Inside the Market’s roundup of some of today’s key analyst actions
Stifel analyst Martin Landry thinks Park Lawn Corp.’s (PLC-T) friendly agreement to be acquired by an affiliate of Homesteaders Life Company and Birch Hill Equity Partners Management at a price of $26.50 per share is a fair offer and recommends shareholders vote in favour.
Announced late Monday, the deal represents a 62.1-per-cent premium to its closing price or a 56.4-per-cent premium to the 20-day volume-weighted average price. The all-cash transaction values Toronto-based Park Lawn at $1.2-billion and is expected to be completed by the end of August.
Mr. Landry sees the deal as “attractive” to shareholders and sees a low likelihood of competing bidders.
“Given the recent asset divestiture, which creates volatility in PLC’s earnings, we are assessing the implied valuation based on Park Lawn’s 2024 financial guidance,” said Mr. Landry. “Using the guidance range for EBITDA between $70 and $80 million, implies a valuation multiple range of 11-13 times 2024 EBITDA, which we view as fair value for Park Lawn. Looking at past M&A transactions in the industry, we believe that the Alderwoods Group Inc. and the Stewart Enterprises Inc. acquisitions are the most comparable to PLC, given their respective size. Alderwoods was acquired at an 11.3 times EV/EBITDA multiple, while the Stewart acquisition earned a 12.5 times EV/EBITDA multiple, for an average of 12 times, in line with the proposed valuation. Recall that Park Lawn’s proposed acquisition of Carriage Services Inc. (CSV-NYSE) was made at a 11 times trailing EBITDA multiple, which further supports our view that 12 times EBITDA represents fair value for quality death care providers.”
“In our view, there are a limited number of potential strategic acquirers for Park Lawn. Service Corp International (SCI-US) would likely run into issues with the FTC, while Carriage Services does not have the balance sheet strength to finance a transaction of this size. Brookfield Asset Management has previously expressed interest in getting exposure to the death care industry, but we believe that they have had a chance to opine on this transaction. We believe other private equity funds could be interested in Park Lawn given quality of its assets. However, given the full and fair value offered by the existing purchaser we do not expect other bidders to arise.”
Maintaining his “buy” recommendation for Park Lawn shares, Mr. Landry increased his target to $26.50 from $22 to reflect the deal. The average on the Street is $25.14, according to LSEG data.
Elsewhere, CIBC’s John Zamparo moved Park Lawn to “tender” from “neutral” and raised his target to $26.50 from $21.
“We expect a positive vote and no superior offer, and we consider regulatory scrutiny to be unlikely. With the news, we change our rating,” said Mr. Zamparo.
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Seeing it “best positioned of any Canadian retailer for the current value-seeking consumer spending backdrop, RBC Dominion Securities analyst Irene Nattel reaffirmed her “constructive view” on Dollarama Inc. (DOL-T), which was one of the firm’s “Best Ideas” for 2024, ahead of the June 12 release of its first-quarter results.
“Although we do not expect DOL to be immune to constrained consumer spending, DOL gains in share of wallet likely continue as pressure on disposable income drives consumer valueseeking behaviour,” she said. “Lower inbound shipping costs a tailwind to gross margins at least through H1/F25.”
Expecting a “strong” quarterly release next week, Ms. Nattel is forecasting first-quarter earnings earnings per share of 73 cents, up 17 per cent year-over-year and a penny below the consensus projection on the Street. She said her forecast for both the quarter and near term are “predicated on SSS [same-store sales] consistent with mid-point of the long-term target range 4-5 per cent, normalizing from high single digits to mid-teens last two years.”
“We anticipate that (modestly) rising unemployment and higher cost of living, notably debt service costs, will sustain consumer value-seeking behaviour in CY2024,” she added. “Our F25 SSS forecast 4.5 per cent is at the high end of guidance and reflects expectations for normalizing trends as channel shifts moderate. Two-year stacked 17.3 per cent decelerating from 24.8 per cent over F23/F24 as Dollarama cycles two years of torrid SSS growth. Nonetheless, we anticipate that the sluggish economic backdrop and elevated cost of living, notably food, shelter, energy and debt service, will sustain consumer value-seeking behaviour in CY 2024, supporting ongoing gains in share of wallet at DOL.”
“Notwithstanding RBC Cardholder data insights suggesting an uptick in discretionary spending in April, consumer spending best described as cautious with value-seeking behaviour continuing during CQ1.”
Seeing Dollarama as “a stock to own across cycles,” Ms. Nattel raised her target to a Street high of $136 from $125 with an “outperform” rating. The average is $119.91.
“In our view, notwithstanding the recent share price strength, the stock remains attractive with excellent visibility and sustainability of growth runway, Dollarcity optionality, and perennial return of capital to shareholders through both dividend growth and share buyback,” she said.
