Inside the Market’s roundup of some of today’s key analyst actions
While RBC Capital Markets analyst Tom Narayan thinks the sentiment toward the U.S. automobile industry “remains cautious,” he likes “the setup” heading into fourth-quarter 2024 earnings season, expecting several companies to issue guidance for the current fiscal year that tops the Street’s expectations.
“Ford and Stellantis still have elevated dealer inventories and Trump tariff fears, particularly on Mexico, would be a big problem,” he said. “Finally, negativity around EVs is still strong.
“All that said, December ‘24 US dealer inventory data was much healthier than expected. Our channel checks suggest while downshifting sequentially, as typical with seasonality, January U.S. sales are holding up. In its most recent forecast revision, IHSM actually raised ‘25 global production numbers for the first time in months. Our numbers are now above IHSM levels. Impressively, pricing is holding up even with strong sales numbers, which we believe highlights strong underlying demand. Further, EV data from Europe and the US in late 2024, suggests 2025 could be a recovery year, helped by new, lower priced models. Finally, we don’t think tariffs will actually be implemented. We like the setup into Q4/24 results given that we expect several companies to issue above consensus guidance on ‘25 numbers. These could include GM, APTV, Magna, and AXL. Conversely, we expect MBLY could guide below ‘25, where we think estimates are stale.”
In a research report released Friday, Mr. Narayan upgraded Aurora, Ont.-based parts manufacturer Magna International Inc. (MGA-N, MG-T) to an “outperform” recommendation from “sector perform” previously after becoming increasingly “constructive” on global auto production and raising his output expectations.
“Our higher production forecast helps us raise Q4/24 EBIT [for Magna] to US$584-million from $543-million,” he sai. “We remain slightly below consensus, but this could prove conservative. The implied guidance for Q4 calls for BE&S [Body Exteriors & Structures] margins to improve to 8.7 per cent in Q4 from 6.8 per cent in Q3, and for CV to improve to 3 per cent from 2.3 per cent for the same period. On the Q3 results call, management attributed some of this strength to customer recoveries. Consensus is already baking in an 8.2-per-cent/2.6-per-cent margin level for Q4 for the two segments.
“Thoughts on 2025 guidance. Both RBC/Consensus is forecasting a 5-6-per-cent year-over-year improvement in 2025 EBIT vs ‘24 consensus levels. We expect management to guide to $2.4-2.5-billion in ‘25 EBIT however, which would imply an 8-per-cent growth level from ‘24 consensus levels. Our estimates imply a 0 per cent/+6 per cent/-3 per cent/+2 per cent GOM across BE&S/P&V/Seating/CV, after ‘24′s -0.9 per cent/+6 per cent/-4.6 per cent/-9.2 per cent performance. CV should see substantial improvement thanks to easy comps. Moreover, customer recoveries should continue to benefit. Finally, a better global production environment should support management optimism when the company issues its guidance.”
Mr. Narayan’s target for Magna shares jumped to US$52 from US$41. The average target on the Street is US$50.53, according to LSEG data.
“Given an improving production backdrop (IHSM raised its ‘25 global production forecast to 89.0 million from 88.9 million), U.S. December inventories were much better than expected, January U.S. sales are tracking better year-over-tear, and Europe EV sales were stronger than expected in December, pointing to a better 2025, we like the setup for Magna into 2025,” he said. “Our GOM assumptions are realistic and ‘25 should benefit from easy comps. We raise our 2025 EBITDA to $3.9-billion from $3.7-billion and our multiple to 5 times from 4.5 times, in line with the company’s 3-year NTM [next 12-month] historical avg (we were previously attributing a half-turn discount due to fears of auto production cuts, which we are getting increasingly constructive on).”
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National Bank Financial analyst Matt Kornack sees valuations for Canadian real estate equities as “interesting” for investors, however he warns more macroeconomic clarity is required.
“Late 2024 didn’t provide the post-tax loss selling relief rally that we were expecting, and for a space that is reliant on macro trend support, the uncertainty has been piling up,” he said. “The result has been a continued rout for REIT trading, resulting in some of the widest spreads we have seen post pandemic on an equity risk premium basis. We still think there is room for a significant move higher for the sector, but better clarity on the macro environment is a likely prerequisite for this outperformance.”
