Inside the Market’s roundup of some of today’s key analyst actions
RBC Dominion Securities analyst Darko Mihelic thinks the second-quarter results from Sun Life Financial Inc. (SLF-T) set up “good earnings growth in 2025.”
“SLF reported a solid quarter with stronger than expected results in many areas (Canada, the U.S., and Asia),” he said in a research note.
“We continued to see some weakness in the U.S. dental business but it seems that this business is past the worst of it and that we should see a rebound in earnings contribution next year. Similarly, there will be a small lift from restructuring into 2025 and some level of ‘normalization’ even in wealth. SLF has solid capital levels (cash at holdco, strong LICAT ratio, renewed NCIB) so all in, we see a solid setup into 2025.”
After the bell on Monday, Sun Life reported underlying earnings per share of the quarter of $1.72, exceeding Mr. Mihelic’s expectation of $1.56 “with strength in many areas in the drivers of earnings analysis and segments.” Canadian and U.S. underlying earnings grew 30 per cent and 8 per cent quarter-over-quarter, respectively, both topping the analyst’s estimates.
“Changes to our model mainly reflect higher results in Canada and U.S. from higher other fee income, better earnings in Asia primarily due to higher joint venture & other results than our previous estimates, and 2.1 million shares in buybacks per quarter in the next 4 quarters under the renewed NCIB,” he said. “Our underlying EPS estimates increase to $6.65 (was $6.30) in 2024 and $7.97 (was $7.66) in 2025. We estimate a 2026 underlying EPS of $8.61.”
Calling it a “bounce back” quarter, Mr. Mihelic raised his target for Sun Life shares to $78 from $76, reiterating an “outperform” rating. The average target on the Street is $75.92, according to LSEG data.
Elsewhere, Jefferies’ John Aiken increased his target to $81 from $78 with a “buy” rating.
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National Bank Financial analyst Maxim Sytchev thinks the investment case for Autocanada Inc. (ACQ-T) went “from bad to worse” with a second-quarter miss that exposed the presence of several headwinds, emphasizing “there will be a point when it will be priced in, but not yet.”
“If Fed and Bank of Canada were cutting rates by 50 basis points per month to reinvigorate consumer demand, perhaps this is a name to own (or maybe, in a circular world, if central banks are being that aggressive, perhaps there are bigger issues); with Stellantis product not moving (25 per cent of business), U.S. losses and now balance sheet pressure, we want to see how all of this plays out,” he said in a research note titled Too early to step in post another tough quarter.
“There is of course a price for everything, but not when we have to start worrying about the balance sheet and the stoppage of all discretionary spending. The company will of course find ways to jettison assets but, again, there is no rush, in our view.”
Shares of the Edmonton-based automobile dealership group slid 2.8 per cent on Tuesday after it reported quarterly revenue of $1.601-billion, down 9 per cent year-over-year and below Mr. Sytchev’s $1.668-billion estimate. Adjusted EBITDA, including IFRS 16, dropped 66 per cent to $31.7-million, well below both the analyst’s forecast of $45.3-million and Street’s expectation at $50.0-million. Diluted adjusted earnings per share, excluding writedowns and severance costs, came in at a loss of 37 cents, also falling short of projections (profits of 43 cents and 55 cents, respectively).
“Consumer spending remains challenged as discretionary incomes are under pressure and new vehicle prices are still close to all-time highs,” Mr. Sytchev said. “Management noted that there is a shortage of affordable used vehicles as customers seek cheaper options while profits are also pressured by a high level of exposure (close to a quarter of the topline) to Stellantis brands, which have some of the highest levels of inventory in the industry.
“Additional cybersecurity incidents will compound aforementioned pressures. Management disclosed an additional cybersecurity incident [Tuesday], on the heels of the earlier CDK outage (operations were not fully back to normal until the end of July, and management estimated 15 per cent to 20 per cent of the year-over-year decline in EBITDA was attributed to the CDK disruption). While for now management does not expect as material an impact from the August 11th issue, it is still too early to say, and the occurrence only adds to the list of operational challenges management must overcome as it restructures the business.”
Believing capital preservation now takes precedent, Mr. Sytchev lowered his estimates and overall margin profile for the remainder of the year, citing “the further compounding impact related to the overhang from the CDK outage.
“We also adjusted our floorplan financing expense to more closely match H1/24,” he added. “Given negative year-over-year growth in number of vehicles sold in Q2/24 we also lowered our topline estimates slightly to reflect our conservative view regarding macro uncertainty as it pertains to consumer discretionary spending.”
