Inside the Market’s roundup of some of today’s key analyst actions
DA Davidson analyst Gil Luria thinks the “strong” fourth-quarter results from Shopify Inc. (SHOP-N, SHOP-T) showcase its “ability to monetize its unified platform offering and drive efficient growth.”
While he acknowledged expectations were high ahead of Tuesday’s premarket release, he thinks the Ottawa-based company displayed positive momentum, including a top-line beat and improving profitability metrics, and sees the 12.5-per-cent drop in share price as a buy opportunity for investors.
“Shopify continues to show signs of strong momentum with 4Q results headlined by 24-per-cent revenue growth (30 per cent ex- logistics divestiture), 21-per-cent FCF margins, and a 60-per-cent penetration rate on Gross Payment Volumes as a percentage of GMV [gross merchandise volume],” said Mr. Luria. “4Q23 revenue was $2.144-billion beating both our estimate and consensus of $2.070-billion and $2.080-billion, respectively. Top line growth benefited from prior price increases and strong seasonal GMV which was up 23 per cent year-over-year vs. 22 per cent in the prior quarter and 13 per cent in the year ago period. MRR [monthly recurring revenue] increased 35 per cent year-over-year to $149-million driven by an increase in merchants, pricing increases, and ongoing Shopify Plus adoption with the category representing 31 per cent of total MRR at year-end.”
While initial investor concern centred on a sales growth forecast that fell short of some expectations, Mr. Luria emphasized last week’s price increase for its Shopify Plus advanced merchant subscription plan “highlight the value of the underlying platform offering” and the company’s overall profitability profile “continues to show signs of improvement.”
“Shopify posted 20-per-cen EBITDA margins in 4Q, up from 18.8 per cent in the year ago period and 17.6 per cent in the prior quarter,” he said. “The company continues to benefit from disciplined cost controls, and we expect additional margin expansion to stem from a combination of automation and positive operating leverage.”
Reiterating a “buy” recommendation, Mr. Luria was one of several analysts to adjust their target for Shopify shares in response to the release, moving his to US$90 from US$86 based on the “company’s growth profile and improving profitability metrics.” The average on the Street is US$79.19.
“Off-line revenue (payments, off-line subscriptions and POS hardware) totaled $441-million in 2023 (6 per cent of total revenue) and represents a substantial long term opportunity for Shopify given the TAM [total addressable market],” he added. “We continue to believe that Shopify is well positioned to gain share internationally given the network effects of its merchant ecosystem as well as the additional value the platform is able to provide through consolidation of spend.”
Elsewhere, others making changes include:
* ATB Capital Markets’ Martin Toner to $110 from $105 with a “sector perform” rating.
“Despite posting a top and bottom-line beat, along with healthy top-line guidance, we believe the share reaction post-earnings was due to a combination of heightened investor expectations heading into the print, along with a surprising pivot from the Company to increase investment into growth in 2024,” said Mr. Toner. “Due to a combination of rolling the time period of our DCF forward and higher gross profit, driven by higher subscription revenue growth, we are raising our target.”
* Citi’s Tyler Radke to US$93 from US$96 with a “neutral” rating.
“After impressive BFCM [Black Friday, Cyber Monday] results, Shopify delivered a consistently strong Q4 with outsized GMV/revenue growth (mid-20s, 400 basis points above expectations) demonstrating further share gains and that SHOP’s unique e-commerce ‘flywheel’ continues to attract and grow new merchants above industry growth levels,” said Mr. Radke. “At the same time, expectations were high, and the weaker profitability outlook for Q1 (9 per cent NG OPM for Q1 below Citi’s/consensus 14 per cent ) and a modest miss on take rate expansion weighed on shares. While the company continues to execute and innovate at an impressive pace, and we’re seeing healthy growth in adjacent products (B2B/POS, etc.), we wouldn’t be surprised to see shares take a breather after near 50-per-cent run since the last earnings print. We are modestly lowering our estimates reflecting the higher near-term marketing spending, which negatively impacts margins, and we await a better entry point with shares trading at 56 times calendar 2025 FCF versus the large cap average of 35 times.”
