the Go Forward plan (implemented in 2019), as a grow-at-all-cost initiative. At the time, it was what the company needed – as the plan meaningfully expanded its used, F&I, and PS&CR business lines, providing the company with larger and more durable profit pools. Now, it is looking to tune them up. While ACQ’s official guidance on Project Elevate is to “substantially close the gap to normalized peer profitability” the plan has an agenda to enhance gross profits, become more costefficient, enhance corporate functions – and then, when ready, restart M&A. Through that first 1 or 2, the focus will be internal (and to paydown debt and buyback stock). We believe there is something good here for investors – it may just take (more) time. We lowered our estimates and, therefore, our one-year target.”

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Citing its “deep” net asset value per share discount, “attractive” 9.6-per-cent implied cap rate valuation and “greater” growth prospects for 2024 due to “its increased industrial lease rollover exposure next year with in-place rents psf [per square feet] well below forecasted market rents,” Raymond James analyst Brad Sturges upgraded Parkit Enterprise Inc. (PKT-X) to “outperform” from “market perform” previously.

“While transitional vacancy is expected at certain locations, we are forecasting that Parkit could achieve over 100-per-cent rent re-leasing spreads for its 2024 lease renewal and replacement activity,” he added.

Mr. Sturges trimmed his target for the Toronto-based industrial real estate company, which is focused on parking assets, to 60 cents from 70 cents. The average is 92 cents.

Elsewhere, Canaccord Genuity’s Mark Rothschild cut his target to 70 cents from 76 cents with a “buy” rating.

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Stifel analyst Alex Terentiew saw the third quarter as “negative” for base metals producers, citing “disappointment” with higher costs despite generally in-line production results.

“While inflation has moderated, we don’t see costs deflating, with pressure on labour, consumables and parts persisting,” he said. “As a result, we have also increased our 2024+ cost expectations and trimmed some metal price forecasts, with the net impact an average 12-per-cent reduction to our NAVPS estimates. Looking ahead, we expect political risk to be an increased focus given the situation in Panama, with development of new projects likely to be delayed further as current weak metal prices limit, or remove the incentive for most companies to move project’s forward. Longer-term, copper remains our base metal of choice as supply struggles to meet demand.”

In a report released Monday reviewing earnings season, he made a series of target changes:

* Capstone Copper Corp. (CS-T) to $7.40 from $8 with a “buy” rating. The average is $7.80.

“Capstone Copper reaffirmed its H2 Cu production of 83-93k and reiterated that Mantoverde is now approximately 93 per cent complete and remains on track for completion by year-end,” he said. “We continue to view Capstone as the mid-tier producer with the most production growth over the next few years (60 per cent by 2025), unit costs that we expect to correspondingly drop by 28 per cent, and valuation re-rating potential above its lower growth peers.”

* First Quantum Minerals Ltd. (FM-T) to $22 from $24 with a “hold” rating. Average: $28.33.

“First Quantum remains mired in political uncertainty, which impacts confidence in our future cash flow estimates. With a federal election in the country planned for May 2024, however, investors may need to wait several months for greater clarity,” he said.

* HudBay Minerals Inc. (HBM-T) to $9.30 from $10.10 with a “buy” rating. Average: $9.64.

“Hudbay reported its best quarter in years, as expected, but hasn’t avoided the cost inflation the industry is facing. Longer-term, we continue to watch for successful execution at Copper Mountain and exploration success at its other mines, which could lead to upside valuation potential,” he said.

* Lundin Mining Corp. (LUN-T) to $12 from $13 with a “buy” rating. Average: $11.61.

“Lundin’s development plans for its Andean operations (Candelaria, Caserones and Josemaria) continue to be the most significant value driver going forward, with Josemaria appearing to slow down (a positive) with Caserones & Candelaria an increasing focus,” he said.

* Teck Resources Ltd. (TECK.B-T) to $71 from $68 with a “buy” rating. Average: $26.05.

