A survey of North American equities heading in both directions
On the rise
Bank of Nova Scotia (BNS-T) rose 1.9 per cent on Wednesday after it unveiled a new strategy on Wednesday, focusing on growth at its Canadian, Mexican and Caribbean units while exiting underperforming regions such as Colombia.
The bank said it plans to re-allocate capital from developing to developed markets to ensure earnings are less volatile and more sustainable.
CEO Scott Thomson, addressing investors for the first time since taking charge in February, is tasked with reinvigorating Scotiabank’s Latin American operations, where the lender was expected to take advantage of the largely under-banked landscape.
Mr. Thomson said the bank could either exit Central America and Colombia, or invest more capital to turn around the business, while allocating about 90 per cent of incremental capital to prioritize businesses in North America.
“We are accelerating growth in our Canadian franchise and allocating capital increasingly towards stable, high-return markets in North America,” Mr. Thomson told analysts and investors at bank headquarters in Toronto.
At its international banking segment, Scotiabank said it was focused on improving returns as it prioritises capital consumption, while favouring high-return businesses in Mexico and the Caribbean.
Mississauga-based Bird Construction Inc. (BDT-T) jumped 10.6 per cent in response to a significant increase to its dividend following its Board’s approval of a 2024 annual business plan, “which anticipates continued accretion in earnings per share and EBITDA through 2024.”
After the bell on Tuesday, it announced a a 30.2-per-cent increase to its monthly dividend to 4.67 cents per share (56 cents annualized) from 3.58 cents previously. Mr. Murray had projected 10.7-per-cent dividend growth.
“Management expects to maintain a dividend payout ratio below 33.0 per cent, providing the flexibility to pursue organic growth and acquisition opportunities,” ATB Capital Markets analyst Chris Murray said. “The dividend increase, combined with expectations to maintain a sub-33.0-per-cent payout ratio, implies significant earnings growth in 2024, with our revised estimates calling for 27.0-per-cent EPS growth.”
“The announcement provides further evidence of the Company’s improving project mix, margin profile, and overall earnings quality, as well as management’s confidence in its ability to convert the Company’s $3.0-billion backlog, and sizable pending backlog, into sustained earnings growth. The news reinforces our view that demand conditions for infrastructure work remain firm, which we expect to support book-to-bill trends (more than 1.0 times) in Q4/23 and 2024.”
Vermilion Energy Inc. (VET-T) rose 6.2 per cent following the release of its 2024 capital budget release and a 20-per-cent dividend increase.
After the bell on Tuesday, the Calgary-based company revealed a capital budget for the coming fiscal year of $600–$625-million, falling in line with both Street’s expectations of $600-million. That is projected to drive production of 82,000–86,000 barrels of oil equivalent per day, also matching the consensus forecast.
“Although production guidance came in slightly below our forecast, it was more than offset by the removal of EU windfall taxes from our model given that Brussels is not expected to extend taxes beyond 2023 following the retrenchment in European power and natural gas prices,” Desjardins Securities analyst Chris MacCulloch said in a note. “Meanwhile, the company unveiled an enhanced return of capital framework (50 per cent of FCF), front-loaded with a 20-per-cent dividend hike.”
Vermilion’s quarterly cash dividend rose to 12 cents per share.
H&R Real Estate Investment Trust (HR.UN-T) closed 9.5 per cent higher as it signed a deal to sell a downtown Toronto property to George Brown College and Halmont Properties Corp. for $232.5-million.
The property at 25 Dockside Dr. is located on the city’s waterfront and is substantially leased to Corus Entertainment.
The real estate trust says net proceeds from the sale will be about $168.0-million and is expected to be used to repay debt and fund its current developments.
H&R also says it will pay a special distribution of 62 cents per unit including 52 cents that will be payable in units and 10 cents in cash.
It says the special distribution is principally being made to distribute to unitholders the taxable income realized by the REIT from transactions in 2023.
Following the special distribution, the units of the REIT will be consolidated so that unitholders will hold the same number of units as before the special distribution. It says the amount of the special distribution payable in units will increase the tax cost basis of unitholders’ consolidated units.
Vertex Pharmaceuticals Inc.’s (VRTX-Q) non-opioid painkiller has succeeded in significantly reducing nerve pain in patients in a mid-stage trial, the company said on Wednesday, sending its shares up.
