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

With rising interest rates offsetting its “impressive” organic growth, Canaccord Genuity analyst Mark Rothschild lowered his recommendation for InterRent Real Estate Investment Trust (IIP.UN-T) to “hold” from “buy” in response to recent share price appreciation and its current valuation.

The Ottawa-based REIT slipped 1.4 per cent on Tuesday after it reported fourth-quarter 2022 funds from operations per unit of 12.9 per cent, down 5.8 per cent from the same period a year ago and a penny below the analyst’s estimate, which he attributed to “significantly greater-than-forecast interest expense.” He also emphasized “a jump in financing costs of $5.4 million ($0.04 per unit) from refinancing debt at higher rates and greater mortgage debt outstanding.”

“InterRent REIT reported another quarter of robust operating performance, as strong rental rate growth and improvements in occupancy resulted in an 8.4-per-cent rise in same-property NOI [net operating income],” said Mr. Rothschild. “However, financial results were slightly below our expectations as a result of a greater-than-anticipated rise in financing costs given the move in interest rates. As the REIT’s debt is now almost entirely secured at fixed rates, we expect healthy internal growth, largely from raising rental rates on turnover, to drive solid cash flow per unit growth over the next two years, only somewhat offset by the negative impact of higher interest rates.

“During the quarter, InterRent raised its IFRS cap rate by 7 bps to 4.04 per cent, from 3.97 per cent in Q3/22. Driven in part by the increase in the IFRS cap rate as well as a lower estimate of stabilized NOI, the REIT recorded a fair value loss of $108 million ($0.74 per unit) in Q4/22. We continue to utilize a cap rate of 4.55 per cent to value InterRent’s portfolio, and following Q4/22 results, our NAV per unit estimate is now $14.95, from $14.65 previously.”

Mr. Rothschild thinks same-property NOI “remains strong despite rising operating costs” and same-property occupancy continues to make gains. However, he trimmed his 2023 and 2024 estimates based on a greater-than-anticipated rise in interest costs.

His target for InterRent units rose by 25 cents to $15.75. The average target is $15.19.

“Over the past three months, InterRent’s units have generated a total return of 16.6 per cent, compared to the return of 12.7 per cent for its Canadian apartment REIT peers,” he said. “The REIT’s units currently trade at 29.0 times 2023 estimated AFFO, compared to, on average, 22.5 times 2023 AFFO for its peers.”

Others making changes include:

* National Bank’s Matt Kornack to $16 from $15.75 with an “outperform” rating.

“Generally speaking, this quarter was in line with expectations for InterRent as management’s objectives in terms of a lease up in the Montreal portfolio were met,” said Mr. Kornack. “The REIT’s other markets continued to see stronger rent dynamics and pre-pandemic occupancy levels. This drove strong SPNOI growth for the year with an expectation for high single digit performance in 2023. However, the translation of this top line performance will be constrained from an FFO/u standpoint by active mortgage refinancing at longer terms and higher rates in 2022 with further pressure expected in 2023. Management was uncertain on where turnovers would settle in 2023 but suggested they would trend down from the historical 30% average. A downward trending turnover rate as well as the expectation of market rent increases on the back of an extremely tight rental market is expected to keep embedded MTM elevated.”

* Scotia Capital’s Mario Saric to $15.75 from $15.50 with a “sector outperform” rating.

“We maintain our SO rating, with our key estimate changes of down 5 per cent (2024 estimated AFFOPU [adjusted funds from operations per unit]) to up 3 per cent (NAVPU) as strong SSNOI was offset by higher debt costs,” said Mr. Saric. “We’re a bit less constructive since Q4/22, where we cited IIP as our Top REIT pick for 2023, largely due to its 13-per-cent year-to-date price return (vs. 7 per cent and 14-per-cent sector/peer avg.) driving IIP PEG ratio up 0.5 times to 2.6 times (peers up 0.2 times to 4.3 times). In a nutshell, NAVPU and AFFOPU are telling us slightly different things.”

* Laurentian Securities’ Frederic Blondeau to $16.50 from $15 with a “buy” rating.

“Our take: remains well positioned for further organic growth, while management continues to show leadership in the repositioning of the balance sheet,” said Mr. Blondeau. “In our opinion, the REIT remains exposed to exceptionally solid fundamentals across IIP’s core markets. In parallel, the team was able to reposition the balance sheet adequately, transitioning from its previous barbell approach.”

