Inside the Market’s roundup of some of today’s key analyst actions
While he thinks Canadian bank stocks “performed well through 4Q FY24, driven by an improved economic outlook and a steady rotation back into the sector,” Desjardins Securities analyst Doug Young believes “there’s more room to run” as earnings season in the sector rapidly approaches.
“In our view, FY24 wasn’t so bad, with higher NIMs, stable loan growth, efficiency improvements and five of the six banks delivering PCLs in line with guidance,” he said in a research report released before the bell. “But the focus will be on the FY25 outlook, specifically around credit and when we might see peak PCLs.”
For the final quarter of the fiscal year, Mr. Young is projecting a 6-per-cent year-over-year increase in cash earnings per share for the Big 6 on average, driven by a 13-per-cent gain in adjusted pre-tax, pre-provision (PTPP) earnings, “partially offset by higher PCLs and taxes.”
“We expect strong performance from Canadian banking, capital markets and wealth management, with relatively mixed results in U.S. banking for those with exposure to this region,” he added.
“And each bank has its own story. BMO—commercial credit trends. BNS—are we at an inflection point for results? CM—can it continue delivering steady results with no surprises? NA—any update on the pending CWB acquisition? RY—HSBC Canada integration? TD—how can it grow with a U.S. asset cap?”
While adjusting his target prices for all eight stocks in his coverage universe, Mr. Young maintained his ratings and pecking order, which is:
- Royal Bank of Canada (RY-T, “buy”) to $183 from $172. The average on the Street is $165.39.
- Canadian Imperial Bank of Commerce (CM-T, “buy”) to $94 from $83. Average: $81.95.
- Canadian Western Bank (CWB-T, “buy”) to $60 from $57. Average: $48.48.
- Toronto-Dominion Bank (TD-T, “buy”) to $88 from $90. Average: $84.03.
- Bank of Montreal (BMO-T, “hold”) to $134 from $120. Average: $121.53.
- National Bank of Canada (NA-T, “hold”) to $140 from $127. Average: $128.38.
- Bank of Nova Scotia (BNS-T, “hold”) to $76 from $68. Average: $70.86.
- Laurentian Bank of Canada (LB-T, “sell”) to $29 from $26. Average: $26.55.
“Given the improving economic outlook, and benefits that should arise from rate cuts by the BoC and the Fed, we reduced the risk discounts in our analysis across the group,” Mr. Young said. “In addition, we now apply a premium to CM, NA and RY to reflect our views that there are lower relative risks in each of these names vs BMO, BNS and TD, along with some catalysts in each of these names (eg RY—HSBC Canada integration; NA—pending CWB acquisition; CM—lack of noise, and execution on various key deliverables). Lastly, CWB’s target price is based on the share exchange ratio offered by NA and adjusted to account for the anticipated closing time.”
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Expecting an imminent improvement in return on equity to drive performance, TD Cowen analyst Mario Mendonca upgraded Bank of Nova Scotia (BNS-T) to “buy” from “hold” previously.
“We believe ROE is among the most important financial metrics in the banking sector; and we expect relative ROE improvement to influence relative performance over the next two years,” he said. “Using our ROE decomposition approach, we expect BNS to deliver the best ROE improvement among the group, supported by NIM, expense management, business mix, and the Keycorp transaction.”
In a note released Monday, Mr. Mendonca noted bank ROEs are down almost 1,000 basis points from their peak in late 2007, which he said reflects “much higher capital requirements (reduced leverage ratio), a sharp decline in NIM (lower rates and mortgage growth) and a shift toward lending from higher ROE, fee businesses.”
“We believe the change in ROE offers the best explanation of long-term stock performance,” he said. “The disparity in bank stock performance is particularly wide over the last 3-5 years, with BNS and BMO lagging materially. We draw a connection between long-term stock performance and the change in ROE. Using the decomposition, we take a closer look at Scotia’s ROE and offer the outlook that BNS, through NIM expansion, better expense management, slightly better business mix, and the Keycorp deal, should see a 150bps-plus improvement in ROE over the next two years.
