Inside the Market’s roundup of some of today’s key analyst actions
Citi analyst Jon Tower thinks Restaurant Brands International Inc.’s (QSR-N, QSR-T) initiatives to boost sales on both sides of the border “continue to yield results for franchisees, franchisors and shareholders.”
TSX-listed shares of the parent company of Tim Hortons and Burger King rose 1.4 per cent on Tuesday following the premarket release of its second-quarter results, which exceeded expectations.
Revenue of US$1.78-billion beat both Mr. Tower’s US$1.74-billion estimate and the consensus projection of US$1.6-billion, driven by stronger-than-anticipated sale-store sales in Tim Hortons Canada (11.6 per cent versus expectations of 7 per cent and 7.1 per cent, respectively). Adjusted earnings per share of 85 US cents also topped forecasts (79 cents and 77 cents, respectively).
“Investors were hungry for solid top-line results and the company delivered, with QSR providing upside to revenue (fueled by TH CAN upside) as well as adjusted EBITDA (primarily from the BK segment) to boot,” said Mr. Tower. “Importantly, results should offer enough evidence that the BK US turnaround efforts have begun to bear fruit and that with remodels ramping in 2H23, there’s a path ahead for continued comp out-performance for the balance of ‘23. In aggregate, net unit growth still lags pre-COVID levels (approximartely 4.1 per cent year-over-year), but key drivers of growth continued to demonstrate progress (e.g., NROs at TH ROW, BK ROW both ticking higher Yr/Yr) as the company continued to optimize its BK US portfolio.”
Mr. Tower now expects a focus on further reinvestment in Burger King U.S. moving forward as well as a continued emphasizes on marketing and digital initiatives.
“2Q offered greater evidence that idiosyncratic sales drivers appear to be resonating with consumers in home markets and should provide: (1) management more leeway to pour greater capital into ongoing/future initiatives; and (2) investors with comfort that the delayed SSS recovery from COVID in home markets vs. peers still has room to run,” he said. “However, overhangs on the shares remain: (1) the slow recovery in net global store growth; (2) stubbornly high supply chain costs (margins remain more than 500 basis points below pre-COVID levels); and (3) improving yet still-negative traffic growth at the BK US. Improvements in these would argue for greater multiple expansion from current levels.”
Expecting an “amalgam of cold, food, ops improvements, and digital” to continue to drive share gains and earnings growth for Tim Hortons in Canada, Mr. Tower raised his 2023 EPS projection to US$3.21 from US$3.13. He maintained his 2024 estimate of US$3.41.
Keeping a “neutral” rating for Restaurant Brands shares, he trimmed his target to US$83 from US$85. The average target on the Street is US$79.46, according to Refinitiv data.
Other analysts making target changes include:
* Scotia’s George Doumet to US$82 from US$81 with a “sector outperform” rating.
“Similar to last quarter, we saw continued momentum at Tims and strong performance (including early day progress in the turnaround) at BK USA,” said Mr. Doumet. “Both Tims and BK comps came in well ahead of expectations driving the 4-per-cent adj. EBITDA beat vs. the Street (and 1 per cent vs. our Street-high EBITDA estimates). Looking ahead, while we expect SSS growth to moderate over the NTM [next 12 months], we are looking for an acceleration in the rate of improvement in NRG and at margins at Tim’s supply chain business. Valuation continues to be undemanding with QSR shares are trading at a 6-per-cent discount vs. IHF peers; we expect the valuation gap to narrow and model healthy deleveraging through 2024. Net–net, our 2023 adj. EBITDA estimates are largely unchanged.”
* RBC’s Christopher Carril to US$88 from US$86 with an “outperform” rating.
“An overall solid 2Q, marked by continued strong growth in Burger King’s and Tims’ home markets,” said Mr. Carril. “Meanwhile, development remains a source of upside, with 2H-weighted openings still expected to drive improvement versus ‘22, while management indicated confidence in returning to historical 5-per-cent-plus growth by next year. Adjusting estimates higher to reflect the 2Q beat and ongoing momentum at TH/BK, though offset partly by ongoing margin pressure in QSR’s supply chain business; our ‘23 EPS moves to $3.28 from $3.23, while our ‘24 EPS goes to $3.65 from $3.55.”
