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

Scotia Capital analyst Michael Doumet expects a “soft” second quarter from Canadian Tire Corp. Ltd. (CTC.A-T) “against an improving backdrop.”

Previewing its Aug. 10 earnings report, Mr. Doumet warned the retailer is facing strong comps from last year as well as “softer” consumer demand. Accordingly, he’s expecting revenue to decline 5.8 per cent year-over-year to $4.149-billion and earnings per share of $2.72. Both fall below the consensus forecast on the Street of $4.282-billion and $3.08.

“We are below consensus for Q2 as CTC continues to navigate headwinds seen in Q1, including difficult year-over-year comps, a more challenged consumer environment, higher operating expenses, and the impact of the DC fire,” he said. “That being said, unfavourable weather in Q1 partly explained soft SSS [same-store sales] at CTR (down 4.8 per cent) during the quarter, which sequentially improved to 3 per cent in the first month of Q2. We will be looking for updates on: (i) spring/summer inventory sell-through trends at dealers, (ii) promotional trends for discretionary items (implication on gross margins) and (iii) demand trends for non-seasonal products (they account for 2/3 of the shipment to CTR dealers in the 2H).”

Expressing optimism about the retail landscape moving forward, Mr. Doumet raised his target for Canadian Tire shares to $206 from $196, reiterating a “sector outperform” recommendation. The average target on the Street is $201.56, according to Refinitiv data.

“CTC.a shares have seen strong recent performance with shares up approximately 30 per cent year-to-date on the back of an improving macro set up,” he said. “Shares are now trading in line with 5-year historical averages. And in the context of an eventual soft patch, we highlight that CTC is a much more resilient business than it was in past downturns, with a stronger omni-channel presence, and having made substantial inroads in loyalty, inventory, and supply chain management.”


While he raised his financial forecast for Parkland Corp. (PKI-T) believing its international segment “likely benefited from a robust Caribbean tourist season that spilled over into 2Q23,” Raymond James analyst Steve Hansen downgraded its shares on Tuesday based on its “outsized” share price performance thus far in 2023.

With the Calgary-based company up 21.2 per cent year-to-date, outpacing the TSX at 6.41 per cent, he moved it to “outperform” from “strong buy” previously.

“After several years of COVID based restrictions, consumer appetite for travel appears near-insatiable, a behavioral shift that reportedly extended the traditional Caribbean tourism season and, by extension, likely benefited PKI’s extensive fuel distribution infrastructure throughout the region,” said Mr. Hansen. “Supporting this view, we point to occupancy data at many of the cruise industry’s largest operators, including Royal Caribbean Group (RCG) and Norwegian Cruise Line Holdings (NCL), who both reported more than 100-per-cent occupancy rates in 1Q23, along with subsequent news accounts of ships being oversold/overcrowded through April as well. Country-specific data also supports this spillover view, with Bahamas 1Q23 air arrivals reportedly surging 33.7 per cent year-over-year thanks to the addition of several new direct flights (Jet Blue, Alaska, etc.) for the season. Again, this same demand pattern clearly spilled over into 2Q23, with Bahamas visitor arrivals in April-23 surging 48 percent year-over-year – a pattern we ultimately expect to benefit PKI’s SOL Petroleum Bahamas operation (& other tourism-centric operations/countries across the Caribbean).”

Increasing his 2023 and 2024 earnings expectations, Mr. Hansen kept his target for Parkland shares of $42. The average is $40.54.

“Notwithstanding this rating change, we reiterate our constructive view on PKI’s shares based upon growing confidence in management’s renewed focus on monetizing non-core assets, extracting further cost efficiencies, and reducing total leverage – all while maintaining the firm’s 2025 plan to reach $2.0-billion in EBITDA via organic means,” he concluded.


Believing the updated technical report for its Las Chispas mine in Mexico “resets expectations calibrated to reality but shows limited additional upside,” Stifel analyst Stephen Soock downgraded SilverCrest Metals Inc. (SIL-T) to “hold” from “buy” on Tuesday.

