Inside the Market’s roundup of some of today’s key analyst actions
As its shares plunged Friday on a quarterly profit miss and forecast reduction, equity analysts on the Street began cutting their financial forecasts and target prices for shares of Algonquin Power & Utilities Corp. (AQN-T).
Those making changes included:
* IA Capital Markets’ Naji Baydoun to $16 from $19 with a “hold” rating. The average on the Street is $14.99.
“Alongside the Q3/22 results update, AQN warned that it expects the current macro-economic challenges to persist into 2023, impacting its business,” said Mr. Baydoun in a note. “As such, the Company is “evaluating its longer-term targets and financial expectations”; we expect more updates from management at the 2023 Investor Day expected early next-year (delayed from the usual December timelines for Investor Days). We have been forecasting long-term growth below AQN’s stated objectives for some time; we remain on the sidelines as the Company attempts to (1) reposition its portfolio for more consistent per share growth, and (2) regain investor confidence via improved execution and strategic initiatives. We have revised our financial forecasts lower to reflect expectations of a continued slowdown in AQN’s growth profile (including lower dividend growth).”
* National Bank Financial’s Rupert Merer to $13.50 from $14.25 with a “sector perform” rating.
=====
Desjardins Securities analyst Chris Li expects “some near-term turbulence” from Canadian Tire Corp. Ltd. (CTC.A-T), however he predicts long-term investors should be “rewarded.”
“We have lowered our estimates to reflect an economic downturn, carryover of certain spring/summer categories impacting CTR revenue in 1H23, persistent opex headwinds related to investments in IT and the supply chain, and higher ECL provisions,” he said. “Valuation is inexpensive at only 9 times our revised 2023 EPS (not far from the 8 times trough in 2009). While we believe risk/reward is favourable, patience is required. We believe strong capital return (5-per-cent yield and share buyback) should provide some downside support.”
Despite the broader market rally on Thursday, shares of the retailer fell 2.4 per cent on Thursday after it reported earnings per share of $3.35, below both Mr. Li’s $3.58 estimate and the consensus forecast of $3.92 due, in large part, to a decline in Retail gross margin decline and higher Retail expenses.
“The gross margin decline was driven by higher freight costs (approximately 200 basis points) as CTC was cycling through higher contracted rates,” said Mr. Li. “The comparison gets easier starting in 4Q, with contracted rates meaningfully lower. Declining fuel costs and stabilizing product costs should also help. While retail sales largely met our expectations, it was a choppy quarter. That choppiness has carried over into 4Q, with a shift from discretionary to essential (ie automotive, plumbing, pets, etc). Loyalty members are driving most of the growth (loyalty sales up 4 per cent in 3Q) and non-loyalty members are increasingly looking for discounts. The late arrival of winter is also having an impact.”
The analyst lowered his 2023 EPS estimate to $15.80 from $18.67, which he said reflects”an economic downturn, carryover of certain spring/summer categories impacting CTR revenue in 1H23, persistent opex headwinds related to investments in IT and the supply chain, and higher ECL provisions for Financial Services.”
Keeping a “buy” recommendation for Canadian Tire shares, Mr. Li lowered his target to $195 from $215. The average is $190.50.
“While we believe risk/reward is favourable, further volatility is possible in the near term as ongoing concerns around slowing consumption, excess inventory, rising rates, higher net write-offs, etc, continue to weigh on valuation and estimates are reduced,” he said. “Patience is required. We believe strong capital return (5-per-cent dividend yield and an increase in share buybacks to $500–700-million next year) should provide some downside support.”
Other analysts making target adjustments include:
* National Bank’s Vishal Shreedhar to $167 from $196 with an “outperform” rating.
“Our estimates have been revised lower to reflect lower sssg, lower gross margins and higher SG&A. Our 2022 EPS goes to $16.97 from $18.24 and 2023 EPS goes to $16.16 from $19.23. Over the medium term, we anticipate benefits as efficiency initiatives and digital improvement programs continue to roll out,” said Mr. Shreedhar.
* Scotia’s George Doumet to $180 from $184 with a “sector outperform” rating.
“With the shares trading at a 21-per-cent/25-per-cent discount to its two-/five-year historical P/E averages (and even below 2008/09 levels), we see a substantial amount of value in the name (and so does CTC given its renewed NCIB of $500-million to $700-million from $400-million previously). That said, we would like to get some improved visibility on how 2023 could look like before moving the name up our SO pecking order,” said Mr. Doumet.
* CIBC’s Mark Petrie to $185 from $214 with an “outperformer” rating.
=====
Following recent operational issues and weaker-than-anticipated third-quarter financial results, Echelon Capital Partners analyst Ryan Walker lowered his recommendation for Wesdome Gold Mines Ltd. (WDO-T) to “hold” from “buy,” expecting investor attention to remain focused on the ramp-up of his Kiena mine in Val d’Or, Que. next year.
