Inside the Market’s roundup of some of today’s key analyst actions
After weighing its credit risk against its elevated valuation, National Bank Financial analyst Gabriel Dechaine lowered his recommendation for EQB Inc. (EQB-T) to “sector perform” from “outperform” following third-quarter results that fell short of his expectations.
The Toronto-based digital financial services company reported adjusted earnings per share for the quarter of $2.76 late Wednesday, missing both Mr. Dechaine’s $2.87 estimate and the consensus projection of $2.83. He attributed the gap to higher-than-anticipated provisions for credit losses (a 4-cent drag), increased expenses (3 cents) and lower revenues (2 cents).
“Loan losses [were] higher than forecast (with another GIL spike).” said the analyst. “Two-thirds of this quarter’s provisions were tied to the equipment finance portfolio (i.e., transportation sector). While we would normally look through a ‘lumpy’ commercial loss, we have to consider the broader credit picture that includes another spike in impairments. The GIL [gross impaired loan] balance increased 25 per cent quarter-over-quarter (following a 60-per-cent spike during Q4/23), with a nearly 50-per-cent increase of Personal loan impairments and a nearly 20-per-cent increase in Commercial GILs.”
Mr. Dechaine expects expense growth to “a persistent drag” on earnings in the near term, projecting higher organic expense growth “as it builds its brand and invests in technology.”
“This trend should contrast against Big-6 banks that are currently in cost curtailment mode,” he said.
Despite a 5-per-cent increase to its quarterly dividend, Mr. Dechaine lowered his target for EQB shares to $95 from $98 based on reduced estimates to reflect higher PCLs and expenses. The average target on the Street is $105.44, according to LSEG data.
“Trading at a 1.3 times P/BV [price-to-book value] multiple, or 16 per cent above its 10-year average, we believe taking a more cautious view on the stock is warranted and are downgrading the stock to Sector Perform (was Outperform),” he said.
Elsewhere, RBC Dominion Securities analyst Geoffrey Kwan raised his target to $107 from $101 with an “outperform” rating in a research report titled Q1/24 results were not up the (Schitt’s) Creek.
“Paying homage to EQB spokespeople Eugene and Dan Levy’s award-winning TV show, we think EQB’s Q1/24 results were solid on the whole,” said Mr. Kwan. “Originations were well ahead of our forecast with loan growth right in line with our forecast. EPS was largely in line with our forecast and credit trends were a bit mixed (ACLs flat, impairments up slightly Q/Q). The dividend was increased 5 per cent, which was right in line with our forecast. Bigger picture, we think EQB continues to execute well on its growth strategy.”
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Following better-than-expected fourth-quarter results, BMO Nesbitt Burns analyst Étienne Ricard thinks Fiera Capital Corp. (FSZ-T) “now offers a balanced risk-reward with the stock trading in line with its historical multiple, at the mid-point of peers and within the range of industry precedent transactions.”
Accordingly, he downgraded its shares to “market perform” from “outperform,” seeing its shares as “fairly valued.”
“FSZ trades at an 11-per-cent free cash flow yield, a meaningful improvement relative to 17 per cent in our June 2023 upgrade and 20 per cent four months ago,” he said. “From an absolute perspective, this is consistent with the stock’s average valuation since August 2021 when Fiera/PineStone first announced their subadvisory agreement. From a relative perspective, valuation is at the mid-point of Canadian (14 per cent) and U.S. (9 per cent) peers. Lastly, the stock now trades within our $8-15/ share value range based on industry precedent transactions.”
Mr. Ricard raised his target for Fiera shares to $8.50 from $8. The average is $7.54.
“Investor concerns historically focused on uncertainty regarding the PineStone sub-advisory agreement and an elevated dividend payout,” he said. “We believe those concerns have now abated with management having quantified expected leakage at PineStone ($2-3-billion/year) and free cash flow now covering the dividend (2023: 100-per-cent payout; LTM [last 12 months] Q2/23: 200 per cent due to transitory working capital items).”