* BMO’s Andrew Strelzik to US$88 from US$81 with an “outperform” rating.
“We are encouraged by the traction that initiatives at BK U.S. and TH Canada are creating and believe sales momentum across the portfolio combined with potential for accelerating unit growth and a reasonable multiple are supportive of our favorable outlook on QSR shares,” he said.
* TD Cowen’s Andrew Charles to US$90 from US$85 with an “outperform” rating.
* Jefferies’ Alexander Slagle to US$75 from US$73 with a “hold” rating.
While Stifel analyst Martin Landry continues to believe Pet Valu Holdings Ltd. (PET-T) offers “a unique combination of growth and defensive characteristics, supporting the case for a premium valuation,” he thinks it will take investors time to accept its weaker-than-anticipated third-quarter guidance “before revisiting the story.”
Shares of the Markham, Ont.-based retailer plummeted 10 per cent on Tuesday after it reported lower-than-expected same-store-sales growth offset by better-than-anticipated adjusted earnings per share. However, investors reacted with concern to management’s plan for the remainder of the year.
“While demand for consumables remains strong (up double-digit year-over-year), there is softness in accessories and toys, which is putting pressure on same-store-sales growth,” said Mr. Landry. “As a result, management intends to increase promotional activity in H2/23 but this could result in margin pressure. Management expects Q3/23 EBITDA margins to be flat to down sequentially, which suggests an erosion of more than 250 basis points year-over-year. As a result, Q3/23 EPS could be down in the double digits’ percentage range year-over-year, which comes as a surprise given previous consensus estimates suggested a return to year-over-year EPS growth in Q3/23.”
While Pet Valu’s adjusted full-year guidance suggests a “strong” fourth quarter later this year, Mr. Landry said his view is less optimistic.
“Pet Valu’s Q3/23 guidance and unchanged 2023 outlook suggests a sharp increase in Q4/23 EBITDA margins to 25-per-cent-plus,” he said. “While this appears aggressive at first glance, the company expects to benefit from several factors including (1) lower distribution costs as they transition into their new GTA DC, reducing the need for third party logistic providers, (2) easing year-over-year FX headwinds and (3) lower SG&A expenses driven by cost control measures to better align SG&A expenses with sales trends.
“Our forecasts differ from management’s expectations as we see a risk of continued demand weakness in discretionary categories, which could impact sales of lucrative seasonal discretionary items in Q4/23. We also think that promotional activity may continue until year-end especially given Chewy’s entrance in the GTA in the coming months. Hence, in our view, there are risks that PET does not meet its 2023 guidance and as a result, our forecasts are lower than guidance with Q4/23 EBITDA margin of 23.5 per cent vs. guidance which suggests margins of 25-per-cent-plus.”
Mr. Landry is now projecting full-year earnings per share of $1.54, down from $1.62 and below the company’s guidance of ($1.60 to $1.66). He also dropped his 2024 projection to $1.73 from $1.85, citing “higher lease expenses reflecting the transition into the new distribution centres in the GTA and Vancouver.”
That led him to reduce his target for Pet Valu shares to $38 from $42 with a “buy” recommendation. The average on the Street is $40.56.
“Pet Valu is a growth story with a significant growth runway. We believe that the company can double its store count over time to 1,200-plus, an increase of 60 per cent from current levels,” he said. “According to our analysis, PET has the potential to grow its EPS sustainably at a CAGR [compound annual growth rate] of mid-to-high teens. Pet Valu’s balance sheet is healthy with leverage expected to remain below 2 times in 2023, providing the company with good flexibility to allocate capital.”
