Inside the Market’s roundup of some of today’s key analyst actions
While he acknowledges investor concerns about Toronto-Dominion Bank’s (TD-T) regulatory problems in the United States and its leadership succession “are all valid,” Scotia Capital analyst Meny Grauman thinks “the downside risk from both of those issues is more than fully priced into the shares right now.”
Accordingly, he raised his recommendation for TD shares to “sector outperform” from “sector perform” in a research report released Wednesday titled It’s Time to Sit Back on the Big Green Chair.
“We have been bearish on TD ever since we downgraded the shares in December 2023, but with the shares now trading at an 8-per-cet discount to the group based on FY2024 consensus EPS, we believe that fear has overtaken rationality on this name,” he said.
Mr. Grauman thinks the chief driver of the “significant” underperformance of TD shares versus its peers has been uncertainty related to the bank’s regulatory issues south of the border. The issue helped to derail its US$13.4-billion acquisition Tennessee-based First Horizon Bank and has forced a significant increase in spending on upgraded risk and control systems.
“The market is particularly concerned about a potential fine with expectations in the US$1-2-billion range, which appears to be largely based on the US$1.9-billion fine imposed on HSBC USA for its AML issues back in 2012,” he said. “While we would not call a fine of that magnitude immaterial, it is important to note that TD currently has about $11-billion in excess capital (assuming a minimum CET ratio of 12.0 per cent), which means that the quantum of the fine is not a major issue in our view, especially since it will be treated as an item-of-note. Instead, we believe that the more important issue is the terms of what is likely to be an accompanying consent order. Consent orders in the U.S. can be long, as in the case of HSBC USA which lasted about a decade, but more important is its scope.
“Based on the collapse of First Horizon deal we can assume that it will include a temporary ban on M&A. We doubt that it would formally constrain the bank’s organic growth plans, which would be a worst-case scenario, but even then we note that despite having a large U.S. banking business, TD’s Canadian P&C unit still accounts for over 40 per cent of the bank’s total adjusted earnings. As a result, the implications of even harsher-than-expected restrictions on TD’s U.S. banking business should be taken in stride.”
The analyst also thinks worries about a lack of clear successor to the current President and CEO Bharat Masrani continue to concern the Street.
“Mr. Masrani took the top job in November 2014, which means that he will hit the 10-year mark this coming November,” he noted . “Historically Canadian bank CEO tenures are about 10 years, which would suggest a change at the top at TD is coming. But we note that this is just a rule of thumb, and there is certainly no requirement for a CEO to leave at the 10-year mark. We acknowledge that there is (elevated) uncertainty about who will succeed Mr. Masrani, but we are confident that a front-runner will eventually emerge, and don’t believe that this will necessarily be a longer-term issue for the stock.”
Also pointing to valuation considerations, Mr. Grauman raised his target for TD shares to $93 from $86. The average target on the Street is $89.27, according to LSEG data.
“Our change in recommendation is not based on valuation alone, but certainly valuation is a key factor,” he said. “We are valuing the shares at a 2-per-cent discount to the group implying a 25-per-cent return to target.. This compares to TD’s current 8-per-cent discount to the group based on FY2024 consensus EPS. This current discount is larger than anything we have seen for the bank over the past 25 years except for a temporary spike in 2002 tied to TD’s outsized telecom losses, and a temporary spike in 2008 due to the global financial crisis. Relative to Royal Bank, which is a key comp for the name, we can see that TD’s discount is not unprecedented but certainly signaling a buying opportunity. Meanwhile, TD’s premium to BMO has evaporated, and the relative valuation between those two banks also looks out of whack by historical standards.”
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Seeing the federal budget as a “key de-risking event” for Goeasy Ltd. (GSY-T), CIBC World Markets analyst Nik Priebe upgraded the Mississauga-based lender to an “outperformer” recommendation from “neutral” previously.
“Despite announcing new measures to ‘crack down on predatory lending’, the changes were relatively benign and (most importantly) did not include a further reduction to the maximum rate of interest allowable under the criminal code. The prospect of more heavy-handed government action in the Spring Budget was the crux of our downgrade in January. In that context, we interpreted the outcome to be an important de-risking event,” he said.
He added: “In late January, we downgraded GSY from Outperformer to Neutral after discovering that the Federal Government had completed another consultation contemplating a further reduction to the interest rate cap. The timing of the consultation had surprised us, and we were left to wonder if it was deliberately scheduled to conclude in advance of the Spring Budget. We published a ‘probability-weighted’ style of downgrade, acknowledging that there was little evidence public market investors were bracing for an adverse outcome. The Spring Budget was released this evening, which did not entail any further action to reduce the interest rate cap. This, in our mind, is an important de-risking event for shares of GSY.”