* RBC’s Jimmy Shan to $17 from $16.50 with an “outperform” rating.

“InterRent REIT’s quarter saw a good recovery in its Montreal occupancy and entered the seasonally weak Q1 with 97-per-cent occupancy, the highest level since COVID,” said Mr. Shan. “IIP continues to maintain SP NOI growth at the higher end of its peer group, including a significant 30-per-cent-plus mark-to-market rent opportunity. However, refinancing mortgages at higher rates and replacing previously cheap credit facilities with CMHC debt will eat into 2023 FFO/unit growth. We maintain our OP rating as we expect 11-per-cent 2024 FFO/unit, a better reflection of strong fundamentals.”

* BMO’s Michael Markidis to $15.50 from $14.50 with an “outperform” rating.

“The current quote implies an EV/suite just north of $300K. We believe this represents a significant discount to replacement cost. The imbalance between population driven demand growth and new supply should continue to put upward pressure on market rents for the foreseeable future,” he said.

* CIBC’s Dean Wilkinson to $15.50 from $14.50 with a “neutral” rating.


While he reduced his earnings forecast through 2025 in response to “noisy but largely in-line” fourth-quarter financial results, ATB Capital Markets analyst Tim Monachello raised his recommendation for Enerflex Ltd. (EFX-T) to “outperform” from “sector perform,” citing “improved visibility.”

“Despite our negative revisions, we believe EFX’s consolidated disclosures, reiterated guidance, and strong synergy realization provided important insights into its consolidated business post-merger and meaningfully improve the level of visibility to deleveraging and strengthening FCF realizations moving forward,” he said in a note released Wednesday.

“While we are more bullish following EFX’s Q4/22 results, we continue to believe investors should be heavily focused on EFX’s FCF realizations and deleveraging over the coming quarters which we expect to be key precursors to meaningful upside realizations for investors. Still, our conservative forecasting suggests that EFX is well positioned to generate upward of $300-million in FCF per year (assuming minimal growth capex) on a normalized basis in 2024 and beyond and our estimates suggest its net leverage ratio will fall below 2.5 times in Q1/24 (including leases). Longer-term we believe EFX’s growth is supported by tailwinds to global natural gas consumption and significant exposure to potential CCUS developments globally.”

Following the March 1 quarterly release, Mr. Monachello cut his 2023 EBITDA forecast by 8 per cent to $49-million. His 2024 and 2025 estimates slid by 9 per cent and 13 per cent, respectively, to $51-million and $83-million.

“We adjust our estimates and our modeling to 1) reflect EFX’s new geographic segmentation, 2) cohesively forecast EFX on a standalone basis (our previous modeling was a combination of our EFX and EXTN estimates), and 3) update our forecasts for incremental items in EFX’s Q4/22 results including a faster pace of synergy and transaction cost realizations, slightly lower than forecasted net debt balances at year-end, slightly lower than forecasted backlog at year-end, and changes to our revenue and working capital estimates related to EFX’s large Middle Eastern gas processing project,” he said.

Believing risks are “subsiding and should continue through 2023,” Mr. Monachello raised his target for Enerflex shares to $14 from $11. The average is currently $13.61.


In a research report wrapping up first-quarter earnings season for Canadian banks, BMO Nesbitt Burns analyst Sohrab Movahedi thinks further patience may be necessary for investors.

“Q1/23 saw five out of “Big 6″ topping consensus estimates — most at CM; BNS was the solo miss. Industry cash operating earnings of $15.5-billion (down approximately 2 per cent year-over-year) were reflective of higher credit costs and double-digit expense growth,” he said. “Investor focus will likely remain on net interest margins, credit costs, and capital levels for the foreseeable future. In our view, there was nothing in the quarter that would get investors sitting on the sidelines more constructive on the banks.”

Mr. Movahedi made a trio of target price adjustments:

  • Bank of Nova Scotia (BNS-T, “market perform”) to $75 from $85. The average on the Street is $73.98.
  • Canadian Imperial Bank of Commerce (CM-T, “outperform”) to $69 from $70. Average: $65.02.
  • Toronto-Dominion Bank (TD-T, “market perform”) to $98 from $93. Average: $101.62.

He maintained his targets for these stocks:

  • National Bank of Canada (NA-T, “outperform”) at $103. Average: $107.21.
  • Royal Bank of Canada (RY-T, “market perform”) at $132. Average: $142.52.

