Inside the Market’s roundup of some of today’s key analyst actions
After many quarters of “bearishness,” Scotia Capital analyst Meny Grauman is getting “much more constructive” on the outlook for Canadian banks.
However, he cautioned more patience is likely necessary, emphasizing “from a numbers point of view we only see that happening in F2025.”
“For F2024 we still see downward pressure on estimates from several factors including very sluggish revenue growth, particularly in the U.S., and the hit to revenue from the elimination of the tax deductibility on dividend income from Canadian businesses,” said Mr. Grauman. Those factors, along with a further normalization in PCL ratios take our EPS estimate for F2024 down by 3 per cent on average for the group, a number which is also being weighed down by the later-than-expected closing of RY’s HSBC Canada deal. That said, with the North American economy showing signs of resilience, and capital rules not biting as hard as we feared, we see reason to be hopeful for F2025, and to believe that F2024 may mark a low point for bank earnings and stock performance. We are not yet willing to shift from our preference of lifecos over banks, especially given the move we saw in bank stocks this past December, but do believe investors should begin to take a less defensive view of the sector.”
In a research report released Tuesday previewing first-quarter earnings season in the sector titled Time to Cage the Bear?, Mr. Grauman said he expects the sector to generate core cash earnings per share of $2.11 a drop of 6 per cent quarter-over-quarter and 11 per cent year-over-year.
“On a PTPP basis earnings are projected to be down 2 per cent year-over-year reflecting sluggish loan growth and flat margins,” he added. “We don’t expect any dividend increases this quarter except at EQB. Heading into Q1 reporting season we like the set for CIBC and NA, along with CWB.”
Mr. Grauman upgraded his recommendations for two banks on Tuesday:
* Canadian Imperial Bank of Commerce (CM-T) to “sector outperform” from “sector perform” with a $67 target, up from $62. The average target on the Street is $64.16, according to LSEG data.
“Our upgrade of CIBC is tied to solid financial performance, and an improved macro-outlook as we are increasingly convinced in the resiliency of the Canadian housing market even in the face of the coming mortgage renewal wave,” he said. “In our view, much of CIBC’s discount to the group has been driven by its outsized exposure to Canadian residential mortgages, but we now believe that this tail risk is shrinking. The stock has not yet fully reflected that (especially on a relative basis) creating what we think is a buying opportunity. After a strong rally in December, the stock has been underperforming peers more recently, with the selloff likely tied to the bank’s US CRE exposure, which has come back into the spotlight in the wake of the headlines swirling around New York Community Bancorp. True, CIBC is seeing bigger losses from its U.S. office portfolio than peers, but exposure here is small (2 per cent of total loans) and we expect those losses to remain quite manageable this year, and for this pressure to moderate as renewals get smaller next year.”
* Canadian Western Bank (CWB-T) to “sector outperform” from “sector perform” with a $32 target (unchanged). The average is $34.80.
“Looking ahead to Q1 reporting, we expect the focus will first and foremost be on the margin once again, where we expect continued expansion,” he said. “Other key areas of focus for us include loan growth. The bank’s capital position is strong, but given the move in global capital rules we don’t expect the advanced approach to be a catalyst even in the medium-term. We like the setup for CWB heading into Q1 reporting especially given the recent sell-off in the shares.”
From “a stock-selection perspective,” Mr. Grauman said Bank of Montreal (BMO-T) and Royal Bank of Canada (RY-T) remain his “top large bank picks in the group, even as we take numbers down for both banks in F2024.”
His target for BMO rose to $145 from $135 with a “sector outperform” rating. The average is $137.11.
“Although BMO’s Q4 earnings result came in just below expectations, we note that core EPS included a $51-million (or $0.05/share) charge related to the consolidation of real estate,” he said. “Adjusting for this the bank would have reported an in-line result. Looking beyond the dynamics of Q4, we continue to have a high degree of conviction that BMO will be able to outgrow peers in F2024, and likely F2025 as well. The key driver here is synergies from the Bank of the West (BoW) deal. Heading into Q4 reporting we flagged an expected update on BoW as a catalyst for the shares. Although management reiterated previous guidance on accretion from the deal (7-per-ercent EPS accretion in F2024) and the deal’s run rate PTPP contribution (US$2 BB including all synergies), we do believe that by increasing its expense synergy target from US$670-million previously to US$800-million, BMO is providing more certainty to the market that the bank will be able to hit these targets, especially in this highly uncertain macro environment. The shares have narrowed their valuation gap with the group since last earnings season, but we see more room to go even as the revenue outlook (particularly in the U.S.) remains challenged as we kick off a new year.”
