Inside the Market’s roundup of some of today’s key analyst actions
Following a more than 80-per-cent drop in the price of lithium compounds in 2023, National Bank analyst Mohamed Sidibé remains “cautious” on the sector in the near term despite the “slight” improvement seen thus far this year, however he remains bullish over the longer term
“While we expect demand from EVs to continue to grow, we believe that the supply response (from prior curtailed operations and incoming brownfield projects) would be quick enough to dampen any risk of material deficit existing in the market in the near term if demand were to jump substantially higher-than-expected,” he said. “However, we continue to expect stronger demand for lithium in the second half of the decade, which will in turn require the addition of supply from greenfield projects currently in permitting, feasibility study or development stage.”
In a research report released Thursday titled Lithium: An EVolution Rather Than a rEVolution, Mr. Sidibé initiated coverage of the sector, expressing a preference for companies with “less exposure to volatile prices, cost and capital costs escalation, development and construction risk in a still inflationary environment and near-term positive catalysts.”
“With current lithium carbonate EXW China spot price of $14,600 per ton and Q1/24 average prices of $14,241/t, we forecast lithium carbonate prices of $15,183/t in 2024 before trending higher towards our long-term price assumption of $20,500/t from 2029 onwards,” he said. “In the near term, we expect to see volatility in prices given potential pressures on demand from EV sales, the impact of the U.S. Presidential elections and GDP growth in China on EV demand, and still elevated inventories at the midstream levels.”
“As part of our supply/demand analysis, we have reviewed 74 per cent of new supply expected to come online in the next seven years per Argus Battery Materials and aligned estimates to technical reports and our assumptions.”
Mr. Sidibé began coverage of five companies on Thursday, expressing a preference for these three:
* Patriot Battery Metals Inc. (PMET-T) with an “outperform” rating and $12 target. The average target on the Street is $15.67.
Analyst: “We ascribe a Speculative risk rating given the company’s current status as an exploration/development company, where several de-risking initiatives including further permitting, funding and development milestones are to be achieved prior to generating positive FCF. We derive our price target using a 0.85 times NAV multiple on our depreciable asset NAV of $12.06 per share to which we add our other and corporate adjustments at par. Our target multiple represents a slight premium to peers at similar stage of exploration/development’s multiple given the scale and quality of the asset evidenced by the strategic investment made by Albemarle in the company in August 2023. We expect the company to outperform peers in the space given its exploration potential, its current limited exposure to volatile lithium prices and its strong balance sheet that should isolate it from near-term financing dilution. We expect a resource update on the existing CV5 deposit, as well as an expected maiden resource estimate on the CV13 cluster which has been returning positive drill results to date in August 2024.”
* Lithium Royalty Corp. (LIRC-T) with an “outperform” rating and $9.50 target. The average is $13.71.
Analyst: “With three producing royalties in 2023, we expect the company to ramp up to eight producing royalties by 2026 and 10 by 2028 after applying our assumptions around the start of production at certain assets which we expect to come in slightly later than what management expects. This growth in producing royalties should translate to an attributable LCE production CAGR [compound annual growth rate] of 67 per cent between 2023 and 2025 to 887t LCE and 61 per cent between 2023 and 2027 to 2,210t LCE vs. peers at 11 per cent and 14 per cent, respectively. In the near term, we expect a growth in production of 156 per cent from 2024 to 2025 vs. royalty peers at 34 per cent.”
* American Lithium Corp. (LI-X) with an “outperform” rating and $1.50 target. The average is $5.59.
Analyst: “We view American Lithium as a discounted explorer and developer with longer-term rerating potential as the company advances its portfolio through permitting, economic studies and construction. Additionally, with the uranium market picking back pace since the summer of 2023, when the spinout of the Macusani uranium project was deferred, we see the potential to daylight more value from the non-core asset in the portfolio. We ascribe the current discount on the stock, which is currently trading at 0.50 times P/NAV and $7 EV/t LCE vs. peers at 0.82 times and $223/t LCE, respectively, to be driven by the overhang of the deferred uranium spinout, uncertainty around project permitting and financing and the legal dispute over the Falchani and Macusani concessions. While we wait for each of these overhangs to be lifted as the company executes ahead, our current model reflects each of these factors in our operating assumptions. Notably, we do not include any value for the uranium asset, discount the Falchani NAV value by 35 per cent to reflect the ongoing legal dispute over the 32 concessions and apply conservative financing and timeline assumptions. We have additionally benchmarked costs and capex at Falchani and TLC to comparable hard rock and sedimentary lithium projects and account for recent inflationary pressures. Despite these conservative assumptions, our valuation points to an attractive return to target that could further be bolstered as management executes on upcoming catalysts.”
