Inside the Market’s roundup of some of today’s key analyst actions
Seeing valuations for Canadian banks as “full” heading into fourth-quarter earnings season in the secror, Canaccord Genuity analyst Matthew Lee thinks “the next leg of upside will have to come from earnings growth.”
“With the sector demonstrating solid momentum (up 14 per cent since Q3 reporting), we expect that investors will be keen to hear management’s views on the coming year, with a particular focus on loan growth and credit,” he said. “In our view, fiscal 2025 is set up to deliver mid-single-digit EPS growth, accelerating from 0.8 per cent this year, as a declining rate environment spurs a resurgence in loan activity (particularly in Canadian mortgages), fee revenue from investment banking and wealth recovers, and solid capital positions provide fuel for share buybacks. At the industry level, we currently forecast 5-per-cent EPS growth and a 13-per-cent ROE in F25.”
In a research report released Tuesday, Mr. Lee said Canadian banks are now trading at a “lofty” 12.1 times multiple, emphasizing that is “at the high-end of historical levels.
“In our view, this is justified by a constructive growth environment, robust capital positions, and reasonable credit, all pointing towards mid-single-digit EPS growth,” he said. “We believe that the banks now must prove out the thesis and show consistent ROE improvements for the equities to continue to work. We have raised our target multiple on the sector to 11.5 times NTM+1 P/E from 10.5 times, which has driven up our targets across the board.”
Citing “low-hanging fruit”, the analyst upgraded Bank of Nova Scotia (BNS-T) to a “buy” recommendation from “hold” previously.
“Heading into the quarter, we are upgrading Scotiabank as an easing North American rate environment becomes a prominent earnings driver for F25 and F26,” he said. “Our estimates for the core business are relatively pedestrian with our view that international, in particular, remains in the middle of a portfolio repositioning. With that said, our new calculations on funding costs suggest that the bank can generate a cumulative positive $1,338-million net income benefit in its funding costs by F26 ($450-milion in F25, $875-million in F26), adding over 100 cents of EPS. While BNS must still clarify its longer-term growth strategy and will likely forego a buyback for the next several quarters, its current valuation and “low-hanging” earnings growth make it attractive.”
Mr. Lee’s target for Scotia shares jumped to $84 from $71. The average target on the Street is $74.40, according to LSEG data.
“BNS shares have returned 13% since reporting Q3 results, or 20 per cent year-to-date. We have slightly increased our longer-term outlook due to a higher funding cost benefit, which resulted in higher F26 EPS. We now expect EPS to grow by 8.4 per cent year-over-year in F25 to reach $7.03 and by 15.2 per cent year-over-year in F26 to reach $8.10,” he added.
He also made these target adjustments:
- Bank of Montreal (BMO-T, “buy”) to $143 from $125. Average: $126.20.
- Canadian Imperial Bank of Commerce (CM-T, “hold”) to $92 from $81. Average: $83.89.
- National Bank of Canada (NA-T, “hold”) to $135 from $123. Average: $132.23.
- Royal Bank of Canada (RY-T, “buy”) to $188 from $172. Average: $168.26.
- Toronto-Dominion Bank (TD-T, “buy”) to $89 from $91.50. Average: $84.21.
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With shares of Entree Resources Ltd. (ETG-T) up almost 75 per cent year-to-date and having blown past his target price, TD Cowen analyst Craig Hutchison lowered his recommendation to “hold” from “buy” previously.
“Given the underlying complexity and uncertain timing of the company’s ongoing arbitration and license transfer efforts at [its Oyu Tolgoi copper-gold mining project in Mongolia], it is difficult to point to a sure-fire catalyst in the next 12-months with the conviction required to maintain a Buy rating at current valuation levels, in our view,” he said.
Mr. Hutchison said he upgraded the Vancouver-based company in April of 2022 after joint venture partners Rio Tinto’s initial bid to acquire Turquoise Hill. His rationale was based “in part on the potential for further consolidation of the Oyu Tolgoi (OT) project,” noting Entrée has a 20-per-cent effective economic interest in a portion of the Hugo North underground deposit along with a 20-per-cent position in the majority of the Heruga deposit.
“While ultimately Rio Tinto was successful in acquiring Turquoise Hill, no offer has emerged for ETG as the company continues to work through a mining license-related arbitration process with Rio Tinto,” he said. “Horizon Copper and Rio Tinto continue to be the company’s largest shareholders at 24 per cent and 16 per cent respectively.