After the bell on Wednesday, the Toronto-based miner reported an earnings per share loss of 3 cents and positive cash flow per share of 13 cents, both below the Street’s estimates of gains of 3 cents and 13 cents, respectively.
“The earnings miss comes on the back of soft (pre-reported) Q322 production of 22,883 ounces, down 16 per cent quarter-over-quarter and 22 per cent year-over-year owing to July shutdowns at both the Eagle River (15 days) and Kiena (24 days) mines and challenging ground conditions at the latter,” said Mr. Walker. “Unsurprisingly, the recent quarter also saw consolidated all-in sustaining costs (AISC) increase sequentially to US$1,698 per ounce from US$1,582 per ounce in Q222 (Q122: US$1,339 per ounce, Q421: US$1,121 per ounce).”
“Year-to-date, production totals 75,734 ounces (101Koz annualized), with WDO noting that it remains on track to produce near the low end of its 120-140koz guidance range and the higher end of the cost guidance range of AISC of US$1,370-1,520 per ounce. The Company highlights that attaining the low end of production guidance relies on ‘significant production’ late in Q422. Indeed, with 75.7Koz produced year-to-date, WDO would need to produce 44.3Koz in Q422 — the best quarterly production in recent history amounts to 41.6koz in Q421.”
While trimming his expectations for 2023 to account for slower Kiena ramp up and a more conservative grade assumption at Eagle River, Mr. Walker emphasized Wesdome’s “organic production growth profile solely in a Tier 1 Jurisdiction and the potential for continued positive exploration results from aggressive drilling at both Kiena and Eagle River.”
“We look for improved operational performance in the quarters ahead, especially on the back of commissioning of the paste plant at Kiena which should help improve the mining rate ramp-up and speed up the mine’s production cycle,” he said.
Mr. Walker cut his target for Wesdome shares to $9.50 from $11.75. The average is $12.80.
Elsewhere, Desjardins Securities’ John Sclodnick cut his target to $11 from $12 with a “hold” rating.
“The challenging 2022 has strained the balance sheet, but we model WDO turning FCF-positive in 1H23 and the negative working capital position improving,” he said.
=====
While emphasizing it is “executing but in a weaker environment,” RBC’s Alexander Jackson lowered Russel Metals Inc. (RUS-T) to “sector perform” from “outperform,” citing a limited return to his target for it shares, the broader market outlook and potential for returns in the current environment.
“We expect continued slowing demand for steel in the near term and have already seen pricing slide in H2/22 as a result (HRC & plate down 34 per cent and 10 per cent, since mid-year),” he said. “Management also noted with Q3 results they expect cautious buying activity amongst industrial customers in the coming months which aligns with economic indicators that are showing signs of slowdown, energy excluded. Despite the slowdown Russel remains in a strong financial position (0.5 times net debt to fwd EBITDA) and typically generates countercyclical cash flows when sales slow, which we expect to allow the company to continue investing in value added processing, return capital to shareholders and pursue acquisitions. We could see Russel shares outperform if demand picks up in the new year and/or steel prices improve.”
“We revised our estimates following Q3 results, reducing our forecast margins at the Metals Service Center (“MSC”) business as we expect a more significant compression from lower steel prices than previously modelled. We also reduced volumes in Q4 on weaker expected demand and a greater impact from seasonality than previously forecast. We increased our Energy Products segment margins and volumes to reflect the stronger than expected conversion from field stores and increased our estimate contribution from TriMark as OCTG prices continue to rise.”
Mr. Jackson said he continues to like Russel for “its cost plus business model, market leading position in the metals distribution business and experienced management team,” however he trimmed his target for its shares by $1 to $34 target, below the $37.29 average, after trimming his expectations.
Elsewhere, Stifel’s Ian Gillies raised his target to $40 from $37 with a “buy” rating and Scotia’s Michael Doumet increased his target to $38 from $37.50 with a “sector outperform” rating.
“On the back of a strong 3Q22 print delivered by RUS, we continue to like the stock given its prudent balance sheet and attractive valuation (1.1 times 2023 estimated P/Book). We expect the company to counter cyclically deleverage with working capital releases, which allows RUS to execute on its NCIB and pursue M&A. Moreover, the company’s revenue exposure to highly commoditized HRC is not as material as one would expect with year-to-date exposure at 15.6 per cent. The remainder of the business is tied to value-added products, long products and plate, which we believe have more stable pricing profiles,” said Mr. Gillies.
