Inside the Market’s roundup of some of today’s key analyst actions
Heading into earnings season for Canadian media companies, RBC Dominion Securities Drew McReynolds sees “few places to hide in any tariff-induced economic downturn or recession with valuation risks re-emerging.”
“Admittedly, tariff-induced uncertainty including a constantly changing U.S. tariff regime has not only reduced earnings visibility within our diversified media coverage to exceptionally low levels, but has left us somewhat paralyzed with respect to stock recommendations and conviction levels,” he said. “As 2025 progresses, we would not be surprised to see advertising spend soften considerably given how tariff-induced uncertainty is likely to weigh on advertisers and advertising budgets. Should North America enter a recession in 2025-2026, we see the potential for downward earnings revisions for most companies in our diversified media coverage where from a stock and valuation perspective there are few places to hide. Provided a less uncertain and more workable global trade regime begins to emerge sooner rather than later with the North American economy finding a firmer footing, we continue to recommend riding out the current volatility in the higher-quality names with respect to earnings resilience and/or balance sheets and FCF.”
In a research report released Tuesday, Mr. McReynolds emphasized “a broader slowdown in advertising is likely already in the works,” which is a stark contrast to the period surrounding the previous earnings season that featured signs of an improving environment.
“For the majority of companies in our diversified media coverage, most of the tariff impact is indirect in the form of a more challenging operating environment with respect to a likely slowdown in economic growth and/or higher inflation – the two exceptions are Spin Master and Transcontinental,” he said.
“In Q1/25, we expect most of the companies in our diversified media coverage with advertising exposure to have benefited earlier in the quarter from a recovery in advertising spend that began in earnest in Q3/24 and continued through Q4/24. However, we would not be surprised if advertising spend softened considerably exiting the quarter and is deteriorating in Q2/25. With Q1/25 results not reflecting full direct and/or indirect impact of tariffs, clearly the focus this quarter across all companies in our coverage will be management commentary on the Q2/25 outlook including recent conversations with advertisers and advertising pacing. Within the Canadian advertising market, we expect relative strength in digital advertising (versus traditional advertising such as television, radio, print, outdoor and theatrical exhibition), albeit with digital advertising clearly susceptible to renewed programmatic CPM pressure and a broader pullback in category spend. ”
Mr. McReynolds made four target price adjustments to stocks in the industry. They are:
* Spin Master Corp. (TOY-T, “outperform”) to $32 from $41. Average: $36.57.
Analyst: “The implementation of a fluid U.S. tariff regime (particularly with China) has meaningfully dampened earnings visibility with both direct (tariff) and indirect (macro) impacts still to be determined. While it is not yet entirely clear to us whether the 30-per-cent decline in the stock yearto-date adequately reflects these impacts given still fluid economic and geopolitical dynamics, our current working assumptions are: (i) the current tariff regime will have meaningful direct and indirect impacts on Spin Master earnings, the magnitude of which we expect to be reflected in updated 2025 guidance that management will provide with Q1/25 results; (ii) using a normalized 6-7 times FTM [forward 12-month] EV/EBITDA multiple and EBITDA inclusive of content and development costs, current share price levels in the low-to-mid $20s appear to imply a 15-per-cent to 30-per-cent reduction in FTM EBITDA versus our current forecast, which we deem as not unreasonable given the company’s exposure to China and the rising risks of a broader U.S./global economic slowdown; and (iii) on an underlying basis, the company remains well-positioned within the global toy industry in 2025/2026 given innovation leadership, a solid IP pipeline, a robust toyetic release slate, licensing momentum (Ms. Rachel), renewed growth in Digital Games and further M&D international expansion – alongside a strong balance sheet (0.5-1.0 times), solid FCF generation and active capital return program (dividends, share repurchases). “
* Stingray Group Inc. (RAY.A-T, “outperform”) to $12 from $11. Average: $11.50.
