A survey of North American equities heading in both directions
On the rise
Shares of Precision Drilling Corp. (PD-T) jumped 5.3 per cent on Tuesday after reporting fourth-quarter 2023 financial results before the bell that topped the Street’s expectations.
The Calgary-based company said EBITDA came in at $157.2-million, exceeding the consensus forecast by 4 per cent ($151.8-million) due to stronger-than-expected rig activity on both side of the border and gains in Canadian margins. Adjusted earnings per share of $3.99 blew past the $2.69 expectation.
Precision also said it will continue to focus on deleveraging and share buybacks in 2024, increasing its long-term debt reduction target to $600-million between 2022 and 2026 from its previous goal of $500-million from 2022 to 2025. It will allocate 25-35 per cent of free cash flow before debt repayments to share repurchases.
The company’s drilling rig utilization days in Canada for the quarter were down 2.5 per cent compared with a year ago, while its U.S. operations saw a 24.5 per cent drop. International drilling rig utilization days were up 25.5 per cent compared with last year.
Precision Drilling says its service rig operating hours for the quarter were up 14.8 per cent from a year ago.
In a research note, ATB Capital Markets analyst Waqar Syed said: “We view PD’s results positively. PD is very well positioned for the Canadian secular growth angle and improving its international presence. However, we await guidance on U.S. activity where per its website activity is at 37 rigs, well below expectations and sharply lower quarter-over-quarter.”
Coveo Solutions Inc. (CVO-T), a Quebec-based enterprise software firm, surged over 16 per cent following the late Monday release of better-than-expected third-quarter 2024 financial results and an increase to its full-year guidance, driven by “strong early interest” in its generative artificial intelligence platform.
Revenue came in at $31.8-million, up 11 per cent year-over-year and above both the company’s guidance of $30.9-$31.4-million and the Street’s expectation of $31.3-million with software-as-a-service subscription revenue jumping 13 per cent. An adjusted EBITDA loss of $0.7-million was also better than anticipated (a loss of $1.9-million).
Coveo now expects fiscal 2024 revenue of $125-$126.1-million, up from $124.5-$125.5-million, and an SaaS subscription revenue of $118-$118.5-million, up from $117-118-million. Its operating loss assumption is now $7.5-$8.5-million, shrinking from $9.5-$10.5-million.
“Coveo reported Q3/F24 results which were ahead of the Street’s and our expectations both on the top and bottom lines. Q4/F24 total revenue, SaaS revenue and adj. operating loss guidance were all above expectations, which flowed into an increase in the annual guidance,” said Eight Capital analyst Adhir Kadve. “While the macro continues to present some uncertainty, RGA and the SAP channel continue to be offsetting factors and drive strength. To that end, the two initiatives drove the strongest overall bookings quarter and the strongest new logo bookings quarter since F22. The strength in bookings was in-line with management expectations communicated throughout this fiscal year and represents strong early evidence, which should lead to a reacceleration of growth in F25 and thus validate management’s execution on its two key initiatives (RGA and the SAP channel) and thus our broader thesis on the name.”
Mainstreet Equity Corp. (MEQ-T) gained 2.5 per cent with the premarket release of better-than-anticipated first-quarter 2024 financial results, seeing funds from operations rise 23 per cent year-over-year due to lower vacancy rates and higher rents.
The Calgary-based company, which owns a diversified portfolio of multifamily residential properties in six Western Canadian markets, reported revenue of $58.3-million, rising 19 per cent year-over-year, and net operating income of $37-million, a gain of 23 per cent.
“We believe the Q1 results are positive for MEQ with the improvement in vacancy rates and average rent delivering strong financial results,” said Acumen Capital analyst Jim Byrne. “The company continues to deliver on its growth strategy and with over $400-million in liquidity, we believe the runway for value generation remains long.”
TMX Group Ltd. (X-T) was up 1.7 per cent after it reported a fourth-quarter profit attributable to equity holders of $84.4-million as its revenue rose nine per cent compared with a year earlier.
The operator of the Toronto Stock Exchange says the profit amounted to 31 cents per diluted share for the quarter ended Dec. 31 compared with a profit of $102.2-million or 37 cents per diluted share a year earlier.
Revenue totalled $301.5-million, up from $275.7-million in the same quarter a year earlier.
