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

Citi analyst Christian Wetherbee sees North American railroad companies “getting back on track” on 2024, naming it his favourite transportation sector for the year ahead.

“After two years of volume normalization across Transports and significant investment in service by the rails, we think the set up for volume growth is good and the companies are primed to generate better than average operating leverage,” he said. “Macro concerns remain an overhang, but current demand across consumer and industrial end markets support low single digit/mid-single digit volume growth, which is likely to accelerate through the middle of 2024. This should yield double digit EPS growth and a modest upside bias to estimates, which is the first time in 18 months we can say that. Coupled with still reasonable relative valuations, we like the set up. We upgraded the group in early summer on this thesis and we believe we’re beginning to see it play out. Union Pacific is our top pick followed by Norfolk Southern.”

After rail volumes saw positive year-over-year growth in November for the first time in nine months, Mr. Wetherbee predicts gains will accelerate through 2024 “while resources (ie heads) stay fixed to slightly lower. This should generate solid incremental margins and ignite double digit EPS growth.”

In a research report released Wednesday, he expressed a preference for U.S. rail companies over their Canadian peers, raising his earnings expectations “modestly” for the former while making reductions to the latter.

“Within the group we prefer Union Pacific and its dual-pronged story of volume and cost efficiency under new CEO Jim Vena,” he said. “In other words, UP can generate solid EPS growth with less volume growth. In our view it should post the highest year-over-year EPS growth of the U.S. rails and fall behind only CP. Norfolk Southern is our second favorite as while it is still in the process of service recovery and therefore not completely done with headcount additions, the company faces the easiest comps of the group following the 1Q23 East Palestine, OH derailment that has created service, costs and market share headwinds all year. Unlike UP, Norfolk needs volume growth to drive earnings and while we’re constructive on the cycle its possible market share recovery could take a bit longer than hoped.

“While we prefer the U.S. over Canada, among the Canadians we prefer CP as we believe the recent pullback in shares has helped to reset the value proposition after a lackluster 2023. We think estimates for 2024 are finally getting into a reasonable range, which could set up beats and even on our lowered numbers we see the most year-over-year EPS growth for CP. We believe CN will be more challenged to grow in 2024 given tough comps and a Canadian intermodal overhang. With an elevated valuation its below U.S. year-over-year EPS growth potential is relatively less attractive.”

For both Canadian National Railway Co. (CNI-N, CNR-T) and Canadian Pacific Kansas City Ltd. (CP-N, CP-T), Mr. Wetherbeee lowered his fourth-quarter 2023 EPS estimates (to US$1.95 and US$1.10, respectively, from US$2.03 and US$1.16), citing lower-than-expected volumes. He also trimmed his full-year 2024 expectations (to US$7.75 and US$4.30 from US$7.90 and US$4.40) to “better align with lowered growth expectations due to challenging grain comps and lingering intermodal headwinds.”

“We’re below consensus for the Canadian rails in 2024,” he said. “For CN we expect 2024 EPS guidance to be at the low end of its 10-15-per-cent long-term range and for CP we expect a more generic ‘double digit’ EPS growth forecast, in line with its long-term guide.”

Despite those reductions, Mr. Wetherbee raised his targets for CN shares to US$121 from US$117 with a “neutral” rating and CP to US$90 from US$89 with a “buy” recommendation. The averages on the Street are US$123.29 and US$87.08, respectively.


ATB Capital Markets analyst Chris Murray thinks a significant hike to Bird Construction Inc.’s (BDT-T) dividend implies “strong” earnings per share growth in 2024 and reinforces his “positive outlook” for the Mississauga-based company.

After the bell on Tuesday, it announced a 30.2-per-cent increase to its monthly dividend to 4.67 cents per share (56 cents annualized) from 3.58 cents previously. Mr. Murray had projected 10.7-per-cent dividend growth.

“Management expects to maintain a dividend payout ratio below 33.0 per cent, providing the flexibility to pursue organic growth and acquisition opportunities,” he said. “The dividend increase, combined with expectations to maintain a sub-33.0-per-cent payout ratio, implies significant earnings growth in 2024, with our revised estimates calling for 27.0-per-cent EPS growth.”

“The announcement provides further evidence of the Company’s improving project mix, margin profile, and overall earnings quality, as well as management’s confidence in its ability to convert the Company’s $3.0-billion backlog, and sizable pending backlog, into sustained earnings growth. The news reinforces our view that demand conditions for infrastructure work remain firm, which we expect to support book-to-bill trends (more than 1.0 times) in Q4/23 and 2024.”

