Inside the Market’s roundup of some of today’s key analyst actions
While he’s taking a “positive view” on Algonquin Power & Utilities Corp.’s (AQN-N, AQN-T) sale of its renewables business for up to $2.5-billion, Raymond James analyst David Quezada said he is “surprised by the cautious tone struck by management as to the outlook for the regulated business; where the company intends to curtail capex in the near-term while seeking to reduce regulatory lag.”
“This prompts a shift from our prior expectation of the renewables sale unlocking regulated growth,” he added. “We also believe the magnitude of the dividend cut was larger than expected. Given this uncertainty, we believe investors will ascribe a lower multiple to AQN’s remaining utility business.”
That led him to lower his rating for the Oakville, Ont.-based company to “market perform” from “outperform” on Monday.
Mr. Quezada thinks the sale to New York-based LS Power was in a price range largely expected by the Street and investors were expecting a dividend reduction. However, he thinks “the magnitude of the 40-per-cent reduction may have taken investors by surprise.”
“The company is now targeting a 60–70-per-cent payout ratio going forward, in line with most U.S. utility peers,” he added. “We believe a more modest payout ratio is a prudent move; however, we expect this weighed on AQN shares on Friday.”
Seeing the company’s results as largely “an afterthought,” he cut his target for Algonquin shares to US$7 from US$7.75. The average target on the Street is US$6.54, according to LSEG data.
Elsewhere, Wells Fargo analyst Neil Kalton lowered Algonquin to “equal weight” from “overweight” with a US$6 target, down from US$8.50.
“AQN’s conservative approach may be prudent, but, in our view, share price improvement could be a grind,” he said.
Mr. Kalton added: “It is hard to argue with the BOD’s desire to put AQN on firmer financial footing for the long-term via a sensible payout ratio (60-70 per cent of projected core EPS power) and a focus on debt reduction vs. share repurchases. However, the outcome is contrary to the prior messaging that AQN was not selling the non-regulated assets out of a position of total weakness. And that the company would not necessarily move forward with the sale if the (already reduced) dividend was at risk.
“Given the shift in the strategic messaging and the revelation that the regulated operations are in worse shape than previously thought, we think the 12.5-per-cent share price decline on 8/9 (vs. flat for the S&P Utes) is warranted. We also think the relative valuation is fair (10-per-cent P/E multiple vs. Regulated peers on our 26E EPS).”
Other analysts making target adjustments include:
* CIBC’s Mark Jarvi to US$6 from US$7 with a “neutral” rating.
“The sale of the renewables business and Atlantica stake should bring more clarity, simplicity and stability over time, while the dividend cut should provide more financial flexibility. That said, the outlook for the pro forma business is underwhelming, cloudy and warrants conservatism for now. Greater visibility on a path to improved utility earnings and more activity on a buyback could create upside,” said Mr. Jarvi.
* Desjardins Securities’ Brent Stadler to US$5.25 from US$5.50 with a “hold” rating.
“2Q results provided the anticipated conclusion to the renewables sale and a 40-per-cent dividend cut; we have reset our expectations,” he said. “In the next few years, AQN is moving to a capital-light growth model as it seeks recovery on US$1-billion of investments and completes a number of pending rate cases. On the new dividend, AQN expects the optimized portfolio run rate to be closer to a 60–70-per-cent payout, which implies EPS of US$0.37–0.44, potentially more, achievable in 2026–27.”
=====
Believing the Street’s “delayed reaction” to Softchoice Corp.’s (SFTC-T) stronger-than-anticipated second-quarter results and “upbeat” outlook presents an enticing opportunity for investors, ATB Capital Markets analyst Martin Toner raised his recommendation for its shares to “outperform” from “sector perform” previously.
On Friday, the Toronto information technology services company reported gross profit of $93.1-million, up 12 per cent year-over-year and above the Street’s expectation of $88-milllion. Mr. Toner attributed the beat to a 5-per-cent gain in the company’s customer base and strength in its Software and Cloud segment.