Maintaining a “sector perform” recommendation for AutoCanada shares, Mr. Sytchev lowered his target to $17 from $20. The average target on the Street is $19.40.
Elsewhere, other analysts making target changes include:
* BMO’s Tamy Chen to $19.50 from $21 with a “market perform” rating.
“An already challenging macro backdrop plus the CDK outage resulted in a much weaker-than-forecast Q2/24. ACQ announced further strategic review actions that could result in the potential sale of non-core, underperforming assets. Based on our revised forecasts, which assume normalization through 2026, the stock on today’s close is trading at 7 times vs. a historical cycle range of 6-8 times. We believe it is still difficult to determine if earnings have bottomed here. Potential upside is if ACQ itself becomes a take-out target,” said Ms. Chen.
* RBC’s Sabahat Khan to $18 from $21 with a “sector perform” rating.
“Q2 Adjusted EBITDA was well below forecasts driven by operational, IT (CDK-related), and macro headwinds, while the company also announced a new cyber security incident. Looking ahead, H2/24 results are likely to be impacted by many of the same operational/macro issues that were headwinds through H1. A management consulting firm has been appointed to help address some of the operations issues, and management is also reviewing strategic alternatives for all “non-core and underperforming assets,’” said Mr. Khan.
* CIBC’s Krista Friesen to $15.50 from $18 with an “underperformer” rating.
“There was no sugar-coating that changes need to be made at ACQ with management noting it is conducting a comprehensive review of the business. ACQ has suspended all M&A and capital-return initiatives, imposed a freeze on discretionary spending and hiring, and is actively exploring strategic alternatives for non-core and underperforming assets. While we agree that a full reset is needed, we expect it to be challenging and time-consuming,” she said.
* Canaccord Genuity’s Luke Hannan to $15 from $18 with a “hold” rating.
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National Bank Financial analyst Jaeme Gloyn expects the Street to react favourably to the quarterly release from Element Fleet Management Corp. (EFN-T), calling it a core holding that he thinks every portfolio manager should own “in all environments.”
“The EPS beat, guidance upgrade, and even a tuck-in acquisition that should accelerate the digitization strategy highlight what is a solid quarter that reflects a strong management team continuing to execute,” he said. “We reaffirm our view that EFN is a ‘core holding’. We see continued upside for the shares in 2024 with catalysts from i) Mexico investor day in September, and ii) details of a three-year plan in late 2024 or early 2025.”
After the bell on Tuesday, the Toronto-based automotive fleet manager reported second-quarter revenue of US$275-million, exceeding both Mr. Gloyn’s US$267-million estimate and the consensus forecast on the Street of US$260-million. While operating expenses came in higher than anticipated, adjusted earnings per share grew 17 per cent year-over-year to 29 US cents, topping expectations (28 cents and 27 cents, respectively).
Concurrently, Element Fleet announced the acquisition of Israeli company Autofleet Solutions Ltd. in a deal valued at $110-million and aimed at accelerating its digitization and automation capabilities. It expects the transaction to close in the fourth quarter.
Summarizing the results, Mr. Gloyn said: “Key takeaways from the Q2 results: 1) net revenue increased 14 per cent year-over-year, well above the 4-6-per-cent growth objective. Crucially, servicing income (up 11 per cent year-over-year on higher penetration) and net financing revenue (up 16 per cent year-over-year on higher earning assets and yields while gain on sale was flat) drove revenue growth. 2) Organic growth initiatives continue to drive results as i) share of wallet, market share gains, increased utilization, and ANZ/MEX drove over three-quarters of the year-over-year growth), ii) vehicles under management increased 14 per cent year-over-year (excluding white-label vehicles lost); 3) operating margin of 55.7 per cent beat the street 55.0 per cent (NBF 55.5 per cent); 4) FCF per share of $0.38 increased 12 per cent year-over-year and significantly beat the street/NBF at $0.33. 5) Syndication volumes doubled year-over-year reflecting strong demand and an expanding roster of investors. To nitpick, syndication yield dipped to its lowest level on record. We’re not too concerned as syndication drives balance optimization first (allows for efficient capital deployment to buybacks), and revenues second (less than 5 per cent of total revenues).”
Mr. Gloyn also said a modest in increase to the company’s full-year guidance reflects strong year-to-date results and “management’s confidence in the near-term outlook.”
“While not a huge upgrade, we believe management continues guide conservatively. Therefore, our EPS and FCF/share estimates remain above the high-end of the revised guidance,” he added.
Reiterating an “outperform” rating for Element Fleet shares, the analyst raised his target to $34 from $33. The average is $29.78.
