Inside the Market’s roundup of some of today’s key analyst actions
Citing “oil softness driven in large part by refinery margin compression, demand weakness, and potential oversupply dynamics into 2025,” RBC’s Global Energy Research team reduced their oil and natural gas projections through next year on Tuesday.
“That said, energy producers are well equipped to handle commodity price volatility given their strong balance sheets along with ongoing shareholder return optionality via buybacks and dividends. Positioning-wise, we favor energy producers with cash flow leverage toward upstream oil,” they said in a report titled Feeling the Headwinds.
The firm lowered its 2024 Brent and WTI price projections by 4 per cent and 3.7 per cent, respectively, to US$80.36 and US$76.16 per barrel (from US$83.66 and US$79.10). Their 2025 estimates dropped 11.6 per cent and 12.2 per cent to US$72.60 and US$68.16 (from US$82.17 and US$77.67).
For Henry Hub natural gas, RBC cut its 2024 expectation by 10.3 per cent to US$2.20 per one million British thermal units (from US$2.45). Their 2025 forecast remains US$3.13.
With those changes and citing a more constructive outlook on its future multi-lateral drilling prospects, analyst Michael Harvey upgraded PrairieSky Royalty Ltd. (PSK-T) to “outperform” from “sector perform” previously.
“While we are mindful of PSK’s elevated valuation, we see the company’s suite of assets as top-tier, which should ultimately be the key long-term driver of value,” he said.
Mr. Harvey’s target for PrairieSky shares is now $33, rising from $31 and exceeding the $30.02 average on the Street, according to LSEG data.
“We model company volume growth rates of 3–4 per cent over the next several years, which we see as reasonable,” he said. “PSK trades at a premium to Canadian peers, which we see as justified, while noting a discount to select US mineral and energy royalty peers.”
For integrated oil, oil sands and exploration and production (E&P) companies in his coverage universe, RBC’s Greg Pardy made these target reductions:
- Athabasca Oil Corp. (ATH-T, “sector perform”) to $5.50 from $6. The average is $6.63.
- Baytex Energy Corp. (BTE-T, “outperform”) to $5.50 from $6.50. Average: $6.45.
- Canadian Natural Resources Ltd. (CNQ-T, “outperform”) to $59 from $62. Average: $55.38.
- Cardinal Energy Ltd. (CJ-T, “sector perform”) to $7 from $8. Average: $8.05.
- Cenovus Energy Inc. (CVE-T, “outperform:) to $29 from $33. Average: $33.67.
- Gran Tierra Energy Inc. (GTE-T, “sector perform”) to $10 from $11. Average: $14.83.
- Imperial Oil Ltd. (IMO-T, “sector perform”) to $99 from $108. Average: $99.07.
- MEG Energy Corp. (MEG-T, “sector perform”) to $35 from $39. Average: $34.25.
- Obsidian Energy Ltd. (OBE-T, “outperform”) to $13 from $15. Average: $14.50.
- Parex Resources Inc. (PXT-T, “sector perform”) to $15 from $17. Average: $23.35.
- Strathcona Resources Ltd. (SCR-T, “sector perform”) to $34 from $37. Average: $36.38.
- Suncor Energy Inc. (SU-T, “outperform”) to $64 from $67. Average: $60.84.
- Vermilion Energy Inc. (VET-T, “sector perform”) to $17 from $20. Average: $20.73.
“From where we sit, the themes of capital discipline, balance sheet deleveraging via absolute debt reduction, and shareholder returns—with an emphasis on share buybacks—will extend into 2025 as producers approach (or have already achieved) their net debt targets,” he said.
“Our favorite Senior producer remains Canadian Natural Resources (Global Top 30 and Energy Best Ideas lists), with Suncor Energy (Energy Best Ideas list) our favorite Integrated, and MEG Energy (Energy Best Ideas list) our favorite Intermediate producer with Cenovus Energy, Baytex Energy and Obsidian Energy rounding out our Outperform roster.”
