Inside the Market’s roundup of some of today’s key analyst actions
Tesla Inc (TSLA-Q) “ain’t looking so magnificent,” said Wells Fargo analyst Colin Langan in slashing his price target on the EV automaker to US$125 from US$200. He also downgraded his rating to “underweight” - equivalent to a sell rating - from “equal weight”.
He expects the company’s sales volumes to disappoint as recent price cuts are having a diminishing impact on demand. At risk is Tesla’s premium price to earnings versus other stocks that comprise the so-called Magnificent Seven stocks.
“We see headwinds from disappointing deliveries and more price cuts, which likely drive negative EPS revisions. Our 2024 & 2025 EPS estimates are 32% & 52% below consensus, respectively. Model 2 economics are likely tough as a mass market compact vehicle. TSLA already trades at ~58x consensus ‘24 EPS & ~89x our est., a premium to Mag 7 peers at 31x,” Mr. Langan said in a note to clients.
He added: “TSLA’s growth in core markets has moderated with EU & China flattish in the last twelve months and the US down since Q2. More concerning, the effect of price cuts are moderating with second half volume up only 3% [over the first half of last year] despite pricing that’s down 5%. The cuts have resulted in a ~$6.8K/car reduction in gross profit. We expect volumes to be flat in 2024 & down in 2025. In the wake of price cuts are lower lease residuals, disgruntled customers & the possible loss of the luxury brand premium.”
The average analyst price target on Tesla is US$202.62, down from US$207.75 a month ago, according to Refinitiv Eikon data.
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A worse-than-expected fourth quarter have analysts cutting their price targets on Step Energy Services Ltd (STEP-T).
Atb Capital Markets cut its price target to C$7 from C$7.50; RBC cut its target to C$4.75 from C$5.50; Raymond James cut its target price to C$5.50 from C$6.25; and Stifel reduced its target to C$4.5 from C$6 while also downgrading its rating to “hold” from “buy”.
The average analyst target is C$5.84, down $1 from a month ago.
Step Energy shares sunk nearly 13 per cent on Tuesday after reporting adjusted EBITDA of $18.4 million in the quarter, well below the consensus expectation of $30 million. Revenues declined 23 per cent from the previous quarter, with adjusted EBITDA margins of 9 per cent hitting their lowest since 2020.
“While we wouldn’t extrapolate 4Q23 margins into the future, this does highlight the extreme operating leverage that exists at the scale STEP operates,” commented Raymond James analyst Michael Barth.
Nevertheless, Mr. Barth reaffirmed an “outperform” rating, with his reduced price target still implying a 47 per cent return over the next 12 months.
“While 4Q23 results were a clear disappointment and the 2024 outlook remains challenging given the weak gas macro [environment], we do note that any weakness in frac demand this year should prove transient with new LNG capacity coming online on both sides of the border in 2025. In our view, implied expectations appear overly punitive, particularly given the stock price reaction [Tuesday]. STEP’s balance sheet is in great shape, and we still believe they have capacity to pursue shareholder returns via the normal-course issuer bid this year (and in subsequent years). Our target does move lower to reflect near-term concerns about D&C [drilling and completions] activity in Canada,” he said in a note to clients.
Atb analyst Waqar Syed is also seeing a buying opportunity of the stock’s slide on Tuesday. He estimates the stock is trading at 0.7x book value and management estimates the replacement value of its assets at $18-$20 per share.
Mr. Syed also notes that while no concrete guidance was provided, the company “is showing resilience in the first quarter of this year, particularly in Canada, where utilization remains high and work calendars are filling up for the second quarter as well.”
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Analysts are giving good grades to Copperleaf Technologies’ (CPLF-T) latest quarterly results. CIBC raised its target price to C$7 from C$5 and upgraded its rating to “neutral” from “underperformer” while RBC raised its target price to C$8 from C$7.
Copperleaf reported annual recurring revenue growth of 30 per cent year over year in the fourth quarter, accelerating from 26 per cent in the third quarter. That was the highest in two years. Revenue was slightly above consensus estimates, while the adjusted EBITDA loss came in much better than the Street expected.
Copperleaf is seeing “accelerating revenue growth and anticipates progress toward profitability,” commented RBC analyst Paul Treiber. He said RBC is maintaining an “outperform” rating, “as we believe Copperleaf represents an attractive growth story trading at a discounted valuation.”
Copperleaf has an enterprise value of 3.6 times next 12 months sales, well below peers at 7.8 times, according to Mr. Treiber’s estimates.
CIBC analyst Todd Coupland, in upgrading Copperleaf, said signs of a recovery are in sight. “Copperleaf’s good Q4 results, recent go-to-market improvements and strengthening metrics give us confidence that it is better positioned to execute on its growth priorities this year,” he told clients in a note.
The average price target is C$7.67, up just over a dollar from a month ago.
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This could be an opportunistic time to buy shares in Stelco Holdings Inc (STLC-T), says Stifel analyst Ian Gillies.
