Inside the Market’s roundup of some of today’s key analyst actions
At least a dozen analysts slashed their price targets on Shopify Inc. (SHOP-T, SHOP-N) in the wake of the tech company’s earnings Wednesday, which irritated the Street with its second quarter forward guidance that called for lower than expected margins. Its shares plunged 18.5% in Toronto, the most ever.
Among the price target cuts was Citigroup cutting its to US$95 from US$105; TD Cowen reducing its target to US$72 from US$80; and CIBC cutting its target to US$85 from US$100.
The average target is now at US$76.88, down from US$82.55 a month ago, according to Refinitiv Eikon data.
“While the ~19% pullback in its shares presents, in our view, a buying opportunity, investors should do so knowing the context of lower growth, free cash flow margins, and valuation,” said CIBC analyst Todd Coupland.
“Shopify’s Q1 results confirmed that its growth continues to be underpinned by TAM [Total addressable market] expansion, growing platform adoption, and market share gains. We expect the company will continue to outgrow the broader market, but require heavier investments in opex, and particularly in marketing, to drive future growth. The largest component of this spend will be aimed at its core merchant base, which Shopify states has an average payback period of 12-18 months. The company expects marketing initiatives aimed at Enterprise and Retail will have average payback periods longer than 18 months,” Mr. Coupland added.
Some analysts were sounding a bit more upbeat on the company’s prospects.
“We believe Shopify has a solid track record of realizing high returns on its investments, which may lead to growth re-acceleration through FY25. Moreover, Shopify continues to see strong traction in the market and operating leverage is likely over time,” said RBC analyst Paul Treiber. He maintained an “outperform” rating.
Believing Wednesday’s stock plunge represents a buying opportunity, ATB Capital Markets analyst Martin Toner upgraded his rating to “outperform” from “sector perform”. And in contrast to other analysts, he raised his price target, to C$115 from C$110.
“The results caused concern that revenue growth was slowing, in part driven by macro-related factors in Europe,” said Mr. Toner. “We believe Investors are also concerned about operating expense growth and gross margin compression as Shopify wins larger enterprise customers with more leverage in negotiations. We believe larger enterprises that require fewer operating expense dollars will be accretive to operating income margins and free cash flow margins and Shopify will continue to show operating leverage and peer-leading profit growth.”
He added, “SHOP’s recent performance has been well below the Magnificent 7 as a group. (AAPL, AMZN, GOOGL, META, MSFT, NVDA, TSLA). Shopify’s valuation as its margins ramp rapidly is becoming comparable to the Magnificent Seven. After the numbers roll forward on next 12-month (NTM) EBITDA estimates, we expect Shopify’s EV/EBITDA to drop another ~5x. Given our estimate for 44% adjusted operating income growth, we believe this narrowing spread between Shopify and these much larger, and for the most part slower growing, companies indicates the opportunity in Shopify, whose growth we believe is undervalued.”
There are 17 buy ratings, 23 holds, and 2 sells on Shopify, according to Refinitiv data.
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National Bank of Canada analyst Gabriel Dechaine upgraded Manulife Financial Corp. (MFC-T) to “outperform” from “sector perform” while raising his price target to C$38 from C$34.
The move came after Manulife Wednesday evening reported first quarter underlying earnings per share of 94 cents, ahead of the 91 cents consensus. The beat was assisted by loan loss provision recoveries and a lower tax rate, although these benefits were offset somewhat by insurance “experience” losses.
“We are increasing our estimates to reflect lower ECLs [Extended Contractual Liability] and additional buybacks. We are also increasing our target 2025E P/B multiple (50% weighting) to 1.4x from 1.2x and our target 2025E P/E multiple (50% weighting) to 9.5x (from 8.5x),” Mr. Dechaine said in a note to clients.
Elsewhere, Jefferies raised its target price to C$43 from C$40.
The average price target is now C$35.69.
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Power Corporation of Canada (POW-T) saw at least three price target hikes following this week’s earnings, which saw adjusted EPS of $1.11 coming largely in line with Street expectations.
