A survey of North American equities heading in both directions
On the rise
Shares of Capital Power Corp. (CPX-T) closed up 7.7 per cent after the company reported quarterly results that beat all analysts’ expectations.
Capital Power’s third-quarter normalized EBITDA was $401 million, well ahead of the consensus estimate of $376 million (there were nine analyst estimates, ranging from $368-million to $390-million).
The company also maintained its guidance for 2024.
Shares of Air Canada (AC-T) finished up just 0.1 per cent after it said on Wednesday it would increase direct flights between Canada and China, which remain below pre-COVID levels even though the carrier has added capacity to other Asia Pacific routes.
Canada’s largest carrier said in a statement it will be resuming daily service from Vancouver to Beijing on January 15 and will be increasing its Shanghai flights to daily starting on December 7.
The news arm of China’s aviation regulator said earlier that the move came after Ottawa last week removed a 2022 limit on how many services Chinese carriers could fly to Canada.
CAAC News, the official newspaper of the Civil Aviation Administration of China, said the increased flights between China and Canada would bolster trade and their economies and promote further recovery of China-Canada air transport. A Canadian source confirmed the development to Reuters.
Canada agreed to stabilise ties with China in July, committing to “pragmatic” engagement with the world’s second-largest economy, even as trade remained a point of bilateral friction.
Flights between both Canada and the United States and China have not ramped back up after COVID-era travel restrictions ended, even as airlines add more seats to other destinations in Asia Pacific. Air Canada, which reports earnings on Friday, said earlier this year the carrier expects stronger demand for Pacific routes in the back half of 2024.
Chinese airlines are accelerating applications for additional flights, the CAAC article added.
However, in the United States, major U.S. passenger airlines have put off resuming some flights to China, citing lagging travel demand between the world’s two largest economies.
In 2019 Air Canada was flying up to 35 times a week to China - including from Toronto - while Chinese carriers operated 76 direct round-trip flights, Cirium flight schedule data shows.
These restrictions were lifted on Friday, a Canadian Transportation Agency order said.
Calgary-based Precision Drilling Corp. (PD-T) was higher by over 7 per cent after saying it earned $39-million in the third quarter of 2024, nearly double what it earned in the same time period last year.
Canada’s largest oil-and-gas drilling rig company says the profit works out to $2.77 per share, compared to the $20-million profit, or $1.45 per share, it earned in the third quarter of 2023.
Precision Drilling says its revenue was $477-million, up from $447-million in the prior year’s quarter, as drilling activity increased in Canada and internationally and more than offset lower activity in the U.S.
The company says in Canada, its customers’ drilling activity increased 25 per cent year-over-year, averaging 72 active drilling rigs in the third quarter of 2024.
In the U.S., the company saw activity decline to 35 drilling rigs on average during the quarter, compared with 41 in the same period last year.
Precision Drilling says it expects stronger demand for drilling rigs in Canada through 2025, thanks to the additional oil-and-gas export capacity created by the Trans Mountain pipeline expansion and the upcoming start-up of liquefied natural gas export facility LNG Canada.
In a research note, Raymond James analyst Michael Barth said: “3Q24 is yet another quarter with strong FCF generation, disciplined capital allocation, and a constructive outlook for aggregate activity and day rates. This should be received positively.:
Brookfield Asset Management (BAM-T) saw gains of 0.4 per cent after announcing Saudi Arabia’s Public Investment Fund (PIF) will be an anchor investor in its new US$2-billion Middle East-focused private fund.
A non-binding agreement for the PIF to back the new Middle East fund was signed with the Canadian asset management firm at the kingdom’s flagship investment summit taking place in Riyadh.
At least half of the capital is to be invested in Saudi Arabia and in international companies that are looking to expand in the kingdom, the companies said in a joint statement.
The investment platform, known as Brookfield Middle East Partners (BMEP), will target US$2-billion from a range of investors and intends to focus on buyouts and structured solutions, among other investment opportunities in the region.
The statement did not say how much the PIF would invest.
Google parent Alphabet (GOOGL-Q) said late Tuesday its AI investments were “paying off” as it reported a 35-per-cent surge in its cloud business and U.S. election-related spending lifted YouTube ad sales in the third quarter.
