Inside the Market’s roundup of some of today’s key analyst actions
Following a “mixed” fourth quarter of 2023 for Canadian media companies, RBC Dominion Securities analyst Drew McReynolds is expecting “accelerating” earnings growth this year, pointing to a “gradual improvement in the advertising and operating environments and easier year-over-year comps.”
In a research report released Tuesday, he argued valuations currently provide “attractive entry points assuming a hard landing scenario is avoided” and touted the potential for “significant” upside for most stocks in his coverage universe.
“On a TTM [trailing 12-month] basis, only two stocks in our media coverage are outperforming the 7-per-cent total return for the S&P/TSX Composite – Thomson Reuters (30 per cent) and Stingray (27 per cent),” said Mr. McReynolds. “While year-to-date performance for the group has improved, sustaining this improved performance will be largely dependent on the extent to which cyclical headwinds abate in 2024. In 2024, we expect a gradual improvement in the advertising and operating environments and the cycling through of easier comps to translate to accelerating earnings growth as the year progresses. Should a hard landing/economic recession be avoided setting the stage for such acceleration, at current valuations, we see significant upside in most stocks within our media coverage.
“Our best ideas are VerticalScope, Cineplex and Transcontinental.”
Through the approaching earnings season, the analyst expects investors to continue to seek of signs of a recovery in advertising “alongside the firing back up of the content cycle.”
“For 2024, MAGNA forecasts 5.1-per-cent year-over-year growth in total advertising spend in Canada, which represents a modest acceleration versus an estimated 4.4 per cent in 2023 and comprises 8-per-cent growth for digital ad sales offset by a 5-per-cent decline in television ad sales,” said Mr. McReynolds. “In our media coverage, we believe visibility around the strength of any ad recovery remains limited. Through Q4/23, management commentary pointed to a still-choppy Canadian advertising market as lingering macro uncertainty, supply chain disruption and shifts in consumer spending continue to impact a variety of advertising categories and overall advertising spend.
“On the content side, estimated global spending on content is expected to increase a relatively modest 1.6 per cent from US$243-billion in a strike-impacted 2023 (largely flat year-over-year) to US$247-billion in 2024 (source: Ampere Analysis). Following a lower number of scripted releases from SVODs and broadcasters in calendar 2023 (with broadcasters in particular impacted by the U.S. guild strikes), we expect a shortened 2023/2024 broadcast season to be followed by a regular 2024/2025 season with a full normalization of the content cycle not expected until 2025.”
Mr. McReynolds maintained his ratings for stocks in his coverage universe, however he added a “speculative risk” qualifier to his “outperform” recommendation for Toronto-based Enthusiast Gaming Holdings Inc. (EGLX-T) to “reflect limited visibility around the impact of ongoing management changes against the backdrop of a still challenged operating environment and limited liquidity.”
His target for Enthusiast shares slid to $1.50 from $2. The average on the Street is $1.08, according to Refinitiv data.
“We attribute the meaningful underperformance in the stock to the combination of ongoing management changes, the lack of profitability and limited liquidity in a more challenged operating environment characterized by a downturn in advertising and higher interest rates,” he said. “Despite what we believe is a much higher risk profile for the stock in the current environment, we continue to see a plausible path to turning EBITDA positive in 2024 driven by structural tailwinds within gaming, improved monetization of the audience network and gross margin expansion. With this potential inflection point on profitability and what appears to be adequate liquidity to deliver on near-term growth objectives, we continue to see value in the stock providing investors with unique exposure to an attractive global gaming ecosystem.”
Mr. McReynolds made two other target changes: Stingray Group Inc. (RAY.A-T, “outperform”) to $9 from $8 an WildBrain Ltd. (WILD-T, “sector perform”) to $2 from $2.50. The averages are $8.17 and $2.43, respectively.
Ahead of the Thursday release of its results, he also warned of “an eventful quarter” for Thomson Reuters Corp. (TRI-N, TRI-T), keeping a “sector perform” rating and US$149 target. The average is US$139.31.
“Concurrent with Q4/23 results, we expect management to provide 2024 guidance and potentially a broader 2024-2026 outlook. Thematically, we believe 2024 will represent a transition year of reinvestment, GenAI deployment/monetization and M&A integration setting the stage for accelerating organic revenue growth in 2025 and 2026,” he said.
