Inside the Market’s roundup of some of today’s key analyst actions
Despite expecting Wheaton Precious Metals Corp. (WPM-T, WPM-N) to enjoy a “stronger end” to 2023, National Bank analyst Shane Nagle downgraded its shares to “sector perform” from “outperform” previously, citing “a more conservative growth outlook, cautious outlook ahead of the company reporting financials under GMTR in 2024, its premium valuation and more challenging deal environment within the royalty/streaming sector.”
“That said, the company maintains a stable financial position and portfolio of high-quality, low-cost long-life assets,” he added.
TSX-listed shares of the Vancouver-based miner dropped 8 per cent on Wednesday after its production guidance from 2024 and the next five years fell short of expectations.
Wheaton is expecting 2024 output of 550,000 to 660,000 gold equivalent ounces in 2024, prompting Mr. Nagle to drop his forecast to 588,579 GEOs from his previous estimate of 725,645 GEOs). His 2028 projection fell to 850,000 GEOs from 897,500 GEOs in response to the company’s 800,000 GEOs guidance, while his estimate for 2029-2033 remains 875,000 GEOs (versus guidance of 850,000 GEOs).
“The result is a five- and 10-year production growth CAGR [compound annual growth rate] of 7.5 per cent and 4.3 per cent under our Base Case, respectively (revised from 9.6 per cent and 3.9 per cent under our previous assumptions),” he said.
Those reductions came after the company exceeded Mr. Nagle’s fourth-quarter production assumptions, prompting him to raise his financial forecast. His adjusted earnings per share projection jumped by 6 US cents to 31 US cents.
“We previously incorporated the impact of an increase in Global Minimum Tax Rate (GMTR) under our Base Case; however, we believe reported financials throughout 2024 may still come as a negative surprise to some given WPM is the royalty/streaming company most exposed to these changes,” he added.
Mr. Nagle cut his target for Wheaton shares to $68 from $75. The average target on the Street is $78.66.
Elsewhere, others making adjustments include:
* Raymond James’ Brian MacArthur to US$58 from US$60 with a “market perform” rating.
* Berenberg’s Richard Hatch to US$52 from US$57 with a “buy” rating.
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Citing its performance over the last 12 months and seeing its valuation creating “an opening,” National Bank Financial analyst Maxim Sytchev upgraded Stelco Holdings Inc. (STLC-T) to “outperform” from “sector perform” previously, calling its fourth-quarter 2023 results “noisy” but seeing the steel company “over the hump” with the expectation of a better first half of this year.
After the bell on Wednesday, the Hamilton-based company reported revenue of $613-million, above Mr. Sytchev’s $581-million estimate but below the Street’s expectation of $641-million. Headline adjusted EBITDA of $51-million topped the Street’s $39.9-million projection.
“There are two caveats (we were at $39.6-million),” said Mr. Sytchev. “First, expectations have come down significantly; since early November, consensus EBITDA estimates compressed from $100-million to under $40-million today. Also, the headline EBITDA and EPS figures were adjusted upwards by $27-million added back for Share-Based Compensation (SBC) in Q4/23 vs. $7-million in Q4/22. That being said (and more importantly), the conference call tone was more constructive than expected.”
“Q4 marked the profitability trough ... 1) Company is sold out for Q1/24E and hoping to do better than guide; 2) Scrap pricing remains healthy, creating a stronger and higher floor for HRC; 3) Management remains value-focused when evaluating potential internal or external opportunities; access to $4-billion and several billion of equity capital if needed was an interesting takeaway from the call.”
Noting “better body language from management and oversold conditions create an attractive entry point,” the analyst increased his target for Stelco shares to $55 from $47. The average on the Street is $51.50.
