Inside the Market’s roundup of some of today’s key analyst actions
Ahead of the start of earnings season for Canadian life insurance companies next week, National Bank Financial analyst Gabriel Dechaine expects strong equity markets to “boost” both reported and core earnings per share results.
“Lifecos are underperforming the market by approximately 6 per cent since the end of Q4/23 reporting season, reflecting a general pullback in markets. In general, we are forecasting a fairly ‘quiet’ quarter,” he said.
“Excluding a one-time charge to be recorded by MFC (i.e., related to LTC portfolio disposition), we are forecasting a narrow spread (3 per cent) between reported and core EPS, with all but GWO expected to deliver reported EPS ahead of core EPS. Core EPS should benefit from strong equity markets during the quarter, considering 30-per-cent-plus of average lifeco earnings are linked to Wealth businesses, and we have revised our EPS upwards slightly for MFC and SLF as a reflection of this backdrop. On the other hand, we have cut our IAG Q1/24 forecast by 5 per cent to reflect: 1) a more conservative outlook for new business strain in the Group business; 2) impact from macro movements (rates); and 3) offset by higher wealth AUM due to stronger equity markets. We believe investors are particularly concerned about IAG’s results, given the string of poor quarters over the past year. We note that consensus Q1/24 has been cut by 2 per cent so far over the past month, which should limit downside risk heading into earnings.”
In a research report released Friday, Mr. Dechaine made modest changes to his earnings projections, leading to a pair of target price adjustments as he outlined company-specific trends, themes and issues for investors to watch for.
* Manulife Financial Corp. (MFC-T, “sector perform”) to $34 from $33. The average is $35.05.
“MFC: 1) Legacy block transactions are still THE focus; 2) Asia sales rebound facing tougher comparable; 3) Investment experience has caused reported earnings volatility,” he said.
* Sun Life Financial Corp. (SLF-T, “sector perform”) to $73 from $72. Average: $76.38.
“SLF: 1) U.S. Group redetermination impact waning; 2) Canadian Group business has been exceeding expectations; 3) Another CRE loss anticipated,” he said.
He maintained his targets for these stocks:
* Great-West Lifeco Inc. (GWO-T, “sector perform”) at $42. Average: $44.11.
“GWO: 1) Empower continuing to benefit from acquisition synergies; 2) Group business has been exceeding expectations; 3) Europe segment turnaround just starting,” he said.
* IA Financial Corp. Inc. (IAG-T, “outperform”) at $102. Average: $98.88.
“IAG: 1) Another quarter of new business strain in Group expected; 2) Mild winter could boost IAG’s P&C business; 3) Buyback program is active,” he said.
* Sagicor Financial Co. (SFC-T, “outperform”) at $9. Average: $9.17.
“• SFC: 1) U.S sales outlook; 2) Deployment of excess capital; 3) Canada division could see fair value losses,” he said.
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While Canadian-listed property and casualty insurance stocks have delivered “solid outperformance,” Scotia Capital analyst Phil Hardie remain bullish and see further upside potential.
“We believe the P&C insurers look well positioned for the year ahead,” he said in a report. “These stocks have relatively low sensitivity to macro factors and can generate solid investor returns in an environment where broad market multiple expansion is limited. Over the past year, elevated cat losses and rising rates created headwinds to book value growth for several insurers. We expect these pressures to diminish with book value growth accelerating.
“Operating ROE expansion is expected to be a common theme across our coverage of the P&C insurers. The key drivers are likely to be (1) growth in operating investment income (ex-gains) given the expansion of investment income through 2023, and (2) expanded underwriting margins. Key factors likely to drive the improvements in underwriting include: more normalized cat losses, benefits from recent pricing actions, and stabilized claims inflation rates.”
Ahead of earnings season in the quarter, Mr. Hardie thinks valuation has “likely emerged as investors’ focal point following a strong stock rally.”
“We believe the recent multiple expansion reflects an improved ROE outlook rather than a broader market or sector re-rate driven by sentiment. Investors may be surprised that the current estimated ROE vs P/B regression curve is flatter than the historical average implying that market multiples reflect a modest discount,” he said. “We estimate that all else being equal, current valuation levels are similar to those last seen in 2018 and 2019.
