Inside the Market’s roundup of some of today’s key analyst actions
Canadian Tire Corp. Ltd. (CTC.A-T) finished 2022 “on a high note,” according to Desjardins Securities analyst Chris Li, who warned of “some turbulence ahead.”
“We believe the strong 4Q results highlight the resiliency of the Retail model, supported by its deep and broad product assortment, strong base of Triangle loyalty members and data analytics capabilities,” he said in a research note released Friday. “Results will be challenging in 1H23 but we believe this is largely priced in at 10.5 times forward P/E [price-to-earnings] vs the 12–13 times average. Given the strong share price performance (up 22 per cent year-to-date), we expect the stock to be rangebound until there is better macro visibility.”
Mr. Li was one of several equity analysts on the Street to raise their financial forecast and target price for shares of the retailer following Thursday’s release of its fourth-quarter results, which drew almost universal praise and sent its shares higher by over 5 per cent.
Canadian Tire reported normalized earnings per share of $9.34, easily exceeding both Mr. Li’s estimate of $7.34 and the consensus projection on the Street of $7.46.
“Retail outperformance was driven by solid sales growth across all banners and stronger gross margin,” he said. “While 4Q was strong, management is cautious about 1H23. Elevated dealer inventory (up 10 per cent year-over-year) will have a $150-million impact on CTR revenue (skewed toward 1Q). This is in addition to softening spending on discretionary products, trade-down to discount and tough year-ago comps (vs 1H22). Margins will also be impacted by higher promotional intensity and unfavourable mix (lower seasonal product revenue). SG&A expenses will be elevated due to higher supply chain costs (inventory), investments in IT, real estate, normalization of marketing spend and higher store personnel expenses. Higher net write-offs/allowance provision will put some pressures on Financial Services earnings.”
Despite the expectation for growing headwinds, Mr. Li said he expects Canadian Tire to “navigate through the turbulence, supported by its ability to offer value to customers through its Triangle loyalty program, multi-product assortment (essential products and owned brands) and improved omnichannel experience.”
“This is evident by an increase in spend by low-/middle-income customers in 4Q,” he added. “Lower freight/transportation costs and easing SG&A pressures as the supply chain improves and inventories normalize should be a tailwind in 2H23.”
With an increase to his full-year 2023 earnings expectation, Mr. Li hiked his target for Canadian Tire shares to to $205 from $195 with a “buy” rating. The average on the Street is $196.50, according to Refinitiv data.
“While further share price volatility is possible in the near term, especially following its strong share price performance (up 22 per cent year-to-date), we maintain our positive long-term view,” he said.
Other analysts making target adjustments include:
* National Bank Financial’s Vishal Shreedhar to $195 from $164 with an “outperform” rating.
“We consider results to be solid given an EPS beat vs. NBF/consensus, reflecting stronger than expected same-store sales growth across all banners, partly offset by a weaker than expected performance in Financial,” he said.
“We believe that valuation is attractive at 9.2 times our NTM [next 12-month] EPS versus the five-year average of 11.3 times.”
* Canaccord Genuity’s Luke Hannan to $203 from $181 with a “buy” rating.
“Management continues to expect a more challenging near-term outlook, owing to (1) strong comps and (2) higher-than-usual levels of CTR Dealer Spring/Summer inventory, which should impact H1/23 revenues by $150 million, the brunt of it being felt in Q1/23,” said Mr. Hannan. “That said, the setup in H2/23 looks more favourable, with (1) deflation in freight rates and commodity costs that should provide an added tailwind to product margins and (2) cycling against periods of higher IT spend associated with CTC’s Better Connected strategy, which should lead to operating leverage in the back half of the year. Overall, the company expects to preserve the gross margin rate expansion witnessed since 2019, consistent with expectations laid out during its Investor Day.”
* Scotia Capital’s George Doumet to $196 from $180 with a “sector outperform” rating.
