Inside the Market’s roundup of some of today’s key analyst actions
Following “a solid quarter with strength in revenues, capital, and execution,” Canadian Imperial Bank of Commerce (CM-T) deserves higher earnings per share estimates and valuation, according to RBC Dominion Securities analyst Darko Mihelic.
“Two things in particular stood out for us this quarter: (1) most of the U.S. CRE issues have been resolved (early), and (2) the DRIP comes off in Q3/24,” he said in a research report. “We remove CM’s discounted DRIP starting in Q3/24 which boosts our core EPS estimates slightly, and change our PCL estimates which essentially has a bounce in earnings power. It is still possible that PCLs spike from here so we retain some caution, but all the same we move our target multiple a little higher.”
CIBC shares rose 2.2 per cent on Thursday after it reported first-quarter adjusted earnings per share of $1.81, higher than both Mr. Mihelic’s $1.70 estimate and the consensus projection on the Street of $1.66. The beat came from stronger-tha- expected results in all segments except for U.S. P&C.
“Corporate results were also particularly strong relative to our expectations but even excluding Corporate, we believe CM had a good quarter,” he said.
“We assume improved revenues in Canadian Commercial Banking and lower impaired provisions for credit losses (PCLs) in the U.S., partially offset by reduced estimates for capital markets revenue and corporate earnings, increasing our earnings expectations modestly. We now assume 1 more quarter of the discounted DRIP (we previously assumed it would continue for the rest of fiscal 2024) which also boosts our core EPS estimates higher.”
While Mr. Mihelic said “it is too early to claim victory on PCLs (across all loan categories) as the economy, interest rates, and many other factors are still creating a lot of uncertainty,” he raised his target for CIBC shares to $68 from $63, reiterating a “sector perform” rating. The average on the Street is $65.75, according to LSEG data.
Elsewhere, TD Securities’ Mario Mendonca upgraded CIBC to “buy” from “hold” and raised his target to $70 from $65.
“Similar to the past two quarters, CIBC delivered solid underlying result and currently trades at or near the lowest forward P/E in the group. While we remain sensitive to CM’s greater U.S. CRE exposure (guided to lower charges in Q2/24E) and larger mortgage book, we believe the bank’s superior PTPP growth rate argues for a better relative P/E. We are upgrading CM,” he said.
Other analysts making target adjustments include:
* Scotia’s Meny Grauman to $69 from $67 with a “sector outperform” rating.
“CIBC kicked off F2024 with a peer-leading beat that built on earnings momentum that already began to build for the bank last year,” he said. “Across pretty much every metric CIBC delivered a strong performance including a 10-per-cent EPS beat, a 7-per-cent PTPP beat, positive operating leverage, and margin expansion in both Canada and the US. The capital story also impressed as the bank delivered a CET1 ratio of 13.0 per cent versus the Street at 12.6 per cent, and during the call announced that it would turn off its discounted DRIP after paying its Q2 dividend at the end of April (joining similar announcements at BMO and RY among the large banks). Credit missed us but only by a very small margin and was essentially in line with the Street. This line item had been a spoiler last year, but was drama free in Q1. Although the bank continued to see elevated impaired loss provisions in its U.S. CRE portfolio, management noted that it is through the majority of substantive issues in the U.S. office portfolio, and has not seen any losses over the past 12-months in its multi-family portfolio in either Canada or the U.S..”
* Desjardins Securities’ Doug Young to $66 from $64 with a “hold” rating.
“Adjusted pre-tax, pre-provision (PTPP) earnings and cash EPS beat our estimates. It was a good quarter, with the beat driven by higher NIMs, higher non-interest revenue and lower expenses. However, we find the stock’s lukewarm response surprising and interesting,” said Mr. Young.
* Canaccord Genuity’s Matthew Lee to $67 from $64 with a “hold” rating.
“We continue to value CM at 9.4x P/E, a 6-per-cent discount to the peer group but note that as the firm continues to execute on its mass affluent strategy, there will likely be a narrowing of the valuation gap against peers,” said Mr. Lee.
* BMO’s Sohrab Movahedi to $68 from $67 with an “outperform” rating.
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While ATB Capital Markets analyst Chris Murray continues to see Stantec Inc. (STN-T) “well positioned to benefit from a strong demand environment and active M&A pipeline,” he downgraded it shares to “sector perform” from “outperform,” believing its current valuation is “adequately reflecting the company’s growth and margin outlook.”
On Wednesday, the Edmonton-based design and engineering firm reported fourth-quarter 2023 revenue of $1.242-billion and adjusted fully diluted earnings per share of 82 cents, both falling short of Mr. Murray’s estimates ($1.243-billion and 95 cents, respectively.
