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

Desjardins Securities analyst Doug Young remains bullish on Canadian bank stocks, seeing a favourable backdrop heading into first-quarter 2022 earnings season.

Is there life after COVID-19? The consensus from recent client meetings would suggest yes, investors are looking past recent hiccups,” he said in a research report released Wednesday.

Mr. Young is projecting a 5-per-cent year-over-year increase in cash earnings per share on average for the Big 6 banks. However, citing variances in reporting allowances for credit losses (ACLs) under IFRS 9, and “the uncertainty around the Omicron variant,” he said his focus will be pre-tax, pre-provision earnings, which he expects to be flat.

“To be clear, we would view this as a positive outcome for the group. At the all-bank level, we will be focused on NIMs, loan growth and expense trends. More importantly, we will be more focused on whether management outlooks have changed,” he said.

“While we expect decent pre-tax, pre-provision earnings growth in Canadian P&C banking and wealth management, at the consolidated level we believe this was offset by a significant decline in capital markets, mostly due to a tough comp. Credit? Anyone’s guess. We sure have not seen any deterioration of late.”

After tweaking his financial estimates, Mr. Young raised his target prices for shares of seven of the eight banks in his coverage universe.

In other of preference, his changes were:

  • Toronto-Dominion Bank (TD-T, “buy”) to $110 from $107. The average on the Street is $106.83, according to Refinitiv data.
  • Bank of Nova Scotia (BNS-T, “buy”) to $95 from $90. Average: $95.66.
  • Bank of Montreal (BMO-T, “buy”) to $157 from $150. Average: $159.11.
  • Canadian Western Bank (CWB-T, “buy”) to $44 from $43. Average: $42.91.
  • Royal Bank of Canada (RY-T, “buy”) to $146 from $143. Average: $146.16.
  • National Bank of Canada (NA-T, “hold”) to $106 from $105. Average: $107
  • Canadian Imperial Bank of Commerce (CM-T, “hold”) to $162 from $157. Average: $167.09.

His target for Laurentian Bank of Canada (LB-T, “hold”), No. 8 in his pecking order, remains $48, exceeding the consensus by $1.

“The stocks outperformed in FY21 on the back of significantly better-than-anticipated credit results and an improved economic outlook,” said Mr. Young. “With the economic recovery well underway and the potential for earlier and faster rate hikes given higher inflation, we believe the set-up is good for the banks in the coming year. That said, there are some near-term headwinds such as normalizing capital markets activity and the potential for a cooling housing market. In addition, cash EPS will face a tough year-over-year comp as FY21 included significant performing loan ACL releases, which we expect to normalize over the course of the year. Also, COVID-19 risks have clearly not disappeared.”


Spin Master Corp.’s (TOY-T) preliminary fourth-quarter 2022 results “show strength across segments,” according to Canaccord Genuity analyst Luke Hannan.

Coupled with its “undemanding valuation,” he raised his rating for the Toronto-based toymaker to “buy” from a “hold” recommendation.

On Tuesday before the bell, it announced total revenue for the quarter of $621-million, up 27 per cent year-over-year and topping both Mr. Hannan’s estimate of $547-million and the consensus projection on the Street of $518-million.

Concurrently, the company reiterated its full-year EBITDA guidance, continuing to expect margins to come in at the high end of its expectations.

“Spin Master’s preliminary Q4/21 results significantly exceeded both our and consensus’ expectations from a top-line perspective, while the unchanged 2021 margin guidance suggests the company has been able to navigate supply chain headwinds with relative ease,” said Mr. Hannan. “Looking ahead at 2022, we see upside risk to consensus estimates owing to (1) Spin Master’s digital properties (in particular Toca Boca) augmenting the company’s near- and long-term top-line growth profile and margins, and (2) acquisitions, given the company’s deep history of M&A and its clean balance sheet (we estimate the company finished 2021 with roughly $500-million in cash and no debt).”

After raising his 2022 sales and earnings expectations, the analyst bumped up his target for Spin Master shares to $56, matching the average on the Street, from $53.

“Given Spin Master’s ability to create coveted toy brands and verticals, coupled with the potential for the company to undertake accretive acquisitions, we believe the shares are undervalued at current levels,” he said.

Others making changes include:

* RBC’s Sabahat Khan to $62 from $61 with an “outperform” rating.