“Bottom line, given our expectations for (only) a modest slowdown, we believe the market may be pricing in an overly pessimistic scenario over the NTM. CTC shares trading at a 20-per-cent discount (on 24e vis-à-vis its NTM historical average), largely in line with 2008/09 levels,” said Mr. Doumet.
* RBC’s Irene Nattel to $225 from $222 with an “outperform” rating.
“Tweaking forecasts to reflect impressive Q4 results, solid consumer sellthrough notably at CTR and Marks, resilient gross margin and solid performance and KPIs from CTFS,” said Ms. Nattel. “While we maintain a cautious outlook at this time due to diminished visibility as we head into a probable recession, we believe Q4 results clearly demonstrate the adaptability of CTC’s assortment to changing consumer demand patterns, augmented by improving gross margin management. Current share price presents long-term investors with a compelling investment opportunity, in our view.”
* BMO’s Peter Sklar to $196 from $181 with an “outperform” rating.
“We believe the Canadian Tire model continues to demonstrate its resilience in the face of headwinds, due to its extraordinarily broad assortment, extensive ‘owned brands’ program, and broad penetration of the Triangle Loyalty program,” said Mr. Sklar. “However, Q1/23 and Q2/23 results could be pressured due to the well-disclosed issue that Dealers were left with too much Spring/ Summer inventory from last season, and strong comparable quarters on a three-year stacked basis due to the impact of COVID.”
* CIBC’s Mark Petrie to $195 from $185 with an “outperformer” rating.
* TD Securities’ Brian Morrison to $215 from $200 with a “buy” rating.
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Ahead of the start of first-quarter earnings season for Canadian banks late next week, a trio of equity analysts made notable adjustments to their target prices for stocks in the sector on Friday.
In a research report released before the bell titled The Fast and The Furious: Why The Rally in Canadian Bank Stocks Can’t Last, Scotia Capital analyst Meny Grauman said he remains “cautious” heading
“Yes, bank shares started off the year on the right foot, but we don’t believe that this Fast and Furious rally can last. To quote the great Vin Diesel in Fast and Furious 4: Tokyo Drift, “You know this ain’t no 10-second race,” he said.
Mr. Grauman is forecasting the sector will generate core cash earnings per share of $2.35, an increase of 5 per cent from the fourth quarter of 2022 but 4 per cent lower than the same period a year ago.
“The recent rally in Canadian bank stocks has clearly been driven by improving sentiment rather than changing fundamentals as 2023 consensus EPS estimates for the group as a whole have remained remarkably stable since Q4 reporting season, and, if anything, are biased downward through earnings season in our view,” he said.
“Digging deeper into our expectations for the quarter, net interest margins will remain a key focus for investors this reporting season, but the margin picture has become more complicated given rate gyrations and the prospect of rising deposit betas. There is no doubt that the market’s almost singular focus on margins has already begun to weaken as capital concerns have taken some of that spotlight away. A more challenging capital and regulatory environment for banks (all the banks will reflect a higher tax rate and the impact of the Canada Recovery Dividend in their results this quarter) is something that we are very concerned about, and another key area where lifecos stand out versus banks right now.”
Given that view, he made these target changes:
- Canadian Imperial Bank of Commerce (CM-T, “sector perform”) to $65 from $68. The average is $63.75.
- Canadian Western Bank (CWB-T, “sector perform”) to $28 from $29. Average: $31.07.
- Laurentian Bank of Canada (LB-T, “sector perform”) to $38 from $39. Average: $40.46.
- National Bank of Canada (NA-T, “sector outperform”) to $111 from $115. Average: $103.38.
- Royal Bank of Canada (RY-T, “sector outperform”) to $146 from $149. Average: $141.84.
- Toronto-Dominion Bank (TD-T, “sector perform”) to $104 from $100. Average: $101.89.
