Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial analyst Adam Shine thinks the consensus expectations for BCE Inc.’s (BCE-T) third quarter are currently too high.
After reducing his expectations for the telecom giant ahead of the Nov. 7 release of its financial results, Mr. Shine warned of “muted upside” to his new and target for its shares. Accordingly, despite seeing its dividend “positioned to be safe,” he downgraded BCE to “sector perform” from “outperform” previously.
“While we have higher Media expectations given easy comp (Hollywood strike last year), ad boost from Euro 2024 and carriage rate agreements, we now expect even weaker ARPU [average revenue per user] and loading metrics for CTS [Communication & Technology Services] amid ongoing competitive industry pricing tactics,” he said.
Mr. Shine is now projecting revenue of $5.997-billion, down 1.4 per cent year-over-year and below the consensus of $6.079-billion. He expects adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to rise 1.2 per cent to $2.7-billion (versus the Street’s forecast of $2.724-billion), while he estimates adjusted earnings per share to slid 7.2 per cent to 75 cents (versus 79 cents).
Market Factors: BCE shouldn’t raise its dividend
The analyst thinks service revenue growth for BCE’s Wireline division fall further from the 1-per-cent year-over-year decline seen in the first half of the year, citing “aggressive Internet offers and bundling discounts to drive penetration and leverage Bell’s ongoing fibre rollout.” He also expressed concern about its Wireless results, predicting a “peak decline [is] likely for ARPU with loading light and mix changing.”
“Back-to-school didn’t necessarily trigger lower plan offers, though device subsidies were higher than expected — this along with more BYOD loading and the closing of The Source stores in 1H materially undermined product revenues,” he noted.
With his forecast reductions, Mr. Shine lowered his target for BCE shares to $48 from $52. The current average target on the Street is $50.33, according to LSEG data.
“With elevated competitive intensity not subsiding in Wireless and Bell still aggressively pricing fibre Internet offers, service revs growth is slowing faster than expected, so we reduced our NAV [net asset value] multiples (Wireline down 50 basis points, Wireless down 25 bps),” he said. “We now expect 2024 Revs down 0.9 per cent (below 0-4-per-cent guidance).”
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National Bank Financial analyst Rabi Nizami sees Western Copper and Gold Corp.’s (WRN-T) Casino project “emerging as a prime acquisition target for senior producers,” calling it a “globally significant” large-scale deposit.
“The project hosts one of the largest undeveloped Cu-Au-Mo porphyry deposits globally but has been overlooked in recent years due to remote infrastructure and permitting in the Yukon Territory,” he said. “This outlook is improving in alignment with Canada’s Critical Minerals Strategy and as the company builds on the last decade of quiet engineering and consultation efforts that have significantly de-risked the Casino project ahead of major permitting.
“The company has attracted investments from major industry players Rio Tinto (9.7 per cent) and Mitsubishi Materials (4.1 per cent) and Sandeep Singh has been appointed CEO to steer through the next phase of de-risking whereby Casino is positioned as the first project in the Yukon to enter a ‘Panel Review’ assessment process, which is expected to commence after WRN submits its Environmental and Socio-Economic Effects (ESE) Statement in 2025.”
In a research report released Tuesday titled Doubling Down on Casino, Mr. Nizami initiated coverage of the Vancouver-based company with an “outperform” recommendation, calling the project “a compelling acquisition target for copper-gold producers seeking to build new copper supply in a safe Canadian jurisdiction.”
“The 2022 feasibility study outlines annual production averaging 150kt CuEq [thousand tons of copper equivalent] at low quartile cash costs over an initial 27-year mine life, utilizing only half of the total resource,” he said. “Copper output of 110kt/yr Cu (212 kt CuEq) during the initial years is large enough to be of significance to the global project pipeline. For perspective versus 2023 copper output for major producers, this represents 8 per cent more copper for BHP, 19 per cent for Rio Tinto, 34 per cent for Mitsubishi and 41 per cent for Teck.
“Casino stands to benefit from government-led infrastructure investments in support of mine development as a cornerstone for the Yukon’s economic future and Canada’s broader Critical Minerals Strategy. Key initiatives include $130-million in federal funding for the Casino Access Road, $21-million from the Yukon government to upkeep an idle port facility in Alaska to ensure a reliable future export route for future concentrates, and $40-million through the Critical Minerals Infrastructure Fund (CMIF) to advance a Yukon-B.C. power grid interconnection.”