“Following the strong preliminary Q4 GPS and revenue results, we reaffirm our constructive view on Spin Master Corp. We have revised our Adjusted EBITDA forecasts higher (reflecting higher revenue & higher margins for 2021 and 2022), and we still see potential for upside to full-year 2022 consensus estimates.”

* Scotia Capital’s George Doumet to $55 from $52 with a “sector perform” rating.

“2021 was the year where we saw explosive top-line growth and strong management of external pressures including labour, freight, packaging, and input costs,” said Mr. Doumet. “Looking at 2022, we could see some tough comp headwinds and at current valuation (shares trading at 9.2 times 2022 estimated EBITDA, or a 1.2-times discount to Mattel) and in the absence of more material b/s deployment, we see limited upside over the NTM [next 12 months].”

* National Bank’s Adam Shine to $63 from $61 with an “outperform” rating.


In the wake of its US$270-million acquisition of Mid-Am Building Supply Inc., National Bank Financial analyst Zachary Evershed thinks the valuation discount on shares of Hardwoods Distribution Inc. (HDI-T) is “becoming egregious.”

“The substantial return to our target on what are likely overly bearish forecasts highlights once again that HDI’s trading multiple continues to cling to historical valuation ranges, flying in the face of the significant scale, product diversification and additional sales channels added in the last year,” he said. “We reiterate our Outperform rating given the company’s strong cash flow yield, supportive long-term industry tailwinds, and robust M&A program. As HDI’s growing size begins putting the story in front of fresh eyes, we believe it is only a matter of time until the stock re-rates to multiples that reflect the company’s performance, rather than its history”

Mr. Evershed the deal for Missouri-based Mid-Am, announced Monday and expected to be financed by an expansion of Hardwoods’ existing credit facility and the proceeds of a $101-million equity raise in December, increases the company’s share of the “value-add door subsegment.”

“Mid-Am is a leading wholesale distributor of building products in the U.S. Midwest, servicing pro dealers with a portfolio including doors, millwork, and other diversified building materials,” he said. “The transaction is highly complementary to HDI, increasing exposure to generally more lucrative products & services. In addition to obvious supply chain cost synergies, we see substantial revenue synergy opportunities between customer lists, and as HDI gains scale and can approach the pro dealer market in a national partner capacity.”

After raising his revenue and earnings expectations to incorporate Mid-Am’s 15-per-cent earnings per share accretion in 2022, Mr. Evershed raised his target for Hardwoods Distribution shares to $79 from $75.50 with his “outperform” recommendation. The average on the Street is $71.20.

“We also take a conservative approach to synergies, factoring in only minimal realization of cross-sell to our 2023e organic growth, and holding off on modeling cost synergies at all, for the moment,” he said. “We believe both volumes and pricing in 2022 should remain strong given the brisk macro tailwinds blowing, and raise our Q4/21 profitability estimates given peer results, though we remain wary of the impact of Omicron later in December.”

Elsewhere, Canaccord Genuity analyst Yuri Lynk raised his target to $76 from $74 with a “buy” rating, while Acumen Capital’s Nick Corcoran bumped up his target to $75 from $70 also with a “buy” recommendation.

“We view the pending acquisition of MidAm as positive. Mid-Am is the second significant acquisition by HDI in six months, providing access to customers and markets in the U.S. Midwest that the existing operations previously did not reach and increasing the proportion of sales focused on Pro Dealers,” said Mr. Corcoran.


Seeing it provide “very limited value” to investors given its “exceptionally” high leverage, National Bank Financial analyst Endri Leno lowered Akumin Inc. (AKU-Q, AKU-T) to “underperform” from “sector perform” on Wednesday.

“In an eventful 2021, AKU’s accounting challenges seem to have been addressed while the challenges of operating [recently acquired Alliance Healthcare Services Inc.] lie ahead and frame our expectations for 2022,” he said. “Despite both AKU and Alliance operating in medical imaging, they occupy non-overlapping segments as legacy AKU operated independent imaging centres whereas Alliance primarily serves (80 per cent of its sites) as a provider of contracted outsourced mobile imaging services to hospitals. As such, Alliance’s contracts are prone to various pressures, which are reflected in its results — we estimate a 2014-2019 EBITDA CAGR [earnings before interest, taxes, depreciation and amortization] of negative 1 per cent and a 2014-2022 EBITDA CAGR of negative 3.5 per cent (at AKU’s mid-point 2022 guidance).”

