Inside the Market’s roundup of some of today’s key analyst actions
While investors punished Air Canada (AC-T) after it swung to a loss in the first quarter, sending its shares plummeting 8.4 per cent on Thursday, ATB Capital Markets analyst Chris Murray saw the results as “strong,” emphasizing its increased capacity and impressive load factors.
“Management remained upbeat on the Company’s outlook as demand conditions remain supportive and are expected to receive a boost from Sixth Freedom traffic and normalizing business travel in 2024,” he said. “Management reaffirmed full-year guidance and confirmed that it hedged 50 per cent of expected fuel consumption for Q2/24 at Q1/24 prices. The balance sheet continues to improve, as evidenced by a recent upgrade positioning AC returns to shareholders over the medium term. Given the current demand environment and increased balance sheet flexibility, we remain constructive on AC and see [Thursday’s] weakness as a buying opportunity.”
Before the bell, the airline company reported revenue, EBITDA, and adjusted fully diluted earnings per share of $5.2-billion, $453-million (including a $20-million one-time charge), and a loss of 27 cents, respectively, exceeding Mr. Murray’s estimates of $5.4-billion, $439-million, and a loss of 38 cents. The latter did fall short of the consensus projection (an 8-cent loss), which the analyst said contributed to the sell-off.
“AC reported solid Q1/24 results, highlighted by 10.2-per-cent EBITDA growth (which included a $20-million cost headwind from removing freighter capacity) and reaffirmed full-year guidance,” he said. “Management remained constructive on the Company’s outlook, with strength on transpacific routes and the steady return of corporate travel expected to offset a normalizing yield environment in 2024. The booking curve remains healthy and is expected to receive a boost from Sixth Freedom traffic, with load factors expected to remain firm going forward.
“ASMs [average seat miles] increased 11.1 per cent in Q1/24, with management expecting a further step up in subsequent quarters to support peak travel season. Management noted it plans to lease several B737 aircraft to provide interim lift in late 2024 and into 2025, to support the current demand environment and mitigate against any potential disruptions from ongoing aircraft maintenance issues, particularly around the A220.”
Mr. Murray thinks returns to shareholders now “appear to be nearing.”
“With AC exiting Q1/24 with leverage of 0.9 times (below the 1.5 times target), $10.1-billion in liquidity, and profitability returning to pre-pandemic levels, we believe the Company is nearing the point where it can begin returning capital to shareholders, most likely via buybacks,” he said. “We expect any near-term returns to be measured as the Company looks to maintain balance sheet flexibility to support its growth strategy amid an uncertain macro environment.”
After raising his EPS projections for both fiscal 2024 and 2025, Mr. Murray increased his target for Air Canada shares by $1 to $33, keeping an “outperform” recommendation. The average target on the Street is $27.56, according to LSEG data.
Other analysts making target adjustments include:
* TD Cowen’s Helane Becker to $33 from $34 with a “buy” rating.
* National Bank’s Cameron Doerksen to $30 from $31 with an “outperform” rating.
* CIBC’s Kevin Chiang to $28 from $30 with an “outperformer” rating.
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In a research report titled Strong Execution Delivers in Spades in Terms of Stock Price Return, Scotia Capital analyst Maher Yaghi said the first-quarter results from Thomson Reuters Inc. (TRI-N, TRI-T) were “some of the strongest we have seen delivered by the company for a long time.”
“A combination of highly profitable GenAI Reuters content licensing and transactional revenues in the Corporates and Tax segments boosted growth into the double-digit range,” he said. “While management went to great lengths to caution that these sales are unlikely to recur we believe the current guidance looks overly conservative. Our new estimates are above the company’s guidance on revenue growth, EBITDA margins and FCF.”
Following its Thursday release, which sent its TSX-listed shares jumping 6.9 per cent, Mr. Yaghi said the Toronto-based information and software provider had a “strong start” to 2024 on the back of strong seasonal demand, leading an upward revision of organic and revenue growth. However, he warned “moderation” is likely in the current quarter.
