Inside the Market’s roundup of some of today’s key analyst actions
Citing its “strong operational outlook, near-term growth catalysts at Copper World and a discounted valuation in light of recently improving copper price environment,” National Bank Financial analyst Shane Nagle raised his recommendation for Hudbay Minerals Inc. (HBM-T) to “outperform” from “sector perform” previously.
“Our upgrade stems from Hudbay’s strong leverage to currently elevated copper price (one of the highest in our coverage along with Taseko Mining),” he said. “The robust and higher trending copper price environment is already benefitting HBM financials as evidenced by Q1, with improving outlook for remainder of the year as the gold forward sales agreement rolls off in August. HBM also remains undervalued amongst its peers, currently trading at 6.5 times EV/2024 estimated CF compared to intermediate peers at 8.5x and a P/NAV of 1.44 times, compared with multi-asset peers (CS/ERO/LUN) at 1.59 times. Several near-term catalysts remain supportive of an improved outlook with Copper World permits anticipated in Q3/24, with a partnership agreement and prudent financing package expected to reported ahead of launching a feasibility study.”
On Tuesday, shares of the Toronto-based miner jumped 14.1 per cent after it reported better-than-expected first-quarter financial and operation results, driven by higher by-product gold revenues. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at US$214-million, topping both Mr. Nagle’s US$172-million estimate and the consensus forecast of US$175-million on higher-than-anticipated gold sales. Adjusted earnings per share of 16 US cents also blew past expectations (1 US cent and 3 US cents, respectively).
Hudbay also reaffirmed its three-year operating outlook, projecting consolidated copper production to average 153,000 tons per year over the next three years “as growth from Copper Mountain offsets declines in Peru and as the Pampacancha deposit is depleted in late-2025.”
“Copper production was somewhat below NBF Estimates on lower grades, mitigated by higher throughput at Constancia and record throughput at New Britannia,” said Mr. Nagle. “Gold production of 90,392 ounces was 22 per cent above NBF Estimates driving the Q1 beat. We anticipate additional copper growth throughout the year as stabilization efforts at Copper World are beginning to bear fruit.”
Seeing an improving operational outlook and elevated commodity prices aiding deleveraging efforts, the analyst added: “Hudbay ended the quarter with US$284-million in cash, US$1.28-billlion in long-term debt and US$335-million of available credit. HBM repaid US$10-million on the credit facility in Q1 and a further US$10-million after quarter-end. Current ND/EBITDA is 1.31 times, which we model decreasing to 1.0 times at the end of 2024.”
After incorporating the results and outlook into his forecast, Mr. Nagle raised his target for Hudbay shares to $15.50 from $12. The average target on the Street is $14.04, according to LSEG data.
“HBM is one of the more leveraged names to an improving copper price environment helping to support improved underlying financial results,” he said. “Strong operational results to start the year, an improving near-term growth outlook, upcoming catalysts at Copper World and a discounted valuation all support an Outperform rating (was Sector Perform). We have adopted a higher target multiple (in line with other intermediate copper peers) to reflect the improved outlook.”
Elsewhere, analysts making target changes include:
* RBC’s Sam Crittenden to $17 from $11 with an “outperform” rating.
“Hudbay continues to generate strong FCF and has leverage to both higher copper and gold prices. We think they could be in a position to start construction of the Copper World project in Arizona next year if they are able to secure permits later this year,” said Mr. Crittenden.
* Scotia’s Orest Wowkodaw to $14.50 from $13.50 with a “sector outperform” rating.
“HBM reported markedly better than anticipated Q1/24 results driven by meaningfully higher gold volumes. All 2024 guidance was reaffirmed,” said Mr. Wowkodaw. “The company generated positive FCF for the third consecutive quarter as deleveraging efforts remain in focus. Overall, given the strong momentum, we view the update as positive for the shares.
“Despite relatively elevated debt leverage, we rate HBM shares Sector Outperform based on an attractive valuation, significant leverage to higher Cu-Au prices, and takeover optionality.”
* BMO’s Jackie Przybylowski to $15 from $14 with an “outperform” rating.
* CIBC’s Bryce Adams to $15.50 from $13 with an “outperformer” rating.
* TD Cowen’s Gregory Barnes to $16 from $14 with a “buy” rating.
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ATB Capital Markets analyst Chris Murray predicts investors will look favourably on Bird Construction Inc.’s (BDT-T) better-than-expected first-quarter results and “strong” outlook.
