The second-quarter earnings season is approaching an end.
Approximately 80 per cent of companies in the S&P/TSX Composite Index have reported their quarterly earnings results. Since the start of the earnings season, target prices have remained relatively stable for most companies in the TSX Index. Roughly 57 per cent of companies have seen their average target prices revised either up or down by a maximum of 3 per cent. However, there were some standouts.
Outliers to the upside include: Stelco Holdings Inc. (STLC-T), NFI Group Inc. (NFI-T), CES Energy Solutions Corp. (CEU-T), Colliers International Group Inc. (CIGI-T), Celestica Inc. (CLS-T), Gildan Activewear Inc. (GIL-T), Kinross Gold Corp. (K-T), SilverCrest Metals Inc (SIL-T), Sleep Country Canada Holdings Inc. (ZZZ-T), Lundin Gold Inc (LUG-T), Wesdome Gold Mines Ltd. (WDO-T), Aritzia Inc. (ATZ-T) and Stella-Jones Inc. (SJ-T).
\During the quarter, both Stelco and Sleep Country received takeover offers at premiums to where the share price was trading prior to the acquisition announcements, which resulted in increases to their target prices. The remaining companies listed saw their average target prices rise by between 10 per cent and 18 per cent.
Stocks with large drawdowns to their average target prices include: Canada Goose Holdings Inc. (GOOS-T), Interfor Corp. (IFP-T), Pet Valu Holdings Ltd. (PET-T), Ballard Power Systems Inc. (BLDP-T) and Bausch Health Companies Inc. (BHC-T) whose average target prices declined 11 per cent, 12 per cent, 14 per cent, 16 per cent, 20 per cent and 26 per cent, respectively.
Now, here’s a look at analysts’ target prices, recommendations, forecast returns and yields for all 226 securities in the S&P/TSX Composite Index grouped by sector and ranked according to their expected price returns (excluding dividend and distribution income). The posted target price for each security is an average of all available target prices from analysts. A target price typically reflects an expected share or unit price 12 months from now based on an analyst’s financial modelling, such as a discounted cash flow or sum-of-the-parts model. For the yield provided, Bloomberg calculates this figure by annualizing the most recent announced dividend or distribution value.
It’s important to note that high target prices, which imply stellar returns that seem unbelievable may be just that - unrealistic. At times, when a stock price falls analysts may maintain their bullish expectations, inflating the forecast return. In addition, an outlier (extreme target price) can skew the average target price, to the upside or downside, particularly when the number of analysts covering a stock is low. Don’t let a huge projected gain lure you into a position – it is critical to look at the company and industry fundamentals.