“STLC shares lagged last year: down 2 per cent LTM [last 12 months] vs. TSX up per cent as OEM strikes and wobbling HRC hampered momentum,” he said. “Commodity backdrop perhaps is not amazing vs. December 2023 but in historical context, $900/st for HRC pricing is beyond healthy, so we are going to have strong FCF generation in 2024E as cheaper cost inputs (mainly coal) and better volumes work through the P&L. We have learned that one needs to be nimble with entry points (note we downgraded the shares at $52.95 in March 2022), and we again believe that now is a good risk / reward time to load up on the shares; any M&A-related / product enhancements opportunities are completely free options when considering that shares are trading at 2.8 times EV/EBITDA 2024.”
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While its fourth-quarter 2023 results exceeded expectations and guidance for 2024 fell in line with the Street’s projections, Stifel analyst Martin Landry is still not convinced Gildan Activewear Inc. (GIL-N, GIL-T) can accelerate its growth beyond the low-single-digits revenue growth realized in the last 5-10 years.
“In our view, Gildan’s shares are fully valued,” said Mr. Landry, maintaining his “hold” recommendation.
“Gildan has grown revenues at a 2-per-cent CAGR [compound annual growth rate] over the last 5 years and at a 4-per-cent CAGR over the last 10 years. We believe the company’s growth prospects are unclear, and we struggle to see how the company could accelerate its growth in the future. While Gildan’s Back-to-Basics strategy drove margin expansion and strong EPS growth, we do not foresee significant margin improvement from 2024 levels. We model an EPS growth of 6 per cent in 2025, and are using a valuation multiple of 11.5 times, which represent a PEG ratio of near 2 times. We believe that this ratio fully reflects Gildan’s large manufacturing scale, leadership position and healthy balance sheet. We would revisit our rating on better a visibility on the growth outlook or lower valuation.”
Gildan hikes dividend 10%, tops analysts’ forecasts as new CEO aims to sway unsure investors
On Wednesday, shares of the Montreal-based maker of T-shirts and fleeces rose 3.7 per cent after it reported fourth-quarter revenue of US$783-million, up 9 per cent year-over-year and above both Mr. Landry’s US$740-million estimate and the Street’s projection of $760-million. Gross margins rose for the the first time in two years by 1.15 per cent from fiscal 2022 to 30.2 per cent, also topping his expectation (29.6 per cent), while adjusted earnings per share gained 15 per cent to 75 US cents, exceeding the analyst’s 71-US-cent forecast and the consensus of 73 US cents.
While the company’s guidance for the current fiscal year largely met the Street’s forecast, Mr. Landry warned it hints at a “soft” first quarter.
“Gildan introduced its 2024 guidance calling for revenue growth to be flat to up low-single digits and for adjusted operating margin to come in slightly above the high end of the 18-per-cent to 20-per-cent annual target range,” said Mr. Landry. “This is expected to translate into an adjusted EPS in the range of $2.92 to $3.07, up 16.5 per cent at the mid-point. 2024 EPS guidance is higher than our expectations of $2.92 but is in-line with consensus of $2.99. The guidance includes an assumption for an effective tax rate of 18 per cent partly offset by benefits from refundable tax credits which could reduce SG&A expenses as a percentage of sales by 80bps. According to our calculations, the net impact from the higher effective tax rate is a $40 to $60 million reduction in net income.
“The 2024 guidance appear back-end loaded as Gildan is guiding for a weak Q1/24 with sales expected to be down low single digits year-over-year and adjusted operating margin to come in around the low end of the 18-per-cent to 20-per-cent target range. This appears lower than consensus estimates, modeling flat sales and a slightly higher margin than suggested. The back-end loaded guidance adds a level of risk to the full year guidance.”
Increasing his revenue and earnings expectations for fiscal 2024 and 2025, Mr. Landry raised his target for Gildan shares to US$36 from US$34. The average target on the Street is US$39.64.
Elsewhere, others making changes include:
* National Bank’s Vishal Shreedhar to $52 from $50 with an “outperform” rating.
“Against a backdrop of an unsteady economy, challenged results in many discretionary names (in our coverage) and heightened uncertainty regarding GIL’s CEO change, we believe results helped to incrementally reconstitute investor confidence. That said, we believe sustained solid execution will be needed to win shareholder acceptance given an activist campaign,” said Mr. Shreedhar.
