Inside the Market’s roundup of some of today’s key analyst actions
Desjardins Securities analyst Brent Stadler has upgraded Algonquin Power & Utilities Corp. (AQN-N, AQN-T) to “hold” from “sell” in the wake of the company’s quarterly results, which overall were a bit better than expected and provided renewed confidence that a sale of its renewables portfolio is nearing.
His price target was also increased to US$5.75 from US$4.75.
“We still believe there are significant risks and uncertainty with the story, but some clarity could arrive shortly,” Mr. Stadler said in a note to clients. “We estimate almost US$2.6 billion of proceeds for the renewables business and ~US$2.1 billion of debt repayment, which could result in ~US$0.4 billion of buybacks. Given the diversity of AQN’s renewables platform and our view of some underperformance in the fleet, we believe the buyer of the renewables platform will likely be strategic, which potentially limits the pool of buyers. AQN remains confident it will complete the renewables transaction at an appropriate valuation, with an announcement expected in the coming months (mid-2024).”
National Bank analyst Rupert Merer, in a separate note, said Algonquin’s renewable assets could fetch a purchase price between $2.2-2.8 billion. Transaction proceeds would be used for deleveraging and buybacks, “which investors should like to see, though the simplification of AQN’s business is likely the bigger selling point,” he said.
Mr. Merer maintained a “sector perform” rating and US$7.25 price target.
AQN delivered adjusted EBITDA of $334 million in the fourth quarter, better than the consensus expectation of $308 million. The strength was driven by small beats in the regulated and renewable segments.
AQN reported adjusted funds from operations of $199 million, beating some analysts’ estimates, while adjusted EPS of $0.16 beat the consensus by 1 cent. With $0.53 of EPS for 2023, AQN fell short of its fiscal year $0.55-0.61 guidance, and AQN has chosen not to give 2024 guidance given the uncertainty surrounding its renewable business, Mr. Merer noted.
Elsewhere, Raymond James’ David Quezada - among the most bullish analysts covering the stock - maintained an “outperform” rating and US$8 price target.
“While the sale of the company’s renewable assets is certainly the more needle-moving item, we believe the underlying business continues to display solid organic growth,” Mr. Quezada commented. “Looking to 2024, the company has $106 mln of new rate filings on deck, led by a $40 mln rate increase request at New York American Water. In addition, management noted that the successful integration of its SAP software platform would also facilitate the recovery of these costs and support AQN’s earned ROE, thereby reducing the regulatory lag associated with this investment. In AQN’s renewable segment, we also note that 300 MW of new projects are currently under construction.”
“We maintain our view that AQN’s transition to a pure play regulated utility with a more solid balance sheet/credit metrics and the potential for share buybacks (all of which would be unlocked by the sale of the renewables business), should prompt a meaningful re-rating in the stock’s valuation; which currently sits at just 12.7x 2024 P/E, a discount to peers at 17.9x on average,” the Raymond James analyst added.
The average price target is now US$7.43, which is up from US$7.29 a month ago, according to Refinitiv Eikon data.
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Raymond James analyst Frederic Bastien upgraded Dexterra Group Inc. (DXT-T) following news it plans to exit its modular construction division. His rating went to “outperform” from “market perform” while his price target went to C$8 from C$7.
“We view an impending sales of Modular Solutions (MS) as unequivocally positive to the extent the segment’s unrelenting struggles have curbed cash flow generation, handicapped valuation and distracted management from the Integrated Facilities Management (IFM) prize,” Mr. Bastien said in a note.
A potential buyer for MS approached Dexterra after a strategic review by the Dexterra’s board and management concluded a sale of the business was the best course of action. “According to management Modular Solutions commands an estimated net asset value of roughly $40 million, which mainly comprises working capital. We are of the view an exit will allow DXT to redirect much needed resources towards the growth of its IFM business—be it organic or inorganic,” Mr. Bastien said.
The Modular Solutions unit spoiled an otherwise solid fourth quarter for the company, the analyst noted.
“Adjusted EBITDA of $13 million for 4Q23 landed below our target of $26 million and the consensus of $25 million, largely due to significant losses at the perennially challenged MS segment. This time around the weakness pertained to rework required on certain social housing projects in the period, as well as a $6 million provision recorded to cover future 2024 remediation. On a positive note, free cash flow for the period was strong at $53 million, allowing DXT to lower its net debt to the tune of $44 million sequentially to $90 million,” he said.