“At current valuation (FTM forward 12-month] EV/EBITDA of 24.9 times), we believe the bar to deliver consolidated organic revenue growth in excess of 6 per cent has quickly risen with the organic revenue growth trajectory over the 2024-2026 period now taking centre stage. While we remain patient for more timely and/or attractive accumulation points, we believe current valuation levels (i.e., FTM EV/EBITDA more than 20.0 times) are fundamentally justified provided: (i) management meets or exceeds a 7-8-per-cent organic revenue growth trajectory beginning in 2025 without meaningful changes to the company’s margin, capex and FCF conversion profile; (ii) solid execution on the GenAI playbook continues with little change to the current GenAI narrative including perceived opportunities and risks; and (iii) the valuation impact of lower interest rate expectations/bond yields at worst is neutral. Thomson Reuters remains a high-quality, core holding in our coverage capable of generating average annual total returns of 10-15 per cent over the long-term.”
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Ahead of the start of fourth-quarter 2023 earnings season for Canadian precious metals companies, analysts at National Bank Financial expect 2024 guidance will remain a focus of investors, pointing to “higher year-over-year variability and cost increases across the sector.”
In a research report released Tuesday, the firm update estimates across their coverage universe, leading to a group of target price adjustments.
“Operating results have been pre-released for the majority of our coverage, except Allied Gold (AAUC.TO), Agnico Eagle (AEM.TO), Centerra (CG.TO), Coeur (CDE.N), Franco-Nevada (FNV.TO), Kinross (K.TO), Newmont (NGT.TO), OceanaGold (OGC.TO), and Wheaton Precious Metals (WPM.TO) moderating the potential for material surprises on adj EPS or CFPS b.f. w.c.,” they said. “Consensus estimates remain fluid, thus modest differentials vs NBF may be explained, while larger gaps are a source for our conviction beats/misses. At the time of writing, we have conviction in Eldorado (ELD.TO) and Torex Gold (TXG.TO) beating consensus EPS and CFPS estimates, while we expect Centerra (CG.TO) and First Majestic (FR.TO) to miss. ... For concentrate producers, provisional pricing adjustments are expected to be a net positive for 4Q23 earnings.”
The analysts’ top picks are currently:
Seniors
* Kinross Gold Corp. (K-T) with an “outperform” rating and $10 target (unchanged). The average on the Street is $9.39.
Analyst Shane Nagle: “Kinross maintains significant opportunities for growth within its North American portfolio, which will help improve its geopolitical risk profile. This includes the Great Bear project (Ontario), Manh Choh (Alaska), Curlew Basin (Washington State) and the Round Mountain U/G project (Nevada).
“Kinross also exhibits above-average leverage in a supportive environment for the commodity, with our NAV showing about a 3.2:1 sensitivity to the gold price. This above-average sensitivity comes from a combination of a modestly levered balance sheet, being a pure-play precious metals producer and having an above-average cost structure.”
* Pan American Silver Corp. (PAAS-T) with an “outperform” rating and $27.25 target, down from $27.50. Average: $20.45.
Analyst Don DeMarco: “Go-to name for silver exposure (approximately 21-per-cent 2024 production, 34-per-cent reserves) with robust liquidity ($75-million per day) and a material catalyst pending with the potential Escobal mine restart (NBF estimate 2024). PAAS’s extensive 11-mine, 8-country portfolio mitigates jurisdiction risk with opportunity for asset dispositions and La Arena II is among next candidates amidst favourable outlook for Cu supply/demand. Management is experienced and the balance sheet is intact with net debt of $462-million, of which $408-million are Senior notes with an attractive 2.63-per-cent coupon.”
Intermediates/Juniors
* Aya Gold & Silver Inc. (AYA-T) with an “outperform” rating and $14.50 target, up from $14. Average: $14.64.
