Inside the Market’s roundup of some of today’s key analyst actions
Several analysts lowered their target prices on Canadian Tire Corp. after the retailer disappointed the market with its second-quarter results on Thursday.
The company reported declines in both profits and revenue for the quarter ended July 1, as the pressures of inflation weighed on consumer demand.
The greatest impact was on discretionary spending for products like gardening supplies and recreational items. This category accounts for roughly two-thirds of the company’s sales.
While traffic across the Canadian Tire chain remained stable, spending on non-essential items declined by 3 per cent in the quarter. The pullback was most pronounced in Ontario and British Columbia, which have some of the highest household debt burdens in the country.
“With increasingly cautious consumer spending and ongoing opex headwinds, we reiterate our view that 2023/2024 will likely remain challenging for Canadian Tire,” said RBC Dominion Securities analyst Irene Nattel.
In the face of softening consumer signals, the company also decided to remove its own sales and profit targets. Last year, management said it expected to realize annual sales growth of 4 per cent by 2025, and aimed to doubled its diluted earnings to $26 per share between 2019 and 2025. Those targets were withdrawn on Thursday.
“Management’s decision to withdraw financial aspirations … should not come as a surprise, with both our fiscal 2025 forecast and consensus heading into Q2 already more than 20 per cent below target,” Ms. Nattel said.
She added, however, that the company isn’t likely to face the same pressures as in the aftermath of the global financial crisis.
“While depth and duration of consumer spending slowdown are a key caveat, Canadian Tire is in a much better position today than it was in 2008–09, with significant evolution of loyalty data and analytics and enhanced revenue and gross margin management capabilities.”
Ms. Nattel reduced her target to $208 from $225 while maintaining an “outperform” rating. Elsewhere, BMO Capital Markets lowered its target price to $180 from $196, Desjardins Securities lowered its target to $190 from $200, while National Bank of Canada lowered its target to $184 from $193.
National Bank of Canada downgraded Boyd Group Services Inc., despite the company beating earnings expectations by a decent margin.
On Thursday, Boyd reported its second-quarter results, with adjusted earnings pre share of $1.26 beating the consensus forecast of $1.02 per share. The company also robust demand, with same store sales coming in at 18.9 per cent year over year. Meanwhile, supply chain constraints continue to ease. And the company’s M&A activity was strong, with 25 locations opened or acquired in the second quarter.
However, National Bank analyst Zachary Evershed sees potential headwinds in insurance premiums.
“While we agree with management’s assessment that insurance premium increases must perforce catch up with costs, allowing carriers to fund labour rate increases over the long term, and even though labour rates are not directly tied to written premiums over the short term, political action to curb the magnitude of premium hikes represents a growing risk in our view.”
Additionally, Boyd’s stock has now risen by roughly 20 per cent since late March, Mr. Evershed wrote.
Though we appreciate the defensive, cycle-agnostic characteristics of the story and do believe margin recovery is more or less a certainty in the long term, given rising uncertainty in the operating environment and as valuation seems full … we would look for a better entry point.”
He reduced his rating to “sector perform” from “outperform,” while maintaining a target price of $270. Other analysts remained positive on the stock, with BMO raising its target price to $280 from $270, and RBC raising its target to $284 from $274.
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AutoCanada Inc. (ACQ-T) trounced analyst expectations for earnings, with earnings per share for the second quarter coming in at $1.75 versus a consensus forecast of $0.88.
“While AutoCanada’s topline was solid, meeting consensus expectations, it was the company’s progress on operating expenses that really stood out,” said CIBC Capital Markets analyst Krista Friesen.
Adjusted operating earnings for the quarter were 66.8 per cent of gross profit, which is the second-lowest result in the company’s history. That figure was down 70.7 per cent over the prior year, and puts AutoCanada more in line with its U.S. peers.
“Given that ACQ has been a notable laggard on the cost line relative to its U.S. peers, we view this development positively,” Ms. Friesen said, adding that the company suggested there is still room to cut costs.
“If Q2 is indicative of the company’s ability to extract efficiencies, we are optimistic that AutoCanada can reach a normalized cost level comparable to its peers.”
She raised her target to $26 from $22, while maintaining a “neutral” rating. RBC also raised its target price on the stock to $22 from $19.
Some analysts are revising their outlooks for Algonquin Power & Utilities Corp. after the company announced it will pursue a sale of its renewable energy business.
The shakeup, which also saw the company’s CEO step down, would transform Algonquin into a pure-play utilities business.
“AQN is clearly a ‘show-me’ stock with plenty of questions, and facing investor skepticism that it can sell non-utility assets at attractive multiples and become a utility-only company that will attract new investors,” CIBC Capital Markets analyst Mark Jarvi wrote.
He added that the company could continue supporting its dividend by selling assets and buying back stock.
“However, we don’t believe the remaining business would command a premium multiple, and as much as there might be upside, it’s not a compelling risk-reward setup,” Mr. Jarvi said, while cutting his target price on the stock to $9 from $9.25.
Meanwhile, BMO Capital Markets analyst Ben Pham, said that Algonquin’s transition could eventually narrow the stocks valuation discount against other utilities. It currently trades at about 13 times earnings compared to an average price-to-earnings ratio of about 17 for the rest of the Canadian industry.
“However, we believe the re-rating could take time to play out and there is execution risk with asset sale divestitures with respect to timing and valuation,” Mr. Pham said. He cut his target to $8.50 from $9 while maintaining a “market perform” rating.