Inside the Market’s roundup of some of today’s key analyst actions
While he expects strong base metals prices to provide tailwinds for the second-quarter results for Canadian producers, National Bank Financial analyst Shane Nagle thinks some caution is “warranted” for investors heading into earnings season.
“Q2/24 copper prices averaged US$4.48 per pound up 15.6 per cent quarter-over-quarter on pending rate cuts and bullish demand growth narratives related to AI and the energy transition.,” he said. “Prices have softened in recent weeks, and we remain cautious through the remainder of the year owing to elevated inventory levels, softer near-term demand outlook and pending supply growth through H2/24. "
“Given the favorable copper price backdrop and resulting multiple expansion, the market will be focused on stable operational performance and delivering stated growth objectives. Overall, our estimates remain generally conservative relative to Consensus for the quarter, leading to concerns that any negative deviations from market expectations could put equity valuations under some pressure.”
In a research report released Monday, Mr. Nagle predicted potential guidance revisions for his coverage universe.
“We see the potential for positive revisions to HBM cash cost guidance (owing to elevated gold prices),” he said. “We see potential for modestly higher cost guidance from CS (owing to elevated acid costs and Mantos Blancos underperformance) and FM (owing to elevated Zambian power costs). TKO is expected to lower copper production guidance following labour action in June, and we see the potential for ERO to revise copper production lower as well as increase its operating and capital cost outlook (partially offset by an improved outlook for gold).”
After adjustments to his commodity price deck forecasts for the quarter, the analyst made five target adjustments to stocks in his coverage universe. They are:
* Capstone Copper Corp. (CS-T, “outperform”) to $12.75 from $12. The average on the Street is $13.39, according to LSEG data.
Analyst: ”We have modeled steady production from Pinto Valley and Cozamin in Q2; however, we are projecting lower grades and a slight delay to achieve nameplate capacity at Mantos Blancos. We await Santo Domingo and MVDP Optimized technical studies to confirm our growth outlook alongside Q2 results.”
* Ero Copper Corp. (ERO-T, “sector perform”) to $33 from $32.50. Average: $36.55.
Analyst: “We have modeled lower Q2 copper grades at Caraiba offset by stronger production at Xavantina. While Tucuma is nearing initial concentrate production, we continue to see capital risks associated with additional stripping requirements.”
* Hudbay Minerals Inc. (HBM-T, “outperform”) to $17 from $16.50. Average: $16.30.
Analyst: “Q2 production is expected to be down quarter-over-quarter with higher proportion of lower grade stockpiles processed at Constancia and lower gold grade sequencing at Lalor. Material catalysts remain a partnership agreement/permits at Copper World, 10-per-cent expansion of throughput at Constancia, optimization of Copper Mountain and ongoing regional exploration near Lalor.”
* Lundin Mining Corp. (LUN-T, “outperform”) to $18.50 from $19.50. Average: $18.17.
* Teck Resources Ltd. (TECK.B-T, “outperform”) to $86 from $82.50. Average: $75.11.
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Scotia Capital analysts Orest Wowkodaw and Eric Winmill anticipate most miners to post stronger second-quarter financial results “driven by improved operating performance and markedly higher commodity prices.”
“With cost pressures stabilizing and capex spending easing, we forecast cash margins to expand,” they said. “Overall, our estimates appear mixed relative to current consensus expectations. With material guidance changes seemingly unlikely, we expect the market to largely focus on select project updates. Although the large and mid-cap producers continue to trade at relatively elevated valuations (we estimate an average implied Cu price of $5.60 per pound or 27 per cent above spot), we do not anticipate Q2 results to meaningfully disrupt sector momentum.”
In a report released Monday, the analysts said they expect quarterly results to “meaningfully improve” from both the last quarter and a year-over-year basis “driven by a slightly better operating performance and markedly improved commodity prices.”
“We forecast CCO-T, CS-T, ERO-T, HBM-T, and IVN-T to miss consensus EBITDA expectations,” they said. “We forecast relatively in-line results for CIA-T, FCX-N, FM-T, and TECK.B-T. We expect ANTO-L, LUN-T, and NEXA-N to beat. On an EPS basis, we forecast below-consensus results for all companies except for CIA-T, IVN-T, LUN-T, and TECK.B-T.”
