Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial analyst Gabriel Dechaine thinks 2024 could be “pivotal” for Canadian bank stocks after two years of underperforming the broader market.
“The Fed’s dovish pivot was an obviously positive catalyst for the sector,” he said in a research report titled 2024 Outlook: soft landing = hard rebound (and a couple upgrades).
“And although the BoC isn’t sounding as dovish as the Fed, our Economics & Strategy team is forecasting 175 basis points of cuts. If delivered, these actions will create greater confidence in a ‘soft landing’ economic scenario. Relatedly, we see factors to drive improved performance from the sector in 2024: 1) negative EPS revision risk is minimized, as PCLs have been the biggest source of forecast uncertainty; 2) lower rates bode well for Canada’s housing market, and a rising market is invariably matched with positive bank stock performance; and 3) valuation levels are reasonable, with P/B multiples off 30 per cent from their 2022 peaks and still implying a 75-per-cent chance of a recession.”
Mr. Dechaine outlined four factors that are likely to “dominate” the outlook for the sector:
1. The housing market.
“Stabilization of Canadian house prices in 2024 would be beneficial to investor sentiment towards the credit cycle and the broader economy. An additional tailwind via Central Bank rate cuts would further boost prospects for bank credit quality as well as mortgage loan growth,” he said.
2. Rate cuts
“The market currently expects the BoC to cut rates by 125 basis points in 2024. That figure would result in 2-3-per-cent annualized EPS erosion for the Group. However, we estimate it would contribute to significantly reducing the 25 per cent of mortgages with amortization periods greater than 30 years, and significantly lessen concerns related to the 2025/2026 mortgage refinancing vintages,” he said.
3. The credit cycle.
“Consensus is forecasting a 39 bps loss rate in 2024 (and 36 bps in 2025),” he said. “Applying a ‘moderate’ recessionary figure of 60 bps implies 12-per-cent downside to sector EPS, all else equal, and a pro forma P/E ratio of 11.7 times.”
4. The regulatory and political environment.
“OSFI delivered some relief at year-end 2023 by keeping the Domestic Stability Buffer (DSB) flat at 3.5 per cent,” he said. “Having said that, the group starts the year taking a step back, with a number of regulatory capital changes (e.g., FRTB, B3 Output Floor), some of which will loom over fiscal 2025 as well. Separately, the Federal Government eliminated favourable dividend income taxation banks had previously enjoyed, following 2022′s Canadian Recovery Dividend & surtax on Financial Services companies.”
Mr. Dechaine also introduced his estimates for fiscal 2025, which predicted average earnings per share growth for the Big 6 of 5 per cent. He also sees a 27-per-cent increase in sector provisions for credit losses (PCLs) versus, mid-single-digit expense growth, and net interest margin expansion at half the rate he expects for fiscal 2024.
With this update to his financial model, he upgraded a pair of bank stocks.
Expecting the “overhang” from its acquisition of the Bank of the West to “lessen” in the year ahead, he raised Bank of Montreal (BMO-T) to “outperform” from “sector perform” previously.
“Our concerns about BMO’s accretion from this acquisition were allayed following BMO’s Q4/23 update that included a 20-per-cent-plus increase to planned expense synergies,” he said. “While we believe the top line will continue to be challenged, Fed stimulus should help boost commercial loan growth prospects in the year ahead.”
Mr. Dechaine also sees BMO “dusting off the efficiency improvement playbook” and suggests it should eliminate its dividend reinvestment plan (DRIP) by the middle of the year.
“BMO announced $320-million of restructuring charges in fiscal 2023, representing 1.7 per cent of its adjusted cost base,” he said. “We believe it is important to highlight BMO’s massive efficiency gains in the 2017-2019 period (i.e., early phase of CEO Darryl White’s tenure), that included $340-million of restructuring charges, or 2.5 per cent of its adjusted cost base at the time. We believe the bank could be following a similar path, starting in 2024.”