Mr. DeMarco: “Only pure-play silver producer on the TSX, with sight lines for NAV expansion vis-a-vis Zgounder brownfield expansion to 2,700 tpd (from current 700 tpd), with first pour in H1/24, on budget with $98-million remaining (as at Q3/23) and fully-funded with an $18-million surplus (as at Q3/23). Drives peer-leading production CAGR [compound annual growth rate], peaking at 9.0 million ounces in 2028 per the Zgounder FS (Dec 2021) more than 4 times the FY23A of 2.0 million ounces Ag. Resource accretion compelling with visibility for 150 million ounces (NBF estimate from the current 103 million). Strong operations, with a FY23 guidance beat, while mining rates and throughput buoyant, lending de-risking and confidence ahead of expansion completion.”
* OceanaGold Corp. (OGC-T) with an “outperform” rating and $4 target (unchanged). Average: $4.06.
Mr. Nagle: “Despite some volatility in near-term ramp-up of the Haile underground mine, OceanaGold continues to exhibit strong operational performance and remains set to deliver significant growth in 2024.”
Royalty
* Osisko Gold Royalties Ltd. (OR-T) with an “outperform” rating and $25 target (unchanged). Average: $24.85.
Mr. Nagle: “Osisko Gold Royalties maintains an attractive near-term growth outlook with three- and five-year growth CAGR’s of 9 per cent and 10 per cent, respectively. With a new CEO and Chairman in place, the company will pursue additional growth via traditional royalty/streaming transactions with a continued focus on politically stable jurisdictions.”
Developers
* Artemis Gold Inc. (ARTG-X) with an “outperform” rating and $9.25 target (unchanged). Average: $11.19.
Mr. DeMarco: “FCF inflection on deck (NBF estimates first pour Oct 2024), with Blackwater development led by an experienced COO, fully-financed, on time and on budget, with potential development tailwinds from a mild winter in 2023/24. Attractive economics from LOM production of 339k oz/year over 22 years (DFS Sept 2021) from a sizable 8.0 million ounce reserve endowment and visibility for elevated F5Y production (500k oz/year) upon accelerating Phase 2. Tier One jurisdiction benefits accentuated as headwinds continue to increase in other jurisdictions and for non-permitted projects universally. Additionally, we flag high insider ownership (38 per cent) and M&A appeal as a single-asset producer.”
* G Mining Ventures Corp. (GMIN-T) with an “outperform” rating and $2.50 target. Average: $2.33.
Analyst Rabi Nizami: “GMIN is the only developer with a ‘Self-Perform’ mine building team in-house and a track-record for on time and on budget construction of world-class mines on behalf of Senior and Intermediate producers. Strategic backing from La Mancha, Franco-Nevada and others who envision G Mining as the platform of choice to ‘Buy and Build’ to become an Intermediate producer.
“Re-rating to producer status in 2024 as the Tocantinzinho project is now in its final six months of construction. Progress to date has been impressive, still tracking well on budget and on time for commercial production in H2/24. Expect to acquire a second construction project, likely (not necessarily) also in Latin America”
For senior producers, the analysts’ target changes were:
- Agnico Eagle Mines Ltd. (AEM-T, “outperform”) to $84 from $85. Average: $90.27.
- Barrick Gold Corp. (ABX-T, “sector perform”) to $28 from $29. Average: $29.45.
- Endeavour Mining Corp. (EDV-T, “outperform”) to $37 from $39.50. Average: $38.64.
- Newmont Corp. (NGT-T, “outperform”) to $64 from $65. Average: $73.83.
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In a research report released Tuesday titled The Answer to One of Life’s Most Pressing Questions, Scotia analyst Meny Grauman predicted Canadian life insurance companies are likely to report “resilient” fourth-quarter results and continues to forecast “solid” earnings per share growth moving forward.
“Life is full of important questions, but one of the most pressing questions in the financials sector right now is: Can Canadian lifecos outperform banks for the third year in a row? Our answer is yes, although we acknowledge that this would mark the first time we have seen such a streak going back to at least the late 1980s,” he said. “In our defense, most of the prior 30+ years have coincided with an unprecedented credit boom that favoured the banks, while lifecos struggled under the weight of ultra-low rates. The words “this time is different” is always a dangerous phrase to utter in the context of financial markets, but we believe that we are at a unique juncture in time that will continue to see the Canadian banks, as a group, struggle to meet their medium-term objectives due to historically high capital requirements, slowing loan growth, and normalizing credit conditions. Meanwhile, we believe that the Canadian lifecos are well positioned to enjoy the benefits of normalizing (long) yields , and the benefits of over 15 years of de-risking.”