“Preferred equity exposure. In our view, CIA-T, LUN-T, and TECK.B-T all appear relatively well positioned heading into the Q2 reporting season. Despite some potential near-term concerns, TECK.B-T, CS-T, and CCO-T remain our Top Picks. We also highly recommend ERO-T, FCX-N, HBM-T, IE-N, IVN-T, and MTAL-N for Cu exposure, along with NXE-T and DML-T for U308.”
The analysts upgraded their forecasts to reflect quarterly commodity prices change and foreign exchange considerations. That led to a group of target price changes:
- Cameco Corp. (CCO-T, “sector outperform”) to $85 from $83. The average is $77.01.
- Capstone Copper Corp. (CS-T, “sector outperform”) to $13 from $12.50. Average: $13.43.
- Champion Iron Ltd. (CIA-T, “sector perform”) to $7.25 from $7. Average: $8.11.
- Labrador Iron Ore Royalty Corp. (LIF-T, “sector perform”) to $33 from $32. Average: $33.50.
- Lundin Mining Corp. (LUN-T, “sector perform”) to $18.50 from $18. Average: $19.13.
- Teck Resources Ltd. (TECK.B-T, “sector outperform”) to $85 from $83. Average: $75.22.
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Seeing “a cleaner picture,” BMO Nesbitt Burns analyst Jackie Przybylowski raised her recommendation for Teck Resources Ltd. (TECK.B-T) to “outperform” from “market perform” after coming off research restriction following the sale of sale of its Elk Valley Resources coal business unit to Glencore.
“[Teck] will be a cleaner investment story going forward as a simplified copper investment vehicle,” she said. “Completion of this transaction refocuses Teck as a Canadian-based critical minerals champion. The proceeds from the coal sale will fund future growth — either from Teck’s existing portfolio of copper growth options or through acquisition of new assets ...
“[Teck] will also be a ‘cleaner’ company as removing coal production from its portfolio will improve Teck’s ESG scores. Lower scope 3 greenhouse gas emissions is aligned with investment perspectives of The Church of England and Norway’s sovereign wealth fund, both of which have pledged to exclude coal from their portfolios (and we note that many funds follow the guidelines of these industry leaders). Even if we’re seeing modestly lower interest in ESG themes today (versus increasing support for free cash flows), we expect that Teck aligning its portfolio with structural ESG trends ahead of a necessity to do so will ultimately prove to be a wise strategic decision.”
Expecting Teck to re-rate higher without its coal business, Ms. Przybylowski hike her target to $79 from $45. The average on the Street is $75.22.
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RBC Dominion Securities analyst Andrew Wong is anticipating “mixed” second-quarter results from North American fertilizer producers, noting “nitrogen and phosphate prices that performed better than expected, but producers likely only partially benefited given forward sales (mainly nitrogen) and production issues (mainly phosphates), while potash prices drifted lower.”
“Crop prices also declined, pressuring farmer profitability and fertilizer affordability,” he added. “We think the sector will likely need positive catalysts to move equities higher in the near-term. Key factors to watch over the next 3 months — crop prices (U.S. crop conditions, yields, acreage), potash market reaction to India/China contracts, European natural gas (which sets nitrogen marginal cost), and Chinese phosphate export pace.”
In a report released Monday, Mr. Wong said he sees a “favourable upside/downside” for Saskatoon-based Nutrien Ltd. (NTR-N, NTR-T), citing a retail recovery and limited downside. However, he reduced his valuation multiple to reflect lower free cash conversion.
“We think Q2 should be in-line with consensus given a solid North American Spring season, while the Retail segment is on-track for margin improvements and potash prices have bottomed,” the analyst said. “However, softening ag fundamentals may weigh on sentiment and limit upside. Going forward, we see a favourable upside/downside return profile while the company generates solid cash flows that support the dividend with excess cash available for moderate growth and buybacks.”
His lower valuation for Nutrien stems from lower cash conversion, which he thinks is weighing on its valuation.
“We think cash conversion has declined due to several factors – higher sustaining capex due to inflation, higher finance costs resulting from higher interest rates, and rising working capital,” he said. “At the recent investor day (note), Nutrien highlighted plans to raise operating cash flow and optimize working capital, which we think will help, but inflationary pressures and higher rates remain a drag. As such, we have lowered our SOTP [sum-of-the-parts] valuation multiple to 6.6 times, from 7.2 times.”