=====
Desjardins Securities’ Benoit Poirier was one of several equity analysts on the Street to reaffirm bullish views on WSP Global Inc. (WSP-T) following better-than-anticipated third-quarter results that displayed “solid” organic growth with “strong demand in all market sectors.”
The Montreal-based firm reported adjusted earnings per share of $1.59, beating both Mr. Poirier’s $1.47 estimate and the consensus projection of $1.59. He attributed the beat to “very healthy” organic growth of 8.2 per cent year-over-year, beating his 4.1-per-cent forecast.
“WSP reported impressive 3Q results with positive organic growth across all regions,” he said. “The U.S. infrastructure stimulus package, combined with WSP’s healthy balance sheet and strong M&A track record, gives us confidence in management’s ability to unlock significant value.”
“WSP noted that the pipeline of opportunities remains strong, and recent wins are expected to positively impact the backlog in the coming quarters.”
Mr. Poirier said he’s not concerned about a quarterly free cash flow miss ($37-million versus his $312-milliobn estimate), which was the biggest notable negative in the quarterly report.
“The increase in DSO [days sales outstanding] has a substantial impact on its ability to generate FCF, and tax increases are out of WSP’s control,” he said. “DSO ended 2021 at an abnormally low level of 66 days, and the 3Q22 level represents a large nine-day swing since the beginning of the year (we estimate each one-day increase results in a $30-million drag on working capital). We believe this is due to public customers returning to more normal payment terms, especially in Europe, the Middle East and Asia, where longer terms are the norm. We expect an FCF turnaround in 4Q (we estimate $703-million) and a more normalized level in 2023 as these headwinds dissipate (we estimate $821-million).
“Guidance revised upwards—now in line with the Street. Looking ahead to 4Q, it is important to remember that 2022 will have one less billable week vs 2021; due to this, organic growth will be only 0.3 per cent by our estimate. For the full year, we believe WSP will meet its targets despite the calendar and FX headwind; we forecast revenue of $8.9-billion and EBITDA of $1,523-million.”
Maintaining a “buy” rating, Mr. Poirier bumped his target to $186 from $185. The average is $181.71.
“In our view, WSP’s solid M&A track record and balance sheet, combined with its diversified and resilient platform as well as the prospect of the US infrastructure stimulus package, warrant our bullish stance,” he said.
Others making changes include:
* BMO’s Devin Dodge to $183 from $176 with an “outperform” rating.
“We believe WSP offers a compelling mix of offense and defense. Organic growth trends are positive and the company’s strong balance sheet and FCF generation provide significant resources to pursue M&A opportunities. Demand has not shown signs of weakness, but the company has a track record for quickly realigning its business to changing industry conditions, if needed,” said Mr. Dodge.
* Stifel’s Ian Gillies to $176 from $175 with a “buy” rating.
“Owning WSP’s stock at this juncture will be predicated on one’s view as to whether management will be able to identify additional M&A opportunities to augment current EPS growth, because the business in its current form is getting close to fairly valued. We are in the camp that the company will continue to be successful in its M&A initiatives. Moreover, we believe the company has capacity using cash on hand and credit facilities to acquire EBITDA of $238-million and EPS of $1.05, which would add 12 per cent and 13.5 per cent to our 2024 forecasts,” he said.
* RBC’s Sabahat Khan increased his target to $190 from $184 with an “outperform” rating.
“Over the recent months, investors have been asking about the potential demand impact for Engineering firms from a macro slowdown in 2023/2024,” said Mr. Khan. “In our view, management commentary on today’s call (as well as recent commentary from peers during calendar Q3 reporting) addressed some of those concerns as there does not appear to be any notable softness in the demand outlook/pipeline across major markets. WSP’s management noted that clients remain committed to capital projects, the pipeline of potential work/overall proposal activity remains in good shape, and the company’s public sector exposure should provide stability through the cycle (in the event that private sector demand moderates). While management sounded optimistic on the outlook, they acknowledged the uncertainty in the macro backdrop and are managing the business accordingly (i.e., likely reflected in how they invest/recruit at this point in the cycle, in our view). Our read of the management commentary is that 2023 should be another year of positive organic growth given the strong backlog in North America and with the U.K./Central Europe performing above company expectations (despite ongoing turbulence).”
* CIBC’s Jacob Bout to $185 from $177 with an “outperformer” rating.
* Scotia’s Mark Neville to $175 from $170 with a “sector outperform” rating.
=====
In response to its US$606-million offer for Maverix Metals Inc. (MMX-T), BMO Nesbitt Burns analyst Rene Cartier raised his rating for Triple Flag Precious Metals Corp. (TFPM-T) to “outperform” from “market perform.”
“In our view, Triple Flag paid an attractive price, and we see the transaction as NAV-accretive, though more muted on near-term cash flow,” he said. “Longer-term, we think the Maverix portfolio carries significant optionality. We are hopeful the transaction enhances institutional interest, attracts new entrants, improves liquidity, and potential index inclusion.”
