Inside the Market’s roundup of some of today’s key analyst actions
The market is “crawling up the wall of worry” heading toward second-quarter earnings season for Canadian banks, according to Desjardins Securities analyst Doug Young, who believes “a lot of bad news is priced in.”
“It seems that a majority of investors remain underweight Canadian bank stocks,” he said. “Concerns range from a lack of cash EPS growth, the tempered outlook for NIMs/loan growth, potential for credit surprises and macro/ geopolitical tension, etc.”
Mr. Young is currently forecasting a 3-per-cent year-over-year decline in cash earnings per share for the quarter, driven by higher provisions for credit losses and tax rates.
“More importantly, we expect an 8-per-cent year-over-year increase on average in adjusted pre-tax, pre-provision (PTPP) earnings (down 1 per cent quarter-over-quarter),” he added. Our year-over-year growth estimate is driven by Canadian banking and a modest increase in capital markets, offset by weaker U.S. banking results.
“In terms of key metrics, on average and on a year-over-year basis, we expect relatively stable all-bank NIMs excluding trading, steady adjusted efficiency ratios and modest increases in PCL rates. Investors will be particularly focused on credit, watching for any signs of stress among Canadian consumers or CRE. We expect CET1 ratios to remain above minimum targets of 12.0–12.5 per cent.”
In a research report released Monday, Mr. Young declared “this quarter has something for everyone.”
“BMO aims to demonstrate that last quarter’s weak results were an anomaly,” he said. “Note that we dropped our BMO 2Q FY24 cash EPS estimate, which is now below consensus. To state the obvious, if it disappoints again, BMO stock will face near-term pressures. RY will provide updates on its HSBC Canada acquisition. TD has taken an initial provision for its U.S. regulatory issue. What’s next? Will NA’s capital markets results continue defying expectations? Can CM maintain NIM stability and expense controls? How’s BNS doing against last year’s investor day targets?”
The analyst maintained is ratings and pecking order for the eight banks in his coverage universe, but he made several target price adjustments. In order of preference, his targets are now:
- Bank of Montreal (BMO-T, “buy”) at $133 (unchanged). The average on the Street is $132.92, according to LSEG data.
- Canadian Western Bank (CWB-T, “buy”) at $33, down from $35. Average: $33.73.
- Royal Bank of Canada (RY-T, “buy”) at $142 (unchanged). Average: $142.92.
- Toronto-Dominion Bank (TD-T, “buy”) at $93, down from $94. Average: $87.70.
- National Bank of Canada (NA-T, “hold”) at $116, up from $109. Average: $113.
- Bank of Nova Scotia (BNS-T, “hold”) at $68 (unchanged). Average: $67.40.
- Canadian Imperial Bank of Commerce (CM-T, “hold”) at $67, up from $66. Average: $67.92.
- Laurentian Bank of Canada (LB-T, “sell”) at $26 (unchanged). Average: $27.36.
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National Bank Financial analyst Cameron Doerksen says NFI Group Inc.’s (NFI-T) first-quarter results and backlog growth reaffirmed his positive view of investment proposition moving forward.
“Demand for buses is exceptionally strong and NFI has strong visibility on bus deliveries, higher pricing and EBITDA growth through 2025 and beyond that we expect will drive a higher share price over time,” he said.
“In addition, NFI will benefit from competitive changes in the North American market that have resulted in the U.S. market for heavy-duty transit buses effectively becoming a duopoly (NFI and privately held Gillig). Finally, contracting changes recommended by a government-industry taskforce that are now being implemented in the U.S., including retroactive pricing adjustments and the institution of progress payments, will likely have positive implications for NFI’s cash collection and working capital management in future years.”
Shares of the Winnipeg-based manufacturer soared 14.2 per cent on Friday following better-than-anticipated first-quarter results. Revenue of $723-million topped both Mr. Doerksen’s $671-million estimate and the consensus forecast of $672-million, while adjusted EBITDA of $34-million also came in higher than anticipated ($28.7-milllion and $30.3-milllion, respectively). An adjusted loss per share of 13 cents was also stronger-than-expected (a loss of 15 cents from both).
