Inside the Market’’s roundup of some of today’s key analyst actions
RBC Dominion Securities analyst Paul Treiber thinks it is increasingly unlikely Open Text Corp.’s (OTEX-Q, OTEX-T) valuation multiple will “materially” change in the near term, pointing to “likely continued quarterly variability and a high bar for future organic growth.”
That led him to downgrade the Waterloo, Ont.-based enterprise software vendor to a “sector perform” recommendation from “outperform” following a 11.1-per-cent drop in share price on Thursday.
“Our prior investment thesis assumed a valuation re-rating as OpenText stabilized Micro Focus, achieved positive organic growth and increased FCF,” said Mr. Treiber. “However, the 11-per-cent decline in OpenText’s shares today shows that the market is increasingly critical of gaps between actual and expected growth.”
“OpenText is trading at 8.1 times NTM P/E [next 12-month price-to-earnings], well below its 3-year pre-Micro Focus average of 13 times and peers at 37 times. The upside implied in our previous target was largely dependent on an assumed 40-per-cent valuation re-rating in OpenText’s valuation. However, we believe OpenText’s historical quarterly variability combined with a relatively high bar (e.g. 25-per-cent FY25 cloud booking growth, 2-4-per-cent FY27 organic growth aspirations) is likely to sustain the debate on the achievability of growth targets, weighing on valuation.”
Before the bell on Thursday, Open Text reported revenue of US$1.27-billion in its fiscal first quarter ended Sept. 30, down 11 per cent from US$1.43-billion in the same period a year earlier and below both the analyst’s US$1.297-billion estimate and the consensus forecast of US$1.292-billion. Adjusted earnings per share slid 8 per cent from its 2024 fiscal year to 93 US cents, exceeding expectations (84 US cents and 76 US cents, respectively).
“OpenText has a seasonal business; large license deals and cloud bookings have an impact on shortterm results. OpenText’s Q1 bookings and Q2 quarterly factors below consensus is a sign of the difficulty in predicting OpenText’s business in the short-term,” said Mr. Treiber. “While 2H/FY25 is likely to see stronger growth (per guidance), future quarterly variability beyond FY25 may continue and may restrain the valuation multiple.”
“Following Micro Focus, the possibility of large accretive acquisitions has declined, which has shifted OpenText to returning capital. OpenText’s 3-year growth aspirations (2-4-per-cent organic growth, 100 basis points margin expansion per annum), combined with 50 per cent of FCF deployed on share buybacks and the dividend (currently 3.5 per cent yield) imply low teens total return per annum. However, in light of the lower probability of an upwards re-rating in valuation, we believe a low teens total return, relative to potential volatility in the shares, is not sufficiently compelling compared to other companies in our coverage.”
Reducing his financial forecast for both fiscal 2025 and 2026, Mr. Treiber dropped his target for Open Text shares to US$33 from US$45. The average target on the Street is US$38.77, according to LSEG data.
“With leverage now 3.1 times net debt/EBITDA and the stock only trading at 8.1 times NTM P/E, consistently deploying excess FCF on buybacks and de-leveraging is likely to create shareholder value. Conversely, M&A (at valuations above OpenText) may constrain OpenText’s valuation multiple,” he concluded.
Elsewhere, other analysts making target adjustments include:
* BMO’s Thanos Moschopoulos to US$32 from US$33 with a “market perform” rating.
“We remain Market Perform on OTEX and have trimmed our target price following Q1/25 results — based on our view that better organic growth will be needed for the stock to work, and the potential risk we see to the implied growth re-acceleration that OTEX is guiding for in 2H/25,” he said. “Q1/25 results were light on revenue and a beat on EBITDA, while Q2/25 guidance was below consensus on revenue/EBITDA and management reiterated FY2025 guidance. We’ve made minor changes to our FY2025/26 EBITDA estimates.”
* Scotia Capital’s Kevin Krishnaratne to US$35 from US$40 with a “sector perform” rating.