CIBC raised its target price to C$43.00 from C$40.00; National Bank of Canada raised its price target to C$42 from C$41; and RBC raised its target price to C$46 from C$45.
CIBC analyst Nik Priebe said the hike to his price target reflected the recent performance of Great West Life and IGM Financial.
“Power Corporation reported a relatively uneventful quarter. Of note, the company is winding down the public equity strategy at Power Sustainable, which freed up a bit of cash for the holding company<” Mr. Priebe said in a note. “This decision makes sense considering the subscale nature of the strategy (as it relates to the volume of third-party invested capital) and limited demand for the asset class. In our view, focusing on investment capabilities with better tailwinds (infrastructure as a good example) is better aligned with the goal of growing the platform over time via third-party capital.”
“POW trades at a 26% discount to its current NAV/share. This remains within the range that we have seen in the recent past, as it has generally oscillated between 20% and 30% since the reorganization was announced in late 2019. In our view, further execution on strategic objectives (e.g., the monetization of standalone businesses, freeing up seed capital and returning it to shareholders, or demonstrating profitability in the asset management business) could help narrow the gap over time,” he added.
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Scotiabank analyst Mario Saric cut his price target on Brookfield Asset Management Ltd. (BAM-N, BAM-T) to US$44.50 from US$47 following quarterly results this week that had him reducing his earnings expectations for the company.
“We maintain our sector outperform rating but our key estimates drop 6%-7%, post a Q1 that stalled a bit on growth,” Mr. Saric said in a note to clients.
“Unlike the share price response to Q4 results (overly punitive), we view yesterday’s 1.6% share price decline (vs. -0.2% for U.S. peers) as reasonable given our estimate revisions, but also the short-term focus markets seem to have these days. Net-net, no change to our positive thesis insofar as we think BAM is attractive for income & growth investors alike, even if Q1 growth took a breather,” he added.
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At least five analysts nudged up their price targets on Linamar Corp. (LNR-T) following a solid earnings beat late Wednesday.
CIBC raised its target price to C$92 from C$90 while Scotiabank raised its target price to C$90 from C$85 and TD raised its target to C$97 from C$86. BMO raised its target price to C$90 from C$80 and Raymond James raised its target price to C$74 from C$70.
The average analyst target is now C$87.83.
Linamar reported first quarter sales, adjusted EBIT, and adjusted EPS of $2,722 million, $244 million, and $2.59 compared to consensus of $2,654 million, $202 million, and $2.06.
The EBIT beat was mainly accomplished by higher margins, commented Scotiabank analyst Jonathan Goldman.
“We believe the significant margin improvement is supported by internal initiatives: lower launch costs, accretive M&A, cost recoveries, and higher CPV in Mobility; higher volumes in Industrial. We updated our estimates, which may prove conservative,” Mr. Goldman said in a note.
TD analyst Brian Morrison summed up the first quarter results as “demonstrating solid organic growth, strong growth from acquisitions, and attractive margin expansion.”
“Linamar was our top pick coming into the Q1/24 results within our auto supplier coverage, and its results handily exceeded the most bullish of expectations. The EBITDA beat was almost equally across both operating segments, but we believe the Mobility performance will receive the most accolades from investors. The Q1/24 beat and improved outlook resulted in an increase to annual guidance,” Mr. Morrison said. “We believe the last two quarters of financial outperformance should support multiple expansion.”
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At least two analysts raised their price targets on Stella-Jones Inc. (SJ-T) after first quarter results that sent its shares up nearly 11% on Wednesday.
Scotiabank raised its target price to C$88 from C$86 while Desjardins hiked its target to C$98 from C$92.
“We are pleased with SJ’s 1Q results,” commented Desjardins analyst Benoit Poirier. “In the balance of 2024, based on electrical grid infrastructure spending demand dynamics at play, we see a low probability of any material utility pole pricing pressure. Combined with the additional ties available for sale, enabling SJ to better serve its non–Class l customers (margin accretive), and the new pole customers onboarded, we are confident that SJ can deliver margins of about 17.5%, with strong potential for further upside if pole pricing surprises.”
