Inside the Market’s roundup of some of today’s key analyst actions
Several analysts have lowered their price targets on Canadian National Railway Co. (CNR-T) after the company reported weaker-than-expected second-quarter results after the bell on Tuesday and reduced its guidance.
The changes were relatively modest: Barclays cut its target price to C$160 from C$165; CIBC cut its target price to C$175 from C$177; National Bank of Canada cut its target to C$171 from C$173; RBC cut its target to C$172 from C$174; Desjardins Securities cut its target to C$181 from C$184; BMO cut its target to C$175 from C$177 and Raymond James cut its target to C$180 from C$190.
These stock targets still represent considerable upside for CN shares over the next 12 months. The average analyst target is now C$164.14, according to Refinitiv Eikon data. The stock closed at C$156.38 in Toronto on Tuesday.
CN’s second quarter adjusted EPS of $1.76 was down 8.8% from a year ago, and modestly below the Street’s estimate of $1.79. The railway’s management suggested recent wildfires reduced the earnings by 7 cents per share.
Desjardins Securities analyst Benoit Poirier said he sees “more downside than upside” to CN’s 2023 operational targets but added that he remains bullish on the stock over the long term. He rates the stock a “buy”.
CN now expects 2023 adjusted fully diluted EPS growth to be flat to slightly negative vs. the C$7.46 reported in 2022. According to Mr. Poirier, this implies EPS of C$7.31, which is below what the consensus had been prior to Tuesday’s results, at C$7.64.
“Excluding the negative impact of externalities (port strike, wildfires and flooding)... the original guidance implied an uptick/recovery in volumes in the second half of the year, but management now believes that most of this will be pushed out to 2024 (citing comments from customers who are expecting a weaker 3Q/4Q, along with softness in intermodal and forest products),” Mr. Poirier said in a note.
“Additionally, the Canadian grain crop is now expected to be below its three-year average (vs previous guidance of in line) and the US grain crop is expected to be above its three-year average (vs previous guidance of in line). We view this as a negative read-through for grain carloads as Canadian grain makes up about 65–70% of grain movements at CN vs only about 30–35% for US grain,” he said.
“Bottom line, we believe it will be difficult for CN to achieve positive RTM [Revenue Ton Mile] growth for the year ... given continued operating question marks (possibility of more wildfires, length of time to recover from the West Coast strike and main line flooding in Halifax) and clouded visibility on 3Q/4Q carloads across several segments,” he said.
But on the upside, Mr. Poirier said CN’s balance sheet remains healthy and discretionary capital expenditures could be re-evaluated if volume weakness continues.
“We have added confidence in CEO Tracy Robinson and the management team and see further upside on OR improvement following COO Ed Harris’s appointment. In addition, CN has more optionality and dry powder at its disposal for increased shareholder returns vs other railroads,” Mr. Poirier added.
This upbeat assessment of CN’s longer-term potential was echoed by BMO analyst Fadi Chamoun, who is keeping an “outperform” rating on the stock.
“The network is running efficiently, and we see CNR as being well positioned for an eventual recovery in demand. With hiring slowing and headcount being better aligned with softer volume, we sense that there is potential for better cost performance in coming quarters,” the BMO analyst said, noting CN reaffirmed its full-year buyback guidance of about C$4 billion in shares.
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First Quantum Minerals Ltd. (FM-T) reported earnings that missed the Street consensus, but some analysts have nevertheless raised their price targets on the copper miner.
CIBC raised its target price to C$34 from C$29 and Jefferies raised its target price to C$45 from C$38.
CIBC analyst Bryce Adams linked his higher price target to the fact that First Quantum left its guidance unchanged, which came as a pleasant surprise.
“In our earnings preview note we flagged potential for a guidance revision with Q2/23 results; going into the quarter we modelled full-year production of 738kt copper compared to the company’s guidance of 770-840kt. Instead, First Quantum reported Q2/23 production of 187kt, 9% ahead of our Q2 estimate, and reiterated full-year guidance with management guiding to the low end of production ranges and the high end of cost ranges. We expect that the production and guidance update will more than offset an earnings miss, resulting in a slight positive market reaction,” he said.
Mr. Adams reiterated a “neutral” rating on the stock.
BMO analyst Jackie Przybylowski trimmed her price target by C$1 to C$35. However, she expressed little alarm about the quarterly results.
