Inside the Market’s roundup of some of today’s key analyst actions
As earnings season for Canadian banks approaches, National Bank Financial analyst Gabriel Dechaine warns fourth quarters “tend to be a mixed bag, often including an uptick in year-end expenses.”
“Looking beyond the quarter, 2025 guidance items are of tremendous interest, especially as it relates to credit expectations, where we expect banks to modestly increase their PCL [provisions for credit losses] ratio guidance ranges,” he said. “Beyond 2025, we are introducing our 2026 estimated EPS that imply 10-per-cent average EPS growth (up 5 per cent for PTPP) across the sector.”
In a research report released Wednesday, Mr. Dechaine said he’s focused on three key themes during the next few weeks:
1. Credit: “It’s guidance time,” he said. “Even excluding BMO, banks have reported higher than forecast PCLs more often than not this year. As a result, 2025E sector PCL forecasts (excl. BMO) have increased by 6 per cent over the course of the year, resulting in a 2025E sector PCL ratio of 41 basis points (vs. 39ps so far in 2024). We believe that banks will increase PCL ratio guidance by 5bps at each end of the range, with higher PCLs expected during H1/25, reducing during H2/25 as the transmission effect of rate cuts takes hold.”
2. Net interest margins: “Expect ‘stable’ messaging,” he said. “Sector margins (excl. trading NII) are up 4bps so far this year. With rate cuts emerging, one might expect a pullback. However, with securities re-pricing, flat/low mortgage growth and stabilization of the deposit mix’s shift, we believe banks can end the year flattish overall. We expect 2025 guidance could be similar on a full-year basis, with the first half compression due to rate cuts offset with the second half expansion due to lower funding costs and asset growth.”
3. Expense management: “A year-end uptick?,” he said. “Big-6 banks have delivered positive operating leverage averaging 1 per cent so far this year, reversing the poor performance we saw during fiscal 2023. At year-end, there is a seasonal expectation of higher expense growth.”
After introducing his fiscal 2026 projections, the analyst said Toronto-Dominion Bank’s (TD-T’) “forecast uncertainty is an overhang” as the impact of its money laundering scandal lingers.
“TD’s 2026 estimated EPS is of most interest to investors,” said Mr. Dechaine.” Fiscal 2025 has been positioned as a transition year for the bank, as it re-positions its U.S. balance sheet and invests heavily in AML remediation programs.
“As such, some investors believe 2026 represents a more reasonable period to assess the bank’s “new normal” growth rate, and a better measure for the stock’s valuation. Our 5-per-cent 2026E EPS growth rate is underpinned by the following key assumptions; 1) another US$500-million of AML remediation costs; 2) 2-per-cent growth of the U.S. balance sheet, as the bank’s 10-per-cent asset reduction provides lending capacity for “core” customers; 3) no outsized growth in the bank’s other segments given challenges; 4) no share buybacks, though such a scenario could be possible in 2026 if TD achieves a CET 1 ratio of close to 14 per cent; and 5) Dividend growth of 5 per cent.”
Mr. Dechaine raised his target for TD shares to $85 from $78, keeping a “sector perform” rating. The average on the Street is $84.06, according to LSEG data.
His other target changes are:
* Bank of Montreal (BMO-T, “outperform”) to $148 (a Street high) from $127. The average is $127.60.
Analyst: “We are updating our price targets, which are primarily influenced by extending our valuation horizon to fiscal 2026. In addition, we are slightly increasing our BMO target multiple as we anticipate accelerated EPS growth that reflects a combination of improved credit metrics (i.e., we expect elevated losses during H1/25) and stronger U.S. commercial loan growth.”
* Bank of Nova Scotia (BNS-T, “sector perform”) to $78 from $66. Average: $76.07.
* Canadian Imperial Bank of Commerce (CM-T, “outperform”) to $94 from $86. Average: $85.18.
* EQB Inc. (EQB-T, “sector perform”) to $111 from $102. Average: $108.22.
* Laurentian Bank of Canada (LB-T, “underperform”) to $25 from $26. Average: $26.64.
* Royal Bank of Canada (RY-T, “outperform”) to $181 from $169. Average: $169.26.
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Ahead of the Dec. 4 release of its third-quarter fiscal 2025 results, National Bank Financial analyst Vishal Shreehar removed his “top pick” designation from Dollarama Inc. (DOL-T) in response to “strong” share price appreciation year-to-date and expecting a “normalization” of same-store sales growth.
“We upgraded to Buy on March 29, 2019; DOL has significantly outperformed since then (total return to date: DOL up 325 per cent, S&P/TSX up 84 per cent, S&P/TSX Capped Consumer Discretionary up 77 per cent),” he said. “While we continue to have a constructive view, we believe risk/reward has moderated, reflecting in part, heightened valuation.”
