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

Desjardins Securities analyst Doug Young warns a rebound for Canadian bank stocks following third-quarter earnings season won’t come quickly.

“No fast pass for this quarter,” he said in a research report released Wednesday titled Stuck in the standby line?.

“Adjusted pre-tax, pre-provision (PTPP) earnings were on average in line with our expectations for the Big 6 banks. End of the day, TD was the winner in our view. Looking forward, as we’re standing in line with sore feet and impatient kids, the expectation of the ride is uplifting, but how long will it take to get there and what might occur along the way? We would argue a lot of bad news is priced in given the group’s valuation discount vs historical levels. However, if you want to go on the big coaster, you can expect to wait—financials are not a late-cycle sector and it’s tough to argue for material multiple expansion right now.”

While remaining “constructive” on the sector over the next 12 months, Mr. Young thinks a series of “lingering” concerns could weigh on stocks: “(1) whether we’re headed into a recession; (2) geopolitical events; (3) supply chain issues; (4) inflationary pressures; and (5) normalizing PCLs. A lot of bad news is priced into bank stocks, with the group trading at a 25-per-cent discount to its historical average on a P/BVPS basis; however, financials are not a late-cycle sector, so it’s tough to argue for material multiple expansion in the near term.”

The analyst downgraded Bank of Nova Scotia (BNS-T) to “hold” from “buy” with an $83 target price, down from $88 and below the $84.68 average on the Street.

“We don’t see a catalyst for the name and there remains a lot of uncertainty in the key LatAm regions in which it operates. That said, with a 5.8-per-cent dividend yield—highest of the group — those holding the stock are getting paid to wait,” he said.

Mr. Young reaffirmed Toronto-Dominion Bank (TD-T) as his top pick in the sector, calling it the clear winner for the quarter.

“We like TD’s higher relative sensitivity to interest rates and lower exposure to capital markets,” he said.

Reiterating a “buy” rating for TD shares, his target remains $104, exceeding the average of $99.74.

In order, the rest of his preferences look like this:

  • Bank of Montreal (BMO-T, “buy”) with a $150 target. Average: $150.29.
  • Royal Bank of Canada (RY-T, “buy”) with a $141 target Average: $137.75.
  • Canadian Western Bank (CWB-T, “buy”) with a $33 target. Average: $33.36.
  • National Bank of Canada (NA-T, “hold”) with a $100 target. Average: $102.67.
  • Bank of Nova Scotia (BNS-T, “hold”) with an $83 target. Average: $84.68.
  • Canadian Imperial Bank of Commerce (CM-T, “hold”) with a $73 target. Average: $76.34.
  • Laurentian Bank of Canada (LB-T, “hold”) with a $41 target. Average: $43.


In his quarterly wrap-up report, CIBC World Markets analyst Paul Holden cut his targets for a group of Canadian bank stocks on Wednesday.

His changes include:

  • Bank of Montreal (BMO-T, “neutral”) to $135 from $143. The average on the Street is $150.29.
  • Bank of Nova Scotia (BNS-T, “neutral”) to $77 from $84. Average: $84.68.
  • Canadian Western Bank (CWB-T, “neutral”) to $27 from $29. Average: $33.36.
  • Laurentian Bank of Canada (LB-T, “neutral”) to $40 from $43. Average: $43.
  • National Bank of Canada (NA-T, “outperformer”) to $100 from $104. Average: $102.67.
  • Royal Bank of Canada (RY-T, “outperformer”) to $140 from $146. Average: $137.75.
  • Toronto-Dominion Bank (TD-T, “neutral”) to $93 from $97. Average: $99.74.


Canaccord Genuity analyst Derek Dley is predicting another “steady” quarter from Dollarama Inc. (DOL-T) when it reports its financial results on Friday before the bell, expecting “strong traffic trends to continue.”

He’s projecting revenue for the Montreal discount retailer’s third quarter of $1.193-billion, up 16 per cent year-over-year and in line with the Street’s estimate of $1.193-billion forecast. His earnings before interest, taxes, depreciation and amortization (EBITDA) forecast of $372-million tops the consensus of $358-million.

“The last quarter saw Dollarama deliver comparable sales growth of 7.3 per cent, helped by an increase in consumer traffic and the introduction of additional price points up till $5.00,” said Mr. Dley. “That said, gross margins compressed approximately 20 basis points year-over-year due to an unfavourable product mix shift associated with higher consumable sales, offset by slightly lower logistic costs due to lower-inventory levels associated with timing of inbound goods shipments.