“The improvement in NIM and the Keycorp deal play important roles in driving our forecast 14-per-cent growth in 2026E EPS and the improvement in ROE. Regarding NIM, we forecast the NII loss in corporate moving from $750-million quarterly in Q3/24 to a loss of $600-million quarterly, a $150-milion quarterly improvement, which amounts to $600-million annually. As for Keycorp, we now view the deal as entirely a financial one and in this respect, our outlook has improved.”
With his expectation Scotia will deliver the best ROE improvement in the group over the next two years, Mr. Mendonca raised his target for its shares to $80 from $71. The average on the Street is $70.86.
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Following better-than-expected third-quarter results and touting its buyback plan as a “significant catalyst heading into 2025,” ATB Capital Markets analyst Chris Murray continues to see “good value” in Air Canada (AC-T).
“AC delivered solid Q3/24 results, despite operating in a normalizing yield environment, combined with the threat of a work stoppage in September,” he said in a research report released Monday. “Management increased full-year guidance with Q3/24 results, reflecting favourable demand conditions and easing cost pressures, particularly around fuel and labour, which we see boding well for 2025. The Company announced a normal course issuer bid (NCIB) with results reinforcing management’s constructive outlook, improved balance sheet, and better visibility around the cost structure after reaching a new labour agreement with its pilots in early Q4/24.
“Management on the call confirmed that it plans to begin executing ‘aggressively’ on its buyback beginning on November 5. Management confirmed that it maintains the balance sheet flexibility to execute its fleet upgrade plan and buyback concurrently while adhering to investment-grade leverage metrics. We expect management’s strategy around capital allocation to be a focus of its investor day, planned for December 17, 2024, in Toronto.”
On Friday, Air Canada shares surged 14 per cent after it reported revenue of $6.21-bilion, down 3.8 per cent year-over-year but above the Street’s expectation of $6.102. On an adjusted basis, it said it earned $2.57 per diluted share, down from a $3.41 a year earlier but well above the consensus projection of $1.58.
The airline has slightly boosted its earnings expectations for 2024, with adjusted EBITDA now seen to total $3.5-billion, up from between $3.1-billion and $3.4-billion earlier.
“AC reported better-than-expected Q3/24 results, driven by strong load factors (86.9 per cent) and cost containment, offsetting normalizing yields, particularly on Atlantic-based routes,” said Mr. Murray. “Healthy demand conditions and better visibility around the cost structure led management to increase full-year EBITDA guidance to $3.5-billion (from $3.1-$3.4-billion) on expectations for 2.0-per-cent Adjusted CASM [cost per available seat mile] growth (prior: 2.5 per cent to 3.5 per cent). Revised guidance implies expectations for EBITDA of $600-million (up 17.0 per cent year-over-year) in Q4/24 with yields expected to increase quarter-over-quarter.”
“Management was positive on the booking curve and yield trends heading into 2025 and highlighted that capacity and Adjusted CASM are expected to increase at mid-single digit and low to mid-single-digit rates, acknowledging Adjusted CASM has benefitted from a $100-million maintenance contract adjustment in 2024. AC will provide guidance for 2025 at its investor day. We expect the presentation to include a fulsome discussion around the capital allocation strategy, given the new NCIB and ongoing fleet modernization.”
After raising his 2025 expectations and introducing his 2026 estimates, Mr. Murray increased his 12-month target for Air Canada shares to $28 from $26.50, reaffirming an “outperform” recommendation. The average target on the Street is $24.56, according to LSEG data.
Elsewhere, Stifel’s Daryl Young upgraded Air Canada to “buy” from “hold” previously, seeing its near-term remaining “healthy” with a “more rational” capacity outlook. His target rose to $25.50 from $20.