“Although this seasonal tailwind will not occur in Q2, management highlighted a few drivers of continued strong revenue performance to watch for as the year progresses,” he said. “As indicated in their recent March investor day, the company continues to see uptake in gen AI offerings and this is expected to accelerate further in 2H/24 and into 2025 as new products and enhancements from the pipeline are released. Customer retention, which is 91 per cent today is also a factor in helping achieve stable recurring revenue growth. In addition, undertaking new accretive M&A opportunities should help accelerate organic growth. Price increases of 3.5 per cent are also being implemented and are expected to provide a lift to revenues. All these factors are expected to help generate continued momentum on the top line.
“Aside from the $1-billion buyback program expected to be completed by end of Q2, management also hinted at a potential 10-per-cent dividend increase in Q1 2025. With the remaining financial capacity between now and 2026 and a low leverage ratio, the company expects to seek and pursue strategic M&A opportunities where it makes sense, thereby strengthening their product portfolio. One of the key company objectives is to expand the international footprint, which currently contributes 20 per cent of revenues. We believe that M&A is critical in sustaining the pace of organic growth across the big 3 segments and could provide additional upside to the stock. While stock buyback was a key focus for capital deployment in last few years we think management is prioritizing more M&A at this junction.”
Keeping a “sector perform” recommendation, Mr. Yaghi increased his target to US$164 from US$159. The average is US$159.49.
“Valuations remain a stumbling block for us as TRI is trading at 25 times 2025E EBITDA compared to other AI software peers like Microsoft trading at 21x while offering a lower 2025 EBITDA consensus growth outlook of 9 per cent vs 14 per cent for MSFT.”
Others making changes include:
* Canaccord Genuity’s Aravinda Galappatthige to US$156 from US$149 with a “hold” rating.
* CIBC’s Scott Fletcher to US$156 from US$152 with a “neutral” rating.
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Investor focus continues to be on the potential for acquisitions by Colliers International Group Inc.’s (CIGI-Q, CIGI-T) after it reaffirmed its full-year outlook, according to RBC Dominion Securities analyst Jimmy Shan
“Following the equity raise and its relatively bullish comments on pipeline last quarter, we suspect the market had expectations of an acquisition announcement going into the quarter – none new was announced,” he said. “But CIGI reiterated its solid pipeline, and is working on deals (big and small) that will widen its capabilities and also strengthen existing lines. It sounds like big deals will come at a full price (we read 10 times EBITDA +) while smaller deals in (say) CM can be had at more of a bargain.”
The analyst saw few surprises from the Toronto-based professional services and investment management company’s quarterly report, noting its Outsourcing & Advisory (O&A) business is growing at high single digits, Investment Management fundraising remains “soft” but is expected to “gain traction” in the second half of the year, leasing picking up, and its Capital Markets segment “still weak” with a recovery also anticipated to come later this year or in 2025.
“CIGI’s valuation looks reasonable, though we feel news around acquisitions, CM showing signs of troughing (or better, recovering) and momentum in fundraising are positive catalysts,” said Mr. Shan.
“Q1 saw a one-time unexpected tax charge, accounting for most of our downward revision in AEPS. Our 2025 estimates are also modestly down on more conservative growth in the IM business. Our estimates do not reflect any acquisitions.”
Reiterating his “outperform” recommendation, the analyst lowered his target for Colliers’ U.S.-listed shares by US$5 to US$145. The average is US$138.67.
“A strong track record with leading return metrics: Colliers’s average ROIC of 16 per cent since spin-off in 2015 ranks top-quintile within the broader S&P/TSX index and above its US-listed commercial real estate brokerage peers,” Mr. Shan said.
“Long-term compounding potential: Colliers’s business is advantaged by its globally recognized brand and its asset-light and high free cash flow generation ($1.5-billion since spinoff), matched with its decentralized/partnership model and its small size relative to the acquisition opportunities that run across countries and diverse segments that service the CRE industry. Accordingly, we believe it is capable of compounding capital in the low- to mid-double-digit range over the long term.”
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With consumers remaining under pressure and vehicle affordability remaining “a key problem,” National Bank Financial analyst Maxim Sytchev thinks “the credit/consumer cycle needs to stabilize before anyone can objectively contemplate” investing in AutoCanada Inc. (ACQ-T).
“We are not there,” he declared.