Alphabet shares rose 2.8 per cent on Wednesday. Shares of Amazon (AMZN-Q) and Microsoft (MSFT-Q), the top cloud companies, were also up.
Alphabet topped third-quarter revenue and earnings expectations. Its mainstay Search business jumped 12 per cent and as did revenue from YouTube ads.
“Alphabet is the first major tech name to report earnings, and it hasn’t disappointed,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. “Cloud growth was strong ... which continues to support the argument that the major cloud providers are well-placed to benefit from the AI revolution.”
Perceived as slow to catch up with Big Tech rival Microsoft in the AI race, Google has been beefing up its Gemini AI chatbot and improving its AI-powered Search.
The company is continuing to spend big on AI.
Its new chief financial officer, Anat Ashkenazi, fielding her first analyst call, said Alphabet’s capital expenditures in 2025 would be higher than this year.
In the third quarter, Alphabet’s capex rose 62 per cent to US$13-billion. The fourth quarter is expected to be similar, she said.
Some analysts said Alphabet’s quarter looked impressive compared with low expectations, and that its small but growing cloud business could slowly fill in for its slowing ad business. Google’s long-established dominance of the digital ad market is under threat from Amazon and TikTok, which have become popular with advertisers looking to tap a ready pool of buyers. Its Search business is also facing scrutiny from regulators seeking to break up the company.
But its cloud business grew at the fastest pace in eight quarters - to US$11.35-billion - thanks to enterprises doubling down on cloud spending, which is essential to power artificial-intelligence technologies. Analysts estimated $10.86 billion.
“I do think it was an impressive quarter because the fact that Google Cloud could more than offset Search decline speaks both to the growing importance of cloud revenues and the fact that the company continues to diversify its revenue base,” said Bob O’Donnell, president of TECHnalysis Research.
Alphabet also beat profit expectations with earnings of US$2.12 per share, compared with an average market estimate of US$1.85, according to LSEG.
“We had a slight tailwind from election-related ad spend in the third quarter, which was a little bit more pronounced in YouTube ads,” Google’s chief business officer, Philipp Schindler, said on a post-earnings call.
Reddit (RDDT-N) reported its first quarterly profit and forecast fourth-quarter revenue above estimates, helped by its AI content licensing deals and strong digital advertising spending, sending its shares soaring almost 42 per cent.
Reddit’s results, its third after going public in March, stoke confidence that more advertisers are turning to the platform, driven by initiatives including translation into other languages by using machine learning to tap new users.
In 2025, the company will be modernizing its search products with improved results page, autocomplete features and integration of large language models to make search results better, CEO Steve Huffman said on a post-earnings call.
The company’s content licensing deals with Alphabet’s Google and Microsoft-backed OpenAI for training their AI models have also been boosting its revenue, analysts have said.
“Reddit’s AI partnerships with Google and OpenAI are a huge bonus right now, and while they contributed a good deal to this quarter’s revenue, they’re like training wheels on a bike — good for stability, but they won’t fuel long-term growth,” said Jeremy Goldman, senior director of briefings at Emarketer.
Reddit expects fourth-quarter revenue to be between US$385-million and US$400-million, compared with analysts’ average estimate of $357.9 million, according to data compiled by LSEG.
The company reported a profit per share of 16 US cents for the third quarter, compared with a loss of 13 US cents a year earlier. Analysts, on average, had expected a loss of 7 US cents per share.
Revenue rose 68 per cent to US$348.4-million in the quarter, beating analysts’ estimate of US$312.8-million.
The company’s daily active unique visitors increased 47 per cent to 97.2 million in the third quarter ended Sept. 30, while its global average revenue per user (ARPU) increased 14 per cent to $3.58.
Visa (V-N) beat Wall Street expectations for fourth-quarter profit on Tuesday, as consumers set aside worries of a slowing economy and swiped their cards to splurge on travel and dining out, sending its shares up 3 per cent.
U.S. consumer spending has remained largely resilient despite elevated interest rates, with analysts expecting a soft landing for the economy to boost confidence and reignite spending growth.