“On November 7 and 8, we participated in an analyst and investor tour of Teck’s new QB2 copper mine in Chile, as well as the mine’s associated infrastructure. While the latest capex increase was negative news brought the total cost to U$8.6-$8.8-billion, the new mine’s ramp up appears to be going well, although we expect typical start-up wrinkles to continue to be ironed out,” he said. “Following the tour ... we trimmed our target price on Teck to $69, with the cut attributed to inclusion of higher cost across all operations. Despite the additional costs, reflecting a trend we are seeing for all companies in the sector, we continue to view Teck as one of our preferred stocks given its increasing exposure to copper, growth pipeline, pending met coal sale and cash injection, and attractive valuation.”

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In other analyst actions:

* Canaccord Genuity’s Robert Young downgraded Pivotree Inc. (PVT-X) to “speculative buy” from “buy” with a $3.25 target, down from $4. Elsewhere, National Bank’s John Shao cut his target to $3.50 from $5 with an “outperform” rating. The average is $4.19.

“Pivotree reported Q3 results that missed on revenue and EBITDA,” said Mr. Young. “The macro continues to be a headwind as clients emphasize cost reduction and higher ROI short term programs over longer term transformation. Pivotree noted that sales cycles remain extended with higher signing scrutiny, a key driver behind a 31-per-cent year-over-year drop in Professional Services. Given the revenue miss, partly offset by mix shift towards higher margin Managed Services and Product revenue, EBITDA was below our expectations, but still positive. We believe management will be tactical on opex to maintain positive EBITDA with improvement as we progress through 2024. We are reducing our rating.”

* CIBC’s Hamir Patel trimmed his Adentra Inc. (ADEN-T) target to $34, below the $39.33 average, from $35 with an “outperformer” rating.

* Canaccord Genuity’s Yuri Lynk raised his AtkinsRéalis (ATRL-T) target to $50 from $48 with a “buy” rating. Other changes include: ATB Capital Markets’ Chris Murray to $53 from $48 with an “outperform” rating, Scotia’s Michael Doumet to $52 from $51 with a “sector outperform” rating RBC’s Sabahat Khan to $53 from $49 with an “outperform” rating and CIBC’s Jacob Bout to $51 from $50 with an “outperformer” rating. The average is $49.08.

“At the beginning of 2023, AtkinsRealis Services organic growth was guided at 5 per cent to 7 per cent,” said Mr. Doumet. “That got bumped up in 2Q, and then again in 3Q such that organic growth is expected to be 10 per cent higher (at the low- and high-end) than it was at the start of the year. The core Engineering Services and Nuclear are driving outsized momentum. Given the supportive backdrop and the businesses’ favorable positioning, we view this level of revenue as a ‘new baseline’ in which to grow from in 2024. That being said, although not impossible, achieving double-digit organic growth in 2024 may be hard to stack on 2023′s upside surprises. The other story is margins. Given the strong organic growth, we would have expected more margin expansion, particularly as it related to Engineering Services. While we are seeing operating leverage vis-a-vis corporate costs, segment margins have seen little expansion. In 2024 (and beyond), we expect margin expansion to gain momentum.”

* RBC’s Sabahat Khan raised his Boyd Group Services Inc. (BYD-T) target to $290 from $284 with an “outperform” rating. Other changes include: BMO’s Tamy Chen to $290 from $280 with an “outperform” rating, ATB Capital Markets’ Chris Murray to $300 from $290 with an “outperform” rating, Desjardins Securities’ Gary Ho to $275 from $270 with a “hold” rating and National Bank’s Zachary Evershed to $260 from $270 with a “sector perform” rating. The average is $282.77.

“Boyd reported Q3 Adjusted EBITDA that was in line with RBC/consensus expectations, while the organic growth outlook for Q4 remains strong,” said Mr. Khan. “Overall, the company is continuing to make progress on receiving pricing from insurers and is executing well amidst the uncertain macro backdrop. Looking ahead, we believe Boyd remains well positioned to continue rolling up the collision repair industry and improve margins toward pre-pandemic levels.”

* RBC’s Andrew Wong reinstated coverage of Cameco Corp. (CCO-T) with an “outperform” recommendation and $70 target following the close of the Westinghouse transaction. The average target on the Street is $66.33.

