Inside the Market’s roundup of some of today’s key analyst actions
Bank of Montreal (BMO-T) received several target price hikes after reporting fiscal third quarter earnings on Tuesday that overall were better than forecast by analysts.
Credit Suisse raised its target price to C$81 from $75. RBC raised its target price to C$86 from C$75. Desjardins Securities raised its target price to C$83 from $79. Canaccord Genuity raised its price target to C$86.50 from $80.50. Scotiabank raised its target to $85 from $83.
The median price target on Bank of Montreal shares is now $83, up from $76 one month ago, according to Refinitiv Eikon data. There are two buy ratings on the stock, nine holds, and three sells.
Canaccord Genuity analyst Scott Chan called it “a solid all-around quarter,” with the earnings beat largely driven by a rebound in the bank’s market-sensitive businesses.
Adjusted earnings per share of $1.85 was higher than the consensus forecast of $1.73. Total revenue was also slightly higher than Street expectations and expenses were well contained, dropping 2 per cent year over year, Mr. Chan commented.
“We view results as higher quality and are encouraged going forward by its diversified business model,” he said.
RBC analyst Darko Mihelic viewed the bank’s build in performing reserves and stronger capital metrics as positives. But he cautioned there are still a lot of unknowns when it comes to future loan impairments and losses once government support and deferral programs end. “Deferrals were not down much and although the early experience (from both BMO and BNS) with clients that have come off of deferral is positive regarding delinquency, we suspect that it is still too early to extrapolate early experience into forward projections (and of course the pace and shape of the economic recovery is still uncertain),” he said in a note.
Credit Suisse analyst Mike Rizvanovic echoed those concerns: “Provisions for credit losses were worse than we (and the Street) had anticipated, totaling C$1.05 billion in the quarter, including another sizable addition of C$608-million on performing loans. While we view the reserve build as positive, as well as the bank’s ability to absorb it in the quarter, we believe it is way too premature to set aside credit-related concerns, particularly with deferred loan balances remaining elevated and the trajectory and magnitude of the economic recovery very uncertain (management sounded more concerned than it did last quarter). As the massive government support programs are eventually unwound in the coming months, we continue to see elevated risk of a more severe scenario for loan losses in excess of management’s guided range (a loss ratio in the 40s in terms of bps on impaired loans),” Mr. Rizvanovic said in a note.
Meny Grauman of Scotiabank commented that BMO’s Q3 results were not perfect, “but a headline beat coupled with a better-than-expected CET1 ratio, a suspension of the discount on its DRIP, strong expense management, and robust capital markets results were all key positives. Even credit is largely a good news story, although still an overhang in our view, as the bank managed to deliver a provision number that was below Q2 but that still led to a bigger build in reserves than the Street had expected. Mix that with an attractive relative valuation, and you have all the elements you need for outperformance on earnings day.”
Bank of Nova Scotia (BNS-T) was hit with several price target cuts after its quarterly results Tuesday missed Street expectations. Credit Suisse cut its target price to C$55 from $56. RBC cut its target price to C$61 from $64. Desjardins Securites cut its price target to C$61 from $64. Canaccord Genuity cut its price target to C$59.50 from $60.50.
Scotiabank reported fiscal third quarter adjusted cash EPS of C$1.04, missing the consensus call of $1.11.
Headwinds in Scotiabank’s international operations were a particular concern for analysts.
“Our biggest takeaway in the quarter was the bank’s International segment, as adjusted earnings fell to C$53-million, down about 90% from just two quarters ago,” said Credit Suisse analyst Mike Rizvanovic. “Part of that was elevated provision for credit losses (PCLs), which was expected but worse than we had anticipated, while another significant decline in margins was also a notable headwind with guidance for further modest compression in Q4. We view the challenges in International as a hindrance on BNS’s relative valuation, while also being a potential catalyst should the outlook for the business improve meaningfully.”
Mr. Rizvanovic trimmed his earnings expectations for the bank for both fiscal 2020 and 2021, to “reflect higher PCLs and more margin compression in both International and Canadian P&C Banking, with a partial offset from stronger Capital Markets and better expense control.”
RBC analyst Darko Mihelic had similar concerns: “Stronger capital is positive, as are more ACLs (allowance for credit losses), though BNS’s reserve coverage is still likely the lowest vs. peers and high uncertainty around the International segment prevents us from getting positive,” he said in a note.
The median price target among analysts is now $61, down $1 from a month ago. There are five buy ratings, seven holds, and two sells, according to Refinitiv Eikon data.
Jefferies’ Philippe Houchois has more than doubled his price target on Tesla Inc. (TSLA-Q), becoming the most bullish analyst on the Street for the high flying stock.
His target went to US$2,500 from $1,200 as he reiterated a buy rating.
“Tesla’s competitive edge in cars may soon start to shrink but continues to widen in multiple other dimensions, from brand leverage and software to battery capacity and industrial efficiency,” Houchois said in a note.
Tesla, trading near US$2,100 in trading Wednesday morning, has already rallied about 150 per cent just over the past three months.
“We cannot pretend to understand the magnitude and speed of share price moves,” Houchois admited.
But he still sees logic in the market exuberance, noting that “growth expectations for 2020 to 2022 doubled since September 2019, almost exclusively driven by autos as non-auto related revenue remains a small fraction of estimates.”
Tesla stock will be split five-for-one after the close of trading Friday. The analyst’s new price target equates to $500 on a split-adjusted basis.
The median analyst price target on Tesla shares is US$1,487.50.
Superior Plus Corp. (SPB-T) is delivering on its business strategy with a significant U.S. acquisition, said ATB Capital Markets analyst Nate Heywood.
Early Tuesday, Superior announced the $210-million acquisition of the private Northeastern US fuel distributor, Rymes Propane and Oil. Rymes operates a significant retail propane and heating oil business, with 88,000 customers, across New Hampshire, Maine, Massachusetts and Vermont.
“We view the announcement as positive, given SPB’s ability to execute on its planned US growth strategy following the investment from Brookfield Asset Management and the attractive post-synergies acquisition multiple of 5.8x. SPB will draw on its credit facility for the acquisition while maintaining its targeted total debt to adjusted EBITDA range of 3.0-3.5x,” Mr. Heywood said in a note.
He expects the Rymes acquisition and any potential acquisitions in the near-term will help support earnings growth. He bumped up his price target to $14 from $13.50 and maintained an “outperform” rating.
The median price target among analysts is $13.75.
CIBC analyst Scott Fromson raised his price target on Ritchie Bros. Auctioneers Inc. (RBA-N, RBA-T), noting that COVID-19 has had a more positive impact on the global auctioneer of used heavy equipment than he had anticipated.
The company is benefiting from recession-related heavy equipment fleet dispositions - a trend he sees continuing.
“RBA’s Q2/20 results were much better than we had expected – and the stock has responded accordingly since then, up about 25 per cent,” Mr. Fromson said in a note.
“We view this run-up as somewhat exuberant in the context of the continuing COVID-19 pandemic. Still, we believe RBA has a robust, resilient business model. We also reconsider the significant role U.S. infrastructure spending will likely play in the upcoming presidential term, regardless of which candidate wins. This would positively impact RBA’s volumes and ancillary service revenue.”
He raised his price target to US$62 from $52 but maintained a “neutral” rating because of valuation concerns following the stock’s recent runup. The median price target is US$60.
In other analyst actions:
Atlantic Equities initiated coverage on Shopify (SHOP-N, SHOP-T) with an “overweight” rating and US$1,150 price target.
Hudbay Minerals Inc. (HBM-T): Credit Suisse raises target price to C$6.50 from C$5.
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