Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial analysts Shane Nagle and Ravi Nizami see lower copper prices driving a “softer EBITDA outlook” for base metals companies in the third quarter and expect the Street’s estimates to decline as earnings season approaches.
“Q3/24 copper prices averaged US$4.23/lb down 5.5 per cent quarter-over-quarter (comparable to previous NBF Estimates of US$4.25/lb),” they said. “The resulting decrease has led to negative provisional pricing adjustments, and lower EBITDA estimates (down 7.5 per cent quarter-over-quarter) across our coverage.”
“Incorporating lower copper prices and accounting for more conservative operating assumptions, our Q3 EBITDA assumptions are currently 7 per cent lower than Consensus across our coverage – we anticipate estimates to come down in the coming weeks ahead of reporting tempering current expectations.”
In a research report released Tuesday, the analysts also warned that “unplanned downtime and ramp-up delays put 2024 guidance at risk for some.”
“Labour action (LUN, TKO), and slower ramp-up assumptions (CS, ERO) have impacted some H2/24 operating assumptions,” they said. “Across our coverage, we are below consolidated production guidance for ERO, above the upper end of cost guidance for CS and at the lower end of production guidance for CS, ERO, LUN, S & TKO potentially leading to guidance revisions alongside Q3 results. ERO is the one company where we see some risks to previous 2025 guidance as we require more clarity on Caraiba grades and Tucuma power availability allowing for unencumbered ramp-up into next year.”
With that cautious view, they adjusted their target prices for a group of stocks:
* Teck Resources Ltd. (TECK.B-T, “outperform”) to $90 from $86. The average is $75.07.
Mr. Nagle: “While Q3 is expected to be impacted by several adjustments related to sale of the coal business, we expect an improvement in QB2 throughput rates towards the end of the quarter driving a more positive view for the quarter. An update on the pace of its ongoing $2.75-billion share buyback and additional growth initiatives will also serve as positive catalysts.”
* Hudbay Minerals Inc. (HBM-T, “outperform”) to $16.75 from $15.50. Average: $15.94.
Mr. Nagle: “While our current Q3 estimate is below Consensus, management has been forthcoming with processing a higher proportion of stockpiles at Constancia in Q3 and elevated grades in Q4. HBM is also the most torqued name to gold prices and when combined with improving gold grades at Lalor, we see one of the most significant jumps in EBITDA into Q4 in our coverage to US$344-million (up 106 per cent).”
* Ero Copper Corp. (ERO-T, “sector perform”) to $31.50 from $33. Average: $36.81.
Mr. Nagle: “While we model an increase in production Q/Q, power availability challenges impacting the ramp-up of Tucuma and increased grade dilution and downtime at Caraiba lead to our lower-than-Consensus forecasts. We also see risks to 2024/2025 consolidated production guidance providing some headwinds for the quarter.”
* Altius Minerals Corp. (ALS-T, “outperform”) to $32.50 (Street high) from $26. Average: $26.93.
* Capstone Copper Corp. (CS-T, “outperform”) to $13.75 from $12.75. Average: $13.54.
* First Quantum Minerals Ltd. (FM-T, “outperform”) to $21 from $22. Average: $20.46.
* Sherritt International Corp. (S-T, “sector perform”) to 35 cents from 50 cents. Average: 65 cents.
* Solaris Resources Inc. (SLS-T, “outperform”) to $8.50 from $9. Average: $12.46.
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Citi analyst Stephen Trent thinks Air Canada (AC-T) “looks well positioned to getting back to making money” following the ratification of a labour agreement with its pilots and “excess competing capacity seems to be exiting the Canadian aviation market” with the bankruptcy announcement from Canada Jetlines Operations Ltd.
In a research note titled The Stars Seem To Be Aligning For Higher Valuation Altitudes, Mr. Trent also thinks “potentially lower interest rates might at least provide some valuation support.”
“Citi estimates that Air Canada’s disagreement with its pilots resulted in $400-milllion in lost 2H’24E revenue, as the carrier had preemptively cancelled some flights, while some of its customers probably rebooked their trips with other airlines,” he said. “However, following last month’s tentative agreement, Air Canada’s rank-and-file pilots subsequently ratified this agreement this past week, with 67 per cent voting in favor of the contract that would apparently add $1.9-billion in value for its members, through its September 2027 expiration. We estimate that this agreement adds 1.5 points-worth of ex-fuel CASM [cost per available seat mile] growth next year.”
