Inside the Market’s roundup of some of today’s key analyst actions
Analysts are giving an enthusiastic thumbs up to trucking company TFI International Inc.’s (TFII-T) decision to sell its CFI truckload, temp control and Mexican non-asset logistics businesses to Heartland Express Inc. for US$525 million.
Several reaffirmed their buy ratings on shares of TFI in the wake of the agreement. Scotiabank analyst Konark Gupta also raised his price target, to C$160 from C$157.
“We believe TFII’s sale of CFI’s truckload and other assets to Heartland Express will unlock value in multiple ways,” Mr. Gupta said in a note to clients.
First, the sale will help reduce the company’s interest costs and provide funding to buy back more shares.
“Further, we think the divestiture lowers its risk profile heading into a potential downturn, given the CFI assets are the most capital intensive in the portfolio, they were generating low returns, and management viewed the U.S. truckload (van) as the most susceptible to a consumer-driven downturn,” he said. “Lastly, TFII’s even stronger balance sheet should enable it to make faster progress toward larger acquisitions over time.”
Although the sale will be dilutive to EBITDA and net earnings, Mr. Gupta sees a relatively neutral, or even positive impact, on earnings per share over the next few years, as TFI will now have the funding to buy back more shares.
Desjardins Securities analyst Benoit Poirier termed the overall impact on TFI stock as slightly positive. “We are very pleased with TFII’s decision to divest and believe it is the right move given the characteristics of the TL business. This divestiture should enable TFII to improve its ROIC while deploying capital to more strategic/appealing sectors such as LTL and last mile,” he said.
“The divestiture of the US TL business makes TFII a less cyclical and capital-intensive company without affecting its full-year EPS guidance, which we view as an extremely positive sign for investors,” Mr. Poirier said. “The reduction in leverage also increases TFII’s flexibility with regard to capital allocation moving forward.”
He said the stock remains Desjardins’ favourite name in the transportation sector and recommends investors buy the shares ahead of third quarter results later this year. Mr. Poirier has a C$174 price target on the stock.
Elsewhere, RBC analyst Walter Spracklin raised his price target to $115 from $112. “We continue to view M&A as a key catalyst for the shares and have taken higher our price target following today’s announcement, driven by an increased likelihood in our view of an upcoming acquisition,” he said.
As the Globe’s Tim Shufelt reported last week, TFI’s stock has posted a return of roughly 350 per cent over the past five years, with dividends boosting that number closer to 400 per cent. Investors have been latching on to the company’s growth story, as it aims to become a North American trucking powerhouse, largely through acquisitions.
The average price target is now C$149.26, up from $134.52 a month ago, according to Refinitiv Eikon data.
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At least six analysts slashed their price targets on Zoom Video Communications Inc. (ZM-Q) after the company reported weak second-quarter results and reduced its fiscal year guidance.
Among them was RBC’s Rishi Jaluria, who cut his price target to US$130 from US$150 citing a more negative near-term outlook.
“Although we were impressed by Phones performance (adding about 1 million cumulative seats sold in one quarter), Online revenue was worse than feared, with a tough new-logo environment and some churn more than offsetting lukewarm results from Enterprise and strength from Phones,” Mr. Jaluria said in a note. He continues to rate the stock “outperform.”
In other moves, BTIG cut its rating on Zoom to “neutral” from “buy.” Benchmark cut its target price to US$118 from $128; Citigroup cut its price target to $76 from $91; Evercore ISI cut its target to $95 from $105; Mizuho reduced its target to $120 from $190; and Piper Sandler cut its target price to $91 from $115.
The average analyst price target is now US$140.66, down from US$152.02 a month ago.
Citi analyst Tyler Radke reiterated his “sell-high risk” rating on Zoom’s shares, noting the results represented the first revenue miss as a public company. “Although operating income and EPS beat, free cash flow missed with annual free cash flow guidance about 20% below the street, making shares look much less cheap,” he said in a note to clients.
“We believe the outlook, while revised lower, may not be conservative enough, particularly in the Online business given the weakening macro environment and less predictable buying patterns,” Mr. Radke added.
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At least 11 analysts raised their price targets on Palo Alto Networks Inc. (PANW-Q) after the cybersecurity software provider reported better-than-expected results for its latest fiscal quarter ended July 31 and lifted its guidance.