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Despite Laurentian Bank of Canada (LB-T) exceeding his expectations with its second-quarter results, Desjardins Securities analyst Doug Young warned it is “going through yet another restructuring, as well as repositioning, which resulted in a material charge this quarter and could result in further charges down the road.”
On Friday, the bank reported cash earnings per share of 90 cents, topping both Mr. Young’s 80-cent estimate and the consensus forecast on the Street of 87 cents. However, it took a “another big” restructuring charge, resulting in a net loss per share of $2.71.
“Over the last 10 years, LB has recorded significant restructuring and impairment charges,” he said. “And while this quarter’s charge is expected to result in $20-million in annual savings, a portion of this (not quantified) will be reinvested. It expects a slightly lower NIX ratio in 3Q FY24 due to these savings. However, there will be further severance and restructuring charges over the next little while, albeit not of the same magnitude as this quarter. When does this end?”
Mr. Young also said he’s taking “a wait-and-see mindset” toward the targets set out at Laurentian’s Investor Day event.
“The focus of the revamped strategy plan in a nutshell is as follows: First: Lean into the commercial banking business to drive growth across the various segments where it has had success, including inventory finance, equipment finance and CRE, as well as leverage the efficiencies driven through the commercial side of its businesses. In the end, management believes LB will be split 55-per-cent commercial and 45-per-cent personal down the road. Second: In personal banking, become more efficient and gather deposits through existing and new digital means to help fund growth. This includes a drastic improvement in its tech stack, which we believe could be the most challenging part of the plan. Third: Engage in partnerships across all its businesses when it makes sense. The path is not going to be a straight line though, and there will likely be further restructuring costs, with an eye on improving the bank’s profitability in the future.”
With a cut to his full-year EPS projection, Mr. Young lowered his 12-month target for Laurentian bank shares to $25 from $26, maintaining his “sell” recommendation. The average target on the Street is $26.82.
Elsewhere, Raymond James’ Stephen Boland trimmed his target by $1 to $26 with a “market perform” rating.
“The new strategic plan which had been eagerly awaited was announced by the new CEO. Our key takeaway is the retail division is stable and necessary as a source of deposits,” he said. “This should support the growth in the very profitable commercial division. Management was clear the bank has to spend more on technology to appeal to the middle class, immigrants and young Canadians. There are still a number of manual processes and too many products and systems. Medium term targets (2026 and beyond) include double-digit EPS growth, double-digit ROE, and an improved efficiency ratio of 60 per cent and overall positive leverage. We believe this could take several years to implement. Overall, it was a positive update though the execution will be interesting to view over the next year.”
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Following a “solid” fourth quarter, Scotia Capital analyst David Weiss remains “positive” on Coveo Solutions Inc. (CVO-T), pointing to “the firm’s leading capabilities, growing list of customers, significant improvement in profitability/cash flow in fiscal 2025, and attractively valued shares.”
After the bell on Monday, the Montreal-based corporate search technology vendor reported total revenue of $32.6-million, up 11.9 per cent year-over-year and in line with the $32.5-million estimate of both the analyst and Street. An adjusted operating loss of $0.8-million was also better than anticipated (a loss of $2.2-milllion).
“Coveo’s Q4 results were a beat on adj. EBITDA vs. consensus and above the top of prior revenue guidance,” said Mr. Weiss. “SaaS Subscription revenue growth was 18 per cent and net customer expansion (NER) was 107 per cent on the Core Coveo platform. In addition to new wins in Q4, Coveo is seeing a record pipeline, including 75 projects related to it’s GenAI offering (up from 50 last quarter). Despite proven solutions and a growing list of customer advocates, guidance for F25E came in lower vs. consensus and the prior year, now calling for 11- 15 per cent SaaS subscription revenue growth on Core Coveo (consensus 17 per cent). Management is seeing continued scrutiny on customers testing its solution, resulting in bookings being pushed out and is expecting improvement in 2H/25 as momentum builds and businesses increasingly monetize AI/GenAI.”
Expecting “slightly lower” growth, the analyst trimmed his target to $11 from $14 with a “sector outperform” rating. The average is $12.40.
“We view Coveo shares as a means to participate in a key theme, namely growth in digital information and the need to organize, search, and find relevance in this ongoing secular trend,” said Mr. Weiss. “We believe Coveo will continue to deliver strong double-digit top-line growth over our forecast horizon, with continued demand for cloud-based search and relevance software from both new and existing customers. The firm has made targeting profitability a priority, and is posting impressive year-over-year gains in adj. Operating Margins (expect cash flow breakeven in 2 years). The firm could potentially represent an interesting asset for larger peers looking to add to their search/relevance technology stack along with an existing book of business.”