“Bird delivered strong Q1/24 results, with management reaffirming its bullish outlook for 2024,” he said. “Management expects its sizeable backlog, improving project mix, and expanded self-perform capabilities to underpin high single-digit to low double-digit revenue growth and margin expansion in 2024. Management noted that the demand/booking conditions have extended into 2024, evidenced by a book-to-bill of more than 1.0 times in Q1/24, with demand across all targeted sectors remaining firmly intact and trends around infrastructure, public transportation, and renewable forms of energy remaining longer-term tailwinds for Bird’s services.
“Given Bird’s shift toward progressive contracts and recurring revenue-type work, we anticipate that the $3.4-billion pending backlog could see more significant growth, noting 11.0-per-cent growth in Q1/24. Despite a healthy demand environment, management reiterated that rising interest rates and ongoing supplyside challenges remain headwinds, particularly for legacy projects that were bid several years ago, with labour availability remaining constrained in certain markets.”
After the bell on Tuesday, the Mississauga-based company reported revenue of $688.2-million, up 28.3 per cent year-over-year and above both Mr. Murray’s $590.1-million estimate and the consensus forecast of $604.1-million. Adjusted EBITDA jumped 50.4 per cent to $24.2-million and adjusted earnings per share soared 100.2 per cent to 20 cents, which also easily blew past expectations ($23.3-million and $23.5-million and 16 cents and 17 cents, respectively).
“Gross margin continued to trend higher, reflecting an improving project mix and overall execution,” said Mr. Murray. “Q1 performance and outlook are consistent with commentary issued in December 2023, which implied 30-per-cent EPS growth in 2024. Management remains upbeat on the demand environment and the Company’s ability to convert backlog into sustainable earnings growth.”
“Management attributed a portion of the year-over-year revenue growth to favourable weather conditions in Q1/24, which limited idle time and allowed for projects to begin earlier than anticipated. Management confirmed that revenue levels did not benefit from a pull-forward from subsequent quarters and that growth levels are expected to remain elevated in 2024.”
The analyst sees booking conditions as “firm” for 2024, calling Bird’s book-to-bill ratio of 1.01 times in the first quarter “impressive” and pointing to “the strength of the revenue beat with new awards sourced from several sectors.”
“The backlog and pending backlog were $3.5-billlion and $3.4-billlion , respectively, providing good visibility into organic growth in 2024, with management reiterating accretive margins embedded in backlog,” he said.
“Management reaffirmed the Company’s outlook for 2024, as its improving project mix and overall execution support significant EPS growth in 2024.”
After increasing his full-year expectations, Mr. Murray raised his target for Bird shares to $25 from $23, reiterating an “outperform” recommendation. The average target is $21.81.
“After a stronger-than-expected Q1/24, our revised estimates call for 14.6-per-cent revenue growth and 40 basis point of gross margin expansion in 2024, consistent with management’s outlook with similar trends expected to extend into 2025,” he noted. “Management is in the process of updating a new strategic plan, which we expect to be released in H2/24 and may include longer-term targets around organic growth and margins. While recent margin trends have been impressive, management sees a path for steady margin expansion through 2027 as it capitalizes on current demand conditions, a better project mix, and increasing self-perform capabilities.”
Elsewhere, Canaccord Genuity’s Yuri Lynk increased his target to $23 from $21 with a “buy” rating.
“We expect Bird to deliver continued strong financial performance throughout the remainder of 2024 supported by its record backlog of $3.5 billion (up 28 per cent year-over-year) and strong pending backlog of $3.4 billion (up 12 per cent year-over-year) that feature higher embedded margins. In addition, with just half a turn of net debt, management has the financial flexibility to continue its tuck-in acquisition program,” said Mr. Lynk.
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After “solid” first-quarter results that featured “broad-based market share gains in Canada and surprisingly strong profitability in the away-from-home segment,” Desjardins Securities analyst Frederic Tremblay continues to think KP Tissue Inc. (KPT-T) could appeal to income-focused investors.
However, he maintained his “hold” recommendation for its shares, citing higher pulp costs and “away-from-home’s sensitivity to economic conditions.”
“During the quarter, KP reinforced its leading position in the Canadian tissue market,” said Mr. Tremblay. “As expected, in the facial tissue category, KP’s investments in its Scotties brand and in new capacity contributed to market share gains in the aftermath of Kleenex’s exit from the Canadian grocery market. We believe that the bulk of the tailwind from Kleenex’s exit has now been realized.
