Inside the Market’s roundup of some of today’s key analyst actions
RBC Capital Markets analysts Robert Kwan and Maurice Choy are bullish on Canada’s Energy Infrastructure sector, believing it offers investors “multiple ways to gain low-risk exposure to North America’s multi-year energy growth that lies ahead.”
“We particularly favour the Canadian Midstream stocks as we believe that the WCSB’s natural gas, NGL and oil volume growth outlook through 2030 remains unaffected by the recent low commodity prices,” they added. “Moreover, we like Midstream’s progressively healthy financial setups, relatively sound capital allocation philosophies, and increasingly disciplined approach to risk management. If investors are concerned with a slowing economy, the Utilities stocks are solid options, with their low-risk, regulated earnings remaining the bedrock of the sector’s decades-long defensive attributes (not to mention the Utilities’ energy transition-driven growth opportunities and rising electricity demand backdrop). The Alberta Power companies are also well-positioned to serve the province’s growing power needs, particularly as data centre load growth emerges. Big picture, Midstream and Utilities’ dividends are sustainable and set to grow, with the 5.0-per-cent average dividend yield likely being attractive to income-oriented investors amid today’s interest rate environment.”
In a research report released on Thursday titled Success is all about consistency around the fundamentals, the analysts argued “there is something for everyone” in sector.
“As the Canadian Energy Infrastructure sector’s investor base can often have differing macro and energy outlooks, we believe the sector’s wide range of businesses offer the market a solid set of stocks that fit the various outlooks,” they said. “As we roll out our 2026 estimates and update certain price targets , we continue to prefer Canadian Midstream, which is underpinned by the transformational WCSB volume growth through 2030, as well as the companies’ financial setups, capital allocation approaches and risk aversion. Any material share price weaknesses that stem from the low commodity price should be viewed as a buying opportunity, in our view. Importantly, Utilities remains the destination for defensive exposure, while an ideal situation for the Renewables (covered by RBC Capital Markets analyst Nelson Ng) involves: (1) certain elections outcomes; (2) economic conditions that lead to better labour availability, lower inflation, and a change in investor sector allocations; and (3) more interest rate cuts.”
With the introduction of their 2026 projections, Mr. Choy increased his target prices for many of the stocks in his coverage universe:
- AltaGas Ltd. (ALA-T, “outperform”) to $40 from $37. The average on the Street is $37.88.
- Atco Ltd. (ACO.X-T, “sector perform”) to $50 from $47. Average: $45.08.
- Canadian Utilities Ltd. (CU-T, “sector perform”) to $38 from $36. Average: $36.20.
- Emera Inc. (EMA-T, “outperform”) to $60 from $57. Average: $53.55.
- Enbridge Inc. (ENB-T, “outperform”) to $59 from $55. Average: $55.59.
- Fortis Inc. (FTS-T, “sector perform”) to $65 from $62. Average: $60.19.
- Gibson Energy Inc. (GEI-T, “outperform”) to $28 from $27. Average: $25.09.
- Hydro One Ltd. (H-T, “sector perform”) to $43 from $41. Average: $44.
- Keyera Corp. (KEY-T, “outperform”) to $45 from $44. Average: $41.36.
- Pembina Pipeline Corp. (PPL-T, “outperform”) to $65 from $60. Average: $58.43.
“We prefer Pembina, Keyera, and TC Energy on Midstream; and AltaGas, Emera, Brookfield Infrastructure and TransAlta on Utilities and Alberta Power,” the analysts said.
Elsewhere, JP Morgan’s Jeremy Tonet raised his targets for Enbridge to $60 from $57 with a “buy” rating and Pembina Pipeline to $62 from $60 with a “hold” rating.
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Citing a “positive view of enhanced risk-reward given the expected benefits from its pending acquisition and most recent share price weakness,” Scotia Capital’s Phil Hardie upgraded Propel Holdings Inc. (PRL-T) to “sector outperform” from “sector perform” previously.
The equity analyst said he likes the Toronto-based financial technology company’s deal to acquire QuidMarket, a leading U.K. digital direct lending platform focused on the short-term subprime consumer loan market, pointing to “the enhanced growth potential and attractive profitability of the platform, and expected diversification benefits with Propel now operating across three countries.”
“The move marks a significant step in the company’s global expansion strategy and provides investors with a strong signal of how ambitious its growth plan is, in our view,” said Mr. Hardie. “We think the deal makes sense and is financially attractive.”
He added: “We expect the deal to provide several benefits that include (1) accelerating its growth strategy, (2) providing diversification benefits, (3) providing an ability to leverage its technology abilities to bolster QuidMarket, (4) exchanging best practices and deep operational experience to provide mutual benefits, and (5) delivering attractive financial benefits.”