“We believe the pricing environment remains healthy but expect to see greater divergence across business lines. The last few years have seen a favourable pricing environment that has enabled a large portion of the P&C industry to increase rates to help drive “pricing adequacy” and improved profitability. We expect the pace of industry-wide rate increases to moderate in 2024, reflecting what we believe has become a relatively constructive operating environment with healthy margins and anticipated returns on capital. Broadly speaking, we expect firm markets to persist but believe there will be a rising level of divergence within commercial lines.”
After adjusting his estimates, Mr. Hardie raised his targets for stocks in the group while reaffirming his “sector outperform” recommendations for each.
“Fairfax and Trisura stocks have delivered over 20-per-cent upside year-to-date and remain our top picks across our overall coverage universe of Diversified Financials and P&C Insurance,” he said.
His changes are:
* Definity Financial Corp. (DFY-T) to $51 from $49. The average on the Street is $47.27.
Analyst: “We believe Definity is an attractive evolutionary growth story. We view Definity as an evolutionary story, but what we believe truly sets it apart from its publicly traded peers is the themes related to excess capital and M&A and what they mean for the ROE outlook and the stock’s valuation. Reasons to like and own Definity include: (1) defensively positioned with limited sensitivity to macroeconomic factors such as interest rates, or financial markets cycle; (2) solid growth prospects and a resilient model that is likely able to support double-digit earnings growth and compound BVPS by mid-single digits over the mid-term; (3) a strong management team; and (4) M&A potential serves as an embedded catalyst, with mid-term takeout potential likely limiting downside risks. Definity has gone through a significant foundational transformation of its business over the last few years, culminating in the establishment of leading digital platforms and an overhaul of its commercial portfolio that should support competitive positioning and accelerated growth with sustained profitability. We believe that a high level of excess capital, an under-levered balance sheet, and M&A optionality can provide a path to mid-teens ROE, offering significant upside potential to the stock.”
* Fairfax Financial Holdings Ltd. (FFH-T) to $2,000 from $1,900. Average: $1,828.09.
Analyst: “We believe Fairfax’s current valuation does not fully reflect the company’s earnings potential and remains an attractive opportunity for investors. We believe the stock should garner a sustainable re-rate on the back of the organic expansion in its insurance operations, which likely enhances the company’s ROE and the growth rate potential of its book value, and potentially adds greater consistency to both metrics. The company is likely well positioned for the current rate environment and has locked in a much higher run-rate of operating investment income as a result of the rise in bond yields and its short-duration portfolio. Further, given its value investing approach, we think it has the potential to continue to generate outsized investment returns – even against a backdrop of more modest equity market returns. The company has demonstrated resilience through the business cycle and turbulent financial markets, but we view it as a less defensive play than more traditional publicly listed insurers. At this stage of the market cycle, this likely provides an attractive balance: downside protection thanks to the relative resilience of insurance operations through a potential recession, and upside potential when markets recover. We believe the company is overlooked or unloved by investors, and continues to trade well below its intrinsic value. We are bullish on the name and believe Fairfax is well positioned to successfully navigate the current environment and remains one of our top ideas for 2024. Fairfax’s valuation discount remains wide despite showing strong growth and enhanced ROE potential.”
* Intact Financial Corp. (IFC-T) to $261 from $256. Average: $236.19.
Analyst: “A ‘Go-To’ defensive quality name that we believe is attractive for large-cap investors looking for a high-quality name to reduce portfolio beta and trades at a reasonable valuation. Intact is Canada’s largest P&C insurer, with a successful long-term track record of exceeding industry ROE by 500 basis points. It is also a resilient, defensive-oriented leading financial services company with a strong management team and appealing mid- to long-term growth prospects. The pillars of its strategic road map for growth include expanding leadership in Canada, building a specialty solutions leader, and strengthening leading positions in the United Kingdom and Ireland. We remain constructive on Intact in the current market environment, given its defensive characteristics, solid growth outlook, and sustainable mid-teens ROE supported by the favourable pricing environment. M&A also likely provides an embedded catalyst. Given its current levels of excess capital and progress with the RSA integration, we believe further deal activity is imminent over the next 12 to 24 months. We see several catalysts on the horizon that include (1) stronger-than-expected underwriting and operational performance once conditions normalize, (2) demonstrated value creation and performance enhancement from the RSA UK&I platform over the mid- to longer term, and (3) potential resumption of larger-scale M&A activity. IFC trades at nearly 2.7 times book value, which we believe is reasonable given its ROE outlook and embedded optionality provided by its excess capital.”