Mr. Grauman named Manulife Financial Corp. (MFC-T) as his “top pick” heading into earnings season, raising his target to $35 from $30 with a “sector outperform” recommendation. The average on the Street is $30.51.
“For a long time now, Manulife was perceived to be a value-trap as the shares spent years hovering around the $21/share mark,” he said. “However, in the wake of a normalization in long-term yields and December’s landmark LTC [long-term care] sale, we believe that it is now a true value name with significant upside, even in the wake of an impressive run over the past three months. The gap between realized and expected ALDA returns remains a key issue for the quarter, but at this juncture we don’t see a trigger for the company to change its return assumptions. Another issue is performance in Asia, which remains under the microscope given macro challenges in China and concerns about a possible conflict with Taiwan. That said, performance in this segment has been good, fueled by strong sales in Hong Kong’s MCV (Mainland Chinese Visitor) market. The bottom line for us is that we believe MFC’s tail risk is still much smaller than what the shares are currently pricing in, and we think that this gap should continue to close as we move further into 2024. We note that, even after a strong run, MFC shares are currently trading at ‘just’ 1.3 times current book value versus GWO at 1.9 times despite both companies delivering similar adjusted ROEs.”
The analyst made these other target changes:
* Great-West Lifeco Inc. (GWO-T, “sector perform”) to $44 from $42. Average: $43.75.
* Sun Life Financial Inc. (SLF-T) to $76 from $75. Average: $74.42.
“Our second favorite name is SLF as its peer-leading ROE is likely to expand above 18 per cent in 2024, and towards 20 per cent over the next few years,” said Mr. Grauman. “We head into Q4 reporting essentially in-line with consensus for core EPS as we continue to factor in some near-term pressure in the company’s U.S. dental business, but expect that impact to be transitory as per Management guidance. Looking ahead to the year as a whole, we see strong core earnings growth and ROE expansion in-line with the company’s medium-term target of 18 per cent plus helped in part by an active 3-per-cent buyback.”
He maintained his targets for iA Financial Corp. (IAG-T, “sector outperform”) of $104 and Sagicor Financial Co. Ltd. (SFC-T, “sector outperform”) of $7.60. The averages are $101.50 and $8.83, respectively.
“We also maintain our Sector Outperform rating on IAG, but it remains our third-place pick in the group despite underperforming peers in 2023,” said Mr. Grauman. “We continue to view the lifeco’s $1.6 BB in deployable capital (as of Q3 reporting and before the Vericity deal) as a key strength, and believe that its deployment is still an important potential catalyst for the shares. That said, the timing of that catalyst looks less certain right now given ongoing pressures in the US dealer services business.”
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Raymond James analyst Daryl Swetlishoff expects fourth-quarter earnings season for building materials producers to “cap off an overall difficult 2023 with a thud,” predicting weakening results that fall short of the Street’s expectations.
“We expect this to be largely priced in with stocks trading off in recent weeks,” he said. “Despite retrenching recently, since Halloween the 2023/24 seasonal trade has returned approximately 20 per cent for both cash lumber pricing and building materials share prices (vs. the TSX returning 11 per cent).”
However, in a research report released Tuesday, Mr. Swetlishoff thinks long-term investors could be rewarded for their patience.
“Is it time to throw in the towel on the Tree stocks? While spring lumber pricing could come off seasonally, we have conviction that holders will be rewarded over the next 12 to 18 months,” he said. “Looking forward, we expect building materials share prices will exhibit greater correlation with structurally higher commodity prices. Key takeaways from our recent 14th Annual Building Materials & Homebuilding Forum support our constructive commodity price outlook. Specifically, optimism surrounding homebuilding activity levels coupled with expectations for further (material) BC and Quebec production shuts along with reduced European shipments (off 50 per cent year-over-year).
“Further, with commodity prices starting 2024 on an improved footing (benchmark WSPF 2x4 is up 11 per cent quarter-over-quarter), we expect sector earnings are entering a recovery phase with seasonally accelerating single-family housing and stable R&R demand providing a backstop. In conjunction with this note, we have rolled our valuation base forward to 2025 – assuming US$500/mfbm [thousand board feet] lumber prices supporting 50-per-cent average upside. Despite our constructive stance on the sector, we see the announcement of preliminary Administrative Review (AR5) duty rates by the US Department of Commerce (US DOC) as a net negative development for Canadian lumber production, facing higher duty rates across the board starting 3H24.”