“We continue to hold a positive view on DOL’s shares given its defensive growth orientation supported by strong cash flows, a solid balance sheet and resilient sales performance. We also believe international growth will become increasingly important, likely aided by acquisitions.”
For the quarter, Mr. Shreedhar is currently projecting earnings per share of 97 cents, up 5 cents from a year ago and a just a penny below the consensus forecast on the Street. He attributes that 5.6-per-cent year-over-year growth to “mid-single-digit revenue growth (new stores and low-single-digit same store sales growth), Dollarcity contribution and share repurchases over the last 12 months, partly offset by gross margin contraction, higher SG&A and a 2-days Halloween calendar shift.” He expects total sales to grow year-over-year (to $1.571-billion from $1.478-billlion) despite a dip in sssg (3.2 per cent from 11.1 per cent).
“We expect continued sssg moderation in Q3/F25 as DOL cycles double-digit sssg in Q3/F23 and Q3/F24, in addition to calendar shift pressure,” he said. “Gross margin is to be pressured in H2/F25. NBF models F2025 gross margin of 44.6 per cent; if DOL were to achieve the high end of its guidance of 44.0-45.0%, all else equal, we estimate EPS upside of 1-2 per cent to our estimates. Conversely, if DOL were to land at the low end of guidance, we estimate EPS downside of 2-3 per cent to our estimates.
“Our proprietary pricing analysis of thousands of SKUs points to average article price inflation of 0.5 per cent year-over-year during Q3/F25. Interestingly, our internal analysis further suggests that average annualized article price inflation is slowing (Q2/F25 was 1.3 per cent and Q1/F25 was 2.7 per cent). Moderating price inflation will pressure sssg, all else equal. Our analysis of retailer commentaries suggests consumers continue to be focused on value, notwithstanding rate cuts and moderating inflation.”
Reaffirming an “outperform” recommendation for Dollarama shares, Mr. Shreedhar raised his target to $149 from $143, which is the current average.
“We continue to hold a positive view on DOL’s shares given its defensive growth orientation supported by strong cash flows, a solid balance sheet and resilient sales performance,” the analyst said. “We also believe international growth will become increasingly important, likely aided by acquisitions.
“That said, given premium valuation amidst an increasingly competitive backdrop, a key investor question is: can Dollarama outperform. We think it can, over the medium term, provided fundamental performance remains strong. In our view, Dollarama is a well-managed retailer, and we expect the company’s growth to remain solid. That said, we acknowledge that DOL’s share price performance will also be governed, to some degree, by market demand for stocks with defensive properties.”
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Following its annual Investor Day event, National Bank Financial analyst Patrick Kenny sees TC Energy Corp. (TRP-T) returning to “full strength” and “powering up returns.”
“With its mega projects in the rearview, visibility on achieving less than 4.75 times leverage continues to improve,” he said. “On the growth front, TRP’s North American natural gas pipeline footprint remains uniquely positioned to capture significant value from the rising natural gas and related power demand trends (coal-to-gas, LNG, data centers, onshoring), including 23+ Bcf/d of potential development opportunity for the company. Furthermore, returns on sanctioned projects have improved from after-tax IRRs of 8.5 per cent (6-8 times EBITDA build multiple) in 2020 to 11.0 per cent (5-7 times EBITDA build multiple) in 2024, confirming increased torque to new capital investments going forward.”
On Tuesday, the Calgary-based company revealed it expects 2025 core profit to be in the range of about $10.7-10.9-billion, higher than its 2024 forecast, due to rising demand for natural gas and electrification. It also announced four new growth projects aligned with those market conditions, which would total to nearly $1.5-billion in capital expenditures.
Indigenous equity stake in natural gas pipelines now in doubt, TC Energy says
“The company’s $32-billion secured capital program for 2025-2030 is 88-per-cent focused on its natural-gas pipeline business, largely geared towards the U.S., while remaining committed to its capital spend discipline of $6-$7-billion (net) per year through the end of the decade,” he said. “Furthermore, the company demonstrated its ability to effectively manage its capital program with capital efficiency and cost optimizations across its portfolio realizing/identifying $2.5-billion of total cost savings for the 2024-2027 period.
“Recalibrating our 2025-2027 expectations in line with guidance, our Natural Gas Pipelines and Power segment estimates bump up, partially offset by higher cash tax expectations. Overall, our 2025 estimated AFFO [adjusted funds from operations] per share nudges up to $5.18 (was $5.00), while 2025 estimated D/EBITDA taps down to 5.0 times (was 5.1 times) and towards 4.7 times longer-term, largely in line with management’s forecast.”