In a research report released Friday, Mr. Kornack adjusted his earnings expectations across the sector to reflect a higher interest rate environment ahead of fourth-quarter 2024 earnings season. That led to his 2026 funds from operations per unit forecast declining by 1 per cent on average.
“We have also made some adjustments to occupancy levels in the apartment REITs as conversations with management teams have highlighted relative weakness in Q4/24 on the occupancy front as these names contend with incremental supply, a return of normal seasonality and weaker population / employment growth,” he said. “By no means is the bottom falling out and our expectation is still that fundamentals will remain strong and a lag effect on marking to market rents will sustain above inflationary growth for some time.
“[For the fourth quarter of 2024], on organic growth, we expect seniors and industrial to lead the way in Q4 aided by occupancy gains / margin improvement and MTM potential/stabilizing occupancy levels, respectively. GRT helps for industrial as well given positive FX dynamics. Apartments follow, and while growth is decelerating, we expect this segment will continue to see above inflationary revenue growth with the possibility for some margin expansion (although we aren’t modeling much of the latter). Office will trail and put up negative figures on weaker occupancy figures and some prominent tenant turnover at Dream.”
Citing “slightly higher cap rate assumptions [and] persistent NAV discount expectations.,”Mr. Kornacka also updated the target prices for REITs in his coverage universe, noting: “Bond yield assumptions released by our Economics & Strategy group were up +10 bps across our forecast period in Canada and +20 bps in the U.S. versus our last estimate update in December. That said, we have not universally applied this to cap rates given relative growth expectations. We were more punitive on Canadian apartments, where rent increases are likely to slow, less so on retail where the profile has been stable to slightly improving. Seniors, we chose not to increase cap rates. The result was a 4-per-cent reduction to NAVs with a similar adjustment to target prices.”
“Asset class pecking orders largely unchanged — beating a dead horse on apartments, but we still expect this trade will work, industrial inflection seems to be solidifying while seniors / retail are still the relative winners on growth trajectory. By total return we favour Canadian Apartments (31 per cent, was 34 per cent), Seniors (28 per cent was 25 per cent), Industrial (27 per cent, unchanged), Retail (26 per cent was 21 per cent), Diversified (19 per cent was 15 per cent) and Office (14 per cent, unchanged). The aggregate total return across our coverage universe is currently at a lofty 26 per cent (was 24 per cent). Valuations relative to underlying financing costs / long bond yields are the most attractive they have been in a while and above levels seen in 2018/2019. Unfortunately, the biggest potential drivers of investment demand are out of management’s control and largely relate to more clarity on the politics / macro front.”
For his “focus list” ideas, Mr. Kornack made these target changes:
Canadian Multi-Family
Canadian Apartment Properties REIT (CAR.UN-T, “outperform”) to $54 from $60.50. The average on the Street is $55.26.
Analyst: “While the tone has soured a bit for apartments around population growth as a driver of demand, we are less bearish on the outlook broadly but still think taking a defensive approach to the segment is advisable. On this basis, CAPREIT’s low turnover, which inhibited growth in the good times, provides a significant buffer should fundamentals deteriorate. The REIT has the most significant MTM opportunity and unlike peers that are finding ways to fund growth in a capital constrained environment, CAP is flush with capital with more coming in the door. Their pivot to owning new does, at the margins, increase their economic sensitivity but the core portfolio of legacy assets still represents the bulk of the asset base. Liquidity is a plus and broadly speaking, CAP is a REIT flow of funds proxy and technical fundamentals on the stock are positive. As such, the REIT tops our total return pecking order going into 2025.”
Flagship Communities REIT (MHC.U-T/MHC.UN-T, “outperform”) to US$20 from US$20.50. Average: US$20.06.
Analyst: “MHC is our top U.S. housing pick and has regained its place at the top of our total return ranking (unfortunately, for the wrong reason as it gave up some of its positive trading momentum). The valuation discount remains steep, despite offering some of the highest organic growth and defensibility in the REIT sector. Trading liquidity is sparse but for those that can, we would buy and hold this name.”
Healthcare
Sienna Senior Living (SIA-T, “outperform”) with a $19 target (unchanged). Average: $18.94.