Mr. Nizami set a target of $3.50 per share. The average on the Street is $3.92.
“Our Outperform rating is driven by the discounted valuation and an improving outlook for the Casino project as a viable copper-gold development opportunity with visibility to advance to the next stage of permitting with alignment to Canada’s critical minerals strategy,” he said. “The project’s largescale and long-life potential make it an attractive M&A target for major copper-gold producers to acquire and build in a safe Canadian jurisdiction. WRN trades at a discounted P/NAV of 0.36 times compared with peers at 0.43 times. Our target is based on 0.80 times NAV.”
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RBC Capital Markets analyst Greg Pardy removed Obsidian Energy Ltd. (OBE-T) from the firm’s “Global Energy Best Ideas List” on Tuesday, citing “lower free cash flow sustainability in light of its growth plans and commodity price weakness.”
Spain’s Grenergy Renovables SA was added to the list, which is analysts’ “highest conviction names across the global energy sector at the time of their addition into the list” with the objective of highlighting stocks that are expected to outperform the iShares Global Energy ETF (IXC-A) and a hybrid benchmark with a weighting towards the iShares Global Utilities ETF (JXI-A).
“In September, the RBC Global Energy Best Ideas List was down 3.6 per cent compared to the iShares S&P Global Energy Sector ETF (IXC) which was down 3.5 per cent and a hybrid benchmark (75-per-cent IXC, 25-per-cent JXI – iShares Global Utilities ETF) that was down 1.3 per cent on a sequential basis,” said Mr. Pardy. “Since its inception in February 2013, the RBC Global Energy Best Ideas List is up 172.8 per cent compared to the S&P Global Energy Sector ETF up 35.6 per cent.”
Mr. Pardy has an “outperform” recommendation and $13 target for Obsidian shares. The average on the Street is $14.
TSX-listed stocks currently on the list are:
- AltaGas Ltd. (ALA-T) with an “outperform” rating and $37 target. Average: $37.88.
- ARC Resources Ltd. (ARX-T) with an “outperform” rating and $28 target. Average: $30.41.
- MEG Energy Corp. (MEG-T) with an “outperform” rating and $35 target. Average: $33.61.
- Northland Power Inc. (NPI-T) with an “outperform” rating and $28 target. Average: $29.83.
- Pason Systems Inc. (PSI-T) with an “outperform” rating and $19 target. Average: $19.80.
- Pembina Pipeline Corp. (PPL-T) with an “outperform” rating and $60 target. Average: $58.15.
- Suncor Energy Inc. (SU-T) with an “outperform” rating and $64 target. Average: $60.12.
- Superior Plus Corp. (SPB-T) with an “outperform” rating and $11 target. Average: $10.27.
- Topaz Energy Corp. (TPZ-T) with an “outperform” rating and $28 target. Average: $29.69.
- Tourmaline Oil Corp. (TOU-T) with an “outperform” rating and $78 target. Average: $77.25.
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Calling it a “strategic provider of comprehensive automation solutions,” TD Cowen analyst Cherilyn Radbourne added ATS Corp. (ATS-T) to the firm’s “Canada Best Ideas” list, touting “continued scope for margin expansion and M&A upside.”
“The company leverages its extensive knowledge base/global capabilities to address the sophisticated manufacturing/service needs of multinational customers in attractive markets (life sciences, food & beverage, consumer products, energy, and EVs),” she said. “We believe that the stock is one of only a few direct plays on the long-term trend toward automation.”
“ATS has compounded adj. EBITDA at 25 per cent over the past 5 years, based on high-single-digit organic revenue growth, margin expansion, and strategic M&A. A rapid cooling of the EV boom has dampened ATS’s F2025 earning prospects and is largely responsible for an 30-per-cent year-to-date share-price decline. We anticipate that Q2/F25 (September) will mark a near-term earnings trough, and we expect a return to year-over-year earnings growth by Q4/F25, which is not all that far away. Medium- to long-term, we see ATS as very well positioned to benefit from supply chain derisking, labour cost/availability issues, and automation as an enabler of more sustainable manufacturing operations. We are particularly positive on the company’s focus on end markets with high barriers to entry and lower cyclicality (more than 75 per cent of current backlog).”
Ms. Radbourne has a “buy” rating and $63 target for ATS shares. The average is $57.50.
In a separate note, TD Cowen’s Steven Green added Alamos Gold Inc. (AGI-T) to the list, highlighting its “peer leading production and reserve growth in North America.”
