Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial analyst Vishal Shreedhar is taking a “positive view” on the first-quarter fiscal 2025 financial results from Empire Company Ltd. (EMP.A-T), touting “favourable sales growth as consumer trends gradually improve.”
“EMP noted a gradual improvement in market conditions; the sssg [same-store sales growth] gap between conventional and discount has narrowed. EMP gained market share in both formats. SSSG (excl. fuel) in Q2/F25 is expected to sequentially improve (NBF models 1.3 per cent),” he said. “A strategic focus: (i) scaling personalized offers within Scene+ (more than 15 million members; 55-per-cent spend from members vs. non-members), and (ii) rolling out Phase 2 (non-fresh in conventional and discount) of category planograms, amongst many other initiatives.
“EMP’s long-term annual EPS growth target of 8-11 per cent (NBF models 9 per cent year-over-year in F2025) is expected to be approximately 50 per cent driven by NCIB. H2/F25 gross margin rate should expand more modestly (tougher comparison base; NBF is up 10 basis points year-over-year). Our EPS estimates are slightly revised: F2025 goes to $3.00 from $3.02 and F2026 goes to $3.23 from $3.19.”
Shares of Stellarton, N.S.-based parent company of Sobeys surged 5.6 per cent on Thursday following the premarket release of its financial report, which included same-store sales growth, excluding fuel, of 1.0 per cent, down from 4.1 per cent but above Mr. Shreedhar’s 0.5-per-cent expectation. Powered by better-than-anticipated Food Retailing sales and a lower adjusted effective tax rate, diluted earnings per share came in at 90 cents, exceeding the 90-cent projection of the analyst and Street.
“Looking forward, we believe EMP has opportunity related to ongoing improvement initiatives and inexpensive valuation,” said Mr. Shreedhar. “That said, it has structural deficiencies versus peers including an elevated mix of lower growth conventional stores and less pharmacy exposure.
“We consider the value gap versus peers to be noteworthy; however, we believe the current gap will largely persist until EMP delivers similar growth versus peers.”
Reiterating a “sector perform” rating for Empire shares, he raised his target to $46 from $42, which is the current average on the Street according to LSEG data.
Elsewhere, other analysts making target adjustments include:
* Desjardins Securities’ Chris Li to $44 from $42 with a “buy” rating.
“1Q reflects early signs of improvement in consumer behaviour, aided by normalizing inflation and interest rates. While the recovery will be gradual and non-linear, stabilizing market conditions, continuing good margin management, cost containment and share buybacks should support 9-per-cent EPS growth this year (after two years of muted growth). This is a key catalyst for valuation improvement given EMP’s steep discount to peers. Near-term volatility is likely as macros remain uncertain. Patience is required,” said Mr. Li.
* TD Cowen’s Michael Van Aelst to $44 from $38 with a “hold” rating.
“Considering the low valuation, it was not surprising to see a 90 basis points/3-per-cent consensus SSS/EPS beat lift the shares 5.6 per cent,” he said. “We believe moderating ‘tonnage’ losses coupled with a 4-5-per-cent NCIB will lift EPS for the first time in three years, justifying a valuation bump, but are not convinced that consumer health can improve enough to achieve EMP’s 8-11-per-cent EPS growth target before F26,” said Mr. Van Aelst.
* RBC’s Irene Nattel to $42 from $41 with a “sector perform” rating.
“Q1/F25 results were a tick above forecast as consumer value-seeking behaviour stabilizes. EMP continues to execute on its strategy to maximize revenues in full-service despite broader consumer movement to discount banners/ channels, while growing its discount presence. In our view, normalizing inflation and consumer backdrop, cost control and ongoing share buyback should help underpin modest earnings recovery consistent with long-term annual aspiration 8-11 per cent. Nonetheless, we reiterate our view that Empire’s relative positioning is likely to sustain valuation discount to peers,” said Ms. Nattel.
* BMO’s Tamy Chen to $43 from $40 with a “market perform” rating.
“EMP’s SSS was a positive surprise, particularly as results of other Canadian retailers suggested an unchanged consumer. Perhaps FQ1/25 saw a bit of basket consolidation by the EMP shopper away from all competitors, which would have had a clear impact for EMP but maybe only at the margin for the other grocers,” she said.