“Stantec delivered solid results despite the margin impact created by incentive program (LTIP) mark-to-market adjustments,” he said. “Organic growth remained strong at 7.5 per cent, led by 10.6-per-cent growth in the U.S..
“Recently closed M&A activity prompted management to increase net revenue guidance to 11.0 per cent-15.0 per cent (from 7.0-11.0 per cent) in 2024, reaffirming prior organic growth and margin targets. Management reiterated a positive outlook by region/sector, with growth expected to be led by the U.S. and Global segments.”
While he lowered his earnings per share projections for 2024 and 2025 to $4.26 and $4.73, respectively, from $4.69 and $5.10, Mr. Murray raised his target to $120 from $115. The average is $119.91.
““Organic growth demonstrated continued strength across the Company’s three core regions in Q4/23,” he said. “Strong organic growth and recently closed M&A activity (MH) prompted management to increase full-year net revenue guidance. We continue to see the overall backlog providing good overall visibility for organic growth rates over the medium term, with book-to-bill trends expected to receive a boost as large-scale infrastructure spending commitments are nearing the project execution phase. Management reiterated that demand remains healthy across its core regions and business lines and is not seeing material project cancellations and deferrals due to macro uncertainty. The Company is hiring at an elevated rate, reinforcing the strength of the demand environment in core regions.”
Elsewhere, others making changes include:
* Scotia’s Michael Doumet to $119 from $116 with a “sector perform” rating.
“STN continues to execute well on its organic and inorganic growth initiatives,” said Mr. Doumet. “In 2023, it achieved organic revenue growth of 10 per cent, supported by organic hires of 5 per cent (turnover is also lowest among peers). Moreover, STN recently closed two transactions that should grow its employee base by 6.5 per cent — and the company looks to remain active on M&A. STN updated its 2024 guidance to reflect the addition of MH (otherwise, unchanged). Our view is that STN remains well positioned to meet or exceed its organic growth guidance as it is well-positioned in high-growth end-markets and is executing well on its employee hiring/retention efforts. Overall, it is hard to point to any major negatives for STN. STN is compounding EBITDA/share and EPS at a rate enviable by most companies. That said, with the shares trading at 15.5 times EV/EBITDA on our 2024E — and we assume, not much more in terms of multiple expansion — we see fewer levers for share price appreciation (outside of M&A).”
* National Bank’s Maxim Sytchev to $126 from $116 with an “outperform” rating.
“Good organic growth, dividend increase, M&A optionality post integration of several recently acquired assets, margin improvement and U.S. skew… these are the reasons why investors own the name, and we did not see any red flags in the print even though we would really like the LTIP noise to be fully stripped out from the presentation materials. Otherwise, we continue to believe in the company’s Water / Environmental business as a halo driver while other parts of the business are also contributing nicely as the backlog should be further replenished by the U.S. stimulus,” said Mr. Sytchev.
* Raymond James’ Frederic Bastien to $125 from $120 with an “outperform” rating.
“Stantec delivered largely in-line 4Q23 results, but saw its stock slip 1.5 per cent [Thursday] in a market that was green. We believe this had more to do with expectations running unreasonably high after blowout 3Q23 results, a hugely constructive Investor Day and back-to-back acquisitions, than the quarterly print or the planned retirement of CFO Theresa Jang for later this year. There are many reasons still to feel good about the engineering consultancy. STN is punching above its weight in organic revenue and backlog growth, capitalizing on margin enhancement opportunities, and making sustainability core to everything it does. For these reasons, we reaffirm our Outperform rating on the stock and increase our target,” said Mr. Bastien.
* Stifel’s Ian Gillies to $130 from $120 with a “buy” rating.
“STN continued to deliver another financially and operationally strong quarter with 2024E guidance raised,” said Mr. Gillies. “Our thesis remains unchanged as we believe STN can continue to deliver robust annual EPS growth around 20 per cent through (1) HSD to LSD organic growth; (2) margin expansion to 18.0 per cent by 2026; and (3) sound M&A playbook.”
* RBC’s Sabahat Khan to $123 from $121 with an “outperform” rating.
“Stantec Inc. reported Q4 results that were mixed vs. Street estimates (primarily due to the LTIP revaluation), while the company’s 2024 Net Revenue/EPS guidance was revised higher (to reflect a recent acquisition). Overall, we believe Stantec remains well positioned as we enter 2024 given the strong tailwinds in the company’s end-markets/geographic regions, the company’s sizeable backlog, and the strong balance sheet position,” said Mr. Khan.
* Canaccord Genuity’s Yuri Lynk to $120 from $110 with a “hold” rating.
* CIBC’s Jacob Bout to $120 from $116 with an “outperformer” rating.
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Believing its refinancing initiatives provide near-term financial certainty and reduce downside risks, National Bank Financial analyst Shane Nagle upgraded First Quantum Minerals Ltd. (FM-T) to “outperform” from “sector perform” after coming off research restriction.