“The past two years have been a story of dilutive capital management activities by BMO. We believe this phase has ended, with the bank’s pro forma CET 1 ratio of 12.3 per cent comfortably above OSFI’s 11.5-percent minimum. We expect BMO to be one of the first to eliminate the discount on its DRIP, perhaps as early as Q2/24.”
Citing “increased confidence” in his earnings forecast for BMO, Mr. Dechaine hiked his target for its shares to $141 from $117. The average on the Street is $132.11, according to Refinitiv data.
The analyst also raised Canadian Imperial Bank of Commerce (CM-T) to “outperform” from “sector perform,” expecting a housing market turnaround to sustain its stock momentum.
“Housing-related risks are especially relevant to CM, with one of the highest exposures to mortgages/RESL (approximately 54 per cent of total loans),” said Mr. Dechaine. “Lower rates that could stimulate the housing market could also lead to significant reductions to CM’s balance of mortgages with amortization periods over 30 years and mortgages that are negatively amortizing.”
“CM was the only Big-6 bank to generate positive operating leverage in fiscal 2023, in part due to elevated spending the bank recorded during 2022. We believe the bank could deliver another such outcome in 2024, notably with mid-single-digit expense growth embedded in its guidance.”
Also expecting “steadier” credit management after “Jekyll & Hyde-ish” results in 2023 as it exhibited volatility in its performing allowance, he raised his target for CIBC shares to $71 from $62. The average is $61.49.
Mr. Dechaine also made these target adjustments:
- Bank of Nova Scotia (BNS-T, “sector perform”) to $66 from $60. The average is $63.73.
- Canadian Western Bank (CWB-T, “outperform”) to $37 from $34. Average: $34.18.
- EQB Inc. (EQB-T, “outperform”) to $98 from $90. Average: $100.38.
- Laurentian Bank of Canada (LB-T, “underperform”) to $28 from $26. Average: $28.82.
- Royal Bank of Canada (RY-T, “outperform”) to $148 from $135. Average: $137.40.
- Toronto-Dominion Bank (TD-T, “sector perform”) to $92 from $86. Average: $89.24.
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Scotia Capital analyst Meny Grauman said he continues to believe “the next few years are likely to be challenging for the Canadian banks.
In a research report released Wednesday reviewing the sector’s fourth-quarter earnings season titled Is Now the Time to Chase Bank Stocks Higher?, he maintained his “more defensive bias rather than join the crowd.”
“For all the pluses and minuses of this latest bank earnings season, almost every large bank we cover saw their consensus forward EPS estimates revised lower coming out of year-end reporting,” said Mr. Grauman. “And yet, the group as a whole is up about 7 per cent on average over the past month thanks to a more bullish than expected DSB announcement from OSFI, and more importantly dovish outlooks from both the Bank of Canada and the Fed. For our part we continue to believe that market expectations have too quickly swung towards a soft landing scenario, and believe that ‘higher-for-longer’ remains a key risk for Canadian bank stocks even as investors run away from that thesis. As we head into a new calendar year the key question facing investors is, do you fight the tape and remain defensive or follow what appears to be an increasingly crowded trade higher?”
Calling the earnings season “rather mixed,” Mr. Grauman said he is “still biased towards a higher for longer scenario.”
Citing “its inability to benefit from restructuring charges than to its U.S. AML [anti-money laundering] issues,” Mr. Grauman downgraded Toronto-Dominion Bank (TD-T) to “sector perform” from “sector outperform” with a $86 target, down from $95 and below the $89.24 average.
He also made these target changes:
- Canadian Imperial Bank of Commerce (CM-T, “sector perform”) to $62 from $57. Average: $61.49.
- Canadian Western Bank (CWB-T, “sector perform”) to $32from $33. Average: $34.18.
- Laurentian Bank of Canada (LB-T, “sector perform”) to $26 from $28. Average: $28.82.
- National Bank of Canada (NA-T, “sector perform”) to $96 from $95. Average: $101.60.
- Royal Bank of Canada (RY-T, “sector outperform”) to $140 from $133. Average: $137.40.