“There is no change to management’s 2024 and 2025 EBITDA guidance of $240-280 million and $350+ million, respectively,” he said. “NFI notes that the majority of its lower-margin legacy contracts in backlog were delivered in Q1 and expects to be mostly through them going into H2/24. Overall, about 65 per cent of 2024 EBITDA will be generated in the second half of the year. Given the better then expected performance in Q1 and the strength in aftermarket, we are increasingly confident management can meet its guidance for 2024 and 2025.”
“In Q1/24, NFI received 5,421 new orders, bringing its backlog to 14,783 EUs (firm plus options) worth $11.7 billion, up from 10,586 EUs in backlog worth $7.9 billion at the end of Q4/23. The backlog does not include 365 EUs for which NFI has been selected, but for which a firm contract has yet to be finalized. Additionally, NFI had another 1,470 bids in process at the end of Q1 and management believes the backlog can grow further in 2024, so the demand environment continues to be strong. Indeed, in the context of our forecast for 5,012 bus deliveries in 2024 and 5,620 in 2025, we believe the current backlog supports delivery growth through at least 2026. Furthermore, the average price in backlog in Q1 was up 19 per cent year-over-year, providing visibility on margin expansion.”
Seeing its liquidity remaining “comfortable,” Mr. Doerksen raised his Street-high NFI target by $1 to $19, reiterating an “outperform” recommendation. The average is $15.80.
Elsewhere, Stifel’s Daryl Young upgraded NFI to “buy” from “hold” based on increased clarity on a recovery with legacy orders “in the rearview.” His target rose to $18 from $15.
“We have increasing conviction that NFI’s results are turning the corner, with the majority of the remaining unprofitable legacy orders delivered in Q1/24, supply chains stabilizing, line-entry rates ramping-up, and order sizes increasing (which should drive production efficiencies and operating leverage),” he said. “Furthermore, following the rationalization of the U.S. competitive landscape into a duopoly, we think that governments/ transit authorities will need to be increasingly accommodative of NFI to ensure the viability of the public transit system. To be clear, we do not think NFI is completely out of the woods; liquidity remains tight, and its 2024/2025 guidance could be subject to revisions should there be any ZEB-related teething pains. However, the macro set up is strong, and we think many of the largest hurdles to NFI’s recovery have now been cleared.”
ATB Capital Markets’ Chris Murray moved his target to $18 from $17 with an “outperform” rating.
“While supply chain conditions could provide a challenge, management reiterated that the situation continues to improve and is supportive of the Company’s recovery plan,” said Mr. Murray. “Demand conditions remain firm in 2024 and provide good visibility for longer-term growth, particularly with better pricing embedded in backlog that reached record levels in the quarter, which we expect to support a stronger margin profile beginning in H2/24.”
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RBC Dominion Securities analyst Nelson Ng sees further upside potential for shares of Brookfield Renewable Partners L.P. (BEP-N, BEP.UN-T), believing it is “positioned to benefit from accelerating demand from investment in AI and data centres.”
“Management sees far more demand for clean power than there is available projects, and expect this dynamic to play out over the course of years,” he said in a report titled Innovation powering growth. “We believe that the company is uniquely positioned to capitalize on this trend due to its development capabilities and access to scale capital. The framework agreement with Microsoft demonstrates BEP’s ability to deliver, and management believes they have the development pipeline and capacity to enter into multiple framework-like agreements with other offtakers.”
Mr. Ng thinks Brookfield’s large renewables framework agreement with Microsoft “demonstrates the company’s ability to leverage its scale and global footprint to capitalize on the opportunity.” He emphasized it both improves investor sentiment and derisks its development pipeline.
“We believe the share price movement after the 10.5 GW Microsoft framework agreement was announced reflects a positive change investor sentiment (i.e., AI and data center play) rather than the financial impact of the agreement,” he said. “We estimate that the Microsoft agreement will result in BEP deploying ~$600-800 million of equity capital over the 2026-30 period at a 12-15-per-cent return.