“Looking ahead to Q1, we believe the largest investor discussion coming out of the quarter will be the low-teens sequential GAAP OpEx growth guide; as the company incurs seasonal expenses, combined with a material reacceleration in marketing activities,” said Mr. Jeffries. “The company noted headcount has remained largely flat post-Q2 RIF and expects it to remain flat going forward, but we are still reducing our FY24E EBIT estimates here, as the OpEx growth trend beyond Q1 is much more uncertain in our view.”
* Roth’s Darren Aftahi to US$89 from US$85 with a “buy” rating./
“4Q headline numbers beat expectations, although operating margins were modestly lower. SHOP continued to see impressive growth given its size as GMV and revenue (Ex-logistic sale) accelerated year-over-year,” said Mr. Aftahi. “It appears SHOP is pushing further into offline, enterprise, and international channels as these segments outpace the growth of e-commerce. Forward estimates see an increase in spending to support this growth, but FCF margins and dollars improve each quarter. We maintain our Buy rating but would look for opportunistic spots to accumulate.”
* Barclays’ Trevor Young to US$68 from US$70 with an “equal-weight” rating.
“Shares under pressure as low teens q/q opex guide disappoints vs. lofty buy side expectations. SHOP executing exceptionally well; this is more an issue of expectations running too far ahead, in our view,” he said.
* Canaccord Genuity’s David Hynes to US$90 from US$86 with a “buy” rating.
* Wedbush’s Scott Devitt to US$75 from US$68 with a “neutral” rating.
* Mizuho’s Siti Panigrahi to US$75 from US$65 with a “neutral” rating.
* Moffettnathanson’s Michael Morton to US$80 from US$82 with a “buy” rating.
* Piper Sandler’s Clarke Jeffries to US$63 from US$56 with an “underweight” rating.
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In response to its fourth-quarter 2023 results, Citi analyst Jon Tower expects Restaurant Brands International Inc. (QSR-N, QSR-T) to release “mundane” long-term guidance at its investor event on Thursday and warns any targets that stray too far from the Street’s expectations will be “greeted with skepticism.”
His cautious stance was based on several takeaways from Tuesday’s release, which sent TSX-listed shares of the parent company of Tim Hortons, Burger King and Popeyes down 3.7 per cent on the day. They include “same-store sales coming off highs with price, reduced unit growth expectations, admitted challenges with their China partner.”
“We give QSR credit for the ongoing, multi-pronged, strength in Tims Canada, but believe questions regarding the outlook in China, global macro fears, additional capital outlays to support a BK remodel program and concerns about how BK US would fare in a more value-driven environment will make multiple expansion from here difficult,” said Mr. Tower.
The Toronto-based reported a 7.8-per-cent rise in revenue year-over-year to US$1.82-billion, narrowly exceeding the Street’s US$1.81-billion estimate. Adjusted earnings per share of 75 US cents was 2 cents better than anticipated as Tim Hortons’ same-store sales grew 8.4 per cent, blowing past analysts’ 4.36-per-cent forecast.
However, investors punished Restaurant Brands for a cautious outlook for China and sluggish international sales, hurt by the war in the Middle East and weakness in Western Europe.
“Plenty of noise with the re-segmentation of the business, but KPIs broadly met expectations as comp upside in key home markets (TH CAN/BK US) was partially offset by modest global net unit growth and adjusted EBITDA that missed Citi/Street,” said Mr. Tower in his initial review of the release. “Franchisee profit growth across key markets is encouraging, particularly at BK US (up 47 per cent year-over-year) where management can point to early success in its brand turnaround strategy. Sustainability of these gains in a more challenging backdrop for BK’s core consumers and as incremental corporate support wanes will be key to gaining greater investor buy-in to the story, particularly with greater operating exposure to the brand due to recent/pending franchisee acquisitions. With net growth still lagging pre-COVID levels (3.9 per cent year-over-year, a deceleration quarter-over-quarter) and softer than expected Adjusted EBITDA, we expect shares take a breather in the near term the stock’s relative multiple already sits ahead of historical averages.”
While he raised his 2024 and 2025 EPS projections to US$3.37 and US$3.80, respectively, from US$3.30 and US$3.72 to reflect a “slightly stronger” same-store sales outlook, Mr. Tower lowered his target for Restaurant Brands shares to US$81 from US$83, maintaining a “neutral” rating. The average target is US$83.86.