Analyst: “Against the backdrop of a continuously evolving global music and video landscape, we believe management continues to execute on identifying and capitalizing on new revenue growth opportunities that include retail media, FAST channels, SVOD and in-car entertainment. While macro uncertainty could increasingly weigh on advertising and become a headwind, we believe these opportunities in aggregate have enhanced the company’s revenue visibility heading into F2026. We expect this improved growth and risk profile combined with mid-30-per-cent adjusted EBITDA margins and 60-per-cent EBITDA-to-FCF conversion to translate to steady NAV growth driving further upside in the shares.”
* Thomson Reuters Corp. (TRI-N/TRI-T, “sector perform”) to US$182 from US$177. The average on the Street is US$177.56, according to LSEG data.
Analyst: “At current valuation (FTM [forward 12-month] EV/EBITDA of 27.6 times), we believe the bar to deliver mid-to-high single digit consolidated organic revenue growth has risen with the organic revenue growth trajectory through 2025–2026 now taking centre stage. While we remain patient for more timely and/or attractive accumulation points, we continue to view Thomson Reuters as a core holding within our coverage underpinned by accelerating organic revenue growth, highly resilient earnings, a strong balance sheet and healthy FCF generation and capital returns. We believe current valuation levels (i.e., more than 25 times FTM EV/EBITDA) are fundamentally justified provided that: (i) management now meets or exceeds a 7–8-per-cent organic revenue growth trajectory by 2026 without meaningful changes to the company’s current margin, capex, and FCF conversion profile; and (ii) solid execution on the GenAI playbook continues with little change to the current GenAI narrative including perceived opportunities and risks.”
* VerticalScope Holdings Inc. (FORA-T, “outperform”) to $9 from $10. Average: $8.88.
Analyst: “Consistent with our mid-2020s content inflection period , we believe Verticals cope is well positioned to benefit from what is now rising demand for authentic content in a proliferating GenAI-driven content environment that will necessitate much more sophisticated personalization. While earnings will not be immune to renewed macro headwinds as 2025 progresses and the most recent Google algorithm update represents an obvious step back for MAU growth in the near-term, we continue to believe new initiatives (products, features, formats, AI enhancements), accretive tuck-in M&A and a still highly profitable and FCF generative business model can drive attractive returns for shareholders at current share price levels.”
Mr. McReynolds’s “best ideas” are currently Cineplex Inc. (CGX-T, “outperform” and $13 target) and Transcontinental Inc. (TCL.A-T, “outperform” and $24 target).
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Scotia Capital analyst Divya Goyal is taking a bearish stance on North American technology services companies heading into earnings season.
“Considering the ongoing macro uncertainty, we expect to see a weak growth/bookings momentum across our coverage esp. consulting and digital engineering sectors which are closely aligned with growth and new initiatives across global enterprises,” she said.
Mr. Goyal lowered targets for stocks in her coverage universe. They include:
- Alithya Group Inc. (ALYA-T, “sector perform”) to $2.50 from $2. The average is $2.61.
- CGI Inc. (GIB.A-T, “sector outperform”) to $175 from $185. Average: $173.29.
- Telus International Inc. (TIXT-N/TIXT-T, “sector perform”) to US$3 from US$5. Average: US$4.43
“While we have kept our long-term (12-month) ratings unchanged, in the near-term, we take a Neutral stance on Kyndryl (KD) and CGI (GIB.A) given the managed services offerings across both businesses which will help offset the impact on the Consulting businesses,“ she explained. ”We are, however, Negative on EPAM (EPAM), Globant (GLOB) and TELUS Digital (TIXT) given the discretionary nature of the business offerings across these companies. We also remain Negative on Alithya (ALYA) in the near-term given the size, scale and partly discretionary nature of its business offerings which could drive potential weakness in bookings momentum as clients scale back new engagements given ongoing global uncertainty, a sentiment similar to H2/23 and F24.
“Considering the current business momentum and ongoing market sentiment, we have revised some of our price targets revaluing the companies in line with their current valuation and peer comparable. Though the DX players look attractive at current valuations, we expect the ongoing macro uncertainty to result in sustained volatility across these stocks over the next few quarters, hence recommend investor caution across these stocks in the near-term.”