“We believe that TD and CM are best positioned to outperform market expectations this quarter, while we enter earnings season more cautious on BMO [”sector outperform” and unchanged $151 target] and NA and relatively neutral on RY,” he said. “TD should continue to deliver peer-leading margin expansion and strong expense management, while CIBC should be able to further temper capital fears by delivering a CET1 ratio of around 11.5 per cent, while reporting a better quarter for margins (we assume flat Q/Q), credit and expenses versus what we saw last quarter.”
“As a result, in terms of positioning into the quarter, we prefer TD and CM over BMO and NA, even as BMO remains our favorite longer-term name in the space. Among the smaller banks we prefer CWB over LB for the quarter.”
Conversely, Credit Suisse’s Joo Ho Kim is expected to see “solid” underlying growth in the quarter, leading him to raise his targets for the majority of banks in his coverage universe.
“The Canadian bank stocks are having a strong start to the year, with the group now trading up 11 per cent year-to-date on average and outperforming the broader index by 300bps,” he said. “While we certainly see such outperformance as deserving of the banks’ earnings power and balance sheet strengths, we believe it will take some time for the improved macroeconomic outlook to be reflected in our (and consensus) estimates. In that regard, we will look for signs of outperformance from the banks this quarter on earnings (and NII) resilience, in addition to credit and capital results, before we get more positive on our numbers, especially given the several headwinds we still see in our forecast period.”
- Bank of Montreal (BMO-T, “outperform”) to $150 from $143. Average: $142.63.
- Bank of Nova Scotia (BNS-T, “neutral”) to $76 from $73. Average: $77.87.
- Canadian Imperial Bank of Commerce (CM-T, “neutral”) to $64 from $63. Average: $63.75.
- Canadian Western Bank (CWB-T, “neutral”) to $29 from $26 . Average: $31.07.
- Laurentian Bank of Canada (LB-T, “underperform”) to $35 from $34. Average: $40.46.
- National Bank of Canada (NA-T, “outperform”) to $110 from $109 . Average: $103.38.
Mr. Kim reduced his Toronto-Dominion Bank (TD-T, “neutral”) target by $1 to $97, below the $101.89 average.
“Among our Outperform names, our pecking order remains BMO, NA, and RY,” said Mr. Kim.
Elsewhere, CIBC World Markets’ Paul Holden said he remains “cautious on the sector,” citing “higher capital requirements, higher credit losses and potential downside to NIM expectations.”
“We estimate 8-per-cent sequential EPS growth on average, with NA and RY posting the best results. NA and RY remain our two Outperformers,” he said.
“We have lowered our adjusted EPS estimates for F2023 and F2024 by roughly 1 per cent on average, mostly due to the inclusion of the domestic surtax. For FQ1, our adjusted EPS estimates are largely unchanged, as rebounding equity markets should help marketsensitive revenue streams.”
However, he raised his targets for these stocks:
- Bank of Montreal (BMO-T, “neutral”) to $150 from $135. Average: $142.63.
- Bank of Nova Scotia (BNS-T, “neutral”) to $80 from $76. Average: $77.87.
- Canadian Western Bank (CWB-T, “neutral”) to $31 from $27. Average: $31.07.
- National Bank of Canada (NA-T, “outperformer”) to $112 from $110. Average: $103.38.
- Royal Bank of Canada (RY-T, “outperformer”) to $150 from $140. Average: $141.84.
- Toronto-Dominion Bank (TD-T, “neutral”) to $100 from $96. Average: $101.89.
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With its outlook for 2023 and beyond “strengthening” following better-than-anticipated fourth-quarter results and guidance, ATB Capital Markets analyst Chris Murray upgraded Waste Connections Inc. (WCN-N, WCN-T) to “sector outperform” from “sector perform” to reflect a “positive view” of its cash flow profile and prevailing valuations.
“WCN delivered solid Q4/22 results underpinned by strong price-led growth and a positive impact from M&A, which have continued into Q1/23,” he said. “Guidance for 2023 calls for double-digit revenue growth and margin expansion despite pressure from recycling prices, particularly in H1/23. Management issued upbeat commentary on its overall growth outlook, and we see a strengthening M&A environment and stabilizing recycled commodity prices offering potential upside.”