“The challenges of still-high prices, elevated interest rates and generally less money in consumers’ pockets continue to pressure the top line, even as new vehicle supply continues to improve. While this drives customers into less expensive offerings, management noted that it is having difficulty sourcing used cars at lower price points in sufficient quantities; trade-ins are down materially and buying vehicles at auction significantly hurts per unit profitability. As such, even though a used car can now be readied for sale in about eight days (vs. 60+ previously), GPUs remain depressed, no doubt hindered by the sell down of expensive inventory in a declining price environment. The collision business – now broken out as a separate vertical – was touted as a bright spot, now generating $10-million of EBITDA annually (previously a money losing business). The overall cost structure is expected to be reviewed and optimized under Project Elevate, but potential material benefits will take time to show up.”
Shares of the Edmonton-based company dropped 15.7 per cent on Thursday after it reported quarterly revenue of $1.421-billion, down 8 per cent year-over-year and below both Mr. Sytchev’s $1.441-billion estimate and the consensus forecast of $1.510-billion. GAAP Diluted earnings per share of 10 cents, excluding gains on sale and impairment charges results, also fell below expectations (45 cents and 42 cents, respectively).
“Following a soft print highlighted by a difficult operating environment, we have significantly compressed our 2024E topline and margin forecasts. We have modeled a (very) gradual revenue recovery in 2025E combined with a slightly leaner cost structure as the benefits of operational improvements begin to flow through, leaving 2025E EBITDA and EPS largely unchanged,” he said.
With those reductions, Mr. Sytchev cut his target for AutoCanada shares by $2 to $22, keeping a “sector perform” recommendation. The average is $28.10.
Elsewhere, a trio of analysts downgraded AutoCanada shares:
* ATB Capital Markets’ Chris Murray to “sector perform” from “outperform” with a $25 target, down from $62.
“ACQ delivered very weak results on lower-than-expected used vehicle margins and new vehicle sales, reflecting challenging weather in early Q1/24 and macro pressures,” said Mr. Murray. “Management acknowledged that more difficult market conditions are persisting but believes Project Elevate can unlock better performance across the organization and that the used digital strategy should give ACQ an advantage in used vehicle procurement and expanded F&I volumes. While elements, particularly the opportunity around used digital and collision offer opportunities, we believe a more cautious stance is warranted given industry-specific challenges, primarily concerning used vehicles and brand mix, combined with softening demand conditions in early 2024. We have lowered estimates materially and downgrade ACQ to Sector Perform with a reduced return to target and higher uncertainty.”
* Acumen Capital’s Trevor Reynolds to “hold” from “speculative buy” with a $21.50 target, down from $24.50.
“Results for the quarter came in well below our estimates and consensus due to lower used vehicle sales volume and pricing, less vehicles being sold with dealer financing, reduced F&I, and higher floorplan financing costs,” said Mr. Reynolds. “In addition, management highlights cold weather as having an impact on foot traffic during the quarter. We adjust our estimates based on the quarter and move to a hold recommendation as we look for signs of improving margins.”
“The focus near term is on ACQ’s ability to right size and adjust inventory, reduce costs, and normalize margins. After several years of favorable market conditions ACQ is now facing headwinds driven by macro economic conditions. While management remains confident in their ability to navigate the market we expect it will take time to normalize inventory and adjust for current consumer demands. The company expects to launch their Kijiji platform by the end of the year and continue to work on Project Elevate initiatives which look to maximize gross profit, modernize infrastructure, optimize the cost structure, and maximize shareholder returns.”
* CIBC’s Krista Friesen to “underperformer” from “neutral” with a target of $18, down from $25.
“We are downgrading ACQ ... as a result of worse-than-anticipated market conditions,” she said. “We acknowledge that ACQ is taking action and actively trying to combat market headwinds; however, we do not believe that those actions will be enough to offset market headwinds in the near to medium term. We reduce our price target from $25.00 to $18.00, on lower earnings and reduce our multiple by a quarter point to reflect the uncertainty in the market.”
Other target changes include:
* RBC’s Sabahat Khan to $21 from $22 with a “sector perform” rating.
