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

Desjardins Securities analyst Chris Li predicts the third-quarter financial release from Canadian Tire Corp. Ltd. (CTC.A-T) on Thursday to exhibit “increasingly challenging market conditions.”

In a research note released Tuesday, he lowered his earnings expectations for both fiscal 2023 and 2024. For the quarter, he’s now estimating earnings per share of $3.18, well below the consensus on the Street of $3.31. However, he noted the “wide” range of projections from his peers, currently from $2.95 to $3.70, reflects “limited earnings visibility.”

“Overall, we expect the results to reflect accelerating pressures on consumer discretionary spending, a shift toward more essential and value offerings, CTR dealers destocking (ie Christmas inventories) and being more cautious on forward purchases, as well as heightened competition,” said Mr. Li. “These should be partly offset by gross margin benefits from lower supply chain and product costs. We are forecasting same-store retail sales growth of negative 3.5 per cent for CTR, negative 4.0 per cent for SportChek and negative 2.0 per cent for Mark’s. Our estimates are largely in line with consensus.”

“The focus will shift to the earnings outlook for next year. Consensus expects EPS growth of 16 per cent in 2024 (vs our 10 per cent). This is predicated on a partial recovery at Retail and flat Financial Services earnings. Our downside scenario in 2024 assumes flat Retail revenue (vs 3-per-cent base case) and a 100 basis points increase in loan loss rate. This would lower our 2024 EPS to $12.25 (from $15.00). Applying a 10.0–10.5 times P/E (one standard deviation below its 12x 10-year average) on presumably trough earnings implies a $125 downside valuation.”

The analyst also looking for further clarity on the company’s recent move to repurchase Bank of Nova Scotia’s (BNS-T) 20-per-cent interest in Canadian Tire Financial Services in an all-cash transaction of $895-million.

“We believe the market’s initial cautious reaction to the repurchase of BNS’s 20-per-cent stake in CTFS was likely due to the premium valuation paid, investor aversion to credit cards given challenging macro conditions, limited visibility on potential strategic partners and the impact on capital returns from higher leverage,” he said. “We expect more insights on capital allocation and the long-term strategy on the 3Q call. Despite the near-term challenges, we believe the transaction could be value-enhancing to the extent CTC partners with another financial player that is more strategically aligned with its strategy.”

Maintaining a “buy” recommendation for Canadian Tire shares, Mr. Li reduced his target for its shares to $180 from $190. The average target on the Street is $177.60, according to Refinitiv data.

“While we expect trading to remain volatile until there is better macro visibility, we believe CTC’s valuation largely reflects near-term challenges and that it is well-positioned for long-term growth coming out of the downturn,” he said.


National Bank Financial analyst Mike Parkin sees shares of Newmont Corp. (NGT-T) “shifting into a show-me story” following recent operational weakness, suggesting any share price re-rating could be delayed until the integration of assets from its Newcrest Mining Ltd. acquisition “shows well and the company delivers operationally, which we expect could take place well within a year.”

In a research note, he adjusted his projections following its third-quarter results, which fell short of earnings expectations, and close of the Newcrest deal on Monday.

CEO Tom Palmer also confirmed on Monday Denver-based Newmont plans to continue with its plan to seek US$2 -billion in cash flow enhancement in the next two years “through portfolio optimization which includes both divestitures and project resequencing, with US$300-million already realized through the deferral of the Yanacocha Sulphides project announced in late 2Q23.

“We updated our gold production estimates for the Newmont assets to align with the updated FY23 guidance of 5.3 million ounces (NBF estimate 5.27Moz for legacy Newmont mines),” said Mr. Parkin. “The lowered guidance comes off the back of recent operational weakness and the 5-month strike at Penasquito which ended in October. Additionally, we tweaked our capex estimates across the board to align with the new split between sustaining and growth capex. Our production estimates increased substantially in 2024/2025 due to incorporating the Newcrest assets which also increased our EBITDA and capex estimates. We currently model higher AISC [all-in sustaining costs] in 2024/2025 along with lower CFPS [cash flow per share]. We expect more clarity from management with Q4 earnings in late February wrt updated 2024 guidance for the combined group of assets, along with potential cost savings and divestitures. We also expect a longer-term outlook to be provided in mid-2024 as per management comments.”

