Inside the Market’s roundup of some of today’s key analyst actions
Restaurant Brands International Inc.’s (QSR-N, QSR-T) “[same-store sales] engine appears to be losing steam,” according to Citi’s Jon Tower.
He was one of several equity analysts to express concern about the state of the company’s Burger King U.S. operations following Friday’s premarket release of “mixed” third-quarter financial results, which sent its TSX-lised shares down 2.4 per cent during the trading day.
While many Canadian investors continue to evaluate the company based Tim Hortons’ domestic performance, analysts on the Street, including Mr. Tower, are increasingly focused on the company’s attempts to revive Burger King south of the border through its US$400-million “Reclaim the Flame” strategic initiative, which was launched in September of 2022. He emphasized there’s currently “no clear narrative shift on [the] BK turnaround.”
“BK U.S. stepping back year-over-year and vs 2019 (albeit with a deteriorating industry backdrop and improving traffic vs the industry), the engines of Tims Canada and BK International both ticking down versus pre-COVID during the quarter and unit growth remaining at approximately 4 per cent in ‘23 (in part due to development changes at TH China),” said Mr. Tower in a research note. “BK continues to point to data supporting an improving brand position; however, we balance this with no clear plan to address the 50 per cent of the asset base that needs significant work, macro/competitive risks, and headlines regarding continued financial challenges among franchisee groups.”
Restaurant Brands reported revenue for the quarter of US$1.84-billion, narrowly below the Street’s expectation of US$1.87-billion. While adjusted earnings per share of 90 US cents was 4 US cents better than the consensus, due in part to lower commodity costs, Burger King’s same-stote sales growth of 7.2 per cent was below the analysts’ projection of 8.71 per cent.
“Investors were mixed on shares heading into the print, with many still believing in the long-term global unit growth/BK turnaround story, but cognizant of the weakening U.S./global backdrop — and results generally delivered on that mixed bag, with comp growth decelerating on 1-year/vs. 2019 basis in key segments (TH CAN, BK US, BK INTL) but upside in total adjusted EBITDA (albeit the timing on expense spend and year-over-year 1 times laps are difficult to tease out),” said Mr. Tower. “In aggregate, net unit growth still lags pre-COVID levels (approximately 4.2 per cent year-over-year), but key drivers of growth continued to demonstrate progress (e.g., NROs at BK ROW both ticking higher year-over-year) as the company continued to optimize its BK U.S. portfolio.”
He added: “BK traffic growth reached in-line with the peer group in the quarter and started outpacing the industry on traffic in August. Commentary generally pointed to improving metrics supporting the turnaround plan, but we remain cautious regarding a ramp in competitive activity. Digital momentum remains part of the narrative, and management pointed to digital mix near 30 per cent in stores with kiosks, although that is only 5 per cent of U.S. store counts.”
Despite that concern, Mr. Tower bumped his full-year EPS projections for 2023 and 2024 to US$3.28 and US$3.44, respectively, from US$3.25 and US$3.2, pointing to cost adjustments. That led him to increase his target for Restaurant Brands shares to US$74 from US$72, keeping a “neutral” recommendation. The average target on the Street is US$78.50, according to Refinitiv data.
“Our $74 price target is based upon a 16.0 times 12-months from now EV/EBITDA multiple, 5.3-per-cent FCF yield, and represents 1.2 times the S&P 500 multiple (above the long-term average of 0.9 times,” he said. “We believe this multiple accurately balances the company’s improving global unit growth against limited visibility into economics in these newer markets, potential near-term headwinds tied to a global economic slowdown, and risks tied to a closure and reinvestment cycle for the Burger King U.S. business.”
Elsewhere, others making changes include:
* Scotia’s George Doumet to US$77 from US$80 with a “sector outperform” rating.
“Q3 results came in modestly ahead of consensus,” said Mr. Doumet. “However, the BK USA comps, a large part of the RBI story, were below expectations (7.2 per cent vs. our 8 per cent and consensus of 8.8 per cent). That said, there were some green shoots in the form of improvement in traffic trends (with no impact to date from lower income customers), healthier franchisee economics and higher digital penetration. We expect accelerated investments from Reclaim the Flame over the NTM [next 12 months] to help drive continued momentum in the top line.
“Looking ahead, while we expect SSS growth to moderate, we are confident in our outlook for NRG and Tim’s supply chain operations to improve through our forecast horizon (leading to upside in estimates). Valuation continues to be undemanding with QSR shares are trading at a 5-per-cent discount to historical and 3-per-cent discount to its IHF peers.”
* RBC’s Christopher Carril to US$87 from US$86 with an “outperform” rating.
