Inside the Market’s roundup of some of today’s key analyst actions
Seeing Cargojet Inc.’s (CJT-T) new e-commerce opportunity in China as “compelling,” National Bank Financial analyst Cameron Doerksen raised his recommendation for its shares to “outperform” from “sector perform” previously.
“We viewed the strong share price performance since the Fall as having been driven in large part by the company’s NCIB as opposed to any major changes in end-market fundamentals,” he said. “However, the announcement earlier this week that Cargojet has signed a three-year contract worth at least $160 million to operate flights between China and Canada on behalf of Great Vision HK Express (a division of China-based Jiayou International Logistics) has changed the near-to-mid-term fundamental growth outlook for the company following a lengthy period of relatively stagnant revenue growth.”
In a research report released Friday, Mr. Doerksen said the “well-structured” deal is likely to accelerate the Mississauga-based company’s growth and sees the asset utilization as positive for both margins and returns.
“We understand that the new flights (a minimum of 3 per week) are largely supporting rapidly growing Chinese e-commerce giant Temu,” he said. “Cargojet is paid per flight, so it does not carry volume risk and we expect the estimate of $160 million in aggregate revenue to be conservative. While we do not have specific figures for Canada, Temu experienced explosive growth in the U.S. expanding to 28 million active users in April 2023 from launch of the service in September 2022 according to Sensor Tower.”
“Importantly, Cargojet has existing capacity with its 767- freighter fleet to support the new flying (with some spare capacity available for incremental growth) so beyond some start-up costs, investment to support the new business will be minimal. The new flying will therefore increase Cargojet’s asset utilization and should help drive higher margins. Furthermore, the flights from China will terminate in Vancouver with volumes destined for other Canadian cities then connecting to Cargojet’s domestic network.”
Mr. Doerksen thinks the deal could bring future opportunities, emphasizing “China-based e-commerce giants have had a significant impact on the global air freight market over the past year.” He also expects further gains from Temu in Canada, leading to further potential contract gains.
“Investors may be somewhat anxious about Cargojet over-committing assets to support volumes that may not necessarily be sustainable long term,” he said. Indeed, shipping low-priced consumer items using expensive air freight may not be the long-term solution for the Chinese e-commerce giants and if these companies wish to have a long-term presence in the Canadian market, they may ultimately invest in more warehousing and distribution centres and ship more goods by ocean freight.
“However, there will still likely be some more time-sensitive volumes that will continue to move by air in that scenario, noting that Amazon (another major CJT customer) has multiple distribution centres in most large Canadian cities but still moves large numbers of packages by air. The risk of future tariffs on Chinese imports is also a clear risk factor, but given Cargojet management’s historical conservatism, we do not see the company making significant new capital investments to support growth unless there is long-term certainty around cash flows from these customers.
Seeing its valuation “more compelling considering growth boost,” Mr. Doerksen raised his target for Cargojet shares to $154 from $132. The average target on the Street is $155.27, according to LSEG data.
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In response to a 15-per-cent drop in share price thus far in 2024, Evercore ISI’s Mark Mahaney upgraded Shopify Inc. (SHOP-N, SHOP-T) to “outperform” from “in line” previously, believing it “has created an attractive entry point to own a best-in-class e-commerce platform business.”
“We believe there is a very resilient Long Thesis to SHOP shares,” he said, pointing to its expanding total addressable market (estimated to be US$850-billlion) as well as its strong competitive position, up-market opportunity, track record of “successful product innovation” and potential profitability gains.
“We believe the investments SHOP is making now should set the company up to sustain healthy revenue growth,” said Mr. Mahaney.
His target remains US$75 target. The average target on the Street is US$75.49.
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In a research note titled This is not your father’s Atkins (or SNC), National Bank Financial analyst Maxim Sytchev said he has “Growing confidence in better days ahead” for AtkinsRéalis Group Inc. (ATRL-T), believing the market is getting “more comfort” with its forward trajectory and seeing an “enhanced level of confidence in hitting the margin targets [and the] only risk is material capital deployment once 407 is gone.”
Shares of the Montreal-based engineering giant surged 5.8 per cent on Thursday after it revealed at its Investor Day event that is aiming to sell its stake in Toronto’s Highway 407 ETR toll road within three years as it pushes on with a strategic revamp it says has re-energized the business.