Others making changes include:
* Stifel’s Suthan Sukumar to $12 from $15 with a “buy” rating.
“Coveo’s new fiscal year guide disappointed as headwinds from higher Qubit churn and elongating sales-cycles weigh on the top-line outlook,” he said. “The silver lining is that GenAI accounted for more than 20 per cent of bookings (consistent with last quarter) with sustaining high win-rates/pricing power and +75 trials underway (up from +50 LQ), alongside a record high pipeline with 50 per cent driven by new logos, supporting management’s view for stronger bookings/revenue growth over H2. We reset our forecasts to reflect a near-term growth decel, which drives our target lower, but still see a path to 20-per-cent-plus growth as Qubit churn tapers off and sales-cycles improve, which should drive beat-and-raise potential ahead. With the stock at 52-week-lows and trading at 2.5 times revenues, we see a compelling risk-reward for a cash flow positive GenAI story positioned for re-accelerated growth. A new $50-million SIB serves as a backstop, further signaling management’s confidence in the outlook.”
* BMO’s Thanos Moschopoulos to $10.50 from $12.50 with an “outperform” rating.
“We remain Outperform on CVO and have reduced our estimates following Q4/24 results. The quarter was in-line on revenue and a beat on EBITDA, while FY2025 revenue guidance was significantly below consensus on revenue—as organizations are taking a cautious approach to operationalizing GenAI—but a beat on EBITDA, helped by CVO’s ongoing cost discipline. While we’d hoped for better near-term growth, we believe CVO is competitively well-positioned (as evidenced by recent GenAI wins) and view the stock’s valuation as attractive, particularly given its recent selloff,” he said.
* Eight Capital’s Adhir Kadve to $13.50 from $16 with a “buy” rating.
“Coveo reported Q4/F24 results, which came in ahead of Consensus and our expectations; however, the company’s F25 revenue guidance came up short of Consensus/Eight Capital expectations while profitability (adj. EBITDA) outperformed,” said Mr. Kadve. “Topline growth is being impacted by ongoing Qubit churn, but also prolonged sales cycles due to ongoing customer experimentation of GenAI-related implementations. That said, differentiation and competitive benefits from Relevance Generative Answering are evident, and customers continue to build confidence in the nascent technology, which bodes well for bookings acceleration and thus improves revenue growth rates as the year progresses. Further, Coveo continues to show strong cost discipline, which should help drive profitability. All in all, while the reacceleration of growth did get pushed out towards H2/F25, we remain of the view that Coveo stands as a key beneficiary of the upcoming GenAI adoption cycle and thus our thesis is intact and we remain positive on the story.”
* National Bank’s Richard Tse to $10 from $14 with an “outperform” rating.
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While Desjardins Securities analyst Chris Li expects “another “challenging quarter” from Saputo Inc. (SAP-T) when it reports results on Thursday, he believes its “risk/reward skews to the positive but patience is required.”
He’s projecting adjusted earnings before interest, taxes, depreciation and amortization for the Montreal-based dairy company’s fourth-quarter of fiscal 2024 of $360-million, narrowly lower than the Street’s projection of $366-milllion and down from $392-million a year ago due to drops of 12-per-cent in the United States, 41 per cent in Europe and 6 per cent in its International business. Adjusted earnings per share are expected to slid 12 cents year-over-year to 35 cents, a penny below the consensus.
“While 4Q is expected to be a challenging quarter, we believe SAP is well-positioned to achieve low-double-digit EBITDA growth in FY25, supported by the ramp-up of network optimization benefits, improving U.S. cheese prices, sales volume growth, potentially much lower Australian milk costs starting July 1, higher international dairy prices and the lapping of high-cost inventories in the UK,” said Mr. Li. “Combined with 30-per-cent capex reduction, we expect an acceleration in FCF, supporting increased capital returns (ie initiation of share buybacks).”
Mr. Li thinks the earnings set-up for the next fiscal year “should be more favourable,” seeing support from network optimization benefits and improving market conditions. However, he cautioned it’s “still early.”
“We believe Lino Saputo’s decision to step back from day-to-day operations reflects his confidence in the company’s organic growth trajectory,” he added. “While M&A is part of SAP’s longer-term growth strategy, its focus is on executing its global strategic plan and returning excess FCF to shareholders. Market factors remain a key risk.”
Despite raising his earnings projections for both fiscal 2024 and 2025, Mr. Li reiterated his $33 target, which matches the average on the Street, and “buy” recommendation for Saputo shares.
Elsewhere, RBC’s Irene Nattel raised her target to $39 from $36, keeping an “outperform” rating.