* CIBC’s Mark Petrie to $47 from $40 with an “outperformer” rating.
“We believe Q1 results mark a positive step forward for Empire. In particular, same-store sales (SSS) growth implies the best ‘tonnage’ result since the early days of the pandemic. The trade-down headwind is not over, but EMP’s efforts to offset it are working, and it is moving toward more stable growth,” he said.
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Following the Transat AT Inc.’s (TRZ-T) release of weaker-than-expected third-quarter results on Thursday, Desjardins Securities analyst Benoit Poirier said he prefers to “remain on the sidelines while awaiting additional deleveraging as well as the execution of the strategic plan.”
“Overall, we view the results as negative given the weaker-than-expected profitability and cash flow, as well as the soft yield (down 9.7 per cent year-over-year) and load factor dynamics (86 per cent vs 89 per cent last year),” he said. “While we are pleased that management is taking direct action with the launch of its new Elevation Program, in view of the urgency of the comments on the call and our forecast lack of upcoming FCF, we now believe further shareholder dilution through some form of near-term capital raise is increasingly likely/needed.”
Shares of the Montreal-based travel company plummeted 7.7 per cent after it reported revenue and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $736-million and $41-million, respectively, for the quarter. Both missed both Mr. Poirier’s estimates ($748-million and $43-million, respectively) and the consensus projections on the Street ($754-million and $53-million). Free cash flow fell to negative $169-million from negative $52-million in the same period a year ago and also fell short of expectations (negative $73-million and negative $72-million, respectively).
Facing a series of obstacles, including lower airline unit revenues, competition, industry-wide overcapacity and macroeconomic uncertainty, Transat launched its Elevation Program, which targets a $100-million improvement in EBITDA over the next 18 months.
“A comprehensive review of operations/practices was conducted over the summer in partnership with a consulting firm,” said Mr. Poirier. “Examples of the resulting initiatives include improving capabilities through technology and AI, reducing spend through pricing and contract optimization, and increasing utilization. Given the nature of the announced actions, we believe that most of the cost savings will be backend-weighted in terms of the timeline (FY26).”
“Management stated on the call that it has been in discussions over the last few weeks with governments on a more frequent basis (to try and help with the over-levered balance sheet). We now forecast that TRZ will end the year with leverage of 13.6 times based on our revised estimates, and that the company gets some relief from financial compensation (US$25-million from Pratt & Whitney), monetization of engine assets, a stronger Canadian dollar and a lower jet fuel price.”
Following adjustments to his projections in response to the results, Mr. Poirier trimmed his target for Transat shares to $2 from $3, reiterating a “hold” rating. The average is $1.95.
Other analysts making target adjustments include:
* National Bank’s Cameron Doerksen to $1.50 from $2.25 with an “underperform” rating.
“Transat faces some near-term challenges on yields as well as additional costs related to engine-related groundings that keep us cautious on earnings in the coming quarters (although lower fuel prices will be a relief),” said Mr. Doerksen. “We also remain wary on the stock pending an expected comprehensive refinancing plan that could have negative implications for equity holders.”
* TD Cowen’s Tim James to $2 from $3 with a “hold” rating.
“It appears that competition across all regions, slowing air travel demand growth, and inefficiencies from the P&W engine issues will continue to limit margin and earnings growth through the end of the current fiscal year and into 2025,” said Mr. James.
* Scotia’s Konark Gupta to $1.50 from $2.25 with an “sector underperform” rating.
“TRZ posted another miss vs. Street as yield pressures continued while fleet challenges persisted. However, it noted leisure demand remains healthy as consumers are becoming more price sensitive amid overcapacity. Capacity guidance for F2024 was further trimmed due to aircraft issues, while TRZ is planning for a relatively moderate capacity growth in F2025, which should support yields next year. More importantly, management announced a new initiative to boost margins over the next 18 months, along with plans to monetize some engine assets in the short term. We have reduced our forward estimates, while raising our FQ4 forecasts due entirely to the Pratt & Whitney compensation. TRZ’s leverage ratio is increasing faster than expected, which along with our reduced EBITDA outlook drives our target down,” said Mr. Gupta.
* CIBC’s Kevin Chiang to $1.75 from $2.30 with an “underperformer” rating.