Mr. Poirier is maintaining a “buy” rating. “SJ’s return profile is quite compelling for a company with resilient attributes (~90% of demand for railway ties and utility poles is driven by maintenance),” he said.
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Now’s the time to add exposure to Capital Power Corp. (CPX-T), said Desjardins analyst Brent Stadler. He raised his price target to C$50 from C$48 following the company’s Investor Day, which left him highly enthusiastic on the stock.
“The investor day was phenomenal, in our view, and we are big fans of the refreshed/ charismatic messaging, which gives us greater confidence in CPX’s outlook and ability to capitalize on growing power demand tailwinds,” Mr. Stadler said in a note. “We are getting ahead of the load growth and AI/datacentre tailwind for FlexGen assets and partially reducing conservatism in our model to reflect expectations for more attractive recontracting terms and an improved outlook for firm capacity—the primary driver of our target increasing.”
CPX refreshed its capital allocation strategy and provided enhanced project returns, the analyst noted. It expects to invest 70% of cash flows into FlexGen gas assets, 20% into renewables and 10% into other. “Given market tailwinds, CPX is targeting 12–14% returns on FlexGen assets (could be conservative), 10–12% on renewables and 10–15% on other. These refreshed targets have CPX investing more capital into the higher-return FlexGen assets, which we view as a key differentiator. Investors should view this update as positive.”
“In our view, CPX offers investors deep value and exposure to a balanced approach to the energy transition, which has the company uniquely positioned to benefit as we move further into the reliability era,” Mr. Stadler added.
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RBC analyst Greg Pardy raised his price target on Suncor Energy Inc (SU-T) to C$60 from C$58, while reiterating an “outperform” rating, following what he termed as “impressive” first quarter results.
The company reported record quarterly production of 835,300 bbl/d, with a refinery utilization rate of 98%.
“As a turnaround story, Suncor’s strong first-quarter results continued to showcase its improving operating/financial momentum that we think will translate into relative share price appreciation over time,” the analyst said in a note. “Suncor is our favorite integrated in Canada and on our Global Energy Best Ideas list.”
Meanwhile, Mr. Pardy thinks Suncor’s valuation is looking attractive.
“At current levels and under our base outlook, Suncor is trading at a 2024 debt-adjusted cash flow multiple of 4.9x (vs. our global major peer group avg. of 6.1x) and a free cash flow yield of 11% (vs. our peer group avg. of 9%). We believe the company should trade at an average multiple vis-à-vis our peer group given its physical integration, attractive downstream assets, free cash flow generation, solid balance sheet and rising shareholder returns, counterbalanced by the need to address its Base mine depletion in the coming years,” he said.
BMO analyst Randy Ollenberger noted the company’s strong operating results, but cautioned some big decisions loom.
“Suncor started 2024 on a positive note with stronger-than-expected oil sands production and record upgrader utilization. The company has successfully lowered its cost structure with more to come,” the BMO analyst commented.
“That said, there are some big decisions looming, including reducing debt levels and determining its strategy to replace its aging Base Mine. We expect Suncor to provide a more fulsome overview of cost structure improvements at its upcoming business update on May 21, as well as updated shareholder framework that could include changes to its net debt targets,” he added.
BMO also raised its price target on Suncor, going to C$60 from C$55. The average target is now C$55.87.
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TD Cowen raised its target price to C$15 from C$12 on Verticalscope Holdings Inc (FORA-T) while Canaccord Genuity raised its target to C$13.50 from C$10.25.
The higher targets followed an encouraging earnings report.
