Inside the Market’s roundup of some of today’s key analyst actions
At least 10 analysts cut their price targets on Canadian National Railway Co. (CNR-T) following weaker-than-expected second quarter results last night which also included a reduction in the company’s earnings guidance for this year.
Revenue of $4.329 billion was up 7% from a year ago, but below consensus expectations of $4.402 million. Adjusted EPS came in at $1.84, up 5% from a year ago but below consensus at $1.93. The Q2 adjusted operating ratio - for which the lower the number, the better - was 62.2% versus consensus of 60.4%.
Citing the Q2 earnings and traffic diversions due to lingering labour uncertainty, CN lowered its 2024 EPS guide to growth in the mid-to-high single digits versus about 10% growth previously.
This resulted in several analysts lowering their earnings and other estimates for the company, as well as price targets.
Atb Capital Markets cut its price target to C$177 from C$180; CIBC cut its target to C$170 from C$183; JP Morgan cut its target to C$176 from C$180; National Bank of Canada cut its target to C$186 from C$190; TD Cowen cut its target to C$180 from C$185; Desjardins Securities cut its target to C$192 from C$194; Barclays cut its target to C$165 from C$175; BMO cut its target price to C$182 from C$188; RBC cut its target price to C$169 from C$172; and Scotiabank cut its target price to C$187 from C$188.
The average price target is now C$178.71, down from C$182.08 a month ago, according to LSEG data.
CN shares were trading down more than 3% on Wednesday, and Desjardins Securities analyst Benoit Poirier saw a potential buying opportunity.
“Although sentiment entering the quarter was cautious (issues were known), we believe the quantum of the miss and guidance cut were more negative than expected. If the share price reaction is significant, we would be comfortable betting on a rebound in 2025, given a number of one-time items negatively affecting CN’s 2024 performance,” Mr. Poirier said in a note to clients.
National Bank Financial analyst Cameron Doerksen also sees the quarter as a temporary setback and reiterated an “outperform” rating on CN Rail shares.
“CN suffered some operational fluidity challenges on its Vancouver corridor in Q2 that unexpectedly added to costs, but the company indicates that operations have normalized in July,” he said.
“Although the 2024 guidance reduction is disappointing, we view this as mainly driven by temporary headwinds. The primary driver of our outperform rating on CN is relative valuation with the stock trading at 21.2x our updated 2024 EPS estimate versus its historical forward average of 22.2x, CPKC at 26.2x, and the U.S. peer group at 19.3x,” Mr. Doerksen said.
TD Cowen analyst Cherilyn Radbourne is advising investors not to take any action following the results. “CN’s car velocity in the west has recovered in July, and we view the Q2/24 congestion as transient vs. indicative of capacity constraints,” she told clients in a note. “We also recognize that current labour uncertainty is largely out of CN’s control. That said, the Q2/24 miss/guidance reduction are a disappointing setback, and we will look for better share-price upside and/or labour clarity before revisiting our hold rating.”
BMO analyst Fadi Chamoun called attention to the capacity constraints the company is facing in Western Canada.
“There is still risk to the F2024 outlook given ongoing labor uncertainty and related volume diversions, but we view these headwinds as transitory,” Mr. Chamoun said. “From our perspective, Q2/24 results call attention to the capacity constrained western corridor and heighten the risk around the company’s ability to profitably onboard its strong pipeline of idiosyncratic growth opportunities.”
***
Several analysts raised their price targets on Alphabet Inc. (GOOGL-Q) after the megacap stock reported earnings Tuesday night.
They include: JP Morgan raising its target price to US$208 from US$200; Piper Sandler raising its target to US$206 from US$200; and RBC raising its target price to US$204 from US$200.
The average price target is now US$200.72, up from US$194.26 a month ago, according to LSEG data.
Alphabet beat earnings and revenue expectations, but the stock is under pressure in premarket trading, down by more than 3%.
Some concerns include YouTube revenue coming in lighter than expected and down from first-quarter numbers. And during the conference call, executives commented on some factors that could hurt margin expansion in the third quarter, including a headcount increase and greater expenses arising from technical infrastructure investments.
“Net/net, Q2′s fundamentals were a bit better than expected,” commented RBC analyst Brad Erickson in a note to clients. “However, we expect investors to take the Q3 margin commentary as slightly worse as AI-related depreciation begins to roll through the model..
Mr. Erickson is maintaining an “outperform” rating. “GenAI & GOOGL’s distribution remains the key concern on the name, but with Search continuing to outperform, the company is giving more evidence of being an AI winner rather than loser with improving operating leverage, compounding earnings, and rising capital return. We view the read-through for digital ads as slightly positive,” he said.