“A Tims EBITDA miss and BK comp softer vs. Street (though we think closer to in line with buyside) weighed on shares,” he said. “However, results were closer to in-line with our own expectations, and we think demonstrated solid progress (e.g. BK US traffic back to flat, home market franchisee profitability up double-digits percentages year-over-year). Meanwhile, QSR remains on track to deliver 5-per-cent-plus unit growth in 2024, a key milestone in our view.”
* Stephens’ Joshua Long to US$75 from US$77 with an “equal-weight” rating.
“We believe Tim Hortons Canada is having success attracting a new demographic through enhanced after noon and breakfast promotions while Burger King results reflected success in digital ordering and operational execution across the U.S. and international markets,” said Mr. Long. “The company’s emerging brands remain well-positioned for long-term growth supported by a recently unveiled strategic plan (at Popeyes) and green shoots on international expansion (at Firehouse). Our maintained Equal-Weight rating reflects our desire to gain greater visibility into the materialization of brand momentum above and beyond what we believe is already baked into shares at current levels. Looking ahead, we believe accelerating global development of this asset-light story is the next focus point.”
* CIBC’s Mark Petrie to US$82 from US$85 with an “outperformer” rating.
“We continue to see the quick-service restaurant space as a relatively resilient pocket within consumer discretionary. Though Restaurant Brands’ same-store-sales (SSS) gains have slowed somewhat, EBITDA generation was solid, and ongoing investments in Burger King (BK) as well as momentum at Popeyes (PLK) should support future earnings growth. RBI remains a defensive name and we see limited downside,” said Mr. Petrie.
* Piper Sandler’s Brian Mullan to US$72 from US$82 with a “neutral” rating.
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In a fourth-quarter earnings preview for Canada’s banking sector titled Stranger things, Desjardins Securities analyst Doug Young cautions near-term patience is required, but “the snapback could be quick.”
“As the chilly winds of 4Q FY23 stir, Canadian banks are preparing to unveil their tales, starting with BNS on November 28 and concluding with CWB on December 8,” he said. “Banks are like the haunted houses of the market, with shadows of an impending recession spooking investors. Their flight from this sector is hardly surprising given the gloomy memories of banks’ past performance during recessions. Concerns include rising credit provisions, decelerating loan growth, mounting capital requirements, downward estimate revisions and lurking (geo)political risks. However, we would argue that these are reflected in bank valuations, with multiples close to or below historical lows on a P/BV basis.”
Mr. Young is projecting a 5-per-cent year-over-year decline in cash earnings per share, driven largely be credit normalization. However, the analyst is forecasting an 8-per-cent rise in adjusted PTPP earnings, which is a key metric in his analysis, based on “growth in P&C banking (Canada, U.S. and international) and capital markets (easy comps).”
Updating his cash EPS estimates and introducing his 2025 expectations, Mr. Young said downward earnings revisions “remain a concern,” however he thinks “the pace of cuts could ease.”
With those changes, he updated his target prices for stocks. In order of preference, they are:
- Toronto-Dominion Bank (TD-T, “buy”) to $96 from $100. The average on the Street is $91.85.
- Royal Bank of Canada (RY-T, “buy”) to $136 from $141. Average: $135.39.
- Canadian Western Bank (CWB-T, “buy”) to $33 from $34. Average: $32.82.
- Bank of Montreal (BMO-T, “buy”) to $130 from $133. Average: $128.57.
- National Bank of Canada (NA-T, “hold”) to $99 from $103. Average: $101.89.
- Bank of Nova Scotia (BNS-T, “hold”) to $64 from $70. Average: $67.34.
- Canadian Imperial Bank of Commerce (CM-T, “hold”) to $55 from $62. Average: $60.76.
- Laurentian Bank of Canada (LB-T, “hold”) to $29 from $35. Average: $34.91.
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Seeing its valuation as “too compelling to ignore,” Desjardins Securities analyst Chris MacCulloch raised his recommendation for Vermilion Energy Inc. (VET-T) to “buy” from “hold” following the release of third-quarter results which were “poorly received by the market.”
“In our view, VET has regained operational momentum and we see clear visibility to an acceleration of capital returns (through buybacks) when it hits its $1-billion net debt target, most likely in 1Q24,” he said. “Meanwhile, we see further upside through the potential elimination of EU windfall taxes in 2024 (which we still conservatively model) and renewed strength in European natural gas prices.”
In a research report released Monday, Mr. MacCulloch said the Calgary-based company is “finding its operational mojo again.”
