Inside the Market’s roundup of some of today’s key analyst actions
National Bank’s Vishal Shreedhar predicts “solid” cost control and the consolidation of its financial services division are likely to drive earnings growth for Canadian Tire Corp. Ltd. (CTC.A-T), expressing “cautious optimism” for both its third-quarter results and the remainder of the current fiscal year.
The analyst is currently projecting earnings per share for the quarter of $3.29, up from $2.96 during the same period a year ago and exceeding the Street’s expectation of $3.02. He attributes the 11.0-per-cent year-over-year gain to “positive same-store sales growth at Mark’s and Sportchek, Retail gross margin expansion, SG&A leverage, full consolidation of CTFS and share repurchases over the last 12 months, partly offset by negative sssg at CTR, higher interest expense and a higher tax rate.”
“We model slight Q3/24 Retail (excluding Petroleum) revenue growth, reflecting positive sssg at Mark’s and Sportchek and reports of resilient back-to-school spending (Retail Council of Canada survey) amongst other factors, mostly offset by negative CTR sssg albeit sequentially improving (July 2024 sssg at negative 2.0 per cent is better than Q2/24 at negative 5.6 per cent),” said Mr. Shreedhar in a note previewing the Nov. 7 earnings release.
“Beyond the quarter, we expect solid performance in Q4/24, reflecting easier comparables. (2) Recall, the gross margin benefit from freight is expected to moderate in H2/24. NBF models Q3/24 Retail gross margin excluding Petroleum to be higher by 50 basis points year-over-year; all else equal, a 10 bps change to margin would impact our Q3/24 EPS by $0.04.”
Seeing the opportunity for higher dealer replenishment versus a year ago and noting “the difference in performance between essential and discretionary is narrowing modestly,” Mr. Shreedhar hiked his target for Canadian Tire shares to $169 from $168 based largely on a higher valuation multiple and maintained a “sector perform” rating. The average target on the Street is $159.20, according to LSEG data.
“Given soft consumer demand and uneven operating performance, we see more attractive opportunities elsewhere in our coverage universe,” he concluded.
Elsewhere, TD Cowen’s Brian Morrison reiterated a “buy” rating and $175 target.
“CTC appears to be progressing through the bottoming of its earnings cycle,” he said. “A meaningful recovery will take time, but Retail should start to benefit from a declining rate environment, dealer restocking, and ongoing cost focus. CTFS should benefit from a stabilization/improvement in write-offs and a potential monetization event. These factors should lead to an EPS inflection and multiple expansion.”
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RBC Dominion Securities analyst Jimmy Shan thinks the idea of a potential spin-off of Colliers International Group Inc.’s (CIGI-Q, CIGI-T) Investment Management (IM) business into a stand-alone public entity “could be gaining traction given high valuation multiples observed in both public comps and private market transactions along with its ambition to grow the business.”
While he does not see a move as “imminent nor have knowledge of anything in the works,” Mr. Shan sees “merits and upside” to such a move “with its own spinoff from FSV serving as proven playbook.”
“Recent private market transactions of similar sized businesses at 18-29 times and listed (albeit larger) public comps trading at 20-26 times suggest a spin-off could capitalize on high valuation multiples,” he said. “A stand-alone IM would be one of few TSX-listed, asset-light asset managers oriented to real assets and alternatives. Moreover, given its smaller size, that it earns no performance fees yet, and impressive 5-year EBITDA/AUM CAGRs [compound annual growth rates] of 36 per cent/31 per cent to us it would not be a stretch to think that IM trades at 15-25 times, translating into total value/share of $161-$211.
“Currently, it is hard for CIGI to grow IM through M&A – having raised equity at 12 times ‘24 estimated company EBITDA, buying IM platforms at more than 15 times isn’t ‘mathing.’ We believe an optimized capital structure would allow IM to accelerate growth, pursue independent value creation strategies, or even pursue larger-scale mergers. Scaling is a key success factor because of significant operating leverage and a trend of LPs consolidating their GPs.”
The analyst sees “a proven playbook,” noting its own spin-off from FSV in 2015 “resulted in subsequent significant value creation for shareholders in both entities.” He also sees a “smooth” operational transition with the IM business is already set up and run independently from the rest.
