Inside the Market’s roundup of some of today’s key analyst actions
While the advertising market will remain weak, cost pressures facing Corus Entertainment Inc. (CJR-B-T) in upcoming quarters are likely to ease, said Canaccord Genuity Aravinda Galappatthige in reviewing the media company’s fiscal third quarter results.
As a result, he upgraded his rating on the stock, which has already fallen 43 per cent this year, to “hold” from “sell.”
“With Corus reducing their workforce by 8% (250 positions including eliminated vacancies) we are finally seeing some easing in [operational expenditure] inflation, which had been negatively impacting margins in prior quarters,” Mr. Galappatthige said in a note to clients. Meanwhile, the company has largely caught up with additional Canadian content spending it has been required to do by regulators, and the prolonged writers’ strike could provide some short-term support to margins due to lower programming costs, he said.
He described Corus’s third quarter results as “net negative” due to a revenue miss led by higher subscriber revenue declines and weaker-than-expected radio ads. TV advertising was down 12 per cent year over year, but this was expected. Adjusted EBITDA was down 22 per cent year over year.
“We continue to see sustained topline pressure over the next couple of quarters for Corus, notwithstanding the notably easier comps in Q4/22 and beyond,” the analyst said. “This is due to the fact that we see no easing in advertising pressure, given the broader macro picture and further signs of an uptick in sub revenue pressure. The indication given by management of a low single-digit (moderate) decline in TV ads in Q4, on top of the 14.2% decline in Q4/22, suggests generally similar underlying trends to what we saw in Q3. On the positive side, adj EBITDA is expected to start to improve owing to meaningful cost reductions put in place and our expectation of easing programming cost inflation. This, in turn, suggests the sharp march upwards in the leverage ratio is likely to halt.”
Mr. Galappatthige’s price target was reduced by 20 cents to $1.20, mostly owing to higher-than-expected cash burn in recent quarters.
Elsewhere, Scotiabank analyst Maher Yaghi cut his price target to $1.90 from $2.30 while reiterating a “sector perform” rating, and RBC cut its target price to C$2.50 from C$3.
“Corus is contending with a cyclical downturn in TV advertising as well as a secular decline in TV linear subscriptions, both exerting pressure on the top and bottom line of the company. At this point in time it is still too early to call a bottom on the advertising revenue pressure and hence the outlook for 2024 and beyond remains uncertain. We have reduced our forecast for 2024 given the continued pressure and until we see an improvement in advertising trends, we prefer to maintain our neutral stance,” Scotiabank’s Yaghi said in a note.
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BMO Capital Markets analyst Stephen MacLeod upgraded property service provider FirstService Corp. (FSV-T) to “outperform” and raised his price target to $176 on more attractive valuations as well as management meetings this week that “solidified our already positive view on FirstService’s strong fundamentals.”
“We believe FirstService is well-positioned to build on its long-term track record of success to drive annual 10%+ revenue and EBITDA growth for decades; we find this long-term compounding potential attractive and deserving of the stock’s premium valuation,” the analyst said in a note to clients. “With ~75-80% recurring revenue, FirstService appears well-positioned against the prospect of weakening macro. Valuation (previously kept us on the sidelines) is not demanding with the stock trading in line with its historical average (~17.5x NTM EV/EBITDA).”
FirstService provides property services through two service platforms: FirstService Residential, the largest manager of residential communities in North America; and FirstService Brands, a leading provider of property services through franchise and corporate networks.
Mr. MacLeod said the company has a long runway for growth across all of its businesses and its modest financial leverage and ample liquidity “support a long runway” for merger and acquisition activity.
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ATB Capital Markets analyst Tim Monachello expects a near-term asset sale could be the catalyst for a higher share price at Shawcor Ltd. (MATR-T). He raised his price target on the stock to $22 from $18 while reiterating an “outperform” rating.
“We are increasing our estimates ahead of MATR’s Q2/23 results scheduled for August 10,” Mr. Monachello said in a note. He said ATB’s channel checks suggest that the second quarter was a strong operational period for MATR across its segments.
“In addition, we believe MATR is targeting to announce a deal to sell its Pipeline Performance Group (PPG) with or before its Q2/23 results, with a potential deal likely to close, at least in part, before year-end. While MATR shares are up 36% YTD, we believe it has meaningful medium-term upside potential from 1) a positive re-rating toward its material technology peer range in the 6.0x-13.0x range (2024e), and 2) significant growth potential from compelling long-term organic expansion opportunities, inorganic M&A opportunities, and operational efficiencies. All told, we remain constructive on MATR despite its strong performance of late.”
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BMO Capital Markets cut its target price on Ero Copper Corp. (ERO-T) to $24 from $26 and downgraded its rating to “market perform” from “outperform.” It cited revisions BMO has made to its commodity and forex price outlook, as well as Ero’s strong year-to-date share price.
While BMO analyst Jackie Przybylowski said she expects Ero to see some positive catalysts this year, “these are increasingly reflected in the company’s share price.”
BMO now sees a copper price of US$3.88 per pound by the end of this year, down from $4 at the end of 2022.
Ero Copper’s share price is up 44 per cent year-to-date, outperforming many other base metals stocks in Canada.
Ms. Przybylowski said that significant future catalysts will be closer to year-end. Ero is planning “the great reveal” during the last quarter of 2023, which will provide a fuller picture of the potential upside from nickel exploration. “We also expect updates later this year on the Caraíba mill expansion (completion Q4/23), and Tucumã (commercial production Q4/24). Falling copper prices have exacerbated the value gap,” she added.
The downgrade has left Hudbay Minerals Inc. as the only “outperform”-rated stock in BMO’s senior base metals coverage. “We continue to have a bias towards golds for better value; we continue to see most base metals names as expensive in light of current and near-term expected commodity prices,” she said.
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Citi analyst Atif Malik started coverage with a “buy” rating on Apple Inc. (AAPL-Q) with a US$240 target price.
“While the stock is up 46% YTD vs the S&P 500 up 14% as Apple is navigating the macro slowdown and inflationary pressure on consumer spending by consistently gaining share from Android phones, we see ~30% further upside potential from current levels,” Mr. Malik said in a note. “We believe the Street is underestimating continued gross margin expansion. ... We value AAPL at $240 or 30x FY25 EPS or 15% premium to 26x 3-year average P/E to reflect expanding gross margins, growing services sales mix, and strong balance sheet.”
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In other analyst actions:
Capital Power Corp. (CPX-T): RBC cuts target price to C$48 from C$50
Enerplus Corp. (ERF-T): Barclays cuts target price to C$26 from C$30
Northland Power Inc. (NPI-T): National Bank of Canada cuts target price to C$37 from C$40
Whitecap Resources Inc. (WCP-T): Barclays cuts target price to C$13 from C$14
Carnival Corp. (CCL-N): Jefferies raises target price to US$25 from US$9 and raises rating to “buy” from “hold”
Darcy Keith