After reducing his estimates for the bulk of his coverage universe, Mr. Swetlishoff lowered his rating for Canfor Corp. (CFP-T) to “outperform” from “strong buy” previously. His target for its shares slid to $23, below the $23.50 average, from $25.
“With lumber prices seeing downward pressure through 4Q23, temporarily falling below costs across most NA markets, we are forecasting sequentially weaker earnings for our building materials coverage list,” the analyst said.
“We are also materially below consensus for Interfor and Canfor - a function of stubbornly high BC interior cash costs and weak U.S. SYP [southern yellow pine] lumber markets which combined led us to forecast depressed EBITDA/mfbm margin realizations on the quarter. Interfor is the first major lumber producer out of the gate on Thursday, February 8, after market , and we forecast a heavy miss on the back of the aforementioned reasons with sharply falling SYP (and to more limited extent ESPF) prices mid quarter representing another key element to the expected negative earnings print. With larger absolute & relative BC exposure plus poor pulp earnings, we also expect Canfor to spill red ink despite the company’s European asset platform providing a partial offset.”
His other target changes are:
* Doman Building Materials Group Ltd. (DBM-T, “strong buy”) to $9.75 from $9.25. Average: $9.33.
* Interfor Corp. (IFP-T, “strong buy”) to $30 from $32. Average: $29.50.
* Mercer International Inc. (MERC-Q, “market perform”) to US$8.50 from US$7.50. Average: US$8.88.
* West Fraser Timber Co. Ltd. (WFG-N/WFG-T, “strong buy”) to US$105 from US$100. Average: US$110.
“Reflecting West Fraser’s geographic and product diversification, we maintain our Strong Buy rating for the stock and highlight the bulk of the company’s operating platform remains unaffected by the duty revisions or further potential negative BC government legislation. Similarly, we regard Interfor’s minimal central BC exposure and high lumber leverage as a positive and maintain our Strong Buy rating. Lastly, we continue to regard building materials distributor Doman Building Materials as providing excellent risk/reward in a recovering building materials commodity scenario over our investment horizon,” he said.
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With consumer spending remaining volatility, the 2024 outlook for Sleep Country Canada Holdings Inc. (ZZZ-T) is likely to overshadow its results from the final quarter of the last fiscal year, according to National Bank Financial analyst Vishal Shreedhar.
“Our review of industry indicators (consumer confidence, mattress manufacturing sales, etc.) suggests that the operating environment remains soft,” he said. “Government data indicates that mattress manufacturing sales have, for the most part, been lower year-over-year since July 2022. That said, we note that peer commentary has suggested that the mattress industry is at or near a bottom, which could position mattress sales for a rebound as consumer confidence recovers. However, a key question for investors is the recovery momentum and timeline. At this point, we believe consensus expectations may be optimistic; consensus 2024 EPS is $2.44 versus NBF at $2.29.”
“Our analysis of historical downturns of Canadian mattress manufacturer sales suggests that we may be nearing an inflection. Specifically, the duration of current market weakness exceeds that of other periods except 2007-2009. We note that industry trends partially rebounded partway into 2007-2009 before declining again and reaching a bottom in July 2009. Our review of peer commentary suggests the following themes: (i) Industry demand remains soft; (ii) Consumer demand remains pressured at the low-end; and (iii) Cautious optimism that demand weakness is at or near a bottom.”
Ahead of the March 6 release of its quarterly report, Mr. Shreedhar is projecting earnings per share of 56 cents, down 12 cents from the same period a year ago and 2 cents lower than the consensus on the Street. He attributes the 15.7-per-cent year-over-year decline to negative same store sales growth and a higher SG&A expenditure.
“We view ZZZ’s balance sheet to be solid,” said the analyst. “We model Q4/23 net debt to EBITDA of 2.2 times, which provides flexibility for ZZZ to further execute on share repurchases and/or strategic imperatives.”