His RBC target rose to $143 from $140 also with a “sector outperform” rating. The average is $140.73.
“Although more than half of RY’s Q4 beat was driven by an unusually low tax rate, we still view this as a constructive quarter for the bank,” he said. “Besides delivering stable margins (ex. trading) at the all-bank level and good margin expansion in Canadian Banking, RY also continued to demonstrate a clear focus on expense control by taking a $160-million severance charge as it works to reduce headcount. The bank continues to guide to expense growth in the mid-single digits after adjusting for a number of items including the integration of Brewin Dolphin and integration efforts of the now fully approved HSBC Canada acquisition. Beyond the earnings result itself, perhaps the most bullish aspect of the Q4 release was guidance that the bank may be in a position to turn off its discounted DRIP and resume buying back shares as soon as the second half of F2024, a position that peers with discounted DRIPS have all adopted as well.”
Mr. Grauman’s other targets are:
- EQB Inc. (EQB-T, “sector outperform”) to $111 from $99. Average: $103.89.
- Laurentian Bank of Canada (LB-T, “sector perform”) at $26. Average: $29.30.
- National Bank of Canada (NA, “sector perform”) at $86. 7 from $96. Average: $104.60.
- Toronto-Dominion Bank (TD-T, “sector perform”) at $86. Average: $89.90.
“Our price targets continue to be based on our F2025 EPS estimates, and head higher as we model in a more favorable outlook for that out year, especially when it comes to PCLs, and also a higher target multiple and lower excess capital threshold,” said Mr. Grauman. “Previously we were valuing the shares based on an average P/E multiple of 9.5 times but take that up to 10.0 times (implies 10.6 times F2024 EPS). We remain below the historic forward average P/E multiple of 11.0 times as we continue to acknowledge lingering uncertainty about the path of rates and the fact that we believe growth for the banks will remain somewhat constrained even next year. BMO is still at the top of our pecking order, followed by RY, and we believe that both firms have growth advantages over the coming years thanks to M&A driven expense synergies, respectively. To that SO list we add CM, while we leave NA and TD as our Sector Performs among the large Canadian banks. Among the smaller banks, we continue to favour EQB which we rate SO. But we also upgrade CWB to SO from SP in the wake of its recent selloff. LB continues as a Sector Perform as we wait to see Management’s refreshed strategic plan.”
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RBC Capital Markets analyst Scott Heleniak continues to see shares of Fairfax Financial Holdings Ltd. (FFH-T, FFH.U-T) as “attractive at current levels” following “solid” fourth-quarter results that saw “one of the company’s better underwriting results in recent quarters as well as strong dividend and investment income.”
“Reserve releases were above normal in Q4 at a time when some peers are seeing weaker reserving while core margins remained healthy,” he added. “Overall premiums were down albeit this was impacted by a few large non-renewals. Affiliate income was lower than in recent quarters. Share buybacks picked up in Q4 and the company recently raised its annual dividend.”
On Thursday, the Toronto-based firm reported net earnings per share of US$52.87, which exceeded Mr. Heleniak’s US$30.70 net estimate. He estimated Fairfax earned US$31.15 per share on an operating basis versus his US$27.70 forecast, citing its combined ratio as the main source of the upside.
“Fairfax’s Q4 P&C combined ratio was 89.9 per cent, its best combined ratio all year,” he said. “Reserve development for the quarter (2.7 points) was above the recent run rate with OdysseyRe, Northbridge, and Zenith National each generating double-digit reserve releases. NWP declined 5.5 per cent due to non-renewals at Brit and OdysseyRe. Fairfax is still seeing mid-single-digit insurance rate increases in its insurance book, which we believe is still outpacing loss cost trends. On the Q4 call, the company refuted the Muddy Waters short report and specifically took time to defend their stance on topics such as their investment in Digit Insurance, valuation methods for Level III investments (specifically for Recipe, Exco, and Quest), third party transaction protocol, and IFRS 17. We thought management did a solid job of addressing these topics.”