The trial studied the drug, called VX-548, in patients with diabetic peripheral neuropathy, a type of nerve damage caused by high blood sugar.
The non-opioid painkiller is Vertex’s next big bet as it seeks to expand beyond treatments for cystic fibrosis (CF), a genetic condition that results in serious lung infections, declining lung function and often early death.
The company is also testing the drug in keenly watched late-stage studies for acute pain, with data due in the first quarter of next year.
In a boost to its non-CF ambitions, Vertex recently gained approval for its sickle cell disease gene therapy with partner CRISPR Therapeutics based on a Nobel Prize-winning gene editing technology.
Treatment with VX-548 resulted in a statistically significant reduction in weekly average of daily pain intensity, as measured on a scale at 12 weeks, Vertex said.
Tesla Inc. (TSLA-Q) turned higher in late trading despite recalling just over two million vehicles in the United States fitted with its Autopilot advanced driver-assistance system to install new safeguards, after a safety regulator said the system was open to “foreseeable misuse.”
The National Highway Traffic Safety Administration (NHTSA) has been investigating the electric automaker led by billionaire Elon Musk for more than two years over whether Tesla vehicles adequately ensure that drivers pay attention when using the driver assistance system.
Tesla said in the recall filing that Autopilot’s software system controls “may not be sufficient to prevent driver misuse” and could increase the risk of a crash.
Acting NHTSA Administrator Ann Carlson told Reuters in August it’s “really important that driver monitoring systems take into account that humans over-trust technology.”
Tesla’s Autopilot is intended to enable cars to steer, accelerate and brake automatically within their lane, while enhanced Autopilot can assist in changing lanes on highways but does not make them autonomous.
One component of Autopilot is Autosteer, which maintains a set speed or following distance and works to keep vehicles in its driving lane.
Tesla said it did not agree with NHTSA’s analysis but would deploy an over-the-air software update that will “incorporate additional controls and alerts to those already existing on affected vehicles to further encourage the driver to adhere to their continuous driving responsibility whenever Autosteer is engaged.”
The company did not respond to a question on whether the recall would be performed outside the United States.
On the decline
Shares of Dollarama Inc. (DOL-T) finished 2.1 per cent lower after it lifted its annual sales forecast on Wednesday, encouraged by strong demand for its household essentials and groceries as inflation-hit consumers turned to discount stores.
Consumers grappling with high interest rates and rental costs are swarming dollar stores in search of affordable holiday decorations and cheaper consumables including chocolates, snack bars and beverages.
Dollarama profit jumps 31.4% as shoppers continue to look to discount retailers for inflation relief
Montreal-based Dollarama has also benefited from price hikes that were undertaken to offset higher costs resulting from persistent supply-chain challenges in logistics and labor.
The discount store operator now expects comparable store sales growth of 11 per cent to 12 per cent for fiscal 2024, up from the 10 per cent to 11 per cent it had estimated previously.
Dollarama’s sales rose nearly 15 per cent to $1.48-billion in the third quarter, in line with analysts’ average estimates, according to LSEG data.
Excluding items, the company posted adjusted profit of 92 cents per share, above expectations of 86 cents.
Its gross margin was 45.4 per cent of sales, compared with 43.3 per cent a year ago, helped by lower inbound shipping and logistics costs.
In a research note, Stifel analyst Martin Landry said: “Same-store-sales increased by 11.1 per cent year-over-year, in-line with our estimate of 11.2 per cent and better than consensus of 9.7 per cent, driven by a 10.4-per-cent increase in number of transactions and a 0.6-per-cent increase in transaction size. EBITDA margins reached 32.4 per cent, up 245 basis points Y/Y, the highest level in recent history and higher than our expectation of 31.1 per cent. Management increased its FY24 same-store-sales growth guidance by 100bps, which now calls for an increase of 11-12 per cent Y/Y. However, gross margin guidance remains unchanged despite the strong outperformance in Q3FY24. This suggests a same-store-sales growth of 0-4 per cent in Q4FY24, lower than our estimates of 6 per cent and consensus of 5 per cent. It also suggests a sharp deceleration in EBITDA growth which may be viewed negatively by investors today.”