“Given a prolonged shutdown at Cobre Panamá would have likely lead to a breach of debt covenants in Q3/24 without further intervention, FM has secured a US$500-million copper prepay agreement with Jiangxi Copper, refinanced its existing US$2.2-billion credit facility, relaxed near-term leverage covenants, raised US$1.15-billion in equity and issued US$1.6-billion of 9.375-per-cent Notes due in 2029,” he said.
“Refinancing initiatives have provided the company with 2 years of runway to generate additional liquidity from the sale of non-core assets like Las Cruces (where the sales process is well advanced) as well as explore the sale of a potential minority stake in its Zambian assets, which we view as the most significant arrow in the quiver to sustainably strengthen the balance sheet in absence of a resolution in Panama.”
First Quantum announced the changes on Wednesday evening alongside the release of fourth-quarter 2023 financial results that fell below both the estimates of both Mr. Nagle and the Street, largely due to higher operating costs and tax charges. The company also reaffirmed its three-year guidance.
“Our Outperform rating takes into account the significant improvement in near-term liquidity outlook which provides sufficient runway to monetize non-core assets like las Cruces and sell a minority stake in the Zambian operations further supporting the long-term outlook for the company,” he said. “While there remains significant uncertainty related to restart of operations at Cobre Panamá and arbitration proceedings, the market is ascribing 1/3 of fair market value for the operation at current share prices, discounting what we believe to be the net recoverable value for the asset. In any event, we do not anticipate any positive headlines related to these pending negotiations until after upcoming federal elections in Panama in May which would potentially provide further value to our Base Case assumptions.”
Mr. Nagle raised his target for First Quantum shares to $16.50 from $15. The average is $15.92.
“Since downgrading to Sector Perform on October 30, 2023, shares have underperformed TSX Global Mining Index, with shares down 38 per cent compared to the TSX Base Metal Index return of 3.7 per cent over the same period,” he added. “FM currently trades at 0.76 times NAV compared to NBF peers at 1.03 times as well as 6.5 times EV/2024E CF compared with NBF copper peers at 6.8 times and industry-leading copper producers closer to 6.6 times. Our $16.50 target price is based on a 1.0 times NAV multiple (as we feel the level of conservatism in our assumptions and application of a 12-per-cent discount rate for Cobre Panamá adequately discounts the valuation).
Elsewhere, Canaccord Genuity’s Dalton Baretto hiked his target to $21 from $17 with a “buy” rating.
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Following a “big” fourth-quarter 2023 revenue and earnings beat and the announcement of “significant” new distributions for shareholders, Raymond James analyst Rahul Sarugaser raised his recommendation for DRI Healthcare Trust (DHT.UN-T) to “strong buy” from “outperform” previously, touting the potential gains from growing demand for synthetic royalties.
“DRI is seeing a significant upwell in demand for synthetic royalties among biopharma companies (de novo royalties created by the drug’s marketer to fund operations vs. traditional royalties, which are held by inventors/academic institutions/small biotechs and monetized directly by royalty players like DRI),” he said. “Management indicates that up to 50 per cent of its deal pipeline comprises synthetic royalties (up from less than 10 per cemt), and DRI intends to allocate 20-40 per cent of assets toward these in them medium-term.
“We highlight this recent ramp in interest around synthetic royalties as a key developing (and overlooked) theme in the drug royalty and biopharma markets, and we believe it represents a significant component of the broad-based increase in demand seen by drug royalty companies such as DRI, RPRX, XOMA, LGND, and others. We understand that biopharma executives are increasingly recognizing royalty financing as a third leg of their financing stool (vs. equity and debt financing). And, importantly, a non-dilutive option. This increase in synthetic royalty demand fundamentally increases the TAM for drug royalty players, representing, we believe, a true sector tailwind (irrespective the biopharma/biotech capital market environment’s quality) that we will be following closely.”
After the bell on Wednesday, the Toronto-based Trust reported quarterly revenue of $75.8-million, up from $34.1-million in fiscal 2022 and exceeding both Mr. Sarugaser’s $34.1-million estimate and the consensus forecast on the Street of $32.4-million. Adjusted EBITDA grew to $46.5-million from $20.3-million and also easily topped projections ($32.5-million and $31.3-million, respectively).
DRI also announced a special cash distribution to unitholders as at Dec. 31 of 26.62 cents per unit and a special unit distribution of 76.40 cents per unit. That was on top of its regular quarterly cash distribution of 7.5 cents per unit.
