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

With the release of fourth-quarter 2023 financial results that exhibited “stronger-than-expected revenue generation and operational efficiency,” Canadian National Railway Co. (CNR-T) appears poised for a strong second half recovery in the current fiscal year, according to ATB Capital Markets analyst Chris Murray.

After the bell on Tuesday, the Montreal-based company revealed a 2024 target of adjusted fully diluted earnings per share growth of 10 per cent, driven by revenue ton mile (RTM) growth in the mid-single digits and the expectation for continued pricing improvements that top rail inflation. That goal fell in line with pre-release projections.

“Guidance is underpinned by expectations for mid-single-digit volume growth, pricing above rail inflation, and buyback accretion, offsetting an expected $200-million in operating cost growth,” said Mr. Murray. “CNR reported an O/R [operating ratio] of 59.3 per cent, with a more constructive volume outlook and better car velocity, positioning the Company for further improvement in 2024.”

“Volume demonstrated improvement in late Q4/23, which management expects to extend into 2024, given improving macro conditions. Management acknowledged a challenging Q1/24 comp and expects volume growth to be second-half-weighted as merchandise, including forestry and intermodal, volumes normalize. Management was positive on merchandise volumes and noted that capacity is in place to support profitable growth in 2024.”

For its fourth quarter, CN reported revenue of $4.471-billion, exceeding Mr. Murray’s $4.44-billion forecast and the consensus expectation of $4.373-billion. Its operating ratio, which is considered a significant measure of profitability, improved to 59.3 per cent, also topping estimates. Adjusted fully diluted EPS of $2.02 was a 4-cent beat on the analyst’s projections and 3 cents ahead of the Street.

“While the macro conditions continue to pose uncertainty entering 2024, we remain constructive on the strength of the Company’s tri-coastal network, diversified freight mix, and execution being demonstrated under new management’s ‘Plan’ after CN lost its footing as the industry’s best-in-class operator over the last several years,” said Mr. Murray. “Despite facing significant volume headwinds 2023, CN reported an O/R of 60. per cent% on a full-year basis, reflecting the strength of CN’s franchise and an improving operating profile, boding well for the Company’s outlook given expectations for normalizing volume conditions in 2024. Management remained upbeat on 2024, issuing guidance for 10.0-per-cent EPS growth and expectations for mid-single-digit volume growth.

“Volumes demonstrated signs of a volume recovery in Q4/23. Management expects weakness in intermodal and forestry products to improve in H2/24, with the majority of bulk commodities and industrial/merchandise products expected to return to growth in 2024, given improving macro conditions. Management acknowledged a challenging Q1/24 comp and expects volume growth to be second-half-weighted as forestry and intermodal volumes normalize. While demand conditions surrounding international intermodal remain uncertain, volumes improved in December, with management highlighting an easing impact from the port strike on volumes into the Port of Vancouver and Prince Rupert. Management was positive on overall merchandise volumes, with a housing deficit in North America supportive of normalizing demand for forestry products over the medium term.”

After increasing his earnings expectation for fiscal 2024, Mr. Murray raised his target for CN shares to $180 from $165, keeping a “sector perform” recommendation. The average target on the Street is $171.82, according to Refinitiv data.

“While the near-term outlook remains unclear, particularly given its exposure to international intermodal volumes, the Company maintains a balanced freight mix, including a strong commodities franchise, which we expect to support margins and significant free cash flow generation and returns to shareholders despite heightened uncertainty,” said Mr. Murray.

Elsewhere, Veritas Research’s Dan Fong downgraded CN to “reduce” from “buy” with a $168 target.

Other analysts making target adjustments include:

* Citi’s Christian Wetherbee to US$128 from US$121 with a “neutral” rating.

“Collectively, the quarter and guide were pretty much what we expected, but the 1Q risk could mute enthusiasm around solid operational momentum,” he said.

* RBC’s Walter Spracklin to $164 from $158 with a “sector perform” rating.

“CN’s Q4 results came in slightly ahead of consensus expectations and the 10-per-cent EPS guidance for 2024 was exactly what we had expected the company to issue,” said Mr. Spracklin. “Key is that the company’s underlying projections (of mid single digit volume growth, pricing above inflation and 5-per-cent buyback) suggests some room for upside, however there are discreet costs in 2024 at play. We moderate our EPS growth estimate for 2024 and flag volume as a key wild card in 2024 (as pricing and operating fluidity look to be in check).”

