Inside the Market’s roundup of some of today’s key analyst actions
Despite ongoing freight uncertainties, Scotiabank analyst Konark Gupta is getting more constructive on railways, mostly due to attractive valuations.
He upgraded both Canadian National Railway Co. (CNR-T) and Canadian Pacific Kansas City Ltd. (CP-T) to “sector outperform” ratings from “sector perform”, partly reflecting their recent share underperformance. He raised his price target on CN by 2% to C$188 and on CP by 5% to C$130 as he rolled forward his valuations to mid-2026.
“We admit that we could be early in upgrading the rails, considering the ongoing labour noise. However, we believe the market is already pricing in labour risk for the most part, while traffic continues to beat expectations and the rails offer solid long-term growth potential along with shareholder returns,” Mr. Gupta said in a note.
Both CN and CP are down about 10% over the past three months, similar to U.S. rails.
“Although traffic (measured in revenue ton miles, or RTMs) continues to beat expectations, we believe Canadian rails have underperformed on valuation concerns and labour risks (plus operational issues at CNR),” Mr. Gupta said. “We now find valuations more attractive and see labour/operational issues as transient in nature, which sets the stage for potential outperformance once labour risk is behind,” he said.
For CP Rail, he said second quarter results could be a positive catalyst “as traffic beat (significant growth in RTMs/carloads ratio likely due to longer-haul mix) and continued strong operational performance caused us to raise our Q2 EPS estimate to $1.00 (+20% y/y), in line with latest consensus.” He expects CP to maintain guidance and sound positive on the second half of this year, thanks to easy Q3 year-over-year comparisons, strong Q4 gain shipments and synergy savings as a result of the Kansas City merger. “We also continue to expect outsized dividend growth (likely 30%-40% at the minimum) as well as buyback resumption in 2025.”
His outlook for CN Rail isn’t quite as positive sounding: “We trimmed our Q2 EPS estimate for CNR to $1.90 (+8% y/y), 3% short of latest consensus, as we expect margin headwinds from operational issues in B.C. and fuel lag to more than offset the traffic beat. We think labour and margin headwinds pose minor risk to 2024 guidance (we now model 9% EPS growth vs. 10% guide). That said, our recent discussion with CEO, Tracy Robinson, supports our continued confidence in CNR’s long-term guidance.”
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Joe Biden’s disastrous debate performance has bolstered the chances of a second Donald Trump presidency, a scenario that “could cause a parabolic shift in the gold price in 2025,” said CIBC analysts led by Anita Soni.
CIBC raised its gold price forecasts for the next several years, with a possible Trump election win among the reasons for its bullishness. This impacted the price targets, and some ratings, on precious metals stocks under its coverage.
“With rate cuts still looming, and the possibility of a very dovish US President who may test the independence of the Fed, we expect that rates will fall, while inflation remains persistent, fuelled by fiscal stimulus and softer rates. All this bodes well for gold,” the CIBC analysts said.
CIBC raised its gold price forecasts to $2,290/oz in 2024, $2,600/oz in 2025, $2,400/oz in 2026 and $2,200/oz in 2027. Longer-term (2028 and beyond), it raised its gold price forecast to $1,975/oz from $1,875/oz based on marginal costs of extraction and persistent capex inflation. On the silver side, it raised its forecasts to $28.75/oz in 2024, $34.50/oz in 2025, $32.50/oz in 2026 and $30.50/oz in 2027, while its longer-term forecast (2028 and beyond) rises to $26.00/oz.
Gold hit a record peak of $2,450/oz in May before slightly paring back to the current price just below $2,400..
“Demand for gold remains strong, with central banks continuing to purchase gold driven by a longstanding strategy of USD diversification and, in some cases, efforts to sanction-proof FX reserves. Additionally, over the past year retail demand has picked up, particularly in the Eastern economies where stock and real estate markets remain soft and investors look for wealth preservation via hard assets. Unsurprisingly, ETFs have seen net outflows, which we expect will now reverse with impending Federal reserve rate cuts. The US election now adds a heightened element of bullishness to our forecasts,” the CIBC analysts said.
“Trump favours individual tax cuts associated with the Tax Cuts and Jobs Act (TJCA), while Biden would boost corporate tax rates. Based on the Congressional Budget Office (CBO), simply extending the maturing tax cuts would add US$3 trillion to the deficit over the next ten years, on top of an already challenging fiscal backdrop. On the trade front, tariffs have become a preferred tool in dealing with unbalanced trade deficits – for both U.S. parties. Additionally, Trump has indicated he would seek to reduce the independence of Fed decision making. Trump has articulated a desire to impact interest rate decisions while Biden (generally) has supported Federal Reserve independence,” CIBC said.