* Desjardins Securities’ Chris Li to $55 from $53 with a “buy” rating.
“Despite macro pressures and a higher tax rate from the GMT, we believe GIL’s solid 2024 EPS outlook (17 per cent mid-point of guidance) reflects the strength of its business model. At only 12 times forward P/E supported by low-single-digit EPS growth, growing FCF, strong capital return and a solid balance sheet, we believe valuation is attractive for long-term investors,” said Mr. Li. “However, we expect trading to remain volatile until there is a resolution to the CEO/board uncertainty, expected with the shareholder vote on May 28.”
* RBC’s Sabahat Khan to US$41 from US$39 with an “outperform” rating.
* TD Securities’ Brian Morrison to US$42 from US$40 with a “buy” rating.
* CIBC’s Mark Petrie to US$41 from US$38 with an “outperformer” rating.
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The risk-reward proposition for GFL Environmental Inc. (GFL-N, GFL-T) is “looking increasingly favourable,” according to BMO Nesbitt Burns’ Devin Dodge, who thinks its 2024 guidance “appears conservative.”
He was one of several equity analysts on the Street to raise their forecast and target price for shares of the Vaughan, Ont.-based water management company following the late Tuesday release of its quarterly results and full-year forecast.
“In our view, the combination of robust industry fundamentals, self-help opportunities, and strong growth prospects should allow GFL to generate earnings/FCF growth above its peers over the next several years,” said Mr. Dodge. “While elevated leverage remains a sticking point for some investors, we believe there is improving visibility for GFL achieving an investment grade rating within our forecast period. Meanwhile, the multiple discount to peers is at/near the widest level since the IPO, which we believe presents a particularly attractive entry point into the stock.”
While GFL expects adjusted EBITDA to rise more than 10 per cent year-over-year to US$2.215-billion this year, Mr. Dodge thinks “there are multiple layers of conservatism embedded within the initial outlook including upside risk to the price-cost spread, commodity values (assumed consistent with Q4/23 levels, or approximately 10 per cent below current prices), contributions from RNG projects coming online in H2/24, and incremental M&A.”
“Management reiterated its 2024 capital allocation priorities for base capex ($850-900-million), incremental growth investments ($250-300-million), and M&A ($600-650-million),” he added. “However, we suspect there may be an emerging upward bias to these targets. GFL reached an agreement to acquire an integrated solid waste business in the U.S. Southeast that is expected to consume more than 50 per cent of its 2024 budget for acquisitions. Management also indicated additional EPR-related contracts are likely to be awarded in the coming months that we suspect could raise its incremental growth capex for 2024 and/or extend the elevated spending into 2025. While these are attractive opportunities and improve the long-term prospects for the business, they are likely to make the glide path for reducing financial leverage slightly shallower.”
Maintaining an “outperform” recommendation for GFL shares, Mr. Dodge increased his target to US$42 from US$40. The average is US$41.77.
Others making adjustments include:
* Scotia’s Michael Doumet to $57 (Canadian) from $47 with a “sector outperform” rating.
“In our view, GFL’s 4Q23, 2024 guidance, and 2024 capital allocation strategy was effectively in-line with our/Street expectations and prior management commentary,” he said. “While in-line with expectations, we believe (and management confirmed) there are ‘multiple points’ of potential upside to the 2024 guide.
“GFL reduced its net debt leverage from 5.0 times to 4.1 times in 2023 (including 0.3 times from its U.S. divestiture). In 2024, GFL plans to limit M&A to delever more quickly, meaning 2024 may represent a ‘transition’ year, in that less-than-normal growth will be achieved. We expect that to change in 2025 as profit growth from favorable price/cost spread, RNG, and EPR will provide GFL with more room to ramp M&A spend, while also delevering the B/S to achieve investment grade rating in the M-T. Combined, we believe GFL is accelerating its route to optimizing FCF in the M-T.”
* ATB Capital Markets’ Chris Murray to $63 from $60 with an “outperform” rating.
“We see management’s commitment to deleveraging and effectively working the waste industry playbook, moving valuations toward peer levels,” said Mr. Murray.