* BMO’s Fadi Chamoun to $185 from $175 with an “outperform” rating.

“The EPS growth framework in F2024 is, however, more volume dependent (mid-single-digit RTM growth) relative to our expectations (2-per-cent growth), reflecting cost pressures in labor and depreciation,” said Mr. Chamoun. “With an improving demand environment potentially supportive of valuation upside and the early innings of an earnings upcycle, we raise our target price.”

* TD Securities’ Cherilyn Radbourne to $185 from $180 with a “hold” rating.

* Wells Fargo’s Allison Polinkiak-Cusic to US$125 from US$110 with an “equal-weight” rating.

* CIBC’s Kevin Chiang to $177 from $176 with a “neutral” rating.

* JP Morgan’s Brian Ossenbeck to $164 from $158 with a “neutral” rating.


Scotia Capital analysts Andrew Weisel and Robert Hope see valuations for North American utility and power companies as “modestly attractive” heading into earnings season.

“We expect utilities to remain out of favor for the next 3-6 months, before gaining defensive appeal around mid-2024,” they said. “Investor sentiment appears to be somewhere in between apathy and negativity, in our view. Increasing bullishness around the macroeconomy, coupled with a more hawkish sentiment around interest rates, are keeping investors away from this sleepy, yield-sensitive sector. Consensus EPS forecasts for the S&P 500 now call for year-over-year growth of 12-13 per cent in 2024-2026. By contrast, consensus forecasts for utilities call for 7-8 per cent in all three years — quite strong by historical standards and attractively stable, but notably slower growth than the market overall.

“Moreover, given the severe recent volatility and sizable underperformance in 2023, the stocks’ defensive appeal probably isn’t what it was just three months ago. Seasonality likely won’t help either, as defensive sectors like utilities are often weak in Januarys and Februarys as investors psychologically seem more likely to take big swings, knowing that they have 10 months to make up for any potential mistakes. That said, we expect utilities and defensives to regain some appeal as we enter 2Q24 as political noise around the U.S. elections ramps up. We expect a lot of headline risk during the 2024 election cycle, which can bring volatility and uncertainty.”

In a research report released Wednesday titled No Doubt the Stocks Are Cheap, but Will Anyone Notice?, the analyst increased their target prices for stocks in the sector by an average of 4 per cent after rolling forward their valuations to fiscal 2026. They also reiterated their “overweight” stance on the sector while acknowledging sentiment “remains depressed.”

“While bond yields have moderated since the fall, we keep our anchor P/E unchanged as it is in line with our multivariable regression-implied ‘fair value’ of approximately 15.3 times,” they said. “Both Canadian and U.S. utilities look reasonably priced vs. our regression, but continue to trade at wide P/E discounts vs. the S&P 500 (more than 20 per cent). Overall, we see sentiment as being tepid for the group as investors seem more upbeat about a soft-landing scenario. However, we believe their defensive appeal could increase mid-year as U.S. elections add political noise, not to mention Scotia’s Strategy team seeing the market as being overbought. Fundamentally, we remain bullish on the long-term earnings outlook of the group given the numerous tailwinds driving strong rate base growth, including electrification, renewables, and increasing data center load.”

Mr. Hope downgraded Atco Ltd. (ACO.X-T) to “sector perform” from “sector outperform” previously, citing a narrowing discount to his implied net asset value.

“Over the last six months, ATCO’s shares have outperformed Canadian Utilities (CU) by almost 7 per cent,” he said. “This combined with our view that the higher rate environment has moderated the value of some of ATCO’s wholly owned businesses has narrowed the implied discount to NAV. The discount now sits a 26 per cent, versus the 5-year average of 23 per cent. Looking forward, we are uncertain what will drive a further narrowing of the discount, and as a result, have moderated the discount in our target valuation to 25 per cent versus 20 per cent previously.”

His target for the Calgary-based engineering, logistics and energy holding company fell to $43 from $46. The average is $45.57.

