Inside the Market’s roundup of some of today’s key analyst actions
TD Cowen analyst Greg Barnes upgraded First Quantum Minerals Ltd (FM-T) to “buy” from “hold”, even as he trimmed his price target following weaker-than-expected first quarter financial results.
The upgrade reflects an improved return to his target price following share-price weakness heading into the quarterly results.
First Quantum reported first quarter adjusted EPS of $0.11, below TD and consensus at $0.14. Adjusted EBITDA was reported at $518-millionn, well below the consensus estimate of $580-million.
“Q1/23 was expected to be a weak quarter from a production perspective, given the protracted stability agreement discussions in Panama (and the knock-on impact on production) and due to the rainy season in Zambia, which typically challenges production at both Sentinel and Kansanshi,” Mr. Barnes commented in a note to clients.
“That being said, Sentinel had a much worse quarter than what we had expected, and was largely responsible for the production and earnings miss relative to our forecasts.”
Sentinel reported copper production of 36,232 tonnes, 37,177 tonnes lower than in the fourth quarter.
“With the Cobre Panama stability agreement resolved and the company’s weakest production quarter of the year behind it, we expect that investor attention will refocus on FM’s high leverage to copper and its improving copper production over the next four years (compounded annual growth rate of about 4%) as the Cobre Panama project ramps up and the Kansanshi S3 expansion is completed in 2025,” he added.
His price target was lowered by C$1 to C$39.
Elsewhere, BMO raised its target price to C$32 from C$30.
The average analyst price target is C$33.18, according to Refinitiv data.
Canaccord Genuity analyst Luke Hannan has lowered his target price on AutoCanada Inc. (ACQ-T) ahead of the company’s first quarter earnings, citing concerns with increased floorplan financing costs for dealers because of higher interest rates.
AutoCanada, one of the largest and only publicly traded multi-location automobile dealership groups in Canada, is scheduled to report its results on May 3. For the quarter, Canaccord forecasts revenue of $1.426-billion, a 6.2% increase YoY and slightly above consensus’ $1.416-billion. Canaccord also forecasts adjusted EBITDA of $55 million and EPS of $0.65, both in-line with consensus estimates.
“Higher interest rates remain the most formidable headwind in the automotive retail sector today. Not only have they worsened consumer affordability, but they have also increased floorplan financing costs for dealers, increasing the burden on their cash flows,” Mr. Hannan said in a note to clients.
But the analyst added that there are some “small” silver linings: “(1) scarce overall inventory has led to used vehicle values in the Canadian market not falling as sharply as some may have thought, despite the macro headwinds, which coupled with a more conservative corporate mark-to-market policy on used vehicles should translate into fewer/smaller write-downs for ACQ and (2) according to DesRosiers Automotive Consultants, Canadian new vehicle sales are up 5.2% YoY for Q1/23. More importantly, considering their outsized contribution to dealer profits, peers Lithia Motors, Inc. and AutoNation, Inc. each noted last week with their Q1/23 results that their aftermarket and F&I Finance and Insurance businesses remain robust, a trend we also expect for ACQ. Accordingly, we forecast YoY gross profit growth of 12.4% and 9.9% for ACQ’s PS&CR and F&I segments, respectively, providing an offset to the decline in front-end margins.”
Mr. Hannan reiterated a “buy” rating and lowered his target price to C$26 from C$32.
The average analyst target is C$35.31.
Desjardins Securities analyst Lorne Kalmar has raised his price target on Choice Properties Real Estate Investment Trust (CHP-UN-T) following what he termed as “solid” quarterly results that were underpinned by growing demand for its retail assets and “robust” industrial fundamentals.
“The REIT executed on capital recycling and demonstrated the value of its relationship with Loblaw,” Mr. Kalmar said in a note to clients, adding that his financial estimates for the REIT are largely unchanged following the results that were largely in line with expectations.
“We continue to view CHP as a high-quality name with a defensive, in-demand portfolio deserving of its premium valuation,” he said.
Choice Properties invests in commercial retail, industrial, mixed-use and residential properties across Canada. The company’s portfolio primarily consists of shopping centers anchored by supermarkets and stand-alone supermarkets. Choice Properties generate the majority of revenue from leasing properties to its tenants. The company’s principal tenant, Loblaw Companies, contributes the vast majority of the total rent.
The REIT is a landlord to some Bed Bath & Beyond and Nordstrom stores - both of which are closing locations in Canada - but Mr. Kalmar doesn’t see that as a major headwind for the company as new tenants are in the works.
“Despite concentrated tenant failures within the portfolio (Bed Bath & Beyond, Nordstrom, David’s Bridal), demand remains strong, particularly among value retail, QSR, medical/personal services and pet retailers. Three of four Bed Bath & Beyond locations within its portfolio have been assigned and CHP is currently in negotiations to re-lease the last location. The lone Nordstrom in its portfolio is expected to be vacated in July and CHP has received strong interest from several retailers for the entire space,” the analyst said.
Mr. Kalmar increased his price target to C$16.50 from C$16 and maintained a “buy” rating.