He also initiated coverage of these stocks:
* Lithium Americas Corp. (LAC-T) with a “sector perform” rating and $7 target. The average is $16.63.
Analyst: “We ascribe a Speculative risk rating given the company’s current status as an exploration/development company, where several de-risking initiatives including further development milestones and potential funding needs for dayto-day operations are to be achieved prior to generating positive FCF. We view the Thacker Pass project as an attractive project strategically located to benefit from the North American supply chain with the potential to rerate as financing closes, project construction advances and development risk and capex risk decrease.”
* Lithium Americas (Argentina) Corp. (LAAC-N, LAAC-T) with a “sector perform” rating and US$6 target. The average is US$12.71.
Analyst: “While we currently model a production ramp-up quarter over quarter with positive operating cash flow from the asset in 2024, we remain cautious in the near term in light of the lack of visibility on operating costs and sustaining capex during this period, as well as any potential ramp-up issues that may occur. We currently expect the company to generate a negative FCF in 2024 on an attributable basis. We expect that the stock could rerate higher as the asset advances towards processing at nameplate capacity on a quarterly basis (we model H2/25) and as production reaches battery-grade quality. We will be looking for more colour on costs, capex and ramp-up progress at the asset in the near term.”
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In response to Wednesday’s interest rate reduction from the Bank of Canada, Desjardins Securities analyst Brent Stadler reduced his discount rates for independent power producers by 50 basis points, which led him to increase his target prices for stocks in his coverage universe.
“Our discount rate reduction reflects the BoC rate cut (25 basis points), improved investor sentiment and expectations of one additional cut this year,” he said.
“We are still of the view that IPPs that have increased return hurdles to reflect the current environment and that have been able to sign PPAs or deploy capital at these returns have been investing in very attractive projects, which should become even more accretive to NAV if rates continue to move lower. We maintain our pecking order (BLX, CPX and INE) and our positive sector outlook.”
Mr. Stadler’s target changes are:
- Boralex Inc. (BLX-T, “top pick”) to $44 from $42. The average on the Street is $39.30.
- Capital Power Corp. (CPX-T, “buy”) to $52 from $53. Average: $41.73.
- Innergex Renewable Energy Inc. (INE-T, “buy”) to $14 from $13. Average: $11.18.
- Northland Power Inc. (NPI-T, “buy”) to $29 from $27. Average: $29.83.
- Brookfield Renewable Partners LP (BEP.UN-T, “hold”) to $40 from $38. Average: $42.47.
- Algonquin Power & Utilities Corp. (AQN-N/AQN-T, “hold”) to US$5.50 from US$5.25. Average: US$6.83.
“Given expectations for gradual rate cuts, we are maintaining our pecking order,” he said. “BLX remains our top pick (high quality, top grower), followed by CPX (set to benefit in the reliability ERA and is an AI/data centre play) and INE (good value in operating portfolio, solid RFP outlook), and we maintain our Buy on NPI (executing on construction program). While we are Hold-rated on BEP, primarily based on valuation, the stock could see continued solid performance on the AI/data centre theme. We are looking for a further reset on AQN but expect clarity on the potential renewables sale announcement.”
“The next potential rising tide for the sector that we are looking for is Bill C-59 being written into law, which we expect to occur in the coming weeks. The Canadian Clean Technology ITC should be a catalyst for the sector, and we continue to believe that given the timing of the signing of PPAs on certain projects, BLX has an advantage over peers.”
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Desjardins Securities analyst Benoit Poirier thinks the efforts of Bombardier Inc.’s (BBD.B-T) management and a “disciplined approach” are “paying off.”
“While BBD has been a stellar performer within our coverage (up 70 per cent year-to-date), we believe there is further momentum given management’s execution and the still attractive valuation vs peers (5.7 times our EV/2025 EBITDA forecast, a 44-per-cent discount vs the average for ERJ, GD, TXT and AM),” he said. “Following BBD’s investor day, we now have greater confidence around the sustainability of FCF generation, which should lead to an investment-grade credit rating, shareholder distributions and further multiple expansion.”
In a research report released Thursday, Mr. Poirier reiterated his bullish stance for the Montreal-based company, pointing to recent credit rating upgrades from both S&P and Moody’s and positive industry feedback on the business jet cycle.