“Between outperformance in core royalty cash receipts (material sales outperformance of new assets, esp. Orserdu, and more durable-than-expected sales of mature assets) and the trigger of three big sales milestones ($3.4-million from Orserdu I, $30.3-million from Orserdu II, $5.0-million from Vonjo II), DRI blew the doors off its 4Q23,” he said. “And, importantly, DRI shared its windfall with shareholders, announcing distributions equivalent to $1.10/unit during 4Q23 (special cash dist. of $0.2662/unit, special unit dist. equivalent to $0.7640/unit, regular quarterly cash dist. of $0.0750/unit), making up a cumulative FY23 cash and unit distribution of $1.8636/unit worth $92-million. (And, reasonably, the company paid itself a $5.9-million performance fee on these high-profit milestone payments). DRI also escalated its FY24 regular quarterly cash distributions to $0.0850/unit, sweetening the deal for new shareholders interested in a highly-profitable, dividend-paying growth stock.”
Seeing its royalty income guidance for fiscal 2024 as “extremely conservative,” Mr. Sarugaser raised his target for units of DRI, which was on the firm’s “2024 Analysts’ Best Picks” list, to $24 from $22. The average is $21.06.
Elsewhere, others making changes include:
* RBC’s Douglas Miehm to $20 from $19 with an “outperform” rating.
“DRI remains our top choice within our coverage list for 2024 and the strength of the Q4 results, initial conservative guide (in our view) and growing potential royalty pipeline makes us even more comfortable with our view. The management team, having successfully reversed the significant royalty decline at the IPO, has positioned the company to benefit from growth through 2030 and the expected compounding effect on future returns. DRI also increased its quarterly cash dividend by 13 per cent to $0.0850/unit for Q1/24 and the near-term deal pipeline remains robust with nine opportunities with potential deployment of $1.2-billion ($3.7-billion total),” said Mr. Miehm.
* National Bank’s Zachary Evershed to $23.50 from $22 with an “outperform” rating.
* CIBC’s Scott Fletcher to $19.50 from $19 with an “outperformer” rating.
* Stifel’s Justin Keywood to $22 from $21 with a “buy” rating.
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Seeing limited near-term catalysts and a “tight” return to his target price, National Bank Financial analyst Zachary Evershed lowered his rating for GDI Integrated Facility Services Inc. (GDI-T) to “sector perform” from “outperform,” “taking a pause while improvement efforts take hold in Business Services USA and Technical Services, Business Services Canada margin stability proves out, and working capital efficiency gains help delever the balance sheet, restoring greater optionality.”
After the bell on Wednesday, the Lasalle, Que.-based commercial cleaning company reported fourth-quarter revenue of $622-million, up 6 per cent year-over-year but below both Mr. Evershed’s $653-million estimate and the consensus forecast of $642-million. Earnings per share of 26 cents was also weaker than anticipated (48 cents and 37 cents, respectively).
“Technical Services sales came in well below our expectations as a 5-per-cent year-over-year organic decline (NBF estimate: up 13 per cent) was compounded by cost overruns on a few large projects in the U.S.; in response, management notes Ainsworth has been moving away from larger projects in several markets while focusing on increasing the margin profile of project work, whilst building in a highermargin profile in new contracts at the bidding stage to enhance the segment’s profitability, though perhaps at the expense of (some) growth,” said Mr. Evershed.. “We believe this should also provide a buffer should execution fall short, though management highlighted that such mishaps are typically rare. Closing out problematic contracts is expected to have a slight impact on Q1/24, and we therefore trim both our organic growth and profitability estimates for the quarter. Management continues to target Adj. EBITDA margins of 7 per cent for the segment.”
“Management anticipates a net 8-per-cent organic headwind on BSUSA given the Amazon (NASDAQ: AMZN, Not Rated) contract loss. Given the cost-cutting initiatives undertaken by GDI, however, they are not expecting a significant move on the EBITDA dollar line and expect new contract wins will help backfill the top-line contraction at higher margins. We remain cautious, and move our organic growth assumption for the segment to down 4 per cent from up 4 per cent in 2024.”
Lowering his revenue and earnings forecast for 2024 and 2025, Mr. Evershed cut his target for GDI shares to $40.50 from $45. The average is $44.75.
Elsewhere, CIBC’s John Zamparo downgraded GDI to “neutral” from “outperformer” with a $39 target, down from $45.
“We expect challenges in its Technical Services (TS) segment to persist for the next few quarters,” said Mr. Zamparo. “Where we could be under-rating the stock’s prospects is if a medium-sized accretive deal is struck or if working capital improvements manifest more quickly than we expect. However, on each front, we’re cautious to assume too much progress too soon. We reduce our EBITDA estimate modestly for this year, and on a lower target multiple (8.5 times, from 9 times previously, to reflect greater earnings volatility), our price target moves to $39 (from $45), implying limited upside. Improvements under way may ultimately yield a superior operation, but we believe the stock may not reflect this in our 12- to 18-month timeline.”