Mr. Priebe now thinks the probability of further action on the rate cap has “diminished.”
“The absence of any further announcement regarding the interest rate cap may not necessarily guarantee that the Federal Government will not to seek to address this policy issue in the future,” he explained. “It does, however, make the probability of successfully implementing any changes before the next Federal election seem a lot less likely. Current polling indicates that the Conservative Party of Canada has clearly broken away in popularity from the incumbent Liberals. If the Conservatives win the next Federal election, it seems likely that some of these policy issues prioritized by the Liberals simply fall away. We believe that the likelihood of any further action to lower the rate cap (i.e., below 35 per cent) is much lower now.”
“One item that stood out to us in the Budget was the intent to ‘cap the costs of optional insurance products for high-cost loans’. After speaking with the company, our understanding is that the consumer protection framework that would govern this type of activity falls to the jurisdiction of the provinces. In order to enact any changes, the Federal Government would need to get cooperation and alignment from each of the provinces and territories individually. This, in our view, sounds like it could be a prolonged and drawn out process and is much less likely to achieve successful implementation (whatever that looks like) in advance of the next Federal election cycle. As a result, we feel much less concerned about this risk than we would have been if the government was signaling a further reduction to the rate cap.
Mr. Priebe raised his target to $200 from $175. The average is $205.56.
“GSY participates in an attractive market characterized by limited competition, and benefits from a mature balance sheet with access to low-cost sources of funding. We consider the stock to be a solid long-term compounder of value with a very reasonable valuation,” he concluded.
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With inflation expectations continuing to push up rates, leading to higher weighted average cost of capital assumptions, Scotia’s Maher Yaghi lowered his target prices for Canadian telecommunications stocks on Wednesday ahead of earnings season in the sector.
“Beyond rates, wireless pricing remains top of mind,” he said. “As we postulated in our report in May last year, the industry is now witnessing the impact of price reductions that occurred shortly after the closing of the Rogers/Shaw merger. We have seen improved rationality in pricing in recent days which could stabilize the industry price structure ‘if’ this rationality stays in place. Overall we expect a strong print by Rogers and Quebecor on wireless loading while their strategy to compete against FTTH are opposed at this stage with Rogers focusing on market share gains while Quebecor is looking to protect margins at the expense of subs. We will be hosting a webcast with ThinkCX next Monday at 2 p.m. to dig into these dynamics more closely. An invitation will be sent later today.”
Mr. Yaghi’s changes are:
* BCE Inc. (BCE-T, “sector perform”) to $53.25 from $55.50. The average on the Street is $52.38.
Analyst: “For BCE, Q1 will likely be the weakest quarter of the year. The pressure in Q1 will be essentially driven by difficult comps in Media and pressure in wireline revenues as continued aggressive promotions and business markets weigh on results. We expect Q1 wireless ARPU [average revenue per user] to register negative 0.5 per cent with the rate of the decline likely accelerating to negative 0.7 per cent in Q2 before some bottoming to occur. We continue to expect the company to meet its financial targets for 2024. The stock’s valuation has declined significantly, potentially providing some downside protection. We believe investor confidence in the company’s plan to bring down its dividend distribution ratio below 100 per cent (possibly in 2026) will be key for a stock recovery.”
* Quebecor Inc. (QBR.B-T, “sector outperform”) to $37 from $38.50. Average: $38.54.
Analyst: “We believe Quebecor executed very well its wireless strategy in Q1. While there are still additional actions that Quebecor needs to keep doing to improve the perception of the quality of the Freedom brand, the improvement to network performance and attractive pricing is driving uptick in quarterly loading numbers. On the broadband side however, we are expecting 3K subscriber losses which could be a negative surprise. Facing a continued push by BCE on FTTH, we believe that QBR’s management has chosen to focus on profitability rather than defending market share at all costs. Data from our partners at ThinkCX shows some market share loss occurred in Q1, especially in February against other providers.”
* Rogers Communications Inc. (RCI.B-T, “sector outperform”) to $71.50 from $75.50. Average: $72.27.