“A slower ramp in cloud growth (more 2H/25 weighted) and a tough year-over-year comp in Q2 related to License (high level of grants of certain IP rights last year) have led us to reduce FY25 revenues towards the low end of outlook, reflecting slight declines year-over-year ex-AMC of 0.1 per cent (prior up 0.9 per cent),” he said. “Meanwhile, although Q1 saw a nice profit beat and strong adj. EBITDA margins (35 per cent) that are expected to be maintained in Q2, a step up in opex on typical seasonality (employee benefits etc.) pushes margins lower in 2H (we model 31 per cent). Positively, the demand environment seems stable, with Enterprise cloud bookings poised to accelerate from the 10-per-cent growth in Q1 (guide for year is 25 per cent) and SMB, which was a headwind last year, set to be a potential tailwind as related pressures subside. As it relates to the stock, despite the 10-per-cent sell off in shares off the print, we remain SP-rated given expectations that OTEX is shaping up to be more of a 2H story. We also view the valuation (7.4 times CY25 EV/EBITDA) as reasonable when considering the company’s leverage (3.1 times), muted organic growth, and lower adj. EBITDA margins relative to more scaled software peers.”
* TD Cowen’s Daniel Chan to US$38 from US$40 with a “buy” rating.
“Despite market skepticism on the company being able to achieve its F25 target, we’re maintaining our BUY rating following the share’s pullback [Thursday]. We estimate that the current share price reflects the low end of F25 guidance,” said Mr. Chan.
* Citi’s Steven Enders to US$33 from US$34 with a “neutral” rating.
“We remain cautious until we have confidence in more consistent execution and a return to sustainable year-over-year growth,” he said.
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Scotia Capital analyst Konark Gupta is “taking profits” from Bombardier Inc. (BBD.B-T), downgrading his rating for its shares to “sector perform” from “sector outperform” ahead of the release of its third-quarter results on Nov. 7.
“BBD has been executing well, and we see some upside risk to 2024 margin guidance, but we now have less conviction in 2025 guidance and are also being mindful that the stock has more than doubled since February,” he said.
In a note previewing earnings season for Canadian aerospace and defence companies, Mr. Gupta did “slightly” improved his free cash flow projection for Bombardier’s quarter to negative US$37-million, down $117-million year-over-year but up US$31-million from the second quarter.
“Recall that BBD was expecting continued FCF burn in Q3 due to further inventory build in order to support significant Q4 deliveries,” he said. “We have slightly increased our Q3 bizjet delivery and aftermarket sale assumptions, which brings us roughly in line with consensus on revenue and EBITDA. We expect order activity to remain strong, although the book:bill ratio (unit) could modestly increase from 1.0 times in Q2 due to a lower delivery base (30 in Q3 vs. 39 in Q2). As a reminder, a few bizjet deliveries were pulled forward into Q2 while Q3 deliveries are also usually impacted by summer holidays. At this time, we expect BBD to meet management’s full-year guidance for deliveries (150-155), revenue (US$8.4-US$8.6-billion) and FCF (US$100-US$400-million) although margins could rebound in 2H to potentially exceed full-year EBITDA guidance (US$1.3-US$1.35-billion).”
The analyst expressed caution for the company’s 2025 targets for EBITDA margin and FCF, which he thinks “imply significant incremental margin and working capital improvement in 2025 vs. 2024.”
Mr. Gupta maintained his $120 target for Bombardier shares, exceeding the average on the Street is $117.57.
He made these target changes:
- CAE Inc. (CAE-T, “sector perform”) to $30 from $29. The average is $28.67.
- MDA Space Ltd. (MDA-T, “sector outperform”) to $25 from $22. Average: $19.13.
“Within this group, we are growing even more bullish on MDA’s growth and FCF prospects heading into 2025, which causes us to further raise our target to $25 (was $22) while we maintain our SO rating,” he said. “There could be further upside risk to our MDA expectations over time. CAE is undoubtedly inexpensive, but we are growing more concerned about Civil segment outlook, expecting another potential guidance cut, which supports our current SP rating – though our CAE target has moved up slightly to $30 (was $29) on valuation roll-forward.”
