Inside the Market’s roundup of some of today’s key analyst actions
Scotiabank analyst Maher Yaghi has upgraded his rating on Telus Corp. (T-T) to “sector outperform” from “sector perform”, believing that valuations are attractive and the outlook has improved for the telecom on a number of fronts. His one-year price target is C$24, which would represent about a 15% return.
One factor working in the telecom’s favour is the CRTC decision on Friday to maintain interim rates at current levels for what smaller internet providers will have to pay to use the established fibre networks of their larger rivals. This “underscores the regulators’ commitment to encouraging network investments while at the same time offering a path forward for competitors to launch innovative converged products out of home. While there was a real possibility that the CRTC would take a more aggressive approach, we are encouraged that it saw fit to continue to provide network builders with the needed returns to continue to deploy capital,” said Mr. Yaghi.
“Simply put we believe BCE and TELUS have dodged a big bullet here. While these rates are still interim rates, the language included in the decision indicates that the CRTC has a good line of sight on the costing done so far hence it would surprise us to see those rates decline materially when rates are finalized in a few months,” he added.
Mr. Yaghi does not expect Telus’s third-quarter results to show many positive divergences from past trends, including intense competition. But he sees several positive catalysts in the near future:
“We think we are touching bottom on the level of ARPU (Average Revenue Per User) y/y declines. We expect the strongest of the y/y declines to have either occurred in Q3 or to occur in Q4. As we cycle into 2025 the rate of the decline should begin to ease as a majority of the subscriber base would have already started to take advantage of the lowered priced services offered in the market. We don’t expect ARPU to show actual growth in Canada until late 2025 however the second derivative of the decline is likely upon us in the coming months.
Valuation. When we downgraded TELUS at the beginning of the year, the stock was trading at a significant premium vs its intrinsic EV/EBITDA multiple. The premium was close to 0.5x however this spread has completed collapsed since then and the stock is now trading at a level commensurate with the company’s expected growth rate.
Management has been very aggressive on cost-cutting and restructuring the business to reduce the cost to serve in wireless in order to offset ongoing pricing pressures. While we expect topline growth to be close to flat in Q3, EBITDA growth should be in the top quartile for the industry due to improved margins.
Another factor that caused us to downgrade the stock was the fast slowdown in Fixed data services as broadband was seeing a negative repricing. We were worried as well that an aggressive rate setting approach by the CRTC on FTTH (fibre to the home) would cause even more damage to Canadian broadband pricing. At this point we don’t think this is a likely outcome. While we expect encroachment potentially from Quebecor or BCE trying to sell bundles in Western Canada, the expected return we expect that TELUS would be able to capture on FTTH within a wholesale framework will be compensatory enough for the amount of capital that was deployed.”
Mr. Yaghi maintained a “sector perform” rating on BCE Inc. (BCE-T), the equivalent of a hold, with a price target to $50.50.
While he admits BCE’s sizable 8.8% dividend yield is very hard to ignore, two things are keeping him from upgrading the stock at this stage:
“In Q3 we expect the company to report flat growth in wireless and wireline service revenues but also flat to 1% growth in EBITDA for the telecom segment. While BCE did undertake a meaningful restructuring early this year, unlike TELUS and Rogers we are not seeing the same flow through to earnings yet. Some reasons for this divergence possibly include the significant subscriber cost of acquisition the company is investing to gain share in FTTH especially in Quebec and a slower move to reduce cost to serve in wireless (TELUS has put significant effort to promote Public Mobile and Rogers is culling prepaid from Fido and the Rogers brand; Bell is still selling prepaid on its premium label).
The company’s dividend distribution ratio remains clearly too high and continues to get exasperated by the yearly dividend increases. In a recent report we showed that at this stage we need BCE to stop growing the dividend for a few years and potentially implement a DRIP to steer the ship towards a more sustainable path. Clarity on the outlook for the dividend and taking action to make it more sustainable long term are key in our mind to meaningfully de-risk the potential for a dividend cut down the road.”
The average analyst price target on Telus is C$24.46, according to LSEG data Monday morning. The BCE average target is C$49.96, which is down 63 cents over the past month.
***
It should be a good third quarter for Capital Power Corp. (CPX-T), said Desjardins Securities analyst Brent Stadler, who raised his price target to C$56 from C$54. He maintained a “buy” rating and said the stock remains a favourite way to play the energy transition.
Ahead of the company’s quarterly results on Oct. 30, Mr. Stadler raised his forecast for adjusted EBITDA to C$375 million, up from C$355 million, and now in line with consensus of C$377 million. But that’s down from $414 million from the third quarter of 2023. The primary driver of the estimate increase is better expectations for the U.S. segment, including recently acquired assets, he said.
He listed three main reasons for what will drive continued momentum in the share price: “We continue to believe (1) these are early days in the reliability era; (2) decarbonized gas should be viewed as comparable with nuclear (provides clean baseload power); and (3) CPX could make a data centre announcement near-term.”
The average analyst price target on Capital Power is C$47.
