Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial analyst Gabriel Dechaine is “opting for a ‘tactical’ downgrade” of the Canadian life insurance industry heading into third-quarter earnings season despite seeing the potential for further short-term gains.
“Lifeco stocks are rewarding investors once again, with the average ‘Big-4′ up 22 per cent year-to-date, outpacing the S&P/TSX by 600 basis points and the Big-6 banks by 700 basis points,” he said. “Performance has been led by IAG and MFC, up 30 per cent and 40 per cent year-to-date, respectively. Market tailwinds set the group up for strong Q3/24 results, considering Wealth segments generate over 30 per cent of group earnings. Having said that, we are now facing the dilemma of whether to ‘chase’ names that we continue to like long term, or to take a more tactical approach.
“In short, we believe: 1) Q3/24 results face a difficult ‘comparable’; 2) messaging regarding the buyback, which has been very active, could be for reduced activity under the next program; and 3) considering the stock has rallied 30 per cent since reporting Q2/24 results, massively outperforming peers and the market, we believe the risk/reward is to the downside.”
With that view, Mr. Dechaine lowered iA Financial Corporation Inc. (IAG-T) to a “sector perform” recommendation on Friday from “outperform” to reflect the broader “tactical downgrade” even though he thinks its “long-term view [remains] intact.”
“Our positive long-term view on IAG is dictated by the company’s track record of steady BVPS [book value per share] growth, a conservative management team, multiple avenues of organic growth potential and strong excess capital position/low balance sheet leverage,” he said. “Moreover, the company’s business mix is supportive of mid-to-high teen ROEs [return on equity] and mid-to-high single-digit EPS growth. On that note, we highlight the company’s achievement of its 15-per-cent ROE target this year raises the likelihood of management hiking its ROE target at its next Investor Day, which takes place on February 24, 2025.”
With an increase to his valuation multiples, the analyst hiked his target for iA shares to $118 from $102. The average target on the Street is $113.63, according to LSEG data.
“While we are downgrading the stock, we must also acknowledge how our previous valuation approach was exceedingly conservative vis-à-vis IAG’s recent ROE generation, as well as the potential for higher ROE (i.e., targets) in the future,” he said.
Mr. Dechaine also made these other target revisions:
* Great-West Lifeco Inc. (GWO-T, “sector perform”) to $49 from $43. Average: $45.70.
* Manulife Financial Corp. (MFC-T, “outperform”) to $45 from $43. Average: $39.90.
* Sun Life Financial Inc. (SLF-T, “sector perform”) to $81 from $73. Average: $78.23.
He maintained an “outperform” rating and $9 target for Sagicor Financial Co. Ltd. (SFC-T). The current average is $8.67.
“We are increasing our average target P/E and P/B multiples to 10.8 times (from 10.3 times) and to 1.7 times (from 1.5 times), respectively,” said Mr. Dechaine. “The P/B multiple increase reflects our increased confidence in ROE generation in the sector. We note that MFC has already announced a higher ROE target, albeit by 2027. With SLF (Nov. 13) and IAG (Feb. 24, 2025) set to host their own investor days, we believe there is a decent probability that these companies follow suit with higher ROE targets.”
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While cautioning Rogers Communications Inc.’s (RCI-B-T) $7-billion structured equity raise will require additional disclosure, RBC Dominion Securities analyst Drew McReynolds emphasized it is “clearly a meaningful de-levering event.”
On Thursday, the Toronto-based company revealed the deal that will give a financial investor a minority stake in a regional portion of the company’s wireless network. Rogers will retain control over the infrastructure, while the unnamed investor will take a share of the future income stream from the wireless transport infrastructure.
“While sizing up the full NAV [net asset value] impact of this financing will require additional disclosure (including distributions and distribution escalations, exit options and terms and other potential instrument features etc.), management has indicated: (i) initial annual distributions are higher than the after-tax interest savings for Rogers of $250-million, but not materially higher; (ii) subsidiary revenues (and in turn minority interest distributions) will be subject to volume tiers that adjust wholesale rates as wireless data traffic increases effectively providing a defacto ceiling for distributions; and (iii) Rogers will maintain full control of the infrastructure including control over the duration of the structure (i.e., implying some form of termination option),” he said. “Although the net cash outflow will be an incremental drag on FCF, clearly this financing is a meaningful de-levering event for Rogers and likely highlights the significant unrealized value of Rogers’ telecom infrastructure. Management expects net debt/EBITDA by the end of 2024 to be 3.7 times (versus our estimate prior to this financing of 4.6 times) with the structured equity financing not diluting Rogers shares while diversifying the company’s source of financing.”