“SilverCrest’s updated technical report was a large miss to our estimates,” he said. “The study missed our expectations across the board largely due to a lower reserve grade and substantially higher unit costs. Additional ground support and required development pushed operating unit costs 25 per cent above our expectations and drove sustaining capex/oz AgEq 90 per cent above what we had modeled.

“While we expect the stock to under perform today, we believe much of the disappointment was already baked into the share price. We are updating our model with revised reserve addition expectations and have calibrated our model to the results of the study.”

With his net asset value per share estimate dropping 40 per cent, Mr. Soock cut his target for SilverCrest shares to $8.25 from $13. The average is $11.69.


Desjardins Securities analyst Benoit Poirier sees Titanium Transportation Group Inc.’s (TTNM-T) US$53-million acquisition of Georgia-based Crane Transport as “a clear win,” believing its management has “delivered a non-dilutive, shareholder value‒enhancing transaction with long-term upside, all without having to tap the market for equity or debt (only a private vendor.”

Shares of the Bolton, Ont.-based company jumped 7.3 per cent on Monday following the announcement of its first venture south of the border. It includes approximately 200 trucks as well as two strategically located terminals in Georgia and Alabama.

“TTNM has an existing logistics location 30 minutes from the newly acquired terminal in Georgia; this will be highly synergistic in unlocking significant U.S. brokerage cross-selling opportunities given customers prefer asset-light to non-asset,” said Mr. Poirier.

“Incorporating the acquisition, new 2023 targets and commentary surrounding the drop in volumes into our assumptions, we derive adjusted fully diluted EPS accretion of 20 per cent in 2024. By 2024, we estimate that EBITDA margin (as a percentage of consolidated revenue) will have improved to 12.1 per cent (up from our previous estimate of 10.8 per cent due to a combination of TL synergies, lower fuel surcharge and logistics revenue growth), yielding pro forma adjusted EPS of 37 cents.”

While Titanium’s updated guidance reflects a growing industry view that a rebound in volume is now unexpected in the second half of the year, Mr. Poirier thinks it is “not significant,” given the company’s new opportunities in the United States.

“We believe the long-term growth opportunities in the enormous U.S. market created by the acquisition should largely outweigh any investor concerns of short-term economic softness,” he said.

Raising his revenue and earnings expectations for 2023, the analyst increased his target for Titanium shares to $7.25 from $6.50, reaffirming a “buy” recommendation. The average on the Street is $5.56.

“We believe TTNM’s shares offer good value for long-term investors at the current level of only 3.6 times EV/FY2 EBITDA,” he said.


Scotia Capital analyst Kevin Krishnaratne expects Shopify Inc. (SHOP-N, SHOP-T) to release a “strong” second-quarter financial report after the bell on Wednesday.

“We’re looking for revenue of $1.60-billion vs. the Street at $1.63-billion, reflecting strength in MRR [monthly recurring revenue] (approximately 19-per-cent growth) on the subscription plan repricing (April 23), and moderating GMV [gross merchandise volume] trends (12.4-per-cent growth vs. 14.8 per cent in Q1),” he said. “We continue to model same-store sales declining in the mid-single-digit range for SHOP’s core SMB merchants over the coming quarters on macro headwinds. We expect Q2 GP [gross profit] of $796-million (Street $789-million) and non-GAAP operating income of $70-million (consensus $54-milllion) on a greater level of opex savings post the sale of Deliverr (June 6), which our model has been updated to more accurately reflect. While we are getting more positive on SHOP given the cleaner story (i.e., post the sale of logistics) and multiple levers in its model, valuation remains our biggest concern (trading at 19.4 times CY24 GP vs. peers at 9.0 times).”

Maintaining a “sector perform” rating for Shopify shares, Mr. Krishnaratne raised his target to US$65 from US$60. The average is US$64.12.