“As a reminder, on October 29, an update was provided on the ongoing efforts towards reaching a path forward with Rio Tinto to transfer the wholly-owned Shivee and Javhlant mining licenses to the OTLLC JV. ETG highlighted that the company remains engaged in discussions to “finalize either the execution and delivery of the existing JV agreement or conversion to an alternative agreement of equivalent economic value”. While the release lacked any major updates, in our view, the filing provided context on where the license transfer process currently stands. The company noted that the parties have identified a potential pathway forward, however, flagged that any definitive alternative agreement between the parties requires the approval of the nine-member OTLLC board (which includes six members appointed by Rio Tinto and three by the Mongolian state-owned company that holds a 34-per-cent interest in OTLLC). Given it is unclear what an ‘alternative’ agreement may consist of with respect to ETG’s economic interest in OT, and the timeline that may be tied to an updated agreement, it is difficult to point to a clear near-term catalyst for the company with strong conviction.”
Mr. Hutchison, currently the lone analyst currently covering the stock, maintained a $2 target for Entree shares.
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Eight Capital analyst Puneet Singh thinks Galiano Gold Inc.’s (GAU-T) “game plan” is likely to lead to increased production, improved margins and optimized cash flow over the next 12 months.
“Anticipating gradual operational improvement over upcoming quarters,” he initiated coverage of the Vancouver-based company, which is a single-asset producer with a 90-per-cent interest in the Asanko gold mine in Ghana, with a “buy” recommendation on Tuesday.
“2024 has been a transitional year for GAU,” said Mr. Singh. “Abore ore (deposit within Asanko Mine Complex) hardness has hampered the last couple quarters, but we would expect GAU to gradually improve production through Q4/24-Q2/25. GAU has installed another mobile crushing unit at the Abore pit to remedy the issue, while a permanent secondary crushing unit is expected to be commissioned by Q3/25. As a result, we have baked conservatism into our estimates. We expect GAU to produce 118Koz at $1,963/oz AISC [all-in sustaining costs] in 2024 (guidance: 120-130Koz at $1,975- 2,075/oz AISC; Consensus: 122Koz at $1,919/oz). Next year, as it works through its issues, we expect GAU to increase throughput up to normalized levels (+16ktpd) by year-end. We expect costs to drop in 2025 but remain elevated (balanced by positive cost improvements as more ounces are produced as milling issues are resolved) as GAU continues stripping the Abore pit.”
Expecting Galiano’s trading multiples to improve as “it gets past its issues and outlines to the market a newly optimized mine plan,” Mr. Singh set a target of $3.50 per share, below the average on the Street of $3.82.
“GAU is evaluating how to best optimize its different pits, and we expect a mine plan update in Jan/25, at which time we will re-evaluate our estimates,” he said. “For now, our NPV5-per-cent model, which utilizes an average gold price of $2,370/oz over the LOM [life-of-mine], returns a $1-billlion value for Asanko. Netting out resources not in our modelled mine plan, balance sheet items, etc., we arrive at a corporate NAV of $4.76 per share. The stock is currently trading at 0.43 times P/NAV and 1.9 times EV/2025E EBITDA on our forecasted estimates. On a Consensus basis, the stock is trading at the bottom of its trailing 2-year P/NAV range and trades on the bottom end of the peer sets (both on P/NAV and EV/2025E EBITDA) when compared with North American listed mid-tier/intermediate gold producers and gold producers with Africanfocused production. We highlight, amongst the North American listed peer set, Galiano’s 2-year production growth profile (Eight Capital: 80 per cent; Consensus 95 per cent) ranks at the higher end. We believe GAU’s current valuation has more to do with its recent production issues at Abore. We expect the stock to rebound over the NTM [next 12 months] and garner better multiples (given its growth profile) following Asanko’s updated mine plan due in Jan/25″
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Despite the recent pullback in gold prices, analysts at TD Cowen see current conditions remaining “a very constructive” price environment for producers that should provide for “strong” free cash flow generation in the fourth quarter.
“Furthermore, the elevated gold price has created a supportive environment for sector M&A, in our view,” they added. “Newmont has received relatively strong valuations for it’s assets sold to date, with several sale processes ongoing. We expect the conclusion of this process will spur additional M&A amongst the mid-tiers.
“Market for streaming deals remains robust, but the potential for more $500-million-plus sized deals is slipping away. Management teams continued to highlight the depth of the deal pipeline and with potential deals focused in the $100-300-million size range. WPM stated that while 1 or 2 opportunities in the $500-milllion sized deals remain available in the market, they do not fit WPM’s ‘investment parameters’.”