“The bank index currently trades at 9.7 times our 2024 earnings estimates (target prices based on 10.1 times 2024 EPS target for the bank index), which is at the lower end of the historical 10-12 times forward P/E range, but reflects earnings growth uncertainty,” he said. “For patient investors, we see the banks’ conservative credit provisions, margin tailwinds, and strong capital levels positioning them well to navigate the uncertain economic environment; current valuations and attractive dividend yields should provide downside protection.

“Following Q1/23 results, we made no rating changes (we still rate CM and NA Outperform), but lowered our target prices on BNS, TD, and CM. On CM, our lower target price was primarily due to a marginal reduction in our 2024E, whereas our TD and BNS changes were premised on both lower 2024E and lower valuation multiple targets. We justify the lower multiples at both TD and BNS in large part because we view their earnings potential as drifting targets for the foreseeable future.”


In a research note titled Uphill Sledding, ATB Capital Markets analyst Kenric Tyghe said a “steeper-than-expected” move to discount options by Canadian consumers will “make for a tougher-than-expected uphill battle” for sales for Empire Company Ltd. (EMP.A-T), citing “its heavily full-service-weighted base (and de minimis - relative - pharmacy business).”

When it reports third-quarter 2023 results on the March 16, the analyst expects the impact of the company’s November cybersecurity breach to be very evident, predicting a 10-cent hit to earnings per share. He’s now estimating quarterly EPS of 73 cents, in line with the the second quarter and 5 cents higher than the consensus estimate on the Street.

“We expect Empire food retail sales to reflect a larger negative spread versus Food CPI, reflecting (i) an increased focus on the value proposition in full service, (ii) the relative timing impact of the pandemicrelated closure on Empire’s off-cycle reporting calendar, and (iii) the consumer trade-down to discount (i.e., expected modest share losses),” he said. “We have lowered our SSS estimate to 2.8 per cent (on Food CPI in Empire’s quarter of 11.3 per cent) from 3.3 per cent to better reflect the challenging backdrop in-quarter, for year-over-year sales growth of 3.7 per cent to $7.65-billion (versus $7.69-billion prior, and consensus of $7.66-billion). We expect that Empire’s ecommerce business continues to ramp and that the capacity constraints in the year prior will not be reflected in this quarter’s performance.”

Mr. Tyghe said he expects food inflation to “remain elevated” through at least the first half of the calendar year, seeing it “continuing to defy gravity and with recent peer commentary that price request increases from suppliers remain elevated (on both the number of requests and the magnitude of the increases).”

“We expect the higher-for-longer food inflation, dovetailing with the ripple effects of the rate shock (and housing wealth effect reset) on consumers, to drive a further increase in the focus on value (the discount grocery channel) through mid-to-late calendar 2023 (before starting to rebalance exiting 2023),” the analyst added. “The challenge for Empire against this backdrop is that not only does it remain the most full-service-weighted (by a wide margin) grocer among its Canadian peer group, but it also has the smallest drug retail business (with an even smaller beauty business), which leaves the Company with few options to mitigate current headwinds.”

Reducing his sales estimates, Mr. Tyghe cut his target for Empire shares to $42 from $45, keeping an “outperform” recommendation. The average is currently $39.22.

“We believe our new price target is well supported based on Empire’s improving competitive positioning and its ramping e-commerce business,” he concluded.


It will be “short-term pain for long-term gains” for investors in Pet Valu Holdings Ltd. (PET-T), according to Stifel analyst Martin Landry.

Shares of the Markham, Ont.-based retailer fell 3.6 per cent on Tuesday amid concerns over its full-year 2023 earnings and margin outlook. That overshadowed largely in-line fourth-quarter 2022 financial results, including a year-over-year earnings per share increase of 4.9 per cent to 43 cents, matching the forecast of both Mr. Landry and the Street.

“Revenues continued a strong growth cadence driven by same-store sales growth of 11.8 per cent year-over-year, while gross margins came under pressure, declining 60 basis points year-over-year on the back of (1) a weaker Canadian dollar, (2) unfavorable sales mix with increased sales of national brands and (3) incremental pressure from a higher penetration of franchised operations, which carries lower margins profile due to wholesale revenues, having lower margins than retail revenues,” the analyst said.