***
Reaction has been rather mixed to Tesla Inc.’s (TSLA-Q) earnings after the Bell on Tuesday.
CFRA downgraded Tesla’s rating to “hold” from “buy” while cutting its price target by US$10 to US$240.
Citigroup cut its price target to US$258 from US$274. Goldman Sachs cut its price target to US$230 from US$248.
But Piper Sandler raised its target price to US$300 from US$205. And Truist raised its target to US$215 from US$162.
The average price target is now US$203.80, up from US$180.33 a month ago.
Late Tuesday, the EV maker reported second-quarter earnings that missed expectations, as its auto business continued to face pressure.
Stifel analyst Stephen Gengaro, who has a US$265 price target on Tesla, summed up the results this way: “TSLA’s 2Q24 release is a mixed bag and could weigh on the shares following the recent strength. Bears will likely focus on: 1) Auto margins excluding credits missed, in part due to lower average selling prices and attractive financing; and 2) FCF was slightly below expectations; and 3) 2H Auto margins likely continue to face headwinds. On the positive side: 1) Excluding charges, adjusted EBITDA beat the consensus by 10.8% with margins of 16.8% versus the 15.9% consensus and our 15.5% estimate; 2) Energy Generation and Storage revenue and margins easily beat expectations, and growth appears strong; 3) Progress continues on Full Self Driving with Version 12.5 rolling out; and 4) plans for lower priced model on track for 1H25 and Roadster expected in 2025. We reiterate our belief that TSLA remains very well positioned longer term, and FSD and Robotaxi impact will be critical value drivers.”
***
A new contract signing with Chinese e-commerce firm Great Vision has Canaccord Genuity analyst Matthew Lee increasing his price target on Cargojet Inc. (CJT-T) while previewing the company’s second-quarter results.
Mr. Lee estimates that the new contract will add $53 million in charter revenue per year.
“Cargojet shares have increased by over 10% since reporting March quarter results. Last quarter, we called out that the air cargo market has likely reached the bottom of the cycle and would steadily recover for the remainder of F24. Q2 data has largely been supportive of our view with CJT flight hours in Q2 increasing by 3.6% q/q and 8.2% y/y, accelerating from the March quarter and exceeding our previous estimates. In addition, global demand remains robust, growing by double-digits for the sixth consecutive month in May. What we perhaps did not expect was Cargojet’s signing of a three-year, $160M contract with Great Vision, which we believe provides incremental upside to an already strengthening cargo story. Given the new contract win and constructive data points, we have increased our forecasts for domestic and charter revenues,” Mr. Lee said in a note to clients.
He increased his target price to C$156.00 from C$150.00 while reiterating a “buy” rating. The average analyst price target is C$159.
***
Raymond James analyst Brad Sturges initiated coverage on Boardwalk Real Estate Investment Trust (BEI-UN-T) with a “strong buy” rating and a C$95 target price.
Mr. Sturges likes the REIT for its high exposure to the non-rent controlled Alberta rental market that is experiencing greater interprovincial migration.
Other positives he cited include:
- Its underutilized urban land bank that provides future development opportunities;
- A strong alignment between senior management and unitholders;
- An improving balance sheet that reflects lower financial leverage metrics and strong liquidity position;
- Potential for future distribution increases.
The average analyst price target is C$87.05.
***
In other analyst actions:
UPS (UPS-N): Several analysts slashed their price targets following its weaker-than-expected earnings Tuesday. They include: Baird cutting its target price to US$160 from US$170; BofA Global Research cutting its price objective to US$132 from US$158; and JP Morgan cutting its target price to US$144 from US$150.
Visa Inc. (V-N) Numerous analysts cut their price targets after its latest earnings released on Tuesday. They include Jefferies cutting its target price to US$300 from US$325 and JP Morgan cutting its target price to US$290 from US$300.
Air Canada (AC-T): TD Cowen cuts target price to C$19 from C$25
Capital Power Corp (CPX-T): Atb Capital Markets raises price target to C$42 from C$40
Keyera Corp (KEY-T): Atb Capital Markets raises target price to C$39 from C$36
Mainstreet Equity Corp (MEQ-T): Acumen Capital raises price target to C$220 from C$210; Atb Capital Markets raises PT to C$215 from C$200
Pembina Pipeline Corp (PPL-T): Atb Capital Markets raises PT to C$58 from C$56
Superior Plus Corp (SPB-T): Atb Capital Markets cuts PT to C$13 from C$14
TCP Energy Corp (TRP-T): Atb Capital Markets raises target price to C$56 from C$54