Inside the Market’s roundup of some of today’s key analyst actions
Citing the positive impact of the return of chief executive Glenn Chamandy following a highly publicized proxy fight as well as its recent operational performance and a “favorable” outlook, Stifel analyst Martin Landry raised his recommendation for Gildan Activewear Inc. (GIL-N, GIL-T) to a “buy” recommendation from “hold” previously.
“Our HOLD rating was based on (1) disruptions caused by the departure of Glenn Chamandy, keeping investors on the sidelines and (2) our limited visibility of the company’s growth prospects,” he said. “However, in light of the recent operational performance and impressive market share gains, the stronger outlook then expected and the appealing valuation, we believe Gildan’s shares are poised to continue their upward trajectory. At 12 times our forward EPS estimates, valuation is appealing and lower than historical average of 14 times. We believe that multiple expansion is likely as the company delivers on its objectives.”
Mr. Landry’s change came following Thursday’s release of “slightly” higher-than-expected second-quarter financial results and the introduction of a three-year outlook calling for mid-teen earnings per share growth, which was higher than previously anticipated. The Montreal-based clothing maker also disclosed its protracted internal battle cost the company US$76.8-million.
The analyst called Gildan’s results an “impressive performance in light of difficult market conditions” and now sees sales momentum moving forward.
“For the last 12 months, Gildan has been coping with soft demand in its end markets. Industry sales in the U.S. printwear market have decreased by 5-10 per cent in the last twelve months while Gildan’s sales in this channel have increased,” he said. “The company has been gaining share with new product innovation (soft cotton technology) as well as from a weakening competitive landscape. In Q2/24, total sales growth would have reached mid-single digits when excluding the contract loss with Under Armour, a strong performance given the depressed economic environment.”
“Going forward, expectations are for mid-single-digits sales growth year-over-year, higher than historical levels. This growth is expected to come from (1) further market share gains in printwear, particularly in fashion basic, ring-spun apparel and fleece, (2) growth in international markets as management sees a potential to generate 10 per cent of sales internationally, (3) further penetration with global lifestyle brands and (4) continued growth at retail where Gildan is a supplier for the private label programs of mass retailers and the club channel. We also expect demand from end markets to turn back to growth in 2025. Hence, we see above historical sales growth rates as likely in the next three years.”
Based on his confidence that Gildan’s longterm plan has “improved given recent trends and accelerated share buyback,” Mr. Landry thinks its “stronger growth rate warrants a higher valuation,” leading him to hike his target for its shares to US$51 from US$39. The average target on the Street is US$45.50, according to LSEG data.
“Gildan has appealing characteristics including (1) a strong and defendable moat with leading market share in the U.S. distributor network, (2) strong and growing operating profit margins, the highest amongst its peers, (3) solid cash flow generation, converting near 50 per cent of its EBITDA in FCF,” he conclude. “Adding to this story a CEO/founder which wants to prove wrong previous Board Members which fired him, and you have a supercharged organization and a great backdrop for shareholder value creation.”
Other analysts making target changes include:
* RBC’s Tom Callaghan to US$44 from US$41 with an “outperform” rating.
“Gildan Activewear’s Q2 results came in slightly ahead of expectations on both the top and bottom lines. Amid the choppy macro backdrop, the company continues to deliver on the cost and margin front and reaffirmed its 2024 guidance,” said Mr. Callaghan. “With the board drama now in the rearview mirror, attention squarely sits on the business and its fundamentals. On that front, we continue to see an earnings inflection in 2024/25 with Adjusted EPS growth of 18 per cent/11 per cent, respectively.”
* National Bank’s Vishal Shreedhar to $58 from $57 with an “outperform” rating.
“We reiterate our view that the reconstitution of Gildan’s Board of Directors, implementation of an activist operating strategy and reinstatement of Mr. Glenn Chamandy as CEO will represent a period of increased focus and execution for Gildan,” said Mr. Shreedhar.