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RBC Dominion Securities analyst Greg Pardy thinks Canadian Natural Resources Ltd. (CNQ-T) delivered “another seemingly flawless quarter punctuated by in-line production of 1.36 million boe/d (including approximately 498,000 bbl/d of premium SCO) and bottom line results which exceeded market expectations.”
“Our bullish stance towards CNQ reflects its strong leadership, shareholder alignment, abundant free cash flow generation, best-in-class operating performance and abundant shareholder returns,” he said.
Caught in the broader market selloff on Thursday, the Calgary-based company’s shares dipped 0.3 per cent despite its premarket release exceeding expectations both in financial and production terms.
“CNQ’s diversified portfolio affords a high degree of flexibility to shift capital towards its highest return drilling initiatives,” said Mr. Pardy. “Amid soft natural gas prices, the company is now targeting a total of 74 net natural gas wells in 2024 (17 fewer than targeted in the original 2024 budget), with an ongoing emphasis on multi-lateral heavy oil wells in the Clearwater and Mannville formations. In 2024, CNQ expects to consume about 38 per cent of its budgeted natural gas production within its oil sands et al. operations, with about 25 per cent to be sold at AECO/Station 2 pricing, and the remaining 37-per-cent balance targeted for export into other markets.
“Commensurate with announcement of the Chevron deal on October 7, CNQ updated its shareholder returns policy. This included raising its common share dividend by 7 per cent to an annualized rate of $2.25 per share (4.7-per-cent yield). The company also revised its net debt target to $12 billion (up from $10 billion), given the increase in its free cash flow generative power post transaction.”
Reaffirming CNRL as his favourite senior producer in Canada and its spot on both the firm’s “Global Energy Best Ideas” and “Top 30 Global Ideas” lists, Mr. Pardy raised his target for its shares by $1 to $63, keeping an “outperform” rating. The average is $55.82.
“At current levels and under our base outlook, CNQ is trading at a debt-adjusted cash flow multiple of 8.3 times in 2024 (vs. our global major peer group avg. of 6.0 times) and 7.6 times in 2025 (vs. peers at 6.1 times), and a free cash flow yield of 8 per cent in 2024 (vs. peers at 9 per cent) and 8 per cent in 2025 (vs. peers at 7 per cent),” he said. “In our minds, CNQ should command a premium relative valuation given its shareholder alignment, long life-low decline portfolio, robust operating performance, strong balance sheet, free cash flow generation and abundant shareholder returns.”
Other changes include:
* National Bank’s Travis Wood to $54 from $53 with a “sector perform” rating.
“Starting to feel like a broken record, but CNQ continues to showcase what a diverse and top-tier asset base, combined with outstanding execution and continuous improvement, can deliver,” he said. “The Oil Sands assets continue to drive the bus on efficiencies, with the company recently achieving a new monthly SCO production record of ~ 529 mbbl/d in August. This milestone was partially driven by the recent reliability enhancement project at Horizon in Q2/24 coupled with strong utilizations at Horizon and AOSP post-turnaround. Additionally, the reduced turnaround duration at the Scotford Upgrader this past quarter decreased the annual net production impact to AOSP by 5.6 mbbl/d, while debottlenecking projects completed during the recent turnaround will increase gross AOSP capacity by 8 mbbl/d (pro forma with Chevron’s 20-per-cent W.I., should increase CNQ’s net capacity by 7.2 mbbl/d). This outperformance is further aided by an agile capital program, with management actively reallocating capital as commodity prices evolve towards different parts of the portfolio (saw a move away from gassier assets towards heavy oil in the year).”
* Raymond James’ Michael Barth to $51 from $50 with a “market perform” rating.
