Inside the Market’s roundup of some of today’s key analyst actions
Continuing to see Suncor Energy Inc. (SU-T) as a “a turnaround story,” RBC Dominion Securities analyst Greg Pardy said its “strong” fourth-quarter 2023 results reinforce his confidence in its “improving operating/financial momentum,” which he predicts will lead to relative share price appreciation over time.
“Suncor closed the books on 2023 in what can be referred to as a year of favorable inflection amid new CEO leadership and resolve to restore its leading performance,” he said in a research report released Friday. “The company prereleased its impressive fourth-quarter production of 808,100 barrels per day back on January 3, but exceeded our bottom line expectations in connection with a large (one-time) tax benefit of $880 million related to its acquisition of TotalEnergies Canada, lower operating costs and royalties.
“On its conference call, Suncor indicated that its operating momentum has continued into the first-quarter of this year, with production rates trending at or above the 808,100 bbl/d generated in the fourth-quarter, while its refineries are running at a circa 98-per-cent utilization rate.”
Reaffirming Suncor’s spot on RBC’s “Global Energy Best Ideas” list, Mr. Pardy said his focus is now the Calgary-based company’s corporate update. Expected later this year, he thinks it will “update the market on the bigger strategic decisions it will make, including how it will address base mine depletion down the road.”
“Along with ensuring that its upgraders remain full, these decisions will be guided by optimizing free cash flow per share,” he said. “The company is targeting a US$5/bbl reduction in its WTI break-even to cover its sustaining capital and dividend—and estimates that it is about one-half the way there at this juncture. Suncor’s conference call provided a thorough rundown of its game plan on several fronts over nearly 90 minutes. These included initiatives aimed at revamping its employee performance evaluation toward impact vs. effort, standardization of operating and safety procedures across all its assets, and functional centralization in some cases, including turnarounds (co-headed by Shelley Powell and Dave Oldreive).”
Maintaining his “outperform” recommendation for Suncor shares, Mr. Pardy raised his target by $1 to $52. The average target on the Street is $51.53.
“At current levels and under our base outlook, Suncor is trading at a 2024 estimated debt-adjusted cash flow multiple of 4.4 times (vs. our global major peer group avg. of 5.4 times) and at a free cash flow yield of 12 per cent (vs. our peer group avg. of 10 per cent),” he said. “We believe the company should trade at an average/below average multiple vis-à-vis our peer group given its physical integration, attractive downstream assets, free cash flow generation, solid balance sheet and rising shareholder returns, counterbalanced by the need to address its base mine depletion in the coming years.”
Elsewhere, other analysts making changes include:
* BMO’s Randy Ollenberger to $52 from $50 with a “market perform” rating.
“Suncor ended 2023 on a strong note with better-than-expected oil sands production and financial results,” said Mr. Ollenberger. ”The new management team has made solid progress over the last year and remains focused on improving the company’s cost structure and lowering its corporate breakeven price by at least US$5/bbl. That said, while the company has made progress, there is more to do, including reducing debt levels in order to increase distributions to shareholders.”
* Desjardins Securities’ Chris MacCulloch increased his target to $46 from $45 with a “hold” rating.
“Although we viewed the 4Q23 update as largely mechanical given that production was pre-released in early January, the results provided further evidence that revitalization of the story is well underway through improved operational performance. Meanwhile, there is still plenty of wood to chop, both capital and operational efficiency, for which we expect additional colour over the coming months,” said Mr. MacCulloch.
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Ahead of the start of first-quarter earnings season for Canadian banks next week, Cormark Securities analyst Lemar Persaud upgraded Toronto-Dominion Bank (TD-T) to “buy” from “market perform” in a research report released Friday.
“We downgraded the stock on valuation last quarter as we had reservations with the stock moving higher given its 6-per-cent premium and negative overhangs (DoJ investigation, margins, and rising credit losses particularly),” he said. “Following sharp underperformance in December and year-to-date, the stock is back to trading at a 4-per-cent discount, well below its 5-year 3-per-cent premium.