* Trisura Group Ltd. (TSU-T) to $59 from $56. Average: $54.50.
Analyst: “A unique and diversified Specialty P&C insurance platform that is a high-growth business with an attractive risk profile. Trisura’s unique hybrid fronting platform should enable it to generate a more consistent and capital-efficient earnings stream than traditional insurers, resulting in a superior ROE and risk profile than that of more traditional insurers. As the business continues to transform, we believe these characteristics can support a premium valuation relative to its peers. The team is targeting ROE in the mid- to high teens and believes that, given its market focus and growth initiatives, the company will be able to sustain top-line growth in the mid- to high teens over the mid-term. The company also reiterated its goal of targeting $1-billion of book value by the end of 2027. This is up over 60 per cent from its Q4/23 book value of $620-million. The company’s vision is to be the leading specialty insurer in North America, and it has a number of growth levers.”
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Desjardins Securities analyst Benoit Poirier reiterated his bullish stance on Bombardier Inc. (BBD.B-T) following the reaffirmation of its full-year guidance on Thursday, seeing its current share price level providing “an interesting entry point for long-term investors.”
“Overall, we view the results as positive given the stronger-than-expected bookings in the quarter and management’s positive commentary on the environment as well as the balance of the year,” he said. “At next week’s investor day, we do not expect any changes/ surprises in BBD’s existing 2025 targets as discussions will most likely centre on capital deployment and the growth opportunities for the company’s aftermarket, defence and certified pre-owned businesses.”
Shares of the Montreal-based business jet manufacturer soared 8.3 per cent on Thursday despite the release of first-quarter results that fell short of expectations. Total revenue of US$1.281-billion was a drop of 12 per cent year-over-year and below both Mr. Poirier’s US$1.477-billion estimate and the consensus projection of US$1.503-billion. Free cash flow, which the analyst saw as investors’ main focus, of a loss of US$387-million was an improvement of 57 per cent and above Mr. Poirier’s expectation of a loss of US$486-million but below the Street’s forecast of a loss of US$345-million.
“For FCF, we believe investors were expecting far worse than consensus, so the slight miss was not seen as a concern,” he said. “EBITDA margin outperformed (16.0 per cent vs 15.0 per cent) despite the slight EBITDA miss due to timing issues and the heavy Challenger delivery mix. Most importantly, BBD maintained its 2024 guidance. Management reiterated its confidence and mentioned that 1Q results were in line with its expectations and that the company remains on track to meet its targets. The two main contributors to the stronger EBITDA margin in the quarter were aircraft sales prices and a greater mix from aftermarket (37 per cent of revenue in 1Q; we expect this to normalize at 26 per cent in 2Q, which will pull EBITDA margin back down to 15.2 per cent).”
Mr. Poirier now expects the bulk of the working capital investment to occur in the first half of the year as Bombardier builds up its inventories for the year.
“Bizjet market conditions remain robust — BBD hits 1Q bookings out of the park,” he said. “The backlog ended 1Q at US$14.9-billion, up sequentially from US$14.2-billion. This represents a book to bill of 1.6 times in units and 1.9 times in sales and bookings. BBD reaffirmed that demand for its products remains strong across the globe despite economic headwinds, with booking activity in Europe picking up once again (had several Global orders from Europe in 1Q; the Dassault 6X and 10X delays could be a factor, in our view). Management also stated that it booked a nice Global defence order in the quarter. Combining these items with industry flight activity and commentary, we believe BBD has a clear line of sight in its sales pipeline to reach a book to bill of 1 times in 2024.”
Ahead of the company’s investor day event next week, Mr. Poirier raised his earnings expectations for 2024 and 2024, leading him to bump his target for Bombardier shares to $101 from $96, keeping a “buy” recommendation. The average is $77.67.
