Inside the Market’s roundup of some of today’s key analyst actions
While investors gave a resoundingly positive response to Aecon Group Inc.’s (ARE-T) fourth-quarter 2023 earnings release on Wednesday, sending its shares soaring 11.8 per cent, National Bank Financial analyst Maxim Sytchev remains “on the sidelines,” seeing a better risk-adjusted reward elsewhere.
“We were reluctant to imagine a more positive skew, but the shares moved faster than we believe fundamentals or more precisely probabilities suggest,” he said in a research note. “We have three large projects (and 1 large arbitration) that need to be completed and while it’s perfectly possible that none of them present any negative surprises, we are not willing to underwrite that possibility at the moment. Increased accounting complexity also makes the tractability of clean / economic interest performance more convoluted. When stripping out lease payments (and divestitures), FCF generation amounted to $-19-million in 2023 (we feel zero attention is being ascribed to that).”
The Toronto-based company reported revenue of $1.13-billion, down 7 per cent year-over-year and below both Mr. Sytchev’s $1.215-billion estimate and the consensus projection of $1.215-billion as contributions from its Construction segment fell 10 per cent. However, consolidated adjusted EBITDA of $70.2-million topped expectations ($51.5-million and $62.9-million, respectively).
Moving forward, Mr. Sytchev said “all eyes [are] on a (potential) FCF inflection” and sees a priority on “de-risking the pro-forma business.”
“Fixed-price portfolio still a concern, but the company is making progress,” he said. “At $420-million, these projects are now less than 7 per cent of the company’s total backlog, with the majority attributed to Gordie Howe (CGL is expected to enter arbitration later this year). While any potential cost recoveries remain uncertain and further delays are certainly possible, the (slower-than-hoped-for) process of closing out these contracts is consistently moving in the right direction. Management estimates that pro-forma EBITDA margins excluding these problematic contracts stands at 9.6 per cent - implying over $370-million on an annual basis; while we do not think ARE will reach this level of underlying EBITDA in the near term, the figure serves as a benchmark of what a cleaned-up operation could deliver in the long term. Slogging through the remainder of legacy projects remains, however, a risk.
“Strategically, management sees Aecon’s business mix continuing to shift from traditional civil work to the more attractive electrical, nuclear and utilities markets (sustained double-digit growth in the latter segment is possible, despite some Q4/23 softness from utilities and telecoms). CapEx is expected to be roughly stable year-over-year, and management is open to tuck-in acquisitions to accelerate growth plans; in the Concessions space, smaller-scale airports have been identified as potential targets.”
Reducing his working capital “drags” and gross profit losses in 2024 due to a “slightly better” cash flow performance in the quarter, Mr. Sytchev hiked his target for Aecon shares to $15 from $10.50, reiterating a “sector perform” recommendation. The average target on the Street is $16.94.
“We anticipate flat growth in 2024 and slightly positive FCF but are still cautious about the company’s margin performance related to the remaining fixed-price projects, hence keeping it at the 4-per-cent range vs. 5-6 it was pre pandemic,” he said. “We also adjusted for the Oaktree PIK interest preferred shares to accrue at 12 per cent per annum adding to the outstanding balance, which is treated as Debt in our NAV.”
Other analysts making changes include:
* Desjardins Securities’ Benoit Poirier to $20 from $16 with a “buy” rating.
“We are pleased with the EBITDA beat (underscoring the improvement of the base business), stronger-than-expected cash inflow (net leverage of 0.0 times is a key milestone), dividend increase and sequential reduction in the problematic backlog,” he said. “We believe ARE now has the balance sheet in place to weather future legacy storms, and our new target price implies an attractive potential return for investors despite our conservative stance on future writedowns.”
“In our view, ARE’s current depressed valuation and the potential return represent a good entry point for longer-term investors with a slightly elevated risk appetite. We also note that ARE has been a takeout candidate in the past.”
* ATB Capital Markets’ Chris Murray to $19.50 from $15.25 with an “outperform” rating.
“Management reiterated a constructive outlook for 2024 and announced a small increase in the quarterly dividend, with the step-down in leverage levels providing the Company with significant flexibility entering 2024. While legacy projects represent a headwind in 2024, we remain positive on improving underlying margin trends and view the Company as well-positioned to benefit from current levels of demand in core segments, particularly as it partners with Oaktree (Private, NR) to expand its infrastructure franchise, but acknowledge that equity values are highly sensitive to post legacy project (i.e., 2025) margin expectations,” said Mr. Murray.
