Inside the Market’s roundup of some of today’s key analyst actions
Calling it “a rare growth story among Canadian banks,” CIBC World Markets analyst Paul Holden initiated coverage of EQB Inc. (EQB-T) with an “outperformer” rating, emphasizing its potential to deliver higher earnings per share gains in both fiscal 2024 and 2025 than the Big 6.
“A high ROE [return on equity] and the recycling of capital into organic growth have been the primary drivers of relative stock outperformance over time,” he said. “We expect that track record of outperformance to continue with low credit losses, strong loan growth, and stable NIM [net interest margins].”
In a research report released late Sunday, Mr. Holden said his bullish stance on the Toronto-based digital financial services company centres on its potential for double-digit loan growth and seeing a track record of low credit losses continuing.
“Despite the slowdown in single-family residential (SFR) mortgage growth, we expect EQB to grow loans under management by double digits this year and next,” he said. “This is a huge growth advantage relative to the big banks where we expect loan growth to be more in the low to mid-single digits.”
“FQ1 brought credit risk to the forefront despite EQB’s track record of very low losses. We expect actual losses on SFR impairments to be minimal based on LTVs and stable house prices. Losses on equipment finance are expected to remain elevated, but given the size of the portfolio the impact on earnings should not be outsized. We forecast a F2024 PCL ratio of 13 basis points, well below the average of 41 bps for the Big 6 banks.”
Mr. Holden also thinks EQB’s NIM will “remain a relative advantage,” noting it has not been “plagued” by the same compression as the big banks and expecting it “will remain a relative positive given growth in lower-cost deposits through EQ Bank and effectively no NII sensitivity to central bank rate cuts.” He also sees its regulatory capital “in a great spot” and does see “downward pressure on ROE and EPS growth potential for EQB due to higher capital requirements.”
Believing its valuation is “deeply discounted relative to the Big 6 Canadian banks and U.S. regional banks of similar size,” Mr. Holden set a 12-18 month target for EQB shares of $100. The average target on the Street is $104, according to LSEG data.
“EQB is trading at a 7.2 times P/E (NTM [next 12-month] consensus) and 1.19 times P/BV, both of which are quite close to historical averages. ... This is despite EQB’s higher EPS growth, higher ROE, lower PCLs and higher CET1 ratio,” he said. “We are not counting on a multiple re-rate to support our Outperformer thesis; forecast EPS growth alone would get us there, but we also believe there is far more potential for the multiple to move higher than lower in coming years.”
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Seeing it poised to benefit further from the recent rally in bitcoin prices and calling it an “international growth story,” ATB Capital Markets analyst Martin Toner initiated coverage of Bitfarms Ltd. (BITF-T) with an “outperform” recommendation on Monday.
“Even at current prices, miners have significant leverage to Bitcoin (BTC) moving higher,” he said. “Post-halving, we estimate BITF would have a gross margin of 54 per cent at current prices. If BTC prices double, miner gross profits would nearly triple, assuming a modest increase in hash rate.”
“We believe BITF gets penalized for its international assets, given how unfamiliar investors are with those geographies and the perceived instability of Argentina. There is likely more opportunity to develop low-cost mining assets outside of North America, and we like BITF’s first mover advantage in both Paraguay and Argentina. Given the below average valuation, we believe strong execution in these regions will release significant value creation for shareholders. We appreciate that political risk requires more expected return but at 1.8 times 2025 EV/EBITDA, we believe BITF is significantly undervalued.”
Seeing it as “high-beta name levered to the BTC upcycle,” Mr. Toner also touted the impact of the highly publicized launch of bitcoin-linked exchange-traded funds south of the border.
“The SPDR Gold Shares ETF (GLD) launched in 2004, making it easier for the public to invest in gold. In 2011, GLD overtook the SPDR S&P 500 ETF (SPY) as the world’s largest ETF,” he noted. “At its peak, the ETF had $76.7-billion in assets, which is just an example of gold’s appeal to investors and governments seeking a store of value. The launch of spot BTC ETFs creates competition for capital for publicly traded BTC miner stocks. Miners lose a source of demand for its stock, but also gain an important new buyer for the BTC it mines – the same ETFs. We think in the short term, the latter dynamic will drive value creation for miners. When GLD was launched, the multiples for gold companies compressed significantly over the next 5-10 years, and GLD outperformed most gold companies’ stocks. We raise this dynamic as a longer-term risk for investors. We believe that in the short term, demand for BTC from ETFs is overwhelming selling pressure and mining supply, and will continue to drive the price of BTC and the price of the miners, despite the possibility of multiple compression.”