“Management noted that Q2 was the best second quarter of customer growth since before the pandemic, while also highlighting the Company’s 100-per-cent revenue retention with existing customers,” he said. “SMB [small or medium business] customers, who management believes are less sensitive to macroeconomic fluctuations, were a source of strength in the quarter, with gross profit increasing 17 per cent year-over-year, which follows 24-per-cent year-over-year growth in SMB gross profit in Q1. Account Executives increased by 13 per cent year-over-year in Q2 as higher customer count is fueling the addition of more account executives, while year-over-year adjusted EBITDA growth of 18.5 per cent and operating income growth of 16.1 per cent illustrated the operating leverage inherent in the business. In Q2, growth drivers included continued success in cloud solutions, deepened customer relationships, along with strength in Microsoft workplace solutions.”
While Softchoice did not provide formal guidance, Mr. Toner emphasized a “more optimistic tone” for the Hardware segment moving forward.
“While the Company will remain prudent on costs, it does not plan to pause growth investments made to counter hardware pressures on its top line,” he said. “Specifically, management expects cash operating expenses to be up $4-million-$5-million in H2 vs. last year. Drivers of gross profit throughout the remainder of FY24 will be the sustained strength in the SMB segment, along with the Company’s core Software and Cloud solutions segment showing strength. SFTC continues to gain market share, according to management, who see a long runway for growth given that the Company still has only 1-per-cent market share in North America. Management also added that despite SFTC being the second largest player in Canada, the majority of customers adds over the past two years have been in the U.S. market, where there is still plenty of opportunity to gain customers.”
Mr. Toner raised his gross profit estimates based on momentum seen across Software and Services, expecting Softchoice to continue adding customers at an accretive rate.
“Further, we raised our adjusted EBITDA estimates given the beat this quarter and to account for the operating leverage and efficiency enhancements that is currently flowing through the business. Given the strength in Software and Services, now 80 per cent plus of the business, we raise our long-term growth estimates, which has a positive impact on our DCF driven Target Price. We now forecast a 10-year gross profit CAGR of 6.8 per cent, up from 5.0 per cent prior.”
Seeing it “outperforming peers,” his target for the company’s shares jumped to $23 from $18.50. The average on the Street is $21.25, according to LSEG data.
“At the beginning of the enterprise IT spending recession of the last several years, Softchoice was underperforming peers IT services peers like CGI Group (CGI-T, not rate) and CDW Corp. (CDW-Q, NR). The Company has began significantly outperforming these peers; CDW and CGI, for example, grew 1.3 per cent and 0.1 per cent in Q2/24. We believe the reversal is in part because hardware revenues have become a less material part of the business (17 per cent of GP in Q1/24). Softchoice benefits from being over exposed to the migration to the cloud, one of the fastest growing trends in tech. Partners like Microsoft Corp. (MSFT-Q, NR) are generating revenue from AI, which appears to be filtering into Softchoice’s results.”
Elsewhere, RBC’s Paul Treiber raised his target to $20 from $19 with a “sector perform” rating.
“Q2 exceeded RBC/consensus on better than expected Software & Cloud growth. The company’s sales expansion resulted in solid new customer and gross profit growth. Sustained new investments and market share gains provide visibility to continued growth, despite an uncertain economic environment. Moreover, GenAI remains a potential growth catalyst for FY25,” said Mr. Treiber.
=====
While he called Spartan Delta Corp.’s (SDE-T) operational update that accompanied its second-quarter results “relatively mechanical reflecting limited capital spending,” Desjardins Securities analyst Chris MacCulloch emphasized “the planned acceleration of Duvernay development provides improved visibility in oil and condensate growth, driving positive estimate revisions.”
Also believing recent headwinds from bearish natural gas prices will reverse moving into the fall months, he upgraded his recommendation for the Calgary-based company to a “buy” recommendation from “hold” previously.
“After cautiously tapping the brakes on SDE in late April post a strong rally in the stock, which thinned our implied return to target, we are returning to the story on the back of positive estimate revisions and recent stock weakness, which have improved the relative value proposition on offer in our view,” said Mr. MacCulloch.
“Since April, several transactions have been completed which have significantly expanded the size of the West Shale Basin Duvernay prize to 375 net sections, including Crown land sales, the acquisition of rights from Tourmaline Oil and the JV agreement with Journey Energy. To be clear, the play is still in the relatively early stages of development with a checkered performance history, particularly with respect to elevated well costs. However, recent competitor activity has delivered improvements in play economics, from both a well productivity and capital cost perspective, which helps derisk the company’s expansive capital program in our view. More importantly, we are confident in the technical team’s ability to further enhance well performance and moderate capital costs through refinements in frac design, the implementation of pad drilling and planned water infrastructure investments, which should ultimately drive competitive capital efficiencies. Bottom line, we believe investors should take advantage of recent market volatility to start building positions ahead of initial well results later this fall.”