“Continued strong revenue growth was offset by gross margins pressure, resulting in a more muted EPS growth year-over-year. EPS guidance for 2023 came-in below expectations and calls for limited growth year-over-year of 2.5 per cent, explaining the negative share price reaction today, in our view. Inefficiencies stemming from investments in supply chain are expected to be larger than previously expected, limiting gross margins upside near term.”

While Pet Valu expects margin struggles to have a negative impact of 0.8 per cent in 2023 due largely to a supply chain transformation, including new distribution facilities in Calgary, Vancouver and the GTA, Mr. Landry thinks that pressure will largely be “one-time in nature and not reflecting a change in the company’s earnings power.”

“In our view, these investments will create long-term benefits post 2025 and should allow the company to increase its margins profile above its 35 per cent to 36 per cent historical range driven by automation benefits and more efficient operations,” he said.

However, while continuing to tout “appealing industry characteristics” as well as its “strong growth prospects” and “solid business economics and competitive positioning,” Mr. Landry reduced his 2023 and 2024 earnings per share estimates by 4 per cent and 5 per cent, respectively, to $1.65 and $1.85 to reflect the higher-than-anticipated gross margins pressure.

That led him to cut his target for Pet Valu shares by $1 to $44, reiterating a “buy” rating. The average on the Street is $46.17.

“Our long-term view on PET remains intact and PET remains one of the best organic growth story in the Canadian consumer sector,” he said. “We also expect ongoing investments into the business to increase the company’s margin profile in the long-term, which could lead to improved long-term EPS growth.”


While he continues to think E Automotive Inc. (EINC-T) has “a unique model of driving technology into a mature used car auction market,” National Bank Financial analyst Richard Tse said he’s cautious in the short term due to “continued macro headwinds and cash burn.”

Shares of the Toronto-based company, which operates digital auction and retailing platforms for automotive wholesale and retail customers, fell 2.6 per cent on Tuesday following the release of “mixed” fourth-quarter 2022 financial results.

Revenue rose 14 per cent year-over-year to $26.3-million, missing both Mr. Tse’s $28-million estimate and the consensus forecast of $28.7-million. However, an adjusted EBITDA loss of $8.3-million was stronger than anticipated (losses of $10.4-million and $9-million, respectively).

“A positive in those mixed results was U.S. organic growth, which we estimate accelerated to 23 per cent year-over-year (off a low base) from 15 per cent year-over-year in Q3, outpacing the used car market (in the U.S.) which was down 5 per cent year-over-year according to data from Manheim,” the analyst said.

“With its cost savings program complete, $30-million in cash (inclusive of working capital) and a plan to pause acquisitions in the near term, Management noted it has enough cash to reach positive Adj. EBITDA. The timing of which was not provided.”

As “the narrative continues to be a focus on profitability,” Mr. Tse trimmed his target for E Automotive shares to $4.25 from $5, maintaining a “sector perform” rating. The average is $7.42

Other analysts making target changes include:

* Canaccord Genuity’s Aravinda Galappatthige to $7.25 from $7 with a “speculative buy” rating.

“While we are encouraged by the prospect of a recovery in conversion rates, in turn driving revenues and gross margins, the overall market remains under pressure due to [a used car] inventory issue,” said Mr. Galappatthige. “Thereby even as we roll forward our valuation to fiscal 2024 (from 2023), we have lowered our target EV/Sales multiple from 2 times to 1.75 times. This is largely on account of low visibility for the business, particularly with respect to F2024 and balance sheet concerns. Nonetheless, we maintain our SPEC BUY rating; we believe EINC has upside potential as the used vehicle market recovers over time and U.S. expansion gathers momentum.”

* Scotia Capital’s Michael Doumet to $5.50 from $6 with a “sector perform” rating.

“EINC reported mixed results, with GTV, transaction volumes, and revenue coming in below our/consensus estimates,” said Mr. Doumet. “In the context of the challenging backdrop, the top line miss could have been expected. The EBITDA loss, however, was more mild than expected as EINC improved its unit economics and reduced its cost base. Further, the commentary on trends – in particular as it relates to conversions (i.e., improvement so far in January) – bodes well for 2023. When combined with the improved cost structure, EBITDA losses are expected to moderate in 1Q (and more so in 2Q); management did not comment on when EINC would get to breakeven. EINC has $17 million of cash on its B/S. EINC’s valuation appears attractive on a relative standpoint, trading at 1.2 times EV/sales on our 2023E (versus ACVA-US at 3.3 times). However, we believe the market needs better visibility on the improved conversions and gross margins, EBITDA losses, and cash burn going forward before a re-rate.”