“Management indicated that the market is bifurcated and sees attractive opportunities to buy and also sell assets. Management is seeing strong interest for high-quality de-risked assets, and is confident that capital recycling in 2024 will lead to net proceeds of $1.3 billion for BEP, which we estimate will fund most of the company’s targeted capital deployment in 2024. Management also sees attractive opportunities to acquire assets and developers, and we expect BEP to continue to grow its development pipeline (organically and through M&A).”
After modest increases to his long-term projections, Mr. Ng raised his target for Brookfield Renewable’s U.S.-listed shares to US$31 from US$29, keeping an “outperform” rating. The average is US$28.35.
Elsewhere, others making changes include:
* Desjardins Securities’ Brent Stadler to $38 from $37 with a “hold” rating.
“It was a solid quarter on the back of strong hydro results in North America; favourable weather could continue as we transition away from El Niño,” said Mr. Stadler “The supply/demand imbalance for renewables continues to accelerate as AI/datacentre demand is driving constructive PPA terms across the entire industry. BEP is significantly accelerating capital recycling this year, which likely suggests large M&A is on the horizon. BEP remains confident in its ability to achieve 10 per cent-plus FFO/unit growth in 2024 and beyond.”
“We continue to believe BEP remains well-positioned to capitalize on an ever-growing total addressable market and should remain a dominant industry player. While we like its assets, management and growth strategy, we maintain our Hold rating, primarily due to valuation.”
* National Bank’s Rupert Merer to US$30 from US$28 with an “outperform” rating.
“With a renewable infrastructure platform that stretches across North America and Europe and ample access to capital, BEP is uniquely positioned to capitalize on data centre growth,” said Mr. Merer.
* Scotia’s Robert Hope to US$31 from US$30 with a “sector outperform” rating.
“Brookfield Renewable’s Q1 headline results were slightly ahead of our expectations, with incremental assets and strong North American hydrology partially offset by weaker wind generation and higher corporate costs,” said Mr. Hope. “We believe the recent deal with Microsoft showcases the direct exposure that renewable companies have to rising power demand and the technology sector’s desire for clean power. Our estimates do not materially move following the quarter. We also introduce our 2026 estimates and roll forward our valuation, which increases our target price ... We view Brookfield Renewable as a high-quality and high-growth way to participate in the global renewable power and decarbonization theme.”
* BMO’s Ben Pham to US$30 from US$28 with an “outperform” rating.
* CIBC’s Mark Jarvi to US$32 from US$30 with an “outperformer” rating.
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National Bank Financial analyst Shane Nagle sees Capstone Copper Corp. (CS-T) as “the name investors will pivot to under an improved backdrop for copper prices” with its Mantoverde Development Project (MVDP) in Chile on track to run at nameplate capacity in the second half of 2024.
Reiterating his “outperform” recommendation for its shares based on his positive long-term growth outlook for the Vancouver-based company following last Thursday’s release of better-than-expected first-quarter financial results, Mr. Nagle now expects management to focus on expansion of its Mantos Blancos and Mantoverde mines in Chile.
“The company also reiterated its H1/H2 guidance and continues to expect H1 production will stem from maintaining consistent production at Pinto Valley and achieving installed throughput capacity at Mantos Blancos,” he said. “Capstone will be ramping up Mantoverde throughout H1 and has provided no production guidance, despite aiming to achieve initial saleable concentrate production during Q2.
“Capstone plans to spend US$275-million in sustaining and expansionary capital in 2024, including US$195-million on sustaining capital and US$80-million on expansionary capital (mainly related to US$65 mln on MVDP). The guidance includes US$60-million of spending related to ESG initiatives, largely related to strengthening tailings storage facilities at Pinto Valley, Mantoverde and Mantos Blancos and improving tailings stewardship as it works towards implementing the Global Industry Standard for Tailings Management by 2028.”
Mr. Nagle added the ramp-up at Mantoverde supports further deleveraging by Capstone, noting: “CS ended Q1/24 with US$131.0-million in cash and US$774.0-million in long-term debt. The long-term debt came down as CS repaid US$182.0-million on its RCF in Q1. Recall, during the quarter Orion announced that it has entered into a block trade agreement to sell 62.4 million units at a price of A$9.50/unit, for gross proceeds to Orion of A$592.8-million. We expect leverage to reduce to sub-1.2 times by the end of 2024 as Mantoverde ramps up meaningfully throughout H2/24.”