Maintaining his 2024 forecast, Mr. Heleniak raised his 2025 net EPS estimate by US$2 to US$152.00, citing “slightly better” premium and combined ratio assumptions. That prompted him to raise his target for Fairfax shares to US$1,200 from US$1,085, maintaining an “outperform” rating. The average target on the Street is $1,744.76 (Canadian).
“We believe the new price target is warranted considering our constructive underwriting and net investment income outlook for 2024 and given favorable multiples for P&C insurers in the sector,” he said.
“Fairfax’s underwriting units continue to deliver impressive results and its investment portfolio has likewise begun delivering improving returns as some of its associate/affiliate holdings are monetized. We would look for these things to continue as Fairfax’s insurance companies are well positioned to capitalize on improved P&C pricing and have a track record of opportunistic growth in such environments. Our thesis is that Fairfax’s long-term track record of double-digit book value growth will continue and the current valuation provides an attractive risk-reward entry point for those willing to back the company’s long-term investment track record. Fairfax has a deep cash position and ample access to capital, which gives it the flexibility to be opportunistic as well as patient.”
Elsewhere, BMO’s Tom MacKinnon raised his target to $1,650 from $1,550 with an “outperform” rating.
“We see EPS/BVPS growth driven by much more reliable/higher quality sources (strong underwriting income on hard market conditions, stronger interest income as FFH puts its cash to work, rebounding earnings from associates/subsidiaries on improving market conditions) which improves earnings outlook/multiple expansion,” said Mr. MacKinnon.
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While Air Canada (AC-T) continues to face cost pressures, ATB Capital Markets analyst Chris Murray sees its outlook remaining intact following its fourth-quarter financial release, which included guidance that was met by a negative reaction from investors.
Shares of the airline company dropped 6.5 per cent on Friday after it announced adjusted EBITDA guidance range of $3.7-$4.2-billion, which was wider than anticipated and points to “general cost pressures and conservatism around the ongoing negotiation with pilots,” according to Mr. Murray. Adjusted cost per available seat mile (CASM) growth of 2.5 per cent to 4.5 per cent exceeded the analyst’s estimate of a 0.3-per-cent decline.
“Management did not provide FCF guidance, although we had been expecting a year-over-year decline with higher CapEx in 2024 on similar EBITDA numbers,” he added. “AC achieved its 2024 cumulative FCF guidance a year ahead of schedule, which supported significant deleveraging in 2023, where the Company reduced net debt by $2.9-billion”
For its fourth quarter, Air Canada announced revenue of $5.2-billion, matching Mr. Murray’s projection, while EBITDA of $521-million fell short of his forecast ($533-billion) and adjusted fully diluted earnings per share of a 12-cent loss was better than anticipated (an 18-cent loss).
“Passenger revenue increased 12.0 per cent in Q4/23, with load factors and yields remaining strong despite current macro pressures,” said Mr. Murray. “Management was constructive on the demand environment, with booking activity providing good visibility for H1/24 and yields expected to remain in-line with 2023 levels. Management believes it can maintain a mid-80s load factor in 2024 while increasing capacity (6%-8 per cent), which we expect to help offset current cost pressures.
“Management confirmed that Adjusted CASM trends should begin to reverse in 2025 as inflationary pressures ease and labour productivity demonstrates improvement. We expect better cost absorption to support a stronger margin profile in 2025, particularly as capacity returns to pre-pandemic levels and ongoing fleet upgrades provide efficiency gains.”
After reducing his 2024 and 2025 earnings estimates, the analyst reduced his target for Air Canada shares by $1 to $32, keeping an “outperform” rating. The average on the Street is $29.09.
“The balance sheet continues to improve, positioning AC for potential debt upgrades and other returns to shareholders over the medium term. While overall guidance was weaker than expected, we remain encouraged by the resiliency of the demand environment, which we expect to help offset near-term cost pressures,” he concluded.
Elsewhere, Scotia’s Konark Gupta bumped his target to $30 from $29 with a “sector outperform” rating.