After the bell on Wednesday, the Toronto-based company reported revenue and adjusted fully diluted earnings per share of $1.87-billion and 89 cents, respectively, topping Mr. Murray’s estimates of $1.85-billion and 88 cents. Its guidance now calls for year-over-year revenue, Adjusted EBITDA, and Adjusted free cash flow growth of 12 per cent, 13 per cent and 10 per cent, respectively.
“Management’s outlook reflects expectations for continued core price growth (up 9.5 per cent), approximately 75 per cent of which is already locked in, stable volumes, and a 5-per-cent rollover contribution from M&A,” he said. “Margins are expected to expand by 30 basis points year-over-year despite a 100 basis points drag from recycling, reflecting the underlying strength of solid waste. Management also issued guidance for Q1/23 that calls for revenue and EBITDA of $1.89-billion and $586-million, respectively.
“Guidance includes conservative assumptions around recycled commodities and RIN prices. While commodities are expected to remain a challenge in H1/23, we see stabilizing prices for recycled commodities and a strengthening M&A environment offering potential upside to guidance.”
Raising his 2023 and 2024 financial estimates, Mr. Murray bumped his target for Waste Connections shares to $210 from $200. The average is US$153.12.
Elsewhere, others making target changes include:
* RBC’s Walter Spracklin to US$150 from US$148 with an “outperform” rating.
“WCN delivered on another solid quarter (above expectations) and announced its 2023 guidance which, while inline, we consider to be of notably high quality. With WCN benefiting from solid fundamentals (led by best ever pricing), margin enhancement opportunity and continued acquisition upside, we see nice upside for additional upside,” said Mr. Spracklin.
* BMO’s Devin Dodge to US$153 from US$158 with an “outperform” rating.
“We believe there is an attractive setup for WCN in 2023 from strong price and attractive underlying margin expansion, while a recovery in commodity values (recycling, RINs) and additional M&A provide upside risk to earnings estimates,” he said.
* Stifel’s Michael Hoffman to US$168 from US$165 with a “buy” rating.
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Canaccord Genuity analyst Matthew Lee warns Chorus Aviation Inc.’s (CHR-T) “Transition to asset-light model will take time to come to fruition.”
Accordingly, despite released better-than-expected fourth-quarter 2022 EBITDA after the bell on Wednesday, he lowered his recommendation for its shares to “hold” from “buy” previously.
The Halifax-based company reported EBITDA of $129.5-million, exceeding both Mr. Lee’s $119.9-million estimate and the consensus forecast of $119.4-million. Adjusted earnings per share of 11 cents was 2 cents below projections.
Its guidance was the chief cause of concern for investors, who sent sent its shares down 6.6 per cent on Thursday. Management expects EBITDA for the current fiscal year of between $410-450-million, below Mr. Lee’s $485-million projection and the Street’s expectation of $485-million “as the leasing segment is expected to see a decline in revenue run-rate from H2/22 commensurate with asset sales.”
“Our key takeaway from the quarter, however, was the company’s lower-than-expected 2023 guidance, which reflects the company’s transition to an asset-light fund management model,” the analyst said. “We were somewhat surprised by the impact of asset sales on RAL’s 2023 revenue and EBITDA but recognize that there are puts and takes in the segment as it shifts. Management will continue to explore opportunistic aircraft sales, expecting US$50-$100-million in sales for F23 and the wind-down of US$400-million by the end of F25.
“We believe Chorus’ investment thesis will strengthen as it de-levers its balance sheet and shifts its revenue mix toward recurring management fees over the next two years but note that it will take time and execution to reach its final goal.”
Mr. Lee said he continues to “appreciate the long-term opportunity ahead of Chorus,” however he emphasized “the near-term opacity associated with its transition.”
That led him to lower his financial forecast and target for its shares to $4 from $4.50, below the $4.64 average.