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National Bank Financial analyst Matt Kornack joined his peers in launching coverage of SmartStop Self Storage REIT (SMA-N) with a bullish stance, touting a “deep discount for positively inflecting growth story” and the potential for further expansion into Canada.
The California-based REIT raised approximately US$932-milllion through its initial public offering earlier this month, which is one of the biggest New York flotations this year. It currently owns 220 operating properties in 23 states, the District of Columbia, and Canada, comprising approximately 157,200 units and 17.7 million rentable square feet.
“Our Outperform rating is largely based on the deep discount implied with IPO/current trading pricing, as the deal came at a steep concession to intrinsic value evidenced by a high implied cap rate relative to U.S. and Canadian peers,” said Mr. Kornack. “The IPO had positive structural benefits including a fortified balance sheet (and lower cost of financing) while allowing the REIT to scale its portfolio, driving near-term earnings growth in excess of U.S. peers. Nonetheless, this is an execution story and while management has a track record of scaling portfolios, the macro environment is volatile (albeit storage has some counter-cyclical properties). We are implying a discount to NAV in our target as investors likely gravitate toward larger and more liquid names.”
After launching coverage, Mr. Kornack touted SmartStop’s geographically diversified portfolio with “unique” exposure to Canada, which he thinks has “room to grow.”
“SmartStop primarily operates new generation assets in top 25 MSAs, older assets in secondary/tertiary markets where it dominates, as well as a material exposure in the GTA, where a portion of its portfolio was recently built,” he said. “The latter is unique to the publicly traded U.S. self-storage REITs. SMA’s exposure to the Western U.S. is a plus from a fundamentals’ standpoint whereas the Canadian portfolio is well positioned to outperform in a more uncertain macro backdrop – we think the medium-term potential here is strong.“
“Canada is undersupplied compared to higher storage penetration in the U.S. Relative benefits in Canada include lower interest rates and higher barriers to entry, plus a more urban population base combined with a less institutionalized and competitive existing property stock. Canada is undersupplied compared to higher storage penetration in the U.S. Relative benefits in Canada include lower interest rates and higher barriers to entry, plus a more urban population base combined with a less institutionalized and competitive existing property stock.”
Also emphasizing the REIT’s “high growth, scalable platform with runway for further acquisitions” and “self-storage skews defensive during dislocations,” Mr. Kornack set a target of US$39 per unit, believing its initial IPO pricing sat at a “material” discount to net asset value.
“Initial pricing was at a mid-13 times multiple as the IPO priced at the low-to-mid point of the range,” he explained. “Currently, SmartStop trades at a 2026E P/FFO multiple of 15.1 times vs. 16.0 times for the U.S. storage sector, and a 6.8-per-cent implied cap rate vs. 5.9 per cent for the U.S. peers. The lower valuation provides relative downside protection during the current volatile economic backdrop but is reflective of structural/execution-oriented risks.”
Other firms giving SmartStop a buy-equivalent rating include BMO, Scotia, Raymond James, Wells Fargo, KeyBanc, Truist and J.P. Morgan.
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Scotia Capital analyst Jonathan Goldman views ATS Corp. (ATS-T) as a “core long-term holding” as a result of being a “direct beneficiary of the long-term trend towards automation.”
“An inflection in 3Q results and strong order bookings (TTM [trailing 12-month] book-to-bill 1.18 times) provides good visibility on a better sales trajectory in F26,” he said. “But, larger orders are causing a disconnect between backlog and revenue conversion. We expect a slower cadence to drive lower SG&A leverage than modeled by the Street and have margins returning to 15 per cent exiting F26, three quarters after the Street. We sit 10-15 per cent below for F1Q-F3Q. A slower margin recovery and elevated working capital due to the EV customer dispute will delay deleveraging and keep M&A on pause in the near-term, prerequisites for a re-rate, in our view. While the stock has pulled back, expectations are still high per our below-consensus estimates, and we think revisions represent a catalyst to the downside.”
