Inside the Market’s roundup of some of today’s key analyst actions
Several analysts have raised their price targets on Bank of Montreal (BMO-T) following another quarterly earnings report that overall beat expectations. Some noted, however, that the latest financials were a little less impressive than in recent quarters.
Among the moves: Canaccord Genuity raised its target to C$149 from $143; CIBC hiked its target to C$148 from $139; RBC increased its target to C$146 from C$139; Credit Suisse moved its target price up to C$144 from C$138, and Desjardins Securities to C$138 from C$133.
The average price target on the bank is now $139.89, up from $133.32 one month ago, according to Refinitiv data.
Here are some highlights of what the analysts are saying:
Scotiabank’s Meny Grauman: “BMO’s beat this quarter was not quite as spectacular as it seems given the contribution from credit (a PCL [Provision for Credit Losses] recovery) and elevated securities gains. That said, results may not have been great, but they were still very, very good. Not a bad outcome for a bank that has consistently been ahead of the pack for a number of consecutive quarters. Underpinning another good quarter remains relative margin stability (+2 bps Q/Q at the all bank level) and still very impressive expense management (operating leverage of 7.3% YTD and ongoing efficiency gains). Canadian P&C [Personal and Commercial Banking] was the star of the show, but all operating segments beat consensus, with the largest variance actually coming from Capital Markets as both trading and underwriting climbed sequentially and beat our forecasts. Overall, our EPS estimate for F2021 climbs due to the beat ... We leave our price target at $147 and reiterate our Sector Outperform rating.”
Desjardins’ Doug Young: “Pre-tax, pre-provision (PTPP) earnings were 11% above our estimate. Furthermore, its outlook for commercial loan growth later this year, while holding the line on expenses, was encouraging. ... We like the outlook for BMO.”
Canaccord Genuity’s Scott Chan: “BMO reported adjusted cash EPS of $3.44, well above consensus of $2.93. We view the beat as higher quality but benefiting from: (1) better-than-expected credit that we estimate added ~23c to EPS (relative to Street); and (2) higher security gains (other than trading) of $198M which contributed ~15c towards EPS. FQ3 security gains showed sequential improvement from $111M / $102M over the past two quarters (F2020: $124M). While quarterly security gains are typically volatile, management expects further positive gains, benefiting from a healthy economy. Overall, security gains / losses are more tied to equity market movements (rather than interest rates) and upside has generally been supported by broad-based activity to support clientele growth (e.g. Commercial, Capital Markets). ... The firm has demonstrated consistent credit performance and improvement over four straight quarters.... This broadly benefited from government assistant programs (high saving rates), excellent commercial credit, low formations, and good recoveries in its oil & gas portfolio (at Capital Markets). Going forward, management guides toward impaired loan ratio at low 20 bps over F2022E with actual losses that could come in below that level over the next few quarters. BMO reported performing loan provisions (stage 1 & 2) of - $141M (or -12 bps; -4 bps QoQ). With significant allowances built up last year, we are likely to see further performing loan reversals over the coming quarters.”
RBC’s Darko Mihelic: “Q3/21 results were very strong and well ahead of our forecast and consensus estimates. Our earnings expectations increase mainly driven by lower assumed credit impairments and better wealth earnings. BMO’s expense growth has been very low relative to peers for a long time. We suspect the benefits from its restructuring programs will fade, that BMO may need to increase initiative spend, or both. We maintain our Sector Perform rating.”
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Analysts reacted a little more cautiously to Bank of Nova Scotia’s (BNS-T) quarterly results released on Tuesday, with some lowering their price targets.
Credit Suisse cut its target price to C$84 from C$85; National Bank of Canada raised its target to C$86 from C$84; RBC raised its target price to C$89 from C$86; Credit Suisse lowered its target to C$84 from C$85, and TD Securities cut its target price to C$87 from C$90.
The average price target among analysts is now $86.43, which is actually down slightly from $86.86 a month ago.
Here’s some of what analysts are saying:
Canaccord Genuity’s Scott Chan: “BNS reported a slight core EPS beat, which was entirely driven by lower-than-expected provision for credit losses. Adjusting for the differential in PCLs, we estimate the bank’s EPS was in line with the Street and our estimate. Thus, we made minimal changes to our forecasts, primarily reflecting this quarter’s results. In FQ3, consolidated adj. PTPP [Pre-Tax Pre-Provision] was down 1% YoY as strong results in Cdn. Banking (+15%) and Global Wealth Management (+18%) were largely offset by Capital Markets (-32%) and International (-2%). We maintain our HOLD rating and target price of $83/sh.”
RBC’s Darko Mihelic: “Q3/21 results were better than expected mainly on good credit performance. Although we have not yet seen a rebound in loan growth and NIM compression continued in the International segment, we continue to expect results to improve once the economy improves and COVID-19 impacts subside in the Pacific Alliance. At current valuations, we think it is worth waiting for and we maintain our Outperform rating.”
