Inside the Market’s roundup of some of today’s key analyst actions
Analysts have swiftly slashed their price targets, and in some cases downgraded their ratings, on First Quantum Minerals Ltd. (FM-T) after Panama’s president this past weekend called a referendum over a recently approved contract for the company’s Cobre Panama mine.
Shares in First Quantum plunged 28.4% on Monday in reaction to the news that makes the company’s ability to continue to operate in the country uncertain.
National Bank Financial analyst Shane Nagle downgraded his rating to “sector perform” from “outperform” while cutting his price target to C$36 from C$40.
“Given uncertainty and headline risks associated with proposed referendum on Cobre Panama, we suspect share price weakness over the coming weeks until markets have more clarity on a pathway forward,” Mr. Nagle said in a note to clients.
The project is critical to First Quantum, accounting for US$9.9-billion, or 50%, of the company’s project net asset value, according to National Bank Financial estimates, as well as 48% of 2024 revenue and 59% of corporate EBITDA.
“While President Cortizo’s administration has been largely supportive of the project, the decision to call a ‘referendum’ on the new contract appears to be in response to Government opposition,” noted Mr. Nagle. “As the contract has already been ratified into law, there is likely a complicated legal pathway forward to impose any major revisions. We understand the previous mining contract would remain in effect and First Quantum would likely have to negotiate a new contract with incoming administration following next spring’s Presidential elections.”
Elsewhere, Eight Capital cut its target price on First Quantum to C$31 from C$38 and downgraded its rating to “neutral” from “buy” while Jefferies cut its target price to C$22 from C$40 and lowered its rating to “hold” from “buy”. TD Securities cut its target price to C$25 from C$38 while downgrading its rating to a “hold” from a “buy”, BMO cut its price target to C$32 from C$36, and Stifel cut its target to C$24 from C$39.
The average analyst price target on First Quantum is now C$31.89, down about $5 from a month ago, according to Refinitiv Eikon data.
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It isn’t just First Quantum that’s impacted by the uncertainty at Cobre Panama. Franco-Nevada Corp. (FNV-N, FNV-T) receives royalty streams from the mine. Based on estimates at TD, Cobre Panama represents about 18% of Franco-Nevada’s streaming and royalty net asset value and is its single largest revenue contributor.
TD analyst Greg Barnes on Tuesday downgraded his rating on Franco-Nevada to “hold” from “buy” and cut his price target to US$145.00 from US$180.00. Mr. Barnes said he lowered his target enterprise value to EBITDA multiple to 22 times from 27 times due to the uncertainty surrounding the future outcomes for Cobre Panama.
“We understand that operations continue at Cobre Panama, but there have been various incursions onto the site by demonstrators. The opposition in Panama is calling for operations to be paused until the Supreme Court has made a ruling,” Mr. Barnes noted.
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Air Canada (AC-T) reported strong quarterly results on Monday, but they failed to generate much in the way of upside in terms of the share price or analyst price targets.
The stock closed down 1.3%. And in analyst reaction this morning, ATB Capital Markets cut its target price to C$33 from C$35, RBC cut its target price to C$17 from C$21, Cormark Securities cut its target price to C$27.5 from C$29.5, and Scotiabank cut its target to C$29 from C$34.
ATB analyst Chris Murray applauded the results, but explained in a note to clients that he lowered his target multiple “to account for peak earnings and rising interest rates.”
“AC delivered very strong Q3/23 results, reflecting the strength of the demand environment and yield conditions in a seasonally strong quarter,” Mr. Murray said. “Management remained constructive on the demand environment for leisure and business and expects full-year EBITDA to meet the higher end of guidance.”
But he said management’s tone “was measured” when discussing 2024, which Mr. Murray thinks is related to the ongoing labour contract negotiations with the Air Line Pilots Association, and likely contributed to the weakness in the shares on Monday. He also thinks that concerns about consumer spending is also weighing on sentiment.
Overall though, “AC delivered another strong quarter with advanced bookings curves providing good visibility into 2024 in the face of ongoing macro pressures,” he said.
Scotiabank analyst Konark Gupta is keeping a “sector outperform” rating on Air Canada, noting that the stock is too cheap to ignore and is now valued less than the pre-pandemic trough of three times earnings.
“We believe AC’s latest increase in capex projections for 2024-27 (mostly 2025-26) is adding to the market’s existing basket of worries (i.e., risk from consumers, competition, pilot contract, and fuel),” Mr. Gupta said. “While our 2024-25 free cash flow estimates have come down due to incremental capex, we still expect continued positive free cash flow generation and reduction in the leverage ratio through 2025. Further, we think AC’s strong liquidity position should support its multi-year fleet upgrade plans, aided by potential aircraft sales and/or sale leasebacks, minimizing the balance sheet risk. Even though we continue to model a weaker demand environment in 2024, along with inflation in pilot/other costs and now incremental capex, AC is screening as a deep value stock at just 2.8x/2.4x EV/EBITDA (including leases) on our 2024E/2025E.”
