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

The risk-reward proposition for Methanex Corp. (MEOH-Q, MX-T) has “now titled meaningfully to the long-side,” according to Scotia Capital analyst Ben Isaacson.

In a research report released Monday titled Five Reasons Why We’re Upgrading Methanex to Outperform (And Two Reasons Why We Shouldn’t Be), he raised his recommendation for the Vancouver-based company to “sector outperform” from “sector perform” previously.

Explaining his change, Mr. Isaacson pointed to these factors: “First, methanol has nearly recovered to mid-cycle levels, with the MX-weighted spot now at $333 per metric ton from the $230s in July. At spot, we peg ‘25 FCF at $6.40 per share (16-per-cent yield). Second, Chinese thermal coal has moved up sharply to RMB more than 1,000 per metric ton, which supports a methanol floor of $300/mt, or ‘25 FCF of $4.80/sh (12-per-cent yield). Third, industry data is slowly turning supportive, led by high MTO operating rates and sharply lower port inventory in China. That said, there is still plenty of neutral-to-bearish industry data out there. Fourth, G3 has been de-risked, adds 1.8M mt of low-cost, very high margin supply to the portfolio, and removes purchased tons from the book that earn no margin whatsoever. Fifth, we think MEOH is an effective way to manage portfolio risk related to rising tension in the Middle East.”

The analyst admitted he’s “disappointed” by the company’s new two-year natural gas agreement with the National Gas Company (NGC) of Trinidad and Tobago, which will see it shut down its Atlas plant next year and restart its smaller Titan plant.

“Over the past year or so, the market has been bullish (including Scotia) that Methanex was negotiating a gas contract to restart Titan, as part of its negotiation process to extend the Atlas gas contract beyond its August ‘24 expiration,” he said. “Perhaps we were naive on our straightforward assumptions: (1) Atlas would transition onto a new long-term contract at effectively unchanged economics, with production continuing forever; and (2) Titan would settle a similar gas contract to Atlas, starting commercial operations on Jan 1 ‘25 after cleaning a few cobwebs in Q4/24.

“The net result? A negative swing of $80-million in annual EBITDA between ‘23E and ‘25E – all else equal. Of course, this doesn’t include the benefit of G3 or anything else. We believe this has been priced in by the market already. The issue in Trinidad doesn’t feel like it will improve anytime soon. According to Methanex, among LNG, ammonia and methanol demand, about 4.5 Bcf of gas is required vs. a production range of 2.5 to 3.0 Bcf.”

Mr. Isaacson also thinks “the catalyst tank is now empty,” noting: “With G3 complete, and the big Titan catalyst back-firing, there are really no more company-specific catalysts to get excited about. Accordingly, catalysts going forward will be either macro or methanol specific. That said, methanol is already working, as we’re nearly back to mid-cycle pricing, despite an awful macro backdrop (ex MTO op rates). What will methanol prices be when the macro actually improves?”

However, calling Methanex “once again deeply undervalued on spot,” he raised his target for its shares to US$54 from US$47. The average on the Street is US$51.64, according to Refinitiv data.

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Heading into earnings season for Canadian diversified financial companies, Scotia Capital analyst Phil Hardie said he continues to recommend investors take a “barbell approach that balances defensive quality with attractive value-oriented opportunities.”

“Effective stock selection is likely to remain key for generating outperformance given a complicated investing environment,” he said “An aggressive tightening cycle appears poised to finally slow global economies, however, the dominant narrative regarding interest rates appears to be ‘higher for longer.’ Global geopolitical risk also appears to be on the rise. Stock performance across our coverage universe in the non-bank financial space has significantly outperformed the S&P/TSX Financials Index although stock performance has been uneven. An uncertain environment and investor risk aversion likely favour quality defensive names even it if means reduced upside potential as “winning by not losing” becomes the mantra. That said, the valuation disparity between the defensive quality and value names remains too hard to ignore.”