* Stifel’s Ian Gillies to $16.50 from $13 with a “hold” rating.
“Aecon’s core business is performing well as evidenced by the 10.9-per-cent EBITDA margin generated in 4Q23,” said Mr. Gillies. “We still think project write-downs and arbitration settlements could provide negative surprises in future quarters, but the worst would seem to be behind the company. This view is further enhanced by an improved balance sheet with net debt forecast to be $215-million exiting 2024 (prior: $438-million).”
* Raymond James’ Frederic Bastien to $16 from $14 with a “market perform” rating.
“We stick to our Market Perform rating on Aecon Group after the firm limited the bleeding on its legacy fixed-price projects in 4Q23 and beat consensus expectations for the period. We are well aware ARE’s nuclear refurbishment and utility contracting services are enjoying strong momentum, and that its balance sheet is now flush with cash post strategic transactions. Still, challenges in ring-fencing the BIG 4′s losses are proving to hard for us to gain confidence in outperformance at present,” said Mr. Bastien.
* RBC’s Sabahat Khan to $13 from $10 with a “sector perform” rating.
“While there has been progress on the financial performance, we are maintaining a cautious view over the near-to-medium term due to risks and uncertainties associated Aecon’s four legacy fixed-price contracts,” said Mr. Khan.
* BMO’s Devin Dodge to $17.50 from $14.50 with an “outperform” rating.
“While there continue to be risks associated with the completion of its legacy fixed-price projects, we believe Q4/23 results provided further evidence that the darkest days are in the rear-view mirror,” said Mr. Dodge. “Meanwhile, the rest of the Construction division is performing well, the balance sheet is in great shape and the company has attractive growth opportunities in domestic and international markets.”
* Canaccord Genuity’s Yuri Lynk to $26 from $14 with a “buy” rating.
* CIBC’s Jacob Bout to $21 from $18 with an “outperformer” rating.
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RBC Dominion Securities analyst Paul Treiber predicts Descartes Systems Group Inc.’s (DSGX-Q, DSG-T) valuation may re-rate higher with its “strengthening” organic growth is sustained above historical averages.
“Q4 [2023] constant currency organic growth was 9.0-9.5 per cent, up from 8.5 per cent in Q3 and in line with the 9.3 per cent in our model,” he said. “Q4 is the second consecutive quarter of sequential improvement in organic growth. While Q4 organic growth was just in line with our expectations, Q1 baseline implies organic growth further strengthens to 10 per cent, which is the highest level in 18 months and above the 8 per cent in our prior model. Following Q4, our FY25 organic growth estimates increase slightly to 9 per cent, up from 8 per cent previously and 8 per cent in FY24.”
On Wednesday after the bell, the Waterloo, Ont.-based software-as-a-service solutions provider reported revenue for the quarter of US$148-million, up 18 per cent year-over-year and in line with both Mr. Treiber’s US$149-million estimate and the consensus projection of US$147-million. Adjusted EBITDA of US$66-million was highly than the US$65-million forecast from both the analyst and Street as growth of 19 per cent topped the firm’s long-term target of 10-15 per cent per year. Normalized GAAP earnings per share of 40 US cents also exceeded expectations (38 US cents and 37 US cents, respectively).
Emphasizing “solid” cash flow, an acceleration in its backlog growth and seeing its recent acquisitions, including GreenMile, NetCHB, and XPS, “performing better-than-expected,” Mr. Treiber expects M&A actvity to accelerate this year.
“Management expects a strong pace of M&A in 2024, given the favourable environment, with a large number of companies available for sale,” he said. “Net cash reached an all-time high of $314-million Q4 and we forecast Descartes to generate $229-million FCF over the next 12 months. Management sees M&A as the sole use of cash in the foreseeable future. We estimate every $200-million deployed on acquisitions is 8-per-cent accretive to EPS.”
Mr. Treiber increased his target for Descartes shares to US$110 from US$100 with an “outperform” rating. The average is US$93.60.