He set a one-year target of $6.50 per share. The current average is $5.58.
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Stifel’s Martin Landry thinks BRP Inc.’s (DOO-T) earnings power warrants a higher share price.
“While FY25 is expected to be a challenging year for BRP with EPS down 30 per cent year-over-year, we believe that one-time items are blurring BRP’s underlying earnings power including (1) a 10-15-per-cent one-time inventory reduction at dealerships and (2) the impact from a weak snowmobile season in FY24, which results in lower shipments in FY25,” he said. “Excluding these headwinds, normalized EPS could have reached $11.50 in FY25, a level we view as more reflective of true earnings power for BRP. Assuming earnings return to $11.50 in FY26, BRP would be trading at less than 8 times earnings, 5 multiple points lower than historical average.”
Mr. Landry was one of several analysts on the Street to raise their target for shares of the Valcourt, Que.-based recreational vehicle manufacturer despite Thursday’s release of weaker-than-anticipated fourth-quarter 2024 financial results and guidance for its current fiscal year that was “materially worse than expected due to a weak snow season resulting in high inventory at dealerships, accounting for a $1.50 EPS headwind.”
“We view this headwind as non-recurring and expect snowmobile sales to normalize in FY26,” he said. “The unknown is how the economic slowdown will impact the industry, which, so far, appears resilient. There is a risk that FY25 industry units decline faster than management’s assumption of a low-single-digit percentage decline. We have adopted a conservative approach to our FY26 estimates, modeling an EPS of $10.05, lower than our assessment of BRP’s earnings power of $11.50, which could be reached as early as FY26. Under such a scenario, valuation becomes very attractive at less than 8x forward EPS.”
In maintaining his bullish stance on BRP despite the weak quarterly report, Mr. Landry emphasized the resiliency of the powersports market and pointing to a headwind brought by inventory reductions.
“During calendar 2023, North American industry retail volumes (SSV, ATV, PWC and 3WV) increased low-single digits percentage year-over-year, excluding the impact from a weak snowmobile season,” he said. “According to Polaris, North American industry units for SSVs and ATVs, are up 5 per cent in 2023 vs 2019 levels suggesting that a correction in industry volumes has not occurred yet. For comparison, the U.S. marine industry has seen its units decline 16 per cent in 2023 vs 2019 levels for the main powerboat segment according to US SSI data. One argument that could explain the resilience is the utility usage of ATVs and SSVs markets which represent more than 50 per cent of units sold. Nonetheless, there is a risk of further industry weakness in the powersports industry, especially if economic conditions deteriorate. In calendar 2024, BRP expects North American powersports retail sales in units to decline by low-single digits percentage year-over-year, and for BRP’s retail units to be stable Y/Y assuming market share gains.
“BRP aims to reduce dealership inventory levels by 10 per cent to 15 per cent in FY25 in response to a slowing consumer demand environment and to protect the profitability of its dealers. This is expected to have a $2.50 negative impact on EPS in FY25. According to management, most of the earnings impact stems from BRP’s proactively adjusting dealer inventory levels and not from a weak retail demand environment. Hence, the $2.50 EPS headwind could be characterized as one-time in nature and could translate into a tailwind to EPS in FY26, assuming economic conditions do not deteriorate.”
Seeing its earnings power above $11.00 per share and touting “an appealing valuation which is difficult to ignore,” Mr. Landry increased his target for BRP shares to $112 from $110, keeping a “buy” recommendation. The average target on the Street is $104.41.
“In our view, the challenging macroeconomic environment and investors reluctance to own cyclical names during an economic downturn has blurred BRP’s impressive performance,” he said. “Compared to pre-COVID, BRP’s retail volumes have increased by 35 per cent compared to an industry that has been flat. This impressive performance has allowed BRP to become the #1 OEM in powersports and we expect momentum to continue in the coming years, which should results in strong revenue and earnings growth as industry demand improves.”