While he expects “the investment environment and risk appetite to improve over the next 12 months,” however he warned of “lingering uncertainties,” making several target price adjustments with his “most significant” changes for asset managers to reflect updated assets under management outlooks following the recent market downturn.

His changes are:

  • CI Financial Corp. (CIX-T, “sector perform”) to $17.50 from $20. The average on the Street is $18.25.
  • First National Financial Corp. (FN-T, “sector perform”) to $44 from $43. Average: $41.83.
  • Fiera Capital Corp. (FSZ-T, “sector perform”) to $6 from $8.25. Average: $6.61.
  • Guardian Capital Group Ltd. (GCG.A-T, “sector outperform”) to $55 from $56. Average: $52.
  • Goeasy Ltd. (GSY-T, “sector perform”) to $145 from $150. Average: $171.50.
  • Intact Financial Corp. (IFC-T, “sector outperform”) to $227 from $222. Average: $219.82.
  • IGM Financial Inc. (IGM-T, “sector perform”) to $40 from $45. Average: $44.
  • Power Corp. of Canada (POW-T, sector perform”) to $42.50 from $43.50. Average: $41.64.

Mr. Hardie reaffirmed Fairfax Financial Holdings Ltd. (FFH-T) as his “top pick,” seeing it “well-positioned to navigate the current environment.” He kept a “sector outperform” rating and $1,500 target for its shares. The average target on the Street is $1,485.09.

“Fairfax has demonstrated resilience through the business cycle and turbulent financial markets, but we view it as a less-defensive play than more traditional publicly listed insurers,” he said. “At this stage of the market cycle, this likely provides an attractive balance: downside protection thanks to the relative resilience of insurance operations through a potential recession, and upside potential when markets recover. There have been significant changes at Fairfax that we believe investors have yet to fully recognize.”

“Fairfax remains our top pick overall. For defensive quality, our top idea is Intact, and for small-cap growth, we like Trisura. We continue to like Definity and believe it is attractive for GARP investors looking for a defensive mid-cap play with solid growth prospects. Our other top-value ideas include Guardian Capital, Onex and Brookfield Business Partners. Power Corp is on our radar given what we view as an unjustifiably wide NAV discount and attractive dividend yield. Our holdback relates to a relatively tepid consensus outlook for Great-West shares.”

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Emphasizing “a softening top-line trend, partially offset by a continued robust gross margin performance,” Scotia Capital analyst George Doumet reduced his financial forecast for Canadian Tire Corp. Ltd. (CTC.A-T) ahead of the release of its third-quarter results on Nov. 9.

“While we expect the soft demand environment to continue over the NTM [next 12 months] and for growth to resume in the latter part of 2H/24, we see CTC.a as being more resilient to downturns thanks to its strong loyalty program, omni-channel capability, data analytics, own brands, and tiered assortments,” he said in a Monday report.

“We believe a significant amount of pessimism has been baked into the valuation, with shares down almost 21 per cent since the removal of its aspirational targets last quarter and currently trading at a ~16% discount vis-à-vis the historical average, on what we believe is close to NTM trough earnings. Furthermore, if Canadian consumers prove to be more resilient than expected, there could be significant upside to estimates/multiple, in our opinion.”

Mr. Doumet is now projecting revenue, adjusted EBITDA and earnings per share for the quarter of $4.161-million, $553-million and $3.18, respectively. All are below the consensus estimates on the Street of $4.173-billion, $592-million and $3.53.

“While top-line trends deteriorated in June (which continued into July), CTC started to cycle softened topline comps through Q3,” he said. “We expect revenue to decline by 1.6 per cent compared with last year (vs. a decline of 3.4 per cent in Q2) and CTR comparable sales to slide by 3.5 per cent (on top of last year’s 0.7-per-cent gain). In the current environment, we continue to expect essential categories to outperform, while discretionary categories shipments can be challenged, given weaker consumer demand and higher dealer inventory levels. Stronger performance in automotive, living (kitchen, cleaning, pet) will likely be offset by weakness in seasonal, playing, and fixing.”