“VerticalScope’s Q1/24 report reflected stronger-than-expected digital advertising growth (+26% y/y), adj. EBITDA (+78% y/y) and FCF (+120% y/y),” Canaccord analyst Aravinda Galappatthige said in a note. “This supported faster de-levering, with balance sheet debt easing to 1.9x (from 2.2x net debt/LTM EBITDA as of Q4/23). In parallel, we saw a material improvement in MAUs (monthly active users), with the count rising from 100.4M last year to 112.8M. Importantly, comments on the call suggest an acceleration in the positive trends we saw in Q1, implying digital ad growth of over 26% y/y in Q2 and steep MAU growth as well.”
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Several analysts cut their price targets on Spin Master Corp. (TOY-T) following a disappointing earnings report.
CIBC cut its target price to C$37.00 from C$41.00; Jefferies cut its target price to C$35 from C$40; National Bank of Canada cut its target price to C$35 from C$40; TD Cowen cut its target price to C$46 from C$48; and Canaccord Genuity cut its target to C$46 from C$51.
Canaccord analyst Luke Hannan said he still has optimism for the company’s second half 2024 performance and is maintaining a “buy” rating.
“The primary driver of the EBITDA miss vs. consensus was the margin differential between M&D (approx. -23% adjusted EBITDA margin) and Spin Master’s base Toy business (-12.5% adjusted EBITDA margin); more specifically, though, the shortfall was more driven by how the Street was modelling quarterly contributions from the business as opposed to weakness in fundamentals,” Mr. Hannan said in a note.
“Spin Master described its retailer customers as expressing cautious optimism when it comes to the back half of the year, which we think is an apt way to look at TOY shares as well. We’re sure investors will eventually look past a primarily modelling-driven miss, particularly considering how inexpensive the shares are here, and considering the mix tailwinds from a rich slate of releases on tap in both the Entertainment and Digital Games segments. As contributions from these businesses increase, and discretionary spending headwinds abate, we believe the stock’s multiple will expand accordingly.”
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In other analyst actions:
* American Hotel Income Properties REIT LP (HOT-UN-T): CIBC cuts PT to $0.40 from $0.50
* Athabasca Oil Corp (ATH-T): National Bank of Canada raises to outperform from sector perform and raises target price to C$7 from C$6.5
* B2Gold Corp (BTO-T): Scotiabank cuts target price to C$5 from C$5.50
* Boardwalk REIT (BEI-UN-T): RBC raises PT to C$88 from C$86; National Bank of Canada raises PT to C$88 from C$86.50
* CES Energy Solutions Corp (CEU-T): National Bank of Canada raises PT to C$7 from C$6.50; Stifel raises target price to C$8.50 from C$7.50
* Enerflex Ltd (EFX-T): Stifel cuts target price to C$10 from C$13
* Ero Copper Corp (ERO-T): National Bank of Canada raises PT to C$33.50 from C$32.25; Scotiabank raises target price to C$32 from C$30
* Fiera Capital Corp (FSZ-T): Scotiabank raises target price to C$8.50 from C$8
* Goeasy Ltd (GSY-T): Scotiabank raises target price to C$200 from C$190
* Intact Financial Corp (IFC-T): Jefferies raises target price to C$242 from C$231; National Bank of Canada raises PT to C$260 from C$247; Scotiabank raises target price to C$264 from C$261
* Kinross Gold Corp (K-T): Cormark Securities raises to buy from market perform and raises target price to C$13 from C$11; National Bank of Canada raises PT to C$13.75 from C$13.50
* Nutrien Ltd (NTR-T): Mizuho raises target price to $59 from $54
* Pet Valu Holdings Ltd (PET-T): Barclays raises target price to C$37 from C$33
* Sleep Country Canada Holdings (ZZZ-T): CIBC cuts target price to C$28.00 from C$32.00; National Bank of Canada cuts PT to C$30 from C$31
* Softchoice Corp (SFTC-T): National Bank of Canada cuts target price to C$23 from C$25
* Spartan Delta Corp (SDE-T): CIBC raises target price to C$6.00 from C$4.00; CIBC raises to outperformer from neutral; Stifel raises target price to C$6 from C$5.75
* True North Commercial REIT (TNT-UN-T): CIBC raises target price to C$9.50 from C$9.00
Darcy Keith