“Management presentations, strength of the underlying market (as seen from ALL the competitors), and the changed set-up for the nuclear business (confluence of more supportive Net Zero transition policies and sequencing of reactor refurbishments/potential new builds), makes us think that further share price appreciation should be achievable, especially in the context of sell-side estimates not fully baking in the new 2027E guidance,” said Mr. Sytchev. “The only risk to the investment thesis is capital deployment as we did not get a good sense of whether ‘strategic’ M&A would be more important than ‘accretive’ M&A (or share buybacks for that matter). The latter risk is likely a late 2025/early 2026 dynamic, but we nevertheless still want to be fully alert to it as we are loath to see ‘peak’ EBITDA in “peak” geography dynamic circa 2026.
“At the same time, this is still almost two years out and, in the meantime, investors should be able to benefit from 50 basis points per annum of Engineering margin improvements and better FCF. $450-milion-$500-million potential at a 3.5-per-cent FCF yield equal a $13.5-billion market cap, implying $70-$75 per share by 2027. While this is not happening tomorrow, the direction of travel is less murky; as a result, we are increasing our EV/EBITDA multiples in Engineering/Nuclear to 13 times/12 times (from prior 12 times and 10 times – for context, we are using 16 times for WSP).”
Maintaining an “outperform” recommendation for AtkinsRéalis Group, formerly SNC-Lavalin, shares, he raised his target to $67 from $61. The average target on the Street is $63.45.
Elsewhere, other analysts making target changes include:
* BMO’s Devin Dodge to $60 from $56 with a “market perform” rating.
“In our view, the Investor Day presentations and discussions with management highlighted meaningful opportunities for growth in its core regions and end-markets,” said Mr. Dodge. “The company is aiming for attractive margin expansion over the next 3-4 years while near-term M&A prospects appear to be improving. However, with the PS&PM [Professional Services & Project Management] division trading at a premium to its closest peers (2025 P/E: 18 times vs. peers at 16.5 times), we believe this optimism is increasingly reflected in valuation.”
* TD Cowen’s Michael Tupholme to $73 from $68 with a “buy” rating.
“We are encouraged by the new three-year strategic plan unveiled by ATRL in connection with [Thursday’s] Investor Day, and we came away from the event with an incrementally positive view of the company and its prospects,” he said. “We continue to be bullish on ATRL’s outlook and view the stock’s valuation as attractive.”
“We characterize the overall impact of the event as positive. On the whole, we were encouraged by the tone of the Investor Day, and we found management’s commentary and newly issued multi-year targets to be supportive of our constructive stance on ATRL.”
* ATB Capital Market’ Chris Murray to $70 from $63 with an “outperform” rating.
“The outlook was better than expected, particularly in Nuclear, and we see the valuation gap to peers continuing to close on M&A and margin expansion. We would continue to add shares at current levels,” said Mr. Murray.
* CIBC’s Jacob Bout to $68 from $64 with an “outperformer” rating.
“Overall, we view this as a positive update highlighting expectations for strong organic revenue growth, overall margin expansion and improved FCF generation (allowing for M&A and future capital returns to shareholders). We are raising our 2025 estimates slightly, which may be conservative given the potential for M&A. Along with a slightly higher multiple reflecting the improved longer-term outlook, our price target increases,” said Mr. Bout.
* Canaccord Genuity’s Yuri Lynk to $64 from $62 with a “buy” rating.
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A “subdued” consumer backdrop is likely to “stall” Alimentation Couche-Tard Inc.’s (ATD-T) growth, according to National Bank Financial analyst Vishal Shreehar.
“If ATD achieves its F2028 targets, significant upside remains,” he said in a research note previewing the June 25 release of its fourth-quarter 2024 financial results. “That said, our estimates fall short of ATD’s goals. Recent lackluster merchandising trends call into question ATD’s aggressive plans under its ‘10 For The Win” strategy. While ATD has executed well against prior growth ambitions, the current plan calls for growth largely outside traditional vectors (such as fuel margin and M&A).
“Given valuation which is not inexpensive (vs. history) and ongoing macroeconomic uncertainty, our preference is to monitor execution from a neutral vantage point. ATD is trading at 17.7 times our NTM [next 12-month] EPS vs. the five-year average of 17.8 times.”
Mr. Shreedhar is currently projecting earnings per share for the quarter of 49 cents, which is 2 cents below the consensus forecast on the Street and down 30.5 per cent year-over-year from 71 cents. He said that drop from fiscal 2023 can be attributed to “an extra week last year, softer fuel margin in the U.S. and Europe, lower aggregate fuel volume, tepid merchandising same-store sales growth, higher D&A and higher interest expense, partly offset by higher fuel margin in Canada, acquisition contribution and share repurchase.”