The average analyst price target is C$15.88.
Aecon Group Inc.’s (ARE-T) quarterly results came in shy of the Street consensus, but Raymond James analyst Frederic Bastien isn’t deterred, believing the stock has considerable upside given how cheaply it’s trading.
Aecon Group is Canada’s largest publicly traded construction firm. In March, it sold a minority interest in Bermuda Skyport and divested its Aecon Transportation East business.
Adjusted EBITDA of $25 million in its first quarter was below consensus of $27 million but still better than Mr. Bastien’s forecasts.
“On the back of two value-surfacing transactions last month, Aecon Group is well positioned to see through its challenging fixed-price work, address its maturing convertible debentures, and pursue new avenues for growth,” Mr. Bastien said in a note.
“With the impending close of these deals and the fact the first quarter is the seasonally weakest of the year, we would expect investors to look beyond the modest 1Q23 EBITDA miss. We still see our Outperform recommendation as appropriate for a firm that is miles ahead of the competition when it comes to sustainable construction, and trades well below its intrinsic value.”
He maintained a C$20 price target on the stock. The average analyst target is C$16.48.
West Fraser Timber Co. Ltd.’s (WFG-T) latest quarterly earnings was a miss relative to Street expectations, but Raymond James analyst Daryl Swetlishoff sees tighter forest products markets on tap for the second half of this year and is urging investors to buy the dip in the stock following recent price weakness.
His price target remains at $145 per share. The average price target is $103.79
“The largest, most liquid stock in our coverage universe with attractive product and geographic exposure, West Fraser is a go to for investors seeking building products exposure,” Mr. Swetlishoff said in a note. “Inventory write down impacts and weak quarterly OSB (oriented strand board) prices drove an adj. EBITDA miss of $71 mln (vs. consensus at $103 mln) though adj. lumber earnings turned positive on sequential cost improvements. Net cash levels roughly halved q/q coming in at US$309 mln; however, we highlight the bulk of this is driven by Western Canadian inventory builds — which typically reverse in the back half of the year.”
“While lumber and OSB seasonality has undeniably been impacted by elevated railcar velocity, excess Euro supply and extended winter weather, we are encouraged with the directionally positive trends reported in building materials markets of late. ... We expect commodity risk lies on the upside — particularly into 2H23 when Euro offshore supply dries up at US ports. Further, channel checks indicate US housing takeaways remain at much better than expected levels (vs. what industry experts had expected a few months ago), with homebuilders starting to raise prices again creating a more supportive margin backdrop. Similarly, we expect building materials margins are now past trough levels, as our expectation for improved 2H23 pricing coincides with moderating cash costs across North American lumber baskets. Given our supportive commodity outlook, we see an intriguing risk reward profile in the shares, trading at 3.9x 2024 EV/EBITDA vs. historical cycle bottom valuations at ~8x. We highlight 46% upside to our target and recommend investors to buy the print as a combination of reduced Euro offshore supply and additional BC production curtailments (once log decks deplete mid June) backstop a compelling backdrop across the sector into the back half of the year.”
Desjardins Securities analyst Jerome Dubreuil says investors should stay on the sidelines even after Rogers Communications Inc.’s (RCI-B-T) first quarter earnings beat Wednesday morning because of the risks associated with the company integrating with Shaw Communications. The Shaw transaction was not concluded until after the first quarter.
Rogers reported strong first quarter results in terms of both financials and subscribers, the analyst noted. Plus, the company reiterated its 2023 guidance, “which is encouraging after the mixed net additions outlook provided by AT&T recently,” he added.
First quarter consolidated revenue of C$3.84-billion was above consensus of C$3.79-billion. Adjusted EBITDA of C$1.65-billion was also ahead of consensus of C$1.60-billion, and up 7% year over year. Adjusted EPS of C$1.09 beat consensus of C$0.96. Free cash flow of C$370-million beat expectations of C$338-million, even though capex of C$892-million was above consensus of C$856-million.
Wireless postpaid net additions of 95,000 easily beat consensus of 72,000 and were up 44% year over year. “This could possibly be the best performance in the industry in 1Q,” Mr. Dubreuil commented.
The analyst maintained a “hold” rating and C$68 price target on Rogers shares.
“Despite the strong performance in the quarter, we remain on the sidelines at this point as we believe the integration risk is not fully reflected in the stock’s relative valuation,” he concluded.
In other analyst actions:
Overactive Media Corp (OAM-X): TD Securities cuts to “hold” from “speculative buy” and cuts target price to C$0.2 from C$0.95. It cited a tough macroeconomic environment. Also, Cormark Securities cut its target price to C$0.70 from C$1.
Lithium Ionic Corp (LTH-X): Stifel GMP starts with speculative buy rating; target C$5
Tesla Inc (TSLA-Q): Jefferies cuts to hold from buy; cuts target price to US$185 from US$230
Apple Inc (AAPL-Q): Deutsche Bank raises target price to US$170 from US$160; Barclays raises target price to $149 from $145
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