“It has been tough slogging for VET this year as it struggled with a protracted outage of the Wandoo offshore platform in Australia, wildfire-related downtime in Canada and the planned 3Q23 turnaround at Corrib in Ireland. However, operational momentum has clearly shifted in the company’s favour, with several important growth projects on the horizon,” he said.
“First, infrastructure build-out in the Montney will continue through 1H24, with the planned 16,000 boe/d [barrels of oil equivalent per day] Mica battery expected to commence operations in mid-2024. Volumes will be supplied through the existing 16-28 well pad, along with 11 additional wells drilled this winter. Meanwhile, VET will also be piloting a downspacing program that could unlock additional Montney resource in the area. Recall that the Mica battery will underpin VET’s long-term plans to grow Montney production to 28,000 boe/d. Second, site preparation for the Croatia gas plant located on the SA-10 block is currently underway; this is also scheduled for commissioning in mid-2024. For reference, the plant has a 15 mmcf/d [million standard cubic feet per day] design capacity and will initially process volumes from two wells currently behind pipe, with room for expansion in the event of additional discoveries. On that note, the company plans to drill four wells on the prospective SA-07 block in 2024. Meanwhile, VET expects Croatia to generate $40-millioN of cash flow in 2024 at the current strip given structurally advantaged natural gas prices in the region. For all those reasons (and more), we think it is time to revisit the stock.”
The analyst now sees an improved return potential to his target price of $24.50 per share. The average on the Street is $25.47.
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Acknowledging investors continue to await clarity on Enbridge Inc.’s (ENB-T) plans to fund its US$9.4-billion acquisition of three U.S. utilities from Dominion Energy Inc., RBC Dominion Securities analyst Robert Kwan sees “lots of options” available, emphasizing “the key will be minimizing common equity and keeping leverage in check.”
In a research report released Monday following last week’s release of “solid” quarterly results, reaffirmation of its full-year guidance and announcement of a group of tuck-in acquisitions, he said many “appear to be taking a cautious approach to the company continuing to deploy capital into tuck-in acquisitions in light of the remaining funding need for the acquisition of the utilities from Dominion.”
“Since the transaction announcement in September, the company has pre-funded approximately $8.3 billion of the $12.8 billion cash consideration through the issuance of roughly $4.6 billion of common shares, US$2.0 billion of hybrid subordinated notes in the U.S., as well as $1.0 billion of hybrid subordinated notes in Canada,” he added.
“Multiple options available to obtain the remaining capital. On the conference call, Enbridge discussed how it prioritizes its options for the roughly $4.5 billion of remaining funding, and it highlighted the benefits of its diverse asset mix when it comes to its ongoing capital recycling program. While the company will pursue different capital recycling options across its broad portfolio of assets (e.g., minority interests such as the Aii transaction; sale of commodity exposed DCP Midstream), it could utilize alternative funding sources such as the dividend reinvestment plan (DRIP), an at-the-money equity program (ATM), or additional hybrids and bonds, should Enbridge’s expected valuations for asset sales not materialize.”
Mr. Kwan expects the transaction to close in stages, which he thinks will “afford flexibility” in its funding plan in terms of both timing and size of capital raises.
To reflect recent financing activities and the newly announced tuck-in acquisitions, he lowered his 2023 and 2024 earning per share estimates to $2.84 and $2.86, respectively, from $2.92 and $2.91, respectively).
That led him to lower his target for Enbridge shares to $55 from $60 with an “outperform” rating (unchanged). The average is $53.23.
Elsewhere, others making target adjustments include:
* CIBC’s Robert Catellier to $57 from $56 with an “outperformer” rating.
“Strong results in core segments supported by continued volume strength in the Liquids segment support our positive thesis on Enbridge,” he said. “Despite this, the level of additional tuck-in acquisitions may cause some investors to hesitate in light of the existing funding needs for the pending utility acquisitions.”
* National Bank’s Patrick Kenny to $49 from $48 with a “sector perform” rating.
“Integrating the renewables acquisitions including the upsized interests in the Hohe See & Albatros Wind Facilities and the Morrow Renewables landfill-to-RNG facilities, our target taps up $1,” he said.
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While viewing TVA Group Inc.’s (TVA.B-T) “material” restructuring plan as “necessary given secular challenges being exacerbated by cyclical pressures,” National Bank Financial analyst Adam Shine raised his recommendation for its shares to “sector perform” from “underperform” previously.
On Friday, the Montreal-based broadcaster announced significant changes including cessation of in-house production of entertainment, restructuring of its news division and optimization of real estate assets. Those will result in the reduction of its workforce by 31 per cent with 547 positions getting eliminated.