Following largely in-line third-quarter results, Mr. McReynolds now sees cable revenue growth, balance sheet de-levering, and asset crystallization as “the key drivers of upside in the shares.”
“With an eye on our 2025 and 2026 NAVs of $61/share and $68/share, respectively, we continue to view the shares as oversold with current levels representing an attractive accumulation point reflecting: (i) the full flow-through impact of run-rate Shaw cost synergies in 2024E underpinning a 2024-2027 estimated NAV CAGR [compound annual growth rate] of 8.0 per cent; (ii) a return to positive cable revenue growth in Q4/24 with expanding cable margins; (iii) ongoing wireless momentum bolstered by healthy loading; (iv) a de-risking of the stock as the competitive landscape post-Rogers-Shaw-Quebecor transactions finds a new equilibrium, leverage declines and management’s track record of improved execution lengthens; and (v) option value on noncore and/or non-telecom asset sales/crystallizations,” he said.
After factoring in the preliminary estimated impacts of the $7-bilion structured equity financing and other “minor” forecast revisions, Mr. McReynolds reaffirmed an “outperform” rating and $66 price target for Rogers shares. The current average is $68.10.
Other analysts making changes include:
* TD Cowen’s Vince Valentini to $71 from $74 with a “buy” rating.
“Given both weak investor sentiment and a lack of clarity from management on future funding sources (MLSE; non-core asset sales; and the terms of the infrastructure JV), we decided to reset our forecasts using more pessimistic assumptions,” he said. “We believe the company can exceed these revised expectations with good execution, and a bit of help from competitors with regard to pricing discipline. However, we would rather err on the side of caution until visibility improves.”
* Desjardins Securities’ Jerome Dubreuil to $68 from $63 with a “buy” rating.
“While the lack of disclosure and the slower organic deleveraging prospects likely hurt the stock yesterday, we believe it is probable that the final announcement of the infrastructure transaction (and, more importantly, the high multiple we expect it to fetch) will ultimately result in better market sentiment about the deal. Overall, we believe RCI has found a way to benefit from consolidation rules, and at the same time surface value from its very valuable infrastructure.
* National Bank’s Adam Shine to $77 from $76 with an “outperform” rating.
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While Teck Resources Ltd. (TECK.B-T) has “another setback” at its flagship Quebrada Blanca copper mine with a further guidance downgrade in 2024 and in 2025, RBC Dominion Securities analyst Sam Crittenden continues to see the potential for sequential growth while its share buyback “provides support, and we could see some re-rating as QB improves.”
Shares of the Vancouver-based company dropped 5.4 per cent on Thursday with the reduction of its full-year production outlook. It is now projecting 2024 copper production from all its properties of between 420,000 and 455,000 tons, down from an earlier forecast of 435,000 to 500,000 tons.
“Teck’s new flagship QB mine in Chile (29 per cent of our operating NAV estimate) just reported its 5th full quarter of production (the first was Q3/2023) and while the ramp-up has been slow to this point, we note that large-scale mines take on average 10 quarters to reach nameplate capacity,” he said. “Production is a function of throughput, grade, and recovery and throughput and overall reliability are typically the bottleneck in reaching full capacity. In this case recoveries are in focus but reliability and consistent feed are contributing factors.
“To date, throughput is tracking above the historical average (reaching 92 per cent of nameplate in Q3/24), grades have largely been as planned (suggesting the resource model is sound), while recoveries have lagged. Teck notes the higher clay content in the upper benches is a factor, as is overall consistency of operations and ‘dialing in’ reagents. All of which should improve over time, although it could take several quarters yet before we see the mine consistently operating at full capacity, leaving uncertainty in the meantime.”
Mr. Crittenden is now looking to Teck’s strategy day on Nov. 5 to “shed light on future growth plans.”