“Although the demand environment remains somewhat supportive thus far (new retail vehicle organic volume growth was up 5.9 per cent year-over-year and ASPs remain elevated, albeit starting to decline from record levels), we are seeing some signs of moderation across the industry (particularly as it relates to GPUs) as increasing new vehicle inventory levels (given improving OEM supply) are coming at a time of weakening demand (given elevated vehicle prices & interest rates),” said Mr. Khan. “Looking ahead, we continue to expect more of the same, with used vehicle buyers trading down to lower price points, an increase in cash purchases (which negatively impacts F&I), and the potential for moderating new vehicle sales as pent-up demand gets exhausted over time (noting new vehicle inventory days of supply were up 22 year-over-year to 111 in Q1). Additionally, elevated interest rates are resulting in higher floorplan financing costs, which we expect will also continue pressuring profitability.”
* Canaccord Genuity’s Luke Hannan to $18 from $20 with a “hold” rating.
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Seeing it “back on track,” BMO Nesbitt Burns analyst Stephen MacLeod upgraded Aritzia Inc. (ATZ-T) to “outperform” from “market perform” in response to better-than-expected fourth-quarter 2024 financial results.
“Aritzia is transitioning from a period of margin-dilutive infrastructure investment and inventory right-sizing in F2024, to a period of revenue acceleration and margin expansion in F2025, which in our view should drive strong stock price performance,” he said. “We believe that Aritzia is now back in a position where it is well-positioned to execute on its significant U.S. growth opportunity. We see attractive risk-reward (stock at discount to peers and at low-end of historical range) and fundamental tailwinds outweigh headwinds.”
Mr. MacLeod raised his target to $50 from $41. The average is $43.50.
“We downgraded Aritzia to Market Perform one-year ago, as the company shifted to an unexpected period of infrastructure investment to support its growing sales base and position the business to scale,” he added. “This led to F2024E EBITDA margins declining 670 basis points to 9.3 per cent. Margins have reached an inflection point, and will re-build through F2025E (guidance 400-500 bps to 13.9 per cent) and beyond (long-term guidance for highteens). Combined with an expected acceleration in revenue growth (driven by +20-25-per-cent square footage growth, ecomm & omnichannel momentum, more balanced newness in styles, successful ramp-up of GTA DC), this is expected to drive peer-leading F2025E earnings growth (adj. EBITDA up 66 per cent, adj. EPS up 91 per cent).
“We remain constructive on Aritzia’s long-term U.S. growth opportunity, leveraging the key success factors that have underpinned its popularity in Canada. Aritzia has previously identified 125-150 locations in ~18 new markets, and new boutiques continue to be Aritzia’s most consistent growth driver, generating attractive paybacks (12 months vs. 12-18 months expected), helping to build the brand, fueling client acquisition and in-market ecommerce sales (70-per-cent ecomm lift). 2025E boutique network expansion includes 11-13 new boutiques (H2-weighted; all but one in the U.S.) and 3-4 boutique repositions, representing 20-25-per-cent square footage growth (including three flagships - Chicago, Soho, 5th Ave.).”
Others making changes include:
* Raymond James’ Michael Glen to $43 from $46 with an “outperform” rating.
“While we remain very favourable regarding the longer-term growth offered by Aritzia (i.e. via square footage and earnings growth), we believe investors will need to see some confirmation of trends with the F1Q report before stepping in aggressively. We had a number of investor conversations on the stock over the course of April, and it was clear to us that investors were still looking for some strong confirmation points that the business had moved firmly beyond the challenges of F2024,” said Mr. Glen.
* Canaccord Genuity’s Luke Hannan to $40 from $38 with a “buy” rating.
* CIBC’s Mark Petrie bumped his target to $41 from $37 with an “outperformer” rating.
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Analysts at Jefferies initiating six “significant” copper growth stories on Friday, “covering the gamut from explorer to producer, but with a consistent theme of growth both present and future.”
“Copper development capex is insufficient to match the current secular demand growth outlook,” the firm said in a research report. “That is part of the reason for Jefferies street-high copper price forecast in 2027-2028 ($6/lb). The reason for the lack of spending in new copper capacity is simple: investors do not expect the risk-adjusted return to exceed the cost of capital due to inflating costs, justified fears of capex overruns, and concerns over long-term asset security. However, this does not mean that projects and growth cannot happen. It just means that companies need to have more prerequisites in place in order to achieve it. Namely, we identify as critical factors: exceptional geology, high IRR projects (typically niche opportunities rather than greenfield megaprojects), and credible teams.”
For three of the companies, they touted “exceptional geology.” They are:
- Ivanhoe Mines Ltd. (IVN-T) with a “buy” rating and $25 target. The average on the Street is $21.37.