“EFN is a low-risk, double-digit FCF and dividend grower, with blue-sky share price potential $40 over the next two years, regardless of the market backdrop,” he said. “We view growth as de-risked given 1) continued solid execution on organic growth strategies (e.g., win market share, penetrate self-managed fleet, increase share of wallet), 2) new revenue drivers such as insurance and SME/mid-market expansions, and 3) mega-fleet wins not baked into guidance or consensus estimates. Moreover, we expect management will gradually expand adjusted operating margins (30 to 50 bps annually) to drive profitable revenue growth.
“In addition, EFN still trades at an FCF Yield of 8 per cent on 2025 estimates, roughly 40 per cent above the yield of Canadian Financials and more than double the yield of Industrials with similar fundamentals (e.g., defensiveness, strong organic revenue growth, expanding profitability, solid FCF generation, low credit risk and barriers to entry). As EFN executes, we expect significant yield compression.”
Elsewhere, others making target adjustments include:
* RBC’s Geoffrey Kwan to $35 from $33 with an “outperform” rating.
“Q2/24 results further underscore why EFN is our #1 high-conviction best idea,” said Mr. Kwan. “EPS was solidly ahead of our forecast and consensus and 2024 guidance was increased due to strong growth in H1/24. EFN also announced the acquisition of Autofleet Solutions (no financial terms disclosed, closing expected in early Q4/24), which we think should augment and accelerate the modernization of EFN’s digital capabilities. Despite the shares trading close to its historical high, we still view the shares as undervalued, in part given it is inappropriate to compare the current share price vs. historical for numerous reasons (e.g., substantially different business mix from inception until Q4/16; significant financial and operational issues under a prior management team until mid-2018 Board/Management refresh; significant turnaround efforts by new management team followed by a pandemic and then OEM production shortages from mid-2018 until mid-2023). This is the first year we are seeing both EFN delivering excellent fundamentals + normal OEM production. We view EFN as a rare stock that can deliver strong EPS growth; has multiple catalysts; very strong defensive attributes; and an attractive valuation. Over the next 5-years, we forecast an EPS CAGR of 15 per cent. Coupled with a dividend CAGR of 27.5 per cent and share buybacks of 2-3 per cent per year, we forecast ROE to increase from 15 per cent to almost 25 per cent. With the shares trading at 14.5 times P/E and 8.5-per-cent FCF yield (2025E), we don’t think the stock is ‘expensive’ at all.”
* Raymond James’ Stephen Boland to $30 from $29 with a “strong buy” rating.
“We expect double-digit EPS growth over the next two years and ongoing improvement in the ROE. Overall this was another positive quarter with strong originations, customer retention and higher guidance,” said Mr. Boland.
* TD Cowen’s Graham Ryding to $30 from $28 with a “buy” rating.
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Assuming “an inflection point in trucking conditions is not that far away,” Desjardins Securities analyst Benoit Poirier views the current valuation for Titanium Transportation Group Inc. (TTNM-T) as “a bargain for long-term investors.”
“While TTNM is not immune to the jolts in a challenged freight market (as highlighted by its second guidance cut this year), we continue to believe that the long-term accretion of the Crane acquisition and potential operating leverage should bear fruit in the long run as more capacity leaves the industry,” he said in a research note summarizing its second-quarter release titled Several miles remaining before the capacity tank is empty.
That positive view came despite weaker-than-expected results and another downward revision to full-year guidance from the Bolton, Ont.-based provider of transportation and logistics services.
Late Monday, Titanium reported EBITDA of $10.2-million, below bot Mr. Poirier’s $10.7-million estimate and the Street’s expectation of $10.9-million.
“TTNM reduced its outlook for 2024 for a second time this year in light of the continually challenged freight market, now guiding to revenue of $440–460-milion with an adjusted EBITDA margin of 8.0–10.0 per cent,” the analyst said. “Lower volume and pricing pressure also had an adverse effect on the operational integration of Crane, which is progressing at a slower pace than anticipated.”
“[Truck Transportation] profitability was impacted by (1) the slower-than-anticipated operational integration of Crane; and (2) the truck freight market remaining subdued into 1H24 due to reduced volume and pricing pressure. If a rail strike occurs in Canada, management would expect a temporary pricing spike for cross-country freight — a big benefit for the industry.”
Believing debt reduction and strategic divestitures remain a priority, Mr. Poirier cut his 2024 and 2025 revenue and earnings expectations, leading him to trim his target for Titanium shares to $3.75 from $4.50 with a “buy” recommendation. The average is $4.20.