“Speaking at EBACE, JETNET creator Rollie Vincent categorized the overall market as ‘rebalancing’ but indicated that there is still a shortage of recent-vintage pre-owned aircraft,” said the analyst. “According to JETNET, total pre-owned bizjet inventory as a percentage of the fleet was 7.1 per cent at the end of March, well below what would be considered a normal level (11–14 per cent). We also recently attended a Cirium bizjet webinar where the Challenger 350/3500 platform was noted to have good pricing stability (oldest Challenger 350 on the market (20-year) is still worth 20 per cent plus vs pre-pandemic); it was also noted that the pre-owned super-mid-size market has yet to enter a normalization phase.”
After moving his valuation forward, Mr. Poirier hiked his target for Bombardier shares to $143 from $102, keeping a “buy” recommendation. The average on the Street is $95.13.
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Jefferies analyst John Aiken said second-quarter earnings season for Canada’s banks reinforced his constructive view of the sector moving forward.
“The second quarter held some positive surprises (CM and RY) along with some negatives (BMO and the regional banks),” he said. “However, with the Bank of Canada announcing an arguably necessary rate cut, our optimism remains that the latter half of 2024 will show improvements. While the third quarter will likely exhibit similar headwinds from lending growth challenges and additional credit deterioration, it should be an inflection point.
“Against the backdrop of a weak economy, the Bank of Canada embarked on the start of loosening its monetary policy at its June policy rate meeting, cutting its benchmark rate by 25 bps to 4.75%. In our view, we believe the BoC rate cut was desperately needed for an economy that was on its last breath. Further, this remains in line with our base case scenario as we look for at least one more 25 bps reduction in rates before the end of the year. With an impetus for a more constructive outlook, we believe that the third quarter could be somewhat of a turning point for the banks’ earnings, strengthening into a more normalized 2025.”
In a research report released Thursday titled Outlook Falling Into Place with Reasons for Optimism, Mr. Aiken move his valuation year to 2025, leading to valuation changes and adjustments to several target prices for stocks in his coverage universe.
He raised his target for these banks:
* Canadian Imperial Bank of Commerce (CM-T, “buy”) to $79 from $78. The average target on the Street is $71.86.
Analyst: “In a more challenging earnings environment, CIBC’s strategic priorities, including emphasizing growth in key client segments with strong returns, maintaining discipline in resource allocation with a focus on returns over balance sheet growth, and leveraging its capabilities to drive simplification and efficiency, could lead to earnings outperformance and relative multiple expansion.”
* Royal Bank of Canada (RY-T, “buy”) to $168 from $159. Average: $153.67.
Analyst: “The closing of RY’s acquisition of HSBC Canada will only extend the bank’s dominance in Canadian retail and commercial banking. Further, with expense run-rate savings from its recent restructuring charges expected to hit the bottom line, we see a scenario where Royal will generate strong earnings growth in the year and, on a relative basis, outperform the group.”
Conversely, he lowered these targets:
* Bank of Nova Scotia (BNS-T, “hold”) to $64 from $69. Average: $68.24.
Analyst: “Near term, Scotia’s earnings are expected to be relatively flat in FY24. That said, buoyed by Scotia’s restructuring charges in 2023, along with capital reallocation to stronger risk adjusted return businesses, earnings are expected to grow by 5-7 per cent in 2025 and 7 per cent plus thereafter over its five-year plan. And, while a dividend yield north of 6.5 per cent may be a compelling yield to wait, its payout ratio remains elevated and well above its 40-50-per-cent range, suggesting dividend growth could remain fairly restrained over the immediate horizon.”
* Laurentian Bank of Canada (LB-T, “hold”) to $26 from $28. Average: $26.64.
Analyst: “For Laurentian Bank, with a recent changing of the CEO chair and an updated strategic plan anticipated in the spring, we are maintaining a wait and see approach and believe there are better opportunities amongst our coverage universe. That said, with LB trading a notable discount to its historical valuation, on both P/E and price-to-book basis, we believe there could be some value for investors with the patience and command of a longer time horizon.”
* National Bank of Canada (NA-T, “hold”) to $121 from $123. Average: $119.75.
Analyst: “National’s relative growth profile continues to generate some outperformance on the domestic front, with little relative impact on credit. With a somewhat modest presence of the Big 6 in NA’s home market of Quebec, further opportunity exists for the bank to take additional share in its retail banking market.”