“TRZ’s FQ3 results were weak, but there are signs of improving momentum exiting F2024. Nonetheless, we maintain our cautious stance on TRZ. Its elevated debt level and more volatile earnings stream keep us on the sidelines,” said Mr. Chiang.
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Seeing its turnaround “in full stride,” RBC Dominion Securities analyst Greg Pardy thinks Suncor Energy Inc. (SU-T) is “well positioned to demonstrate ongoing operating/financial momentum.”
Following presentations to RBC’s Capital Markets’ Sales & Trading team with chief executive officer Rich Kruger, Mr. Pardy reaffirmed the Calgary-based company as his favourite integrated in Canada and its spot on the firm’s “Global Energy Best Ideas” list.
“Suncor remains highly committed to delivering superior performance with a renewed focus on the fundamentals of safety, operational integrity, reliability and profitability,” the analyst said. “The company has clarified and simplified its corporate objectives across its personnel of some 15,300 people.”
“After his arrival in 2023, Rich Kruger wasted no time in reshaping the company’s executive leadership team and reducing Suncor’s headcount by approximately 1,800 above-field personnel (22 per cent). This action yielded the company about $450 million of annual savings, enhanced its efficiency/execution and was completed ahead of schedule in November 2023.”
Also touting its bitumen supply optionality, mine improvement plan at Fort Hills and de-bottlenecking initiatives at Firebag, Mr. Pardy maintained an “outperform” recommendation and $67 target for Suncor shares. The current average is $61.27.
“At current levels under futures pricing, Suncor is trading at a 2024 debt-adjusted cash flow multiple of 5.0 times (vs. our global major peer group avg. of 6.1 times) and a free cash flow yield of 10 per cent (vs. our peer group avg. of 7 per cent),” he said. “We believe the company should trade at an average multiple vis-à-vis our global major peer group given its robust execution, physical upstream-downstream integration, free cash flow generation, solid balance sheet and rising shareholder returns, somewhat counterbalanced by the need to address its Base Mine depletion down the road.”
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TD Cowen analyst John Mould downgraded Altius Renewable Royalties Corp. (ARR-T), expecting Northampton Capital Partners’ offer to purchase all shares not owned by parent Altius Minerals Corp. (ALS-T) to proceed.
“We believe investors should tender to the offer (equates to approximately 1.0 times our NAV), and so we are lowering our recommendation to SELL from Buy,” he said.
On Thursday before the bell, Altius Renewable announced the agreement for $12 per share in cash. Altius Minerals owns 58 per cent of the outstanding shares on an undiluted basis.
“Although the offer is below our previous $13.00 target price (based on 1.1 times our estimated NAV), we view the offer to be reasonable at 1.0 TIMES our NAV estimate, while a sale unlocks shareholder value earlier than what our previous 12-month target price would imply,” said Mr. Mould.
“We do not expect a higher bid. ARR’s special committee received a formal valuation. concluding that the fair market value of ARR’s shares is in the range of $10.50-12.50/share. ARR did not state whether a formal sale process was conducted (implying one was not), but that the committee assessed the relative benefits and risks of various alternatives to the transaction. We believe that ARR’s active search for new potential sources of longterm capital over a number of months likely provided price discovery regarding other potential financing options and led the independent committee to conclude this transaction
that provided both the best value for minority shareholders and a partner in Northampton, which is aligned with ARR’s growth ambitions.”
His target dropped by $1 to reflect the deal. The current average is $12.07.
Elsewhere, Raymond James’ Brian MacArthur increased his Altius Minerals target to $26.50 from $25 with an “outperform” rating. The average is $25.93.
“The consideration represents a 28-per-cent premium to the closing price of the ARR Shares on the TSX on September 4, 2024 (being the date before the announced unusual trading activity took place in ARR’s shares) and a 29-per-cent premium to the 20-day volume VWAP of the ARR Shares on the TSX on September 4, 2024,” said Mr. MacArthur. “ALS has entered into a voting support agreement to vote its shares in favour of the transaction, subject to certain customary exceptions. Following completion of the transaction, which is expected to occur in Q4/2024, ARR expects to be delisted from the TSX and cease to be a reporting issuer, and upon closing will be held by ALS and Northampton on an approximately 57-43-per-cent respective ownership basis. The transaction does not impact ARR’s underlying 50-per-cent joint venture interest in Great Bay Renewables.”