“We believe management is taking the necessary steps to deleverage the balance sheet and is well on track with its key strategic initiatives for margin and revenue expansion. We look forward to hearing more about the aftermarket, defence and CPO growth opportunities at the investor day next week,” he said.
Elsewhere, others making changes include:
* National Bank’s Cameron Doerksen to $92 from $95 with an “outperform” rating.
“Our thesis on Bombardier is unchanged; we see steady progress towards the company’s 2025 financial targets underpinned by still healthy business jet end market conditions that we expect will ultimately drive a material increase in the share price,” said Mr. Doerksen.
“Even though Bombardier’s backlog provides visibility on earnings and cash flow growth through 2025 and end market conditions remain supportive, valuation on Bombardier shares seemingly reflects an expectation that the company will fall well short of its 2025 targets. We note that at $900 million in free cash flow in 2025, the FCF yield is currently 16 per cent. We continue to see material upside to the share price as the company marches steadily towards the 2025 targets in the coming quarters.”
* CIBC’s Kevin Chiang to $67 from $61 with a “neutral” rating.
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While Aecon Group Inc. (ARE-T) delivered “a much cleaner” quarterly report, National Bank Financial analyst Maxim Sytchev is “staying on sidelines, seeing better value on other pockets [of the engineering and construction industry].”
“2019 was the last clean year before the pandemic and at that time, EBITDA stood at $229-million while revenue amounted to $3.5-billion vs. our projection of $4.3-billion,” he said. “Embedded operating leverage on a 22-per-cent revenue increase seems too large for us (caveat being multiple divestitures, etc. that complicates the calc of economic interest and comparability). Speaking with investors, we are often being quoted the $365-million figure as the reason for the shares being undervalued, but when accounting for economic ownership of the current asset base and the 6.7 times EV/EBITDA multiple on 2025 estimates, we think the shares are fairly valued.”
The Toronto-based company was up 2.4 per cent on Thursday after it revenue of $847-million, down 24 per cent year-over-year and below both Mr. Sytchev’s $1.064-billion estimate and the consensus projection of $996-billion due largely to a lower contribution from its Construction segment as a result of tough comps from the same period a year ago. Adjusted EBITDA of $32.9-million did top expectations ($23.3-million and $23-million, respectively).
“We should note of course that Q1 is the least seasonality important quarter, so the TRUE underlying EBITDA margin is still TBD, in our view,” he said.
While Mr. Sytchev saw “less noise” with the quarterly report, he continues to see 2024 as a “rebuild year” and expects more growth in 2025.
“After factoring in recent divestures, pro-forma (organic) revenue growth is expected to be flat to slightly up for the full year,” he said. “Top-line growth is expected to pick up as the five major collaborative projects (including the $10+-billion OnCorr) are added to the backlog and start contributing to the P&L. While this will help stabilize margins, by nature, large, complex projects still carry inherent execution risks. Management also continues on its business development quest in power in the U.S. but any deal appears to be bitesized ($150-million top-line-type).”
While adjusting his forecast “to reflect the impact of lower revenue growth, as telegraphed on the call due to major project completions as well as asset sales in H1/2,” Mr. Sytchev raised his target for Aecon shares to $18 from $15 with a “sector perform” recommendation. The average is $19.55.
“Decelerating growth should slightly be offset in H2/24 and into 2025 as more Utilities’ work ramps up (soft this quarter due to seasonality),” he said. “We expect slightly positive FCF this year and flattish working capital draw year-over-year, pending any resolution of the arbitrage negotiations for the legacy projects.
Other analyst changes include:
* ATB Capital Markets’ Chris Murray to $21 from $19.50 with an “outperform” rating.
“EBITDA came in ahead of ATBe and consensus on better-than-expected levels of profitability in Construction and Concessions, acknowledging Q1 is seasonally weak for construction activity,” said Mr. Murray. “Aecon did not incur any cost reforecasts tied to legacy projects during Q1/24 and worked through $80-million of backlog during the quarter with $330-million remaining. We expect the absence of cost reforecasts to improve broader sentiment and the margin outlook beginning in H2/24 when two LRT projects are expected to reach final completion. Strong book-to-bill trends and growth in progressive model contracts indicate that demand conditions remain firm, which keeps us constructive on the longer-term earnings profile.”
