Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial analyst Maxim Sytchev thinks Toromont Industries Ltd.’s (TIH-T) premium multiple is now “at odds with expected pricing-driven margin compression.”
Believing “even true compounders sometimes need a breather,” he downgraded the Toronto-based company to “sector perform” from “outperform” previously, seeing “limited upside.”
“The TIH board/management team have over time demonstrated an ability to perform regardless of the macro cycle, competitive pressures, supply chain bottlenecks, etc., resulting in industry-leading EPS growth of 13-per-cent CAGR [compound annual growth rate] over the last 10 years,” said Mr. Sytchev. “Looking forward, there are 3 reasons that lead us to believe that the EPS trajectory for the next 12–24 months could be more muted: 1) peak equipment pricing; 2) potentially peak horizontal infrastructure spending intensity; 3) relatively small scale of CIMCO business limits nominal M&A-driven accretion.”
The analyst sees Toromont as “operationally sound,” however he warned investors there are “some clouds on the horizon” and “don’t forget the multiple.”
“When combined with valuation on the higher end of the historical range, it’s hard to argue for further expansion even in a soft landing scenario,” he said. “After all, when rates were close to zero, the P/E multiple did not go to 30 times - we see the risk/reward for investors as balanced. Given limited upside even in case of capital deployment via CIMCO M&A, we believe it’s better to wait for a more attractive entry point.”
Ahead of the Nov. 4 release of its third-quarter results, he reiterated a target of $135 per share. The average target on the Street is $138.89, according to LSEG data.
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Mr. Sytchev’s downgraded to Toromont came alongside the release of his quarterly preview report for Canadian industrials, which he thinks “are generally doing well” but warned “earnings season will hit during U.S. elections and China stimulus thoughts.”
“Common feedback we hear is that ‘Republican win = negative for anything ESG-related’ but multiple recent marketing trips with management teams suggest that tariffs/re-shoring could lead to more in-situ manufacturing capacity,” he said. “It’s hard to make a call on these things, but we believe our coverage will work regardless of the outcome due to secular/bipartisan funding sources for most programs in the U.S. Most other geographies are robust (ex-Australia transportation, but the latter represents a footnote for most companies; NOA’s exposure there is commodity-driven). Interestingly, Chinese stimulus talk (and Google search volume) also points to positive returns for our space. Since 2004, we saw three distinct time periods when interest in news about Chinese stimulus spiked - average returns within our coverage universe came in at 41 per cent through Nov. 2009, 35 per cent through Sept. 2013, and 115 per cent through April 2021. Something to think about.”
He added: “In each instance, 12-month returns were significantly higher than the six-month returns as the rally progressed over an extended period of time. While we do not foresee a similar magnitude of returns over the next 12 months given that current valuations are broadly elevated vs. historical norms, this historical precedent at least suggests that positive returns are still a very realistic possibility despite the continued run-up in equity prices (and associated multiple expansion).”
Mr. Sytchev made a series of target adjustments heading into earnings season. They are:
- Aecon Group Inc. (ARE-T, “outperform”) to $25 from $20.50. The average is $23.23.
- Ag Growth International Inc. (AFN-T, “outperform”) to $74 from $77. Average: $75.75.
- AtkinsRéalis Group Inc. (ATRL-T, “outperform”) to $74 from $68. Average: $68.55.
- RB Global Inc. (RBA-N/RBA-T, “outperform”) to US$97 from US$90. Average: US$90.90.
- Russel Metals Inc. (RUS-T, “outperform”) to $47 from $46. Average: $46.67.
- WSP Global Inc. (WSP-T, “outperform”) to $271 from $255. Average: $261.46.
The analyst explained his changes by saying, “WSP (more upside as Power market continues to accelerate), ATRL (less bad LSTK bucket of losses/higher multiple on Nuclear which is all the rage), ARE (cleaner expected quarter and close to 50 per cent of business being Power / Nuclear = higher multiple), RBA (multiple expansion as service levels are improving vs. Copart based on our due diligence) and RUS (seeing more upside in 2025E as HRC troughed); AFN target down by -$3 on Farm inflection uncertainty.