“Away-from-home (AFH) margin [is] already at the top end of management’s prior target. Given a well-executed recovery, we were not surprised by AFH achieving a seventh consecutive quarter of positive adjusted EBITDA. That said, the segment’s margin improvement to 10.3 per cent far exceeded our 5.5-per-cent forecast. Management now believes that margin of approximately 10 per cent is sustainable, up from a previous target of 5–10 per cent.”
Driven by higher volumes and a “favourable” sales mix, the Mississauga-based company reported a 6.3-per-cent year-over-year increase in revenue to $479.4-milion, falling in line with expectations. Adjusted EBITDA rose 34.3 per cent to $67.1-milion, topping both Mr. Tremblay’s $61-million estimate and the consensus projection on the Street of $60.2-million on positive contributions from both its consumer and away-from-home segments.
“Pulp costs have been on an upward trajectory and are expected to continue climbing over the course of 2024,” the analyst warned. “While KP is preparing an action plan, we believe that a rapid and/or large increase in pulp costs could cause margin pressure in 2H24. The AFH business remains exposed to the risk of an economic slowdown.”
While he increased both his 2024 and 2025 revenue and earnings expectations, Mr. Tremblay trimmed his target for the company’s shares to $10 from $11, “reflecting uncertainty around pulp costs and economic conditions.” The average is $9.50.
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Following Titanium Transportation Group Inc.’s (TTNM-T) weaker-than-anticipated first-quarter results, Desjardins Securities analyst Benoit Poirier acknowledges its own guidance and the Street’s expectations “were likely too optimistic on the inflection point of the trucking downcycle.”
While he remains optimistic about the long-term accretion potential from its US$53-million acquisition of Georgia-based truckload specialist Crane Transport, Mr. Poirier lowered his expectations, believing “the recovery has been pushed to the right.” However, he continues to “believe that TTNM should benefit from significant operating leverage once rates tick up given the plethora of volume growth.”
“TTNM is now guiding to revenue of $470–490-million (down from $490–510-million), with an unchanged adjusted EBITDA margin of 10.0–12.0 per cent,” he said. “While not mentioned on the call, we believe the potential demise of Pride Group (20th largest trucking company in Canada vs TTNM in 12th position) could be a potential catalyst on the horizon for TTNM. We are taking a conservative approach and not including any incremental volumes from defunct competitors in our forecast; we expect only a slight sequential EBITDA improvement in 2Q to $10.7-million and we now forecast revenue for the year of $478-million and EBITDA of $46.7-million, below the implied midpoint of the new guidance.”
“Soft market conditions put substantial pressure on transactional freight rates, creating operating deleverage on TTNM’s fixed cost base (increased locations and headcount year-over-year) as the company is currently in growth mode with the business (targeting a return to a 60/40 mix favouring brokerage vs the current 50/50 split). Taking all of this into consideration, we now estimate an EBITDA margin of 7.5 per cent in 2024 and 8.3 per cent in 2025.”
Reiterating his “buy” rating, Mr. Poirier cut his target to $4.50 from $6 after reducing his 2024 and 2025 revenue and earnings projections. The average is $4.81.
“We believe TTNM’s shares offer good value for long-term investors at the current level of only 5.0 times EV/FY2 EBITDA,” he said.
Elsewhere, Raymond James’ Steve Hansen lowered his target to $4 from $4.50 with an “outperform” rating.
“We are trimming our target price on Titanium Transportation Group Inc. (TTNM) ... to reflect the company’s weaker-than-expected 1Q24 results, lower 2024 guide, and accompanying downward revisions to our outlook given lingering freight market headwinds. Notwithstanding these changes, we reiterate our Outperform rating based upon the company’s: 1) consistent operational track record; 2) clear discipline through the cycle; & 3) recent Crane acquisition that offers compelling growth & synergy opportunities through our forecast horizon,” said Mr. Hansen.
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While the third-quarter results from Dye & Durham Ltd. (DND-T) fell below his expectations, Raymond James analyst Stephen Boland emphasized the Toronto-based legal software vendor is “in the midst of the seasonally strongest quarter, expense management is taking hold, and the balance sheet has improved.”
After the bell on Tuesday, it reported revenue of $107.3-million and adjusted EBITDA of $60-milion for its third quarter, both falling below Mr. Boland’s projections of $113.1-million and $64.9-milllion.
“Although, the global exposure to real estate is noticeably lower, the slower winter quarter makes it more difficult to model,” he said. “The gross margin rebounded in the quarter from last quarter and in line with our estimate. Management on the conference call indicated that 4Q should be a record quarter as transaction volumes in conveyance and due diligence have increased though no specific guidance was provided.