Analyst: “We estimate that Rogers continued to take share in wireless in Q1. However, according to ThinkCX data, Western Canadian cable market share remains under pressure which could explain the recent more aggressive pricing posture in cable that Rogers has taken to improve loading. While work on the cable side continues, wireless subscriber growth continues to be a significant tailwind to results supported by positive ARPU growth in the quarter. While we expect synergies to continue to support further growth in 2024, Q1 might see a slight pause as the company transitions from headcount redundancy savings to IT/infra cost reductions, which are bulkier in nature.”
* Telus Corp. (T-T, “sector perform”) to $24.25 from $26. Average: $25.67.
Analyst: “Similar to BCE, we expect TELUS to start the year behind its projected yearly guidance as topline growth in wireline feels the pressure of increased price competition in the West and negative wireless ARPU growth. Even while taking those dynamics into account, the company continues to generate the highest organic EBITDA growth vs peers. We believe leverage at TELUS should begin to trend lower going forward as capex normalizes, which should provide ammunition to continue raising the dividend at circa 7 per cent, but until the company tapers off the DRIP we expect continued share dilution. Overall we believe the company has a very strong asset mix but see the share’s premium valuation as a headwind.”
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Ahead of the May 9 release of its first-quarter results, National Bank Financial analyst Adam Shine reduced his projections for Quebecor Inc. (QBR.B-T), deciding his forecast had “elevated too bullishly above consensus and required pruning, especially amid aggressive competitive dynamics across the sector.”
He’s now estimating total revenue of $1.357-billion, up 21.6 per cent year-over-year despite an organic growth decline of 0.6 per cent and below the Street’s expectation of $1.368.4-million. His EBITDA estimate of $556.7-million is a gain of 25.7 per cent from the same period a year ago (and up 6.4 per cent organically) and exceeds the $551.1-million estimate of his peers. Adjusted earnings per share is expected to rise 17.8 per cent to 70 cents, topping the Street by 4 per cent.
A chief concern is the expectation for subscriber losses in its its Vidéotron (VDO) cable division to accelerate by almost double the result seen a year ago (to a loss of 42,000 from 22,000 in fiscal 2023).
“VDO’s telco peer continues with FTTP promotions at material discounts on offers for 1-plus Gbps of symmetrical speeds, including bundles, as it continues with its fibre rollout and penetration efforts,” he said. “VDO resisted aggressively matching to help preserve ARPU/profits.”
Mr. Shine did emphasize Quebecor’s plans for its discount wireless brand Fizz continue to “evolve” with beta testing having concluded, noting his revenue estimate for its Mobile Service division is projected to jump by over 107 per cent year-over-year.
“While competitive intensity moved steadily higher through 1Q and Freedom sought to enhance consumer awareness of the brand, Fizz will expand to ON, MB, AB & BC following four months of beta testing through 4/10/24 (using MVNO outside of urban areas will be assessed). Next up in coming weeks will be the anticipated launch of separate Fizz & Freedom bundles outside Quebec ahead of 2H,” he said.
Maintaining his “outperform” recommendation, Mr. Shine lowered his target to $38 from $40. The average on the Street is $38.69.
“We wait to see if a credit upgrade to investment grade occurs as expected by this fall or if agencies move required goalposts,” he added.
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In his weekly report on the Canadian Energy sector, Canaccord Genuity analyst Mike Mueller emphasized global crude demand is “surpassing expectations with supply growth truncated.”
“Crude prices have surprised to the upside despite some initial concerns on the demand side of the equation rolling into 2024,” he said. “Year-to-date, spot WTI prices have increased 20 per cent to over US$85 per barrel. In our view, the market sits in tight balance, albeit artificial to some extent considering the 5.9 mmbbl/d [million barrels per day] of OPEC+ cuts that could (in theory) be returned to market. Conversely, with war waging on in the Middle East and in Europe, risks of supply being disrupted have yet to wane and are likely to remain a theme in the near term with no new signs of these conflicts de-escalating.”
Given that view, Canaccord raised its WTI oil price expectations for 2024 to US $79.28 per barrel (from US$75.00) and 2025 to US$75.00 par barrel from US$70. Its long-term outlook remains US$70 per barrel.
Conversely, the firm thinks a natural gas inventory surplus continues to weigh on pricing, leading it to cut its 2024 assumption for NYMEX Henry Hub prices to US$2.48 per thousand cubic feet from US$2.69. Its 2025 forecast remains US$3.50, while its long-term projection slid to US$3.25 from US$3.50.
