Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial analyst Vishal Shreedhar raised his price target on Loblaw Companies Ltd. (L-T) in the wake of second-quarter earnings that were mixed but provided optimism about the grocer’s outlook.
His target went to C$175 from $159 and he reiterated an “outperform” rating.
Loblaw reported adjusted EPS of $2.15, a penny better than consensus, and guidance was maintained. Revenue was $13.947 billion, below consensus at $14.166 billion.
“Loblaw indicated Q3/24 Food Retail same-store sales growth improved sequentially, which will help to alleviate investor concern,” commented Mr. Shreedhar in a note to clients.
The analyst slightly increased his earnings estimates for the company and noted that Loblaw “remains our preferred grocer given consistent execution and higher return on invested capital vs. peers.”
Loblaw and George Weston Limited announced the settlement of class action lawsuits concerning bread price-fixing. Loblaw will pay $252.5 million but Mr. Shreedhar says there is no expected impact to capital expenditures and capital return to shareholders.
Elsewhere, CIBC also raised its target price to C$189 from C$171.
Desjardins Securities analyst Chris Li was more cautious, maintaining a “hold” rating and C$172 price target. He commented: “Overall, 2Q results reinforced L’s consistent and solid execution despite navigating through some transitory headwinds. There is no change to management’s 8–10% EPS growth target for 2024, and earnings visibility in 2024 remains high. With L now trading at a peak valuation of ~18.5x forward P/E, multiple expansion is limited in our view and we expect share price appreciation to largely track EPS growth.”
RBC analyst Irene Nattel also maintained her price target, at C$183, but made it clear she was bullish on the stock in the wake of the earnings.
“Against the backdrop of normalizing same-store sales, Loblaw management is doing exactly what we want management to do: deliver solid financial results despite the headwinds. With a store base that skews to discount, industry-leading private label penetration and powerful loyalty program, in our view Loblaw is best positioned to benefit from the secular shift in purchasing patterns,” Ms. Nattel.
Loblaw is RBC’s top investing idea in the grocer sector.
The average price target on Loblaw is now C$178.13, up from C$165.25 a month ago, according to LSEG data.
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The negative stock reaction to Bombardier Inc.’s (BBD-B-T) second-quarter earnings this week is a buying opportunity for long-term investors, said Desjardins Securities analyst Benoit Poirier.
Shares fell nearly 5% on Thursday even as overall results were better than expected. as investors appeared disappointed the company didn’t raise guidance for the rest of this year. Total revenue came in at US$2.203 billion in the second quarter, above consensus of US$1.843 billion. Adjusted EBITDA was US$335 million, above consensus of US$291m and free cash flow was much better than Street estimates thanks to the company being able to deliver seven more planes than anticipated.
“While many investors were curious as to why the company did not raise guidance on the back of these results, we note that pull-forward dynamics are at play and that 3Q consensus for deliveries will have to fall. While we are not concerned about BBD’s ability to reach its 2024 targets, 4Q will once again drive the show—we forecast free cash flow of -US$77m in 3Q and US$783m in 4Q,” said Mr. Poirier. “Management remains confident that it can achieve an 18% EBITDA margin next year, driven by aftermarket growth, pricing tailwinds, an improvement in the Global mix and neutral working capital in 2025. Management stated the Toronto strike would not impact guidance as most of the jets that will be delivered this year are already in Montréal being readied for completion, while the few remaining in Toronto are returning to schedule with overtime work. Overall, BBD maintained and reiterated its confidence in its 2024 guidance, mentioning that things are going according to plan.”
He added: “We remain quite pleased with the results overall and the strong execution. We believe the market does not fully appreciate BBD’s booking 39 jet orders in a seasonably weaker quarter and being the only original equipment manufacturer to beat consensus deliveries.”
Mr. Poirier maintained a “buy” rating as well as a C$143 price target. At least two analysts did raise their price targets, however: CIBC increased its to C$116 from C$102 and National Bank Financial raised its target to C$117 from C$114.