Mr. Leno cut his 2022 forecast to align with the guidance for the Plantation, Fla.-based provider of freestanding, fixed-site outpatient diagnostic imaging services. He’s now projecting revenue of US$763.6-million, down 2 per cent from his previous estimate of $782.3-million. His adjusted earnings per share projection dropped 146 per cent to a loss of 9 US cents (from 20 US cents).

“While, in our view, revenue guidance is achievable (we estimated 5-per-cent growth for AKU legacy and 1 per cent for Alliance), we have a lower degree of confidence in EBITDA due to, but not only, the tight U.S healthcare labour markets,” he said.

Mr. Leno’s target for Akumin shares dipped to 75 US cents from US$2. The average is US$4.13.


Following the release of mixed second-quarter results, BMO Nesbitt Burns analyst Thanos Moschopoulos continues to see “significant” upside to shares of Dye & Durham (DND-T), citing the recent multiple compression across the tech sector.

After the bell on Tuesday, the Toronto-based legal software company reported revenue of $109.6-million, missing the Street’s forecast of $113.3-million. Earnings before interest, taxes, depreciation and amortization (EBITDA) of $62.6-million topped the consensus projection of $60.9-million.

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“DND attributed the quarter-over-quarter revenue decline to a slower real estate market—partly due to seasonality, and partly due to some year-over-year weakness in Canada and the U.K.,” said Mr. Moschopoulos. “DND has been able to mitigate the impact through cost actions and price increases (we believe this might ultimately lead to some increase in churn, although DND hasn’t seen this to date).”

“DND reiterated its FY2023 target of a minimum of $350-million in EBITDA, excluding the Link acquisition, noting that it expects this target to be achievable regardless of the outcome of the ongoing U.K. anti-trust review of TM Group. The regulator is expected to publish its final report by early June.”

Though he expects it $3.2-billion acquisition of Link Administration Holdings Ltd. to close as planned, Mr. Moschopoulos trimmed his target multiple for its shares “in light of a potential deal risk.” His target is now $53, down from $60 and below the $63 average on the Street, with an “outperform” rating.

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Scotia Capital analyst Orest Wowkodaw expects “very robust” fourth-quarter results “driven by elevated commodity prices.”

“More important, we anticipate investors to focus on the release of maiden 2022 guidance,” he said in a research report released Wednesday. “In our view, higher than anticipated 2022 opex and capex guidance could weigh on near-term sentiment despite very robust margins. We anticipate few company specific catalysts.”

With his estimates largely in-line with the Street’s forecast, Mr. Wowkodaw made five target price adjustments to stocks in his coverage universe.

He raised his Altius Minerals Corp. (ALS-T, “sector perform”) target to $19 from $18, below the $21.57 average.

Stocks with lower targets are:

  • Freeport-McMoRan Inc. (FCX-N, “sector outperform”) to US$47 from US$48. Average: US$43.95.
  • First Quantum Minerals Ltd. (FM-T, “sector outperform”) to $43 from $44. Average: $36.44.
  • Teck Resources Ltd. (TECK.B-T, “sector outperform”) to $53 from $54. Average: $45.92.
  • Trevali Mining Corp. (TV-T, “sector underperform”) to $1.40 from $2. Average: $2.63.


In other analyst actions:

* Following Tuesday’s release of its fourth-quarter results and dividend raise, a group of analysts raised their targets for Imperial Oil Ltd. (IMO-T). Those making changes include: Scotia Capital’s Jason Bouvier to $59 from $56 with a “sector outperform” rating; ATB Capital Markets’ Patrick O’Rourke to $53 from $48 with a “sector perform” rating and BMO’s Randy Ollenberger to $60 from $55 with a “market perform” rating. The average on the Street is $53.32.

“Imperial Oil delivered better-than-expected results primarily due to stronger realized prices and higher production,” said Mr. Ollenberger. “The company announced a 26-per-cent increase to its base dividend and management indicated that they are continuing to consider a substantial issuance bid, which we think could be announced prior to its upcoming investor day.

“Imperial is well positioned to return large amounts of cash to shareholders; however, we view someof its peers as being more attractively valued.”

* Emphasizing its “deploying capital towards significant share repurchases,” National Bank Financial Vishal Shreedhar raised his target for Alimentation Couche-Tard Inc. (ATD-T) to $55 from $54, maintaining an “outperform” rating. The average is $58.01.