Palo Alto also declared a 3-for-1 stock split and expanded its stock buyback program by $915 million.
BMO raised its target price to US$675 from US$650; Citigroup raised its target to $640 from $605; Credit Suisse’s target went to $685 from $635; Evercore ISI increased its target to $620 from $600; Guggenheim raised its target to $640 from $625; Jefferies raised its target to $650 from $600; Mizuho raised its target to $660 from $600; Piper Sandler raised its target to $690 from $650; RBC raised its target to $700 from $680; Wedbush hiked its target to $620 from $580; and Wells Fargo jacked up its target to $750 from $700.
BMO analyst Keith Bachman said the Palo Alto results were “strong across the board” and the stock remains its top pick in the software sector.
“Amongst many positive metrics, the three that stood out, in our judgement, were 1) higher FY23 billings estimates versus our forecasts/consensus, 2) Prisma Cloud credit consumption growth of 55% y/y in the July quarter, and 3) 30% of SASE new logo wins were net new to PANW,” Mr. Bachman said in a note.
Wedbush analysts called the results “stellar.”
“This is another major positive data point for the cyber security sector which is in the midst of a massive growth cycle into the next few years given the elevated level of threats and enterprise-driven shift to the cloud. The beat on the product front and positive YoY growth speak to PANW starting to see a further inflection in demand and execution in the field as the company is catalyzing deal flow among customers of all shapes and sizes with momentum heading into FY23,” Wedbush analysts said in a note to clients.
The average analyst price target is now US$652.65, up from $630.54 a month ago.
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Investors in The Valens Company Inc. (VLNS-T) should tender their shares to the takeover offer from pet shop owner SNDL Inc., said Stifel GMP analyst Andrew Partheniou.
SNDL plans to combine the businesses and create a vertically integrated cannabis company under the all-stock transaction valued at $138 million. The combined entity will have the largest reported revenues in the Canadian cannabis industry. SNDL was formerly known as Sundial Growers.
“The transaction does not come as a surprise given SNDL’s existing 8% ownership and management having previously been vocal about their intentions,” Mr. Partheniou said in a note to clients. “While the offer of $1.26/share is materially below our previous target, we believe it remains an attractive risk-adjusted opportunity for VLNS shareholders given 1) it removes solvency and financing risk with SNDL’s robust balance sheet, 2) it is an all-share deal with VLNS shareholders receiving significantly more liquid SNDL shares which trade at a about a 40% discount to tangible book, and 3) the proforma entity benefits from greater Canadian retail distribution and a budding US cannabis strategy.”
He lowered his price target to C$1.20 from C$3.50.
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IA Capital Markets analyst Naji Baydoun nudged up his price target on Brookfield Infrastructure Partners L.P. (BIP-N) after the company agreed with Intel Corp. to jointly fund up to US$30-billion for the U.S. chipmaker’s leading-edge chip factories in Arizona.
The move comes after U.S. President Joe Biden earlier this month signed the CHIPS and Science Act into law, which included provision of US$52.7 billion in subsidies for U.S. semiconductor production and research.
Brookfield Infrastructure will invest up to US$15-billion for a 49% stake in the expansion project, while Intel will retain majority ownership and operating control of the two chip factories meant to make advanced chips in Chandler, Arizona.
“Importantly, this new type of co-investment program could mark the first of many such manufacturing partnership opportunities for BIP over time (with INTC or other partners),” commented Mr. Baydoun in a note.
Brookfield expects to invest between US$500-million and US$750-million of equity into the transaction. Mr. Baydoun estimates that could mean about a 2 per cent boost to funds from operations on a per-share and long-term basis. As such, he raised his price target by 50 US cents to US$47.50 to reflect the investment, while maintaining a “strong buy” rating.
The average analyst price target on Brookfield Infrastructure is US$46.68.
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In other analyst actions:
Algonquin Power & Utilities Corp (AQN-T): JP Morgan raises price target to C$21 from C$20
Chemtrade Logistics Income Fund (CHE-UN-T): National Bank of Canada resumes with outperform rating; price target C$11
Emera Inc (EMA-T): JP Morgan raises target price to C$63 from C$59
Fortis Inc (FTS-T): JP Morgan raises target price to C$64 from C$60
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