“Forecast adjustments for Air Canada include the incorporation of (A) reduced ‘24E/’25E available seat mile or ASM growth, (B) higher, ‘25E passenger yield growth and (C) higher, pilots’ agreement-driven, ex-fuel cost per available seat mile or CASM, ex-fuel into our model. (Passenger yield, the airline industry’s price point, measures the amount of ticket revenue per passenger mile flown). Although Citi’s 2025E EPS for Air Canada declines slightly, we increase our ‘25E P/E target multiple from ̴7 to 8 times, which considers what would likely have been even stronger earnings growth, had it not been for the carrier’s recent dispute with its pilots.”
Reiterating a “buy” rating for Air Canada shares, the analyst raised his target by $1 to $21. The current average is $22.27.
“We rate Air Canada Buy, which is based on strong global potential for a continued recovery in international long-haul passenger revenue, and what looks to be a stock price dip,” he said. “Although the carrier’s margins seem unlikely to catch those of several of its southern peers, this carrier has the most international long-haul exposure among Citi’s Americas Airline coverage.”
Elsewhere, Scotia Capital’s Konark Gupta raised his Air Canada target to $24 from $22 with a “sector outperform” rating.
“We are growing more bullish on AC after its pilots ratified a new four-year contract that expires on September 29, 2027,” he said. “The contract appears to be costlier than we had anticipated, slightly weighing on our margin outlook, but the silver lining is that a strike was averted and now management can focus on strategic priorities to create shareholder value. Although the stock has already bounced off the lows as the tentative deal was announced on September 15, we believe the valuation multiple, which remains compressed vs. history and U.S. comps, is due for further re-rating as AC potentially updates its long-term plans over the next few quarters. We may have to tweak our model based on such plans, however, today we are making necessary adjustments to reflect: (1) RASM [revenue per available seat mile] impact from labour risk between late August and early October, (2) CASM impact of the pilot contract, and (3) the recent pullback in jet fuel prices. Our target increases to $24 (was $22), driven by a modest expansion in our multiple to 3.7 times (was 3.5 times) and valuation roll-forward to 2026 (was mid-2026) as our 2025-2026 EBITDA estimates are broadly intact while our net debt estimates have increased slightly. “
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“Stepping aside given still elevated commodity volatility,” BMO Capital Markets analyst Tamy Chen downgraded Saputo Inc. (SAP-T) to “market perform” from “outperform” previously.
“We believe it is now difficult to see a clean, consistent and material upward trajectory in earnings due to a cumulation of recent negative developments,” she said. “For us to become favourable, we need to see if/when SAP can materially lessen its exposure to dairy commodities. More branded sales are critical; but our sense is this will likely take some time. Heading into earnings, we believe FQ2/25 (reporting November 7) may be a miss.”
In a report released Tuesday, Ms. Chen said she previously expected a recovery in south of the border and “a normalization of significant dairy commodity volatility.” However, several factors have provided obstacles to a reversal.
“Although the U.S. is benefitting from the Global Strategic Plan, another segment (Argentina) is now experiencing commodity/FX driven headwinds, which adds new noise and uncertainty into the stock,” she said. “Although the U.S. cheese block price has rallied recently, so has the barrel while the cheese-milk spread worsened (both are negative for SAP). In the last two weeks, we saw a rapid swing the other way, a positive sign, but the big moves suggest U.S. dairy commodity volatility remains elevated.
“We believe Street forecasts set a tough watermark considering the still elevated volatility in dairy commodities. We feel our projections capture all the positives unfolding at SAP (primarily the Global Strategic Plan and better milk pricing in Australia) while assuming a gradual recovery in the uncontrollable commodity/macro variables, but our estimates are below Street (our F2025 EPS is $1.52 vs. Street’s $1.73 and our F2026 EPS is $1.92 vs. Street’s $2.18).”
Now finding it “difficult to see a clean, consistent and material upward trajectory in earnings,” Ms. Chen cut her target for Saputo shares to $30 from $35. The average on the Street is $34.56.
“For us to become favourable, we need to see if/when SAP can materially lessen its exposure to dairy commodities,” she concluded. “More branded sales are critical; our sense is this will likely take some time.”
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After a pricing survey found competition “remains rational,” Desjardins Securities analyst Chris Li believes Dollarama Inc. (DOL-T) is “maintaining its compelling value proposition.”
“Our findings are consistent with management’s expectation for normalizing SSSG [same-store sales growth] (solid traffic partly offset by moderating basket),” he said. “While DOL’s premium valuation increases share price volatility, our positive view reflects relative outperformance given its strong earnings visibility against a challenging consumer backdrop, confidence in Dollarcity’s long-term growth and FCF conversion potential.”