“Our top pick in the group remains BMO,” said Mr. Grauman. “We also like RY especially given its updated commentary on its DRIP and Buyback. We leave CM as an SP rated name, but note that it should provide the most torque in a soft-landing scenario. We also downgrade TD to SP from SO, given its inability to benefit from restructuring charges than to its US AML issues. We also see its buyback as less of a differentiator given the implications of OSFI’s latest DSB announcement. Among the smaller bank our preferred name remains EQB which remains a notable value name in our bank coverage universe.”
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Canaccord Genuity real estate analyst Mark Rothschild downgraded a trio of equities in his coverage universe on Wednesday.
They are:
* CAP REIT (CAR.UN-T) to “hold” from “buy” with a $53.50 target, up from $50.50. The average on the Street is $54.90.
* InterRent REIT (IIP.UN-T) to “hold” from “buy” with a $14 target, up from $13.50. The average is $14.34.
* StorageVault Canada Inc. (SVI-T) to “hold” from “buy” with a $5.75 target, up from $5.50. The average is $5.77.
Mr. Rothschild also made these target price adjustments:
- Allied Properties REIT (AP.UN-T, “buy”) to $22 from $20. Average: $21.
- Brookfield Corp. (BN-N/BN-T, “buy”) to US$41 from US$37.74. Average: US$46.20.
- Choice Properties REIT (CHP.UN-T, “hold”) to $14.50 from $13.50. Average: $14.71.
- Crombie REIT (CRR.UN-T, “hold”) to $14.50 from $13.50. Average: $15.03.
- Dream Office REIT (D.UN-T, “hold”) to $10 from $9. Average: $9.60.
- Killam Apartment REIT (KMP.UN-T, “buy”) to $22 from $20. Average: $21.29.
- Parkit Enterprise Inc. (PXT-X, “buy”) to 80 cents from 70 cents. Average: 76 cents.
- True North Commercial REIT (TNT.UN-T, “hold”) to $9 from $7.25. Average: $8.50.
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RBC Capital Markets analyst Gregory Renza sees Fusion Pharmaceuticals Inc. (FUSN-Q) as a “potential difference-maker in the radiopharmaceutical industry, bringing capabilities to address unmet needs in oncology with precise targeting, strong potency and unique MOAs [mechanism of actions].”
In a research report released Wednesday, he initiated coverage of the Hamilton, Ont.-based biotechnology developer with an “outperform” recommendation.
“We see the radiopharmaceutical industry as a growing bright spot in therapeutics after the approval of NVS’s Pluvicto, an infusion of capital from strategic activity and company formation, and validating M&A as larger players look to new RPT capabilities to create differentiated oncology platforms,” said Mr. Renza. “We believe FUSN is competitively positioned based on its proprietary target alpha therapy platform, diverse pipeline, deep radiopharma pedigree, as well as established manufacturing expertise, key to commercial success. With FUSN’s 225Ac radiopharma strategy advancing, we look to near-term updates of FPI-2265 (225Ac-PSMA) and FPI-1434 (225Ac-IGF-1R) as potential value-inflection opportunities over 2024 to set the stage for ongoing share appreciation.”
Seeing its Actinium-225′s isotope-particle emitter and targeted alpha therapy (TAT) platform as “differentiated” and possessing the potential to “establish [its] foothold in the multi-billion dollar radiopharmaceutical market,” the analyst set a target of US$12 per share. The average target on the Street is US$13.
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Pembina Pipeline Corp.’s (PPL-T) $3.1-billion acquisition of Enbridge Inc.’s (ENB-T) interests in the Alliance Pipeline, Aux Sable and NRGreen joint ventures is a “no brainer” consolidation, according to National Bank Financial analyst Patrick Kenny, who believes it “further strengthens” the Calgary-based company’s “strategy of owning high-quality liquids-rich infrastructure while providing customers access to premium end markets.”
Resuming coverage after Pembina’s $1.3-billion equity offering, he touted the deal’s strategic rationale and enticing cost.