“We acknowledge that there are still headwinds associated with the DoJ investigation (limits capital deployment opportunities in the U.S. and we believe, increased scrutiny around organic growth in the U.S. despite not having formal B/S limits in place like we saw at Wells), related costs associated with improving AML functions with little to no benefit to earnings, the higher cost profile of its recent Cowen acquisition, and additional restructuring costs to come in H1/24. Excluding the DoJ investigation (which we think will be a fine of US$500-million-US$1.5-billion and not a capital issue in any case), we feel that these issues are appropriately reflected in our forecasts. We also see potential upside from conservative guidance on some key areas (margins specifically) and we like the EPS lift from share buybacks (only bank active).”
Mr. Persaud raised his target for TD shares to $93 from $89. The average on the Street is $89.44.
He also made these other adjustments:
- Bank of Montreal (BMO-T, “buy”) to $139 from $133. Average: $138.02.
- Bank of Nova Scotia (BNS-T, “market perform”) to $66 from $63. Average: $65.67.
- Canadian Imperial Bank of Commerce (CM-T, “market perform”) to $64 from $61. Average: $65.02.
- Canadian Western Bank (CWB-T, “buy”) to $37 from $35. Average: $34.27.
- EQB Inc. (EQB-T, “buy”) to $111 from $97. Average: $103.89.
- Laurentian Bank of Canada (LB-T, “market perform”) to $28 from $30. Average: $28.82.
- National Bank of Canada (NA-T, “market perform”) to $111 from $107. Average: $105.18.
- Royal Bank of Canada (RY-T, “buy”) to $150 from $145. Average: $140.54.
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Desjardins Securities analyst Chris Li thinks Loblaw Companies Ltd.’s (L-T) “solid” fourth-quarter results and 2024 outlook reflect its “consistent execution and strong positioning within the food and drug retailing market (discount, private label, loyalty, etc), supported by favourable industry trends.”
“We expect L to continue to outperform in the near term given its high earnings visibility and investors’ preference for high-quality/defensive companies,” he said in a research note.
Shares of the retailer rose 3.5 per cent on Thursday after it reported fourth-quarter revenue and adjusted earnings per share of $14.53-billion and $2, respectively. Both exceeded the analysts’ average estimate of $14.52-billion and $1.90, according to LSEG data.
“Solid same-store sales momentum in 4Q is continuing in 1Q to date,” said Mr. Li. “Pharmacy SSSG [same-store sales growth] of 8 per cent vs our estimate and consensus of 6.5 per cent was driven by growth in prescriptions, including specialty drugs and services from expanded scope of practice, which doubled in 4Q compared with the prior year. Front-store SSSG was strong at 1.7 per cent in 4Q despite lapping a very strong year-ago comp of 11.5 per cent. The strength is continuing in 1Q, driven by cosmetics and health and beauty and OTC. Food SSSG of 2.0 per cent was largely in line with consensus of 2.5 per cent. Tonnage was stable overall (vs negative for the industry), with continuing growth in discount. Moderating inflation may put some pressure on food SSSG. Food CPI in January 2024 was 3.39 per cent vs 4.65 per cent in December and 4.67 per cent in November. Food SSSG will also be impacted by a persistent decline in general merchandise/apparel in 2024 (80bps drag in 4Q). Management is working on driving growth in general merchandise, which is margin-accretive, but it is too early to provide details at this point. “
“Consumers have not significantly changed their behaviour and they continue to look for value. Management expects to see more of the same trends for food in 2024, with customers (1) buying more on promotions; (2) buying more private label; and (3) continuing the transition to discount. However, behaviour is slightly different at Shoppers Drug Mart (SDM), where customers are not as price-sensitive when it comes to buying premium beauty products. PC Optimum loyalty remains a key driver for purchasing behaviour, with double-digit increases in weekly active users in 2023. Management has noted a pick-up in point redemption activity overall as wallets remain pressured.”
After raising his 2024 EPS projection by 8 cents to $8.49, Mr. Li hiked his target for Loblaw shares to $148 from $133, reaffirming a “buy” recommendation. The average target is $148.44.