* Paradigm Capital’s Alexandra Ricci to $17.80 from $14 with a “hold” rating.
“Aecon is setting a more positive tone to 2024, with Q1/24 EBITDA beating the Street’s expectations by 44 pere cent,” she said. “This is the second quarter sequentially where the company reported better-than-expected EBITDA and margin improvement. As fixed price legacy contracts are de-emphasized as a percentage of backlog through the year, we are looking for continued margin improvement.”
* BMO’s Devin Dodge to $18.50 from $17.50 with an “outperform” rating.
“After several consecutive quarters of operating losses on its legacy fixed-price projects, the absence of negative developments in Q1/24 was a welcome reprieve. While risks remain, we believe the magnitude of potential negative developments continues to moderate. Meanwhile, underlying performance has been solid and ARE is positioned to generate attractive earnings growth. Further progress in wrapping up its legacy projects (without hitting any speed bumps), claim settlements, and progress in building out Aecon Utilities represent near-term catalysts for the shares,” said Mr. Dodge.
* Raymond James’ Frederic Bastien to $17 from $16 with a “market perform” rating.
“Earlier this week, Aecon Group reported better-than-expected results for its seasonally weak first quarter. But with the potential for further project losses still lurking in the background, meaningful growth unlikely to return until the large progressive design-build assignments kick into gear next year, and the stock’s valuation already much improved, we see no reason to chase it here. Accordingly, we maintain our Market Perform recommendation on ARE,” said Mr. Bastien.
* RBC’s Sabahat Khan to $16 from $13 with a “sector perform” rating.
“Looking ahead, we maintain some level of caution due to the uncertainty surrounding both the remaining work on Aecon’s legacy fixed-price projects and the recoveries the company may ultimately realize vs. the provisions/ assumptions reflected in the results to-date,” said Mr. Khan.
* CIBC’s Jacob Bout to $23 from $22 with an “outperformer” rating.
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In other analyst actions:
* CIBC’s Todd Coupland downgraded Celestica Inc. (CLS-N, CLS-T) to “neutral” from “outperformer” with a $49 target, up from $41. Target changes include: BMO’s Thanos Moschopoulos to US$53 from US$48 with an “outperform” rating, Canaccord Genuity’s Robert Young to US$53 from US$48 with a “buy” rating and RBC’s Paul Treiber to US$53 from US$47 with an “outperform” rating. The average is $52.63.
“Celestica reported a solid beat and raise, with greater upside to Q1 than the last several quarters. Increased FY24 guidance was above expectations and appears conservative. While Celestica’s largest customer drove Q1 upside, other hyperscalers are likely to contribute to growth later in the year. Maintain Outperform, as we see Celestica’s valuation multiple continuing to re-rate higher on sustained strong hyperscaler growth,” said Mr. Treiber.
* Canaccord Genuity’s Robert Young reduced his CGI Inc. (GIB.A-T) target to $160 from $166 with a “buy” rating. The average is $162.62.
“We are updating our expectations and view heading into the company’s FQ2 report before market open on Wednesday, May 1,” he said. “Recent reporting from IT Services peers suggests a more difficult environment. We have reduced our organic growth expectations for the upcoming FQ2 quarter and consider the impact of a weaker CAD. We remain confident on underlying margin expansion which leads to less impact on the bottom line, driven by multiple factors. While weakness on shorter-term SI&C is likely a negative impact on utilization, we argue a recent slower pace of hiring is a partial offset as new hires dilute utilization. Recent SG&A optimization and typical execution on cost reduction combined with focus on adding headcount in lower cost regions such as India and increased mix of managed services (MS) and IP are supports.”
* Canaccord Genuity’s Mark Rothschild upgraded Choice Properties REIT (CHP.UN-T) to “buy” from “hold” with a $14.50 target. Elsewhere, Desjardins Securities’ Lorne Kalmar cut his target to $15 from $15.50 with a “buy” rating. The average is $14.93.