“More positively, the company continues to reduce its real estate exposure as it looks to grow its Annual Recurring Revenue (ARR) base. Real estate transactions as a percentage of revenue now account for 43 per cent down from 44 per cent last quarter vs 50 per cent last year. ARR now accounts for 30 per cent of total revenue (compared to 19 per cent last year). We believe this should reduce volatility in future quarters.”
Reiterating an “outperform” rating, the analyst raised his target to $22, matching the average on the Street, from $16.
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In other analyst actions:
* CIBC’s John Zamparo raised his Cronos Group Inc. (CRON-Q, CRON-T) target to US$3.50 from US$3 with an “outperformer” rating. The average is US$2.37.
“Cronos’ product differentiation and (uncommon) brand equity have led to ongoing market share gains and industry growth well above the industry’s pace. International opportunities may not be overly material, but they are in the early stages and can support overall growth,” said Mr. Zamparo.
* ATB Capital Markets’ Martin Toner raised his Galaxy Digital Holdings Ltd. (GLXY-T) target to $20 from $17 with an “outperform” rating. The average is $18.33.
* CIBC’s Mark Jarvi bumped his Hydro One Ltd. (H-T) target to $40.50, above the $40.26 average, from $39 with a “neutral” rating.
“H is now tracking at the top end (if not slightly above) the upper end of its current EPS growth target (5-7 per cent), but is unlikely to push beyond 8 per cent,” he said. “The balance sheet remains in great shape, which helps drive continued dividend growth (6-per-cent increase this quarter). We now include some broadband investment in our forecast—our EPS estimates go up by 1-2 per cent and our target increases.”
* Scotia’s Mario Saric bumped his InterRent REIT (IIP.UN-T) target to $14.50 from $14.25 with a “sector outperform” rating. The average is $14.95.
“IIP has notably lagged peers and sector post the Federal government’s March 20th NPR announcement (down 14 per cent vs. down 9 per cent and down 5 per cent, we believe due to IIP’s overweight in Ontario/BC but also perceived foreign student overweight,” he said. “The 4.0 times (16 per cent) fall in NTM [next 12-month] AFFO multiple has erased its long-standing premium to BEI/CAR. Looking forward, we expect accelerating year-over-year FFOPU growth should at least stabilize its relative AFFO multiple. Indeed, we think IIP excess FFOPU growth (negative 3.5 per cent vs. peers in Q1) starts in Q2/24 and averages 9 per cent through 2024 and 5 per cent in 2025. We do see decelerated growth in 2025 (CAR is the only Apartment exception), but hitting our 12 per cent should = 15-per-cent-plus unit price growth, ex. potentially interesting capital recycling (IIP accelerated asset sales should kill any concern of required equity financing). IIP has the lowest Apartment PEG (1.4 vs. 2.2 peer avg), in part on lower debt refi headwind. We think the damage is overdone and we are buyers sub-$13/unit.”
* RBC’s Robert Kwan raised his target for Keyera Corp. (KEY-T) to $41 from $38 with an “outperform” rating. Other changes include: BMO’s Ben Pham to $38 from $36 with an “outperform” rating, ATB’s Nate Heywood to $36 from $34 with an “outperform” rating, Scotia’s Robert Hope to $40 from $38 with a “sector outperform” rating, Jefferies’ to $39 from $38 with a “buy” rating and CIBC’s Robert Catellier to $37 from $36 with a “neutral” rating. The average is $37.07.
“Keyera produced its fifth quarterly beat in a row with Q1/24 EBITDA 5 per cent above our estimate,” said Mr. Hope. “Our 2024 estimates increase sizably to reflect the significantly stronger-than-expected Marketing guidance. With excess cash flow in 2024 and leverage already low, this begs the question of what to do with all that cash. It appears that management is speaking more favourably about the potential for additional projects to be sanctioned this year, or it could also look at share buybacks. We believe that sanctioning of projects or buying back some shares could be favourable catalysts for the shares. We also introduce our 2026 estimates and roll forward our target valuation, which increases our target price.”
* Scotia’s Ben Isaacson reduced his Lithium Royalty Corp. (LIRC-T) target to $11 from $12 with a “sector outperform” rating, while Raymond James’ Brian MacArthur cut his target to $15 from $16.50 with an “outperform” recommendation. The average is $13.71.