Target changes include:
* Desjardins Securities’ Frederic Tremblay to $52 from $56 with a “buy” rating.
“Temporary challenges on a few Technical Services projects do not change our view on GDI as a solid long-term investment,” said Mr. Tremblay. “Our constructive view is reinforced by a cheap valuation despite the company’s solid Business Services operations and expectations of further working capital/cash flow improvements.”
* TD Securities’ Derek Lessard to $41 from $45 with a “hold” rating.
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In a research report released Friday titled Hitting the Reset Button, Scotia Capital analyst Jonathan Goldman downgraded Martinrea International Inc. (MRE-T) to “sector perform” from “sector outperform,” citing downside risk to its 2024 guidance, which missed the Street’s projection by 13 per cent at the midpoint.
“We use the 4Q EBIT run-rate of $57 million as a starting point and add back: 1) the resolution of the Tier 2 supplier issue (70 basis point drag to 4Q); 2) the UAW impact; 3) lower tooling sales in 2024; and 4) $28-million of restructuring benefits (over the next six quarters),” he said. “We get to EBIT (margin) of $292 million (5.7 per cent) versus guidance of $306 million (6 per cent) at the midpoint.
“While NA volume guidance could be conservative (the company is assuming15.7 million units; we’re thinking 16 million), we expect European volumes (20 per cent of MRE sales) to decline sequentially through 2024 and EV headwinds to persist (in all regions). Moreover, guidance bakes-in additional commercial recoveries which are not fait accompli.”
Following fourth-quarter results that featured a revenue beat but lower-than-anticipated earnings, Mr. Goldman said Martinrea’s management “definitely deserves credit for executing on improving FCF generation“ and deleveraging.
“But a more volatile operating environment and reduced visibility on the trajectory of margin improvement (particularly as it relates to the current EV drag) keeps us on the sidelines,” he added.
His target slid to $15 from $18.50. The average is $19.33.
Elsewhere, TD Securities’ Brian Morrison lowered Martinrea to “buy” from “action list buy” and dropped his target to $19 from $21.
“Our thesis for placing Martinrea on the Action List has not changed,” he said. “However, it appears it may pause in the near term. We remain constructive on Martinrea’s outlook for generating attractive FCF, which should support the ongoing active NCIB. With lower forecast industry volumes, notably for EVs in launch, we now forecast that 2024 margin expansion will be muted relative to our previous outlook that may deter from near-term asset optimization/scale efficiencies.
“Martinrea has appreciated more than 50 per cent since adding to the Action List in August 2022. We expect a degree of pressure on the shares today, but we see attractive upside potential should it achieve its 2024 guidance, and North American industry volumes re-accelerate. The valuation and FCF outlook are compelling, but could remain so until such catalyst events gain visibility. With downward revisions to our financial forecasts, which in turn reduces our target price, we believe it is appropriate to lower our recommendation.”
Other changes include:
* Raymond James’ Michael Glen to $18 from $20 with an “outperform” rating.
“Putting everything together, we continue to believe the current trading multiple (6.4 times 2024E P/E) represents an attractive entry point vs. Magna (9.7 times 2024E P/E) and Linamar (7.4 times 2024E P/E),” said Mr. Glen. “As a valuation comparison, we use a target multiple of 3.75 times for Martinrea (was 4.25 times), which compares against the 4.75 times EBITDA multiple we use on Magna’s Body and Exteriors (BES) segment. Additionally, MRE business continues to generate a better level of free cash and leverage is now at 1.4 times with our model showing continued deleveraging in 2024.”
* CIBC’s Krista Friesen lowered to $18 from $20 with an “outperformer” rating.
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Desjardins Securities analyst Benoit Poirier sees “value and potential” in Lion Electric Co. (LEV-N, LEV-T), however he warns “it will now take time to crystalize given the current adverse economic environment in the trucking industry, elevated cost of capital and lack of visibility on the timing of government bus subsidy programs.”
Accordingly, preferring to “wait on the sidelines until we gain more clarity on the pace of future deliveries and see improvement in the trend in bookings,” he downgraded its shares to “hold” from “buy” previously following weaker-than-anticipated fourth-quarter results.
“LEV delivered 188 vehicles in 4Q (178 buses, 10 trucks), below consensus of 295,” said Mr. Poirier. “Deliveries were mostly impacted by substantial delays for ZETF program applications (which currently account for more than half of the order book). In this context, a temporary layoff of 100 employees was announced to try to rationalize the cost structure. We have reduced our 2024 and 2025 delivery estimates for both busses and trucks and now forecast 1,420 deliveries in 2024 and 2,050 deliveries in 2025.