“We are not overly surprised by a negative market reaction to AC’s 2024 cost guidance, which was indeed disappointing to us, the Street, and most investors, in our view,” said Mr. Gupta. “However, now that the elephant in the room is behind us, we think it is a good opportunity to add shares, given valuation is depressed (likely unsustainable) at just 2.7 times EV/EBITDA and 4.1 times P/E on our updated 2024E. Moreover, AC’s leverage ratio is almost back to the pre-pandemic levels, which we expect to be sustained in the near and long terms even as capex intensity is expected to rise through 2026. This should give equity investors a high level of comfort, especially in the current uncertain macro environment. Despite a higher-than-expected CASM guidance, we have raised our 2024E EBITDA to the low end of the updated guidance range as well as improved our FCF and net debt outlook. Considering the macro uncertainty this year and too many moving parts in our earnings outlook, we are further trimming our EV/EBITDA multiple to 3.5 times (was 3.75 times), which still results in a net increase in our target to $30 (was $29). We reiterate our Sector Outperform rating and continue to view AC as one of our top picks.”
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RBC Dominion Securities analyst Michael Siperco downgraded SSR Mining Inc. (SSRM-Q, SSRM-T) for the second time in less than a week, seeing the outlook for its Çöpler mine in Turkey deteriorating further following a landslide that forced the suspension of operations.
“Updates since Friday’s close have not improved, with rescue efforts ongoing, and operations now shut indefinitely after Turkish authorities revoked the mine’s environmental permit,” he said. “SSRM also confirmed that several Copler employees have been charged in relation to the incident.
“While an extended shutdown was expected (and reflected in the initial 50-per-cent discount we applied to Copler) the updates in our view reduce the prospect of SSRM realizing value from the mine, or obtaining construction permits for Hod Maden in Turkey.”
Mr. Siperco further reduced our NAV8-per-cent estimate for SSRM by 51 per cent to $3.70 per share and is now assuming zero value/production for the mine.
“This follows news that Copler’s environmental permits have been revoked, and employees have been charged, signalling in our view that valuation risks have increased again as the situation evolves, with ongoing share price volatility,” he noted.
“Our revised estimates see 40-per-cent annualized lower production through 2026, and 55-per-cent lower production in 2027, when higher production was previously guided to at both Copler/Hod Maden. Near term, the impact on production/FCF is relatively muted on previously reduced production guidance at Copler through 2026, and no production at Hod Maden until 2027.”
Moving his recommendation to “underperform” from “sector perform” previously, Mr. Siperco dropped his target to US$3 from US$6. The average is US$8.67.
“Pending further information, we do not factor in any other potential fines, penalties, litigation costs or environmental liabilities, which represent further potential downside vs. our valuation,” he said. “Longer term, it may be possible to surface value at Copler, either via an (eventual) restart, or a potential asset sale, however at this stage we think the ongoing risks negate more speculative optionality.”
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Citing a deterioration in the trajectory for its earnings improvement, BMO Nesbitt Burns analyst Tamy Chen downgraded Canadian Tire Corp. Ltd. (CTC.A-T) to “market perform” from “outperform” on Monday.
“Still forecast a consumer recovery beginning H2/24, but off a lower current base and at a slower pace than we had previously assumed,” she said. “Our sense is the core CTC retail banner (CTR) SSS [same-store sales] declined 3 per cent to 4 per cent in Q4/23 excluding weather. This would be similar to 08/09 levels when unemployment peaked at 8.7 per cent vs. 5.7 per cent now. CTC indicated its price/demand elasticity formulas (a hallmark of its ‘high-low’ retail strategy and key competitive advantage) have not been recently yielding the expected results: ‘many discretionary categories, even with significantly deeper discounts, we aren’t seeing incremental demand materialize.’ We believe this underscores the unusual nature of the current consumer and the more challenging position the company is in. Further, it suggests discretionary spending is weaker than we previously appreciated and SSS may take longer to recover.”
With that view, Ms. Chen does not view Canadian Tire’s share price as “compelling with valuation at the mid-point of its historical range”
“On the one hand, we acknowledge that the stock’s muted reaction to Q4/23 results suggests a lot of the negative macroeconomic news is already priced in. In addition, future economic data that support rate cuts would be positive for the stock,” she noted. “But our argument is that the trajectory for earnings improvement from current levels has deteriorated vs. our previous assumptions, and based on our revised forecasts, we no longer find the current stock price compelling. Further, we note current Street forecasts are projecting a 17-per-cent CAGR in earnings per share over the next two years, which we consider as too optimistic.”
Her target slid to $150 from $170. The average on the Street is $154.10.