“Q3 results were much better-than-feared with AC managing costs well amid a tough environment, and with a boost from lower fuel prices,” he said. “We are upgrading our recommendation to Buy from Hold as the environment appears to be rationalizing faster than we expected and given increased clarity on 2025. Management noted a more balanced capacity outlook, upside from falling fuel prices, stable demand for leisure travel (forecasting healthy outlook for the next three quarters), business travel recovering, and high-margin AsiaPacific routes being restored. Moreover, AC expects to be active on capital returns, noting the potential to re-lever its balance sheet up to 1.5 times and given expectations for break-even/positive 2025 FCF. Despite AC’s more than 40 per cent share price gain since its August lows, the stock is still trading at 3.1 times EBITDA, well below its pre-pandemic average of 3.9 times and the U.S. peers at 5.7 times, supportive of a continued catch-up trade”.
Other analysts making target changes include:
* National Bank’s Cameron Doerksen to $27 from $22 with an “outperform” rating.
“We continue to view Air Canada’s valuation as attractive,” said Mr. Doerksen. “On our updated 2025 forecast, Air Canada shares are trading at just 3.0 times EV/EBITDA. This is below the historical average forward multiple (excluding the pandemic years) of 4.3 times EV/EBITDA and is also below the U.S. legacy airline peer group, which trades at 5.0 times 2025 EV/EBITDA on average.”
* Scotia’s Konark Gupta to $26.50 from $24 with a “sector outperform” rating.
“We maintain our SO rating while increasing our target ... after AC positively surprised us by delivering much stronger-than-feared Q3 results and raising 2024 guidance despite pilot-related traffic disruptions and significant pilot wage growth (under new contract),” said Mr. Gupta. “However, as we were anticipating, management decided to return capital to shareholders through buybacks. The company will provide further updates on its capital allocation strategy, along with 2025 guidance, at an investor day on December 17. We expect to hear about aircraft sale/leaseback opportunities as management confirmed our view that AC currently owns more aircraft than warranted. Fundamentally, yields are turning the corner this winter while meaningful margin expansion and FCF generation (excluding sale/leaseback) likely have to wait until 2026 and 2027, respectively. Although the stock has rebounded 40 per cent over the past three months, it remains too cheap at 3.1 times EV/EBITDA on 2025E vs. U.S. peers at 5.0 times and its historical average of 4.0 times (including periods of major labour/pension issues). We see upside risk to more than $30 over the next two years as the multiple re-rates higher and margin/FCF normalize.”
* RBC’s James McGarragle to $22 from $17 with a “sector perform” rating.
“Q3 results and the 2024 guide came in ahead of prior consensus on fuel and one-time contract-related adjustments – and we therefore view the core operating results as in line,” he said. “The buyback was well-received with the shares up more than 10 per cent; however, given the flat to positive 2025 FCF guide, we expect any repurchases to be mostly financed with debt. We remain cautious on the yield environment into next year given meaningful expected capacity increases across the industry and recent cuts to Canadian immigration targets, and therefore see downside risk to consensus yield and load factor estimates.”
* Canaccord Genuity’s Matthew Lee to $29 from $25 with a “buy” rating.
“Last quarter, AC reduced its annual guidance as competitive pressures and limited capacity growth augmented cost uncertainty around the firm’s pilot renegotiations. As the carrier worked through a complex summer, better-than-expected fuel costs, the evasion of a strike, and industry-wide capacity discipline helped Air Canada deliver an outperformance. Along with the quarter, the firm introduced an NCIB, allowing it to repurchase upwards of 10 per cent of its float. On the call, management was assured in its ability to reverse the dilutive impact of pandemic-era measures despite having $10-billion in committed capex over the next three years. We view the buyback as a reflection of management’s confidence in both the yield environment and its ability to contain costs as we move into F25. Overall, AC’s operational guidance was generally in line with our forecast (mid-single-digit capacity growth, 3-4% CASM growth, and flattish yield). The firm’s FCF guidance, however, was a surprise with management suggesting flattish FCF in F25 with increasing margins in F26,” said Mr. Lee.