“We don’t believe the market is fully capturing ramping international stories at Tims, Popeyes (and soon Firehouse) that can drive medium-term upside to net unit growth (NRG) and long-term upside to profits; however, limited visibility into the economics of these nascent businesses means limited ability to layer into valuation,” he concluded. “At the same time, we see above average room for near- to medium-term estimate volatility related to the Burger King US brand repositioning/reinvestment (including incremental closures) and potential pressure on supply chain profits.”
Elsewhere, other analysts making target adjustments include:
* RBC’s Christopher Carril to US$90 from US$91 with an “outperform” rating.
“While strong sales momentum and updated franchise profitability metrics were highlights, a lowered 2024 development outlook and higher-than-anticipated expenses weighed on QSR shares,” said Mr. Carril. “However, we remain buyers, as we see evidence of improving brand health (e.g. accelerating traffic and 4-wall EBITDA) helping to drive long-term development upside and, ultimately, multiple expansion. On the long-term outlook, we’ll hear again from QSR this week at its investor event, which we think could serve as a positive catalyst following a more tempered near-term outlook.”
* Scotia’s George Doumet to US$80 from US$81 with a “sector outperform” rating.
“Q4 home market internals came in well ahead of expectations, but weaker margins drove an overall modest miss. The positives were impressive year-over-year gains in home market franchisee economics and traffic trends. On the negative side, the quarter did see incremental pressure from TH supply chain margins and QSR did lower its 2024 NRG guidance to 4.5 per cent from 5 per cent plus, due to softness in China.
“QSR shares are trading at 2-per-cent discount vs historical average and 5-per-cent discount vs IHF peers. We expect improvements in the valuation as QSR continues to deliver above industry/average internals (further share gains at TH and continued improvement at BK US), including the delivery of 4.5-per-cent NRG growth.”
* Truist’s Jake Bartlett to US$87 from US$89 with a “buy” rating.
“In our view, solid SSS momentum and positive traffic at BK US and TH Canada outweigh the incremental risk of slowed ‘24 development guidance (challenges in China) and potential (we think likely) BK remodel support (management referenced $300-million in ‘25-’28, which is less than 1 per cent of QSR’s market cap),” said Mr. Bartlett. “With 2 of the 3 legs of the QSR stool performing well (BK US and TH Canada, with Int’l growth lagging somewhat), we believe that QSR should trade at least at its historical multiple (~17.5x on ‘25, discounted back).”
* BMO’s Andrew Strelzik to US$90 from US$85 with an “outperform” rating.
“QSR tempered 2024 unit growth (China) and guided G&A above consensus, driving underperformance of shares, and we lower 2024 EBITDA modestly as a result (not including Carrols pending deal closing). That said, we remain positive as business improvement efforts continue to demonstrate progress, highlighted by strong franchisee profitability increases and TH/BK traffic growth, and initiatives should build,” he said.
* Piper Sandler’s Brian Mullan to US$84 from US$85 with a “neutral” rating.
* Guggenheim’s Gregory Francfort to US$74 from US$70 with a “neutral” rating.
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RBC Dominion Securities analyst Paul Treiber said BlackBerry Ltd. (BB-N, BB-T) has taken “a step in the right direction” with its US$150-million profit improvement over the last two quarters.
While he thinks that gain “reflects the right-sizing of the company and represents a shift towards a more sustainable and nimble operating structure,” he also warned “more work is needed.”
“We believe investor sentiment is likely to remain low, considering the magnitude of historical revenue declines and lack of profitability at Cybersecurity, reduced sentiment for auto-tech, and guided negative FCF for the next 4 quarters,” said Mr. Treiber.
Shares of the Waterloo, Ont.-based company slid 2.9 per cent on Tuesday alongside the broader market selloff following a late Monday announcement of a plan to target an additional increase of $100-million in annual profit through cost reduction initiative, including further reductions to its workforce.
“Our model calls for total costs (COGS + opex) to decline $113-million between FY23 and FY25,” the analyst said. “While BlackBerry’s $150-million target is above our estimates, we believe near-term investor visibility is low, and we are leaving our FY24/FY25 revenue and adj. operating margin outlook unchanged, considering: 1) BlackBerry has only identified $55-million cost savings out of the $100-million improvement; 2) a portion of the targeted net profit improvement appears dependent on a rebound in IoT revenue; and 3) Cybersecurity revenue may remain a headwind.”