“Pet Valu has several positive attributes, which include: (1) more than 2.5 million members in its loyalty program, generating 80 per cent of all system sales in Q2/23, (2) high-performing private label brands, generating near 30 per cent of sales and margins 1,200 basis points higher than similarly priced national brands, (3) a rapid payback of three years on new corporate stores, (4) flexible store formats which enable increased penetration in rural areas, a significant differentiation vs. PetSmart.”
Elsewhere, others making target adjustments include:
* National Bank’s Vishal Shreedhar to $36 from $41 with an “outperform” rating.
“We reduced our estimates to the lower end of 2023 guidance,” said Mr. Shreedhar. “Also, we have taken a more conservative stance on 2024+ estimates reflecting lower sales growth and limited net benefit from the reduction of third-party logistics/efficiency initiatives. As a result, 2023 EPS goes to $1.60 from $1.62 and 2024 EPS goes to $1.75 from $1.84.”
* Raymond James’ Michael Glen to $38 from $39 with an “outperform” rating.
“As we parse through the details of Pet Valu’s 2Q results and outlook, we have made some downward adjustments to our model to reflect commentary surrounding a softer consumer trend, higher levels of promotions, and the associated impact on margins in 3Q,” he said. “That said, these adjustments are relatively modest in comparison to the stock price being down over 10 per cent with the earnings report (vs. TSX down 0.15 per cent). It would appear the biggest focal point for investors is the deceleration in SSSG to 6 per cent (1.2-per-cent traffic/4.8-per-cent basket), which we would also note was up against a very challenging 21.2 per cent comparable in 2Q22. From that perspective, while SSSG comparables will progressively ease through 2H, management is definitely emphasizing that the consumer environment is changing, and they will need to be more aggressive with near-term marketing efforts (i.e. Tuesday Flash Sales). As we look farther forward with the business, and think about the industry growth (i.e. mid single digit over the long-term), store growth (+40-50 new stores in 2023 and 1,200 long-term store target), and benefits to stem from the company’s supply chain initiatives, we believe an investor with a reasonable investment timeframe will make money with the stock.”
* Barclays’ Adrienne Yih to $35 from $41 with an “overweight” rating.
“Earnings came in above expectations driven by higher gross margin and SG&A leverage, and although the full year guidance was reiterated, the 3Q23 guidance came in lower driven by promotional and currency headwinds. With demand normalizing, the company is investing for long-term efficiencies as an omnichannel retailer,” said Ms. Yih.
* RBC’s Irene Nattel to $43 from $50 with an “outperform” rating.
“[Tuesday’s] s share price decline despite solid H1/F23 and guidance that implies accelerating financial performance in H2 is likely overreaction to more cautious consumer demand and GM% visibility,” said Ms. Nattel. “Current valuation also appears to reflect accelerated capital projects to strengthen and scale up distribution infrastructure and appears to imply market skepticism with respect to 2023 guidance. Achievement of implied earnings cadence in H2 likely a catalyst for the stock.”
* CIBC’s Mark Petrie to $36 from $44 with an “outperformer” rating.
National Bank Financial analyst Jaeme Gloyn thinks Element Fleet Management Corp.’s (EFN-T) “high quality” second-quarter earnings beat “supports upward momentum” and reiterated his stance it is a “core holding” that “every portfolio manager needs to own in all environments.”
“After the bell on Tuesday, the Toronto-based company reported revenue of $323-million, exceeding both Mr. Gloyn’s $313-million estimate and the consensus projection of $311-million. Adjusted earnings per share rose 14 per cent to 33 cents, also topped the 31-cent expectation of the analyst and Street.
“Element delivered a solid quarter,” he said. “The key, in our view, is the ‘high quality’ nature of the beat (i.e., from higher quality recurring service income and net financing revenue, while ‘lower quality’ syndication was a drag on revenues vs. our forecast). In addition, originations significantly outperformed as the June 2023 senior debt issue hinted, and expense growth (and thus margins) remained contained. Despite the 9-per-cent jump in shares since early July, we expect these Q2-23 results will keep Element on a strong upward trajectory toward (and beyond) our upwardly revised target price.”