National Bank Financial analyst Cameron Doerksen attributed the increased price target to some upward adjustments made to its earnings estimates.
“We maintain our outperform rating on Bombardier shares,” Mr. Doerksen told clients. “Our thesis on Bombardier is unchanged: we see steady progress towards the company’s 2025 financial targets underpinned by still healthy business jet end market conditions and an expectation for solid free cash flow generation through the end of the decade supported by growth in the company’s aftermarket and Defense segments.”
The average price target on Bombardier is now C$104.20, up nearly $10 in the past month.
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BMO Capital Markets upgraded Mullen Group Ltd. (MTL-T) to an “outperform” rating from “market perform” in the wake of its second quarter results, saying that its valuation “is simply too inexpensive to ignore” even after its 9.2% spike on Thursday. BMO analyst John Gibson also raised his price target to C$17 from $14.50.
“The company’s free cash flow yield sits at an impressive >10%, while on an EV/EBITDA basis, MTL is trading at about a 30-40% discount to peers. We also believe some freight-related green shoots are emerging, which should allow for improved results into 2H/24 and 2025,” Mr. Gibson said in a note to clients.
Revenue of $496 million held flat year over year while adjusted EBITDA of $86 million was ahead of BMO’s $79 million estimate and consensus of $78 million. The beat was driven by sequential margin improvements across each of its segments, “which was impressive in context of a difficult freight market,” said Mr. Gibson.
Mullen also boosted its monthly dividend by 17%, providing a current yield of about 5%. Mullen also highlighted it has been active in terms of evaluating acquisitions. “We expect the company could look to transact in 2H/24, particularly given additional liquidity associated with its recent credit facility increase,” the analyst added.
Mr. Gibson said his new price target reflects a valuation of enterprise value running at 6 times EBITDA, which still reflects a significant discount to Canadian trucking and logistics peers.
In other analyst actions, CIBC raised its target price to C$16.5 from C$15.5, Raymond James raised its target to C$17 from $16.50, Cormark Securities raised its target by 75 cents to C$19.50, and RBC raised its target to C$17 from C$16.
RBC analyst Walter Spracklin has a similar view on the buying opportunity that exists in the stock.
“Amid a tough macro environment, MTL has delivered nicely on very impressive margin expansion, disciplined capital deployment, and strong free cash flow generation— all while maintaining a clean balance sheet. We see the valuation relative to this performance as extremely attractive. We reiterate our Outperform rating on the shares,” Mr. Spracklin said.
The average price target is now C$18.08, up from $17.50 a month ago.
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ATB Capital Markets analyst Chris Murray raised his price target on Waste Connections Inc (WCN-T) to C$255 from C$240 following second-quarter results.
Revenue and earnings exceeded Mr. Murray’s estimates.
“WCN delivered solid Q2/24 results underpinned by strong price-led growth and a positive contribution from M&A,” Mr. Murray said. “Management made its customary mid-year bump to full-year guidance, reflecting pricing conditions, favourable commodity prices, and moderating cost headwinds are expected to support margin expansion in H2/24, despite a lower volume environment (-2.8% y/y). Volumes are being impacted by intentional shedding and lower construction activity but are expected to be less of a drag in H2/24 on softer comparisons.”
Despite a strong second quarter and an attractive growth and margin outlook, Mr. Murray said current valuations are keeping him neutral on the stock for now.
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There was mixed analyst reaction to Aecon Group Inc.’s (ARE-T) latest quarterly results.
National Bank of Canada cut its target price to C$17 from C$18; Stifel upgraded its rating to “buy” from “hold” and raised its target price to C$25 from C$16.50; but TD Cowen cut its target price to C$16 from C$17.
While EBITDA and revenues in the second quarter were a little weaker than consensus forecasts, Canaccord Genuity analyst Yuri Lynk commented that there was still strong underlying performance. He’s one of the more bullish on the stock, and reiterated a “buy” rating and C$25 price target.
