Inside the Market’s roundup of some of today’s key analyst actions
While Bank of Nova Scotia’s (BNS-T) second quarter was “stable,” National Bank Financial analyst Gabriel Dechaine warns headwinds are emerging, including higher provisions for credit losses and lower trading revenues.
“BNS’ [loan] loss rate of 54 basis points was 3 basis points ahead of our forecast, and up 4 basis points quarter-over-quarter,” he said. “While we aren’t flagging any major concerns, we do believe it is plausible that BNS could breach the upper end of its total PCL ratio guidance range for the year of 45-55bps. The bank expects to be at the upper end of that range over the next two quarters. Considering the delayed relief to its variable rate mortgage customers in the form of rate cuts, along with a steady volume of auto loan impairments, we believe exceeding that range is plausible. Moreover, BNS’ performing ACL [allowance for credit losses] ratio of 59 basis points is only 2 basis points above its pre-COVID levels, while all of its peers maintain higher buffers (i.e., 14bps average). "
“BNS’ 13.2-per-cent CET 1 ratio was 10 basis points ahead of forecast. Despite the slight (positive) deviation, we did see material improvement in terms of the bank’s management of the Basel III Output floor. The bank eliminated RWA inflation from this item, though indicated that as the floor rises to 70 per cent during Q1/25 it will encounter another RWA increase (which we expect to be quantified during the Q4/24 call). Separately, BNS kept its dividend flat at $1.06 per share, which we believe is reasonable considering its 2024 estimated payout ratio of approximately 65 per cent. Having said that, the bank stated that it plans to re-visit a potential dividend hike during Q2/25.”
On Tuesday, Scotia shares slid 0.8 per cent on its premarket earnings announcement, which saw adjusted earnings per share come in at $1.58, exceeding the Street’s expectation by 2 cents but 2 cents lower than Mr. Dechaine’s estimate. He attributed the miss to higher than forecast PCLs, offset by higher revenues.
Calling the release “neutral” to the investment case for the bank, the analyst emphasized its “core banking businesses perform well.”
“The Canadian and International Banking segments delivered 9-per-cent and 10-per-cent PTPP [pre-tax, pre-provision] growth, respectively,” he said. “Key guidance highlights for the domestic business include a resumption of modest mortgage book loan growth in the second half and elevated retail credit losses in H2/24 due to the continued impact of higher rates. As it relates to the International segment, we expect some deceleration in growth as NIM expansion moderates (or flattens altogether), credit costs increase and the segment tax rate rises.”
After making a modest reduction to his earnings forecast, Mr. Dechaine trimmed his target for Scotiabank shares to $66 from $67, maintaining a “sector perform” recommendation. The average target on the Street is $68.43, according to LSEG data.
Elsewhere, other analysts making target changes include:
* RBC’s Darko Mihelic to $62 from $64 with a “sector perform” rating.
“We saw some signs of credit deterioration but generally PCLs were in line with our estimates. PCL guidance was rather precise for H2/24; we model to guidance, but we have a sense that risk to PCLs lies to the upside,” said Mr. Mihelic. “International Banking earnings were stronger than expected; this segment is still in transition (client deselection, capital reallocation, etc.) so while we saw improving NIMs and operating leverage, we caution results may still see revenue pressures near-term. In our view, BNS is in very early innings of a revamp and its valuation appropriately reflects higher than median credit/execution risk.”
* Canaccord Genuity’s Matthew Lee to $71 from $70 with a “hold” rating.
“BNS delivered a solid quarter with slightly better-than-expected EPS driven by the International segment,” said Mr. Lee. “In our view, the key takeaway was management’s moderated view on Canadian credit, calling out automotive and variable rate mortgages as particular areas of softness. On the other hand, BNS appears very comfortable with its LATAM business, noting that recent rate cuts have driven both improved credit and NIM growth. Looking forward, we expect BNS to see flattish sequential NIM growth across its franchise, with PCLs at the 55bps mark for the remainder of the year. On loan growth, we forecast a modest acceleration as double-digit card growth and further progress on the mortgage front offset a pullback in the auto book.”
* CIBC’s Paul Holden to $68 from $64 with a “neutral” rating.