“Descartes is trading at 26 times FTM [forward 12-month] EV/EBITDA, below supply chain & fleet management peers (37 times),” he said. “Our Outperform thesis reflects the continued compounding of capital through acquisitions and organic growth. We are rolling our valuation from CY24 to CY25.”
Elsewhere, other changes include:
* Scotia’s Kevin Krishnaratne to US$100 from US$95 with a “sector outperform” rating.
“Descartes delivered a slight acceleration in organic growth at 10 per cent vs. 9 per cent in Q3, despite a challenged environment for industry freight volumes given the strength and diversity of the company’s Logistics and SCM software solutions portfolio,” he said. “We continue to view the firm as resilient due to the diversification of its model, noting that it has done well during prior periods of industry weakness (2008, 2020). We expect that the breadth of its solutions and position as a leader in the supply chain and logistics space can help it continue to outperform. While we acknowledge the robust valuation at 10.0 times CY25 Sales, DSGX trades more attractively on EBITDA at 22.5 times CY25 vs. Logistics/SCM peers 28.4 times. Meanwhile, we like what looks like more consistent organic growth in the high-single-digits (target has been mid-single-digits) along with increased potential for upside from M&A.”
* BMO’s Thanos Moschopoulos to US$94 from US$88 with a “market perform” rating.
“We remain Market Perform on DSGX and have raised our estimates and target price following Q4/24 results, which demonstrated a slight q/q uptick in organic services growth, helped by a good demand backdrop for the company’s solutions,” he said. “We think DSGX can continue to execute successfully on its strategy of delivering consistent EBITDA growth (the sustained strength in organic growth provides incremental comfort in that regard), but on a relative basis prefer other consolidators in our coverage universe.”
* CIBC’s Stephanie Price to US$95 from US$85 with a “neutral” rating.
* Raymond James’ Steven Li to US$94 from US$84 with a “market perform” rating.
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Echelon Partners analyst Rob Goff thinks “strong demand and financial execution [have brought] significant deleveraging while building investor confidence” for Converge Technology Solutions Corp. (CTS-T)
Before the bell on Wednesday, the Toronto-based company reported revenue of $651.1-million for its fourth quarter of fiscal 2023, falling short of the estimates of both Mr. Goff ($718-million) and the Street ($709-million). However, EBITDA of $46.5-million came in higher than anticipated ($45-million and $46-million, respectively).
“Delivering Q4 results to guidance and above peer performance levels supports positive revaluation considerations where CTS despite its 80-per-cent six-month recovery remains discounted to slower growth peers,” said the analyst. “The introduction of Q124 together with 2024 guidance should increase confidence while nudging the consensus EBITDA forecast upwards. We are particularly impressed with the full-year EBITDA guidance in a year where CTS is investing in seasoned talent to strengthen its sales and technical capabilities.”
Mr. Goff expressed “higher confidence” in Converge, raising his projections for both fiscal 2024 and 2025. He predicts the firm’s focus will be “moving to gross profits where accounting requirements swing product sales about freight delivery language within contract.”
“CTS noted efforts to further improve working capital management where the easing of supply constraints allows it to carry reduced inventory levels (aka more in line with pre pandemic levels),” he said. “Furthermore, changes to commission structures taking effect by July 1st are expected to improve A/R cycles. CTS looks for integration efficiencies to offset its moves to hire sales and talent. The outlook calls for continued strong services growth following on the 20 per cent recorded for the quarter while the product sales declined of 3.3 per cent on the quarter should see H224 growth aided by the roll out of a Windows upgrade cycle. We note CTS services growth compares with 6.2 per cent and negative 1 per cent for Softchoice (SFTC-TSX, not rated) and CDW (CDW-NASDAQ, NR) on their most recent quarters. Management revised its prior FCF from Operations target of 70-per-cent conversion to 75 per cent with the quarter. The 5-per-cent swing would represent roughly $10-million or $0.05 per share annually.”
Reiterating a “sector perform” recommendation for Converge shares, Mr. Goff increased his target to $6.25 from $5.80. The average is $6.14.
“While working its way out of the show me category, we consider CTS shares to be significantly undervalued at 6.3 times/5.7 times 2024/25 EV/EBITDA while offering an FCF yield of 16 per cent/17 per cent,” he said. “We note the median 2024/25 EV/EBITDA valuations for its U.S. and European peers at 11.2 times/10.2 times and 10.4 times/7.6 times, respectively.”