- Filo Corp. (FIL-T) with a “buy” rating and $34 target. Average: $32.58.
- NGEx Minerals Ltd. (NGEX-T) with a “buy” rating and $12 target. Average: $11.94.
“IVN has one of the world’s highest grade copper operations at Kamoa-Kakula in DRC, where it is poised to ramp-up a Phase 3 expansion and smelter, driving the next leg of growth and rising margins for this asset,” the analysts said. “We see significant upside to IVN’s high grade resource base in Western Foreland as well. As if that weren’t enough, IVN will soon start production from the world’s highest grade zinc mine, and is developing a PGM (and nickel) mine which we believe will ultimately reshape the PGM sector. NGEX and FIL are focused on the Vicuna district along the border of Chile and Argentina and have been delineating deposits with the valuable combination of both scale and grade. We expect Vicuna to become the world’s next major copper district.”
For the other companies, they emphasized “good IRR projects.” They are:
- Capstone Copper Corp. (CS-T) with a “buy” rating and $13 target. The average is $10.95.
- Ero Copper Corp. (ERO-T) with a “hold” rating and $30 target. Average: $31.50.
- Hudbay Minerals Inc. (HBM-T) with a “hold” rating and $13 target. Average: $12.74.
“CS has transformed in recent years from a mid-tier copper producer with the mature Pinto Valley mine anchoring the copper portfolio into a company with several large scale copper assets and a lower unit cost outlook,” they said. “CS is ramping volumes at Mantoverde and already working on an optimization project to drive further upside. ERO is also approaching ramp-up of its newest asset, Tucuma, which has only a 12-yr mine life but is high grade, and we estimate a 44-per-cent IRR with just over a one-year payback. Lastly, HBM continues to ramp production in Peru, courtesy of the Pampacancha pit. We see the turn-around of Copper Mountain keeping growth on track until Copper World, which will be one of the US’s only major new copper assets in development in the next few years.”
Expecting base metal names to “stay at a premium,” they added: “On average, base metals names have historically traded at a discount to spot P/NAV; however, since Covid the names have been averaging close to parity at spot. Prolonged shortages are not the normal state of the copper market, but until supply growth picks up or demand growth falls, we believe we will continue to see copper stocks trading at a “new normal” elevated valuation, with growth names trading at a further premium, and likely an M&A premium bolstering higher multiples. We initiate with a Buy rating on IVN, CS, NGEX and FIL. We initiate with Hold ratings on ERO and HBM, which are attractive, but we see valuations as more full.”
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In other analyst actions:
* BMO’s Thanos Moschopoulos downgraded Open Text Corp. (OTEX-Q, OTEX-T) to “market perform” from “outperform” and dropped his target to US$38 from US$50. Other target changes include: Jefferies’ Samad Samana to US$42 from US$45 with a “buy” rating, Raymond James’ Steven Li to US$48 from US$55 with an “outperform” rating, Citi’s Steven Enders to US$37 from US$42 with a “neutral” rating, CIBC’s Stephanie Price to US$38.50 from US$44 with a “neutral” rating, National Bank’s Richard Tse to US$50 from US$60 with an “outperform” rating and Barclays’ Raimo Lenschow to US$38 from US$44 with a “market perform” rating. The average is US$48.50.
“We’ve downgraded OTEX to Market Perform and have reduced our target price following Q3/24 results that were roughly in line, while OTEX’s preliminary FY2025 guidance was significantly weaker than expected,” said Mr. Moschopoulos. “While the stock’s valuation is undemanding, we believe that OTEX’s plans to prioritize capital return and M&A at the expense of further deleveraging, coupled with its subdued organic growth, will constrain the opportunity for near-term multiple expansion.”
* CIBC’s Krista Friesen upgraded Badger Infrastructure Solutions Ltd. (BDGI-T) to “outperformer” from “neutral” and raised her target to $54 from $52. Elsewhere, Stifel’s Ian Gillies bumped his Street-high target to $63 from $62 with a “buy” rating. The average is $53.89.
“We are upgrading Badger from Neutral to Outperformer on the strength we are seeing in its U.S. division, which we believe is a direct result of the company’s sales strategy, and valuation,” said Ms. Friesen. “We view Badger’s Q1 results as a solid start to the year despite some headwinds in Canada. When looking at Badger’s U.S. business, the company posted stronger-than-anticipated margins, and with the U.S. accounting for ~80% of Badger’s business, we are putting a heavier emphasis on that division.”