Maintaining his “outperform” recommendation for its shares, he cut his target to US$60 from US$70. The average target is US$66.03.
“We believe the company has built the most diverse, vertically integrated agricultural input business with an attractive earnings profile, growing free cash flows, and solid balance sheet,” said Mr. Wong.
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Desjardins Securities analyst Jerome Dubreuil sees a “decent runway of efficiencies” for Cogeco Communications Inc. (CCA-T) as it transitions to its new leadership team.
“Following the appointment of new CEO Frédéric Perron, CCA has started to implement strategic tweaks which it expects will lead to more savings, including greater integration between the U.S. and Canadian businesses,” he said. “The company appears to be slowing down network deployments in the U.S., which we believe makes sense amid high competition and ahead of BEAD. Price increases and network deployments in Ontario should help the top line, but organic growth will remain difficult to achieve in the future.”
Mr. Dubreuil thinks the increasing integration of its businesses on both sides of the border stems from a strategy to “increasingly leverage its full scale to generate additional savings.”
“While there are differences between these markets, we agree that several functions can be merged,” he said. “We expect the ongoing streamlining effort to more than offset competitive pressure, as well as TV and landline disconnections, and enable the company to keep EBITDA growth in positive territory. This forecast is contingent on the company managing to turn around Internet loading in the US (despite uncertainty on competitive intensity from FWA and FTTH), finding profitable growth opportunities after the subsidized Ontario network deployment and having success with customer retention in the wireless ventures.”
Maintaining a “hold” recommendation for its shares, he raised his target to $69 from $64. The average is $67.55.
Elsewhere, RBC’s Drew McReynolds raised his target to $76 from $73 with a “sector perform” rating.
“Despite more competitively intense operating environments in both Canada and the U.S., we believe management continues to execute on multiple growth initiatives that include rural broadband expansion, entry into North American wireless markets, digitization and realizing additional synergies between Canadian Broadband and American Broadband,” said Mr. McReynolds. “While we remain on the sidelines given the more challenged revenue environment due in part to elevated competitive intensity reflecting expanding FTTH/5G/ FWA footprints in Canada and the U.S., we do continue to see value in the stock and look for better visibility on potential catalysts that could include a greater-than-forecast uptick in revenue growth driven by rural broadband expansion and/or wireless entry, as well as any potential easing in U.S. competition/concerns, particularly with respect to FWA.”
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CIBC World Markets analyst Robert Catellier recommends investors should “continue to position for secular exposure to natural gas, despite healthy year-to-date returns.”
“Strong fundamentals for natural gas are improving long-term earnings visibility, increasing our confidence in terminal multiples,” he said. “Key demand drivers are coming from multiple sources, including power burn for data centres/AI, LNG exports, re-onshoring of manufacturing, among other drivers. The persistence of natural gas demand despite volatile prices and weather is remarkable. We recommend adding volume exposure where visibility is stronger and more sustainable than commodity price exposure.”
“While the rally started in February, it found another gear in April, coinciding with the recent peak in long-term rates. We use this rate as a proxy for risk-free rates. More interesting is the contraction in credit spreads, which ... should serve as an additional catalyst for companies with asset sale programs (TRP, ENB, BIP, ALA).”
In a research report released Monday, Mr. Catellier raised his targets for stocks in the space by an average of 3.1 per cent to reflect “optimism in the long-term resilience of natural gas demand as a theme.”
His changes are:
- AltaGas Ltd. (ALA-T, “outperformer”) to $40 from $38. The average is $35.33.
- Enbridge Inc. (ENB-T, “outperformer”) to $59 from $57. Average: $54.36.
- Keyera Corp. (KEY-T, “neutral”) to $39 from $37. Average: $36.83.
- Pembina Pipeline Corp. (PPL-T, “outperformer”) to $60 from $59. Average: $55.33.
- TC Energy Corp. (TRP-T, “neutral”) to $59 from $56. Average: $54.61.
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Jefferies analysts Lloyd Byrne and Anthony Linton made targets adjustments for a group of energy stocks on Monday. Their changes include:
- Canadian Natural Resources Ltd. (CNQ-T, “hold”) to $55 from $110. Average: $55.36.
- MEG Energy Corp. (MEG-T, “hold”) to $32 from $35. Average: $35.50.