In other analyst actions:

* Canaccord Genuity’s Robert Young upgraded Pollard Banknote Ltd. (PBL-T) to “buy” from “hold” with a $24 target, up from $18.50. The average is $26.25.

* PI Financial’s Justin Strong initiated coverage of Lithium Americas Corp. (LAC-T) with a “buy” rating and $40 target. The average is $37.78.

“We see Lithium Americas offering an attractive opportunity to invest in domestic USA production of battery-grade lithium chemical production,” he said. “With an announced (but not yet detailed) plan to separate the Company’s North American and Argentinian assets, we see the current Company providing shareholders with exposure to near-term production from the large (and in commissioning) Caucharí-Olaroz project, with significant upside from the development of Thacker Pass as the U.S.’s next source of domestic lithium chemicals for lithium-ion battery production.”

* Scotia Capital’s George Doumet increased his Alimentation Couche-Tard Inc. (ATD-T) target to $71 from $68.50, maintaining a “sector outperform” rating. The average on the Street is $71.29.

“We are ahead of consensus for Q3 and have taken the opportunity to reflect a more conservative fuel margin assumption for Q4 and F24,” he said. “Over the last few years, the industry has enjoyed elevated fuel margins, however more recently, we have seen a step down (to 37cents per gallon fourth quarter-to-date vs. 47cpg in 1H/F23). While we acknowledge some near-term noise, we have taken a conservative approach and modeled 36.5cpg for F24 (and 36cpg for F25). This results in a reduction in our Q4/F23 and F24 adj. EPS by 6 per cent and 7 per cent, respectively. We have also rolled forward our valuation to our newly introduced F25 estimates.

“ATD continues to be one of our preferred consumer names and checks of many boxes in today’s environment, namely: (i) operating in a largely defensive industry, (ii) a pristine balance sheet (at 1.4 times leverage) in an increasingly more conducive M&A environment and (iii) an undemanding valuation, with shares trading at a modest discount to its long-term historical average.”

* BMO’s Rene Cartier raised his Altius Minerals Corp. (ALS-T) target to $23 from $22 with a “market perform” rating. The average is $24.64.

* After better-than-expected quarterly results, Laurentian Securities’ Jonathan Lamers raised his Bird Construction Inc. (BDT-T) target to $12 from $11.75 with a “buy” rating, while Raymond James’ Frederic Bastien moved his target to $12 from $11 with a “strong buy” rating. The average is $11.58.

“The combined effect of Bird Construction’s new contract awards, volume growth and stronger margins sets the stage for significant bottom-line growth in 2023, in our opinion,” said Mr. Bastien. “We have revised our estimates higher to reflect improved visibility and continued momentum as the company churns through its record combined backlog. With BDT’s order book heavily weighted toward lower risk contract types, growing recurring revenue streams that include environmental remediation work, and strong balance sheet, our outlook for the contractor remains constructive.”

* RBC’s Paul Treiber cut his BlackBerry Ltd. (BB-N, BB-T) target to US$4.50 from US$5.50 with a “sector perform” recommendation. The average is US$4.81.

“Although lower than expected Q4 stems from several large Cybersecurity deals slipping into next quarter, BlackBerry’s goodwill impairment and potentially reduced long-term outlook suggest broader challenges in its Cybersecurity unit,” said Mr. Treiber.

* CIBC’s Paul Holden bumped his Element Fleet Management Corp. (EFN-T) target to $21 from $20 with a “sector perform” rating. Other changes include: Barclays’ John Aiken to $23 from $21 with an “overweight” rating and National Bank’s Jaeme Gloyn to $28 from $24 with an “outperform” rating. The average is $23.08.

“The forward outlook is little changed following Q4 results,” said Mr. Holden. “Revenue and earnings growth is expected to slow in 2023 following a very strong 2022. Further upside on the stock may be limited in the near term, but we remain cautious on the economic outlook and think EFN can hold its value better than most financials we cover through a recessionary period.”

* BMO’s Mike Murphy increased his target for Paramount Resources Ltd. (POU-T) to $38 from $35 with an “outperform” rating, while ATB’s Patrick O’Rourke cut his target to $39 from $40 with an “outperform” rating. The average is $38.95.

* Scotia Capital’s Phil Hardie raised his Power Corp. of Canada (POW-T) target to $44, above the $38.25 average, from $39 with a “sector perform” rating.