“Alongside last quarter results, Dollarama provided a look into the current quarter, noting that traffic levels remained strong for the first 5 weeks of Q2/F23, with same store sales trending around 12 per cent on a 3-year stack basis. That said, we note that the company is lapping a noisy quarter in Q2/F22, which was impacted by the ban of sale of non-essential goods in Ontario and other pandemic-related operating restrictions, resulting in comparable sales growth of negative 5.1 per cent. Accordingly, we are forecasting comparable sales growth of 10.0 per cent for the quarter.”

Mr. Dley expects Dollarama’s product mix to remain skewed toward consumables, “which typically have a relatively lower-margin profile.”

“Given the persistently high levels of inflation seen thus far, we believe this trend is likely to continue as consumers look to trade down some part of their shopping away from grocery stores,” he said. “Further, we see some pressure from the logistics side of things as the company’s inventory position starts to normalize from a leaner Q1/F23 and activity levels in the company’s DCs start rebounding. That said, we believe this will be somewhat offset by the continued rollout of products at higher price points and are accordingly forecasting gross margins of 43.2 per cent, down 20 basis points year-over-year

Maintaining a “hold” recommendation for Dollarama shares, Mr. Dley raised his target to $80 from $72. The average on the Street is $82.69, according to Refinitiv data.

“While we still believe in Dollarama’s long-term growth profile — a result of its lack of meaningful competition, industry-leading profitability and free cash flow generation, and healthy ROIC — we believe the shares are appropriately valued given the context of its near- to medium-term earnings growth outlook,” he said.


Analysts at National Bank added Killam Apartment REIT (KMP.UN-T) to the firm’s “Dividend All Stars” portfolio for the second half of 2022.

The portfolio contains 21 equities deemed to its “top sustainable yield ideas” with an eye toward three investment criteria: “1. Dividend/distribution yield of approximately 4 per cent or greater; 2. Low risk of the current payout proving unsustainable/dividends ideally growing; and 3. Generally positive bias regarding the prospects of the company and/or share price.”

Since this year’s portfolio was unveiled on Feb. 15, it has returned income of 2.94 per cent and realized an average price return of negative 2.75 per cent for a total return of almost 0.2 per cent through Aug. 23 versus a decline of 5.2 per cent for S&P/TSX Composite Index.

“The purpose of the NBF Dividend All-Stars portfolio is to provide income-seeking investors with high quality companies that NBF Analysts generally hold a positive view towards,” the analyst said. “The group’s average 5.5-per-cent yield is attractive despite increases in interest rates (10-year Canada yield at 3 per cent vs. 1.9 per cent in February 2022) and supported by an elevated average payout measure yield. Seven companies increased dividends since the last publication (February 2022) including Algonquin Power & Utilities, Capital Power, CIBC, CT REIT, Exchange Income, Mullen Group and Topaz Energy. Dividend increases have continued to significantly outpace reductions; including the first half of 2022, there have been 139 dividend increases versus 11 reductions (of which, the last six occurred during the COVID-19 pandemic) since the initial 2012 publication.”

“As of this update, the average yield of All-Star equities is elevated at 5.5 per cent and payout easily funded for each with most having the capacity to grow dividends/distributions. The average payout ratio of the portfolio is 56 per cent and the average payout measure (AFFO, FCF, etc.) yield is 12 per cent.”

The analysts removed a pair of equities from the portfolio:

  • European Residential REIT (ERE-UN-T), citing a “deteriorated near-to-medium term outlook in the EU.”
  • Lundin Mining Corp. (LUN-T), noting its “recent transaction could impact FCF and distribution sustainability.”

Analyst Matt Kornack has an “underweight” recommendation and $20.50 target for Killam units. The average on the Street is $21.89.