That’s because Cleveland Cliffs and Nucor last week announced a hot-rolled coil (HRC) price hike to a minimum US$840/ton, which the analyst believes could kick off another cycle of price hikes by large steel producers.
“Recall, the last series of price hikes started on September 27, 2023 following the conclusion of UAW strike and lasted until January 5, 2024 with minimum prices being lifted all the way to US$1,150/ton. HRC prices followed suit and rebounded from US$672/ ton to nearly US$1,100/ton,” Mr. Gillies pointed out in a note to clients.
“In our view, to position for a torquey play in the event of multiple price hikes and rapid HRC price increase, STLC remains the best stock,” he said in raising his price target on Stelco to C$52 from C$50. “We continue to view the steel space favourably as M&A remains a topic du jour, in combination with strong fundamentals and attractive valuations for Canadian listed companies.”
The average price target on Stelco is C$53.29.
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A couple analysts are tweaking their price targets on Alimentation Couche-Tard (ATD-T) ahead of the convenience store operator’s fiscal third quarter results on March 20.
Desjardins Securities raised its price target to C$90 from C$85 and JP Morgan cut its target price to C$79 from C$80.
While there could be some near-term share price volatility, Desjardins analyst Chris Li said he continues to have a positive view on the stock - and reaffirmed a “buy” rating - based at Alimentation Couche-Tard’s attractive growth and strong financial position.
“We expect results to reflect solid U.S. fuel margins, good expense control and one month of TotalEnergies, partly offset by pressures on merchandise same-store sales growth [SSSG] and fuel volume due to a tough consumer backdrop and cigarette headwinds,” Mr. Li said in a note to clients.
He estimates the company will report adjusted EPS of 82 US cents, which is below consensus of 85 cents.
“We believe two things could potentially impact the share price near-term. First, results and comments from industry peers indicate that macro pressures continue to weigh on merchandise SSSG, with the impact worsening sequentially. Our US merchandise SSSG forecast of -2.0% is below consensus of around flat and ~190bps below 2Q FY24. However, we believe the pressures are largely transitory. Second, US industry fuel margins (OPIS) tapered to ~US31cpg in February/early March from ~US37cpg in January. While part of the softening is likely due to seasonality, we estimate industry fuel margins need to return to the mid- to high US30cpg level to be in line with consensus and management’s long-term target of low US40cpg. For now, we maintain our US43cpg forecast for FY25,” the Desjardins analyst said.
The average price target is C$89.
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National Bank of Canada raised its price target on Dollarama (DOL-T) to C$112 from C$108 as it previewed the retailer’s fourth quarter results.
Analyst Vishal Shreedhar is projecting EPS of $1.05, in line with consensus, and up from 91 cents a year earlier. Sales are expected to rise to $1.594 billion from $1.473 billion last year, though that’s below consensus at $1.611 billion.
The higher price target reflects the analyst moving forward his valuation period.
Dollarama reports fiscal 2024 fourth quarter results on April 4.
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In other analyst actions:
Fairfax Financial Holdings Ltd (FFH-T): CIBC raises price target to C$2000 from C$1700. “We have reviewed Fairfax’s full annual report and are updating our estimates and price target. Our interpretation of Q4 results does not change, but we have increased our 2023 EPS estimate primarily reflecting YTD momentum in global equity markets and an expected positive mark-to-market adjustment on the total return swaps on FFH shares (given the 22% increase YTD),” said analyst Nik Priebe. He has an outperformer rating on Fairfax. The average Street target is now US$1,794.
Weyerhaeuser Co (WY-N): CIBC initiates coverage with “neutral” rating; price target US$37. “While the timber REIT has some of the most productive timberlands in the world, and the highest margins in wood products, we believe sustained upward momentum in log and lumber prices is needed to drive meaningful further upside from here, with the commodity rebound looking more like a 2025 story,” said analyst Hamir Patel. The average Street target is US$37.67.
Allied Properties Real Estate Investment Trust (AP-UN-T): CIBC cuts price target to C$19 from C$19.5; Raymond James cuts price target to C$19.25 from C$20
Thomson Reuters Corp (TRI-T): TD Securities raises target price to C$225 from C$210. The company held its Investor Day this week, and several other analysts reaffirmed their ratings and price targets after the event.
Labrador Iron Ore Royalty Corp (LIF-T): Scotiabank cuts target price to C$30 from C$34 and TD Securities cuts target price to C$35 from C$37
LNG Energy Group (LNGE-X): Eight Capital initiates coverage with “buy” rating and price target of C$0.75
Propel Holdings Inc (PRL-T): Raymond James raises target price to C$31 from C$18
Netflix Inc (NFLX-Q): Jefferies raises target price to US$700 from US$580
Southwest Airlines Co (LUV-N): Jefferies raises target price to US$28 from US$20 and upgrades rating to “hold” from “underperform”