Lowering his 2023 earnings estimate while raising his expectations for 2024 and 2024 as well as his net asset value per share projection (to $61.73 from $60.86), Mr. Parkin reduced his target for Newmont shares to $75 from $81 with an “outperform” recommendation, cautioning “it could be a more second half stock call. The average is $72.16.

“We raised our target EV/EBITDA multiple to align with the implied P/NAV multiple, which we feel needed a further revision given the recent pressure on the stock,” he said. “We remain Outperform rated on Newmont, but we removed the company from our Top Pick list with the release of Q3 earnings on October 26th.”

“We look forward to the release of an updated 2024 guidance in late Feb as well as a longer-term guidance incorporating the Newcrest assets which is expected to be released mid-2024.”


Following last week’s release of its third-quarter results, RBC Dominion Securities analyst Greg Pardy reiterated his “constructive” stance on Imperial Oil Ltd. (IMO-T), pointing to “its long-life, low-decline upstream portfolio, cash flow diversification via its refining and chemical segments, strong balance sheet, free cash flow generation, abundant shareholder returns and solid operating performance in recent years.”

In a note released before the bell, he lowered his earnings and cash flow per share projections for 2023 to $8.35 and $11.17, respectively, from $8.36 and $11.51. However, his estimates for 2024 increased to $11.47 and $15.29 from $11.14 and $14.85 as well as 2025 to $7.27 and $11.31 from $7.06 and $10.97.

“Factored into our base outlook is a (pre-tax) downstream cash flow contribution of $2.7 billion in 2023 and $2.6 billion in 2024,” he said. “Our 2023 total equivalent production estimate sits at 408,000 boe/d [barrels of oil equivalent per day], just shy of the low-end of IMO’s 410,000-430,000 boe/d annual production guidance range; this outlook factors in Kearl production of 187,600 bbl/d (net), Cold Lake volumes of 135,200 bbl/d, and Syncrude production of 74,200 bbl/d (net, 85% utilization rate). Our 2023 outlook also factors in IMO’s recently announced $1.5 billion substantial issuer bid (SIB) (mid-point of the pricing range).”

“Imperial reiterated its commitment to shareholder returns alongside its third-quarter results, where the company announced it will commence a $1.5-billion SIB which will be completed by year-end. Imperial will repurchase its shares under the SIB via the modified Dutch auction procedure with a tender price range of $78.50-$94.00 per share. Imperial delivered quite respectable third-quarter results amid in-line upstream production of 423,000 boe/d, modestly lower R&M (after-tax) earnings of $586 million, and a larger current tax expense of $667 million.”

Projecting “abundant” cash flow of $6.5-million in 2024 under his base outlook, Mr. Pardy raised his target for Imperial Oil shares to $85 from $80 with a “sector perform” rating (unchanged). The average on the Street is $86.06.

“Imperial is trading at a debt-adjusted cash flow multiple of 7.0 times in 2023 and 4.8 times in 2024 (vs. our Canadian majors peer group avg. of 5.8 times and 4.2 times, respectively) and at a free cash flow yield of 11 per cent in 2023 and 16 per cent in 2024 (vs. our peer group avg. of 10 per cent and 16 per cent, respectively),” he said. “In our opinion, Imperial should command an above-average multiple given its low decline upstream portfolio, cash flow diversification via its refining and chemical segments, abundant shareholder returns and impressive operating performance in recent years.”


Trisura Group Ltd.’s “solid” (TSU-T) third-quarter results demonstrated “underlying strength and momentum in the business,” according to National Bank Financial analyst Jaeme Gloyn.

On Nov. 2, the Toronto-based specialty insurance provider reported operating diluted earnings per share of 67 cents, up almost 48 per cent year-over-year and at the upper end of the management’s pre-released range (64-68 cents). It also topped the Street’s expectation of 54 cents and Mr. Gloyn’s 64-cent estimate, which he attributed to “strong growth and profitability metrics in Canada, and continue solid growth and operating profitability in the U.S. fronting business.”

