Inside the Market’s roundup of some of today’s key analyst actions
A number of analysts adjusted their price targets on shares of Alimentation Couche-Tard Inc. (ATD-T) after a mixed fiscal second quarter earnings report this week and a hike to its annual dividend.
The company reported adjusted EBITDA of $1.455-billion, beating consensus estimates of $1.443-billion, although its adjusted earnings per share of 82 cents slightly missed the consensus of 84 cents.
Couche-Tard announced a 27.3% hike to its annual dividend to 56 cents a share, which equates to a 1% dividend yield based on the current share price.
Analysts were impressed with the convenience store operator’s fuel margins and growth in U.S. and European same-store sales.
“ATD’s 2Q results were impacted by factors that are partly transitory while the underlying results show strong execution of organic growth initiatives and resilient consumer demand,” said Desjardins Securities analyst Chris Li.
He said he remains positive on the share price outlook for next year, believing cash flows from fuel margins should remain strong. He also thinks there’s potential for the company to make more acquisitions and buy back more shares. Mr. Li, who maintained a “buy” rating and C$69 price target on the stock, also thinks shares will benefit from funds flowing to consumer staples over the coming year.
Elsewhere, Canaccord Genuity raised its price target to C$68 from C$65, CIBC lowered its target to C$73 from C$75, National Bank cut its target to C$67 from C$69, Stifel GMP cut its target to C$68 from C$70, and TD Securities raised its target to C$71 from C$69.
“We reiterate our favourable view on ATD, which reflects increasing confidence that fuel margins will continue to show strength (improvement initiatives) and potential for future acquisitions,” commented National Bank analyst Vishal Shreedhar. He noted the stock is trading inline with its five year average based on forward EPS earnings estimates, and believes the company “has latitude” to complete and acquisition with an enterprise value as high as US$15 billion without issuing more equity.
The average analyst price target is now C$69.85, up from C$69.16 a month ago, according to Refinitiv Eikon data.
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Synergy targets that Canadian Pacific Railway Ltd (CP-T) expects to achieve with its merger of Kansas City Southern may be overly conservative, said CIBC analyst Kevin Chiang following recent meetings with company management.
He raised his price target on CP Rail to C$120 from C$110 while reiterating an “outperformer” rating.
Final approval for the merged Class 1 railway, to be known as CPKC, is still pending from the Surface Transportation Board in the U.S. A ruling is expected from the board in early 2023, and Mr. Chiang said he does not expect any major concessions will be required that would significantly impact the economic benefits from the transaction.
“We believe CPKC’s revenue synergy target is conservative when analyzing the revenue and volume per route mile amongst the Class 1s,” the analyst said in a note to clients. “We suspect the company will continue to see synergy upside over a longer-term horizon. As such, we believe CPKC is positioned to benefit from industry-leading EPS growth through this decade.”
CP has indicated it expects to achieve US$1-billion EBITDA synergies within three years, of which US$820-million will come from market opportunities and US$180-million from cost and efficiency improvements.
“CP has a history of under-promising and over-delivering,” said Mr. Chiang. He cited as an example CP’s Investor Day financial targets set in 2018. Despite the impact of the pandemic on volumes in 2020, the railway still easily cleared those objectives.
The average analyst price target on CP Rail is C$112.20.
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Shares in Surge Energy Inc. (SGY-T) are up more than 100% so far this year, nearly double the Canadian oil and gas sector as a whole. Raymond James analyst Jeremy McCrea thinks there’s still plenty of upside left.
Part of the reason for his optimism is Surge’s $245-million purchase of Enerplus Corp.’s Canadian assets earlier this month. “The acquisition SGY announced adds size,” said the analyst, further building on Surge’s holdings in its core areas. It also positions the company to have a larger market cap, making it more likely to be added to the TSX Composite Index.
Mr. McCrea also notes interest in the name is quickly building with institutional investors, based on search enquiries on the Bloomberg terminal.
His price target on the stock is C$15 and he has an “outperform” rating. The stock closed Wednesday at C$9.33.
The average analyst price target is C$14.69.
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Canaccord Genuity analyst Matthew Lee sees greater upside in shares of Diversified Royalty Corp (DIV-T) following the acquisition this week of its seventh royalty stream.
The company acquires royalties from a variety of businesses, including oil change provider Mr. Lube.
Its latest streaming acquisition is with SBS Franchising LLC, known as Stratus, which is a North Hollywood, Calif., franchisor involved in commercial cleaning and building maintenance services in the U.S. and Canada.
“We believe the trademark acquisition, which is the first in the US, will be immediately accretive to DIV, adding $8-million in annual royalty income,” said Mr. Lee.
In tandem with the transaction, DIV raised its dividend modestly from $0.235/share to $0.24/share. That equates to an 8.2% annual dividend yield, and the company’s payout ratio is expected to stay below 100%.
The analyst’s price target went up to C$4 from $3.50, which represents 14 times his fiscal 2024 EBITDA estimates. “Our valuation, which is a slight premium to royalty peers, is largely justified by the firm’s diverse portfolio,” he said.
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Scotiabank analyst Justin Strong has lowered his fourth-quarter earnings estimates on Boralex Inc. (BLX-T) in response to the French government’s recently revised power price cap levels for the country through to the end of 2023.
Mr. Strong’s price target and rating on Boralex, however, were unchanged at C$50 and “sector outperform,” respectively.
Boralex has power-producing assets in Europe as well as in Canada and the United States.
“The initially discussed price cap of €180/MWh has been solidified at €100/MWh for wind, solar, hydro and nuclear through to the end of 2023. The retroactive period was amended to now begin in Q3/22 versus the previously proposed December 1, 2022. As a result, the company’s merchant exposure for the months of October and November will be capped at the revised price. Recall that power prices in Europe began accelerating as soon as February at the beginning of the Russian invasion of Ukraine. It’s likely that if energy supplies remains tight going into the winter of 2024, some form of market intervention will remain in effect,” the analyst said in a note.
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In other analyst actions:
* Bonterra Resources Inc (BTR-X): Cormark Securities cuts target price to C$1 from C$1.3
* Entree Resources Ltd (ETG-T): TD Securities raises target price to C$1.60 from C$1.55
* Pluribus Technologies Corp (PLRB-X): Canaccord Genuity cuts target to C$3.75 from C$5
* American Eagle Outfitters Inc (AEO-N): Citigroup raises price target to US$17 from US$10
* Deere & Co (DE-N): Credit Suisse raises target price to US$582 from US$447; Jefferies raises target price to US$510 from US$450; JP Morgan raises target price to US$440 from US$415
* Redfin Corp (RDFN-Q): D.A. Davidson cuts target price to $5.50 from $9.50
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