He hiked his target for Propel shares to $34 from $28. The current average is $32.80.
“We view Propel as a small but profitable high-growth fintech player set to accelerate its expansion in the global non-prime consumer space,” he said. “The company has multiple potential growth avenues and is led by a strong, growth-minded management team, supported by an experienced board of directors.”
“Key reasons to like Propel include: (1) the company is a small but high-growth fintech player with a very large market opportunity; (2) strong profitability and cash flow conversion; (3) management team is entrepreneurial with a solid track record, and is focused on the company’s growth; (4) a detailed strategic plan to accelerate growth through the next phase of expansion; and (5) ample funding is available to facilitate growth acceleration.”
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Equity analysts on the Street continue to initiate coverage of South Bow Corp. (SOBO-T), a spinoff of TC Energy Corp.’s (TRP-T) crude oil pipelines business that rose 0.6 per cent on its trading debut on Wednesday.
National Bank’s Patrick Kenny sees the company as “an attractive investment for long-term, yield-oriented investors with a constructive view towards the WCSB continuing to increase heavy oil exports into the Gulf Coast market and potentially onto export terminals.”
“Considering South Bow as a pure-play crude oil transportation, storage and marketing opportunity, we highlight two major investment themes: (1) the long-term committed contract nature of the pipeline assets supported by investment grade counterparties; and (2) a Canadian/U.S. supply/demand dynamic supporting sustainable and incremental WCSB crude oil exports longer-term,” he said.
However, Mr. Kenny gave it a “sector perform” recommendation, seeing the potential for “modest” multiple expansion given “relatively lower growth visibility” and “a weaker asset diversification profile” than its peers.
BMO and CIBC initiate coverage of South Bow
“With US$1.1-billion of stable EBITDA, less US$0.5-billion of interest and cash tax expense, SOBO’s US$0.6-billion of annual discretionary cash flow represents a sustainable 70-per-cent payout ratio, while prioritizing leverage reduction by US$0.1-billion/year, targeting a D/EBITDA ratio of 4.5 times over the next 3-4 years and 4.0 times longer-term,” he said. “Meanwhile, as WCSB production continues to trend higher, and less than 100 mbpd of slack pipeline capacity exporting WCSB barrels through 2026, we highlight upside to the company’s competitive full path toll to the Gulf Coast of US$8.85/bbl with every US$0.10/bbl toll representing 2-per-cent upside to our long-term AFFO estimates.”
He set a target of $31 per share, matching the average on the Street.
Elsewhere, other analysts starting coverage include:
* ATB Capital Markets’ Nate Heywood with a “sector perform” rating and $32 target.
“South Bow provides a high level of contracted cash flows from its critical energy infrastructure assets like the Keystone system, providing a stable cash flow and earnings profile,” said Mr. Heywood. “Despite a higher leverage position and elevated earnings dividend payout ratio, free cash flow generation and low-cost strategic corridor growth opportunities like the Blackrod project should help SOBO delever and reduce its payout ratio in the coming years. Earnings growth and an improved leverage position should allow improved flexibility for future strategic corridor growth and incremental returns to shareholders, which could be achieved through the installment of an NCIB for share repurchases or base dividend grow.”
* RBC’s Maurice Choy with an “outperform” rating and $34 target.
“South Bow’s shares offer investors direct and material exposure to Keystone, one of North America’s most critical energy pipelines that is underpinned by long-term contracted cash flows,” said Mr. Choy. “The shares’ trading may be volatile in the short term as the investor base changes, although the stock’s attractive dividend should keep any weakness in check. Longer term, the stock’s valuation could improve when the market sees South Bow’s financial setup and growth outlook materially improve, and perceives Keystone’s physical asset integrity more favourably.”
* Wells Fargo’s Praneeth Satish with an “equal-weight” rating and $28 target.
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With those initiations, analysts made adjustments to their TC Energy targets. They include:
* National Bank’s Patrick Kenny to $60 from $65 with an “outperform” rating.
“The spinoff all but completes TRP’s journey to rightsize its balance sheet to 4.75 times D/EBITDA by the end of 2024 while maintaining the existing dividend of $3.84/sh on a combined basis with SOBO (86 per cent TRP; 14-per-cent SOBO),” he said. “Looking forward, TRP’s commitment to live within a $6-$7-billion annual investment budget is expected to deliver 7-per-cent EBITDA CAGR [compound annual growth rate] through 2026, supporting 3-5-per-cent dividend growth.
“With a renewed focus on natural gas utility-like infrastructure poised to benefit from the broader electrification trends and expectations of continued valuation momentum, our target moves to $60 (was $65),” he added. “Combined with $3-per-share further upside to our valuation contingent on the company confirming no further asset sales beyond 2024 upon mechanical completion of the Southeast Gateway Pipeline (we currently assume an incremental $2.5-billion through 2025), we reiterate our OP rating ahead of TRP’s investor day update later this fall.”