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When Cascades Inc. (CAS-T) reports its fourth-quarter 2023 financial results on Wednesday, Desjardins Securities analyst Frederic Tremblay expects to see a sequential decline in adjusted earnings before interest, taxes, depreciation and amortization, pointing to higher raw material prices, lower selling prices and seasonally softer volumes in its Containerboard segment.
He’s now forecasting EBITDA of $149-million, matching the consensus projection on the Street but down from $161-million in the previous quarter.
“We expect Containerboard’s 4Q profitability to decline from 3Q due to raw material cost inflation, seasonality and 2023′s price decline,” said Mr. Tremblay. “In Tissue, we expect adjusted EBITDA to be stable sequentially as the well-executed recovery that began in mid-2022 appears largely complete.”
The analyst raised his full-year 2023 earnings per share projection by a penny to $1.76, however, he hiked his 2024 estimate to $1.38 from $1.17 based on an increase to his Containerboard forecasts to “reflect the partial implementation of producers’ announced price increase.”
“On February 16, Fastmarkets’ PPI Pulp & Paper Week (P&PW) publication released its monthly pricing update for containerboard products,” said Mr. Tremblay. “After failing in January, containerboard producers’ attempt to implement a price increase was only partially successful in February. P&PW’s February survey shows increases of US$40/ton for linerboard (vs US$70/ton targeted by producers) and US$60/ton for medium (vs US$100–110/ton targeted). Furthermore, P&PW indicated that: (1) only 55 per cent of buyers surveyed reported higher prices (vs 70 per cent plus typically), and (2) box demand remains mixed. Overall, while we have bumped our 2024 forecasts to reflect the price update, the latest industry dynamics support our view that the market environment remains challenging on several fronts (demand, price, costs).”
“While containerboard prices struggled to show a modest increase according to P&PW, the average cost of Old Corrugated Containers (OCC) has risen for seven straight months in the U.S.. Hence, we would not be surprised to see containerboard producers implement asset optimization efforts to mitigate potential cost-driven margin headwinds. We note that CAS announced last week that it is ceasing operations at three of its facilities, with production being moved to other sites.”
With that change, he increased his target for Cascades shares to $15.50 from $14, keeping a “hold” recommendation. The average is $15.60.
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Desjardins Securities analyst Jerome Dubreuil moved Think Research Corp. (THNK-X) to a “tender” recommendation from “hold” following Friday’s announcement of a definitive agreement to be acquired by Beedie Capital for 32 cents per share in an all-cash transaction.
“The acquirer has a significant understanding of THNK’s business as it has been a longtime lender to the company,” he said. “Given THNK’s high leverage and given it has been breaching its debt covenants for several quarters now, we believe Beedie Capital likely had significant leverage in the negotiations. Our forecast, although more conservative than management’s, implied that it would have taken years for the profitability covenant to be met. While the purchase price is lower than our previous target price, we believe the company’s credit situation makes it very likely that the deal will close at the offer price. Beedie Capital is a multi-strategy direct investment platform which manages alternative investments for one of the largest private companies in western Canada.”
He moved his target for shares of the Toronto-based company, which uses artificial-intelligence technology to help health-care officials make decisions on patient treatment, to 32 cents from 60 cents to reflect the deal. The average is 41 cents.
“We believe THNK has an attractive set of assets, but being part of a larger group should make it easier for the company to manage its debt and diverse set of operations; a focus on Software and Data Solutions is required at this time, and the alleviation of the financial management burden should help management execute on its plan,” said Mr. Dubreuil. “Given the covenant breaches, lenders could technically have pulled the loans at any time. The 32 cents per share offer limits the upside but provides shareholders with immediate value and should be seen in the context of high financial risk.”
Elsewhere, Echelon Partners’ Rob Goff also moved Think to “tender” from “speculative buy” and removed his target, which was previously 55 cents.