Elsewhere, other changes include:
* Raymond James’ Steve Hansen to $3.50 from $4 with an “outperform” rating.
“We are trimming our target price ... to reflect the company’s weaker-than-expected 2Q24 results, lower 2024 guide, and accompanying downward revisions to our estimates. Notwithstanding these changes, we reiterate our Outperform rating based upon the company’s: 1) consistent operational track record; 2) clear discipline through all points of the cycle; & 3) Crane integration/synergy opportunities through our forecast horizon,” said Mr. Hansen.
* Canaccord Genuity’s Yuri Zoreda to $4 from $4.25 with a “buy” rating.
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Raymond James analyst Daryl Swetlishoff thinks Conifex Timber Inc.’s (CFF-T) new capital injection supports an operational “ramp-up.”
“Conifex shares have been under heavy pressure with the stock down 54 per cent year-to-date, vs. the lumber peer group down 17 per cent (TSX Index up 8 per cent) leaving shares in deep value territory,” he said.
“We highlight the company successfully exited its Wells Fargo credit facility following the completion of a new $25-million term loan in the quarter and view these recent developments as a positive.”
While its second-quarter results fell short of expectations due to lower Western Spruce/Pine/Fir (WSPF) prices and elevated downtime at both its CoGen and the Mackenzie sawmills, the analyst reiterated an “outperform” recommendation for shares of the Vancouver-based timber company’s sjares, citing a trio of factors: “1) CFF’s high degree of timber self-sufficiency, 2) boosted lumber sales realizations following the transition to high value green timber harvesting, along with; 3) stability and cash flow diversification provided by Bioenergy operations.”
“We note, however, that apportionment decisions by the Chief Forester are poised to lower Conifex’ assigned AAC volume, requiring the company to execute on open market purchases of 130k m3 to maintain sufficient fiber availability going forward,” he added. “While final duty rates associated with the 5th administrative review were announced yesterday and move the ‘All-Others’ rate to the 14.54-per-cent level (from 8.05 per centr prior), we highlight favorable top and bottom line implications due to the harvest shift represent offsets and position Conifex closer in-line with peers on the cost curve.”
While acknowledging he remains “encouraged” by Conifex’s progress, Mr. Swetlishoff, currently the lone analyst covering the company, reduced his target to 85 cents per share from $1.25, citing “increased leverage and upcoming working capital purchases associated with the Mackenzie sawmill ramp up - near the low-point of our updated NAV-model.”
“Although timing of the data center revenue diversification strategy remains uncertain, we note CFF appealed the most recent Supreme Court ruling, with the next hearing expected in the fall,” he noted. “Current trading levels are well below our risk-adjusted NAV estimate - with the market assigning negative value to Conifex’ lumber platform - and remain 88 per cent below book value (vs. peers trading at 50-per-cent P/BV). Conifex deep value proposition is further underscored by material cumulative duties paid to date, translating to 2.9 times of CFF’s current market cap on an after tax basis, this vs. the average lumber producer exhibiting 0.7 times. While a near-term duty settlement remains unlikely, we expect duties could potentially be monetized to shore up financial flexibility as part of the company’s refinancing strategy.”
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In other analyst actions:
* Jefferies’ Matthew Murphy upgraded Hudbay Minerals Inc. (HBM-T) to “buy” from “hold” with a $14 target, while National Bank’s Shane Nagle lowered his target for to $15.50 from $17 with an “outperform” rating. The average target is $16.19.
* Jefferies’ Surinder Thind lowered his Aimia Inc. (AIM-T) target to $4, matching the average, from $4.50 with a “buy” rating.
* CIBC’s Anita Soni cut her target for B2Gold Corp. (BTG-N, BTO-T) to US$3.30 from US$3.50 with a “neutral” rating. The average is $4.15.
* RBC’s Drew McReynolds lowered his Boat Rocker Media Inc. (BRMI-T) target to $2.50 from $3, remaining above the $2.31 average, with an “outperform” recommendation.
* CIBC’s Hamir Patel raised his CCL Industries Inc. (CCL.B-T) target to $88 from $86, keeping an “outperformer” rating. The average is $85.90.
* Scotia’s Mario Saric bumped his Dream Office REIT (D.UN-T) target to $19.50 from $19, above the $18.83 average, with a “sector perform” rating.