TMX Group chief financial officer David Arnold says the revenue growth in the quarter was driven by increases across all of the company’s key business areas.
On an adjusted basis, TMX Group says it earned 37 cents per diluted share, up from an adjusted profit of 35 cents per share in the fourth quarter of 2022.
Last month, TMX Group announced that it had closed its deal to buy the stake in VettaFi Holdings LLC that it did not already own. U.S.-based VettaFi provides indexing, digital distribution and analytic services to the financial services industry.
BP PLC (BP-N) posted forecast-beating earnings of US$3-billion for the fourth quarter and boosted share repurchases as its recently appointed CEO vowed to make pragmatic investments in an effort to allay investor concern over its energy transition strategy.
The company’s U.S.-listed shares rose 6.3 per cent on Tuesday following the unexpected acceleration of the buyback program.
The quarterly results, lifted by strong gas trading, took the energy giant’s 2023 profit to US$13.8-billion, although that was half that of a year earlier as oil and gas prices cooled and refining profit margins weakened.
The earnings come as a relief to CEO Murray Auchincloss after the company substantially missed forecasts in the previous two quarters.
Mr. Auchincloss became permanent CEO in January after being named interim CEO on Sept. 12 when Bernard Looney abruptly stepped down for failing to fully disclose details of past personal relationships with colleagues.
Mr. Auchincloss told Reuters that BP remains committed to its strategy to reduce oil production by 25 per cent from 2019 levels by 2030 to 2 million barrels per day while growing its renewables and low-carbon businesses by the end of the decade.
But at the same time he said BP could grow its oil output beyond its 3-per-cent target for 2022 to 2027, depending on returns, in a nod to investors concerned that the British company’s energy transition will destroy value.
BP’s shares have underperformed rivals in recent months amid the concerns over its strategy and the leadership upheaval.
The company said it was committed to repurchasing US$3.5-billion of shares in the first half of 2024 and expects to purchase US$14-billion over 2024-2025.
“BP delivers what investors were asking for: higher distributions and more visibility,” Jefferies analyst Giacomo Romeo said in a note.
DuPont de Nemours (DD-N) beat Wall Street estimates for fourth-quarter profit on Tuesday and announced a new US$1-billion stock repurchase program, sending its shares surging 7.4 per cent.
Shares of the company were on track to notching their highest single-day rise since June, if gains hold.
Chemicals firms have been battling persistent destocking trends, with excess inventory tugging at their top-line results as weak demand in key regions such as China and the UK plague sales and volumes.
DuPont said it sees demand stabilization in its semiconductor technologies and interconnect solutions business and expects a “broad-based electronics materials recovery in 2024.”
Its adjusted profit was 87 US cents per share for the three months ended Dec. 31, compared with analysts’ average estimate of 85 US cents per share, according to LSEG data.
The specialty-chemicals maker, whose products are used by consumer electronics firms and packaging companies, had flagged concerns in January about additional destocking trends in the industrial business segment weighing on its first-quarter results.
“I think we got hit a little harder than we were expecting in the fourth quarter,” CFO Lori Koch said in reply to a question about inventory dynamics during an earnings call.
However, the trend is expected to abate in the second half of 2024 when the company expects to report year-over-year growth in sales and earnings, helped by improvement in the electronics segment and normalizing customer inventory levels.
DuPont also said it will take steps to reduce costs in the first quarter.
Palantir Technologies (PLTR-N) shares surged over 30 per cent on Tuesday, as the data and analytics company’s strong fourth-quarter revenue growth led by increased demand for its AI offerings enthused investors.
Revenue from Palantir’s commercial segment rose 32 per cent year-over-year to US$284-million in the reported quarter, helping the company post US$608-million in overall revenue which beat LSEG estimates.
The company’s AI growth offset slowdown at its government segment, which contributed more than half of total quarterly revenue, impacted by uncertainty over timing of contracts.
Palantir CEO Alex Karp called the AI program, which was launched in April last year, the “future” of the company, expecting growth in the United States.
Jefferies upgraded Palantir’s shares to “hold” from “underperform,” reversing its rating in just a month saying “we are impressed with AI Platform (AIP) ramping faster than our initial expectation.”
Palantir also introduced an adjusted free cash flow forecast, targeting between $800 million and $1 billion in 2024, which Jefferies called the “highlight” of the report.