“While the QB ramp-up and buyback are the near-term focus, at some point next year the focus is likely to shift to future growth options,” he said. “The Highland Valley extension in BC (to extend the mine life to 2040 from 2028) is progressing through permitting, with an updated study due in Q2/2025. At San Nicolas in Mexico (63/kt copper attributable at 50 per cent), the permit application was submitted, with a feasibility study expected in H2/2025, while Zafranal in Peru (133kt/year) could be ready for a sanctioning decision in H2/2025. The QB optimization plan is anticipated by the end of 2024.”
Maintaining an “outperform” recommendation for Teck shares, Mr. Crittenden lowered his target by $1 to $84. The average target is $74.45.
“Teck provides attractive copper growth and steady zinc production with a low geopolitical risk profile paired with a significant cash infusion from the full sale of the coal business supporting balance street strength and enabling a $3.25-bilion buyback which we think can backstop shares over the next 12-18 months positioning Teck as a defensive base metals name,” he said. “We believe Teck has the potential to re-rate towards the large pure-play copper equities as it executes at existing operations, including finalizing the ramp-up at QB2, and delivering on its project pipeline.”
Other analysts making target changes include:
* National Bank’s Shane Nagle to $85 from $90 with an “outperform” rating.
“We incorporated Q3/24 financial results and lowered near-term production estimates coinciding with revised guidance,” said Mr. Nagle. “We maintain our Outperform rating based on Teck’s strong financial position and support from the ongoing share buyback. With heightened M&A activity highlighting the appetite for major mining companies to add copper to their portfolios, we continue to believe Teck’s portfolio of copper assets, with fully funded near-term growth in politically stable jurisdictions remains an attractive target.”
TD Cowen’s Craig Hutchison to $76 from $83 with a “buy” rating.
“We have lowered our target price ... to reflect weaker than expected copper production guidance this year and next, driven by operational issues at Highland Valley (HVC) and ramp-up issues at QB2. While management believes they are back on firm footing at HVC, the issues at QB2 are expected to drag in to at least H1/25 as equipment availability issues and recoveries issues are addressed,” he said.
* Scotia’s Orest Wowkodaw to $74 from $79 with a “sector outperform” rating.
“For the second consecutive quarter, Teck meaningfully lowered its near-term Cu output guidance, driven by QB2,” said Mr. Wowkodaw. “In our view, the ongoing ramp-up issues appear to be teething pains rather than a structural LOM issue. Irrespective, we view the update as negative for the shares. Moreover, given the ongoing challenges, we would prefer to see the company defer all future planned greenfield growth until well after QB2 is fully de-risked.
“Although we fully acknowledge that Teck has become a ‘show me’ story, we continue to rate the shares SO based on valuation, near-term growth, and the re-rating opportunity of a new Cu focus.”
* Raymond James’ Brian MacArthur to $74 from $73 with an “outperform” rating.
“We believe Teck offers investors good exposure to energy transition metals with numerous internal growth options,” he said.
* Canaccord Genuity’s Dalton Baretto to $78 from $80 with a “buy” rating.
“We note TECK’s scale, near-term copper growth, longer-term copper optionality, and strong balance sheet. Ongoing ramp-up delays on QB2 notwithstanding, we expect that TECK is poised to double its copper production and hit a cash flow inflection point in 2025 as the operation finds its stride,” said Mr. Baretto. “In addition, we note the company’s $12 billion in liquidity, a substantial war chest to grow the company’s copper business (organically as well as inorganically) even after deploying the committed $3.5-billion in shareholder returns over the next 12-18 months.
“From an M&A perspective, we note that TECK is far more likely to be an acquirer rather than a target over the near term, given the Class A share structure still in place as well as commentary from Ottawa earlier this year around approvals for Canadian acquisitions by foreign entities being granted only “in the most exceptional of circumstances”. In fact, we believe the regulatory uncertainty caused by this statement gives TECK a window should it wish to acquire other Canadian-domiciled producers, as foreign entities may be reluctant to step in.”
* CIBC’s Bryce Adams to $78 from $80 with an “outperformer” rating.
* JP Morgan’s Bill Peterson to $76 from $78 with an “overweight” rating.
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Expecting a “cloudy” outlook to weigh on its shares following weaker-than-anticipated third-quarter results, Scotia Capital analyst Tanya Jakusconek downgraded Newmont Corp. (NEM-N, NGT-T) to “sector perform” from “sector outperform” on Friday.