“CNQ continues to make it look easy with 3Q24 results that were more of the same; the company reported a modest production beat and notable headline AFFO beat (although part of the AFFO beat was from lower cash taxes),” said Mr. Barth. “Valuation has become slightly more attractive since we launched in late-May, but we still see the stock trading at around fair value on strip pricing and maintain our Market Perform rating. Despite our Market Perform rating, we do note that CNQ is one of the lowest risk ways to gain oil factor exposure in Canada with low sustaining free cash flow breakevens, a multi-decade 2P reserve life, reasonable leverage (even after the pending CVX deal),and best-in-class capital allocation.”
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After a “nice” third-quarter beat, National Bank Financial analyst Jaeme Gloyn maintained Fairfax Financial Holdings Ltd. (FFH-T) as his top pick for 2024, citing its “solid” operating income outlook, valuation upside and potential index inclusion catalysts.
“Q3-24 results reaffirm our confidence in FFH’s ability to consistently deliver mid-teens (or better) ROE [return on equity] over the next several years,” he said.
On Thursday after the bell, the Toronto-based financial holding company reported diluted earnings per share of $42.62, exceeding both Mr. Gloyn’s $34.06 estimate and the consensus forecast of $34.06. He said the results translate to “impressive” annualized ROE of 17 per cent that drove a 5-per-cent quarter-over-quarter in book value per share to $1.033.
“In addition, adjusted operating income from the P&C Insurance business of $1,137-million increased 18 per cent year-over-year and beat our $755-million estimate,” he added. “FFH reported a combined ratio of 94% that easily beat the street at 98 per cent, and excluding catastrophes came in at an exceptional 87 per cent. Net investment gains (incl. realized and unrealized) of $1,287-million beat our $1,151-million forecast. Highlighting FFH’s somewhat positive bias to a lower rate environment as gains on fixed income assets exceeded losses on insurance liabilities.”
He emphasized Fairfax’s setup “remains strong for ongoing re-rate.”
“We believe the combination of 1) solid underwriting results with a combined ratio of 94 per cent vs. the street 98 per cent; 2) consolidated interest and dividend income that remains at a run rate of $2.4 billion; 3) outperformance from associates and consolidated investments; and 4) solid net investment performance supports our view Fairfax will deliver consistent profitability (ROE in the mid to high teens) over the next several years,” said Mr. Gloyn. “Moreover, FFH continues to hold $2 billion in cash at the holdco and $2.3-billion in excess capital at its insurance subsidiaries to deploy in ROE accretive transactions (e.g., buybacks or repurchase of minority interests in those insurance subsidiaries). We firmly believe FFH merits a higher valuation than the current trading multiple.”
That led him to raise his target for Fairfax shares to $2,400 from $2,200 with an “outperform” recommendation (unchanged). The average is $2,045.65.
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Stifel analyst Martin Landry is touting an “upbeat” outlook for Gildan Activewear Inc. (GIL-N, GIL-T) following “slightly” better-than-expected third-quarter results, seeing it gaining market share as “favourable” conditions in the clothing industry continue to emerge.
“The company narrowed its guidance, calling for 2024 EPS to reach $3.00 at the mid-point, up 17 per cent year-over-year,” he said. “Several industry developments could be favorable for Gildan in the coming years including (1) the exit of Fruit of The Loom from the U.S. printwear market in 2025, (2) the liquidation of the assets of Delta Apparel, creating a void which Gildan and its distributors could fill and (3) a new agreement with Authentic Brands Group to manufacture and distribute the Champion brand in the U.S. printwear market. These developments open-up opportunities for Gildan and improve our visibility and confidence in our 2025 forecasts.”
Before the bell on Thursday, the Montreal-based clothing manufacturer reported quarterly revenues came of US$891-million, up 2 per cent year-over-year and higher than both Mr. Landry’s estimate of US$887-million and consensus of US$883-million. Gross margin increased by 370 basis points year-over-year to 31.2 per cent, also higher than the analyst’s expectation (30.2 per cent) “and one of the highest levels in recent years,” benefitting from lower raw material and manufacturing costs. Adjusted earnings per share rose 15 per cent from the same period a year ago to 85 US cents, topping estimates by a penny.