“Best ideas: We continue to like RBA; this a great name for an all-weather industrial bucket. After material ATRL re-rate since Sept. 2024 trough (up 7 per cent vs. TSX up 7 per cent), we now think STN [”outperform” and $128 target] is the most attractive consulting engineer in the space. ATS [”outperform” and $52] remains controversial, but we like the long-term set-up + below-trend valuation. FTT [”outperform” and $47] looks good to us, especially in light of Chinese stimulus (i.e., helps copper).”
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Raymond James analyst Daryl Swetlishoff sees an enticing opportunity in building materials stocks, believing “unprecedented” capacity reductions have put a floor on pricing while pointing to the impact of the interest rate cycle and seasonal tailwinds.
“Despite the recent rally, building materials stocks are still trading near historic trough valuations,” he said in a note titled Out of the Woods. “However, WSPF, SYP, and OSB benchmark building materials prices are grinding upwards, and we expect shares to follow suit. With year-to-date pricing hovering below cash breakeven levels across the bulk of North American timber baskets, sawmill curtailment announcements are piling up to unprecedented levels. We expect this to accelerate as lumber players look to remove high-cost Cdn capacity before softwood lumber duties double (again) next summer. Accordingly, we have introduced 2026 estimates with commodity pricing reflecting Canadian cost inflation which supports 50-per-cent average upside despite conservative multiples. Trees earnings season kicks off this week with West Fraser first out of the gate on October 23. Despite potential for modest beats, the quarter will be uninspiring from our perspective with muted benchmark commodity pricing/operating rates and impairment charges following capacity shuts.
“From a share price impact, however, we regard the 3Q24 as a backwards-looking event with posted earnings taking a back seat to higher lumber prices. With attractive valuations, tightening fundamentals and the seasonal trade (Buy Halloween; Sell Super Bowl) fast approaching, we advocate investors add to positions at current levels. On the back of limited duty exposure, earnings diversification, and compelling growth potential, we reiterate our Strong Buy ratings on West Fraser Timber, Doman Building Materials, and Atlas Engineered Products.”
Citing “recent earnings/liquidity enhancing strategic moves,” Mr. Swetlishoff upgraded Canfor Corp. (CFP-T) to “strong buy” from “outperform” with a high on the Street target of $28, rising from $20. The average is $20.33.
“For rate cut bulls,” he also upgrading pure-play lumber producer Interfor Corp. (IFP-T) to “strong buy” from “outperform” previously, pointing to “high operating and financial leverage supporting material torque to the commodity.” His target rose to $30 from $26, exceeding the $24.33 average.
The analyst also raised his targets for West Fraser Timber Co. Ltd. (WFG-N/WFG-T, “strong buy”) to US$120 from US$105 and Doman Building Materials Group Ltd. (DBM-T, “strong buy”) to $12 from $11.50. The averages are US$109 and $10.71, respectively.
“While targets move higher for a number of building materials players and intermediaries, conservatively applying reduced target multiples produces 50-per-cent average upside,” said Mr. Swetlishoff. “Trading at sub 3 times 2026 EV/EBITDA, we highlight Canfor boasts amongst the most compelling value proposition with upside pegged at 66 per cent. Accordingly, we are upgrading the stock to Strong Buy from Outperform. Featuring high-growth potential and margin stability, Atlas Engineered and Doman also warrant our highest investment recommendation. Despite shares trading near 52-wk highs, we continue to rate West Fraser Strong Buy in light of limited duty exposure, scale advantages and attractive geographic and product diversification.
“On the pulp side, we rate Canfor Pulp Outperform as shares are undeniably inexpensive at just 1.8 times 2026 EV/EBITDA. Following Mercer’s 3Q24 miss, we reiterate our Market Perform rating.”