* CIBC’s Kevin Chiang to $27 from $25 with an “outperformer” rating.
* JP Morgan’s Jamie Baker to $34 (Street high) from $32 with an “overweight” rating.
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Emphasizing the opportunities brought by Friday’s announcement that Apple Inc. (AAPL-Q) providing US$1.5-billion to Globalstar (GSAT-A) to fund a new satellite constellation, BMO Capital Markets analyst Thanos Moschopoulos raised his recommendation for MDA Space Ltd. (MDA-T) to “outperform” from “market perform” previously.
“We believe MDA will likely have a key role to play in the buildout of the constellation, given that it’s the prime contractor for the last batch of satellites ordered by Globalstar on behalf of Apple,” he said. “Further, we see the potential for a significantly larger follow-on revenue opportunity for MDA longer-term, as this development signals Apple’s intention to expand the scope of satellite services being provided to iPhone users.”
In a research note released Monday, Mr. Moschopoulos said he thinks Globalstar might be MDA’s “mystery customer” and hinted at a growing relationship with tech giant Apple.
“In November 2023, MDA announced a $180-million Authorization to Proceed (ATP) contract to commence work on the construction of a LEO constellation, for an undisclosed customer,” he said. “This was expanded to $300-milllion in August 2024. The constellation will have a minimum value of $750-million, comprising a minimum of 36 satellites. We believe the secrecy associated with the customer points to Globalstar/Apple, although this is unclear.
“We’ve maintained our FY2025E estimates and have introduced FY2026E. If MDA’s mystery customer is Globalstar—which we’re assuming to be the case, pending further clarity—the implication is that much of the FY2025/26 revenue associated with the new Globalstar/Apple constellation might already be encompassed in Street estimates. However, this would firm up visibility and point to a potentially much larger longer-term revenue opportunity. If the mystery customer isn’t Globalstar, we believe there’s a high probability that MDA will be chosen as a key supplier for the constellation, particularly as its work on the prior Globalstar contract seems to have been proceeding well.”
He raised his target for MDA shares to a Street high of $28 from $25. The average is currently $23.13.
Elsewhere, Canaccord Genuity’s Doug Taylor hiked his MDA target to $27 from $21 with a “buy” rating.
“We are increasing our target price on MDA to $27.00 (from $21.00) on the back of improving sentiment around the satellite industry after another round of investment signalled by Apple in Globalstar. While this has yet to translate to new awards for MDA, as the current supplier of Globalstar’s latest satellite buy, a readthrough to potential further bookings for MDA is reasonable. We are not yet changing our numbers as a result but the validation of the growth in commercial satellite investment leads us to increase our multiple further to 12-13 times (from 10 times) on our NTM+1 estimates,” said Mr. Taylor.
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After a “clean” third quarter, TD Cowen analyst Michael Tupholme raised Aecon Group Inc. (ARE-T) to “buy” from “hold” previously, citing a “solid” growth outlook and “compelling” valuation.
“Concerns regarding ARE’s fixed-price legacy projects kept us cautious,” he said. “However, ARE’s recent quantification of maximum potential legacy project risks and a clean Q3/24 provide us considerable comfort. Meanwhile, a solid revenue growth outlook and ARE’s compelling valuation support our upgrade.”
“Despite very strong recent share-price performance, on an exConcessions and ex-legacy fixed-price project losses impact basis, ARE is trading at 6.1 times our 2025 adjusted EBITDA estimate. This represents a notable discount vs. its closest Canadian peer BDT-T (7.4 times our 2025E EBITDA), and vs. ARE’s broader construction peer group (average of 10.6 times 2025E EBITDA). With continued strong execution and legacy JV projects backlog run-off, we expect ARE’s valuation discount versus peers to narrow.”
Mr. Tupholme hiked his target to $35 from $23. The average is $28.45.
Others making changes include:
* National Bank’s Maxim Sytchev to $28 from $22 with an “outperform” rating.