Mr. Cartier raised his target by $1 to $21. The average is $20.97.
At the same time, he lowered Maverix to “market perform” from “outperform” with a $4 target, down from $5.75 and below the $5.25 average.
“While the implied offer is below our prior target price, and while we had hoped for further share price gains and re-rating in Maverix, investors should be able to participate in potential future upside with the combined company. In our view, the combination further plays into the consolidation thematic in the royalty/streaming space. At this time, we are not assuming a competing offer,” he said.
=====
In other analyst actions:
* In response to lighter-than-anticipated quarterly results, BMO Nesbitt Burns’ John Gibson dropped Anaergia Inc. (ANRG-T) to “market perform” from “outperform” with an $8.50 target, down from $18. The average is $14.43.
“ANRG shares hold strong upside if it can execute on its plethora of Build, Own, Operate projects, although we feel risk remains around project timing. As a result, we are taking a more cautious approach until more clarity exists around 2023,” he said.
* JP Morgan’s Patrick Jones downgraded First Quantum Minerals Ltd. (FM-T) to “underweight” from “overweight” and cut his target to $26 from $30. The average is $28.62.
* CIBC’s Scott Fletcher raised his Altus Group Ltd. (AIF-T) target to $58 from $53, below the $63.38 average, with a “neutral” rating, while Scotia’s Kevin Krishnaratne raised his target to $59 from $58 with a “sector perform” rating.
“While we are incrementally more positive on Altus Analytics, we look forward to management’s vision of a higher mix of Tech and recurring revenue within the Property Tax division (which was softer in the quarter and is expected to decline year-over-year in F2023E), which could lead to a valuation re-rate and more positive view on the combined business,” said Mr. Krishnaratne.
* Scotia’s Michael Doumet lowered his AutoCanada Inc. (ACQ-T) target to $35 from $37.50 with a “sector outperform” rating. Other changes include: Canaccord’s Luke Hannan to $40 from $35 with a “buy” rating and BMO’s Tammy Chen to $28 from $25 with a “market perform” rating. The average is $45.30.
“ACQ packaged a beat and SIB,” said Mr. Doumet. “The former demonstrated the resilience in the business (i.e., at a time investors were concerned). The latter showed an ability to deploy capital and a belief that its shares are its best acquisition. While the company allocates capital to repurchases and acknowledges the tougher demand backdrop, it is still pursuing growth – although at a more measured pace. Beyond the SIB(s), scale achieved through M&A and organically will help achieve higher structural margins, which will create value for shareholders.
“Steady profits in a depreciating price environment (for used) helps underpin our view that earnings normalization will be gradual. Used inventories are being managed well and, going forward, the risk of additional provisions is unlikely (unless macro falls apart). Regardless of the slope of the normalization, we believe the shares remain undervalued on the basis of what it implies for mid-cycle EBITDA (40 per cent lower than 2022E) or what it implies on the value of its franchise dealers and used/collision business (30 per cent below historical).”
* Canaccord Genuity’s Mark Rothschild cut his Brookfield Asset Management Inc. (BAM-N, BAM.A-T) target to US$60 from US$62.50 with a “buy” rating. Other changes include: Scotia’s Mario Saric to US$64 from US$69 with a “sector outperform” rating, RBC’s Geoffrey Kwan to $63 from $62 with an “outperform” rating and CIBC’s Dean Wilkinson to $62 from $66 with an “outperformer” rating. The average is US$59.91.
“Q3/22 results demonstrated the strength and diversity of the Brookfield franchise. Financial metrics (OFFO and FRE) were ahead of our forecast with fundraising remaining very strong, which bodes well for FRE growth. We see the upcoming Asset Manager spinoff as likely surfacing value and with the shares trading at an 18-per-cent discount to NAV, we see BAM as attractively valued and a core holding,” said Mr. Kwan.
* Canaccord’s Matthew Lee bumped his target for CAE Inc. (CAE-T) to $30 from $36 with a “hold” rating. Other changes include: Scotia Capital’s Konark Gupta to $35 from $30 with a “sector perform” rating and CIBC’s Kevin Chiang to $34 from $32 with an “outperformer” rating. The average is $33.
“CAE reported Q2/23 revenue and profitability metrics above our expectations, primarily driven by the civil business. Civil revenue came in above our forecast as the firm delivered 10 simulators against our estimate of five. Management increased its annual guidance for simulator sales from 40 to 45, suggesting that sales strength in the quarter was not merely a timing benefit. On the defence side, CAE continues to face substantial cost headwinds, which we expect to persist into F24. Management reiterated its mid-20% EBIT growth guidance in the quarter, which appears much more feasible with the increase in civil deliveries. With that said, we believe that meeting guidance still requires a substantial acceleration in civil with defence margins reaching high-single digit by Q4. We remain optimistic on the long-term outlook on CAE, particularly in civil, but will wait for further signs of a defence recovery before becoming more constructive,” said Mr. Lee.