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Desjardins Securities analyst Chris MacCulloch is expecting “a relatively smooth” third-quarter earnings season for Canadian oil and gas producers, seeing operations benefiting from limited wildfire impacts and an absence of material infrastructure downtime this summer.
“This was most evident for oil-weighted producers as reflected in our estimates, which indicate a slight uplift in sector production relative to 2Q24 levels,” he said in a report titled Hold on to your broomsticks. “Although crude oil prices slid in 3Q24 as global market fundamentals continued shifting into an oversupplied situation, WTI–WCS differentials were relatively stable as the Trans Mountain Expansion (TMX) pipeline continued ramping operations. To that end, we expect industry to continue absorbing incremental egress capacity moving into 4Q24 as nearly every heavy oil producer under coverage is currently forecast to ramp production exiting the year.
“Conversely, the situation was far more challenging on the natural gas side in 3Q24 as AECO and Station 2 prices crashed to mere pennies throughout most of the quarter due to elevated supply and regional pipeline maintenance. Thankfully, several producers proactively took the opportunity to preserve molecules for an improved market by temporarily curtailing production—a decision we applaud given our overriding preference for maximizing value over volumes—which resulted in a modest decrease in volume forecasts relative to 2Q24 levels. Although most natural gas–weighted producers have largely maintained growth plans to date, with a view toward the looming start-up of LNG Canada Phase I (expected in mid-2025), we question whether a slowdown in capital spending could be in the cards as payouts stretch.”
Mr. MacCulloch said he remains “relatively commodity-price-agnostic beyond being cautiously optimistic on the prospect of a modest natural gas recovery in 2025.” He also continues to think sector valuations are “compelling within the context of historically attractive capital return yields.”
“Our top picks are CVE (large-cap oil), TOU (large-cap natural gas), ARX (liquids-rich natural gas), VRN (mid-cap oil), NVA (small/mid-cap natural gas) and HWX (small-cap oil),” he said.
“With respect to our 3Q24 CFPS projections vs consensus, we highlight that our estimates generally align with Street expectations, with the notable exception of HWX (+14 per cent) and CVE (+4 per cent), where we anticipate modest beats. Meanwhile, we could see potential misses from PNE (-13 per cent), AAV (-8 per cent), SDE (-7 per cent), ARX (-7 per cent), FRU (-6 per cent) and MEG (-4 per cent) to the extent that our CFPS estimates are materially below Street expectations, although we caution that consensus is primarily based on less reliable Bloomberg data (vs corporate surveys).”
The analyst made four target changes on Tuesday. They are:
- Cenovus Energy Inc. (CVE-T, “buy”) to $29.50 from $30. The average is $31.93.
- Peyto Exploration & Development Corp. (PEY-T, “hold”) to $16.25 from $16. Average: $17.93.
- Pine Cliff Energy Ltd. (PNE-T, “buy”) to $1.15 from $1.20. Average: $1.20.
- Suncor Energy Inc. (SU-T, “hold”) to $61 from $60. Average: $59.60.
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After lowering his oil price projections for the remainder of 2024 and into 2025, Canaccord Genuity energy equity analyst Mike Mueller lowered his targets for a group of stocks in his coverage universe on Tuesday.
“Since mid-summer, oil prices have experienced downward pressure predominantly resulting from: (1) weakening Chinese demand; (2) increasing OPEC+ supply; and (3) non-OPEC supply,” he said. “We also note that the recent escalation in tensions in the Middle East has resulted in temporal price spikes, a scenario that could remain in the cards as we move through the balance of the year, in our view. Adding to geopolitical uncertainty is the upcoming US election. We have lowered our WTI assumptions from US$80.00/bbl to US$70.00/bbl in Q4/24 and similarly lowered our 2025E forecast from US$75.00/bbl to US$70.00/bbl while maintaining our long-term WTI forecast of US$70.00/bbl. For Edmonton Par, we have modestly narrowed our Q4/24 differential estimate from US$3.25/bbl to US$3.00/bbl while widening our 2025E differential to US$3.50/bbl from US$3.25/bbl.”