The analyst said he continues to see the company’s 2024 guidance, which includes copper production in the range of 190,000-220,000 tons (versus his estimate of 209,638 tons) at a cash cost of US$2.30 - US$2.50 per pound (versus US$2.48), to be “conservative as production from Mantoverde is not included in H1 numbers, despite initial concentrate production expected in Q2.” However, he made modest reductions to his forecast to fall in line with quarterly results and the guidance.
He raised his target for Capstone shares to $11.50 from $10.50. The average on the Street is $11.36.
Elsewhere, others making changes include:
* Scotia’s Orest Wowkodaw to $11 from $10 with a “sector outperform” rating.
* RBC’s Sam Crittenden to $12 from $9 with an “outperform” rating.
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ATB Capital Markets analyst Amir Arif thinks Lycos Energy Inc. (LCX-X) is “is one of the best avenues to play the Manville stack open hole multilateral trend.”
Seeing the Calgary-based company at the “forefront” on the drilling trend in the Alberta oil play, he initiated coverage with an “outperform” recommendation on Monday.
“Open hole multilateral drilling has been meaningfully changing the economics, activity, and outlook in the Manville stack in the greater Lloydminster area over the past two years,” said Mr. Arif. “The April 2024 new royalty program for multilateral oil wells in Saskatchewan should further increase activity in this trend on the Saskatchewan side.
“We believe that Lycos offers the greatest exposure to this emerging trend, which is still in its early days. With Lycos’ management’s background in oil resource development, asset focus on Manville stack opportunities, expanded footprint through acquisitions, current inventory of openhole locations, and with the Company leading development with various openhole multilat well designs, we believe that LCX is at the forefront of this development trend. From organic growth alone, production is expected to increase from 4.1 mboe/d [thousand barrels of oil equivalent per day] in Q4/23 to 5.7 mboe/d by Q4/24 through the drilling of approximately 27 net wells in 2024. With an identified inventory of 200 net locations, we believe that the Company has a long runway of organic growth ahead. In addition, we believe that there will be room for more consolidation in the region and we believe that LCX is one of the better positioned companies to lead on that front as well, given its focus on the play, public listing, and minimal debt on the balance sheet.”
Seeing an “attractive valuation based on near-term growth alone,” the analyst set a target of $5.50 per share. The average is $6.45.
“Based on current strip prices, LCX is trading at EV/DACF valuation of 2.8 times 2024 and 2.2 times 2025,” he said. “Given the above industry organic growth rates within cashflow, over seven years of drilling inventory at the current pace of drilling, minimal net debt on the balance sheet, wells generally outperforming typecurves, and payouts of 2-6 months being achieved on recent drilling, we believe that the valuation remains attractive, especially based on our 2025 outlook. This outlook could be further enhanced with accretive acquisition opportunities that might emerge over time with the Company having acquired four key assets in 2023.”
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In other analyst actions:
* Citing a lack of positive near-term catalysts as well as funds from operations per unit growth due to a higher interest burden and seeing “lots of discounted valuation on the table,” Scotia’s Himanshu Gupta downgraded European Residential REIT (ERE.UN-T) to “sector perform” from “sector outperform” and lowered his target to $3 from $3.50. The average is $3.06.
“We downgraded ERE to SP (from SO) in May 2023 due to lack of FFOPU growth and European residential names trading at big valuation discount,” he said. “More recently, we upgraded ERE to SO (from SP) in November 2023 on hopes of a positive outcome from a strategic review which was ongoing at the time. We are now back to square one, i.e. searching for earnings growth as potential M&A is perhaps out of the window.”
* Touting “discounted value entering a more positive 2024,” Raymond James’ Stephen Boland initiated coverage of Timbercreek Financial Corp. (TF-T) with an “outperform” rating and $8.40 target. The average is $8.63.