“2024 could prove another challenging year for organic AUM growth considering $3.1B in expected PineStone-related outflows from National Bank. Further, net flows for other strategies have yet to pick-up despite improving market sentiment (many investors awaiting actual rate cuts?). From a capital allocation standpoint, we forecast the 2024 dividend payout to remain in the 90-100-per-cent range, providing limited flexibility to reduce leverage and/or repurchase stock.”
Other changes include:
* National Bank’s Jaeme Gloyn to $7.50 from $6 with a “sector perform” rating.
“This is a healthy beat on revenues with good opex containment and balance sheet deleveraging,” said Mr. Gloyn. “Moreover, reported EPS more closely aligned with adjusted EPS, confirming underlying strength in earnings. To nitpick, outflows remain significant while the revenue beat came from less predictable sources. Management also guided to continued flat opex growth (driving 30-per-cent-plus EBITDA margins in 2024) and improving FCF. As a result, our estimates and PT move higher. We see continued upward momentum in the shares near term.”
* RBC’s Geoffrey Kwan to $7 from $6 with a “sector perform” rating.
“We think Q4/23 results were mixed, but net-net incrementally positive,” said Mr. Kwan. “Q4/23 EPS was better than forecast, although it was primarily driven by more variable revenue categories (performance fees, transaction fees/other revenues) as management fees were in line with our forecast. Furthermore, although Adjusted EBITDA margins in Q4/23 benefited from higher performance fees and other revenues, the full year 2023 Adjusted EBITDA margin of 30 per cent was better than we expected at the start of 2023. However, net redemptions were much worse than forecast driven by elevated redemption activity relating to PineStone. Fiera believes PineStone-related redemptions should subside during 2024, but there is no evidence of this yet. As well Fiera’s overall investment performance continues to be pretty good, yet this is not translating into positive net sales (net sales have been negative for 11 consecutive quarters). Changing to a regional distribution model could improve net sales performance, but execution will be important and it’s unclear how successful it will be and how quickly it can improve net sales performance. We see the shares as fairly valued and believe that clearer evidence of improving fundamentals are needed to support the current share price.”
* Scotia’s Phil Hardie to $8 from $7 with a “sector perform” rating.
“The beat was mainly driven by much higher-than-expected performance fees, which are inherently volatile,” said Mr. Hardie. “However, we believe a more sustainable positive read-through coming out of the quarter was related to cost control. Notwithstanding the variable incentive related to performance fees, management is expecting opex to remain flat in 2024, which we expect to support Adj. EBITDA margins at or slightly above the company’s target of 30 per cent plus. Another positive read from the quarter is likely receding risks related to the sustainability of the dividend with the coverage ratio expected to continue to improve in 2024.
“The elephant in the room remains as elevated net redemptions, eroding 3 per cent of AUM in the fourth quarter and 8.4 per cent for the full year. The bulk of the outflows continues to be related to PineStone sub-advisory, with a challenging industry backdrop also likely contributing. We expect outflows to continue in the near term, but anticipate improvements later in the year and into 2025.”
* Desjardins Securities’ Gary Ho to $7.25 from $6.50 with a “hold” rating.
* CIBC’s Nik Priebe to $8.25 from $7 with a “neutral” rating.
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Ahead of the release of its fourth-quarter 2023 financial results on March 14 and seeing the proposed initial public offering of Reddit as a potential catalyst, TD Securities analyst Vince Valentini upgraded VerticalScope Holdings Inc. (FORA-T) to “buy” from “hold” on Thursday.
“In our last report on VerticalScope, we cited concerns about good margin expansion being insufficient to draw more investor attention to this arguably beaten-up name (FORA down 28 per cent in 2023, and down another 8 per cent year-to-date), and we needed to see evidence of more meaningful catalysts to spark interest,” he said. “We believe the proposed IPO of Reddit could be just what the doctor ordered. "
“We have no opinion on Reddit or its potential valuation, but we believe it is useful for FORA investors to understand what the reported US$5 billion valuation by media outlets would imply for multiples. Keep in mind that Reddit has always been cited in our research as one of the best comparables to VerticalScope, given the common business model of monetizing hyper-targeted audiences on online community forums. Unfortunately, Reddit has been a key comp with no public valuation benchmarks; so it has been of less use to us, until this year hopefully.”