“On a trailing twelve-month (TTM) basis, the Construction segment EBITDA was $305 million or 8.0% of revenue; this is a very strong margin for a construction business and record territory for Aecon,” said Mr. Lynk. “Growth likely resumes in 2025. Backlog is set to double in 2025 as five major projects move from the development phase, which de-risks delivery, into construction. All told, we see a compelling EBITDA recovery underway that does not appear reflected in Aecon’s valuation.”
The construction and engineering company has been plagued with delays with so-called lump sum turnkey (LSTK) projects, but there’s been improvement on that front.
“We are so close to the end of this LSTK saga that management was comfortable enough to put out a $125 million ($2.00/sh.) estimate of what any future additional losses might amount to. With these projects comprising just 4% of backlog, or $269 million, and all scheduled for completion by Q4/2025, the Aecon story is significantly derisked, in our view,” said Mr. Lynk.
National Bank Financial analyst Maxim Sytchev is feeling a bit more cautious on the stock. While fixed price project visibility has improved materially, he warns that potential further losses are significant. He said it’s still hard to get a clear understanding of “what is the true clean EBITDA” of the company given writeoffs to fixed price projects.
Ian Gillies of Stifel, the analyst who upgraded his rating on the stock, said he made the move as he believes “the company has reached a point where much of the bad news related to its four fixed-price legacy contracts has been disseminated.”
“Any additional impairments are likely to be outweighed by the strength of the underlying business which is now much less levered to fixed-price contracts, while its collaborative project exposure should increase materially. We believe the company can deliver adj. EBITDA of at least $433 mm (accounting EBITDA: $356 mm) on a normalized basis. We anticipate this outlook will be de-risked over the next 12-months, which underpins our change to a more positive stance,” Mr. Gillies said.
The average price target on Aecon is now C$19.14, which is down from $19.41 a month ago.
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Canaccord Genuity analyst Robert Young raised his price target on Celestica Inc. (CLS-N) to US$70 from US$53 while reiterating a “buy” rating following the tech company’s latest quarterly results.
“Celestica reported another strong quarter with Q2 results ahead of consensus on all metrics,” commented Mr. Young. “In addition to a strong Q3 outlook, F2024 guidance was raised across the board. The outlook for 2025, underpinned by 10%+ EPS growth, appears conservative, in our view, against continued strong investment in high-performance computing and associated custom switching.”
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In other analysts actions:
Computer Modelling Group Ltd (CMG-T): Canaccord Genuity raises price target to C$15 from C$12. Canaccord analyst Doug Taylor said this reflected moving his valuation multiple higher “with increased confidence in the organic growth profile and in anticipation of further moves under the newly established M&A strategy.”
Critical Elements Lithium Corp (CRE-X): Canaccord Genuity cuts PT to C$1 from C$1.5
Innergex Renewable Energy Inc (INE-T): TD Cowen cuts to “hold” from “buy”
Li-Ft Power Ltd (LIFT-X): Canaccord Genuity cuts target price to C$10 from C$13
Lithium Americas (Argentina) Corp (LAAC-T): Canaccord Genuity cuts PT to C$11 from C$14
Lithium Americas Corp (LAC-T): Canaccord Genuity cuts PT to C$8.5 from C$12.25
Lithium Royalty Corp (LIRC-T): Canaccord Genuity cuts PT to C$15 from C$16
Storagevault Canada Inc (SVI-T): Cormark Securities cuts target to C$5.50 from C$6.25; Scotiabank cuts target price to C$5.75 from C$6.25
Winpak Ltd (WPK-T): BMO raises target price to C$50 from C$46; CIBC raises target price to C$51 from C$49
American Airlines (AAL-Q): Evercore ISI cuts target price to US$10 from US$13; JP Morgan cuts target price to US$15 from US$21; TD Cowen cuts target price to US$7 from US$10