“Given the stock’s strong year-to-date performance (up 11 per cent) and with a valuation not far from the peak (approximately 17 times forward P/ E vs 18 times peak), we believe upside will likely be limited to EPS growth (high single digits) rather than multiple expansion (unless there is a deep and prolonged economic downturn),” he cautioned. “Following almost three years of strong and consistent execution, we believe a 16 times P/E (vs 14–15 times average) is a sustainable valuation, supported by 8–10-per-cent EPS growth, strong FCF and capital return. We believe our target valuation might be conservative if L is able to sustain low-double-digit EPS growth longer-term. We believe one source of upside is Shoppers Drug Mart, which now accounts for 45 per cent of retail EBITDA (up from 40 per cent about three years ago) and will likely increase to 50 per cent in a few years, supported by structural tailwinds from expanded scope of practice for pharmacists, strong growth in specialty drugs, beauty, new store growth, etc.”
Elsewhere, others making adjustments include:
* National Bank’s Vishal Shreedhar to $153 from $149 with an “outperform” rating
“We view Q4/23 results positively given a beat on EBITDA and EPS, and guidance calling for continued growth,” said Mr. Shreedhar.
* Scotia’s George Doumet to $146 from $137 with a “sector perform” rating.
“Loblaw posted a strong Q4 characterized by robust performance at Shoppers and healthy GM expansion, the only blemish in the quarter being the softer food comp,” said Mr. Doumet. “Looking ahead to F24, we expect the food environment to remain challenging (as inflation further moderates and as we anniversary the elevated discount traffic comps), but we see room for the pharmacy to continue to deliver above-average growth. Net/net we are looking for 9-per-cent growth in adj. EPS (4 per cent in buybacks) in 2024.”
* BMO’s Tamy Chen to $145 from $130 with a “market perform” rating.,
“Key positives in Q4/23 were solid gross margin and pharmacy SSS,” said Ms. Chen. “Initial 2024 guidance for high-single-digits-percentage EPS growth in line. Valuation gap to MRU has narrowed to 1.4 times, the lowest since 2015, driven mostly by a decline in MRU’s multiple. We believe the recent stock rally reflects both a retrenchment in staples with interest rate uncertainty and optimism on the pharmacy opportunity. We remain Market Perform for now based on our sector inflation thesis.”
* CIBC’s Mark Petrie to $159 from $150 with an “outperformer” rating.
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A pair of equity analysts on the Street downgraded Cascades Inc. (CAS-T) following a fourth-quarter earnings miss and disappointing guidance that sent its shares plummeting 20.2 per cent on Thursday.
The Quebec-based paper and packaging company reported revenue of $1.138-billion, up 0.3 per cent year-over-year but below the Street’s expectation of $1.196-billion. Adjusted EBITDA and earnings per share of $122-million and 5 cents, respectively, were well below the consensus forecasts of $149-million and 32 cents as performance from its Containerboard business weighed. Given the struggles of that segment, Cascades said it no longer expected to meet their 2024 revenue target of $5-billion.
That warning led CIBC World Markets analyst Hamir Patel to lower his recommendation for Cascades shares to “neutral” from “outperformer” and drop his target to $14 from $17 in a report titled Back In The Penalty Box.
“Following weaker-than-expected performance in containerboard, a weak Q1 guide and retirement of 2024 guidance, we expect CAS shares to be range-bound (after plunging 20 per cent [Thursday] post-Q4 earnings) until management rebuilds credibility with investors,” said Mr. Patel. “At the same time, the industry-wide catalyst from the recent board price hike has largely played out (with the linerboard benchmark increasing US$40/ton this month).”
Meanwhile, “moving to the sidelines,” RBC Dominion Securities’ Matthew McKellar now has a “sector perform” rating, down from “outperform” previously, with a $14 target, falling from $15, which is the current average.
“While we think Cascades continues to make good progress on what it can control (e.g., ramping up Bear Island, rationalizing capacity, structural improvements in tissue), and note that the company should generate good free cash flow as it prioritizes delevering (although we think capex eventually steps higher as the focus shifts to growing its integration rate in Containerboard), we think the outlook for fundamentals has become less compelling, and downgrade to Sector Perform,” said Mr. McKellar.
Elsewhere, others making target adjustments include:
* National Bank’s Zachary Evershed to $13.50 from $14.50 with a “sector perform” rating.
“We maintain our cautious stance given volatility in the operating environment,” said Mr. Evershed.