In a research report released Thursday review third-quarter earnings season in the sector, the analysts made a series of target price adjustments to stocks in their coverage universe after updating their full-year net asset value per share and EBITDA expectations.
For large-cap producers, their changes are:
- Barrick Gold Corp. (GOLD-N/ABX-T, “buy”) to US$26 from US$27.
- Newmont Mining Corp. (NEM-N/NGT-T, “hold”) to US$53 from US$57.
Other changes are:
- B2Gold Corp. (BTO-T, “buy”) to $7 from $7.50.
- Calibre Mining Corp. (CXB-T, “buy”) to $3.25 from $3.50.
- Centerra Gold Inc. (CG-T, “buy”) to $13 from $14.
- Eldorado Gold Corp. (ELD-T, “hold”) to $19 from $20.
- Franco-Nevada Corp. (FNV-N/FNV-N, “buy”) to US$185 from US$181
- IAMGold Corp. (IMG-T, “buy”) to $10 from $9.50.
- Wheaton Precious Metals Corp. (WPM-N/WPM-T, “buy”) to US$75 from US$74
“Our top picks are Agnico-Eagle and Kinross among the large caps; Alamos among the mid caps; and MAG among the silvers. Our top pick among the royalties is Wheaton Precious Metals,” the analyst said.
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RBC Dominion Securities analyst Pammi Bir thinks “a trifecta of tailwinds” has laid the groundwork for a “multi-year runway of solid net operating income growth” for Chartwell Retirement Residences (CSH.UN-T), pointing to “operational strides, new construction starts at an eight-year low, and demographic tailwinds.”
“Same-property NOI rose 17.1 per cent year-over-year (up 20.5 per cent year-to-date) from higher rents/service rates and higher occupancy,” he said. “On the latter piece, occupancy improved to 88.5 per cent (up 130 basis points quarter-over-quarter, up 610 bps year-over-year), with SP NOI margins inching closer to CSH’s 38-per-cent 2024 target (37.3-per-cent YTD). Healthy rent growth, targeted incentives, and materially lower agency staff costs (down 56 per cent YTD), in conjunction with a localized approach to sales/marketing (e.g., care services, cultural preferences), continue to support the recovery. Combined with sales of older, less functional assets, the wheels are in motion as CSH drives toward its 95-per-cent SP-occupancy target by Q4/25 (vs. its 90.2 per cent Dec-2024F).
“Bottom line, we believe the significant operational advances, minimal new supply, and demographic tailwinds have set the stage for 2025 organic NOI growth to exceed 10 per cent.”
Citing a “solid growth outlook,” Mr. Bir raised his funds from operations per unit estimates through 2026, emphasizing his compound annual growth rate projection of 14 per cent is “well ahead” of Chartwell’s senior housing peers and the broader section. Also increasing his net asset value per unit forecast, his target for its units rose by $2 to $18 with an unchanged “outperform” recommendation. The average on the Street is $18.18.
“A significantly improved cost of capital has also allowed CSH to shift from defense to offense, as it works to high-grade the portfolio. Supported by a sector-leading growth profile, we continue to recommend building positions,” said Mr. Bir.
“In our view, its premium valuation remains well supported by a superior growth outlook, line of sight to lower leverage, and solid momentum in seniors housing fundamentals.”
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RBC Dominion Securities analyst Darko Mihelic thinks Sagicor Financial Company Ltd.’s (SFC-T) valuation remains “relatively low despite good progress.”
“SFC’s adjusted EPS was relatively close to our estimate this quarter,” he said. “There was a wide difference between reported and adjusted earnings mainly due to market experience gains, but we believe that with time and experience under the IFRS 17 accounting regime, this gap will decrease. We model solid growth in Sagicor Life USA and we now assume more buybacks under its NCIB. We see no change to the investment thesis as SFC continues to build out its U.S. business (SFC expects strong business production next year) and we view the stock as undervalued.”
On Nov. 14, the Toronto-based financial services provider reported adjusted diluted earnings per share of 17 US cents for its third quarter, just a penny below the analyst’s projection.
“We reduce our core net insurance service result estimates in Sagicor Life USA, adjust our expectations for Sagicor Jamaica for lower estimates in core net investment result, and tweak our estimates in Sagicor Canada which ultimately bring our core earnings estimates down,” said Mr. Mihelic. “There is a small 1 cent positive impact on our 2025 core EPS estimate from updated buyback assumptions (we now model 300,000 common share repurchases in each of the next 3 quarters). Our adjusted EPS estimates remain largely unchanged at US$0.77 (was US$0.78) in 2025 and US$0.84 (unchanged) in 2026.”