“We believe Cameco is set to become a leading player in a nuclear industry experiencing a rebirth amid the global energy transition,” he said. “We see the Westinghouse acquisition and future investments as the path to creating a full-service nuclear company that can compete globally and benefit from increased investment into the sector. Together with tight uranium markets supporting stronger prices, we think Cameco could more than double EBITDA by 2035.”

* TD Cowen’s Vivien Azer cut her Canopy Growth Corp. (WEED-T) target to 80 cents from $1.80 with a “market perform” rating. The average is 79 cents.

* BMO’s Michael Markidis cut his CAP REIT (CAR.UN-T) target to $52 from $54 with an “outperform” rating. The average is $54.68.

* Stifel’s Cole Pereira lowered his Cathedral Energy Services Ltd. (CET-T) target to $1.65, below the $1.84 average, from $1.80 with a “buy” rating.

* BMO’s Fadi Chamoun lowered his Cargojet Inc. (CJT-T) target to $100 from $110 with a “market perform” rating. The average is $134.75.

“CJT’s Q3/23 results were slightly below our estimates, but have limited impact on our medium-term earnings forecast and overall investment thesis. Tonnage stabilized year-over-year in Q3/23 in the domestic network, which is encouraging. On the international side, CJT continues to lean into the charter market to maintain high fleet utilization and has taken steps to reduce growth capex, which should help strengthen free cash flow and maintain financial leverage stable at 2.5 times. With limited visibility into a demand recovery, we maintain our Market Perform rating.”

* CIBC’s Hamir Patel cut his CCL Industries Inc. (CCL.B-T) target to $72 from $74 with an “outperformer” rating. The average is $74.33.

* CIBC’s Dean Wilkinson raised his Chartwell Retirement Residences (CSH.UN-T) target to $14 from $13 with an “outperformer” recommendation, while TD Securities’ Jonathan Kelcher bumped his target to $12.50 from $12 with a “buy” rating. The average is $13.17.

* RBC’s Keith Mackey increased his CES Energy Solutions Corp. (CEU-T) target to $5 from $4.25 with an “outperform” rating, while Scotia’s Jonathan Goldman bumped his target to $5.30 from $4.75 with a “sector outperform” rating. The average is $4.88.

* Scotia’s Himanshu Gupta lowered his target for Choice Properties REIT (CHP.UN-T) to $15 from $16 with a “sector outperform” rating. The average is $14.83.

* National Bank’s Richard Tse raised his target for Constellation Software Inc. (CSU-T) to $3,400 from $3,250 with an “outperform” rating. The average is $3,190.

* National Bank’s Matt Kornack increased his Crombie REIT (CRR.UN-T) target to $14 from $13.50 with an “outperform” rating. The average is $15.39.

* National Bank’s Jaeme Gloyn raised his Definity Financial Corp. (DFY-T) target to $54 from $53 with an “outperform” rating, while CIBC’s Paul Holden raised his target to $42.50 from $40.50 with an “outperformer” rating. The average is $43.55.

* RBC’s Pammi Bir lowered his target for units of Dream Industrial REIT (DIR.UN-T) to $16, matching the average, from $17 with an “outperform” rating, while BMO’s Michael Markidis cut his target to $15.50 from $17 with an “outperform” rating.

“We believe DIR continues to set up well in an environment of economic uncertainty and higher rates. Notwithstanding some moderation in demand, we expect organic growth to hold up well, supported by an outsized gap between in-place and market rents (particularly on Canadian lease maturities). As well, developments and Summit JV related investments should provide incremental earnings and NAV upside. In short, we like the risk/reward mix at these levels,” he said.

* RBC’s Jimmy Shan cut his Dream Residential REIT (DRR.U-T) target to US$8 from US$9.75 with a “sector perform” rating. The average is US$10.69.

“Dream Residential REIT (“DRR”) reported FFO/unit of $0.18 vs. RBC/ Consensus of $0.18/$0.18,” he said. “The combination of Cincinnati remaining relatively strong and its value add initiatives led to lease spreads above peers. Lease spreads should moderate throughout 2024. DRR’s IPO investment thesis has been challenged by weakening rental fundamentals and higher cost of debt. However, the narrative around buying good assets with broken cap structure could gain traction and a re-rate would depend on economics and structure of any such deal.”