Increasing his earnings expectation for 2024 based on the dividend change and management’s outlook, Mr. Murray raised his target for Bird shares to $16.50, exceeding the $15.19 average on the Street, from $15 with an “outperform” rating.

“We expect the stock to respond favourably to the dividend increase and implied outlook for 2024,” he said.

Elsewhere, other analysts making changes include:

* Stifel’s Ian Gillies to $18.25 from $17.50 with a “buy” rating.

“Importantly, this is the second consecutive annual increase since the company’s first dividend bump in a decade during December 2022,” he said. “In conjunction, our 24/25 estimated EPS are up 7.7 per cent/8.9 per cent. These events reaffirm our thesis that BDT can offer EPS growth of greater than 20 per cent, meaningful dividend increases, and generate an ROE north of 25.0 per cent with no leverage. The stock’s valuation remains very inexpensive in 2025 at 6.3 times P/E and a 10.1-per-cent FCF yield.”

* TD Securities’ Michael Tupholme to $15.50 from $14.50 with a “buy” rating.


National Bank Financial analyst Zachary Evershed expects Mattr Infratech (MATR-T) to see its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) “snap upwards in 2025 (tracking above top-line growth) as one-time expenses cease to weigh on margins.”

Following an Investor Day event on Monday, Mr. Evershed said Shawcor Ltd., a Toronto-based integrated energy service provider company that does business under its new Mattr rebrand, is “setting sights on 2030,” emphasizing its capital allocation has swung to “growth mode.”

“The biggest announcement during the investor day was the long-term goal of organically doubling revenues by 2030 vs. a 2023 base, implying an 11-per-cent CAGR [compound annual growth rate],” he said. “We note that the path ahead will not be linear with 2024 growth expected to hit mid-to-high single digits as snafus in end customer permitting and lower rig counts push sales to the right. However, 2025-2026 will capture the first innings of the new Composite and Connection facilities getting up to speed. Importantly, incremental capex required to underwrite further growth will be much lower, as upfront investments in square footage set the table for the addition of machinery when required, less intensive per dollar of revenue. Complementing the robust top-line growth, management targets a consolidated 20-per-cent Adj. EBITDA margin.”

“In addition to the above-noted capex plans, management highlighted that M&A remained in focus, with the aim (among others) for Shawflex to gain access to the untapped U.S. market; we flag that a greenfield project, while likely costing less than a bolt-on, would be more expensive from an opportunity cost lens as the ramp-up could take up to five years. In addition to enhancing Shawflex, bolt-on opportunities exist in the stormwater business. Finally, the company will likely stay active on its NCIB at these levels.”

Alongside an increase to his capital expenditure expectations, Mr. Evershed raised his long-term organic growth estimate from 6-7 per cent to 11 per cent through to 2030, noting it is in line with management’s target to double the size of the business on that same timeline.

With increases to his earnings expectations for 2024 and 2025, he bumped his target for Mattr shares to $20.50 from $20, maintaining an “outperform” recommendation. The average is currently $21.13.

Elsewhere, Stifel’s Ian Gillies reiterated his “buy” rating and $26 target.

“We attended MATR’s investor day held in Toronto [Monday], and remain optimistic on the share price performance over the next 12-months,” said Mr. Gillies. “This is our best idea heading into 2024. We acknowledge investors may be disappointed post the event given the lack of detailed financial guidance, but when we step back and look at the financial characteristics of the business in 2025, we find ourselves very positive on the stock. Valuation is attractive with 2025 estimated P/E at 8.5 times, despite an estimated net cash position of $313-million (including leases of $60-million) and pre-growth capital FCF yield of 15.2 per cent. Management has consistently delivered on prior initiatives, and we expect it to be the same as they persecute a growth agenda moving forward.”


In a research note titled Give like Santa, save (from the EU taxman) like Scrooge, Desjardins Securities analyst Chris MacCulloch raised his forecast for Vermilion Energy Inc. (VET-T) following the release of its 2024 capital budget release and a 20-per-cent dividend increase.

“Although production guidance came in slightly below our forecast, it was more than offset by the removal of EU windfall taxes from our model given that Brussels is not expected to extend taxes beyond 2023 following the retrenchment in European power and natural gas prices,” he said. “Meanwhile, the company unveiled an enhanced return of capital framework (50 per cent of FCF), front-loaded with a 20-per-cent dividend hike.”