Elsewhere, others adjustments include:
* Desjardins Securities’ Jerome Dubreuil to $7 from $6 with a “buy” rating.
“CTS reported decent results in an overall challenging IT market —which deserves credit, in our view, since the company was previously perceived to have high exposure to macroeconomic headwinds. On the call, management confirmed that M&A was not around the corner despite the company’s rapid deleveraging, which signals that it is still seeing material organic growth opportunities. We see CTS’s improving cash flow management and better earnings visibility derisking the stock.
* Eight Capital’s Christian Sgro to $9 from $7 with a “buy” rating.
“The financials and outlook support our view that Converge’s historical, aggressive consolidation strategy has translated into above-industry organic performance. Converge acquired decades of technical experience with important geographic coverage, now unified under a leading end-to-end offering and full suite of capabilities. Continued execution on cash generation and de-leveraging through the year will unlock shareholder value, in our view, as the valuation discount to peers narrows,” said Mr. Sgro.
* Raymond James’ Steven Li to $6.50 from $5.50 with an “outperform” rating.
“Management’s confidence in driving stronger FCF conversion, expanding margin from efficiency, and accelerating investments in organic growth are clearly positive developments for the story and should further support the stock price, despite the softness in the German business,” said Mr. Li.
* CIBC’s Stephanie Price to $5 from $4.50, keeping a “neutral” rating.
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In response to stronger-than-anticipated 2024 guidance, Desjardins Securities analyst Gary Ho raised his earnings expectations for the next two years from Ag Growth International Inc. (AFN-T).
“AFN reported an in-line 4Q driven by robust 19.3-per-cent margin, offset by softer revenue,” he said. “Management introduced better-than-expected 2024 guidance (vs consensus) of $310-million-plus, with sustained margin at 19.0 per cent; based on the last two years’ track record, we believe there may be some conservatism built in. Solid deleveraging (expected leverage of 2.5 times) gives AFN optionality to invest in organic growth, starting in India.
In a research report released Thursday titled Harvesting the fruits of margin expansion and sowing the seeds of organic growth, Mr. Ho said he upside to the Winnipeg-based company’s guidance for the current fiscal year, seeing “a gradual ramp-up through the year (2H stronger vs 1H)”
“AFN delivered EBITDA 13‒17 per cent higher vs its original guidance in 2022 and 2023,” he said. “We increased our 2024 EBITDA [estimate] to $318-million (was $310-million).”
Keeping a “buy” recommendation, Mr. Ho increased his target for Ag Growth shares to $85 from $82. The average is $77.69.
“AFN is entering a new era with three key areas of focus — profitable organic growth, operational excellence and balance sheet discipline,” he concluded. “Our positive investment thesis is predicated on: (1) broad-based growth across segments and regions; (2) margin expansion through operational excellence; (3) deleveraging; and (4) a step-up in organic growth through product transfers/other initiatives.”
Other changes include:
* Scotia’s Michael Doumet to $88 from $83 with a “sector outperform” rating.
“First and foremost, AFN is a story of enhanced execution,” he said. “Previously a loose combination of acquired businesses, in the last couple of years, management has integrated functions, improved manufacturing efficiencies, and coordinated an organic push across its geographies. The outcome of this heavy lift has been much higher profitability. There is still more to do — and more to gain, in our view.
“In 2023, EBITDA margins stepped up sizably and, in our view, will stabilize (or build higher) as revenue growth re-accelerates. The bulk of the re-acceleration is being driven by (i) company-specific initiatives and (ii) secular dynamics in International. To us, the 2024 EBITDA guide should clear the deck in terms of investor concerns that profits may moderate in 2024 as the ag cycle softens. Instead, we believe investors should view AFN has having reached a tipping point, where margin improvement, higher FCF, and lower leverage free up capital to pursue market-beating growth — such that AFN can become a double-digit organic compounder. Contrasting that view with its discounted trading multiple (6.5 times EV/EBITDA on our 2024; 30-per-cent discount to historicals) highlights the upside opportunity in the shares.”
* National Bank’s Maxim Sytchev to $82 from $75 with an “outperform” rating.