Cutting his estimates for the remainder of fiscal 2023 as well as 2024, Mr. Doumet lowered his target for Canadian Tire shares to $172 from $191, maintaining a “sector outperform” recommendation. The average on the Street is $179.90.

Elsewhere, CIBC’s Mark Petrie cut his third-quarter EPS estimate for Canadian Tire to $3.53 from $3.91, citing “further softening in the consumer environment, as well as mild weather.”

“The revisions to our FQ3 estimates are in the Retail Segment where both commentary from Canadian retail peers and macro-data points continue to showcase a softer consumer backdrop. Specific to the macro, core retail sales were up 1.3 per cent month-over-month (up 3.2 per cent year-over-year) in July and down 0.3 per cent month-over-month (or up 2.1 per cent year-over-year) in August. Furthermore, the advance estimate for overall retail sales was unchanged month-over-month in September, which suggests consumers remain soft and sluggish. We also believe a mild September will be a headwind to early seasonal sales,” said Mr. Petrie, who maintained a “neutral” recommendation and $177 target for Canadian Tire shares.

In a separate note, Mr. Doumet lowered his Restaurant Brands International Inc. (QSR-N, QSR-T) target to US$80 from US$82 with a “sector outperform” recommendation. The average is US$78.70.

“Since QSR reported Q2 results in early August, shares have been down 9 per cent on the back of concerns around the potential for a deceleration in both traffic (at BK USA) and NRG growth,” he said. “Heading into the 2H, pricing will likely become less supportive to topline growth and traffic trends will be a key item to watch as consumers face increasing financial pressure and as the mobility tailwind fades in Canada. We are looking for Q2F23 system sales/ adj. EBITDA/adj. EPS of $11.5-billion/$697-million/$0.86, versus consensus’s $11.5-billion/$691-million/$0.85. Valuation for QSR shares is undemanding, with shares now trading at a 7 per cent discount vs. its historical average and 2 per cent vs. its IHF peers- and could improve as QSR delivers healthy internal metrics (SSS and NRG).”

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After its shares plummeted 25.3 per cent on Friday with the release of its quarterly results and elimination of its dividend, a pair of analyst on the Street made rating changes for shares of Corus Entertainment Inc. (CJR.B-T).

National Bank Financial’s Adam Shine raised his recommendation for the Toronto-based media company to “sector perform” from “underperforming,” believing “much of negativity noted in [his] Sept. 12 preview has been better discounted.”

After making upward revisions to his forecast “amid actions being taken to contain costs,” Mr. Shine kept a target of $1.30. The average is $2.21.

Conversely, TD Securities’ Vince Valentini lowered Corus to “speculative buy” from “buy” with a $4.50 target, down from $5.

“Our target multiples remain unchanged, but our lower estimates have pushed the target price down to $4.50 (from $5.00 previously),” he said. “The share price bears no relationship to the underlying private market value of the assets, in our view (6-7 times 2025 estimated EBITDA gives us a PMV range estimate of $6.50-$8.50), and it also factors in virtually zero probability of a cyclical recovery in advertising revenue. With the bonds yielding over 16 per cent, and with the market cap now below $150-million, the stock no longer has much of an audience with investors. This has created a highly uncertain and volatile situation; so we are increasing our risk rating to SPECULATIVE from High. This results in our recommendation changing to SPECULATIVE BUY from Buy. We do not believe that the company is going bankrupt ... and we have no credible way to push the target below $1.00 (which would be needed for a Hold rating) when our base-case forecasts point to $0.93 in FCF/share in 2025.”

Others making changes include:

* Scotia’s Maher Yaghi to $1.10 from $1.90 with a “sector perform” rating.