Mr. Hope recommends two Canadian stocks in the sector:

* AltaGas Ltd. (ALA-T, “sector outperform”) with a $33 target, up from $31. Average: $32.67.

“AltaGas is our favourite utility stock as we see it benefitting from: (1) strong utility growth, (2) improving balance sheet and easy-to-execute financing plan, (3) increasingly visible and strengthening midstream growth outlook, and (4) an attractive valuation,” he said. “There are numerous opportunities in front of its Utility business which are driving an above average rate base growth outlook (8-per-cent CAGR out to 2028), while Midstream growth appears to be accelerating. We could see several Midstream projects sanctioned in 2024, including the Ridley Island Energy Export Facility (REEF) as well as smaller expansions or debottlenecks, which are not included in our estimates or valuation.”

* Emera Inc. (EMA-T, “sector outperform”) with a $56 target, up from $54. Average: $55.50.

“Emera remains our favourite ‘pure-play’ utility,” he said. “Its latest capital plan devoted 75 per cent of spend towards its assets in Florida, driving continued robust growth at both Tampa Electric and Peoples Gas. We view the state of Florida as one of the most favourable regulatory environments, and we expect the upcoming rate case filing for TECO to be a focus for 2024. We also view its credit metrics improving in 2024 driven by new customer rates and rate base growth, and any asset sale announcements to bolster the funding plan could be well-received. We see Emera’s valuation as overly discounted versus Fortis and Hydro One, and believe this spread should narrow as the company improves its balance sheet.”

His other target changes are:

* Algonquin Power & Utilities Corp. (AQN-N/AQN-T, “sector perform”) to US$7.50 from US$7. Average: US$7.29.

“Algonquin is in the midst of a significant sale process as it looks to sell its portfolio of renewable assets and the associated development pipeline,” he said. “We expect that 2024 will bring clarity to the outcome of the process, which could help sentiment on the shares. That said, in the near-term, given market conditions (higher rates, renewable valuation compression, recent underwhelming transactions), we would not be surprised to see investors take a wait and see approach.”

* Fortis Inc. (FTS-T, “sector perform”) to $60 from $57. Average: $57.88.

“Fortis remains a go-to, core utility pick for many investors given its track record, strong management team, and liquidity. In 2023, the company received clarity on several key rate cases, including those at UNS, Fortis BC, and FortisAlberta, and as a result, there is limited regulatory risk in 2024 regarding rate cases. That said, there are some outstanding regulatory items, but, generally, we don’t expect to see resolutions in the near-term. Overall, the base business is performing well, but relative valuation keeps us on the sidelines,” he said.

* Hydro One Ltd. (H-T, “sector perform”) to $40 from $35. Average: $38.88.

“Hydro One features an attractive, low-risk, visible growth profile. On a relative basis, the shares were quite strong in 2023, and the company is now trading at a sizable premium to our entire North American utility coverage. We are forecasting 100 bps / 110 bps of over-earning at its distribution / transmission assets in 2024, and continue to see the potential for incremental upside related to broadband investment and utility M&A. With its strong growth profile and easy to execute funding plan, we believe Hydro One should trade at a premium to its peers. That said, at recent levels, we view it as fairly valued,” said Mr. Hope.


In a report previewing earnings season for Canadian energy infrastructure, power and utility companies, CIBC World Markets analyst Mark Jarvi and Robert Catellier made a series of target price adjustments.

“We have modified estimates for the Midstreamers under coverage to reflect lower commodity prices and milder weather to start the winter heating season,” they said. “Pipeline utilization remains robust due to restricted capacity additions, and we are more worried about the impact of very cold operations on Q1/24 results. Improved egress options are expected to benefit the industry as a whole and create a step change in capacity. Q4 results for many Power/Renewable names could be soft given generally weaker (but improving) wind resource conditions and lower power prices in N. America (we are 5 per cent below consensus, on average). That said, bond yields are moderating, growth outlooks are improving, and we see a path to recovery in valuations/sentiment. For the regulated utilities, Q4 results could be mixed given milder weather conditions negatively impacting loads in some regions, with some pockets of strength in specific regions (peaks loads in Ontario were strong in Q4).”

