Inside the Market’s roundup of some of today’s key analyst actions
In response to weaker-than-anticipated first-quarter financial results, Citi analyst Paul Lejuez dropped his earnings forecast for Lululemon Athletica Inc. (LULU-Q) for the next two years based on lower sales and margins expectations, seeing “several disappointments all hitting at once.”
Shares of the Vancouver-based retailer appeared poised for a harsh fall on Friday after it cut annual profit expectations and forecast second-quarter revenue below estimates.
The company now expects annual profit between US$14.58 and US$14.78 per share, compared with previous expectations of US$14.95 to US$15.15 each.
Lululemon forecast second-quarter revenue between US$2.54-billion and US$2.56-billion, compared with estimates of US$2.56-billion, according to data compiled by LSEG.
“2Q sales guidance is in-line with consensus but tariffs/investments are weighing on margins, driving below consensus 2Q EPS guidance,” Mr. Lejuez said. “Management maintained F25 sales guidance, but 1Q US traffic trends were weaker than plan and the big 1Q China/ROW comp deceleration raises concerns around int’l growth and whether 2H sales assumptions are conservative enough. LULU has newness in the assortment, but so far it’s not driving incremental traffic, which makes it tougher to see how the U.S. returns to growth near-term. And inventory up 23-per-cent raises concerns around potential margin pressure. With concerns about sales, shares are indicated down 20 per cent in pre-market trading. We remain Neutral and still see a balanced risk/reward at current (pre-market) levels.”
For the first quarter, Lululemon reported earnings per share of US$2.60, just a penny less than the Street’s expectation but 11 US cents lower than Mr. Lejuez’s forecast. However, comparable same-store growth of a 1-per-cent gain fell 3 per cent lower than the consensus projection driven by a weak performance in China (up 8 per cent versus an 18-per-cent consensus gain). That led the analyst to cut his 2025 and 2026 EPS estimates to US$14.72 and US$14.69, respectively, from US$15.59 and US$16.57 previously.
Maintaining his “neutral” recommendation for Lululemon shares, Mr. Lejuez dropped his target to US$270 from US$325. The average target on the Street is US$318.22, according to LSEG data.
“After years of benefitting from outsized growth in active apparel, trends in the category have slowed in F24 with data in Yoga & Active apparel pointing to a further deceleration 2Q quarter-to-date vs 1Q (which was a big deceleration vs F23),” he said. “This dynamic, coupled with LULU’s execution issues (lacklustre product assortment/lack of colour/sizing) leave LULU more susceptible to increased competition and promotional pressures in 2H24/F25. We believe category weakness and a tougher macro backdrop makes it unlikely LULU sees a reacceleration in U.S. trends in 2H. Additionally, while LULU has performed extremely well in China over several years, incremental weakening of the China consumer environment is an added risk to the stock (as expectations remain high on China growth).”
Elsewhere, other analysts making target adjustments include:
* BTIG’s Janine Stichter to US$405 from US$420 with a “buy” rating.
“While Q1 beat slightly on top-line and GM, the focus is on the outlook, which was lowered largely to account for incremental tariffs, with Q2 being the pressure point,” she said. “We sense conservatism in the ’25 guide, as management appears to not embed significant tariff offsets in the near term, and conservatively assumes higher markdowns, vs. markdowns currently trending lower year-over-year. Top-line guidance also does not embed improvement in the Americas, despite inventory supporting newness building during the year, although we view this as prudent given the choppy environment. As an offset, China slowing, while partially explainable given Chinese New Year timing shifts, adds some risk to top-line guidance. Guidance also assumes SG&A build back (whereas there is likely some flexibility here). We view the reaction as overdone as fundamentals in our view remain unchanged. We still view LULU as share gainer with company-specific execution opportunities.”
* Stifel’s Jim Duffy to US$324 from US$353 with a “buy” rating.
“Big picture we look for 1) a return to core U.S. women’s growth, and 2) execution to the International brand opportunity. We are encouraged by guest response to newness in the U.S., but recognize inherent risk in the required international comp acceleration in the coming quarters. We continue to see value in the category creator positioning, return profile, and brand value,” said Mr. Duffy.