“BlackBerry anticipates negative cashflow for the next 4 quarters while it restructures and only expects to reach positive operating cashflow by Q4/FY25. The timing of positive cashflow is later than our expectations. As a result, we are reducing our FY25 free cashflow estimate from $19-million to negative $44-million.”
After BlackBerry reiterated little synergies exist between its Cybersecurity and Internet of Things (IoT) business and both benefit from being separate segemtns, Mr. Treiber said a split could lead to a divestiture or spin-off.
“While these corporate actions may be potentially value-creating, they raise uncertainty regarding BlackBerry’s future,” he said.
“Restructuring validates the health of BlackBerry’s IoT business. The majority of BlackBerry’s restructuring is focused on Cybersecurity and G&A functions. While the separation process may allocate a portion of BlackBerry’s elevated G&A overhead to IoT, BlackBerry’s restructuring appears to support our estimate that Cybersecurity has negative 30-per-cent adj. EBIT margins, while IoT is operating in the mid- to high-teens range.”
Citing “low visibility to long-term revenue stabilization and positive operating margins,” Mr. Treiber reduced his target for BlackBerry shares to US$3 from US$4 with a “sector perform” rating. The average is US$4.15.
“In light of the challenges facing BlackBerry’s Cybersecurity business, we believe investor visibility to the stabilization in BlackBerry’s revenue and path to sustained profitability remains low,” he noted.
Other changes include:
* Canaccord Genuity’s T. Michael Walkley to US$3.25 from US$4.25 with a “hold” rating.
* CIBC’s Todd Coupland to US$3.50 from US$4.25 with a “neutral” rating.
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Canaccord Genuity analyst Matthew Lee thinks the Canadian banking industry is in for ”a relatively benign” first-quarter earnings season with “much of the noise (FRTB, FDIC special assessment, IFRS 17) largely pre-announced.”
“We will be acutely focused on changes in outlook from each of the firms, which we expect will be incrementally more positive than at the Q4 mark,” he said in a Wednesday research report. “In particular, we are seeing the beginning of a capital markets resurgence in both Canada and the U.S., which could be an area of outperformance for F24. On the P&C front, we continue to take a cautious approach to modelling PCLs, opting for the higher-end of guidance, but are perhaps less concerned with the CRE portfolios given the modest exposure of each Canadian bank. Overall, we continue to view the sector favourably with valuations attractive relative to the improving fundamentals of the industry. We maintain our BUY ratings on RY, BMO, and TD and HOLD ratings on CM, BNS, and NA.”
Mr. Lee made these target adjustments:
- Bank of Montreal (BMO-T, “buy”) to $137 from $135. The average target on the Street is $136.11.
- Bank of Nova Scotia (BNS-T, “hold”) to $65 from $64. Average: $65.48.
- Canadian Imperial Bank of Commerce (CM-T, “hold”) to $65 from $64. Average: $63.73.
- National Bank of Canada (NA-T, “hold”) to $106 from $107. Average: $103.60.
- Toronto Dominion Bank (TD-T, “buy”) to $95 from $94. Average: $89.98.
“Despite market rally, valuations still modest,” Mr. Lee concluded. “While the Canadian banks benefitted from broader market strength post-Q4 results, we believe that valuations remain attractive with a 0.3 turn discount to historical levels. Given our view that the banks are largely positioned to deliver accelerating growth beyond H1/24, we remain constructive on the space. In the current context, we prefer RY, BMO, and TD.”
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Ahead of the start of first-quarter earnings season for Canadian banks later this month, CIBC World Markets analyst Paul Holden made a series of target price adjustments.
“Earnings are expected to face downward pressures in the first half of F2024 and the timing of a potential turnaround won’t take place until the back half of the year or perhaps F2025 once more dovish central bank policy starts to take hold,” he said. “Key themes this quarter are funding costs, credit risk, regulatory capital and expense management. In terms of credit risk, the spotlight will be most focused on commercial real estate (CRE) where we expect lower appraisal values will drive a need for higher credit provisioning. Management teams at the banks are expecting credit provisioning to peak this year, and we will be looking for clues to timing of this occurrence; our current expectation is for this to take place in FQ2.”
