Inside the Market’s roundup of some of today’s key analyst actions
A number of analysts trimmed their price targets on Royal Bank of Canada (RY-T) following an earnings report Wednesday that modestly missed Street estimates on the bottom line and was generally perceived as mildly disappointing.
Royal Bank reported core cash earnings per share of C$2.55 in the fiscal third quarter, which missed the Street estimate of C$2.66. The bank reported core return on equity of 14.6% this quarter, which was down 380 basis points over the quarter. As expected, the bank left its dividend unchanged at C$1.28/share.
Credit Suisse analyst Joo Ho Kim cut his price target by C$1 to C$143 but maintained an “outperform” rating.
“We view RY’s Q3 results as mixed, as continued strength in the bank’s core Canadian Banking franchise (strong margin expansion in particular and expectation for more ahead) was somewhat overshadowed by higher-than-expected markdowns in the Capital Markets segment that dragged down revenue and PTPP [Pre-tax, Pre-Provision] earnings growth,” the analyst said in a note to clients.
“RY also made a slight negative revision to its expense guidance for the year, which suggests that we could see investments remain relatively high in the near term. Taking a step back, we continue to believe that the bank’s diversified mix of business and capital strength (with RY remaining comfortable operating at a higher capital ratio) should serve well, especially as we face continued uncertainties and a potential slowdown in growth ahead,” he added.
Desjardins Securities analyst Doug Young cut his price target by C$2 to C$141 as he reiterated a “buy” rating.
Mr. Young overall termed the third quarter earnings as “slightly negative.”
“Adjusted pre-tax, preprovision (PTPP) earnings were 4% below our forecast, although most of the delta was related to capital markets, which we are less fussed with. Otherwise, we like the underlying trends at RY’s core banking and wealth management businesses,” he wrote in a note to clients.
Elsewhere, Canaccord Genuity cut its price target to C$$130.50 from C$131.50, National Bank raised its target by $1 to C$148, and Cormark Securities raised its target price to C$151 from C$147.
Canaccord analyst Scott Chan is maintaining a “hold” rating. He notes that, like the other Canadian banks that have reported results this quarter, capital markets revenues have been under pressure - falling by 33% at RBC. There have been lower trading and deal flows, as well as markdowns in Royal Bank’s underwriting portfolio.
National Bank analyst Gabriel Dechaine reiterated an “outperform” rating. He suggested that capital markets weakness may prove “transitory”; meanwhile, Royal Bank’s Net Interest Margins (NIM) was surprisingly strong and could yield more sustainable benefits for the company’s financials.
“Encouragingly, the bank guided to 10-15 bps of NIM expansion in Canadian banking over the next couple of quarters,” he said in a note. “We could also see similar NIM expansion in the U.S., though it is a smaller part of the consolidated picture.”
Those upgraded NIM forecasts from the bank led Mr. Dechaine to make positive changes to his EPS estimates, resulting in his slightly higher price target.
The average analyst price target is now C$138.33, down from C$143.32 a month ago, according to Refinitiv Eikon data.
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National Bank of Canada (NA-T) saw some minor changes to price targets following its earnings report on Wednesday, which on the whole were a bit better than expected.
Canaccord Genuity cut its target price to C$100 from C$101, KBW raised its target price to C$100 from C$98, Barclarys raised its price target by C$1 to C$92, and Cormark Securities raised its price target to C$115 from C$114.
Scott Chan of Canaccord maintained a “hold” rating on National Bank. “NA reported a modest core EPS beat, with Financial Markets performance surprisingly providing support (unlike peers thus far),” he said in a note to clients.
Elsewhere, Veritas Investment Research downgraded its rating on National bank to “sell” from “reduce.”
The average price target is now C$102.92, down from C$104.33 a month ago.
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BMO analyst Peter Sklar is convinced that Dollarama Inc. (DOL-T) is a stock to own during inflationary times and raised his price target by C$15 to C$95.
“Dollarama’s longstanding reputation for compelling value has been and will continue to be a major traffic driver during periods of high inflation when the consumers’ wallet is squeezed,” he said in a note to clients.
Currently, Dollarama trades at about 18.5 times his fiscal year 2023 EBITDA forecasts, and 16 times his 2024 forecasts. That’s within the historical valuation range of between 14 to 20 times forward EBITDA. “Given the inflationary pressures on consumers, we believe there could be potential for Dollarama to trade up to or beyond 20x EBITDA,” Mr. Sklar said.