“Why now and how come so big? Secular challenges over the past 20+ years have been exacerbated by added cyclical pressures over the past 15 months and regulations that have not evolved to offer needed help to private broadcasters,” said Mr. Shine.
“TVA will phase out production activities as they are outsourced to external suppliers. This process will take time and move at a pace dictated by current program schedules.”
That announcement came alongside the release of a third-quarter earnings beat. While revenue fell 9.1 per cent year-over-year to $118.6-million and fell short of his projection of $122.4-million, earnings before interest, taxes, depreciation and amortization (EBITDA) of $16.5-million , down 9.4 per cent, topped his expectation of $11.9-million, due largely to better-than-anticipated broadcasting margins.
While awaiting further details on restructuring costs and anticipated savings, Mr. Shine, currently the lone analyst covering the company, made “preliminary material changes” to his forecast for TVA, leading him to raise his target to $1.60 from 70 cents for its shares.
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While Citi analyst Ryan Potter concluded the third-quarter results from Telus International Canada Inc. (TIXT-N, TIXT-T) were “relatively solid,” he warned “visibility and macro concerns remain.”
“TELUS International reported a top-line beat and reiterated its 2023 outlook,” he said in a note released Monday. “The company saw solid growth in its top two clients (both up 20 per cent plus year-over-year) with some of this coming from demand for AI-related services but there were client concentration headwinds as well with continued pressures at its third largest client from its reduction in European-based delivery trust and safety services. The implied 4Q23 outlook shows a return to sequential growth but the relatively wide implied quarterly range and cautious 2024 commentary (currently expects growth in the low-single digits range) show the continued challenges from an uncertain macro (elongated sales cycles, project delays, lower client volumes, etc.). We believe the low-end of the 2023 outlook ranges to be more appropriate given these continued macro-related headwinds. Despite TIXT’s relatively low valuation levels, we expect the stock to remain rangebound until there are proof points of improving visibility and growth.”
On Friday, shares of the TSX-listed subsidiary of Telus Corp. (T-T) slid 5.2 per cent despite reporting revenue of US$663-million, up 7.8 per cent year-over-year and above both Mr. Potter’s US$657-million estimate and the consensus forecast of US$658-million. Adjusted earnings per share of 21 US cents fell in line with expectations.
Telus International also maintained its 2023 outlook, including revenue of U$2.70-US$2.73-billion, 1-2-per-cent organic growth and adjusted EPS of 90-97 US cents.
“Our revenue estimates increase in 2023 due to the quarter beat and decrease in 2024-25 due to continued macro-related headwinds,” he said. “Our margin estimates increase in 2023 due to the quarter beat and remain relatively unchanged in 2024-25 as we balance cost savings actions against wage pressure. We make slight adjustments to other line item estimates that results in our EBITDA and EPS estimates increasing in 2023 and decreasing in 2024-25.”
With those reduced forward estimates, he lowered his target for its shares to US$7 from US$8, keeping a “neutral” recommendation. The average is US$10.67.
“TELUS International has done a good job pivoting its business mix toward faster growth opportunities through its focus on high-growth clients in its traditional digital customer experience business and successfully leveraging M&A to expand into fast-growing adjacencies such as content moderation, AI data solutions, and digital transformation services,” said Mr. Potter. “In an uncertain and volatile macro though, risks around the company’s perceived visibility, its industry and client concentration, and potential volume volatility tied to economic cycles become more apparent. Other risks to consider include geopolitical risks and its status as a controlled company. We believe the current valuation reflects a balanced risk/reward given these items and justifies a Neutral rating.”
Other analysts making target changes include:
* RBC’s Daniel Perlin to US$11 from US$14 with a “market perform” rating.
“While it’s #3 client continues to pull back on spending and thus weighing on aggregate results, FY23 revenue guidance (at the mid-point) does imply some expected sequential improvement in 4Q23, as Telus Corp and Google appear to be gaining momentum and thus should see tech & gaming as a vertical be a key contributor in 4Q23 revenue growth (we are modeling 3-per-cent organic vs. up 1 per cent in 3Q23),” said Mr. Perlin. “Overall, the macro backdrop remains challenging, thus elongated cycles persist, setting up for a more conservative FY24.”
* CIBC’s Stephanie Price to US$19 from US$20 with an “outperformer” rating.
“While TELUS International’s (TI) demand environment remains tough, the company posted in-line Q3 results and reiterated its full-year outlook, implying stronger margins in Q4,” she said. “TI continues to be impacted by weaker demand (especially in the Tech & Games vertical) in a difficult macroeconomic environment. TI is focused on cost reduction and positioning itself for future growth once the macro backdrop improves. While TI’s sales funnel remains robust ($2-billion-plus), sales delays continue and we are reducing our 2024 revenue growth estimate to 3 per cent year-over-year (from 8 per cent) to reflect the current environment.”