* Toronto-Dominion Bank (TD-T, “hold”) to $73 (Street low) from $76. Average: $85.70.
Analyst: “In the aftermath of TD walking away from its acquisition of First Horizon, while the misstep has put the spotlight on the bank’s strategy and execution, TD retains a solid growth profile, based on the strength of its retail banking platforms on both sides of the border. Further, the ample excess capital offers optionality, as well as downside protection from a potential recession.”
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In a research report titled Not Yet Time to Tap the Maple Trees, Jeffries analyst Sheila Kahyaoglu initiated coverage of Air Canada (AC-T) with a “hold” recommendation, touting its structural advantages and “robust” network but raising concerns about declining margins and capital expenditure growth.
“Air Canada (AC-CN) is the flag carrier leveraging 6th Freedom connectivity, an advantaged domestic cost base vs LCCs [low-cost carriers], and growing cargo & loyalty into an all-in-one choice for Canadians,” she said. “However, cost efficiencies materialize post 2026 as the network restores & NB fleet refresh takes time. This leaves just $150-million of FCF in ‘24-’26 vs UAL’s $5-billion and DAL’s $10-billion.”
Her target of $20 per share, falls well below the $26.92 average on the Street.
“Air Canada is afforded a dominant position in the Canadian market as the only long-haul airline, along with low-cost and regional fleets that compete domestically,” said Ms. Kahyaoglu. “However, Canadian air travel is increasingly immigration driven and growth is reliant on gaining share of U.S. outbound travel, of which U.S. network carriers are investing heavily in growing. While the balance sheet is a position of strength, the next three years are peak capex for the fleet modernization, with margin expansion dependent on these aircraft and a growing loyalty program, with the historical margin premium to U.S. peers eroding in the coming years on structurally higher costs in Canada, including a pilot deal in 2024 vs. U.S. peers in 2023.”
In a separate report, the analyst initiated coverage of CAE Inc. (CAE-T) with a “hold” rating and $21 target. The average is $30.17.
“CAE provides training & simulation that is positioned to capitalize on structural pilot shortages and growing adoption of synthetic warfare training,” she said. “However, pilot training windfalls remain tethered to softer near-term aircraft deliveries (1 sim per 30/15 NB/WB), while D&S is early innings of a multi-yr restructuring of legacy contracts that hamper NT profitability. Initiate at Hold with US$21 PT on SOTP due to minimal Civil upside and D&S show-me story.”
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Rio2 Ltd. (RIO-X) offers “good value relative to its developer/explorer peers,” according to Eight Capital analyst Felix Shafigullin, who sees “plenty of room for growth” as its open-pit Fenix Gold project in Chile advances toward near-term production.
He initiated coverage of the Vancouver-based development company with a “buy” recommendation on Thursday, expecting the mine to commence production in the first half of 2026 after it secures a construction financing package.
“Fenix Gold ranks as one of the largest undeveloped oxide gold heap leach projects in the Americas with a total mineral resource estimate (MRE) of 5.7 Moz of gold in 480 Mt at 0.37 g/t Au,” said Mr. Shafigullin. “In September 2023, Rio2 published the results of a Fenix Gold Feasibility Study (FS) that envisioned the project as a 20,000 tpd operation producing 78 koz of gold per year on average over a 17-year mine life.
“Compared to other undeveloped heap leach gold projects in the Americas, Fenix Gold has relatively low total capex requirements of US$193-million (initial capex of US$117-million, plus US$77-million in sustaining capex) due to its reliance on construction and mining contractors. In addition, the metallurgical testing done at the project has demonstrated that the oxide mineralization is amenable to cyanidation via heap leaching of the uncrushed run-of-mine material. As a result, Rio2 was able to eliminate a crushing circuit from Fenix Gold’s flowsheet, reducing the initial capex and operating cost estimates and simplifying the construction phase.”
Seeing the potential for throughput to expanded by 4-5 times if a sufficient water supply is secured and touting the company’s “proven” leadership team, Mr. Shafigullin set a Street-high target of $1.10 per share. The current average is 60 cents.
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In other analyst actions:
* MoffettNathanson’s Michael Morton downgraded Shopify Inc. (SHOP-N, SHOP-T) to “neutral” from “buy” and cut his target to US$65 from US$74. The average target on the Street is US$75.74.
* Following its $450-million hybrid note offering, ATB Capital Markets’ Nate Heywood resumed coverage of Capital Power Corp. (CPX-T) with a “sector perform” rating and $40 target. The average is $41.73.