* Jefferies’ Owen Bennett raised his Canopy Growth Corp. (WEED-T) target to $4.95 from $4.20, above the $4.27 average, with a “hold” rating.
* Desjardins Securities’ Frederic Tremblay cut his Cascades Inc. (CAS-T) target to $9.50 from $10 with a “hold” rating. Others making changes include: Scotia’s Benoit Laprade to $13 from $15 with a “sector outperform” rating, CIBC’s Hamir Patel to $9 from $10 with a “neutral” rating and National Bank’s Zachary Evershed to $7.75 from $8 with a “sector perform” rating. The average is $10.80.
“While 3Q results were aligned with our expectations and the Street, we view the near-term outlook as mixed considering a weakening demand environment and risk of price erosion in Containerboard and challenges in Tissue.,” said Mr. Tremblay. “We have adopted a more cautious stance on 2023 (particularly for Tissue).”
* RBC’s Walter Spracklin reduced his CCL Industries Inc. (CCL.B-T) target to $71 from $74 with an “outperform” rating. Other changes include: BMO’s Stephen MacLeod to $79 from $80 with an “outperform” rating, Scotia’s Mark Neville to $75 from $78 with a “sector outoerform” rating, Raymond James’ Michael Glen to $77 from $79 with an “outperform” rating and National Bank’s Ahmed Abdullah to $78 from $81 with an “outperform” rating. The average is $77.20.
“While macro uncertainly looms, we thought the tone on the c/c was reasonably constructive. Notably, (i.) the order picture remains “decent”, though “not spectacular”, (ii.) CCL Segment continues to do well (management estimated 1/3 of the sales growth in Q3/22 was volume), (iii.) Avery had a “much better” October vs. any month in Q2, (iv.) Checkpoint is “hanging in well”, and (iv.) Innovia still needs to work through some higher cost inventory in N.A. but put in place price surcharges in Europe in Q2 that should help offset higher energy costs moving forward. Post results, we have lowered our 2023E EBITDA forecast by 5 per cent on lower sales/margin assumptions across essentially all business units to reflect general macro risks,” said Mr. Neville.
* CIBC’s Dean Wilkinson trimmed his Chartwell Retirement Residences (CSH.UN-T) target to $12 from $14.25, above the $11.67 average, with an “outperformer” rating.
* Mr. Wilkinson also lowered his Choice Properties REIT (CHP.UN-T) target by 25 cents to $15.25, exceeding the $14.94 average, with a “neutral” rating, while Canaccord’s Mark Rothschild raised his target to $14.50 from $14.25 with a “buy” rating and BMO’s Jenny Ma moved her target to $14.75 from $14.50 with a “market perform” rating.
* Canaccord’s Matthew Lee cut his target for Chorus Aviation Inc. (CHR-T) to $4 from $5 with a “buy” rating. The average is $4.59.
“Chorus reported Q3 results today with EBITDA above our expectations and consensus. Our key takeaway from the quarter was the company’s commentary around its anticipated Falko fund, which has been delayed until H1/23. Management contends that the demand for the fund remains robust, but that the current capital markets environment appears unconducive for fundraising. We continue to like the potential for Chorus to become a dominant player in regional aircraft leasing over the long term and believe that, compared to leasing peers, its current valuation represents an attractive entry point,” said Mr. Lee.
* National Bank’s John Shao dropped his Copperleaf Technologies Inc. (CPLF-T) target to $8 from $12 with an “outperform” rating. Others making changes include: CIBC’s Todd Coupland to $5 from $9 with a “neutral” rating, RBC’s Maxim Matushansky to $8 from $10 with an “outperform” rating, BMO’s Thanos Moschopoulos to $7 from $10 with an “outperform” rating and Canaccord’s Robert Young to $5.50 from $12 with a “buy” rating. The average is $9.29.
“Copperleaf reported an essentially in-line quarter. In our view, the important takeaway was the Management’s reiteration that the pipeline was scaling and that Q3 has been one of the busiest quarters for sales lead generation,” said Mr. Shao. “That said, we’d also note their comments on an elongated sales cycle as the tight labour market and a lack of resources within client organizations delayed the deployment. To us, a longer sales cycle, plus the continued SaaS transition (a headwind for the perpetual license revenue), has us resetting our FQ4 and F23 expectations on the top-line growth. All in, we see the potential of the stock being washed out during the recent selloffs and the expectation reset could open the door to future upside.”