On Tuesday, Mr. Goldman resumed coverage of the Cambridge, Ont.-based manufacturer with a “hold” rating, predicting a slower than previously anticipated recovery in margins.
“Backlog conversion is running at the low end of the historical range (35-40 per cent), which we attribute to several large orders that have longer revenue recognition cycles,” he said. “The disconnect between backlog and near-term sales trajectory suggests a more moderate revenue ramp and corresponding SG&A leverage than that modeled by the Street. We also believe consensus is overstating D&A expense, which is leading to artificially inflated margins. We forecast EBITDA margins returning to normalized levels of 15 per cent by 4QF26, three quarters later than the Street.
“Leverage higher for longer. Working capital remains elevated due to the disputed EV customer receivable of $340 million. Combined with a slower margin recovery, we expect FCF to be held back and leverage to remain above the target range of 2 to 3 times through at least F26, keeping the M&A growth strategy on hold for the time being.”
Believing its current valuation “seems appropriate,” he set a one-year target of $43 per share. The average is $49.
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TD Cowen analyst Derick Ma initiated coverage of a pair of copper companies with “buy” recommendations on Tuesday:
* Arizona Sonoran Copper Co. Inc. (ASCU-T) and $4.25 target. Average: $3.82.
“Cactus is a copper development project in Arizona with a pathway to potentially deliver first production by 2029,” he said. “Given its scale, low capacity and state-level permitting, Cactus is a very attractive standalone asset or as a potential acquisition target for mid-tier copper producers, in our view.”
* Faraday Copper Corp. (FDY-T) with a $1.25 target. Average: $1.45.
“Faraday benefits from having solid shareholder support (Lundin Family, among others, a strong management team, and large property with exploration potential,” he said.
“The potential addition of incremental open-pit material in the upcoming H2/25 PEA study [for its Copper Creek resource] could significantly improve near-term project economics. There is also exploration optionality, which could enhance the future scale and scope of the project. ”
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Desjardins Securities analyst Benoit Poirier sees “buoyant prospects ahead” for Kraken Robotics Inc. (PNG-X) following the release of in-line fourth-quarter 2024 financial results and 2025 guidance, pointing to a growing sales pipeline that is poised to more than double to close to $2-billion amid “significant” growth in its SeaPower subsea battery business increased interest in its ThunderFish XL Autonomous Underwater Vehicle (XL-AUV).
“While 2025 guidance has a slightly wider target range (vs last year), management is confident that if it successfully closes some booking opportunities, it will be able to hit the top end of the range,” he said. “Another element that caught our attention was that Kraken indicated that it is now targeting to secure an additional XL-AUV customer (incremental to Anduril) before year-end. XL-AUVs are significantly more accretive from a volume standpoint as they generally take 50–60 batteries, generating $10-million plus per unit in revenue for Kraken. Using Kraken’s investor presentation as a reference, some of the potential XL-AUV customers could be Boeing, Naval Group, Kongsberg and BAE Systems, to name a few.“
Before the bell on Monday, the St. John’s-based subsea intelligence provider reported quarterly revenue of $28.1-million, exceeding Mr. Poirier’s $27.89-million estimate and up 44 per cent sequentially. Adjusted earnings per share of 1 cent matched both his forecast and the result from the third quarter.
“Looking ahead, Kraken expects capex/intangibles investment of $13–17-million in 2025 (vs $4–5-million last year), within range of our forecast of $16.7-million but higher than consensus of $10.8-million (we would not read too much into this as the facility was wellcommunicated by management),” he said. “Despite this year-over-year bump in capex (mainly driven by the new Nova Scotia facility ($10-million) as well as additional investments in the 3D acquisition and two additional KATFISH units for the service fleet), Kraken expects FCF of $15-million, which is above our previous forecast of $9-million and consensus of $8-million as a result of positive working capital reversals (due to the Canadian Navy RMDS contract assets to be unwound and contract elements). Overall, when including the 2Q cash outflow for the 3D acquisition ($23-million), we now forecast Kraken ending the year with a well-capitalized balance sheet and net leverage ratio of negative 1.0 times ($30-million net cash position), helped by $16-million of FCF.”