Maintaining an “outperform” recommendation for Sagicor shares, he bumped his target to $8.50 from $8. The average is $9.17.
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In other analyst actions:
* Scotia’s Jonathan Goldman lowered his Adentra Inc. (ADEN-T) target to $49.50 from $52.50 with a “sector outperform” rating. The average is $53.07.
“We lowered our 2024/2025 estimates by 3 per cent/9 per cent,” he said. “The magnitude of the 2025 revision is not a reflection of incrementally negative market conditions or outlook but rather us incorporating a 6-9 month lag on new residential construction starts as Adentra’s products are used in the finishing stages of home building (not a straight-line but directionally correct). The 2024 revision reflects 3Q actuals and 4Q guidance. We are 1 per cent/3 per cent below consensus for 2024/2025.
“Macro will remain an overhang in the near-term as higher rates continue to pressure housing affordability and reduce home turnover. U.S. 30-year fixed mortgage rate was 6.78 per cent (as of November 14) while existing home sales were 3.8 million (as of September) compared to the 10-year average of 4.9 million. The company’s outlook alludes to improving conditions in 2H25. We remain buyers of ADEN shares due to: 1) structurally improved margin profile supported by mix shift; 2) long runway for M&A in a highly fragmented market; and 3) attractive valuation. Shares trading at 6.4 times EV/EBITDA on our 2025E, which we view as well below mid-cycle earnings power, compared to the company’s 7.2 times and the non-specialty building product distributor peer group at 8 times.”
* Scotia’s Orest Wowkodaw raised his targets for Cameco Corp. (CCO-T, “sector outperform”) to $86 from $80, Denison Mines Corp. (DML-T, “sector outperform”) to $4 from $3.75 and NexGen Energy Ltd. (NXE-T, “sector outperform”) to $12.75 from $12. The averages are $78.84, $3.96 and $13.11, respectively.
“Given the recent downward move in most commodity prices due to the heightened global economic uncertainty associated with a second Trump administration, we have revisited our fundamental outlook for both copper (Cu) and uranium (U3O8),” said Mr. Wowkodaw. “Post Q3 results, we have also reviewed Cu equities in the context of current spot prices under several key relative metrics: (1) value, (2) growth, (3) leverage, and (4) capital return potential, and updated our implied Cu, Fe, and U3O8 price analysis in current equity valuations. Despite the recent weakness, we note that the large/mid-cap Cu producers are currently trading at an average implied Cu price of $5.20/lb (a still lofty +28% premium to spot of only $4.06/lb).
“CS, CCO, and TECK are our top picks; we also recommend ERO, HBM, IVN, LUN, and MTAL for Cu exposure. Among the developers, we prefer ASCU, DML, FOM, IE, and NXE. We rate GMEXICO, NEXA, and SCCO Sector Underperform due to unattractive risk/reward profiles.”
* BMO’s Joel Jackson raised his Chemtrade Logistics Income Fund (CHE.UN-T) target to $15, exceeding the $14.29 average, from $12 with an “outperform” rating.
* National Bank’s Don DeMarco cut his Endeavour Mining PLC (EDV-T) target to $47.50 from $50 with an “outperform” rating. The average is $43.56.
* Mr. DeMarco increased his target for Torex Gold Resources Inc. (TXG-T) to $39.75 from $38.25, keeping an “outperform” rating. The average is $35.90.
* UBS’ Daniel Major initiated coverage of Franco-Nevada Corp. (FNV-N, FNV-T) with a “buy” rating and US$160 target and Wheaton Previous Metals Corp. (WPM-N, WPM-T) with a “buy” rating and US$78 target. The averages on the Street are US$145.37 and US$72.80, respectively.
* BMO’s Michael Markidis trimmed his NorthWest Healthcare Properties REIT (NWH.UN-T) target to $5.25 from $5.50 with a “market perform” rating. The average is $5.90.
* Northland Capital’s Tim Savageaux initiated coverage of Poet Technologies Inc. (POET-Q, POET-T) with an “outperform” rating and US$6 target, exceeding the US$4.93 average.
* UBS’ Manay Gupta raised his Suncor Energy Inc. (SU-T) target to $65 from $61 with a “buy” rating. The average is $61.65.