“Corus is contending with a cyclical downturn in TV advertising as well as a secular decline in TV linear subscriptions, both exerting pressure on the top and bottom line of the company,” said Mr. Yaghi. “The company has signed a new credit facility which we do not see as overly onerous in terms of restrictions and the board has suspended the dividend to conserve cash. At this point in time it is still too early to call a bottom on the advertising revenue pressure and hence the outlook for 2024 and beyond remains uncertain. We have reduced our forecast for 2024 and until we see an improvement in advertising trends, we prefer to maintain our neutral stance. We have reduced our valuation multiple on the stock to 4 times forward 12 months EBITDA from 4.25 times previously to account for the deteriorating nature of the industry’s outlook.”

* RBC’s Drew McReynolds to $1.50 from $2.50 with a “sector perform” rating.

“We continue to be impressed by management’s execution on multiple strategic and tactical initiatives with television,” said Mr. McReynolds. “Nevertheless, we believe the company is facing a number of significant operating challenges that include both ongoing cyclical and structural headwinds, elevated net debt/EBITDA levels driven mainly by margin compression due to negative operating leverage, still limited visibility on the macro and advertising outlooks, and the disruptive impacts of U.S. guild strikes. Until these operating challenges begin to abate and visibility improves on a return to a more stable revenue environment with more normalized margin levels, we expect the shares to remain under considerable pressure.”

* Canaccord Genuity’s Aravinda Galappatthige to 50 cents from $1.20 with a “sell” rating.

“While the stock has taken a significant beating both in the run up to and after Q4/23, we see little reason to maintain a Hold recommendation on the stock. This is largely due to the absence of the dividend, poor financial visibility, and the lack of a path to de-levering as we look beyond F2024. We have cut our target,” he said.

* CIBC’s Scott Fletcher to $1.15 from $1.75 with a “neutral” rating.

“Advertising markets remain weak with little near-term optimism given the ongoing SAG-AFTRA strikes that will delay new scripted content deliveries until March 2024 at the earliest,” said Mr. Fletcher. “The lack of deliveries will keep program amortization costs lower, limiting the impact on EBITDA, although Corus will still have significant cash outlays related to content acquisition. In response to the challenging environment, Corus suspended its dividend and amended covenants on its credit facility to provide additional breathing room on total debt to cash flow covenants. Shares have predictably sold off on the weak outlook and dividend cut. While it is hard to recommend adding to positions given the near-term challenges, we still expect Corus to generate over $100-million in free cash flow in F2024E and its first material debt maturity is not until 2027.”

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With the majority of Advantage Energy Ltd.’s (AAV-T) capital program having now concluded, Desjardins Securities analyst Chris MacCulloch expect a “material acceleration of share buybacks down the home stretch of 2023.”

Last Thursday, the Calgary-based company said it expects free cash flow to “surge” with 85 per cent of its capital priorities complete, allowing it to repurchase up to 5 per cent of outstanding shares during the fourth quarter.

“By all accounts, the message was favourably received by the market, as reflected in the 3.5-per-cent uplift in the stock on Friday, October 27, during an otherwise sluggish trading session for Canadian oil & gas equities,” said Mr. MacCulloch.

“While a 5-per-cent quarterly buyback target may appear aggressive at first glance, we should note that we see the company executing $45-million of buybacks in 4Q23 based on current strip prices, which would retire 2.8 per cent of the float at Friday’s closing price. Moreover, our model conservatively assumes that net debt remains at the mid-point of the $170– 230-million corporate target, while management hinted that it will likely increase its net debt target to reflect recent growth.”

In a research report titled Buyback Thriller—the midnight hour is close at hand, he said a 10-per-cent increase in the corporate net debt target to the $185–250-million “would appear warranted,” pointing to its achievement of 10-per-cent organic production growth this year without an upward revisions to its capital budget. That would allow $15–20-million of additional buybacks in the fourth quarter.

“That would put the company within striking distance of its 5-per-cent buyback target,” he added.” As an aside, our expectation is that a revised corporate net debt target will likely be announced in conjunction with 2024 guidance in late November/early December.”

Mr. MacCulloch reaffirmed his “buy” rating and $13.75 target for Advantage shares. The average target on the Street is $12.51.