Credit Suisse analyst Mike Rizvanovic: “The bank’s adjusted EPS of C$2.01 came in ahead of our estimate of C$1.93 and consensus of C$1.90, although that was entirely driven by lower-than-expected PCLs, resulting in what we view as a low-quality beat as PTPP earnings at the all-bank level declined a bit sequentially. ... While there were some positive signs for the [International Banking] segment in Q3 such as a sequential pick-up in fee-based revenue and continued expense discipline, we were concerned with the sizable 23 bps Q/Q decline in margins. ... Like its peers, BNS remains positive on the credit outlook with the expectation of further PCL recoveries on performing loans. However, as we have noted in the past, we see less capacity for positive PCL surprises for BNS than for peers, owing to a smaller relative reserve build since the onset of the pandemic. ... BNS showed a strong Q/Q uptick in both fee-based revenue and loan balances [in Canadian Banking], which more than offset 3 bps of margin compression. We see further potential upside as higher-spread lending gradually recovers.”
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Canaccord Genuity analyst Doug Taylor downgraded Drone Delivery Canada Corp. (FLT-X) to “hold” from “speculative buy” after disappointing second quarter results.
His price target was also lowered to $1.30 (from $1.75). The average price target among analysts is $1.55.
The company’s second-quarter revenue of $19,000 was well short of Mr. Taylor’s estimate of $1.1 million and down significantly from Q4 and Q1 levels, as short-term contracts were concluded in late Q1 and Q2. Cash operating costs were higher than expected due to an increase in staffing levels, and the reported adjusted EBITDA loss of $3.3 million was worse than Canaccord’s estimate of a $2 million loss.
“Drone Delivery released Q2 results that once again fell short of our expectations as we continue to wait for the company’s business development activities to translate into meaningful revenue. The company maintains a strong balance sheet (cash of $33M), which it is using to invest heavily in its platform. With that said, ongoing delays in the revenue ramp mean a further reduction in our near-term forecasts. ... We believe investors should look for a more concrete demonstration of Drone Delivery’s ability to monetize its platform before adding to positions,” Mr. Taylor said in a note to clients.
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Nordstrom Inc.’s (JWN-N) earnings beat this week wasn’t enough to impress analysts, who expressed disappointment that second-quarter sales were still below pre-pandemic levels.
Quarterly sales more than doubled over the past year, aided in part by Nordstrom’s anniversary sale to get shoppers back in its stores. But growth in sales wasn’t as impressive as some of the company’s retailing peers.
Credit Suisse cut its target price to US$34 from US$39 and JP Morgan cut its target to US$34 from US$39 while downgrading its rating to “underweight” from “neutral”.
The company reported second-quarter earnings per share of 49 cents U.S., well ahead of the Street consensus of 27 cents.
“Despite the headline beat, we’re disappointed with retail revenues [down 6% from 2019 levels] in what we consider the best retail environment in decades with the vast majority of companies posting revenues ahead of pre-COVID levels,” said Credit Suisse analyst Michael Binetti in a note to clients.
“As we’ve looked ahead to the US retail re-opening, our thought was that JWN’s 2021 Anniversary Sale could be one of the biggest events in the sector, but the event was only +1% vs ‘19. Lower store traffic is an issue—more than offsetting digital growth (+24% to ‘19), higher conversion and basket size,” he added.
UBS analysts, meanwhile, are so unimpressed with Nordstrom they recommend investors sell the stock. “We think the Street underestimates the pressure on JWN earnings from share loss as consumers’ migrate to online pureplay channels, retailers with better value-for-money propositions such as Off-Price retailers, and brands’ own channels. We continue to believe many underestimate how difficult it will be for JWN to re-leverage fixed costs. Our $0.80 FY22 EPS estimate is roughly 66% below consensus. We expect continued downward revisions to the sell-side consensus EPS estimates over the coming quarters to push the stock toward our $12 price target,” UBS said in a note to clients.
The average price target among analysts is US$35.53.
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Argus analyst John Staszak downgraded Beyond Meat Inc. (BYND-Q) to a “hold” rating from a “buy”, citing third-quarter revenue guidance of $120-$140 million that was below consensus expectations. Labour shortages and slowing sales to foodservice companies were among negative factors he cited.
On Aug. 5, Beyond Meat posted second quarter revenue of US$149.4 million, up 31.8 per cent from the prior year.
Dunkin’ Donuts recently decided to no longer offer the Beyond Sausage sandwich, he noted. “Moreover, we expect concerns about the Delta variant to have a negative impact on Foodservice sales.”
Argus did not provide a price target for the stock.
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Piper Sandler cut its target price to US$43 from US$51 on Campbell Soup Co (CPB-N) and downgraded its rating to “neutral” from “overweight”.
“Broad exposure to rising commodity prices, especially steel, is becoming a significant risk to Campbell’s fiscal 2022 outlook and weighing on our forecast,” explained analyst Michael S. Lavery in a note to clients.
“Campbell typically has annual calendar contracts for steel, and we have little visibility where calendar year 2022 will land. But the significant rise in the commodity’s price over the past few months adds uncertainty to its 2022 outlook, which we expect it to give when it reports fiscal four quarter EPS. The company historically has had relatively modest price-mix gains in its Americas Simple Meal & Beverages (a 9- year average of +0.5%) segment (similar for total company, too), so offsetting these costs may be difficult,” Mr. Lavery added.
The average analyst target is $49.04.
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In other analyst actions:
Hudbay Minerals Inc (HBM-T): Credit Suisse cuts target price to C$11.50 from C$13
Lundin Mining Corp (LUN-T): Credit Suisse cuts target price to C$11.25 from C$13
Sabina Gold & Silver Corp (SBB-T): National Bank of Canada cuts PT to C$3 from C$3.50
Darcy Keith