“Our EPS estimates are little changed. BNS is trading at an 8-per-cent discount to the group average P/E. There was nothing in the FQ2 results to suggest that the valuation discount will narrow in the near term. We maintain a Neutral rating,” said Mr. Holden.
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Seeing higher production, margins and free cash flow coming, RBC Dominion Securities analyst Michael Siperco upgraded Eldorado Gold Corp. (EGO-N, ELD-T) to “outperform” from “sector perform” previously.
“EGO has outperformed peers over the last year and year-to-date; we believe that will continue as Skouries construction (approximately 35 per cent of NAV [net asset value] in production) accelerates and the mine is de-risked into startup in 2H25, partially by higher gold/copper prices,” he said. “We model 60-per-cent consolidated GEO production growth in 2026 vs. 2023 (15-per-cent copper exposure), and our target is up to $20 from $14 reflecting our higher price deck, reduced target multiples (in line with peers) and improved forecasts for Skouries and Olympias (inline with guidance). The higher target drives our upgrade to Outperform.”
Mr. Siperco now sees production from Skouries, a high-grade gold-copper deposit in the Chalkidiki peninsula in northern Greece, just over a year away, leading to an increase in spending in the second quarter and over the next 4-5 quarters. However, he sees “minimal” funding and balance sheet risk.
“After years of false starts, government intervention, partial completion and questions about capex and timing, we think guidance of 3Q25 production is achievable, and have increased our 2025-2027 forecasts for Skouries to the low end of guidance reflecting increased confidence in the ramp up,” he said.
“Our revised estimates see year-over-year gold equivalent (GEO) production growth of 12 per cent in 2025 with initial gold/copper production from Skouries, and 35 percent in 2026 on a full year of Skouries production, and expected improvement at Olympias. We model 60-per-cent total GEO production growth in 2026 vs. 2023, one of the best growth profiles in the sector. That leads to growing FCF at spot, reaching a 15-per-cent yield in 2025/2026, amplified by our higher near term gold/copper price forecasts.”
Emphasizing “coming growth,” Mr. Siperco’s new target of Eldorado shares of US$20 exceeds the average on the Street of US$16.83.
“Our higher price deck (up 20 per cent through 2026, up 17 per cent long term) drives our 70-per-cent higher NAV8-per-cent, along with increased confidence in the ramp up at Skouries,” he said.
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RBC Dominion Securities analyst Josh Wolfson thinks the growth upside for Triple Flag Precious Metals Corp. (TFPM-N, TFPM-T) has been “deferred” over time due to recent operator developments, leading him to lower his recommendation for the Toronto-based company to “sector perform” from “outperform” on Wednesday.
“In 2023, TFPM issued a production target averaging more than 140,000 GEO [gold equivalent ounces] over give years (2024-28), subsequently reiterated in 2024 for the 2025-29 period,” he said. Developments over 2023-24 have impacted our underlying forecasts, including at Pumpkin Hollow (ramp-up challenges and liquidity shortfall in 1Q24), Fosterville (lower targets outlined in 1Q24), Renard (operations suspended in 4Q23), Moss (stream suspended in 1Q24), RBPlats (restructuring 2Q24) and Buritica (illegal mining 1H23+). Growth from Gunnison also remains included in targets (operations halted 2Q22, low restart visibility). In part, this has been offset by upside introduced at Kensington (royalties restarted in 1Q24) and Beta Hunt (improved grade).”
Citing operator updates, Cerro Lindo’s step-down, and general project risk, Mr. Wolfson’s forecast is now 16 per cent below Triple Flag’s five-year production targets and 11 per cent under the consensus projections on the Street. However, he did not new ramp-ups are likely to provide upside, offsetting Cerro Lindo.
“TFPM’s largest production output is sourced at Cerro Lindo (23 per cent of EBITDA), which includes a step-down in stream deliveries by more than 60 per cent upon criteria we expect will be satisfied in 2027 (15kGEO impact to TFPM),” he said. “We forecast asset-level growth for TFPM in 2026-27, but largely offsetting Cerro Lindo’s upcoming step-down. Key growth levers RBC forecasts include Pumpkin Hollow’s ramp-up, Beta Hunt’s expansion, and RBPlats improvements, plus new production albeit with commensurate execution risk at ATO sulphides (2026), Kone (2026), Eskay Creek (2026), McCoy Cove (2026), and Prieska (2027). Long-term optionality is available from an extensive suite of TFPM portfolio assets, but RBC forecasts this beyond 5Y guidance.”