Payments volume rose 8 per cent in the quarter on a constant-dollar basis, while cross-border volume excluding intra-Europe, a gauge of international travel demand, surged 13 per cent.
Visa Chief Financial Officer Chris Suh on a call with analysts said consumer spending across all segments has remained relatively stable, compared with the third quarter.
“The underlying drivers have remained quite stable,” Mr. Suh told Reuters, adding that he expected consumer resilience to extend into 2025.
However, Asia-Pacific payments volume growth remained below expectations due to the current economic environment, primarily in China, which has been grappling with weak business sentiment and a prolonged property crisis.
Visa forecast adjusted net revenue growth for 2025 in high single digits to low double digits. That compares with Wall Street expectations of 10.8-per-cent growth, according to data compiled by LSEG.
It expects adjusted profit per share growth to be at the high end of low double digits, compared with expectations of 11.7-per-cent growth.
On an adjusted basis, Visa earned US$2.71 per share, beating expectations of US$2.58.
Visa’s shares have gained 8.3 per cent in 2024, trailing the 22-per-cent jump in the benchmark S&P 500 index.
On the decline
Gibson Energy Inc. (GEI-T) slid 1.2 per cent after revealing third-quarter results that fell short of the Street’s expectations as its contributions from its Marketing business weighed.
The Calgary-based company reported adjusted EBITDA of $151-million, missing the consensus forecast by 5 per cent ($158-milion) as Marketing of $14-million was 25 per cent (or $5-million) short of projections and also lower than its own guidance (”at or slightly below $20-milion”). That gap was due to weaker contributions from both Refined Products and Crude Marketing.
“Despite the modest headline Adj. EBITDA miss (which was largely driven by Marketing), our take is that this was a fairly neutral quarter,” said Raymond James analyst Michael Barth.
Advanced Micro Devices (AMD-Q) shares fell 10.6 per cent on Wednesday after the chip company’s revenue forecast failed to impress investors looking for a bigger windfall from the AI boom.
The company has been one of the biggest winners of the chip demand boom sparked by the rise of generative AI, with its shares up nearly 156 per cent since end-2022.
Its soft quarterly revenue forecast and a US$5-billion AI chip sales target for 2024, however, showed that demand for the processors was rising faster than their production, with CEO Lisa Su saying chip supplies will be tight going into next year.
“It is probably unpalatable for an ‘AI name’ to even guide inline, let alone below,” Bernstein analyst Stacy Rasgon said.
“At this point AI performance, while not bad in the objective sense, appears unlikely to drive upside to current expectations, and talk of 2025 ‘lumpiness’ in the business will probably increase risk (or at least raise some eyebrows).”
Other chip firms such as Arm (ARM-Q) and Qualcomm (QCOM-Q) also fell. But AI chip leader Nvidia (NVDA-Q) was narrowly lower in a sign that investors did not expect a similar supply shortage impact on the company.
Both Nvidia and AMD rely on chip-making giant TSMC to manufacture their advanced AI chips, but analysts have so far shown little concern about Nvidia’s AI chip supply.
“AI still dominates this (AMD) story, and while the company did raise (sales expectations) every quarter this year, the concern from here is that AMD won’t be able to provide upside to Street estimates that are already $8 billion-$9 billion for calendar 2025,” Jefferies analysts said.
At least 10 analysts lowered their target price on the AMD stock, while 8 raised their views, moving the median to US$187.50, according to LSEG data. That represents an upside of nearly 13 per cent to the company’s last closing price.
AMD trades at nearly 32 times its 12-month forward earnings estimates, compared with 36 times for Nvidia.
Caterpillar (CAT-N) trimmed its annual revenue forecast again on weakness in Europe and Asia/Pacific and lower equipment stocking by independent dealers in North America after another quarter of declining sales.
Shares of the company, considered a proxy for global economic activity, fell 2.1 per cent. It also warned gains from price hikes implemented to offset high production costs were tapering off.
The downbeat projections follow the boost from post-pandemic demand and U.S. President Joe Biden’s 2021 infrastructure law, a US$1-trillion enactment aimed at upgrading roads, bridges and related infrastructure.