Other analysts making adjustments include:
* Desjardins Securities’ Benoit Poirier to $137 from $112 with a “buy” rating.
“Although DOO’s newly introduced guidance was below expectations, we believe there are ‘rip the Band-Aid off’ dynamics at play,” said Mr. Poirier. “Management stated that FY25 guidance does not assume any rate cuts, demonstrating its conservatism (PII is baking in three rate cuts in 2H). We now forecast EPS of $7.87 in FY25 and $11.48 in FY26. We are taking a conservative stance as the pace of inventory depletion remains uncertain. Overall, investors have already baked in FY25 as a wash and are pricing on FY26, in our view.”
* Citi’s James Hardiman to $107 from $100 with a “buy” rating.
“Given the unusually broad range of macro, industry, and company-specific factors that could affect the next 12 months, just as management’s guidance is especially broad, our target multiple is especially conservative,” said Mr. Hardiman. “If the next year plays out as we anticipate, however, we could easily make the argument for a return to a more normalized multiple, which would imply a stock price north of $150 and upside of more than 50 per cent.”
* National Bank’s Cameron Doerksen to $112 from $105 with an “outperform” rating.
“Although we expect the powersports industry slowdown will persist through much of F2025, we continue to see BRP gaining market share and introducing new products, which will position the company well for an eventual end market rebound,” said Mr. Doerksen. “On our updated F2025 estimates, which we consider to be trough earnings, BRP is trading at 6.8 times EV/EBITDA versus its historical (5-year) forward average of 7.4 times.”
* CIBC’s Mark Petrie to $110 from $106 with an “outperformer” rating.
* TD Securities’ Brian Morrison to $100 from $95 with a “hold” rating.
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RBC Dominion Securities analyst Walter Spracklin said Canadian Pacific Kansas City Ltd. (CP-T) outperformed its North American peers in the first quarter of calendar 2024 following “solid” fiscal results and commentary that pricing remains strong, “setting the stage ... for meaningful operating leverage during the remainder of the year.”
“CPKC continues to trade at a premium to the group, reflecting company specific opportunities on the back of the KCS acquisition, which we expect to drive meaningful EPS growth outperformance in the medium-term,” he said. “While we still like CP shares at these levels, we flag the opportunity resulting from the KCS deal is increasingly being priced into shares at current valuation. CN trades closer to in line with the group average valuation, in our view resulting from Canadian West Coast port headwinds offset by solid operating performance and attractive long-term opportunities.”
In a research report released Monday, Mr. Spracklin made modest slight reductions to his first-quarter earnings expectations for both CP and rival Canadian National Railway Co. (CNR-T) to reflect the impact of cold weather in January on their operating ratios.
“Volume however is coming in better than what we believe was in consensus and management guidance, in line with recent Class 1 carload data and commentary from peers at conferences. We expect this to be a major driver of operating leverage this year,” he added.
However, given those “solid” volume trends, he raised his target prices for both company’s shares. His CP target jumped to $133 from $127, above the $119.19 average, with an “outperform” recommendation. His CN target is now $171, up from $164 but below the average of $178.77 with a “sector perform” rating.
“Overall, Class 1 volumes inflected positive in February and March following a tough January that was negatively affected by cold weather,” he said. “We flag that the Eastern US rails performed best on the back of very strong performance in intermodal. The Canadian rails were more affected by winter weather but have both highlighted the volume outlook is more favourable versus when they provided guidance in January. Finally, UNP performed worst due to a lost intermodal contract as well as coal headwinds. Overall, we expect carloads to benefit in Q1 year-over-year from the impact of the leap day but for this to be largely offset by the timing of the Easter holiday.”
Elsewhere, BMO’s Fadi Chamoun raised his CN target to $195 from $185 with an “outperform” recommendation.
“We hosted CN Rail for a series of meetings with institutional investors. Ghislain Houle, EVP & CFO, and Stacy Alderson, AVP Investor Relations represented the company,” said Mr. Chamoun. “We walk away from these discussions with reinforced conviction in CNR’s outlook for midsingle digit volume growth and 10-per-cent EPS growth in F2024. As the rail industry continues its gradual recovery from a bruising five-year decline, we expect that cyclical tailwinds and CNR idiosyncratic growth opportunities will help accelerates EPS gains in F2025 and F2026.”