* Wedbush’s Ashley Owens to US$350 from US$400 with an “overweight” rating.
“We are encouraged by newness returning to historical levels and new product offerings showing potential to become future core franchises. Despite adjusting our estimates and PT to account for updated guidance and after-hours share reversion, we believe LULU’s premium positioning enables it to hold up well in the current macro environment as it looks to selectively raise prices and mitigate the impact of tariffs. We believe management will continue to execute against strategic initiatives and drive growth toward its Power of Three x2 goals,” she said.
* JP Morgan’s Matthew Boss to US$303 from US$389 with an “overweight” rating.
* Jefferies’ Randal Konik to US$200 from US$220 with an “underperform” rating.
* TD Cowen’s John Kernan to US$321 from US$373 with a “buy” rating.
* Piper Sandler’s Anna Andreeva to US$270 from US$315 with a “neutral” rating.
* Wells Fargo’s Ike Boruchow to US$270 from US$300 with an “equal weight” rating.
* Needham’s Tom Nikic to US$317 from US$366 with a “buy” rating.
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In response to the accretive $120-million disposition of its Powder River Basin assets in Wyoming, Desjardins Securities analyst Chris MacCulloch raised his rating for Vermilion Energy Inc. (VET-T) to “buy” from “hold” previously, seeing its the stock valuation remaining “highly attractive in view of a largely derisked balance sheet and a natural gas–weighted production base."
Shares of the Calgary-based company jumped 4.5 per cent on Thursday following the premarket announcement of the deal with an unnamed buyer for $120-milllion in cash consideration and a $10-million contingent payment component based on WTI prices. It marks the end of cleanup of Vermilion’s non-core North American assets.
“The U.S. assets are currently producing approximately 5,500 boe/d [barrels of oil equivalent per day] (81-per-cent oil & liquids), translating into a 3.0 times 2025 NOI [net operating income] transaction metric according to our estimates, which is notionally accretive vs the stock’s current multiple of 2.6 times,” said Mr. MacCulloch. “Although we acknowledge that the company may not have received top dollar for the U.S. assets, we view the disposition positively to the extent that it continued strengthening the corporate balance sheet through a more concentrated portfolio while further shifting the story toward a natural gas–focused production base. The transaction, which will complete VET’s exit from the U.S., is expected to close in 3Q25.
“Following recent dispositions, the company provided updated 2025 production guidance of 117,000–122,000 boe/d (65-per-cent natural gas) based on a $630–660-million capital program, which is directionally consistent with our previous forecast prior to accounting for the U.S. asset sale. Meanwhile, VET also trimmed guidance for cash taxes to 4–8 per cent (from 6–10 per cent), operating costs to $13.00–$14.00/boe (from $13.50–14.50/boe) and its corporate royalty rate to 8–10 per cent (from 9–11 per cent), which helped cushion the cash flow impact of recent dispositions."
Mr. MacCulloch raised his rating based on an improved potential return to his revised $11.50 target, up from $11. The current average on the Street is $13.27.
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National Bank Financial analyst Adam Shine expects The Canadian Radio-television and Telecommunications Commission’s (CRTC) decision on third-party internet access (TPIA) to have “material consequences for future network investment.”
“It’s been four months since ... the CRTC opted to punt its decision by several months on whether to allow the Big 3 to resell each other’s networks,” he said in a client note released Friday. “The impression at the time was the related review process would continue through the spring with a decision this summer. With the new Carney Government getting its bearings and a shuffling of Cabinet and ministerial responsibilities, it’s not clear if the regulator won’t further postpone its decision.
“Decisions related to TPIA (Third-Party Internet Access) or wholesale broadband have been anything but straightforward. Efforts to address this segment since 2016 have moved forward and backward with gaps of inaction or lack of progress along the way. It’s been too long and too late for many to get to what was supposed to be a reasonably simple objective to help small independent Internet providers offer added competition to incumbents in Central Canada, let alone nationally.”