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National Bank Financial analyst Rupert Merer sees Ballard Power Systems Inc. (BLDP-Q, BLDP-T) “right sizing the business for the visible future” after announcing a major restructuring to reflect slower-than-expected fuel cell adoption.
On Sept. 12, the Vancouver-based company revealed a global corporate restructuring to “reduce corporate spending and in order to maintain balance sheet strength.” The plan includes a goal of cutting operating expenses by over 30 per cent with a significant portion to be realized in 2025 and including a restructuring charge for the third quarter of 2024. It also involves workforce reductions, operational consolidation, decreased capital expenditures and a leadership transition that includes the departure of current CFO Paul Dobson and COO Mark Biznek.
Mr. Merer sees Ballard now “focused on what is going to move the needle near-term.”
“BLDP will revisit its China strategy due to ongoing market issues and underperformance of the Weichai Ballard joint venture,” he said. “BLDP is also still assessing the $200-million facility in Texas it announced earlier this year, which with more than $90-million in government support, BLDP would need to invest $100-150-million to produce to 3 GW/year. We expect a FID in 2H’24E, and suspect a decision could be politically driven.”
“Cost-reduction measures are necessary due to the uncertain commercial viability of hydrogen fuel cells which still rely heavily on subsidies and favourable policies. BLDP’s largest market is the EU, where sales rose 55 per cent year-over-year in Q2′24. However, its combined exposure to North America and China, where sales fell 35 per cent and 44 per cent, respectively, is slightly higher. Management cites policy uncertainties in all regions as contributing to market delays. In China, the fuel cell market is losing momentum and leading hydrogen filling station contractors to be cautious in their deployment. In the U.S., potential political changes and possible cuts to clean vehicle programs pose risks to BLDP. Therefore, we believe BLDP is taking necessary actions to navigate a volatile demand environment.”
While he lowered his 2024 and 2025 revenue and earnings expectations to reflect he restructuring and slower than expected adoption in the hydrogen industry, Mr. Merer reaffirmed his “sector perform” rating and US$3 target for Ballard shares. The current average is US$3.05.
“BLDP is making the right moves to ensure its long-term position as a leader in fuel cells, and if the market takes shape, we believe it will be well positioned. However, considering the slow adoption rate, we maintain our SP rating,” he concluded.
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Desjardins Securities analyst Kyle Stanley views European Residential Real Estate Investment Trust’s (ERE.UN-T) €748-million in strategic dispositions positively, believing investors will welcome the outlook.
On Monday, the Toronto-based REIT announced a trio of moves, which encompass 3,179 residential suites, representing approximately half of its portfolio, and one office property.
“The transaction should translate into a healthy unit price re-rate for ERE, in our view, as it expects to monetize half its portfolio at a slight premium to IFRS (we believe 2 per cent), while the stock trades at a material 34-per-cent discount to BVPU [book value per unit] (EUR2.94),” he said. “On a geographic basis, we understand the transaction portfolio is more concentrated in non-Randstad regions and is heavily weighted to single-family rentals.
“With this in mind, ERE’s 4.7-per-cent residential IFRS cap rate at 2Q24 is likely representative of deal pricing. Our decision to upgrade ERE post-2Q24 results was predicated on its ability to further maximize unitholder value, which we believe has been achieved with this transaction.”
Mr. Stanley expects the remaining portfolio to be “roughly comparable in quality and desirability to the assets in the announced transactions, as they carry a heavier exposure to the lower-cap-rate Randstad markets, notwithstanding being more concentrated in multifamily properties. He thinks it should “reduce concerns on the marketability of the remaining €830-million asset base.”
“ERE investors can expect a €0.75/unit (C$1.13/unit) special cash distribution, which represents 38 per cent of the current unit price,” he noted.
The analyst kept a “buy” rating and $3.25 target for European Residential units. The average is currently $3.41.
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TD Cowen analyst Derek Lessard sees Premium Brands Holdings Corp. (PBH-T) on “the cusp of significant outperformance” and trading at a near decade-low valuation.