His changes include:
- Bank of Montreal (BMO-T, “neutral”) to $126 from $117. The average target on the Street is $136.11.
- Bank of Nova Scotia (BNS-T, “neutral”) to $63 from $58. Average: $65.48.
- Canadian Western Bank (CWB-T, “neutral”) to $34 from $32. Average: $34.60.
- Laurentian Bank of Canada (LB-T, “neutral”) to $33 from $32. Average: $29.20.
- National Bank of Canada (NA-T, “outperformer”) to $108 from $102. Average: $103.60.
- Royal Bank of Canada (RY-T, “neutral”) to $141 from $128. Average: $139.58.
- Toronto Dominion Bank (TD-T, “neutral”) to $88 from $84. Average: $89.98.
“Bank stocks have rallied 9 per cent since the last time we published this preview, largely based on the expectation for a soft landing in the U.S. and lower interest rates,” said Mr. Holden. “The disinflation and rate cut narrative is now quickly losing traction. Also, we still see a number of challenges for the Canadian banks in 2024, and those challenges are expected to be more acute in the first half of the year. We are not sure if stocks will need to re-visit the October lows, which had priced-in a hard landing, but we continue to see a high probability of negative EPS revisions and lower valuation multiples from here. Our view on negative EPS revisions is premised on: i) funding costs putting downward pressure on NIM; ii) potential for higher credit losses related to a soft Canadian economy, commercial real estate and rising business bankruptcies; and iii) soft revenue conditions, including capital markets. We continue to prefer financials with less downside risk (i.e., less cyclical) and hence, recommend underweight banks relative to insurers.
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In response to a landslide at SSR Mining Inc.’s (SSRM-T) Çöpler mine in Turkey that caused operations to be suspended, Scotia Capital analyst Ovais Habib lowered his recommendation for its shares to “sector perform” from “sector outperform” previously.
“As a result, we have adjusted our model to account for 12 months of downtime at Çöpler, although it remains unclear at this time what remedies would need to be taken to restart operations,” he said. “Following these developments at Çöpler and the uncertainty surrounding its outlook, we are downgrading SSRM shares.”
His target dropped to $12 from $22, below the $19 average.
“We remain cautious on SSRM shares in the near term as we seek greater clarity on the social and operational impact of the Çöpler accident,” Mr. Habib added.
Elsewhere, CIBC World Markets’ Cosmos Chiu downgraded SSR to “neutral” from “outperformer” with a US$6 target, down from US$18.50.
“Newly released production guidance for 2024 is likely already obsolete, and the longer-term prospects to 2027 could also be at risk as these were highly dependent on growth assets in Türkiye. Until we get a clearer picture regarding the status of Copler (as well as the company’s broader standing within the country with regulators), we advise investors to take a wait-and-see approach,” said Mr. Chiu.
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Touting its successful turnaround and differentiated product with Microsoft Corp. as a partner, Paradigm Capital analyst Daniel Rosenberg initiated coverage of Sylogist Ltd. (SYZ-T) with a “buy” recommendation on Wednesday.
“Sylogist’s focus on customer-centric service and product development has led to an impressive turnaround,” he said. “The company is expanding its recurring revenue base through strong, profitable organic growth. It has achieved a balanced ‘rule of 40′ profile with organic growth in the mid-teens and 25-per-cent EBITDA margins. Cash flow generation is also picking up as a result of its operating leverage. Valuation remains attractive at 2.7 times 2024 estimated EV/sales, well below the peer average of 5.5x. We see potential for a multiple re-rating as the company continues to scale.”
“Sylogist has invested heavily in its go-to-market strategy. It developed new software from the ground up — a different approach than many incumbents who tend to offer altered versions of their legacy platforms. Further, Sylogist built its products on the Microsoft Dynamics 365 CRM and Business Central platforms, which seamlessly integrate with Microsoft’s suite of business tools. Product leadership has earned Sylogist ‘Gold Partner’ status with Microsoft. This strategic partnership provides access to Microsoft’s extensive partner channels. We expect new channel partnerships in 2024 with benefits to materialize on the top line in 2025.”