“The price tag represents an attractive 2024 estimated adj. EBITDA multiple of 9 times (approximately $340-million EBITDA), with an incremental $40-$65-million from expected synergies grinding the multiple down towards 8 times and representing 5-per-cent accretion to our 2025+ AFFO/sh [adjusted funds from operations per share] estimates,” said Mr. Kenny.
“From a cash flow quality standpoint, the Alliance Pipeline aligns with the company’s low-risk profile with more than 80-per-cent takeor-pay contributions with a weighted average term of greater than 7 years. Meanwhile, although Aux Sable generates primarily commodity-based cash flows (NGL frac spread), the Chicago facility represents a longer-term growth platform for the company’s marketing business upon expiration of the 100,000 bpd [barrels per day] third-party NGL offtake agreement at the end of the decade. On the leverage front, including the company’s recent 2024 capital budget of $880-million, our 2024 estimated D/EBITDA of 3.8 times (was 3.5 times) remains well within the company’s 3.5-4.25 times guardrail.”
Believing Pembina’s “leverage “remains in check,” he raised target for its shares by $1 to $46, maintaining a “sector perform” rating. The average is $51.57.
Elsewhere, others making changes include:
* Scotia’s Robert Hope to $50 from $49 with a “sector outperform” rating.
“We view the transaction as a win / win for both parties. For Pembina, it increases its ownership in strategic assets and presents opportunities to capture significant synergies that could increase EBITDA by 10-20 per cent in the near term,” said Mr. Hope. “The transaction is quite accretive without materially increasing leverage, with management forecasting adjusted cash flow per share accretion in the mid-single digits during its first full year of ownership. Overall, our distributable cash flow estimates increase by 2% in 2025 with higher accretion likely in future years as additional synergies are realized. Given its strong balance sheet and funding position, Pembina is well positioned to finance the transaction and also continue to pursue additional growth projects such as Cedar LNG.”
* Stifel’s Cole Pereira to $54.50 from $53 with a “buy” rating.
“We have a positive view of the transaction as it (1) consolidates ownership of existing key assets that further enhance its Montney position; (2) does so in a manner that is accretive on both a trading multiple and per-share basis; and (3) maintains its strong balance sheet. We continue to have a bullish view on PPL given the growth trajectory from its leading Montney infrastructure position, clean balance sheet and valuation,” said Mr. Pereira.
* BMO’s Ben Pham to $52 from $51 with an “outperform” rating.
“PPL’s acquisition of additional interests in Alliance and Aux Sable for $3.1-billion was not front and centre for us, but we believe that PPL is the logical buyer and the transaction is immediately accretive, leverage neutral, and has potential long-term upside (not yet reflected in our estimates),” he said. “Moreover, it reinforces our recent view that the probability of a potential acquisition of TMX (which has weighed on shares) is low.”
* CIBC’s Robert Catellier to $54 from $52 with an “outperformer” rating.
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While he sees Dundee Precious Metals Inc.’s (DPM-T) $287-million acquisition of Osino Resources Corp. (OSI-X) as “a strategic fit on timeline and jurisdiction” within its portfolio and addresses a production gap, RBC Dominion Securities analyst Wayne Lam warned the deal “comes at a premium to historical M&A for similar development asset.”
“In our view, Twin Hills is a strategic fit in the growth portfolio as an advanced-stage asset and mining license in hand within Namibia, where DPM has successfully operated the Tsumeb smelter since 2010,” he said. “DPM seeks to aggressively advance the project with targeted first gold in H2/26, helping to fill a potential production gap coinciding with depletion at Ada Tepe. We calculate acquisition cost of approximately $69 per ounce M&I+I on an EV/oz basis, reflecting a 38-per-cent premium to the avg takeout for development assets since 2015 ($50/oz) and current junior avg for FS-stage projects ($49/oz).