“Investor sentiment has improved materially following management’s commitment to ring-fence the potential incremental downside on the remaining three fixed price projects at $125-million and shares have responded positively by rallying 58 per cent since our upgrade vs. up 7 per cent for the TSX,” said Mr. Sytchev. “With the pro-forma earnings profile significantly de-risked, we expect steady margin expansion moving forward; our forecasts impute potential losses; if those do not materialize, the numbers would move higher. Furthermore, revenue visibility is also improved with the multi-year nature of incoming progressive design-build projects and exposure to the thematically growing nuclear and utilities space (now 45-per-cent Construction revenues).”
* Desjardins Securities’ Benoit Poirier to $32 from $27 with a “buy” rating.
“While the stock reaction to the 3Q print was more positive than we initially expected, we do not see this strong momentum slowing down anytime soon. ARE’s business mix and North America’s infrastructure needs have changed in the post-pandemic/high-inflation world, and so has investor sentiment toward contracting assets. We believe ARE is well set up to outperform given its expertise in these high-demand sectors (utilities and nuclear),” said Mr. Poirier.
* ATB Capital Markets’ Chris Murray to $33 from $29 with an “outperform” rating.
“Despite the significant move in share prices, we continue to see valuations as attractive (i.e., 5.5 times 2025 estimates) and would remain buyers, with potential index inclusion in December representing a near-term catalyst,” he said.
* Raymond James’ Frederic Bastien to $28 from $24 with a “market perform” rating.
“Aecon Group’s better-than-expected 3Q24 results lit a fire under the stock last week. We knew going into the print the Street was ready to cheer a quarter void of legacy project hiccups, but we are at a bit of a loss to explain Friday’s 18-per-cent spike. It could not have been the magnitude of the earnings beat alone, in our view. Perhaps short covering and algorithmic trading also played their part. Perhaps the EFGs are no longer cause for investor concern. Whatever the reasons may be, ARE is back,” said Mr. Bastien.
* Canaccord Genuity’s Yuri Lynk to $33 from $28 with a “buy” rating.
“With the three LSTK contracts all scheduled for completion by Q4/2025, and management’s estimate calling for maximum additional potential losses of $125 million, the Aecon story is significantly derisked, in our view,” said Mr. Lynk.
* CIBC’s Jacob Bout to $29 from $25 with an “outperformer” rating.
* RBC’s Sabahat Khan to $25 from $17 with a “sector perform” rating.
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RBC Capital Markets analyst Tom Narayan sees Magna International Inc. (MGA-N, MG-T) “bucking the trend” of North American auto parts suppliers.
“Magna cut ‘24 guidance above consensus levels and announced a share buyback plan, supported by better FCF in ‘25 despite macro headwinds, while other suppliers are cutting below consensus and warning on future volatility,” he said. “If Magna can execute on its plan, investor sentiment might improve. That said, we continue to worry about macros in ‘25 especially with OEMs cutting production in the U.S. and Europe.”
Shares of the Aurora, Ont.-based company jumped 6.5 per cent on Friday despite reducing its full year guidance based on slumping sales amid a global production slump of light vehicles. It now expects 2024 total sales for 2024 of US$42.2-billion to US$43.2-billion, down from a range between US$42.5-billion and US$44.1-billion.
“After posting 5.8-per-cent margins in Q3, the mid-point of Magna’s lowered ‘24 guidance implies Q4 margins increase to 6.5 per cent,” said Mr. Narayan. “Included in these improved Q4 EBIT margins are CV, up to 3 per cent at the mid-point of guidance in Q4 from 2.3 per cent in Q3. On the call, we learned that within CV, the Engineering business gets settlements and customer negotiations in Q4. Further, the Fisker headwind is now over. Also helping Q4 margins are BE&S margins up to 8.7 per cent at the midpoint of guidance from 6.8 per cent in Q3. We learned that customer recoveries were a key driver here. Power & Vision margins in Q4 are guided to be 6.2 per cent, which while a downshift from the 7.3 per cent posted in Q3, is markedly higher than the 2.6 per cent, 5.0 per cent posted in Q1 and Q2, respectively. Customer recoveries in H2 are driving this.
