Inside the Market’s roundup of some of today’s key analyst actions
While Canadian Pacific Kansas City Ltd.’s (CP-N, CP-T) third-quarter results fell short of expectations because of “unique” challenges, Citi analyst Ariel Rosa thinks its long-term outlook shows why it is “among [the] best growth stories in transports.”
After the bell on Wednesday, CPKC reported revenue of US$3.55-billion and adjusted earnings per share of 99 US cents. Both fell short of the Street’s expectations of US$3.59-billion and US$1.01, respectively.
“Key drivers of the miss included softer intermodal and autos revenue per carload (and revenue/RTM [revenue ton miles]) across both categories, along with higher-than-expected labour and purchased services costs,” he said. “CP faced challenges in the quarter from a 4-day work stoppage, a derailment in North Dakota, and higher incentive compensation. With these non-recurring headwinds now past, management anticipates a sizeable 500 basis points of sequential Operating Ratio improvement in 4Q24.
“Revenue and EPS growth were still up 6 per cent and up 8 per cent year-over-year, respectively, despite an ongoing freight recession and these various idiosyncratic challenges, reflecting the strength of CP’s growth potential. The company maintained its outlook for high-single digit revenue growth and double-digit adj. EPS growth through 2028.”
Mr. Rosa sees CPKC continuing to “unlock multiple avenues of growth,” pointing toits MMX-180/181 Mexico cross-border service and its Meridian Speedway product “where it can now interchange with CSX in addition to NSC.”
“On a shorter-term perspective, CP anticipates 500 basis points of sequential 4Q OR [operating ratio] improvement despite a headwind of lower fuel surcharge, with 300 basis point from non-recurring 3Q costs (100 basis points from the work stoppage and 200 basis points from stock-based comp and derailment issues) plus 200 basis points from operating leverage given its strong grain and bulk outlook,” he said.
“CP continues to face risk from: (1) binding arbitration with the TCRC union, where CP is accruing a 4-per-cent wage increase assumption, (2) possible involvement in Mexico passenger rail service, where CP may be mandated to contribute resources, and (3) possible tariffs from the result of the U.S. election impacting cross-border trade.”
To reflect the company’s improved margin outlook, Mr. Rosa raised his 2025 and 2026 adjusted EPS projections to US$5 and US$5.75, respectively, from US$4.96 and US$5.74. That led him to increase his target for CPKC’s New York-listed shares to US$98 from US$97 with a “buy” recommendation. The average target on the Street is US$93.16, according to LSEG data.
“With peer railroads continuing to face sluggish growth, CP’s ability to deliver on service, unlock growth opportunities and drive best-in-class EPS growth continues to justify its premium valuation,” he said.
“CP has arguably the best management team in rails, in our view, with a strong track record of meeting or exceeding targets. This suggests upside to its KCS synergy targets, as we believe few management teams are better positioned to unlock value from such a combination. CP has attractive organic growth opportunities from the linking of the existing CP network and acquired KCS network, with enhanced capabilities for customers and intermodal, industrial, and commodity opportunities. However, competition from other rails is proving to be fierce as they look to limit CP-KCS customer expansion by forming partnerships and providing tri-coastal service at similar transit times. CP also has the richest valuation among rails, trading well above its historical trading range; with significant upside priced into consensus Street estimates.”
Elsewhere, other analysts making target adjustments include:
* National Bank’s Cameron Doerksen to $119 from $107 with a “sector perform” rating.
“We continue to be highly positive on CPKC’s growth prospects (a view reinforced with the updated volume guidance) and we believe CPKC deserves a premium multiple, but the stock is trading at 21.1 times our updated 2025 EPS forecast versus the U.S. peer average at 18.3 times,” said Mr. Doerksen. “Valuation is also already baking in sizable growth (consensus is for 18-per-cent EPS growth in 2025 for CPKC).”
* ATB Capital Markets’ Chris Murray to $134 from $133 with an “outperform” rating.