Mr. Valentini did caution that the earnings release may not spark a positive response from investors, but he added:
“We would not be shocked if the results and/or outlook commentary are favourable versus our estimates. Noting that our estimates remain below consensus ... we have attempted to be conservative with our margin forecast for FY2024 (39.4 per cent) versus the meaningful year-over-year gain of 810bp (to 44.0 per cent) that the company achieved in Q3/23.
“Upside to our 2024 estimates is even more likely, in our view, if VerticalScope is able to monetize some of its first-party data by licensing it to companies looking to train GenAI large language models (note that Reddit recently did a $60-million deal with Google along these lines, and revenue from the News segment of Thomson Reuters was seemingly boosted by about $35-million across Q4/23 and Q1/24 from similar contracts).”
Mr. Valentini raised his target for the Toronto-based company by $1 to $7.50. The average on the Street is $7.94.
“We have increased our target multiple to 7.0 times 2024 estimated EBITDA (previously 6.25 times), which equates to 2.8 times EV/revenue. Targeted upside of 72 per cent to our new target price (C$7.50) justifies our upgrade to BUY. Reddit is yet to achieve positive EBITDA, but if we back out R&D expense, we estimate that a US$5 billion IPO valuation will imply 14.5 times 2023 EBITDA (6.2 times 2023 revenue).
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Expressing “more confidence in the company’s ability to lower volatility in 2024 results (and generate strong FCF), particularly as working capital levels move to more stable levels,” BMO Nesbitt Burns analyst John Gibson raised Enerflex Ltd. (EFX-T) to “outperform” from “market perform” following largely in-line fourth-quarter results.
“EFX’s free cash flow was very strong at $185-million this quarter, due in part to a large working capital recovery ($144-million),” he noted. “A large portion was related to a non-recurring asset sale ($40-million), while some Engineered Systems prepayments also helped. That said, we do expect working capital requirements to lower (and be less volatile) in 1H/24 vs. 1H/23 due to: 1) more normalized Engineered Systems work; and 2) its plethora of capital intensive projects are largely over (outside of its Cryo facility). We also believe lower interest/integration costs, offset partially by higher cash taxes, should drive some incremental free cash flow, particularly in the back half of 2024.
Mr. Gibson’s target rose to $10 from $8. The average is $10.63.
“Our upgrade reflects greater confidence in the company’s ability to generate strong levels of free cash flow in 2024 (BMO estimate is now $200-million, reflecting a FCF yield of more than 20 per cent),” he said. “While the company is still expected to incur similar challenges this year including higher cash taxes and working capital requirements in 1H/24, we expect the volatility in earnings to decrease and allow for improved investor confidence.”
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In response to recent share price outperformance and its current valuation, TD Securities analyst Menno Hulshof downgraded Imperial Oil Ltd. (IMO-T) to “hold” from “buy” on Thursday.
“IMO admittedly remains a very clean story on all fronts—a best-in-class balance sheet, fiscal discipline (i.e., industry-leading reinvestment ratio), and a strong commitment to returning the majority of FCF through buybacks and ratable dividend increases,” he said. “However, it has been the top-performing integrated trailing-12-months and year-to-date, is trading at near-record-highs, and starts to look fully valued, in our view (2025 estimated strip FCF yield — 12 per cent vs. peers — 14 per cent; EV/DACF — 6.4 times vs. peers — 5.1 times).”
Mr. Hulshof’s target increased by $1 to $88, above the $84.80 average.
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Desjardins Securities analyst Jonathan Egilo thinks SSR Mining Inc.’s (SSRM-T) share price has now removed all future value from its Çöpler mine in Turkey, which continues to be closed following a landslide earlier this month.
However, he is now “cautious” about the risks surrounding its Hod Maden gold-copper deposit after the Vancouver-based company withdrew its annual guidance on Wednesday, leading him to downgrade its shares to “hold” from “buy” previously.