“If we marry the different starting positions (fiscal, monetary and valuation) with the policies articulated by Trump (bigger deficits, higher tariffs, less Fed independence), it is easy to see a better environment for gold prices if Trump repeats in 2024 – albeit Biden does not seem much more restrictive on deficits and tariffs. Given neither candidate seems concerned on fiscal positions coupled with a Federal Reserve (and to some extent all central banks) seemingly more comfortable with higher structural inflation, we believe a Biden second term shouldn’t be a negative for gold prices; but if Trump is re-elected (and follows through on his policy positions), the already impressive rally in gold prices likely continues into 2025,” the bank added.
CIBC upgraded its ratings on the following three stocks to “outperform” from “neutral”:
Artemis Gold Inc (ARTG-X): Price target goes to C$13.5 from C$9.5.
Endeavour Silver Corp (EDR-T): Price target goes to C$7 from C$6.
Newmont (NEM-N): Price target goes to US$61 from US$46.
Meanwhile, it downgraded Centerra Gold Inc (CG-T) to “neutral” from “outperform”, citing valuation, while raising its target price to C$13 from C$11.
Among some of the price target changes were:
Dundee Precious Metals Inc (DPM-T): Target price to C$14.5 from C$13
Equinox Gold Corp (EQX-T): Target price to C$9.50 from C$8.75
Franco-Nevada Corp (FNV-T): Target price to C$265 from C$250
Lundin Gold Inc (LUG-T): Target price to C$25 from C$22
Torex Gold Resources Inc (TXG-T): Target price to C$26 from C$23
CIBC’s top picks in the sector remain Agnico Eagle Mines Ltd. (AEM-T), Kinross Gold Corp. (K-T), Pan American Silver Corp. (PAAS-T), and Wheaton Precious Metals Corp. (WPM-T).
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Maple Leaf Foods Inc.’s (MFI-T) decision to spin off its pork operations into a new publicly traded company should allow valuation of MFI to move higher, as it will now be solely based on the larger, higher-margin and more stable consumer packaged goods (CPG) business, said TD Cowen analyst Michael Van Aelst.
He raised his target price to C$36 from C$31 while reaffirming a “buy” rating. The average analyst target is C$30.67, according to LSEG data.
Maple Leaf announced plans on Tuesday to spin off its pork business to shareholders as a new, yet unnamed company to be listed on the TSX in early 2025.
“Many investors had no interest in MFI shares because of the challenges predicting hog/pork market fundamentals,” Mr. Van Aelst commented in a note to clients. “These same investors, and some others, are unlikely to invest in ‘New Pork’ which, when combined with its illiquid/ small cap status, could limit “New Pork” valuations to ~5x, at least initially, in our view. This would be a discount to the 7-9x of some larger U.S. peers. The remaining Maple Leaf business should see much higher valuation, in our view.”
“Comparable protein-based CPG companies like Premium Brands and Hormel are currently trading at 10.5x/12.6x and we believe that, post spinout, the new Maple Leaf can trade at 10x or above as it generates EBITDA margins mostly in the 12%-15% range, attractive free cash flow, and mid-single digit revenue growth. Using a 10x/5x multiple on the mid-point of our estimated 2025 and estimated 2026 EBITDA for the CPG/Pork businesses implies a value of the combined business of $36 in 12 months time,” the analyst added.
While the separation should allow for greater focus on the individual business units’ strategies, Mr. Van Aelst does not anticipate a meaningful change in the business outlooks or his EBITDA forecasts.
“Anticipated dis-synergies of less than $5-million are immaterial and could be made up for by greater throughput at “New Pork” slaughter facilities,” he said. “The transaction should leave MFI shareholders with exposure to a CPG company with dominant brands, state-of-the-art processing facilities, unique RWA growth avenues in Canada and the U.S., without the significant margin volatility of recent years caused by a material dislocation in the hog/pork market factors.”
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JP Morgan analysts led by Sebastiano C Petti cut their 18-month price targets on Canada’s three largest telecoms as it previewed second quarter financial results.
For BCE Inc (BCE-T), JP Morgan cut its target price to C$46 from C$47 and maintained a “neutral” rating.