“Gildan is gaining market share across all categories and channels, with Q3 2024 activewear sales up 6 per cent year-over-year, compared to the low to mid-single digits industry decline,” said Mr. Landry. “In Q3/24, Gildan’s POS trends were positive for basics apparel, ringspun apparel, and fleece. While new programs are contributing to Gildan’s topline growth, the company is also gaining market share driven by innovation. Gildan has introduced new products such as soft cotton, and new technologies to improve product quality and reduce costs.”
“Gildan expects continued market share gains and is confident in achieving its mid-single-digit revenue growth target for 2025, despite an outlook for printwear industry growth of flat to low-single digits. Management has good visibility on gross margin due to stable cotton prices and a stable pricing environment. Furthermore, the capacity needed to generate mid-single-digit revenue growth over the next year is already in place. Hence, with improved capacity utilization in Bangladesh, yarn optimization in United States, and ongoing innovation, margin expansion should continue in 2025 and beyond.”
After modestly raising his 2025 estimate by 3 per cent to US$3.49, primarily due to higher margin assumptions, and introducing his 2026 projection of US$3.92, which represents a 12-per-cent year-over-year gain, Mr. Landry hiked his target for Gildan shares to US$60 from US$54 with a “buy” rating, citing a result of increased visibility on 2025. The average is US$52.50.
“Gildan’s 2027 outlook calls for EPS growth in the mid-teens annually, which is higher than historical growth rate of 10 per cet in the last 10-years,” he said. “Our confidence in Gildan’s long-term plan has improved given recent trends and better visibility on future growth drivers. As a result, we believe that Gildan’s valuation could re-rate higher as investors are likely to assess higher valuation multiple due to the faster growth profile. At 14x forward earnings (PEG ratio below 1 times) we believe that Gildan’s shares do not properly reflect the company’s growth prospects.”
Other analysts’ target changes include:
* Citi’s Paul Lejuez to US$59 from US$54 with a “buy” rating.
“Despite a choppy macro environment, GIL is executing well, and is well positioned to benefit once the macro environment improves,” he said. “GIL is well positioned to continue taking market share across categories, which supports their +MSD [mid single-digits] sales growth outlook. At current levels, we view the risk/reward as attractive.”
* BMO’s Stephen MacLeod to US$58 from US$47 with an “outperform” rating.
“Gildan reported a Q3/24 beat, tightened 2024E guidance, and reiterated its three-year outlook. Management’s call commentary expressed confidence in Gildan’s ability to drive MSD growth against a weak market backdrop, considering competitive shifts in the activewear market (exits by Fruit of the Loom, Delta; acquired Champion license). 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 well-positioned to leverage its low-cost manufacturing position to aggressively pursue share gains, and see attractive risk-reward,” said Mr. MacLeod.
* National Bank’s Vishal Shreedhar to $74 from $68 with an “outperform” rating.
“We reiterate our view that reconstitution of GIL’s Board of Directors and reinstatement of Mr. Chamandy as CEO will represent a period of increased focus and execution,” he said. “Fundamentally, we believe GIL is well positioned to grow EPS in 2024+ given: (i) Revenue growth (new capacity, growth in market share, product/technology innovation, etc.) (ii) Improving costs (lower input costs, efficiency initiatives, etc.), and (iii) Ongoing share repurchases.”
* TD Cowen’s Brian Morrison to US$58 from US$56 with a “buy” rating.
“Gildan’s Q3/24 results and ongoing material cost optimization initiatives reinforce our confidence in the strength of its business model as the low-cost industry leader. This is producing tangible results including market share gains in key verticals, margin expansion, and strong FCF. We see these trends continuing over our forecast horizon supportive of a mid-teen annual EPS growth profile,” said Mr. Morrison.
* Canaccord Genuity’s Luke Hannan to US$53 from US$52 with a “buy” rating.
* CIBC’s Mark Petrie to US$56 from US$48 with an “outperformer” rating.