* National Bank’s Rupert Merer to $56 from $55 with an “outperform” rating.
* CIBC’s Kevin Chiang to $58 from $57 with an “outperformer” rating.
* Jefferies’ Stephanie Moore to US$46 from US$40 with a “buy” recommendation.
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Following a “noisy” fourth quarter of 2023, Desjardins Securities’ Doug Young said he’s taking a cautious stance on IA Financial Corp. Inc. (IAG-T), pointing to trends in U.S. dealer services.
While he does “not expect a lot of the headwinds it experienced in 2023 to persist into 2024 (ie higher mortality, higher corporate expenses, strain in group insurance, inverted yield curve),” the equity analyst deemed the release, which sent its shares plunging 8.7 per cent on Wednesday, as “negative” after the Quebec City-based insurance and wealth management company reported core earnings per share of $2.34, below both his $2.57 estimate and the consensus projection of $2.48.
“Core earnings at its Canadian insurance division were below our estimate due to new business strain at its group employee benefits business,” he said. ”This related to investments to retain several large clients (and add new ones), which according to management will result in future profit (expects a breakeven period of 3–4 years).
“The U.S. dealer services division had a tough quarter. While it is taking actions to improve this business, interest rates likely need to fall in order for this division to perform better. It is also seeing claims ratios trending up (not a good sign) due to higher parts and labour costs and older cars on the road, and as a result is pushing through price increases.”
Also pointing to “several moving pieces” in its actuarial review results and higher-than-anticipated expense growth, Mr. Young cut his 2024 and 2025 core EPS projections to $10.20 and $11.15, respectively, from $10.50 and $11.30. That led him to reduced his target for the company’s shares to $89 from $94 with a “hold” rating (unchanged). The average is $99.50.
Elsewhere, Scotia Capital’s Meny Grauman cut his target to $95 from $104 with a “sector outperform” rating.
“IAG’s Q4 result gave investors plenty not to like including elevated corporate expenses, unusually high strain in the Canadian Group Insurance business, and further signs of weakness in the U.S. Dealer Services unit,” said Mr. Grauman. “The market reaction to these numbers was so bad that during the earnings call the very ability of the company to compete in the U.S. group market and in the US warranty business were called into question. At this point we feel that is a very extreme viewpoint, and one that Management pushed back on. Overall, 2023 was a tough year for the lifeco, but a 9-per-cent sell-off on earnings day ignored some important tailwinds for 2024 including higher rates and improved mortality experience. It also does not give enough credit for IAG’s peer-leading BVPS growth this quarter, and the firm’s very strong ability to generate organic capital which is a key change from a few years ago. The company ended the year with deployable capital of $1.6-billion providing it with significant optionality, but right now the market does not want to give any credit for that. That is partly due to the disappointment around the Vericity deal, but we believe it remains a key strength that is currently being undervalued.”
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Jefferies analyst John Aiken initiated coverage of Canadian banks on Thursday, calling it “an inauspicious time, given the concerns that a potential recession could have on earnings and valuation.”
“We are quite positive on the outlook for the Canadian banks as we anticipate that the group will benefit from an economic recovery spurred on by interest rate cuts by the Bank of Canada (BoC) improving both household and business sentiment,” he said. “However, our enthusiasm is tempered in the near term as we anticipate that the domestic economy will be in, or close to, a recession through the first half of the year. This will fuel concerns of outsized credit losses and dampened loan growth, creating share price volatility. That said, we do not anticipate a severe or prolonged recession and, when confidence in a more normalized outlook returns (likely ahead of pending rate cuts), we expect investor sentiment to become decidedly more positive, generating a strong lift in valuations.
“The Canadian banks’ franchises remain strong, underpinned by the oligopoly in which they operate in their domestic market. The banks’ fundamentals are quite compelling, with operations spanning almost all facets of financial services in their domestic market as true universal banks while the level and quality of capital has arguably never been stronger. Once the banks weather the pending economic slowdown, we believe the 10 times forward P/E multiple will capture a tailwind. Further, with the very narrow 2 times multiple spread between the group on 2024 and 2025 forward estimates, longer term investors can look to purchase the strategy they prefer at essentially the same price. We believe there will be significant separation in valuation multiples once the generic concerns regarding credit quality ease.”