“In the near term, we expect Capital Power to continue investing heavily in growth initiatives, with a significant focus on the Genesee 1 & 2 repowering, accompanied by ongoing efforts on renewable projects in both Canada and the U.S.,” said Mr. Heywood. “Additionally, as illustrated by recent acquisitions and management’s 2024 investor day commentary, there remains a clear appetite for natural gas generation M&A or brownfield expansion in the U.S.. The natural gas opportunities could be seen in either existing markets with cost-efficient brownfield expansion opportunities or through M&A with entrance into new markets like PJM or ERCOT. The current strategy from management is heavily focused on its leading position as a North American FlexGen operator, which combines efficient and strategically located dispatchable energy, combined with renewable developments. The strategy will continue to work on increasing contracted cash flows and limiting merchant market exposure.”
* Raymond James’ Brian Peterson lowered his target for D2L Inc. (DTOL-T) to $12 from $13, keeping an “outperform” recommendation, while BMO’s Thanos Moschopoulos cut his target to $11 from $11.50 with a “market perform” rating. The average is $12.81.
“We remain Market Perform on D2L and have made minor changes to our model following Q1/25 results,” said Mr. Moschopoulos. “Revenue and EBITDA were roughly in line, while year-over-year ARR growth was consistent with last quarter, and management reiterated full-year guidance. While we prefer other stocks in our coverage universe, we see more upside than downside to the stock given D2L’s CY2025 EBITDA valuation, competitive position in higher-ed, and improving profitability. We’ve trimmed our target price due to recent multiple compression among the peer group.
* Coming off research restriction following its $300-million equity raise with proceeds set to go toward the repurchase of the 9.7-per-cent interest in the Côté Gold Mine from Sumitomo Metal Mining Co. Ltd, Scotia’s Tanya Jakusconek raised her IAMGold Corp. (IAG-N, IMG-T) target to US$4.50 from US$4.25 with a “sector perform” rating. The average is US$4.68.
“Despite raising additional cash, which secures IAG’s ability to repurchase the 9.7-per-cent interest in the asset earlier than expected (November 2024 versus previously in May 2025) and completion of mine build, we maintain our Sector Perform rating. We wait to see the operating performance of the mine as it nears commercial production in Q3/24,” she said.
* Seeing an “asymmetric trading opportunity,” Desjardins Securities’ John Sclodnick raised his Karora Resources Inc. (KRR-T) target to $5.97 from $5.65, keeping a “tender” recommendation. The average is $6.39.
“Since the announcement of the merger between Karora and Westgold (WGX, ASX, not rated), KRR shares have traded in line with junior producers and have persistently traded at a discount to the deal price (currently 5.9 per cent) — creating an asymmetric investment opportunity, in our view,” he said. “Further, we expect WGX shares to outperform upon closing of the transaction in July as the combined company should re-rate to trade closer to highquality intermediate producers in top jurisdictions, helped by index demand.”
“As KRR continues to trade below the offer price, we would be buyers for the low-risk, near-term potential upside into the closing of the deal, but also for the medium-term rerate potential as we believe the [merged company] should trade at a premium to the intermediate producer group.”
* CIBC’s Mark Petrie raised his North West Company Inc. (NWC-T) target to $44 from $43 with a “neutral” rating, while BMO’s Stephen MacLeod bumped his target to $44 from $41 with a “sectorperform” rating. The average is $43.25.
“NWC posted in-line Q1 earnings with better food sales momentum offset by slower GM% progress. Even still, all eyes are on government support programs. Payments on the $1.8-billion drinking water settlement have begun and will accelerate through 2024, and we expect Canada GM sales to ramp up in coming quarters,” said Mr. Petrie.
* CIBC’s Scott Fletcher increased his Stingray Group Inc. (RAY.A-T) target to $10.50 from $10 with an “outperformer” recommendation. The average is $9.67.
“After selling off 7.5 per cent in the week leading up to earnings, Stingray’s Q4 earnings and accompanying management commentary on the conference call look to have alleviated short-term concerns driving the weakness,” he said. “Advertising prospects remain strong. Management expects ad revenue to grow at a 50 per cent plus rate in Q1, and we expect F2025 consolidated margins will likely be consistent with 2024, above the stated 35-per-cent target.”
* Raymond James’ David Feaster cut his Versabank (VBNK-T) target by $1 to $12 with an “outperform” rating. The average is $15.50.
David Leeder