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In other analyst actions:
* Canaccord Genuity’s Dalton Baretto upgraded Champion Iron Ltd. (CIA-T) to “buy” from “hold” with a $6.25 target, up from $6. Other changes include: Scotia’s Orest Wowkodaw to $6.50 from $6.75 with a “sector perform” rating and TD’s Craig Hutchison to $7 from $8 with a “buy” rating. The average is $7.50.
“CIA missed consensus estimates on production, AISC, and EBITDA, and posted the worst FCF quarter in its history. That said, we note that the operating numbers were better than we had anticipated (we were the low on the Street), and we fully expect this to be CIA’s worst quarter on a go-forward basis. As such, and given directionally positive commentary on rail capacity and the likelihood of major Chinese stimulus next week, we believe the current share price offers investors a good opportunity to step into CIA stock. We are upgrading CIA,” said Mr. Baretto.
* National Bank’s Mike Parkin bumped his Agnico Eagle Mines Ltd. (AEM-T) target to $144 from $143 with an “outperform” rating. The average is $128.11.
“We remain Outperform rated on Agnico Eagle and expect continued strong operational results and good cost control driven by its regional focus and advantage of being the stated “employer of choice” in Ontario/Quebec, the home to the bulk of its production base,” said Mr. Parkin.
* National Bank’s Matt Kornack moved his Allied Properties REIT (AP.UN-T) target to $19.50 from $20 with a “sector perform” rating. Other changes include: Raymond James’ Brad Sturges to $20 from $21 with a “market perform” rating, Scotia’s Mario Saric to $21.75 from $22 with a “sector outperform” rating, RBC’s Pammi Bir to $19 from $18 with a “sector perform” rating and Desjardins Securities’ Lorne Kalmar to $20 from $21 with a “hold” rating. The average is $20.11.
“Allied’s Q3 results were in line with our call, yet fundamentals remain under pressure with organic growth taking a larger step back,” said Mr. Bir. “From our standpoint, a recovery should begin to take hold in 2025, albeit slow, as challenges in office fundamentals will likely persist amid a tepid economy. Some early progress is being made on the balance sheet, but frankly, this too will be a gradual repair process. In short, we think current levels reasonably capture the heavy work ahead.”
* RBC’s Greg Pardy raised his Athabasca Oil Corp. (ATH-T) target to $6 from $5.50 with a “sector perform” rating. The average is $6.30.
“Our constructive stance towards Athabasca reflects its solid operating performance, strong balance sheet and 100-per-cent payout of (thermal) free cash flow to shareholders,” said Mr. Pardy.
* CIBC’s Krista Friesen cut her Badger Infrastructure Solutions Ltd. (BDGI-T) target to $49, matching the average, from $50 with an “outperformer” rating. Other changes include: Raymond James’ Frederic Bastien to $46 from $50 with an “outperform” rating and Stifel’s Ian Gillies to $51 from $56 with a “buy” recommendation.
“At the risk of sounding facetious, you can now add Badger Infrastructure to the list of industrial stocks that are hitting an Air (Force One) Pocket this fall,” said Mr. Bastien. “BDGI’s 3Q24 results largely met consensus expectations yesterday, but uncertainty around the outcome of the US Presidential election is causing some of its key clients to hit the pause button on new projects. We are still bullish on the secular trends driving an infrastructure renaissance of sorts south of the border, but we knew all along the upward trajectory was not going to be linear. Accordingly, we see [Thursday’s] 11-per-cent price drop as one of those rare opportunities to buy the stock at a fraction of its intrinsic value. Outperform.”
* Raymond James’ Steve Hansen cut his Boyd Group Services Inc. (BYD-T) target to $295 from $325 with a “strong buy” rating. The average is $277.54.
“We are trimming our target price ... to reflect a more conservative view on 2H24 repairable claims activity, Boyd SSSG/margins and pace of assumed acquisition ... Recent industry data points have proven highly conflicting, with several metrics suggesting claims have already bottomed and a recovery is underway, while others suggest activity continues to deteriorate. At this juncture, we think it’s too difficult to make a clear call, although conversations with several MSO contacts tilt us toward the former (bottom is in). Either way, we think we’re close, and thus encourage investors to add to positions in Boyd Group at current levels,” said Mr. Hansen.