“Reasons a spin-off may not be in the cards just yet: 1) More scale needed: If growth does not materialize or it trades at low multiple, market cap could be less than $2.5-billlion with even smaller float, running the risk of being orphaned; 2) further integration: aside from HS, Basalt, Rockwood and Versus were acquired only 2 years ago; 3) on the Q2/24 call, CEO Jay Hennick indicated that all options are being considered but there’s no urgency,” he said.
Maintaining his “outperform” recommendation for the Toronto-based company’s shares, Mr. Shan raised his target to US$174 from US$160 to reflect a higher trading multiple. The average target on the Street is US$155.83.
“We think a spin-off has strategic merits and value-unlocking potential. Regardless of whether it occurs or not, we believe a higher value should be reflected in our valuation,” said Mr. Shan.
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BRP Inc.’s (DOO-T) decision to put the bulk of its marine business up for sale is “the right move in a challenging market,” according to National Bank analyst Cameron Doerksen, who sees “structural improvement to profitability going forward.”
“The Marine segment for BRP has struggled as of late and the company is guiding for Marine revenue to be down 40-50 per cent this year. The segment generated a gross profit loss of approximately $60-million in H1 this fiscal year and management has pegged the EPS headwind from Marine this year at $1.50 per share.
“While the Marine segment’s results are currently much worse than prior years, we note that even in the segment’s best performing years, gross margins were still not at the same level as the Powersports business. In fiscal 2022, which saw the Marine business generate over $500-million in revenue, the gross margin was 15 per cent, still only about half of the 28.8-per-cent gross margin that the Powersports business earned. So while the sale of the Marine business will be an immediate boost to BRP’s bottom line, we also see a structural improvement to profitability margins longer-term.”
Mr. Doerksen did caution that proceeds from the divestiture are not likely to be material. He estimates BRP has invested $100-$200-million in product development after entering the Marine business through three acquisitions in 2018 and 2019 where it paid $291-million in total.
“While we don’t expect BRP to fully recoup its investment given the low profitability of the business today and the still challenging end market conditions, it should recover some proceeds, and we expect there to be some interest as the broader boat building industry has seen consolidation in recent years,” he said. “The three boat brands (Alumacraft, Manitou and the Telwater brands in Australia) are recognized in the industry and BRP has invested significantly in innovation across the portfolio in recent years, which will be attractive assets for a prospective buyer.”
Expecting the powersports industry to continue to face challenging industry conditions for the next several quarters at least, he maintained his “sector perform” recommendation for BRP shares but increased his target to $93 from $89. The average target on the Street is $92.83.
“We view the decision to exit the Marine segment through a sale as the right one for the company, and we see positive implications for overall company margins as the demand for BRP’s core powersports products eventually recovers,” he said.
“The net result of our changes is that our F2026 EPS forecast moves higher, driven mainly by the exit of Marine. Although we have tempered our expectations, we still assume some modest recovery in powersports volumes next year as BRP will not face the same dealer inventory de-stock headwind next year as it faces this year (and hopefully snow conditions this winter will be more supportive for snowmobile demand).”
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Stifel analysts reiterated their bullish outlook for precious metals heading into third-quarter earnings season, raising their near-term, 2025-2027 and long-term price expectations for both gold and silver.
In a research report released Monday titled Rising tide lifts all boats; margin expansion to drive strong cash flow generation in H2, the firm emphasized gold is the “only asset that survives every war, every conflict and every crisis.”
“While 3Q24 saw relatively lower central bank or Chinese demand for the yellow metal, the price was supported by weaker economic data points from the U.S., driving up the hopes of anticipated rate cuts. The Fed finally initiated the much-awaited monetary policy change with a surprising ‘jumbo’ 50 basis points rate cut,” he said. “Although the central bank purchases have relatively cooled down, overall they remained in a net buying position, which points to a stronger 2024 finish. Looking ahead, we expect this momentum in the price of gold to continue as rate cuts continue through 4Q to the end of 2025 with central bank buying, return of ETF investors in the west and the ongoing geo-political situation to offer support.”