* Desjardins Securities’ Chris Li to $67 from $63 with a “buy” rating.
“GIL reported solid 2Q results despite challenging market conditions. While macro uncertainties could cause near-term volatility in GIL’s results and share price, we believe it is well-positioned for attractive EPS growth over the longer term, supported by market share gains, margin expansion opportunities and strong FCF/balance sheet driving higher capital returns,” said Mr. Li. “Despite the strong share price performance since early May, GIL remains inexpensive at 13 times NTM [next 12-month] EPS vs its 15 times average.”
* BMO’s Stephen MacLeod to US$47 from US$43 with an “outperform” rating.
“This was the first quarter reported since the return of CEO Glenn Chamandy, whose commentary on the call reinforced his strong understanding of the business and its manufacturing complexities,” said Mr. MacLeod. “Newly introduced three-year targets present a roadmap for ongoing MSD revenue growth and incremental margin expansion, driving mid-teens adj. EPS growth. We continue to believe Gildan is wellpositioned to leverage its low-cost manufacturing position to aggressively pursue share gains, and see attractive risk-reward.”
* TD Cowen’s Brian Morrison to $50 from $46 with a “buy” rating.
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While he saw the second-quarter results from Colliers International Group Inc. (CIGI-Q, CIGI-T) as “solid,” Raymond James analyst Frederic Bastien thinks it’s “time to take money off the table,” lowering his recommendation for its shares to “outperform” from “strong buy” in response to its “impressive” share price gains over the last month.
“As a result CIGI shares are up 39 per cent over the past year, versus a 19-per-cent gain for the S&P 500, and now trade more in-line with other professional services firms we have recently brought up as suitable comparables, including 2024 Best Pick WSP Global,” he said. “To be clear, there are many reasons to stay constructive on Colliers, especially with the worst of the commercial real estate sector’s troubles in the rearview. The company is a globally respected CRE player with unique entrepreneurial capabilities, a sought-after manager of niche alternative investments, and a budding engineering and design practice exposed to generational infrastructure investments. This powerful combination, in our view, is sure to compound shareholder value well past our forecast horizon.”
Mr. Bastien’s target for Colliers shares is now US$160, up from US$150. The average is US$150.50.
Others making changes include:
* RBC’s Jimmy Shan to US$160 from US$145 with an “outperform” rating.
“While the stock has had a strong run recently, CIGI has seen a few positive catalysts materialize including the acquisition of Englobe, and what appears to be an inflection point in its transaction-driven businesses,” said Mr. Shan. “As such, we see good earnings momentum going into 2025 and expect it to trade at a peakish multiple. Moreover, the new reportable segments next quarter should help in highlighting value relative to comps.”
* National Bank’s Maxim Sytchev to US$137 from US$125 with a “sector perform” rating.
“Time (and lower rates) can heal all wounds when it comes to real estate. That being said, we were still pleasantly surprised that the upturn in Leasing / Capital Markets materialized in Q2 vs. 2025E. With shares aggressively rebounding 21 per cent in the last month alone, one would think that [Thursday’s] good results and upped guidance due to the incorporation of Englobe (recent sizable M&A) would be somewhat reflected in that move as we are getting close to all-time highs in the share price when expectations of rate cuts were six vs. the current one in the U.S. Given shares’ rapid recovery, we are too late to an upgrade party and as a result are biding our time for a more opportune entry point; our recommendation is maintained at Sector Perform but the target price moves to US$137.00,” said Mr. Sytchev.
* Scotia’s Himanshu Gupta to US$155 from US$150 with a “sector outperform” rating.
“We expect 20-per-cent -plus year-over-year EPS growth in the next six quarters (Q3/24-Q4/25) on average,” he said. “We have been arguing for valuation re-rating since our initiation (in January) - now with strong earnings momentum, we see a strong case for this.”