Mr. Jarvi’s adjustments are:

  • Atco Ltd. (ACO.X-T, “outperformer”) to $49 from $48. The average is $46.
  • Capital Power Corp. (CPX-T, “neutral”) to $43 from $44. Average: $44.11.
  • Fortis Inc. (FTS-T, “neutral”) to $59 from $58. Average: $57.65.
  • TransAlta Corp. (TA-T, “outperformer”) to $18 from $18.50. Average: $15.28.

Mr. Catellier made these changes:

  • Pembina Pipeline Corp. (PPL-T, “outperformer”) to $55 from $54. Average: $52.
  • Tidewater Renewables Ltd. (LCFS-T, “outperformer”) to $13 from $15. Average: $14.58.


RBC Dominion Securities analysts Paul Treiber and Maxim Matushansky are expecting few surprises from fourth-quarter 2023 earnings season in Canada’s technology sector, predicting most companies in their coverage universe will report results that fall in line with the Street’s expectations.

“Our U.S. Software team expects solid December results that likely benefit from some end of year budget flush,” they said. “For stocks in our coverage that are dependent on consumer spending, we believe consumer spending remained healthy through December, based on U.S. Census data. The rally in tech stocks continued in Q4 (S&P/TSX Info Tech up 24 per cent in Q4, S&P 500 Info Tech up 17 per cent in Q4); however, valuations for a large number of Canadian tech stocks remain below historical averages and at a larger than historical discount to peers. We believe improving growth and profitability through 2024, along with reduced interest rates, are potential catalysts for valuation multiple expansion.”

In a Wednesday research report, the analysts see valuation multiples for most Canadian tech stocks remaining “compressed” heading into earnings season.

“Although valuation multiples of some stocks (like Shopify) materially increased in 2023, the vast majority of Canadian tech stocks continue to trade below historical averages,” the analysts said. “On an equal weighted basis, the valuation multiples of our coverage universe are 8 per cent below the average valuation over the last 10 years. In comparison to the last 5 years, our coverage universe is trading 20 per cent below the valuation average. Compared to the last two years, our coverage universe is still 2 per cent below the average valuation over the last two years. It is only in the last year where the valuation of our coverage universe is now 10 per cent above the valuation average over the last year.”

“Other than Shopify, valuations of most Canadian tech stocks remain compressed. Some stocks like Shopify and Celestica have experienced material valuation multiple expansion in 2023, which has resulted in the valuation multiples of the average stock in our coverage universe increasing 22 per cent in 2023. However, the valuation multiples of the median stock in our coverage universe rose just 4 per cent in 2023. Moreover, valuation multiples expanded for 13 of our 21 covered stocks in 2023, whereas 8 have experienced valuation multiple compression.”

Mr. Treiber and Mr. Matushansky see four stocks “best positioned” for earnings season. They are:

* Constellation Software Inc. (CSU-T) with an “outperform” rating and $3,900 target. The average on the Street is $3,530.63.

“Record capital deployed on acquisitions in 2023 likely to lift Constellation’s Q4 and 2024 growth,” they said. “Constellation is likely to report healthy Q4 results, with adj. EBITDA up 32 per cent year-over-year on organic margin expansion and contribution from Empower/Optimal Blue. While Q4 M&A may be slightly light vs. our model, 2024 is off to a strong start, with over $600-million capital deployed in Q1 to date, over one-third of our estimate for all of FY24. While Constellation’s valuation multiple has increased, we believe the stock is likely to sustain a historically high valuation, as we see Constellation continuing to compound capital at high rates.”

* Shopify Inc. (SHOP-N, SHOP-T) with an “outperform” rating and US$100 target (a high on the Street). Average: US$74.19.

“Shopify is likely to report solid Q4 results, in our view,” they said. “Multiple data sources indicate strong uptake of Shopify Plus, Pay, and POS. Additionally, U.S. Census and other data sources indicate healthy consumer e-commerce spending in Q4. With likely strong Q4 revenue, we believe Q4 margins could also surprise to the upside. We believe Shopify is likely to sustain a premium valuation, given solid growth, improved profitability, and strong product execution.”

* Open Text Corp. (OTEX-Q, OTEX-T) with an “outperform” rating and US$53 target. Average: US$50.42.