While he made a modest reduction to his 2024 expectations, Mr. MacCulloch raised his projections for the next fiscal year, leading him to bump his target to $5 from $4.75. The current average is $5.82.
=====
Following “strong” second-quarter operational and financial results as well as increase to its full-year guidance, RBC Dominion Securities analyst Robert Kwan reaffirmed Pembina Pipeline Corp. (PPL-T) as “the best idea” in his coverage universe “owing to its expansive integrated footprint that is well-positioned to benefit from growing Western Canada Sedimentary Basin (WCSB) oil and gas production, evidenced by several contractual ‘wins’ and accretive acquisitions over the past 12-18 months.”
“On top of a strong strategic and operational position, we expect Pembina to maintain a solid financial position, including debt/EBITDA in the 3.5 times range and an AFFO payout ratio of roughly 50 per cent,” he added in a research note titled The beat goes on.
Mr. Kwan thinks the company’s new 2024 earnings before interest, taxes, depreciation and amortization (EBITDA) guidance of $4.2-$4.35-billion, up from $4.05-$4.3-billion, “seems conservative,” and sees “upside as the year continues to unfold.”
“The company attributed the increased guidance to a higher contribution from its NGL marketing business, the acquisition of an incremental interest in Aux Sable, a higher contribution from PGI, stronger Nipisi volumes, and lower corporate costs,” he said. “Volume-wise, Pembina expects annual 6-per-cent growth in conventional pipelines volumes and 4-per-cent growth for gas processing volumes.”
Mr. Kwan raised his 2024 EBITDA forecast to $4.328-billion from $4.190-billion, which sits near the top-end of the revised guidance range. His 2025 estimate jumped to $4.552-bilion from $4.404-billion. His adjusted funds from operations per share projections rose to $5.45 and $5.54, respectively (up from $5.21 and $5.39, respectively).
“Key drivers behind the increase in our EBITDA estimates include the better-than-expected Q2/24 results, the Aux Sable acquisition, and modestly lower corporate costs,” he said. “For AFFO/share, the higher estimates are largely driven by the increase in our forecast EBITDA and lower cash taxes consistent with the change in Pembina’s cash tax guidance for 2024.:
With those changes, his target for Pembina shares moved to $60 from $58 with an “outperform” rating. The average is $56.42.
=====
National Bank Financial analyst Maxim Sytchev saw the second-quarter 2024 results from AtkinsRealis Group Inc. (ATRL-T) as “ok relative to heightened expectations,” however he cautioned “we are moving towards a less volatile future.”
“Organic growth was again strong, but overall expectations continue to rise with the share price,” he said. “Two years ago, this would have been an amazing quarter but with Street forecasts having risen materially as Atkins derisked its business model, this looks solid but akin to Q1/24 – good quarter on high expectations, especially for a stock that’s up 31 per cent year-to-date pre-quarter (vs. TSX up 6 per cent YTD).
“Stepping back for a second, however, the valuation remains undemanding and in the world of 15 times plus EV/EBITDA metrics, investors will likely continue to be attracted to 9.9 times EV/EBITDA on 2025E. Management reiterated FCF projections for the year, and we are modeling $204-million next year; this works out to a 2.8-per-cent FCF yield ex concessions; not great but trajectory should continue improving. This is the biggest sentiment lever, in our mind, for the next level of re-rating.”
On Friday, the Montreal-based firm, previously known as SNC-Lavalin Group Inc, reported consolidated revenue for the quarter of $2.364-billion, exceeding the Street’s forecast of $2.293-billion by 3 per cent and also ahead of Mr. Sytchev’s $2.283-billion estimate. Consolidated EBITDA of $202.7-billion was 6 per cent below the consensus expectation ($216-million) as well as the analyst’s projection ($223-million) due to “more pronounced (than expected) EBIT losses in LSTK projects (commissioning costs rose to bring remaining projects to completion) and higher Corporate SG&A (revised estimates higher on long-term employee incentives — exact figure was not provided).”