“We continue to highlight Advantage as our top pick in the small-cap natural gas space following its release of constructive 3Q23 financial results,” he said. “From an operational perspective, the company has continued pushing the envelope on Montney well performance without materially increasing costs, which has driven further improvements in capital efficiencies.”

Elsewhere, Stifel’s Michael Dunn raised his target to $14.50 from $14 with a “buy” rating.

“Following up on AAV’s 3Q results, which modestly beat our estimates while organic spending was less than expected, our go-forward estimates are little changed,” said Mr. Dunn. “We continue to see the stock as offering very compelling valuation given its capital efficient outlook for approximately 10 per cent per year production growth and significant share buybacks, deep inventory of Tier 1 Montney locations, operational track record, and low valuation multiples even before ascribing any value to its Entropy business, which we expect will unlock value in the next year or so as project(s) become sanction ready. We are raising our target price.”

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After hosting investor meetings with the TFI International Inc.’s (TFII-N, TFII-T) management team, including CEO Alain Bédard, RBC Dominion Securities analyst Walter Spracklin sees “meaningful opportunities surrounding increased operating efficiency and M&A.”

“The management meetings we hosted last week centred on: 1) management’s strategy to achieve LTL [less-than-truckload] margin improvement targets; 2) the company’s focus on FCF generation; and 3) early evidence that the truckload market is bottoming,” he said. “Overall, we expect LTL margin targets to be achieved on the back of technology investment and improved density. We also believe that the company’s $2-billion-plus in dry powder positions it well to execute on a large transaction next year, providing potential upside in our view. Key is that the current business provides an attractive 8-per-cent FCF yield on trough 2023 earnings.”

Mr. Spracklin said a key to his investment thesis for the Montreal-based company is margin improvement from TForce Freight, its U.S. LTL subsidiary.

“Management spoke to its focus on improving US LTL O/R [operating ratio] by 200–300 basis points, with a targeted 87-88-per-cent O/R for next year, which would result in a $0.60 positive impact on EPS in our view,” he said. “On cost-cutting drivers, it views technology investment, shortening routes, and picking up multiple shipments as opportune.

Seeing the truckload market also “approaching the bottom,” the analyst added: TFII noted on its Q3 call a small pickup in TL activity in Q4 q/q, in our view a positive indication that the freight cycle is potentially bottoming. We also believe the truck market is bottoming and point to commentary from KNX that it expects capacity to exit the industry at an accelerating pace. We view a bottoming truck market as important to management meeting its preliminary 2024 guidance for EPS of $8.00.”

Mr. Spracklin maintained an “outperform” rating and US$133 target for TFI shares. The average is currently US$144.

“TFII shares yield 8 per cent on a FCF basis in our view on trough 2023 earnings, representing solid value,” he said. “Management is targeting FCF of $700–800-million in 2023, in line with our unchanged estimate of $727-million. We view FCF as supportive of further share repurchases and a potential large M&A transaction next year—we note that TFII trades at a discount to U.S. peers on a price to FCF basis.

“The key drivers of TFII shares going forward in our view continue to be acquisitions and margin improvement amid what has been a protracted freight recession. On M&A, we believe that TFII will deploy its dry powder (1.7 times net debt to EBITDA, likely to further decrease on solid FCF generation) to carry out a large transaction next year. We also believe the Yellow shutdown will support achievement of management’s LTL margin targets. Overall, we see M&A and margin expansion as dual catalysts into next year.”

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Expecting its third-quarter financial results to reflect “near-term industry challenges and higher input costs,” Desjardins Securities analyst Chris Li predicts Gildan Activewear Inc. (GIL-T, GIL-N) stock will continue to be range-bound until market conditions improve.

Ahead of Thursday’s release, he’s projecting adjusted earnings per share for the Montreal-based clothing manufacturer of 71 US cents, down 16 per cent year-over-year (from 84 US cents) and a penny below the consensus on the Street.

“As previously guided by GIL, we expect results to reflect continued industry challenges resulting in trade-down to lower-priced products and higher input costs, partly offset by market share gains (low-cost advantage), new retail underwear programs and an improved cost structure,” said Mr. Li.