* CIBC’s Sumayya Syed moved her Dream Office REIT (D.UN-T) target to $10 from $11, keeping a “neutral” rating, while Desjardins Securities’ Lorne Kalmar trimmed his target to $10 from $10.50 with a “hold” rating. The average is $11.28.

“While 3Q results were below expectations, leasing momentum appears to be relatively resilient though at the expense of higher TIs,” said Mr. Kalmar. “Further, questions around WeWork (2.3 per cent of revenue) adds another layer of uncertainty to a story that is already lacking visibility. We find it difficult to get more constructive on the name until we have better clarity on a rebound in office fundamentals and believe D’s units will remain range-bound until investor sentiment toward the sector improves.”

* CIBC’s Mark Jarvi raised his Emera Inc. (EMA-T) target to $54 from $53 with a “neutral” rating. Other changes include: TD’s Linda Ezergailis to $62 from $64 with a “buy” rating, BMO’s Ben Pham to $55 from $59 with an “outperform” rating and National Bank’s Patrick Kenny to $51 from $50 with a “sector perform” rating. The average is $55.77.

* Acumen Capital’s Nick Corcoran cut his Enerflex Inc. (EFX-T) target to $12 from $14 with a “buy” rating. The average is $11.17.

* National Bank’s Cameron Doerksen lowered his Exchange Income Corp. (EIF-T) target to $62 from $65 with an “outperform” rating. Other changes include: TD’s Tim James to $63 from $65 with a “buy” rating, ATB Capital Markets’ Chris Murray to $60 from $66 with an “outperform” rating and Scotia’s Konark Gupta to $62 from $66 with a “sector outperform” rating. The average is $64.45.

* CIBC’s John Zamparo lowered his GDI Integrated Facility Services Inc. (GDI-T) target to $45 from $54 with an “outperformer” rating. Other tweaks include: Scotia’s Jonathan Goldman to $47.50 from $51.50 with a “sector perform” rating and TD Securities’ Derek Lessard to $45 from $50 with a “hold” The average is $47.75.

* RBC’s Pammi Bir cut his Granite REIT (GRT.UN-T) target to $86 from $87, below the $87.50 average, with an “outperform” rating. Other changes include: Desjardins Securities’ Kyle Stanley to $84 from $85 with a “buy” rating and BMO’s Michael Markidis to $81 from $84 with an “outperform” rating.

“Notwithstanding GRT’s in line results, we believe U.S. occupancy slippage is weighing on investor sentiment. From our lens, however, GRT continues to screen well in a “higher for longer” world. Indeed, a sizeable leasing pipeline, attractive leasing spreads, and slowing new construction starts should set up 2024 for stronger operating traction. As well, the balance sheet is in solid form with below average leverage and near-term debt maturities addressed. Bottom line, we see an attractive spot to build positions,” said Mr. Bir.

* CIBC’s Nik Priebe raised his Guardian Capital Group Ltd. (GCG-T) target to $54 from $51 with an “outperformer” rating, while BMO’s Étienne Ricard trimmed his target by $1 to $51 with an “outperform” rating. The average is $51.67.

* National Bank’s Cameron Doerksen cut his Heroux-Devtek Inc. (HRX-T) target to $19 from $20 with an “outperform” rating, while Scotia’s Konark Gupta lowered his target to $18.50 from $19 with a “sector outperform” rating The average is $19.10.

* BMO’s Nevan Yochin lowered his High Liner Foods Inc. (HLF-T) target to $11.50 with a “market perform” rating. The average is $13.83.

* CIBC’s Allison Carson raised her Karora Resources Inc. (KRR-T) target to $5.25 from $5.50 with a “neutral” rating, while Desjardins’ John Sclodnick trimmed his target to $6.75 from $7 with a “buy” rating The average is $6.56.

* RBC’s Andrew Wong reduced his Largo Inc. (LGO-T) target to $8 from $9 with an “outperform” rating. The average is $10.31.

