Thursday Analyst Ups and Downs

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Inside the market roundup of some of today’s analysts’ key stocks

After a “very challenging” 2022, RBC Dominion Securities analyst Drew McReynolds predicts that rising macroeconomic concerns and higher interest rates will continue to “negatively affect” the performance of Canadian media stocks.

“Until there is more visibility on whether a soft or hard landing scenario emerges, we expect the group to remain under pressure,” he said.

Thomson Reuters Corp. (TRI-N, TRI-T) was the only company in its coverage universe to end with a positive total return over the past 12 months, up 13 percent. The rest of the companies returned less than 3 percent of the total return of the S&P/TSX Composite.

“We attribute the widespread pullback primarily to the emergence of an advertising recession in Canada beginning in the second half of 2020 driven by supply chain disruption and inflation, recession concerns, and the impact of higher interest rates on valuations,” Mr. McReynolds said. “With few places to hide in this environment, Thomson Reuters, WildBrain (flat), Transcontinental (down 20 percent) and Stingray (down 21 percent) have proven to be the most resilient in relative terms within our coverage. The hardest-hit stocks in this environment in terms of TTM are media technology stocks VerticalScope (down 69 percent) and Enthusiast Gaming (down 66 percent) due to significant exposure to digital advertising and e-commerce.”

With RBC forecasting a “mild” recession in 2023, Mc. McReynolds’ investment strategy leans toward “defensive and/or oversold in most macro/interest rate scenarios.”

“While there are few places to hide in an economic slowdown or full-blown recession, we see some interesting opportunities at current levels where we expect earnings to prove more resilient versus what is currently valued in stocks, or where we believe that the stock has shot too low in most economic scenarios and therefore appears to be mispriced,” he said. “For VerticalScope, we continue to view current levels as largely ‘point to point’. ” with shares trading at a 6.2x EV/EBITDA multiple on FTM [forward 12-month] EBITDA of $29 million vs. what we believe on a normalized basis (ie, absent cyclical headwinds) would be a multiple of 12.0-15.0 times and FTM EBITDA of $40-million-$50 million. We see the retracement in Boat Rocker at 4.5x FTM EV/EBITDA as overstated, particularly given that independent content company pairs are trading at an average of 8.7x and what should be relatively resilient content and distribution revenue. For Cineplex, with a valuation of 7.6x FTM EV/EBITDA and a further normalization of the box office in 2023, we see current levels as an attractive and timely entry point.”

McReynolds continued to “see value at current levels,” cut its cineplex inc (CGX-T) target to $12 from $13 with an “outperform” rating, due to reductions in its support and EBITDA margin assumption. The street average is $12.21.

“We believe Cineplex earnings visibility is steadily improving after a 2-year period of major industry disruption,” he said. “Specifically, we are encouraged by: (i) the prospect of a full year of normal operations in 2023; (ii) early indications that consumer demand and the effectiveness of an evolving theatrical release window remain largely intact relative to pre-COVID-19 trajectories; (iii) management’s expectation of returning to pre-COVID-19 consolidated EBITDA margin levels; and (iv) a balance sheet that should strengthen given adjusted EBITDA growth and full debt repayment along with continued support from lenders. We believe current levels provide an attractive and timely entry point reflecting: (i) 2023E EV/EBITDA 7.6x multiple vs. Cinemark at 7.7x and a pre-COVID-19 FTM EV/EBITDA range of 7.5–10.5 times; (ii) sequential box office improvement in 2023 after a still choppy box office in 2022; and (iii) the general resilience of the theatrical exhibition as an out-of-home entertainment option during slower economic environments.

believing Thomson Reuters Corp. (TRI-N, TRI-T) offers “both growth and defensive attributes,” it raised its target for its shares to $125 from $116 with an “outperform” rating. The average target on the street is US$118.24.

“We view Thomson Reuters as a high-quality core holding company with both growth and defensive attributes,” said Mr. McReynolds. “We believe the company has the ability to deliver average annual total returns of approximately 10 to 15 percent over the long term and has entered a new phase of 8 to 12 percent annual dividend growth supported by an increase in FCF. Post-Change generation starting in 2023. While we see more limited near-term upside potential in stocks given current valuation (FTM EV/EBITDA of 19.8x vs. a recent historical range of 14-23x ) against the backdrop of mounting macroeconomic headwinds in 2023 and, consequently, a likely downgrade of the outlook for 2023, we believe that stocks at current levels can still generate long-term double-digit annual total returns reflecting a mix of assets resilient, we forecast a CAGR of 12% of NAV [net asset value compound annual growth rate (2022-2025) and attractive capital return program.”