After the bell on Tuesday, the Calgary-based company revealed a capital budget for the coming fiscal year of $600–$625-million, falling in line with both the Street’s expectations ($600-million) and Mr. MacCulloch’s assumption ($625-million). That is projected to drive production of 82,000–86,000 barrels of oil equivalent per day (versus the analyst’s previous estimate of 85,000 boe/d).

“At first glance, production guidance appears to have been conservatively set within the context of several upcoming growth catalysts, including flush production from the Montney, with Mica expected to reach 20,000 boe/d following the commissioning of a battery (16,000 boe/d) in mid-2024,” he said. “Meanwhile, output from the SA-10 block in Croatia is expected to ramp to 15 mmcf/d [million cubic feet per day] in mid-2024, providing $30-million of cash flow in 2H24. However, the company has no plans to drill in the U.S., Ireland or the Netherlands next year, which results in modestly declining country-level production profiles, while 2.0 net wells in France are expected to hold output relatively flat.”

Mr. MacCulloch said the removal of EU windfall taxes led to a $100-million raise to his cash flow projections for 2024 and 2025, which were partially offset by lower volumes and “modest” increases in his operating and transportation cost assumptions.

“More importantly, shareholders will directly benefit from the improved outlook, with VET announcing plans to accelerate capital returns to 50 per cent of FCF (from 30 per cent) beginning in April 2024,” he said. “Meanwhile, the company increased the quarterly dividend to 12 cents per share, although the lion’s share of discretionary FCF will continue being allocated to share buybacks. For context, we see VET executing $150-million of repurchases in 2024 at current strip prices. Fill up your stocking.”

Maintaining a “buy” recommendation for Vermilion shares, he raised his target by $1 to $24. The average is currently $24.37.


Acumen Capital analyst Trevor Reynolds sees the outlook for Black Diamond Group Ltd. (BDI-T) as “highly compelling,” pointing to continued growth for its Modular Space Solutions business, “steadily” increasing Workforce Solutions utilization and scaling of its LodgeLink travel management platform.

In a report released Wednesday, he released both his fourth-quarter 2023 and full-year 2024 expectations for the Calgary-based provider of modular buildings and remote and temporary workforce housing solutions following the early November release of third-quarter results that “handily” topped his expectations.

“Adjustments to our near estimates are driven primarily by the timing of re-contracting and movement of WFS assets that have been on long term rent through the construction of the Trans Mountain and LNG Canada Pipelines,” said Mr. Reynolds. “With construction on both pipelines essentially complete, de-mobilization has commenced as assets are moved to new geographies. Management has highlighted that demand for WFS rentals are high driven by mining, infrastructure investing in both the U.S. and Canada, and affordable housing initiatives. Ultimately, based on strong levels of demand, the WFS assets coming off rent are expected to be re-contracted at higher rates in new jurisdictions providing increased diversification and revenue.

“Our estimates for 2024 and 2025 assume capital expenditures of $65-million for the year inclusive of $8-million of maintenance capital. Capital expenditures are expected to remain focused on growth of the MSS rental fleet and WFS in Australia and will be funded through free cash flow.”

Expressing “increased confidence in the outlook and the ability to recontract WFS assets,” he raised his target for Black Diamond shares to $12 from $10.25, reiterating a “buy” rating.


Predicting “continued growth ahead,” PI Financial analyst Jason Zandberg initiated coverage Vancouver-based eyewear retailer Kits Eyecare Ltd. (KITS-T) with a “buy” recommendation on Wednesday.

“The Company has experienced accelerated growth for six consecutive quarters and counting,” he said. “Year-over-year sales growth in the first three quarters of 2023 has been 38 per cent in Q1, 38 per cent in Q2 and 32 per cent in Q3.”

“KITS has reported several quarters of positive EBITDA, and we anticipate with the continued expansion of gross margins and declining operating expenses as a percentage of revenue that KITS’ EBITDA margin will grow from 2 per cent in 2023 to $2.2-million and 4 per cent in 2024 to $5.4-million.”

Also touting its “seasoned” management team and “unique” marketing approach, which centres on word-of-mouth and customer retention, Mr. Zandberg set a target of $8 per share. The average is currently $8.33.