“Largo has met a confluence of challenges in 2023, both operationally and through a softening vanadium market. However, we continue to see potential value if the company can execute on operational improvements and successfully rampup value-add projects (ilmenite plant in the near-term, LCE longer-term),” said Mr. Wong.

* TD Securities’ Tim James bumped his Magellan Aerospace Corp. (MAL-T) target to $13.50 from $13 with a “buy” rating. The average is $12.75.

* National Bank’s Rupert Merer lowered his Northland Power Inc. (NPI-T) target to $30 from $32 with an “outperform” rating. The average is $32.08.

* RBC’s Geoffrey Kwan raised his Onex Corp. (ONEX-T) target to $112 from $102 with a “sector perform” rating. Other changes include: TD’s Graham Ryding to $110 from $105 with a “buy” rating, Scotia’s Phil Hardie to $115 from $110 with a “sector outperform” rating and CIBC’s Nik Priebe to $120 from $110 with an “outperformer” rating. The average is $113.

“While the fundraising environment remains challenging, particularly for Onex’s Flagship Fund, Onex Partners, we think Onex has taken numerous positive steps this year to create value for shareholders such as significant share buybacks, monetizing assets (e.g., Celestica, Ryan Specialty, ASM, etc.) and deploying capital,” said Mr. Kwan. “While we think Onex’s shares are attractively valued, we think a more favorable industry environment facilitating greater monetization activity which could then help fundraising activity, would be a positive catalyst for the shares.”

* RBC’s Michael Siperco reduced his target for Pan American Silver Corp. (PAAS-Q, PAAS-T) to US$20 from US$24 with an “outperform” rating. The average is US$23.04.

“We have revised our estimates following 3Q23 results and updated guidance, and incorporated more conservative forecasts and asset valuations into 2024/2025. While we maintain our Outperform rating, we think investors need to see more evidence of execution on plan, guidance and FCF growth as well as more clarity on both the LC Skarn project (YE23) and Escobal (ongoing) before the stock can re-rate higher, leading to our lower $20 target,” said Mr. Siperco.

* CIBC’s Sumayya Syed cut her Plaza Retail REIT (PLZ.UN-T) to $4.25 from $4.75 with a “neutral” rating. The average is $4.42.

* CIBC’s Dean Wilkinson lowered his Sienna Senior Living Inc. (SIA-T) target to $12.50 from $13 with a “neutral” rating. The average is $13.50.

* RBC’s Pammi Bir cut his Slate Grocery REIT (SGR.U-T, SGR.UN-T) target to US$9 from US$11 with a “sector perform” rating. The average is US$10.04.

“We’ve scaled back our earnings outlook and PT on SGR on the back of results that were modestly below our forecast, along with a more challenging macro setup in a higher for longer rate world. Still, its defensive grocery anchored portfolio remains in stable form, with healthy demand and below market rents that should provide insulation from potentially stronger economic headwinds. On balance, we see valuation as reasonable,” said Mr. Bir.

* CIBC’s John Zamparo cut his Sleep Country Canada Holdings Inc. (ZZZ-T) target to $27 from $28 with an “outperformer” rating, while BMO’s Stephen MacLeod lowered his target to $28 from $32 with an “outperform” rating. The average is $27.71.

“Sleep Country reported in-line Q3/23 operating earnings,” said Mr. MacLeod. “Unsurprisingly, macro continued to weigh on SSSG (down 5.5 per cent), but GM was above forecast. We expect the macro backdrop to remain challenging through 2023E & into 2024E (although comps are easing); however, Sleep Country appears well-positioned to weather the weakness, achieve market share gains for everything ‘sleep’, while continuing to invest in its sleep ecosystem. Acquisitions and other strategic initiatives position Sleep Country well for 2024E+. We see attractive risk-reward (5.2 times 2024E EV/EBITDA, 18-per-cent FCF yield).”

* Scotia’s Michael Doumet hiked his Stelco Holdings Inc. (STLC-T) target to $46 from $42.50 with a “sector perform” rating. The average is $46.93.

* Canaccord Genuity’s Matt Bottomley raised his Terrascend Corp. (TSND-T) target to $3.25 from $2.85 with a “buy” rating. The average is $3.61.