* BMO’s Deepak Kaushal cut his Converge Technology Solutions Corp. (CTS-T) target to $8 from $9 with an “outperform” rating, while Scotia’s Divya Goyal lowered her target to $10 from $11 with a “sector outperform” rating. The average is $9.21.
“We trimmed our forecasts and valuation multiple to reflect near-term conservatism with respect to the pace of acquisition integration and organic growth,” said Mr. Kaushal. “That said, we continue to believe the recent sell-off was an over reaction to a less relevant quarter, and continue to believe Converge can achieve its 2025 goal of $5-billion revenue and $500-million EBITDA. Furthermore, we continue to expect mix of higher margin services to increase, and ROIC to improve.”
* RBC’s Geoffrey Kwan raised his Definity Financial Corp. (DFY-T) target to $46 from $45, above the $42.32 average, with an “outperform” rating.
“DFY delivered another strong quarter with double-digit gross written premium growth (up 11 per cent) and a mid-90s combined ratio (96.6 per cent) despite significant catastrophe activity in the quarter (e.g., Hurricane Fiona). DFY is showing strong signs of executing on its organic growth strategy and augmenting it by making selective acquisitions (DFY completed 2 distribution acquisitions in addition to the previously announced McDougall transaction). We retain our view of DFY as a “sleeper” best idea due to: (1) positive fundamentals and favorable industry conditions; (2) potential catalysts; (3) very defensive attributes; and (4) reasonably valued,” said Mr. Kwan.
* Stifel’s Suthan Sukumar cut his Docebo Inc. (DCBO-Q, DCBO-T) target to US$60 from US$65 with a “buy” rating, while Scotia’s Kevin Krishnaratne to US$42 from US$45 with a “sector outpeform” rating. The average is $48.25.
“DCBO reported a solid FQ3 print, highlighting impressive 42-per-cent year-over-year constant currency revenue growth, with the combination of positive EBITDA and FCF, a quarter ahead of plan,” said Mr. Sukumar. “While the company is not immune to macro-related impact to sales cycles, their deal pipeline remains strong with high win rates sustaining, suggesting good visibility on share gains and growth heading into F23, particularly when considering a seasonally stronger FQ4 and FQ1. We have updated our forecasts to reflect modest impact from ongoing FX headwinds, which drives our target price slightly lower. We continue to see a sustained rule of 40 profile with a balance on growth and profitability, which should support further upside given the significant valuation gap relative to comparable Rule of 40 SaaS peers, in our view.”
* CIBC’s Scott Fletcher cut his Dye & Durham Ltd. (DND-T) target to $27.50 from $33 with an “outperformer” rating. Others making changes include: Raymond James’ Stephen Boland to $21 from $31 with an “outperform” rating and BMO’s Thanos Moschopoulos to $20 from $23 with an “outperform” rating. The average is $27.90.
“We remain Outperform on DND and have reduced our estimates and target price following Q1/23 results, which were below consensus, as the business is being impacted by the cyclical decline in property transaction volumes. That said, we think DND can sustain a healthy level of cash flow and profitability through the current downturn (at least in absolute terms, albeit not relative to prior Street estimates), as was evidenced this quarter, and we believe the risk/reward on the stock remains attractive,” said Mr. Moschopoulos.
* RBC’s Keith Mackey increased his Enerflex Ltd. (EFX-T) target to $12 from $11 with an “outperform” rating. The average is $11.31.
“3Q22 results were ahead of Street expectations in the company’s final quarter prior to closing the Exterran acquisition. The solid results provide a foundation for operational and FCF execution in FY23. Both of which we see as key potential catalysts for re-rating,” he said.
* Desjardins Securities’ Chris MacCulloch raised his Freehold Royalties Ltd. (FRU-T) target to $20 from $19 with a “buy” rating. The avergae is $20.72.
“Although there was nothing extraordinary in the update beyond robust drilling activity on the company’s royalty lands, it certainly struck the right tone, from our perspective, following two consecutive quarters of disappointing stateside results. And with corporate learnings from the recent U.S. experience, we expect FRU to start getting more active again on the M&A front south of the border in 2023,” he
* CIBC’s John Zamparo raised his GDI Integrated Facility Services Inc. (GDI-T) target by $1 to $62 with an “outperformer” rating. Other changes include: Scotia’s Jonathan Goldman to $53.50 from $53 with a “sector outperform” rating and National Bank’s Zachary Evershed to $56 from $55.50 with an “outperform” rating. The average is $61.67.
