Briefing highlights
- Canada Goose stock targets cut
- Trump tariffs put USMCA at risk
- Markets at a glance
- Economy lame in first quarter
- Required Reading
Canada Goose, cooked
Analysts are slashing their price targets on Canada Goose Holdings Ltd. stock, but believe investors wildly overreacted to its latest results and that the “bargain basement valuation for high quality is an opportunity.”
The pullback in the outlook for the shares among analysts over the past few days has been marked.
For example, Canaccord Genuity trimmed its price target to $82 from $95, Canadian Imperial Bank of Commerce dropped it to $69 from $95, RBC Dominion Securities went to $75 from $90, and Bank of America Merrill Lynch to $54 from $93.
Some buts here: RBC’s Kate Fitzsimons and CIBC’s Mark Petrie both rate the shares as outperformers, Canaccord’s Camilo Lyon rates it a buy, and Bank of America took the stock to neutral from buy.
To recap, shares in the high-end parka manufacturer tumbled this week but fourth-quarter revenue growth of 25 per cent still trailed the estimates of analysts. Its growth forecasts, too, were below what stock analysts estimate.
Chief executive officer Dani Reiss heralded the results, saying the company topped its global growth plan “with flying colours” and that “I believe that we are still just scratching the surface of our long-term potential as we continue to define performance luxury globally.”
Analysts cited a similar theme.
“Valuation has gone from an impediment to attractive, and though near-term catalysts are scarce and Q1 should be weak, we see compelling upside,” said CIBC’s Mr. Petrie.
The “bargain basement valuation for high quality is an opportunity,” said Canaccord’s Mr. Lyon.
“With the stock down 30 per cent, valuation is now distinctly pointing to a very favourable risk/reward, in our opinion.”
Read more
- David Leeder: Thursday’s analyst upgrades and downgrades
- Canada Goose shares plunge 26 per cent as revenue growth slows
- Ian McGugan: What are the megabrands of tomorrow? Three areas for investors to consider
USMCA, cooked?
Some observers wonder whether President Donald Trump has put the new U.S.-Mexico-Canada trade pact in jeopardy with his latest volley against Mexican imports.
Mr. Trump surprised markets yesterday with a vow to slap 5-per-cent tariffs on Mexican goods next month if Mexico doesn’t try to halt the flood of migrants trying to cross from Central America into the U.S.
What’s more, he said the levies could increase, by up to 25 per cent.
“This surprise announcement, coming as it does in the wake of the recent new trade agreement USMCA, was completely unexpected and could well upend the whole agreement,” said CMC Markets chief analyst Michael Hewson.
“It also makes it much more difficult for countries to take the U.S. at its word when it comes to trade negotiations if its president can so easily lob a hand grenade into the path of an already agreed deal.”
London Capital Group head of research Jasper Lawler agreed.
“Trump is going all out here,” he said. “The move to start a trade war on another front has shaken sentiment in an already fragile market.”
Read more
- Trump imposing increasing tariffs on Mexico in response to migrants
- How Trump’s trade tariff threat has put Mexico’s back to the wall
Markets, cooked
Read more
Loonie, cooked
The Canadian dollar has been hovering at about 74 US cents or less, knocked down by the strength of the U.S. currency.
“The loonie has not really changed, it is the [U.S.] dollar that is strengthening on the back of risk aversion,” said Sébastien Galy, senior macro strategist at Nordea Asset Management.
“One way to see this is that the euro has weakened in line with the Canadian dollar,” he added.
“Looking forward with a G20 [summit] ahead and the odds of widening tariffs and a devaluation of the renminbi, the odds are that the Canadian will weaken a bit. Having said this, the Canadian dollar completely de-correlated from relative monetary policy.”
The loonie is underperforming other major currencies, “testing five-month lows in an environment of intense risk aversion resulting from global trade policy uncertainty,” Shaun Osborne, Bank of Nova Scotia’s chief foreign exchange strategist, and his colleague Eric Theoret said in their morning market note.
“The market tone is dominating as participants digest President Trump’s latest tariff threats, this time directed toward Mexico.”
Economy, cooked
Canada’s economy limped along again in the first quarter of the year, but ended the three-month period on a stronger note that bodes well for what comes next.
Gross domestic product expanded at an annual pace of 0.4 per cent in the quarter, Statistics Canada said today, close to the Bank of Canada’s project of 0.3 per cent.
Growth was pushed along by faster household spending and a jump in business investment in machinery and equipment. Offsetting that was a decline in trade and housing.
In March alone, the economy expanded 0.5 per cent, rebounding from February’s decline.
“For Canadian growth, today was a case of out with the bad news, in with the good news,” said CIBC World Markets economist Avery Shenfeld.
“The economy was as sluggish as expected in Q1 ... capping off two quarters of very little growth,” he added.
But the March gains are “indicative of much better momentum heading in Q2, where we’ve already posted a huge April jobs gain.”
Read more
- Canadian economy posts weakest back-to-back quarters of growth since 2015
- Barrie McKenna: 'Pay attention’: Bank of Canada’s Wilkins warns rare yield-curve inversion could signal recession
- Barrie McKenna: Bank of Canada holds rates but says recent economic slump easing
- David Parkinson: Bank of Canada’s Poloz’s housing musings speak to the bank’s biggest risk factor
- Ian McGugan: Canada needs a better picture of how households are faring
- Debt and wealth: So many Canadians are either messed up or poor
Ticker
China prepares hit-list
From Reuters: China threatened on Friday to unveil an unprecedented hit-list of “unreliable” foreign firms, groups and individuals that harm the interests of Chinese companies, as a slate of retaliatory tariffs on imported U.S. goods was set to kick in at midnight.
Required Reading
Don’t sell, shareholder says
Transat A.T. Inc.’s $520-million deal to sell itself to Air Canada was called into question on two fronts, as its largest shareholder urged it to drop out of the deal and the Quebec Economy Minister suggested a “100-per-cent Quebec" solution could still be found. Transportation writer Eric Atkins reports.
Raptors mania a slam dunk for tourism
As basketball fans pour into Toronto to watch the Raptors fight for the NBA championship, Megan Devlin finds hotels are booked solid, flights are filling up, and bars and restaurants are seeing sales skyrocket.
Moving needles
What will it take to move the needle on diversity? More than empty promises, columnist Rita Trichur writes.