Analyst: “Sienna has taken the top spot within healthcare after relative underperformance against Chartwell. We would attribute this to SIA being more rate sensitive than CSH, as there is the LTC development overhang which needs to be financed over the next five to 10 years and LTC is an inherently lower growth vehicle than retirement. Both factors make it more susceptible to relative changes in the inflation/rate outlook. We still like SIA going forward and view this disconnect as a buying opportunity. The key positive attribute of SIA’s LTC segment are its high barriers to entry which insulates it from development risks that could be bubbling below the surface. It is also worth pointing out that SIA retains optionality to exit LTC given the willing buyers that have been transacting in the market. In the meantime, investors will earn a 6-per-cent dividend yield in addition to $40-50-million in available equity proceeds we expect to be additive to current estimates.
Industrial
Dream Industrial REIT (DIR.UN-T, “outperform”) $15.50 from $16.25. Average: $15.83.
Analyst: “Our highest total return to target for the industrial segment goes to Dream Industrial, again, as the REIT remains relatively inexpensive vs. its medium-term growth outlook. That said, Granite is nipping at its heels from a total return standpoint and will benefit from U.S. exposure and positive FX dynamics. DIR’s ability to grow its NOI is driven by its exposures to Canadian urban mid-Bay properties. As was highlighted at its investor day, demand for this segment has remained more resilient, supporting elevated market rents, with still a significant MTM opportunity. We see nearer-term industrial fundamentals as stabilizing with peak vacancy in Canada forecasted for Q2/25 with an inflection in market rent growth likely thereafter. DIR has generated solid SPNOI figures, notwithstanding lower occupancy, and our expectation is for continued strong growth with a fairly substantial positive inflection as occupancy moves back into historical ranges (likely an H2/25 and beyond story). There is also some sleeper potential in the REIT’s fledgling data centre initiative.”
Retail
First Capital REIT (FCR.UN-T, ”outperform”) to $20.50 from $21. Average: $20.33.
Analyst: “First Capital moves back into the pole position for retail, although admittedly the top names in this segment are pretty closely bunched from a total return perspective. That said, we like the grocery anchored and non retailer controlled nature of its portfolio in the current market context and expect it will continue to garner the highest rent spreads with essentially full occupancy. Smaller property sizes in urban environments are also in favour for a broad swath of institutional and high-net-worth individuals.”
Diversified
H&R REIT (HR.UN-T, “sector perform”) to $10.75 from $11. Average: $11.38.
Analyst: “Within the diversified group, H&R remains our top focus idea, driven by exposure to multi-family assets in U.S. markets and industrial development lease-up around the GTA combined with a better balance sheet and limited office maturities. Recent transaction activity was a plus (with possible additional funds coming from the sale of its ECHO position) as management continues to showcase their progress in achieving reasonable pricing on a blended basis for the REIT’s assets in a market where transactions are still at somewhat of a standstill. These sales are incrementally positive given that the stock trades at an implied cap rate of 9 per cent and continue to move the pro forma entity more towards apartment ownership (we are still waiting on a broader inflection within the Sunbelt markets). We think there is torque to the upside on lower rates as the portfolio remains defensive but don’t see urgency to this trade.”
Office
Allied Properties REIT (AP.UN-T, “sector perform”) to $18 from $18.75. Average: $19.50.
Analyst: “Our highest total return to target in the office sector remains Allied, given the REIT’s relative asset quality (including an exceptional urban land footprint) vs. its Canadian office peers. There is an ongoing flight to quality where tenants are prioritizing built-out space with access to amenities, and as such, we believe Allied is better positioned on a relative basis given broader office turbulence. Additionally, their above-noted ultra-core urban portfolio provides for a value floor and could appeal to investors with a long-term view on the Canadian market and particularly its top cities. We continue to like the quality and footprint of the portfolio offering relative to valuation and expect management to continue proving this value through monetization of select assets while also improving balance sheet metrics. Nonetheless, office fundamentals are likely to remain challenging.”
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While acknowledging its biggest “significant” catalyst of “a housing recovery underpinned by rate cuts is likely farthest out,” Scotia Capital analyst Jonathan Goldman thinks Adentra Inc. (ADEN-T) “offers an attractive way for Canadian investors to gain a positive U.S. bias.”