“OpenText’s Q2 may help continue the upwards re-rating in the shares,” they said. “First, we expect the company to deliver on its target to achieve more than 20-per-cent organic cloud bookings growth in Q2, which would potentially raise confidence that OpenText’s organic growth trajectory is improving. Second, we anticipate Q2 at the high end of management’s quarterly factors. Third, we expect FCF to rebound in Q2, which would raise visibility to OpenText’s improving FCF profile. We believe OpenText’s valuation is likely to rise toward its historical average, as organic growth strengthens, leverage declines, and FCF increases. OpenText is trading at 8.8 times NTM [next 12-month] EV/EBITDA, below its pre-acquisition 3-year historical average of 12 times.”

* Celestica Inc. (CLS-N, CLS-T) with an “outperform” rating and US$33 target. Average: US$32.25.

“Celestica the most likely to outperform out of the small cap companies. In our view, Celestica has the potential for continued outperformance in Q4 given recent positive customer and competitor commentary on AI-focused capex investments. While we believe there is downside risk in Celestica’s ATS segment guidance, there is likely upside potential in the CCS segment in Q4 and throughout FY24,” they said.


Ahead of fourth-quarter earnings season for Canadian property and casualty (P&C) insurance companies, Desjardins Securities analyst Doug Young sees both Intact Financial Corp. (IFC-T) and Definity Financial Corp. (DFY-T) “well-positioned to grow organically and inorganically, and both have been acquisitive as of late.”

“We expect benign weather in Canada to benefit results for both companies; however, severe windstorms in the UK put some pressure on IFC’s results,” he said.

“2023 has been a tough comp year vs 2022, and especially 2021, on an underwriting basis as economies reopened, inflationary pressures persisted and the frequency of CAT events increased. Higher investment income (due to higher interest rates) was a nice offset, but will this continue in 2024? We are expecting a material increase in operating EPS for both companies in 2024 (mostly because we expect the elevated CAT losses in 2023 to not repeat at the same levels) and will be watching both managements’ outlook for 2024/25 across their different business lines.”

Mr. Young said he’ll be focused on updated guidance on CAT losses and investment income for 2024, adding: “Otherwise, we expect P&C insurance market conditions to remain favourable for the most part and for inflation to moderate sequentially, specifically in personal auto.”

Following modest changes to his forecast for the quarter, the analyst maintained a “buy” rating and $230 target for Intact and a “hold” recommendation and $40 target for Definity. The averages on the Street are $224.73 and $43.55, respectively.


In response to Farmers Edge Inc.’s (FDGE-T) definitive agreement with majority shareholder Fairfax Financial Holdings Ltd. (FFH-T) to go private, National Bank Financial analyst Richard Tse moved his rating for the Winnipeg-based agriculture technology provider to “tender” from “sector perform” previously.

“The purchase price represents a 218-per-cent premium to the closing price and to the 20-day VWAP [volume-weighted average price] as of the close of trading on November 15, 2023, the trading day immediately before the Company received the original proposal,” he said. “In connection with its review of the Transaction, the Special Committee retained an independent financial advisor; the advisor determined the fair market value of each common share to be in the range of 5-45 cents. The transaction is expected to close in the first quarter of 2024 subject to certain customary closing conditions. We’d note the signing of the Arrangement Agreement was unanimously approved by the special committee of independent directors of the Board. As such, we expect the deal to close on schedule.”

Mr. Tse reiterated his 35-cent target for Farmers Edge shares, which was in line with the previous offer. The average on the Street is 30 cents.


In other analyst actions:

* In a report previewing earnings season for Canadian grocers, RBC’s Irene Nattel increased his targets for George Weston Ltd. (WN-T, “outperform”) to $216 from $215 and Loblaw Companies Ltd. (L-T, “outperform”) to $172 from $170. The averages on the Street are $195 and $145.13, respectively.

“We reiterate our ‘stronger for longer’ view of the sector and Loblaw as top pick, with the backdrop of high-teens cumulative two-year inflation underpinning cost-conscious consumers’ behaviours including: meals at home over meals away; category trade-down; and discount channel penetration; and with the tailwind of 3-per-cent population growth further supporting food retailer tonnage and drug retailer Rx count,” she said. “We also reiterate our view that Loblaw is best positioned to benefit from the secular shift in purchasing patterns.

