Inside the Market’s roundup of some of today’s key analyst actions
While Dollarama Inc. (DOL-T) exceeded Stifel’s Martin Landry’s expectations with its third-quarter 2024 financial results, the analyst said recent share price appreciation has pushed him to “the sidelines,” leading him to a downgrade of its shares to “hold” from “buy” previously.
“Dollarama has had an exceptional performance in the last three years, growing EPS [earnings per share] by 21 per cent in FY22, 26 per cent in FY23 and 25 per cent in FY24E (calendar 2023), according to our forecasts,” he said in a research report. “This performance has been celebrated and recognized by investors with Dollarama’s shares up 64 per cent in the last two years. Valuation at 26 times forward earnings is 3 multiple points higher than the 10- year historical average. We expect earnings growth and same-store-sales growth will decelerate from current levels as the company faces difficult comparable periods. Hence, with valuation above historical levels and expected earnings growth rates below historical levels, we believe that Dollarama’s shares are fully valued. While it may seem counterintuitive to downgrade a defensive retailer in this environment, we believe that in 2024 investors may reposition their portfolio by adding cyclical companies in anticipation of a return to economic growth, and Dollarama could be a source of funds.”
On Wednesday, the Montreal-based discount retailer reported EPS of 92 cents, up 31 per cent year-over-year and exceeding both Mr. Landry’s 88-cent estimate and the consensus forecast of 86 cents. Same-store sales growth of 11.1 per cent year-over-year fell in line with the analyst’s forecast (11.2 per cent) and topped the Street (9.7 per cent), while EBITDA margin jumped 2.45 per cent to 32.4 per cent (versus Mr. Landry’s 31.1-per-cent projection).
Despite those results, Dollarama shares slid 2.1 per cent during the trading day after management increased its fiscal 2024 same-store-sales growth guidance by just 1 per cent to an increase of 11-12 per cent year-over-year.
“Gross margin guidance remains unchanged despite the strong outperformance in Q3FY24. This suggests a sharp deceleration in EBITDA growth,” said Mr. Landry.
In justifying his rating adjustments, Mr. Landry pointed to three factors.
1. “Difficult comparables periods” ahead for same-store sales.
Analyst: “Dollarama’s same-store-sales have increased by 12 per cent year-over-year in FY23 and are expected to be up another 12.5 per cent in FY24. This strong growth is more than 2 times faster than the company’s historical growth rate of 4-5 per cent, which makes for a difficult comparable in FY25. Additionally, with inflation slowing down and discretionary spending decelerating, we see a risk that comparable sales growth might be lower than historical levels in FY25. Given same-store-sales are a key metric for investors, a lower growth could lead to valuation multiple contraction from current levels.”
2. The retailer could become “a source of funds in a risk-on market.”
Analyst: “We believe that investors could start looking past the current economic recession in Canada and start positioning their portfolio for a return to economic growth. We do not expect this switch to occur in the coming weeks, but we believe there is a likelihood that it occurs in the first half of 2024. Hence, given its strong share price performance over the last two years, there is a likelihood that Dollarama becomes a source of funds at some point in 2024 for investors looking to reallocate capital in a risk-on market.”
3. Its valuation is now higher than historical levels.
Analyst: “Dollarama’s shares are up 64 per cent in the last two years, an impressive performance relative to the TSX Composite Index, which is up 4 per cent. While this strong share price performance has been driven by Dollarama’s strong fundamentals, it has also been boosted by multiple appreciation with DOL’s forward PE multiple going from roughly 23 times to 26 times currently, 3 times turns higher than the 10-year average.”
After introducing his estimates for fiscal 2025, Mr. Landry trimmed his target for Dollarama shares to $100 from $104. The average target on the Street is $104.17, according to Refinitiv data.
“In our view, there is a low likelihood that Dollarama’s valuation expand further from current levels of 26 times forward EPS (1 standard deviation above the 10-year average) for the reasons discussed,” he concluded. “However, we see a risk of potential valuation multiple contraction to 20 times forward EPS, which is one standard deviation below the 10-year average. With regard to our forecasts, we see limited chance of a big surprise to the upside. Hence, under these scenarios, Dollarama’s valuation could range between $78 and $101, which does not represent an appealing risk/reward, in our view.”