“With shares declining 44 per cent in 2023 and another 16 per cent year-to-date (prior to this announcement), we believe this is a favourable path forward for the Company along with shareholders, in realizing a 100-per-cebt premium to current share price levels and an exit, enabling Think to execute on its longer-term strategy without as much focus on quarter-to-quarter operational performance. The Company was coming off a weaker-than-expected Q323 with continued struggles at its Clinical Research (BioPharma) and Clinical Services segments, with expectations for a modest improvement for Q423. For context, when BioPharma was acquired in H221, there was an expectation for annual revenues between $40-45-million while Q323′s annualized run-rate came in at just $24-million (our full-year 2023 forecast was $31.7-million). On the flip side, Think’s higher-margin Software and Data Solutions has seen very strong growth across the past year-plus – fueled by a landmark SaaS contract win in early 2023 – which has driven the lion’s share of the Company’s growth (Q323 reflected a $43M segment annualized run-rate and 56 per cent of overall revenues), helping Think generate positive EBITDA heading into 2023 alongside strong cost discipline. However, meaningful earnout payments (across BioPharma and MDBriefcase) along with mounting debt ($47-million despite a market cap less than $15-million as of yesterday’s close), suggests considerable work ahead to move to consistent net free cash flow positive operations. Beedie, which already had significant investments in Think primarily through debt ($20-million) and partially through equity (3.7 per cent of shares), is poised to provide the best support to Think as it navigates its turnaround as a private company.”
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RBC Dominion Securities analyst Robert Kwan said TC Energy Corp. (TRP-T) “continues to build investor confidence coming out of what increasingly appears to be a low-point in August 2023.”
“While by no means out of the woods, execution of the Southeast Gateway Pipeline (SGP) construction appears to be tracking well (in contrast to how Coastal GasLink unfolded), and improving macro conditions bode well for the asset sale program,” he said. “Relative to other Canadian energy infrastructure companies that face execution challenges, we believe TC Energy has one of the more favourable risk-reward profiles given its discounted P/E valuation, progress to-date on SGP construction, and relative deleveraging flexibility.”
In a research note released Tuesday titled A clearly defined set of priorities, Mr. Kwan predicted continued execution should help to “steadily improve sentiment” among investors after “solid” fourth-quarter financial results and a reaffirmation of its guidance for the current fiscal year, pointing to its asset sale target of $3-billion for 2024 and seeing “multiple levers to keep its debt/EBITDA ratio at, or below, 4.75 times beyond 2024.”
“TC Energy reiterated its aim to reduce debt/EBITDA to 4.75 times by the end of 2024, helped by the company’s ongoing $3 billion asset sale program for 2024,” he said. “The company noted that there are a number of asset sale processes ongoing, and that it sees the potential of announcing a transaction in H1/24. We expect the company to target multiple asset sales (2-4 transactions noted on the conference call) across its North American gas pipeline footprint with a focus on selling minority stakes, and outright sales of smaller pipelines. "
“On the conference call, management noted that to maintain the ratio at the 4.75 times level for 2025, it will need incremental EBITDA of around $400 million or to execute on additional asset sales beyond the current $3 billion plan for 2024 (or some mix of higher EBITDA and asset sales). On asset monetizations, management noted that it is ‘open’ to raising more than $3 billion in 2024 if it receives compelling valuations as part of the various processes currently underway. In terms of increasing EBITDA, the company highlighted potential upside from additional cost efficiencies and/or an increased contribution from Southeast Gateway should the project come into service earlier than mid-2025.”
Maintaining an “outperform” recommendation for TC shares, Mr. Kwan increased his target to $59 from $54, seeing an “attractive valuation that should normalize in time.” The average on the Street is $54.86.
“The valuation on a P/E basis remains near 15-year lows, and we believe the completion of Southeast Gateway, continued solid execution of the business and the funding plan, and a better understanding of the proposed structural changes should ultimately result in an improved valuation for the shares,” he said.
“Post spin-off, we believe that TC Energy ‘RemainCo’ will be an attractive vehicle for many investors. We think investors will be drawn to the North American natural gas pipeline footprint that would be about 90 per cent of EBITDA based on 2022 results, with 79 per cent of EBITDA being regulated and 17 per cent being long-term contracted (i.e., only 4 per cent of EBITDA would not be regulated or contracted). While it would technically not be a pure-play, we believe investors are positively disposed toward the company’s Power and Energy Solutions segment, which primarily consists of the contribution from the Bruce nuclear investment.”
Elsewhere, Scotia’s Robert Hope raised his target to $58 from $55 with a “sector outperform” rating.
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In other analyst actions:
* National Bank’s Shane Nagle bumped his Agnico Eagle Mines Ltd. (AEM-T) target to $85 from $84 with an “outperform” rating. The average is $90.74.