“For Q4 FY23, we expect KITS to finish up 2022 with $32.5-million in revenue and EBITDA of $0.8-million,” he said. “This revenue figure would suggest a total revenue figure for 2023 of $121.3-million, up 32 per cent from 2022 sales total. Our outlook for 2024 is for 16-per-cent growth which equates to C$140.8M and we anticipate 11-per-cent revenue growth in 2025 to $156.8-million. We have not assumed that is recent growth rates of over 30 per cent year-over-year will continue that assumption is not due to our lack of conviction in the current run of sales but rather our conservative approach to expectations. There are always downside risks to estimates, but we feel there is a greater chance of upside surprise to our figures given the momentum that KITS has built within its markets.”


In other analyst actions:

* In response to its third-quarter results and recent acquisition of Golden Queen Mining Co., Desjardins Securities’ Jonathan Egilo raised his Andean Precious Metals Corp. (APM-X) target to 80 cents from 75 cents with a “buy” rating. The average is $1.10.

* Mr. Egilo also increased his targets for K92 Mining Inc. (KNT-T, “buy”) to $10 from $9.50 and Lundin Gold Inc. (LUG-T, “buy”) to $20 from $19.75. The averages are $10.64 and $20.20, respectively.

* RBC’s Drew McReynolds increased his target for Cogeco Communications Inc. (CCA-T) to $84 from $80 with a “sector perform” rating following Rogers Communications Inc.’s (RCI.B-T) sale of its stake in the company. The average is $72.96.

“Despite more competitively intense operating environments in both Canada and the U.S., we believe management continues to execute on multiple growth initiatives that include rural broadband expansion, entry into the Canadian and U.S. wireless markets and tuck-in M&A,” he said. “While for the moment we forecast average annual NAV growth of 2 per cent through F2026E and the company’s competitive position remains somewhat uncertain given the absence of wireless against the backdrop of expanding FTTH/5G/FWA footprints, we see value in the stock but look for more timely entry points with a potential path to higher growth beginning in F2025 driven by the flowthrough of rural broadband expansion, wireless entry, and/or easing U.S. competition/concerns, particularly with respect to FWA.”

* Jefferies’ bumped his target for Vancouver-based Essa Pharma Inc. (EPIX-Q) to US$16 from US$15 with a “buy” rating. The average is US$19.60.

* Stifel’s Cole Pereira cut his Keyera Corp. (KEY-T) target to $38.50 from $39 with a “buy” rating. The average is $35.54.

“KEY unveiled a prudent 2024 capital plan of $170-210-million vs $295-$335-million in 2023, while also raising its long-term Marketing guidance and indicating it should be at the high end of its 2022-2025 adjusted EBITDA CAGR of 6-7 per cent (Stifel: 7.1 per cent),” said Mr. Pereira. “We believe KEY’s decision to push out the sanctioning timeline for KAPS Zone 4 and a KFS expansion reflects its desire to (1) meet required contracting thresholds for Zone 4 pre-sanctioning, and (2) finish re-contracting its recently acquired KFS WI capacity before pursuing an expansion. Our 2024 EBITDA forecast increases 3 per cent while 2024 estimated DCFPS declines 5 per cent due to guidance for higher-than-expected cash taxes and maintenance capex. As a result, we have trimmed our TP to $38.50/sh, as we reiterate our Buy rating. While KEY’s 10.1 times 2024 estimated P/DCFPS valuation screens as a premium to peers, we continue to like its peer-leading growth rates and strong balance sheet, seeing further upside.”

* Following Tuesday’s release of a “strong” third-quarter earnings beat and launch of a two-year program to strengthen its balance sheet, National Bank’s Adam Shine raised his Transcontinental Inc. (TCL.A-T) target to $17 from $16 with an “outperform” rating, while CIBC’s Hamir Patel cut his target to $15 from $16 with an “outperformer” rating. The average on the Street is $17.30.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 12/04/24 3:59pm EDT.

SymbolName% changeLast
Andean Precious Metals Corp
Bird Construction Inc
Black Diamond Group Ltd
Canadian National Railway Co.
Canadian Pacific Kansas City Ltd
Cogeco Communications Inc
Essa Pharma
Keyera Corp
Kits Eyecare Ltd
K92 Mining Inc
Lundin Gold Inc
Mattr Corp
Transcontinental Inc Cl A Sv
Vermilion Energy Inc

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