“We slightly raised our estimates for H2/24 on the back of more pronounced Nuclear growth as backlog has doubled year-over-year and momentum continues to build with new awards,” he said. “We expect slight margin contraction for Nuclear year-over-year and vice-versa for Engineering services (with double-digit growth seen so far moderating in 2025) as per company’s new guidance. We model $144-million in FCF in 2024 with operating cash flow at $400-million that is weighed towards H2/24 as we anticipate LSTK drags to be less severe relative to this quarter.”
Reaffirming his “outperform” recommendation for the company’s shares, Mr. Sytchev bumped his target to $68 from $67. The average target on the Street is $67.45.
Elsewhere, seeing its relative valuation as “increasingly attractive,” BMO’s Devin Dodge upgraded AtkinsRéalis to “outperform” from “market perform” with an unchanged $62 target.
“While Q2/24 results demonstrated that progress towards 2027 targets in Engineering Services may not be linear, demand prospects appear to remain favourable,” said Mr. Dodge. “We are encouraged by a more balanced approach to growth for the division, and there are multiple initiatives underway to improve margins. Near-term growth for the Nuclear segment is accelerating faster-than-previously expected and there is improving visibility into a doubling of segment revenues over the intermediate term. Meanwhile, valuation has pulled back and we think provides an attractive entry point into the stock.”
Others making changes include:
* RBC’s Sabahat Khan to $70 from $69 with an “outperform” rating.
“We are surprised by [Friday’s] negative 6-per-cent share price reaction to AtkinsRéalis’ Q2 results, which we believe reflected good progress across the go-forward businesses (Engineering + Nuclear),” said Mr. Khan “While headline figures were mixed vs. consensus (top-line ahead, Adjusted EBITDA slightly below because of a larger-than-anticipated LSTK loss + impact of LTIP), results from the AtkinsRéalis Services (12.0-per-cent organic growth in Engineering) and Nuclear segments (31.5-per-cent year-over-year EBIT growth; see below) reflect solid progress (on an absolute and on a relative basis when compared to peers). Margins were also in line with Street expectations. While 2024 guidance for Engineering Services Regions organic growth of 8-10 per cent was reiterated, our view is that this likely reflects a conservative stance (especially given the strong backdrop highlighted on the call). Looking ahead, AtkinsRéalis is well positioned given a supportive outlook for its Engineering business (favorable backdrop + peer-leading organic growth), and a very strong growth outlook for its Nuclear segment (31.5-per-cent year-over-year EBIT growth in Q2, guiding for full year top-line growth of 30-35 per cent). This strong outlook combined with the continued valuation discount vs. peers provides for a favorable setup, in our view.”
* CIBC’s Jacob Bout to $70 from $68 with an “outperformer” rating.
=====
While Cineplex Inc. (CGX-T) latest financial results were fell in line with expectations in a quarter “that witnessed low theater attendance due to a lack of quality and quantity of movies caused by production delays from the Hollywood strike,” Scotia Capital analyst Maher Yaghi is expecting “a strong finish for the year.”
“These delays should diminish in the second half with big ticket movies expected to hit the screens,” he said. “The slate for 2025 is also impressive. We are expecting a meaningful recovery in financial results heading into the second half which should lead to a sizable uptick in FCF generation.”
On Friday, Cineplex announced box office revenue of $115-million in its second fiscal quarter, falling 30 per cent year-over-year due to impacts from the Hollywood actor and writers strike. That led to a 32-per-cent drop in attendance levels.
“Despite weak performance in 1H, we continue to expect a much stronger movie slate in 2H24, where Q4 should be one of the strongest Q4s on the books,” said the analyst. “This is driven by the release of several large films including Transformers, Wicked, Moana 2, and Mufasa: The Lion King among many others. With more content returning to screens, management expects that operational performance on EBITDAaL should start to exceed pre-pandemic levels.
“As management stated last quarter, at 75-80 per cent pre-pandemic attendance levels, incremental EBITDAaL for 2024 vs F2023 is projected to be $60-70-milion, which approximates to an EBITDAaL run rate of $220-240-million. The momentum from the strong film slate in 2H is expected to carry into 2025 where a many high quality films will be distributed throughout the year. Some of the biggest titles will include Jurassic World 4, Captain America Brave New World, Mission Impossible 8, Superman Legacy and Avatar 3.”