In recent quarters, however, demand was squeezed by customers facing higher borrowing costs, an uncertain economic outlook and a property market slump in China, stoking concerns about the view for 2025.
“With volume slowing quarter-over-quarter, our experts caution that Caterpillar could be facing a cyclical downturn in demand that will last through 2025,” Third Bridge analyst Ryan Keeney said.
Equipment sales in Europe, the Middle East and Africa region decreased 6 per cent amid a manufacturing downturn, while in the Asia/Pacific region they fell 7% on economic weakness, Caterpillar said.
Company executives, who declined to offer forecasts for 2025, said the China market remains weak for above 10-ton excavators and that they are yet to see any impact so far from the government’s stimulus measures.
North America dealers ordered less equipment to rent out during the September quarter, even as revenue from such operations rose, executives said, adding the trend is expected to persist in the current quarter.
Still, executives sounded positive on long-term demand prospects, highlighting unspent funds in Biden’s infrastructure law.
Wednesday’s cut was the second this year. The company now expects 2024 revenue to be “slightly lower” year-over-year, from the “slightly lesser” projected in August.
Caterpillar, which does not provide forecast numbers, had in April said it expected revenue to be “broadly similar” to 2023.
Adjusted profit fell to US$5.17 per share in the third quarter, missing the average analyst estimate of US$5.34, according to data compiled by LSEG.
“Expectations were fairly muted coming into the quarter, but the magnitude of the miss and an increase in dealer inventories were both worse than expected,” Citi analyst Kyle Menges said.
Total sales dropped 4 per cent to US$16.11-billion, the third consecutive quarter of year-on-year decline.
Eli Lilly (LLY-N) fell short of Wall Street sales estimates for its weight-loss and diabetes drugs on Wednesday, hit by a decrease in U.S. wholesale inventory and sending its shares falling 6.3 per cent.
U.S. sales of Mounjaro and Zepbound decreased by mid-single digits due to the inventory changes, the company said.
The company delayed plans to advertise weight-loss drug Zepbound and held back on international launches to focus on increasing inventory levels in the U.S., CEO David Ricks told CNBC.
“There is an excess supply...but we haven’t been stimulating demand the way we had originally planned,” Ricks said.
Lilly shares were off 8 per cent in early afternoon trading, wiping out nearly US$70-billion from the Indianapolis-based drugmaker’s market value.. The shares are up 55 per cent so far this year and it has become the most valuable healthcare company in the world, as investors bet on the success of the weight-loss drug.
Quarterly sales of diabetes treatment Mounjaro came in at US$3.11-billion, while those of Zepbound were US$1.26-billion, which Lilly said reflected continued strong demand.
Lilly has invested billions of dollars to expand production of Mounjaro and Zepbound, both known chemically as tirzepatide, including about US$7-billion in its Indiana site and facilities in Ireland. The drug is sold under the brand name Mounjaro for both diabetes and weight-loss outside of the U.S.
Analysts had on average predicted sales of US$4.20-billion for Mounjaro and US$1.69-billion for Zepbound for the quarter. They expect the drugs to make a combined US$19-billion this year.
Lilly also trimmed the upper end of its full-year sales forecast by US$600-million to US$46-billion. It maintained the lower end at US$45.4-billion.
It also cut its annual adjusted profit forecast to US$13.02 to US$13.52 per share, compared to prior expectations of US$16.10 to IS$16.60, citing acquisition charges in the third quarter.
Super Micro Computer (SMCI-Q) shares slumped almost 33 per cent on Wednesday after it said Ernst & Young had resigned as its public accounting firm, over a month after Hindenburg Research alleged “accounting manipulation” at the AI server maker.
The company said EY in late July communicated to Super Micro’s auditing committee several matters relating to transparency and completeness of communications with the accounting firm.
It has begun the process of identifying a new independent registered public accounting firm.
The accounting firm’s resignation is the latest of Super Micro’s woes.
A day after short-seller Hindenburg’s report, the company delayed the filing of its annual report, citing a need to assess “its internal controls over financial reporting.”
In late September, the Wall Street Journal reported that the U.S. Department of Justice was investigating the company.
With files from staff and wires