“On balance, we view the results as a net positive: i) Janitorial Canada margins were as expected (i.e., came off peak levels); ii) Janitorial USA margins were lower than expected due to a legacy contract with a major customer that carries “no margin” (runs until mid 2023), but iii) the IH acquisition continues to outperform (sales run-rating at $350 million versus ~$250 million when acquired in January 2021); and iv) Technical Services is back to operating at normal seasonal capacity as supply chain issuers earlier in the year have been resolved and margins returned to pre-COVID levels,” said Mr. Goldman.
* CIBC’s Nik Priebe hiked his Goeasy Ltd. (GSY-T) target to $180 from $160, below the $201.44 average, with an “outperformer” rating, while Raymond James’ Stephen Boland raised his target to $205 from $202 with an “outperform” rating.
“While credit concerns have weighed on the stock’s performance year-to-date, charge-offs in the quarter were in-line with prior guidance,” said Mr. Boland. “As demonstrated over the years, GSY is a disciplined underwriter with a stringent risk management program. In addition, we believe GSY has been nimble in adapting its adjudication process to changes in the external environment. We believe this is being reflected in the consistent performance q/q. And while credit remains healthy, loan growth has also been steady — GSY reported record financing volumes across several verticals this quarter. Management once again affirmed its commitment to its 3-year guidance, expecting the loan book to grow 54 per cent from current levels by the end of 2024.
“We remind investors that the stock continues to be detached from fundamentals. GSY is trading at just ~9x 2023 EPS despite a 20-per-cent-plus ROE. In addition, we believe there is lower risk across the loan portfolio since the LendCare acquisition was completed (38 per cent of the loan book is now secured). Given these factors, GSY continues to be one of the more attractive value plays in our coverage.”
* CIBC’s Dean Wilkinson lowered his Granite REIT (GRT.UN-T) target to $90 from $98, below the $92.38 average, with an “outperformer” rating.
* CIBC’s Hamir Patel cut his Hardwoods Distribution Inc. (HDI-T) target to $34 from $37, below the $48.21 average, with an “outperformer” rating.
* CIBC’s Dean Wilkinson reduced his InterRent REIT (IIP.UN-T) target to $14.50 from $15 with a “neutral” rating. The average is $15.10.
* RBC’s Jimmy Shan lowered his Killam Apartment REIT (KMP.UN-T) target to $21.50 from $22 with an “outperform” rating, while Desjardins’ Kyle Stanley cut his target to $21 from $22.50 with a “buy” rating. The average is $20.64.
“Improving market fundamentals have accelerated top-line growth; however, cost inflation, particularly utilities and natural gas, remain elevated and will likely weigh on cash flow growth heading into 4Q22/1Q23. This, combined with higher interest rates, drove our revised FFO outlook,” said Mr. Stanley.
* Canaccord’s Scott Chan raised his Manulife Financial Corp. (MFC-T) target to $24.50 from $23.50 with a “hold” rating, while Barclays’ John Aiken to $28 from $29 with an “overweight” rating. The average is $25.75.
“Stability in earnings from Asia and a rebound in wealth could set the stage for an earnings recovery in 2023 as pandemic restrictions in China begin to be lifted,” said Mr. Aiken.
* CIBC’s Mark Jarvi raised his Northland Power Inc. (NPI-T) target to $45 from $44 with an “outperformer” rating. The average is $48.50.
* National Bank’s Zachary Evershed increased his Park Lawn Corp. (PLC-T) target to $33.50 from $32.50 with an “outperform” rating. Other changes include: CIBC’s John Zamparo to $27 from $25 with a “neutral” rating and Scotia’s George Doumet to $32 from $33 with a “sector outperform” rating. The average is $36.94.
“Results were certainly not as bad as feared, especially in the context of some public competitors reporting significant sequential deterioration in Q3 results. Aided by some bulk sales, PLC was actually able to show a material (180 bps on adj. EBITDA margins) q/q improvement. This quarter’s performance (in addition to some company commentary) points to improved visibility for next year,” said Mr. Doumet.
* CIBC’s Todd Coupland trimmed his target for Quarterhill Inc. (QTRH-T) to $3 from $3.50, above the $2.78 average, with an “outperformer” rating.
* CIBC’s Dean Wilkinson cut his Sienna Senior Living Inc. (SIA-T) target to $14 from $16.25 with a “neutral” rating. The average is $15.06.
* CIBC’s Stephanie Price lowered her Softchoice Corp. (SFTC-T) target to $20 from $21 with a “neutral” rating, while RBC’s Paul Treiber cut his target to $21 from $23 with a “sector perform” rating. The average is $26.99.
“Softchoice reported solid Q3 results, showing no signs of macro headwinds. Growth is being led by software and the cloud. The company reiterated FY22 guidance, though sees incremental FX headwinds to gross profit, but no impact to adj. EBITDA. Softchoice is prioritizing share buybacks in the near-term, which are likely to provide a backstop for the stock,” said Mr. Treiber.