“Management highlighted the strength in U.S Fronting business where insurance revenue grew 34 per cent year-over-year,” he added. “Growth in U.S. fronting was supported favourable pricing trends and growth in admitted lines. Hard market conditions remain a tailwind; however, management expects markets to balance slightly in 2024. While fronting fees as a percentage of ceded premium declined in recent quarters due to the purchase of reinsurance, management expects the fee rate to trend back toward the 5-per-cent range in 2024.

“TSU’s Canadian business saw 30-per-cent increase in insurance revenue with a below 80 per cent combined ratio on solid performance in Surety and Corporate Insurance loss ratios. Management highlighted the success of the Sovereign surety book acquisition and the initial launch into U.S. Surety (that doesn’t yet have a Treasury Listing to attack the large government contract surety market) in driving strong growth.”

Mr. GloYn said the increase in investment income, up almost 200 per cent year-over-year, was “a key factor in the strong quarter” with management noting its portfolio is “more conservatively positioned than ever before allowing for enhanced risk-adjusted yields.”

“This allows TSU to allocate to longer duration bonds,” the analyst said. “We would view this decision as a positive, locking in rates for years to come.”

After raising his 2023 and 2024 EPS projections to $2.27 and $2.60, respectively, from $2.19 and $2.53, Mr. Gloyn increased his Street-high target for Trisura shares to $62 from $60, reiterating an “outperform” recommendation. The average is currently $52.67.

“Trading at approximately 14 times P/E suggests significant upside to peers,” he said.


Scotia Capital analyst Mario Saric said the third quarter was “routine” for Brookfield Asset Management Ltd. (BAM-N, BAM-T), but he warned it was “the calm before the fundraising storm.”

“BAM was bullish on an expected step-change in FRE and DE [fee-related earnings and distributable earnings] growth in 2024 (we’re in-line with consensus) including hitting its $150-billion fundraising target by Q4 reporting in February (implies another $35-billion of capital ex. Argo and AEL; they’re $55-billion),” he said.

“Overall, the positive thesis we discussed in our July 13th Initiation (BAM for the Buck... Take 2!) is very much intact. We still see BAM as one of the most attractive dividend stocks in our coverage universe (4.2-per-cent divvy yield and 12.5-per-cent CAGR [compound annual growth rate] through 2025), capable of mid-teen per share KPI CAGR, at a very reasonable PEG ratio of 2.2, all without strategic M&A (likely be additive to said figures). All-in-all, quite a constructive outlook (particularly with potential peak interest rates). We look to any potential trading pressure (from AEL deal closing late in 2023; early 2024) as a good buying opportunity.”

In a note released Tuesday titled Looking Forward to 2024, Mr. Saric said he though Brookfield management was “very constructive on an expected positive ‘step change” in growth for 2024 with its target of more than US$35-billion of fundraising through February 2024.

“On capital deployment, BAM is focused on strategic M&A (less correlated to interest rates than deploying the $102B of dry powder it has) and seeding new fund (we’re good with both) in the near-term (not acquiring BIP/BEP/BBU units, which we’ve noted has solicited a negative market reaction, in our view),” he said. “Overall, 2024 was painted as a highly constructive year regarding FRE, DE, and Dividend/sh growth, along with accelerated capital deployment. While it is too early to say (given BIF V [Brookfield Infrastructure Fund V] is expected to hit its hard close of $28B in Q4), given it is 40per cent committed, we wouldn’t be surprised if the BIF VI is discussed late next year and is ultimately bigger than BIF V (share price catalyst, in our view).”

Less than a week after reducing his target price and net asset value projection prior ahead of the earnings release, Mr. Saric reversed course, raising his target for its shares by US$1 to $37.50, keeping a “sector outperform” rating. The average is currently US$36.12.


Following a “solid” third quarter, Raymond James analyst Stephen Boland sees Element Fleet Management Corp. (EFN-T) “setting up [the] next growth phase.”

After the bell on Monday, the Toronto-based company reported adjusted earnings per share of 34 cents, up 2 cents from the previous quarter and 5 cents year-over-year. It also topped both Mr. Boland’s 31-cent estimate and the consensus projection on the Street of 32 cents, driven by better-than-anticipated revenue (rising 14.8 per cent from the same period a year ago).

