Inside the Market’s roundup of some of today’s key analyst actions
Scotia Capital analyst John Zambaro warns the “reverberations from headlines on U.S. trade policy may persist for months” on Canada’s retail and consumer product industries.
In a research report released Friday, he made two rating revisions for stocks in his coverage universe.
Mr. Zamparo upgraded Loblaw Companies Ltd. (L-T) to “sector outperform” from “sector perform” with a $215 target, rising from $190. The average target on the Street is $201.50, according to LSEG data.
“Loblaw might represent the business in our coverage universe that is most immune to the tariff environment,” the analyst said. “Risks to the stock include lower earnings growth than peers—the result of greater investments in [distribution centres] and new stores that are unprofitable in Year 1—though we believe these are well known and tolerated by investors. L’s banners may gain some market share from U.S.-domiciled peers, and though Shoppers is by no means a trade-down destination, presenting front-store results with some risk, it remains among the highest-quality businesses in Canada, in our view. Finally, an accelerating inflation environment is favourable for all grocers, and adds potential upside to 2025 EPS.
“The stock’s approximately 7-per-cent pullback from last week’s $212 high-water-mark provides an attractive buying opportunity, in our view. We see our 22.5 times NTM [next 12-month] EPS target multiple (previously 20 times) as attainable in an environment in which investors prioritize stability and earnings predictability. In the context of global peers — WMT at 34 times and COST at 53 times — and even DOL closer to home at 35 times, L’s valuation doesn’t seem so unreasonable.”
Conversely, Mr. Zamparo downgraded Groupe Dynamite Inc. (GRGD-T) to “sector perform” from “sector outperform” and dropped his target to $12 from $25. The average is $23.95.
“We expect Groupe Dynamite to post one more solid quarter of SSS, even beyond Tuesday’s print (for which the 9.5-per-cent comp has already been disclosed), though sentiment may become more negative from here, even following GRGD’s negative 44-per-cent year-to-date performance,” he said. “We identify two primary risks. First is the broad threat to all apparel names on consumer spending, especially on discretionary items, which we expect to become evident with FQ2 results. Second is specific to GDI, and its significant exposure to China. GRGD currently relies on China for more than half its production; moreover, the U.S. represents most of GDI’s growth. America’s on-again-off-again tariff scenario may eventually subside, but U.S.-China relations appear to be set for a more difficult path to improvement.
“In that context, we believe GDI could see limited upside. Valuation looks punitive relative to growth, though we also note that at 8.0 times F25 P/E, GRGD trades in line with most peers, including AEO, ANF, and GAP. As such, we’ve reduced our target P/E multiple from 18 times to 9 times. The obvious catalyst to the upside is a low-tariff deal with China, and minimal tariffs across the board, leading to improved consumer spending and sentiment. We’re not willing to predict that conclusion at the moment.”
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RBC Capital Markets analyst Tom Narayan thinks first-quarter financial results for global automobile companies “could benefit from pre-buy in March ahead of tariffs for many.”
“We don’t expect much commentary on tariff impacts at Q1 earnings but could see guidance pulled or lowered,” he said in a research report released Friday. “Consensus is largely already at the lower end of these ranges however, and so are we now ... Tariff worst-case scenarios suggest further downside across the names, but most investors we speak with are expecting USMCA to be re-negotiated and allow for 50-per-cent U.S. contenting which would not be difficult to achieve. Wednesday’s 90-day delay on reciprocal tariffs could be a signal that all tariffs might eventually be averted if deals are struck between nations. As we understand it however, the 25-per-cent tariffs on Autos still remain.
“Given macro uncertainty, we favor the OEMs over suppliers. That said, investors making a no tariff call could potentially make large gains owning the entire group. In this ‘increasing optimism’ backdrop, we continue to like names benefiting from secular/structural dynamics like Tesla, GM, and Aptiv.”
For Aurora, Ont.-based parts manufacturer Magna International Inc. (MGA-N, MG-T), Mr. Narayan is expecting to see a reduction in its 2025 financial guidance as a result in lower light vehicle production, versus his previous estimate of flat year-over-year output.
“Our perma-tariff scenario could result in an $18/share value (approximately 50 per cent lower from current), which highlights further downside to current levels,” he said.
With that view, he downgraded Magna shares to a “sector perform” recommendation from “outperform” previously, seeing a lower probability of a sale of its Seating business given macro uncertainty.