His changes include:
- Baytex Energy Corp. (BTE-T, “buy”) to $6 from $6.50. Average: $6.10.
- Birchcliff Energy Ltd. (BIR-T, “hold”) to $6 from $6.50. Average: $6.65.
- Freehold Royalties Ltd. (FRU-T, “buy”) to $18 from $19. Average: $17.36.
- Surge Energy Inc. (SGY-T, “buy”) to $10.50 from $11. Average: $11.69.
- Tourmaline Oil Corp. (TOU-T, “buy”) to $74 from $7. Average: $77.13.
- Vermilion Energy Inc. (VET-T, “buy”) to $19 from $20. Average: $18.35.
- Veren Inc. (VRN-T, “buy”) to $14 from $15. Average: $13.46.
- Whitecap Resources Inc. (WCP-T, “buy”) to $14 from $14.50. Average: $13.56.
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Citi analyst Vikram Bagri downgraded Canadian Solar Inc. (CSIQ-Q) to “sell” from “neutral” ahead of the U.S. election, predicting the Guelph, Ont.-based company will “face a different set of challenges under either administration.”
“We believe CSIQ faces uncertainty surrounding its PV [photovoltaic] module business in the U.S., which is essentially the only profitable market for modules currently,” he said. “The risks to U.S. module business are further compounded by high CVD rate on Thailand (23 per cent) and possibility of Trump presidency. Furthermore, the outlook for storage margin may have changed as the company recently tempered expectations and indicated mid-teen margins (vs 20 per cent) in the medium term. Finally, even if Democrats win the White House, CSIQ may deal with potentially higher tariffs from AD, strain on balance sheet due to CVD rates, and increased capital requirements due to spending on PV/storage cell factories, which will require outside equity.”
“Trump has made tariffs a hallmark of his policy should he become president starting in 2026. For CSIQ, this means the company could face increased tariff scrutiny on 1) its 9GW annual run-rate of imports to the US and/or 2) on its imports of cells which it uses to assemble into modules domestically. Either would be detrimental to the margins. In the event of a Democratic win, IRA manufacturing credits for solar along with ITC demand drivers will remain in place. This a positive for the company’s domestic expansion plans, but also likely means continued capital needs. Notably, in case of a Democratic win, in addition to planned domestic PV cell capacity of 5GW, we expect CSIQ to pursue a storage cell facility to compete more effectively with FLNC [Fluence Energy Inc.] , which will exacerbate the need for outside capital.”
In a report on the North American Alternative Energy Sector titled A Game of Deal or No Deal: Gift Box, Ballot Box or Penalty Box, Mr. Bagri said he is now 4 per cent below the Street’s expectations for fiscal 2024 revenue and 7 per cent for 2025, emphasizing both margin and volume risks and seeing potential liquidity constraints brought on by rising tariffs.
He cut his target to US$11 from US$19. The current average is US$19.33.
“Where We May Be Wrong/Client Pushback — Investor pushback on potential downside for CSIQ is unequivocally around China stimulus driving the stock price,” he said. “CSIQ’s share price has been correlated with peers which rallied sharply during October on China stimulus measures. Second, it is possible the company achieves a lower duty rate than the preliminary 23.06 per cent ‘All Others’ rate for Thailand via a novel process by the company and/or subsequent lowered duties as part of the annual administrative review which will be completed in mid-2026. To be sure, the company has historically achieved lower than initial rates which recently resulted in the repayment of some duties with interest in a prior AD/CVD proceeding. However, achieving a lower rate may require time. Also, China stimulus may not improve margins in Asia as the oversupply of modules is hard to resolve while China is already installing record solar capacity. Once China stimulus discussions subside, we believe investors will value the company more on fundamentals.”
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Despite significant year-to-date gains, National Bank analyst Shane Nagle sees further support for both gold and silver prices as central banks “begin easing interest rates from a period of aggressive/coordinated monetary tightening.”
He initiated coverage of four junior royalty companies on Wednesday, noting that group has underperformed junior gold producers by 41 per cent and intermediate royalty peers by 20 per cent in 2024.