Seeing it as a “call option on capital markets activity,” Eight Capital analyst Christian Sgro initiated coverage of Q4 Inc. (QFOR-T) with a “buy” recommendation, touting an enticing valuation based on its “stable top-line performance and improving unit economics.”

“Q4 is the trusted vendor to customers like McDonalds, Nvidia, and VISA for core website/ events offerings (approximately 60 of the S&P 100 are customers),” he said. “We see these logos as validating the functionality, with the end-to-end offering/ integrations being a key differentiator as compared to point-solution competitors.”

“Annual Recurring Revenue per Account (‘ARPA’) increased 11 per cent year-over-year last quarter, an important trend we see continuing as Q4 focuses efforts to upsell subscription services. As Q4 crosssells services (i.e., web to events), increases bundling, and rolls out features (i.e., ESG or Generative AI), we see multiple levers for continued ARPA growth. We see this as an offset to current net customer logo churn as Q4 navigates challenging market conditions, stabilizing growth.”

Mr. Sgro emphasized the Toronto-based company’s “improving unit economics” after it delivered 5-10-per-cent gross margin improvement over the past year with the expectation of similar gains through the end of 2023, matching management targets.

“This is driven by automation, vendor consolidation, product mix, and labour optimization,” he said. “Further, with fixed cost discipline, we see Q4 turning cash flow positive in the near-term; we think this is currently underappreciated by the market. With $23.8-milllion of cash and access to $22.5-million of credit (currently undrawn), we are comfortable with the liquidity profile.”

“Q4 first engages with prospects three to six months before pricing for an IPO. With the view that capital raising can improve from current levels (fractions of 2020/2021 activity), we think Q4 shares are an attractive investment opportunity to front-run a broader market rebound. If this aligns with improved valuations, particularly across growth equities, we see the potential for a two-fold benefit to the share price.”

Seeing its “depressed” valuation as “attractive,” he set a Street-high target of $6 per share. The average is $3.83.

“A sticky blue chip customer base, attractive subscription economics, and 70-per-cent gross margin make us comfortable using a revenue multiple as our primary valuation tool and comparing Q4 to larger software peers on this basis,” said Mr. Sgro. “Q4 currently trades at 1.5 times 2024 estimated EV/revenue. We have aligned our target multiple with small-to-mid sized Canadian comps although relevant data providers and larger software companies trade at higher multiples. The CEO and Founder owns approximately 5 per cent, and insiders altogether own 36 per cent. We see the potential for a takeout as upside risk, by a stock exchange, data provider, or private equity.”


Eight Capital analyst Ralph Profiti initiated coverage of Queen’s Road Capital Investment Ltd. (QRC-T), seeing a “compelling” invesgtment case for both value and growth investors with " significant potential for capital appreciation based on the intrinsic value of underlying investments built on a portfolio of potential future Tier One assets.”

“We believe Queen’s Road Capital (QRC) offers investors significant upside as a diversified play on undervalued development-stage resource investments that will command a premium multiple based on tax efficient leverage to value appreciation of underlying investments, reliable and predictable predevelopment cash flows via dividends from QRC’s unique convert-debt financing structure that returns excess operating income to investors through annual dividends, a high-quality equity portfolio of potential future Tier One mining assets in uranium, precious metals and energy transition sectors, an accretive source of low-cost financing to development-stage resource companies through a unique convert-debt structure, and a highly experienced management team with a proven track record of building shareholder wealth,” he said in a report released on Tuesday.

Mr. Profiti thinks the Hong Kong-based holding company sits “well positioned” to benefit from a constructive outlook for uranium, copper and precious metals through its investment portfolio, which includes IsoEnergy Ltd. (ISO-X) and NextGen Energy Ltd. (NXE-T).