***
Corus Entertainment Inc. (CJR-B-T) shares will be essentially worthless over the coming 12 months, said Canaccord Genuity analyst Aravinda Galappatthige in the wake of the media company’s fiscal fourth quarter results. Citing the results in conjunction with the firm’s high debt load and precarious balance sheet, he lowered his price target to zero cents per share from 10 cents and maintained a “sell’ rating.
Fourth quarter results came in lower than expected, mainly due to weaker ad revenues and also a steeper-than-expected decline in content. Adjusted EBITDA was $42.3 million, down 8.6% year over year vs Canaccord estimates of $41.3 million. Total revenues were down 20.5% year over year.
“Following the light quarter as well as the weaker-than-expected TV ad guide for Q1, we have further lowered our estimates. Our new estimates are based on a 14% decline in TV ads in F2025, improving to -6% by F2026. This is partly to reflect the transition from Food Network and HGTV. We see a sharp EBITDA decline in Q1/25 due to a rebound in programming costs alongside the ad pressure, but expect the decline rates to moderate towards 10% by the end of the year. Based on the new estimates, we see the leverage ratio (net debt/LTM EBITDA) rising to 4.6x by mid-F2025.
The company announced a further amendment to the credit facility with its bank syndicate, which extended it to March 31, 2025. The covenant is set at 5.75x (debt to cashflow) for Dec 31, 2024, and 7.25x up to March 31, 2025. “We continue to believe that a debt restructuring is very likely the ultimate outcome, especially with the senior notes currently trading just below $0.50 on the dollar,” Mr. Galappatthige commented.
The average analyst price target is 11 cents.
***
Ventum Capital Markets analyst Alex Terentiew attended a site visit of K92 Mining Inc.’s (KNT-T) Kainantu mine in Papua New Guinea last week and liked what he saw.
“We returned from Papua New Guinea impressed with the progress being made at the expanding mine and can see the numerous pieces of new infrastructure coming together, paving the way for the significant, value-creating expansion to start ramp-up next year,” he said in a note. “With a strong balance sheet, fully funded expansion, line of sight on substantial production and cash flow growth to come, and a resource that may ultimately support a production increase beyond Phase 4, we reiterate our buy rating and increase our target price to C$14.00.”
His previous price target was C$13. The average analyst target is C$12.83.
***
CIBC analyst Hamir Patel bumped up his price target on Winpak Ltd. (WPK-T) to C$54 from C$53 as he modestly raised his estimates on the packaging company. He also cautioned the company will face tariff headwinds if Donald Trump wins the presidential race.
“While we see higher returns among some of our other packaging names under coverage over the next 12 months, we note that WPK is trading at only 6.5x 2025E EV/EBITDA, a discount to its five-year average forward multiple of 7.9x,” the analyst said in a note. “At the same time, with more realistic vendor expectations, we see potential for the company to complete an acquisition in healthcare packaging next year.”
His fourth-quarter EBITDA estimate of $63 million was unchanged, but he increased his 2025/2026 estimates by 3%/1% to $259 million and $282 million, respectively. The increases largely reflect higher EBITDA margin assumptions, he said.
As for U.S. election risks? “In the event the Republicans win the U.S. presidential election on November 5, we see risks for WPK if a second Trump administration were to impose about 10% tariffs on all imports in 2025. With so much of its capacity situated in Canada that sells into the U.S. (and not easily movable), we estimate such tariffs may represent about a $35MM hit to annual EBITDA (~3% margin impact) as the company would have limited means of mitigation. Winpak cannot sell into Europe (given agreements with Wipak) and is unlikely to benefit from higher product pricing as competitor capacity is largely already situated in the United States,” Mr. Patel said.
He maintained a “neutral” rating.
The average analyst target is C$53.67.
***
In other analyst actions:
Boyd Group Services (BYD-T): Stifel cuts target price to C$275 from C$280. Analyst Daryl Young commented: “Boyd reports Q3/24 results pre-market November 5th. We anticipate Q3/24 will be somewhat challenging amid the pull-back in repairable collision claims (down 9.5% y/y and the largest quarterly decline yet), and the transitory impacts of Hurricane Helene.”
Boardwalk Real Estate Investment Trust (BEI-UN-T): BMO cuts PT to C$87 from C$90
Capreit (CAR-UN-T): BMO cuts target price to C$56 from C$61
Riocan Real Estate Investment Trust (REI-UN-T): BMO raises PT to C$20.5 from C$19
Tesla (TSLA-Q): Canaccord Genuity raises target price to US$298 from US$278; Daiwa Capital Markets raises target price to $285 from $225
Colgate-Palmolive (CL-N): Deutsche Bank cuts target price to US$105 from US$109; JP Morgan cuts target price to $109 from $114; Stifel cuts target price to $101 from $105 and downgrades rating to “hold” from “buy”
eBay (EBAY-Q): Stifel raises target price to US$64 from US$56
Walmart (WMT-N): Guggenheim raises target price to $90 from $81