Inside the Market’s roundup of some of today’s key analyst actions
While Boyd Group Services Inc. (BYD-T) provided a “softer” outlook for its first quarter of fiscal 2024 than the Street expected, “driven by a financial drag from the higher greenfield/brownfield location adds in 4Q (but better ROIC vs M&A once mature), and a milder winter,” Desjardins Securities analyst Gary Ho thinks those headwinds are “likely temporary” and reaffirmed a constructive outlook moving forward.
“BYD continues to get price increases, build capabilities in scanning/calibration and grow locations (with higher mix of start-ups),” he noted.
Shares of the Winnipeg-based company plummeted 8.5 per cent on Wednesday after it warned adjusted EBITDA dollars are “trending slightly above levels achieved in the first quarter of the prior year, but below the level achieved in the fourth quarter.” That came after it reported fourth-quarter 2023 results that largely fell in line with expectations.
“While greenfield/brownfield locations take 2–3 years to fully ramp up, they enable BYD to customize its floor space to include scanning/calibration and glass service,” said Mr. Ho. “Management targets a 30-per-cent-plus ROIC (vs 20–25 per cent for acquisitions). We understand the strategy/merits behind this; patient investors should be rewarded.
“BYD added resources to support growth through single and multi locations (we increased our 2025 location adds to 100) ... Significant rampup in scanning/calibration capabilities (50 per cent year-to-date technician workforce, technology investments)—BYD expects a doubling of the business by year-end. In the next 2–3 years, it expects to bring at least 80 per cent of current volume internally (benefits margin).”
After reducing his earnings expectations for both 2024 and 2025, the analyst trimmed his target for Boyd shares to $310 from $320, maintaining a “hold” recommendation. The average target on the Street is $320.14, according to LSEG data.
“While we remain constructive longer-term, we note that (1) SSSG is likely to revert to historical levels following a period of elevated pandemic-related growth; (2) wage pressure persists with a tight US labour market (margin headwind); and (3) BYD is fairly valued, in our view,” said Mr. Ho.
Elsewhere, TD Securities’ Derek Lessard downgraded Boyd to “hold” from “buy” and cut his target to $310 from $320.
Others making target adjustments include:
* Scotia’s Michael Doumet to $325 from $315 with a “sector outperform” rating.
“We still believe BYD can CAGR [compound annual growth rate] EBITDA at that 20-per-cent average (skewed to 2025), however, through the period we think SSS [same-store sales] will trend closer to MSD-per-cent [mid-single digits] than HSD-per-cent [high single-digits], the margin recovery will take longer, but that BYD will accelerate store additions. More simply, margins could take longer to get to the pre-pandemic ‘14 per cent’, but we do not see a need to materially pare back our EBITDA growth expectations through 2025. As such, we view the recent pullback as providing an attractive entry point.”
* Raymond James’ Steve Hansen to $375 from $380 with a “strong buy” rating.
“We are trimming our target price ... based upon a softer-than-expected 1Q24 guide/outlook (details herein) and modest downward associated revisions to our financial estimates. Notwithstanding these revisions, we reiterate our Strong Buy rating based upon our constructive view of NA collision industry fundamentals and Boyd’s compelling long-term growth/margin outlook,” said Mr. Hansen.
* RBC’s Sabahat Khan to $337 from $348 with an “outperform” rating.
“: Boyd reported Q4 Adj. EBITDA that was modestly below RBC/ consensus forecasts, and the company’s Q1 outlook calls for a sequential deceleration of SSS into Q1 (given elevated comps) and Adjusted EBITDA. With that said, Boyd continues to execute well amidst the uncertain operating backdrop, and we believe the company remains well positioned to deliver on its 2025 target,” said Mr. Khan.
* BMO’s Tamy Chen to $330 from $350 with an “outperform” rating.
* Jefferies’ Bret Jordan to $340 from $290 with a “buy” rating.
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RBC Capital Markets’ Global Financials Research Group added both Brookfield Corp. (BN-T, BN-N) and Manulife Financial Corp. (MFC-T) to its “Best Stock Ideas” list.