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Touting a “solid” free cash flow outlook at a “compelling” valuation, Scotia Capital analyst Ovais Habib upgraded MAG Silver Corp. (MAG-A, MAG-T) to a “sector outperform” recommendation from “sector perform” previously.
“We believe the release of the updated Juanicipio technical report represents a major de-risking milestone for MAG’s shares,” he said. “The plan outlines an initial 13-year reserve life for the polymetallic Ag-Au-Pb-Zn deposit with opportunity to expand the current reserve base through near mine and greenfield explorations.”
Mr. Habib called the Vancouver-based miner one of the lowest-cost silver producers in his coverage universe, projecting life-of-mine all-in sustaining costs of $4.83 versus a peer average of $11.39.”
“On valuation, MAG is trading at 1.00 times our NAV versus the silver producers’ peer group at 1.44 times using our Scotia price deck,” he added. “At spot, MAG trades at 0.91 times our valuation versus peers at 1.28 times.”
“In our opinion, the combination of a high-grade orebody, low-cost production setting up for higher margin and solid FCF generation plus exploration upside at compelling valuation positions MAG as a re-rate candidate and as such, we are upgrading our recommendation to Sector Outperform. As the Company continues its ongoing optimization and efficiency improvements, we expect costs to stabilize in the near-term. At spot, MAG could generate asset-level FCF (before corporate adjustments) of $93-milllion (FCF yield 9 per cent) in 2024 and 2025, at its 44-per-cent JV interest.”
His target for MAG shares declined to US$13.50 from US$15. The average is US$17.77.
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In other analyst actions:
* Ahead of its earnings release on Thursday, Jefferies’ Aria Samarzadeh moved his AGF Management Ltd. (AGF.B-T) target to $10, exceeding the $9.92 average, from $9 with a “buy” rating, while Desjardins Securities’ Gary Ho raised his target to $11.50 from $10 with a “buy” rating.
“We expect a decent 1Q set-up/outlook, driven by: (1) robust market performance year-to-date; (2) retail net flows momentum which could turn positive quickly if rates decline; (3) normalized private alt contribution; (4) cost discipline; and (5) a 5-per-cent divvy hike,” said Mr. Ho.
* Haywood Securities’ Kerry Smith raised his Alamos Gold Inc. (AGI-T) target to $22.50 from $20 with a “buy” rating. The average is $22.19.
* Stifel’s Stephen Soock trimmed his Aya Gold & Silver Inc. (AYA-T) target to $14 from $16 with a “buy” rating. The average is $14.29.
“We believe the current weakness in stock could be an attractive point to gain exposure to the long-term growth story, but await the Boumadine resource (mid-April),” he said.
* CIBC’s Stephanie Price increased her Descartes Systems Group Inc. (DSGX-Q, DSG-T) target to US$96.50 from US$95 with a “neutral” rating, while Canaccord Genuity’s Robert Young bumped his target to US$100 from US$96 with a “buy” rating. The average is US$97.51.
“After market on Friday, Descartes announced the acquisition of OCR Services for US$90-million using cash on hand,” said Mr. Young. “OCR Systems is a global trade compliance software tool and data asset in a similar thread as MK Data, Datamyne, and Visual Compliance. In our view, these deals have been some of the firm’s most successful given they 1) sit at the intersection of three big trends - growing global security demands, data driven decision-making, and the upgrade to cloud in supply chain and logistics, and 2) they bring recurring revenue streams with incremental EBITDA margins at the high end of the Descartes offering. While there are multiple headwinds to volumes (Red Sea attacks, Panama Canal low water levels, Baltimore bridge collapse, additional sanctions, etc.), the complexity of logistics and the need to assess alternative trade routes or mechanisms drives subscription and license which accounts for approximately 65 per cent of revenue. We believe that Descartes’ model of modest 8-9-per-cent organic growth, complemented by regular M&A and a steadfast focus on 15-per-cent-plus EBITDA growth, makes the business resilient in all but the worst economic environments. We have made no changes to our estimates, but have increased our target given the likelihood the acquisition will support margin expansion.”