“Commodity and operating backdrops still flashing red, but we remind investors that F25 is a key inflection year with several critical elements to help stabilize the business as Saputo executes on its strategic plan,” said Ms. Nattel. “Fine-tuning estimates to reflect latest RBC Economics FX forecasts, notably an 8-per-cent deterioration in CAD/USD vs prior forecast that boosts translation of earnings from the U.S. segment, which represents about a third of EBITDA. We remain constructive on the longer-term outlook with normalizing commodity backdrop an important caveat.”
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National Bank Financial analyst Maxim Sytchev cautioned Colliers International Group Inc.’s (CIGI-Q, CIGI-T) US$475-million acquisition of Laval, Que.-based Englobe Corp. was “not cheap” given its size, however he called it “a positive overture” strategically.
Before the bell on Monday, Colliers announced the deal for the engineering, environmental, and inspection services firm, which allows Englobe’s senior leadership team and employee shareholders to remain shareholders.
“CIGI’s outlay of US$475-million (we estimate total EV would be in the low-to-mid US$500-million range) represents a material addition to the O&A vertical and is highly complementary to the company’s Canadian project management offerings and should help to further de-risk earnings at a time of continued uncertainty for the Leasing and Capital Markets verticals,” said Mr. Sytchev. “Furthermore, the transaction provides a significant platform from which to further scale the business going forward. Englobe generated US$340-million in revenues in 2023 and, assuming a 13-per-cent ex-IFRS EBITDA margin, we estimate an EV/EBITDA multiple around 12 times (though continued growth and synergies could bring that closer to 10 times on a proforma basis).”
Mr. Sytchev emphasized “anything of size carries a premium multiple in engineering,” however he expects further M&A activity from Colliers.
“CIGI establishes a platform in Canada instead of going piece-meal; we prefer the former as it implies deeper expertise/client relationships/size of projects/diversity/systems in place. For accretion math ... (while the typical engineering accretion would be in the 20-per-cent-plus range of an acquired company’s EBITDA, CIGI does not have a full platform in Canada but … it has a leading presence in Project Management; hence, potential scope for synergies/cross-selling still exists),” he said. “We believe long-term shareholders will like the transaction as tilting the company’s exposure towards Outsourcing and Advisory (49 per cent pre-deal, approximately 52-per-cent post) is noncontroversial and margin-enhancing while still showing a material runway in terms of growth — recall Tetra Tech several weeks ago was talking about organic growth of 6-10 per cent until 2030 in its markets (the space also remains highly fragmented — CIGI was ranked #50 on U.S. design firm list by ENR); while the multiple is in line to where CIGI trades at the moment, the company will be able to add tuck-ins over time at lower valuations (based on our own assumptions — full financials, details, are not available).
“The investment thesis debate centers around the curvature of the transactional business recovery and overall CRE sentiment; in the meantime, management is controlling what’s controllable, which is capital deployment. We would like to get a better sense of where the (expectations) of long-term rates are about to settle as there is a -60-per-cent correlation between CIGI shares and the 10-year U.S. Treasury yield.”
Mr. Sytchev reiterated a “sector perform” recommendation and US$125 target for Colliers shares. The current average is US$139.17.
Elsewhere, BMO’s Stephen MacLeod raised his target to US$140 from US$137 with an “outperform” rating.
“We view Colliers’ proposed acquisition of Englobe positively, as it would: 1) add scale to Colliers’ growing Engineering & Project Management platform; 2) establish a material presence in the fragmented Canadian engineering services market; 3) lead to potential revenue synergies with Colliers Project Leaders in Canada; 4) contribute positively to Colliers’ organic growth (~MSD/HSD) and tuck-in acquisition pipeline; 5) further Colliers’ goal to increase the proportion of earnings coming recurring businesses,” said Mr. MacLeod. “We estimate 3 per cent plus PF adj. EPS accretion and see attractive risk-reward in the stock.”
RBC Dominion Securities’ Jimmy Shan maintained an “outperform” rating and US$145 target.
“Although investors may have expected a sooner announcement following its equity raise, we don’t think investors should be surprised by the type of acquisition announced [Monday] morning: a sizeable Canadian engineering & environmental services platform,” said Mr. Shan. “Overall, we think this is a good transaction: it’s on strategy, provides for revenue synergies for future growth and boosts its ‘recurring’ mix to 72 per cent from 70 per cent, further differentiating its business mix from the global CRE brokers. The multiple paid (12 times 2023 EBITDA) is generally in line with market and transaction adds 1.3 per cent/2.2 per cent to 2024/2025 AEPS.”
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In other analyst actions:
* Canaccord Genuity’s Katie Lachapelle initiated coverage of Saskatoon-based IsoEnergy Ltd. (ISO-X) with a “speculative buy” rating and $5.50 target. The average is $7.13.
* Eight Capital’s Christopher True raised his Saturn Oil & Gas Inc. (SOIL-T) target to $7.35 from $4.45 with a “buy” rating. The average is $5.01.
David Leeder