Dollarama introduced new higher price points in July for its products, at $4.50, $4.75 and $5 per purchase, and Mr. Sklar has noticed these pop up across product categories at the retailer.
He cited one instance where he’s spotted consumers can save big money by shopping at Dollarama: “Consistent with Dollarama’s value proposition, we spotted an identical Secret-branded shapewear priced at $5 with a $32.97 Manufacturer’s Suggested Retail Price and selling at Walmart.ca for $32.97. This is an example of the type of value that Dollarama’s customers have come to know and love about Dollarama, making it an ideal bargain hunting destination.”
The average analyst target is C$80.85.
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Canaccord Genuity initiated coverage on Lucero Energy Corp (LOU-X) with a “buy” rating and price target of C$1.15. That’s a little below the average analyst target of C$1.27.
Lucero is an independent oil company focused on the acquisition, development, and production of oil-weighted assets in the Bakken and Three Forks formations in the Williston Basin area of North Dakota.
Canaccord analyst Mike Mueller notes the stock currently trades at 1.9 times his 2023 debt-adjusted cash flow estimates, which is in line with peers.
“We believe that as the company pays down debt and prioritizes acquisitions and growth through consolidating and integrating assets in the North Dakota region that a re-rate higher could be warranted as it demonstrates its ability to execute on this refocused strategy,” Mr. Mueller said.
The analyst also started coverage on Saturn Oil & Gas (SOIL-X), assigning it a rating of “speculative buy” with a price target of C$7. The average analyst price target is C$9.87.
The company’s focus is on advancing the exploration of its oil and gas properties in west-central and Southeast Saskatchewan.
Mr. Mueller said Saturn’s recent Viking acquisition and plans to grow production to 15,000 barrels of oil equivalent per day “provide the company with the size and scale to garner more attention from institutional investors and establish itself as a relevant light oil-weighted junior E&P.” He says Saturn, which currently trades at 1.1 times his 2023 estimates, has the potential to be trading at 2 times instead.
Canaccord’s initiation of the two energy stocks were contained in a fresh launch of coverage of the Exploration & Production energy sector on Thursday.
Overall, Canaccord said it sees good potential for investors in the market segment: “While domestic E&P equities have taken the same downward trend as crude benchmarks since early June, declining an average of ~18% versus WTI front-month contracts declining ~27%, in our view, the sector is now trading at levels below late 2018, where WTI dropped from ~US$75/bbl to ~US$45/bbl as investors feared central bank tightening. We believe the market is pricing in crude prices below the current strip on the back of investor demand destruction fears truncating growth expectations for the sector. Despite this capitulation in commodity prices, we believe the mid- to long-term outlook for E&Ps remains robust given the vast depletion of inventories, demand destruction being overblown, and most notably, the US’ historic release of the Strategic Petroleum Reserve, which is set to come to an end this fall. Headwinds in the face of the global oil market include global recession fears, central bank tightening (including concerns of a more hawkish Fed at this week’s Jackson Hole symposium), and an economic slowdown in China. Additionally, Iran is back in focus, with US and European leaders meeting last weekend to discuss Iran’s latest nuclear deal proposal, which could see a return of ~1.3 million bbls/d back on the market (~1% of global output).”
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In other analyst actions:
Alimentation Couche-Tard Inc (ATD-T): CIBC raises target price to C$69 from C$58, citing stronger-than-expected industry fuel margins.
Advance Auto Parts Inc (AAP-N): Guggenheim cuts target price to US$252 from US$259; Jefferies cuts target price to $210 from $220; JP Morgan cuts target price to $218 from $237; RBC cuts target price to $199 from $217
Nvidia Corp (NVDA-Q): Benchmark cuts target price to US$215 from US$228; Citigroup cuts price target to $248 from $285; Jefferies cuts target price to $280 from $370; JP Morgan cuts target price to $220 from $230. There were other analyst price targets as well, bringing the average target down to US$217.13.
Salesforce Inc (CRM-N): Baird cuts target price to $230 from $260; Barclays cuts target price to $202 from $218; Canaccord Genuity cuts target price to $215 from $260; Citigroup cuts price target to $179 from $189;Credit Suisse cuts target price to $250 from $315; JP Morgan cuts target price to $245 from $275;Piper Sandler cuts target price to $200 from $220; Raymond James cuts target price to $225 from $250
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