* ATB’s Nate Heywood to $58 from $60 with a “sector perform” rating.
“TC Energy will continue to provide utility-like cash flow predictability across its remaining portfolio of Natural Gas and Power assets in North America,” said Mr. Heywood. “The Company is structurally supportive of the energy transition through its established and growing Natural Gas Pipelines and Power & Energy Solutions segments. Following a period of significant development and major projects, TRP is entering an execution phase and is expected to remain disciplined through achievement and maintenance of a more conservative leverage profile (4.75 times debt to EBITDA) and modest annual capital spending to support its 7-per-cent CAGR [compound annual growth rate] target on EBITDA through 2026. TRP has made deleveraging a key point of focus for the near-term and is targeting leverage below 4.75 times by year-end2024 (YE2023: 5.1 times), and management expects $3-billion in near term asset recycling to be a major piece of the leverage improvement (85-per-cent announced). The secured capital program remains robust at an aggregate $30-billion (low-end of $8.0-$8.5-billion capital spending for 2024); however, management has messaged a more conservative annual spend of $6-$7-billion going forward to help maintain its leverage position. The dividend remains an attractive consideration for TRP with 24 consecutive increases and a current estimated annualized yield of 5.5-per-cent yield (2025 estimated payout ratio: 47.4 per cent). TRP currently trades at a 2025 EV/EBITDA multiple of 11.4 times, which compares to peers trading near 10-12 times.”
* RBC’s Maurice Choy to $67 from $66 with an “outperform” rating.
“With the spin-off now complete, we look forward to the next de-risking milestones, including the completion of the Southeast Gateway Pipeline (SGP) project, enhancing the visibility of its multi-year growth outlook, and steps that the company may take to delever beyond its 4.75 times debt/EBITDA target. Indeed, the stock has outperformed recently; however, we believe there is more to come as these milestones are reached and could progressively reward shareholders with a higher share valuation that is similar to its closest peer and the Canadian regulated utilities,” said Mr. Choy
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Stifel analyst Martin Landry thinks Gildan Activewear Inc. (GIL-N, GIL-T) could be positioned to benefit from low cotton price volatility.
His optimism comes after a discussion with Darren Long, a senior trader at global commodity trading and processing company Ecom Agroindustrial Corp. of Switzerland, who predicted cotton prices could rise in the coming months and settle between 75-78 cents per pound.
“After touching a high of $1.01/lbs earlier this year, cotton prices are down 28 per cent from their peak and have been relatively stable recently at $0.73/lbs,” said Mr. Landry. “This price stability could continue in the coming months as the upward pressures on cotton prices are faced with balancing downward pressures. Mr. Long believes it is unlikely that cotton prices surpass $0.80/lbs in the next 6-9 months absent a rebound in demand.”
“Low cotton price volatility could be good for Gildan. While there are several dynamics at play globally that could impact cotton prices, these pressures seem somewhat balanced currently. Hence, the recent price stability for cotton could continue until early next year. This price stability would be a positive for Gildan and could continue to act as a margin driver in the near-term. Given that Gildan purchases its cotton needs 9-12 months ahead, we could see further benefits from the recent decline in cotton prices in Gildan’s financial results.”
Mr. Landry does not expect any “major surprises” from Gildan’s third-quarter 2024 results, which are expected to be released in early November. He’s currently projecting adjusted earnings per share of 84 US cents, up 14 per cent year-over-year and in line with the consensus estimate of 85 US cents.
“Demand in end markets should remain depressed but Gildan should continue to gain market share translating in revenue growth,” he said.
“We are expecting gross margin to expand 270 basis points to 30.2 per cent driven by lower cotton inventory costs, better mix, and the ramp up in Bangladesh,” he added. “This should translate into adjusted EPS of $0.84, up 14 per cent year-over-year, and in-line with consensus expectations of $0.85.”
Maintaining his “buy” recommendation for the Montreal-based company’s shares, Mr. Landry raised his Street-high target to US$54 from US$51. The current average is US$46.07.
“Gildan’s 2027 outlook calls for EPS growth in the mid-teens annually, which is higher than historical growth rate of 10 per cent in the last 10-years,” he said. “Our confidence in Gildan’s long-term plan has improved given recent trends and better visibility on future growth drivers. As a result, we believe that Gildan’s valuation could re-rate higher as investors are likely to assess higher valuation multiple due to the faster growth profile. At 12 times forward earnings (PEG ratio of 0.8 times) we believe that Gildan’s shares do not properly reflect the company’s growth prospects.”
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TD Cowen analyst Brian Morrison thinks Aritzia Inc. (ATZ-T) is “progressing with its key drivers of revenue growth and cost mitigation positioning it to achieve its ambitious F2025 growth targets.”