Magna also announced a plan to buy back 10 per cent of its float over the next 12 months, which the analyst said implies $1.2-billion at its current share price.
“The company expects to generate $700-million in FCF in 2024 and this level to increase in 2025 thanks to lower capex and higher cash from operations coming from GOM and better cost control,” he said. “Annualizing H2/24′s EBIT as a base for 2025, would suggest 10-per-cemt growth using management’s ‘24 guidance. Management believes it can use use FCF generated as well as liquidity to finance the buybacks and still reach its leverage target. It did say during the 12 month period, buyback activity and leverage might change quarter to quarter.”
Adding the buyback plan to his forecast, Mr. Narayan trimmed his target for Magna shares by US$1 to US$41, keeping a “sector perform” rating. The average is US$48.91.
Elsewhere, Scotia’s Jonathan Goldman raised his target to US$52 from US$50 with a “sector perform” rating.
“The return of the ‘classic’ Magna model – i.e., using its scale to drive efficiencies, generate FCF, and return capital to shareholders – was clearly well-received by the market (present company included),” he said. “The debate now shifts to how realistic the implied 4Q guide is (margins up 120 basis points year-over-year on flat sales) and whether the macro will support the buyback program into 2025 (we’re thinking flat production next year with potential downside on destocking).
“Management definitely deserves credit for controlling what it can control (costs, capex, capital allocation). While valuation is attractive at 6.4 times P/E on our 2025E, we are inclined to take a wait and see approach given macro risks. Moreover, we forecast FCF of $1.45 billion. Assuming the company maxes out the NCIB (10 per cent of the float), we estimate leverage will remain modestly above the high-end of the target range of 1 times to 1.5x exiting 2025. We raised our estimates, primarily due to including the full buyback in our estimates. We left our multiple unchanged for now, but acknowledge higher risks associated with higher leverage, especially at this point of the cycle.”
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The lithium market remains oversupplied and will likely to lead to lower third-quarter results for both producers and royalty companies, according to National Bank Financial analyst Mohamed Sidibé.
In a research report released Monday, he lowered his near-term price expectation “to current spot prices until Q4/25 given the lack of meaningful curtailments despite the current low prices.”
“Overall, our lithium supply expectations rise on the back of modeling a more detailed production out of China and Zimbabwe, offset by a reflection of concentrate grades impact on conversion and curtailments and project delays announced,” Mr. Sidibé said. “Our demand forecast remains largely unchanged with our higher forecasted EV sales and expected energy storage system (ESS) growth, mostly offset by the higher share of sales being PHEVs and higher future share of LFP demand vs. other cathodes.”
“The recurring question we get in our discussions with clients is whether we have reached a bottom in lithium prices. While the visibility of the cost curve for operations in Africa and China remain opaque, we would note that recent curtailment announcements, recent M&A in the space in addition to continued better-than-expected EV sales out of China could provide some glimmer of hope is this gloomy price environment. We provide a review of our estimate of the 2024 cost curve, which, if accurate, would point to 18 per cent of 2025E supply (250kt LCE) potentially being at risk of being underwater based on our analysis vs. a surplus of 100kt LCE. However, we would need to see a lot more curtailments to confirm this view.”
With lithium carbonate and spodumene concentrate prices down 24 per cent and 23 per cent, respectively, from the second quarter, which the analyst attributed to “souring sentiment around EV sales,” Mr. Sidibé trimmed his expectations for companies in his coverage universe, leading to lower target prices for three stocks. His changes are:
- Lithium Americas (Argentina) Corp. (LAAC-N/LAAC-T, “sector perform”) to US$4 from US$4.75. The average is US$5.87,
- Lithium Royalty Corp. (LIRC-T, “outperform”) to $7.50 from $9.50. Average: $9.75.