After making modest adjustments to his full-year 2023 and 2025 projections, he raised his target for Sleep Country shares by $1 to $28, reiterating a “sector perform” recommendation. The average target on the Street is $27.33.
“We value Sleep Country at 11.0 times (from 10.0 times) our 2025 EPS,” he said. “The higher price target reflects a higher multiple and a roll-forward of our valuation period. The higher multiple reflects our expectation that the industry trends may be bottoming, possibly suggesting a potential for upward estimate revisions over the next 12 months. That said, we acknowledge that the current backdrop remains challenged, and management commentary on the outlook is key. Sleep Country currently trades at 11.5 times our NTM [next 12-month] EPS versus the five-year average of 12.0 times.”
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Following recent marketing meetings, Eight Capital analyst Christian Sgro raised his target for shares of Vitalhub Corp. (VHI-T) to a new high on the Street, expecting the Toronto-based healthcare company to continue to grow through M&A activity.
“We see the recent leg-up in the share price as an overdue catch-up and believe 1) there is little risk to the stable fundamental outlook and 2) the valuation still remains attractive compared to peers,” he said.
On Monday, Vitalhub announced the $2.5-million acquisition of U.K.-based BookWise Solutions Ltd., which provides specialist scheduling software for healthcare and corporate organizations
“We like the BookWise acquisition, which we would frame as bite-sized and exactly in-line with management’s consolidation strategy. With ample balance sheet capacity, we think more accretive and synergistic M&A will likely come,” the analyst said.
“We are updating our model to include the acquisition of BookWise. We have maintained 25-per-cent adjusted EBITDA margins or higher given management’s recent commentary that these levels are sustainable. We calculate pro forma net cash of $27.3-million, and total available liquidity of $60-million.”
Mr. Sgro increased his target for Vitalhub shares to $6.25 from $5, keeping a “buy” recommendation. The average is $5.71.
“Vitalhub currently trades at 10.4 times 2025 estimated EV/adj. EBITDA,” he said. “We think the Canadian software equities ... serve as a strong reference for comparable valuation analysis, with small-to-mid cap peers trading at 14.1 times and large cap peers trading at 21.8 times. We think Vitalhub deserves a premium compared to peers, given the company’s defensive attributes, recurring software profile, and stable cash flow generation.”
Elsewhere, Canaccord Genuity’s Doug Taylor bumped his target to $5.50 from $5.25 with a “buy” rating.
“The deal closed immediately and brings a small but synergistic asset that complements the company’s roster of patient flow management solutions in the UK market and expands its Australian presence,” he said. “We note BookWise marks VitalHub’s first acquisition in a year as the company looks to re-accelerate its M&A activity in 2024, as we suggested in last week’s roadshow recap.”
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In other analyst actions:
* In a report on Canadian diversified industrial companies, Stifel’s Ian Gillies raised his targets for Adentra Inc. (ADEN-T, “buy”) to $44 from $34, Aecon Group Inc. (ARE-T, “hold”) to $13 from $12 and Badger Infrastructure Solutions Ltd. (BDGI-T, “buy”) to $52 from $50. The averages are $41.17, $14.19 and $45.78, respectively.
Conversely, he lowered his targets for Algoma Steel Group Inc. (ASTL-T, “buy”) to $17.50 from $18 and Stelco Holdings Inc. (STLC-T, “hold”) to $47 from $49. The averages are $16.31 and $50.64, respectively.
“The legendary tandem of Ricky Bobby and Cal Naughton Jr. would be impressed by our coverage universe as they are ‘shakin’ and bakin’ given the proliferation of non-resi spending in North America and globally,” he said. “The key concern is when spending growth will materially slow but we do not foresee that in our forecast horizon through 2025. We continue to believe the best value lies in the small and mid-cap stocks, particularly BDT, RUS and MATR. ... We find ourselves incrementally more positive on ADEN and DBM given improving consumer sentiment in the U.S., improving home builder data and steadying interest rates.”
* In a fourth-quarter earnings preview , Scotia mining analyst Orest Wowkodaw made these target changes: Altius Minerals Corp. (ALS-T, “sector perform”) to $18.50 from $20; Ero Copper Corp. (ERO-T, “sector perform”) to $25 from $24 and Hudbay Minerals Inc. (HBM-T, “sector outperform”) to $11 from $10.50. The averages are $23.13, $24.77 and $9.89, respectively.