* BMO’s Keith Bachman to US$8 from US$11 with an “outperform” rating.
“TIXT delivered a reasonable quarter against low expectations and maintained its FY23 guide after a meaningful cut in the prior quarter. We think macro trends of elongated sales cycles and softer discretionary spend continue to impact TIXT, as do company-specific issues like lower volumes. Hence, we think TIXT is in early stages of a challenging recovery. We believe early CY24 will be difficult across our services coverage, and we are lowering our FY24 growth estimate accordingly,” said Mr. Bachman.
* TD Securities’ Daniel Chan to US$10.50 from US$12 with a “buy” rating.
* JP Morgan’s to US$8 from US$12 with a “neutral” rating.
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RBC Capital Markets analyst Irene Nattel thinks the third-quarter results from Canadian grocers “should reinforce value-seeking consumers.”
“Central industry theme of value-oriented consumer behaviour continues in Q3, with reallocation of household budget that favours food at home, category trade down, and the discount channel,” she said. “Looking ahead, even as inflation begins to moderate, the outlook for household spending is muddled at best as pandemic-era mortgage loans begin to reset at higher rates, likely to further entrench consumer behaviour.
“Against this backdrop we reiterate our view that Loblaw is best positioned to benefit from the secular shift in purchasing patterns. The combination of Loblaw’s discount-heavy store network, strong and leading share in private label offering, and unparalleled household penetration of its loyalty program should work in its favour as consumers seek value and relevant promotions to offset higher prices.”
In a research report released on Monday, Ms. Nattel said that view of the sector is not currently “appropriately reflected in relative valuations.”
“At 8.0 times calendar 2024 estimated EBITDA, Loblaw trades less than 2.0 times discount to Metro,” she said. “In our view, multiples should converge over time, underpinned by what we view as greater torque on Loblaw financial performance.”
Expecting the “industry-level share migration in favour of discount and value-oriented consumer behaviour likely to persist,” Ms. Nattel raised her targets for stocks in the sector. Her changes are:
- Empire Company Ltd. (EMP.A-T, “sector perform”) to $50 from $48. The average is $42.25.
- George Weston Ltd. (WN-T, “outperform”) to $219 from $214. Average: $193.14.
- Loblaw Companies Ltd. (L-T, “outperform”) to $174 from $169. Average: $141.22.
- Metro Inc. (MRU-T, “sector perform”) to $84 from $82. Average: $79.44.
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In other analyst actions:
* Citing “greater visibility on post-pandemic earnings,” CIBC’s Kevin Chiang upgraded Andlauer Healthcare Group Inc. (AND-T) to “outperformer” from “neutral” with a $47.50 target (unchanged). Other changes include: RBC’s Walter Spracklin to $41 from $45 with a “sector perform” rating, Scotia’s Konark Gupta to $43 from $44 with a “sector perform” rating and TD’s Tim James to $51 from $56 with a “buy” rating. The average is $49.92.
“We now see the company trading at trough multiples on trough earnings,” said Mr. Chiang. “We continue to have a favourable long-term outlook for the company as it benefits from a less cyclical organic growth model plus M&A optionality.”
* JP Morgan’s Jeffrey Zekauskas downgraded Nutrien Ltd. (NTR-N, NTR-T) to “neutral” from “overweight” with a US$58 target, down from US$70 and below the US$73.88 average on the Street. Elsewhere, Scotia’s Ben Isaacson cut his target to US$75 from US$90 with a “sector outperform” rating.
“We see good value in NTR at $55/sh, which keeps us at Outperform,” said Mr. Isaacson. “That said, the reduction of its growth pipeline, coupled with less N+K torque, could make it harder for value to be unlocked near-term. On N, we highlight 3-4 reasons why momentum has cooled, as our N thesis for ‘23 has largely played out. On K, while demand will recover further through ‘24, supply availability should be sufficient to cover the step-up in shipments, leaving potash prices flat-ish through ‘24.”
* National Bank’s Vishal Shreedhar raised his Alimentation Couche-Tard Inc. (ATD-T) target to $89 from $86 with an “outperform” rating. The average is $84.94.
“The higher price target reflects advancement of our valuation period and F/X,” he said. “If ATD achieves its F2028 targets, significant upside remains. Although our estimates fall short of ATD’s goals, they still suggest significant growth. We model a five-year EBITDA CAGR of 5.8 per cent ending F2028.