“High-level 2025 operating guidance (plus some limited long-term asset guidance) was provided on the conference call, which was weaker than expected and resulted in the shares being down 15 per cent (including the weaker Q3/24 results and higher 2024 cost outlook) on [Thursday],” she said. “Despite the sharp decline in the shares, we believe NEM still faces some headwinds in the short term, given the recent release. This includes 1) uncertainty over cost containment of portfolio with the increase in costs into 2025 (and beyond), 2) uncertainty over the mid-term to LT outlook on the tier 1 portfolio(which now may bevery different from February 2024 guidance) and 3) lack on information on several NCM assets acquired with respect to overall progress and outlook. As such, we believe this uncertainty will weigh on the shares until further information is provided, likely in 2025.”
Ms. Jakusconek reduced her target to US$55 from US$59. The average is US$60.17.
Elsewhere, CIBC’s Anita Soni downgraded Newmont to “neutral” from “outperformer” and reduced her target to US$55 from US$61.
“We have incorporated negative revisions to 2025 production guidance communicated on today’s conference call, which included the statement that Lihir would be 250koz less, while Brucejack would be 100koz less in 2025 than the company had previously anticipated,” she said. “Overall, the company indicated that the Tier 1 Managed and Non-Managed Assets (which excludes assets for sale) would be in the range of 5.6Mozs for 2025. We now preliminarily model 5.69Moz, which is an 11-per-cent reduction to our prior estimates. On the operating cost front, we had previously expected costs would decline; however, NEM is now guiding to flat costs YoY. Given the increased uncertainty we believe now exists regarding the company’s asset performance over the medium and longer terms, we are lowering our NAV target multiple from 1.4 times to 1.3 times. We are also reducing our CFPS target multiple from 10.0 times to 9.0 times.”
Other changes include:
* National Bank’s Mike Parkin to $80 (Canadian) from $87 with a “sector perform” rating.
“Following the earnings release, the company’s stock sold off aggressively, finishing the day down 14.7 per cent, erasing about US$10 billion in market value,” said Mr. Parkin. “Based on our updated NAV (down nearly US$3 billion) this share price slide appears to be well overdone. However, given we believe the company is now in a “Show Me Story” state, and that even after the huge correction the stock remains trading within the LTM [last 12-month] ranges on both P/NAV and an EV/EBITDA basis, as well as at a premium to all the senior peers outside of one, we believe it could take time for the perceived overreaction to reverse and Newmont’s greater premium valuation to return.
“We believe the selloff can be largely attributed to the higher costs during the quarter, the weaker than previously guided 2025 production and cost guidance, and the higher-than-expected sustaining capex spend over the next several years (primarily at Cadia). Our NAV decreased by just under US$3.0 billion factoring in these changes and aligning our opex outlook for the latest trends.”
* TD Cowen’s Steven Green to to US$53 from US$57 with a “hold” rating.
“Despite the 14-per-cent selloff in NEM shares, we continue to view NEM as relatively fully valued and maintain our HOLD rating as they continue to work out challenges from the Newcrest integration,” said Mr. Green. “Costs in Q3 were disappointing; however, we believe management’s lowering expectations for NEM’s 2025+ outlook is the bigger story. Our 2025 EBITDA estimate fell 4 per cent and our NAV fell 10 per cent on the quarter.”
* Raymond James’ Brian MacArthur to US$66 from US$65 with an “outperform” rating.
“NEM offers investors exposure to gold through a lower jurisdictional risk, global portfolio that generates solid cash flow, and is supported by a strong balance sheet. It is the only S&P-listed gold stock and has a dividend framework designed to share excess free cash flow with shareholders,” he said.
* Jefferies’ Matt Murphy to US$57 from US$66 with a “buy” rating.
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Following a 23.7-per-cent drop in its share price on Thursday in response to the premarket release of preliminary third-quarter results that were “well” below his expectations, National Bank Financial analyst John Shao now thinks Converge Technology Solutions Corp. (CTS-T) is “washed out and further downside risk is limited,” emphasizing the positive impact of its active normal-course issuer bid.
However, he decided to downgrade the Toronto-based IT solutions provider to a “sector perform” recommendation from “outperform” previously based on “limited upside as substantial effort will be required to restore its growth profile.” He added he’s “moving to the sidelines ... while waiting for the macro tailwinds.”