- Patriot Battery Metals Inc. (PMET-T, “outperform”) to $9 from $10. Average: $11.74.
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Seeing signs of stabilization in its outlook, Canaccord Genuity’s Aravinda Galappatthige upgraded Cogeco Communications Inc. (CCA-T) to “buy” from “hold” on Monday.
“Post Q4/24, while Cogeco Communications is still some distance from turning the corner and posting meaningful growth in its financials, we believe there is adequate evidence to suggest a degree of stability in its outlook,” he said. “Notwithstanding the highly competitive and mature markets it operates in, we see encouraging signs in terms of the initiatives that are being deployed to deal with headwinds. We believe that the combination of its internal (multi-year) restructuring efforts and upgrades to processes (including digitization), alongside its wireless plans (MVNO) both in Canada and the US, sets the stage for incremental gains in terms of financial outlook. We also note that its spectrum holdings remain unencumbered at this stage and carry substantial market value, potentially in the $1.5-2-billion range. Factoring all this in, and the attractive dividend profile (5.3-per-cent yield with annual HSD -high single-digit] growth), we have opted to upgrade the stock from a HOLD to BUY.”
Mr. Galappatthige’s target rose to $77 from $65. The average is $77.54.
Other changes include:
* RBC’s Drew McReynolds to $77 from $79 with a “sector perform” rating.
“Despite more competitively intense operating environments in both Canada and the U.S., we believe management continues to execute on multiple growth initiatives that include rural broadband expansion, entry into North American wireless markets, digitization, and realizing additional synergies between Canadian Broadband and American Broadband,” he said. “While we remain on the sidelines given the more challenged revenue environment due in part to elevated competitive intensity reflecting expanding FTTH/5G/ FWA footprints in Canada and the U.S., we do continue to see value in the stock and look for better visibility on potential catalysts that could include a stronger uptick in revenue growth driven by rural broadband expansion and/or wireless entry, as well as any potential easing in U.S. competition/concerns, particularly with respect to FWA.”
* TD’s Vince Valentini to $89 from $85 with a “buy” rating.
“Q4/24 results were ahead of our expectations (especially on FCF), but guidance for percentage growth in 2025 (off the higher starting point in 2024) was a bit below our prior estimates (partially owing to new opex investments in a three-year transformation plan aimed at driving better long-term revenue growth and marketing effectiveness),” said Mr. Valentini.
* Scotia’s Maher Yaghi to $77.50 from $73.50 with a “sector perform” rating.
“Given the company’s 2025 guidance, we estimate top and bottom line growth to average around 1% per year from 2022 to 2025, clearly showing the challenging environment that the company is having to contend with both in the U.S. and in Canada,” said Mr. Yaghi. “Management has begun to revamp and implement changes to operations in order to squeeze more profit and is launching wireless services on both sides of the border in 2025. We expect contribution from the operational changes to be visible only in 2026 and beyond. As for wireless, we do expect that it would begin to contribute to the topline in the coming quarters however initially it will likely be margin dilutive. In the U.S., competition from FWA remains intense, pressure that all cablecos in the U.S. are having to deal with. Until we see a clearer path to recovery in subscriber loading in the U.S., we are maintaining our Sector Perform rating.”
* National Bank’s Adam Shine increased his target to $84 from $80 with an “outperform” rating.
Meanwhile, CIBC’s Stephanie Price cut her Cogeco Inc. (CGO-T) target to $67 from $69 with a “neutral” rating, while TD’s Vince Valentini raised his target to $104 from $99 with a “buy” rating. The average is $83.
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In other analyst actions:
* RBC’s Pammi Bir increased his Allied Properties REIT (AP.UN-T) target to $19 from $18 with a “sector perform” rating. The average is $20.19.
“Allied’s Q3 results were in line with our call, yet fundamentals remain under pressure with organic growth taking a larger step back. From our standpoint, a recovery should begin to take hold in 2025, albeit slow, as challenges in office fundamentals will likely persist amid a tepid economy. Some early progress is being made on the balance sheet, but frankly, this too will be a gradual repair process. In short, we think current levels reasonably capture the heavy work ahead,” he said.