“We estimate annual output at Twin Hills of 151 Koz at mine-site AISC [all-in sustaining cost] of $1,159/oz over a 13-year mine life. In our view, the project helps to sustain current output of 340 Koz AuEq [thousand ounces of gold equivalent] through 2027, with the next step change driven by Čoka Rakita in 2028+ taking the company to ~500 Koz AuEq. As such, we see a shift in company focus to an investment phase over the next few years with capital deployment toward growth, comfortably funded via robust FCF from Chelopech/Ada Tepe, $563-,million cash balance, and undrawn $150-million RCF.”
Mr. Lam does think the deal, announced before the bell on Monday, “helps address investor concerns around medium-term production gap post-Ada Tepe in H2/26 with a permitted, advanced-stage project in a familiar country of operation.”
“We assume more conservative estimates than the 2023 DFS with a 15-per-cent increase in costs and 10-per-cent capex ahead of optimization and a production decision targeted in Q3/24,” he said.
Maintaining an “outperform” recommendation, Mr. Lam cut his target by $1 to $14. The average is $13.34.
“We estimate that DPM is trading at a discount to Intermediate/Growth peers of 25 per cent on spot P/NAV and 40 per cent on spot 3-year EV/EBITDA,” he said. “In our view, the current discount does not reflect improved strategic positioning for DPM with the growth portfolio now supported by Twin Hills and Čoka Rakita. As such, we anticipate a gradual re-rating as de-risking milestones are achieved over the coming years.”
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RBC Dominion Securities analyst Tom Callaghan said FirstService Corp.’s (FSV-Q, FSV-T) US$413-million acquisition of a significant controlling stake in Roofing Corp of America is “strategically sound, and checks a number of boxes which we see as core tenants of the FSV story.”
“In our minds, the acquisition fits well strategically,” he added. “In addition, to adding another leg to the Brands division, RCA will drive increased levels of essential property services revenue, with the potential to complement the restoration platform over time. As with past acquisitions, we believe FSV will look to drive mid-single-digit organic growth at RCA, with tuck-in acquisitions (given a large yet fragmented market) serving to augment total annual revenue growth towards 10 per cent. In line with FSV’s partnership philosophy, we are also encouraged to see senior management of RCA will continue to operate the business, and retain the balance of the equity.”
The analyst also touted the deal’s “solid” financial accretion and thinks the Toronto-based company’s balance sheet leverage “remains quite manageable.”
“Under our revised outlook, we see Adj. EPS accretion of circa 7 per cent in both 2024 and 2025,” said Mr. Callaghan. “While FSV will see leverage metrics tick up given the acquisition will be funded via both cash on hand as well its revolving bank credit facility, in our view leverage is well contained by virtue of a balance sheet that was under-levered as of Q3/23 and the company’s FCF generation. Indeed, we peg FSV’s 2024E net debt/TTM [trailing 12-month] adjusted EBITDA ratio at 1.7 times under our revised outlook—an increase of 0.7 times vs. our prior estimates but below the company’s defined 2.0-2.5 times comfort level. With closing of the transaction occurring late last week, income statement impacts will be next to nil in 2023.”
Reiterating his “outperform” recommendation for FirstService shares, he hiked his target to US$187 from US$178. The average is US$167.14.
“The purchase adds a new roofing vertical with significant growth potential to the Brands division, and importantly, augments the company’s revenue base flowing from essential property services,” he concluded.
Elsewhere, Stifel’s Daryl Young increased his target to US$190 from US$175 with a “buy” rating.
“In our view, RCA is a compelling transaction as it adds another new growth vertical with all the traditional hallmarks targeted by FSV (low-capital intensity services provider, operating in a large & highly fragmented industry), is strategically aligned with FSV’s focus on growing its essential, non-cyclical, commercial services, and is synergistic with FSV’s restoration platform,” said Mr. Young. “Furthermore, we view the estimated valuation of between 8-10 times EBITDA as attractive for a platform asset with strong growth potential.”
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Echelon Partners analyst Andrew Semple thinks it is “an opportune time” to invest in Decibel Cannabis Company Inc. (DB-X), expecting “strong” cashflow generation in 2024 will “substantially de-risk the company and support a valuation re-rating.”
