Inside the Market’s roundup of some of today’s key analyst actions
Despite top-line pressures from weak discretionary spending, strong cost control and margin management resulted in better-than-expected second-quarter earnings at Canadian Tire Corp. Ltd. (CTC-A-T), said Desjardins Securities analyst Chris Li.
He was one of at least five analysts who raised their price targets after reviewing the results. Mr. Li’s went to C$175 from C$165; CIBC raised its target to C$160 from C$153; Jefferies raised its target to C$126 from C$121; National Bank of Canada raised its target to C$158 from C$146; and TD Cowen raised its target to C$175 from C$160 while also upgrading its rating to “buy” from “hold.”
Mr. Li rates Canadian Tire a “buy” but cautions investors will need to be patient. “While sales trends are expected to improve in the second half of the year, ongoing pressures on discretionary spending limit visibility and could make results and the share price volatile,” he said in a note to clients. “In addition to macro improvement, the potential monetization of the credit card business is another key catalyst (update expected by year-end).”
Canadian Tire’s same-store sales were down 5.6%, but it improved within the quarter and in July they only slipped 2%, partly due to easier comparisons with a year ago, Mr. Li noted.
The Desjardins analyst left his 2024 and 2025 earnings forecasts largely unchanged despite the strong second quarter. “While CTR is stimulating demand by leveraging Triangle loyalty, owned brand, etc, as well as investing more in essentials, we expect consumers to remain under pressure in the foreseeable future. CTR will also be up against strong year-ago performance from automotive and other essentials in 3Q before facing easier comps in 4Q. Management expects the favourable margin and opex trends in 1H to ease in 2H. While we expect Financial Services results to remain solid, we are also keeping a close watch on the unemployment rate. All things considered, we expect healthy EPS growth of 16% and 14% in 2024 and 2025, respectively,” he said.
After the stock’s nearly 8% gain on Thursday, it now trades at about 11.5 times Desjardins’ earnings estimates for the next 12 months - still slightly below its average of 12 times, he noted. “Improvement in macro conditions and earnings visibility should support a reversion to the average,” he said.
Meanwhile, TD analyst Brian Morrison conceded that he may be early in upgrading his rating on Canadian Tire, given the risk of a prolonged consumer slowdown. “That stated, we have been watching for catalysts including an easing in Canadian rates, the need for dealer replenishment, operating leverage, and a stabilization in the CTFS allowance provision. We see early signals taking hold that should drive 2025 EPS growth leading us to increase our target multiple,” he said.
The average analyst price target is now C$154.80, up from C$152.10 a month ago, according to LSEG data.
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Scotiabank analyst Ovais Habib downgraded his rating on B2Gold Corp. (BTO-T) to “sector perform” from “sector outperform” after the company reported second-quarter gold production below consensus expectations and reduced its forward guidance.
His price target remains at C$5.
B2Gold’s second-quarter adjusted EPS of 6 cents was a penny below consensus and gold production of 204,200 ounces was below consensus at 212,300 ounces. The earnings miss was driven by higher income taxes and depreciation offsetting higher gold revenue and lower operating costs.
The company cut its 2024 guidance for gold production by about 7% and also raised its cost estimates due to delayed access to higher grade ounces from Phase 7 of its Fekola mine in Mali.
The company is currently updating the budget at its Goose project in Nunavut, with a final updated budget expected to be released in early September 2024 - about three months behind schedule.
“We view the results as negative for BTO shares given 1) the mining delays at Fekola negatively impacting FY24 production and cost guidance; 2) the weakest quarter of the year (expected Q3) is yet to come; and 3) we see the delay in preparing the planned Goose project budget update as a negative signal of potentially elevated development and/or working capital costs,” Mr. Habib said.
The analyst said he now awaits clarity on the ultimate development cost of the Goose project, but continues to see the Back River project as a catalyst for the company to reach a free cash flow inflection point in mid-2025.
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At least four analysts cut their price targets on Boyd Group Services Inc. (BYD-T) after the car repair company reported second-quarter earnings per share a little below Street expectations.
National Bank of Canada cut its target price to C$270 from C$310; CIBC cut its target to C$268 from C$290; Jefferies cut its target to C$300 from C$325; and RBC cut its target to C$306 from C$308.
The average analyst price target is now C$293.85, down from C$300.15 a month ago.
National Bank of Canada analyst Zachary Evershed noted that Boyd’s same-store sales growth is being hindered by a shift in consumer activity whereby they postpone non-essential repairs.