* BMO’s Stephen MacLeod to US$163 from US$140 with an “outperform” rating.
“Recurring O&A and IM service lines delivered another strong quarter of predictable growth. Leasing revenues rebounded (improved activity in office and industrial sectors) and CM growth inflected positively for the first time since Q2/22 (lower interest rates and greater availability of debt helped to narrow the bid-ask spread). H2/24E outlook is for positive growth across all service lines. We see attractive risk-reward and expect earnings growth to be positively impacted by a gradual recovery in transaction activity (H2/24E into 2025E),” said Mr. MacLeod.
* Stifel’s Daryl Young to US$160 from US$155 with a “buy” rating.
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Following “soft” fourth-quarter financial results, National Bank Financial analyst Richard Tse downgraded Open Text Corp. (OTEX-Q, OTEX-T) to a “sector perform” recommendation from “outperform” previously “based on a view that this former acquisition growth story is pivoting towards a more challenging organic growth strategy.”
“While we believe the change in strategy towards organic growth is admirable, an aspirational organic growth target of 2-4 per cent in F27 makes it challenging to see a material valuation re-rating,” he said. “Our view is that a 2.9 times leverage ratio is fuelling this strategy shift, and it’s our expectation that once the Company de-levers enough, it will tack back towards acquisitions. In the interim, we think driving organic growth will be challenging given the Company’s broad product portfolio.”
After the bell on Thursday, the Waterloo, Ont.-based enterprise information management (EIM) software provider reported revenue of US$1.36-billion for the quarter, missing both Mr. Tse’s US$1.41-billion estimate and the Street’s expectation of US$1.409-billion. Adjusted earnings per share of 98 US cents also fell short of projections (US$1.03 and US$1.02, respectively).
“With respect to the quarter, OpenText’s FQ4 (CQ2) results came in slightly below expectations due in part to distractions from a number of strategic initiatives, most notably the closing of its AMC divestiture,” the analyst said. “Of note, Cloud revenue was up 2.9 per cent year-over-year (up 3.3 per cent in CC) to $464.9-million, but below our estimate of $520.4-million.
“On the positive side, we like the move to return capital to shareholders in the form of increasing share buybacks and an increasing dividend under the current valuation. Specifically, OpenText is targeting a return of 90 per cent of its FCF totalling $570-million (up 37 per cent year-over-year from $417-million in FY24) through a combination of share repurchases ($300-million) and dividends ($270-million) where the Company’s Board has already approved an increase in its annualized dividend from $1.00 to $1.05/share. Further, the Company is proceeding with a Fiscal 2025 Share Repurchase Plan/NCIB with a maximum of 21,179,064 common shares, less the 5,073,913 shares repurchased under its former version.”
The analyst maintained his target of US$38 for Open Text shares. The average is US$40.46.
“Bottom line, we think this shift in strategy to organic growth will be challenging given the broad product portfolio where we’ve seen limited success for similar shifts in the past and it’s our view that a midsingle-digit organic growth rate is unlikely to drive a material valuation re-rating in the stock. As such, we’re taking pause and moving to Sector Perform from Outperform,” he said.
Elsewhere, other changes include:
* BMO’s Thanos Moschopoulos to US$33 from US$38 with a “market perform” rating.
“We remain Market Perform on OTEX and have trimmed our target price following Q4/24 results that were light on both revenue and EBITDA, while OTEX reiterated FY2025 revenue guidance and raised EBITDA guidance. We’ve reduced our revenue forecasts, but have raised our EBITDA forecasts. While the stock’s valuation is undemanding, we struggle to see a near-term catalyst given OTEX’s ongoing organic growth challenges,” he said.
* Jefferies’ Samad Samana to US$35 from US$42 with a “buy” rating.
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In a separate research report, Mr. Tse said he’s “taking a breather” on Real Matters (REAL-T), lowering his recommendation to “sector perform” from “outperform” following the release of largely in-line quarterly results.