Touting a “flexible, scalable investment approach for uncapped upside potential,” he said: “QRC invests in the securities of both public and private natural resource companies through a combination of financial instruments, which may include (but not limited to) equity, debt, convertible debentures, warrants, preferred shares, bridge financing, collateral, royalty arrangements, and other securities. QRC currently carries an invested capital base of $125.5-million, primarily in seven (7) resource companies. QRC places no formal limit on the size of potential investments and may require future equity or debt financings to raise money for specific investments. The majority of investments are expected to have a life of investment of 4-5 years; however, longer-term capital appreciation investments may be undertaken. In certain cases, QRC expects to enter into oversight arrangements as a condition of the investment. Oversight may range from Board appointments, advisory positions, or management consulting positions with the target companies.”

Currently the lone analyst covering Queen’s Road, Mr. Profiti set a target of $1.50, representing upside potential of 227 per cent from its Monday closing price of 66 cents.


Shares of Estee Lauder Inc. (EL-N) were falling on Tuesday after Citi analyst Filippo Falorni downgraded the cosmetics maker to “buy” from “hold” previously, seeing “a more uncertain path to top-line/EPS recovery with incremental negative data points on China and the recent cyberattack.”

“While we remain optimistic about long-term growth drivers with above-peers top-line/profit growth of high single digits-low double digits, we believe continued weakness in reported results and low FY24 guidance may cause investors to question the ‘earnings power’ of the business and the timing of a return to normalized earnings,” he said.

“We believe EL’s initial FY24 guide could disappoint, with an expected OSG 7-9%, and $4.10-4.90 EPS guidance. We think EL will guide even more conservatively than typically given the TR recovery would be H2-weighted. Importantly, while we think the market is braced for low initial FY24 guidance, continued weakness in reported results may lead investors to question the ‘normalized earnings power’ of EL for FY25, with a number in the $7 range required to be bullish.”

On July 10, Mr. Falorni opened a “negative 90-day catalyst watch” on the New York-based company based on the potential for “further softness” in its fourth-quarter 2024 results and weak full-year guidance.

“While the company has cut guidance in three consecutive quarters and both the stock price & expectations for 4FQ’23 results have reset, we think there could be further downside risk to numbers due to low visibility into the retail inventories in Asia Pac TR & where they will normalize following tightening measures, and how international air passenger travel & conversion in TR will evolve from here,” he said at that time. “Given the uncertainty of these dynamics, we see risk of the recovery being pushed out further and that EL could issue a weak FY’24 guide below buyside expectations leading to an even lower re-basing for FY’24 numbers.”

Following the July 18 disclosure of a data breach and signs of further weakness in China, Mr. Falorni thinks “caution” is necessary from investors.

“Channel checks from Citi’s China Consumer team have found that (1) Chinese consumers continue to trade down from premium to mass-market brands, (2) EL’s inventories in certain TR locations remain elevated, (3) EL’s Taobao/Tmall sales mix has shifted heavily to Taobao, raising the risk to brand image & creating challenges to manage reseller pricing,” he said. “L’Oréal also called out worsening trends in Hainan in 2Q23 vs. Q1. Additionally, EL recently disclosed that it was the target of a cybersecurity attack causing disruption to parts of its business. With no further details, we are concerned that the incident could further compound an already difficult situation for EL.”

Lowering his fiscal 2024 and 2025 earnings expectations, Mr. Falorni cut his target for Estee Lauder shares to US$195 from US$240. The average is currently US$228.90.

“While our target multiple is below EL’s longer-term historical average reflecting the heightened risk we see to both a recovery in the Asian TR business and weaker near-term results, we think the TR channel will still recover over the medium-term,” he said. “Further, we continue to believe EL’s key engines of long-term growth (China, travel retail, skin care) remain intact, with a favorable margin impact as they all carry margins above corporate average. Net, we continue to believe EL offers a compelling long-term top-line and EPS growth opportunity in the HSD%/LDD% range but we see a more unclear path to a return to normalized earnings that we believe will limit the stock performance over the next 12-months.”


In other analyst actions:

* TD Securities’ Tim James lowered his target for AirBoss of America Corp. (BOS-T) to $8.50 from $10.50 with a “speculative buy” rating. The average on the Street is $7.46.