* Ahead of its Nov. 7 earnings release, Canaccord Genuity’s Luke Hannan bumped his Canadian Tire Corp. Ltd. (CTC.A-T) target to $157 from $156 with a “hold” rating. The average is $159.10.
“During Q2/24, management called out several factors pointing to an improved H2/24 for its retail segment including (1) healthy levels of corporate and dealer inventory, (2) the slowing pace of CTR comparable sales declines, and (3) strong demand for private label offerings,” said Mr. Hannan. “In Q2/24, Canadian Tire actively managed its inventory positioning, resulting in a 15-per-cent year-over-year decline in corporate inventory and a 6-per-cent year-over-year decline in dealer inventory. As a result, management now expects dealer inventory purchases to closely track POS trends, with early orders for winter categories tracking in line with expectations. In addition, the pace of CTR comp sales declines slowed to 2 per cent during July with management remaining optimistic that consumer confidence may rebound with recent interest rate cuts.
“That said, we’ve elected to stay conservative with our estimates primarily due to CTC’s exposure to heavily indebted customers in VECTOM markets, which account for a third of total sales. Accordingly, we forecast year-over-year declines in comparable sales of 2.5 per cent, 1.0 per cent and 0.5 per cent at CTR, SportChek, and Mark’s, respectively, for Q3/24.”
* Canaccord Genuity’s Dalton Baretto lowered his Capstone Copper Corp. (CS-T) target to $14 from $15 with a “buy” rating. The average is $13.45.
* CIBC’s Robert Catellier raised his Enbridge Inc. (ENB-T) target to $61 from $59, exceeding the $57.79 average, with an “outperformer” rating. Other changes include: National Bank’s Patrick Kenny to $58 from $57 with a “sector perform” rating.
* RBC’s Keith Mackey bumped his Ensign Energy Services Inc. (ESI-T) target to $3.75 from $3.50 with an “outperform” rating. The average is $3.63.
* Scotia’s Phil Hardie increased his target for Fairfax Financial Holdings Ltd. (FFH-T) to $2,200 from $2,100 with a “sector outperform” rating, while RBC’s Scott Heleniak raised his target to US$1,500 from US$1,425 with an “outperform” rating. The average is $2,148.32.
“Overall we viewed Q3 as a strong underwriting quarter as the company delivered a core accident year combined ratio that was sub-90 per cent,” said Mr. Heleniak. “Cat losses were heavy as expected but manageable and in line with our estimate. Reserve releases were solid with no notable weakness in any particular areas. Premium growth was in line with our forecast as Fairfax continues to find pockets of growth in areas like specialty and international. Investment income and dividends were up year-over-year but lagged our forecast. We remain constructive on FFH shares and we continue to find the current valuation appealing.”
* RBC’s Pammi Bir bumped his target for Morguard REIT (MRT.UN-T) to $6 from $5.50 with a “sector perform” rating. The average is $5.67.
“Post in-line Q3 results, our outlook on Morguard REIT is intact,” said Mr. Bir. “Operationally, traction continues to improve on advances in the retail and office portfolios. Indeed, organic growth in the mall portfolio is particularly encouraging. That said, the setup for 2025 remains tough, with significant NOI erosion anticipated at Penn West Plaza in Calgary. Coupled with wood to chop on the balance sheet, we believe current levels reasonably balance the challenges ahead.”
* “Expecting a more challenged backdrop than earlier anticipated” for Premium Brands Holdings Corp. (PBH-T), National Bank’s Vishal Shreedhar cut his target for its shares to $99 from $109 with a “sector perform” rating. The average is $110.67.
“Specifically, we expect challenges in the QSR sector and delays in the retail sector within Specialty Foods (SF). This may push back growth and result in a downward revision to 2024 guidance,” he said.