Inside the Market’s roundup of some of today’s key analyst actions
At least five analysts raised their price targets on flight simulator company CAE Inc. (CAE-T) in the wake of fiscal first quarter results released on Wednesday that sent its shares up 8%.
CIBC raised its target price to C$38 from C$37; National Bank of Canada raised its target price to C$38 from C$37; RBC raised its target to C$37 from C$35; BMO raised its target to C$37 from C$35; and TD Securities raised its target to C$39 from C$37.
CAE reported adjusted operating income of $145 million, well ahead of consensus expectations of $133 million. The company also reiterated both fiscal 2024 guidance and its three-year Investor Day targets.
“Overall, a solid quarter for CAE,” commented RBC analyst James McGarragle in a note to clients.
He said CAE’s Civil division is “firing on all cylinders” and was, in his view, a key driver of Wednesday’s share price rally. “Revenue growth and margin improvement were both solid and simulator orders as well as recent read-throughs from US aerospace peers suggest demand trends are intact, reaffirmed by commentary on the call. We expect this growth to continue on the back of a travel recovery in Asia and longer term due to favourable trends in emerging markets. Key is that CAE’s execution has been very strong, which gives us confidence in the team’s ability to capitalize on this growth looking ahead,” he said.
“The focus placed on CAE’s Defense margins in recent quarters has in our view masked the company’s very impressive execution in Civil. Combined with both near-term and long-term pilot training tailwinds, we see Civil as well positioned for high-single digit revenue growth over the next decade,” Mr. McGarragle added.
Mr. McGarragle has an “outperform” rating on the stock.
BMO analyst Fadi Chamoun sees potential for an even higher stock price than his new C$37 price target suggests.
“In light of the strong start to FY24, positive demand environment for Civil and Defense, fading headwinds from underperforming Defense contracts going into late FY24 and FY25, we sense that CAE is well-positioned to potentially outperform its FY24 target and deliver on its medium-term target of mid-20% EPS growth (FY22-FY25 timeframe),” he said in a note. “We believe that improving Defense margins, free cash flow, and return on invested capital alongside reduced leverage could support a higher valuation scenario of up to $42.”
The average price target is now C$37.33, according to Refinitiv Eikon data.
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Raymond James analyst Daryl Swetlishoff upgraded his rating on Conifex Timber Inc. (CFF-T) to “outperform” from “market perform” with a price target of C$1.80. He attributed the move to the stock’s inexpensive valuation and an expectation that earnings will improve in the second half of this year.
Ongoing margin pressure at its British Columba operations and unscheduled downtime at its Mackenzie sawmill led to a second quarter EBITDA loss of $8.7 million, worse than consensus expectations of $8 million.
“Biogen operations continued to ramp up following turbine damage (running at 79% of operating targets) with additional insurance proceeds expected to flow through earnings in the back half of the year,” Mr. Swetlishoff commented in a note to clients. “While WSPF [Western spruce-pine-fir] benchmark prices remain well below estimated BC interior cash costs, we note stumpage downward revisions, improved q/q commodity pricing, and the power plant returning to trend EBITDA bodes well for Conifex’ 2H23. What’s more, we reiterate Conifex’ fiber quality is poised to improve on significantly increased green timber harvesting with timber apportionments anticipated in 4Q23 — driving cost efficiencies while boosting sales realizations.”
“Although Conifex shares have underperformed peers year to date (-24 % vs. the peer group at 7% and the TSX +5%), we see potential for a catch up as the company trades well below intrinsic equity value at a about a 70% discount to our updated NAV estimates. While management noted it does not expect to see movement on the softwood lumber duty file before the 2024 US Presidential elections, we highlight current after-tax duties on deposit translate to ~65% of market cap. With over $18.1 mln in liquidity, net debt stood at ~$53 mln with the Conifex term loan secured against the power assets and largely non-recourse to the lumber operations. We regard CFF’s financial position as solid highlighting that excluding the power loan, net debt to total cap sat at just 9% at the end of 2Q23,” the analyst added.
The average price target is C$1.65.
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Desjardins Securities analyst Jerome Dubreuil downgraded LifeSpeak Inc. (LSPK-T) to “hold” from “buy”, concerned that the company’s “tight” balance sheet, as well as general macro economic uncertainty, will hinder its near-term growth prospects.