“Amid news of Deere forecasting revenue to be down 10 per cent in 2024 and USDA seeing a 26-per-cent reduction in farm incomes, AFN’s guide should be perceived in a more favourable light, as a result,” said Mr. Sytchev. “We are also pleased to see the company’s trajectory when it comes to margin improvements while the path towards a $2-billion top line is being achieved via organic investments; we continue to believe that AFN is structurally undervalued.”
* Raymond James’ Steve Hansen to $72 from $64 with an “outperform” rating.
“We are increasing our target price on Ag Growth International based upon: 1) the company’s solid 4Q23 print; 2) rapidly improving India demand fundamentals; & 3) sustained strategic progress (organic growth, product transfers, deleveraging). We have also rolled our valuation forward to 2025,” said Mr. Hansen.
* ATB Capital Markets’ Tim Monachello to $85 from $81 with an “outperform” rating.
“Overall, we believe AFN is uniquely positioned over the coming years with a strategy that has 1) driven strong organic growth (AFN has grown revenue by 15 per cent per year since 2020), 2) driven sustainable margin expansion (AFN believes it has achieved 200bps of structural margin improvement with more to come), and 3) has delivered meaningful deleveraging alongside operational diversification (international to grow revenue contribution to 40-45 per cent by H2/24e). We believe this improving operational position is dislocated from AFN’s valuation that continues to trade below its historical trading range,” he said.
* RBC’s Andrew Wong to $80 from $75 with an “outperform” rating.
* CIBC’s Jacob Bout to $82 from $78 with an “outperformer” rating.
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Eight Capital analyst Ty Collin sees shares of cannabis retailer Vext Science Inc. (VEXT-CN) as “cheap on both an absolute and relative basis” and thinks the market is failing to account for its “significant growth opportunity” in Ohio, which is market he expects will more than double in size when adult-use sales begin in the third quarter of 2024.
Accordingly, he initiated coverage of the Phoenix-based multi-state operator with a “buy” recommendation on Thursday.
“VEXT is a vertically integrated U.S. cannabis company with a concentrated presence in Arizona and Ohio,” he said. “It also has unique exposure to the emerging medical market in Kentucky. Though smaller than other MSOs in our coverage, VEXT has higher leverage to key growth markets, and a lean, focused operating structure that drives industry-leading cash flow generation. While size is often associated with safety, Vext boasts a uniquely sturdy balance sheet, with no near-term debt maturities, no material tax payables, and almost none of the onerous sale-leasebacks that weigh on most of its peers. Together, these features make Vext a particularly attractive potential acquisition target, especially in a scenario where cannabis is rescheduled to Schedule III (as we expect) and MSOs look to deploy their tax savings towards growth.”
Mr. Collin set a target of 75 cents per share. The average is 73 cents.
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In other analyst actions:
* Raymond James’ Michael Glenn raised CCL Industries Inc. (CCL.B-T) to “outperform” from “market perform” and increased his target to $78 from $74. Elsewhere, TD Securities’ Sean Steuart initiated coverage with a “buy” rating and $84 target. The average target on the Street is $80.73.
“When CCL reported 4Q results on Feb 22, the company provided an outlook that we characterized as among the most favourable we have heard for some time,” Mr. Glenn said. “During our presentation with CEO Geoff Martin at Raymond James 45th Annual Institutional Investors Conference, this outlook messaging was strongly reinforced, and it is clearly drawing attention from investors. With that, we are upgrading the stock.”
* CIBC’s Jacob Bout downgraded Bird Construction Inc. (BDT-T) to “neutral” from “outperformer” with a $20 target, up from $17. Elsewhere, other changes include: Stifel’s Ian Gillies to $24 from $18.50 with a “buy” rating, National Bank’s Maxim Sytchev to $18 from $15 with a “sector perform” rating, Canaccord Genuity’s Yuri Lynk to $21 from $16 with a “neutral” rating and ATB Capital Markets’ Chris Murray to $23 from $16.50 with an “outperform” rating. The average is $20.69.