* RBC’s Greg Pardy trimmed his Cenovus Energy Inc. (CVE-T) target by $1 to $28 with an “outperform” rating, while BMO’s Randy Ollenberger cut his target to $28 from $31 with an “outperform” rating. The average is $31.67.
“Our constructive — but increasingly frustrated — stance towards Cenovus reflects its solid leadership team, strong balance sheet and impressive upstream operations. But we admit a touch of fatigue when it comes to the company’s chronically soft quarterly results this year, usually due to its US refining segment,” said Mr. Pardy.
* Jefferies’ Aria Samarzadeh raised his targets for CI Financial Corp. (CIX-T, “buy”) to $27 from $20 and IGM Financial Inc. (IGM-T, “hold”) to $45 from $39. The averages are $22 and $45.17, respectively.
* TD Cowen’s Daniel Chan reduced his target for Kinaxis Inc. (KXS-T) to $190 from $195 with a “buy” rating, while ATB Capital Markets’ Martin Toner raised his target to $215 from $205 with an “outperform” rating. The average is $193.07.
“We have lowered our 2025 SaaS growth forecast following the weak KPIs this quarter,” said Mr. Chan. “The company continues to execute well amidst a challenging macro and leadership changes do not seem to be having a negative impact on execution. The board continues to entertain inquiries about the company, but there have not been any material developments.”
* Canaccord Genuity’s Yuri Lynk raised his North American Construction Group Ltd. (NOA-T) target to $32 from $30 with a “buy” rating. Other changes include: National Bank’s Maxim Sytchev to $40 from $39 with an “outperform” rating. The average is $41.
“Our numerous conversations with investors heading into the quarter pointed to a fear of a wide range of (mostly negative) potential outcomes,” said Mr. Sytchev. “With better-than-expected Street numbers, a 20-per-cent dividend increase and an NCIB for 10 per cent of the public float, we believe the market will quickly warm up to the story. The level of skepticism has been demonstrated by lack of share price advancement when oil rallied while during any downdraft for the commodity, shares compressed concurrently. Over time, we should also assume that the oil correlation will get less pronounced given 25-per-cent earnings generation from the oil sands, compared to 55 per cent in Australian operations (i.e., met / thermal coal, gold, copper) and 10 per cent from U.S. infra. All in, this is a better, more diversified split, geared to a more commodity-friendly jurisdiction. Australian infrastructure market presents another completely untapped opportunity. At 3.5 times 2025E EV/EBITDA, in a world where some construction names have gone parabolic in Canada and the U.S., Q3/24 print should give comfort to patient value investors.”
* Canaccord Genuity’s Luke Hannan cut his target for Parkland Corp. (PKI-T) to $45 from $47 with a “buy” rating. Other changes include: ATB Capital Markets’ Nate Heywood to $46 from $49 with an “outperform” rating, Scotia’s Ben Isaacson to $52 from $60 with a “sector outperform” rating and CIBC’s Kevin Chiang to $48 from $50 with an “outperformer” rating. The average is $48.58.
“While the upside case for PKI hasn’t changed ($8.50/sh in ‘28 FCF = ~$85 stock in ‘28), the market is heavily discounting it based on another challenging quarter - this time on weak crack spreads and capture rates. Refinery weakness could drift into early ‘25, as could soft discretionary spending,” said Mr. Isaacson. “This means PKI financials could come in light next year, at least against the 6-per-cent CAGR required to grow ‘24 run-rate EBITDA of $2.0-billion to ‘28 run-rate of $2.5-billion. We’re going to meet PKI halfway between its 6-per-cent aspiration and its 2-per-cent TTM [trailing 12-month] reality. Our revised forecast for ‘25 EBITDA, using 4-per-cent growth, moves to $2.08-billion, down from $2.16-billion. At $32/sh, we believe the market is valuing PKI at about half of its $60 fair value potential, assuming ‘28 is achievable. This suggests to us the market has placed PKI in the value trap penalty box - at least until it sees several stable/predictable/boring quarters of gradual recovery and an eventual return to growth. Accordingly, we’ve shaved our target multiples to risk-adjust for these headwinds.”