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Ahead of the Sept. 25 release of its third-quarter results, Desjardins Securities analyst Gary Ho sees an “improving sequential retail flows trend” for AGF Management Ltd. (AGF.B-T).
The analyst is currently projecting earnings per share for the quarter of 36 cents, matching the consensus forecast on the Street and up 2 cents from the same period a year ago.
“Industry trends (per IFIC) have improved every month following the softness in April, with July long-term fund net sales hitting $5.2-billion (August data not yet available),” he said.” 2024 net outflows of $1.5-billion year-to-date are much improved vs $26.4-billion over the same period in 2023. Given better industry stats, we lowered our net outflows estimate to $83-million (vs $200-million previously). AGF’s August retail AUM [assets under management] of $28.1-billion also exceeded our prior estimate of $26.9-billion.
“SG&A expense of $58.7-million for 3Q. With better fund performance and gross sales momentum turning (positive for future net inflows), we would not be surprised to see some upward pressure on SG&A. Thus, we have upped our FY24 estimate to $230.4-million (from $229.0-million) vs guidance of $227-million.”
While he raised his full-year 2024 and 2025 earnings expectations and introduced his 2026 forecast, Mr. Ho reiterated a “buy” rating and $12 target for AGF shares. The average is $11.13.
“We foresee a few near- or medium-term positive catalysts: (1) retail net flows trending at or above industry; (2) redeployment of capital for organic growth, to seed new private alt strategies and for share buybacks; (3) growth in fees/earnings from its private alt platform; and (4) M&A should be EPS-accretive,” he concluded.
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In other analyst actions:
* Jefferies’ Matthew Murphy raised his targets for Alamos Gold Inc. (AGI-N, AGI-T) to US$23 from US$21 and Barrick Gold Corp. (GOLD-N, ABX-T) to US$24 from US$23 with a “buy” rating for both. The averages are $29.94 (Canadian) and US$23.45.
* Mr. Murphy reduced his Pan American Silver Corp. (PAAS-N, PAAS-T) target to US$21 from US$22 with a “hold” rating. The average is US$27.12.
* Seeing it “built for growth,” BMO’s Stephen MacLeod increased his target for Colliers International Group Inc. (CIGI-Q, CIGI-T) by $1 to US$164 with an “outperform” rating. The average is US$153.50.
“We hosted CEO Jay Hennick, CFO Christian Mayer & CEO of Real Estate Services Chris McLernon for investor meetings,” he said. “The tone of the meetings reflected strong confidence in Colliers’ long-term growth outlook across all of its businesses, as well as management’s keen focus on shareholder value creation. Near-term, recurring services continue to provide stability, while Capital Markets activity recovers with rate cuts. We see value in the stock (12.1 times 2025 estimated EV/EBITDA; SOTP valuation pushes $149-180+) and believe Colliers will continue to be a multi-year compounder of shareholder value.”
* Mr. MacLeod also raised his Transcontinental Inc. (TCL.A-T) target to $18 from $16.50, keeping a “market perform” rating.
“We maintain our Market Perform rating, reflecting modest forecast earnings growth, but have modestly increased our estimates and target,” he said. “Q3/24 adj. EBITDA increased in Packaging (in line) and in Retail Services & Printing (above forecast on cost savings). Reiterated 2024E outlook for higher y/y adj. EBITDA (Packaging higher, RS&P flat). Two-year cost savings program continues to progress, but underlying growth remains modest. We see opportunity for a valuation re-rating over time, but Transcontinental’s tilt towards growth would need to be accompanied by sustained ROIC improvement, all else equal.”
* Stifel’s Martin Landry lowered his Guru Organic Energy Corp. (GURU-T) target to $2.50 from $2.75 with a “buy” rating. The average is $4.13.
“The slower economic growth in Canada has trickled into the energy drink industry, for which retail sales in measured channels increased by 6.8 per cent year-over-year, for the 12 weeks ended July 30th,” said Mr. Landry. “This represents the lowest growth since the pandemic. The industry slowdown, combined with the entrance of Celsius, made for challenging conditions during the quarter. Similar to Monster, GURU lost market share during Q3FY24 with retail sales down 1 per cent year-over-year (all channels in Canada). Hence, GURU reported disappointing Q3FY24 revenues, down 11 per cent year-over-year and reaching $7.9 million, lower than our expectations of $9.2 million. Strong gross margins expansion combined with a decline in OPEX resulted in an EBITDA loss that was better than expected. We have reduced our revenue forecasts to reflect slower industry growth, which translates into a reduction of our target.”