“The culprit of the miss was a challenging macro environment with delayed deals into FQ4 and potentially next year,” said Mr. Shao.
“At the beginning of the year, we were optimistic about CTS with a view that consistent execution, steady organic growth and margin expansion would drive a re-rating to close the valuation gap against peers. That view proved favourable in the first half of the year, with the stock up nearly 50 per cent at one point. That said, what’s different now is the absence of organic growth in the same formula largely due to macro challenges beyond the Company’s control. While we expect some profitability improvements as CTS shifts focus to internal optimization, we also believe that margin expansion alone (without growth tailwinds) won’t be enough to move this name.”
The analyst pointed to three specific macro headwinds facing Converge: delayed project timing; a hardware refreshment cycle “that’s further pushed out” and lower demand for data centre, networking and storage solutions in North America, previously considered a resilient market.
“Of note, some project spending has been pushed into the next quarter and potentially the next fiscal year,” he said. “That said, Converge is still in the first month of FQ4, and thus it’s still unclear how those delayed deals will impact the FQ4 performance. For the same reason, [Thursday’s] preliminary results also cast a shadow on the near-term outlook. As of the time of writing, consensus numbers imply 7-per-cent revenue growth, 3-per-cent gross profit growth and a flat EBITDA margin, all of which will likely see downward revisions in the coming weeks when the Company unveils its FQ4 guidance.”
His target for the company’s shares slid to $4.50 from $6. The average on the Street is $5.59.
Elsewhere, Scotia Capital’s Divya Goyal lowered Converge to “sector perform” from “sector outperform” with a $5 target, down from $8, calling the guidance revision “disappointing” and seeing “limited visibility” on near-term projects.
“This guidance revision comes as a surprise to us given the company alluded to recovery in its North American and UK business during the last earnings call despite ongoing weakness in the end-user device refresh cycle,” she said. “Recall, CTS revised guidance post deconsolidation of Portage CyberTech post Q2 results, which was expected. While end-user hardware weakness has been noted by global VARs like CDW and Insight, infrastructure modernization continues to be a key investment priority for global enterprises, hence we expected CTS to benefit from the related investments. We were disappointed by the company’s lack of visibility of demand pipeline and have updated our estimates in line with revised guidance which indicates slowdown across the 2H/24 for the company. Based on these updated estimates, we are revising our PT to $5/share (using company’s current EV/EBITDA valuation multiple of 5.0 times) and downgrading the stock to Sector Perform.”
Other analysts making target adjustments include:
* TD Cowen’s David Kwan to $5 from $5.50 with a “buy” rating.
“We believe the sharp pullback in the shares [Thursday] is understandable but overdone, with orders delayed, not lost, and the stock already trading near historical lows and comfortably at the bottom end of the peer group,” said Mr. Kwan. “It may take some time to regain investor confidence, but we like the setup for 2025 given our expectations for a rebound in demand, strong margin expansion, and active share buybacks.”
* Raymond James’ Steven Li to $5.50 from $6.50 with an “outperform” rating.
“The softness in NA came as a surprise to us, given it has been the stronger performer for the past few quarters and will raise credibility questions around future guidance. Based on management commentary, we expect those headwinds to continue into at least 4Q24. Our model is lower as a result,” said Mr. Li.
* Ventum Capital Markets’ Rob Goff to $6.20 from $6.50 with a “buy” rating.
“The steep decrease in Q3/24 guidance will clearly lead to reduced forecasts and lower forecast confidence. While we anticipate the market response presenting an attractive buying window, we see investors waiting for clarity on the outlook for 2025 demand and savings associated with efficiency moves beyond those in our forecasts. We see fundamental value given its EV/EBITDA discount to peers and 25-per-cent 2024 FCF yield,” said Mr. Goff.
* Canaccord Genuity’s Robert Young to $6 from $6.25 with a “speculative buy” rating.
* CIBC’s Stephanie Price to $4 from $5 with a “neutral” rating.
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“Ongoing softness” in the housing market and the recently announced changes to Canada’s immigration policy to pause population growth in 2025 and 2026 will lead to muted near-term growth for StorageVault Canada Inc. (SVI-T), according to Desjardins Securities analyst Lorne Kalmar, who downgraded his recommendation to “hold” from “buy” following in-line third-quarter results.