- NuVista Energy Ltd. (NVA-T, “buy”) to $17 from $15. Average: $16.77.
- Topaz Energy Corp. (TPZ-T, “buy”) to $28 from $27. Average: $28.54.
- Veren Inc. (VRN-T, “buy”) to $13 from $14. Average: $14.81.
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Expressing confidence in “the execution of management’s acquisition strategy, complemented by its history of extracting organic growth in mature industries,” National Bank Financial analyst Zachary Evershed initiated coverage of TerraVest Industries Inc. (TVK-T) with an “outperform” recommendation on Monday.
“TerraVest (TVK) is a consolidator of businesses operating in niche end-markets with activities primarily focused on steel product manufacturing. The company has over 25 operating businesses across its HVAC (32 per cent), Compressed Gas (28 per cent), Processing Equipment (16 per cent), and Service (24 per cent) segments, and is a leading player within markets related to storage vessels, boilers, wellhead processing, and fluid management,” he said. “Led by a young management team with an established track record of value creation, TVK shares have produced total shareholder returns of 34 per cent per year since their instatement in 2014; yet despite this achievement, we believe that the company still has further room to grow.”
After completing 21 acquisitions that have added approximately $750-million in sales since 2014, Mr. Evershed continues to see Toronto-based TerraVest’s “M&A engine rumbling.”
“Aiming to compete in niche, mature industries with low capital intensity and favourable competitive dynamics, TVK’s acquisition strategy is focused on procurement synergies, primarily steel but applicable to other components; shifting company culture towards a focus on profitability, often accompanied by overhead rationalization and price hikes; and access to the TVK network for internalized functions such as automation, sandblasting, and instrumentation,” he said. “TVK aims to pay between 4-6 times EBITDA and further reduce the transaction multiple by 1-2 times via the aforementioned synergies.
“Pro forma the AEP acquisition ($26 million) and the equity raise ($96.5 million), we calculate that TerraVest can acquire $50-150 million in incremental EBITDA at historical multiples while staying inside management’s comfort of 3 times PF Net Debt/EBITDA. Specifically, we highlight the potential for further bolt-on acquisitions onto Highland Tank to further complement its organic growth profile, and the foray into a diverse set of end markets brought about by the acquisition of [Advance Engineered Products].”
The analyst set a target of $89 for TerraVest shares. The current average is $91.67.
“We are initiating coverage on TVK with an $89 target price, based on 10.75 times 2025 estimated EV/EBITDA comprised of a 9.5 times base multiple and a 1.25 times M&A growth premium representing $300 million in acquired sales per year, included in our valuation multiple but not baked into our estimates,” he said. “Our target implies a FY2 FCF yield (after leases and interest) of 4.2 per cent and can be replicated in our long-term DCF with a discount rate of 8.1 per cent.”
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In other analyst actions:
* CIBC’s Cosmos Chiu raised his Alamos Gold Inc. (AGI-T) target to a Street-high $38 from $25 with an “outperformer” rating. The average is $27.
“With the closing of Alamos Gold’s acquisition of Argonaut Gold, we are reinstating coverage of Alamos Gold, maintaining our Outperformer rating, and increasing our price target from $25 to $38,” he said. “Initially announced on March 27, the transaction is accretive to all financial metrics, including NAV, EPS and CFPS, and will unlock the long-term potential of the Island Gold (Magino) mining camp. During the period of research restriction, we also increased our gold price assumptions at CIBC, contributing in part to our price target increase. Post acquisition, Alamos Gold provides investors with exposure to a company with an asset base predominantly located in Canada (at 80 per cent), along with potential long-term production growth to +900koz (from ~560koz in 2024E). Shares currently trade at 0.95 times P/NAV, a discount to its larger peers at 1.1 times P/NAV.”
* CIBC’s Mark Petrie raised his Aritzia Inc. (ATZ-T) target to $47 from $41 with an “outperformer” rating, while Raymond James’ Michael Glen hiked his target to $48 from $43 with an “outperform” rating. The average is $49.25.