Also predicting an upcoming Health Canada review of The Cannabis Act should be “a positive industry catalyst,” he initiated coverage of the Calgary-based company with a “speculative buy” recommendation.
“Decibel is a standout among the publicly traded Canadian Licensed Producers for its multi-year track record of consistent profitable growth in an industry that has seen many LPs struggle to remain profitable and innovative,” said Mr. Semple. “The Company recently reported its 13th consecutive quarter of positive adj. EBITDA and 6th consecutive quarter of positive adj. net income. In our view, the Company’s success has been driven by a focused business strategy: 1) prioritize ready-to-consume (“RTC”) cannabis products, which are convenient to consumers and are gaining market share, 2) innovate and cater to consumer preferences, an ethos that helped Decibel identify and dominate the infused pre-roll category with an estimated 48% market share while continuing to launch innovative products such as Vox crushable flavoured pre-rolls and Blinker vapes, and 3) scaling operations to meet realistic demand forecasts, which avoids the large inventory write-downs and high unit costs faced by many other Canadian LPs.”
He set a target of 35 cents per share which implies upside of 169 per cent from the stock’s Tuesday closing price. The average target on the Street is 50 cents.
“Decibel’s successful strategy has catapulted the business to the #2 LP spot in Canada by market share, entirely driven by organic growth,” said Mr. Semple. “Investors have rewarded Decibel with the best-performing share price over the past 12 months of all companies in our North American tracking group of cannabis stocks, with a TTM [trailing 12-month] gain of 44 per cent. We believe there is plenty of room for further upside because Decibel still trades at the lowest EV/2024E EBITDA multiple in our North American tracking group at just 3.1 times our 2024 forecast compared to an average 6.2 times multiple for small/mid-cap LPs and 15.1 times for large cap LPs. In our view, this valuation disconnect makes Decibel stand out as a potential M&A candidate, providing a possible upside catalyst and moderating the downside risk in its shares.”
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In other analyst actions:
* Barclays’ John Coffey initiated coverage of Nuvei Corp. (NVEI-Q, NVEI-T) with an “overweight” rating and US$34 target. The average target on the Street is US$34.33.
“. Despite price volatility and vocal bears, NVEI’s high-teens gross profit growth, mid-30s EBITDA margins and runway for growth will reward investors over the long term,” said Mr. Coffey.
* CIBC’s Dean Wilkinson became the first analyst to initiate coverage of Northview Residential REIT (NRR.UN-T), giving it a “neutral” rating and $12 target.
“NRR was created by way of a recapitalization transaction from its predecessor Northview Fund,” he said. “While the REIT’s properties may be largely familiar to the ‘REIT regulars,’ the vehicles in which they have been held are perhaps less so, with the assets having found a home in traditional REIT structures and in a high-yield, income-oriented fund.
“Given the REIT’s passage from what was viewed as a more income‑oriented, high-yield vehicle to a more staid and conservative balance sheet entity, we believe the market is perhaps viewing NRR as an investment in transition rather than it having reached its final destination, with a clear delineation between its higher financial gearing and a yield commensurate with such. We believe that, in time, the normalization of the REIT’s balance sheet to be more representative of its direct peers should serve as a catalyst for material unit price performance. However, with that said, the path towards such normalization may take some time given the large NAV discount, and within the context of a 12-month investment horizon, the predominant high yield attribute may continue to be the REIT’s key distinguishing characteristic in the near term.”
* RBC’s Irene Nattel cut his Aritzia Inc. (ATZ-T) target by $1 to $40, exceeding the $31.89 average, with a “market perform” recommendation.
“Notwithstanding Q3E margin compression, headwinds should moderate sequentially as transient expenses normalize and, as we move through F25, as contribution from 35-per-cent square footage growth over 15 months begins to ramp,” she said. “Key near-term caveat, in our view, will be management tone around seasonal sales trends and consumer demand outlook. But while women’s apparel and, more broadly, small-cap discretionary remain largely out of favour, in our view, ATZ is an excellent candidate for flow of funds on sector rotation in 2024.”
