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

A day after Shopify Inc.’s (SHOP-N, SHOP-T) U.S.-listed shares jumped 4.9 per cent on strong Black Friday results, Piper Sandler analyst Clarke Jeffries downgraded the Ottawa-based ecommerce giant to “underweight” from “neutral,” seeing “an untenable valuation.”

“We believe the assumptions embedded in shares today are too aggressive based on our market understanding,” he said. “While macro, execution, or near-term demand are not catalysts for our rating change, we believe fundamentals are set to moderate in 2024 as the company clears events unique to 2023.”

In a research report report released before the bell, Mr. Jeffries pointed to three “secular assumptions” in justifying his change. They are:

1. “Ecommerce penetration is very early ... Ecommerce as a market in the U.S. has grown at a 15-per-cent CAGR [compound annual growth rate] over the last ten years, rising from 6 per cent of retail sales to 15 per cent. We believe embedded in shares is continued low-double digit to mid-teens ecommerce growth with share gains fueling high-teens to 20-per-cent growth for Shopify over the medium term. Based on our analysis of the ecommerce by merchandise categories, five years of almost 12.5-per-cent ecommerce growth would see penetration of applicable Ecommerce TAM [total addressable market] rise to over 50 per cenmt - too aggressive in our view.”

2. “Market share opportunity is significant. While our ecommerce TAM analysis may be helpful for U.S. ecommerce, we recognize that Shopify has global ambitions & the high North American exposure could shift over time. Via a pro forma scenario of how Shopify could grow into a street case of $17.5-billion in calendar 2028 revenue; we conclude that even under significant ARPU [average revenue per user] & merchant growth from international; more than 50 per cent of the revenue growth over the next five years would still have to come from North American ARPU & merchant growth.”

3. “Take-rates could be a long-term tailwind. While we do not disagree monetization per merchant could increase; we think it’s a matter of magnitude. Over the last five years, 70 per cent of the growth in take-rate has come from Shopify Payments penetration - with merchant adoption flat or even declining in mature geos. We believe Shop Pay has been the primary driver of payment penetration exceeding 40 per cent, but it remains to be seen how large Shop Pay can become.”

With the change to his investment thesis, Mr. Jeffries cut his target for Shopify shares to US$56 from US$58. The average on the Street is US$67.74, according to Refinitiv data.

“Shares have substantially outperformed this year; catalyzed by the exit of the logistics business & newfound emphasis on profitability,” he said. The company is clearly a commerce platform juggernaut with 2 million-plus merchants powering $200-billion-plus of GMV while growing top line more than 20 per cent. However, at present shares hold an untenable valuation in our view, as growth & profit assumptions embedded in shares today are too aggressive based on our market understanding. Therefore, we are lowering our rating to Underweight with a $56 PT. Macro, execution, or near-term demand are not catalysts for our rating change, but we believe fundamentals are set to moderate in 2024 as the company clears events unique to 2023.”


Stifel analyst James Hodgins thinks “it’s time to buy Canadian small caps.”

“After underperforming for the better part of the past decade, Canadian small cap equities are literally begging to be bought,” he said. “The value is there, the cycle returns are there and the seasonality is now here. In addition to extreme value and seasonality, small cap equities historically also benefit from the yield curve re-steepening, which it inevitably will do.

“While we realize many Small Cap names are bearing the brunt of tax-loss selling, that peak selling pressure is due to abate within 2-3 weeks, thereby giving investors an opportunity to pick up great small cap companies at bargain-basement prices.”

In a research report released Tuesday, Mr. Hodgins said small caps have never been cheaper relative to their large peers, “making them a great value call.”

“Small cap equities are priced toward the bottom end of range and trading below levels when rates were as high as today’s! Small cap’s relative performance is highly correlated with the yield curve, and with rates cuts expected soon, if current resteepening is the beginning of an emerging trend, the style could be primed to gain momentum as seen historically,” he said.

“Finally, as we enter the end of peak tax-loss selling period, which also happens to be the seasonally strong performance period for small caps, We expect small caps to outperform large caps once again from December to February. Next two weeks also opens up a buying opportunity of the tax-loss sell candidates.”