* Desjardins Securities’ Frederic Tremblay to $14.50 from $15.50 with a “hold” rating.
“To exit investors’ penalty box, we believe CAS will need improved market conditions (especially in Containerboard) and solid operational execution,” said Mr. Tremblay.
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RBC Dominion Securities analyst Andrew Wong sees both Nutrien Ltd. (NTR-N, NTR-T) and agricultural and fertilizer markets “on the path toward stability,” however he warned 2024 is likely to be “a transition year toward an improved outlook.”
The Saskatoon-based company jumped 7.2 per cent on Thursday despite reporting a significant drop in fourth-quarter profit, hurt by weak potash prices. Earnings per share of 37 US cents fell below the consensus forecast on the Street of 65 US cents.
However, Nutrien sees signs of increasing demand, project sales volumes for potash and nitrogen in 2024 to be between 13.0 and 13.8 million tons and 10.6 to 11.2 million tons, respectively, above 2023 volumes of 13.2 million tons and 10.4 million tons.
Investors also applauded a quarterly dividend raise of 2 per cent to 54 US cents and approval of share buyback of up to 5 per cent for a 12-month period.
“Global potash markets have started the year mixed, with North America continuing strong trends from Q4 while international markets continued to soften, but we think there is limited downside from here given marginal cost support for international prices and favourable affordability,” said Mr. Wong. “For 2024, we trim our realized prices to $245 per ton, from $271 per ton, to reflect a soft start to the year, but we maintain our sales volume forecast of 13Mt, relatively flat vs. 2023 volumes. Longer-term, we continue to see the potash market as balanced, with new supply paced by steady demand growth.”
“We continue to see a favourable nitrogen dynamic for North American producers that benefit from low-cost US natural gas while global prices remain supported by marginal cost based on still-high European natural gas prices. For 2024, we expect typical seasonal price strength into the Northern Hemisphere spring season and then softening into the seasonally slow Q3 as demand slows, Chinese exports rise, and European natural gas prices cool. Specific to Nutrien, we expect higher volumes of 10.8Mt in 2024 vs. 10.4Mt in 2023 due to recent debottlenecks and better gas availability in Trinidad, along with lower natural gas costs that partially offset lower prices.”
The analyst also said he has “high confidence” for Nutrien’s Retail segment to enjoy a rebound in 2023 as margins normalize.
“We expect Nutrien to remain focused on cash generation, with capex down to $2.2–2.3-billion in 2024 (from $2.6-billion in 2023) and potential for further reductions to $2.0-billion by 2025 as investment projects (potash automation, nitrogen debottlenecks, Retail digital) are completed,” said Mr. Wong. “We forecast FCF of $2.0-billion and $2.2-billion in 2024 and 2025 (7-per-cent and 8-per-cent yield), respectively, which should support moderate buybacks and dividend increases.”
After cutting his full-year 2024 and 2025 EPS estimates to US$4 and US$4.81, respectively, from US$5.02 and US$5.60, he lowered his target for Nutrien shares to US$70 from US$75, maintaining an “outperform” recommendation. The average is US$68.61.
Elsewhere, JP Morgan’s Matthew McKellar downgraded Nutrien to “underweight” from “neutral” and cut his target to US$48 from US$58.
Others making target changes include:
* CIBC’s Jacob Bout to US$76 from US$87 with an “outperformer” rating.
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Citing the potential return to investors stemming from its base dividend and a special dividend similar to 2023, Stifel analyst Ian Gillies upgraded Stelco Holdings Inc. (STLC-T) to “buy” from “hold” on Friday.
“This return profile is augmented by the potential for a rebound in steel prices in summer or late 2024,” he said. “The idiosyncratic item that could also benefit investors is M&A, which is clearly becoming a greater focus. We believe 12-month upside (ex M&A) could approach 35-40 per cent with a $3.00 per share special divvy while downside is 10 per cent.”
Mr. Gillies thinks the Hamilton, Ont.-based company possesses the flexibility to return $369-million of cash (or $6.70 per share) to shareholders in 2024 at the high end (and after the base dividend of $2.00 per share).