“Choice Properties REIT (Choice) reported results that were largely in line with Street expectations, although operating growth moderated, primarily due to vacancies within the industrial portfolio,” said Mr. Rothschild. “Guidance for SP NOI [same-property net operating income] growth of 2.5-3 per cent has not been changed, and we believe this is achievable, although the high end likely requires the industrial vacancy to be leased in the near term. With a portfolio leased to necessity-based tenants, we generally expect steady operating performance to continue.
“Long-term interest rates have not declined as many investors had hoped, and the performance of REIT unit prices reflects that fact. Year-to-date, Choice’ units have returned negative 7.1 per cent and now trade at an implied cap rate of 6.8 per cent, or 13.1 times 2025 AFFO per unit. Reflecting the more attractive return, we are upgrading Choice.”
* In a report titled At the intersection of growth and defense, Canaccord Genuity’s Aravinda Galappatthige initiated coverage of TMX Group Ltd. (X-T) with a “buy” rating and $44 target. Elsewhere, CIBC’s Nik Priebe raised his target to $38 from $35 with a “neutral” recommendation. The average is $38.
“TMX operates multi-asset class exchanges and clearinghouses as well as data and analytics platforms within the broader capital markets space,” said Mr. Galappatthige. “By developing on a series of acquisitions completed over the past seven years, the company is methodically positioning itself as a growth entity with a global footprint. Central to the investment thesis is TMX’s GSIA (Global Solutions, Insights and Analytics) segment which came into further focus with the VettaFi acquisition, announced late last year. The resultant inflection point in the stock price suggests that investor attention is turning towards upside to valuations as the analytics and insights segment advances.”
* National Bank’s Mike Parkin reduced his Alamos Gold Inc. (AGI-T) target to $26.50 from $27 with an “outperform” rating. The average is $25.15.
“We have updated our model to include 1Q24 results as well as insights gained from the conference call,” he said. “We tweaked our full-year production estimates to reflect the strong start to the year at Mulatos. At Young-Davidson, we have moved to be slightly more conservative with our FY estimates after the weaker than expected first quarter. Overall, we continue to model towards the high end of the FY guidance range on a company basis, with cash costs expected to improve as the year progresses, as per guidance.”
* Desjardins Securities’ Gary Ho bumped his CareRX Corp. (CRRX-T) target to $3.75 from $3.50 with a “buy” rating. The average is $3.91.
“We are constructive heading into 1Q, with stable bed count and consistent progress on EBITDA margin expansion,” said Mr. Ho. “Potential upside includes the benefits from the new McKesson procurement contract, efficiencies from the hub-and-spoke model and RFP opportunities in the pipeline. We upped our 2H24 and 2025 EBITDA margin estimates; management remains confident in its 10-per-cent target exiting 2024.”
* CIBC’s Nik Priebe cut his targets for Fiera Capital Corp. (FSZ-T, “neutral”) to $7.25 from $8.25 and Power Corp. of Canada (POW-T, “neutral”) to $40 from $43, while he raised his Goeasy Ltd. (GSY-T, “outperformer”) target to $220 from $200. The averages are $7.64, $42.56 and $208.33, respectively.
* Bernstein’s Aneesha Sherman lowered her Lululemon Athletica Inc. (LULU-Q) target to US$384 from US$430 with a “market perform” rating. The average is US$464.63.
* RBC’s Nelson Ng raised his Methanex Corp. (MEOH-Q, MX-T) target to US$50 from US$45 with a “sector perform” rating. The average is US$55.45.
“Methanex reported in-line Q1/24 results, updated 2024 production guidance in line with our forecast, and continues to expect G3 to start up in Q3/24,” he said. “We remain on the sidelines due to the company’s high sensitivity to methanol prices and uncertainty as to whether we are headed for a soft, hard, or no landing for the global economy. We reiterate our Sector Perform rating but raise our price target to $50 from $45 to reflect our higher North American methanol price forecast.”
* CIBC’s Kevin Chiang reduced his Mullen Group Ltd. (MTL-T) target to $16 from $17 with an “outperformer” rating. Other changes include: BMO’s John Gibson to $14.50 from $16 with a “market perform” rating, RBC’s Walter Spracklin to $16 from $17 with an “outperform” rating, Raymond James’ Michael Barth to $16.50 from $17 with a “market perform” rating, National Bank’s Cameron Doerksen to $18 from $19.50 with an “outperform” recommendation and Scotia’s Konark Gupta to $19 from $20 with a “sector outperform” rating. The average is $17.83.