Nvidia (NVDA-Q), a poster child of the AI frenzy that closed at a record level on Monday, was lower on Tuesday.
Despite the strong forecast, analysts expressed concerns about the Palantir stock’s lofty valuation, which nearly doubled over the past 12 months.
“Despite our bullish, above-consensus growth and profitability assumptions, we are unable to rationalize Palantir’s current valuation,” said Morningstar analyst Malik Ahmed Khan.
Palantir’s median price-to-earnings (PE) ratio is 53.19, well above the industry median at 17.60, according to LSEG data. A lower PE multiple indicates an attractive investment opportunity.
Wall Street overall remains on the sidelines with an average rating of 17 brokerages covering stock at “hold” and median price target of US$18.50, predicting a 6-per-cent drop in shares in the next 12 months from its last premarket price of US$19.80.
Spotify (SPOT-N) on Tuesday reported fourth-quarter monthly active users and subscribers ahead of expectations as it grew in all regions, and said revenue and profitability trends looked favourable this year, sending its shares up 3.7 per cent
The Swedish music streaming company has ventured into podcasts and audiobooks as it seeks to grow its user base to 1 billion by 2030. It has also raised prices for its subscribers and laid off thousands of employees to boost profits.
The number of monthly active users rose by 23 per cent to 602 million in the fourth quarter, beating Spotify’s guidance and analysts’ forecasts of 601.33 million.
Premium subscribers, who account for most of the company’s revenue, rose by 15 per cent to 236 million, topping estimates of 235.1 million, according to IBES data from LSEG.
However, quarterly revenue, which rose 16 per cent to 3.67 billion euros (US$3.94-billion), missed estimates of 3.72 billion as it took a hit from foreign exchange losses. Its first-quarter revenue is also expected to fall below expectations.
“We have plenty of levers to pull, including price increases, so you will see us work with all of these levers at various times and in various markets,” CEO Daniel Ek said in an interview.
“We are now a lot more focused on the bottom line as well.”
Spotify has also been investing heavily in its podcast business, including signing hosts with big followers such as Joe Rogan, and podcast advertising grew by double digits in the quarter.
The company expects current-quarter premium subscribers to reach 239 million, above estimates of 238.3 million.
However, the first-quarter forecast was below Wall Street expectations for total users and revenue.
Spotify’s monthly user forecast for the quarter of 618 million undershot estimates of 618.8 million. It expects operating income of 180 million euros in the current quarter after posted a fourth-quarter operating loss of 75 million euros
Spirit AeroSystems Holdings Inc. (SPR-N) held off providing a forecast for 2024 on Tuesday, citing uncertainty on the timing of 737 MAX production increases at Boeing (BA-N) and ongoing price negotiations with Airbus that will focus on the A220 program.
The move follows a similar announcement from Boeing last week on its 2024 forecast and comes as the companies face scrutiny from investors, regulators and lawmakers following the mid-air blowout on a 737 MAX 9 aircraft last month.
“The quality and safety of the products we produce is paramount above all,” Interim CEO Patrick Shanahan said in a statement.
Spirit made the fuselage for the aircraft in question.
There were no serious injuries, but the accident prompted the U.S. Federal Aviation Administration (FAA) to bar Boeing, Spirit’s biggest customer, from lifting production of 737 MAX.
The U.S. National Transportation Safety Board will release its preliminary report on the accident on Tuesday.
For the quarter, Spirit reported a free cash flow of US$42-million due to a US$100-million funding received from Boeing, but that fell short of analysts’ expectation of US$122.35-million, as per LSEG data.
Wichita, Kansas-based Spirit reported an adjusted profit per share of 48 US cents for the quarter, compared with expectations of 87 US cents.
Revenue rose 37 per cent to US$1.81-billion, beating expectations of US$1.74-billion due to higher parts deliveries on both Boeing and Airbus commercial jet programs.
The company’s shares reversed course to rise. They have fallen about 16 per cent since the mid-air blowout in early January.
On the decline
U.S.-listed shares of UBS Group AG (UBS-N) were lower after it said on Tuesday it would restart share buybacks and find US$3-billion more in cost savings from integrating Credit Suisse, as the bank outlined the next phase of absorbing its fallen rival after underwhelming fourth-quarter results.