“This assumes the company drawing down its cash position to $400-million at year-end 2024,” he said “This could be done through a special dividend or the reinstituted NCIB of 3.3 million shares. The NCIB at current prices would only consume cash of $135-million, leaving the potential for a special dividend of $4.25 per share. For reference, STLC has returned approximately $2.1-billion of capital ($1.2-billion share buyback and $0.9-billion dividends) back to shareholders since their IPO in 2017.”
“We value the stock on a 2025E base case scenario using US$800/ ton HRC, whereby the company generates EBITDA/ton of $185 or EBITDA of $491 mm per annum. This leads to our new target price of $50.00 per share. “Admittedly, we believe our target price can be achieved sooner than the 12-month period should HRC rebound in mid 2024E given the high correlation between STLC and HRC. The second wedge of returns come from annual dividends and potentially special dividends.”
Seeing M&A bringing the potential for additional upside and touting its “sector leading cost structure,” Mr. Gillies bumped his target to $50 from $47. The average is $52.64.
“Stelco offers investors a focused return-on-capital strategy aided by strong insider alignment. Financially, the company delivers industryleading EBITDA margins, which leads to strong FCF conversion. Demand trends are favourable for Stelco, given healthy government spending policies and the potential for a recovery in North American light-duty vehicle productions. We believe there is a significant amount of return for the stock from share price appreciation, annual dividends, potential special dividends, and possible M&A,” he concluded.
Elsewhere, others making target adjustments include:
* Scotia’s Michael Doumet raised his target to $51 from $46 with a “sector perform” rating.
“Q23 was in-line, but there were several positives to point to: (i) 4Q23 EBITDA represents a near-term bottom, (ii) we expect STLC’s cost profile to improve in the 2H24, (iii) the company raised its dividend (20 per cent) and is commencing an NCIB, and (iv) for the first time in a while, management discussed inorganic growth opportunities with what felt like more conviction than at prior times,” said Mr. Doumet. “On the final point, while we believe STLC is contemplating M&A, it is likely to remain highly price sensitive (as can be expected with STLC).
“So far, the setup for profit growth in 2024 is encouraging. Lagging ASPs (compared with HRC) provides visibility into EBITDA growth in 1Q24 and 2Q24. Further, we expect lower-priced coal/coke (starting in 2Q24) to reduce COGS/nt by more than $20 in the 2H24. Stepping back, and acknowledging how ASPs and COGS/nt are likely to trend, we believe STLC’s mid-cycle EBITDA runs closer to $650 million. In turn, our enhanced view of the STLC’s EBITDA/FCF underpins our view of a higher valuation multiple (we are raising our target to $51/share).”
* JP Morgan’s Michael Glick to $50 from $56 with an “overweight” recommendation.
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Following the release of in-line fourth-quarter results, Echelon Partners analyst David Chrystal upgraded European Residential REIT (ERE.UN-T) to “speculative buy” from “hold,” citing the potential gains from asset sales and an “attractive” valuation.
“Rising interest expense remains an offset to exceptional operational performance,” he said. “The REIT’s portfolio remains essentially fully occupied and rental rates continue to trend higher. We expect the REIT will continue to deliver healthy organic NOI growth going forward, driven by strong leasing spreads on new leasing and rising spreads on renewals. However, FFO/unit growth will likely remain challenged in the near term unless interest rates decline materially. Progress is accelerating on individual suite sales, with management commentary suggesting prices are at a material premium to IFRS carrying value.”
Mr. Chrystal cut his target to $3 from $3.30. The average is currently $3.11.
“ERES continues to trade at a deep discount to NAV (47 per cent), compared to its Canadian and European multi-family peer groups at a discount of 7 per cent and 18 per cent, respectively,” he said. “Despite the strength of Dutch rental market fundamentals, we expect ERES units to continue to trade at a material NAV discount given interest expense headwinds.”
Elsewhere, other changes include:
* Desjardins Securities’ Kyle Stanley to $2.75 from $3 with a “hold” recommendation.
“The rent growth outlook remains highly attractive; however, elevated leverage, refinancing headwinds and the lack of an expedient value maximization solution serve as an offset,” said Mr. Stanley. “We believe the suite privatization program should prove out the valuation disconnect between ERE’s trading price and private market values through 2024. Our target falls ... based on a reduced target multiple which better aligns with public peer valuations.”