He gave “buy” recommendations to these stocks:
* Bank of Montreal (BMO-T) with a Street-high $144 target. The average on the Street is $137.56.
“We believe the upside from the Bank of the West acquisition is being under-priced in the market. A successful integration will lead to relative outperformance for BMO,” he said.
* Canadian Imperial Bank of Commerce (CM-T) with a Street-high $73 target. Average: $64.82.
“Continuing to execute on its strategy and demonstrating additional success will force the market to reevaluate its stance on CM and its peer-low multiple. CM’s head-start on productivity improvements could provide additional upside,” he said.
These received “hold” ratings:
* Bank of Nova Scotia (BNS-T) with a $63 target. Average: $65.44.
“Scotia’s new strategy has placed the bank on the right path; however, we anticipate that it will take some time for results to show. Consequently, we expect that its growth will continue to lag its peers in the near term,” he said.
* Canadian Western Bank (CWB-T) with a Street-low $29 target. Average: $34.27.
“The anticipated economic slowdown is expected to dampen CWB’s traditionally strong growth in the near term, but its commercial lending bent should provide momentum coming out of the year,” he said.
* Laurentian Bank of Canada (LB-T) with a Street-low $25 target. Average: $28.82.
“After the failed strategic review and exodus of parts of the management team, investors await the latest iteration of its strategy. Regardless of the merits of the new plan, investors will likely need to see evidence of execution before LB’s valuation gets any relief,” he said.
* National Bank of Canada (NA-T) with a Street-high $109 target. Average: $105.18.
“National’s distinct regional exposure and capital markets platform could generate stronger than peer domestic growth, but any missteps in its international credit will weigh heavily on its valuation,” he said.
* Royal Bank of Canada (RY-T) with an “outperform” rating and $138 target. Average: $140.54.
“Despite its relative size, the HSBC Canada acquisition could be a game changer for Royal. However, with an even greater exposure to Canada, we see limited relative upside, given its deserved but already premium valuation,” he said.
* Toronto-Dominion Bank (TD-T) with a “sector perform” rating and $92 target. Average: $89.18.
“TD has taken some hits to its reputation, including walking away from First Horizon and the reported pending regulatory charges. We anticipate that a new strategy is likely, directing the use of its excess capital, but investors will need to see the blueprint before assessing,” he said.
Mr. Aiken added: “Given our recent reputation as the ‘storm-cloud’ team from our internal colleagues, we find it a little unusual (and a bit uncomfortable) with our decidedly positive stance on the mid-term outlook for the Canadian banks. Admittedly, we believe that investors should expect volatility and pressure on the near term as headlines produce a “shoot first, ask questions later” stance when issues surrounding credit and potential losses crop up. However, if investors are willing to peer through the clouds to the end of 2024 and, gasp, even into 2025, we anticipate that the 20/20 hindsight from that vantage point would make any immediate term concerns seem quaint. With investors not likely to be willing to look past 2024 at this stage, we believe a dramatic positive change in sentiment towards the sector is likely and will occur before the Bank of Canada announces its anticipated initial rate cut. Consequently, while we acknowledge that we are likely early on this call, it is our contention that the banks’ valuations are more likely to be higher (and significantly so) in 12 months’ time than they are to be down, despite the possibility of pressure in the near term.
“Although our positive outlook is not necessarily reflected in our 2024 estimates — we appear to be a little more negative on near term credit but this is largely related to provisions on performing that will likely be reversed in the future, potentially as early as the first half of 2025 – we are ahead of consensus for 2025 and believe that these higher earnings expectations will, eventually, lead to higher valuation multiples.”
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National Bank Financial analyst Gabriel Dechaine has “low expectations” heading into first-quarter earnings season for Canadian banks.