“Given the increasingly stable operating environment, we see PBH on the cusp of more materially benefiting from its multiyear investment cycle (in capacity/automation/innovation),” he said. “In particular, Specialty Foods is poised to grow with: 1) fewer capacity constraints; 2) large product launches (in sandwiches and protein) with major foodservice/QSR customers; and 3) innovation. Consequently, management continues to expect to hit its 10-per-cent margin target at some point in 2025 and two years earlier than its original guidance. Longer term, we also see potential value creation events that could further add significantly to the share price.”
Naming the Vancouver-based company one of the firm’s “Canada Best Ideas”, Mr. Lessard acknowledged investor concerns are focused on its “relatively high leverage and low FCF in recent years, both of which are primarily attributable to an historic capital investment cycle (i.e., $700-million over the past 2.5 years), albeit nearing the end.”
“As PBH laps the substantial capex and once plant efficiencies and strong contribution margins from new capacity (i.e., 20-40 per cent plus for sandwiches/proteins/bakery) kick in, we see margins and FCF improving meaningfully, in turn pushing leverage below 3.0 times by Q4/25,” he added.
“Short term, it comes down to execution (i.e., Q3 and Q4 results). Longer term, we see two potential opportunities that could add significantly to the share price: 1) accelerated margin expansion (management expressed confidence in reaching 11-12-per-cent consolidated margin by 2027-28), and 2) potential sale of the Distribution Group.”
The analyst reaffirmed his “buy” recommendation and $129 target for the company’s shares. The average is $110.89.
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TD Cowen analyst Daniel Chan sees Celestica Inc. (CLS-N, CLS-T) trading at an “attractive” multiple following a recent sell-off.
“At 11 times calendar 2025 estimated P/E and NTM PEG [next 12-month price/earnings-to-growth] of 0.6, we believe this is a lucrative entry point for investors,” he said. “We see AI investments supporting CLS’s momentum through next year as CLS provides a differentiated offering from North American EMS peers (14 times C25E P/E) and Taiwanese ODMs (16 times).
“CLS’s hyperscaler customers are in an arms race to establish GenAI leadership, despite concerns relating to the ROI of AI infrastructure investments. We continue to believe Celestica is well positioned for continued growth from AI infrastructure investments, supported by its leading communications portfolio and server expertise with key partner relationships. We also believe there is upside to 2025 consensus estimates.”
Naming the Toronto-based electronics manufacturing services company one of the firm’s “Canada Best Ideas”, Mr. Chan thinks current valuations underappreciate its “unique” original design manufacturing (ODM) business, which he thinks should trade at a premium “given market leadership, higher ASPs, margins, and defensibility.”
“Our sum-of-the-parts analysis implies the non-HPS business currently trades at 3.0 times calendar 2025 estimated EV/ EBITDA, less than half the multiple of current EMS [electronics manufacturing services] peers,” he added.
Mr. Chan has a “buy” rating and US$61 target for Celestica shares. The average is US$64.11.
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Benchmark analyst Mark Palmer thinks shares of Lightspeed Commerce Inc. (LSPD-N, LSPD-T) are “positioned to rebound” as it “executes on plans aimed at jump-starting subscription-based revenue growth and boosting profitability.”
“We believe LSPD is well positioned to continue to post the strong transaction-based revenue growth it has reported in recent quarters, and that its subscription-based revenue growth is poised to reaccelerate thanks to its renewed focus on driving sales in that area,” he said. “Founder Dax Dasilva, who served as LSPD’s CEO from its founding in 2005 until February 2022, returned as chief executive in February 2024 and has focused the company on boosting profitability while de-emphasizing large-scale M&A deals in favor of driving organic growth.
“LSPD’s multifaceted, omnichannel commerce platform enables SMBs to avoid having to piece together multiple, disjointed applications from various providers to run their businesses, while its network of development, channel and installation partners helps to make its solutions scalable and customizable.”