Maintaining an “outperform” recommendation, Mr. Gloyn raised his Street-high target for Element Fleet shares by $1 to $31. The average is $25.14.
“EFN is a low-risk, double-digit FCF and dividend grower, with blue-sky share price potential easily into the $30s over the next two years regardless of the market backdrop,” he said. “We view growth as de-risked given 1) continued solid execution on an organic growth pipeline of $500 million of revenues (approximately 40 per cent above 2022 levels) to be earned in the next few years, 2) a massive order backlog with high-margin revenues to support that growth in H2 2023 through 2024, and 3) mega-fleet wins not baked into guidance or consensus estimates (see Rentokil in December 2022 and Armada, OXXO and TELUS added in early 2023). In addition, EFN still trades at an FCF Yield of 8 per cent on 2024 estimates, roughly 25 per cent above the yield of Canadian Financials with similar fundamentals (e.g., defensiveness, strong organic revenue growth, expanding profitability, solid FCF generation, low credit risk, and barriers to entry). As EFN executes in 2023, we expect significant yield compression.”
Elsewhere, other changes include:
* Raymond James’ Stephen Boland to $27 from $26 with a “strong buy” rating.
“EFN remains our top pick heading into 2H23. EFN generated record FCF and repurchased 2.0 million shares in the quarter,” said Mr. Boland.
* RBC’s Geoffrey Kwan to $30 from $29 with an “outperform” rating.
“Q2/23 results reaffirmed why EFN is our high-conviction #1 best idea,” he said. “We think investor expectations were for a strong quarter and we think EFN exceeded it. In particular, the key takeaway for us was originations that were well ahead of our forecast and consensus, giving greater evidence that OEM production is normalizing, which we view positively as it gives greater visibility regarding originations in the near-term. While we think further signs of material improvement in originations leading to continued strong EPS growth are a positive catalyst for the stock over the near-term, another key catalyst may come in later 2024 as EFN plans to complete the redemption of its remaining preferred shares + convertible debt and then with a ‘clean’ capital structure, high FCF, low capex and no material M&A intentions, this could result in a substantially higher dividend and higher share buyback activity. We still view the shares as undervalued and increase our price target.”
Seeing an improving outlook for its U.S. business, ATB Capital Markets analyst Tim Monachello raised his recommendation for PHX Energy Services Corp. (PHX-T) to “outperform” from “sector perform” following the late Tuesday release of better-than-anticipated second-quarter results.
“PHX’s strong Q2 results showed resilient rates and margins across its operations and we understand that its U.S. activity and pricing outlook has firmed materially alongside improved commodity prices, which we view as a meaningful improvement in PHX’s risk profile for investors,” he said.
“Following Q1/23 results we downgraded our rating on PHX to Sector Perform citing our view that PHX faced meaningful risks to service pricing and activity levels in its US business as displaced gas focused competitors were pressuring spot market pricing in some of PHX’s core markets. While U.S. activity levels were down for PHX by roughly 9 per cent quarter-over-quarter in Q2/23, its U.S. dayrates were up roughly 5 per cent and we understand that with crude pricing improving over recent months, service pricing has firmed meaningfully. Looking forward, we believe activity levels are likely to stabilize in the U.S. and will likely move moderately higher in the current commodity price environment. All told, we believe the risks related to PHX’s U.S. operations are considerably less pronounced than we had previously believed. Still, we take a conservative stance in our modeling and include a 2-per-cent reduction in U.S. segment dayrates beginning in Q3/23.”
Mr. Monachello increased his target by $1 to $11. The average on the Street is $8.90.
Others making changes include:
* Stifel’s Cole Pereira to $10 from $9.50 with a “buy” rating.