“We believe ATD’s strong balance sheet and free cash generation can support this program, yet still leave room for future acquisitions,” he said. “For example, full execution of this program at the current share price, would take F2023 net debt to EBITDA to 1.7 times from 1.1 times our prior estimate), which is well below management’s long-term targeted debt level of 2.25 times. Management also noted that the M&A strategy remains the priority and ATD can reduce or pause share repurchases in the future should sizable opportunities become actionable.”

“Our positive view on ATD is based on the expectation that the company will drive growth over several years through optimizing its network, delivering positive merchandising performance and executing on further acquisitions.”

* National Bank’s Jaeme Gloyn trimmed his Fiera Capital Corp. (FSZ-T) target to $11.50, matching the consensus, from $12 with a “sector perform” rating.

“The soft start for equity markets in 2022 (SPTSX down 1 per cent and SP500 down 4 per cent) largely offsets the AUM [assets under management] beat delivered in Q4 2022,” he said. “We maintain our Sector Perform rating as we look for confirming signals that the management’s global operating model will deliver the intended results on both AUM growth and EBITDA margin expansion targets.”

* Expecting supply chain issues to remain a headwind in 2022, National Bank’s Rupert Merer reduced his financial estimates for The Lion Electric Co. (LEV-N, LEV-T), leading him to trim his target for its shares to US$13 from US$14 with an “outperform” rating. The average is US$17.18.

“Intensifying supply chain issues in H2′21 have led to year-over-year declines in unit sales across bus manufacturers (i.e., Blue Bird Corp. (NASDAQ: BLBD, not rated) down 33 per cent year-over-year and NFI Group (TSX: NFI, “outperform”, PT: $26.00/sh) down 43 per cent year-over-year for CY’Q3),” he said. “LEV’s shortage of non-critical parts prevented the completion and delivery of 50 units in Q3. Inventory volumes growing across the sector could point to a rapid recovery as critical parts are received, but more challenges could lie ahead.”

* National Bank’s Dan Payne raised his Headwater Exploration Inc. (HWX-T) target to $9 from $7.75 with an “outperform” rating, while Desjardins Securities’ Chris MacCulloch bumped up his target to $9 from $8 with a “buy” recommendation and BMO’s Ray Kwan also moved his target to $9 from $8 with an “outperform” rating. The average is $7.96.

“We are bumping our target ... following the release of encouraging Clearwater exploration results at Marten Hills West and the company’s acquisition of an additional 75 net sections of land,” said Mr. MacCulloch. “Although the stock carries a premium multiple reflecting its early stage of development and the optionality provided by $90-million of financial dry powder, we see clear visibility toward capital returns, with the eventual timing dictated by exploration results and potential M&A opportunities.”

* In response to its US$49.2-million deal for Vitalyst, a Philadelphia-based technology support services company, Desjardins Securities analyst Kevin Krishnaratne raised his target for shares of Alithya Group Inc. (ALYA-T) to $5.25, topping the $4.63 average, from $4.50 with a “buy” rating. Others making changes include: Laurentian Bank Securities’ Nick Agostino to $5 from $4.25 with a “buy” rating and Echelon Capital’s Amr Ezzat to $5.50 from $4.75 with a “buy” recommendation.

“ALYA kicks off 2022 with a deal for an award-winning Microsoft Partner in the enterprise learning space, which we view as quite attractive at less-than 5 times EBITDA (CY21) and fits very well alongside ALYA’s strength in deploying ERP/EPM/cloud solutions while increasing its mix of U.S. revenue to approximately 40 per cent,” Mr. Krishnaratne said. “Our target increases ... on initial model revisions, which we view as conservative.”

* TD Securities analyst Graham Ryding cut his target for TMX Group Ltd. (X-T) to $155 from $160, keeping a “buy” rating. The average is $150.71.

* In a fourth-quarter earnings preview, Canaccord Genuity analyst Scott Chan cut his targets for CI Financial Corp. (CIX-T, “buy”) to $32 from $35 and IGM Financial Inc. (IGM-T, “buy”) to $55 from $58, while he raised his Onex Corp. (ONEX-T, “buy”) target to $114 from $113. The average targets on the Street are $32.89, $56.13 and $120, respectively.

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