“[Wednesday] night’s filings contained added risks and disclosures pertaining to the ongoing situation in Türkiye, including commentary on the potential for the government to rescind or revoke permits associated with Hod Maden,” said Mr. Egilo. “Within [Wednesday] night’s release, SSR also announced a suspension of spending at Hod Maden, although we believe that is likely part of the same strategy which drove the dividend cut, ie balance sheet protection through this period of Çöpler uncertainty.
“Our company-wide $8.78 NAVPS [net asset value per share] has Hod Maden valued at $2.45 and Çöpler valued at negative 98 cents. Based on today’s trading, this delivers a P/NAV of 0.72 times. If we removed the value for Hod Maden from our NAVPS, this would imply a P/NAV of 1.00 times, suggesting to us that Hod Maden indeed remains baked into SSR shares.”
Mr. Egilo sees “downside risk driven by the potential for the government to revoke key construction permits or Hod Maden’s environmental impact assessment, which could erode the $2.45 per cent share value for Hod Maden and negatively impact the shares.”
His target for SSR shares fell by $1 to $6.75. The average is currently $9.64.
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Analysts at Jefferies initiated coverage of a group of Canadian miners on Thursday.
They gave these stocks “buy” recommendations:
- Alamos Gold Inc. (AGI-N, AGI-T) with a US$14 target. The average on the Street is $21.44 (Canadian)
- B2Gold Corp. (BTG-N, BTO-T) with a US$3.50 target. Average: US$4.43.
- Calibre Mining Corp. (CXB-T) with a $2 target. Average: $2.44.
- Dundee Precious Metals Inc. (DPM-T) with a $13 target. Average: $13.31.
- Lundin Gold Inc. (LUG-T) with a $19 target. Average: $20.62.
- OceanaGold Corp. (OGC-T) with a $3.50 target. Average: $3.87.
Companies receiving “hold” ratings include:
- Agnico Eagle Mines Ltd. (AEM-N, AEM-T) with a US$54 target. Average: US$67.14.
- Franco-Nevada Corp. (FNV-N, FNV-T) with a US$117 target. Average: US$146.67.
- G Mining Ventures Corp. (GMIN-T) with a $2 target. Average: $2.39.
- Osisko Gold Royalties Ltd. (OR-N, OR-T) with a US$15 target. Average: US$16.98.
- Pan American Silver Corp. (PAAS-N, PAAS-T) with a US$14 target. Average: US$20.37.
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While acknowledging “some near-term headwinds,” Desjardins Securities analyst Chris Li sees Pet Valu Holdings Ltd. (PET-T) as “a highly compelling long-term growth story,” initiating coverage with a “buy” recommendation on Thursday.
“Despite transitory headwinds from macro challenges and higher lease expenses from new DCs, we believe PET is well-positioned to achieve low-double-digit EPS growth over the longer term, supported by attractive mid-single-digit industry growth, new store openings and market share gains,” he said. “We believe valuation is supported by strong ROIC and FCF conversion in FY25 as capex normalizes, supporting an increase in capital returns.”
Mr. Li called the Markham, Ont.-based company “a compelling investment” beyond “attractive and resilient industry growth (humanization and premiumization trends).” That includes “loyalty program/data analytics, proprietary brands and an experienced management team.
“Key share price catalysts include acceleration in EPS growth (14 per cent in fiscal 2025 vs 4 per cent in FY24), strong FCF conversion in FY25 as capex normalizes following heavy investments in supply chain infrastructure to support rapid growth and the initiation of share buybacks,” he said. “The two biggest risks are a prolonged downturn and new entrant competition. Stress testing our SSSG [same-store sales growth] and margin assumptions, we derive FY24–25 EPS that are 5–8 per cent below our base case, implying a downside valuation of $28.”
He expects its fourth-quarter 2023 results, scheduled to be released on March 5, to fall in line with the Street’s expectations and “reflect a continuation of the trends from 3Q,” including slowing same-store sales growth due to a tough consumer backdrop impacting discretionary hardlines.
Mr. Li set a target of $38 per share, exceeding the average on the Street by 71 cents.