* Expecting “yet another solid quarter” when it reports results on Thursday, Canaccord Genuity’s Luke Hannan bumped his Dollarama Inc. (DOL-T) target to $100 from $98 with a “hold” rating. The average is $105.09.
“While we still believe in Dollarama’s long-term growth profile — a result of its lack of meaningful competition, industry-leading profitability and free cash flow generation, and healthy ROIC — we believe the shares are appropriately valued at current levels,” he said.
* Canaccord Genuity’s Matthew Lee hiked his Hammond Power Solutions Inc. (HPS.A-T) target to $167 from $85 with a “buy” rating. The average is $112.
“Hammond Power Solutions reported Q4 results last week, with revenue and EBITDA both above our estimates. Initially, we had concerns around declining sequential backlog, but we now believe that order growth has remained positive while improved capacity has driven down lead times. Management noted on the call that quotation activity remains robust, which portends order book strength for the year,” said Mr. Lee. “Based on the company’s current capacity, we expect Hammond to deliver 8-per-cent consolidated volume growth in the year, supplemented by a low-single-digit price increase starting in Q1. We have updated our model, accounting for higher growth and a revised adjusted EBITDA calculation methodology (removing the impact of LTIP valuation fluctuations). On our current numbers, HPS trades at 14 times NTM [next 12-month] EV/EBITDA.
“HPS’ 77-per-cent year-to-date upswing has caused us a moment of introspection regarding valuation. While Hammond should trade at a discount to multinational electrical peers (17 times), we believe that its recent crossing of the US$1-billion market cap mark has piqued the interest of U.S. investors providing another leg of support for equity appreciation. In combination with its outsized growth profile, improving profitability, and data centre exposure, we see a path for HPS to sustain a double-digit EBITDA multiple over the medium term. We have raised our valuation methodology from 8 times F25 EBITDA to 13 times, bringing our target to $167.00. From here, we believe the lion’s share of stock appreciation will come from the delivery of robust results rather than further multiple expansion.”
* Canaccord Genuity’s Dalton Baretto increased his Hudbay Minerals Inc. (HBM-T) target to $10.50 from $9.25 with a “buy” rating. The average is $10.52.
“2024 guidance was unchanged from that released on Feb 23, while 2025 and 2026 copper and gold guidance are in line with our estimates on a consolidated basis,” said Mr. Baretto. “We point to the significant (but anticipated) declines in production across all metals at Constancia in 2026 (the first year post-Pampacancha) as evidence of the need to progress other Constancia satellite deposits as fast as possible (although Copper Mountain helps offset the copper production decline). In Manitoba, the team has prioritized gold production (highest NSR) at the expense of zinc; we note that studies on re-processing tailings at Flin Flon are progressing, and we look forward to an update later this year. At Copper Mountain, guidance for the 2024-2026 period is in line with the very recent December 2023 technical report.”
In regard to the reserve and resource update, Snow Lake has maintained its 2038 mine life, while Constancia has added three years (to 2041) with one additional pit phase.
* Following a “solid” third-quarter earnings beat, Raymond James’ Steve Hansen, currently the lone analyst covering Itafos Inc. (IFOS-X), cut his target to $4.25 from $5.25 with a “strong buy” rating, expecting phosphate prices to moderate.
* Scotia’s Ben Isaacson cut his Lithium Royalty Corp. (LIRC-T) target to $12 from $15.50 with a “sector outperform” rating, while Raymond James’ Brian MacArthur lowered his target by $1 to $16.50 with an “outperform” rating. The average is $14.21.
" In our view, LIRC’s first year as a public company has been navigated well, despite: (1) a brutal commodity backdrop in ‘23, where spodumene and lithium carbonate prices both collapsed by 80 per cent year-over-year; and (2) a much more challenging capital markets environment. Neither of these stopped LIRC from growing and enhancing its portfolio via eight acquisitions in ‘23 (six post-IPO) + one so far in ‘24,” said Mr. Isaacson. “The success of these royalty investments will be driven by where long-term pricing settle. What we like to see is the future cost curve beginning to steepen. In the present, while spot and near-term futures prices are already beginning to increase, so too is investor skepticism as to the sustainability of higher price levels.”