* Introducing his 2025 estimates for Badger Infrastructure Solutions Ltd. (BDGI-T) after “another strong quarter,” Acumen Capital’s Trevor Reynolds raised his 12-month target for its shares to $47.50 from $46 with a “speculative buy” rating. The average is $42.31.
“With continued strength in demand, improved margins driven by pricing and cost management, and a more stable level of retirements expected over the coming years the outlook appears improved for BDGI,” he said.
* Scotia’s Mario Saric raised his targets for Brookfield Asset Management Ltd. (BAM-N/BAM-T, “sector outperform”) to US$42 from US$37.50, Brookfield Business Partners LP (BBU-N/BBU.UN-T, “sector outperform”) to US$26.50 from US$25 and Brookfield Corp. (BN-N/BN-T, “sector outperform) to US$46.25 from US$45. The averages are US$38.16, US$26.79 and US$46.20, respectively.
* Following its Investor Day event, Canaccord Genuity’s Katie Lachapelle raised her Cameco Corp. (CCO-T) target to $72 from $67 with a “buy” rating, while Raymond James’ Brian MacArthur bumped his target to $71 from $69 with an “outperform” rating. The average is $69.77.
“CCO provides investors with lower-risk exposure to the uranium market given its diversification of sources,” said Mr. MacArthur. “These sources are supported by a portfolio of long-term contracts that provide some downside protection in periods of depressed spot uranium prices, while maintaining optionality to higher uranium prices. In addition, CCO has multiple operations curtailed that could be brought back should uranium prices increase. Although the 2021 tax court decision applies only to the 2003, 2005, and 2006 tax years, we view it as a positive for CCO given we believe it could be relevant in determining the outcome for other years and reduces risk related to the CRA dispute.”
* CIBC’s Scott Fletcher lowered his Corus Entertainment Inc. (CJR.B-T) target to $1 from $1.15 with a “neutral” rating. The average is $1.54.
“Corus will report its FQ1 earning on Friday January 15, and we expect the quarterly results to continue to reflect the challenges and uncertainty facing the traditional linear TV market,” he said. “Advertising is likely to be down high teens year-over-year and more than 25 per cent below pre-pandemic levels, increasing concerns that TV advertising spending will never fully recover. The resolution of Hollywood strikes does provide more certainty around future content deliveries, but the lack of clarity around advertising spending and the levels that spending will eventually recover to make it difficult to get constructive. The shares remain cheap on a valuation perspective (4.7 times 2024 estimated EBITDA), but the combination of the impact of macro uncertainty on ad spending and the potential for an acceleration in the structural decline of the linear TV market keeps us on the sidelines.”
* Canaccord Genuity’s Matt Bottomley lowered his Organigram Holdings Inc. (OGI-T) target to $3.75 from $4, while ATB Capital Markets’ Frederico Gomes reduced his target by $1 to $5.50 with an “outperform” rating . The average is $4.54.
“Given the material cash burn this quarter, we are wary of the longer-than-expected runway to turn FCF positive as the rec. market remains challenging while near-term catalysts appear limited,” said Mr. Gomes. “Considering the disappointing results and the enduring challenges faced by LPs (the market has so far failed to consolidate despite pervasive unprofitability), our model implies that OGI would have to surprise on margins and/or benefit from working capital changes to meet its FCF guidance.
“However, we continue to see OGI as a long-term winner among LPs given its liquidity position, and prospects for growth/margin expansion via new product introductions, efficiency investments (i.e., seed-based production, automation and capacity expansion), and Jupiter investment platform. We believe OGI remains one of the best-positioned LPs due do its robust balance sheet ($155-million in proforma net cash following the BAT investment) and the investments made for long-term differentiation, which we think will enable OGI to capture share longer-term as the LP competitive environment rationalizes.”
David Leeder