The analyst is estimating a decline in merchandise same-store sales growth of 0.5 per cent in the United States (versus a 3.3-per-cent rise a year ago) and 1.0 per cent in Canada (versus 5.9 per cent). He also sees aggregate fuel performance to be “softer” with negative results on both sides of the border.
“Recall that ATD’s F2028 EBITDA ambition includes delivering $520-$570 million of incremental EBITDA (vs. F2023) through food, beverage and private label,” he said. “We believe ATD is making progress on its initiatives (such as food margin expansion of 600 basis points, management’s view that ATD is gaining share in merchandising, etc.), but near-term performance could be subdued due to a soft consumer backdrop (offsetting gains).”
“Our review of peer management commentary points to a continuation of prior consumer themes, including softening discretionary spending (particularly among lower income consumers) and cigarette pressure (retailers investing in pricing, growth in discount, etc.).”
While he reduced his revenue and earnings expectations for both fiscal 2024 and 2025, Mr. Shreedhar increased his target for Couche-Tard shares by $1 to $84 to reflect foreign exchange fluctuations, reaffirming a “sector perform” recommendation. The average on the Street is $87.93.
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Desjardins Securities analyst Jerome Dubreuil thinks Alithya Group Inc.’s (ALYA-T) fourth-quarter 2024 financial release following a familiar theme “with a challenged top line but continued and significant margin improvement resulting in positive EPS for the first time since ALYA became public.”
“Management sees green shoots in banking demand, although it might be a few quarters before this is reflected in results,” he added. “Its new three-year financial goals are more ambitious than our forecast, which is positive. However, we do not expect Street expectations to fully reflect the updated outlook immediately.”
Before the bell on Thursday, the Montreal-based strategy and digital technology consulting firm reported revenue of $120.5-million, down 11.5 per cent from the same period a year ago below the Street’s expectation of $126-million, but adjusted EBITDA of $10.5-million topped the consensus projection of $10.2-million as EBITDA margins rose almost 1 per cent year-over-year to 8.1 per cent.
Despite “strong” book-to bill results that were its best performance in eight quarters and “significantly” higher than the same period a year ago, Mr. Dubreuil deemed the results “neutral,” however he emphasized its three-year outlook came in above his expectations.
“Over the next three years, the company aims to achieve 5–10-per-cent annualized organic growth, acquire complementary businesses totalling $150-million of revenue and increase adjusted EBITDA margins to the 11–13-per-cent range,” he said. We had previously forecast 4.8-per-cent organic growth over that period and margin of 10.4 per cent in FY27. Our new revenue forecast is at the bottom of the three-year range (5.8 per cent), as (1) we believe the recovery will materialize toward 2H FY25 (starting in September 2024), and (2) the company has not always met long-term guidance in the past. We forecast FY27 adjusted EBITDA margin of 10.8 per cent, slightly below the guided range; however, this is supported by strong margin momentum and still relatively low margins, which allows for catch-up in our view. Despite our forecast being more conservative than management’s, we see significant potential share price appreciation during the guided timeframe—130 per cent over three years, assuming no margin expansion.”
With Alithya continuing to make progress on its deleveraging efforts, Mr. Dubreuil expects easier comps ahead.
“ALYA will start lapping quarters with a weaker top line starting in 1Q FY25 (next quarter), which should contribute to an improvement in revenue growth,” he said. “This should coincide with the ramping up of significant healthcare-related work in both the U.S. and Québec. The company also anticipates a recovery in some of the projects that were stalled in the banking vertical, which could start contributing to bookings and possibly revenue in 2H FY25. We believe the return of top-line growth would demonstrate the further positive impact of the company’s ongoing costcutting efforts.”
Maintaining his “buy” recommendation, he raised his target to $3.50 from $3. The average on the Street is $3.13.
Elsewhere, National Bank’s John Shao bumped his target to $2.50 from $2, keeping a “sector perform” rating.
“Alithya reported FQ4 results that were below our previous forecasts due to the continued macro headwinds,” said Mr. Shao. “That said, management commentaries during the earnings call pointed to subsequent recoveries, and this quarter’s bookings seemed to support that. While the organic growth remained challenging, gross margin hit another record due to a favourable contract mix, higher staff utilization, and smart shoring (now 8 per cent of ALYA’s headcount). Concurrent with the earnings release, the Company unveiled its three-year growth and profitability objectives. We believe those are reasonable targets, and if well executed, would certainly position the stock for a re-rating. For now, we maintain our Sector Perform rating and look forward to gaining more insights into the action plan at the upcoming Investor Day.”