“PHX reported solid 2Q23 results as EBITDAS of $35-million landed well above our forecast of $26-million and the Street at $27-million, due to stronger-than-expected Canadian revenue and a meaningful gross margin beat,” said Mr. Pereira. “PHX’s premium technology offerings continue to offset broader weakness in U.S. drilling activity, while the company remains focused on shareholder returns. PHX’s dividend yields an attractive 8.3 per cent but screens as sustainable with FCFPS payout ratios of 55 per cent in 2023 and 34 per cent in 2024. The company has repurchased 3 per cent of its share count YTD, and we expect this could meet or exceed 5 per cent based on its return of capital framework. Our EBITDAS forecasts increase 7 per cent in 2023 and 5 per cent in 2024, driving our TP to $10.00.”
* BMO’s John Gibson to $9.50 from $9 with an “outperform” rating.
“PHX reported strong Q2/23 results, which included a 50-per-cent jump in Canadian revenue and continued strength in U.S. operations. We expect a modest decline in U.S. results during 2H/23, although the company remains in an enviable position given its strong balance sheet (virtually no net debt) and premium asset base,” said Mr. Gibson.
Desjardins Securities analyst Benoit Poirier saw the first-quarter 2024 financial results from Héroux-Devtek Inc. (HRX-T) as “a step in the right direction,” emphasizing “severe” margin erosion over the last year has “begun to reverse.”
“Given the telegraphed comments and industry dynamics, we continue to take a conservative approach and believe FY24 will be a transition year for HRX,” he added. “We forecast adjusted EBITDA margin of 13.2 per cent in FY24, followed by a return to a near normalized level of 14.5 per cent in FY25.”
Shares of the Quebec-based aircraft landing gear manufacturer rose 2.7 per cent on Tuesday after it reported quarterly revenue of $141-million, up 23.3 per cent year-over-year and above the consensus estimate of $139-million. Adjusted earnings per share of 12 cents was 2 cents above the Street’s expectation.
“HRX reported neutral 1Q FY24 results, as the ability to fulfill orders at a steady pace remains a challenge in the current environment,” said Mr. Poirier. “The supply chain is stabilizing but HRX is still facing two major operating constraints: skilled labour (turnover rate has improved 30 per cent year-over-year to 9 per cent from 13 per cent) and the procurement/availability of raw materials. The second constraint is one of the main drivers behind management’s decision to carry more inventory to stabilize the production rate (HRX continues to target throughput of $150-million of revenue per quarter; 1H was below this level due to seasonality). Inventory ended 1Q at $287-million vs $263-million last quarter and $70-million above 1Q FY23 ($217-million).
“Management continues to work on operating solutions using a three-pronged approach; the process will take time, but there is a clear plan in place to bring margins back to normalized levels: (1) stabilize the production system with a linear supply chain and new qualified sources; (2) negotiate price increases with customers and suppliers using a targeted approach; and (3) work on reducing costs in the production process through efficiency gains— automation can be implemented with limited capex. In the short term, the supply chain remains somewhat fragile and HRX is willing to sacrifice some cash flow in order to secure key raw materials and be able to deliver its targeted throughput. All else equal, however, we do expect a lower inventory level once the supply chain situation normalizes.”
After tweaking his projections with expectation an elevated inventory will continue in the short term and weigh on free cash flow, Mr. Poirier trimmed his target for Héroux-Devtek shares by $1 to $21, reiterating a “buy” recommendation. The average is currently $19.40.
“Over the long term, our bullish view on HRX has not changed and we still view its valuation discount vs its U.S. peers as unjustified (stronger balance sheet and proven FCF generation capabilities),” he said. “We believe HRX’s greater exposure to the defence segment, solid operational reputation and experienced management team position the company ideally for the recovery over the next few years.
“We believe HRX offers a compelling value proposition to opportunistically unlock inorganic growth opportunities. We see more upside than downside following a number of aerospace peer transactions at elevated multiples in recent months.”
Elsewhere, Scotia Capital’s Konark Gupta raised his target to $19 from $18 with a “sector outperform” rating.
“HRX sustained the production recovery momentum in FQ1 while EBITDA margin rebounded year-over-year after a long time, supporting our thesis that margins should recover gradually as production stabilizes and pricing improves,” said Mr. Gupta. “While the company still has a long way to go before full normalization, we are encouraged to see continued progress in operations. Further, FCF conversion has remained subpar in the short term, but it appears that inventory is approaching levels required to bring supplydemand in balance, which could unlock a lot of FCF over time. With modest tweaks to our estimates, we are raising our target.”