Mr. Hodgins recommended the firm’s list of top small-cap ideas, which all possess “buy” recommendations. They are:

  • Advantage Energy Ltd. (AAV-T) with a $14.50 target. The average on the Street is $12.69.
  • Aya Gold & Silver Inc. (AYA-T) with a $15 target. Average: $13.75.
  • Coveo Solutions Inc. (CVO-T) with a $14 target. Average: $12.95.
  • Dentalcorp Holdings Ltd. (DNTL-T) with a $11.50 target. Average: $10.28.
  • Dundee Precious Metals Inc. (DPM-T) with a $12.25 target. Average: $12.81.
  • Jamieson Wellness Inc. (JWEL-T) with a $45 target. Average: $38.90.
  • Lithium Americas (Argentina) Corp. (LAAC-N, LAAC-T) with a US$18.50 target. Average: US$19.94.
  • Mattr Ltd. (MATR-T) with a $26 target. Average: $21.56.
  • Pet Valu Holdings Ltd. (PET-T) with a $33 target. Average: $36.33.
  • Savaria Corp. (SIS-T) with a $25 target. Average: $19.29.
  • Tamarack Valley Energy Ltd. (TVE-T) with a $6.25 target. Average: $6.08.
  • Taseko Mines Ltd. (TKO-T) with a $3.60 target. Average: $2.98.
  • Trican Well Service Ltd. (TCW-T) with a $6.50 target. Average: $6.


Scotia Capital analyst Jason Bouvier downgraded MEG Energy Corp. (MEG-T) to “sector perform” from “sector outperform” following Monday’s post-market release of an in-line 2024 production guidance and a capital budget that fell short of expectations on the Street.

The Calgary-based company announced capital guidance of $550-million, narrowly above the consensus forecast of $538-million. That includes $450-million for maintenance and $100-million aimed at supporting “multi-year capacity growth.”

“Given the strong outperformance of MEG shares over the past year and a modestly higher spending profile over the next couple of years, we believe the valuation is more in line with other producers (and MEG’s CF will take another step change down when it becomes cash taxable in 2027 vs its oil sands peers that are already cash taxable). As such, we are downgrading the company,” said Mr. Bouvier.

Mr. Bouvier maintained a $27 target for MEG shares. The average is $30.92.

“MEG has a low sustaining capex requirement, top quartile asset base, and improving balance sheet. Management is focused on repaying debt and increasing shareholder returns. The company also has a high torque to oil prices,” he concluded.

Elsewhere, TD Securities’ Menno Hulshof trimmed his target to $30 from $31 with a “hold” rating.

“2024 guidance was broadly in-line, although our 2025 capex estimate increases to $650-million to reflect a more bell-curved growth capital profile. 2024 is pivotal, given a return to reasonable growth aspirations and transitioning to 100% return of FCF by Q3/24 on strip. Our HOLD rating remains largely predicated on relative valuation (2024E strip FCF yield—15 per cent; Integrated peers—14 per cent/smid-cap peers—20 per cent),” said Mr. Hulshof.


In a research report released Tuesday titled A Good Place to Hide... and Thrive, Scotia Capital analyst Jonathan Goldman initiated coverage of CCL Industries Inc. (CCL.B-T) with a “sector outperform” recommendation, touting its combination of “a GDP+ growth profile with stable margins and a strong track record of accretive M&A.”

“With organic growth expected to reaccelerate, structural margin expansion opportunities, and conditions primed for large-scale M&A (and significant balance sheet flexibility), we see ample catalysts for the shares to break out of the six-year trading range,” said Mr. Goldman.

“What you see is what you get. About 60 per cent of CCL’s end-market exposure is defensive, including Home & Personal Care, Food & Beverage, and Healthcare. Organic growth has mostly tracked above GDP, supported by internal initiatives and secular trends. Scale and industry dynamics support stable margins around 20 per cent, and capex typically aligns with D&A. FCF conversion is stable within a narrow band around 45 per cent.”

The analyst touted the Toronto-based company has a “track record of accretive M&A,” however it has not made a significant acqusition since 2017 “as multiples remained prohibitively expensive.”

“We think higher rates are a positive for CCL, as they could reduce competition from private equity, which is facing higher financing costs, tighter credit markets, and increased liquidity demand from LPs. Separately, CCL’s main private equity–backed competitors appear to be struggling.”

Also emphasizing its “significant” financial flexibility, Mr. Goldman added: “Between organic growth and a modest tuck-in program, we estimate CCL can grow EBITDA between 7 per cent and 9 per cent per year with internally generated cash flows alone. The balance sheet is arguably as good as it’s ever been: we forecast leverage declining to 0.8 times net debt to EBITDA exiting 2024 (comfort range 1 times to 3.5 times). The company has $800-million of cash (and ~$1.6 billion of liquidity). Approximately 80 per cent of debt is fixed rate (c. 3 per cent) with extended maturities (earliest 2026).”

Believing “the best is yet to come,” he set a target of $72 per share. The average is currently $73.89.