“At risk of sounding like a broken record, this past winter brought record warm temperatures and a significant surplus in natural gas inventories (39 per cent above the five-year average in the U.S.),” said Mr. Mueller. “While the near-term outlook is unlikely to bring anything to structurally change the environment we’ve now become familiar with, the outlook vastly improves as we shift our focus towards year-end and into 2025. A resumption in U.S. LNG export capacity adds is expected later this year, and LNG Canada’s Phase 1 development remains on track to come online next year.”
With the price forecast adjustments, Mr. Mueller raised his 2024 and 2025 cash flow yield projections by 9 per cent and 12 per cent, respectively. His net asset value estimates were also adjusted.
He also made one rating change, downgrading Arc Resources Ltd. (ARX-T) to “hold” from “buy” with a $27 target, up from $25 but 63 cents below the consensus on the Street.
“We believe that the stock’s recent outperformance (ARX up 28 per cent year-to-date versus the sector at approximately 22 per cent) is unlikely to be sustained in the near term,” he said. “We do note, however, that we believe its longterm outlook remains strong considering its breadth and depth of inventory. The company’s Attachie Phase 1 development remains on schedule to come online and ramp to full production next year, and we believe it is likely that an increase to its 2.7-per-cent dividend would logically coincide with commissioning of that project.”
He made these target changes:
- Birchcliff Energy Ltd. (BIR-T, “hold”) to $5.50 from $5.25. The average is $6.31.
- Crescent Point Energy Corp. (CPG-T, “buy”) to $14 from $13. Average: $13.54.
- Freehold Royalties Ltd. (FRU-T, “buy”) to $19 from $19.50. Average: $17.88.
- Peyto Exploration & Development Corp. (PEY-T, “buy”) to $17 from $16.50. Average: $16.55.
- Pine Cliff Energy Ltd. (PNE-T, “buy”) to $1.20 from $1.40. Average: $1.51.
- PrairieSky Royalty Ltd. (PSK-T, “hold”) to $28 from $24.75. Average: $26.81.
- Tourmaline Oil Corp. (TOU-T, “buy”) to $72.50 from $75. Average: $76.63.
- Tamarack Valley Energy Ltd. (TVE-T, “buy”) to $4.75 from $4.25. Average: $4.85.
- Vermilion Energy Inc. (VET-T, “buy”) to $20.50 from $20. Average: $20.58.
- Whitecap Resources Inc. (WCP-T, “buy”) to $14 from $12.50. Average: $12.83.
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After a “sluggish” start to 2024 for the base metals sector as “commodity markets grappled with mixed fundamental economic data, shifting sentiment, and the typical seasonal slowdown given the Chinese Lunar Week holiday in February,” Canaccord Genuity analyst Dalton Baretto thinks commodity-specific fundamentals “appear to have finally become the primary driver of price formation, with the various commodity prices each starting to reflect their specific supply-demand fundamentals.”
“Copper has been buoyant since March as treatment charges have plummeted given restricted mine supply colliding with expanding smelter capacity and increasing downstream demand,” he said in a research report. “Looking out into the rest of 2024, we continue to see a clearing runway ahead for commodities as the economic cycle bottoms, central banks around the world pivot to rate cuts, and sentiment improves. Early indications in Q2 suggest that this is already occurring (although the pace of US rate cuts has been called into question given sticky inflation and a robust economy). We see more aggressive policy responses by the Chinese government as a non-trivial probability that could serve as a significant tailwind for commodity pricing. That said, in the biggest election year in history (where more than 50 per cent of the global population will go to the polls), we see geopolitics as a wild card that could impact supply, demand, and sentiment in unpredictable ways, particularly given proxy wars between the two geopolitical blocs in Ukraine, the Middle East, and potentially Guyana and Taiwan.
“Over the longer term, we continue to see structural, positive changes in demand for key industrial commodities, at least through the end of the decade.”
In a research report released Wednesday, Mr. Baretto updated his targets for the majority of the stocks in his coverage universe to reflect his current outlook.
“Our equity positioning preference is for names that: Are copper focused, preferably with a meaningful gold by-product credit; We believe gold is also poised to benefit meaningfully from rising geopolitical tensions, declining real rates and central bank buying; Have near-term organic growth profiles; Have definable potential positive catalysts on the horizon,” he said.
“While we are bullish on copper, we note that following strong price performance in Q1 several of the copper equities (in particular the larger-cap copper producers) are seeing stretched valuations. ... ERO, IVN, LUN, and TECK are all pricing in more than $5.00/lb copper... these names also have relatively limited incremental upside to our revised targets. As such, our preference is for those names that are still pricing in more reasonable copper prices.”