In a research report released Tuesday, Mr. Palmer initiated coverage of the Toronto-based provider of cloud-based point-of-sale (POS), e-commerce, and payment solutions with a “buy” rating .
“LSPD in early FY24 began selling its POS and payments solutions as part of a unified offering, and it directed its sales account managers to focus on accelerating adoption of its payments product,” he said. “Those efforts already have shown success, as the company’s payment penetration rose to 36 per cent in 1Q25 (the quarter ended June 30) from 22 per cent in 1Q24, while its gross payment volume (GPV) increased to $8.4-billion from $5.1-billion in the prior year period. LSPD has refocused its account managers on their traditional roles of upselling software solutions, and we expect this shift to drive an uptick in subscription-based sales in the coming quarters.”
“Since returning to LSPD’s helm, Mr. Dasilva has brought an enhanced focus on managing the business for increased profitability. Initiatives to date have already produced significant results, as the company’s adjusted EBITDA was $10.2-million in 1Q25, up from a loss of $7.0-million a year earlier. We expect LSPD’s adjusted EBITDA to continue this positive trend, as we estimate that its adjusted EBITDA will reach $46.4-million in FY25, up from $1.3-million in FY24.”
Mr. Palmer set a US$20 target for Lightspeed shares, exceeding the US$17.46 average on the Street.
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In other analyst actions:
* Touting its significant growth potential over the next several years, Redburn-Atlantic’s Dominic Ball upgraded Shopify Inc. (SHOP-N, SHOP-T) to “buy” from “neutral” with a US$99 target. The average is US$78.54.
* Raymond James’ Daryl Swetlishoff bumped his Atlas Engineering Products Ltd. (AEP-X) target to $2.40 from $2.25, keeping a “strong buy” rating. The average is $2.42.
“As detailed in our [Sept. 11] Initiation Report, Atlas offers material earnings growth from: 1) high leverage to Cdn housing activity; 2) margin growth/stabilization from the integration of past transactions; and, 3) future M&A and robotics-driven organic growth,” he said. “[Monday] before market, Atlas demonstrated progress on its nationwide truss roll-up strategy announcing a $3.8-million acquisition (anticipated to close in 1H25). While exact details have yet to be released, we estimate the transaction to be immediately accretive post close with additional synergies to layer in following integration. Assuming cash and equity financing in line with historic deals (70/30) and an incremental 1.5 million run-rate EBITDA (post synergies) boosts our target to $2.40/sh (from $2.25 previously) backstopping our Strong Buy rating. We look forward to further colour on Atlas’ M&A and automation strategy during the full slate of institutional investor meetings Raymond James is hosting with company management in Toronto [Tuesday].”
* RBC Capital Markets’ Arthur Nagorny hiked the firm’s target for CCL Industries Inc. (CCL.B-T) to $92 from $83 with an “outperform” rating. The average is $86.90.
“We assume coverage of CCL and take a fresh look at the company and its positioning going forward,” he said. “Overall, we have a positive view on the stock, underpinned by a defensive underlying business (market leader, GDP + growth, steady margin profile, consistent FCF generation), what we view as a toptier management team, potential for an acceleration in M&A activity given a clean B/S, and a relatively undemanding valuation (in line with long-term average).”
* BMO’s Raj Ray raised his Centerra Gold Inc. (CG-T) target by $1 to $12 with an “outperform” rating. The average is $12.23.
“The definitive feasibility study (DFS) for Centerra’s molybdenum business unit (MBU) envisages restart of the Thompson Creek mine. The DFS highlights improved economics vs. the 2023 PFS, including a commercially optimized plan for the Langeloth metallurgical facility,” he said. “While the MBU investment decision is unlikely to excite the goldfocussed investor, we believe the restart decision is the best outcome, given available alternatives, and offers a relatively low capital-intensive optionality to molybdenum prices and potential future complete/partial sale.”
* JP Morgan’s John Royall cut his Parkland Corp. (PKI-T) target to $53 from $54 with an “overweight” rating. The average is $51.33.