“Big-6 bank stocks have underperformed the market by nearly 300 basis points early into 2024,” he said in a research note. “Shifting rate cut expectations have been a primary drag on performance. Moreover, commentary from bank management teams since the start of the year has been generally cautious. Having said that, we believe the setup is favourable to investors with a timeline beyond the quarter, as cautious expectations have been well reflected in both EPS forecasts (consensus Q1/24E implies year-over-year decline of 9 per cent) and EPS revisions over the past year (down 13 per cent).
“We are Outperform rated on BMO, CM and RY. Our top pick into the quarter is CM. The bank could benefit from rising mortgage margins, while also delivering better-than-average operating metrics. We also point out that it has the second highest level of EPS contraction forecasted by consensus at negative 14 per cent year-over-year (after TD at negative 15 per cent) and below average forecasted PTPP growth (i.e., 1 per cent vs. 3-per-cent industry average.)
Mr. Dechaine’s ratings and targets for banks in his coverage universe are:
- Bank of Montreal (BMO-T) with an “outperform” rating and $141 target. Average: $137.56.
- Bank of Nova Scotia (BNS-T) with a “sector perform” rating and $66 target. Average: $65.44.
- Canadian Imperial Bank of Commerce (CM-T) with an “outperform” rating and $71 target. Average: $64.82.
- Canadian Western Bank (CWB-T) with an “outperform” rating and $37 target. Average: $34.27.
- EQB Inc. (EQB-T) with an “outperform” rating and $98 target. Average: $103.89.
- Laurentian Bank of Canada (LB-T) with an “underperform” rating and $28 target. Average: $28.82.
- Royal Bank of Canada (RY-T) with an “outperform” rating and $148 target. Average: $140.54.
- Toronto-Dominion Bank (TD-T) with a “sector perform” rating and $92 target. Average: $89.18.
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In other analyst actions:
* Jefferies’ Christopher LaFemina upgraded First Quantum Minerals Ltd. (FM-T) to “buy” from “hold” with an $18 target, rising from $13 and above the $15.67 average. Elsewhere, Scotia’s Orest Wowkodaw lowered his target to $13 from $14.50 with a “sector perform” rating.
“While issuing equity after the share price has already collapsed is obviously not ideal, we believe these deleveraging steps are significant positives for First Quantum,” said Mr. LaFemina. “The Cobre Panama mine shut down is still a problem, but the balance sheet problem has been addressed for now (we believe these measures provide 18-24 months of additional financial headroom). Note that the company is seeking $20bn in arbitration relating to Cobre Panama. We are incrementally more positive on FM shares as a result of these measures to derisk the balance sheet, and we raise our target to C$18/sh (vs fair value of ~C$10 if we assume a value of $0 for CdP) and upgrade our rating from Hold to Buy to reflect the reduced risks.”
* Raymond James’ Stephen Boland initiated coverage of CI Financial Corp. (CIX-T) with a “market perform” recommendation, emphasizing its increasing debt burden has brought its balance sheet into focus.” His $19 target exceeds the consensus by 8 cents.
“The crux of our Market Perform rating, however, rests with the underlying terms and structure of the $1 billion convertible preferred equity investment in the U.S. division, which CI announced in May 2023,” said Mr. Boland. “At face value, the preferreds entitle the holders to a 20-per-cent interest in the US division on a converted basis. Importantly, however, the preferreds contain a minimum return requirement, which could lead to the group’s effective ownership exceeding 20 per cent if the value of the U.S. division falls below a certain threshold in the event of an IPO or sale. We believe this prohibitive condition embedded in the deal has been a point of concern for investors. ... If CI lists / sells its US Wealth division at a mid-teens multiple around the May 2026 period (where the terms of the preferred’s make an IPO / sale more likely), the US division will have to grow pre-NCI EBITDA at a 20-per-cent CAGR [compound annual growth rate] from 3Q23 annualized levels to avoid dilution. We view this scenario as difficult (and suspect the market agrees), entailing that investors are already anticipating some degree of dilution in CI’s stock. Furthermore, the range of potential dilution scenarios is broad, as it is ultimately tied to both (1) prevailing market conditions and valuation levels for RIA operators at the time of listing / sale and, (2) the organic growth of the division over the term of the preferreds (which mature in early 2029). Given the uncertainty surrounding both of these parameters, we believe CI’s valuation multiple is likely to remain constrained over the next 12-24 months, until the potential dilutive impact from the investment becomes increasingly clearer.”