“Elevated commodity prices, improving access to capital for producers and a competitive deal landscape (owing in part to the number of royalty companies in the sector) have led to a challenging market environment for royalty/stream origination,” he said. “Despite these challenges in adding growth, Senior royalty companies have maintained a premium multiple to operating peers while valuation premiums for Intermediate and Junior royalty companies eroded at the start of the year, having recently improved with a more favorable outlook for gold. The market to date has put more emphasis/value on scale, asset diversification, balance sheet strength and FCF generation. With a period of quantitative easing forthcoming, we expect the market to allocate more value towards growth and as headwinds to royalty/stream origination remain, we see support for the Junior names within the sector owing to portfolio maturation and/or industry consolidation.”
Mr. Nagle initiated coverage of these companies:
* Metalla Royalty & Streaming Ltd. (MTA-X) with an “outperform” rating an $6.50 target. Average: $7.78.
Analyst: ”We are initiating with an Outperform rating as the company’s growth outlook, diversified portfolio and high quality counterparties are supportive of a re-rating. MTA’s valuation is currently depressed in the market as a result of its development heavy portfolio; however, we model a 39-per-cent CAGR in attributable sales over the next five years on the advancement of several projects throughout the Americas.”
* Elemental Altus Royalties Corp. (ELE-X) with a “sector perform” rating and $1.55 target. Average: $2.10.
Analyst: “Elemental Altus’ valuation is currently benefiting from its largely producing asset base with 80 per cent of NAV from producing assets. With a modest 3-per-cent CAGR in sales over the next five years, we see the company as a motivated consolidator within the sector, backed by its largest shareholders LaMancha (27 per cent of shares outstanding and AlphaStream (15-per-cent S/O). We look to an improving FCF outlook and future transactions to bolster the longer-term growth outlook to support a re-rating.”
* EMX Royalty Corp. (EMX-X) with an “outperform” rating and $3.75 target. Average $5.75.
Analyst: “EMX has revenue generation/growth from large-scale, long-life assets in Caserones, Timok and Leeville. The company continues to generate baseline proceeds from its royalty origination business and can punch above its weight in adding new assets owing to its exploration partnership agreement and US$35 million debt facility provided by Franco-Nevada.”
* Horizon Copper Corp. (HCU-X) with a “sector perform” rating and $1.55 target.
Analyst: The current structure of Horizon’s portfolio provides long-term exposure to commodity prices through its Antamina NPI, a 30-per-cent interest in the Hod Maden project and 24-per-cent equity ownership of Entrée Resources. While promissory notes and capital requirements at Hod Maden limit near-term FCF generation, an improving outlook for copper prices and potential acquisition would be supportive of a re-rating.”
Mr. Nagle added: “Within the Senior royalty sector, we point to Wheaton Precious Metals as having the most robust project pipeline differentiating its portfolio from Senior peers. In the Intermediate space, Osisko Gold Royalties exhibits the most stable counterparties and an attractive near-term growth outlook (adding ~23,000 GEOs or 23 per cent over the next two years) supported by a discounted valuation. Amongst the Juniors, we outline Metalla Royalty, Gold Royalty and EMX Royalty with high growth portfolios, long-mine lives, higher quality counterparties and discounted valuation; even if consolidation doesn’t occur as we anticipate, portfolio maturation will drive valuation multiples higher for these names.
“We also highlight Elemental Altus as having the highest concentration of producing royalties within the portfolio, generating strong FCF yield amongst peers leading to our expectation of the company acting as a consolidator within the space. With more constructive view on metal prices, Horizon Copper screens favourably as FCF inflection would be accelerated. Horizon Copper maintains exposure to high-quality, longlife assets and more clarity on advancement of Hod Maden and/or future acquisitions could improve our near-term outlook.”
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In other analyst actions:
* BMO’s Étienne Ricard downgraded Goeasy Ltd. (GSY-T) to “market perform” from “outperform” with a $202 target, down from $218 and below the $224.14 average.