* ATB Capital Markets’ Waqar Syed raised his Trican Well Service Ltd. (TCW-T) target to $6, matching the average, from $5.50 with an “outperform” rating.

* Canaccord Genuity’s Doug Taylor increased his target for Vitalhub Corp. (VHI-T) to $4.50 from $4.25 with a “buy” rating. The average is $5.25.

* National Bank’s Adam Shine, who is currently the lone analyst covering Yellow Pages Ltd. (Y-T), cut his target to $12 from $14 with a “sector perform” rating.

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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 23/02/24 11:59pm EST.

SymbolName% changeLast
ADEN-T
Adentra Inc
+1.31%35.62
AQN-T
Algonquin Power and Utilities Corp
+2.56%8
ATRL-T
Snc-Lavalin Group Inc
+2.48%44.7
BYD-T
Boyd Group Services Inc
-0.07%309.37
CCO-T
Cameco Corp
+1.76%56.17
WEED-T
Canopy Growth Corp
+2.33%4.83
CS-T
Capstone Mining Corp
+0.84%7.2
CAR-UN-T
CDN Apartment Un
+0.12%48.65
CJT-T
Cargojet Inc
+2.85%116.75
CET-T
Cathedral Energy Services Ltd
-3.49%0.83
CCL-B-T
Ccl Industries Inc Cl B NV
+0.01%68.98
CSH-UN-T
Chartwell Retirement Residences
+0.73%12.39
CEU-T
Ces Energy Solutions Corp
+1.9%4.3
CHP-UN-T
Choice Properties REIT
+0.37%13.6
CSU-T
Constellation Software Inc
+0.3%3765.4
CRR-UN-T
Crombie Real Estate Investment Trust
-0.14%13.98
DFY-T
Definity Financial Corporation
-0.38%44.86
DIR-UN-T
Dream Industrial REIT
+0.07%13.36
D-UN-T
Dream Office REIT
+99.75%16.26
DRR-UN-T
Dream Residential REIT
+1.31%9.25
EMA-T
Emera Incorporated
+0.09%46.94
EFX-T
Enerflex Ltd
+1.4%7.23
EIF-T
Exchange Income Corp
+0.49%49.43
FM-T
First Quantum Minerals Ltd
+1.87%12.5
GRT-UN-T
Granite Real Estate Investment Trust
+0.48%73.42
GDI-T
Gdi Integrated Facility Services Inc
+1.64%39.65
GCG-T
Guardian Capital
+1.21%50.33
HLF-T
High Liner
-0.16%12.54
HRX-T
Heroux-Devtek
-1.04%18.09
HBM-T
Hudbay Minerals Inc
+4.27%7.82
KRR-T
Karora Resources Inc
+2.01%4.07
LGO-T
Largo Resources Ltd
-3.4%2.56
LUN-T
Lundin Mining Corp
+1.68%10.89
MAL-T
Magellan Aero
0%8.09
NPI-T
Northland Power Inc
-0.64%23.16
ONEX-T
Onex Corp
+2.82%101.8
PAAS-T
Pan American Silver Corp
-1.29%16.79
PKT-X
Parkit Enterprise Inc
+1.45%0.7
PLC-T
Park Lawn Corp
+2.34%20.15
PVT-X
Pivotree Inc
-1.79%1.65
PLZ-UN-T
Plaza Retail REIT
+0.28%3.54
SAP-T
Saputo Inc
+0.32%28.23
SIA-T
Sienna Senior Living Inc
+0.68%13.29
SGR-UN-T
Slate Grocery REIT
+0.52%11.64
ZZZ-T
Sleep Country Canada Holdings Inc
+0.71%28.41
STN-T
Stantec Inc
+0.44%113.65
STLC-T
Stelco Holdings Inc
+2.68%41.8
TECK-B-T
Teck Resources Ltd Cl B
-0.42%52.19
TSND-T
Terrascend Corp
+0.85%2.38
TCW-T
Trican Well
+0.74%4.07
VHI-T
Vitalhub Corp
-1.02%5.85
Y-T
Yellow Pages Ltd
+1.48%10.3

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