Inside the Market’s roundup of some of today’s key analyst actions
Heading into earnings season for Canada’s Big 6 banks, National Bank Financial analyst Gabriel Dechaine warns investors “patience is (still) required,” seeing interest rate cuts as the greatest sector catalyst “insofar as they will alleviate investor concerns related to the credit cycle, as well as acting as a stimulant for credit demand (especially commercial).”
“In turn, we attribute most of Big-6 underperformance to rate cut expectations that continue to be deferred,” he said. “Obviously, we wish we had more clarity on this particular issue. But we don’t. What we do have is confidence in other factors that were previously sources of uncertainty, such as NIM performance (flat expectation) and expense management (improved efficiency outlook). Moreover, we believe the regulatory environment has become more stable, which should be reinforced if OSFI decides to keep the DSB buffer flat this coming June.
“Our top picks are CM, RY and BMO. However, with BMO’s commercial loan growth challenging both its Canadian and U.S. operations (including top-line expansion of recently acquired Bank of the West), we believe its near term performance outlook is challenged on an absolute basis. We still prefer it on a relative basis to TD.”
In a research report released Friday, Mr. Dechaine said he expects net interest margins to take a “small step back,” projecting the group to report low single-digits compression with a combination of fixed term deposit growth outpacing loan growth. He’s also anticipating a “slow and steady build” on the credit front with “a combination of fixed term deposit growth outpacing loan growth.”
“With nearly all Big-6 banks sporting CET 1 ratios at 13 per cent or higher, we believe buybacks will become a discussion point,” he added. “On a stock-specific basis, BNS will be in focus to see if it managed once again to minimize (or eliminate) the impact of the Basel III Output floor.”
To reflect “slight” increases to his target valuation multiples, Mr. Dechaine made a trio of target price adjustments:
* Bank of Montreal (BMO-T, “outperform”) to $143 from $137. The average on the Street is $134.64, according to LSEG data.
Analyst: “BMO started fiscal 2024 with a whimper, highlighted by negative 5-per-cent operating leverage. The bank positioned the quarter as the low water mark of the year, re-iterating its commitment to positive operating leverage on a full-year basis. While there were certainly some revenue headwinds that contributed to this performance, especially in the Corporate segment, adjusted expense growth of 16 per cent year-over-year was a primary drag. While we do not expect a major turnaround this quarter, there is hope for a stronger outcome. That is, we see normalization of some of the Corporate revenue items (e.g., non-recurrence of hedging losses), potential improvement in Capital Markets revenue performance (esp. in the U.S.) and further progress on BoW + rest of bank cost cutting initiatives to push this quarter closer to a break-even operating leverage figure. Importantly, expectations have been checked, with Q2/24E EPS having been cut by 4 per cent since Q1/24 was reported.”
* Canadian Imperial Bank of Commerce (CM-T, “outperform”) to $76 from $73. Average: $68.80.
Analysyt: “CM delivered the best operating leverage performance in the group last quarter, at 2 per cent. Performance, in part, reflected industry-leading expense management, with adjusted NIX rising only 3 per cent year-over-year. The bank is guiding to mid-single digit growth on a full-year basis, and also clarified that some seasonality played a role in the Q1/24 outcome. That is, some investment spending would be more evident in future quarters, which leads us to expect higher expense growth this quarter. In turn, we could see operating leverage reduce.”
* Royal Bank of Canada (RY-T, “outperform”) to $154 from $148. Average: $145.20.
Analyst: “Calendar Q1/24 U.S. bank results bode well fo RY’s Capital Markets business. Of note, the largest wholesale players in the U.S. reported aggregate FICC trading revenue growth of nearly 60 per centr Q/Q (although flattish Y/Y), Equities trading revenue growth of 32 per cent Q/Q (up 6 per cent Y/Y) and investment banking fee income growth of 25 per cent Q/Q (up 31 per cent Y/Y). Considering that RY generates roughly 50 per cent of its wholesale revenues in the U.S, the bank should outperform its Canadian peers in this segment in Q2/24.”