Also seeing industry tailwinds and the potential for M&A gains from the acquisition of customer relationships from smaller regional players, Mr. Rosenberg set a target of $12 per share. The current average is $11.
“Restructuring efforts that began in late 2020 are beginning to bear fruit. New leadership, investment in new products and a strengthened partnership with Microsoft have led to meaningful improvement in reputation and customer loyalty,” he said. “Today, Sylogist is a thriving SaaS provider, growing organically in the double digits and profitably, with adjusted EBITDA margins in the mid-20-per-cent range. With a generational infrastructure investment cycle in the U.S. providing tailwinds, Sylogist is well positioned to win significant market share in the fragmented mid-market.”
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In other analyst actions:
* Following the release of its third-quarter 2024 results and ahead of its privatization in mid-March, RBC’s Irene Nattel downgraded Neighbourly Pharmacy Inc. (NBLY-T) to “sector perform” from “outperform” with a $18.50 target to reflect the deal price, dropping from $28 and below the $19.29 average, while Desjardins Securities’ Chris Li also moved his target to $18.50 from $20 with a “hold” recommendation.
“While underlying operations are delivering solid and inline results, higher interest rates and the impact on cadence of M&A and valuation metrics for growth-by-acquisition names result in sharply moderated forecasts, target price,” said Ms. Nattel.
* Seeing “limited downside risk and potential torque with M&A as a market cap size approaches what is palatable for small cap investing,” Stifel’s Justin Keywood raised Oakville, Ont.-based Cipher Pharmaceuticals Inc. (CPH-T) to “buy” from “speculative buy” with a $8 target, up from $4.75. The average is $10.28.
“We have become more comfortable with the steady base business and see greater potential for capital deployment in 24′, including from an M&A pipeline that has doubled in size,” he said. “Markets also remain capital constrained for the size of transactions that Cipher is targeting, implying a window of opportunity for favorable multiples and M&A. At 6 times NTM [next 12-month] EBITDA and strong balance sheet, we see the downside as limited but with greater potential upside.”
* Ahead of the March 14 release of its fourth-quarter results, Desjardins Securities’ Gary Ho bumped his Alaris Equity Partners Income Trust (AD.UN-T) target to $20.50 from $20 with a “buy” rating. The average is $19.92.
“We tweaked our revenue estimates slightly while maintaining our EBITDA estimates,” said Mr. Ho. “AD’s portfolio remains healthy and we believe its larger investments (BCC and Planet Fitness) are both performing well. Lower risk-free rates also benefit FV on its common equity portfolio. We have now baked in a 5-per-cent dividend increase in 2H24.”
* TD Securities’ Brian Morrison raised his Aritzia Inc. (ATZ-T) target by $1 to $45 with a “buy” rating. The average is $37.67.
* Desjardins Securities’ Alexander Leon trimmed his Dream Impact Trust (MPCT.UN-T) target to $7 from $7.75 with a “hold” rating, while while Cormark Securities’ Sairam Srinivas lowered his target to $7 from $11 with a “buy”rating. The average is $8.75.
“MPCT reported 4Q23 operating results after market close on February 12,” Mr. Leon said. “In our view, operating results were largely overshadowed by the announcement that the distribution will be suspended, effective immediately. This was a significant risk that we had identified in our recent initiation report. While the distribution suspension will likely weigh on the trust’s units over the short term, we believe it was a necessary adjustment to support the trust’s longer-term growth objectives.”
* CIBC’s Scott Fletcher cut his Dye & Durham Ltd. (DND-T) target to $21 from $21.50 with an “outperformer” rating. Other changes include: Raymond James’ Stephen Boland to $16 from $15 with an “outperform” rating and Scotia’s Kevin Krishnaratne to $24 from $25 with a “sector outperform” rating. The average is $21.42.
“Although Q2 revenue was in line, Adj. EBITDA was light and FCF much lower than expected, though the latter was mainly due to timing on capex and working capital,” said Mr. Krishnaratne. “We model a step up in FCF in 2H ($57-million vs. essentially flat in 1H) on better top line trends (RE seasonality, pricing optimizations) and cost improvements (lower capex, restructurings/one-time charges). Management continues to pursue multiple opportunities to delever the balance sheet - we model leverage moving below 4.0 times per management’s guidance (we est. 4.2 times by FY24, 3.4 times by FY25).”