Elsewhere, Atb Capital Markets cut its target price to C$8.25 from C$9.
The average price target is now C$8.04.
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Extendicare Inc. (EXE-T) enjoyed strong EBITDA and margin fundamentals across all its eldercare service divisions in its fourth quarter, Leede Jones Gable analyst Douglas Loe said in reiterating his “buy” rating on the stock. His price target went up to C$8.50 from C$7.25.
“The quarter revealed sequential operating income & margin strength across all eldercare service divisions and doing so without any of the supplemental pandemic-related funding that offset pandemic-related costs” during prior periods,” Mr. Loe said.
He added that Extendicare’s adjusted funds from operations now “comfortably” funds its quarterly dividend.
“Virtually all operating metrics were up sequentially in the quarter, with funding environment in both nursing care and home healthcare expected to improve F2024/25 profitability even further,” he said.
Elsewhere, RBC raised its target price to C$8 from C$7.5 while TD Securities raised its target price to C$7.50 from C$7. The average analyst price target is now C$8, up 75 cents from a month ago.
“On the back of a strong Q4 finish, our outlook on EXE has improved,” said RBC analyst Pammi Bir, who maintained a “sector perform” rating. “Operationally, the business is getting its groove back, as the recoveries in long-term care and ParaMed continue to advance. As well, the strategic transactions with Revera and Axium have reduced its capital needs for Long Term Care redevelopment while expanding the income stream from higher margin management services. In short, we’re encouraged by progress toward a sustained recovery in earnings.”
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At least two analysts raised their price targets on Peyto Exploration & Development Corp (PEY-T) after an earnings beat in the gas producer’s fourth quarter.
BMO raised its price target to C$16.50 from C$14 while Stifel raised its price target to C$16.50 from C$16. The average analyst price target is now C$16.14.
Cash flow of $1.05/share was above the consensus’ estimate of $0.99 on stronger-than-expected realized prices, partially offset by higher operating costs.
BMO analyst Randy Ollenberger, who has a “market perform” rating on the stock, noted that Peyto is maintaining its large hedge position that protects about 70 per cent and 55 per cent of its gas production in 2024 and 2025, respectively. “This should support the sustainability of the company’s dividend and allow for further debt repayment” even in a lower natural gas price environment, he said.
He believes investors are likely to avoid natural gas leveraged companies over the next several quarters due to the prospect of even weaker prices.
Looking further out, “despite the company remaining committed to a robust hedging program, we believe share performance could improve in 2025 as North American natural gas prices strengthen on the back of additional LNG capacity coming online, coupled with Peyto potentially realizing incremental value as it grows its recently acquired Repsol assets,” Mr. Ollenberger said.
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BMO analyst Michael Markidis raised his price target on Minto Apartment REIT (MI-UN-T) to C$19 from C$17 while reiterating an “outperform” rating in the wake of stronger-than-expected fourth quarter results.
He said improvement in the company’s balance sheet Improvement should allow for stronger earnings growth this year.
“We believe 2024 will be characterized by (1) continued strong operational performance, (2) improved earnings growth, and (3) enhanced balance sheet flexibility,” he said.
The average analyst price target is C$20.20, up from C$18.80 a month ago.
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In other analyst actions:
Chartwell Retirement Residences (CSH-UN-T): CIBC raises PT to C$15 from C$14; TD Securities raises price target to C$15 from C$14
Altagas Ltd (ALA-T): TD Securities raises target price to C$34 from C$32
Doman Building Materials Group Ltd (DBM-T): Canaccord Genuity raises price target to C$10 from C$9; Raymond James raises price target to C$10.75 from C$9.75
Ero Copper Corp (ERO-T): Cormark Securities raises target price to C$26.50 from C$23.50
KP Tissue (KPT-T): CIBC cuts target price to C$9 from C$10
Park Lawn Corp (PLC-T): CIBC cuts target price to C$20 from C$21
Taseko Mines Ltd (TKO-T): National Bank of Canada raises PT to C$2.5 from C$2.25
Terrascend Corp (TSND-T): Canaccord Genuity raises target price to C$3.75 from C$3.25
General Electric (GE-N): Jefferies raises target price to $195 from $180
Williams-Sonoma Inc (WSM-N): RBC raises target price to $261 from $165
Darcy Keith