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

Calling it “a cheap stock looking for a catalyst to jump-start a rally,” Scotia Capital analyst Maher Yaghi assumed coverage of Transcontinental Inc. (TCL.A-T) with a “sector outperform” recommendation.

“TCL is a Canada-based printing, packaging, and media services provider,” he said. “The company has been redeploying capital from its very profitable cash-generating legacy printing business into expanding its packaging business through targeted acquisitions. We believe 2024 could be a turnaround year for TCL as reduced earnings volatility and improved margins start to take hold as a result of management’s actions that started last year. We think current valuations are very depressed. We see the packaging business as having good upside potential, and while we do not expect any large acquisitions in the near term, we do expect mergers and acquisitions (M&A) to act as a growth vector from 2025 onward.”

In a research report released Tuesday, Mr. Yaghi said he thinks it is “essential” for the Montreal-based company’s packaging business to show improved profitability in 2024 “for the stock to work.”

“Over the years, we believe packaging ROIC has been disappointing because the focus was mainly on building up the business through M&A,” he said. “Management is aware of such issues and is working to consolidate the business and improve margins. If this plan succeeds in 2024, we think the upside in the stock could be even higher than our current target price, as with improved valuations, the company could then further the upside by bringing M&A back into play.”

“Over the last few years, TCL has significantly invested in acquiring and expanding its capabilities in packaging. We want a material improvement in profitability in 2H/24 as management’s focus shifts from acquisition mode to integration mode. We will keep a close eye on profitability and cash-generation metrics in order to gauge the effectiveness of the company’s recently announced restructuring efforts.”

Mr. Yaghi also said Transcontinental’s valuation offers “support to, and a stepping stone for, improved stock performance.”

“On both a P/E and an EV/EBITDA basis, the stock trades below its 15-year historical multiple valuation range,” he said. “In addition, TCL trades at a deep discount to its packaging peers. We believe that this discount has been appropriate; historically, the printing business has more than offset growth in packaging, and hence, TCL’s stock has traded closer to a printing company than a packaging company. As we look forward to 2025 and beyond, we expect packaging’s EBITDA to become bigger than that of printing, and thus on a consolidated basis, we should start to see EBITDA growth. This inflection point will likely close the gap in valuations over time, in our view.”

Touting the presence of long-term tailwinds, including an acceleration in the demand for innovative, sustainable packaging, he set a target of $19.50. The average target on the Street is $18, according to Refinitiv data.


While maintaining his positive long-term view on Canadian Tire Corp. Ltd. (CTC-A.T), Desjardins Securities analyst Chris Li warns investors “patience is required,” expecting the release of “weak” fourth-quarter 2023 financial results on Thursday before the bell.

“We expect 4Q and 2024 to be challenging, impacted by accelerating pressures on discretionary spending, ongoing shift toward more essential and value offerings, unfavourable weather, dealers destocking and being more cautious on forward purchases, heightened competition, higher write-off rate, etc,” he said.

Mr. Li is projecting adjusted earnings per share of $4.36 for the quarter, well below the consensus forecast on the Street of $4.84. Excluding a $3 per share negative impact from a margin-sharing agreement accounting change, he expects EPS to decline 23 per cent year-over-year.

In a note released Tuesday, the analyst also cut his full-year EPS estimates for 2024 to $12.85 from $13.80 and 2025 to $15.07 from $15.89. He attributed the changes to “ongoing macroeconomic pressures on consumer spending, partly mitigated by accelerated cost-reduction initiatives and the resiliency of the business model (Triangle Rewards, enhanced data analytics, stronger product assortment with ‘good, better and best’, owned brands, etc).”

Mr. Li reiterated a “buy” recommendation and $170 target for Canadian Tire shares. The average target on the Street is $161.10.

“While we believe the current valuation largely reflects the macro challenges, we expect further share price volatility until earnings visibility improves,” he said.


While he thinks Dream Impact Trust’s (MPCT.UN-T) existing liquidity is sufficient to fund near-term requirements, Echelon Capital analyst David Chrystal called the suspension to its distribution “prudent given the sizeable development pipeline.”

After the bell on Monday, the Toronto-based trust suspended its monthly distribution, which was 64 cents per unit annualized. The $11-million savings will be used “to grow its income property portfolio, reducing risk for the business and increasing free cash flow over the long-term.”

“Though the Trust’s active development pipeline is largely funded through construction facilities, management acknowledged that carrying costs associated with several large land assemblies have meaningfully increased. Year-end liquidity of $23-million could be bolstered by asset dispositions including (1) two downtown Toronto commercial assets in an active sale process, (2) a land parcel in Scarborough slated for disposition once planning approvals are received, and (3) a partial interest in 49 Ontario Street, which could be crystalized in the first half of 2025,” the analyst said.

The move came alongside the release fourth-quarter 2023 results that Mr. Chrystal called “lumpy” and thought “makes [a] strong multi-family trend.”

“Excluding a one-time credit in 2022 operating expenses, Q423 same-property NOI from the multi-family portfolio was up 5.2 per cent year-over-year,” he said. “For the full year, same-property NOI was $5.2-million, a 34-per-cent year-over-year increase. Though we note that the significant increase was due to substantial repositioning of certain assets, we believe the full-year results highlight the strength of underlying apartment fundamentals. The commercial portfolio continues to deliver steady results, generating NOI of $2.7-million in Q423, flat year-over-year.”