* JP Morgan’s Jamie Baker increased his Air Canada (AC-T) target to a Street-high of $41 from $38 with an “overweight” rating. The average is $29.16.
* Evercore ISI’s Vijay Kumar cut his Bausch + Lomb Corp. (BLCO-N, BLCO-T) target to US$16.50 from US$17 with an “in line” recommendation. Others making changes include: Citi’s Joanne Wuensch to US$20 from US$21 with a “buy” rating and RBC’s Douglas Miehm to US$20 from US$19 with an “outperform” rating. The average is US$19.46.
“Since its spin, BLCO has been pushing up and to the left, increasing revenue, expanding the pipeline (through internal and external R&D), and improving margins,” said Ms. Wuensch. “This was evident in the 4Q23, with revenue of $1.17-billion (up 19 per cent ex-fx; up 8 per vcent organic) exceeding consensus’s $1.11-billion, including: 1) Vision/Consumer of $662-million (up 8 per cent year-over-year); 2) Surgical $204-million (up 7 per cent); and 3) Ophthalmic Rx of $307-million (up 66 per cent; up 8-per-cent organic). Operating margins expanded to 16.1 per cent from 13.8 per cent year-over-year, and EPS of $0.24 (up 3.1 per cent) exceeded consensus’s $0.17. What was notable from the call was the momentum in the franchise, with management noting consistent themes of “excitement and anticipation”, And that 4Q23 revenue growth exceeded expectations setting the tone for 2024. While management invests, 2024 margins should be more muted (as previously discussed), but it seems to be putting in the right foundation for the long-term.”
* Scotia’s Mario Saric cut his Dream Office REIT (D.UN-T) target to $10 from $11 with a “sector perform” rating. The average is $9.17.
* In response to its agreement to be acquired by Chord Energy, Scotia Capital’s Jason Bouvier raised his Enerplus Corp. (ERF-T) target to $25.50 from $24 with a “sector perform” rating. Other changes include: National Bank’s Travis Wood to US$18.85 from US$21 with an “outperform” rating and TD Securities’ Aaron Bilkoski to US$18.85 from US$21 with a “buy” rating. and The average is $23.84.
* National Bank’s Shane Nagle raised his target for Ero Copper Corp. (ERO-T) to $24 from $22.50 with a “sector perform” rating, while Raymond James’ Farooq Hamed cut his target to $25 from $27 with a “market perform” rating. The average is $25.
“ERO provided 2023 production results along with updated 2024 operating guidance and 3-year production outlook,” said Mr. Hamed. “Overall, 2024 guidance compared unfavourably to our forecasts with lower expected copper production at higher costs and capex while 2025/26 production guidance was in-line with our forecasts.
“While the lower 2024 expectations drive a reduction in our target price, we believe the runway for ERO becomes clearer as investors can digest 2024 expectations and begin to focus on growth coming in 2H24 as the Tucuma project enters production. Moreover, with the recent equity financing we believe ERO is financially positioned to fund the remaining capex and ramp up of the Tucuma project without the need for further financing.”
* Mr. Nagle cut his Osisko Gold Royalties Ltd. (OR-T) target to $23 from $25 with an “outperform” rating. The average is $24.88.
* BMO’s Ben Pham lowered his Innergex Renewable Energy Inc. (INE-T) target to $9 from $10 with an “outperform” rating, while Raymond James’ David Quezada cut his target to $13 from $15 with an “outperform” rating. The average is $12.17.