Heading into fourth-quarter earnings season in the Canadian technology sector, National Bank Financial’s Richard Tse and John Shao see “potential downside bias” for commentary around financial guidance for the year ahead.

In a research report released Thursday, the equity analysts also predicted more companies will undertake restructuring (particularly some of the more recent IPOs) as they pivot their narratives towards profitable (more disciplined capital allocation) growth.”

“We expect balance sheets for some companies to be the focus of investor attention given the challenging macro backdrop with limited (attractive) financing potential,” they said.

The analysts pointed to five companies with potential upside from the Q4 results: Coveo Solutions Inc. (CVO-T); Kinaxis Inc. (KXS-T); Nuvei Corp. (NVEI-T); Shopify Inc. (SHOP-T) and Tecsys Inc. (TCS-T)

Stocks with potential downside risk are: E Inc. (EINC-T); Farmers Edge Inc. (FDGE-T); Q4 Inc. (QFOR-T) and Real Matters Inc. (REAL-T).

Mr. Tse made a series of target price adjustments to stocks in his coverage universe. His changes are:

* Altus Group Ltd. (AIF-T, “outperform”) to $65 from $60. Average: $63.75.

Analyst: “In the short term, we see some risk to the stock given the Tax headwinds noted above. We view any weakness in the stock care of those headwinds would be an opportunity to wade in given the continued execution on the bigger valuation driving segment, AA. We also see potential option value from a move to incorporate more automation into the Company’s Property Tax segment.”

* Constellation Software Inc. (CSU-T, “outperform”) to $2,750 from $2,350. Average: $2,472.61.

Analyst: “We continue to like CSU for its defensive attributes (recurring revenue and cash flow) and heightened growth profile given the accelerated pace of capital deployment. We reiterate our Outperform rating on CSU with a revised price target of C$2,750 (was C$2,350) to reflect an increase in capital deployment capacity.”

* Farmers Edge Inc. (FDGE-T, “sector perform”) to 25 cents from 30 cents. Average: $1.28.

Analyst: “All in, a lack of execution coupled with an overhaul of the entire executive management (C-Suite) team and a high burn rate with a weakening balance sheet has us sticking to the sidelines. We see considerable risk here.”

* MDF Commerce Inc. (MDF-T, “sector perform”) to $4 from $3. Average: $4.45.

Analyst: “Short term, we see potential for a slowdown in government procurement (given the current economic backdrop) could weigh (negatively) on Periscope’s transaction-based revenue (33 per cent of Periscope’s total revenue) in the short term. Longer term, we continue to believe that acquisition has potential to re-rate the stock (upwards) given the possible consolidation play in a disparate market.”

* Q4 Inc. (QFOR-T, “outperform”) to $3.50 from $5. Average: $4.33.

Analyst: “We see risk to Q4′s upcoming FQ4 results in light of the soft capital markets backdrop … While we continue to like the name, particularly in light of the current valuation, we’ve become increasingly cautious.”

* Real Matters Inc. (REAL-T, “sector perform”) to $5 from $6. Average: $5.57.

Analyst: “While we continue to see long-term potential in REAL (particularly given its continued market share gains) given its unique platform which supports some of the most prominent lenders in North America, we believe the stock will likely mark time given a challenging outlook for both origination and re-fi volumes.”

* Telus International Inc. (TIXT-N/TIXT-T, “outperform”) to US$38 from US$50. Average: US$26.55.

Analyst: “We continue to see Telus International as a high quality large cap service name in our coverage universe. While the market backdrop may provide for some short-term challenges, we continue to believe the Company is on an outsized growth trajectory.”


Raymond James analyst Frederic Bastien and Bryan Fast see their Infrastructure & Construction (I&C) coverage universe “entering a possible recession (or soft landing) in generally good shape.”

That optimism comes after an “underwhelming” performance in 2022, which saw 12 of the 18 stocks they cover, which also includes select property services providers, “faring much worse than the TSX.”