He maintained his targets for these stocks:
* Bank of Nova Scotia (BNS-T, “sector perform”) at $67. Average: $68.08.
Analyst: “BNS’s Q1/24 results overall were far better than expected. One of the key drivers of outperformance was 4 basis points of quarter-over-quarter NIM expansion, against expectations of flat performance. NIM was up in the Canadian banking segment (up 9bps Q/Q) and even more so in the International segment (up 19bps Q/Q), offset by NII contraction in Corporate. We expect NIM to flatten this quarter, a combination of a GIC pricing environment that continues to pressure funding costs, a potential rebound of BNS’ mortgage volumes and the impact of rate cuts across the LatAm footprint in International banking. At our conference in March, management hinted that it may have resumed mortgage growth sooner than expected.”
* Toronto-Dominion Bank (TD-T, “sector perform”) at $84. Average: $87.37.
Analyst: “The past month has revealed much more detail around TD’s AML issues in the U.S. that had previously been a bit of a mystery. We discussed the bank’s decision to provision for one regulatory fine on April 30th and discussed a revised downside scenario for the bank in a separate report. We don’t expect the bank to provide any specific updates on the various investigations being undertaken by regulators plus the Department of Justice. However, we will be watching for any changes in the bank’s strategic messaging, such as potential indications of a higher/longer cost burden from investing in its AML programs. Alternatively, we could potentially receive an indication that the bank’s organic growth is going to decelerate as it focuses on fixing its AML issues.”
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Scotia analyst Meny Grauman sees a “relatively neutral picture” for Canadian banks heading into earnings season, expecting “modest loan growth and relatively flat margins as per management guidance, a modest sequential improvement in capital markets results, higher impaired PCL ratios (no reserve releases unlike what we saw across the large U.S. banks this past earnings season), and modest expense growth.”
“We see some divergence across the banks we cover, but broadly speaking we don’t see anything particularly exciting or likely to materially boost forward estimates,” he added. “If anything the higher-for-longer rate environment that has emerged on both sides of the border since Q1 reporting suggests further pressure on credit performance and keeps a lid on improving loan growth, especially in the U.S.. This is a key issue facing BMO, a name which we continue to rate as a SO, but see further pressure in the near term as the bank struggles with a more challenging revenue outlook in the U.S. than it had expected when it first announced the Bank of West deal back in December 2021.”
In a research note released Friday titled Is the Canadian Economic Miracle Over?, Mr. Grauman argues the sector’s performance is being guided by the state of the broader economy, believing the outlook for interest rates is “the central issue which will drive the performance of Canadian bank stocks in the near term.”
“We are frequently asked what we think is the biggest risk facing the Canadian banking sector right now,” he said. “Our answer is not rates, nor housing, and not even regulation, all of which are important issues, but rather something bigger than all of that — namely the outlook for the Canadian economy. The reality is that for the last few decades Canada’s economy has been defying the skeptics and riding high. Through crisis after crisis including the tech wreck, the GFC and the pandemic, it has defied the bears and thrived; but, between plunging productivity, unsustainable fiscal policy including exploding public sector job growth, and one of the world’s most expensive housing markets, we believe that it is now fair to ask “is the Canadian economic miracle over?” This is certainly a bigger subject than we can address here, but an important question to consider as we aim to forecast the outlook for Canadian bank stocks over the longer term. In some sense it is the most fundamental question, because at the end of the day we believe it will determine the path forward for the shares, not over the next few weeks or quarters, but over the coming years.”
Mr. Grauman called his earnings per share (EPS) outlook for fiscal 2024 “uninspiring,” however he said he’s “getting more constructive about the outlook for F2025 on the back of (modest) rate cuts as soon as June.”
“The higher-for-longer rate scenario is currently playing out in the market, but we do see some relief coming later in the year which is likely to begin to positively impact results next year. This outlook is something that is already largely reflected in our forward estimates and as a result our annual estimates for both this year and next year are largely unchanged (TD being a notable exception as we forecast slower U.S. earnings growth),” he said. “Our estimates imply no material EPS growth in F2024 followed by 8 per cent EPS growth in F2025.”