Mr. Baretto’s top picks are:
* Capstone Copper Corp. (CS-T, “buy”) with a $13 target, up from $9.50. The average on the Street is $9.48.
Analyst: “We believe the ramp up of the MVDP project coupled with emerging clarity on the rest of the growth pipeline and the new ASX listing will result in a rerating of the shares.”
* Hudbay Minerals Inc. (HBM-T, “buy”) with a $13 target, up from $10.50. Average: $11.42.
Analyst: “We believe the projected FCF yield (14 per cent for 2024, 18 per cent for 2025), tailwind from the gold price, ongoing deleveraging, upcoming catalysts at Copper World, and attractive relative valuation should see the shares outperform over the rest of 2024.”
* Filo Corp. (FIL-T, “speculative buy”) with a $30 target, up from $29. Average: $31.67.
Analyst: “In our view, the ongoing 40,000m drill campaign coupled with a potential consolidation of the Vicuna district could serve as significant catalysts this year.”
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CIBC World Markets mining analyst Bryce Adams made a series of target price adjustments to stocks in his coverage universe on Wednesday in a research report previewing earnings season for base metals companies.
“We expect most of our base metals coverage to report softer operational results, and in turn softer financial results for Q1/24,” he said. “It is early in the year, but most companies will need stronger operational results in Q2/24 to be well positioned against full-year guidance ranges. Copper prices averaged $3.83/lb, close to our estimate of $3.85/lb, and provisional pricing impacts are modest; hence, most of the model updates included in this report are operational in nature.
“Outside of normal course operational and financial results, we expect key discussion points in the disclosure to focus on the upcoming Panama election and concentrate export updates for FM, as well as Zambian power, although we expect the latter is more of a Q2/24 impact. Capstone’s MVDP and Ero’s Tucumã projects are each approaching steady-state production later in 2024, so updates on that front will be important. As well, Capstone could give updated timing for the Santo Domingo and MVDP Optimization feasibility reports; we expect both to be released in late Q2/24.”
He raised his target for these companies:
- Cameco Corp. (CCO-T, “outperformer”) to $74 from $72. The average is $74.21.
- Capstone Copper Corp. (CS-T, “outperformer”) to $10.50 from $8. Average: $9.48.
- Ero Copper Corp. (ERO-T, “neutral”) to $28.50 from $24. Average: $28.07.
- First Quantum Minerals Ltd. (FM-T, “neutral”) to $15 from $14. Average: $17.10.
- Hudbay Minerals Inc. (HBM-T, “outperformer”) to $13 from $11. Average: $11.42.
- Lundin Mining Corp. (LUN-T, “neutral”) to $15 from $12. Average: $14.80.
- Sierra Metals Inc. (SMT-T, “neutral”) to $1 from 85 cents. Average: $1
Conversely, Mr. Adams reduced his target for shares of Largo Inc. (LGO-T, “neutral”) to $6, below the $6.15 average, from $7.
“We continue to recommend Cameco as our top pick, and Capstone, Hudbay, and Filo are our preferred copper equities,” he said.
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While National Bank Financial analyst Rupert Merer expects in-line first-quarter financial results from Polaris Renewable Energy Inc. (PIF-T), he sees “high return growth to come.”
In a note released Wednesday, he raised his production forecast for the Toronto-based company, which has operations in five Latin American countries, to 215 gigawatt hours from 206 GWh previously, pointing to “good results across most of the portfolio, specifically hydro in Peru.”
“With higher production and prices (with strength in Panama), partly offset by higher operating cost assumptions, our adj. EBITDA estimate moves up slightly to $15.0-million, in line with the Street (was $14.6-million),” he said. “Higher EBITDA flows through to CAFD, where we now estimate $7.1-million for Q1E (was $6.8-million).”
Mr. Merer now sees Polaris growing both organically and through M&A activity.
“During Q4, PIF completed its first stage of optimization at Canoa I, investing $3.6-million (of $5-million),” he said. “The work should be completed in July and contribute $1.5-1.8-million per year to cash flow. PIF could soon move forward on adding battery storage to the project and anticipates permit approvals and other related milestones the next three to five months. Excess solar panels can be leveraged at San Jacinto to help reduce parasitic load, which could save $1.6-million per year with an increase to the net output of the plant. On M&A, PIF has two targets in the advanced stages that could be funded internally and another larger opportunity that would require external financing (likely debt) if they can reach a deal.”