* Raymond James’ Brad Sturges to $2.75 from $2.85 with a “market perform” rating.
“After concluding its strategic review in December, we believe ERES may not revisit another portfolio sales process until 2H24 at the earliest if market conditions for private market Dutch MFR transactions improve and European interest rates fall. In the meantime, we forecast ERES to generate positive 2024E AFFO/unit growth year-over-year, as 2024E SP-NOI growth year-over-year could be partly offset by higher financing costs year-over-year based on the potential for ERES to face above-average financing costs headwinds as ERES refinances near-term maturing debt at higher market interest rates,” said Mr. Sturges.
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In a research report released midday Friday, Mr. Chrystal lowered Canadian Apartment Properties REIT (CAR.UN-T) to “hold” from “buy” previously, seeing limited potential returns.
“CAPREIT delivered financial results that were largely consistent with expectations in Q423,” he said. “Modest growth in FFO/unit was driven by healthy organic NOI growth, accretive capital recycling and a decline in recurring trust expenses, partially offset by higher interest expense. Canadian rental market fundamentals remain exceptionally strong, as the REIT achieved another quarter of record high rent lifts on both turnover and renewals, while its portfolio remains essentially fully occupied.”
He maintained a $65.50 target for the REIT’s units. The average is $55.90.
“Since reporting Q323 results, CAPREIT’s unit price has increased by 14 per cent while reported IFRS NAV was essentially flat; its units currently trade at a modest 6-per-cent discount to year-end IFRS NAV (9-per-cent discount to our NAV),” said Mr. Chrystal. “While we expect CAPREIT’s long-term performance will continue to benefit from exceptionally strong Canadian rental market fundamentals, we believe units are approaching fair value, and activity on the $400-million ATM could potentially limit near-term unit price appreciation.”
Elsewhere, National Bank’s Matt Kornack raised his target to $60 from $55.50 with an “outperform” rating.
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In other analyst actions:
* CIBC’s Scott Fletcher increased his Altus Group Ltd. (AIF-T) target to $52.50 from $51.50, keeping a “neutral” rating, while BMO’s Stephen MacLeod moved his target to $51 from $48 with a “market perform” rating. The average is $53.06.
“We expect New Bookings to remain under pressure absent a recovery in CRE transaction activity (H2/24E earliest), and the postponed Ontario tax reassessment to weight through 2024; these two factors reduce earnings visibility, in our view,” said Mr. MacLeod. “Combined with higher leverage due to the REVS acquisition, we see balanced risk-reward.”
* RBC’s Douglas Miehm raised his target for Bausch Health Companies Inc. (BHC-N, BHC-T) to US$9 from US$8 with a “sector perform” rating. The average is US$9.50.
“With Q4 results that were ahead of expectations and a strong 2024 guide complete, we expect investor focus to return to the important appellate court decision on Norwich/Xifaxan, which should be rendered between March and May 2024. While we await the decision, we revise our estimates to incorporate the 2024 guide and update our valuation to reflect BLCO revisions with our PT increased,” said Mr. Miehm.
* National Bank’s Ahmed Abdullah raised his target for CCL Industries Inc. (CCL.B-T) to $81 from $79 with an “outperform” rating. Other changes include: Raymond James’ Michael Glen to $74 from $70 with a “market perform” rating Scotia’s Jonathan Goldman to $79 from $72 with a “sector outperform” rating, BMO’s Stephen MacLeod to $81 from $76 with an “outperform” rating, RBC’s Walter Spracklin to $81 from $72 with an “outperform” rating and CIBC’s Hamir Patel to $82 from $72 with an “outperformer” rating. The average is $75.60.
“The GDP+ organic growth algorithm is back on track, and we think there is upside to the pre-COVID run-rate given a number of secular trends and internal initiatives (i.e., GLP-1, RFID, capacity additions),” said Mr. Goldman. “Further, certain end-markets are still at or near trough, namely North American and Europe CPG volumes, apparel, and PSL, which should support an acceleration of organic growth throughout the year. The higher organic growth rate should come with an embedded margin expansion opportunity as RFID labels carries structurally higher margins.