“Our channel checks indicate the ‘turnaround’ plan of Artizia appears to remain on track,” he said in a note previewing its second-quarter 2025 results. “We highlight Q2 is a seasonally soft period as we transition out of summer toward the all-important holiday season. While typically a period inclusive of promotional activity, this action should be significantly reduced from Q2/F24 due to the year-over-tear streamlining of its inventory position. In aggregate, product resonation, new store openings, digital investment, and its ongoing focus on cost control should drive attractive year-over-year EPS growth. Our adjusted EPS forecast of $0.15 is in line with consensus.”
Mr. Morrison said he’s “excited” about the retailer’s outlook for the second half of its current fiscal year, suggesting it is entering it with “momentum.”
“Recall that 80 per cent of our F2025 EPS forecast is to be generated in H2/F25,” he said. “Our key focus areas will be: 1) The continuation of appealing new store economics as openings accelerate including its NYC flagships near the end of Q3/F25, 2) The ongoing resonation of new product introduction in the fall/winter, and 3) The cadence of eCommerce penetration as it invests in digital initiatives. We believe that cost saving initiatives are well within management’s control.
“Should Aritzia maintain an attractive growth outlook through 2026, this should be accompanied by strong FCF generation. This should accelerate in F2026 with the forthcoming completion of an expansion to its Vancouver DC [distribution centre]. With net cash ($100-million) on its balance sheet and major capital projects nearing completion, we believe an active NCIB may become a priority. With a long runway for store/eCommerce penetration in the U.S. market fostering growth, we would view an active NCIB as an appropriate allocation of capital.”
Maintaining a “buy” recommendation for its shares, Mr. Morrison hiked his target to a high on the Street of $60 from $50. The average is $52.88.
“Aritzia continues to make meaningful progress on its top- and bottom-line growth drivers, driven by its commitment to its product refresh. We believe that management appears to have taken the appropriate actions required to return the company to a growth platform. Should this become more visible in the coming quarters, our view is that investor confidence in its strategy will increase, and that its share price should appreciate as a result of both EPS growth and multiple expansion,” he concluded.
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In other analyst actions:
* CIBC’s Nik Priebe increased his Street-high target for AGF Management Ltd. (AGF.B-T) to $17 from $14 with an “outperformer” rating. The average is $11.63.
“Following the persistent equity market momentum this year (and corresponding AUM creation / earnings expansion), we are taking a sharper pencil to our sum-of-the-parts valuation for AGF and once again concluding that it is too conservative,” he said. “We now estimate a fair value range for the stock of approximately $17 to ~$21 per share, reflecting 80-per-cent to 120-per-cent upside from the current share price. We are revising our price target to $17.00 accordingly (from $14.00 previously), which discounts the long-term investments by 15 per cent and values the asset management business at 6 times run-rate EBITDA. From a fundamental standpoint, net flows have stabilized and declining GIC rates could be another tailwind over the next six to twelve months. We continue to view AGF as a severely mispriced, high-conviction name and rate the stock Outperformer.”
* Following the release of a maiden resource estimate for its recently optioned Furnas deposit in Brazil, Canaccord Genuity’s Dalton Baretto raised his Ero Copper Corp. (ERO-T) target to $40 from $39 with a “buy” rating. while Scotia’s Orest Wowkodaw bumped his target to $37 from $36 with a “sector outperform” recommendation. The average is $36.53.
“Based on our early assessment, we believe Furnas has the potential to be a very attractive medium-term growth project for the company,” said Mr. Wowkodaw. “Overall, we view the update as positive for the shares.
“We rate Ero shares SO based on an impressive near-term Cu growth profile, valuation, and exploration upside.”
* RBC’s Scott Heleniak raised his Fairfax Financial Holdings Ltd. (FFH-U-T, FFH-T) target to US$1,425 from US$1,325 with an “outperform” rating. The average is $1,950 (Canadian).
“We are reducing our 2024 EPS estimate to US$133.40 (from US$138.00) to factor in higher-than-modeled Q3 catastrophe loss assumptions,” he said. “We now assume US$450-milllion in Q3 cat losses (7.1 loss ratio points), up just over US$125-million from our previous forecast. We expect Fairfax to have exposure to several international cat events including Canadian events, U.S. hurricanes, and Asia/European storms. Our 2025 EPS estimate of US$154.00 remains unchanged.”
* Canaccord Genuity’s Doug Taylor raised his MDA Space Ltd. (MDA-T) target to a Street-high of $21 from $18 with a “buy” rating. The average is $18.14.
* Citi’s Bryan Burgmeier raised his Waste Connections Inc. (WCN-N, WCN-T) target to US$195 from US$190 with a “neutral” rating. The average is US$197.27.