“We view GIL maintaining the low end of its 2023 guidance as a positive as it would imply much improved 4Q performance, with approximately 5-per-cent sales growth (easy year-ago comp) and the high end of its 18–20-per-cent EBIT margin target (lower cotton costs) resulting in 17-per-cent EPS growth. GIL remains active with share buybacks.”

After reductions to his sales expectations for 2023, the analyst is now forecasting full-year EPS of US$2.50, down from US$2.55 previously and 6 US cents below the consensus projection. His 2024 estimate remains US$2.90, 13 US cents under the Street.

“At only approximately 9 times 2024 EPS (vs 15 times long-term average), we believe GIL’s valuation reflects the risk of lower estimates next year, with limited share price downside,” he said. “For 2024, we forecast sales growth of 4 per cent (vs negative 3 per cent in 2023) and EBIT margin rising 120 basis points to 18.5 per cent (vs GIL’s 18–20-per-cent target), supporting EPS of US$2.90 (up 16 per cent year-over-year) vs consensus of US$3.03. Key assumptions include a partial demand recovery, easy year-ago comps, continuation of the new underwear program in 2023, market share gains by leveraging GIL’s low-cost advantage, pricing stability, lower hedged cotton costs and share buybacks (5 per cent). Two main risks are (1) a prolonged economic downturn impacting demand; and (2) a 15-per-cent GMT [global minimum tax]. Stress testing our estimates to reflect these risks (ie no sales growth, 17.0-per-cent EBIT margin and 15-per-cent GMT), our downside EPS is US$2.35 (down 6 per cent vs 2023). But even based on our downside EPS, valuation is depressed at only 11.6 times.”

Maintaining his “positive long-term view,” Mr. Li reiterated a “buy” recommendation and $48 target for Gildan shares, matching the average on the Street.

Elsewhere, Scotia’s George Doumet kept a “sector outperform” rating and US$36.50 target in a report titled Looking for an Improving Exit to the Year.

“While GIL should continue to face near-term demand challenges, we highlight that the difficult comparative periods are moving behind them (both in terms of topline and margins),” he said. “In the context of GIL’s significantly discounted valuation and what we see as an improving exit to the year (positioning the company for mid-single-digit top line and mid-teens operating income growth next year) – we see (very) attractive risk/reward proposition. Furthermore, as demand recovers, GIL is primed to capture more share with its expanded low cost/flexible manufacturing capacity. Lastly, GIL also maintains a healthy balance sheet, which we believe could be increasingly used for capital return to shareholders. GIL remains a top discretionary idea.”

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In other analyst actions:

* Maintaining a “cautious” stance toward Canadian mortgage providers ahead of earnings season, National Bank Financial’s Jaeme Gloyn reduced his targets for First National Financial Corp. (FN-T, “sector perform”) to $38 from $42 and Timbercreek Financial Corp. (TF-T, “sector perform”) to $7 from $8.50. The averages are $41.83 and $8.50, respectively.

“Mortgage stocks have struggled YTD after posting declines in 2022: FN is down 6 per cent and TF is down ~15% vs. the S&P/TSX Financials Index down 10 per cent,” he said. “While EQB is up 18 per cent year-to-date, the shares are down 21 per cent since the August 8th peak and underperforming all other banks (except LB). While the announced acquisition of HCG by Smith Financial inspired confidence through the end of 2022 and into 2023, valuation compression in recent months has shown that market sentiment has shifted more negative. We reaffirm our view that caution and patience remain the appropriate strategy heading into Q3-23 results due to downside risks that could constrain sector valuations and share price performance near term.”

* Previewing its quarterly release, Scotia’s Himanshu Gupta trimmed his Chartwell Retirement Residences (CSH.UN-T) target by $1 to $12.50, matching the average, with a “sector outperform” rating.