“The recovery in originations continued this quarter, with a moderate expansion from the strong volumes posted in 2Q23,” the analyst said. “Despite the recent strength in originations, backlog remains well above historic averages and is likely to remain elevated through most of 2024. EFN is also awaiting further detail on any possible OEM production impact from the recent UAW strike (although no information was provided at this stage).

“EFN announced a number of strategic initiatives this quarter. EFN is centralizing its U.S. and Canadian leasing operations and will run the division from a new office in Dublin, Ireland. The company expects this change will drive greater accountability across geographies for the company’s leasing business and drive a more consistent and superior client leasing experience. In addition, EFN is establishing a new strategic sourcing presence in Singapore, aimed at expanding clients’ access to new vehicles in Asia (with an EV focus) and enhancing the company’s global procurement capabilities through improved OEM relationships. From a financial standpoint, EFN expects these initiatives will drive $40-$60-million in incremental net revenue and $30-$50 million in adjusted operating income by 2028, with the projects expected to be cash flow positive by 2025. The company has appointed internal and external executives to lead each of these ventures.”

With a narrow reduction to his 2024 EPS projection, Mr. Boland cut his target for Element Fleet shares “moderately” by $1 to $26, keeping a “strong buy” rating. The average is $25.56.

“Given the recent turnaround in the company’s operations, along with the resilient and defensive nature of its business model, EFN remains our top pick heading into 2024,” he concluded.


In other analyst actions:

* Evercore ISI’s Michael Binetti initiated coverage of Canada Goose Holdings Inc. (GOOS-N, GOOS-T) with an “in-line” rating and US$11 target as well as Lululemon Athletica Inc. (LULU-Q) with an “outperform” recommendation and US$475 target. The average targets on the Street are US$12 and US$433.57, respectively.

* UBS’ Kevin McVeigh initiated coverage of Thomson Reuters Corp. (TRI-N, TRI-T) with a “buy” rating and US$153 target and Q4 Inc. (QFOR-T) with a “neutral” recommendation and $4.25 target. The averages are US$129.36 and $4.63, respectively.

“We launch coverage on 10 stocks in Technology Services Software with a selective view as macro uncertainty is balanced by secular shifts in customer preferences towards verticalized offerings in software,” he said. “Further, rate-fueled multiple compression offers investors opportunistic entry into high-quality, mission critical software businesses with TAMs growing low double-digits. Our view is predicated on growing trends of specialized market entrants competing and scaling market share against horizontal incumbents. In some cases, this has resulted in M&A, which could help minimize downside. We also see vertical solutions surfacing in AI implementation as vertical players leverage niche-specific data to provide moated solutions and build domain-specific models consistent with best-in-class models. We launch coverage with 4 Buys [CWAN, $24 PT; INTA, $45 PT; SSNC, $72 PT; TRI, $153 PT], 5 Neutrals [ACN $333 PT; CTSH, $70 PT; ENFN, $9 PT; QFOR, C$4.25 PT; RXT, $1.4 PT], and 1 Sell [IRM, $44 PT].”

* Bernstein’s David Vernon cut his targets for Canadian National Railway Co. (CNR-T, “outperform”) to $165 from $171 and Canadian Pacific Kansas City Ltd. (CP-T, “market perform”) to $107 from $111. The averages are $165.25 and $114.49, respectively.

* BMO’s Thanos Moschopoulos lowered his Coveo Solutions Inc. (CVO-T) target by $1 to $12.50, below the $12.70 average, with an “outperform” rating, while TD Securities’ David Kwan raised his target to $13.50 from $13 with a “buy” rating.

“We remain Outperform on CVO and have reduced our estimates and target price following Q2/24 results, which were in-line on revenue and a beat on EBITDA,” Mr. Moschopoulos said. “Management raised FY2024 EBITDA guidance but reduced revenue guidance—as sales cycles are being impacted by both a tougher macro, and by customers pausing to seperate GenAI hype from reality. In the meantime, CVO has started to demonstrate that it can monetize GenAI (having signed the first five customers for its GenAI module during the quarter) while also sustaining remarkable opex efficiency.”