* CIBC World Markets’ Hamir Patel trimmed his targets for Canfor Corp. (CFP-T, “outperformer”) to $28 from $29, Canfor Pulp Products Inc. (CFX-T, “neutral”) to $2.25 from $2.75, West Fraser Timber Co. (WFG-T, “outperformer”) to $141 from $144 and Winpak Ltd. (WPX-T) to $49 from $52. The average targets on the Street are $30.40, $3.56, $108.47 and $51.75, respectively.

* CIBC World Markets’ Paul Holden raised his Element Fleet Management Corp. (EFN-T) target to $24 from $22 with an “outperformer” rating. The average is $24.92,

“Shares of EFN have advanced 19 per cent since reporting Q1/23 results, which included positive revisions to revenue and earnings guidance,” he said. “OEM production and sales data for Q2 shows a significant improvement vs. yearago levels. We have increased our origination forecasts and earnings estimates as a result. We would not be surprised if management raised fullyear guidance again. While the valuation multiple is unlikely to push much higher in our view (17 times 2023E), we do think there is potential upside to EPS estimates. We increase our price target.”

* CIBC World Markets’ Jamie Kubik trimmed his target for Freehold Royalties Ltd. (FRU-T) to $16.75 from $17 with a “neutral” rating. The average is $19.08.

“Following a deeper review of FRU’s Q2 disclosures and the company’s conference call [Monday], we have fine-tuned our cash flow model, which drives a slight decrease to our forward estimates for the business,” said Mr. Kubik. “We did not see anything thesis-changing in the company’s update today. We are intrigued, however, on the potential for organic growth in Freehold’s U.S. segment in H2/23. In particular, management expects three new well pads with 41 wells (0.6 net wells) and gross production of 50 MBoe/d to come online in the second half of the year. We believe organic production growth on its U.S. assets is necessary in order for the stock to regain its price momentum and potentially re-rate to higher levels. We believe that some of the optimism for production growth is offset by lower net wells drilled in the U.S. segment during Q2/23. We also anticipate that the U.S. rig count is likely to plateau from here, before assuming modest growth in 2024, which could be helpful for production from FRU’s U.S. segment.”

* TD Securities’ Marcel McLean raised his Goeasy Ltd. (GSY-T) target to $165 from $160 with a “buy” rating. The average is $165.60.

* RBC’s Tom Callaghan cut his Melcor Real Estate Investment Trust (MR.UN-T) target to $5.50 from $6 with a “sector perform” recommendation. The average is $5.75.

* Calling the sale of its 50-per-cent equity interest in TriMark Tubulars Ltd. for $61-million “another solid piece of business,” Stifel’s Ian Gillies raised his target for shares of Russel Metals Inc. (RUS-T) to $44 from $41 with a “buy” rating. The average is $41.38.

“RUS’ share price is up 34.9 per cent year-to-date (S&P/TSX: up 6.4 per cent), but we believe there is further room for RUS to move higher,” he said.

* Raymond James’ Frederic Bastien raised his Stantec Inc. (STN-T) target to $100 from $90 with an “outperform” rating. The average is $92.40.

“Stantec’s recent performance is further proof that the engineering and environmental consultant has nothing to envy its global peers,” he said. “Our Best Pick for 2023 is punching above its weight in organic revenue and backlog growth, capitalizing on strong secular trends, and making sustainability core to everything it does. For these reasons, we are comfortable increasing our target EV/EBITDA multiple on the stock from 13 times to 14 times, essentially bringing our STN valuation on par with that of WSP. Our target price moves from $90 to $100 as a result.”

* Following its share consolidation and a deal with lender Marathon Asset Management to relax liquity requirements on its credit facility, National Bank Financial’s Endri Leno hiked his Theratechnologies Inc. (TH-T) target to $7 from $1.75, maintaining a “sector perform” rating. The average is $9.67.

Editor’s note: An earlier version of this article incorrectly said CIBC World Markets reduced its Element Fleet Management Corp. target price. This version has been corrected.

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