“On the call, management highlighted the potential for growth in adjacent and complementary specialty aviation business lines, such as defence and parts sales. We believe this will lead CHR to identify additional avenues for growth over the long term that are in close alignment with RAS’s current operations,” he concluded.
Elsewhere, National Bank’s Cameron Doerksen trimmed his target to $4.50 from $4.80 with an “outperform” rating.
“We remain positive on the outlook for the regional aircraft leasing market and expect the company’s shift to an asset light model to drive better free cash flow and shareholder returns,” said Mr. Doerksen.
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While initial investor reaction was negative, National Bank Financial analyst Vishal Shreedhar saw MTY Food Group Inc.’s (MTY-T) fourth-quarter 2022 results as “solid” despite “numerous pressures.”
Shares of Montreal-based company, which franchises and operates restaurants under over 80 different banners including Thai Express and Country Style, dropped 5.5 per cent on Thursday even though its results exceeded the Street’s expectations.
Adjusted earnings before interest, taxes, deprecation and amortization increased to $53.5-million from $42.8-million during the same period a year ago, topping both Mr. Shreedhar’s $48.9-million estimate and the consensus projection of $49-million. System sales rose to $1.207-billion from $963-million, also topping the analyst’s forecast ($1.175-billion) as Canadian sales
“MTY noted that traffic remained solid and that consumers have been accepting of prices increases,” he said. “In addition, the competitive backdrop has remained largely rational, with a focus on protecting margins.
“MTY opened 60 new locations during Q4/F22; however, store closures of 178 (46-per-cent street front; 25-per-cent malls/office towers; 29-er-cent other non-traditional formats) were higher than expected.”
Given the sector-wide turbulence brought on by difficult macroeconomic conditions, Mr. Shreedhar thinks capital allocation will be the focus of both the company and investors in the near term.
“MTY’s leverage is elevated but expected to improve (we calculate current net-debt-to-EBITDA at 3.6 times, declining to 3.1 times by the end of F2023),” he noted. “MTY is continuing to evaluate acquisition opportunities. We consider acquisition growth to be a key driver for MTY.
“We remain constructive on MTY given attractive valuation, expectations of improving operational performance (digital sales, menu innovation, marketing, data analytics), and supportive capital allocation outcomes such as acquisitions. That said, we also acknowledge heightened risk related to inflation, supply chain, labour and general macroeconomic concerns
Increasing his 2023 and 2024 earnings projections, Mr. Shreedhar raised his target for MTY shares to $73 from $67 with an “outperform” rating. The average target is $71.29.
“The higher price target reflects modestly higher estimates and a higher multiple, reflecting steady execution despite macroeconomic challenges,” he said. “MTY currently trades at pro forma 10.4 times NTM [next 12-month] EBITDA versus the five-year average of 10.7 times.”
Elsewhere, CIBC’s John Zamparo downgraded MTY to “neutral” from “outperformer” and cut his target to $73 from $77.
“We believe MTY’s business model of significant, consistent cash generation, appropriately allocated towards M&A and capital returns, has a rightful place in investors’ long-term portfolios,” said Mr. Zamparo. “That said, with the stock appreciating 21 per cent year-to-date, and valuation now above recent history, we believe investors can find a more attractive entry point. We are encouraged by recent deals and sales recoveries, but for the stock to re-rate higher, we believe investors will need a shorter timeline to more M&A, or progress towards net unit growth, which probably requires further enhancement to franchisee profitability.”
Others making changes include:
* Acumen Capital’s Nick Corcoran to $84 from $80 with a “buy” rating.
“We expect momentum to continue to build following the acquisition of Wetzel’s Pretzels,” he said.
* Scotia Capital’s George Doumet to $75 from $66 with a “sector perform” rating.
“Following a 25-per-cent-plus rally year-to-date, we believe MTY shares were “priced for perfection” heading into the print– and although earnings were strong, net store closures came in stubbornly elevated at 118 (vs. our 35),” said Mr. Doumet. “Bottom line: with shares trading at 10 times EBITDA 24e (or in line with MTY’s historical average) and a balance sheet at the company’s comfort zone, we believe the risk/reward at these levels is balanced.”