With that view and updates to his valuations, Mr. Grauman made these target price adjustments:
- Bank of Montreal (BMO-T, “sector outperform”) to $137 from $141. The average on the Street is $134.64.
- Canadian Imperial Bank of Commerce (CM-T, “sector outperform”) to $73 from $69. Average: $68.80.
- National Bank of Canada (NA-T, “sector perform”) to $113 from $109. Average: $115.08.
- Royal Bank of Canada (RY-T, “sector outperform”) to $148 from $143. Average: $145.20.
- Toronto-Dominion Bank (TD-T, “sector outperform”) to $90 from $93 Average: $87.37.
“From a stock-selection perspective, RY is our top large bank pick in the group, fueled by synergies from the HSBC deal and an overall improvement in expense management,” he said. “We also like CIBC and believe that housing-related tail risk here is smaller than what is being priced into the shares, but do see risk that the results come in below expectations for the quarter itself. We highlight a more cautious view of BMO in the near-term, although we believe that is temporary and results will bounce back from a very weak Q1. Finally, we highlight TD which is down 10 per cent year-to-date and trading at an 11-per-cent discount to the group on F2024 consensus EPS. Tail risk related to its US AML issues has been a headwind for some time, but has come back to bite hard on the back of more disclosure including news that the bank has provisioned US$450-million to begin to deal with the expected monetary fines that are expected to increase, and more importantly a report from the WSJ tying TD’s issues to money laundering by Chinese drug traffickers who used the company to launder US fentanyl sales revenue. The dark cloud over the stock is unlikely to fade too quickly, but we certainly believe that a worst-case scenario is increasingly being priced into the shares, creating a buying opportunity. We expect a slightly softer quarter from National Bank and in particular remain uncertain about the ongoing impact from the elimination of the dividend received deduction. With stock trading at a 6% premium to the group based on F2024 consensus EPS we see a potentially painful earnings day if numbers miss. We believe that NA has earned a premium valuation, but despite a peer-leading ROE, we believe that the gap with much larger peers is stretched.
“Meanwhile, among the smaller banks we reiterate our SO rating on EQB, but see another soft quarter ahead, impacted by elevated PCLs and expenses combined with more modest revenue growth. Management continues to reiterate that losses in its equipment finance business will peak in Q2, but the reality is that the stock is likely to be constrained until the bank delivers on that outlook in Q3.”
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Canaccord Genuity analyst Matthew Lee does not expect “any meaningful negative surprises” in the results from Canadian banks.
“We are most interested in inflections in management commentary around both NII and credit as rate cut expectations continue to be pushed out,” he said in a Friday report. “While loan growth and NIM forecasts for the year are already modest (flattish y/y), we anticipate a more cautious view from the banks on credit, particularly in the personal banking sphere as consumers face a more daunting economic landscape. We have moved our forecasts to the top of the PCL guidance range, which moderates our EPS estimates for F24. We expect provisions to remain elevated until mid-F25, at which time we see the opportunity for more meaningful EPS expansion across the industry. On a positive note, we view capital markets as a driver of potential EPS upside, although less so than Q1 given the rising expectations for the segment.
“We maintain our BUY ratings on RY, BMO and TD and HOLD ratings on CM, BNS, and NA.”
He made these target adjustments:
- Bank of Montreal (BMO-T, “buy”) to $140 from $136. The average on the Street is $134.64.
- Bank of Nova Scotia (BNS-T, “hold”) to $70 from $67.50. Average: $68.08.
- Canadian Imperial Bank of Commerce (CM-T, “hold”) to $71 from $67. Average: $68.80.
- National Bank of Canada (NA-T, “hold”) to $112 from $108. Average: $115.08.
- Toronto-Dominion Bank (TD-T, “buy”) to $91 from $96. Average: $87.37.
Mr. Lee maintained his $146 target for shares of Royal Bank of Canada (RY-T, “buy”). The average is $145.20.