* RBC’s Pammi Bir cut his Allied Properties REIT (AP.UN-T) target to $19 from $20 with an “outperform” rating. The average is $19.78.
“Following in-line Q1 results, we modestly scale back our outlook on AP. Operationally, we expect near-term softness to persist,” said Mr. Bir. “As well, the transactions with Westbank are modestly dilutive to our earnings outlook and put temporary upward pressure on leverage. That said, we expect operating momentum to improve next year, which coupled with asset sales should move leverage in the right direction. With valuation near-term trough, we see good value for patient investors.”
* RBC’s Robert Kwan increased his AltaGas Ltd. (ALA-T) target to $34 from $32 with an “outperform” rating, while Scotia’s Robert Hope moved his target to $35 from $33 with a “sector outperform” rating. The average is $34.18.
“We believe the Q1/24 results and management updates are supportive of our positive thesis for the shares. In particular, we highlight AltaGas’ disclosure that it has secured tolling agreements covering 56 per cent of its expected LPG exports as of Q2/24, which we believe has positive implications for the stability of earnings and with that, a higher valuation. We expect AltaGas to deliver annual growth at the high-end of its Canadian midstream and utility peers, a payout ratio that is superior to both its midstream and utility peers, and a deleveraging plan that should result in debt/EBITDA of roughly 4.5 times,” said Mr. Kwan.
* CIBC’s Scott Fletcher cut his Altus Group Ltd. (AIF-T) target to $51 from $52.50 with a “neutral” rating. The average is $55.28.
* CIBC’s Mark Jarvi raised his Atco Ltd. (ACO.X-T) target to $49 from $48 with an “outperformer” rating, while BMO’s Ben Pham moved his target to $50 from $49 with an “outperform” recommendation. The average is $45.71.
“The Q1/24 earnings report supports our thesis that Alberta utility would return to earnings growth this year with higher regulated ROE’s and rate base expansion. At the same time, the ATCO Structures earnings profile has become more sticky with sector diversification and has not experienced periodic earnings cliffs as it has historically. These positive fundamental changes for ACO.X warrant a valuation re-rating (10 times forward P/E vs. 15.5 times large cap utility average),” said Mr. Pham.
* Scotia’s Michael Doumet trimmed his BCE Inc. (BCE-T) target to $53 from $53.25 with a “sector perform” rating. The average is $51.06.
* Eight Capital’s Ralph Profiti increased his Capstone Copper Corp. (CS-T) target to $12.50, above the $10.95 average, from $11 with a “buy” rating, while BMO’s Rene Cartier bumped his target to $11 from $10.50 with an “outperform” rating.
“CS reported Q1/24 adjusted EPS in line with consensus while adjusted EBITDA was a modest beat, though closer to our estimate. Production was in line, as were cash costs. 2024 production and cost guidance was reiterated, including for the respective halves. Notably, the MVDP remains on track for first saleable concentrate in Q2/24, and the capital budget was unchanged. Upcoming studies are set to highlight opportunities, and growth prospects, in Chile,” said Mr. Cartier.
* National Bank’s Shane Nagle increased his Franco-Nevada Corp. (FNV-T) target to $195 from $190 with a “sector perform” rating, while Raymond James’ Brian MacArthur bumped his target to US$151 from US$150 with an “outperform” rating. The average is $197.54.
* National Bank’s Rupert Merer raised his GFL Environmental Inc. (GFL-T) target to $58 from $55 with an “outperform” recommendation. Other changes include: ATB Capital Markets’ Chris Murray to $66 from $63 with an “outperform” rating, BMO’s Devin Dodge to US$43 from US$42 with an “outperform” rating, CIBC’s Kevin Chiang to $59 from $58 with an “outperformer” rating and Scotia’s Michael Doumet to $60 from $58 with a “sector outperform” rating. The average is $53.04.
“GFL’s lagging share price effectively embedded lower expectations, which it comfortably exceeded,” said Mr. Doumet. “While the shares were up 5 per cent post-1Q, its valuation gap still remains: as it did prior to 1Q. GFL trades at a 10-per-cent discount to its historical average (using EV/EBITDA), while its peers trade an average premium of more than 10 per cent to their historical averages. GFL’s 1Q beat wasn’t the biggest, but its margin expansion may be the highest in 2024.