“Our favourable view on ATD is driven by expectations of organic growth supported by various improvement initiatives (fuel, food/beverage, private label, data analytics/loyalty, procurement, organic network growth, cost optimization, etc.) as well as acquisition capture/synergies and capital return to shareholders.”
* Desjardins Securities’ Chris MacCulloch bumped his target for Arc Resources Ltd. (ARX-T) to $30.50 from $29 with a “buy” rating. Other changes include: BMO’s Randy Ollenberger to $25 from $24 with a “market perform” rating and RBC’s Michael Harvey to $28 from $24, keeping an “outperform” rating. The average is $26.67.
“ARC reported drama-free quarterly results that slightly exceeded Street expectations on both production volumes and cash flow. The Attachie project is progressing on schedule and budget, with the company generating $261 million in FCF during the quarter, which was directed toward buybacks and dividends. ARC remains one of our top picks and continues to be featured on the RBC Global Energy Best Ideas List,” said Mr. Harvey.
* RBC’s Jimmy Shan cut his Artis REIT (AX.UN-T) target to $7.50, below the $7.75 average, from $8 with a “sector perform” rating. Other changes include: TD Securities’ Jonathan Kelcher to $7 from $6.50 with a “hold” rating and Scotia’s Mario Saric to $7.50 from $8.50 with a “sector perform” rating.
“We maintain our SP rating with our key estimates down 8-17 per cent post a quarter that lagged our expectations but met consensus,” said Mr. Saric. “Estimate changes are less relevant for AX than most peers. Rather, near-term unit price movement is more dictated by pace of asset sales and, ultimately, the outcome of the ongoing strategic review; we expect to hear something by year-end. AX is progressing on asset sales (particularly Office), which could support an SIB (now that the NCIB is exhausted; expires December 2023). We reiterate our Q2 view that there is likely more upside than downside at the current unit price (down 0.5 per cent since Q2 vs. down 6.5 per cent for sector), with AX more of a near-term catalyst-driven trade than positive long-term fundamental story, in our view. Outside the strategic review, a more dovish BoC/Fed is one of the near-term catalysts given AX’s significant floating rate debt exposure (73 per cent of total debt vs. 8-per-cent sector average).”
* National Bank’s Mike Parkin lowered his Barrick Gold Corp. (ABX-T) target by $1 to $27, maintaining a “sector perform” rating, while TD Securities’ Greg Barnes cut his target to US$22 from US$25 with a “buy” rating. The average is $21.90.
* Stifel’s Cody Kwong moved his Baytex Energy Corp. (BTE-T) target to $8.25 from $7.50 with a “buy” rating, while ATB Capital Markets’ Amir Arif trimmed his target to $7.50 from $8 with an “outperform” recommendation. The average is $7.83.
* JP Morgan’s Sebastiano Petti reduced his BCE Inc. (BCE-T) target to $58 from $59 with an “equal-weight” rating. The average is $57.52.
* Raymond James’ Frederic Bastien hiked his Black Diamond Group Ltd. (BDI-T) target to $12 from $10, keeping a “strong buy” rating. The average is $9.88.
“We reiterate our Strong Buy recommendation on Black Diamond Group, a Raymond James Analyst Current Favorite, after the firm blew 3Q23 expectations out of the water last week,” he said. “After reflecting on how strongly the recently acquired CL Martin business is performing, how well the higher rental rates are sticking, and how diversified BDI has become, we are comfortable raising our target price.”
* TD Securities’ Cherilyn Radbourne cut her Brookfield Corp. (BN-N, BN-T) target to US$54, remaining above the US$47.36 average, from US$61 with an “action list buy” rating.
* National Bank’s Rupert Merer trimmed his target for Brookfield Renewable Partners L.P. (BEP-N, BEP.UN-T) to US$29 from US$30 with an “outperform” rating. Other changes include: BMO’s Ben Pham to US$28 from US$30 with an “outperform” rating and Raymond James’ David Quezada to US$33 from US$37 with a “strong buy” recommendation. The average is $32.99.
“Underpinning our constructive stance, we believe today’s higher rate environment extends the competitive advantage provided by Brookfield Renewable’s scale and access to capital” said Mr. Quezada. “As such, we expect the company will continue to capitalize on growth from attractively priced M&A targets. Moreover, with a sector leading 150 GW development pipeline, deep relationships with corporate buyers, and 18 GW of renewable projects coming on line in the next three years, we see BEP as well positioned to meet its 10-per-cent FFO per unit growth target. We have modestly reduced our price target ... reflecting lower multiples across BEP’s peer group.”
* TD Securities’ Sean Steuart trimmed his targets for Canfor Corp. (CFP-T, “buy”) to $23 from $24 and Interfor Corp. (IFP-T, “buy”) to $24 from $25. The averages are $24.20 and $28.40, respectively.