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Following Thursday morning’s release of “solid” fourth-quarter 2024 financial results, National Bank’s Richard Tse thinks Lightspeed Commerce Inc. (LSPD-N, LSPD-T) is “taking a more disciplined approach to capital allocation which has been reflected in the F25 guidance.”
“Further, we think the Company’s re-allocation of resources to drive a re-acceleration in customer locations / subscription growth is positive given the higher relative margin profile (to payments),” he said. “While positive – it’s early, and we need more comfort those efforts will drive merchant (subscription) growth.”
Shares of the Montreal point-of-sale software company soared 18.3 per cent on Thursday after it beat quarterly financial targets and issued a sharply higher operating profit forecast than analysts had expected for its new fiscal year. Revenue of $230.2-million topped both Mr. Tse’s $226.0-million estimate and the consensus forecast of $224.3-million), while adjusted EBITDA of $4.4-million also topped expectations ($4.0-million and $4.3-million, respectively).
“With respect to the notable KPIs, transaction-based revenue was up 40 per cent year-over-year care of growing payments penetration which increased 330 basis points quarter-over-quarter to 31.9 per cent and ARPU [average revenue per user] (ex-Ecwid) expanding to $431 (up 29 per cent year-over-year) which helped drive an NRR (net revenue retention) of 110 per cent in FY24,” said the analyst. “With respect to Lightspeed’s customer locations, GTV [gross transaction volume] in its targeted larger markets had locations with GTV more than $500k/yr and more than $1 million/yr up 5 per cent year-over-year and 6 per cent year-over-year respectively while merchants (and locations) with GTV less than $200k were down year-over-year. For reference, total customer locations (ex. Ecwid) were down 1.8 per cent year-over-year to approximately 165,000. Importantly, FQ4 marked the third consecutive quarter of positive Adj. EBITDA at $4.4 million (1.9-per-cent margin).
“Looking ahead, Management is guiding to revenue growth of 23 per cent year-over-year and an Adj. EBITDA margin of approx. 2.7 per cent in FQ1 (both at the midpoint). On a full year basis (FY25), Management is guiding to total revenue growth of at least 20 per cent with a minimum of $40 million in Adj. EBITDA; on the low end this implies an Adj. EBITDA margin of approx. 3.7 percent. A large part of those efficiency gains is expected to come from previously disclosed restructuring (announced April 3, 2024) where the Company plans to reduce its headcount by 280 employees (10 per cent of the Company’s workforce) along with reducing its office footprint. Notably, a large portion of the restructuring has already been completed.”
Maintaining his “sector perform” recommendation for Lightspeed shares, Mr. Tse raised his target to US$16 from US$15 with a “sector perform” rating. The average is US$17.60.
Elsewhere, other analysts making changes include:
* Scotia’s Kevin Krishnaratne to US$21 from US$20 with a “sector outperform” rating.
“Expectations of an accelerating software growth profile in 2H25 and an increasing focus on profitability keep us bullish on LSPD,” he said. “Shares are up 15 per cent [Thursday] on a solid Q4 and the introduction of FY25 guidance that was better than the Street, but we continue to see material upside on a re-rate (stock is trading at 2.8 times CY25 estimated GP vs. peers at 7.9 times), before any considerations for other levers in the model (higher software attach, more higher-GTV location adds, better retail spending trends on an improving macro) that could move our updated forecast even higher. We continue to think LSPD is one of the best positioned Fintech/Payments stocks in our coverage given its opportunity for GMV monetization.”
* BMO’s Thanos Moschopoulos to US$20 from US$19 with an “outperform” rating.
“We remain Outperform on LSPD and have raised our target price following Q4/24 results, which were a slight beat on revenue/EBITDA, while FY2025 EBITDA guidance was considerably stronger than expected. While better software growth will likely be needed in order for the stock to work, we think that LSPD should be able to drive a reacceleration, as its sales force shifts its focus back towards new customer acquisition relative to the Payments ramp. In the meantime, EBITDA should be ramping, and the stock remains significantly undervalued, in our view,” said Mr. Moschopoulos.