While he sees its valuation “now towards upper range vs. comparable peers,” Mr. Wolfson raised his target for Triple Flag shares to US$19 target from US$15, exceeding the US$18.33 average, to reflect updated commodity pricing.
“At current gold prices, we calculate TFPM trades at a P/NAV [price to net asset value] of 1.47 times and 17.2 times 2024/25 blended EBITDA,” he said. “Gold royalty large caps trade at 1.85 times and 19.8 times, while TFPM’s more comparable mid-cap royalty peers trade at 1.16 times and 15.3 times. Beyond TFPM’s scale, a key TFPM differentiator vs. large cap peers is its concentrated shareholder base and resulting low trading liquidity. In general, we see larger headwinds today for royalty sector growth vs. prior years due to elevated competition and supportive mining capital markets, a challenge to both TFPM and peers. Upside for TFPM could still be realized from rising gold/silver prices, sector multiple expansion, and Northparkes outperformance beyond RBC estimates.”
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Citi analyst Paul Lejuez thinks sentiment toward Lululemon Athletica Inc. (LULU-Q) has veered “overly negative” ahead of the June 5 release of its first-quarter results with its shares having fallen 40 per cent since its latest quarterly report.
“Short interest currently sits at 4 per cent of the float, up from 3 per cent three months ago,” he added. “Sentiment on LULU has turned significantly negative, even more so in recent weeks as third-party data have not suggested a pick-up in trends in the U.S. in May despite management pointing to an expected acceleration in comps beginning in May as new product hit stores. We believe the buyside bar is for flattish comps in the Americas (down low single digits in the U.S.) in 1Q and for that trend to continue into 2Q.”
Mr. Lejuez said bears have emphasized a “stepped-up competition, high valuation, and lack of acceleration in industry data in May as reasons to stay negative” on the Vancouver-based apparel maker.
“During mgmt meetings we hosted on 4/19, management cited product execution issues as partially explaining weaker U.S. trends, and expected a May improvement as new products/color were introduced,” said. “While May may not have picked up significantly, we don’t think trends have gotten worse, and overall believe the Americas could grow modestly in F24. With international (particularly China) still very strong and flexibility in SG&A, we believe F24 EPS downside is limited.
“We expect management to lower F24 EPS guidance to $13.80-14.00 (vs cons $14.15). With expectations low, sentiment very negative and shares pricing in a more significant guidance cut, we see favorable risk/reward into 1Q EPS.”
The analyst maintained his first-quarter earnings per share projection of US$2.38, which sits 2 US cents below the consensus based on comparable same-store sales growth of 6.5 per cent (versus the Street’s 6.8-per-cent estimate). However, he lowered his full-year 2024 and 2025 forecasts to US$13.86 and US$15.11, respectively, from US$14.12 and US$16.12, citing weaker Americas comps partially offset by lower SG&A.
“We anticipate management lowers F24 sales guidance from 11-12 per cent to 10-11 per cent, implying comps of mid single digits to high single digits (vs high single digits prior),” said Mr. Lejuez. “We expect management to pull back modestly on SG&A spend in F24 to partially offset lower top line growth. We anticipate management issues below cons 2Q EPS guidance of $2.95-3.00 (vs cons $3.04) based on sales of 9-10 per cent (vs cons 11 per cent).”
Beyond the guidance, Mr. Lejuez said three “things matter most” in the quarterly release:
* U.S. trends.
“Our view is there have been mis-steps in the product assortment this year (lack of storytelling/cohesion of the assortment, based on our checks), and against a backdrop of big sales increases over the past several years, LULU is feeling some pressure against tougher multi-year comparisons,” he said. “However, we do not see anything fundamentally wrong with the brand and believe LULU can grow modestly in the Americas this year (and potentially accelerate growth in F25).”