* Raymond James’ Michael Glen to $65 from $64 with a “market perform” rating.
“While we acknowledge that MTY’s valuation, which is sitting at roughly 10.0 times forward EBITDA on a pro-forma basis (including Wetzel Pretzel), is reasonable in the historical context, but we would opt to be more opportunistic in selecting an entry point on the shares,” he said. “From that perspective, and as we assess and gauge investor interest in the name, we believe that there are two things in particular that would benefit the stock: 1. A committed and communicated plan to repurchase shares consistently every quarter; and/or 2. Communication of a capital investment program that will include explicit targets for net store openings and organic sales growth.”
* RBC’s Sabahat Khan to $69 from $59 with a “sector perform” rating.
* TD Securities’ Derek Lessard to $67 from $65 with a “hold” rating.
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Seeing it “built for growth” and touting its “margin of safety,” Scotia Capital analyst Jonathan Goldman initiated coverage of BRP Inc. (DOO-T) with a “sector outperform” rating on Friday.
“BRP is an original equipment manufacturer (OEM) of powersports products that was a COVID-19 pandemic winner,” he said. “Those benefits have mostly faded, but concerns about the company overearning have lingered. Rising rates have also raised concerns about a slowdown in consumer spending. Both concerns are valid – we are Street low for F2024 and below the company’s F2025 targets – but are overly discounted in the shares, in our view.”
“Between F2013 and F2020, BRP grew sales, EBITDA, and EPS at an 11-per-cent, 13-per-cent, and 15-per-cent CAGR [compound annual growth rate], respectively, through a playbook of share gains, expense management, and buybacks. The company is constantly introducing new products and entering new categories; e.g., all-terrain vehicles (ATVs), side-by-side vehicles (SSVs), three-wheeled vehicles (3WVs), and two-wheeled vehicles (2WVs). Combined with its best-in-class dealer value proposition, BRP has a history of displacing incumbents. Recent investments in its Mexico manufacturing footprint have lowered the cost base and enhanced operating leverage. Management has a track record of shareholder-friendly moves, returning more than $2.7 billion to shareholders, approximately 30 per cent of its market cap, through dividends and buybacks since 2013.”
While he cautioned that the “COVID-19 bump” enjoyed by the industry has “mostly faded,” Mr. Goldman thinks BRP is positioned to build on its investments during that boom period, allowing it to maintain “strong retail and share gains.”
He set a target of $143 per share, exceeding the $133.39 average.
“BRP is a high-quality cyclical, but a cyclical nevertheless; i.e., we forecast trough earnings in F2024 (FYE January 31, 2024) and mid-cycle in F2025 (FYE January 31, 2025),” he said. “Shares are trading at 6.4 times on our F2025estimates and 6.0 times on the company’s F25 targets. We are conservatively arguing for a multiple of 7.0 times EV/EBITDA on our F2025 estimates, closer to its historical average of 8.0 times. Our estimates equate to 8.2 times EV/EBITDA on our Street-low F2024E. We forecast exit leverage of 1.6 times in F2023 and 1.2 times in F2024. With a comfort range closer to 2.0 times, we estimate BRP can deploy more than $1 billion toward various return-of-capital scenarios. Since F2015, the company has reduced its share count by more than 30 per cent.”
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In other analyst actions:
* Evercore ISI’s Omar Saad lowered Canada Goose Holdings Inc. (GOOS-N, GOOS-T) to “in line” from “outperform” and cut his target to US$20 from US$25. The average is US$20.60.
* TD Securities’ Aaron MacNeil downgraded North American Construction Group Ltd. (NOA-T) target to “hold” from “buy” with $26 target, up from $25. Others making changes include: National Bank’s Maxim Sytchev to $27 from $24 with an “outperform” rating and Canaccord Genuity’s Yuri Lynk to $26 from $22 with a “buy” rating. The average is $24.40.