Elsewhere, others making target adjustments include:
* Desjardins Securities’ Chris Li to $107 from $104 with a “buy” rating.
“While the potential return (10 per cent) is somewhat limited for a Buy rating, our positive view is based on DOL’s mix of defensive and growth attributes in the uncertain economic environment,” said Mr. Li.
* National Bank’s Vishal Shreedhar to $108 from $104 with an “outperform” rating.
“We hold a positive view on DOL’s shares given its defensive growth orientation supported by strong cash flows, a solid balance sheet and resilient sales performance,” said Mr. Shreedhar.
* RBC’s Irene Nattel to $114 from $113 with an “outperform” rating.
“Strong results year-to-date are supportive of our constructive view and investment thesis, and DOL’s premium valuation. SSS [same-store sales] beginning to moderate as expected but FQ3 up 11.1 per cent (two-year stack up 21.9 per cent) better than expected on strong traffic up 10.4 per cent as pressure on disposable income drives value-oriented consumer behaviours. Updated guidance on SSS implies sharply moderating cadence in FQ4, but on two-year stack upper end 20 per cent. Our forecasts 4-per-cent SSS through to F25, should be comfortably achievable given consumer backdrop, ongoing inflation and range of item/price points up to $5,” she said.
=====
National Bank analyst Maxim Sytchev sees “more risks on the horizon” for industrial products companies heading into 2024 as the “consensus has shifted its view from a recession at the start of 2023 to a greater acceptance of a soft landing.”
“We see political risks shifting to the right of the spectrum, potentially impacting sentiment of infra-friendly names,” he said. “We are staying sharp and nimble, although it’s hard to advocate for material trimming at the moment.”
“Heading into 2024, there are numerous potential economic, social and political dislocations that could derail current market expectations and force investors to re-evaluate their strategies going forward.”
In a research report released Thursday, Mr. Sytchev called the current fiscal year “solid” for his coverage universe with average and median returns of 32 per cent and 25 per cent, respectively. However, he said those “strong” results were “far from an anomaly.”
“Despite phenomenal year-to-date returns for our coverage universe, the magnitude is actually not abnormal; in the last 18 years, we have had four calendar years with an average return of at least 42 per cent,” said Mr. Sytchev. “In fact, the CAGR [compound annual growth rate] of our universe stands at 16 per cent since 2006, significantly exceeding that of the TSX (6 per cent) and S&P 500 (10 per cent) as well as the TSX Industrials (11 per cent) and S&P 500 Industrials (8 per cent) sub-indices. Of course, we acknowledge that survivorship bias is always a factor when examining returns retroactively, but the significant relative outperformance over an 18-year period is still worth noting.”
“While YTD returns may intuitively suggest that a mean reversal is likely in 2024, recent annual returns for our coverage universe have experienced significant clustering. In fact, the last 18 years have seen two distinct three-year periods (2012 – 2014 and 2019 – 2021) of consecutive positive returns for the average of our current coverage. The magnitude of returns in the latter two years in each instance was substantial, with cumulative returns of 56 per cent in 2013–2014 and 76 per cent in 2020–2021, handsomely rewarding an investor holding an equal-weighted basket of the companies in our coverage.”
Saying a soft landing is “heavily contingent on a resilient labour market,” Mr. Sytchev made a series of target price adjustments to stocks after introducing his 2025 estimates. His changes are:
- AutoCanada Inc. (ACQ-T, “sector perform”) to $24.50 from $22.50. The average on the Street is $28.63.
- Aecon Group Inc. (ARE-T, “sector perform”) to $10.50 from $10. Average: $13.04.
- ATS Corp. (ATS-T, “outperform”) to $69 from $65. Average: $65.29.
- Bird Construction Inc. (BDT-T, “outperform”) to $15 from $12.50.
- Colliers International Group Inc. (CIGI-Q/CIGI-T, “outperform”) to US$125 from US$120. Average: $15.19.
- North American Construction Group Ltd. (NOA-T, “outperform”) to $43 from $44. Average: $44.
- RB Global Inc. (RBA-N/RBA-T, “outperform”) to US$80 from US$73. Average: US$71.88.