“We have lived by our playbook ‘One year at a time’ throughout the pandemic and now post-pandemic period,” he said. “Our view is simple – public markets will price senior housing stocks based on FY1 earnings estimates and not stabilized earnings (unlike the private markets). The playbook has served as well: We downgraded CSH last year – when next year NOI was implying NAV of sub-$10 vs then price of mid-$11. We upgraded CSH this year – when next year NOI was implying NAV of mid-$11 vs then price of mid-$8.”

* TD Securities’ Steven Green raised his Eldorado Gold Corp. (EGO-N, ELD-T) target to US$12 from US$11 with a “hold” rating. The average is $17.55 (Canadian).

“Following a challenging H1, Q3 showed continued operational improvements at Kisladag, which positions the company for a strong Q4. In addition, operating costs, aided by lower energy costs in Europe, were below expectations, with cost guidance lowered. Our NAV has increased to $12.84 (from $12.42) largely due to lower cost estimates,” said Mr. Green.

* Barclays’ Ian Rossouw lowered his First Quantum Minerals Ltd. (FM-T) target to $25 from $28 with an “underweight” rating. The average is $35.49.

* TD Securities’ Linda Ezergailis cut her Fortis Inc. (FTS-T) target to $61 from $63 with a “buy” rating. The average is $57.25.

“With a number of recent significant regulatory decisions behind Fortis, solid yearto-date results and the pending proceeds from the Aitken Creek sale, in our view, the company is well positioned to execute on its capital program,” she said. “With FTS’ growth largely driven by utility energy infrastructure investments in North America, this should support the company’s 4-6-per-cent dividend CAGR target through 2028. We continue to view FTS as a core holding as the largest, highly regulated, investor-owned utility in Canada. We believe that investors will find the company’s low-risk and utility dominated business model attractive over the long-term.”

* Canaccord Genuity’s Matthew Lee hiked his Hammond Power Solutions Inc. (HPS.A-T) target to $85 from $69 with a “buy” rating. The average is $80.

“Hammond Power Solutions reported Q3 results on Friday, with revenue and EBITDA both above our estimates. Our most important takeaway this quarter was the accelerated backlog growth at 11% q/q, above the 5 per cent in Q2 and 6 per cent in Q1. In our view, the deepened order book provides crucial revenue visibility into the second half of F24, which is especially important given the macroeconomic opacity and differentiates it from industrial peers. Our added confidence around revenue and capacity growth has led us to increase our top-line estimates. On the margin front, HPS outperformed our gross margin expectations by 1.7 percentage points this quarter due to strong end-market demand, particularly in renewable and data centre applications. We expect margins to sustain at the current 30-32-per-cent level in F24, above management’s previous expectation of 27.5 per cent to 29.5 per cent. In order to support longer-term growth, HPS announced plans to upsize its capex by $12-million, which we estimate could add an additional $50-million in annual revenue capacity by F25.”

* Stifel’s Suthan Sukumar trimmed his Lightspeed Commerce Inc. (LSPD-N, LSPD-T) target to US$17 from US$20, keeping a “hold” recommendation. The average is US$19.57.

“We are expecting a largely neutral, in-line print for Lightspeed’s FQ2 results expected pre-market on Nov. 2 given our view for more back-half (H2/F24)-weighted strength, as per management’s prior F24 guidance,” he said. “While we see modest upside risk to GTV given generally stable consumer payment volumes quarter-over-quarter and potential for stronger payment attach rates with an aggressive payments strategy, higher customer churn risk remains a near-term headwind given the mandated payments push and focus shift to larger merchants. We remain on the sidelines as we look for proof points of successful execution and visibility to EBITDA break-even or better by the end of F24. Target lowered to $17 on recent peer multiple compression.”

* RBC’s Tom Callaghan reduced his target for Morguard REIT (MRT.UN-T) to $5 from $5.50, which is the current average, with a “sector perform” rating.