RBC analyst Walter Spracklin echoed some of these concerns in his note to clients: “While AC reported a solid Q3 result, the key item of note from the Q3 results is the significant ramp in capex, a net increase of $4.4B in higher spending in 2025/26. We believe the bull case on AC centred very much around the free cash flow generation story, which we believe is now pushed out to 2027. Meanwhile, we are cautious on consumer spending patterns going into 2024 (on the back of lower discretionary income due to higher interest rates); increased competition; and higher costs (fuel and labour).” He maintained a “sector perform” rating.
Also on the Street, Veritas Research today upgraded its rating on Air Canada to “buy”.
The average analyst price target on Air Canada is now C$28.62, down from C$31.46 a month ago.
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Raymond James analyst Stephen Boland aggressively cut his price target on Dye & Durham Ltd (DND-T) but is still recommending the stock, which fell to all-time lows last week. He is keeping an “outperform” rating while slashing his price target to C$15 from C$25.
Dye and Durham reported first quarter results on Monday, with revenue of $120.1 million coming in above consensus of $117.4 million. The company reported adjusted EBITDA of $68.7 million versus consensus at $66.1 million.
But the stock reacted by rising only 1.3%. Mr. Boland urges investors to be patient.
DND’s stock has been under pressure in recent weeks as concerns over the company’s leverage has driven the share price down to all-time lows.
To alleviate these concerns, management announced a number of initiatives to help reduce the company’s debt levels and drive the company’s leverage below 4.0x, Mr. Boland noted. That includes a commitment to pause merger and acquisition activity and plans to utilize any excess free cash flow to pay down the company’s debt. In addition, DND announced a new strategic plan that is expected to generate $70-million or more in annual free cash flow savings. These improvements will be achieved through further price increases, capex reductions, operating expense savings and lower acquisition and restructuring costs.
On Monday it also announced a refinancing plan for a large chunk of its convertible debentures.
“We believe these announcements and the company’s increased focus on deleveraging will be welcomed by many investors. That said, it may take time for the shares to fully recover as investors wait for evidence that management’s plan is taking hold. Regardless, the stock remains heavily depressed, and we see upside in the shares assuming investor confidence in the name is eventually restored and the economic environment stays healthy,” Mr. Boland said.
Elsewhere, CIBC cut its target price to C$25 from C$26 and BMO cuts its target price to C$18 from C$25.
The average analyst target is now C$22.86, down from C$26.14 a month ago.
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TD Securities analyst Graham Ryding is scaling back his stock price forecast on Power Corporation of Canada (POW-T) but is making it clear he thinks investors should still invest in the company.
The update to his outlook reflects changes to TD’s estimates and targets for Power Corp’s main operating companies, Great-West and IGM. TD is also now using a lower P/E multiple in its target price to reflect recent market volatility and multiple compression for financials.
Mr. Ryding’s target price on Power Corp. is now C$40, down $3, with a “buy” rating maintained.
“Valuation remains attractive, in our view, given the solid fundamentals (28.5% discount to NAV and 7.8x P/E compares to last 5-year averages of 23% and 9.0x, respectively),” Mr. Ryding said in a note.
“POW continues to look to divest and surface value from standalone investments,” he said in summarizing his investment case. “Momentum is strong for the alternative asset management platform (third-party AUM growth and institutional partners). Power Corp. has defensive qualities that should support valuation, in our view. We expect further buybacks given cash levels and valuation.”
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In other analyst actions:
Airboss of America Corp (BOS-T): TD Securities cuts target price to C$7 from C$8
ATS Corp (ATS-T): Raymond James cuts target price to C$61 from C$67
Eldorado Gold Corp (ELD-T): National Bank of Canada raises target to C$19 from C$18
GDI Integrated Facility Services (GDI-T): National Bank of Canada cuts PT to C$45 from C$51.5
Lycos Energy Inc (LCX-X): Haywood Securities initiates with buy rating; price target C$7.50
Parkland Corp (PKI-T): Raymond James raises target price to C$50 from C$45
TMX Group Ltd (X-T): RBC cuts target price to C$33 from C$34 and TD Securities cuts target price to C$31 from C$32
Apple Inc (AAPL-Q): Jefferies cuts target price to US$195 from US$220
Darcy Keith