“Liquidity profile—focus is on reducing inventory to healthier levels. Cash stood at US $30m, down sequentially from US$36-million, as inventory build-up continued in 4Q. With inventories standing at US$250-million at the end of 2023, LEV is patiently waiting for ZETF applications to kick in to help slow down the cash drag. We now forecast that the company will deplete its cash reserves by the end of 4Q24. That said, we expect ongoing support for the story from its current shareholder base and stakeholders given the company’s crucial position as a leader in the EV transition in North America—in which Lion plays a large part.”
With reductions to his 2024 and 2025 forecast, Mr. Poirier lowered his target for the company’s shares to US$2.50 from US$4. The average is US$3.50.
Other changes include:
* National Bank’s Rupert Merer to US$1.75 from US$2.25 with a “sector perform” rating.
* CIBC’s Kevin Chiang to US$1.70 from US$2 with a “neutral” rating.
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In other analyst coverage:
* RBC’s Maurice Choy raised his Atco Ltd. (ACO.X-T) target to $46 from $45 with a “sector perform” rating, while BMO’s Ben Pham bumped his target to $49 from $48 with an “outperform” rating. The average is $45.71.
“We believe the market will be encouraged by the continued strong performance of the S&L business in 2023 and management’s expectation that ATCO Structures’ earnings is unlikely to contract in 2024. As the market looks forward to seeing these strong S&L earnings materialize in the new year, it will also be watching for any equity needs stemming from CU’s stronger rate base outlook, and what that may mean for ATCO’s capital allocation decisions, recognizing that the Triple M acquisition (and the seemingly successful integration into S&L) suggests there are attractive non-utility opportunities for ATCO to consider as well,” Mr. Choy said.
* RBC’s Luke Davis increased his target for shares of Athabasca Oil Corp. (ATH-T) to $6 from $5.50 with an “outperform” rating, while TD Securities’ Menno Hulshof bumped his target to $6 from $5 with a “buy” rating. The average is $5.29.
“Athabasca posted an in-line quarter with strong operational execution a key focal point. Management remains committed to shareholder returns, exceeding its target in 2023 with plans to exhaust the current NCIB, renew, and shift to 100-per-cent free cash return through 2024. We believe this is resonating with investors and while relatively expensive on current cash metrics, we believe the premium is warranted,” said Mr. Davis.
* National Bank Financial’s Travis Wood raised his Canadian Natural Resources Ltd. (CNQ-T) target to $94 from $90 with a “sector perform” rating. Other changes include: BMO’s Randy Ollenberger to $110 from $105 with an “outperform” rating, Scotia’s Jason Bouvier to $100 from $90 with a “sector perform” rating, RBC’s Greg Pardy to $100 from $94 with an “outperform” rating and Evercore ISI’s Stephen Richardson to $105 from $90 with a “in line” recommendation. The average is $95.61.
“Our bullish stance towards CNQ reflects its strong leadership, shareholder alignment, abundant free cash flow generation, best-in-class operating performance and now 100-per-cent shareholder returns. We are maintaining an Outperform recommendation on CNQ and boosting our one-year price target by $6 (6 per cent) to $100 per share amid modest target multiple expansion. CNQ is our favorite senior producer and on both our Global Energy Best Ideas and Top 30 Global Ideas lists,” said Mr. Pardy.
* Stifel’s Cole Pereira increased his target for CES Energy Solutions Corp. (CEU-T) to $5.50 from $5 with a “buy” rating. Other changes include: TD Securities’ Aaron MacNeil to $6 from $5 with a “buy” rating, RBC’s Keith Mackey to $5.50 from $5 with an “outperform” rating, ATB Capital Markets’ Tim Monachello to $5.25 from $5 with an “outperform” rating and TD Securities’ Aaron MacNeil to $6 from $5 with a “buy” rating. The average is $5.23.
“CES’s 4Q23 adj. EBITDAC was 9/11 per cent above Street/RBC consensus on stronger margins and higher revenue. We increase our 2024/25 EBITDAC estimates by 2 per cent on higher revenues and improved margins given the continued growth of the company’s production chemicals business,” said Mr. Mackey.
* CIBC’s Mark Petrie cut his Empire Company Ltd. (EMP.A-T) target to $40 from $42 with an “outperformer” rating. The average is $39.88.
* ATB Capital Markets’ Tim Monachello raised his Enerflex Ltd. (EFX-T) target to $13.50 from $12 with an “outperform” rating. Other changes include: CIBC’s Jamie Kubik to $8 from $7.25 with a “neutral” rating and Raymond James’ Michael Barth to $11.50 from $11 with an “outperform” rating. The average is $10.70.