Citing accretion to his long-term estimates from the newly sanctioned growth projects and a “lower net capital expenditure profile driven by efficiencies and optimizations,” Mr. Kenny bumped his target for TC Energy shares to $71 from $70 with an “outperform” rating. The average target is $69.08.
Elsewhere, other analysts making target adjustments include:
* Scotia’s Robert Hope to $75 from $74 with a “sector outperform” rating.
“Overall, the update was largely in line with our expectations. We believe that TC Energy’s growth opportunities are becoming increasingly visible and numerous due to increasing natural gas demand (LNG exports, coal-to-gas conversions, power demand). Along with the update, the company sanctioned four small, easy-to-execute, high-return projects which speak directly to these growth tailwinds. Our 2025-2026 estimates increase slightly as we move up our Bruce income expectations. The higher estimates drive up our target price to $75 from $74. We believe TC Energy’s attractive business mix, highly contracted asset base, and visible growth profile warrant a premium valuation to its North American peers,” said Mr. Hope.
* BMO’s Ben Pham to $70 from $66 with a “market perform” rating.
“While the market may have been slightly disappointed with TRP’s 2024 investor day (shares lagged 87 basis points on the day), where the 2024E-2027E EBITDA CAGR is sliding down to 5-7 per cent vs. prior 2023-2026E 7 per cent, we believe growth could beat expectations,” said Mr. Pham. “The tone of the presentations were quite positive, project returns are trending higher, and visibility is improving to achieving the annual $6-7B run-rate net capex target. We are maintaining our Market Perform rating on recent trading levels, but increasing our target.”
* Barclays’ Theresa Chen to $74 from $67 with an “overweight” rating.
* CIBC’s Robert Catellier to $68 from $67 with a “neutral” rating.
“During its annual Investor Day, TC Energy reaffirmed its core principles to continue disciplined capital allocation and low-risk, repeatable performance with a solid growth outlook. Management’s plans to reduce capital spending and achieve deleveraging goals provide more flexibility. We maintain our Neutral rating but bump our DCF-based price target to $68,” he said.
* Jefferies’ Anthony Linton to $65 from $64 with a “hold” rating.
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After a day of meetings with management from MDA Space Ltd. (MDA-T), RBC Capital Markets analyst Ken Herbert thinks investor focus is shifting to the medium- to long-term outlook and believes “the stock does not reflect the potential long-term upside.”
“As investors are increasingly confident in the 2025 outlook, the potential for medium- term upside in the Satellite Systems and Robotics segments is a focus,” he said. “With a clean balance sheet, we believe the company is incrementally focused on strategic M&A and the pipeline options associated with having U.S.-based operations. MDA also sounded confident regarding its timeline for planned production capacity increases.”
“Over several meetings, management detailed its long-term view for potential satellite contract awards beyond Telesat and Globalstar. MDA suggested that as a watch item, it is worth observing the ITU’s active awards for satellite permissions. The International Telecommunications Union (ITU) grants permission for a certain number of satellites that can be deployed into orbit, and this is a good barometer of satellite activity.”
Mr. Herbert said the Brampton, Ont.-based company did not reveal further details on its unnamed ATP (authorization to proceed) customer, which has a secured a contract award that includes at least $750-million in revenue for at least 36 satellite.
“Management seemed confident that the remaining $450-million of the contract value will be awarded before year-end, pushing backlog close to $5-billion,” he said. “MDA further suggested that it hopes to see another significant contract order in 2025. We believe incremental contract awards remain positive catalysts for the stock, and investors are increasingly focused on the 2026–28 outlook, as confidence in the 2025 outlook has significantly increased.”
“Operationally, MDA believes that M&A activity that leads to a US presence, one that is FOCI-mitigated, could increase the pipeline for further U.S. government contracts. Management suggested that it continues to explore a potential dual stock listing in the U.S.. Under Trump 2.0, we view having an industrial presence in the U.S. as more likely to help with incremental contract awards from the U.S. government. Management reiterated its M&A priorities as: (1) supply chain security; and (2) geographic footprint expansion. MDA sees Europe as the second-largest opportunity behind the U.S., as well as some satellite pipeline opportunities in the Middle East.”
Seeing digitalization of satellites as “a key differentiator” for MDA, Mr. Herbert raised his target for MDA shares to $30 from $28, maintaining an “outperform” recommendation. The average is $26.75.
“While we believe the stock price reflects much of the 2025 outlook, as the company continues to execute to the current backlog and visibility on additional contracts increases, we think these should support a continued positive re-rating,” he concluded.