In a research report released Thursday, the firm’s analysts said global financial stock valuations “continue to screen attractive,” adding more certainty “on the path of economic recovery (incl. credit quality) as well the regulatory backdrop, should help the shares to re-rate.”
“Since inception, our selected stocks delivered an average total return of 11 per cent (6 per cent year-to-date),” the analysts said. “Over the same period, the world financials index delivered a total return of 14 per cent (7 per cent YTD), equity markets in the U.S. 14 per cent (8 peer cent YTD), in Europe 8 per cent (5 per cent YTD) and in Canada 9 per cent (4 per cent YTD). The best performing stocks in our coverage were American Express, Beazley and Ares Management; the worst were St James Place, Element Fleet Management and Legal & General.”
Pointing to “positive overall fundamentals” and “attractive valuation,” analyst Geoffrey Kwan has an “outperform” recommendation and US$53 target for Brookfield shares. The average is US$50.96.
“We think BN’s Alternative Asset Management; Infrastructure; Renewables; Credit; Insurance; and Private Equity businesses are performing well, while we recognize their Real Estate vertical is having mixed performance, but trends are improving and, to the extent interest rates decline, this should further benefit financial results,” he said.
Touting a reduction to its long-term care (LTC) exposure from its deal with Global Atlantic as well as potential for growth in Asia and “strong” capital position, analyst Darko Mihelic has an “outperform” rating and $38 target for Manulife. The average is $34.62.
The two were added alongside Barclays PLC, Moody’s Corp. (MCO-N) and S&P Global Inc. (SPGI-N).
Brookfield Asset Management Ltd. (BAM-T) and Sun Life Financial Inc. (SLF-T) were removed along with St James Place PLC and Lloyds Banking Group PLC.
Other Canadian companies on the list, which now includes 24 equities, are: Bank of Montreal (BMO-T) and Element Fleet Management Corp. (EFN-T).
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Acumen Capital analyst Trevor Reynolds thinks Badger Infrastructure Solutions Ltd.’s (BDGI-T) Investor Day event in Toronto on Wednesday was “a positive update,” pointing to the expectation of continued revenue growth and margin improvement moving forward.
“Tailwinds remain strong with expected growth of 8 per cent (per year) in the markets that BDGI operates through to 2027,” he said. “Management continues to view their core markets as both underserved and under-penetrated which presents significant growth opportunities for BDGI.
“Commercial strategy has been successful and would be very difficult for competitors to replicate given BDGI’s dominant position in North America. Pricing engine introduced in 2023 has successfully increased RPT by incorporating branch utilization, market position, and timing of reservation to rates.”
Mr. Reynolds emphasized Calgary-based provider of non-destructive excavating and related services is investing additional capital and resources in data “which is expected to drive decision making in all aspects of the business over the coming years. “
“Five-year targets updated to account for results to date but not extended beyond 2027,” he noted “Free cash will continue to go toward organic growth of the business, which is expected to increase fleet count by 7-9 per cent through to 2027 and produce.”
Seeing Badger targeting a “stable build profile,” the analyst hiked his target for its shares to $53, above the $51.72 average, from $47.50 with a “speculative buy” recommendation.
Elsewhere, others making changes include:
* Raymond James’ Frederic Bastien to $57 from $52 with an “outperform” rating.
“Much of the material covered over the hour-long presentations supported the findings from our initiation of coverage report — namely, that data-driven tools are helping leverage BDGI’s strong safety culture, scale advantages and unique manufacturing capabilities into enhanced returns,” said Mr. Bastien. “With many commercial strategies in the early innings of implementation, and the outlook for Badger’s target markets robust, we believe there is much for investors to look forward to still, starting with an increased target price of $57.”
* BMO’s John Gibson to $52 from $49 with a “market perform” rating.
“The company outlined its updated four-year plan, which targets a longer-term run rate revenue CAGR of 12–14 per cent with adjusted EBITDA margins rising to 25–30 per cent by 2027 (22 per cent currently). Post investor day, we are increasing our target .... which reflects 7.5 times EV/ EBITDA. Our Market Perform rating is mostly valuation related, although we recognize the company has plenty of tailwinds to grow its business at a strong clip over the next several years,” said Mr. Gibson.