“On its year-end call, the company highlighted its net leverage will approach 2 times by the end of 2024, allowing it to add corporate debt. It can also add project debt to Canoa 1 to help fund battery additions. The company could also look to refinance its Nicaraguan assets, with potential to see an improvement in the interest rate and an extension of the debt amortization. If at any point PIF believes its shares represent the most compelling return potential (we estimate an implied discount rate of nearly 20 per cent), it can direct capital towards buybacks through its NCIB.”
With the near-term forecast increase, Mr. Merer reiterated his “outperform” recommendation and Street-low $19 target for Polaris shares. The average is $22.83.
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In other analyst actions:
* Scotia’s Himanshu Gupta lowered his Colliers International Group Inc. (CIGI-Q, CIGI-T) target to US$135 from US$140 with a “sector outperform” rating. The average is US$139.50.
“In the last one month, the stock price of CIGI and other commercial real estate brokers (CBRE, JLL) are down 10 per cent as 10-yr Treasury yield has moved up 40 basis points,” he said. “CDN REITs sector is down 7 per cent as well. While our target on CIGI is reduced to $135.00 (down $5.00), we reiterate our SO rating. CIGI is now trading at 10.2 times EV/EBITDA multiple, and we still look for re-rating on Investment Management (IM business).”
* In a quarterly earnings preview note titled Mining the gold of refis and a better spring market, Desjardins Securities’ Gary Ho raised his Dominion Lending Centres Inc. (DLCG-T) target to $3.50 from $3.25 with a “buy” rating. The average is $3.75.
“We increased our funded mortgage volume to $10.3-billion (from $10.1-billion) and adjusted EBITDA slightly to $3.4-million on a higher EBITDA margin of 29.7 per cent (from 29.5 per cent),” he said. “For 2024, we expect healthy funded mortgage volume growth of 7.9 per cent, which should lead to EBITDA margin improvement to the high-40-per-cent range. The Gold Rush initiative has progressed well and should drive refinancing volumes.”
“Our investment thesis is predicated on: (1) funded mortgage volumes should recover in 2024 and 2025; (2) similarly, EBITDA margin likely bottomed in 2023, and the DLC model has significant torque when mortgage volumes return; (3) there could be further upside in Newton penetration; (4) attractive valuation and 4-per-cent yield; and (5) potential privatization scenario could provide share price upside.”
* Jefferies’ Anthony Linton cut his targets for Enbridge Inc. (ENB-T, “buy”) to $53 from $54 and TC Energy Corp. (TRP-T) to $51 from $57, while he raised his Pembina Pipeline Corp. (PPL-T, “buy”) target to $54 from $52. The averages are $53.46 and $53.47, respectively.
* JP Morgan’s Patrick Jones raised his targets for Lundin Mining Corp. (LUN-T, “neutral”) to $15.50 from $9.10 and First Quantum Minerals Ltd. (FM-T, “neutral”) to $18 from $12. The averages are $14.80 and $17.10, respectively.
* Scotia’s Michael Doumet reduced his Russel Metals Inc. (RUS-T) target to $48.50, below the $49.28 average, from $50 with a “sector perform” recommendation, while Raymond James’ Frederic Bastien cut his target to $48 from $52 with an “outperform” rating.
“[Tuesday], RUS announced that it no longer expects to complete the transaction of seven service centers from Samuel, Son & Co. in 2Q24 as the Competition Bureau advised RUS it had concerns related to a ‘narrow segment of product in a specific geography’,” said Mr. Doumet. “Instead, we assume the transaction closes in 4Q24. Moreover, given the recent softness in metal prices (plate, in particular), we trimmed our revenue/margin estimates for 1Q24 and, to a lesser extent, the balance of 2024; we expect the gradual normalization of plate prices (and the plate vs. HRC spread) to shave $10 to $20 from GPT in the 1H24 vs. 4Q23. While we believe investors may need to digest negative earning revisions, we believe RUS shares, at current levels (on our below consensus estimates), are attractively valued. RUS trades at a P/B of 1.4 times vs. historical of 1.7 times (and RS-US at 2.5 times). Using our mid-cycle EBITDA, RUS trades at 6.0 times EV/EBITDA, which we view as inexpensive, particularly as we get increasingly comfortable with RUS’s ‘new-normal’ earnings power. Despite nearing the completion of its largest acquisition to date, RUS’s B/S remains substantially underlevered, with more than $500 million of deployable capital.”