* TD Securities’ Craig Hutchison lowered his Capstone Copper Corp. (CS-T) target to $7 from $7.50 with a “buy” rating, while BMO’s Rene Cartier lowered his target to $7.25 from $7.50 with an “outperform” rating. The average is $7.85.
* BMO’s Thanos Moschopoulos raised his CGI Inc. (GIB.A-T) target to $155, above the $149.14 average, from $147 with an “outperform” rating.
“We remain Outperform on CGI and have raised our target price ahead of Q4/23 results, which we believe will demonstrate a deceleration in organic growth, reasonable bookings (helped by seasonality) and consistent EPS execution,” he said. “While the demand backdrop seems to be getting tougher with respect to discretionary IT spend, we believe CGI’s revenue mix will provide it with some relative resilience, allowing it to continue driving EPS growth in FY2024.”
* Calling its quarterly results “impressive,” RBC’s Greg Pardy moved his target for Enerplus Corp. (ERF-N, ERF-T) to US$22 from US$21 with an “outperform” rating. The average is US$26.40.
“Enerplus remains our favorite intermediate producer given its capable leadership team, consistently solid execution, strong balance sheet and rising shareholder returns,” he said.
* BMO’s John Gibson lowered his Ensign Energy Services Inc. (ESI-T) target to $3.75 from $4.50 with an “outperform” rating. The average is $4.68.
* TD Securities’ Craig Hutchison cut his Ero Copper Corp. (ERO-T) target to $23 from $28 with a “hold” rating. Other changes include: National Bank’s Shane Nagle to $22.50 from $26 with a “sector perform” recommendation and Scotia’s Orest Wowkodaw to $24 from $27 with a “sector perform” rating. The average is $26.18.
“Ero reported relatively mixed Q3/23 results,” said Mr. Wowkodaw. “Although 2023 Cu production guidance was reaffirmed, opex and capex guidance were increased. On a positive note, both major growth initiatives appear to be advancing in line with expectations (on time and on budget). Overall, given the higher opex/capex guidance in the context of a weaker Cu price environment, we view the update as negative for the shares.”
* RBC’s Scott Heleniak raised his Fairfax Financial Holdings Ltd. (FFH.U-T, FFH-T) target to US$1,020 from US$980, reiterating an “outperform” rating. Other changes include: Scotia’s Phil Hardie to $1,650 (Canadian) from $1,500 with a “sector outperform” rating and BMO’s Tom MacKinnon increased his target to $1,500 from $1,400 with an “outperform” rating. The average is $1,590.54 (Canadian).
“Similar to the past few quarters, Fairfax delivered another quarter of solid results across the organization including underwriting, investments, and non-insurance entities,” Mr. Heleniak said. “The company extended its duration to pick up yield in the quarter and that should continue benefit investment income throughout 2024. P&C market conditions remain favorable for Fairfax particularly within its Odyssey Re unit. While reserve releases were modest and cat losses slightly elevated in Q3, core underwriting margins were better than we had expected.”
* BMO’s Kevin O’Halloran cut his First Majestic Silver Corp. (FR-T) target to $8 from $8.50 with a “market perform” rating. The average is $10.23.
* TD’s Brian Morrison increased his target for Magna International Inc. (MGA-N, MG-T) to US$73 from US$72 with a “buy” rating. Other changes include: CIBC’s Krista Friesen to US$70 from US$75 with an “outperformer” rating, Scotia’s Jonathan Goldman to US$62 from US$61 with a “sector perform” rating, Raymond James’ Michael Glen to $62 from $60 with a “market perform” rating, RBC’s Tom Narayan to US$58 from US$57 with a “sector perform” rating and Wells Fargo’s Colin Langan to US$60 from US$59 with an “equal-weight” rating. The average is US$66.78.
“We expected a beat and saw upside to guidance,” said Mr. Goldman. “Were we surprised by the 9-per-cent move in the shares? Yes and no. We attribute some of stock price reaction to short covering and market vol (esp. higher beta cons. disc. names). Incremental data points were positive: the strike impact was better than feared, esp. given a number of MGA’s top 15 platforms were on strike, and cost containment/recoveries were ahead of plan. But, we were more surprised that shares did not react to previous data points (i.e., stronger reported volumes in all regions, improving trend in commodities/energy, positive Tier 1 read-throughs, strike resolutions).