* National Bank’s Jaeme Gloyn raised his Goeasy Ltd. (GSY-T) target to $195 from $190 with an “outperform” rating. Other changes include: Cormark Securities’ Jeff Fenwick to $200 from $193 with a “buy” rating and RBC’s Geoffrey Kwan to $195 from $193 with an “outperform” rating. The average is $194.
“GSY reported strong Q4/23 results and released updated guidance (including new 2026 targets) that we think are net positive ... We think an investment in GSY offers investors exposure to a part of the Canadian financial services industry that could generate attractive investment returns over the medium to long term. We view the shares as attractively valued,” said Mr. Kwan.
* TD Securities’ Linda Ezergailis moved her Hydro One Ltd. (H-T) target to $39 from $37, keeping a “hold” rating. Other changes include: Wells Fargo’s Neil Kalton to $40 from $39 with an “equal-weight” rating, RBC’s Maurice Choy to $41 from $37 with a “sector perform” rating and Raymond James’ David Quezada to $41 from $40 with a “market perform” rating. The average is $40.58.
“While we believe some investors were disappointed with the absence of a 2023-2027 EPS guidance upgrade as part of Hydro One’s in-line Q4/23 results release, management commentary suggests that one of the catalysts for an upgrade (i.e., broadband roll-out) remains in place, albeit slightly delayed to potentially later this year. As such, investors are likely to be in a holding pattern until then, recognizing how the stock remains a solid defensive option amid a macro environment that continues to ebb and flow and in spite of Hydro One’s elevated relative stock valuation versus its North American utility peers,” said Mr. Choy.
* RBC’s Geoffrey Kwan raised his Intact Financial Corp. (IFC-T) target to $229 from $228 with a “sector perform” rating. Other changes include: TD Securities’ Mario Mendonca to $235 from $225 with a “buy” rating and Raymond James’ Stephen Boland to $247 from $221 with an “outperform” rating. The average is $227.13.
“Intact reported their 4Q23 results [Tuesday] night,” Mr. Boland said.” Overall, this was a very strong quarter despite the benefit of lower cat losses across property lines. Intact reported NOIPS of $4.22 vs consensus of $3.38 and RJL at $3.75. Performance was strong across most segments, with the exception of UK lines which saw elevated cat losses this quarter. The outlook for 2024 remains largely unchanged, with firm-to-hard market conditions expected across all lines. In a notable positive, UK lines are now expected to deliver a low-90′s combined ratio in 2024, reflecting recent strategic actions taken (e.g. Direct Lines acquisition) and the exit of UKI personal lines. The UK Commercial market could be a focus for Intact over the next 12-24 months, with the company’s relatively low market share (5 per cent) offering plenty of runway for organic expansion and M&A.
“Historically, Intact has been one of the most consistent performers across our coverage, capable of delivering a mid-teens ROE in virtually any market. And with the increasing breath and diversification of the company’s operations, Intact continues to mitigate its exposure to specific regions, illustrated by a 14-per-cent-plus ROE in 2023 despite a near-record year for cat losses here in Canada. As such, we continue to view it as a core holding for any financial services investor.”
* TD Securities’ Sean Steuart cut his Innergex Renewable Energy Inc. (INE-T) to $10 from $12 with a “buy” rating. The average is $13.72.
* Alliance Global Partners’ Aaron Grey bumped his OrganiGram Holdings Inc. (OGI-T) target to $2.70 from $2, below the $3.45 average, with a “neutral” recommendation.
* Scotia’s Kevin Fisk cut his Parex Resources Inc. (PXT-T) target to $28 from $31 with a “sector perform” rating. The average is $34.45.
* BMO’s Devin Dodge raised his Toromont Industries Ltd. (TIH-T) target to $130 from $124 with an “outperform” rating. The average is $127.87.
“We believe TIH has multiple levers available to grow earnings through our forecast period that should more than offset the expected normalization of equipment markups. Moreover, the pick-up in construction equipment bookings bodes well for activity levels and customer sentiment in 2024,” said Mr. Dodge.
David Leeder