“The year was a tale of two halves,” they said. “1H22 saw valuation concerns cause multiple compression across sectors, and inflation hit labour intensive businesses (DXT, FSV) particularly hard. Engineering consultancies (STN, WSP) also suffered early in the year, but then firmed up when it became clear the growing demand for essential manufacturing, reliable energy and resilient value chains will keep them busy well into the future. 2H22 performance was more positive, as most firms under coverage generate very little business from the I&C segments most vulnerable to elevated interest rates, including residential and commercial. What the rapid pace of rate increases did, however, is drag the price discovery battles between buyers and sellers of commercial real estate, and lure yield-seeking investors away from real assets. This explains why BEP, BIP and CIGI were big outliers during the period. Another one was ARE, which cautioned that four legacy fixed-price projects were at risk of incurring additional costs.”

For 2023, the analysts think the group has “diversified their revenue streams by discipline, end-market and geography, and many can count on stronger balance sheets to see them through tougher times. Moreover, weaker links are no longer part of the equation due to takeovers, bankruptcies or research coverage realignment, which partly justifies the positive bias behind our stock recommendations.”

“We offer high-conviction ideas for each of the I&C sub-groups: FSV, STN, FTT, BDT and BDI,” they said. “FirstService is entering the year fresh off acquisitions and with structural advantages in the highly-fragmented market for restoration and mitigation work, while Stantec is riding strong tailwinds and yet trades at a reasonable valuation. Finning is coming off an impressive year and should maintain momentum supported by key end markets. On the small-cap side, we selected Bird Construction because of its strong financial position, record backlog, and improved risk profile. Last, Black Diamond Group, a radically transformed small-cap stock is deploying rental assets into receptive end-markets, and capitalizing on inflation.”

The analysts raised targets for these seven stocks:

  • Alta Equipment Group Inc. (ALTG-N, “outperform”) to US$19 from US$17. The average is US$20.75.
  • Finning International Inc. (FTT-T, “outperform”) to $42 from $39. Average: $40.63.
  • FirstService Corp. (FSV-Q/FSV-T, “outperform”) to US$165 from US$160. Average: US$144.38.
  • North American Construction Group Ltd. (NOA-T, “outperform”) to $24 from $22. Average: $23.20.
  • SNC Lavalin Group Inc. (SNC-T, “outperform”) to $36 from $33. Average: $35.75.
  • Stantec Inc. (STN-T, “strong buy”) to $90 from $80. Average: $77.27.
  • WSP Global Inc. (WSP-T, “outperform”) to $205 from $190. Average: $181.36.

Conversely, they cut targets for their “most interest-sensitive names.” They are:

  • Brookfield Renewable Partners LP (BEP-N/BEP.UN-T, “outperform”) to US$37 from US$42. Average: US$38.82.
  • Brookfield Infrastructure Partners LP (BIP-N/BIP.UN-T, “outperform”) to US$45 from US$47. Average: US$42.97.
  • Colliers International Group Inc. (CIGI-Q/CIGI-T, “strong buy”) to US$150 from US$160. Average: US$134.86.


CIBC World Markets analyst Hamir Patel upgraded a trio of stocks in his coverage universe on Thursday.

* Canfor Corp. (CFP-T) to “outperformer” from “neutral” with a $29 target, up from $25. The average is $31.50.

* Interfor Corp. (IFP-T) to “outperformer” from “neutral” with a $31 target, up from $27. Average: $35.33.

* West Fraser Timber Co. Ltd. (WFG-T) to “outperformer” from “neutral” with a $130 target, up from $120. Average: $132.


Credit Suisse analyst Andrew Kuske raised his target prices for a group of Canadian utility stocks on Thursday.

“As partly outlined in our Canadian Infrastructure 2023 Outlook and related Global Infrastructure Outlook works, we increased our preference for the Utilities subsector to the second (of three) spots in the Canadian coverage universe with several underpinning,” he said. “One of the critical factors revolves around the interest rate dynamics with short-end rates projected to move higher before declining in H2 2023 across many developed markets. In addition, the current term structure in Canada and the US is that of an inverted yield curve (some further and more up to date commentary on these factors appears in a recent West Fraser Timber note – Upgrade to Outperform (from Neutral); Views on Value with Highlighted Headwinds). In general, these factors are historically positive for Utility performance – a sector that already faces several thematic positives amidst a rather jittery market with levels of economic and market uncertainty. With that backdrop, this report provides thoughts into the Q4 results season along with rolling our targets onto 2024 anchors.”