After raising his estimates for the rest of 2024 and 2025, Mr. Yaghi bumped his target for Cineplex shares to $12 from $10, keeping a “sector outperform” rating.
“We believe the multiples that we are using remain conservative as comparable companies in the U.S. are trading in the 9-10 times EBITDA range vs the 8 times multiple we have applied to CGX’s box office earnings,” he said. “Applying a similar multiple as in the U.S. we could see the stock in the $13-14 range.”
=====
Jefferies analyst John Aiken made a series of changes to his target prices for Canadian banks on Monday.
He lowered his targets for these stocks:
- Bank of Montreal (BMO-T, “buy”) to $124 from $141. The average is $127.06.
- Canadian Imperial Bank of Commerce (CM-T, “buy”) to $78 from $79. Average: $73.03.
- National Bank of Canada (NA-T, “hold”) to $119 from $121. Average: $119.77.
- Royal Bank of Canada (RY-T, “buy”) to $165 from $168. Average: $153.14.
Conversely, he raised his target for these banks:
- Bank of Nova Scotia (BNS-T, “hold”) to $65 from $64. Average: $67.80.
- Toronto-Dominion Bank (TD-T, “hold”) to $82 from $73. Average: $86.04.
=====
In other analyst actions:
* “Searching for a positive catalyst in a slow growth environment,” Raymond James’ Brad Sturges downgraded Dream Residential REIT (DRR.UN-T) to “market perform” from “outperform” with a US$7.50 target, down from US$7.75. The average is US$8.93.
“While we view DRR as deeply discounted to its underlying real estate value, there appears to be more limited potential positive catalysts in this current slower growth environment available to DRR that we believe could help materially reduce its NAV/ unit estimate discount valuation,” he said.
* Pointing to a “tough micro-cap environment,” Mr. Sturges also lowered Parkit Enterprise Inc. (PXT-X) to “market perform” from “outperform” with a 65-cent target, down from 75 cents. The average is 80 cents.
“While we believe Parkit’s 2024 year-to-date SP-NOI growth year-over-year has been impressive, we are relatively more cautious on Parkit’s near-term share price recovery outlook due to: 1) the potential for limited fund flow into micro-cap real estate stocks; 2) normalizing Canadian industrial real estate fundamentals that may moderate its future SPNOI growth prospects; 3) Parkit’s higher financial leverage metrics; and 4) Parkit’s greater related party dealings on the leasing front,” he said.
* National Bank’s Zachary Evershed raised his Adentra Inc. (ADEN-T) target to $57 from $53, keeping an “outperform” rating. The average on the Street is $53.86.
* TD Cowen’s Michael Tupholme reduced his Ag Growth International Inc. (AFN-T) target to $77 from $79 with a “buy” rating. The average is $78.13.
* Jefferies’ Sheila Kahyaoglu cut her Air Canada (AC-T) target to a Street-low of $16 from $19 with a “hold” rating. The average is $22.50.
* TD Cowen’s Daniel Chan cut his target for Altus Group Ltd. (AIF-T) to $63 from $65, exceeding the $55.44 average, with a “buy” rating, while Scotia’s Kevin Krishnaratne lowered his target to $51 from $59 with a “sector perform” rating.
“Our lowered target multiple acknowledges some uncertainty in the timing of some of this rebound - we continue to believe it is more a matter of when, not if, a recovery will resume given prior period bookings,” said Mr. Krishnaratne. “Shares have performed well YTD (approximately 30 per cent), with the stock in our view benefitting from several events including the termination of the company’s deal for REVS (which would have increased leverage), the announcement of its decision to sell its Property Tax business for cash proceeds $600-million, and the prospect of interest rate cuts (positive for CRE transactions). Given the push out of expectations of a more meaningful recovery in CRE activity more into 2025, we see shares pressured near-term and continue to remain SP rated until clearer signs of a recovery are more evident.”
* TD Cowen’s Cherilyn Radbourne raised her Brookfield Corp. (BN-N, BN-T) target to US$63 from US$62 with a “buy” rating. The average is US$55.16.
