Inside the Market’s roundup of some of today’s key analyst actions
Increasingly confident that Bombardier Inc. (BBD-B-T) can generate solid free cash flow over a multi-year period, National Bank Financial analyst Cameron Doerksen raised his valuation on the company, resulting in his price target rising to C$114 from C$92. His rating remains “outperform”.
“Bombardier expects to generate $900 million in free cash flow in 2025, which is likely to be a sustainable level of annual FCF given that the company does not need to develop an all-new jet platform until 2030 or beyond,” Mr. Doerksen said in a note to clients. “Assuming aftermarket and Defense revenue grows, FCF should also grow through the 2030 timeframe. As such, once targeted leverage is reached (2.0-2.5x in 2025), the company can consider other capital deployment options including dividends, share buybacks and possibly M&A.”
His enterprise value to EBITDA valuation multiple rose to 7.5x from 6.5x.
“Bombardier is one of our top picks for 2024 and although the stock is up 63% YTD (versus TSX up ~5%), we see further upside as the market gains more confidence in the sustainability of strong free cash flow generation to the end of the decade,” Mr. Doerksen said.
The analyst said he remains confident that the company can meet its full-year aircraft delivery guidance of 150-155 jets. “With a backlog that sat at $14.9 billion at the end of Q1/24, we believe the company has visibility to sustain deliveries at similar levels through 2025 and into 2026,” he added, noting that a positive sign is that business jet flying activity is at stable levels.
The average analyst price target is C$100.47, according to LSEG data.
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Several analysts raised their price targets on Costco Wholesale Corp. (COST-Q) after the retailer announced a bump up in its membership fees.
Among them: BofA Global Research raised its price target to US$962 from US$874; Jefferies raised its target to $1,050 from $860; Oppenheimer raised its target to $950 from $905; Wells Fargo raised its target to $800 from $775; and Barclays raised its target price to $830 from $765.
The average analyst price target is now US$877.32, up from US$838.99 a month ago.
Costco increased its base membership in the U.S. and Canada by $5 to $65 and their executive memberships in the U.S. and Canada by $10 to $130. It also reported total and U.S. core June comparable sales growth of 6.9% and 6.3%, respectively, compared to consensus of 6.6% and 5.8%.
“Along with another strong month of comp store sales, Costco finally announced a long awaited fee increase,” commented Michael Baker, analyst at DA Davison. “While most market participants expected this news at some point, the timing was not known. In the past, COST had increased fees every 5.5 years on average. But, it had been more than 7 years since the June 2017 increase. We’d expect a positive stock reaction, both due to the strong comp, as well as the fee increase.”
He estimates the $5 and $10 fee increase on 52 million members will add about $377-million in total revenues over the next 24 months, or about $189 annually.
Mr. Baker is maintaining a “neutral” rating on Costco while reiterating a price target of US$780.
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National Bank Financial analyst Dan Payne initiated coverage on Saturn Oil & Gas Inc. (SOIL-T) with a “sector perform” rating and C$4 price target. His price target is below the Street average of C$5.61.
The company has gone from a junior producer to a mid-cap player in the conventional oil industry after several transactions starting in 2022. It’s now a diversified entity, with production of 39,000 barrels of oil equivalent a day across multiple assets spanning Alberta and Saskatchewan.
“Assessing management’s strategy in association with its asset complexion, we believe SOIL holds multiple investment themes that should validate shareholder value & returns, with 40% prospective upside through outperformance, to support an expansion of its free cash flow yield to 50-55%, and should directly accrete to shareholder value through the implied de-leveraging and/or multiple expansion,” the National Bank analyst said.
“In our view, a new management team in the sector will utilize an overlooked asset complex to execute a differentiated approach to harvest inventory in support of an optimized financial outcome for maximum free cash generation and an optimal risk-adjusted shareholder value proposition,” he said.
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RBC analyst Matthew McKellar cut price targets on several paper and forest products companies as he looked ahead to their second quarter earnings.
Stubbornly high interest rates and market oversupply are acting a major headwinds for the sector.
“Conditions across the sub-sectors under our coverage have evolved at a rapid pace through the first half of the year, with a wood products recovery being pushed out on less optimistic interest rate expectations and lumber market oversupply, containerboard markets improving off a bottom, and pulp prices seeing momentum on capacity closures and production disruptions,” Mr. McKellar said in a note to clients.
“While the near-term path ahead for lumber producers in particular looks choppy, we continue to see a potentially compelling opportunity over the next year if oversupply can be resolved, with valuations below long-term averages and pricing at unsustainable levels,” he said.
The price target changes included:
Canfor Corp. (CFP-T): Target price to C$18 from C$19
Canfor Pulp Products Inc. (CFX-T): Target price to C$1.25 from C$1.5
Cascades Inc. (CAS-T): Target price to C$10 from C$11
Doman Building Materials Group Ltd. (DBM-T): Target price to C$9 from C$10
Interfor Corp. (IFP-T): Target price to C$24 from C$27
Western Forest Products Inc. (WEF-T): Target price to C$0.7 from C$0.8
Mr. McKellar said his favourite names in Canada are Doman Building Materials Group, Interfor, and Canfor Corp.