“While we value goeasy’s long-term growth prospects and strong execution, we are increasingly mindful of downside risk amid deteriorating revenue yield and credit metrics in a softening macro-economic environment. With GSY trading in-line with its historical average, we see a balanced risk-reward on the stock,” he said.
* Canaccord Genuity’s Dalton Baretto cut Gatos Silver Inc. (GATO-T) to “hold” from “buy” with a $17 target. The average is $16.
* Canaccord Genuity’s Carey MacRury raised Iamgold Corp. (IMG-T) to “buy” from “hold” with a $7.75 target, below the $8.56 average.
* Canaccord Genuity’s Jeremy Hoy initiated coverage of G Mining Ventures Corp. (GMIN-T) with a “buy” recommendation and target of C$16.50, exceeding the $16.33 average.
* RBC’s Douglas Miehm raised his Bausch + Lomb Co. (BLCO-N, BLCO-T) target to US$23 from US$20 with an “outperform” rating ahead of its Oct. 30 earnings release. The average is US$20.91.
“We estimate Q3/24 revenue of US$1,181-milllion (consensus $1,173-million) and adj. EBITDA of $219-million (cons. $222-million),” he said. “Q3/24 will continue to be influenced by FX headwinds (RBC estimate: $5–10-million). Operationally, we expect the focus to be on the company’s DED Rx drugs (Miebo/Xiidra), new launches, and any potential supply disruptions at its facilities located in Florida due to the recent hurricanes. We raise our price target to $23 from $20 as we include a sale scenario and incorporate the updated multiples of comps.”
* Ahead of its third-quarter earnings release on Nov. 7, National Bank’s Zachary Evershed raised his Cascades Inc. (CAS-T) target to $11.50 from $10 with a “sector perform” rating, seeing “easing” pulp and recycled fibre costs as a tailwind to margins. The average is $11.58.
“We maintain our cautious stance and reiterate our Sector Perform rating given volatility in the operating environment, though we acknowledge recent improvements in disclosure for near-term guidance,” he said.
* Seeing “Strong validation from key customers, but slower growth in near term,” National Bank’s Rupert Merer trimmed his Exro Technologies Inc. (EXRO-T) target to 50 cents, below the 57-cent average, from 60 cents with a “sector perform” rating (unchanged).
“While EXRO is making the necessary moves, it remains risky with its current capital needs,” said Mr. Merer.
* In response to the discovery of a new, parallel, high-grade shear structure at the Ghanie shear, Stifel’s Stephen Soock raised his G2 Goldfields Inc. (GTWO-T) target to $3.10 from $3 with a “buy” rating. The average is $2.61.
* ATB Capital Markets’ Tim Monachello lowered his Mattr Corp. (MATR-T) target to $18.50 from $21 with an “outperform” rating, while BMO’s John Gibson cut his target to $17 from $21 with an “outperform” recommendation. The average is $19.
* In a note titled Challenging backdrop to pressure results/outlook; Valuation is attractive, National Bank’s Vishal Shreedhar trimmed his Parkland Corp. (PKI-T) target to $44 from $48 with an “outperform” rating. The current average is $50.92.
“We value PKI at 6.50 times (from 6.75 times; reflects a challenging backdrop) our 25/26 EBITDA,” he said. “The lower price target reflects lower estimates and a lower multiple.
“PKI’s current strategy, which we are supportive of, seeks to: (i) focus on efficiencies, organic growth and drive ROIC and cash flow, (ii) divest non-core assets, and (iii) deleverage and return excess capital to shareholders. In addition, we believe ongoing shareholder activism will drive better performance over time.”
* BoA Securities’ Sara Senatore bumped her Restaurant Brands International Inc. (QSR-N, QSR-T) to US$77 from US$76, remaining the below the average of US$84.21, to “reflect a higher forward EPS estimate (3Q25-2Q26; $4.06 vs $4.00 prior).” She kept an “underperform” rating.