* Jefferies’ David Steinberg cut his Bausch Health Companies Inc. (BHC-N, BHC-T) target to US$14 from US$16, keeping a “buy” rating. The average is US$9.17.
* RBC’s Sabahat Khan hiked his Boyd Group Services Inc. (BYD-T) target to $348 from $290, keeping an “outperform” recommendation. The average is $306.21.
“We believe demand for calibration services will grow over the coming years as ADAS [Advanced Driving Assistance Systems] penetration trends higher,” said Mr. Khan. “In turn, we expect Boyd’s calibration-related revenue to grow going forward, and the company should see some margin benefit as it transitions toward insourcing these services (vs. a ‘drag’ from outsourcing currently). Despite calibration being labor-intensive, however, we believe the overall margin opportunity will be comparable to Boyd’s historical/normalized margin profile longer-term as calibration services are typically accompanied by expensive ADAS-related part repairs, which are lower margin than labor and skews the parts/labor mix toward parts.”
* Desjardins Securities’ Doug Young hiked his Definity Financial Corp. (DFY-T) target to $44 from $40 with a “hold” rating. Other changes include: BMO’s Tom MacKinnon to $44 from $40 with a “market perform” rating, Scotia’s Phil Hardie to $49 from $46 with a “sector outperform” rating and National Bank’s Jaeme Gloyn to $59 from $57 with an “outperform” rating. The average is $47.20.
“Operating EPS beat our estimate and consensus. An unusually low expense ratio was a big contributor (should normalize in 2024). More importantly, DFY has significant financial capacity, and capital deployment (or lack thereof?) will be the main theme in 2024 in our view. Overall, there are no changes to our views,” said Mr. Young.
* Barclays’ Raimo Lenschow raised his targets for Computer Modelling Group Ltd. (CMG-T) to $9 from $8 and Descartes Systems Group Inc. (DSGX-Q, DSG-T) to US$75 from US$71 with an “underweight” recommendation for both. The averages are $11.25 and US$91.20, respectively.
* TD Securities’ Graham Ryding increased his IGM Financial Inc. (IGM-T) target by $2 to $41 with a “buy” recommendation. The average is $42.50.
“Q4/23 results were in-line after accounting for a mortgage-hedging-related charge,” said Mr. Ryding. “IGM flows continue to be weak, in line with industry trends. In contrast, strategic investments are generating strong asset growth (earnings contributions are mixed). Management continues to focus, and execute, on limiting expense growth. Although a near-term catalyst for the shares is not overly apparent, in our view, the 23-per-cent return to our $41.00 target price (up from $39.00 after rolling forward valuation) justifies our BUY rating.”
* Raymond James’ Brad Sturges bumped his Killam Apartment REIT (KMP.UN-T) target to $22.75 from $22 with an “outperform” rating, while BMO’s Michael Markidis raised his target to $22 from $20.50 also with an “outperform” rating. The average is $22.25.
* CIBC’s John Zamparo cut his MTY Food Group Inc. (MTY-T) target to $62 from $71 with an “outperformer” rating, while National Bank’s Vishal Shreedhar dropped his target to $59 from $71 with an “outperform” rating. The average is $61.29.
“Amid a tougher backdrop, MTY has several initiatives to drive experience,” said Mr. Shreedhar. “We view casual dining and fast casual, 39 per cent of LTM [last 12-month] system sales, to be the key focus (pressure was mainly in brands with higher price points). MTY noted minimal price increases due to higher consumer price sensitivity. Traffic was ‘good’, but average spend declined. MTY noted that competition remains rational (focus is on experience vs. promo).
“We moderated our estimates reflecting flattish sssg [same-store sales growth] in F2024, and slight margin compression (notwithstanding MTY’s view that the F2023 EBITDA percentage represents a reasonable run rate). We expect consumer pressure to persist, with improvement towards the latter end of F2024.”
* National Bank’s Don DeMarco cut his New Gold Inc. (NGD-T) target to $2 from $2.25, exceeding the $1.66 average, with a “sector perform” rating.
* Piper Sandler’s Luke Lemoine cut his Precision Drilling Corp. (PDS-N, PD-T) target to US$81 from US$100 with an “overweight” rating. The average is $122.89 (Canadian)