Before the bell on Thursday, the Markham, Ont.-based network management services provider for the mortgage lending and insurance industries reported net revenue for its third quarter of $13.1-million, up 14 per cent sequentially, 8 per cent year-over-year and matching the estimates of both Mr. Tse and the Street on the strength of U.S. Appraisals. Adjusted EBITDA of $1.7-million was narrowly lower than the analyst’s $2-million projection but higher than the $1.5-million consensus forecast.
“Despite the challenging backdrop for mortgage originations, we continue to believe Real Matters is executing on the variables in its control (OpEx, market share gains),” he said. “On that, the Company gained share with 4 of its top U.S. Appraisal clients and 2 of its top clients in Canada all on a year-over-year basis. Beyond that, Real Matters launched 1 new client in T&C while concurrently adding 2 new U.S. channels. Our view is that several RFPs, particularly in T&C, are or will enter the market this year where the Company is in a strong position.
“Looking ahead, the market remains challenged – that said, the Mortgage Bankers Association (MBA) point to a decline in purchase (down 7 per cent year-over-year) in FY24 (Sept. year end). Nevertheless, the outlook going forward is improving with the Fed optioning FFR cuts that will set up well for calendar 2025.”
Mr. Tse said he wasn’t surprised by Real Matters decision to withdraw its 2025 financial targets given “the continued challenging backdrop” and the fact that they were established in 2020 “when market conditions were meaningfully different.”
“That said, in light of the recent appreciation in the stock price, we’re taking a pause and revising our rating to Sector Perform while maintaining our recently increased DCF-implied target price of $8.00,” he said.
The average target on the Street is currently $7.96.
Elsewhere, other changes include:
* BMO’s Thanos Moschopoulos to $7.50 from $6.50 with a “market perform” rating.
“We remain Market Perform on REAL and have raised our target price to $7.50 following Q3/24 results, which were in line on net revenue and EBITDA—as growth, and strong operating leverage, in U.S. Appraisal more than offset a decline in Title. While we expect a strong revenue and EBITDA recovery for REAL in FY2025, to be driven by lower mortgage rates, we believe that the consensus outlook for rates is already being priced into the stock. We’ve made minor changes to our FY2025 estimates.”
* ATB Capital Markets’ Martin Toner to $11 from $10 with an “outperform” rating.
“Despite the beat and evidence of an inflection point in growth, mortgage rates have yet to ease in a meaningful way, which is delaying volume improvement. However, we raised our long-term market share estimates as the Company continues to demonstrate its ability to gain share and sustain operating leverage in a market recovery,” said Mr. Toner.
* Canaccord Genutiy’s Robert Young to $8.75 from $7 with a “buy” rating.
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In other analyst actions:
* CIBC’s Krista Friesen upgraded NFI Group Inc. (NFI-T) to “neutral” from “underperformer” and hiked her target to $20 from $12.50. Other changes include: BMO’s Tamy Chen to $23 from $15 with an “outperform” rating, ATB Capital Markets’ Chris Murray to $22 from $18 with an “outperform” rating and National Bank’s Cameron Doerksen to $22 from $21 with an “outperform” recommendation. The average is $21.
“Heading into Q2 reporting, our Underperformer rating reflected execution concerns within NFI’s Manufacturing division, as well as financial concerns, specifically the company’s heightened interest expense. While the company’s Q1 earnings had come in better than we and the Street had anticipated, our concerns were not yet alleviated with Manufacturing (the core capability of the business) not contributing to earnings. With that said, NFI’s Q2 results have helped alleviate these concerns,” said Ms. Friesen.
* Piper Sandler’s David Amsellem downgraded Bausch Health Companies Inc. (BHC-N, BHC-T) to “underweight” from “neutral” with a US$3 target, down from US$9. Elsewhere, RBC’s Douglas Miehm cut his target to US$8.50 from US$10 with a “sector perform” rating. The average is US$8.43.