In other analyst actions:
* Seeing reduced earnings visibility, RBC’s Scott Robertson downgraded Chesswood Group Ltd. (CHW-T) to “underperform” from “sector perform” and lowered his target to $8 from $9. The average target on the Street is $10.13.
‘Q2/23 EPS was worse than expected (-$0.02 loss vs. RBC at + $0.04) as higher net charge-offs and higher interest rates continue to erode EPS over the past year (normalized EPS was $1.60 in 2022 to negative in Q2/23). The U.S. business has been the key driver of weaker earnings and while the Canadian business has fared relatively well so far, it too is showing some early signs of deterioration. Earnings visibility is low in our view and the uncertain macro environment is likely to constrain CHW’s valuation multiple. We are reducing our price target to $8 (was $9) reflecting lower financial forecasts and a lower target multiple (0.7 times P/BV, was 0.8 times), which is below its long-term average, but warranted in our view due to low earnings visibility and weakening financial performance. With an implied total return that is still positive, but towards the low end of our coverage universe, we are downgrading the shares of CHW,” he said.
* RBC’s Tom Callaghan reduced his target for BTB REIT (BTB.UN-T) to $3.75 from $4, maintaining a “sector perform” rating. The average is $3.98.
* Stifel’s Michael Dunn raised his Canadian Natural Resources Ltd. (CNQ-T) target to $97 from $95 with a “buy” rating. The average is $90.10.
“Canadian Pacific Kansas City reported 2Q23 adj. EPS of C$0.83, down 13 per cent year-over-year on a like-for-like basis, as this is the first quarter in which CP has included KCS results as a combined entity,” he said “Results missed Bloomberg consensus of $0.93, but the company maintained its outlook for full-year adj. EPS growth in the mid-single digits relative to last year’s C$3.77. This contrasts with Canadian peer CN’s move post-earnings to lower its full-year outlook in response to the weak macro environment. CPKC noted efficiency gains, particularly in Mexico, the reopening of Canadian ports following labor related disruptions in 2Q, and a more upbeat 2H outlook for certain categories including Grain, Coal, and Autos as driving this optimism. The company also reaffirmed its expectation for double-digit annualized EPS growth between 2024-2028. Following the company’s Investor Day in June, we noted its more upbeat (and aggressive) tone as supporting its premium valuation relative to railroad peers, with CEO Keith Creel going so far as to tell investors that the company “will exceed your expectations”. We see significant operating leverage potential as volume growth accelerates driving margin improvement into 2024 and beyond. CMO John Brooks added that growth is expected to be propelled by unique projects including growth at Lazaro Cardenas, its auto compound in Dallas (coming 2Q24), its Toronto fuel terminal and Texas lumber transload facilities, all scheduled to open in the year ahead.”
* CIBC’s Hamir Patel raised his targets for Cascades Inc. (CAS-T, “neutral”) to $14 from $12, Doman Building Materials Group Ltd. (DBM-T, “outperformer”) to $8.50 from $7.50 and Interfor Corp. (IFP-T, “outperformer”) to $32 from $33. The averages are $14.10, $8.92 and $34.40, respectively.
* RBC’s Paul Treiber increased his Coveo Solutions Inc. (CVO-T) target to $13 from $11 with an “outperform” rating. Others making changes include: Eight Capital’s Adhir Kadve to $13.50 from $12 with a “buy” rating and National Bank’s Richard Tse to $14 from $11 also with an “outperform” rating. The average is $12.60.