“First Quantum reported EBITDA and earnings below our and market expectations on modestly lower production/sales volumes and higher costs than anticipated. However, we expect the market will look beyond Q2 weakness because H1/23 challenges were well-telegraphed and because we expect First Quantum management will convincingly communicate its plans for H2 operating improvements,” Ms. Przybylowski said in a note to clients.
“In our view, the market continues to have confidence in the company’s ability to execute on 2023 improvements and longer-term organic value creation because of the company’s history of execution and its measured approach to capital allocation. Major brownfields projects are on track including Kansanshi S3 expansion (first production 2025), Enterprise (commercial production 2024), and Cobre Panama CP100 (completed end of 2023). Projects such as Las Cruces underground and greenfields projects, including Taca Taca, La Granja, and Haquira, provide upside optionality but are progressing slowly as the company balances growth with balance sheet repair and capital returns,” the BMO analyst added.
The average analyst target is C$35.63.
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Buy Shopify Inc. (SHOP-N, SHOP-T) shares now, advises CIBC analyst Todd Coupland, who previewed the company’s second-quarter results on Aug. 2 and said he expects the company to beat Street views over the course of 2023.
“We expect Q2 revenue of $1.64B (26% Y/Y) and adjusted EPS of $0.08. This is slightly above FactSet revenue expectations of $1.63B and EPS of $0.07. We estimate Q3 revenue of $1.63B (19% Y/Y) and adjusted EPS of $0.11. This compares to FactSet revenue estimates of $1.61B (18%) and adjusted EPS of $0.10,” he said.
“Our view is that Q3 and 2023 revenue growth should be stronger than FactSet forecasts. This is supported by a full-quarter benefit from the April basic and advanced plan price increase and further increases in the attach rate (measured as MS revenue/GMV). Our outlook is confirmed by our own web traffic datasets for Shopify Plus merchants whose growth has improved since May up to July 21. Shopify should also benefit from improving operating leverage as Q3 FactSet estimates don’t appear to fully model the margin and lower opex benefits from the sale of the logistics assets to Flexport and Ocado, in addition to the ~20% staff reduction. The powerful combination of accelerating revenue growth, operating leverage and positive free cash flow support a higher share price,” he wrote.
The analyst reiterated an “outperformer” rating and US$75 price target. That’s well above the average target of US$63.86.
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Recent industry turmoil is not showing up in results so far at Rogers Communications Inc. (RCI-B-T), commented Desjardins Securities analyst Jerome Dubreuil in the wake of the company’s quarterly results this morning.
Still, he is maintaining a “hold” rating and C$68 price target.
The second quarter results represented the first three-month period that reflected the acquisition of Shaw Communications.
“RCI reported results which were generally in line, with strong customer loading but a miss on adjusted EPS; the outlook for EBITDA and free cash flow was increased and synergy targets were reiterated,” Mr. Dubreuil noted.
“Overall, we see the results as a good start to the SJR integration and are encouraged in light of the increased wireless competition and recent share price underperformance. That said, we remain on the sidelines as the impact of shifts in competition could be gradual,” he added.
He noted that wireless postpaid net additions of 170,000 easily beat consensus of 146,100 and were up 39% from a year earlier. “This could potentially be the best performance in the industry in 2Q, although the whisper number was likely higher than consensus following Telus’s very strong pre-released wireless subscriber loading number.”
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At least 29 analysts raised their price targets on Alphabet Inc. (GOOG-Q) following the tech giant’s quarterly results late Tuesday.
Among them: JP Morgan raised its target price to US$150 from US$121; TD Cowen raised its to $150 from $140; Evercore ISI raised its to $160 from $130; Goldman Sachs raised its to $152 from $140; Jefferies raised its price target to $165 from $150; JP Morgan raised its target price to $150 from $121; and RBC raised its price target to $155 from $145.
Canaccord analyst Maria Ripps raised her price target on Alphabet to US$155 from $150 while summarizing the quarterly results.