“Loblaw valuation gap to Metro has narrowed in recent weeks. Moderated near-term earnings visibility at Metro as the company undertakes/commissions multiple at-scale supply chain investments could likely sustain relative valuation momentum. At 8.6 times our calendar 2024 estimated EBITDA, Loblaw trades at 1.35 times discount to Metro (TSX:MRU). While Metro has earned its premium valuation, in our view, multiples should converge over time, underpinned by what we view as greater torque on Loblaw’s financial performance.”

* Stifel’s Ian Gillies trimmed his Algoma Steel Group Inc. (ASTL-T) target by $1 to $18 with a “buy” rating, while BMO’s Katja Jancic’s target fell to $15 from $16 with an “outperform” rating. The average target on the Street is $16.31.

“ASTL has provided a further update after a structural failure on Saturday, January 20, 2024,” Mr. Gillies said. “As the company tried to restart the blast furnace there was an issue, which is likely to impact production by approximately 20 days in FY4Q24E. We have estimated the EBITDA impact at approximately $80-million, using F3Q23 as a proxy but with higher product pricing. Despite all the noise, we continue to think the ramp-up of the EAF, inclusive of incremental production and better operational reliability, will reward investors.”

* Following the release of fourth-quarter preliminary revenue that fell below his forecast, Canaccord Genuity’s Cary MacRury cut his Altius Minerals Corp. (ALS-T) target to $24 from $25, keeping a “buy” rating, while Raymond James’ Brian MacArthur lowered his target to $24 from $25 with an “outperform” recommendation. The average target is $22.06.

“The difference is largely due to a lower-than-expected Q4 dividend from Labrador Iron Ore Royalty Corp. (LIF-CA, Not Rated), lower base metal revenue on delivery lags from Chapada, and lower thermal coal revenue as the Genesee plant nears completion of its conversion to natural gas,” Mr. MacRury said. “Our BUY rating is based on Altius’ low-risk royalty exposure high-quality royalty portfolio with long-life assets, upcoming potential catalysts, and proven management team.”

* BMO’s Devin Dodge bumped his Brookfield Business Partners LP (BBU-N, BBU.UN-T) target to US$30, exceeding the US$27.21 average, from US$28 with an “outperform” rating.

“While the backdrop for the broader private equity industry remains somewhat challenging, we believe BBU is well-positioned for many of the anticipated trends in 2024,” said Mr. Dodge. “We expect the emerging bifurcation in the private equity market to continue, with higher quality and operationally-focused firms performing well. Negative sentiment towards private equity from public market investors remains an overhang on valuation, but should ease as BBU progresses turnaround/profit improvement plans at its portfolio companies and advances certain capital recycling initiatives.”

* CIBC’s Anita Soni trimmed her targets for B2Gold Corp. (BTG-N/BTO-T) to US$4.20 from US$4.60 with an “outperformer” rating and Iamgold Corp. (IAG-N/IMG-T) to US$3 from US$3.30 with a “neutral” recommendation. The averages are US$4.43 and US$3.18, respectively.

* CIBC’s Bryce Adams cut his Largo Inc. (LGO-T) target to $7 from $8.25 with a “neutral” rating. The average is $10.

* Barclays’ Dan Levy trimmed his Magna International Inc. (MGA-N, MG-T) target to US$63 from US$65, keeping an “equal-weight” recommendation. The average is US$67.06.

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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 22/03/24 10:12am EDT.

SymbolName% changeLast
Altius Minerals Corp
AltaGas Ltd
Algoma Steel Group Inc
Algonquin Power and Utilities Corp
Atco Ltd Cl I NV
B2Gold Corp
Brookfield Business Partners LP
Canadian National Railway Co.
Capital Power Corp
Celestica Inc Sv
Constellation Software Inc
Definity Financial Corporation
Emera Incorporated
Farmers Edge Inc
Fortis Inc
George Weston Limited
Hydro One Ltd
Iamgold Corp
Intact Financial Corp
Largo Resources Ltd
Loblaw CO
Magna International Inc
Open Text Corp
Pembina Pipeline Corp
Shopify Inc
Transalta Corp
Tidewater Renewables Ltd

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