“Coveo reported Q1/F24 results which met both Consensus and our expectations on the top line, with adj. Operating losses lower than expectations,” said Mr. Kadve. “F24 Revenue guidance was reiterated, while a lower adj. Operating loss prompted a lower guidance range. Relevance Generative Answering is seeing strong early demand with an oversubscribed beta program and the SAP Endorsed partnership continues to show strong momentum with early wins and a building pipeline. These initiatives are expected to drive strong bookings strength towards the back half of the FY and thus a reaccelerationof growth in FY25.Management reiterated that it will require more than $15-million in CFO to become CF+ and thus when combinedwith the previously mentioned growth initiatives, we like the setup for Coveo heading into the balance of the FY and beyond.”
* TD Securities’ Sam Damiani cut his Firm Capital Mortgage Investment Corp. (FC-T) target to $12.50 from $13.50 with a “buy” rating. The average is $11.75.
* BoA’s Lawson Winder bumped his Hudbay Minerals Inc. (HBM-T) target to $8.25 from $7.25 with a “neutral” rating. The average is $9.67
* Raymond James’ Michael Glen increased his target for K-Bro Linen Inc. (KBL-T) to $40 from $37.50 with an “outperform” rating. The average is $39.32.
“K-Bro’s 2Q results came in ahead of our expectations, with a combination of early-year price increases coupled with easing / stabilization on several important cost buckets — most notably: labour, linen, utilities, and transportation helping to boost margins,” he said. “The results represent a continuation of the positive trend seen in 1Q23, and are an important inflection from a challenging 2022, where K-Bro saw several quarters of headwinds related to the timing of price increases (typically associated with CPI clauses + minimum wage) and actual market costs.”
* RBC’s Jimmy Shan raised his target for Morguard Corp. (MRC-T) to $145, matching the average from $140 with a “sector perform” rating.
* Scotia Capital’s Konark Gupta raised his TFI International Inc. (TFII-T) target to $182 from $180 with a “sector perform” rating, while Credit Suisse’s Ariel Rosa raised his target to US$150 from US$121 with an “outperform” rating. The average is $174.34.
“TFII announced the acquisition of a leading asset-light logistics and transportation business based in Wisconsin, JHT Holdings, which appears to be accretive to both EPS and valuation even before any potential synergies,” he said. “However, the transaction is not overly surprising to us given management had clearly indicated last week that it was expecting to announce a tuck-in shortly. Our above-guidance and Street-high 2023 EPS estimate was already assuming a tuck-in, which is why our estimates are not moving up significantly on this announcement. We also continue to assume potential benefits of Yellow’s collapse in the LTL [less-than-truckload] segment (we estimate at $0.25-$0.50 EPS in 2H), which as a reminder are not in the guidance nor in some Street estimates.”
* BoA’s Dariusz Lozny raised his TransAlta Corp. (TA-T) target to $14 from $13 with a “neutral” rating. The average is $16.58.
“TA’s announcement of the acquisition of the 40 per cent of its yieldco subsidiary RNW came as little surprise as company management had been discussing corporate structure simplification since 2022,” he said. “Timing of the transaction admittedly was somewhat surprising as relative valuations appeared to make a combination less attractive. TA’s decision to use $800-million of balance sheet case and incremental equity appears to be opportunistic as the company benefitted from a financial windfall in recent quarters as Alberta merchant prices averaged tripled digits, giving management added financial flexibility.”
* Raymond James’ Steven Li raised his Verticalscope Holdings Inc. (FORA-T) target by $1 to $8, exceeding the $6.68 average, with an “outperform” rating.
“Solid 2Q results especially A-EBITDA and FCF. Headwinds persist but should improve as the year progresses,” said Mr. Li.
* Raymond James’ Frederic Bastien hiked his WSP Global Inc. (WSP-T) target to $215 from $205 with an “outperform” rating. The average is $195.15.
“WSP Global validated its status as a must-own stock again [Tuesday], with the release of better-than-expected 2Q23 results,” he said. “The engineering consultancy is producing robust organic revenue growth, delivering equally impressive increases in backlog, and continuing to act on margin improvement opportunities. These should stand the firm in good stead until management capitalizes on a shifting macro environment to eventually unlock what could be another game-changing transaction. In the meantime, we expect more BG Consulting and Calibre like deals to underpin healthy inorganic growth for the company.”