“Naturally, the question is how much upside is there from current levels? We modestly raised our estimates; we were already ahead of the Street. Management definitely deserves the credit for its ability to execute in the base business. Cost containment and commercial recoveries present additional upside, but we see less room for multiple expansion. We value MGA at 5 times EV/EBITDA on our 24E/25E (historicals 5.8 times), which considers above midcycle conditions in ‘25 and EV adoption risks. Quicker uptake in megatrend businesses or sooner-than-expected FCF inflection would be catalysts for a re-rate.”
* BMO’s Tamy Chen lowered her Maple Leaf Foods Inc. (MFI-T) target to $31 from $33 with an “outperform” rating. The average is $35.67.
“We would be buyers on the stock’s weakness following Q3/23 results,” she said. “Management’s commentary was cautious on commodities during the earnings call. Our tracking of the relevant commodity factors so far in Q4/23 does not suggest that level of month-over-month deterioration and MFI subsequently clarified the business is not seeing that either. Our outlook is unchanged. We view the current risk/reward compelling. Assuming a volatile commodity environment until Q2/24 and lower gains from the new facilities
than management’s targets still yield an undemanding valuation of 8 times 2024 estimated EBITDA vs. historical 8-10 times.”
* RBC’s Tom Callaghan cut his Melcor REIT (MR.UN-T) target to $4.50 from $5.50 with a “sector perform” rating. The average is $4.88.
“Melcor REIT delivered solid third-quarter results which were broadly in line with our outlook. Positively, the REIT’s NOI is holding steady despite the difficult operating environment. That said, elevated leverage and interest rate impacts continue to bite into FFO. Looking ahead, we see execution of planned non-core dispositions as a key priority aimed at providing incremental financial flexibility,” he said.
* RBC’s Keith Mackey raised his Pason Systems Inc. (PSI-T) target by $1 to $18 with an “outperform” rating. The average is $17.07.
“We continue to view Pason as an attractive way to gain exposure to E&P drilling capex spend. The company’s differentiated offering allows pricing to remain resilient during market volatility, while its investments beyond the drilling market should drive growth in the medium to longer term. ... Pason is on the RBC Canadian Small Cap Conviction List,” said Mr. Mackey.
* National Bank’s Patrick Kenny raised his Pembina Pipeline Corp. (PPL-T) target to $45 from $44 with a “sector perform” rating, while Stifel’s Cole Pereira raised his target to $53 from $51 with a “buy” rating. The average is $50.54.
“PPL reported a beat-and-raise 3Q23, with its 2023E adjusted EBITDA guidance moving 4 per cent higher on the back of increased contributions from its Pipeline segment and a strengthening marketing outlook,” said Mr. Pereira. “On its earnings call the company telegraphed that any potential pursuit of TMX would not occur until 2025 or later, which we expect should be a positive catalyst for its shares as we believe this had previously been an overhang. Our PPL estimates rise modestly, which sees our target price increase ... We continue to rate PPL a Buy and view this quarter as a good reminder of the ability for the company’s core Montney and Duvernay infrastructure network to organically compound growth in the current environment.”
* Raymond James’ Brad Sturges bumped his Primaris REIT (PMZ.UN-T) target by $17 from $16 with an “outperform” rating. Other changes include: TD Securities’ Sam Damiani to $15.50 from $15 with a “buy” rating and CIBC’s Sumayya Syed to $18 from $19 with an “outperformer” rating. The average is $16.59.
* RBC’s Pammi Bir cut his RioCan REIT (REI.UN-T) target to $22 from $24 with an “outperform” rating. Other changes include: CIBC’s Dean Wilkinson to $22 from $24 with an “outperformer” rating and Scotia’s Mario Saricto $23 from $24.75 with a “sector outperform” rating. The average is $22.39.
“The benefits of RioCan’s portfolio transformation over the past several years are becoming increasingly visible. Indeed, as the economy slows, we see good support for organic NOI growth to exceed long-term levels, in line with its 3-per-cent target. Existing projects are also progressing well, with new starts rightfully being put on hold. While higher rates are creating near-term headwinds, we still see a healthy mid-term growth outlook. We think the risk/reward mix skews favourably here,” said Mr. Bir.
* Jefferies’ Christopher LaFemina raised his Teck Resources Ltd. (TECK.B-T) target to $73 from $70 with a “buy” rating. The average is $66.99.
* RBC’s Drew McReynolds increased his Telus Corp. (T-T) target to $30 from $29 with an “outperform” rating, while TD Securities’ Vince Valentini moved his target to $27 from $29 with a “buy” rating. The average is $27.38.
“We believe Q3/23 results demonstrated notable resilience in a more competitively intense operating environment with strong subscriber growth across the board. Following a modest increase in the TTech margin trajectory, our price target increases,” said Mr. McReynolds.
David Leeder