“The operational performance of RemainCo was better than expected largely due to the strength in the Diversified segment, a portion of which was one-time in nature,” said Mr. Miehm. “Management reiterated that the full separation of BLCO continues to be a strategic priority, with the objective of ensuring that any transaction results in two appropriately capitalized companies. However, BHC management refrained from making any comments related to potential discussions with the co-op creditor group. In our view, if a BLCO distribution were to occur, it could result in some BLCO value accruing to the creditors in some way, shape, or form.”
* National Bank’s Michael Parkin cut his Alamos Gold Inc. (AGI-T) target to $26 from $26.50 with an “outperform” rating. The average is $27.84.
* National Bank’s Patrick Kenny raised his AltaGas Ltd. (ALA-T) target to $36 from $35 with an “outperform” rating. Other changes include: Raymond James’ David Quezada to $37 from $35 with an “outperform” rating, Scotia’s Robert Hope to $36 from $35 with a “sector outperform” rating and RBC’s Robert Kwan to $37 from $34 with an “outperform” rating. The average is $36.67.
“AltaGas’s Q2 results were well ahead of our expectations with solid contributions from its Utilities and Midstream businesses,” said Mr. Hope. “Management reiterated its 2024 guidance ranges, and we remain toward the upper half of the ranges. Despite the strong Q2, we moderate our H2/24 estimates slightly to reflect the potential for challenges in the rail value chain (Jasper fires, potential rail strike). That said, we increase our 2025 / 2026 estimates to reflect improving returns at its Utility assets and a strong outlook for Midstream volumes. Our target price increases $1 to $36 commensurate with our higher longer-term estimates. AltaGas’s utility and midstream segments are seeing strong growth, and we believe these assets are not properly reflected in the share price. At 10.1-per-cent 2025 estimated distributable cash flow yield, AltaGas is trading at a slight premium to the midstream group (which are trading at an average of 10.5 per cent), despite its significant higher value utility assets. At 13.5 times 2025E P/E, we view AltaGas as a way for investors to get exposure to high-growth utility assets at a discounted valuation (the other Canadian utilities are trading in the 13-22 times range).”
* Scotia’s Konark Gupta cut his Andlauer Healthcare Group Inc. (AND-T) target to $45.50 from $46 with a “sector perform” rating. Other changes include: RBC’s Walter Spracklin to $42 from $41 with a “sector perform” rating, Eight Capital’s Ty Colin to $51 from $58 with a “buy” rating and TD Cowen’s Tim James to $53 from $52 with a “buy” rating. The average is $48.07.
“AND once again missed expectations as the U.S. truckload (TL) business continues to face headwinds, while SG&A increased in Q2 due to one-off factors that should not repeat,” said Mr. Gupta. “While the organic growth environment remains positive, particularly in Canada, the company is pivoting to cost reduction in the U.S. to improve margins from current trough levels. It also continues to focus on tuck-ins, supported by a conservative balance sheet and continued solid FCF generation, as a rare big M&A opportunity (LifeLabs) is now behind. AND continues to repurchase shares after completing the SIB in Q2 and intends to raise the quarterly dividend by 10 per cent to $0.44/ sh annualized (1.1-per-cent implied yield). We have further trimmed our forecasts, more for this year than outer years.”
* BMO’s John Gibson cut his Badger Infrastructure Solutions Ltd. (BDGI-T) target to $42 from $45 with a “market perform” rating. The average is $51.28.
* JP Morgan’s Sebastiano Petti moved his BCE Inc. (BCE-T) target to $47 from $46 with a “neutral” rating, while Desjardins Securities’ Jerome Dubreuil increased his target to $51 from $48 with a “hold” rating. The average is $48.99.