“Overall, we raise 2Q consolidated EBITDA 0.5% to $2.68b on higher CTS margins (cost savings efforts) despite lower wireless service (ARPU) and equipment revenue (higher BYOD, lower upgrades). While we like BCE’s focus on premium loadings, competitive intensity remains elevated in the Canadian wireless ecosystem. At the same time, while BCE’s fiber bundling strategy should drive improved market share and CLVs longterm, bundle discounts are pressuring service revenue near-term. For the full-year, we now estimate a 0.2% consolidated revenue decline (guidance of +0-4%), 2% EBITDA growth (guidance of +1.5-4.5%), FCF decline of 8% (guidance of 3-11% decline), and capex of $4.04b (16.4% CI vs guidance of <16.5%),” JP Morgan said.
For Rogers Communications Inc (RCI-B-T), JP Morgan cut its target price to C$69 from C$80 and maintained an “overweight” rating.
“Overall, we lower 2Q consolidated service revenue 1% to $4.57b and EBITDA 2% to $2.35b on reduced wireless and cable estimates. For the full-year, we estimate 7.3% service revenue growth (guidance of +8-10%), 12% EBITDA growth (guidance of +12-15%), FCF of $2.90b (guidance of $2.9-3.1b), and capex of $4.0b (guidance range of $3.8- 4.0b). Despite the competitive backdrop, we continue to like Rogers based on substantial operating leverage/efficiencies, improved KPIs, and non-core asset sales.”
And for Telus Corp (T-T), JP Morgan cut its target price to C$23 from C$24 and maintained a “neutral” rating.
“Overall, we lower 2Q consolidated operating revenue ~1% to $4.96b with adj. EBITDA ~1% below prior estimates to $1.81b on lower TTech and DLCX estimates. Our updated TTech estimates reflect lower mobile network and fixed data services (due to ongoing promotional intensity). 2Q FCF is now $323m on lower EBITDA and higher capex ($786m) with the latter driven by a pull forward of construction due to favorable weather. While we like TELUS’ bundle strategy and commensurately lower churn, we expect wireless and fixed trends to remain pressured by increased competition ecosystem-wide (particularly in the west).”
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Raymond James analysts led by Michael W. Freeman initiated coverage on Bausch Health Companies (BHC-N, BHC-T) with a “market perform” rating and US$8 price target.
The analysts said Bausch’s well-diversified portfolio has proven to be robust against a wide variety of market conditions and should generate solid cash flow for the next several years. That, in turn, should help Bausch pay off debt, likely aided by refinancing.
“Through its 5 key business segments—Salix, International, Solta, Diversified, and Bausch + Lomb—BHC participates in wide-ranging and global therapeutic markets. BHC’s various revenue streams have underpinned steady growth and strong cash flow, and we believe this diversity of exposure is helpful moving forward. Pipeline assets are underappreciated and could provide revenue upside in the outer years, helping drive multiple expansion,” the Raymond James analysts said.
The average analyst price target is US$9.57.
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Analysts are giving some mixed but relatively positive reviews to Altus Group Ltd.’s (AIF-T) sale of its Property Tax segment to Ryan LLC for $700 million in cash.
Canaccord Genuity cut its target price to C$63 from C$66; CIBC raised its target price to C$54 from C$53; Eight Capital raised its target price to C$55 from C$50; and BMO raised its price target to C$59.
The average analyst price target is now C$58.33, up from C$55 a month ago.
“While we thought the business was worth more, we like the transaction overall,” commented Canaccord Genuity analyst Yuri Lynk, who is maintaining a “buy” rating. “Altus is now much closer to a pure-play data, analytics, and software company with its Analytics segment comprising 85% of pro forma revenue. Furthermore, the Tax business was extremely unpredictable, subject to the property tax rolls in various jurisdictions. Lastly, pro forma the sale, Altus will have net cash of about $315 million, positioning it to repurchase $250 million of stock (announced with the Tax sale) and invest in organic and inorganic growth opportunities.”
He said the sale of the Property Tax segment is dilutive to his EPS estimates but accretive to EBITDA margin.
All told, Mr. Lynk said, “Altus evolves into a smaller company with an enhanced margin and free cash flow profile that we believe will attract a higher valuation in the market.”
BMO analyst Stephen MacLeod said he sees “balanced risk-reward” arising from the transaction.
“While unexpected, the divestiture should allow Altus to refocus efforts on its higher-growth, higher-margin Analytics business and provide flexibility to pay down debt and return cash to shareholders,” M.r MacLeod said.
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In other analyst actions:
D2L Inc (DTOL-T): National Bank of Canada raises target price to C$14.5 from C$12
Alphabet Inc (GOOGL-Q): TD Cowen raises target price to US$220 from US$200
Amazon.Com Inc (AMZN-Q): TD Cowen raises target price to US$245 from US$225
Meta (META-Q): TD Cowen raises target price to US$600 from US$530
Tesla Inc (TSLA-Q): HSBC raises target price to US$130 from US$120