“Our Outperform rating is driven by the attractive valuation of the company and the expectations of the regrowth of the portfolio ...The stock is currently well below historic averages on Price to Book and dividend yield,” he said. “After a challenging year with higher interest rates impacting the performance of the portfolio, we believe it is management’s intention to regrow the portfolio. At year-end, total assets were $1.8 billion. Management believes it can grow to over $2.0 billion within two years and over a longer period time, attain $3 billion in assets. We believe when the portfolio is growing, the valuation multiple of the business expands.”
* RBC’s Walter Spracklin lowered his Andlauer Healthcare Group Inc. (AND-T) target to $41 from $43 with a “sector perform” rating. Other changes include: Stifel’s Justin Keywood to $52 from $55 with a “buy” rating, CIBC’s Kevin Chiang to $50 from $52 with an “outperformer” rating and Scotia’s Konark Gupta to $46 from $47.50 with a “sector perform” recommendation. The average is $49.71.
“We were surprised by Q1 EBITDA weakness, especially after AND posted a strong Q4 beat,” said Mr. Gupta. “While most of the Q4 trends continued (strong Canadian transportation, weak U.S. truckload and lower Accuristix volumes), the deceleration in fundamentals was driven primarily by fewer working days (Easter timing) and management’s efforts to improve U.S. revenue quality. We also suspect that the U.S. truckload pricing environment further deteriorated in Q1, based on weak results from most truckload carriers to date. However, the company maintains a positive organic growth outlook for this year and continues to evaluate accretive M&A opportunities, supported by a very conservative balance sheet, in our view. The lack of NCIB renewal suggests to us that AND is mindful of its public float and trading liquidity. We have reduced our expectations, mostly for this year vs. outer years, which drives our target down to $46 (was $47.50). That said, there could be upside risk to our estimates from potential M&A. We maintain our SP rating as shares are trading at a reasonable EV/ EBITDA of 10 times/9 times on our revised 2024/2025.”
* Scotia’s Michael Doumet dropped his AutoCanada Inc. (ACQ-T) target to $25.50 from $28 with a “sector outperform” rating. The average is $22.10.
“A weaker consumer, higher interest rates, normalizing supply/demand conditions, unfavorable weather, slower moving vehicle inventories at its main brand, and challenges sourcing used vehicles (...the list is long) in a seasonally weak Q led to meaningful operating deleveraging and a big miss (EBITDA was $22 million vs. the Street at $48 million),” he said. “If there is one quarter to capitulate on, this one might be it. But we also think this is likely as bad as it gets (outside an economic recession). We cut our estimates but raised our valuation multiple as we think our estimates reflect an earnings power below ACQ’s mid-cycle.
“While new vehicle GPUs should moderate, there is room for optimism in other areas: (i) we expect the U.S. to return to profitability, (ii) used vehicle supply should (gradually) improve, (iii) parts, service, and collision continue to provide a growing stream of profits, (iv) lower interest rates will bring relief to the consumer (and lower floorplan costs), and (v) Project Elevate is expected to improve overall profitability. We see value in the name (2024E/25E FCF yield of 9-per-cent yield) and expect improved execution.”
* Mr. Doumet also reduced his Badger Infrastructure Holdings Ltd. (BDGI-T) target to $48.50 from $52 with a “sector perform” rating. The average is $53.50.
“1Q EBITDA was as expected. It was delivered differently, however: the U.S. outperformed and Canada lagged,” he said. “There are two ways to look at this: (i) strong growth and margin expansion in the U.S. exactly highlights one of the main opportunities BDGI made at its IR Day — i.e. that higher utilization can be converted into price, operating leverage, and margin expansion — or (ii) that 2024 results will be overly reliant on the U.S. performance as Canada lags for several Qs (Canada accounted for 13% of the 2023 EBITDA).
“BDGI shares have retraced from its late-March highs. The shares trade at 7.4 times EV/EBITDA on our 2024E, roughly in-line with its historical average. At its recent IR day, management highlighted a multi-year opportunity for double-digit organic growth (12-per-cent to 14-per-cent CAGR) and margin expansion. We believe the outlined margin expansion opportunity has led to recent re-rate seen in the LTM. Going forward, we believe the shares could be range-bound as we view 2024 and 2025 as the ‘show me’ years to the story (the reason we lowered our valuation multiple). All told, we believe that the many initiatives either implemented or discussed (as future implementations) are making sustainable improvements to the business.”