“We anticipate most miners to post slightly stronger Q4/23 financial results driven by a meaningful improvement in operating performance as commodity price changes were muted,” he said. “Overall, our estimates appear somewhat mixed relative to current consensus expectations. Although guidance risks remain skewed to the downside given the challenging operating environment, the majority of miners have already pre-released 2024 guidance, limiting potential disappointment. We expect only a few company-specific catalysts.”
* RBC’s Douglas Miehm initiated coverage of Well Health Technologies Corp. (WELL-T) with an “outperform” rating and $5.50 target. The average on the Street is $7.44.
“We see WELL as a complex, largely misunderstood company and believe the market underappreciates the long-term value-creating opportunity in transforming Canadian primary/ Dx care, as underscored by our strong forecasted ROIC and IRR metrics for recent acquisitions,” he said. “In the U.S., WELL should benefit from high organic growth (20 per cent plus) businesses, Circle and Wisp, and high-margin CRH. As investors start to grasp the potential opportunity available to WELL, we believe the shares will strengthen and outperform peers.”
* In response to Monday’s post-market earnings release, RBC’s Paul Treiber increased his Coveo Solutions Inc. (CVO-T) target by $1 to $15, exceeding the $13.45 average, with an “outperform” rating. Other changes include: Stifel’s Suthan Sukumar to $15 from $14 with a “buy” rating and TD Securities’ David Kwan to $15 from $13.50 with a “buy” rating.
“CVO delivered a beat-and-raise print for FQ3,” said Mr. Sukumar. “Revenues were modestly ahead and reflected early-signs of a broader demand recovery amidst a still challenging macro backdrop, while a stronger outperformance in operating losses underscores improving operating leverage with the company reaffirming positive cash-flows next year (while break-even year-to-date). Importantly, CVO’s new GenAI offering (launched in mid-Dec) accounted for 20 per cent of total bookings with an acceleration in signings. Notably, this momentum to-date remains driven by existing customers, but with adoption now increasingly across all solutions areas – i.e. service, workplace, websites, and commerce, vs. CVO’s initial focus on service – we believe this bodes well for net-new customer traction with potential for larger-scale deals as CVO executes on their go-to-market plan. We raise our target price to $15/share given strong execution with growing proof points on the GenAI scale opportunity, which continues to suggest upside to current Street expectations, in our view.”
* CIBC’s Scott Fletcher raised his target for Information Services Corp. (ISV-T) shares to $31 from $30, keeping an “outperformer” recommendation. The average is $28.95.
* TD Securities’ Michael Van Aelst bumped his Parkland Corp. (PKI-T) target to $53 from $52 with a “buy” rating, while JP Morgan’s John Royall moved his target to $51 from $47 with an “overweight” rating. The average is $53.33.
* Expecting a quarterly beat, Scotia’s Michael Doumet raised his RB Global Inc. (RBA-N, RBA-T) target to US$76 from US$74 with a “sector outperform” rating. The average is $74.06.
“Since the acquisition of IAA, investors have been treated to several upward revisions to Street estimates (2023E EBITDA/EPS up 14 per cent/17 per cent; 2024E EBITDA/EPS up 5 per cent/5 per cent),” said Mr. Doumet. " However, much of the better-than-expected operating performance in 2023 was offset by two negatives: the (i) management changeover and (ii) customer loss at IAA. At this point, we believe investors have gotten ‘comfortable’ with the former, but are waiting for evidence to better assess the IAA turnaround. This ‘wait and see’ approach has led to further discounting in RBA shares — which, we think, amplifies the potential upside if (or more likely, once) the turnaround happens. In the meantime, we think legacy RBA is well set up to (continue to) exceed expectations.
“There’s often no better time to own a stock than when it trades at a low multiple on low expectations — and RBA’s trading multiple is near a 10-year low. In our view, IAA does not necessarily need to win back market share for RBA shares to work (FCFPS is on pace to accelerate materially through 2025E); that said, we believe IAA’s improved operations, management’s track record, and the desire (by carriers) for a more balanced duopoly remain supportive of share gains in the 2H24/2025.”
David Leeder