He cut his price target to 65 cents Canadian from 80 cents. “While we continue to forecast decent EBITDA growth and acknowledge solid operational leverage, we are hesitant given the stock has rebounded 80% since bottoming in the spring (still down 34% ytd) and is trading at 7.3x 2024 EBITDA,” he commented.
LifeSpeak, a health-care software provider, reported second quarter revenue of $13.2 million, missing the consensus of $13.7 million. Adjusted EBITDA of $3.3 million was below consensus of $3.7 million; adjusted loss per share of 4 cents compared with the Street’s expectation for a loss of 5 cents.
The company’s debt is a big concern for Mr. Dubreuil: “We currently have LSPK’s leverage at 5.4x LTM [Last 12 Months] EBITDA, which creates a major burden given current interest rate levels. Lenders have agreed to lift the requirement to test covenants for June and July, but we believe continued flexibility will be required from lenders in the coming months. While interest payments remain covered by EBITDA, we forecast that deleveraging prospects are limited for the coming quarters.”
“We believe the company lacks near-term catalysts given its low sales momentum and limited room for further cost improvement, while its balance sheet remains highly leveraged,” he concluded.
Elsewhere, RBC cut its target price to 50 cents from 60 cents.
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Analysts are giving mixed reviews to Sun Life Financial Inc.’s (SLF-T) latest quarterly results.
BMO raised its target price to C$79 from C$78, but RBC cut its target price to C$76 from C$79 and Credit Suisse dropped its target to $77 from $79.
Sun Life reported underlying earnings per share of C$1.57 in its second quarter, which was modestly above the Street estimate of C$1.54.
But Credit Suisse analyst Joo Ho Kim, who has an “outperform” rating on the stock, wasn’t all that impressed by the quality of the beat.
“Although SLF delivered a beat against both the Street estimate and our forecast, the strength was largely driven by better than expected Experience Gains, a DOE line that tends to fluctuate quarter-to-quarter relative to other lines. While it could be argued that a track record of favorable experience reflects good underwriting capabilities, we don’t believe that the full benefit of this quarter’s results will be reflected in the forward estimates. On the positive side, we saw good momentum continuing in Asia in terms of earnings (up 25% Y/Y) and sales growth, some of which flowed through to CSM (up 14% Y/Y or 6% on organic growth alone). Lastly balance sheet strength continued for SLF this quarter, with a solid level of capital generation that should lend to better optionality (including the new NCIB) vs. peers going forward,” the Credit Suisse analyst said in a note.
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Raymond James analyst Frederic Bastien thinks this is an opportune time to buy shares of Bird Construction Inc. (BDT-T). He reiterated a “strong buy” rating, while raising his price target to C$13 from C$12, after the company’s second quarter results.
“We recognize that Canadian construction stocks are not everyone’s cup of tea. They are low-margin and inherently risky vehicles that lack the consistency of their engineering peers. That said, they can represent very profitable trades at the right time in the cycle, and we believe now is that time for Bird Construction,” he said in a note to clients.
Bird’s revenue rose 19% from a year earlier in the quarter, versus the analyst’s expectations for an 8% gain, as new industrial work more than replaced the revenue from a large year-round work program that wrapped up in 2022.
The revenue growth powered adjusted EBITDA 31% higher to $29 million for the quarter. Adjusted EPS surged 84% from the prior year period to 29 cents - well ahead of the Street’s estimate of 22 cents.
“For 2Q23, the company handed the Street breakout results, executing a record amount of work, and delivering sequential and year-over-year improvements in margins. It also grew its combined backlog and pending backlog to a new high of $6.1 bln, and further strengthened its industry-leading balance sheet. Yet, BDT continues to trade a full standard deviation off its 10-year average on both a P/E and EV/EBITDA basis. Investors don’t need multiple expansion to do well on this stock; they just need some reversion back toward the mean,” said Mr. Bastien.
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There were at least a couple price target hikes for Metro Inc (MRU-T) in the wake of the company’s latest quarterly results. CIBC raised its target price to C$80 from C$77 while RBC raised its target to C$82 from C$81.