* Canaccord Genuity’s Matt Bottomley cut his Canopy Growth Corp. (WEED-T) target to $3.50 from $5, reiterating a “sell” recommendation. The average is currently $9.76.
* CIBC’s Hamir Patel cut his Cascades Inc. (CAS-T) target to $10.50 from $11, which is the current average, with a “neutral” rating, while Scotia’s Jonathan Goldman lowered his target to $11 from $12 with a “sector perform” rating.
* National Bank’s Ahmed Abdullah raised his CCL Industries Inc. (CCL.B-T) target to $87 from $84 with a “outperform” rating. Other changes include: Raymond James’ Michael Glen to $87 from $84 with an “outperform” rating, BMO’s Stephen MacLeod to $84 from $83 with an “outperform” rating, Scotia’s Jonathan Goldman to $84 from $80 with a “sector outperform” rating and TD Cowen’s Sean Steuart to $92 from $90 with a “buy” rating. The average is $85.
“Q2/24 was a beat vs. consensus (in-line with our estimates). Solid y/y growth was driven by CCL, Avery and Checkpoint. Management noted on the earnings call that it continues to feel constructive on the 2024E outlook, with an expectation for accelerated earnings growth. By segment: CCL outlook positive (CCL Label comps easy Q3, tougher Q4; Healthcare comps ease H2; Design recovery); Avery stable; Checkpoint positive (RFID growth to continue); Innovia positive (label materials demand, plant closure savings),” said Mr. MacLeod.
* Scotia’s Jonathan Goldman raised his target for CES Energy Solutions Corp. (CEU-T) to $9 from $8.50 with a “sector outperform” rating, while Raymond James’ Michael Barth increased his target to $10.50 from $8.50 with a “strong buy” recommendation. The average is $10.09.
“CEU delivered exceptional 2Q24 results that exceeded consensus expectations for the 22nd consecutive quarter. The good news was sprinkled everywhere: with top-line growth, margin expansion, strong NWC management, and a continued reduction in net debt,” said Mr. Barth.
* CIBC’s Dean Wilkinson bumped his Chartwell Retirement Residences (CSH.UN-T) target to $16.50 from $15 with an “outperformer” rating. Other changes include: Scotia’s Himanshu Gupta to $15.50 from $15 with a “sector outperform” rating, Desjardins Securities’ Lorne Kalmar to $16 from $15.50 with a “buy” rating, TD Cowen’s Jonathan Kelcher to $17 from $16 with a “buy” rating and RBC’s Pammi Bir to $16 from $15 with an “outperform” rating. The average is $15.64.
“Despite CSH’s strong performance since the beginning of 2023, 2Q results served as a staunch reminder as to why the stock should continue to trade higher in our view,” said Mr. Kalmar. “We believe that CSH remains well-positioned to benefit from the ongoing recovery in retirement fundamentals, as well as solid execution on the capital allocation front as it high-grades its portfolio. In our view, CSH’s near- and long-term earnings growth prospects warrant a premium trading multiple.”
* BMO’s Thanos Moschopoulos hiked his Constellation Software Inc. (CSU-T) target to $4,550 from $4,300 with an “outperform” rating, while Raymond James’ Steven Li raised his target to $4,250 from $3,800 with a “market perform” rating. The average is $4,464.44.
“We remain Outperform on CSU following Q2/24 results, which were in line on revenue and 6 per cent light on EBITDA,” he said. “Roughly half of the shortfall, by our estimate, stemmed from the spin-offs (we view softness at the spin-offs as less relevant, as we value CSU on a spin-off-adjusted basis). We’ve trimmed our estimates, due to more conservative forecasts for TOI/LMN, while our FY2024E/25E EBITDA for CSU ex-spins remains roughly unchanged. We’ve raised our target price, reflecting a higher target multiple, due to the sustained strength in EBITDA growth at core CSU.”
* RBC’s Maurice Choy cut his Emera Inc. (EMA-T) target to $57 from $60 with an “outperform” rating, while Raymond James’ David Quezada raised his target to $57 from $54 with an “outperform” rating. The average is $52.33.