“The Company delivered solid results in a challenging quarter, with underlying volume and pricing trends demonstrating notable strength despite operating in a lower-growth environment,” he said. “We see healthy volume growth reinforcing the opportunity inherent in the expanded network, with the eventual turn in economic conditions providing significant potential upside to the growth and margin outlook. We view CP’s acquisition of KCS as a transformative opportunity for the Company as it is set to establish the first Canada/US/Mexico rail network, providing both companies with greater scale, capabilities, and route densification. We view synergy expectations as conservative and see meaningful potential upside over the longer term given the breadth of the cross-selling opportunity, particularly around intermodal volumes, favourable underlying economics, and environmental benefits of freight rail, which we expect to underpin longer-term value creation.”
* RBC’s Walter Spracklin to $134 from $137 with an “outperform” rating.
“With very few companies hiking volume guidance in today’s environment, CP’s move to raise volume expectations to mid-single digits demonstrates the company’s unique setup as it executes on the integration upside from the KCS deal,” he said. “Further, the company pointed to a 500bp sequential improvement in operating margin as it rebounds nicely off the labour-related and derailment challenges of Q3. We really like the momentum building in Q4 and the setup for CPKC into 2025. We reiterate that CP is our favourite name in the railroad space.”
* Desjardins Securities’ Benoit Poirier to $131 from $132 with a “buy” rating.
“We have increased our RTM estimate for 4Q to 6.2 per cent (up from 4.8 per cent),” he said. “However, the rails will face a fuel yield drag in 4Q (diesel currently down 15.7 per cent year-over-year), and we now forecast yield deteriorating by 1.1 per cent year-over-year in 4Q (down from 2.2 per cent). Updating our model for these assumptions (including a 500 basis points quarter-over-quarter improvement in 4Q OR), we arrive at a nearly unchanged EPS estimate for the year (10.9 per cent year-over-year vs 11.7 per cent previously).”
* BoA Securities’ Ken Hoexter to US$91 from US$94 with a “buy” rating.
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National Bank Financial analysts Richard Tse and John Shao see Canada’s technology sector continuing to offer “a good mix of large-cap stability (defence) and small-cap torque (offence)” heading into third-quarter earnings season.
In a research report released Thursday titled The Rate Relief Set Up, they also argue the Fed’s recent “kickstart” to an interest rate cutting cycle as well as the potential for accelerated merger and acquisition (M&A) activity “provides an added tailwind across the sector with what we believe will be an outsized benefit to growthier, smaller cap names alongside interest rate moderation given the obvious impact from lowering discount rate.”
“All in, we believe the current rate environment should provide a tailwind across our coverage group, as valuations should naturally climb as the cost of capital/discount rates compress — even so, as noted in our analysis, there are company-specific nuances to that benefit,” they said. “As far as our coverage universe, while we’ve highlighted some of the most interest rate sensitive names as carrying the most leverage (namely, Telus Digital, OpenText and Altus Group), we’d note some of those companies also happen to be facing growth challenges and as such, those names carry Sector Perform ratings. Of our Outperform coverage names, Constellation Software, Converge, Docebo, Shopify, and Tecsys, all screen well within this interest rate sensitivity analysis with what we believe to be stronger (relative) fundamental outlooks. Additionally, when considering how markets have reacted since the Fed’s September rate cut, some of our smaller Outperform names with the most ‘Upside Since Cut’ are Coveo, Thinkific and Tecsys, with 24.0 per cent, 19.9 per cent, and 10.4-per-cent return upside to the higher DCF values, respectively.”
The analysts see a “a small/mid-cap catchup trade” approaching, noting the third quarter “saw the considerably smaller Canadian tech sector (versus its U.S. peers) pick up momentum after lagging throughout most of 2024.”
“In Q3, the S&P/TSX Information Technology Index delivered a strong 11.4 peer cent (vs. its year-to-date performance of 12.9 per cent as of the end of Q3), outperforming U.S. tech rather meaningfully as the S&P 500 Information Technology Index took a breather in Q3, returning 1.4 per cent (vs. its 29.6-per-cent year-to-date),” they said. “Helping drive the Canadian outperformance were several names within our coverage — Shopify (17.2 per cent), Lightspeed (16.4 per cent) and Tecsys (15.0 per cent) all landed in the top 5 of the index’s biggest Q3 contributors.
“Looking ahead to Q4, we maintain our view on growing opportunities in small/mid-cap tech where valuation re-ratings have lagged; in addition, it’s also a group where we see building takeout prospect.”
The analysts made two target price adjustments heading into earnings season:
* Constellation Software Inc. (CSU-T, “outperform”) to $5,000 from $4,800. The average on the Street is $4,600.