“Following Q1 results, our updated NAV falls to C$11, largely due to lower and/or delayed production at certain portfolio projects,” Mr. Isaacson said. “We maintain a Sector Outperform rating. First, we like the de-risking of the portfolio in ‘24, with three projects expected online this year. This should meaningfully smooth earnings volatility as a result of shifts in timing for portfolio company shipments. Second, and in some respects, investors could consider LIRC the lowest-cost economically effective producer globally, with COGS of $nil. This could/should be rewarded by investors, particularly in the current price environment. On an absolute basis, LIRC has best-in-class leverage to rising SC6 prices, as it’s probably the only economically effective producer actually enjoying full $-for-$ commodity price increases - LIRC doesn’t pay royalties (ex Altius) like its peers do. Third, and on the back of the latest technical reports, guidance, and other project updates, our NAV moves to $11. We see a value opportunity for investors, with the stock trading at a discount of 0.65 times NAV, coupled with a fairly catalyst-rich year ahead.”
* Desjardins Securities’ John Sclodnick bumped his Orla Mining Ltd. (OLA-T) target to $7 from $6.75 with a “buy” rating, while Stifel’s Stephen Soock raised his target to $6.25 from $6 with a “buy” recommendation. The average is $6.67.
“Orla Mining reported 1Q24 financial results with solid free cash flow generation and strong mining operations at its Camino Rojo oxide heap leach project,” said Mr. Soock. “The quarterly results reaffirm the cash flow generating outlook for Orla and support our thesis behind internally funded growth. Cash and equivalents stood at $118.1-million on March 31 with $24.1m added in the quarter. This will continue to fund near mine and regional exploration, and advancement of the Camino Rojo sulphides. The current balance sheet strength sets up Orla well for future growth (both organic and opportunistic inorganic).”
* Mr. Soock also raised his SilverCrest Metals Inc. (SIL-T) target to $11.25, which is 4 cents below the average, from $9.75 with a “hold” rating.
“SilverCrest Metals delivered another strong operational quarter supported by high grades,” he said. “Cash and equivalents stood at $91.1-million on March 31, building a rapidly growing treasury to fund inorganic growth. Management plans to upgrade 10Moz AgEq near planned underground development through the infill drill program (we model 24Moz AgEq at 687 g/t added to reserves over the LOM). In our view, an in-line operational quarter supports expectations of strong FCF generation going forward, driving the ongoing momentum in the stock. We model the company generating $210-million in FCF over the next 3 years at spot prices. We are increasing our target P/NAV multiple to an uncomfortable 1.6 times and raising our target price ... We expect SIL to use its extremely strong paper and balance sheet to execute on smart, accretive M&A to justify this multiple.”
* Canaccord Genuity’s Matt Bottomley cut his Organigram Holdings Inc. (OGI-T) target to $3.25 from $3.75 with a “speculative buy” recommendation. The average is $3.86.
“Overall, the quarter was in line to slightly shy of our forecasts while the company’s operating margins remain muted on headwinds in the Canadian landscape (which make up 95 per cent of OGI’s operations to date) that continue to weigh on cash flow generation,” said Mr. Bottomley.
* CIBC’s Christopher Thompson raised his Peyto Exploration & Development Corp. (PEY-T) target to $17.50 from $16 with an “outperformer” rating. Other changes include: Canaccord Genuity’s Mike Mueller to $18 from $17 with a “buy” rating and Cameron Bean to $22 from $20 with a “sector outperform” rating. The average is $17.41.
“PEY delivered solid Q1/24 results, with cash flow in line (ahead before cash taxes),” said Mr. Bean. “The company put up lower-than-expected opex for the second consecutive quarter, which we see as a positive indicator of progress integrating the Repsol assets. PEY plans to swing gas being processed through a third-party deep cut into one of its own facilities during Q2/23 to reject ethane (prices are very low) and sell higher heat content gas. We see this as a key benefit of PEY’s infrastructure ownership and integrated asset base. Looking ahead, we see the company well positioned to ride out weak and volatile AECO prices (we have PEY with essentially no AECO exposure through 2026) and deliver on its growth and debt reduction plans over the next few years across a range of commodity price scenarios.”
* RBC’s Pammi Bir reduced his SmartCentres REIT (SRU.UN-T) target to $27 from $28, above the $25 average, with an “outperform” rating.
“Post an in-line Q1, we expect SRU’s Walmart-anchored portfolio to remain operationally resilient amid a choppy economy. Indeed, organic growth is off to a better-than-anticipated start, with recent occupancy slippage creating an opportunity to drive earnings and NAV upside. We’re pleased that capital recycling is on the agenda, as lower leverage remains a prerequisite for a stronger valuation in our view,” said Mr. Bir.