With the changes to their price deck and company-specific adjustments, the analysts made a series of target changes to stocks in their coverage universe.
For senior producers, their changes are:
- Agnico Eagle Mines Ltd. (AEM-T, “buy”) to $140 from $114. The average is $121.40.
- Barrick Gold Corp. (ABX-T, “buy”) to $33.50 from $28.50. Average: $34.18.
- Kinross Gold Corp. (K-T, “buy”) to $18 from $14.50. Average: $15.83.
“The gold rally has seen strong share appreciation for the “torquier” names. Valuation multiples have started to move up, but sustained gold / silver prices at these levels should offer further upside. Our top gold ideas are: AEM, K, DPM, KNT, and CXB. On the silver names: AYA,” the analysts said.
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Desjardins Securities analyst Gary Ho thinks strength in Ag Growth International Inc.’s (AFN-T) Commercial segment will likely not be enough to offset “softness” in its U.S. Farm business when it reports third-quarter financial results in early November.
In a note released Monday, he cut his forecast for the Winnipeg-based company despite believing “multiple sizeable project wins in International that should drive year-over-year backlog growth.
“Aside from U.S. Farm, other platforms/regions remain solid while operational excellence should sustain EBITDA margin at 19 per cent plus and leverage trending toward 2.5 times by 4Q24,” said Mr. Ho.
He’s now forecasting revenue of $366-million, down from $399-million and below fiscal 2023′s $410-million. His adjusted EBITDA projection slid to $74-million from $81-million also short of last year’s $85-million. Both expectations are under the consensus estimates on the Street ($425-million and $85-million, respectively).
“U.S. Farm (approximately 20–25 per cent of revenue) has been weaker than expected, with elevated input costs leading to weaker farmers’ income, offset by a strong harvest,” he said. “Dealer inventory remained high through the harvest season. We are more cautious on the U.S. Farm outlook, with softness expected to persist near-term. Recall guidance of $300–310-million baked in some rebound in dealer inventory, which has not materialized. Canada and India remain solid, offset by the U.S., Brazil and Australia.
“Commercial. Project wins should bode well for 4Q24/2025. AFN won several large projects recently ($15–20-milion-plus), including its second government-backed storage project in India, several projects in the Middle East and two large wins in Brazil. The robust pipeline should support continued strength. The order book is net up year-over-year, with robust Commercial (especially International) offsetting Farm softness.”
To reflect “uncertainty around U.S. Farm,” Mr. Ho lowered his target for Ag Growth shares to $70 from $76, keeping a “buy” rating. The average is $75.75.
“Our positive investment thesis is predicated on: (1) broad-based growth across segments and regions; (2) margin expansion through operational excellence; (3) deleveraging; and (4) a proactive approach to driving organic growth through product transfers and other initiatives,” he said.
In a separate note, Mr. Ho bumped his Alaris Equity Partners Income Trust (AD.UN-T) target to $22 from $21 with a “buy” rating. The average is $21.31.
“AD reports after market on November 5,” he said. “We expect FV gains as lower discount rates benefit valuations. The portfolio remains healthy, with particular strength in Fleet and solid performance from BCC and Ohana, offset by SCR and Heritage. We increased our 3Q estimates, assuming better common distributions and higher FV marks ... The units trade at an attractive 0.84 times P/BV, with a 7.2-per-cent dividend yield.”
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Expecting in-line third-quarter results despite a foreign exchange headwind from a stronger Canadian dollar, National Bank analyst Rupert Merer sees “multiple levers for growth and deleveraging” for GFL Environmental Inc. (GFL-T).
“GFL plans to invest $250-300-million in high-return RNG and EPR infrastructure in 2024, with ~$150-million deployed through Q2,” he said. “Post Q3, it commenced operations at its Sampson County, with a design capacity of 1.6 million MMBtu/yr [million British thermal units per year] of RNG, which increases our initial estimate by 0.6 milion MMBtu. GFL anticipates one to two additional RNG sites and increased EPR contributions in H2′24. The three new sites are forecast to generate $20-30 million per year in incremental EBITDA in 2025E, with the total RNG portfolio projected to contribute $175 million in adjusted EBITDA from 21 sites. Additionally, GFL plans to invest $600-650-million in M&A this year, already deploying $500-million year-to-date.