* Credit Suisse’s William Janela lowered his Cenovus Energy Inc. (CVE-T) target to $33 from $34 with an “outperform” rating, while BMO’s Randy Ollenberger cut his target to $32 from $33 with an “outperform” rating. The average is $32.71.
“Cenovus posted weaker-than-expected results, largely due to another soft quarter at its U.S. manufacturing segment,” said Mr. Ollenvberger. “The ramp-up at the Toledo refinery has been pushed back from the end of Q1 to mid-Q2. Furthermore, Cenovus now expects to reach its net debt floor at the end of the third-quarter primarily due to a large cash tax headwind. We continue to see solid value in Cenovus’ upstream assets and see further upside in H2/23 once all its downstream assets become fully operational.”
* CIBC’s Dean Wilkinson raised his Choice Properties REIT (CHP.UN-T) target to $15.50 from $15.25, keeping a “neutral” rating, while Desjardins Securities’ Kyle Stanley bumped his target to $15.50 from $15 with a “hold” rating. The average is $15.63.
* RBC’s Pammi Bir raised his Dream Industrial REIT (DIR.UN-T) target to $17 from $15.50 with an “outperform” rating, while Desjardins Securities’ Kyle Stanley bumped his target to $17 from $15.50 with a “buy” rating. The average is $16.13.
“Post Q4 results that modestly exceeded our call, our constructive view is intact. Supported by low availability and rising market rents, we believe DIR’s in solid shape to continue delivering robust organic growth in the year ahead. As well, the acquisition of SMU moves the ball further down the field strategically, significantly improving DIR’s competitive positioning among Canadian industrial players. Bottom line, we see a good mix of value and growth,” said Mr. Bir.
* RBC’s Jimmy Shan moved his target for Dream Residential REIT (DRR.U-T) to US$10 from US$9.50 with a “sector perform” rating, while TD’s Jonathan Kelcher raised his target to US$13 from US$12 with a “buy” rating. The average is US$11.31.
“Overall, DRR reported an in-line quarter,” said Mr. Shan. “Early stage growth by acquisition stories continue to be challenged by today’s volatile cost of capital and thin transaction market. However, there were a number of encouraging points in the quarter, including new lease spreads higher than peers from its value-add activities and market mix, its prudence in acquisitions, initiation of an NCIB and financial flexibility. At an implied 7.75-per-cent cap rate, DRR does provide a valuation buffer to compensate for its trading illiquidity.”
* Prior to its Feb. 22 earnings release, Citi’s Paul Lejuez trimmed his Gildan Activewear Inc. (GIL-N, GIL-T) target to US$43 from US$48 with a “buy” rating. The average is US$37.10.
“We expect GIL’s 4Q22 EPS will be slightly ahead of consensus,” he said. “Despite a tough demand backdrop, we believe the low double-digit price increase that GIL took in 3Q22 will still act as a driver of sales. We are looking for sales up 0.2 per cent vs consensus of down 2.6 per cent. We estimate operating margin of 18.2 per cent vs cons of 17.8 per cent and EPS of $0.70 vs cons of $0.68. Mgmt commentary is likely to indicate that the demand backdrop has become more challenging, which is likely to impact 1H23 guidance and results, and cause F23 EBIT margins to be closer to the lower end of its 18-20-per-cent target range, which may pressure shares near-term. We believe GIL’s larger customers are likely in a period of destocking (where orders are running below POS trends).”
* Scotia Capital’s Phil Hardie raised his Goeasy Ltd. (GSY-T) target to $170 from $165 with a “sector perform” rating, while BMO’s Étienne Ricard bumped his target to $196 from $192 with an “outperform” rating. The average is $197.33.