“We also believe the valuation delta is partly due to the unfavorable setup in 2024: its EBITDA/FCF growth is slower because it is focused on delevering. However, whereas, in 2024, GFL is limiting M&A to fund RNG/EPR and delever its B/S more rapidly, in 2025, rising contributions from RNG/ EPR and a sizable FCF ramp should permit GFL to re-accelerate M&A and delever its B/S at a solid pace. We view this combined M&A re-acceleration and B/S delevering in 2025 as an inflection point for the story. And, given the likelihood of an increase to the 2024 EBITDA guide in 2Q, we think the ‘urgency’ to own the name has moved up.”
* RBC’s Darko Mihelic moved his Great-West Lifeco Inc. (GWO-T) target to $45, above the $44.46 average, from $44 with a “sector perform” rating, while BMO’s Tom MacKinnon raised his target to $45 from $44 with an “outperform” rating.
“GWO’s $1.09 base EPS (above our estimate of $0.97) mainly reflected higher than anticipated base net investment results (primarily earnings on surplus and trading activity) and a smaller positive impact from lower expenses,” said Mr. Mihelic. “We now model 2024 U.S. earnings to grow 20 per cent (the upper end of GWO’s guidance). GWO is committing to strong earnings growth and further expansion of Empower for scale benefits. While EPS growth and ROE are solid, we see the stock as fairly valued relative to peers.”
* CIBC’s Nik Priebe raised his IGM Financial Inc. (IGM-T) target to $45 from $42, keeping an “outperformer” rating. The average is $42.14.
* RBC’s Sam Crittenden increased his Lundin Mining Corp. (LUN-T) target to $17 from $13 with a “sector perform” rating. The average is $16.08.
“The Josemaria project in Argentina is waiting on a fiscal agreement with the government which is waiting on Javier Milei’s reform bill to be passed, which we see as both good and bad for Lundin Mining shares,” said Mr. Crittenden. “Pushing out the capital and execution risk is positive in the here and now (and the reforms would be positive for mining projects); however, the uncertainty around capex/timing/partner/other assets in Vicuna lingers in the medium term, with potential to create significant value in the long term.”
* Scotia’s George Doumet reduced his target for Maple Leaf Foods Inc. (MFI-T) to $31.50 from $33.50 with a “sector outperform” rating, while CIBC’s Mark Petrie cut his target to $31 from $32 with an “outperformer” rating. The average is $30.07.
“Results came in a tad weaker, but there was still lots to like in the quarter,” said Mr. Doumet. “Prepared meats saw a 3-per-cent increase in revenues (+ volume) and held branded share. While poultry was weak, we expect quota cuts to improve margins in the 2H. Lastly, the pork complex recovery seems to be gaining traction. This paves the way for significant Meat EBITDA margin expansion as the year progresses (we model an 12.5 per cent exit vs. 10.8 per cent today). While we acknowledge that there are a lot of moving parts and limited visibility at this time, we continue to believe that MFI has the elements of a longer-term deleveraging story. Firstly it is cheap - shares trade at 7.5 times EV/2025E (vs. 9.5 times historically) or a 7.4-per-cent FCF yield. Second, we continue to expect a gradual ramp in 2024/2025 EBITDA, in addition, to improved FCF (from lower capex and w/cap).”
* National Bank’s Maxim Sytchev raised his North American Construction Group Ltd. (NOA-T) target to $47 from $46, reiterating an “outperform” recommendation. The average is $44.
“Too much attention was attributed to utilization rate, a percentage that bounces around A LOT depending on fleet movements (as was the case in the quarter between 2 mines in Canada),” he said. “We believe the market should be paying for EBITDA, not one of a myriad of KPIs. With reiterated guidance and focus on deleveraging, we are again very constructive on the name and buyers at this level as the market is trying to figure out what to do with the name.”
* RBC’s Michael Harvey moved his target for Paramount Resources Ltd. (POU-T) to $36 from $34 with a “sector perform” rating. Other changes include: BMO’s Jeremy McCrea to $38.50 from $37 with an “outpeform” rating, Stifel’s Cody Kwong to $37 from $36 with a “buy” rating and CIBC’s Jamie Kubik to $37 from $35 with a “neutral” rating. The average is $37.60.