* JP Morgan’s Tien-Tsin Huang to US$16 from US$17 with a “neutral” rating.
* Jefferies’ Trevor Williams to US$16 from US$14 with a “hold” rating.
* CIBC’s Todd Coupland to $26 (Canadian) from $25 with a “neutral” rating.
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Expressing concern about its large capital expenditure spending on rental equipment business, Raymond James analyst Rahul Sarugaser lowered his recommendation for Quipt Home Medical Corp. (QIPT-Q, QIPT-T) to “underperform” from “market perform” previously.
“In reviewing QIPT’s PPE schedule we note the regular transfer of inventory on its balance sheet to rental equipment (part of PPE),” he said. “We also note that this equipment has an exceptionally short average useful life of just over 12 months, and we view these rental equipment transfers effectively as Capex. QIPT finances the bulk of these purchases with equipment loans from financing partners, which are typically paid off over the life of the asset (~1 year). As such, payments on these loans are recorded as repayments of debt in the financing section of the cash flow statement, rather than as PPE purchases in the investing section. This could lead to an underestimate of the underlying Capex in the business. We do credit QIPT for now explicitly outlining its free cash flow; we further believe adj. EBITDA should also be adjusted to remove the depreciation on rental equipment from EBITDA, thus creating more alignment with the universe of cash-flowing companies, while also removing what is effectively a recurring cash charge given the short useful life of these assets.”
TSX-listed shares of the Cincinnati-based home medical equipment provider plummeted 14.4 per cent ater it reported an adjusted earnings per share loss for its second quarter of 3 US cents, below the expectations of Mr. Sarugaser and the Street of profits of 2 US cents and 1 US cents, respectively. Cash on hand slid to US$14.6-million from US$18.3-million in the previous quarter.
“We revise QIPT’s reported Adj. EBITDA for the amount of rental equipment depreciation in the respective period, which in turn drives a 2Q24 RJL Adj. EBITDA of $6.7-million (vs. QIPT reported Adj. EBITDA of $14.9-million),” said Mr. Sarugaser. “QIPT does not disclose rental equipment depreciation quarterly (only annually), so our deduction for the Q is an estimate. In addition, while QIPT’s new FCF disclosure now adjusts for the payments on any equipment loans used to finance equipment (QIPT’s interpretation of Capex), we believe the amount transferred from inventory is a better measure of Capex in this instance. This allows for the possibility that a portion of the inventory transfers are not financed, but rather paid for outright with cash (which we believe occurs in rare instances).”
After reducing his earnings expectations, Mr. Sarugaser dropped his target for Quipt shares to US$2.50 from US$10. The average is US$9.75.
Elsewhere, other analyst changes include:
* Eight Capital’s Ty Collin to $10 (Canadian) from $13 with a “buy” rating.
“QIPT reported Q2/F24 results on Wednesday evening,” said Mr. Collin. “Profitability remained solid, but organic growth slowed down from historical and target levels due to a change in Medicare support. Additional disclosures concerning the DOJ claims investigation, originally revealed last quarter, may have also contributed to the negative reaction in the stock [Thursday]. Management expects to return to 8-10-per-cent organic growth moving forward, but execution, along with more clarity around the ongoing investigation, will be critical to allaying investor concerns.”
* Stifel’s Justin Keywood to $9.50 from $10.50 with a “buy” rating.
“We see QIPT as offering important respiratory infrastructure services within healthcare that help keep patients out of the hospital or lead to early discharges, something that has become increasingly important. We expect a good organic growth rate to trend higher with increasing preference for at-home care, spurred by Telehealth and related innovation. QIPT is also seeking scale by rolling up smaller competitors with an aggressive, but disciplined, approach that includes an M&A playbook that works. We expect the combination of organic growth and M&A in an increasingly valuable home healthcare space to result in a positive re-rating in valuation and a higher share price,” said Mr. Keywood.
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In other analyst actions:
* Scotia’s Michael Doumet lowered his ATS Corp. (ATS-T) target to $54 from $61 with a “sector perform” rating, while Raymond James’ Michael Glen reduced his target to $60 from $65 with an “outperform” rating. The average on the Street is $64.43.