“Alamos is well positioned to benefit from record gold prices and easing cost inflation, in our view,” he said. “The company has built a strong reputation by delivering predictable results, growing reserves through the drill bit, and adding growth through opportunistic acquisitions. Alamos has relatively low geopolitical risk with its key assets in Canada and has peer-leading near-term growth prospects.”
“With gold up 29 per cent year to date, we believe it is only a matter of time before generalist investors take notice. We are beginning to see early signs of that; over the past 30 days precious metals equity ETFs saw $390-million of inflows vs $280-million through all of 2023. We believe Alamos is a go-to investment for new investors as one of the few companies that has clear catalysts, growing production, relatively low costs, and operations in tier-1 jurisdictions.”
Mr. Green has a “buy” rating and $31 target. The average is $30.53.
“While the broader gold industry has struggled to replace reserves over the past decade, Alamos has been consistently replacing or growing reserves,” he said. “Exploration at Island is their key value driver; however, drilling at their other assets has also been successful, in our view. The PDA deposit at Mulatos is the clearest example, with the recent mine plan outlining a strong return and mine life extension. We believe there are other sources of upside in the exploration pipeline that will continue to take shape over the next 12 months.”
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In other analyst actions:
* After updates to their commodity price deck for the third quarter as well as 2024 and 2025, featuring an unchanged oil price forecast and “negative and more material” changes to their natural gas expectations, analysts at TD Cowen lowered their 2025 cash flow per share projections by an average of 3 per cent for their coverage universe, leading to a 4-per-cent drop to their target prices. Changes include: Canadian Natural Resources Ltd. (CNQ-T, “buy”) to $56 from $60, Cenovus Energy Inc. (CVE-T, “hold”) to $31 from $33 and Suncor Energy Inc. (SU-T, “buy”) to $60 from $59. The averages on the Street are $54.68, $32.95 and $60.12, respectively.
* Raymond James’ Craig Stanley bumped his Dolly Varden Silver Corp. (DV-X) target to $1.60 from $1.25 with an “outperform” rating. The average is $1.82.
* Pointing to its “projected near-term growth and a deep development pipeline” and “significant” optionality, Canaccord Genuity’s Carey MacRury initiated coverage of Metalla Royalty & Streaming Ltd. (MTA-X) with a “buy” rating and $7.25 target. The average target on the Street is $7.78.
“Metalla is a precious metals-focused streaming and royalty company with 102 assets globally in various stages from exploration through to production,” he said. “Its key producing assets include royalties on Aura Minerals’ Aranzazu operation in Zacatecas, Mexico, G Mining’s Tocantinzinho project in Brazil, and Coeur Mining’s Wharf in South Dakota. A large fraction of our NAV for Metalla lies in its large portfolio of exploration and development-stage assets (approximately 86 per cent), which include a number of assets with near-term production potential.”
“Metalla has rapidly established itself in the precious metals royalty sector since its inception in 2016. The company has built a portfolio of 102 royalties and streams, with a solid near-term growth profile and a pipeline of development projects. The company has deployed over $300 million in capital over 32 transactions to acquire its assets. We forecast 2024 GEOs of 3koz that more than double to 8koz by 2029 (in line with company guidance). The company has a number of development assets that can further add to the company’s growth profile.”
* Atrium Research’s Ben Pirie initiated coverage of Sailfish Royalty Corp. (FISH-X), a precious metals royalty and streaming company, with a “buy” rating and $2 target.
“The Company’s crown jewel asset is a 3-per-cent NSR on the Spring Valley Gold Project in Nevada which is expected to produce 349Koz Au per year,” he said. “FISH has a strong focus on returning capital to shareholders, currently offering a 5.0-per-cent yield and actively repurchasing stock.”
* Barclays’ Trevor Young raised his Shopify Inc. (SHOP-N, SHOP-T) target to US$70 from US$65 with an “equal-weight” rating. The average is US$78.96.
* CIBC’s Kevin Chiang cut his TFI International Inc. (TFII-N, TFII-T) target to US$174 from US$179, below the average on the Street by 64 US cents, with an “outperformer” rating.
“We have adjusted our estimates lower for TFII to reflect the mid-quarter updates provided by a number of U.S. LTL [less-than truckload] companies, which pointed to a weaker-than-expected August. In addition, we have lowered our Logistics expectations to reflect headwinds related to softer volumes due to the movement of Class 6-8 trucks,” he said.