“Our lower production forecast reduces our ‘25 EBIT to $1.9-billion from $2.1-billion,” he added. “We also cut our SOTP [sum-of-the-parts] multiple to 4 times from 5 times (5 times for BE&S, down from 6 times), 4 times for P&V, and 2 times for Seating and CV (down from 3 times). These revised multiples are consistent with current peer trading levels. ... Previously we believed a sale of the company’s Seating business might be imminent given Tier 1 supplier announcements on asset dispositions. Given the current macro environment, we now do not think this is high on the agenda for management. As such, we downgrade Magna to Sector Perform.”
He added: “Thoughts on the quarter. Our $672-million EBIT estimate comes in well below consensus. With Ford and Stellantis intentionally cutting wholesales to manage their dealer inventories, we could see some headwinds for Magna in Q1.”
With his lower forecast, Mr. Narayan dropped his target for Magna shares to US$32 from US$51. The average target on the Street is US$45.06, according to LSEG data.
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Calling it “a rock solid business in good times or bad,” TD Cowen analyst David Kwan upgraded Constellation Software Inc. (CSU-T) to “buy” from “hold” on Friday, citing the recent pullback in its share price and its “defensive business model” which he thinks leaves it “relatively well-positioned for an economic downturn.”
“CSU has a well-diversified revenue base with approximately 73 per cent of LTM [last 12-month] revenue being high-margin recurring revenue,” he said. “Its focus on selling vertical market software that is typically mission-critical to its customers has helped it weather past downturns.
“In the initial stages of the COVID-19 lockdown, revenue growth bottomed at 9 per cent year-over-year in Q2/F20 when organic growth also bottomed at negative 7 per cent year-over-year in cc. Growth rebounded in the following quarters, with F2020 revenue growth of 14 per cent and organic growth of negative 3 per cent in cc. Meanwhile, EBITDA margins expanded more than 400 basis points in F2020, aided by reduced S&M/travel expenses ... During the GFC, revenue grew more than 30 per cent year-over-year, aided by M&A activity with organic growth bottoming in the negative MSD [mid-single-digit] range. CSU also generated solid margin gains during this time.”
Mr. Kwan also emphasized the Toronto-based company has seen “significant” share price outperformance in past downturns.
“CSU’s stock has significantly outperformed the broader market virtually every year since its 2006 IPO. Some of its biggest periods of outperformance have come during turbulent times,” he said. “CSU’s stock significantly outperformed the broader market during the GFC and COVID-19 lockdowns, both in terms of the decline in the share price/index and the time to return to its pre-selloff peak.
“A recession could be good for M&A? There has been a recent pick-up in M&A activity, and we believe the pace of M&A could get stronger if economic conditions deteriorate, as owners of struggling businesses look to sell off assets or the entire business. In particular, CSU could close more carve-out deals, like during the GFC when it acquired Maximus’ Justice, Education, and Asset Solutions business and Continental Automotive’s Public Transit Solutions business, in what were large deals for it back then.”
After adjusting his valuation to “better reflect the future upside from its accretive M&A strategy,” Mr. Kwan increased his target to $5,500 from $5,250. The average is currently $5,152.
“Constellation is one of the highest quality companies we have come across,” he concluded. “The company has consistently delivered superior M&A-driven growth with strong margins, FCF, and ROIC, while maintaining a solid balance sheet. Since 2003, Constellation has delivered an 20-30-per-cent CAGR in key metrics, including revenue, EBITDA, Adjusted EPS, and FCF, with an ROIC of more than 20 per cent annually. We believe the stock is attractively valued and, like the business, we believe the shares should outperform if there is an economic downturn, given its defensive business model. We believe Constellation has a top-tier management team that will continue to deliver superior shareholder returns over the long term, including through additional spinouts.”
In a separate note, Mr. Kwan raised Topicus.com Inc. (TOI-X) to “buy” from “hold” previously, calling it a “mini-Constellation” with a “strong, defensive business.” His target rose to $170, matching the average, from $156.
“Although the stock has performed relatively well recently, it has at times fallen to levels that we believe do not reflect the solid and improving business fundamentals and its superior ability to deliver strong shareholder returns over the long run. We believe the stock should outperform, given its defensive business model and strengthening fundamentals,” he said.
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After its second-quarter financial results largely fell in line with his expectations, RBC Dominion Securities analyst Drew McReynolds sees Cogeco Communications Inc. (CCA-T) “working through the reinvestment phase.”