“ATS reset expectations for F25 — in a way, we believe, that clears a large part of the potential downside risk from Transportation,” he said. “The revised expectation for F25 suggests (i) lower sales, (ii) organic declines of more than 3.5 per cent (skewed to the 1H), and (iii) a 35-per-cent (of 45-per-cent) decline in Transportation, assuming more than 10 per cent (more than 15-per-cent) growth in the ‘other markets’.
“For a couple of quarters, it became apparent that EV sales would normalize following the revised capex intentions by OEMs. Those lowered expectations, we believe, have been largely absorbed by the shares’ valuation. At this point, the bull thesis is that expectations have been reset, valuation is reasonable, and that the overall mix has improved (away from Transportation). The bear argument is that the shares are not necessarily ‘cheap’ considering the apparent headwinds — i.e. potential high single-digit or double-digit organic declines in the near term. We are stuck between the two. We reduced our multiple to reflect lowered growth expectations but come away from the quarter/outlook more positive.”
* Mr. Doumet also cut his Dexterra Group Inc. (DXT-T) target to $6.50 from $7, below the $7.69 average, with a “sector perform” rating.
“[Workforce Accommodations, Forestry & Energy Services and Integrated Facility Management were relatively in-line with expectations in 1Q24 — however, MS [Modular Solutions], which was reported under ‘discontinued operations’ (and expected to be sold in 3Q), drove a much larger cash drag than expected. We made several (largely offsetting) adjustments to our estimates; wildfire activity is likely to be more robust than previously thought, but MS cash burn is running higher/longer-than-expected.
There is reason to be more optimistic when MS is sold. MS has not always been an issue, but in the last several quarters it has masked the otherwise favorable trends in the business, which include an organic re-acceleration and gradual margin expansion setup in IFM and strong commodity/infrastructure/wildfire activity at WAFES. Post the divestiture of MS, the company plans to ‘reassess’ its broader capital deployment plans. At that point, DXT’s EBITDA and FCF generation should be much more consistent/predictable. And while the dividend consumes a large portion of its FCF (i.e. more than 50 per cent), we see room for consistent allocation to M&A. DXT trades at 4.5 times EV/EBITDA on our 2024E, below its workforce accommodation peers at 6.0 times.”
* RBC’s Jimmy Shan cut his Automotive Properties REIT (APR.UN-T) target to $11.50, below the $11.94 average, from $12 with a “sector perform” rating.
“We are updating our estimates post Q1 results. Automotive Properties REIT reported another predictable in-line quarter with consistent SP NOI growth of 2.5 per cent, which we expect to continue through 2024. There was no acquisition activity and management commentary suggests we won’t see much until late into the year and into 2025. APR trades at 7.5-per-cent implied cap and 10.5 times 2024 estimated FFO, which is at a tighter-than-historical discount to peers,” said Mr. Shan.
* Canaccord Genuity’s Carey MacRury lowered his target for B2Gold Corp. (BTO-T) to $7 from $7.50 with a “buy” rating. The average is $5.69.
* National Bank’s Don DeMarco raised his targets for Calibre Mining Corp. (CXB-T) to $2.60 from $2.40 and Fortuna Silver Mines Inc. (FVI-T) to $9 from $7.75 with a “sector perform” recommendation for both. The averages are $2.69 and $6.74, respectively.
* Evercore ISI’s Michael Binetti raised his Canada Goose Holdings Inc. (GOOS-N, GOOS-T) target to US$13 from US$12 with an “in line” rating. Other changes include: Wells Fargo’s Ike Boruchow to $19 (Canadian) from $16 with an “equal-weight” rating and CIBC’s Mark Petrie to $21 from $20 with a “neutral” rating. The average is $19.
“While we like to see management admitting there are problems with the brand and initiating a strategy to fix them, we’d like to see some signs of progress before chasing the stock higher from here,” said Mr. Boruchow.