- Russel Metals Inc. (RUS-T, “outperform”) to $48 from $45. Average: $44.69.
- Stantec Inc. (STN-T, “outperform”) to $116 from $109. Average: $113.64.
- Toromont Industries Ltd. (TIH-T, “outperform”) to $134 from $129. Average: $124.78.
In revealing his top picks for 2024, Mr. Sytchev said: “Given the macro set-up discussed in this report, we privilege asymmetrically skewed names, where upside materially outweighs the downside. RBA remains the best long-only idea as both sides of the business will do fine, even if GDP drops 3 per cent. ATS is benefiting from secular trends around reshoring, healthcare investments as populations age and company’s niche has only been solidified over the years with product-focused M&A and EVs (even though the latter can see an elongated adoption curve). CIGI is more controversial as many investors feel lower rates can only happen due to a recession; yes, but the transactional business has already been decimated by higher rates. We view the thesis as an excellent way to play on yield curve normalization with compounding to boot (and downside protection in asset management / engineering businesses = vast majority of NAV).”
=====
In a report previewing 2024 for their Canadian diversified industries coverage universe, Desjardins Securities analysts Frederic Tremblay and Gary Ho touted the prospects for small-cap stocks.
“While our top picks from a year ago had a strong 2023, the same cannot be said for small caps in general as equity investors flocked to more liquid, larger companies with perceived stable/defensive attributes,” he said. “As we look to 2024, we believe that the recent widening of the small caps’ valuation discount, the likelihood of interest rate cuts and M&A/takeout activity provide a constructive backdrop for small caps, especially those with resilient businesses, solid cash flow generation and alignment with global trends.”
The analyst selected four stocks as their “preferred names” for the year ahead.
Their top pick for the diversified industries sector is Ag Growth International Inc. (AFN-T) with a “buy” rating and $82 target. The average on the Street is $76.44.
“We favour AFN given (1) solid progress across its three strategic initiatives—operational excellence (driving 250 basis points margin improvement in 2023), product transfers (benefiting 2024), and aftermarket parts and services (benefiting 2025/26); (2) robust growth in International (Brazil, India); (3) deleveraging (2.5 times by mid-2024); and (4) attractive valuation,” they said.
For diversified financials, the analysts named Brookfield Business Partners LP (BBU-N, BBU.UN-T) as their top pick with a “buy” rating and $29 target, exceeding the US$26.57 average.
“BBU is our top pick in the diversified financials space due to (1) Clarios IPO/monetization catalyst (world’s largest vehicle battery manufacturer, should be well-positioned for an IPO after deleveraging),” the said. “We estimate it could represent US$10–12 NAV/share (while accounting for approximately 25 per cent of BBU EBITDA), implying the rest of BBU trades at US$6/share; (2) improved sentiment on interest rate cuts; (3) sale of Westinghouse reduces 40 per cent of its corporate debt; and (4) attractive valuation—trading at a 57-per-cent discount to NAV.”
For lithium stocks, they selected Lithium Ionic Corp. (LTH-X) with a “buy” rating and $4.50 target, down from $5.25 and below the $5.50 average.
“Lithium prices declined sharply in 2023 due to a market surplus and slower-than-expected growth in EV sales,” the analysts said. “Lowering our near-term price forecasts had only a limited impact on our companies under coverage as only Sayona (SYA) is currently in production. Furthermore, we believe that the current price environment could prompt changes in global supply intentions, especially for highercost and/or more challenging projects. EV sales growth should remain positive and could get a boost from interest rate cuts. We like LTH given (1) the low capex and low costs of the Bandeira project; (2) fast-tracked permitting and quick path to production; (3) resource growth potential; and (4) attractive valuation.”
The analysts also picked Savaria Corp. (SIS-T) as a top pick with a “buy” rating and $20.50 target. The average is $19.29.
“We like SIS because (1) 2024 should be a pivotal year which starts with a CEO transition and continues with the implementation of performance enhancement initiatives through the Savaria One program; (2) positive momentum in North America to continue while a recovery in Europe takes place; (3) significant potential upside to our and consensus adjusted EBITDA estimate for 2025, with upward revisions possibly triggered by a first-ever investor day in 1H24 and quarterly results; and (4) attractive valuation—trading at a significant discount to its 10.7 times EBITDA average, and would trade at an astonishing 6.6 times if management’s 2025 ambitions are reached.”