“MTL reported disappointing 1Q24 results, and we expect that 2024 will continue to be a tough year on the organic growth front. We’ve revised down our near-term organic growth and margin estimates, but note that the current environment is likely ripe for M&A. As a result, we also increase our acquisition spend over the next 12 months at modestly accretive prices. On balance, our longer term estimates remain relatively unchanged, but our target falls from $17.00/share to $16.50 per share to reflect a reduction in near-term FCF. With MTL’s stock down 9 per cent at the time of writing, we do feel like the market overreacted and now have 25-per-cent upside to target. Despite the modest and growing gap between the current share price and our estimate of fair value, we still believe there is more attractive risk/reward with other names in our coverage universe and therefore maintain our Market Perform rating.,” said Mr. Barth.
* Raymond James’ Michael Barth raised his Precision Drilling Corp. (PD-T) target to $136 from $132 with a “strong buy” rating. The average is $127.49.
“Our thesis on PD remains unchanged: the business is generating healthy FCFE, we believe risk is skewed to the upside for drilling activity and margins, and shareholder returns (via buybacks) are ramping up. In our view, market implied expectations are too low. We’ve revised estimates slightly and our target moves to $136/share which represents 45-per-cent upside to the current price,” said Mr. Barth.
* Mr. Michael Barth moved his Secure Energy Services Inc. (SES-T) target to $13.50 from $13.25, above the $13.28 average, with an “outperform” rating, while ATB Capital Markets’ Nate Heywood increased his target by $1 to $14 with an “outperform” rating.
“SES continues to perform well operationally, with key KPIs all showing healthy growth year-over-year(adjusting for the Tervita asset sale),” he said. “The company also continues to add new high-ROIIC growth projects around existing infrastructure, and we expect to see more of this in the future — consistent with our previous view. Finally, management announced that the long-awaited SIB is coming, although investors will have to wait until next week for any firm details. All told, we still see reasonable value in the stock today (17-per-cent return-to-target) particularly ahead of the SIB. As such, we reiterate our Outperform rating.”
* Desjardins Securities’ Lorne Kalmar trimmed his StorageVault Canada Inc. (SVI-T) target to $6, which is the average, from $6.25 with a “buy” rating. Other changes include: RBC’s Jimmy Shan to $6 from $6.25 with an “outperform” rating, Raymond James’ Brad Sturges to $5.75 from $6.25 with a “market perform” rating and Scotia’s Himanshu Gupta to $6.25 from $6.50 with a “sector outperform” rating.
“FFOPS [funds from operations per share] of 4 cents was up 3 per cent year-over-year but came in below our forecast and consensus,” Mr. Kalmar said. ”On the positive side, SP NOI [same-property net operating income] was up 5.2 per cent (4Q23 5.1 per cent). While results were below expectations, we are not putting too much emphasis on the miss as 1Q is typically a seasonally weak quarter — we still believe SVI is capable of generating high-single-digit/low-double-digit FFOPS growth on a run-rate basis.”
* JP Morgan’s Bill Peterson raised his Teck Resources Ltd. (TECK.B-T) target to $72 from $70, exceeding the $70.02 average, with an “overweight” rating, while Raymond James’ Brian MacArthur bumped his target to $71 from $70 with an “outperform” rating.
* RBC’s Sabahat Khan trimmed his Waste Connections Inc. (WCN-N, WCN-T) target to US$195 from US$196 with an “outperform” rating, while ATB Capital Markets’ Chris Murray raised his target to $240 (Canadian) from $235 with a “sector perform” rating. The average is US$187.22.
“Waste Connections Inc. reported Q1 results that were modestly ahead of consensus expectations, while Q2/24 guidance was in line with RBC/consensus estimates,” Mr. Khan said. “Looking ahead, we think investor focus will be on margin progression through 2024 (Waste Connections appears to be on-track to exceed the original full year margin outlook of 32.7 per cent) and pace of M&A.”
David Leeder