Mr. Tse: “With respect to capital deployment, we believe the Company is still on pace to achieve its targeted deployment in 2024. We’d note large acquisitions, which have been increasingly common and have contributed materially to capital deployment in recent years, have not been a contributor this year toward the current run-rate. As of Q2, Constellation had deployed ~US$1.15 billion or 50% of our US$2.3-billion target estimate required to achieve a 20-per-cent year-over-year revenue/earnings growth rate. With available liquidity of US$2.9-billion, a comfortable leverage ratio of 0.9 times and a robust pipeline of over 40k potential targets, we see continued runway to achieve that target. ... In addition, if you’ve been following our research, you’d know we’ve been calling for more potential spinoffs given the success of Topicus and more recently, the Lumine Group. We estimate Topicus and the Lumine Group have added $2.5-billion and $2.6-billion in value to CSU, respectively, since they began trading as separate entities on the TSX-V in Feb. 2021 and Mar. 2023, respectively. We see the Company sizing up for more spin-offs with two segments from Volaris being potential names — Omegro and Modaxo, both of which have been “carved out” from an early disclosure standpoint.”
* Real Matters Inc. (REAL-T, “sector perform”) to $9 from $8. The average is $9.18.
Mr. Tse: “While we had a strong Outperform rating earlier this year, we downgraded it on August 1st given the material upside move in the stock price to our target. At this point, we see a balanced risk-to-reward profile given the strong move in the stock price already. We maintain our Sector Perform rating with a slight increase in our target price ... on the back of anticipated improved market conditions with further rate cuts.”
The analysts added: “Our favoured names at the time of writing are Computer Modelling Group, Descartes, Docebo, Kinaxis, Shopify and Tecsys.”
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Scotia Capital analyst Kevin Krishnaratne is “particularly positive” on Shopify Inc. (SHOP-N/SHOP-T), Docebo Inc. (DCBO-Q/DCBO-T) and Lightspeed Commerce Inc. (LSPD-N, LSPD-T) heading into earnings season for Canadian technology companies.
“We see opportunities for top and bottom line beats at both SHOP and LSPD,” he said in a report titled Our Favourite Canadian Tech Ideas Heading Into Q3 Earnings.
“While we are SP-rated on SHOP, largely on valuation (approximately 17.0 times CY25 GP), we think momentum in the stock can continue as we acknowledge SHOP’s ability to drive strong upside on multiple levers in its model. We also note the stock has historically traded higher into BFCM (average move is 7 per cent in the 15 trading days through close on Black Friday from 2016 to 2023). LSPD is trading at a big discount to closest peer TOST (3.0 times CY25 GP vs. TOST 11.0 times), with the company now getting set to turn the corner (increasing profitability, accelerating software growth), which could lead to a rerate. Meanwhile, there remains optionality on the potential of a takeout following its current strategic review (we think a reasonable range is $21 to $25). While we expect in-line revenues at DCBO, we see upside on Adj. EBITDA and FCF given operating leverage in the model and a compelling opportunity with the stock now trading at 4.9x CY25 sales.”
Mr. Krishnaratne raised his target for Shopify Inc. (SHOP-N/SHOP-T, “sector perform”) to US$80 from US$75. The average is US$81.17.
“We think retail spending trends per U.S Census Bureau data in Q3 that came in ahead of consensus could point to upside risk to our and Street estimates for SHOP’s GMV (we estimate 21.7-per-cent year-over-year growth),” he said. “This in turn could drive better-than-expected merchant solutions revenue (we are forecasting growth 22.7 per cent with Street 24.2 per cent vs. Q2′s 18.6 per cent). SHOP has beat consensus merchant solutions revenue up 2 per cent over the past three years. Beyond top line trends, a key focus will be operating leverage and FCF (Q2 saw a large beat with margins at 16.3 per cent vs. the Street’s 12.7 per cent, with consensus at 17.2 per cent for Q3). While we remain Sector Perform rated, largely on valuation (17.0 times CY25 GP), the stock could continue to work as we get closer to Black Friday / Cyber Monday (BFCM). Historically, SHOP has traded higher heading into BFCM (average move is 7 per cent in the 15 trading days through close on Black Friday, from 2016 to 2023). Recent momentum has pushed the stock to 8.3 times NTM EV/Sales, above the 6.0 times to 8.0 times band it traded in during the summer, though shares still trade below the 10.0 times plus levels seen earlier this year.”