“On the call, management said that it is more positive on the outlook now than it has been in a number of years and that it expects earnings growth to be ‘better’ than 5 per cent. To be clear, that 5-per-cent mark was an inbound and management took the over. We forecast 9-per-cent EBITDA growth in 2024 (excluding potential M&A). Management said the M&A opportunity set is consistent with the past couple of years (CCL spent $300 million per year on average in 2022 and 2023 on acquisitions). Shares trade at 9.8 times EV/EBITDA on our revised 2024, below the company’s ten-year average of 10.7 times, which likely does not reflect present growth opportunities.”
* Desjardins Securities’ Lorne Kalmar raised his Crombie Real Estate Investment Trust (CRR.UN-T) target to $16 from $15 with a “buy” rating, , while Scotia’s Mario Saric cut his target to $16 from $16.75 with a “sector outperform” rating. The average is $15.44.
“While there was some noise in 4Q, operationally CRR delivered a very solid result in our view,” said Mr. Kalmar. “We like management’s laddered approach to larger-scale developments, as well as its continued focus on adding retail GLA at existing sites. Overall, we believe CRR is well-positioned to continue to deliver steady FFO growth while maintaining solid debt metrics. In light of the REIT’s relative valuation vs its peers, we view the current unit price as an attractive entry point.”
* Mr. Kalmar also increased his StorageVault Canada Inc. (SVI-T) target to $6.25 from $5.75 with a “buy” rating. The average is $6.13.
“SVI delivered 20-per-cent year-over-year FFOPS [funds from operations per share] growth in 4Q, and self-storage SPNOI [same-property net operating income] hit 5.1 per cent (2023 4.5 per cent),” he said. “SVI also reported a pick-up in acquisition activity, announcing $95-million of acquisitions since reporting 3Q results. While SVI has rebounded off its lows, it continues to trade well below its long-term average on both P/NAV and P/FFO. We still see good upside in the stock and believe its premium valuation is justified by the outsized FFOPS growth (two-year CAGR 13 per cent).”
* RBC’s Pammi Bir reduced his target for Dream Office REIT (D.UN-T) to $9, below the $9.06 average, from $10 with a “sector perform” rating.
* Following its Investor Day event, BMO’s Michael Markidis raised his First Capital REIT (FCR.UN-T) target by $1 to $18.50 with an “outperform” rating. The average is $18.08.
“We came away from the event with: (1) a greater appreciation for FCR’s culture and enterprise-wide use of technology to drive operational efficiency; and (2) a better understanding of the underlying value of its non-core assets,” he said. “The strategic roadmap that was laid out emphasizes management’s commitment to further improve FCR’s leverage profile and gives us the confidence to extend our forecast out to 2026.”
* CIBC’s Mark Jarvi increased his Innergex Renewable Energy Inc. (INE-T) target to $9.50 from $9 with a “neutral” rating, while Desjardins Securities’ Brent Stadler cut his target to $14 from $14.50 with a “buy” rating. The average is $12.22.
“We view the change in the capital allocation strategy as positive,” said Mr. Stadler. “Although guidance missed our expectations, we continue to view INE as compelling at current levels. We believe the story is significantly improved today with the company’s ability to self-fund 150MW of projects annually. Further, INE commented that guidance is conservative, which has it better positioned for success in 2024. In light of the reduced guidance, we have trimmed our target.”
* Mr. Jarvi also moved his Northland Power Inc. (NPI-T) target to $30 from $32 with an “outperformer” rating, while Raymond James’ David Quezada cut his target to $32 from $35 with a “strong buy” recommendation. The average is $31.67.
“Key to our thesis, we believe NPI is well positioned to execute on its two large scale wind projects, which remain on budget and schedule. As the company continues to deliver on key milestones, we expect NPI will enjoy a more favourable narrative as compared to recent years where project inflation has been a key focus. We see NPI’s valuation increasingly reflecting its growth outlook over time. We’ve reduced our price target due to lower forecasted EBITDA guidance in 2024,” said Mr. Quezada.