=====
Updating his price deck assumptions, CIBC World Markets analyst Bryce Adams said uranium is his “preferred commodity” moving forward.
“We continue to expect nuclear energy, a scalable, low-carbon energy source, to be key in reducing global dependency on fossil fuels as efforts to curb climate change persist,” he said.. In our view, Cameco offers investors Tier 1 assets, with premium jurisdictional exposure, a significant reserve base, and a strong balance sheet. Cameco’s investor day is scheduled for December 19.”
Coming off research restriction, Mr. Adams named Cameco Corp. (CCO-T) as his “top pick” and raised his target for its shares to $72 from $68.50 with an “outperformer” rating. The average is $68.34.
“On our view, the Westinghouse transaction has elevated Cameco from a tier-one uranium producer with a strong uranium conversion business into a one-stop shop for utilities (and nations) looking for reliable nuclear fuel supply,” he said. “This transaction is a step change to Cameco’s outlook, and further extends its downstream uranium and nuclear capabilities. Cameco has created a wide moat within the nuclear energy space, and we now view Cameco as a go-to name in nuclear, compared to a go-to name in uranium prior to this transaction.”
The analyst also sees the outlook for copper improving.
“Since mid 2022, we have positioned ourselves as copper cautious, and forecast downside to spot prices. With this note, we now forecast an improving copper price,” he said. “Chinese economic data remains a macro risk, but we believe commodity imports and domestic copper premiums in China reflect an improving copper price environment. Chinese copper demand can return as a macro tailwind in the coming year, supporting prices above $4.00/lb in H2/24 through 2026.”
He made a series of target adjustments to copper equities in his coverage universe.
In order of preference, his changes included:
* Capstone Copper Corp. (CS-T, “outperformer”) to $7.75 from $7.25. The average on the Street is $7.83.
Analyst: “Capstone is at a key inflection point; its large-scale Mantoverde copper concentrator is expected to produce first copper in early 2024, and it provides significant growth in production levels but also reduces the cost of production.”
* Filo Corp. (FIL-T, “outperformer”) to $38.50 from $36. Average: $31.02.
Analyst: “We view Filo as one of the most exciting mineral exploration companies in the base metals space. Earlier this year, we initiated coverage with an Outperformer rating. Key to our valuation is our expectation of the scale of the future sulphide resource, to which we ascribe a US$3.2-billion valuation.”
* Hudbay Minerals Inc. (HBM-T, “outperformer”) to $10 from $9. Average: $9.71.
Analyst: “In the mid-cap copper space, we view Hudbay as well positioned to deliver strong results in the year ahead. Within that timeframe, Hudbay will continue to process the high-grade Pampacancha ore in Peru, which underscores strong near-term operating and financial metrics but also delivers on Copper World permitting and partnerships and continues the operational stabilization efforts at Copper Mountain.”
* Ero Copper Corp. (ERO-T, “neutral”) to $25 from $22. Average: $24.50.
Analyst: “Ero has a strong growth profile with two projects being developed concurrently. In our view, delivery on the growth plans remains key to share appreciation, and de-risking of the Tucumã development project has been positive. We expect first production around the middle of 2024 and a ramp-up into year-end, which bodes well for 2025 estimates.”
* Sierra Metals Inc. (SMT-T, “neutral”) to 85 cents from 75 cents. Average: 85 cents.
Analyst: “Sierra has moved up our pecking order, but we maintain a Neutral rating ahead of a potential funding gap in 2024. In 2023, new management has been able to deliver better operational results at Yauricocha and Bolivar, while Cusi has been put into care and maintenance. In our view, Sierra can deliver meaningful production growth in 2025, but 2024 will likely be a development and transition year; permits for below the 1120 level are expected in the near-term, thereafter development of the wider zones below 1120 is possible.”
* Lundin Mining Corp. (LUN-T, “neutral”) to $13 from $12.50. Average: $12.78.