Maintaining a “speculative buy” recommendation, he reduced his target to $10 from $13. The average on the Street is $8.94.

“Though the Trust’s income-generating assets continue to perform in line with expectations, and deliveries continue to enhance the size of the recurring-income segment, we acknowledge that the significant exposure to land holdings creates a cash flow drag in the current financing environment,” said Mr. Chrystal. “Further, exposure to active development risk will likely continue to weigh on investor sentiment. We believe the significant discount to NAV will persist in the near term but could narrow with asset dispositions (full or partial) that not only prove the underlying value of the Trust’s holdings but substantially bolster cash holdings/reduce outstanding debt.”


Heading toward the start of first-quarter earnings season for Canadian banks, Desjardins Securities analyst Doug Young sees equity and debt underwriting, equity trading and M&A stats as “a potential positive” across the sector.

“Despite a challenging comparison against last year’s strong performance, year-over-year increases in equity and debt underwriting (Canada and the U.S.) and M&A activities are encouraging in our opinion,” he said.

For the Big 6, Mr. Young sees Canadian equity and debt underwriting increasing 174 per cent and 10 per cent year-over-year, respectively. In the U.S., he sees gains of 77 per cent and 36 per cent. Equity trading volumes slid 10 per cent in Canada but rose 3 per cent south of the border.

“Canadian banks’ participation in global M&A increased 39 per cent year-over-year,” he added.

Mr. Young’s ratings and target prices for the banks, in order of preference, are:

  1. Bank of Montreal (BMO-T) with a “buy” rating and $135 target. The average target on the Street is $135.36.
  2. Canadian Western Bank (CWB-T) with a “buy” rating and $37 target. Average: $34.60.
  3. Royal Bank of Canada (RY-T) with a “buy” rating and $142 target. Average: $139.58.
  4. Toronto-Dominion Bank (TD-T) with a “buy” rating and $94 target. Average: $89.69.
  5. National Bank of Canada (NA-T) with a “hold” rating and $105 target. Average: $103.
  6. Bank of Nova Scotia (BNS-T) with a “hold” rating and $64 target. Average: $65.06.
  7. Canadian Imperial Bank of Commerce (CM-T) with a “hold” rating and $64 target. Average: $63.73.
  8. Laurentian Bank of Canada (LB-T) with a “hold” rating and $26 target. Average: $29.20.


Echelon Capital analyst Mike Stevens expressed confidence in Decisive Dividend Corp.’s (DE-X) outlook and trajectory after the late Monday announcement it’s in the process of raising its overall debt capacity by $107-million through a new syndicated credit facility.

The jump from $68-million to $175-million includes a committed $100-million senior secured revolving term loan and a $75-million accordion facility through a syndicate expected to include original lender Canadian Western Bank along with National Bank of Canada, Royal Bank of Canada, and The Desjardins Group.

“This is a huge upgrade to the Company’s existing credit facility and more importantly, significant ‘big bank’ validation supporting Decisive’s M&A strategy, execution to date, and outlook going forward,” said Mr. Stevens. “We believe this announcement also provides an added layer of credibility to the Company’s communications around a robust pipeline of acquisition targets existing in the market. Recall that Decisive highlighted on its Q323 conference call in November 2023 that the market was transitioning from a seller’s market to a buyer’s market, which was causing some trepidation from the founders of these potential targets as they adjusted to an environment with less bargaining power. It’s now been just shy of seven months since Decisive’s last acquisition in July 2023, which was the sixth acquisition in the previous 15+ months – thus, we wouldn’t be surprised if the timing of this credit expansion is foreshadowing near-term M&A activity.”

Reiterating a “buy” recommendation for the Kelowna-based company’s shares, he raised his target to $12 from $10.75. The average is $10.71.

“The fact that several of the Canadian big banks are entering the story to support a large credit capacity upgrade (2.5 times the size of the current facility) for Decisive should not be taken lightly and demonstrates their collective optimism for the Company to continue to execute with increasing scale,” he said.

“We recently maintained Decisive in our Top Picks Portfolio for Q124 and shares have begun the year up 16 per cent plus after delivering a 68-per-cent total return across 2023 and nearly 300 per cent over the past three years. Despite this run, we still see compelling value here for long-term investors, while near-term catalysts around M&A and a potential dividend increase highlight the multiple levers at the Company’s disposal here in H124.”


In other analyst actions:

* Jefferies’ Randy Konick raised his Street-low Lululemon Athletica Inc. (LULU-Q) target to US$300 from US$250 with an “underperform” rating. The average is US$510.28.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 24/05/24 3:59pm EDT.

SymbolName% changeLast
Bank of Montreal
Bank of Nova Scotia
Canadian Imperial Bank of Commerce
Canadian Tire Corp Cl A NV
CDN Western Bank
Decisive Dividend Corp
Dream Impact Trust Units
Laurentian Bank
Lululemon Athletica
National Bank of Canada
Royal Bank of Canada
Toronto-Dominion Bank
Transcontinental Inc Cl A Sv

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