Mr. Li compared 345 items across 11 categories at Dollarama stories in Toronto against competitors Walmart (WMT-N) and Amazon (AMZN-T). He said his findings are “consistent” with past surveys and support his third-quarter fiscal 2025 same-store sales growth forecast of 3.0 per cent, down from 4.7 per cent in the second quarter and 11.3 per cent during the same period a year ago. That projection falls in line with the consensus on the Street.
“We believe DOL’s convenience, compelling value and breadth of product offering should support continuing solid traffic trends, partly offset by moderating basket size from lapping price increases and softness in certain discretionary categories,” he said. “Compelling price gap, especially in consumables, should support SSSG. On a priceper-unit basis, we estimate DOL is more than 30 per cent lower than WMT and AMZN (more than 40 per cent excluding food).”
“Halloween price points are compelling (more than 40 per cent lower than WMT) but the demand picture is less clear given potential softness in discretionary spending. The pace of unit price inflation continues to moderate across all product categories. We estimate unit price inflation is trending at 2 per cent during 3Q FY25 vs last year, largely in line with recent quarters.”
Maintaining his “buy” rating and “positive long-term view,” Mr. Li raised his target to $147 from $143. The average on the Street is $142.45.
“While our target offers limited return potential, our positive view reflects relative outperformance in the near term given DOL’s strong earnings visibility against a challenging consumer backdrop, share buybacks (active in the $134–137 level per recent filings) and growth optionality from Dollarcity,” he said.
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Calling it “the SMid-Cap growth leader,” Scotia Capital analyst Kevin Fisk initiated coverage of Athabasca Oil Corp. (ATH-T) with a “sector outperform” rating on Tuesday.
“Our thesis and recommendation are based on (1) capital-efficient growth that maximizes the value of ATH’s substantial reserves; (2) strong forecast FCFPS growth due to ATH’s growth plans and the allocation of all free cash flow toward buybacks; and (3) a solid balance sheet (net cash) that improves sustainability at low commodity prices,” he said. “These factors make ATH attractive in the current commodity environment, while the company’s torque to oil prices provides upside from stronger prices.”
Seeing its valuation as “reasonable,” Mr. Fisk said its trading multiples reflect its growth profile.
“On strip, ATH’s 2025 estimated EV/DACF [enterprise value to debt-adjusted cash flow] of 4.8 times is higher than the company’s SMid-Cap peers, with an average multiple of 4.0 times,” he said. “ATH trades at a discount to its Large Cap peers, which have an average EV/DACF multiple of 6.2 times. ATH’s 2025 DAFCF yield of 7 per cent is lower than the SMid-Cap and Large Cap peers at 10 per cent and 9 per cemt, respectively, due to its higher growth spending. Looking at ATH’s sustaining DAFCF yield illustrates that the company’s valuation is in line with peers once the growth capex is removed. ATH’s 2025 sustaining DAFCF yield of 14 per cent is similar to the SMid-Cap and Large Cap averages of 14 per cent and 11 per cent, respectively. In our view, ATH’s premium trading multiples/yields largely reflect the company’s projected production growth. However, ATH’s outperformance of the last 12 months has also contributed to the company’s premium multiples.”
He set a target of $6.50 per share, exceeding the average on the Street of $6.31.
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The “longevity” of Superior Plus Corp.’s (SPB-T) dividend will be in focus when it reports third-quarter results, according to TD Cowen analyst Aaron MacNeil.
“Superior’s dividend yield is among the highest on the TSX, with investors that we speak to questioning its appropriateness in light of other capital allocation priorities and current leverage,” he said. “While we believe that the dividend is technically sustainable, a Q3/24 dividend cut is in the realm of possibilities, in our view, although more likely to occur with 2025 guidance. However, we believe that management remains committed to its total allocation to shareholder return initiatives, and that any reduction to the dividend would be offset by share buybacks.”
With modest changes to his 2024 and 2025 earnings expectations and the introduction of his 2026 forecast, Mr. MacNeil trimmed his target for Superior Plus shares by $1 to $9 based on “a reduced longterm growth outlook for Certarus.”
“Superior continues to lack near-term positive catalysts, in our view, as it continues to defer on disclosing specific targets for its Propane business optimization efforts and as Certarus fundamentals remain weak,” he said. “In our view, the dividend is sustainable but lacks rationale in the context of other capital allocation priorities. We are maintaining our BUY rating, but reducing our target price.”