“As we favourably view Emera’s materially improved balance sheet and keep a close watch on the associated events ahead (i.e., NMGC sale closing, Tampa Electric rate case), we expect the market will increasingly refocus on the business fundamentals of Emera’s premium quality regulated utility portfolio (with 2/3rds in the favourable Florida jurisdiction and 80-85 per cent in electric utilities) and the company’s execution of its organic growth plan, particularly in terms of delivering the 5-7-per-cent EPS CAGR through 2027 and lowering the dividend payout ratio to approximately 80 per cent by 2027, all while benefiting from the stock’s roughly 6-per-cent dividend yield,” he said.
* CIBC’s Krista Friesen raised her Exchange Income Corp. (EIF-T) target to $62.50 from $61.50 with an “outperformer” rating. Other changes include: ATB Capital Markets’ Chris Murray to $67 from $66 with an “outperform” rating, Canaccord Genuity’s Matthew Lee to $68 from $66 with a “buy” rating and TD Cowen’s Tim James to $69 from $65 with a “buy” recommendation. The average target is $64.94.
“EIF delivered solid results with strong results from Aviation, offsetting normalizing levels of profitability in Manufacturing, primarily at Northern Mat, and challenging operating conditions for Quest,” said Mr. Murray. “Management reaffirmed 2024 guidance for Adjusted EBITDA of $600-$635-million, indicating that it expects to reach the range’s middle to upper end. EIF delivered a solid quarter and is positioned to deliver stronger growth in H2/24 and 2025 on new aviation contracts and normalizing levels of performance in Manufacturing. We see good value in shares of EIF and view recent weakness as a buying opportunity with declining rates and potential M&A representing H2 catalysts.”
* BMO’s Étienne Ricard raised his Goeasy Ltd. (GSY-T) target to $218 from $215 with an “outperform” rating. The average is $233.89.
“While goeasy’s credit metrics are reflecting an unsurprisingly weaker consumer financial health, the outlook for realized losses is stable underpinned by tighter underwriting policies and an increasingly larger secured loan portfolio. Further, management is seeing record customer demand afforded by favorable competitive dynamics. The outlook for high-teens earnings growth and 21-per-cent-plus ROE leading to 2026 is intact; we reiterate our Outperform,” said Mr. Ricard.
* Scotia’s Phil Hardie cut his Guardian Capital Group Ltd. (GCG.A-T) target by $1 to $55 with a “sector outperform” rating, while BMO’s Étienne Ricard dropped his target to $50 from $56 with an “outperform” rating. The average is $52.50.
“We view the Q2 results as a mixed bag with a modest negative bias. On the positive side, operating earnings were ahead of expectations reflecting lower-than-forecast opex. The disappointment was a 4.5-per-cent sequential decline in AUM driven by outflows,” he said.
“With the significant embedded optionality, we think Guardian is an attractive core holding for value-oriented investors. A sizeable corporate investment portfolio likely provides a high degree of optionality for value creation that includes levers ranging from M&A strategies to share buybacks.”
* Scotia’s Ben Isaacson cut his Interfor Corp. (IFP-T) target to $24 from $26 with a “sector outperform” rating. The average is $22.83.
“Despite a rough quarter for IFP and the industry, which brings our PT slightly lower, we think now is the time for investors to build an initial position in IFP: (1) demand signals are improving; (2) supply rationalization is accelerating; (3) the balance sheet is stable and should remain so near-term; (4) valuation looks interesting; and (5) sentiment can’t get much worse, which as contrarians, we love,” said Mr. Isaacson.
* National Bank’s Vishal Shreedhar raised his Lassonde Industries Inc. (LAS.A-T) target to $187 from $181 with an “outperform” rating, while Desjardins Securities’ Frederic Tremblay hiked his target to $190 from $175 with a “hold” rating. The average is $189.
“2Q was stronger than expected. Successful efforts to stimulate volume growth in the U.S. beverage business and a new line start-up are translating into an upwardly revised organic growth outlook for 2024. This will be supplemented by the acquisition of Summer Garden. That said, Lassonde will need to navigate a challenging environment, including high raw material costs and consumer price fatigue. In addition, while the balance sheet is healthy, we await further details on the next potential capex cycle,” said Mr. Tremblay.
* Scotia’s Ben Isaacson cut his Lithium Royalty Corp. (LIRC-T) target to $9 from $11 with a “sector outperform” rating, while Raymond James’ Brian MacArthur cut his target to $12 from $15 with an “outperform” rating. The average is $11.82.