* Jefferies’ Stephanie Wissink cut her Spin Master Corp. (TOY-T) target by $1 to $46 with a “buy” rating. The average is $46.70.
* Scotia’s Mark Neville raised his Stantec Inc. (STN-T) target to $80 from $74 with a “sector outperform” rating, while Raymond James’ Frederic Bastien increased his target to $80 from $75 with a “strong buy” raitng. The average is $74.10.
“We reaffirm our Strong Buy recommendation on Stantec after a double-digit percentage gain in organic revenue powered EPS 20 per cent higher for 3Q22,” said Mr. Bastien. “But as impressive as this performance may be, revenue has actually been lagging backlog in growth thus far in 2022. Organically and on a constant currency basis, the order book is up a remarkable 15 per cent year-to-date. We believe this not only reflects the ongoing strong execution of STN’s strategic plan, but also demonstrates the resiliency of the business model amid broader economic headwinds. The design and engineering consultancy is making inroads in cybersecurity, which positions it well for increased federal funding, and successfully tapping into top emerging trends such as reshoring, social equality, extreme weather, energy transition and water reliability. We are just as pleased with the level of diversification the organization has attained in recent years, and confident that no sector or region can veer it off course anymore.”
* CIBC’s Hamir Patel bumped his Stella-Jones Inc. (SJ-T) target to $49 from $45, below the $53.29 average, with an “outperformer” rating.
* BMO’s Joel Jackson trimmed his Superior Plus Corp. (SPB-T) target to $11.50 from $12.50 with a “market perform” rating, while Scotia’s Ben Isaacson lowered his target to $12 from $12.50 with a “sector perform” rating. The average is $12.79.
“Lowering target price to $11.50 following a Q3 release that was generally in line (small Q3 miss in a seasonally weak quarter, maintained FY guide),” said Mr. Jackson. “However, we believe investors have become increasingly concerned that value creation has lagged expectations and that persistently high leverage seems to be constraining the propane tuck-in strategy (the pace of which seems a little more confusing now that SPB is pursuing share buybacks). However, we appreciate SPB’s safe/attractive dividend and the stock is sitting below its historical $11-12/sh trading range.”
* CIBC’s Robert Catellier reduced his Tidewater Renewables Ltd. (LCFS-T) target to $19.50 from $20 with an “outperformer” rating, while Scotia’s Justin Strong cut his target to $16 from $17.75 with a “sector outperform” rating. The average is $19.77.
* RBC’s Keith Mackey raised his Trican Well Service Ltd. (TCW-T) target by $1 to $6, above the $5.78 average, with an “outperform” rating, while Stifel’s Cole Pereira bumped his target to $6.50 from $6 with a “buy” rating.
“Trican’s 3Q22 results were well-ahead of the Street consensus. The company is beginning to see the effects of improved pricing and utilization for its 7 active frac fleets,” said Mr. Mackey.
* RBC’s Greg Pardy lowered his Vermilion Energy Inc. (VET-T) target to $31 from $35 with a “sector perform” rating. Others making changes include: Stifel’s Cody Kwong to $42 from $47 with a “buy” rating and Raymond James’ Jeremy McCrea to $38 from $40 with an “outperform” rating. The average is $40.57.
“The delays in closing the Corrib acquisition and the impact of the introduction of EU Windfall tax on sell-side estimates have clearly spooked the market on the name, particularly with a jittery macro backdrop, in our view. Vermilion’s 2022 windfall tax estimates were in line with ours and should help clear up sell-side speculation of much higher figures. As for the Corrib acquisition, we are still confident that it will close successfully, but at the tail end of 1Q23 in our updated view. We believe our revised forecast covers all tax and timing impacts, prompting a target price reduction to $42.00/share. It is our view that the few moving parts in the short term do not impact the key themes that Vermilion continues to have a robust FCF outlook and is committed to ultimately returning 90 per cent of its FCF back to shareholders. We like this pullback as a buying opportunity,” said Mr. Kwong.
* CIBC’s Scott Fletcher cut his target for Well Health Technologies Corp. (WELL-T) to $6.50 from $7 with an “outperformer” rating, while Desjardins’ Jerome Dubreuil lowered his target to $5 from $6.50 with a “hold” rating. The average is $7.82.
“WELL reported solid 3Q22 results, with revenue and adjusted EBITDA beating consensus. Both online and in-person care channels again exhibited strong growth and appear to be minimally impacted by the uncertainty surrounding the economy. We acknowledge that WELL has consistently delivered amid an uncertain environment and offers a compelling mix of growth and profitability, but we consider 11.3x 2023 adjusted EBITDA (attributable to shareholders) a fair valuation,” said Mr. Dubreuil.
David Leeder