“Google reported solid Q2 results, with consolidated revenue coming in ahead of consensus despite a 200bp FX headwind, and operating income was also above expectations, partially reflecting the full benefit of the January workforce reductions. Total advertising revenue was up 3% y/y, aided in part by relative strength in the retail vertical, and Google continued to demonstrate innovation around AI during the quarter by rolling out multiple new tools to optimize advertiser spend and increase productivity. Performance Max remains a key value provider for retailers as profitability remains a point of focus amidst the uncertain macro backdrop, and YouTube ad revenue returned to y/y growth for the first time since 2Q22, driven by stabilization of brand spend. Cloud delivered strong growth and its second straight quarter of profitability, and management indicated it is seeing solid interest in AI-optimized infrastructure and AI platform services. Separately, Google announced that CFO Ruth Porat would be transitioning to a new role after more than eight years as the company’s CFO, with Ms. Porat to assume a newly created role of President and Chief Investment Officer of Alphabet and Google, effective 9/1/23, and the company is in the process of searching for her successor. Google shares are reacting favorably after hours reflecting the accelerating ad revenue growth and upside to profitability, and we continue to like the stock given easing near-term comps, strong product leadership, and a reasonable valuation,” Ms. Ripps said in a note to clients.
The average analyst price target is now US$143.53, up a little more than $10 from a month ago.
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Mainstreet Equity Corp (MEQ-T) delivered strong results in its fiscal third quarter, commented ATB Capital Markets analyst Chris Murray as he reiterated an “outperform” rating and raised his price target to C$160 from C$155.
The real estate rental company reported funds from operations of $1.91 per share, up 33% from a year ago, and well ahead of the analyst’s expectation of $1.60. This, according to Mr. Murray, reflected “the strength of the rental market in western Canada, improving fixed cost absorption, and healthy unit growth (about 7%) over the past 12 months.”
“Vacancy rates are expected to remain low in core markets on a go-forward basis (i.e., sub 2.0%), providing good visibility into further net operating income growth, with M&A adding potential upside,” he added.
The average analyst price target is C$166.67.
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Canaccord Genuity analyst Peter Bell initiated coverage on Liberty Gold Corp. (LGD-T) with a “speculative buy” rating and C$1.9 price target. That’s above the analyst average target of C$1.48.
Liberty Gold is a junior developer advancing its 100% owned flagship Black Pine Project located in Idaho, and has a portfolio of gold projects in Utah and Turkey. Liberty Gold completed a Preliminary Economic Analysis on its Goldstrike project in 2018 and is actively advancing towards a Pre-Feasibility Study for its Black Pine project, scheduled for the second half of next year.
“As a straightforward open-pit, heap-leach project situated in a world-class jurisdiction with low initial capital requirements, we see the Black Pine Project as a relatively low-risk development story with substantial gold leverage. Following an initial resource that disappointed the market in 2021, the share price corrected through late 2022. A change in management followed by a more robust resource in early 2023 has coincided with modest price recovery, but we feel that the resource growth is underappreciated,” Mr. Bell said in a note to clients.
He added, “Now under the leadership of CEO Jason Attew, we believe Liberty has entered a transition period with a robust, past-producing, technically straightforward asset with multiple potential catalysts on the horizon and a realistic path to construction. We see additional upside opportunities from possible M&A and exploration potential at the company’s land package situated within the highly prospective Great Basin.”
All seven of the other analysts who cover the stock rate it as a buy.
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In other analyst actions:
American Lithium Corp (LI-X): National Bank of Canada resumes coverage with “outperform” rating and price target of C$7.10
General Electric (GE-N): BofA Global Research raises price objective to US$135 from $120; JP Morgan raises target price to $124 from $102; Morgan Stanley raises target price to $122 from $110; RBC raises target price to $130 from $120; Barclays raises target price to $131 from $125
General Motors Co (GM-N): BofA Global Research raises price objective to US$75 from $72; Citigroup raises price target to $95 from $89; Daiwa Capital Markets raises target price to $38 from $36; JP Morgan raises target price to $56 from $55; Wells Fargo raises target price to $33 from $32
Pultegroup Inc (PHM-N): Barclays raises target price to US$104 from $90; BTIG raises target price to $100 from $83; Credit Suisse raises target price to $85 from $71; Evercore ISI raises target price to $102 from $88;RBC raises target price to $90 from $68; and Wedbush raises target price to $85 from $70. There were other analysts raising price targets on the U.S. homebuilder as well.
Microsoft (MSFT-Q): BMO raises target price to US$400 from $385: Citigroup cuts price target to $420 from $425; RBC raises target price to $390 from $350; Wedbush raises target price to $400 from $375
Darcy Keith