After raising his revenue and earnings expectations through 2027, Mr. Poirier bumped his target for Kraken shares to $4 from $3.60, reaffirming a “buy” recommendation. The average is $3.39.
“We now forecast total revenue of $128-million in 2025, driven by $49-million from battery (German facility basically maxed out), $21-million from KATFISH (we estimate three units), $17-million from SAS/sonar (almost doubling revenue vs 2024) and $42-million of service revenue,” he said. “We view the potential new non-Anduril XL-AUV customer as a positive catalyst for the story as it would be incremental to consensus while also lowering concentration risk.”
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Desjardins Securities analyst Gary Ho is expecting to see continued book value per unit growth when Alaris Equity Partners Income Trust (AD.UN-T) reports first-quarter results on May 8.
“We forecast sequential BVPU growth to $24.44, driven by a healthy portfolio (consolidated ECR of 1.5 times at 4Q) plus a positive FV gain from a lower discount rate. Our 1Q revenue estimate is in line with guidance. We are encouraged to see steady repurchases and anticipate a similar pace of buybacks for the remainder of 2025.”
“We expect: (1) revenue from partners of $42.1-million (vs guidance of $42.5-million), or $45.6-million after including FV gains of $3.5-million; (2) annual SG&A of $18.6-million (in line with guidance of $18.5-million); and (3) a 1Q payout of 66 per cent (run-rate guidance of 55‒60 per cent).”
After adjusting his valuation methodology for the Calgary-based company, Mr. Ho increased his target by $1 to $25, maintaining a “buy” recommendation. The average is $25.90.
“Our investment thesis: (1) AD’s diverse portfolio is well-positioned to weather an economic downturn; (2) foray into managing third-party capital adds another revenue stream; (3) strong balance sheet supports continued pace of deployment; (4) healthy sub-70-per-cent payout ratio; and (5) attractively valued at 0.79 times P/BV, with a 7.1-per-cent distribution yield,” he concluded.
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In other analyst actions:
* CIBC’s Hamir Patel cut his targets for Chemtrade Logistics Income Fund (CHE.UN-T) to $10.50 from $13 with a “neutral” rating and Methanex Corp. (MEOH-Q, MX-T) to US$47 from US$55 with an “outperformer” recommendation. The averages on the Street are $14.25 and US$49.90, respectively.
“Heading into Q1 earnings season, we are making only modest estimate revisions for the four names under coverage (CHE, MEOH, MOS and NTR),” he said. “Our preferred name in the group is Nutrien. We also rate Methanex Outperformer. We remain Neutral on Mosaic given more conservative phosphate pricing assumptions than the Street. We also remain on the sidelines on Chemtrade.”
* Scotia’s Jonathan Goldman lowered his targets for Linamar Corp. (LNR-T) to $61 from $73 and Magna International Inc. (MGA-N/MG-T) to US$38 from US$45 with “sector perform” ratings for both. The averages are $63.67 and US$42.27, respectively.
“If our experience was any indication, we would not be surprised to see our coverage withdraw guidance given the nearly infinite range of outcomes,“ he said. ”Regardless of how and when tariffs actually play out, the outlook is incrementally negative. The pull forward of demand in March and April will be a headwind to volumes in subsequent months, while uncertainty has sapped consumer confidence (historical correlation to SAAR 0.65). Tariffs could add anywhere from $4,000 to $10,000 to the cost of a car by some estimates, but it seems that for now, OEMs are more inclined to manage inventories rather than augment discounts. NA LVP decreased 4.5 per cent in 1Q25 and is on track for a 2.9-per-cent decline in 2Q per Wards. Besides lower LVP, we expect supplier margins to come under additional pressure due to production schedule volatility. NA supplier shares are down nearly 15 per cent on average year-to-date, while valuations have compressed 10 per cent (approximately 0.5 times). Everything has a price, but given the lack of visibility and increasing odds of a slow-growth environment, we’re still not there yet.”