Analyst: “Lundin offers investors commodity diversification and a robust balance sheet. We remain Neutral rated largely on capex uncertainty related to Josemaria (management guided to initial capex of more than $4 billion) and updates around fiscal stability agreements (various taxes and duties) in Argentina. We expect Lundin to deliver updates on the capex and technical report, potential partnerships, and stability agreements around the middle of next year.”
* First Quantum Minerals Ltd. (FM-T, “neutral”) to $18 from $20. Average: $19.49.
“We maintain our Neutral rating on First Quantum as uncertainty around the future of Cobre Panama (CP) continues to unfold. Recall, the Government of Panama recently moved to shut down CP after the Supreme Court ruled Law 406 unconstitutional. We continue to expect that First Quantum will be able to engage with a new government in H2/24 and reinstate a new law that is constitutional and enacts the mine contract. That said, we expect the timeline for this update can extend to H2/24 or into 2025, and the in the interim the company and its partner (FNV) have initiated international arbitration.”
=====
Analyst Benoit Poirier, who covers transportation, aerospace and engineering and construction companies for Desjardins Securities, expects lower rates to “pave the way for an industrial renaissance.”
“After waking up from the dead in 2022, our coverage returned 15 per cent year-to-date in 2023 with engineering & construction stealing the show at 46 per cent (compared with the S&P/TSX at 5 per cent),” he said in a report previewing 2024. “Massive infrastructure programs led to robust organic growth and margin expansion; in contrast, transportation was hit by a freight recession and aerospace & defence was once again impacted by supply chain issues. While higher interest rates left tears on many pillows, lower rates will be welcomed and will likely pave the way for an industrial renaissance in 2024.”
For transportation stocks, Mr. Poirier does not expect a “sharp uptick” in the new year, but he sees “encouraging signs that point to a 2H recovery.”
“While the overall slowdown in consumer spending/freight recession hurt trucking and intermodal, the early improvement in the inventory-to-sales ratio and industrial production suggests that we are trending in the right direction and toward a possible 2H24 recovery,” he said. “We are confident that both railroads can deliver on their three-year outlooks, although we believe CP expectations are still on the high side for 2024.”
Mr. Poirier named TFI International Inc. (TFII-T) as his “favourite” name in the area. He has a “buy” rating and $182 target , exceeding the $167.34 average, for its shares.
“TFII continues to offer the most attractive opportunity given its relative valuation vs peers, resiliency and unique macro-independent catalysts, operational upside in LTL [less-than-truckload] and solid balance sheet with significant dry powder for an acquisition of size in 2024,” he said.
For engineering and construction companies, Mr. Poirier warned “government infrastructure funding still in the early innings, providing a robust organic growth outlook for many years to come.”
“Despite the run-up in the sector, we continue to believe that our E&C names are well-positioned entering 2024; combined with solid M&A strategies (environment is ripe for further consolidation), we believe both WSP and STN should be viewed as longterm growth compounders,” he said. “Having said that, catalyst-rich ATRL remains our preferred E&C name given its 70-per-cent exposure to government clients (best positioned if private spend ticks down), resurgence of nuclear interest globally, potential monetization of non-core assets and re-rating opportunity as the stock continues to trade at a significant discount vs its peers.”
The analyst has a “buy” rating and $53 target for AtkinsRéalis (ATRL-T) shares. The average is $50.54.
For aerospace and defence companies, Mr. Poirier sees a “favourable environment with a bizjet industry that is showing no clear evidence of a downturn.”
“In the bizjet market, industry tailwinds are holding up, as the OEMs carry fat backlogs into 2024 and used inventory levels remain low,” he said. “We expect BBD to be a significant beneficiary in a declining interest rate environment and see limited downside from current levels — it is thus our favourite A&D name for 2024. We also see upside for CAE as the market is ascribing virtually no value to the struggling defence segment, and 2024 should bring additional granularity on the problematic contracts. HRX remains one of our favourite small-cap A&D stocks as we believe it is well-positioned to recover from its supply chain issues and benefit from the increased defence spend.”
He has a “buy” recommendation and Street-high $103 target for Bombardier Inc. (BBD.B-T) shares. The average is $77.73.
For special situations, he said: “We prefer SJ as we see upside to consensus estimates based on the electrical grid infrastructure spending demand dynamics at play but also continue to like CGY and DOO, as we see limited downside given their near-trough valuations and strong balance sheets.”