“Despite competitively intense operating environments in Canada and the U.S., management continues to execute on multiple growth initiatives that include rural broadband expansion, entry into North American wireless markets, digitization, and Canadian Broadband and American Broadband integration,” he said. “While we remain on the sidelines given the more challenged revenue environment, we continue to see value in the stock and look for better visibility on potential catalysts that could include an eventual uptick in revenue growth (driven by rural broadband expansion, price increases and/ or wireless entry), the eventual realization of greater-than-expected synergies, and/or any potential easing in U.S. competition/concerns.”
While the Montreal-based telecommunications company reiterated its full-year 2025 guidance, Mr. McReynolds trimmed his forecast to reflect a lower revenue growth trajectory at its American Broadband segment and emphasizing it is “navigating a tough revenue environment with a growing reliance on wireless.”
“In Q2/25, underlying consolidated revenue growth (excluding FX and acquisitions) was an estimated down 3 per cent year-over-year,” he said. “While not unexpected, management attributed continued revenue headwinds mainly to competitive intensity (FWA, FTTH) and television and telephony cord-cutting/shaving. Although a number of initiatives are underway to improve the revenue trajectory (including price increases, footprint expansion/extensions, brand expansion and improved sales and marketing and customer service), unless competitive dynamics improve, we see an increased tactical reliance on wireless. With respect to wireless, management indicated: (i) cable churn reduction is the primary objective; (ii) U.S. wireless net additions are beginning to ‘ramp up’ following an initial launch period; (iii) wireless pre-registration demand among existing wireline customers in Canada is exceeding management’s internal expectations; and (iv) post-launch in Canada, incremental wireless revenue is not expected to be material in the near term but there will be no step-up in opex.”
Maintaining his “sector perform” recommendation for Cogeco Communications shares, Mr. McReynolds trimmed his target to $76 from $78 with his lower projections. The average is $78.05.
Elsewhere, other analysts making adjustments include:
* Canaccord Genuity’s Aravinda Galappatthige to $77 from $76 with a “buy” rating.
“Despite the stock price reaction [Thursday], we saw Q2/25 as largely neutral with better financial results supported by Breezeline and only slightly weaker sub trends overall, with Canada generally in line,” he said. “While the Q3/25 EBITDA guide for Canada was a touch lower than expected, we felt it was offset by indications of the U.S. cable business sustaining the EBITDA stability we saw in Q2. We also believe that as we get closer to the end of Cogeco’s rural fibre deployment, the upswing in FCF comes into focus, an item the company discussed on the call. In fact, management alluded to the prospect of $150-million in upside to current FCF levels by F27. This would enhance an already attractive 18.1 per cent (20.1 per cent on F26) FCF yield.
“In terms of catalysts, we would look to updates on the US wireless operation and the impending launch of wireless in Canada. A possible trimming of the U.S. cable footprint could also be viewed positively due to de-levering benefits.”
* Scotia Capital’s Maher Yaghi to $75 from $75.50 with a “sector perform” rating.
“Management’s three-year transformation program was perfectly timed and so far well executed to offset topline pressures that the company is seeing especially in its U.S. operations. We applaud the team for the work done to date to protect margins and reposition operations on a stronger footing. That said, subscriber losses in broadband, which all US cable cos are facing, continue to weigh on the outlook. Wireless services could offer support, but it is too small at this point to fill in the gaps. From a valuation perspective, and given the low growth expected in 2025, we view the stock as trading close to its expected fair value multiple especially in relation to Comcast or Charter’s valuations which are showing similar subscriber trends. Until we see a clearer path to recovery in subscriber loading, we are maintaining our SP rating,” said Mr. Yaghi.
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Seeing it as “a reformed insurance and investment machine” with the “stage set for more consistent book value growth,” Raymond James analyst Stephen Boland initiated coverage of Fairfax Financial Holding Ltd. (FFH-T) with an “outperform” rating.
“Through a combination of organic growth and M&A, Fairfax has evolved to become one of the top 20 property and casualty insurers globally, with a primary focus on commercial lines,” he said. “Supported by a unique, concentrated investment philosophy and decentralized management structure, Fairfax has been one of the top performers on the TSX since the company’s inception. Since its initial listing in 1985, Fairfax has compounded book value per share at 18 per cent, while delivering a similar shareholder return of 18 per cent over this time period.
“The growth and evolution of Fairfax suggests the company can continue to deliver a mid-to-high teens ROE [return on equity] with less volatility than what we’ve seen historically, while continuing to meet or exceed on the company’s long-term target of 15-per-cent-plus annual growth in book value. Going forward, we expect Fairfax to deliver a consistent mid-90s or lower combined ratio, supplemented by an increasingly stable and reliable stream of investment returns. Despite trading at a consistent discount to our chosen insurance peer group, we believe Fairfax’s valuation can benefit as the company continues to deliver more consistent and reliable results on an annual basis.”