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In other analyst actions:
* Citing “brand heat, China and margin concerns,” Wells Fargo’s Ike Boruchow downgraded Canada Goose Holdings (GOOS-T) to “underweight” from “equal weight” on Monday and cut his target to $12 from $16, below the $17 average.
He said the luxury clothing maker’s over-exposure in China, mainly as part of its direct-to-consumer expansion, puts it in a difficult spot with the country’s stimulus measures likely taking time to flow through to consumer spending.
He also sees it continuing to battle high inventory levels, forcing it to discount more, and faces decreased demand from its core high-margin heavy-wear products and is in the midst of shift towards lighter wear.
* Pointing to an “improved growth outlook,” CIBC’s Stephanie Price upgraded CGI Inc. (GIB.A-T) to “outperformer” from “neutral” with a $178 target, up from $155. The average target on the Street is $165.57.
“We view CGI as a well-run, defensive name in the current environment,” she said. “CGI is well positioned in the resilient government vertical, with upside from AI opportunities and M&A. CGI has solid FCF generation and a focus on shareholder return through buybacks and its recently announced $0.15 quarterly cash dividend initiation.”
* Seeing a “growth deceleration,” CIBC’s Todd Coupland downgraded Verticalscope Holdings Inc. (FORA-T) to “neutral” from “outperformer” with a $9 target, down from $12 and below the $13.67 average.
“A deceleration in web traffic across the digital advertising websites we track, in addition to slowing growth across the digital advertising space, have prompted us to reduce our multiple and revenue forecast for the second half of 2024,” he said.
* Canaccord Genuity’s Zachary Weisbrod initiated coverage of MCAN Mortgage Corp. (MKP-T) with a “buy” rating an $19 target. The average is $18.
“Our investment thesis is based on the attractive dividend yield with a conservative payout ratio, a growing loan balance with high exposure to residential mortgages, and access to low cost-of-capital funding from term deposits,” he said.
* In a quarterly preview for engineering and construction companies, Canaccord Genuity’s Yuri Lynk raised his targets for AtkinsRéalis Group Inc. (ATRL-T, “buy”) to $70 from $65, Stantec Inc. (STN-T, “hold”) to $125 from $120 and WSP Global Inc. (WSP-T, “buy”) to $275 from $260. He lowered his target for North American Construction Group Ltd. (NOA-T, “buy”) to $30 from $34. The averages on the Street are $68.09, $127.50, $260.31 and $41.33, respectively.
“Macro still supportive: Non-residential construction put-in-place spending, analogous to work-in-progress payments for the entire U.S. construction industry, increased by a double-digit percentage rate in July and August in manufacturing, sewage & waste disposal, water supply, and power. The highway and street segment had mid-single-digit growth,” said Mr. Lynk.
* National Bank Financial’s Cameron Doerksen raised his target for shares of Exchange Income Corp. (EIF-T) to $61 from $60, keeping an “outperform” recommendation. The average on the Street is $64.94, according to LSEG data.
* National Bank Financial’s Rupert Merer raised his Hammond Power Solutions Inc. (HPS.A-T) target to $175 from $170 with an “outperform” rating. The average is $168.
“We have updated estimates for Q3E, for a stronger CAD (a small headwind with about 25 per cent of revenue generated in Canada) and to capture the impact of a higher share price,” he said. “The share price has an impact on EPS through share-based compensation (we remove this in our adj EPS calculation). Our revenue forecast for Q3E drops to $195-million (was $199-million, consensus $199-million) and our adj EBITDA drops to $33.5-million (was $34.0-million, cons $32.7-million). Our EPS forecast drops to $1.24/sh (was $1.59/sh cons $1.65/sh), largely on stock-based comp, but our adj EPS is relatively unchanged at $1.79/sh (was $1.82/sh).”
* Calling its third-quarter results “reasonable given an EBITDA beat and low valuation” and saying his “positivity is slightly tempered by light same-store sales growth and negative unit growth,” National Bank’s Vishal Shreedhar raised his MTY Food Group Inc. (MTY-T) target to $57 from $54 with an “outperform” rating. The average is $56.
“We believe valuation at 7.3 times our NTM [next 12-month] EBITDA vs. the 5-year average of 9.5 times is attractive,” he said. “In addition, the FCF yield of 10-per-cent-plus is also supportive.
“We value MTY at 8.0 times our F25/F26 EBITDA. The higher price target reflects higher estimates.”
