Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank analyst Meny Grauman discusses the big banks most likely to disappoint on profitability,
“One of the most important questions facing Canadian bank investors right now is whether the Big Six banks will be able to hit their medium-term ROE guidance. Considering that only NA [National Bank of Canada] is currently delivering an above-target ROE, the answer would appear to be ‘no’. The market is clearly skeptical, with even consensus ROE expectations for NA coming in below the bank’s official target in both F2025 and F2026 (see Ex. 9). Given that bank ROEs have come under secular pressure for the past 20 years, achieving these targets will be an uphill battle for sure, but our analysis shows that there is a credible path to success on the back of improved ROAs [return on assets], even if some banks will have a harder time than others. NA and RY [Royal Bank of Canada] are best positioned in this respect, while CM and BMO [Canadian Imperial Bank of Commerce and Bank of Montreal] will have the hardest time getting there, and are most at risk of abandoning their current ROE guidance in the quarters ahead. This report highlights why NA and RY are likely to continue to trade at a premium to the group, while quantifying what peers need to do to get there”
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CIBC Capital Markets analyst Bryce Adams has increased commodity price forecasts for copper and uranium, pushing related stock price targets higher,
“Uranium Preferred: Pricing was strong to start the year and has since been volatile but resilient. We have increased our 2024E term price by 8% to $79/lb, and we now expect $90/lb and $95/lb in 2025 and 2026, respectively, compared to $80/lb for both, prior … Improved Copper Outlook: Our copper price forecast for 2024-2025-2026 improves by 10%, 6%, and 12%, respectively, and we have increased our long-term price to $4.00/lb, from $3.80/lb”
Mr. Adams raised his price target on Cameco Corp. from $74 to $80, Capstone Copper from $10.50 to $12, First Quantum Minerals from $15 to $18, Hudbay Minerals to $15.50 from $14.50 and Lundin Mining from $15 to $16.
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BofA Securities investment strategist Michael Hartnett’s weekly report was blunt and pithy as always,
“Zeitgeist I: “With your FMS [fund manager survey] hard landing probability down to 5%, aren’t you kinda meant to buy the long bond here.” Zeitgeist II: “My biggest worry is a sweep in the US election & a Liz Truss moment.” The Kids Are Alright: 2024 is the first election in 30 years in which Baby Boomers are not the majority voting bloc: 65m Gen Z & Millennial votes outnumber 50m boomers ; most important issues for US voters aged 18-292 : inflation/healthcare/housing; least important: student loans; inflation & cost of healthcare/housing politically unpopular for most important voters – investors should not assume perpetual fiscal excess in our view”
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Also from Scotiabank, strategist Jean-Michel Gauthier believes resource sectors will continue to drive positive earnings revisions for the TSX,
“WTI prices have enjoyed a 12% rally since their early June lows, closing yesterday at US$82/bbl. Breaching back above the US$80/bbl threshold was key in our view to remove some negative revision potential from Energy stocks. As shown in the upper Chart of the Day, sell-side had been ramping up their consensus WTI levels used in their models to US$80/bbl. Hence, the early June plunge was concerning for their earnings outlook. Looking at Gold miners, the middle Chart of the Day hints at large upside to revisions come the Q2 earnings season with spot prices of US$2,374/oz hovering far above the US$2,150/oz used in models for the next few quarters. Finally, copper miners should still enjoy some positive revisions despite spot prices falling 11% below their May highs: as shown in the lower Chart of the Day, near-term sell-side consensus forecasts remain visibly below current levels. Overall, the commodity space should thus continue to power positive revisions in Canada despite struggles in other sectors. Perhaps the only potential spoiler for Energy might come from AECO Natural Gas prices”
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Diversion: “Dell said return to the office or else—nearly half of workers chose “or else”” – Ars Technica