Mr. Boland set a target of $2,600 for Fairfax shares. The average is $2,461.64.
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In other analyst actions:
* Morgan Stanley’s Kristine Liwag lowered her CAE Inc. (CAE-T) target to $36 from $37 with an “equal-weight” rating. The average is $41.17.
* Ahead of its May 1 earnings release, ATB Capital Markets’ Chris Murray cut his Canadian National Railway Co. (CNR-T) target to $159 from $161 with a “sector perform” rating. The average is $169.07.
“CN reported slightly lower than expected volume growth in Q1/25, reflecting softer levels of industrial activity, with severe winter weather challenging network efficiency in February,” he said. “ATB estimates for Q1/25 has been revised lower to account for volumes and expected cost pressures, partially offset by FX with our full-year growth estimates consistent with guidance. While we expect guidance to be reaffirmed with Q1/25 results, we see volume trends in early 2025 and the potential tariff-related impact creating potential downside risk, acknowledging CN is set to face easier comps in H2/25. We will be looking for an update on price/volume trends for core freight types and the expected impact of company-specific growth initiatives with Q1/25 results. While valuations have improved, elevated near-term uncertainty keeps us neutral on CN.”
Mr. Murray also reduced his target for Canadian Pacific Kansas City Ltd. (CP-T) to $128 from $130 with an “outperform” rating. The average is $124.42.
“Volumes remained healthy (up 3.6 per cent year-over-year) in Q1/25, albeit below prior ATB estimate, with bulk commodities and benefits from the combined network offsetting headwinds surrounding industrial freight,” he said. “Our revised Q1/25 estimates call for 12.5-per-cent year-over-year EPS growth, reflecting volume growth and supportive pricing conditions, and within management’s full-year guidance range. Our focus with the results will be on volume/yield expectations in 2025 given tariff-related headwinds, and the expected contribution from CPKC-specific growth opportunities. CPKC remains our preferred Class 1 name, and we see the recent weakness across the sector providing an attractive entry point, particularly with buyback activity and dividend growth set to resume.”
* JP Morgan’s John Royall lowered his targets for Cenovus Energy Inc. (CVE-T) to $32 from $34 with an “overweight” rating and Suncor Energy Inc. (SU-T) to $62 from $63 with a “neutral” rating. The averages are $27.33 and $63.05, respectively.
* Raymond James’ Steve Hansen raised his Firan Technology Group Corp. (FTG-T) target to $11 from $10 with an “outperform” rating, while Acumen Capital’s Nick Corcoran bumped his target to $12 from $11.50 with a “buy” rating. The average is $11.17.
“We are increasing our target price on Firan Technology Group Corp. (FTG) ... based upon the company’s: 1) solid 1Q25 print; 2) robust macro tailwinds; 3) new record backlog; 4) attractive growth pipeline; 5) clean balance sheet (Net Debt/EBITDA: 0.3 times); & 6) compelling valuation and return prospects,” said Mr. Hansen.
* Piper Sandler’s Anna Andreeva cut her Lululemon Athletica Inc. (LULU-Q) target to US$280 from US$315 with a “neutral” rating. The average is US$350.07.
* CIBC’s Ty Collin raised his North West Co. Inc. (NWC-T) target by $1 to $60 with an “outperformer” rating. The average is $61.
* After it closed a transaction to extend maturities of its note obligations and strengthen its capital structure, National Bank’s Shane Nagle trimmed his Sherritt International Corp. (S-T) target to 25 cents from 30 cents with a “sector perform” rating. The average is 80 cents.
“With previous Senior Notes set to come current in Q4/25, elevated debt levels were a significant overhang amidst volatile commodity markets and lagging payments from the Company’s Cobalt Swap Agreement,” he said. “The transaction successfully pushes Sherritt’s debt repayment obligations to 2031, provides the Company with flexibility for added operating cash from a recovery in commodity prices, positive contributions from the Moa JV (which we model in 2027) and receipt of cash through the Cobalt Swap agreement with more proceeds possible given recent rise in cobalt prices. Under our Base Case assumptions, we model Sherritt able to meet current debt obligations.”
“We maintain our Sector Perform rating which accounts for a lower debt burden, improving operational outlook at the Moa JV offset by equity dilution from recent debt restructuring, a challenging nickel market as well as continued pressure on fertilizer by-product prices, uncertainty on timing of Moa JV cobalt deliveries under the swap agreement and need for delivering anticipated growth initiatives at Moa.”