“We maintain our SP rating with most key estimates largely intact, a bit better than both AP and Sector following a decent Q2,” said Mr. Saric. “As D put it, the market seems to be a bit of “snakes and ladders” with occupancy gains in pockets of the portfolio offset by erosion elsewhere (in-place occupancy was down 10bp quarter-over-quarter at 79.2 per cent, consistent with market). That said, we think addressing market concerns over liquidity and leverage (remains very high) is the primary near-term catalyst, with no news on that front in Q2. In the context of the North American Office market and elevated leverage, we believe D is fairly valued at 10 times 2025E AFFO (or an est. 7.6 times assuming a 14 times multiple for DIR, which = approximately 25 per cent of D 2024E/2025E FFO).”
* Desjardins Securities’ Kyle Stanley trimmed his Dream Residential REIT (DRR.U-T, DRR.UN-T) target to US$8 from US$8.50 with a “buy” rating. The average is US$9.
“While DRR’s defensive portfolio has successfully navigated uncertain markets, returns from the value-add program—which have historically been a significant contributor to the organic growth profile — have diminished,” he said. “This contributed to the 1-per-cent and 4-per-cent reduction in our 2024 and 2025 FFOPU [funds from operations per unit] outlook, respectively; we have introduced our 2026 estimate, which calls for 6-per-cent year-over-year growth.”
* TD Cowen’s Jonathan Kelcher increased his Extendicare Inc. (EXE-T) target to $9 from $8, maintaining a “hold” rating. The average is $9.17.
* TD Cowen’s Sean Steuart increased his KP Tissue Inc. (KPT-T) target by 50 cents to $9 with a “hold” rating. The average is $9.25.
* National Bank’s Don DeMarco raised his Lundin Gold Inc. (LUG-T) target to $32 from $30.75 with an “outperform” rating. The average is $27.04.
* Canaccord Genuity’s Yewon Kang increased her Organigram Holdings Inc. (OGI-T) target to $3.60 from $3.25 with a “speculative buy” rating. The average is $3.83.
* Scotia’s Himanshu Gupta cut his target for Parkit Enterprise Inc. (PKT-X) to 60 cents from 75 cents with a “sector perform” rating. The average is 76 cents.
“We maintain our SP rating but do recognize that a lot of work needs to be done here,” said Mr. Gupta. “Once again, our FFOPS estimates are reduced - we don’t remember when we increased our estimates or when NOI surprised us to the upside. Our 2024 and 2025 FFOPS estimates are reduced by 13 per cent and 15 per cent, respectively. Our 2024 FFOPS estimate implies 64-per-cent year-over-year growth, although it comes from a very small base. We also see 2025 FFOPS growth at 18 per cent on year-over-year basis - again on a small base. We recognize Parkit is a value-add NAV growth story which will show results over the next two-three years. However, public markets are focused on tangible FFO and free cash flow in the near term.”
* Canaccord Genuity’s Max Ingram lowered his Pivotree Inc. (PVT-X) target to $1.25 from $1.70 with a “hold” rating. The average is $2.56.
* Scotia’s Divya Goyal raised her Softchoice Corp. (SFTC-T) target to $20 from $18 with a “sector perform” rating. The average is $21.81.
“Softchoice recently reported Q2/24 results which came in above our and Street expectations on profitability as management noted growing momentum across the company’s Software and Cloud business driven by expanded salesforce/technical capabilities and increasing client interest in Microsoft Copilot across its SMB/Commercial client base which bodes well for its future growth prospects,” she said. “During the earnings call, the company noted strengthening partner incentive programs which added a boost to profitability alongside cost efficiencies realized from ongoing cost containment efforts. Management highlighted the company’s natural operating leverage and realized operational efficiencies as a key contributor to profitability growth.
“Though Softchoice reported a decent quarter primarily driven by growth across Software & Cloud business despite hardware weakness, near-term catalysts stay limited. Based on our updated financials, we have increased our SFTC price target to $20/share but reiterate our Sector Perform rating. That said, we will continue to closely monitor the company’s performance given its focus on S/W & Cloud and alignment with Microsoft and revisit our rating accordingly.”
* TD Cowen’s Aaron MacNeil lowered his Superior Plus Corp. (SPB-T) target to $10 from $12, keeping a “buy” rating, while BMO’s John Gibson cut his target to $10 from $12 with an “outperform” rating. The average is $11.32.
“Q2/24 results fell short of expectations due to lower volumes (mostly weather related). Certarus continues to feel competitive pressures in the U.S, although management expects a pick-up towards year-end. ... Despite facing modest headwinds in the business, we maintain our Outperform rating as the valuation currently sits near alltime lows, and well below U.S. peers,” said Mr. Gibson.
Editor’s note: An earlier version of this article included an incorrect target and rating from CIBC's Anita Soni for B2Gold Corp. This has been updated.