“ADEN shares have underperformed the Home Builder complex by 11 per cent in the past month, which we attribute to tariff concerns,” he said. “Those concerns are misplaced and the selloff overdone, in our view. With more than 90 per cent of sales generated in the U.S, and the majority of inputs sourced domestically, ADENTRA is effectively a U.S.-domiciled business that is well positioned to benefit from an ‘America First’ agenda and a more favourable business environment (i.e., deregulation, lower corporate taxes, stronger USD). We estimate the company’s import exposure at 25 per cent to 30 per cent of consolidated sales, but sourcing is from countries other than Canada, Mexico, or China, thus would be only subject to a 10-per-cent tariff. Moreover, the business is pass-through and the company has a good track record of passing on higher costs (see 2021-2022).”
In a note released Friday, Mr. Goldman lowered his 2025 expectations by 3 per cent to reflect 2024 EBITDA as well as its US$130-million acquisition of Woolf Distributing Company Inc. last July.
“That should be a floor as it implies no housing/R&R recovery this year despite expectations for at least some rate cuts,” he said. “Shares are trading at 6.3 times EV/EBITDA on our Street-low 2025E compared to historicals at 7.1 times. Historical valuation does not account for structurally improved margin profile (up 200 basis points since 2019) driven by mix shift to specialty.”
Maintaining a “sector outperform” recommendation for the Langley, B.C.-based company’s shares, the analyst cut his target to $49 from $49.50 to reflect his estimate reduction. The average is currently $53.38.
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It’s “time to move to the side” on CI Financial Corp. (CIX-T) as its acquisition by Mubadala Investment Co. approaches, said Raymond James analyst Stephen Boland.
Expecting the deal to close in the second quarter, he downgraded its shares to “underperform” from “outperform” on Friday to “reflect the diminishing return of the stock price to the $32.00 acquisition price.”
“There are still regulatory approvals that are still outstanding including The Committee on Foreign Investment in the United States (CFIUS), Haart-Scott-Rodino Antitrust Act (HSR) in the U.S. and Investment Canada and Competition Act in Canada,” he noted. “We believe the main question remaining is whether the Canadian or US government is comfortable allowing Middle East funds entry (already in the U.S.) into the financial services industries with their unlimited resources.
“We believe the approvals will be granted as this is early days for Middle East funds entering Canada and this deal is not material enough in the U.S. to be concerned with concentration risk. For Canada, we believe CIX is one of the top 5 mutual fund operators in Canada, which is dominated by the bank-owned franchises. However, IFIC estimates the mutual fund industry AUM ended 2024 at $2.24 trillion with ETF’s at $518 billion. This implies CIX has a market share of 5 per cent.”
His target remains $32. The average is $30.75.
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Desjardins Securities analyst Brent Stadler sees Innergex Renewable Energy Inc. (INE-T) as “an ‘on sale’ stock” ahead of the Feb. 19 release of its quarterly results.
“We continue to believe that renewables are key to the global energy mix; we have not ascribed value to prospective projects in the US or any other region,” he said. “INE has a 1.2GW contracted development pipeline located primarily in Canada which is expected to be online by 2031 — we estimate that this pipeline alone could take INE’s FCF/share to more than 90 cents (we estimate a 6–9-per-cent CAGR [compound annual growth rate]) from the midpoint of 2024 guidance.
“Furthermore, we expect INE to add to this pipeline given its positioning in Canada — any incremental projects would drive upside to our NAV and longer-term FCF/ share estimates. That said, while we acknowledge that negative rhetoric from Trump is affecting sentiment, we do not expect an impact on fundamentals given the need for power.”
In a research note released before the bell, Mr. Stadler made modest adjustments to his fourth-quarter power generation expectations, which he said were neutral on his overall estimates, which remain in line with the consensus on the Street.
“We have reflected expectations for (1) stronger BC hydro generation; (2) weaker hydro generation in the U.S. and the rest of Canada; (3) weaker wind in France; and (4) modestly weaker solar generation. In addition, our 2025 and 2026 FCF/share estimates decline modestly, primarily after reflecting the debt amortization on recent refinancings,” he said.
“For full-year 2024, we expect INE to achieve its guidance in what was a tough year industry-wide for weather resources. We also believe the Street is in range for 2025. There has been some negative rhetoric from President Trump, but in our view it is not impactful to fundamentals, creating an attractive entry point.”