RBC analyst Irene Nattel is maintaining a “sector perform” rating and explained her higher price target in a note to clients: “Q3/F23 results very strong and a turnip higher than expectations on solid execution of merchandising strategies, good cost containment, ongoing shift to discount channel. Both press release and conference call noted ongoing high, albeit moderating, inflationary pressures and market challenges, MRU focused on delivering value to customers. Tweaking forecasts, Q3 results supportive of MRU’s hard-earned premium valuation. SP rating reflects relative valuation with MRU C23E EV/EBITDA 9.9x ~1.5x premium to Loblaw (TSX:L). PT to $82 (+$1).”
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RBC analyst Pammi Bir cut his price target on CT Real Estate Investment Trust (CRT-UN-T) to C$17 from C$18 while maintaining a “sector perform” rating.
The analyst attributed the lower price target to using a lower target multiple, as sector valuations remain under pressure amid higher interest rates. He said CT REIT is trading at about 10% below net asset value, better than the 21% discount being seen at peers.
But the RBC analyst remains upbeat on the name: “From our vantage point, valuation remains well-supported by its superior cash flow durability, healthy growth profile, strong balance sheet, and ample capacity for distribution growth.”
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Several analysts raised their price targets on Great-West Lifeco Inc (GWO-T) in the wake of the company’s quarterly earnings. BMO raised its target price to C$42 from C$40; CIBC raised its target price to C$42 from C$41; RBC raised its target price to C$44 from C$40; and Barclays raised its target price to C$43 from C$40.
RBC analyst Darko Mihelic commented: “GWO’s Q2/23 results were better than we forecasted, reflecting stronger than expected earnings in the U.S., Europe, and Capital and Risk Solutions segments. GWO’s capital remained strong this quarter, as GWO has $0.5 billion of cash available at the holding company level, which we view positively. We increase our target P/B multiple as we believe GWO’s earnings and capital have been stable.” He maintained a “sector perform” rating.
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In other analyst actions:
Airboss of America Corp (BOS-T): National Bank of Canada cuts target to C$8.5 from C$11
Converge Technology Solutions Corp (CTS-T): TD Securities cuts target to C$3.5 from C$5.5 and downgrades rating to “hold” from “buy”
Crew Energy Inc (CR-T): National Bank of Canada raises target price to C$6.50 from C$6; Stifel raises target price to C$9.25 from C$8; BMO raises target price to C$8 from C$7; TD Securities raises target price to C$7.5 from C$6.5
Enerflex Ltd (EFX-T): National Bank of Canada raises target price to C$14 from C$11.50; Stifel raises target price to C$31 from C$29
Finning International Inc (FTT-T): TD Securities raises target price to C$46 from C$39; BMO raises target price to C$50 from C$48; CIBC raises target price to C$48 from C$47; Raymond James raises target price to C$50 from C$43; RBC raises target price to C$52 from C$51
Goeasy Ltd (GSY-T): CIBC raises target price to C$170 from C$150
K-Bro Linen Inc (KBL-T): Acument Capital raises target price to C$44 from C$42; National Bank of Canada raises target price to C$36 from C$34.50; TD Securities raises target price to C$43 from C$39
Linamar Corp (LNR-T): CIBC raises target price to C$91 from C$89; BMO cuts target price to C$85 from C$92
Power Corporation of Canada (POW-T): BMO raises target price to C$41 from C$39
Premium Brands Holdings Corp (PBH-T): CIBC raises target price to C$114 from C$99
Q4 Inc (QFOR-T): CIBC raises target price to C$4 from C$3.75; Credit Suisse raises target price to C$4.95 from C$4; RBC raises target price to C$3.75 from C$3.25
Stella-Jones Inc (SJ-T): Acumen Capital raises target price to C$80 from C$72; RBC raises target price to C$79 from C$69; TD Securities raises target price to C$83 from C$78
TC Energy Corp (TRP-T): Credit Suisse cuts target price to C$54 from C$55.5
Verticalscope Holdings Inc (FORA-T): RBC raises target price to C$12 from C$11; TD Securities raises target to C$6.50 from C$5
WSP Global Inc (WSP-T): CIBC raises target price to C$204 from C$191; RBC raises target price to C$210 from C$199; BMO raises target price to C$205 from C$195; TD Securities raises target price to C$215 from C$205
AT&T Inc (T-N): RBC cuts target price to US$14 from US$19
Darcy Keith