* The competitive environment and category weakness.
“We believe the technical/performance aspect of LULU’s products is far superior to both Alo and Vuori, and the customer still views LULU as a solid brand. The key is for LULU to innovate and execute at a higher level (which may take some time to figure out). Ultimately, we expect LULU will get the product assortment back to the right place, as has historically been the case,” he said.
* International momentum.
“While much of the focus is on the U.S., we anticipate another very strong quarter of international growth for LULU (particularly in China, we model comps of 33 per cent vs +56 per cent in 4Q), where LULU is still in the early stages of growth,” he said. We believe strong int’l growth could offset most of the incremental weakness in the U.S. near term (as long as Americas growth does not take another meaningful step down). We expect 1Q will highlight the long runway still ahead for LULU in international markets where penetration still sits well below peers.”
Maintaining his “buy” recommendation for Lululemon shares, Mr. Lejuez cut his target to US$415 from US$500 to reflect his lower estimates. The average target is US$429.44.
Elsewhere, others making target adjustments include:
* TD Cowen’s John Kernan to US$437 from US$515 with a “buy” rating.
* Morgan Stanley’s Alex Straton to US$404 from US$490 with an “overweight” rating.
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RBC Dominion Securities analyst James McGarragle believes the risk-reward proposition for CAE Inc. (CAE-T) “remains interesting” following the late Monday release of its fourth-quarter 2024 financial report that fell in line with pre-released results.
“Following a big write-down in goodwill, unfavourable contract adjustments, and impairment of intangible assets announced last week, focus now shifts to execution on guidance targets,” he said. “On one hand, guidance points to continued growth in Civil and meaningful operating leverage in Defense, and therefore attractive valuation in the context of the current share price. On the other hand, we are cognizant of risks to execution in Defense and further potential restructuring expenses affecting FCF. Net-net we continue to see risk/reward as interesting and reiterate OP.”
Mr. McGarragle thinks the Montreal-based company’s guidance “points to really solid growth” if achieved, but he warned organic growth opportunities are likely to continue driving a rise in capex.
“Management last week provided guidance for Civil adj. operating income growth of ‘low double-digit’ (with 23-per-cent margin) and Defense revenue growth of lowto mid-single-digit with margin in the 6-7-per-cent range,” he said. “Taken together, this implies 30-per-cent adj. operating income growth in F2025, with this year’s capex and Defense margin exit rates implying another year of solid growth (high-single digit) in F2026. However, we flag execution risk as elevated given recent issues in Defense and continue to expect sentiment in the shares to be driven by demonstrated margin improvement in the segment.”
“Management pointed to attractive investment opportunities in Civil as a key driver of the uptick in capex spend in F2025. While a headwind to FCF in the near-term, we flag management pointed to 20-30-per-cent returns from these investments, and we therefore see this as an attractive use of funds. However, we acknowledge the near-term negative impact to FCF and share repurchases could potentially affect sentiment.”
Expecting cash to be used to deleverage and invest organically to capitalize on a favourable demand backdrop in Civil, which he called “prudent,” Mr. McGarragle lowered his 2025 and 2026 estimates to align with guidance, leading him to trim his target for CAE shares to $31 from $34 with an “outperform” rating (unchanged). The average target on the Street is $30.75.
Others making changes include:
* Desjardins Securities’ Benoit Poirier to $29 from $30 with a “hold” rating.
“We maintain our valuation on our FY25 estimates as we expect sentiment in the shares to be driven by near-term execution,” said Mr. Poirier. “However, we could roll our numbers forward if we see increased evidence of an inflection point in the Defence segment, which would lead us to have higher conviction on the name (we derive a value of $31 per share when rolling over to FY26). We are not willing to underwrite that possibility at the moment as we see better opportunities to deploy capital in our A&D universe (HRX and BBD).”
* CIBC’s Kevin Chiang to $30 from $29 with an “outperformer” rating.
“With CAE having released preliminary FQ4 results last week, there were not a lot of incremental new takeaways from its earnings release. The focus remains on improving the execution within Defense. While the company looks to have de-risked the outlook for this segment with the sizeable write-downs taken, it remains a show-me story. While it’s disappointing that Defense has overshadowed the strong Civil results, we continue to view $25 as a good floor for CAE and this keeps us at Outperformer,” said Mr. Chiang.