* Canaccord Genuity’s Carey MacRury bumped his Eldorado Gold Corp. (ELD-T) target to $17 from $16 with a “hold” rating. The average is $17.15.

“2023 has been a mixed year for the company, with heavy rainfall at Kisladag earlier in the year and the impact of the forest fires at Lamaque resulting in the company narrowing its production guidance (now 475-495koz), though in line with our forecasts,” said Mr. MacRury. “On the positive side, Eldorado has reported lower-than-expected costs and has lowered its cash operating cost guidance. The company also reported record throughput at Olympias in Q3 and 3.6Mt of ore were stacked at Kisladag, up 19 per cent quarter-over-quarter and the highest level since Q4/16, which we believe should bode well for future production rates.”

* Barclays’ Ian Rossouw lowered his First Quantum Minerals Ltd. (FM-T) target to $17 from $25 with an “underweight” rating. The average is $28.33.

“Uncertainty surrounding the future of Cobre Panama’s Mining Contract could continue to weigh on the share price near term, particularly if social unrest impacts the ability of the mine to continue to operate. We recognize the shares are pricing in a significant discount to valuations, but remain UW given the uncertainty,” he said.

* TD Securities’ Menno Hulshof increased his target for MEG Energy Corp. (MEG-T) to $31, exceeding the $30.27 average, from $29 with a “hold” rating.

“Q3/23 was another strong quarter of operational performance, balance-sheet deleveraging, and capital returns,” said Mr. Hulshof. “MEG currently targets 50-per-cent return of FCF, increasing to 100 per cent on achievement of US$600-million net debt (MEG estimates mid-2024). Our HOLD rating is largely predicated on relative valuation (2024E strip FCF yield—16 per cent; Integrated peers—15 per cent/Oil Sands peers—21 per cent).”

* Stifel’s Stephen Soock trimmed his Orla Mining Ltd. (OLA-T) target to $6.50 from $7.50, reiterating a “buy” rating. The average is $6.96.

“Following the recent protests in Panama sparked by the Cobre Panama deal, we are updating our numbers for Orla,” he said. “The company owns the Cerro Quema project (previously 10 per cent of NAV) which had received environmental permits in June but is awaiting a mining license. We are removing Cerro Quema oxide gold from our production profile and assigning an in-situ value of $80-million (vs. $185-million previously) and $93-million for the 1.18Blbs of Caballito copper resource (vs. $186-million previously). We have trimmed our target P/NAV multiple by 5 basis points to 1.05 times but still see the company generating sufficient cash flow from the operating Camino Rojo mine in Mexico to fund South Railroad and Camino Rojo sulphide construction. Our NAV has decreased by 9.3 per cent to $4.69/sh.”

* BMO’s Andrew Strelzik cut his Restaurant Brands International Inc. (QSR-N, QSR-T) target to US$85 from US$88 with an “outperform” rating. The average is US$77.18.

“QSR’s $0.90 3Q23 EPS exceeded consensus by $0.05 owing to non-operating items, while comps fell below expectations, driven by Burger King,” he said. “Lower-quality results notwithstanding, we remain constructive as momentum behind initiatives remains in place across the portfolio, unit growth is poised to accelerate in 2024, and shares trade at an attractive multiple (about 15 times our 2024 EBITDA). We adjust estimates modestly as we better dial-in assumptions and reduce our target to $85 owing to a tempered target multiple given higher interest rates, but believe the pullback in shares is an opportunity.”

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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 01/02/24 0:34pm EST.

SymbolName% changeLast
Brookfield Asset Management Ltd
Canada Goose Holdings Inc
Canadian National Railway Co.
Canadian Pacific Kansas City Ltd
Canadian Tire Corp Cl A NV
Coveo Solutions Inc
Eldorado Gold
Element Fleet Management Corp
First Quantum Minerals Ltd
Imperial Oil
Lululemon Athletica
Meg Energy Corp
Newmont Corp
Orla Mining Ltd
Q4 Inc
Restaurant Brands International Inc
Thomson Reuters Corp
Trisura Group Ltd

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