“While the market reacted positively to EFX’s 4Q23 results, we still believe a significant discount to fair value exists, with 46-per-cet upside to our revised target of $11.50/share,” said Mr. Barth. “On our numbers, EFX is still trading at a 15-per-cent and 17-per-cent FCFE yield in 2024 and 2025 respectively. In our view, the market still underappreciates the stability of the core Energy Infrastructure and After-Market Service segments, which we estimate are now responsible for 65-70% of run-rate Adj. EBITDA. Near-term concerns about Engineered Systems bookings also appear to be overblown, with bookings holding up well, and margins outperforming our initial estimates. EFX is spitting distance from what we view as a reasonable leverage target, and we continue to believe that increased shareholder returns via an NCIB and/or higher dividend are right around the corner. For all these reasons, we reiterate our Outperform rating.”
* BMO’s Tamy Chen raised his George Weston Ltd. (WN-T) target to $185 from $172, below the $202.86 average, with an “outperform” rating.
* Ms. Chen also cut her NFI Group Inc. (NFI-T) target to $15 from $17 with an “outperform” rating. The average is $15.80.
“We wonder if current 2024 and 2025 EBITDA guidance is sufficiently derisked to reflect labour tightness and lingering pockets of supply chain disruptions. We suspect [Thursday’s] stock reaction (down 3 per cent) is reflecting a similar view. We remain Outperform as we continue to see value in the stock based on our forecasts for improving profitability during 2024 and solid performance in 2025,” she said.
* RBC’s Pammi Bir moved his Granite REIT (GRT.UN-T) target to $89 from $86 with an “outperform” rating, while Desjardins Securities’ Kyle Stanley bumped his target to $87 from $84 with a “buy” rating. The average is $88.06.
“Post a decent Q4 finish and outlook, we remain constructive on GRT. Indeed, guidance for 2024 SP NOI growth and FFOPU were ahead of our call, supported by a confident view on leasing,” said Mr. Bir. “We think investors need some convincing and getting some leases over the line should help, particularly in the US. Still, given the quality of its assets, attractive leasing spreads, slowing new starts, and tenants building supply chain resiliency, we see support for operating traction to build.”
* RBC’s Greg Pardy raised his Imperial Oil Ltd. (IMO-T) target to $85 from $82 with a “sector perform” rating, while National Bank’s Travis Wood bumped his target to $90 from $89 with a “sector perform” rating.. The average is $84.80.
“Our constructive stance towards Imperial Oil reflects its long-life, low-decline upstream portfolio, cash flow diversification via its refining and chemical segments, strong balance sheet, free cash flow generation, abundant shareholder returns and solid operating performance in recent years,” said Mr. Pardy. “We are maintaining a Sector Perform recommendation on Imperial and raising our one-year target price by $3 (4 per cent) to $85 per share amid modest target price multiple expansion.”
* RBC’s Jimmy Shan bumped his target for InterRent REIT (IIP.UN-T) to $16.50 from $16 with an “outperform” rating. Other changes include: Raymond James’ Brad Sturges to $16.25 from $16 with a “strong buy” rating, National Bank’s Matt Kornack to $15.50 from $15.25 with an “outperform” rating, Scotia’s Mario Saric to $14.75 from $14.50 with a “sector outperform” rating and CIBC’s Dean Wilkinson to $15 from $13.50 with a “neutral” rating. The average is $14.64.
“: InterRent REIT reported a solid in-line Q4. Guidance for 6-8-per-cent revenue growth, SP NOI growth of high-single- to low-double-digit growth is robust and largely consistent with 2023. With 2023 interest expense headwinds behind it, FFO growth looks materially better at 13 per cent in 2024E and 10 per cent in 2025E. We believe the higher growth vs. ON peers, though, is largely reflected in its trading multiple. Impact of foreign student caps is one to watch given its 15-per-cent exposure to students although it does not appear to be big issue for now,” said Mr. Shan.
* RBC’s Paul Treiber cut his Kinaxis Inc. (KXS-T) target to $200 from $220 with an “outperform” rating. Other changes include: Stifel’s Suthan Sukumar to $215 from $235 with a “buy” rating, BMO’s Thanos Moschopoulos to $175 from $190 with an “outperform” rating, Scotia’s Kevin Krishnaratne to $200 from $220 with a “sector outperform” rating, Eight Capital’s Christian Sgro to $190 from $230 with a “buy” rating, National Bank’s Richard Tse to $225 from $250 with an “outperform rating and CIBC’s Stephanie Price to $180 from $185 with an “outperformer” rating. The average is $215.50.
“We are maintaining our Buy rating on Kinaxis post their FQ4 print,” said Mr. Sukunmar. “While the outlook for SaaS growth disappointed (17-19 per cent vs 24 per cent in F23), prior mid-term targets for 30-per cent-plus SaaS growth and 25-per-cent-plus EBITDA margins remain intact (albeit further out for the former, earlier for the latter), reaffirming the long-term trajectory. With demand signals appearing resilient alongside sustaining high win rates and record customer adds, we think the FY guide may prove to be conservative given higher-than-avg backlog coverage of SaaS guidance (88 per cent vs 82-83 per cent in years prior), suggesting a setup for beats-and-raises ahead as the company executes on a record pipeline, base expansions, and further penetration of the mid-market/SMB and new verticals like retail/QSR and energy. We lower our target to $215/share on lower estimates but continue to see compelling value with the share pullback given less tha 5 times Sales for a high-quality rule-of-40 story.”