“[GFL’s] pathway toward investment-grade rating [is] becoming clearer. GFL targets an investment-grade rating and a leverage target of 3.65-3.85 times by ‘24E. In Q3, it converted 14.6 million preferred shares into 16 million common shares and issued $210-million in tax-exempt municipal bonds to help refinance its $750-million 2025 note and shift toward a more unsecured debt structure. Also, we believe the sale of its Environmental Services segment could yield more than $5-billion (at 11-15 times EV/EBITDA) in the next 4-5 months, enabling GFL to reduce leverage ($9.7-billion in debt as of Q2) while investing in core growth and potentially repurchasing stock.”
Mr. Merer made modest adjustments to both his third-quarter and full-year forecast to reflect changes to commodity prices, fuel prices, interest rates and FX. His quarterly revenue projection of $2.058-billion now matches the Street’s expectation, while his adjusted EBITDA estimates of $617-million (up from $613-million) is narrowly below the consensus of $623-million.
Reiterating an “outperform” rating, Mr. Merer raised his target to $66 from $60 after valuation tweaks to account for a decrease in the 12-month forecast for the Canadian 10-year bond yield. The average is $57.30.
“Our target also uses a 14.5 times EV/EBITDA multiple (was 14 times) on our 2025 versus peer average at 17.4 times FY1E,” he said. “The increase in our multiple reflects greater confidence in the sale of its Environmental Services division and a clearer path to an investment-grade rating, which should lead to GFL trading closer to its peers.”
“We believe GFL has multiple levers to unlock value for shareholders, presenting an attractive long-term opportunity.”
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In a report titled A Solid Defense Is The Best Offense, CIBC World Markets analyst Stephanie Price warned the calendar third quarter normally is “seasonally slower” for the majority of Canadian software and services companies, however she emphasized the Street is forecasting an 8-per-cent year-over-year jump in EBITDA.
“At the beginning of the year, many companies highlighted an expectation for a back-half weighted year,” she said. “As we approach the end of calendar 2024, we have yet to see a material improvement in the demand environment. At this point, the weaker environment appears mostly baked in, with a number of our SaaS names reducing F2024 guidance with Q2 results. Across our coverage, we are broadly in line with Street estimates for Q3 and will be looking for commentary on the F2025 outlook with results. We continue to prefer the defensive names in this environment and highlight GIB.A, DSGX and CSU as top picks.”
Ms. Price adjusted her targets for seven stocks in her coverage universe. They are:
- Converge Technology Solutions Corp. (CTS-T, “neutral”) to $5 from $4.50. The average is $6.25.
- Descartes Systems Group Inc. (DSGX-Q/DSG-T, “outperformer”) to US$116 from US$108. Average: US$107.46.
- Docebo Inc. (DCBO-Q/DCBO-T, “outperformer”) to US$55 from US$52. Average: US$57.17.
- Kinaxis Inc. (KXS-T, “neutral”) to $175 from $152. Average: $192.67.
- Softchoice Corp. (SFTC-T, “neutral”) to $22 from $19.50. Average: $22.13.
- Telus International Inc. (TIXT-N/TIXT-T, “neutral”) to US$4.50 from US$5. Average: US$5.49.
- Thomson Reuters Corp. (TRI-N/TRI-T, “neutral”) to US$164 from US$156. Average: US$166.09.
“Heading into Q2 reporting, we favour defensive software names and highlight Constellation, Descartes and CGI as our top picks,” she said. “CSU has strong recurring revenue (70 per cent), and we expect the company to remain active on M&A given its strong balance sheet. At Descartes, we expect the company to benefit from recent M&A spending and continue to foresee upside from an eventual freight recovery. We recently upgraded CGI and see the company as well positioned in the resilient government vertical, with upside from AI opportunities as well as M&A. We expect solid U.S. government bookings from CGI ahead of the government’s fiscal year-end and the upcoming election.”