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Pointing to potential inclusion in the S&P/TSX composite index as well as “enhanced” shareholder returns, TD Cowen analyst Aaron MacNeil named Enerflex Ltd. (EFX-T) to the firm’s “Best Ideas 2025″ list on Wednesday.
“Enerflex is approaching index inclusion and could be added as early as December 2024,” he said. “We believe it will need to maintain a VWAP [volume-weighted average price] share price of $11.38 prior to the reference date (Nov 11 to Nov 22).”
“We believe management will look to further enhance shareholder returns in the near-term, with the potential to implement a NCIB and a quarterly Board review of the dividend (something that previously occurred annually).”
Mr. MacNeil also thinks the Calgary-based company’s business is “showing consistently strong performance” with “the challenges associated with the Exterran transaction are now in the rearview.”
" With Q3/24 results, Enerflex reached the upper end of its target leverage range of 1.5-2.0 times (Q3/24 TTM [trailing 12 months]: 1.9 times) and, as a result, increased its dividend by 50 per cent,” he said. “This was characterized as a ‘first good step’, hinting that further enhancement to shareholder returns could emerge as Enerflex trends toward the lower end of its target leverage range. Based on continued strong performance, as well as comparables both in the U.S. contract compression space and Canadian companies that feature recurring cash flow profiles (Q3/24: 65 per cent of consolidated gross margin recurring/ contracted), we believe that a multiple expansion thesis could play out in the near-term.”
Mr. MacNeil reaffirmed a “buy” rating and $15 target for Enerflex shares. The current average is $12.66.
“Enerflex remains at the top of our pecking order and reflects our view that multiple expansion could occur in the near term,” he said.
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In other analyst actions:
* Ahead of its Nov. 25 quarterly release, Canaccord Genuity’s Luke Hannan raised his Alimentation Couche-Tard Inc. (ATD-T) target to $85 from $83 with a “buy” rating. The average is $88.44.
“We have rolled forward our valuation methodology to reflect progression throughout the current fiscal year,” he said.
“We believe Couche-Tard’s organic growth initiatives should be supportive of consolidated margin expansion over the course of our forecast period, while structural market dynamics suggest fuel margins over the medium-to-long term should remain healthy.”
* Scotia’s Himanshu Gupta bumped his Automotive Properties REIT (APR.UN-T) target to $13 from $12.50 with a “sector perform” rating. The average is $13.25.
“Going into 2025, this almost looks like APR 2.0. (i) APR is now entering the U.S. automotive dealership market, and the heavy construction equipment dealership market in Canada,” said Mr. Gupta. “The cap rates are similar at mid-6 per cent to mid-7 per cent, and the strategy is very similar to that of automotive dealerships in Canada. (ii) APR is now prepared to sell assets that could be used for higher and better use.”
“APR has averaged $70-million of acquisitions annually in the last five years, and there is opportunity to double the pace going forward. We think U.S. Net Lease REITs with healthy M&A profiles at attractive investment spreads, tend to trade at premium to NAV. APR trades at 7-per-cent discount to NAV and offers an attractive 6.8% distribution yield.”
* CIBC’s Mark Petrie increased his George Weston Ltd. (WN-T) target to $269 from $254 with an “outperformer” rating. Other changes include: Desjardins Securities’ Chris Li to $255 from $232 with a “buy” rating, BMO’s Tamy Chen to $221.50 from $220 with a “market perform” rating and Scotia’s John Zamparo to $218 from $222 with a “sector perform” rating. The average is $241.21.
“Given WN’s simple structure with two high-quality assets (L and CHP.UN) and strong financial position, we believe a holdco discount of 10 per cent is appropriate (vs 16 per cent currently),” said Mr. Li. “An improvement in sentiment on the REITs could be a catalyst for the discount to narrow. After raising our target for L, we are increasing our target for WN to $255 (based on a 10-per-cent holdco discount). We have a preference for WN over L based on a higher expected return of 18 per cent vs 8 per cent.”
* Berenberg’s Aron Ceccarelli cut his target for Nutrien Ltd. (NTR-N, NTR-T) to US$54 from US$59 with a “buy” rating. The average is US$57.30.
* RBC’s Pammi Bir increased his RioCan REIT (REI.UN-T) target by $1 to $22, above the $21.88 average, with an “outperform” rating.
“We believe REI continues to setup well in the face of a slowing economy,” he said. “Another round of leasing advances is particularly encouraging and speaks to the material improvements in portfolio quality and resilience. They also setup SP NOI growth to accelerate in the year ahead. A potential monetization of all or a portion of the multi-family rental portfolio could also lead to multiple options to accretively redeploy capital. In short, we like the risk/reward mix at current levels.”