* Jefferies’ John Aiken cut his Laurentian Bank of Canada (LB-T) target to $24 from $25 with a “hold” rating. Other changes include: Raymond James’ Stephen Boland to $27 from $32 with a “market perform” rating, National Bank’s Gabriel Dechaine to $27 from $28 with an “underperform” rating and RBC’s Darko Mihelic to $26 from $30 with a “sector perform” rating. The average is $28.55.
“Q1/24 core EPS came in below our estimate, even after excluding the $0.04 impact from the mainframe outage in September. Expenses remain elevated, and we believe this will continue as LB navigates through a new strategic plan to adjust its business. We lower our estimates on lower loan growth next quarter. Our price target decreases to $26 on lower earnings estimates and a lower P/B target multiple,” said Mr. Mihelic.
* CIBC’s Jamie Kubik raised his NuVista Energy Ltd. (NVA-T) target to $15.50 from $15 with an “outperformer” rating. The average is $14.93.
* RBC’s Luke Davis reduced his target for Parex Resources Ltd. (PXT-T) to $28 from $22 with a “sector perform” rating, while Scotia’s Kevin Fisk trimmed his target to $27 from $28 with a “sector perform” recommendation. The average is $33.55.
“Parex’s quarter was in-line with our estimates (CFPS above consensus), though overshadowed by updated reserves that were impacted by meaningful impairments. While a portion was attributable to non-core assets, we believe the negative impact on LLA-34 will be a focal point and likely draw negative attention. We have left our Outperform rating unchanged, though we believe the series of negative releases through the beginning of this year has eroded investor confidence, which likely takes time to rebuild,” said Mr. Davis.
* CIBC’s John Zamparo lowered his Spin Master Corp. (TOY-T) target to $41 from $44 with an “outperformer” rating. Other changes include: National Bank’s Adam Shine to $40 from $42 with an “outperform” rating and RBC’s Sabahat Khan to $50 from $51 with an “outperform” rating. The average is $46.75.
* CIBC’s Hamir Patel trimmed his Stella-Jones Inc. (SJ-T) target to $120 from $116 with a “neutral” rating. Other changes include: TD Securities’ Michael Tupholme to $94 from $96 with a “buy” rating, RBC’s James McGarragle to $94 from $91 with an “outperform” rating, Scotia’s Jonathan Goldman to $86 from $89 with a “sector perform” rating, Desjardins Securities’ Benoit Poirier to $92 from $94 with a “buy” rating and National Bank’s Maxim Sytchev to $89 from $87 with an “outperform” rating. The average is $90.57.
“Investors were clearly surprised by new information that U.S. utility customers are softening their pace of pole purchases, as elevated costs of capital delay certain projects from getting off the ground,” said Mr. Poirier. “We believe this is likely a combination of a temporary short-term phenomenon combined with management conservatism. Having said that, given the January weather and the pace of purchases, we have shifted some of our pole revenue forecast to 2025 (from 2024) and reduced our 2024 numbers.”
* Canaccord Genuity’s Matthew Lee raised his Toronto-Dominion Bank (TD-T) target to $96 from $95 with a “buy” rating, while BMO’s Sohrab Movahedi cut his target to $81 from $86 with a “sector perform” rating. The average is $89.51.
* CIBC’s Jacob Bout raised his WSP Global Inc. (WSP-T) target to $239 from $234 with an “outperformer” rating. Other changes include: RBC’s Sabahat Khan to $237 from $212 with an “outperform” rating, Scotia’s Michael Doumet to $239 from $233 with a “sector outperform” rating, Stifel’s Ian Gillies to $245 from $210 with a “buy” rating, Desjardins Securities’ Benoit Poirier to $243 from $210 with a “buy” rating, National Bank’s Maxim Sytchev to $234 from $212 with an “outperform” rating, ATB Capital Markets’ Chris Murray to $220 from $210 with a “sector perform” rating. The average is $222.14.
“WSP delivered solid results, as organic growth and margin expansion underpinned a better-than-expected margin profile,” said Mr. Murray. “Management issued guidance for healthy organic growth (5-8 per cent) and margin expansion, reaffirming that it sees a path to 20.0-per-cent EBITDA margins over the medium term. While WSP enters 2024 on a strong footing with margins trending higher and balance sheet capacity in place to be acquisitive, valuations remain elevated, leaving us neutral on shares.”
David Leeder