He also increased his Docebo Inc. (DCBO-Q/DCBO-T, “sector outperform”) target to US$55 from US$50. The average is US$57.17.
“Although revenue will likely be in line given the nature of the business (based on prior Q ARR), we see upside to EBITDA both in the quarter (margin outlook is 15.0 per cent to 15.5 per cent) and for CY24 guide given operating leverage in the model,” he said. “In particular, we see opportunities within G&A (currently 15 per cent of sales, but poised to move towards 9-11 per cent in mid-term) and S&M (should see benefits from company’s evolving Partner strategy and its increasing focus on Enterprise vs. SMB clients). We also look for commentary on ARR trends in the coming quarters which could benefit from the landing of new large logos and upside from new AI-based products (latter more into Q4) not currently in our ARR or SaaS revenue estimates. DCBO is one of our top picks in SaaS, trading at 4.9 times CY25E sales (26 times EBITDA) and delivering the fastest enterprise ARR growth in our coverage (30 per cent in CY24E ex-customer downgrade).”
He kept a “sector outperform” rating and US$21 target for Lightspeed shares. The average is US$17.72.
Meanwhile, Mr. Krishnaratne also raised his Descartes Systems Group Inc. (DSGX-Q/DSG-T, “sector outperform”) to US$120 from US$104 to “acknowledge the upward move in peer group multiples.”. The average is US$107.46.
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After “another solid beat and raise” in the third quarter, RBC Dominion Securities analyst Paul Treiber sees “increasing visibility to long-term growth and profitability” for Celestica Inc. (CLS-N, CLS-T) and expects its valuation to continue to re-rate higher.
After the bell on Wednesday, the Toronto-based electronics company reported revenue of US$2.5-billion, up 22 per cent year-over-year and ahead of both Mr. Treiber’s US$2.42-billion estimate and the consensus forecast of US$2.41-billion as well as its own guidance (US$2.325-$2.475-billion). Adjusted earnings per share of US$1.04 also topped the analyst’s 95-US-cent projection and the Street’s estimate of 95 US cents.
“The upside came from CCS Communications, where revenue up was 14 per cent quarter-over-quarter to $1.065-billion, above our estimate for $0.985-billion,” said the analyst. “Year-over-year growth was 45 per cent, ahead of guidance for low 30 per cent. Celestica saw stronger demand for 400G switches and a faster ramp of 800G switches at hyperscaler customers.
“Hyperscaler strength is broadening. While revenue at Celestica’s largest customer declined 18 per cent quarter-over-quarter on the widely expected program transition, revenue from Celestica’s #2-10 customers (mostly hyperscalers) increased 19 per cent quarter-over-quarter(37 per cent year-over-year). Celestica expects revenue from other hyperscalers to continue to ramp going forward and called out a new custom AI/ML win at Groq (ramping early 2025), a 1.6T switch win at a large hyperscaler (ramping 2026), and ‘active’ discussions with other hyperscalers (potentially ramping 2025 to 2027).”
Celestica’s guidance also topped expectations with Mr. Treiber suggested upside for fiscal 2025 is “likely.”
“Q4 guidance calls for $2.425-2.575-bilion revenue and $0.99-1.09 adj. EPS, with the midpoint ahead of consensus at $2.445-billion and $0.95,” he said. “For FY25, Celestica has ‘high confidence’ in achieving $10.4-bilion revenue and $4.42 adj. EPS, which compares to consensus at $10.4-billion and $4.07. Celestica provides conservative guidance, which suggests upside to this outlook, in our view. Over the last 3 years, Celestica has exceeded its initial annual revenue guidance by 11 per cent and adj. EPS by 40 per cent.”
Maintaining his “outperform” recommendation for its shares, he hiked his target to US$75 from US$65. The current average is US$67.44.
“Celestica is trading at 13 times NTM [next 12-month] P/E, below EMS peers (at 16 times),” said Mr. Treiber. “We believe Celestica’s valuation multiple is likely to re-rate upwards, as: 1) above peer EPS growth is sustained (20 per cent vs. peers at 11 per cent); 2) the mix of ODM revenue continues to rise (currently 30 per cent of revenue, while ODMs trade at 18 times NTM P/E); and 3) strengthening momentum in strategically important end markets (e.g. hyperscaler, HPS, aerospace & defence, capital equipment).”