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Raymond James analyst Michael Barth resumed coverage of five Canadian senior oil and gas stocks on Wednesday.
“While we view these as some of the best businesses in Canadian energy, we believe that the stocks are in the ballpark of fairly valued on strip pricing. As such, we launch with four Market Perform ratings and just one Outperform, and generally see better value elsewhere in Canadian energy,” he noted.
The lone company given an “outperform” recommendation is Cenovus Energy Inc. (CVE-T) with a $33 target, which is 33 cents below the average on the Street.
“We use the term ‘top pick’ loosely, but that spot is reserved for CVE, where our analysis suggests that the current stock price reflects an embedded long-term WTI price of US$60/bbl,” he said. “That’s lower than the other four businesses in our large cap coverage universe, and the only embedded price below long-term strip. In our view, there are a number of positive idiosyncratic changes happening at CVE that the market doesn’t appear to fully appreciate. To be clear, CVE is far from what we’d consider a pound-the-table idea. Even still, with the highest relative production growth, improvements being made in the refining business, more than 30 years of 2P reserves, and reasonably attractive free cash flow yield, we think CVE offers the best value in this space. In the game of inches, CVE inches ahead.”
Mr. Barth also resumed coverage of these stocks with “market perform” ratings.
* Canadian Natural Resources Ltd. (CNQ-T) with a $97 target. Average: $111.57.
Analyst: “We suspect CNQ is widely viewed as the Canadian energy GOAT: ‘why own [pick any other Canadian energy company] when I can just own CNQ and forget about it’. There is merit to that view, considering CNQ’s track record, one of the highest 2P reserve lives in Canada, fantastic balance sheet, and low WTI breakeven prices. At the same time, we think all of these great attributes are well understood and already properly reflected in the current share price.”
* Imperial Oil Ltd. (IMO-T) with a $93 target. Average: $97.43.
Analyst: “IMO has the best balance sheet and lowest cost structure in our large cap universe, and we see a number of opportunities to continue improving on that position with new initiatives at Kearl and Cold Lake. Despite what we view as a very strong business, we think these themes are generally well understood by the market and see the stock as fairly valued on strip pricing.”
* MEG Energy Corp. (MEG-T) with a $28 target. Average: $34.97.
Analyst: “Without question, the health of this business has improved considerably over the last decade. At the same time, we believe the story is well understood and risk/reward appears relatively symmetric on strip pricing.”
* Suncor Energy Inc. (SU-T) with a $51 target. Average:$59.79.
Analyst: “Despite many of the positive things happening within the business today, we think the SU story is well understood, and the current share price more-or-less appropriately reflects the challenges and opportunities facing the business today, hence our Market Perform rating.”
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In other analyst actions:
* BMO’s John Gibson initiated coverage of Bird Construction Inc. (BDT-T) with an “outperform” rating and $25 target. The average is $23.88.
“BDT is a leading Canadian construction contractor, operating across several verticals including: 1) Buildings; 2) Industrial; and 3) Infrastructure. Overall, we believe strong tailwinds in construction-related spending should continue, and BDT is very well-positioned to win its share of the work. More importantly, margin improvement is expected to continue as the company (and industry) move away from fixed-priced, concessionary style projects,” he said.
* TD Cowen’s Tim James raised his Street-high Bombardier Inc. (BBD.B-T) target to $127 from $105, keeping a “buy” rating. The average is $90.13.
* RBC’s Wayne Lam reduced his Frontier Lithium Inc. (FL-X) target to $2.50, below the $2.89 average, from $3.25, keeping an “outperform” rating.
“Frontier continues to advance the PAK project at a measured pace, sequentially putting the pieces in place. While advancement has been slower than anticipated in part due to regulatory hurdles, we remain constructive on the project as a key piece of the North American supply chain given Tier I asset quality and jurisdiction,” said Mr. Lam.
* National Bank’s Don DeMarco raised his MAG Silver Corp. (MAG-T) target to $24, above the $21.32 average, from $21 with an “outperform” rating.
David Leeder