=====
National Bank analyst Cameron Doerksen said he’s becoming “incrementally more positive” on TFI International Inc. (TFII-T), believing “a better freight market backdrop could materialize in the second half of 2024.”
“We also see earnings growth tailwinds for the company next year driven by margin improvement in the U.S. LTL [less-than-truckload] segment,” he said. “We nevertheless see some ongoing end market softness in the coming quarters.”
In a research report previewing the new year and introducing his fiscal 2025 expectations, Mr. Doerksen said LTL industry trends remain “mixed” and warned of “some softness” ahead for the Montreal-based company’s other segments.
“So far in Q4, other U.S. LTL players are reporting somewhat mixed trends with shipments per day generally higher, offset by lower shipment weights driving lower tons per day,” he said. “Our view is that the volume and pricing boost that LTL carriers received in the wake of the failure of Yellow Corp. has largely stabilized and the next leg of volume and pricing improvement will be driven by an improvement in LTL freight demand. Our 2024 forecast for TFII’s LTL segment assumes modest revenue growth and for the EBIT margin to increase driven mainly by cost reductions/operating efficiencies as well as some expected pricing improvement.”
“About two-thirds of TFII’s total revenue is generated in its non-U.S. LTL segments where a weak freight market is likely to persist in both the U.S. and Canada in the near term. However, there is some evidence that the broader North American trucking market is in a bottoming phase, and we believe that market data will begin to inflect more positively at some point in 2024, which could be positive for investor sentiment.”
To reflect “the greater uncertainty around out-year forecasts,” the analyst lowered his valuation multiples, leading him to raise his target for TFI shares to $183 from $178 with a “sector perform” recommendation. The average on the Street is $167.34.
=====
In other analyst actions:
* With a “cautious” outlook for North American midstream energy companies in 2024, Wells Fargo’s Praneeth Satish upgraded Gibson Energy Inc. (GEI-T) to “overweight” from “underweight” with a $26 target, exceeding the $25 average on the Street.
* Mr. Satish’s colleague Roger Read lowered his targets for Canadian Natural Resources Ltd. (CNQ-T, “equalweight”) to $86 from $95 and Suncor Energy Inc. (SU-T, “overweight”) to $55 from $59. The averages are $98.88 and $54.05, respectively.
* Canaccord Genuity’s Yuri Lynk raised his Bird Construction Inc. (BDT-T) target to $16 from $15 with a “buy” rating. The average target on the Street is $15.19.
* KBW’s Michael Brown increased his targets for Brookfield Corp. (BN-N/BN-T, “market perform”) to US$40 from US$37 and Brookfield Asset Management Ltd. (BAM-N/BAM-T, “underperform”) to US$36 from US$31. The averages are US$46.08 and US$36.78, respectively.
* CIBC’s Kevin Chiang increased his targets for Canadian National Railway Co. (CNR-T, “outperformer”) to $176 from $173 and Canadian Pacific Kansas City (CP-T, “outperformer”) to $126 from $118. The averages are $164.67 and $114.61, respectively.
“We have adjusted our estimates for CN and CPKC to reflect near-term volume trends/expectations, FX (C$ was stronger in Q4/23 than we had initially modelled) and fuel costs,” he said. “We still see both Canadian rails posting peer-leading EPS growth, led by CPKC. We are forecasting CPKC’s 2024 EPS will be up 17.1 per cent year-over-year and CN up 13.0 per cent year-over-year, versus the U.S. rails up 9.5 per cent year-over-year (based on consensus) ranging from CSX up 8.2 per cent year-over-year to UNP up 10.6 per cent year-over-year. We also continue to see both Canadian rails benefitting from idiosyncratic growth opportunities that make their volume growth less cycle-dependent, in our view.”
* Resuming coverage following Rogers Communications Inc.’s divestiture, Desjardins Securities’ Jerome Dubreuil reiterated his target for Cogeco Communications Inc. (CCA-T) of $70 per share with a “buy” recommendation (unchanged). Analysts making target changes include: Scotia’s Maher Yaghi to $77 from $72.75 with a “sector perform” rating and National Bank’s Adam Shine to $64 with a “sector perform” recommendation. The average is $71.40.