“With more challenged ROIs in telecom, we are encouraged to see BCE pulling several levers to adjust its spending plans to protect FCF. In light of the update, we believe BCE can achieve its annual EBITDA guidance as it realizes savings incremental to its workforce reduction program. We also model 2024 FCF above consensus. Nonetheless, we remain on the sidelines given (1) we see risk ahead of the TPIA decision; and (2) a material improvement in top-line growth does not seem imminent,” said Mr. Dubreuil.
* Jefferies’ Daniel Fannon initiated coverage of Brookfield Asset Management Ltd. (BAM-N, BAM-T) with a “hold” rating and US$43 target, exceeding the US$42.50 average.
* ATB Capital Markets’ Waqar Syed lowered his Calfrac Well Services Ltd. (CFW-T) target to $5 from $6 with a “sector perform” rating, while RBC’s Keith Mackey raised his target to $5 from $4.50 with a “sector perform” rating. The average is $5.33.
“CFW’s 2Q24 results were ahead of consensus expectations on a stronger than anticipated NAM result. We have decreased our 2024/25 EBITDA estimates by 1 per cent/5 per cent on weaker than expected 2H24 outlook,” said Mr. Mackey.
* TD Cowen’s Oliver Chen cut his Canada Goose Holdings Inc. (GOOS-T) target to $17 from $21 with a “hold” rating Other changes include: Barclays’ Adrienne Yih to US$12 from US$13 with an “equalweight” recommendation. The average is $17.44.
* RBC’s Greg Pardy increased his Canadian Natural Resources Ltd. (CNQ-T) target to $62 from $60. Other changes include: Desjardins Securities’ Chris MacCulloch to $56 from $55 with a “hold” rating and TD Cowen’s Menno Hulshof to $60 from $59 with a “buy” rating. The average is $55.78.
“Our decidedly bullish stance towards CNQ reflects its strong leadership, shareholder alignment, abundant free cash flow generation, best-in-class operating performance and 100-per-cent shareholder returns,” said Mr. Pardy. “We are reaffirming an Outperform recommendation on CNQ and boosting our one-year price target by $2 (3 per cent) to $62 per share. CNQ remains our favorite senior producer in Canada and is on both our Global Energy Best Ideas and Top 30 Global Ideas lists.”
* National Bank’s Travis Wood raised his Cenovus Energy Inc. (CVE-T) target to $38 from $36, above the $33.84 average, with an “outperform” rating.
* RBC’s Geoffrey Kwan bumped his Definity Financial Corp. (DFY-T) target to $61 from $58. The average is $49.68.
“Q2/24 operating EPS was well ahead of our forecast with gross written premiums (GWP) slightly better than our forecast. We think DFY has done a good job executing on its growth strategy (e.g., double-digit gross written premium growth, mid-90s combined ratio and building its broker distribution business, providing earnings diversification),” said Mr. Kwan.
* ATB Capital Markets’ Chris Murray raised his GFL Environmental Inc. (GFL-T) target to $67 from $66 with an “outperform” rating. Other changes include: BMO’s Devin Dodge to US$43 from US$42 with a “market perform” rating, RBC’s Sabahat Khan to US$48 from US$46 with an “outperform” rating and National Bank’s Rupert Merer to $60 from $58 with an “outperform” rating. The average is $56.66.
“The big news this quarter was the announcement that GFL is looking to undertake an auction process for its Environmental Services business, which management believes could get a mid-teens multiple (EV of $6-$7-billion using 2023 segment-level EBITDA pre-corporate overhead). Overall, we continue to see value in GFL shares given the valuation discount vs. peers and optionality/flexibility a potential disposition would provide,” said Mr. Kwan.
* Scotia’s Kevin Krishnaratne cut his Kinaxis Inc. (KXS-T) target to $190 from $200 with a “sector outperform” rating. Other changes include: Stifel’s Suthan Sukumar to $195 from $210 with a “buy” rating and ATB Capital Markets’ Martin Toner lowered his target to $205 from $215 with an “outperform” rating. The average is $190.75.