“Shares were a ten-bagger between 2012 and 2017, but have been range bound since as performance has tracked lower growth,” said Mr. Goldman.. We view the circumstances of the lower growth as non-recurring: office superstore closures and secular declines in office products (2017-2019), resin price volatility (2019), COVID-19, supply chain disruptions, and geopolitical conflicts (2020-2023). Shares are trading at 8.7 times EV/EBITDA on our 2024E, near 10-year lows, which suggests peak earnings. But we think the opposite is true: we expect organic growth to reaccelerate in 2024 as the CPG industry (and CCL) laps significant price-driven comps, electronics and apparel volumes recover, and destocking moderates in the pressure-sensitive label industry. In the medium term, we see an opportunity for CCL to structurally expand margins by 100 basis points to 200 basis points, supported by mix shift to higher growth, higher-margin verticals (mainly D2C and RFID), and achieving long-term margin targets in Innovia.”


While Citi analyst Alexander Hacking’s updated valuation multiple for Barrick Gold Corp. (GOLD-N, ABX-T) remains discounted compared to peers following modest reductions to his financial forecast, he does not see “any immediate re-rating catalyst.”

“Upcoming investments in Lumwana and Reqo Diq will generate incremental growth in copper and gold with potential for NAV-appreciation, particularly Reqo Diq,” he said. “Nonetheless, we do not expect equity investors to reward this until deeper into the investment cycle.”

“Citi is broadly neutral on gold expecting prices to average $1,900-2,100/oz in 2024-2025 ... We are tactically neutral bullion markets in the short-term as prices and Comex positioning have rebounded. Spot gold markets rallied $160 per ounce or 9 per cent in the past month amid rising military tensions in the Middle East and expectations that the Fed may be done hiking. The rally in U.S. rates and U.S. dollar depreciation can support gold prices albeit higher equities, declining cross-asset vols, and weak financial gold seasonals are potential headwinds.”

Mr. Hacking is now projecting earnings per share of 90 US cents for fiscal 2023, down a penny from his previous estimate but 8 cents ahead of the consensus forecast. His 2024 and 2025 expectations slid to US$1.44 and 97 US cents, respectively, from US$1.51 and US$1 (versus the Street’s projections of US$1.07 and US$1.10).

Maintaining a “neutral” rating for Barrick shares, he trimmed his target to US$18 from US$20. The average target on the Street is US$21.37.

“Positive factors include low operating costs, a stable balance sheet, new management with a strong operating track record, potential upside from synergies at the new Nevada JV,” he said. “Negative factors include some challenging legacy assets, geopolitical risk, challenges to grow production from such a large base and limited FCF. On balance we see equal upside and downside at current levels.”


RBC Dominion Securities analyst Sam Crittenden thinks Teck Resources Ltd.’s (TECK.B-T) decision to sell its coal business to Swiss commodities trading giant Glencore PLC and two Asian steelmakers in a US$8.9-billion transaction “sets up the company to focus on copper growth with a strong balance sheet and enviable suite of development options.”

“The closing of the transaction, and subsequent cash return to investors, together with a successful ramp up at QB2 can lead to a re-rating of the shares,” he said upon resuming coverage of the Vancouver-based miner on Tuesday.

Mr. Crittenden suggested Teck could use a portion of the proceeds from the deal to pay down its debt, but he warned options are limited due to the long-dated maturities of its notes outstanding.

“It would like to maintain investment grade rating with a target of 1.5-2.5 times net debt to EBITDA,” he said. “At spot prices we estimate net debt to 2024 EBITDA using only the base metals business and current debt levels of 1.4 times. That implies it doesn’t need to pay down debt; however perhaps it could set aside $1-billion for future payments on the QB2 project debt facility. It could also set aside $4-5-billion to fund future copper growth opportunities including: San Nicolas, Zafranal, HVC2040 and QBME. This would leave $3-5-billion to be returned to shareholders in the form of buybacks and/or a special dividend at the discretion of the board. M&A does not sound like a priority given its pipeline of development projects and limited potential targets with production.”

Mr. Crittenden thinks Teck can improve is valuation metrics as management focuses on copper growth at its QB2 mine in Chile.

“We estimate Teck is currently trading at 4.1 times EV/EBITDA including coal for 2024, while on a base metals only basis it would be trading at 4.9 times and 1.0 times NAVPS [net asset value per share,” he said. “Large cap copper peers are currently trading between 6-8 times 2024 estimated EBITDA and 1.3 times NAV while mid-cap producers are trading at 3 times and 0.7 times. We believe Teck has a chance to re-rate towards the large copper producers as it executes on its growth plans.”