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Seeing Calibre Mining Corp. (CXB-T) “upshifting into Tier 1 jurisdictions,” National Bank Financial analyst Don DeMarco initiated coverage with a “sector perform” recommendation on Thursday.
“Calibre Mining Corp. is a Vancouver-based, Americas-focused, mid-tier gold producer with three operating mines, a fourth mine under construction and a pipeline of development projects,” he said. “El Limón and La Libertad mines in Nicaragua provide the current operating centre of mass, while the Pan Mine, Nevada, is effectively a cash flowing exploration property and the Valentine Project, Newfoundland added via the acquisition of Marathon Gold, which closed in January, is under development, with first pour in H1/25 boosting production to 500k ounces per year.”
“Led by Darren Hall (CEO), Blayne Johnson (Chairman) and Douglas Forster (Lead Director) with a track record for adding value to shareholders, founding, operating and selling Newmarket Gold and transforming CXB into the largest miner in Nicaragua, marked by a turnaround when both mines were trending toward closure.”
Mr. DeMarco sees Calibre as “cash flow focused” with a plan to deliver 75-per-cent production growth over the next three years.
“We model an FCF inflection higher following completion of Valentine (NBF esimate $280-million from Q1/24 — Q1/25 incl.), driving FCF of $249-million in 2026, the first full year of Valentine’s operations,” he said.
“We see a pathway to an OP rating as (i) CXB completes the Valentine development below our topped-up capex assumptions; and/or (ii) in the first year of Valentine production, CXB confirms costs are near our Base Case with sight lines to deliver on a discounted P/CF in 2026 and associated potential for re-rate vs. peer valuations; and/or (iii) CXB advances resource accretion or mine life extensions across its Nicaraguan portfolio.”
The analyst set a target of $2. The current average on the Street is $2.44.
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In other analyst actions:
* CIBC’s Dean Wilkinson lowered American Hotel Income Properties REIT (HOT.UN-T) to “underperformer” from “neutral” with a 50-US-cent target, down from 75 US cents and below the 66-US-cent average.
“HOT reported Q4 results that reflected a challenging economic environment, reporting diluted normalized FFO per unit of $0.03, below consensus estimates of $0.06,” he said. “While some of the near-term balance sheet issues were addressed, the REIT still faces a myriad of headwinds not limited to a nearly fully utilized revolving credit facility, near-term debt maturities, an arguably difficult operating environment, and covenants that may limit the REIT’s financial flexibility. With the delay in the filing of the REIT’s financial statements, we preliminarily adjust our estimates and price target down based on the initial information provided in the REIT’s press release, with amendments to be made following the release of the full set of financials. Management expects to have such filings ready in the coming week(s).
“Given the current headwinds faced by the company, we believe there exists a scenario in which units could retest their 2023 lows. As such, we are downgrading HOT from Neutral to Underperformer, noting balance sheet issues that we believe may persist for the foreseeable future, in addition to an operating outlook that remains susceptible to a potential economic slowdown.”
* Jefferies’ Chris Lafemina raised Barrick Gold Corp. (GOLD-N, ABX-T) to “buy” from “hold” with a US$21 target, jumping from US$15. The average is US$21.10.
* Barclays’ Ian Rossouw upgraded First Quantum Minerals Ltd. (FM-T) to “equal weight” from “underweight” with a $13 target, rising from $11 but below the $16.14 average.
“The comprehensive refinancing provides a pathway to complete the S3 Expansion and buys more time to continue discussions towards a potential resolution in Panama,” he said. “With liquidity risks addressed and upside from potential asset sales, we think the risk/reward is now more balanced.”
* Piper Sandler’s Charles Neivert downgraded Nutrien Ltd. (NTR-N, NTR-T) to “underweight” from “neutral” with a US$54 target, down from US$68 and under the average on the Street of US$67.71.
“We are downgrading CF, MOS, NTR and LXU to UW from Neutral based on our belief that planted acreage, yield or both may push the crop carryout of the soon-to-be planted US corn crop to exceptional volume levels, taking corn prices and thus fertilizer prices downward. A crop of the size we believe possible would also significantly increase U.S. and global stocks-to-use ratios, barring a sizable miss in another major growing region, which would negatively impact nutrient pricing in 1H25 as well. This is not the only risk to grain pricing we see, but it is the most significant and has the most data to support the downside share risk,” said Mr. Neivert.