* CIBC’s Krista Friesen to $52 from $50 with a “neutral” recommendation.
“The macro tailwinds, specifically within Badger’s core operating segments are strong, and should help drive top-line growth for the business. Additionally, Badger should be able to grow above market excavation growth given non-destructive excavation remains in the early stages of adoption, and the legal and safety trends should help drive more widespread adoption,” said Ms. Friesen.
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Following weaker-than-anticipated fourth-quarter 2023 results, Raymond James analyst Brad Sturges expects True North Commercial REIT (TNT.UN-T) to continue to face volatility in its average physical occupancy rate, citing the potential for lower retentions realized within its lease renewal activities.
“TNC remains cautious in its internal leasing assumptions, as office lease negotiation timeframes are generally still longer than historical norms,” he said.
“We believe it’s significantly more important that TNC focuses on improving balance sheet strength, by repaying debt and reducing financial leverage metrics in order to reduce its investment risk profile instead of deploying retained cash flow into buying back stock through its NCIB.”
After the bell on Tuesday, The Toronto-based REIT reported funds from operations per unit of 59 cents, below both Mr. Sturges’s 61-cent estimate and the consensus projection on the Street of 62 cents and a fall from 77 cents during the same period a year earlier. Its same-property average occupancy rate fell by 4 per cent year-over-year to 89 cents.
While True North is “executing opportunistic asset sales” with deals to divest of three office buildings for $24-million, the analyst warned it is expected to face near-term financing cost headwinds.
“TNC’s liquidity position was $45-million at Dec-31, the REIT’s debt to GBV assets was 62 per cent, and its debt to EBITDA was 11 times,” he said. “TNC had $104-million in 2024 maturing debt (approximately 13 per cent of debt) at an average interest rate of 4.3 per cent at Dec-31, which rises to $213-million in 2025 (27 per cent of debt) at an 3.1-per-cent interest rate. In 2024 year-to-date, TNC refinanced $13-million in maturing debt (16 per cent of 2024 maturities) at a mid-7-per-cent average interest rate for a 1-year term. TNC estimates that market interest rates for longer-term secured mortgages could be available to the REIT in the 5.50-6.00-per-cent range.”
Maintaining his “market perform” rating for True North units, Mr. Sturges cut his target to $10 from $11.25 after reducing his FFO expectations for both 2024 and 2025. The average target on the Street is $9.19.
Elsewhere, CIBC’s Sumayya Syed raised her target to $9 from $8.05 with a “neutral” rating.
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Calling it “a triple-net-lease portfolio trading at an attractive valuation,” Canaccord Genuity analyst Zachary Weisbrod upgraded Canadian Net REIT (NET.UN-X) to “buy” from “hold” upon assuming coverage on Thursday.
“Our investment thesis is based on the fact that the REIT owns a stable portfolio leased to necessity-based tenants on triple-net-leases resulting in steady cash flow,” he said. “Further, fundamentals are healthy, in our view, which should lead to steady rent growth. The REIT operates with a conservative payout ratio, allowing for retained capital to fund growth, and is currently trading at an attractive valuation.”
Mr. Weisbrod raised the firm’s target for units of Canadian Net to $5.50 from $5. The average target on the Street is $5.69.
“CNET currently trades at an implied cap rate of 7.9 per cent (16.2-per-cent discount to our NAV), and 7.3 times 2025 estimated AFFO, below the average multiple of 12.2 times over the past four years,” he noted. “Canadian retail REITs and U.S. triple-net-lease REITs trade at an average 2025E AFFO multiple of 12.8 times and 13.2 times, respectively. Notwithstanding the discount to the historical average multiple, retail fundamentals in Canada are healthy, in our view, with extremely limited new supply supporting further upward pressure on rental rates.”
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BMO Nesbitt Burns analyst Jeremy McCrea reinstated coverage of a trio of energy stocks on Thursday:
* Headwater Exploration Inc. (HWX-T) with an “outperform” rating and $9 target. The average target on the Street is $8.71.