“Paramount’s Q1/24 results were slightly better than expected, and punctuated by a 20-per-cent base dividend increase,” said Mr. Harvey. “Operations are in good shape after last month’s guidance re-shuffle, with a focus on optimization across the portfolio. Paramount remains in very good financial condition, with sufficient financial flexibility to execute a continued growth program or act on other strategic initiatives (such as A&D/M&A) if they arise.”
* CIBC’s Kevin Chiang cut his Parkland Corp. (PKI-T) target to $55 from $57 with an “outperformer” rating. The average is $54.
* Scotia’s Michael Doumet lowered his target for Toromont Industries Ltd. (TIH-T) to $125 from $133 with a “sector perform” rating. Other changes include: Raymond James’ Steve Hansen to $132 from $135 with a “market perform” rating, RBC’s Sabahat Khan to $137 from $140 with an “outperform” rating, National Bank’s Maxim Sytchev to $132 from $137 with an “outperform” rating and CIBC’s Jacob Bout to $128 from $130 with a “neutral” rating. The average is $134.44.
“The negative earnings revision dynamic is new for TIH but we view it as a recalibration than a structural issue,” said Mr. Sytchev. “In an uncertain world where having zero financial leverage on a balance sheet carries a large premium, one can do worse than sticking with Toromont. We are therefore willing to be patient.”
* RBC’s Geoffrey Kwan raised his TMX Group Ltd. (X-T) target by $1 to $39 with a “sector perform” rating, while CIBC’s Nik Priebe moved his target to $40 from $38 with a “neutral” rating. The average is $38.78.
“Q1/24 operating EPS was right in line with consensus, but was ahead of our forecast. Trading at 22 times P/E (at the high end of its historical range), we view the shares as fairly valued, particularly given that listings activity remains weak and equity trading volumes have yet to stabilize (LTM industry volumes are almost 10 per cent below pre-pandemic levels and almost 45 per cent below peak pandemic levels), although Trayport continues to deliver strong results and derivative trading volumes continue to improve,” said Mr. Kwan..
* National Bank’s Gabriel Dechaine cut his Toronto-Dominion Bank (TD-T) target to $84 from $92 with a “sector perform” rating. The average is $88.74.
“TD has been one of the most topical names in our coverage over the past few years. Lately, the tone of investors has become more positive. We believe investors have been attracted to TD’s valuation, which currently sits at a 6-per-cent discount to peers, which is in stark contrast to its historical valuation premium of 4 per cent. However, given details of TD’s alleged involvement in money laundering activities outlined in a Wall Street Journal (WSJ) article, we believe investors need to put greater weight on worst-case scenarios for the stock,” said Mr. Dechaine.
* CIBC’s Nik Prieve raised his target for Trisura Group Ltd. (TSU-T) to $60 from $55, above the $54.88 average, with an “outperformer” rating.
* Scotia’s Michael Doumet cut his Wajax Corp. (WJX-T) target to $35 from $37 with a “sector outperform” rating, while BMO’s Devin Dodge cut his target to $32 from $36 with a “market perform” rating. The average is $34.67.
“While underlying trends slowed, the miss was not nearly as bad as it looked (and certainly does not justify a 20-per-cent reduction in the shares, in our view),” said Mr. Doumet. “Instead, 1Q should be viewed as the ‘ultimate’ lumpy Q. This is how we see it: (i) Hitachi provided favorable terms to WJX to pull-forward 2Q inventory purchases into 1Q (which it did) just as (ii) customer delayed orders into 2Q (evidenced by the higher backlog) and (iii) as customers more heavily relied on RPOs (which should eventually convert into purchases).
“For a dealer, lower sales and higher inventories is not something investors ever want to see. But that one-two punch WJX took in 1Q should be reversed within the next six months. We expect equipment sales to normalize as early as 2Q. And, we believe inventories should decline $100 million (the same increase as seen in 1Q) by 3Q, such that WJX will be in the same leverage/FCF position it was in 4Q23 by 3Q24. As the destocking plays out, leverage should moderate and, we believe, investor focus shift back to growth/M&A.”
David Leeder