* National Bank’s Zachary Evershed cut his Mattr Corp. (MATR-T) target to $20 from $23 with an “outperform” rating. Other changes include: RBC’s Arthur Nagorny to $19 from $20 with an “outperform” rating and Canaccord Genuity’s Yuri Lynk to $23 from $25 with a “buy” rating. The average on the Street is $20.88.
* RBC’s Andrew Wong cut his NexGen Energy Ltd. (NXE-T) target by $1 to $10 with an “outperform” rating. The average is $13.16.
“We maintain our view that Rook I is a best-in-class uranium project with significant strategic value as the uranium market heads into a more significant deficit in the early-2030s. We think the updated cost estimates set reasonable expectations on capex while maintaining Rook I’s favourable economics and position on the cost curve. We see potential upcoming Federal approval in the next 6-12 months as a possible catalyst for strategic options (i.e. takeout, strategic partnership) while successful exploration continues to add long-term option value to the project,” said Mr. Wong.
* CIBC’s Dean Wilkinson increased his Northview Residential REIT (NRR.UN-T) target to $19 from $16.50 with a “neutral” rating. The average is $18.88.
* RBC’s Geoffrey Kwan bumped his Power Corp. of Canada (POW-T) target to $47 from $46 with a “sector perform” rating, while Desjardins Securities’ Doug Young raised his target to $44 from $43 with a “buy” rating. The average is $43.81.
“We think the 28.5-per-cebt discount to NAV is too wide,” said Mr. Kwan. “POW has transformed its business over the past decade. GWO and IGM are much stronger competitors. There have been numerous transactions simplifying the structure and surfacing value and likely more to come. POW has a growing 3rd party Alternatives platform, which gives POW exposure to investment returns on POW’s invested capital ($2.2-bilion), growing carried interest opportunity and eventually a profitable asset manager as it gains more scale, which should benefit POW’s valuation. We think POW has been more focused on being disciplined on expense growth. POW has also been more active with share buybacks and with potential catalysts including sales of non-core assets, we think potential sale proceeds are likely to be used to do more share buybacks. We see significant valuation upside driven by NAV growth, a narrowing of the significant discount to NAV plus an attractive 6.1-per-cent dividend yield.”
* TD Cowen’s Derek Lessard increased his target for Premium Brands Holdings Corp. (PBH-T) to $129 from $125 with a “buy” rating, while RBC’s Tom Callaghan moved his target to $100 from $101 with a “sector perform” rating. The average is $111.
“Premium Brands Q2 results were broadly in-line with the Street and, like Q1, reflected continued progress with respect to delivery of improving margin performance,” said Mr. Callaghan. “At the same time, the backdrop remains somewhat cloudy given a stretched consumer—particularly in Canada, which along with certain product launch delays increases the likelihood that 2024 financial performance comes in towards the low-end of the guided range.”
* TD Cowen’s Vince Valentini increased his Quebecor Inc. (QBR.B-T) target to $37 from $35 with a “buy” rating. The average is $38.08.
* Piper Sandler’s Brin Mullan lowered his Restaurant Brands International Inc. (QSR-N, QSR-T) target tp US$75 from US$82 with a “neutral” rating. The average is US$82.15.
* CIBC’s Mark Petrie cut his Saputo Inc. (SAP-T) target to $35 from $37 with an “outperformer” rating, while National Bank’s Vishal Shreedhar lowered his target to $35 from $36 with an “outperform” rating. The average is $34.56.
“We expect investor focus to be on execution of the strategic plan, in addition to volatile commodities. We acknowledge that SAP is a show-me story which will take several quarters of solid execution before gaining meaningful traction. We believe that attractive valuation compensates the investor,” said Mr. Shreedhar.
* CIBC’s Dean Wilkinson moved his Sienna Senior Living Inc. (SIA-T) target to $17 from $16 with a “neutral” rating. Other changes include: Scotia’s Himanshu Gupta to $17.50 from $16.50 with a “sector outperform” rating, Desjardins Securities’ Lorne Kalmar to $17.50 from $16.50 with a “buy” rating and TD Cowen’s Jonathan Kelcher to $18 from $17 with a “buy” rating. The average is $16.93.