* RBC’s Nelson Ng bumped his Chemtrade Logistics Income Fund (CHE.UN-T) target to $12 from $11 with an “outperform” rating. The average is $12.56.
“Chemtrade posted strong Q1/24 results, and management is now guiding to the upper end of its 2024 guidance range. The operating segments are performing well and with a significantly stronger balance sheet relative to previous years, the Board has approved a 10-per-cent NCIB and the company is also considering strategic M&A opportunities, supplementing organic growth,” said Mr. Ng.
* JP Morgan’s Jeremy Tonet moved his Enbridge Inc. (ENB-T) target to $56 from $55 with an “overweight” rating. The average is $53.85.
* TD Cowen’s Jonathan Kelcher bumped his target for Extendicare Inc. (EXE-T) to $8 from $7.50 with a “hold” rating. The average is $8.17.
* Scotia’s Mario Saric raised his H&R REIT (HR.UN-T) target to $11.25 from $11 with a “sector perform” rating. The average is $11.13.
“Our view on H&R is steadily improving,” he said. “First, valuation looks cheap. HR is one of a few REITs with above-avg. spreads to 10-year, we estimate U.S. residential (33 per cent of Q1 NOI in CAD) is trading at an implied cap of 7.5 per cent. Second, we expect H&R to recover 2024E FFOPU erosion in 2025, positioning it as an attractive ‘earnings acceleration trade’ as we approach 2025; probably a bit too early for that now though. Third, there are clear and tangible catalysts, albeit timing is uncertain. The balance sheet should improve on recent dispositions In order of (catalyst) importance, we think improved investor U.S. Residential Sunbelt sentiment, the sale of Echo, and the sale of Toronto Office repositioning assets would notably move the unit price with investors getting an 6.2-per-cent yield while you wait it out (at 2024 estimated AFFO payout of 61 per cent). In addition to 5 per cent 2025 estimated year-over-year FFOPU growth, we think the above-three can result in 20 per cent plus multiple expansion, leading to a mid-20-per-cent NTM total return (with some upside).”
* CIBC’s Mark Jarvi raised his Northland Power Inc. (NPI-T) target to $30 from $29 with an “outperformer” rating. The average is $29.58.
* Scotia’s Robert Hope raised his Pembina Pipeline Corp. (PPL-T) target to $56 from $55 with a “sector outperform” rating. The average is $54.21.
“Pembina hosted a well-attended Investor Day in Toronto,” said Mr. Hope. “The presentations focused on (1) various levers to optimize the base business to generate incremental returns, (2) over $4-billion of projects under development that if sanctioned, could increase the visibility and duration of its growth profile, and (3) its strong financial outlook including an equity self-funding model. It appears that the sanctioning of the Cedar LNG project is weeks away, and as such, we now include the project in our model, which adds to our capital expenditures in 2024-2026. We increase our target $1/sh to reflect this project. The 2024-2026 financial outlook is largely in-line with our expectations. Our EBITDA estimates do not materially move, while our per-share cash flow estimates moderate slightly as we assume that Cedar supplants some near-term share buybacks.”
* RBC’s Pammi Bir raised his Sienna Senior Living Inc. (SIA-T) target to $16 from $14 with a “sector perform” rating. The average is $16.33.
“While results were boosted by significant one-time income, our outlook on SIA has improved. It may have taken provincial governments a while to get there (who said they move quickly?), but increases in operating funding have set the wheels in motion for stronger growth in LTC. The advances were partly tempered by a slight reduction of our outlook in the retirement portfolio. Big picture, we think the year-to-date rally reasonably captures an improving story,” said Mr. Bir.
* BMO’s Fadi Chamoun lowered his Westshore Terminals Investment Corp. (WTE-T) target to $26 with a “market perform” rating. The average is $26.13.
“We had a chance to discuss Q1/24 results and F2024 outlook with management,” he said. “The Q1/24 earnings miss appears largely a function of transitory factors, albeit core inflation of 4 per cent and operational constraints caused by the potash project drive a modest reduction to our forecast. Management noted that coal export demand is healthy and WTE remains on track to ship 25.5mt in F2024.”