Elsewhere, others making changes include:
* BMO’s Thanos Moschopoulos to US$72 from US$64 with an “outperform” rating.
“We remain Outperform on CLS and have raised our estimates and target price following solid Q3/24 results and guidance, driven by ongoing strength in CCS (specifically CLS’s switching business) which more than offset a softer quarter, and outlook, for ATS. CLS announced a win with Groq for AI servers and a 1.6T switching win with a major hyperscaler. We believe the AI capex cycle, and CLS’s market position, will be more durable than the stock’s current valuation implies — and see further upside to the stock, particularly given CLS’s consistent margin execution,” he said.
* TD Cowen’s Daniel Chan to US$70 from US$68 with a “buy” rating.
“Celestica reported a solid beat/raise, with 2025 guidance well ahead of consensus and close to our prior Street-high $4.47 EPS,” he said. “We believe the results, guidance, and investor highlights support our thesis that Celestica will be a major beneficiary of increased investments in data centre communications equipment. With additional growth opportunities, we believethe guidance could be conservative.”
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Recent announcement from U.S. large-cap giants, like Microsoft Corp., Alphabet Inc. and Amazon.com Inc., that they’re turning to nuclear as a source of low carbon energy to meet the surging demand from data centres are likely to provide near-term tailwinds for uranium miners, according to National Bank Financial analyst Mohamed Sidibé.
“When we initiated on the space, we viewed the AI data center demand story mostly as a longer-term upside to our uranium demand scenario with no near-term impact,” he said. “And while we currently do not expect these specific announcements to materially impact our demand estimate in the near term (3 million pounds U3O8 vs. average operating reactor demand of 156 million pounds U308 over the last five years), it does provide more validity to the future growth of SMRs and the potential upside to our estimates into the 2030s and a widening of future uranium supply deficit,” he said.
“As a result of this positive tailwind, multiples have expanded in the space and the positive momentum has benefited all three names under coverage.”
Mr. Sidibé thinks Saskatoon-based Cameco Corp. (CCO-T) is likely to benefit the most from the trend, citing “its exposure on both the production front as the largest North American producer of uranium, as well as through its exposure to the design and engineering of small modular reactors (SMRs) through its 49-per-cent interest in Westinghouse, though longer dated.”
“We also expect Denison Mines and NexGen Energy to overall benefit from the positive momentum given the expected timing of start of production at their flagship assets which should coincide with a pick in contracting activities related to SMRs,” he said.
Ahead of third-quarter earnings season, the analyst raised his target prices for the three companies in his coverage universe, touting exploration potential and resource upside. His changes are:
* Cameco Corp. (CCO-T, “outperform”) to $85 from $74. The average is $77.96.
Analyst: “We expect the uranium segment to continue to outperform vs. provided guidance driven by McArthur River/Key Lake and expect tailwinds from the conversion market to benefit the fuel services segment during the quarter. We expect this quarter to also be less noisy at Westinghouse with a substantial portion of the guided purchase price accounting adjustments already charged to H1/24. Overall, our focus will be on any potential upside to the 2024 guidance in the uranium segment, colour on potential future expansion of production at McArthur River/Key Lake and an update on the contracting activity.”
* Denison Mines Corp. (DML-T, “outperform”) to $4.15 from $3.50. Average: $3.90.
* NexGen Energy Ltd. (NXE-T, “outperform”) to $13 from $11. Average: $13.11.
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In other analyst actions:
* Scotia Capital’s Robert Hope bumped his AltaGas Ltd. (ALA-T) target to $39 from $38 with a “sector outperform” rating. The average is $38.44.
“Shares of the Canadian utility group moved higher in Q3, benefiting from the lower rate environment. However, we have not seen a meaningful shift in sentiment for the group, especially as they have underperformed their U.S. peers,” said Mr. Hope. “Looking at the quarter, we expect investors will be focused on storm costs for EMA, which we estimate to be $0.5-billion, as well as the utility earnings power of AQN. We like AltaGas and Emera in the group.”