Touted for investors “seeking elevated, stable income from high quality companies,” the portfolio currently looks like this:

  • Alaris Equity Partners Income Trust (AD.UN-T, “outperform”) with a $23.50 target. Average: $22.25.
  • Algonquin Power & Utilities Corp. (AQN-N/AQN-T, “sector perform”) with a US$16 target. Average: US$16.33.
  • Allied Properties REIT (AP.UN-T, “outperform”) with a $36.50 target. Average: $42.30.
  • AltaGas Ltd. (ALA-T, “outperform”) with a $33 target. Average: $34.42.
  • BCE Inc. (BCE-T, “outperform”) with a $71 target. Average: $68.60.
  • Capital Power Corp. (CPX-T, “outperform”) with a $52 target. Average: $50.81.
  • Choice Properties REIT (CHP.UN-T, “sector perform”) with a $14 target. Average: $14.94.
  • Canadian Imperial Bank of Commerce (CM-T, “outperform”) with an $84 target. Average: $76.34.
  • CT REIT (CRT.UN-T, “outperform”) with an $18 target. Average: $17.79.
  • Dexterra Group Inc. (DXT-T, “outperform”) with a $10 target. Average: $9.56.
  • Dream Industrial REIT (DIR.UN-T, “outperform”) with a $14.25 target. Average: $15.98.
  • DRI Healthcare Trust (DHT.U-T, “outperform”) with a US$9.75 target. Average: $14.50 (Canadian).
  • Enbridge Inc. (ENB-T, “outperform”) with a $61 target. Average: $60.55.
  • Exchange Income Corp. (EIF-T, “outperform”) with a $60 target. Average: $61.64.
  • IGM Financial Inc. (IGM-T, “outperform”) with a $48 target. Average: $42.86.
  • Keyera Corp. (KEY-T, “outperform”) with a $38 target. Average: $36.46.
  • KP Tissue Inc. (KPT-T, “sector perform”) with a $9.50 target. Average: $10.50.
  • Mullen Group Ltd. (MTL-T, “outperform”) with an $18 target. Average: $17.40.
  • Topaz Energy Corp. (TPZ-T, “outperform”) with a $30 target. Average: $29.13.
  • Transcontinental Inc. (TCL.A-T, “outperform”) with a $23 target. Average: $21.83.


In other analyst actions:

* Emphasizing it’s the only pure silver producer listed on the TSX, Raymond James analyst Craig Stanley initiated coverage of Aya Gold & Silver Inc. (AYA-T) with an “outperform” rating and $9 target. The average on the Street is $11.80.

“Aya’s flagship asset is the Zgounder Silver Mine that was historically mismanaged and neglected. The turnaround under Mr. La Salle and his team has been impressive,” he said.

* BMO Nesbitt Burns analyst Peter Sklar lowered his ABC Technologies Holdings Inc. (ABCT-T) target to $4.50 from $7, lower than the $6.75 average, with a “market perform” rating.

“ABC reported disappointing adjusted Q4/22 EBITDA of $15.2 million versus our estimate of $46.1 million,” said Mr. Sklar. “We have particularly focused on the quarter-over-quarter decline in adjusted EBITDA, which declined from $30.3 million in Q3/22 to $15.2 million in Q4/22. This was a substantial financial underperformance relative to other Canadian auto parts companies. Our concern is that ABC has not been as successful as other auto parts companies in recovering from customers the high level of cost inflation which it had been incurring.”

* BMO’s Brian Quast lowered his target for Calibre Mining Corp. (CXB-T) to $1.80 from $1.90 with an “outperform” rating. The average is $2.28.

“CXB has experienced an equipment failure at their Libertad complex. As a result, management is expecting approximately 15 koz of gold sales to be pushed from Q3/22 to Q4/22. Our Q3/22 EPS estimate has been adjusted down from US$0.05/ sh to US$0.01/sh and our cost estimates have been raised for the quarter. We expect stronger Q4/22 results will offset these unfavourable changes. Annual production guidance remains between 220-235 koz as mining and processing continues. Upon updating our model, the target price has been lowered,” he said.

* Desjardins Securities’ John Sclodnick trimmed his Prime Mining Corp. (PRYM-X) target to $5.25 from $6.75, keeping a “buy” rating. The average is $5.94.

“We updated our estimates to factor in the drill results reported so far from Prime’s Phase 2 drill program into our scenario analysis which drives our NAV,” he said. “We also increased our capex estimates for each scenario to reflect the inflationary environment, and increased our equity dilution assumptions to better reflect current trading ranges. Despite our more conservative estimates, our $5.25 target (from $6.75) continues to show a robust potential return, and PRYM remains our favourite exploration story.”

* TD Securities’ Vince Valentini cut his Rogers Communications Inc. (RCI.B-T) target to $81 from $83 with an “action list buy” recommendation. The average on the Street is $74.83.

Follow David Leeder on Twitter: @daveleederOpens in a new window

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