The analyst reaffirmed a “buy” recommendation and $14 target for Innergex shares. The average on the Street is $11.70.
“We see good value in the operating portfolio, which boasts strong asset diversity by technology and region, and a higher weighting to more valuable hydro assets,” he concluded.
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In other analyst actions:
* Guggenhiem’s Gregory Francfort upgraded Restaurant Brands International Inc. (QSR-N, QSR-T) to “buy” from “neutral” with a US$71 target, down from US$74. The average on the Street is US$80.69.
* Canaccord Genuity’s Yuri Lynk raised his AtkinsRéalis Group Inc. (ATRL-T) target to $100 from $80 with a “buy” rating. The average on the Street is $84.42.
“We are moving to an EV/EBITDA methodology to value PS&PM to better compare ATRL to its engineering services and nuclear peers, which largely do not trade on P/E,” he said. “Taking into account that nuclear comparables BWX Technologies, Curtiss-Wright, and Mirion Technologies trade at an average of 21 times EV/EBITDA (2025E), we are setting our blended target multiple at 15x. Our prior target equated to a 12 times multiple, which appears increasingly conservative given that engineering services peers such as AECOM, Jacobs, Stantec, Tetra Tech, and WSP trade at an average of 16 times EV/EBITDA (2025E).”
* Following the completion of a $27-millionstrategic private placement financing, Ventum Capital’s Amr Ezzat cut his Blackline Safety Corp. (BLN-T) target to $7.75 from $8 with a “buy” rating. The average is $8.46.
“Despite the dilution, we believe the strategic investment strengthens Blackline’s long-term growth potential, enhances its financial flexibility, and positions the Company to capitalize on opportunities in the expanding connected safety market,” he said.
* Stifel’s Daryl Young moved his Colliers International Group Inc. (CIGI-Q, CIGI-T) target to US$170 from US$165 with a “buy” rating. The average is US$167.94.
“We think CIGI is positioned for a solid finish to 2024 given an acceleration of transaction activity into yearend (U.S. investment volumes up 32 per cent year-over-year in Q4/24 and strong office leasing activity),” he said. “However, the clear focus will be on the guidance and the potential to achieve the Enterprise ‘25 plan that targets $830-million of EBITDA. We think the outlook for 2025 is strong given CIGI’s more cyclical segments (capital markets, leasing and IM fundraising) are poised to inflect from trough levels, and with engineering underpinned by robust government spending. However, the Enterprise ‘25 plan would require revenue and EBITDA growth of 19 per cent and 28 per cent, respectively, which we think could be a stretch and will require additional larger-scale M&A to achieve (which likely comes with a high-multiple).”
* Calling it “a pioneer vendor in subsea surveillance technologies,” Raymond James’ Steven Li initiated coverage of Kraken Robotics Inc. (PNG-X) with an “outperform” rating and $3.50 target, exceeding the $3 average.
Mr. Li said: “Time to look at Kraken is now; SOTP. Financial forecasts can be a little lumpy. While we have quite good visibility on the battery side, the sensor segment depends on large RFP [request for proposal] awards. These awards move at their own pace while consensus may have factored some in already. We are launching with below consensus numbers for F2025 because we are already in the new year and have not heard anything on the Singapore RFP (was expected to be awarded last year). Regardless, based on our customer calls, there are strong positive indications that Kraken is set for a strong multi-year growth cycle from both the battery and the sonar side – and the time to look is now. We have devised a sum-of-parts based on Battery EBITDA, Defense EBITDA and Services EBITDA and include an optionality value for the battery segment (win additional customers) and/ or Anduril (they win another customer for Ghost Shark).”
* BMO’s Kevin O’Halloran initiated coverage of Vizsla Silver Corp. (VZLA-T) with an “outperform” rating and $4.50 target. The average is $4.73.
“Vizsla owns the Panuco property in Sinaloa, Mexico, where it is advancing development of a high-grade silver-gold mine. We view Panuco as a top-tier silver development asset due to its scale of production and attractive cost profile. With shares trading at 0.5 times our NAV estimate, we see significant re-rating potential as Vizsla achieves various milestones this year, and ultimately as first production is achieved in 2027,” he said.