“Our neutral stance remains unchanged post third-quarter results which fell a penny shy of our outlook,” he said. “From a positive lens, despite the difficult backdrop MRT’s NOI [net operating income] held the line and was roughly flat on a year-over-year basis. Conversely, elevated refinancings, and above-average levels of variable debt continue to weigh-in via higher interest costs. Elsewhere, enclosed mall performance (organic growth) remains encouraging, with ongoing targeted initiatives aimed at improving the growth profile.”

* National Bank’s Michael Parkin lowered his OceanaGold Corp. (OGC-T) target to $4 from $4.25 with an “outperform” rating. The average is $4.11.

* Stifel’s Cody Kwong raised his target for Tamarack Valley Energy Ltd. (TVE-T) to $6.25 from $6. The average is $6.06.

“TVE appears back on track with solid 3Q23 results headlined by AFFO of $255-million that was 10 per cent plus ahead of us and the ‘street’ and production of 68,597 boe/d [barrels of oil equivalent per day] (82-per-cent liquids) that tracked expectations,” he said. “Finishing the quarter with net debt of $1.13 billion has the company within earshot of its $1.1-billion target, at which point it will implement its enhanced return of capital plan where it will begin share buybacks to the tune of 25 per cent of FCF (in addition to its base dividend). With debt targets now in sight, operations finally hitting its stride, relative rate of change in 2H23, and investor focus now able to transition back to TVE’s high quality assets, we believe this quarter marks an infection point in TVE’s valuation. With our estimates moving higher with this update we are increasing our target price.”

* CIBC’s Hamir Patel cut his Winpak Ltd. (WPK-T) target to $47 from $49 with an “outperformer” rating. The average is $51.75.

“Our reduced valuation reflects increased pricing risks (given excess near-term industry capacity), as well as a lack of visibility on the company’s new business order book (needed to fill WPK’s planned capacity growth),” said Mr. Patel. “We continue to view WPK as a defensive name (approximately 90 per cent of sales tied to food/beverage packaging), with strong margin visibility, above-market organic growth prospects and an improving M&A pipeline (with less PE competition in the current environment). WPK is trading at only 5.3 times 2024 estimated EV/EBITDA, a discount to its five-year average forward multiple of 8.3 times.”

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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 21/02/24 3:41pm EST.

SymbolName% changeLast
AAV-T
Advantage Oil & Gas Ltd
+7.6%9.77
CTC-A-T
Canadian Tire Corp Cl A NV
+0.75%140.61
CSH-UN-T
Chartwell Retirement Residences
0%12.18
CIX-T
CI Financial Corp
-2.49%15.64
CJR-B-T
Corus Entertainment Inc Cl B NV
-5%0.76
ELD-T
Eldorado Gold
+0.46%15.34
FFH-T
Fairfax Financial Holdings Ltd
-1.21%1345.32
FM-T
First Quantum Minerals Ltd
+2.58%11.91
FSZ-T
Fiera Capital Corp
-0.8%7.42
FN-T
First National Financial Corp
-1.18%40.18
FTS-T
Fortis Inc
+0.34%53.79
GIL-T
Gildan Activewear Inc
+3.74%47.49
GSY-T
Goeasy Ltd
-6.74%160.85
GCG-A-T
Guardian Capital Group Ltd Cl A NV
-0.33%48.9
HPS-A-T
Hammond Power Solutions Inc Cl A. Sv
+1.91%108.03
IFC-T
Intact Financial Corp
-0.59%226.23
LSPD-T
Lightspeed Commerce Inc.
-2.94%17.83
MX-T
Methanex Corp
+4%59.08
MRT-UN-T
Morguard Un
-0.75%5.3
OGC-T
Oceanagold Corp
0%2.78
POW-T
Power Corp of Canada Sv
+1.14%39.11
QSR-T
Restaurant Brands International Inc
-0.93%102.26
TVE-T
Tamarack Valley Energy Ltd
+4.49%3.26
TFII-T
Tfi International Inc
-0.04%195.35
TF-T
Timbercreek Financial Corp
+0.14%7.21
WPK-T
Winpak Ltd
+1.05%41.57

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