* Canaccord Genuity’s Matthew Lee trimmed his Black Diamond Group Ltd. (BDI-T) target to $10.25 from $11 with a “buy” rating. The average is $11.79.
“On Friday, BDI reported Q1 numbers, which fell short of our expectations primarily due to lower sales and non-rental revenue,” said Mr. Lee. “Management attributed the year-over-year unit sales decline to project-related deferrals but anticipates that much of the revenue will be recovered throughout the year. On the rental side, we find encouragement in the robust backlog and pipeline for both MSS and WFS, as evidenced by a 5-per-cent year-over-year increase in future contracted revenues, strong update of growth capex, and higher-than-expected rental rate expansion on the MSS side. However, we slightly reduced our estimates for the remainder of F24 as we await the reallocation of WFS assets in the latter half of the year. Despite a reduction in our estimates, we continue to believe that there are several key catalysts for BDI in the near to medium term, including the deployment of WFS assets at higher-than-expected rates, inorganic asset expansion through acquisitions, and robust organic fleet growth.”
* RBC’s Geoffrey Kwan trimmed his Brookfield Business Partners L.P. (BBU-N, BBU.UN-T) target to US$31 from US$32 with an “outperform” rating, while BMO’s Devin Dodge raised his target to US$31 from US$30 with an “outperform” rating. The average is US$29.34.
“Q1/24 results were below our forecast, but there were incremental positives such as additional recycling of capital (e.g., announced sales of Hammerstone and most of the Greenergy business) and debt re-financing activity that helped to fund a dividend payment (the Entertainment business) or done at tighter credit spreads (BrandSafway),” said Mr. Kwan. “Bigger picture, BBU’s shares trade at a substantial 45-per-cent discount to NAV. We think there could be substantial valuation upside in the near-term (strong NAV growth + significant narrowing of the discount to NAV) if they continue to execute generating growth in their portfolio and surface value through asset sales/IPOs should monetization markets become more favorable. Maintaining our Outperform rating, but trimming our target to US$31 (was US$32) due to lower financial forecasts.”
* Ahead of Thursday’s release of its first-quarter results, Canaccord Genuity’s Luke Hannan trimmed his Canadian Tire Corp. Ltd. (CTC.A-T) target to $137 from $140 with a “hold” rating. The average is $152.90.
“Management commentary on the Q4/23 earnings call pointed towards an unpredictable operating backdrop; comparable sales were up mid-single-digits year-over-year in January, but unfavourable weather in the first half of February led to CTR ‘giving most of that back’,” said Mr. Hannan. “Exacerbating this dynamic is an increasingly discerning consumer, where wallet share continues to skew away from discretionary goods and towards essentials. Amid this environment, the company expects Dealer replenishment revenue to be muted during Q1/24. We forecast year-over-year declines in comparable sales of 3.0 per cent, 5.0 per cent and 3.0 per cent at CTR, SportChek, and Mark’s, respectively, for Q1/24.”
* Scotia’s Phil Hardie cut his Fairfax Financial Holdings Ltd. (FFH-T) target to $1,950 from $2,000 with a “sector outperform” rating, while RBC’s Scott Heleniak raised his target to US$1,275 from US$1,200 with an “outperform” rating. The average is $1,898.84.
“We remain bullish on Fairfax, but viewed the first quarter result as a bit mixed,” said Mr. Hardie. “Solid operating income (ex-gains) was in line with our expectations and supported our thesis of the improved underlying earnings power of the company. The disappointment from the quarter was book value falling short of expectations and seeing only modest sequential growth. That said, underlying trends were positive and we think the solid operating earnings continue to have a positive read-through for EPS and the pace of BVPS growth going forward. We continue to believe that Fairfax’s current valuation does not reflect the underlying earnings power of the company and remains an attractive opportunity for investors. Fairfax’s strong growth and enhanced interest and dividend investment income yields have led to a substantial rise in its adjusted operating earnings, with 2024 and 2025 likely to reach 4 times higher than the average in the three years leading up to 2020.”