* CIBC’s Hamir Patel lowered Winpak Ltd. (WPK-T) to “neutral” from “outperformer” with a $45 target, down from $48. Elsewhere, BMO’s Stephen MacLeod bumped his target to $46 from $45 with a “market perform” rating. The average is $46.67.
“Following the Q4 miss and tepid 2024 guide (which seems to suggest no EBITDA growth this year), we expect the shares to be range-bound pending greater visibility on the sales ramp-up of WPK’s increased capacity coming online over 2024-2026,” said Mr. Patel. “While we see higher returns among some of our other packaging names under coverage, we note that WPK is trading at only 6.9 times 2024 estimated EV/EBITDA, a discount to its five-year average forward multiple of 8.3 times.”
* Stifel’s Cody Kwong raised his Baytex Energy Corp. (BTE-T) target to $6.25 from $6 with a “buy” rating. Other changes include: TD Securities’ Menno Hulshof to $6 from $6.50 with a “buy” rating, ATB Capital Markets’ Amir Arif to $6 from $6.50 with an “outperform” rating and RBC’s Greg Pardy to $7 from $8 with an “outperform” rating. The average is $6.53.
“Baytex reported 4Q23 results that saw cash flow inline with consensus expectations while both production and capex were fractionally better than forecasted,” said Mr. Kwong. “The company did record an $834 mm non-cash impairment on its legacy non-op Eagle Ford and remaining Viking assets. Year-end reserve characteristics were unsurprisingly dominated by the Ranger Oil acquisition, while taking the time to clean up some negative revisions in its non-op Eagle Ford and Viking properties. 2024 guidance remains intact despite January freeze-offs impacting production volumes by 2,000 boe/d. Based on some modest improvements to our proforma AFFO outlook, with the help of slowly improving crude oil prices, we are increasing our target.”
* Previewing the March 20 release of its fourth-quarter 2023 results, Desjardins Securities’ Gary Ho raised his Boyd Group Services Inc. (BYD-T) target to $320 from $275 with a “hold” rating. The average is $309.43.
“We trimmed our 4Q SSSG [same-store sales growth] estimate but slightly raised our margin estimates,” he said. “For 2024/25, we maintained our location growth estimates while increasing SSSG and raising margins by 10–30bps. Our target increased ... on a higher valuation, reflecting our comfort with improving EBITDA margins driven by healthy SSSG, location adds and an easing of labour challenges, as well as by rolling our valuation forward one quarter.”
* RBC’s Maurice Choy cut his Capital Power Corp. (CPX-T) target by $1 to $41, under the $43.82 average, with a “sector perform” rating.
“Given CPX’s recent update in mid-January, there were no material surprises as part of the largely in-line Q4/23 results and related disclosures, including the reaffirmation of its 2024 guidance and the development updates. While the Alberta power price outlook remains central to CPX’s cash flow generation (and therefore worth monitoring), we highlight the upcoming Investor Day in May, progress on the Genesee repowering project, and the finalization of the federal government’s Clean Electricity Regulations (CER) as being important events to follow,” said Mr. Choy.
* TD Securities’ Graham Ryding raised his Element Fleet Management Corp. (EFN-T) target to $27 from $25 with a “buy” rating, while BMO’s Tom MacKinnon bumped his target to $26 from $24 with an “outperform” rating. The average is $27.33.
* RBC’s Irene Nattel raised her George Weston Ltd. (WN-T) target to $218 from $216 with an “outperform” rating, while CIBC’s Mark Petrie increased his target to $222 from $213 with an “outperformer” rating. The average is $199.71.
* Eight Capital’s Puneet Singh initiated coverage of Vancouver-based GoviEx Uranium Inc. (GXU-X) with a “buy” rating and 70-cent target. The average is 73 cents.