He reiterated an “outperform” recommendation and $70 target for Teck shares. The average is $64.93.

“The focus in the near term is the ramp up at QB2 and completing the port construction (expected Q1/2024) and closing the coal transaction which Teck estimates can happen in Q3/2024 with the Investment Canada Act review, likely the key step,” said Mr. Crittenden. “Post that, we believe Teck could look to return a ‘significant’ amount of capital to investors.”


Echelon Partners analyst Rob Goff believes Think Research Corp.’s (THNK-X) momentum hit “a snag” with its “disappointing” third quarter, but he thinks its core software-as-a-service (SaaS) segment remains strong and is “ready for heavy lifting.”

Before the bell on Monday, the Toronto-based health-tech company reported quarterly revenue of $19.2-million, missing both Mr. Goff’s $22-million estimate and the consensus projection of $22.1-million. An EBITDA loss of $1.5-million also fell short of expectations (profits of $0.6-million and $0.9-million, respectively).

“We expected a relatively soft Q323 but were surprised with the magnitude of underperformance at BioPharma,” the analyst said. The Company is looking for it to rebound in H124 on a moderated base where its unprofitable St. Louis facility; the local presence would be important to a significant portion of its $2.5-million of annual sales. Think also communicated a strong backlog that continues to build at the contract research organization (CRO) and believes that with scheduling optimization in the months to come, BioPharma can approach prior revenue levels with higher margins.

“The Company is navigating pressure from multiple angles where investors are likely to await evidence of improved revenue momentum and a return to EBITDA positive operations. We’re encouraged that Think has begun to rationalize underperforming pockets of its CRO and clinics business and continues to direct investment toward its core SaaS offerings. We’re optimistic Think can continue generating momentum by closing SaaS contracts within its sales pipeline over the next several months to help relieve existing pressures. Additionally, Beedie continuing to step up to support Think with lending assuages some of its liquidity concerns.”

After reducing his revenue and profit projections for both 2023 and 2024, Mr. Goff cut his target for Think shares to 55 cents from 80 cents, emphasizing its liquidity “challenges” as it continues to breach certain covenants with lenders Bank of Nova Scotia (BNS-T) and Beedie Capital. The average target on the Street is 55 cents.

“With the near-term headwinds at BioPharma and around Think’s liquidity constraints, at a time when the broader macro and microcap environment remains challenged, we are reducing our Q423/2023 forecasts and moving our PT from $0.80 to $0.55,” said Mr. Goff, who kept a “speculative buy” recommendation. “Positive momentum at BioPharma with continued strength in Software and Data together with positive clarity on funding concerns would lead to positive revaluation considerations.”

Elsewhere, Canaccord Genuity’s Doug Taylor cut his target to 50 cents from 75 cents with a “speculative buy” rating.

“Think Research reported Q3 results that missed expectations due to an unforeseen sequential pullback in its Clinical Research unit,” said Mr. Taylor. “The shortfall returned Think’s EBITDA to negative territory, which once again brings the company’s tight balance sheet position to the forefront. These heightened balance sheet concerns lead us to reduce our target multiple on lower estimates. Our target is now $0.50 (from $0.75) based on 8 times NTM+1 EBITDA (from 10 times). We maintain a SPECULATIVE BUY rating as we do believe Think’s technology is undervalued, but the risk profile remains elevated.”


Analysts at Raymond James made a series of target adjustments to mining companies in their coverage universe in a research report reviewing third-quarter earnings season.

“Gold producers in our coverage largely maintained full-year guidance in 3Q with production through the first three quarters tracking between 74-81 per cent of FY guidance across our respective gold producers suggesting little risk of missing FY guidance,” the firm said. “Within our coverage, we expect AEM, CXB, and NGD to either beat or come in at the top end of production guided ranges. On cash costs, the majority of the gold producers in our coverage maintained guidance, and we highlight BTG and KGC are guiding to the low end of range. IAG and OGC both raised opex guidance for the year.

“Copper producers in our coverage are tracking between 65-73 per cent of FY copper guidance. Despite the slow year-to-date production, producers generally maintained copper production guidance ranges, apart from FM (lowered Cu production guide by 6 per cent at midpoint). We expect ERO, IVN, HBM, and LUN to all have the highest Cu production quarter of the year in 4Q23 on a combination of higher grade and throughput. FM is expecting weaker production quarter-over-quarter, and we highlight further downside risk with production at Cobre Panama being suspended in late November.”