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While GURU Organic Energy Corp. (GURU-T) has been able to preserve its market share despite the emergence of new entrants into the space, Stifel analyst Martin Landry thinks the likelihood of further gains is “in question” following weaker-than-expected second-quarter results that saw strong revenue growth in the United States offset by domestic declines.
On Thursday before the bell, the Montreal-based energy drink company revenue of $8-million, up 4 per cent year-over-year but below the expectation of 12-per-cent growth.
“The slower revenue growth than expected comes as a surprised given management’s comments on the last earnings call, which suggested that early momentum in Q2 was strong,” he said.
“The Q2FY24 revenue miss is explained by another round of inventory reduction at PepsiCo, which we found surprising. On the positive side, GURU appears to have maintained its market share at 4.6 per cent at retail in Canada despite several new entrants, including Celsius. This reinforces our view that GURU has a loyal customer base. Nonetheless, revenue growth for GURU over the last years has been slower than expected as the company faced challenges to grow in the convenience store channel outside of Quebec.”
Mr. Landry said recent innovations, including a Peach Mango brand and a zero-sugar product in Quebec, have been “performing well,” however he thinks “further market share gains appear less likely than previously thought.”
That led him to reduce his valuation multiples and target for Guru shares to $2.75 from $3.50, keeping a “buy” recommendation. The average is $3.75.
“Following GURU’s Q2FY24 results, we are reducing our FY24 sales estimates by 4 per cent reflecting the revenue miss and inventory reduction at PepsiCo, which could potentially impact Q3FY24,” he said. “Our FY25 revenue estimates also come down by 4 per cent. Given GURU’s performance in the last two-plus years, which showed lower than expected revenue growth, and limited profitability improvement we are reducing our valuation multiples.”
Elsewhere, CIBC’s John Zamparo trimmed his target to $2.75 from $3 with a “neutral” rating.
“We maintain our Neutral rating on GURU but reduce our price target ... on less predictable Canadian revenues and slightly lower sales forecasts through F2025,” he said. “U.S. growth has been compelling lately, though the relative lack of size (approximately 20 per cent of sales) means this segment must grow considerably in order to offset lower inventories held by GURU’s Canadian distribution partner. We continue to view profitability as unlikely in the next two years. In our view, for the stock to become more compelling, investors must see either a shorter timeline to positive EBITDA, or a higher top-line trajectory, preferably with greater consistency.”
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In other analyst actions:
* Calling it “a defensive choice to gain exposure to the Canadian grocery-anchored retail property sector,” Raymond James’ Brad Sturges initiated coverage of Choice Properties REIT (CHP.UN-T) with an “outperform” rating and $15 target. The average on the Street is $14.94.
“Choice has focused in recent years on 3 strategic pillars: 1) executing on its substantial development pipeline to augment its NAV/unit and AFFO/unit growth profile; 2) reducing its financial leverage metrics to targeted levels; and 3) improving its overall portfolio quality through its completed capital rotation activities,” he said. “Looking ahead, Choice provided 2024 growth guidance that includes: 1) 2024 cash SP-NOI [same-property net operating income] growth of 2.5-3.0 per cent year-over-year; 2) 2024 FD FFO [fully diluted funds from operations] of $1.02-1.03/unit (equal to 2-3-per-cent growth year-over-year); and 3) based on maintaining adjusted debt to EBITDA below 7.5 times.”
* Canaccord Genuity’s Carey MacRury raised his target for Altius Minerals Corp. (ALS-T) to $25 from $24.50, keeping a “buy” rating. The average is $25.50.
* Mr. MacRury cut his Triple Flag Precious Metals Corp. (TFPM-T) target to $24.50 from $25 with a “buy” rating. The average is $26.01.
* Canaccord Genuity’s Doug Taylor bumped his Blackline Safety Corp. (BLN-T) target to $5.50 from $5.25, remaining below the $6 average, with a “speculative buy” rating.
* Stifel’s Justin Keywood raised his HealWELL AI Inc. (AIDX-T) target to $3.80 from $3.60, above the $3.18 average, with a “buy” rating.
* TD Cowen’s Aaron Bilkoski raised his NuVista Energy Ltd. (NVA-T) target to $17, exceeding the $16.09 average, from $15, maintaining a “buy” recommendation.
David Leeder