“We believe the market thinks of GXU as just a Niger story, and the Zambian Muntanga angle is essentially forgotten,” he said. “For context in our project NAV, including our in-situ valuation for unmodelled resources, Madaouela represents 31 per cent and Muntanga represents 69 per cent of our valuation. As a feasibility study is tabled for Muntanga in H2/24, we would expect this narrative to change. Our target price implies a $3 per pound valuation for GXU, which is still lower than where a pre-financed GLO trades. Near-production Paladin Energy (PDN-A, Not Rated) in Namibia trades at $6/lb, which is the upper bound for African developer peers. Australian/Canadian developers trade at $9.50/lb on average. At $0.64/lb, GXU is the cheapest trading developer amongst our list of comparables.”
* In response to “strong” quarterly results, Echelon Partners’ Andrew Semple raised his Green Thumb Industries Inc. (GTII-CN) target to $23 from $21 with a “buy” rating. The average is $25.36.
“Our outlook for 2024 continues to reflect that GTI’s relatively mature ‘cash cow’ states should remain reasonably stable from a cashflow perspective,” he said. Should its more mature markets hold steady, it could allow GTI’s new emerging markets – such as new adult-use programs in New Jersey, Connecticut, Ohio, Maryland, and New York, as well as emerging medical markets in Virginia and Minnesota – to drive top-line growth at the consolidated level in 2024.
“We view GTI as a top-quality US cannabis operator, with an excellent track record of positive earnings and a deeper organic growth pipeline than most other MSOs. GTI maintains a healthy balance sheet with a QE cash balance of $162-million and no major near-term liquidity concerns (its most sizeable liability of $225-million of senior debt matures in 2025). GTI’s financial flexibility is increasingly important as capital market conditions remain a primary concern for U.S. cannabis companies. The Company is well-equipped to weather near-term market headwinds, and we expect it will be able to absorb further market share as capital-starved privately held companies gradually exit the industry.”
* TD Cowen’s John Kernan increased his Lululemon Athletica Inc. (LULU-Q) target to US$553 from US$549 with an “outperform” rating. The average is US$510.41.
* BMO’s Thanos Moschopoulos raised his MDA Ltd. (MDA-T) target to $15 from $13 with a “market perform” rating. The average is $15.79.
“We like many aspects of the story and view the stock’s valuation as undemanding relative to its growth, backlog and pipeline. However, its leverage and near-term FCF profile keep us on the sidelines, particularly given that the CHORUS launch is still some time away,” he said.
* CIBC’s Paul Holden raised his National Bank of Canada (NA-T) target to $110 from $108 with an “outperformer” rating. Other changes include: BMO’s Sohrab Movahedi to $109 from $103 with an “outperform” rating, Scotia’s Meny Grauman to $109 from $107 with a “sector perform” rating, TD Securities’ Mario Mendonca to $110 from $100 with a “hold” rating, Desjardins Securities’ Doug Young to $109 from $105 with a “hold” rating, Canaccord Genuity’s Matthew Lee to $108 from $107 with a “hold” rating, RBC’s Darko Mihelic to $109 from $105 with a “sector perform” rating and Jefferies’ John Aiken to $113 from $109 with a “hold” rating. The average is $107.55.
“We stand by our view that NA delivered a ‘best-in-class’ result in Q1, albeit with the disclaimer that we write this with two of the Big 6 banks yet to report,” said Mr. Grauman. “In any event, National Bank delivered a strong performance across almost every metric, highlighted by a 10-per-cent core EPS beat and an 8-per-cent PTPP earnings beat. Despite kicking off the year with a lot of momentum, particularly in the Financial Markets segment, Management continues to hold onto conservative guidance including all-bank PTPP growth in the mid-single-digit range. As we highlighted in our first look, NA’s results are out of step with peers when it comes to both capital and credit, which we believe speaks to the bank’s unique positioning. Throughout the post-pandemic period, NA had been second only to TD in terms of its favorable capital position, and while its peers have worked hard to optimize their RWAs, National Bank has been in a better position to grow RWAs more freely. Meanwhile, while credit at ABA remains a concern, rising impairments do not appear to be translating into big losses, and overall the bank’s business and geographical mix appear to be key strengths that should help NA continue to be a positive outlier in this respect.”