Their changes include:

  • Agnico Eagle Mines Ltd. (AEM-N/AEM-T, “outperform”) to US$66 from US$67. The average on the Street is US$65.57.
  • B2Gold Corp. (BTG-N/BTO-T, “outperform”) to US$4.50 from $5. Average: $6.08 (Canadian).
  • Ero Copper Corp. (ERO-T, “market perform”) to $25 from $26. Average: $24.
  • First Quantum Minerals Ltd. (FM-T, “market perform”) to $20 from $24. Average: $25.20.
  • Kinross Gold Corp. (KGC-N/K-T, “market perform”) to US$5.50 from US$6. Average: US$6.30.
  • Lumina Gold Corp. (LUM-X, “outperform”) to $1 from $1.50. Average: $1.47.
  • Lundin Mining Corp. (LUN-T, “market perform”) to $9 from $9.50. Average: $11.52.
  • New Gold Inc. (NGD-N/NGD-T, “market perform”) to US$1.75 from US$1.50. Average: US$1.51.
  • OceanaGold Corp. (OGC-T, “outperform”) to $4 from $4.50. Average: $4.08.
  • Surge Copper Corp. (SURG-X, “outperform”) to 30 cents from 65 cents. Average: 65 cents.


In other analyst actions:

* JP Morgan’s John Royall raised his Alimentation Couche-Tard Inc. (ATD-T) target to $80 from $78, keeping an “overweight” rating. The average target on the Street is $86.74.

* National Bank’s Don DeMarco raised his targets for Aris Mining Corp. (ARIS-T) to $5.70 from $5.25, remaining a low on the Street, and Aya Gold & Silver Inc. (AYA-T) to $12.50 from $12 with “outperform” recommendations for both. The averages are $7.99 and $13.76, respectively.

Elsewhere, Canaccord Genuity’s Carey MacRury bumped his Aris target to $8 from $7.50 with a “buy” rating, while BMO’s Brian Quast raised his target to $6.50 from $6 with an “outperform” recommendation.

* Barclays’ Matthew Miksic cut his Bausch + Lomb Corp. (BLCO-N, BLCO-T) target to US$17 from US$19 with an “equalweight” rating. The average is US$20.09.

“We have made a number of changes to our model, including the impact of tougher FX headwinds, higher interest expense and a higher projected tax rate,” he said.

* Canaccord Genuity’s Doug Taylor bumped his target for Kraken Robotics Inc. (PNG-X) to $1 from 90 cents with a “buy” rating. The average is $1.10.

“Kraken reported Q3 results that were somewhat mixed, as EBITDA beat expectations despite revenue coming in shy of forecast,” he said. “With that said, the company clearly maintains a strong growth trajectory with a backlog and pipeline that should support another year of solid growth and more substantial profitability in 2024 on the back of defense sector demand. As we roll forward our model, we increase our target price to $1.00 (from $0.90), given expected growth and robust profitability. This valuation represents just 9 times NTM+1 EBITDA, a discount to peers despite Kraken’s superior growth trajectory.”

* RBC’s Andrew Wong increased his target for NexGen Energy Ltd. (NXE-T) to $11, above the $10.85 average, from $10 with an “outperform” rating.

“We continue to view NexGen’s Rook I project as one of the best undeveloped uranium projects globally that will be important in meeting growing uranium demand as the market moves into a potential significant deficit by 2030,” said Mr. Wong. “We are encouraged to see management advancing Rook I through permitting and believe the project is well-financed through pre-construction works.”

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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 23/02/24 0:46pm EST.

SymbolName% changeLast
Advantage Oil & Gas Ltd
Agnico Eagle Mines Ltd
Alimentation Couche-Tard Inc.
Aris Gold Corporation
Aya Gold and Silver Inc
Barrick Gold Corp
Bausch Lomb Corporation
B2Gold Corp
Coveo Solutions Inc
Ccl Industries Inc Cl B NV
Dentalcorp Holdings Ltd
Dundee Precious Metals Inc
Ero Copper Corp
First Quantum Minerals Ltd
Jamieson Wellness Inc
Kinross Gold Corp
Kraken Robotics Inc
Lithium Americas Argentina Corp
Lumina Gold Corp
Lundin Mining Corp
Shawcor Ltd
Meg Energy Corp
New Gold Inc
Nexgen Energy Ltd
Oceanagold Corp
Pet Valu Holdings Ltd
Savaria Corp
Shopify Inc
Surge Copper Corp
Tamarack Valley Energy Ltd
Taseko Mines Ltd
Teck Resources Ltd Cl B
Think Research Corp
Trican Well

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