“The Clearwater formation is one of the most economic plays in Canada, and Headwater is among the select few publicly traded companies that has exposure to it,” he said. “With a large land base, the company is still working through a meaningful development/waterflood program, anticipating many more years of progress ahead. With a healthy dividend yield and growing cash position, combined with emerging new exploration plays outside the Clearwater, we believe there’s lots to like.”
* Surge Energy Inc. (SGY-T) with an “outperform” rating and $10 target. Average: $11.25.
“When we look back at which companies were the best performers over a certain time period, they typically have common attributes: 1) A material change in underlying asset performance; 2) an inexpensive valuation; and 3) are ‘off-the-radar’, setting up a favourable entry point. For Surge, we see the potential for outsized gains given this backdrop — especially if WTI prices improve. With better well performance lately in both the Sparky and Frobisher formations, and the potential for higher ‘value additive’ growth, investors have a lot to look forward to,” he said.
* Tamarack Valley Energy Ltd. (TVE-T) with a “market perform” rating and $4 target. Average: $4.83.
“Tamarack has been one of the most acquisitive E&Ps over the last few years. The repositioning into the Charlie Lake and Clearwater has materially improved the company’s inventory duration, as well as its go-forward profitability. Unfortunately, with much of these acquisitions funded with debt, we’re likely to see a slow-down in organic growth as the company re-builds its balance sheet. Over the longer term, as long-lead infrastructure costs diminish and waterfloods take hold, TVE should show good full-cycle economics in these robust plays that would likely bring in new investors,” he said.
Mr. McCrea also assumed coverage of Whitecap Resources Inc. (WCP-T) with an “outperform” rating and $13 target, exceeding the $12.70 average.
“One of the most important attributes with any E&P company is its ability to recognize, pivot, and improve its land/inventory base,” he said. “From that point, WCP is one of the few companies that has significantly upgraded its inventory over the last several years and has substantially extended its inventory duration especially with additions in the Montney and Duvernay. This ‘rate of change’ is typically when a multiple expansion occurs and why we believe this should be the case for WCP as these well results come more to light.”
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In other analyst actions:
*Seeing it “positioned to execute on growth initiatives,” Canaccord Genuity’s Jeremy Hoy lowered his Centerra Gold Inc. (CG-T) target to $10.75 from $11.75 with a “buy” recommendation. The average is $10.05.
“We look forward to the outcomes of the MBU strategic process and ongoing exploration/evaluation at Goldfield,” he said. “In the meantime, we highlight CG’s cash flow generation from its existing operations and healthy balance sheet, as well as the new management team’s strong technical credentials, which combined, provide a solid foundation upon which to build the portfolio through internal development projects and/or M&A, in our view. We also highlight the company’s capital returns program, attractive valuation, and potential upside at Mt. Milligan from the ongoing optimization review and potential mine life extensions made possible by the recent stream renegotiation.”
* Canaccord Genuity’s Mike Mueller raised his Crescent Point Energy Corp. (CPG-T) target to $13 from $12.50 with a “buy” rating. Other changes include: BMO’s Jeremy McCrea to $13 from $12 with an “outperform” rating and Stifel’s Cody Kwong to $14.50 from $14 with a “buy” recommendation. The average is $12.93.
“We expect headlines emerging from the Crescent Point Investor Day will largely focus on the name change to Veren Inc (Latin reference to ‘truth’ and ‘energy’),” said Mr. Kwong. “However, not lost on us, was the technical, operational, strategic, and fiscal improvements the company highlighted in the presentation that truly warrant the celebration of the transformation delivered by this team over the past 6 years and excitement around its blueprint and targets ahead. While we make no formal changes to our outlook in this update, we come away with a better appreciation of its core assets and the level of detail/focus and shareholder return upside laid out in its 5-year plan.”
* CIBC’s Nik Priebe hiked his Power Corp. of Canada (POW-T) target to $43 from $40 with a “neutral” rating. The average is $42.13.