“Goeasy’s record fourth-quarter results likely continue to demonstrate management’s ability to deliver prudent growth and solid credit performance against the backdrop of a transitioning economy and competitive landscape,” said Mr. Hardie. “The common theme for many lenders is likely an expectation of slowing loan growth; however, goeasy remains a major outlier with its loan growth expected to expand at a robust pace. Investors are likely to judge success based on how well the company ultimately manages the credit performance of the loan portfolio as the economy slows. A positive outcome is likely to support a sustainable re-rate. The quarter provided an encouraging early data point, however, employment markets remain robust and the true proving ground is through a period of economic weakness that coincides with a sustained rise in unemployment.”
* CIBC’s Anita Soni cut her Kinross Gold Corp. (KGC-N, K-T) target to US$4.75 from US$5.80 with a “neutral” rating. Others making changes include: TD Securities’ Greg Barnes to US$6 from US$6.50 with a “buy” rating and Scotia Capital’s Tanya Jakusconek to US$5.50 from US$6 with a “sector outperform” rating. The average is US$5.45.
* RBC’s Darko Mihelic increased his Manulife Financial Corp. (MFC-T) target to $28 from $26 with a “sector perform” rating. Others making changes include: Barclays’ John Aiken to $30 from $28 with an “overweight” rating, Desjardins Securities’ Doug Young to $28 from $26 with a “hold” rating and Canaccord Genuity’s Scott Chan to $29 from $27 with a “hold” rating. The average is $28.27.
“Our (higher) EPS estimate is essentially an approximation of what we think earnings power might be under IFRS 17 (true for all lifecos we cover) and likely contains a higher than usual degree of modeling error,” said Mr. Mihelic. “We remind investors that the Asian ‘turnaround’ is probably going to be “real” but under IFRS 17 earnings will be smoothed out as profit is no longer front-ended. Meanwhile as AUM [assets under management] grows for the wealth business, earnings will improve.”
* CIBC’s Dean Wilkinson hiked his target for Morguard North American REIT (MRG.UN-T) target to $23 from $20.50 with an “outperformer” rating. The average is $22.25.
* JP Morgan’s Jeffrey Zekauskas cut his Nutrien Ltd. (NTR-N, NTR-T) target to US$92 from US$95 with an “overweight” rating. Others making changes include: TD Securities’ Michael Tupholme to US$88 from US$91 with a “hold” rating and Scotia Capital’s Ben Isaacson to US$95 from US$100 with a “sector perform” rating. The average is $98.75.
“We reduced our PT to $95/sh – not because We think the stock is worth that much less today than yesterday, but because we have reduced confidence in the catalysts needed to close the valuation gap,” said Mr. Isaacson. “That’s not to say it won’t happen; it’s just starting to feel like tail risk. We believe potash prices will grind lower through the summer, or once any spring rush winds down. Perhaps we will indeed see production, trade flow, or consumption data to support a more bullish outlook, but we haven’t seen it yet. In fact, we’re below the low end of NTR’s ‘23 guide on potash volume. Also, looking at energy price differentials for the balance of the year, it’s hard to see how nitrogen margins improve (ex urea). It could happen, but the likelihood remains low. Beyond what could be a short-lived spring trade, we really don’t see what drives the shares higher on a sustained basis.”
* Following Thursday evening’s release of its year-end 2022 reserves and 2023 budget. Canaccord Genuity’s Mike Mueller cut his Peyto Exploration & Development Corp. (PEY-T) target to $14.75 from $16.75 with a “hold” rating, while Stifel’s Michael Dunn lowered his target to $17 from $18 with a “buy” rating. The average is $17.25.
* CIBC’s Dean Wilkinson increased his RioCan REIT (REI.UN-T) target by $1 to $25, above the $24.69 average, with an “outperformer” rating. Others making changes include: Scotia Capital’s Mario Saric to $26 from $26.25 with a “sector outperform” rating and TD Securities’ Sam Damiani to $26 from $25 with a “buy” rating.
* Jefferies’ Christopher LaFemina raised his Teck Resources Ltd. (TECK.B-T) target to $75 from $65, exceeding the $61.64 average, with a “buy” rating.
David Leeder