Elsewhere, Desjardins Securities’ Chris Li said: “We expect a favourable reaction in the share price, balanced against the fact that performance has been strong heading into the quarter. DOL trades at 26 times forward P/E vs the historical average of 24 times. We believe valuation is well-supported by the current environment with the consumer continuing to search for value as well as our expectation of 15-per-cent EPS growth next year, with increased confidence from the results this morning.”
Canopy Growth Corp. (WEED-T) fell over 20 per cent after saying a consolidation of its shares on a one-for-10 basis is expected to become effective on Friday.
The post-consolidation shares are expected to start trading on the Toronto Stock Exchange and the Nasdaq at market open on Dec. 20, subject to final confirmation from the Toronto Stock Exchange and the Nasdaq.
The cannabis company says the consolidation was approved by shareholders at a meeting on Sept. 25.
It says the move is being implemented to ensure the company continues to comply with the listing requirements of the Nasdaq Global Select Market.
Shares in Canopy once traded for more than $60 per share, but have fallen significantly.
Canopy shares closed down eight cents at 93 cents on the Toronto Stock Exchange on Tuesday.
Pfizer Inc. (PFE-N) on Wednesday forecast 2024 revenue and profit below Wall Street expectations, sending its shares lower by 6.7 per cent even as it raised cost-cut target by $500 million.
A drop in annual COVID vaccination rates and demand for the treatments in 2023 have dragged sales of Pfizer’s COVID products, Paxlovid and the vaccine it makes with German partner BioNTech.
The products, which had boosted its revenue over the last two years, are now expected to generate US$8 -billion in total sales in 2024.
Analysts were expecting sals of Comirnaty alone to be more than IUS$8-billion besides more than US$5-billion from Paxlovid.
The drop in COVID product sales had also forced Pfizer to launch a program to cut jobs and expenses, which is now expected to save least US$4-billion a year.
The company, which employs nearly 83,000 employees globally, in November cut 500 jobs at its Sandwich, Kent site in the UK.
Pfizer’s US$43-billion deal for cancer drugmaker Seagen (SGEN-Q), which is expected to close on Thursday, is expected to add US$3.1-billion to revenue next year.
The drugmaker said on Tuesday it plans to create an oncology division early next year that would include the acquisition. The new division will be led by Chris Boshoff, who now runs cancer research and development for Pfizer.
The U.S. drugmaker expects its annual revenue to be in the range of US$58.5-billion to US$61.5-billion compared with analysts’ average estimate of US$63.17-billion, according to LSEG data.
The company also forecast adjusted profit in the range of US$2.05 to US$2.25 per share, lower than analysts’ expectation of US$3.16.
Southwest Airlines (LUV-N) on Wednesday raised its forecast for fourth-quarter fuel costs, sending its shares down 3.8 per cent.
The carrier, however, expects unit revenue for the quarter to improve to the higher end of its previous guidance range on the back of strong leisure demand.
Southwest forecast economic fuel costs of US$3.00 to US$3.10 per gallon, compared with its previous estimate of US$2.90 to US$3.00 per gallon.
It expects operating revenue per available seat mile (RASM) to be down in the range of 9 per cent to 10 per cent year-over-year. The airline had earlier expected its RASM to fall in the range of 9 per cent to 11 per cent.
Shares of Etsy Inc. (ETSY-Q) dropped 2.1 per cent on Wednesday after the e-commerce platform announced it would slash 11 per cent of its workforce as it seeks to cut costs, pressured by weakening demand for handcrafted goods.
Etsy will lay off 225 people, about 11 per cent of total staff, and will incur financial charges of between US$25-million and US$30-million for severance payments, employee benefits and related costs, the company said in regulatory filings on Wednesday.
Etsy also announced several organizational changes and the departure of several executives, including Ryan Scott, chief marketing officer. Following the job cuts, Etsy’s headcount will drop to 1,770 people.
The company’s shares, down 32 per cent year-to-date, fell to as low as US$78.54 after the announcement. The stock was down more than 8 per cent at one point.
The median price target of the 32 analysts covering Etsy’s stock is US$70, unchanged from a month ago, and their current recommendation is “hold”, according to LSEG data.
With files from staff and wires
David Leeder