“In conjunction with mild weather trends in Q1 flowing into Q2 with a soft backlog handoff, management identified shifts in consumer behaviour (potentially dating back to Q4) which added further pressure to shop volumes,” Mr. Evershed commented. “The deferral of non-structural repairs (due to deductible sticker shock or as consumers worry about insurance premiums rising further) is temporary in nature, however, and management continues to manage growth through long-term lenses. That said, the flip in management’s outlook for similar pressure in the next few quarters sees us revise our Q3 estimates same-store sales growth downward to -3.5% (was +4%), with similar adjustments over the next nine months.”
Boyd reported second revenues of $779.2 million, up 3.4% from a year ago, even though same-store sales growth declined 3.2%. The consensus expectation was for revenue for $790 million. Adjusted EPS of 56 cents missed the Street’s estimate of 61 cents.
Mr. Evershed pushed forward his expectations for margin improvements.
“We nevertheless remain bullish on eventual margin improvement as Boyd works to internalize scanning & calibration capacity and push rate hikes, complemented by eventual operating leverage as end-market demand normalizes,” he said.
Mr. Evershed continues to rate Boyd “outperform.”
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BMO analyst Tim Casey raised his price target on Quebecor Inc. (QBR-B-T) to C$35 from C$33 and reiterated a “market perform” rating in the wake of its second quarter results.
He summed up his views on the quarter this way: “Q2 revenue missed and decreased -1%, while EBITDA beat and increased 3% mainly reflecting a positive retroactive adjustment in Media. EPS were $0.89 vs. $0.83 Street. Wireless revenues increased 2% reflecting solid wireless loading of +94k (+67k Street) offset by weak ARPU [average revenue per user] of $35.32 ($35.80 Street). Management signaled that wireless pricing would remain relatively unchanged for the foreseeable future. Wireline subscriber metrics beat although the Quebec market remains very competitive.”
Mr. Casey also noted that Quebecor formally attained an investment grade debt rating in May by the two largest credit rating agencies - a positive for his forecasts for the company.
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Following several quarters of very strong results from its industrial operations, it appears broader end market weakness is now having an impact on Linamar Corp (LNR-T), said BMO Capital Markets analyst Tamy Chen.
Linamar reported fiscal first quarter adjusted EPS this week of $3.06, above the Street’s estimate of $2.99 but below BMO’s estimate of $3.13 due to higher interest expense.
“The positive from Q2/24 is Mobility margin was again better than our forecast, despite a challenging industry production backdrop. The negative is management’s outlook for Industrial segment growth and margin for 2024 and 2025 were lowered. .... As a result we have reduced our estimates,” the BMO analyst commented.
BMO’s price target was cut to C$80 from C$90 but an “outperform” rating was maintained because the stock is trading cheaply based on BMO’s 2025 estimates. Elsewhere, CIBC cut its target price to C$88 from C$92.
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In other analyst actions:
Altus Group Ltd (AIF-T): RBC raises target price to C$55 from C$52
ATS Corp (ATS-T): RBC cuts target price to C$55 from C$59; Stifel cuts target price to C$60 from C$65
Bird Construction Inc (BDT-T): ATB Capital Markets raises target price to C$33 from C$29; CIBC raises target price to C$26 from C$25.5
Calian Group Ltd (CGY-T): CIBC cuts target price to C$63 from C$76; RBC cuts target price to C$65 from C$75
Capreit (CAR-UN-T): RBC raises PT to C$60 from C$58
CES Energy Solutions Corp (CEU-T): Atb Capital Markets raises PT to C$9.75 from C$8.50; BMO raises target price to C$12 from C$10; RBC raises target price to C$10 from C$9
Computer Modelling Group Ltd (CMG-T): CIBC raises target price to C$15 from C$13.5; Acumen Capital raises target price to C$15 from C$13
Converge Technology Solutions Corp (CTS-T): CIBC cuts target price to C$4.5 from C$5; TD Cowen raises rating to “buy” from “hold” and raises price target to C$5.5 from C$6
Dentalcorp Holdings Ltd (DNTL-T): CIBC raises target price to C$11.5 from C$10; BMO raises target price to C$11 from C$10
Information Services Corp (ISV-T): CIBC raises target price to C$34 from C$32; RBC raises target price to C$30 from C$27
Jamieson Wellness Inc (JWEL-T): Canaccord Genuity raises price target to C$36.25 from C$32.5; RBC raises target price to C$37 from C$32; BMO raises target price to C$42 from C$35
Keyera Corp (KEY-T): RBC raises target price to C$44 from C$41; BMO raises price target to C$40 from C$38
Pembina Pipeline Corp (PPL-T): BMO raises target price to C$56 from C$54
Power Corporation of Canada (POW-T): CIBC cuts target price to C$40 from C$43
Hilton Grand Vacations Inc (HGV-N): Jefferies cuts target price to US$35 from US$55 and downgrades rating to “hold” from “buy”