“While the significant buyback at this price by CCA would have warranted a slight target increase, we have not changed our target as the odds of a potential takeout appear even lower now (they were already low),” Mr. Dubreuil said. “The stock remains cheap, but there could be difficult quarters ahead with U.S. fixed wireless apparently thriving and with significant investments required for the potential wireless service launches.”
“We believe CCA’s strong FCF generation enables it to redistribute significant capital to shareholders while operating a stable business — an attractive feature in this uncertain economic environment.”
* Mr. Yaghi also raised his Rogers Communications Inc. (RCI.B-T) target to $74.50 from $69.50 with a “sector outperform” rating. The average is $74.54.
“The two-decade serenade ended on Monday when Rogers found an anchor buyer for its stake in Cogeco,” he said. “We are not surprised as Rogers has other priorities after acquiring Shaw’s cable business. We adjusted our target prices to reflect the impact of the transaction while also taking the opportunity to adjust our assumed long-term cost of debt given the recent decline in 10-year rates reducing our risk-free rate to 3.7 per cent from 4.1 per cent for both stocks. While we have not made any changes to our operational KPIs, we believe this sale could spawn a more aggressive approach that Rogers could take against Cogeco. Two strategies could be in the cards, the first is extending Rogers’ cable footprint into Cogeco’s territory and the second a more direct competition with FWA. Rogers has brand recognition and now a strong spectrum position in southern Ontario which could be used to attack the low end of the broadband market. While this could take some time to play out, we believe investors should keep an eye on this. We continue to favor Rogers and TELUS (Sector Outperform) as our best picks in Canadian telecom heading into 2024.”
* RBC’s Wayne Lam bumped his target for Dundee Precious Metals Inc. (DPM-T) to $15 from $13 with an “outperform” rating. The average is $13.31.
“We view the maiden resource at Čoka Rakita as transformational for DPM in providing a high-margin project to bolster the growth pipeline and repositioning the company path forward via use of proceeds for its growing cash balance. As well, we estimate the project helping to sustain current output levels over the coming decade, minimizing the length of potential production decline between depletion of Ada Tepe in mid-2026 and first gold at Čoka Rakita by 2028,” said Mr. Lam.
* RBC’s Drew McReynolds increased his Transcontinental Inc. (TCL.A-T) target to $20 from $19 with an “outperform” rating. Other changes include: BMO’s Stephen MacLeod to $14 from $15 with a “market perform” rating, Cormark Securities’ David McFadgen to $21.50 from $19.50 with a “buy” rating and CIBC’s Hamir Patel to $15 from $16 with an “outperformer” rating. The average is $17.10.
“Q4/23 results were ahead of expectations while the F2024 outlook was in line with our forecast. Factoring in slightly lower revenue growth offset by higher margins and lower net debt, our price target increases,” said Mr. McReynolds.
“Although cyclical headwinds continue to negatively impact both Packaging and Printing volumes, we expect ongoing cost efficiencies and an easing in destocking pressures to translate to renewed year-over-year EBITDA growth in fiscal 2024/2025. With the stock trading at 4.4 times FTM [forward 12-month] EV/EBITDA versus an average of 6.7 times for packaging peers, we continue to see value in the stock given management’s track record of solid execution, $2.00-2.25/share in normalized FCF and each 0.5 times increase in multiple equating to $3/share.”
* Stifel’s Cody Kwong cut his target for Vermilion Energy Inc. (VET-T) to $24 from $27 with a “buy” rating. The average is $24.37.
“Vermilion released its plans for 2024 that were in line with consensus expectations; however, the positive headline catchers for us were the uptick in cash flow/FCF, due to the removal of EU windfall taxes, and a firm plan to elevate return of capital to 50 per cent of FCF in April, that comes alongside a 20-per-cent increase to its dividend,” said Mr. Kwong. “While we have adjusted our target price to $24.00/sh in recognition of commodity prices pushing lower, we believe investors should take a fresh look given increased flexibility, confirmation of increased shareholder returns, and an attractive valuation for a name whose cash flow has been far more insulated than most through this latest commodity price pullback.”
David Leeder