* Scotia’s George Doumet raised his George Weston Ltd. (WN-T) target to $212, above the $211.14 average, from $200 with a “sector perform” rating.
* Evercore ISI’s Chris McNally moved his Magna International Inc. (MGA-N, MG-T) target to US$60 from US$62 with an “in line” rating. Other changes include: Raymond James’ Michael Glen to US$57 from US$60 with a “market perform” rating, Scotia’s Jonathan Goldman to US$55 from US$59 with a “sector perform” rating, CIBC’s Krista Friesen to US$54 from US$59 with a “neutral” rating and TD Cowen’s Brian Morrison to US$62 from US$63 with a “buy” rating. The average is US$59.63.
“There were a lot of moving parts in the 1Q results,” said Mr. Goldman. “But when the dust settled, the only real update was effectively formalizing the removal of Fisker – which was telegraphed in the March AIF and likely already reflected, at least to some degree, in consensus estimates. Revenue guidance was lowered by $1.2 billion, but only $200 million of that was an incremental negative in our view related to lower Active Safety volumes, program delays, and customer in-souring. Moreover, margin guidance of 5.4 per cent to 6 per cent was unchanged as the company expects to offset decrementals and Fisker with lower engineering spend, lower input costs, and commercial recoveries. Management’s ability to maintain margin guidance in the face external headwinds is nothing short of impressive (Fisker alone was expected to be a 25bp drag). However, we question the sustainability of those levers in the face of mounting macro risks. We updated our estimates to align with new guidance (we had not updated our estimates ahead of the quarter re. Fisker). MGA shares trade at 5.1 times EV/EBITDA on our equalweighted 2024/2025 vs. historicals of 5.6 times. We remain on the sidelines given EV/ADAS adoption risks, muted FCF generation in 2024, and elevated leverage.”
* CIBC’s Krista Friesen lowered her Martinrea International Inc. (MRE-T) target to $17.50 from $18 with an “outperformer” rating. The average is $17.97.
* RBC’s Pammi Bir cut his Slate Grocery REIT (SGR.U-T, SGR.UN-T) target to US$9 from US$9.50 with a “sector perform” rating. The average is US$9.70.
* CIBC’s Sumayya Syed reduced her Slate Office REIT (SOT.UN-T) target to 75 cents, matching the average, from $1, keeping a “neutral” recommendation.
* Jefferies’ Anthony Linton bumped his target for TC Energy Corp. (TRP-T) to $52 from $51 with a “hold” rating. The average is $54.32.
* Jefferies’ John Aiken lowered his Toronto-Dominion Bank (TD-T) target to $74 from $82 with a “hold” rating, while CIBC’s Paul Holden cut his target to $83.50 from $86 with a “neutral” rating. The average is $87.70.
“With TD trading at the lowest P/E valuation in the group, our scenario analysis suggests that a more severe scenario has already been discounted,” said Mr. Holden. “We cannot know exactly what lies ahead in terms of AML [anti-money-laundering] fines or the total cost to fix the shortfalls, but the balance of risk/reward is interesting. We reduce our price target from $86 to $83.50 to capture estimated AML costs. We are a somewhat worried about FQ2 results given ongoing U.S. deposit cost pressures (i.e., NIM downside), rising credit costs for unsecured consumer credit (TD is overweight) and a relative underweight position in capital markets where results should be strongest. Hence, we maintain our Neutral weighting.”
* RBC’s Scott Heleniak raised his Trisura Group Ltd. (TSU-T) target to $52 from $44 with an “outperform” rating. Other changes include: Desjardins Securities’ Doug Young to $53 from $48 with a “buy” rating and National Bank’s Jaeme Gloyn to $67 (a Street high) from $65 with an “outperform” rating. The average is $56.88.
“The [post-earnings conference call] tone was positive — management remains confident in their expectations for growth and profitability,” said Mr. Gloyn. “This messaging combined with strong Q1 results, run-off costs firmly in the rear-view mirror and an upgraded AM Best Outlook put Trisura on a path for a strong recovery year in 2024.”
David Leeder