“Performance continues to be impacted by the slowdown in home sale volumes, which are down 11 per cent vs 2022 and 30 per cent vs 2021 on a year-to-date basis,” he said in a research note. “While we are confident that housing volumes will rebound, the timing and pace of the recovery remain uncertain. Further, we anticipate that the recently announced changes to Canada’s immigration program, including an expectation for no population growth in 2025 and 2026, will also weigh on top-line growth. SP NOI margins have also declined 30bps yoy through the first nine months of 2024, which management has attributed to increases in property taxes and advertising. With demand anticipated to remain relatively muted in 2025, we expect advertising spend to remain elevated in the year ahead. In consideration of the former, we believe 2025 will be another year of relatively modest SP NOI and AFFOPS growth, resulting in the stock price being rangebound over the next 12 months.
“Where we could be wrong. We believe the stock could outperform if (1) housing sale volumes and home renovations rebound materially over the next 12 months; (2) the government’s revised immigration plans do not come to fruition (ie actual population growth is materially higher than zero in 2025 and 2026); (3) acquisition activity picks up materially; (4) lease-up of newly acquired assets accelerates; and (5) disclosures improve. We still have high conviction in the long-term organic and external growth prospects of the business and would not hesitate to upgrade the stock should we see evidence that top- and bottom-line growth are positioned to accelerate.”
Mr. Kalmar acknowledged shares of the Toronto-based company have underperformed and appear “attractive” on a valuation basis, but he expects the price will “remain range-bound until investors see signs of a sustained recovery in both top- and bottom-line growth.”
After cutting his funds from operations projections through 2026, he cut his target for StorageVault shares to $5.25 from $6. The average is $5.63.
Elsewhere, other changes include:
* TD Cowen’s Jonathan Kelcher to $6 from $6.50 with a “buy” rating.
“While Q3 results were in-line with us/consensus, slower housing sales and renovation activity continue to impact occupancy levels, leading to below avg. SPNOI growth,” said Mr. Kelcher. “We still view SVI as one of the best long term compounder stories in our coverage. With lower interest rates hopefully improving housing market activity and easier year-over-yearcomps, we believe SVI is set up for an earnings rebound in H2/25.”
* Scotia’s Himanshu Gupta to $5.50 from $5.75 with a “sector outperform” rating.
“We think Growth investors will have to wait until Q2/25 before we see ramp-up in organic growth,” said Mr. Gupta.
“There is value as SVI now trades at 18-per-cent discount to NAV and 5.9-per-cent implied cap rate. We acknowledge that investors are in this name for Growth and not Value, and therefore the stock may not work until organic growth resumes. Improved residential sales activity should help, although offset by reduced immigration targets (just announced). We are keeping our SO rating as we expect improved year-over-year AFFOPS growth in 2025 at 7 per cent vs 1 per cent expected in 2024. We also introduced our 2026 estimates and estimate 15-per-cent year-over-year growth (sounds like vintage SVI). Stock has already meaningfully underperformed sector by 18 pts year-to-date, and we are buyers at $4.50 or below.
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In other analyst actions:
* Desjardins Securities’ Gary Ho lowered his target for Boyd Group Services Inc. (BYD-T) to $270 from $285 with a “buy” rating. The average on the Street is $280.23.
“BYD reports on November 5,” he said. “We trimmed our estimates on lower SSSG [same-store sales growth] (hurricane impact and continued demand softness). While we expect softer near-term results, we do not see anything that suggests a structural challenge with the story deserving of a 33-per-cent correction since March 24. As recent transitory issues normalize, BYD’s results should benefit from easier year-over-year comps. Our target price is $270 (from $285); we believe the recent pullback presents a buying opportunity for patient investors.”
* Canaccord Genuity’s Robert Young raised his Celestica Inc. (CLS-N, CLS-T) target to US$77 from US$80 with a “buy” rating, while CIBC’s Todd Coupland moved his target to US$68 from US$60 with a “neutral” rating. The average is US$70.78.