* Mr. Holden cut his target for Royal Bank of Canada (RY-T) to $140 from $141 with a “neutral” rating, while Canaccord Genuity’s Matthew Lee raise his target to $146 from $142 with a “buy” rating. The average is $140.92.
“RY reported Q1 results [Wednesday] morning with EPS of $2.85 in line with our forecast but above consensus of $2.79,” said Mr. Lee. “Commentary from management reinforced our constructive outlook on capital markets and a return to profitability at CNB suggests that the business may have reached an inflection point. On the other hand, RY’s PCL profile was slightly above consensus with the firm suggesting that credit in the retail business could remain challenged for the remainder of the year. Nevertheless, we believe RY’s business mix lends itself to delivering top-of-the-industry ROE despite potential economic oscillations. We have raised our capital markets estimates slightly post-quarter, offset somewhat by higher PCLs. We maintain our BUY rating on RBC.”
* CIBC’s Dean Wilkinson, currently the lone analyst covering Northview Residential REIT (NRR.UN-T), hiked his target to $15.50 from $12 with a “neutral” rating.
* Scotia’s Ben Isaacson raised his Parkland Corp. (PKI-T) target to $60 from $50 with a “sector outperform” rating, while National Bank’s Vishal Shreedhar cut his target to $49 from $50 with an “outperform” rating. The average is $54.25.
“We believe investors can reasonably expect a 20-per-cent to 25-per-cent annual total return from PKI in each of the next 3 to 4 years,” said Mr. Isaacson. “The math is fairly straightforward. If PKI can achieve $8.50/sh in ‘28 FCF, then a forward-looking stock market should price this in sometime in ‘27, or about 3.5 years from now. Based on PKI’s five-year FCF yield of 10 per cent, this would imply an $85 stock in ‘27. On top of that, a growing dividend will likely pay a total of $6/sh through ‘27. So, $90 inflow vs. a $45 outflow today = a 25-per-cent annual return over three years or a 20-per-cent annual return over four. The low-end of the range would be similar to the 20-per-cent annualized total return (with dividends reinvested) ATD shareholders have enjoyed over the past decade. For context, and on the same metric, we note the comparable performance: TSX at 7.6 per cent, TSX Energy at 3.6 per cent and PKI at 14.2 per cent. In conjunction with this 20-per-cent theme, and as we roll forward our valuation, our PT moves 20% higher to $60/sh.”
* BMO’s John Gibson lowered his Pason Systems Inc. (PSI-T) target to $18 from $21 with an “outperform” rating. The average is $18.57.
“PSI reported solid Q4/23 results that also included a modest dividend bump. While rig counts continue to wane, we believe the company should continue to produce solid results as improved pricing/production adoption carries on. Its recent acquisition of IWS also represents a strong longer-term growth opportunity,” said Mr. Gibson
* RBC’s Luke Davis increased his Tamarack Valley Energy Ltd. (TVE-T) target to $4.25 from $4 with an “outperform” rating. Other changes include: ATB Capital Markets’ Patrick O’Rourke to $5.50 from $6 with an “outperform” rating and Stifel’s Cody Kwong to $5 from $4.75 with a “buy” rating. The average is $5.32.
“The Company’s 4Q23 results generally matched expectations, while benefits of the Company’s Clearwater acquisition activity is starting to pay dividends with solid F&A costs noted for 2023,” said Mr. Kwong. “Tamarack accelerated its capex investment plans with $20-million spent in 4Q23, which has now officially been removed from its revised 2024 budget (now $390-$440-million), with zero changes to its production outlook. Tamarack also references some impressive operational results in the Clearwater and Charlie Lake plays. Our 2024e/2025e estimates are largely unchanged, and we expect TVE to begin delivering meaningfully on its enhanced shareholder return commitment in 2Q24. Based on crude oil price moving modestly higher since our last update, we are increasing our target price.”
* Canaccord Genuity’s Yuri Lynk raised his target for WSP Global Inc. (WSP-T) to $235 from $225 with a “buy” rating. The average is $217.93.
David Leeder