“BDT reported a decent Q4/23 and provided solid outlook commentary for 2024 alongside a new record backlog level. We have raised our 2024 and 2025 estimates to reflect higher sales growth (10-11 per cent per year for the next two years) and further margin expansion (approximately 55 basis points per year). Our price target increases from $17 to $20 (closed tonight at $18.89). That said, as of March 6, we are downgrading our rating from Outperformer to Neutral. While fundamentals remain strong, we believe that BDT’s current share price and valuation (5.5 times consensus 2025 EV/EBITDA) already bake in its constructive outlook, and believe the share price may see a period of consolidation following its 115-per-cent rise over the past 12 months,” said Mr. Bout.
* RBC’s Walter Spracklin raised his Andlauer Healthcare Group Inc. (AND-T) target to $43 from $41 with a “sector perform” rating. Other changes include: National Bank’s Cameron Doerksen to $47 from $46 with a “sector perform” rating, CIBC’s Kevin Chiang to $52 from $50 with an “outperformer” rating, Eight Capital’s Ty Collin to $58 from $62 with a “buy” rating and Scotia’s Konark Gupta to $47.50 from $45 with a “sector perform” rating. The average is $50.50.
“While we view AHG as a high quality, well-managed company with attractive long-term secular growth drivers, our more neutral stance is driven by valuation, which, while sitting below the historical average for AHG, is consistent with or above peer group companies,” said Mr. Doerksen. “We are also somewhat cautious on the company’s M&A strategy, which could include other non-transportation/logistics companies in the broader healthcare services space, which in our view would be a departure from the company’s core competency.”
* RBC’s Paul Treiber increased his target for Constellation Software Inc. (CSU-T) to $4,300 from $3,900 with an “outperform” rating. Other changes include: BMO’s Thanos Moschopoulos to $4,150 from $3,600 with an “outperform” rating, Raymond James’ Steven Li to $3,800 from $3,150 with a “market perform” rating and CIBC’s Stephanie Price to $4,100 from $3,800 with an “outperformer” rating. The average is $3,811.88.
“Solid 4Q. Altera (largest CSU acquisition) returned to positive organic growth helped by licenses, while Lumine slipped into negative territory. M&A pace continues to track well ahead of last year’s,” said Mr. Li.
* BMO’s Étienne Ricard trimmed his First National Financial Corp. (FN-T) target to $41 from $44 with a “market perform” rating. The average is $42.33.
“Origination activity is set for a ‘slow start’ in 2024 considering subdued housing market activity for single-family properties and increased competitive intensity from a couple larger banks. While FN’s valuation has normalized near long-term averages, we see limited levers for upwards earnings revisions over the short-to-medium-term,” he said.
* National Bank’s Shane Nagle cut his Franco-Nevada Corp. (FNV-T) target to $170 from $172.50 with a “sector perform” rating. Other changes include: Raymond James’ Steve MacArthur to US$138 from US$146 with an “outperform” rating and Scotia’s Tanya Jakusconek to US$139 from US$141 with a “sector perform” rating. The average is $191.34.
“After incorporating Q4/23 results and updated guidance, our target comes down slightly on the reduced 2024 sales outlook,” said Mr. Nagle. “We maintain our Sector Perform rating, which offsets the company’s stable five-year production growth and industry leading financial strength with its premium valuation, uncertainty around long-term recoverable value from Cobre Panama and a competitive deal environment for new royalties/streams.”
* Canaccord Genuity’s Luke Hannan increased his Kits Eyecare Ltd. (KITS-T) target to $9 from $8 with a “buy” rating, while Stifel’s Martin Landry bumped his target to $8.25 from $8 with a “buy” recommendation. The average is $9.21.
“KITS reported strong Q4/23 results capping an impressive year for the company where 2023 revenues increased by 32 per cent year-over-year,” said Mr. Landry. “KITS’ Q4/23 revenues reached $32 million, up 21 per cent year-over-year, and largely in line with expectations. KITS’ revenue growth was combined with a strong gross margin of 35 per cent, the highest level of the last four years. Management indicated that momentum continued into Q1/24 expecting revenue growth to range between 22 per cent to 26 per cent year-over-year, higher than our expectations of 15-per-cent growth. KITS operates in a non-discretionary industry, which continues to grow despite the general economic slowdown in North America. Additionally, the company’s deep value offering resonates with customers seeking relief from inflation and rising interest rates. On the back of the company’s continued momentum, we are increasing our forecasts.”