* Canaccord Genuity’s Luke Hannan cut his Maple Leaf Foods Inc. (MFI-T) target to $30 from $35 with a “buy” rating. Other changes include: Scotia’s George Doumet to $33.50 from $37.50 with a “sector outperform” rating, BMO’s Tamy Chen to $29 from $31 with an “outperform” rating, RBC’s Irene Nattel to $29 from $32 with an “outperform” rating and CIBC’s Mark Petrie to $32 from $36 with an “outperformer” rating. The average is $32.25.
“Q4 results missed Street/our expectations by 6 per cent/11 per cent,” said Mr. Doumet. “More importantly, the significant margin ramp that we were expecting in 1H/24 has now moved to the right by a few quarters (we are looking for a 2024 exit rate that is more in line with our initial Q1 margin estimate). Attaining the lower end of MFI’s 14-per-cent to 16-per-cent EBITDA margin target has now become significantly more reliant on improvements in both the commodity markets and consumer trade-down dynamics.
“Net-net we have lowered our 2024 and 2025 estimates by 15 per cent and 9 per cent. Maple Leaf has the elements of a healthy deleveraging story - with a step up in EBITDA expected in 2024/2025, in addition, to improved FCF (from lower capex and w/cap). While we argue that visibility has somewhat deteriorated, shares appear cheap, trading at 7.5 times EV/2025E (vs. historical NTM EV/EBITDA multiple of ~9.5x) or an 8-per-cent FCF yield.”
* Scotia’s Ovais Habib trimmed his Pan American Silver Corp. (PAAS-N, PAAS-T) target to US$19.50 from US$20 with a “sector outperform” rating. The average is $20.58.
* BMO’s Ben Pham bumped his Pembina Pipeline Corp. (PPL-T) target to $53 from $52 with an “outperform” rating. The average is $52.43.
“Q4/23 results support our thesis that PPL is one of the best positioned in our coverage to benefit from rising WCSB volumes,” said Mr. Pham. “EBITDA results beat by 2 per cent with full-year setting a new high watermark despite Alberta wildfires earlier in the year. PPL also secured new contracts to expand gas processing and ethane movement, reinforcing the value of its integrated network. With shares still offering good value (10 times EBITDA vs. peers 10.5 times), we maintain Outperform rating.”
* Canaccord Genuity’s Aravinda Galappatthige cut his Quebecor Inc. (QBR.B-T) target to $34.50 from $35 with a “buy” rating, while Scotia’s Maher Yaghi raised his target to $38.75 from $38.25 with a “sector outperform” rating. The average is $39.94.
“We are slightly increasing our target on QBR as a result of an improved expectation of results in the media business while our telecom estimates remain unchanged,” said Mr. Yaghi. “Overall, the market reacted negatively to results today as telecom margins came below expectations. We estimate that the full difference was due to $15-million in higher year-over-year handset subsidies that the company chose to undertake to reduce churn. Interestingly, now that all wireless providers have reported, QBR was the only company that was able to reduce churn in a more competitive market while at the same time increase market share in wireless net additions. We believe the big 3′s aggressive pricing strategy in Q4, which caused them an increase in wireless churn without taking share from QBR should logically lead to more rational behavior over the next few quarters.”
* CIBC’s Robert Catellier reduced his Superior Plus Corp. (SPB-T) target to $14 from $16 with an “outperformer” rating, while Scotia’s Ben Isaacson cut his target to $12 from $12.75 with a “sector perform” rating. The average is $13.18.
* JP Morgan’s Jeremy Tonet raised his TC Energy Corp. (TRP-T) target to $60, above the $54.92 average, from $57 with a “neutral” rating.
* Desjardins Securities’ Chris MacCulloch raised his Whitecap Resources Inc. (WCP-T) target to $11.50 from $11 with a “buy” rating. The average is $12.75.
“We increased our target on Whitecap ... reflecting positive estimate revisions following the release of 4Q23 financial results,” he said. “We also adjusted our 2024 capex assumption to $1.0-billion (from $1.1-billion) to align with the mid-point of the capital budget ($0.9–1.1-billion) given our view that Montney/Duvernay development will temporarily moderate in response to sluggish natural gas prices. However, we have retained our production forecast at the mid-point of the guidance range for the time being.”
David Leeder