He said the two key questions heading into second quarter earnings are how and when will the industry resolve the oversupply of lumber.
“Mill curtailments, closures, and softer reductions in production levels (e.g., adjustments to hours/shifts) through 2024 so far have not yet been sufficient to balance the market. We think hesitancy to take more meaningful downtime in the U.S. South in particular, where lower-tier mills have likely been operating at below cash-breakeven levels, has likely been driven to some degree by a tight labour market (companies have historically had high turnover rates and are often drawing from limited rural labour pools). We nonetheless see room for a more meaningful capacity response as the year progresses. Softwood lumber duties (applied to Canadian lumber imported into the U.S.) will move ~581bps higher in August 2024, and anti-dumping duties in particular should move higher again in mid-2025 based on losses the industry experienced in 2023; while we typically view the cost of duties as being passed on to the end consumer, we think there is less room to push pricing in an oversupplied market and view this as a potential catalyst for more high-cost Canadian production to be taken offline. Low North American lumber prices, improving economic conditions in Europe, and a declining harvest of spruce beetle-affected timber should also result in less European lumber (with imports equivalent to ~5% of North American consumption in 2022 and 2023) making its way into the North American market,” the analyst said.
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National Bank Financial analyst Adam Shine is reaffirming an “outperform” rating on Cineplex Inc. (CGX-T) after reviewing the company’s latest business conditions. He suggests an improving debt load could mean it may buy back shares later this summer and, in about a year’s time, even reinstate a small dividend.
Cineplex shares have jumped about 20% since June 20 thanks to box office success from animation sequels - Inside Out 2 and Despicable Me 4.
“The combination last year of Barbie and Oppenheimer (both opened July 21) makes for a tough comp, but Deadpool & Wolverine starts July 26 and is expected to be the top grossing movie of 2024,” Mr. Shine said in a note to clients. “Post-August, easier comps prevail for the next 9+ months given material impact of the Hollywood strikes. Following CGX’s Q3 reporting in mid-August, the long-awaited “sustainable” recovery at the box office should begin to materialize given a steady flow of film releases and no apparent exogenous shocks on the horizon.”
If a box office recovery does play out, Cineplex should be able to trading in line, or even at a premium, valuation to its North American peers, he said.
“Leverage ex-convertible was 3.2x at Q1 and we forecast 1.9x in 2025 (target 2.5x-3.0x). With material optimism ahead regarding improving profits, FCF, and leverage, CGX could explore a buyback later this summer, with the prospect of reinstating a dividend possibly a year or so from now,” he said.
Mr. Shine has a C$12.50 price target. The average analyst price target is C$12.58.
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In other analyst actions:
D2L Inc (DTOL-T): Canaccord Genuity raises target price to C$13.5 from C$12.5; Stifel raises target price to C$16 from C$14
Agnico Eagle Mines Ltd (AEM-T): Eight Capital raises PT to C$115 from C$105
Altus Group Ltd (AIF-T): TD Cowen raises target price to C$65 from C$55
Barrick Gold Corp (ABX-T): Eight Capital raises target price to C$38 from C$36
Capstone Copper Corp (CS-T): Eight Capital raises target price to C$14 from C$12.50
Ero Copper Corp (ERO-T): Eight Capital raises target price to C$40 from C$30
First Quantum Minerals Ltd (FM-T): Eight Capital raises target price to C$22 from C$17
Foran Mining Corp (FOM-T): Eight Capital raises target price to C$6.25 from C$6
Hudbay Minerals Inc (HBM-T): Eight Capital raises target price to C$18 from C$14.50
Kinross Gold Corp (K-T): Eight Capital raises target price to C$15 from C$11
Lithium Royalty Corp (LIRC-T): TD Cowen cuts target price to C$8.50 from C$10
Lundin Mining Corp (LUN-T): Eight Capital raises target price to C$17.50 from C$16
Montage Gold Corp (MAU-X): Stifel raises target price to C$2.20 from C$1.75
Orezone Gold Corp (ORE-T): Raymond James cuts target price to C$1.15 from C$1.4; Ventum Financial cuts target price to C$1.5 from C$1.7
Osisko Development Corp (ODV-X): Eight Capital cuts target price to C$9 from C$11
Solaris Resources Inc (SLS-T): Eight Capital cuts target price to C$15 from C$23.50
Teck Resources Ltd (TECK-B-T): Eight Capital raises target price to C$75 from C$72
Wesdome Gold Mines Ltd (WDO-T): Eight Capital raises target price to C$15 from C$12
Wheaton Precious Metals Corp (WPM-T): Eight Capital raises target price to C$95 from C$85