“Aritzia reported F1Q financial results that were ahead of our forecast - we believe some level of beat was being anticipated by investors and would expect the stock to trade moderately higher on the report,” said Mr. Glen. “The biggest focal point for the stock [Friday] will be the 2Q guidance, specifically the level of conservatism embedded given current observed sales trends and expected new store openings (i.e. 4 in 2Q). During the call, ATZ did indicate that the top end of the 2Q sales guidance (up 7-10-per-cent year-over-year growth guided for 2Q) is more reflective of the May exit trend. Additional comments further suggested company was seeing a mid-single digit level comp exiting 1Q, with the monthly comp acceleration referenced in 1Q very weighted to the U.S. Additionally, on gross margin, management reiterated 450 basis points of year-over-year margin expansion in 2Q, but we feel this could also be conservative given commentary surrounding optimized inventory levels, improvements in newness and inventory composition, better initial markups (IMUs) and lower markdowns. Prior comments we had from management strongly reinforced a view that newness is no longer a challenge for the business, and we see confirmation of this trend with the 1Q report. Importantly, reads on Fall will start to come in August / September and this is the most significant period for the earnings progression.”
* CIBC’s Stephanie Price increased her Cogeco Inc. (CGO-T) target to $59 from $58 with a “neutral” rating.
“We remain on the sidelines of the CCA story in the absence of near-term catalysts and given the difficult U.S. competitive environment. CGO’s media business continues to face industry headwinds. CGO is trading at a NAV discount of 9 per cent, a narrower discount than the historical average of 14 per cent,” she said.
* Canaccord Genuity’s Doug Taylor trimmed his target for Coveo Solutions Inc. (CVO-T) to $11 from $12 with a “buy” rating. The average is $11.20.
* BMO’s Thanos Moschopoulos raised his D2L Inc. (DTOL-T) target to $14 from $11 with a “market perform” rating. The average is $15.
“We remain Market Perform on D2L and raise our target price to $14 following our attendance at the company’s recent user conference. Feedback from industry participants was consistent with what we’ve heard in the past — namely, that the strength of D2L’s platform, and strong customer service/support, has been driving its market share gains and high win rates in North American higher-ed. While we prefer other stocks in our coverage universe, we see more upside than downside to the stock given D2L’s undemanding valuation and ramping profitability,” he said.
* Canaccord Genuity’s Matthew Lee raised his Exchange Income Corp. (EIF-T) target to $66 from $62, exceeding the $64.06 average, with a “buy” rating.
* Scotia’s Robert Hope raised his Keyera Corp. (KEY-T) target to $42 from $40, keeping a “sector outperform” recommendation. The average is $36.67.
“We see numerous reasons to continue to be positive on Keyera, even with the company being the top-performing stock in our coverage universe year-to-date,” he said. “Specifically, a number of positive catalysts (project sanctioning) could be announced in the back half of the year that could be additive to our forecasts and valuation. Even with the spend associated with these projects, we expect Keyera to maintain its equity self-funding model, low leverage, and ability to buy back shares. The company should also benefit from increasing gas and NGL volumes in 2025 and beyond. We increase our target price by $2 to $42 to reflect a more visible growth outlook. Our $42 target price implies a 10.4 times 2026 estimated EV/EBITDA versus recent 2025 trading levels of 10.0 times. Keyera remains one of our favourite midstream names given it has (1) low leverage (management forecasts 2.2 times adj. debt to EBITDA at Q1/24 vs. target of 2.5-3.0 times); (2) a low payout ratio (59 per cent in 2024 vs. target of 50-70 per cent); (3) volume growth driving improving returns on existing assets, and (4) new project announcements.”
* Evercore ISI’s Chris McNally cut his Magna International Inc. (MGA-N, MG-T) target to US$50 from US$60 with an “in line” recommendation. The average is $55.64.
* Piper Sandler’s Luke Lemoine lowered his Precision Drilling Corp. (PDS-N, PD-T) target to US$95 from US$101 with an “overweight” rating. The average is $127.50 (Canadian).
* CIBC’s Hamir Patel reduced his target for shares of Richelieu Hardware Ltd. (RCH-T) to $44 from $45 with a “neutral” rating. The average is $44.75.
“We are maintaining our Neutral rating on Richelieu while moderating our price target to $44 (from $45), reflecting reduced near-term earnings. Although organic growth will likely remain elusive over H2, margins should continue to recover. Over the medium-term, we believe RCH is well positioned to execute on an attractive M&A pipeline and gain market share,” said Mr. Patel.