“We focus on potential opportunities created by the recent widening of Power Corp’s NAV discount,” he said. “The near-term opportunity is likely a market-neutral strategy focused solely on the narrowing of the NAV discount by taking a long position in Power Corp, and hedging with a short position in its major underlying publicly traded subsidiaries. The mid- to longer-term trade is a long-only play with a potentially longer time horizon, however, investors are likely rewarded for their patience with a healthy 5.3-per-cent dividend yield.

“We estimate POW’s NAV discount tightened to a recent low of 17 per cent in July 2022, but has since widened to over 23 per cent. Surfacing the unrecognized value of POW’s ‘private’ stub through successful monetization and subsequent return of capital to shareholders through share buybacks remains a lever for ‘value creation’. The recent completion of the sale of its stake in ChinaAMC likely marks another step toward the simplification and refocusing of Power’s NAV, and we expect an acceleration of buyback activity to serve as a near-term catalyst to narrow its NAV discount..”

* Canaccord Genuity’s Doug Taylor increased his target for Think Research Corp. (THNK-X) to 80 cents, above the 75-cent average, from 60 cents with a “speculative buy” rating, while Echelon Partners’ Rob Goff raised his target to $1.10 from 90 cents with a “speculative buy” rating.

“Think Research announced a five-year SaaS agreement with a new customer to provide access to Think’s Digital Front Door and LMS solutions,” said Mr. Taylor. “The deal is expected to produce a significant $8.5-million in year-1 revenues including $7.8-million in recurring SaaS revenue at high margins. Combined with the recent $3.5-million contract expansion with a global pharmaceutical company announced in February, we believe Think’s Software & Data Solutions unit is poised for significant growth in 2023 and will skew the business mix more technology and data centric. We have raised our estimates on the back of this announcement and see the growth profile as de-risked. The added profitability should also help the company manage its balance sheet obligations more efficiently. On higher numbers, we are raising our target price ... based on an unchanged 1 times NTM+1 sales and 13 times EBITDA and see further upside potential as the company executes against this contract and other pipeline opportunities.”

* ATB Capital Markets’ Patrick O’Rourke lowered his Tourmaline Oil Corp. (TOU-T) target to $90 from $95 with an “outperform” rating. The average is $90.86.

* National Bank’s Adam Shine cut his VerticalScope Holdings Inc. (FORA-T) to $10 from $11 with an “outperform” rating. The average is $12.71.

“The negative trend of 4Q in 2022 has continued through 1Q in 2023,” he said. “FORA remains optimistic that its product initiatives, including the mobile app and product discovery experiences for its communities, will be welcomed by users over coming quarters as added value to stimulate more engagement. With help from organic revenue initiatives like programmatic optimization and video advertising tests, revenue trends are expected to improve in 2Q and through 2H. An anticipated easing of top-line pressure coupled with restructuring savings of up to $6-million could eventually resuscitate margins.”

* Scotia’s Michael Doumet hiked his Wajax Corp. (WJX-T) target to $29, exceeding the $27.25 average, from $27 with a “sector outperform” rating. Others making changes include: Raymond James’ Bryan Fast to $27 from $25 with an “outperform” rating and BMO’s Devin Dodge to $26 from $23 with a “market perform” rating.

“We raised our estimates following the 4Q beat,” said Mr. Doumet. “The outlook for infrastructure, non-res, energy, and mining in Canada remains favourable. For the heavy equipment business, price hikes and anticipated volumes growth support continued sales growth in 2023. And, for IP and ERS, we expect high double-digit percentage organic growth in 2022 to trend towards high single-digit percentage organic growth into 2023. That said, a more balanced supply/demand outlook for heavy equipment should moderate margin leverage. Altogether, with our 2023E/24E EPS forecast of more than $3 per share, aided by the growth and durability of IP and ERS, WJX appears poised to comfortably out-earn its dividend (50-per-cent dividend payout) as well as deploy excess capital to grow IP and ERS via M&A.

“WJX trades at 8.3 times P/E (and 4.9 times EV/EBITDA) on our 2023E, reflecting a discount to its historicals and peers. While the discount versus historicals can be partially explained by macro concerns, we believe WJX’s direct Hitachi agreement (and related opportunities going forward) and its strong performance in IP and ERS (40 per cent of sales; peers trade at more than 10 times EV/EBITDA) support multiple expansion opportunity in the shares.”

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