* Canaccord Genuity’s Robert Young cut his target for Haivision Systems Inc. (HAI-T) to $7 from $8.50 with a “buy” recommendation. The average is $7.28.
“Haivision reported FQ3 results that missed expectations and reduced F2024 guidance as a result of large program delays and a shift in business model away from hardware reselling,” said Mr. Young. “EBITDA margin guidance was left unchanged. Management remains confident on demand, particularly in government/military and sees a return to growth in F25 and continuing into F26. We expect some volatility as Haivision introduces a rental revenue model and as it shifts third-party, low margin, hardware to channel partners to allow the company to focus on its proprietary hardware and software. We expect this shift to ultimately be beneficial while recognizing the near-term impact on the top line. We have revised our estimates to reflect updated guidance for F2024 and have moderated our expectations for F2025. As a result, our target falls.”
* Canaccord Genuity’s Carey MacRury raised his Kinross Gold Corp. (K-T) target by 50 cents to $16.50 with a “buy” rating. The average is $15.30.
“We reiterate our BUY rating and increase our target price ... on Kinross following the release of the Great Bear PEA,” said Mr. MacRury. “We believe the PEA results confirm the Tier 1 potential of Great Bear with more than 500koz at an AISC of less than $1,000/oz for an asset in a top-tier mining jurisdiction. We also note this is an initial point-in-time mine plan; we expect more ounces to be added to the mine plan as drilling gets underway underground. Kinross remains one of our top picks among the senior gold producers.”
* Raymond James’ Michael Glen raised his Savaria Corp. (SIS-T) target to $27.50 from $25 with an “outperform” recommendation. The average is $24.75.
“We had an opportunity to speak with Sebastien Bourassa, President and Chief Executive Officer of Savaria, for a general business update and gather some additional insights into ongoing progress with the Savaria One (S1) transformation program. Coming out of the call, we are making modest positive revisions to our 3QF24 and F2025 estimates in the Accessibility segment. We are also moving our valuation forward to F2025/F2026 to start reflecting what the business and operations will look like exiting the S1 program next year. With that, we are increasing our price target,” said Mr. Glen.
“Within our coverage, Savaria currently represents one of the best improving ROIC trends over our forecast period. ... We have seen Savaria’s ROIC move notably higher in 1H24 and we expect continued improvements on this figure, which many investors view as a critical screening metric. It is becoming quite clear that the ongoing benefits stemming from the S1 transformation program are outpacing expectations, and we would expect positive updates on progress and gains to continue well through 2025.”
* Ventum Capital Markets’ Stefan Quenneville reduced his Sernova Corp. (SVA-T) target to $2.50 from $3 with a “buy” rating, while Leede Financial’s Doug Loe cut his target to $1.50 from $3 with a “speculative buy” recommendation. The average is $2.76.
“We consider Sernova’s Phase I Cell Pouch update to be positive to the device’s medical prospects, with new biochemical/cellular data showing that islets and all of their cellular sub-components can survive within the device post-implantation for at least five years,” said Mr. Loe. “This is a duration that we consider to be far beyond the time duration at which we believe could be characterized as curative of disease. Encouragingly, all six patients initially enrolled in the first cohort of the study were able to achieve insulin independence and to experience stable blood levels of glycosylated hemoglobin in all cases.
“That said, we do consider the Phase I update to be more confirmatory of prior observations in this and other trials than it is revolutionary in its revelations. We have long been resolute in our view that Cell Pouch itself has virtually all of the characteristics that we deem necessary to support regenerative medicine therapies deployed within it (extensive vascularization post-implantation, with minimal to no detectable invasion of fibrotic tissue over time). We consider the firm’s commentary on the need for Cell Pouch patients to be constitutively supported by immunosuppressive therapy to be a key factor to be resolved in the evolution of regenerative medicine, but we do not consider the need for such therapy to be relevant to Cell Pouch function itself, and other approaches to mitigating immunosuppressive burden are in development.”