“Celestica reported another beat and raise quarter (FQ3) with all metrics ahead of expectations,” said Mr. Young. “The company also held a virtual investor meeting alongside the conference call, where it provided access to ATS and CCS business heads and its SVP responsible for hyperscaler revenue to discuss strategy and end markets. Celestica raised its F2024 guidance once again and provided F2025 guidance that was ahead of consensus. The outlook for 2025, underpinned by 15-per-cent EPS growth, appears conservative in our view, with a likelihood for upside opportunity as hyperscaler demand in H2/25 becomes clearer. Celestica announced multiple key wins alongside the quarter, including a 1.6T switching program with its largest hyperscaler customer and a new strategic relationship with Groq, an AI inference company, where Celestica will support Groq in manufacturing AI/ML servers and full rack solutions. We have revised our estimates to align with F24 and F25 guidance.”
* Ahead of its third-quarter release on Oct. 31, Desjardins Securities’ Chris Li increased his Gildan Activewear Inc. (GIL-T) target to $75 from $67 with a “buy” rating, while Canaccord Genuity’s Luke Hannan raised his target to US$52 from US$48 with a “buy” rating. The average is $66.10.
“Despite challenging macro conditions, we expect another quarter of solid EPS growth (13.5 per cent), supported by continuing market share gains in fleece and ring spun, lower cotton and manufacturing costs, and very active share buybacks,” said Mr. Li. “With the stock having re-rated closer to its long-term average (14.5 times NTM [next 12-month] EPS vs 15.5 times), it could be range-bound in the near term until there is better visibility on the 2025 outlook—a key catalyst. We and consensus expect solid 14–15-per-cent EPS growth next year.”
* CIBC’s Kevin Chiang increased his Mullen Group Ltd. (MTL-T) target to $17.50 from $16.50 with an “outperformer” rating, while Raymond James’ Michael Barth moved his target to $18.75 from $17.25 with a “market perform” rating. The average is $18.70.
“The headwinds we’ve observed over the last two years in the LTL and L&W segments are subsiding, the cyclical S&I segment is showing some strength, and margins are outperforming on cost control. We’ve revised our estimates and target higher as a result,” said Mr. Barth. “At the same time, we think the market reaction appropriately reflects these positive revisions with the stock up more than 8 per cent at the time of writing. As such, we remain at Market Perform from here, and believe there are better risk-adjusted returns across our coverage universe today.”
* Raymond James’ Steve Hansen lowered his Parkland Corp. (PKI-T) target to $47 from $55 with an “outperform” rating. The average is $50.54.
“We are lowering our target price on Parkland Corp. ... based upon downward revisions to our 2H24 financial estimates, largely attributable to: 1) a sharp retreat in the Vancouver crack spread; and 2) anticipated hurricane impacts on International (Caribbean) volumes,” he said. “Taken together, our revised FY2024 EBITDA estimate ($1.74-billion) is now perched well below management’s latest guidance ($1.90-$2.00-billion) suggesting a potential revision on the horizon. Despite these changes, we continue to recommend shares of Parkland Corp. based upon: 1) the company’s attractive long-term growth prospects; 2) solid FCF & active deleveraging process; 3) new buyback focus; & 4) discounted valuation.”
* ATB Capital Markets’ Chris Murray raised his Waste Connections Inc. (WCN-N, WCN-T) target to $260 from $255 with a “sector perform” rating. Others making changes include: RBC’s Sabahat Khan to US$201 from US$199 with an “outperform” rating, CIBC’s Kevin Chiang to US$199 from US$193 with an “outperformer” rating and JP Morgan’s Stephanie Yee to US$197 from US$198 with an “overweight” rating. The average is $266.66.
“WCN delivered solid results with healthy pricing conditions and firmer recycled commodity prices supporting 120 basis points of margin expansion despite softer volume conditions,” said Mr. Murray. “Management increased full-year guidance (moderately) and issued a preliminary outlook for high single-digit EBITDA growth in 2025, reflecting expectations for price-led growth and margin trends to continue, with active M&A conditions providing upside. WCN announced a 10.5-per-cent increase to the quarterly dividend and did not repurchase any shares in Q3/24. While WCN delivered strong results and issued a solid outlook, we see valuations fairly reflecting its growth profile and ability to compound free cash flow.”
* CIBC’s Cosmos Chiu bumped his target for Wheaton Precious Metals Corp. (WPM-N, WPM-T) to US$82 from US$80 with an “outperformer” rating, while Raymond James’ Brian MacArthur moved his target to US$75 from US$74 with an “outperform” rating.. The average is US$71.32.