* Raymond James’ Theo Genzebu move his Polaris Renewable Energy Inc. (PIF-T) target to $21 from $19 with a “strong buy” rating. The average is $22.92.
“We maintain our view of PIF as a top small-cap idea in our coverage based on a combination of heavily discounted valuation, strong returns on capital projects/M&A, and an attractive niche in Latin America,” he said. “As evidenced by the announced acquisition of the Punta Lima Wind Farm (”PL”) in Puerto Rico, management continues to find attractive assets that diversify their portfolio both in terms of geography and project type.”
* RBC’s Drew McReynolds lowered his Spin Master Corp. (TOY-T) target to $43 from $46 with an “outperform” rating. The average is $41.71.
“Given the challenged macro environment, compressed holiday season, lower in-game purchases within Digital Games and with Q4/24 being the first fourth quarter with M&D, we have trimmed our 2024E adjusted EBITDA estimate from $496-million to $469-million leaving room for upside should 2024 adjusted EBITDA guidance be met,” said Mr. McReynolds.
* RBC’s Michael Harvey raised his Tamarack Valley Energy Ltd. (TVE-T) target to $5 from $4.50 with an “outperform” rating. Other changes include: Acumen Capital’s Trevor Reynolds to $6 from $5.50 with a “buy” rating, National Bank’s Dan Payne to $7 from $6.75 with an “outperform” rating and CIBC’s Jamie Kubik to $5.75 from $5.50 with an “outperformer” rating. The average is $5.44.
“Tamarack released a drama-free Q3/24 which featured ahead-of- street expectations on both production and cash flow reflecting continued success in the Clearwater/Charlie Lake. The company will release its 2025 budget on December 4, 2024,” said Mr. Harvey.
* National Bank’s Jaeme Gloyn raised his TMX Group Ltd. (X-T) target to $48 from $44 with a “sector perform” rating. The average is $46.88.
“Overall this was another strong quarter with solid top line growth and operating leverage resulting in a beat on revenue and EPS,” said Mr. Gloyn. “The tone on the conference call was bullish as management continued to show confidence in the growth outlook. We believe this outlook is sufficient to uphold TMX’s premium valuation.”
* CIBC’s Dennis Fong lowered his Veren Inc. (VRN-T) target to $13 from $15 with an “outperformer” rating. Other changes include: BMO’s Jeremy McCrea to $11 from $14 with an “outperform” rating, RBC’s Michael Harvey to $10 from $12 with an “outperform” rating, ATB Capital Markets’ Amir Arif to $11 from $11.50 with an “outperform” rating, Raymond James’ Luke Davis to $12 from $13 with a “strong buy” rating, Scotia’s Jason Bouvier to $11 from $12 with a “sector outperform” rating and National Bank’s Travis Wood to $13 from $15.50 with an “outperform” rating. The average is $12.27.
“Through an attempt to reduce capital costs by testing various completion techniques across parts of the Montney, some of the company’s most recent well performance has been below expectations,” said Mr. Wood. “Consequently, the company has pivoted back to the legacy Single Point Entry (SPE) design. However, given the weaker than expected wells are on stream late in the year, our 2025 forecast has been revised lower, aligning with the bottom end of the newly provided corporate guidance. This weaker than expected 2025 outlook surprised the market and unfortunately follows a volatile fall, when in September Veren reduced Q3 expectations and narrowed its 2024 production outlook.
“Although today’s valuation is compelling, we expect investors will require several quarters of strong operational results prior to regaining confidence. Given the asset quality and what can be viewed as in-line performance across the base, we expect positive operational momentum is probable; however, this will take time to quantify as data becomes available.”