His changes are:

  • Atco Ltd. (ACO.X-T, “neutral”) to $51 from $48. The average is $49.07.
  • Canadian Utilities Ltd. (CU-T, “neutral”) to $40.50 from $38.50. Average: $37.81.
  • Emera Inc. (EMA-T, “neutral”) to $55 from $54. Average: $58.60.
  • Fortis Inc. (FTS-T, “neutral”) to $61 from $57. Average: $57.38.
  • Hydro One Ltd. (H-T, “neutral”) to $40 from $36. Average: $37.04.


Following the release of “solid” fourth-quarter financial results, Desjardins Securities analyst Gary Ho sees “several catalysts on the horizon for AGF Management Ltd. (AGF.B-T).

Before the bell on Wednesday, the Toronto-based firm reported earnings per share of 35 cents, excluding $2.5-million in severance costs. That exceeded both Mr. Ho’s 27-cent estimate and the 28-cent forecast from the Street.

“Strong net sales of $251-million (vs our $226-million), outperforming the industry’s net redemptions of $28-billion,” said Mr. Ho. “Momentum continued into 1Q, with $62-million retail net inflows quarter-to-date (led by global equities and fixed income); this bodes well for the upcoming RRSP season.

“Stellar three-year fund performance of 30 per cent (vs 40-per-cent target) [is] a testament to AGF’s disciplined investment approach.”

Saying that he “is in favor of AGF’s 2023 setup,” the analyst added: “We foresee some positive catalysts in the short to medium term: (1) retail net flows trending at or above industry; (2) redistribution of capital for organic growth, to seed new private alternative strategies and for share buybacks, (3) growth in fees/earnings from its private alternative platform, (4) potential dividend increase with 1Q23 results, and (5) ) prohibition of DSC that benefits FCF and EPS”.

Maintaining a ‘buy’ recommendation on AGF shares, Mr. Ho raised his target to $10 from $9.25. The average is $9.46.

Elsewhere, seeing a “more balanced risk-reward profile”, RBC’s Geoffrey Kwan upgraded AGF to “sector underperform” from “underperform” and raised its target to $9.50 from $7.50.

“Q4 ’22 results were good with retail net sales above our forecast and normalized EPS a penny ahead of our forecast and consensus,” he said. “Despite industry net bailouts, AGF’s net sales performance has been more resilient than we expected. Additionally, the overall return on investment is good compared to peers based on 1-year quartiles. While we remain a bit cautious on our near-term outlook for our asset manager coverage, we see the risk-reward profile as more balanced and upgrade the stock accordingly.”

Others that make destination changes are:

* Scotia’s Phil Hardie at $9.25 from $8.5 with an “industry performance” rating.

“Our key view of AGF’s fourth-quarter results is that they demonstrated strong operating momentum despite a challenging environment, which we believe will position it well to accelerate earnings and AUM growth when market conditions improve,” he said. . “In that context, AGF remains one of the top ‘Beta Play’ ideas when markets hit an inflection point to support a sustained rally.”

“AGF shares have staged a significant rally in recent months and are now trading above their historical average, likely reflecting strong operating momentum and built-in optionality related to redeploying excess capital. Stocks continue to trade at a deep discount to peers and offer an attractive 5 percent dividend yield, but we remain on the sidelines given the challenging and uncertain market outlook.”

* CIBC’s Nik Priebe at $9 from $8 with a “neutral” rating.

*BMO’s Tom MacKinnon at $9.50 from $8.50 with a “market performance” rating.

* Barclays John Aiken from $8 to $9 with an “equal weight” rating.


In other analyst actions:

* CIBC Cosmos Chiu Updated Oceana Gold Corp. (OGC-T) to “upper” from “neutral” with a target of $4, above $3 and above the $3.47 average.

* Mr. Chiu demoted Dundee Precious Metals Inc. (DPM-T) to “neutral” from “upper” with a target of $10, below the $11.94 average.

* Ike Boruchow of Wells Fargo cut his Canada Goose Holdings Inc. (GOOS-N, GOOS-T) Target $35 from $30 with an “Overweight” recommendation. The average is US$20.19.

“After the positive feedback from BRBY, CFR and UHR outside of China, the question of ‘How to touch the theme of reopening China?‘ has continued to appear. We mark NKE/TPR as the most exposed to the region, with GOOS/FTCH as the least appreciated China plays,” he said.

* CIBC’s Kevin Chiang raised his goal for Parkland Fuel Corporation (PKI-T) to $44 from $43, maintaining an “outperformer” rating. The average is $39.36.

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