* CIBC’s Krista Friesen lowered her Linamar Corp. (LNR-T) target to $91.50 from $93 with an “outperformer” rating, while Scotia’s Jonathan Goldman raised his target to $85 from $82 with a “sector outperform” recommendation. The average is $82.50.
“EBIT beat by 16 per cent and 2024 guidance – which calls for double-digit revenue and earnings growth (including EV headwinds) – was in line with the Street,” said Mr. Goldman. “Given peer guidance missed by 4 per cent and 13 per cent, and investor concerns around LNR Mobility margins, we think the results will be viewed as better-than-feared, and likely better-than-hoped. Mobility margins improved 40 basis points quarter-over-quarter (peers were down), and FX headwinds likely obfuscated the true underlying improvement in the business (guidance calls for margin expansion this year). The Industrial outlook calls for double-digit revenue growth – we think that’s reasonable despite the challenged outlook in Ag given Bourgault alone should contribute 15-per-cent growth and Skyjack backlog is above historical levels. Capex guidance is now expected to be at the low-end of the normal range (6 per cent to 8 per cent) versus within the normal range previously (partially due to scaling back EV capex).”
* RBC’s Tom Callaghan cut his target for Melcor REIT (MR.UN-T) to $3.25, matching the average, from $4.50 with a “sector perform” rating, while CIBC’s Sumayya Syed reduced his target to $3.25 from $3.75 with a “neutral” rating.
“Melcor REIT delivered fourth-quarter results which were broadly in line with our outlook. While interest costs and elevated leverage continue to weigh on financial results, the REIT delivered a steady year on the operating front. Looking ahead, we see the announced strategic review as a step toward bridging the underlying valuation gap, though limited visibility on the outcome renders our Sector Perform recommendation unchanged,” said Mr. Callaghan.
* Seeing “bullish” commentary and “conservative” guidance, RBC’s Dan Perlin raised his Nuvei Corp. (NVEI-Q, NVEI-T) target to US$34 from US$29 with an “outperform” rating. Other changes include: BMO’s Rufus Hone to US$28 from US$30 with an “outperform” rating, Wells Fargo’s Andrew Bauch to US$27 from US$29 with an “equal-weight” rating and Raymond James’ John Davis to $30 from $27 with an “outperform” rating. The average is $36.77.
“4Q23 print was slightly above expectations with positive momentum in the business continuing and in some categories accelerating, but guidance, which we believe is conservative, likely weighs on the stock, as it’s back-end loaded with management calling for a revenue growth exit rate in line with its medium-term targets of 15-20 per cent and adj. EBITDA margin pressure related to the acquisition of Till Payments in 1Q24,” said Mr. Perlin.
* RBC’s Michael Harvey lowered his Paramount Resources Ltd. (POU-T) target by $1 to $32 with a “sector perform” rating. Other changes include: ATB Capital Markets’ Patrick O’Rourke to $36 from $37 with an “outperform” rating, Scotia’s Cameron Bean to $29 from $30 with a “sector perform” rating, Stifel’s Cody Kwong to $33 from $33.50 with a “buy” rating and National Bank’s Dan Payne to $37.50 from $40 with an “outperform” rating and CIBC’s Jamie Kubik cut his target to $30 from $32.50 with a “neutral” rating. The average is $33.83.
“While the Company’s 4Q23 results and year-end reserves were inline with expectations, Management’s downdraft to 2024 production guidance clearly captured the headlines with this print,” said Mr. Kwong. “POU revised its production target by 8 PER CENT at the midpoint due to a variety of expected and unexpected items, while its capex plans remained unchanged. Updating our estimates has prompted a 10-per-cent reduction in our 2024/2025 cash flow outlook, which drives our target price decrease to $33.00/sh. While we are buyers on any meaningful weakness from here, there will be elevated market scrutiny on POU’s operational execution and well performance until delivery of its recast volumes are observed.”
* Acumen Capital’s Jim Byrne raised his Street-high Pollard Banknote Ltd. (PBL-T) target to $47 from $45 with a “buy” rating. The average is $41.50.
“Q4 gives us further confidence in the improvements expected in profitability over the next several quarters. We expect gradual improvements in gross margins through the end of 2024. Along with strong iLottery results and record demand for the other segments of their business, PBL remains well positioned for the future,” he said.
David Leeder