“We continue to see Kinaxis as a best-of-breed platform in supply chain transformation, well positioned for greater share gains and a long runway of growth amidst a large, growing TAM,” said Mr. Sukumar. “A new AI-powered product cycle, growing backlog of committed expansions, and early-days growth vectors from further penetration of the mid-market/SMB and new vertical opportunities via in retail/QSR and energy, keep us constructive on the mid to longer-term growth picture. However, lack of visibility on timing of large deal closes drives near-term uncertainty. We suspect it may take a string of back to back quarters of ARR/SaaS growth upside to gain more confidence around a sustained re-acceleration and subsequent stock re-rate. That said, the current pullback creates opportunity for more patient, long-term focused investors, in our view.”
* Piper Sandler’s Clarke Jeffries reduced his Lightspeed Commerce Inc. (LSPD-N, LSPD-T) target to US$15 from US$1 with a “neutral” recommendation. Other changes include: BMO’s Thanos Moschopoulos to US$18 from US$20 with an “outperform” rating, RBC’s Daniel Perlin to US$20 from US$21 with an “outperform” rating and Jefferies’ Trevor Williams to US$14.50 from US$16 with a “hold” rating. The average is US$17.72.
“LSPD continues to thread the needle of driving profitable growth, which is shaping up to be more durable, as they are making a concerted effort (as previously discussed) to pivot its sales team back on driving software growth in 2H25 and is expected to return to DD [double-digit] software growth up from MSD in 1H25,” said Mr. Perlin. “In addition to refocusing its sales teams, LSPD is also targeting both back-book and front-book pricing initiatives, which should further support the 2H ramp in software growth.”
* Scotia’s Orest Wowkodaw cut his NexGen Energy Ltd. (NXE-T) target by $1 to $12.50 with a “sector outperform” rating, while Raymond James’ Brian MacArthur trimmed his target to $12 from $13 with an “outperform” rating. The average is $13.97.
* TD Cowen’s Aaron MacNeil lowered his target for North American Construction Group Ltd. (NOA-T) to $33 from $34 with a “buy” rating. Other changes include: Raymond James’ Frederic Bastien to $35 from $40 with an “outperform” rating, National Bank’s Maxim Sytchev to $39 from $47 with an “outperform” rating and Ventum Financial’s Devin Schilling to $47 from $52 with a “buy” rating. The average is $41.33.
“2Q24 turned out to be another tough quarter for North American Construction Group (NACG), with uncooperative weather driving results well below consensus expectations,” said Mr. Bastien. “This, combined with directionally soft 1Q24 results, was enough for management to throttle down its expectations for the year. Miss aside, we remain upbeat on the firm’s prospects, and see significant value at current levels given normalized operations in the oilsands and continued progression of Aussie contract miner MacKellar.”
* RBC’s Greg Pardy trimmed his Parex Resources Inc. (PXT-T) target to $23 from $28, below the $30.20 average, with an “outperform” rating.
“: Our current stance toward Parex reflects its mixed operational update, strong balance sheet, and commitment to shareholder returns,” he said.
* National Bank’s Vishal Shreedhar cut his Parkland Corp. (PKI-T) target to $48 from $49 with an “outperform” rating. Other changes include: Desjardins Securities’ Chris Li to $46 from $48 with a “buy” rating, ATB Capital Markets’ Nate Heywood to $52 from $54 with an “outperform” rating, RBC’s Tom Callaghan to $48 from $49 with an “outperform” rating and TD Cowen’s Michael Van Aelst to $55 from $53 with a “buy” rating. The average is $52.
“PKI’s current strategy, which we are supportive of, seeks to: (i) focus on efficiencies, organic growth and drive ROIC and cash flow, (ii) divest non-core assets, and (iii) deleverage and return excess capital to shareholders (low end of 2-3 times by 2025; NBF models 2.5 times),” said Mr. Shreedhar. “PKI seeks to delever at a cadence of 0.5 times per year. Indications are that PKI will broadly continue along these themes towards 2028, although M&A could come back into focus. At this point, our preference is for PKI to drive growth from internal initiatives, further execute on buybacks and continue with non-core asset divestitures ($591-million held for sale; PKI has received/entered into agreement for $200-million).”