The Swiss bank now expects US$13-billion in cost savings by the end of 2026 - with half of it to come from slashing headcount, UBS Chief Financial Officer Todd Tuckner said. UBS had previously set a goal of more than US$10-billion.
UBS’s shotgun takeover of Credit Suisse last March was the first-ever merger of two global systemically important banks, and UBS has since managed to avoid any major ructions, with its share price jumping some 50 per cent.
The bank declared the first phase of the integration complete on Tuesday, but there remains a long way to go, with trickier stages still to come including thousands of job losses and the combining of different IT systems. UBS CEO Sergio Ermotti said progress over the next three years would not be “measured in a straight line”.
The Swiss bank affirmed key financial targets and set new ones, including an ambition for its huge wealth management arm to boost invested assets to US$5-trillion by 2028 from US$3.85-trillion currently.
Analysts gave its fourth-quarter results a lukewarm response, although they welcomed a proposed 27-per-cent increase in its 2023 dividend to 70 US cents per share and the restart of buybacks that will begin with up to US$1-billion in the second half of 2024.
European banks have been shelling out record sums to shareholders making UBS, which suspended buybacks after the Credit Suisse deal, an outlier.
“While Q4 results disappointed on costs (revenues broadly in line), targeting higher gross savings out to 2026 should provide some comfort that costs can remain under control,” said RBC analyst Anke Reingen.
Eli Lilly (LLY-N) on Tuesday forecast 2024 profit above Wall Street estimates on soaring demand for Zepbound, its recently approved weight-loss drug, and said the treatment helped reduce symptoms of a common, difficult to treat fatty liver disease in a mid-stage trial.
Explosive demand for diabetes treatment Mounjaro, which had also been used off label for weight loss, and now Zepbound, has led to a buying spree of Lilly’s stock, propelling the drugmaker’s market value to over US$600-billion.
The Indianapolis-based drugmaker said it will expand manufacturing capacity, but expects demand for Mounjaro and Zepbound to outpace supply in 2024.
Zepbound sales reached US$175.8-million in the first few weeks of its launch, following U.S. approval in November.
“I guess, (I was) most surprised by the sales of Zepbound. I wouldn’t have expected near that much,” said Troy Harmon, Chief Investment Officer at Henssler Financial.
The company said it expects 2024 revenue of US$40.4-billion to US$41.6-billion, and adjusted earnings of US$12.20 to US$12.70, putting the midpoint ahead of analysts’ estimates of US$12.43 per share, according to LSEG data.
Shares were off slightlyafter gaining about 11% in January, making Lilly the eighth largest company in the U.S. by market capitalization and most valuable healthcare company.
Truist analyst Robyn Karnauskus raised her price target for the company to US$850 from US$650.
Lilly announced on an investor call that its new Concord, North Carolina site, in which it invested US$1-billion in early 2022, would begin producing the drugs, which have the same main ingredient, tirzepatide, as early as the end of the year, with products available to ship in 2025.
Fourth-quarter profit of US$2.49 per share on an adjusted basis, beat Wall Street expectations by 27 US cents.
Shares of U.S. agricultural chemicals maker FMC Corp. (FMC-N) plunged on Tuesday after a gloomy first-quarter profit forecast fanned investor worries over the potential hit from weakness in Latin America.
Volumes in South America have been compressed since the latter half of 2023 due to droughts. FMC’s sales in the region tumbled 38 per cent in the fourth quarter, driving a miss on revenue.
“Market has been unbelievably depressed over the last nine months and going into the first part of this year,” CEO Mark Douglas said in a conference call.
The Philadelphia-based company said late on Monday it expects adjusted earnings between 21 US cents and 43 US cents per share in the first quarter, compared with analysts’ average estimate of US$1.00, according to LSEG data.
Drought conditions in Brazil and high channel inventory in India are expected to pile continued pressure on prices in the first quarter, Roth MKM analysts said in a note.
Larger rival Corteva (CTVA-N) had also signaled weak demand in Brazil last week, but analysts have pointed to FMC’s higher exposure to South America.
FMC’s forward price-to-earnings ratio is 13.71, compared with Corteva’s 17.73, according to LSEG data. Comparatively, a lower multiple reflects an attractive investment opportunity.
With files from staff and wires
David Leeder