“INE’s dividend reduction was disappointing but was largely expected with the yield recently rising to 10 per cent,” said Mr. Pham. “Further, freeing up FCF should better position INE for sustained long-term growth in renewable development, which remains robust. Concurrently, resource conditions are improving, supporting strong Q4/23 results (15-per-cent beat). We believe the attractive valuation and improved balance sheet flexibility more than offset what we anticipate as a transition period in the shareholder base.”
* Mr. Pham also cut his Northland Power Inc. (NPI-T) target to $30, below the $31.92 average, from $31 with an “outperform” rating.
“NPI shares have performed better of late due to lower interest rates, derisking of its offshore wind growth roster, and an improved balance sheet position,” he said. “However, valuation still remains attractive and NPI management is capitalizing on its core strength in constructing renewable power projects. We still see a significant opportunity for share price and valuation upside as NPI continues to execute on growth and
improve visibility of the FCF inflection.”
* CIBC’s Dean Wilkinson raised his Sienna Senior Living Inc. (SIA-T) target to $14 from $12.50 with a “neutral” rating. Other changes include: TD Securities’ Jonathan Kelcher to $14.50 from $14 with a “buy” recommendation and Scotia’s Himanshu Gupta to $14.50 from $13.50 with a “sector perform” rating. The average is $13.67.
“With stabilization achieved in LTC [long-term care] segment and NOI margin upside on RH, we think SIA is our top candidate for SO-rating upgrade,” said Mr. Gupta. “However, we do note that SIA stock is up 9 per cent year-to-date (vs REIT sector up 1.9 per cent) and now trading at 13-per-cent discount to our NAV vs REIT sector at 18 per cent. Our 2024 estimated AFFOPS [adjusted funds from operations per share] implies 4.5-per-cent year-over-year growth which stacks well within our coverage universe (CSH leading the pack at 30 per cent; SIA screens above average). We recommend SIA to income/yield investors given dividend yield of 7.5 per cent at 2024E AFFO payout ratio of 86 per cent.”
* RBC’s Pammi Bir trimmed his SmartCentres REIT (SRU.UN-T) target by $1 to $28 with an “outperform” rating, while Scotia’s Mario Saric lowered his target to $25 from $25.50 with a “sector perform” rating. The average is $26.09.
“Post results that were modestly below our call, we trimmed our estimates and PT on SRU,” said Mr. Bir. “Still, we believe its defensive, Walmart anchored portfolio is in strong form to navigate elevated economic uncertainties. Indeed, operating metrics remain in solid shape, with organic growth anticipated to exceed long-term levels. As well, we expect developments to provide a complementary source of long-term growth. At a near-8-per-cent implied cap rate, we continue to see good value.”
* RBC’s Geoffrey Kwan moved his Sprott Inc. (SII-T) target to $54 from $51 with a “sector perform” rating, while TD Securities’ Graham Ryding bumped his target to $47 from $56 with a “hold” rating. The average is $53.17.
“We have an incrementally positive view on Q4/23 results. Although Base Business EBITDA was in-line with our forecast, net sales and AUM were ahead of forecast,” said Mr. Kwan. “Q4/23 and the positive start to Q1/24 results-to-date have been helped by Sprott’s Uranium strategies (strong net sales of Uranium strategies which along with higher Uranium prices are helping AUM growth). Sprott’s differentiated product line-up appears well-positioned to perform well in the current market environment.”
* Stifel’s Cody Kwong raised his Whitecap Resources Inc. (WCP-T) target to $12.75 from $12.25, keeping a “buy” rating. The average is $13.
“Whitecap reported its 2023 financial results and year-end reserves with little surprise as volumes, funds flow and capital investment overlaid Stifel and consensus estimates,” he said. “Its 2023 year-end reserves were predictably noisy as WCP disposed of more assets than it added during the year, though organic F&A performance was solid. We look forward to what this year holds for WCP as it ramps investment in its West Division which has recently yielded stellar Montney results in Kakwa while its 20,000 boe/d Musreau battery is still on pace for completion in Q2. We reiterate our Buy rating and increase our TP ... as we continue to favour companies that are able to prioritize returns to shareholders from a high quality asset base.”
David Leeder