* Desjardins Securities’ Chris Li lowered his Pet Valu Holdings Ltd. (PET-T) target to $34 from $36 with a “buy” rating. The average is $37.13.
“We expect results to reflect continuing macro headwinds and increasing competitive intensity. This is consistent with our recent channel checks. Given the pullback in the shares, we believe these risks are largely priced in. We believe the risk/reward is positive but patience is required,” he said.
* National Bank’s Maxim Sytchev cut his Russel Metals Inc. (RUS-T) target to $46, below the $46.67 average, from $47 with an “outperform” rating, while Stifel’s Ian Gillies cut his target to $52 from $55 with a “buy” rating.
* BMO’s John Gibson raised his Source Energy Services Ltd. (SHLE-T) target to $20 from $18, which is the average, with an “outperform” rating.
* National Bank’s Patrick Kenny raised his TC Energy Corp. (TRP-T) target to $60 from $58 with an “outperform” rating, while Scotia’s Robert Hope moved his target to $62 from $68 with a “sector outperform” rating. The average is $57.85.
“We have a favourable view of TC Energy’s Q2 update given: 1) EPS was ahead of expectations, 2) the outlook for 2024 was reiterated, and we remain slightly ahead of the EBITDA guidance range, 3) its key projects are progressing well, and it appears that some cost savings have been found, and 4) the NGTL settlement supports higher EBITDA from the asset. We have seen sentiment shift more positive on the shares as management continues to show strong execution on its 2024 priorities. Our 2025 and 2026 estimates increase to reflect the NGTL settlement and continued strong base business growth,” said Mr. Hope.
* JP Morgan’s Andrew Steinerman increased his Thomson Reuters Corp. (TRI-N, TRI-T) target by US$1 to US$164 with a “neutral” rating. Other changes include: RBC’s Drew McReynolds to US$168 from US$170 with a “sector perform” rating and National Bank’s Adam Shine to $231 from $219 with a “sector perform” rating. The average target is US$163.81.
“At current valuation (FTM EV/EBITDA of 25.1 times), we believe the bar to deliver consolidated organic revenue growth in excess of 6 per cent has risen with the organic revenue growth trajectory over the 2025-2026 period now taking centre stage,” said Mr. McReynolds. “While we remain patient for more timely and/or attractive accumulation points, we believe current valuation levels (i.e., 20-25 times FTM EV/EBITDA) are fundamentally justified provided: (i) management meets or exceeds a 7-8-per-cent organic revenue growth trajectory by 2026 without meaningful changes to the company’s current margin, capex and FCF conversion profile; (ii) solid execution on the GenAI playbook continues with little change to the current GenAI narrative including perceived opportunities and risks; and (iii) the valuation impact of interest rate expectations/bond yields is at worst neutral.”
* Scotia’s Phil Hardie raised his Trisura Group Ltd. (TSU-T) target to $63 from $62 with a “sector outperform” rating. The average is $58.38.
“Trisura’s Q2/24 results demonstrated a continuation of several key trends we have seen over the last few quarters,” said Mr. Hardie. “These include strong earnings and premium growth from the Canadian platform, and operating earnings momentum from U.S. platform. A notable development was the additional capital allocated to the U.S. Surety balance sheet which is likely to bode well for future earnings, given the business line’s favourable underwriting profitability.
“The results provide another data point that Trisura is back on track and regaining momentum, supporting our thesis that the company will deliver strong earnings and book value growth with the stock continuing to re-rate through 2024. That said, we believe underlying earnings and book value growth can deliver a shareholder return of more than 20 per cent over the next twelve months without any multiple expansion.”