* With the release of its preliminary assets under management for September, Desjardins Securities’ increased his Fiera Capital Corp. (FSZ-T) target to $9 from $7.75, exceeding the $8.58 average on the Street, with a “hold” rating.
“We increased our estimates across the board along with a token dividend bump, offset by slightly higher 3Q net outflows due to expected PineStone redemptions,” said Mr. Ho. “Net flows should improve materially in 2025 and 2026.”
“Given the limited upside to our target price, leakage through the elevated payout and leverage, we maintain our Hold rating. While we like FSZ’s growing private alt platform (attractive risk/return profile with steady cash flow) and compelling 10-per-cent dividend yield, we view the shares as fairly valued.”
* National Bank’s Shane Nagle raised his First Quantum Minerals Ltd. (FM-T) target to $22.50 from $21 with an “outperform” rating after a “strong” operational third quarter and seeing pending balance sheet improvements, while RBC’s Sam Crittenden moved his target to $23 from $22 with an “outperform” rating. The average target is $20.73.
“We continue to see strong risk/reward in First Quantum shares on the potential to recover value in Panama through a restart of the mine with downside protection through arbitration,” said Mr. Crittenden. “The Zambian operations performed well in Q3 with the completion of the S3 expansion on track for mid-2025, while selling a minority stake could be a positive catalyst.”
* In response to the release of its third-quarter production results at its Juanicipio deposit in Mexico, Raymond James’ Brian MacAthur raised his MAG Silver Corp. (MAG-T) target by $3 to $26 with an “outperform” rating. The average is $25.01.
“We believe that MAG is one of the better options for investors looking for exposure to silver, given its 44-per-cent interest in the world-class Juanicipio joint venture (JV), which is a district scale, low-cost, high-grade silver development project with a strong partner and meaningful exploration potential,” he said. “Given the quality of the asset, a strong partner, and exploration potential, we rate the shares Outperform.”
* Emphasizing Premium Brands Holdings Corp.’s (PBH-T) U.S. initiatives “continue to roll-out” and seeing it poised for “strong growth” in the fourth quarter and beyond, National Bank’s Vishal Shreedhar raised his target for its shares to $109 from $101 with a “sector perform” rating ahead of the Nov. 6 release of its third-quarter results. The average is $111.78.
“Over the medium term, we believe that PBH’s outlook will be supported by solid organic growth and EBITDA margin expansion (to 9.8 per cent in 2025 from 8.9 per cent in 2023). We value Premium Brands at 10.5 times our 25/26 EBITDA,” he said.
* National Bank’s Zachary Evershed increased his Savaria Corp. (SIS-T) target to $27 from $22 with an “outperform” rating. The average is $26.50.
“With quicker-than-expected margin expansion as S1 initiatives are completed, our thoughts naturally turn to the company’s next leg of growth, building on $1-billion in revenues at 20-per-cent Adj. EBITDA margins in 2026,” he said. “We believe tailwinds in Accessibility end markets are well understood, as the supportive demographics and desire to age in place are self-evident. We therefore focused our analysis on the potential growth in Patient Care markets, in which the drivers of institutional demand are more opaque. We conclude that there is no reason SIS could not generate organic growth of 8-10 per cent in both segments as we introduce our 2026 forecasts, with revenue of $1.05 billion and Adj. EBITDA of $210 million on 20.1-per-cent margins.”
* Raymond James’ Brad Sturges reduced his StorageVault Canada Inc. (SVI-T) target to $5.25 from $5.75 with a “market perform” rating. The average is $5.84.
* RBC’s Michael Harvey raised his Topaz Energy Corp. (TPZ-T) target to $30 from $28 with an “outperform” rating. The average is $30.73.
* Desjardins Securities’ Chris MacCuloch bumped his Whitecap Resources Inc. (WCP-T) target to $13 from $12.75 with a “buy” rating, while ATB Capital Markets’ Patrick O’Rourke trimmed his target to $14.50 from $15 with an “outperform” rating. The average is $13.48.
“We are increasing our target on Whitecap ... reflecting positive estimate revisions following another quarter of strong operational results,” Mr. MacCulloch said. “Although the capital allocation framework provides limited scope for buybacks at strip prices, we expect WCP to continue exploring creative ways to augment the base dividend and organic production growth, including accretive M&A opportunities to further scale the business model. Meanwhile, 2025 guidance appears to have been conservatively set.”