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In other analyst actions:
* Citing competitive challenges and slowing brand momentum, Goldman Sachs’ Brooke Roach downgraded Canada Goose Holdings Inc. (GOOS-T, GOOS-N) to “sell” from “neutral” with a US$9 target, down from US$11 and below the US$11.21 average.
“We believe a tougher backdrop could weigh on the company’s ability to execute against strategic initiatives, and we see risk to the rate and pace of both sales growth and operating margin expansion within the company’s guidance,” she said.
Ms. Roach added: “We see a less attractive risk/reward relative to other companies in our brands and apparel sector for GOOS.”
* Following last week’s release of weaker-than-anticipated third-quarter result and a reduction to its full-year guidance, Raymond James’ Farooq Hamed cut his Calibre Mining Corp. (CXB-T) target to $3.25 from $3.50 with an “outperform” rating. Other changes include: BMO’s Brian Quast to $4.40 from $5 with an “outperform” rating and TD Cowen’s Steven Green to $3.50 from $3.75 with a “buy” rating. The average is $3.43.
“CXB has consistently improved operations in Nicaragua since taking over those mines in 2019, and we view the company as good operators,” said Mr. Green. “For that reason we are comfortable assuming the Q3 production miss is not indicative of a larger problem. And despite the higher capital costs at Valentine, we still view that project as a game changer for CXB providing resource and production upside.”
* Desjardins Securities’ Frederic Tremblay trimmed his Colabor Group Inc. (GCL-T) target to $1.85 from $2 with a “buy” rating. The average is $1.83.
“Within the 3Q release, we were particularly pleased with Colabor’s strong cash flow generation as well as the revenue growth achieved by Distribution activities in spite of a challenging environment for restaurants,” he said. “In our view, this shows the benefits of Colabor’s customer diversification and territory expansion strategies. We were pleased to see Colabor renew a large contract and believe that concerns about its short-term margin profile are overblown.”
* Following a site tour of its 100-per-cent-owend Greenstone mine in Northwestern Ontario last week, National Bank’s Mike Parkin cut his Equinox Gold Corp. (EQX-T) target to $10.50 from $12 with an “outperform” rating. The average is $10.45.
“Following the release of the Greenstone ramp-up update ahead of the tour, the stock dropped 7.1 per cent in Thursday’s trading, which we believe was largely tied to the significant 2024 gold production guidance revision for the asset,” he said. “Although the near-term revisions were negative, the slower than expected ramp-up largely shifts these ounces out and reduces near-term margins, with management explaining on the site tour the plans to address these challenges. Overall, we do not view any of the challenges as overly challenging to overcome and see a bright future for this flagship asset.
“We believe the outlook for the Greenstone asset for 2Q25 and beyond remains robust and the company is in a sound financial position to work through the expected short-term challenges. We have updated our model to take a modestly conservative position to the latest guidance, and we continue to see good upside in the shares from current levels and thus maintain our Outperforming rating. With a good ramp-up of this flagship asset over the coming few quarters, we could see the company re-rate to trade at a higher valuation vs peers as it should result in the company shifting into a period of generating robust FCF.”
* Raymond James’ Brad Sturges moved his NexLiving Communities Inc. (NXLV-X) target to $3.25, above the $3.17 average, from $3 with an “outperform” rating.
* TD Cowen’s Jonathan Kelcher raised his Sienna Senior Living Inc. (SIA-T) target by $1 to $19 with a “buy” rating. The average is $17.86.
* Raymond James’ Michael Glen increased his 5N Plus Inc. (VNP-T) target to $9 from $8.50 with an “outperform” rating. The average is $8.38.
“We had an opportunity to host investor meetings in Toronto and New York with Gervais Jacques, President and CEO and Richard Perron, CFO,” he said. “Focal points for the meetings included First Solar (FSLR), AZUR/RayGen, Medical Imaging, Bismuth, 2024 and 2025 EBITDA guidance, and what management is thinking with respect to M&A. We would characterize the tone of the meetings as exceptionally constructive, and reinforced our view that we expect the business to continue posting very strong results through 2H24 and 2025. With that, we are once again increasing our price target to $9.00 (from $8.50) as we assess what we view as an appropriate multiple for the company’s high growth segments and optionality surrounding AZUR/Raygen and medical imaging.”