Mr. Shine emphasized “the net result of this saga was that the wholesale Internet market in Canada was materially hollowed out” and “little has actually been done to improve the situation for independent wholesalers, while seemingly contrary to the spirit of TPIA what’s been allowed has only really served incumbents, with Telus leveraging fibre access in Central Canada.”
“Telecom operators, big and small, don’t believe the Big 3 should be allowed to resell each other’s networks,” he said. “Telus is the exception, as it wishes to expand its addressable wireline market and bundle with wireless. Bell has been vocal about its displeasure with related CRTC decisions over the past 19 months and has materially cut wireline capex post-3Q23. Other operators have also expressed their frustration with the subversion of TPIA for the benefit of large operators.
“The CRTC was asked on Nov. 5, 2024 via an Order in Council to review its Nov. 6, 2023 decision within 90 days. As time passes, we reflect on what may come from a potential bad TPIA decision.”
Mr. Shine increased his target for a pair of telecom stocks on Friday based on valuation considerations. They are:
- Quebecor Inc. (QBR.B-T, “sector perform”) to $40 from $38. The average is $41.15.
- Telus Corp. (T-T, “sector perform”) to $23 from $22. Average: $22.55.
He reiterated his targets for these companies:
- BCE Inc. (BCE-T, “outperform”) at $35. Average: $33.92.
- Cogeco Communications Inc. (CCA-T, “outperform”) at $85. Average: $78.40.
- Rogers Communications Inc. (RCI.B-T, “outperform”) at $52. Average: $51.11.
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After hosting 5N Plus Inc. (VNP-T) for a series of investor updates recently, National Bank Financial analyst Rupert Merer continues to see “solid growth potential” for the Montreal-based producer of specialty semiconductors and performance materials, touting an “outlook for continued momentum following record Q1.”
“With its record Q1 adjusted EBITDA at $20.8-million (up 77 per cent year-over-year), driven by strong revenue (up 37 per cent y/y) and margins (GM up 330 basis points y/y), investors are looking for upside to VNP’s guidance at $55-60-million for 2025 (NBF estimate $70-million),” he said. “Guidance is supported by VNP’s contracts in its Renewable Energy, Space and Performance Materials (PM) markets, and complicated by a roughly 10-per-cent pull forward of revenue in Q1 from PM. Although sales to PM are seasonal and could soften later this year, VNP stands to benefit from above-contract sales volumes in its renewable energy segment and a sold-out space business. With this, our estimates are above guidance.”
In a client note released Friday, Mr. Merer touted the growth of its contributions to the aerospace industry, while also emphasizing its scaling capacity to capture multi-year growth.
“Over the last few years, VNP has seen a transformation of its business from one exposed to low-margin commodity products, to one focussed on contracted, high-margin, high-tech products with moats to competition,” he explained. With this, it has increased visibility on earnings and the confidence to invest in increased capacity. While the company historically traded at lower multiples (5 to 8 times EBITDA) which reflected a less attractive business mix, this is changing (to more than 10 times). The stock is re-rating to reflect an increasingly attractive (and sold-out) aerospace business.
“VNP is expanding its space product capacity by 30 per cent at its German facility (AZUR) this year, with production already sold out. This follows a 35-per-cent increase in 2024. Also, in Q3’24 it doubled its capacity in Montreal to produce semiconductor material for FSLR [U.S.-based First Solar Inc.] and could expand more given FSLR’s drive to shift international production to the U.S. VNP noted a strong M&A pipeline but emphasizes a selective approach, with targets focused on growing market share and leveraging cross-selling to existing clients.”
Believing the stock “re-rates for an increasingly favourable business mix,” Mr. Merer increased his target to $10.50 from $9, reaffirming an “outperform” rating. The average is $19.95.
“We do not believe that VNP should trade at a material discount to its peers,” he said. “Looking at VNP on a range of metrics, including EBITDA growth, leverage and margins, it looks better than most peers (its EBITDA should grow by 2 times from 2022 to 2025 and margins are expanding) and given the moats to competition, contracts and strategic positioning, it has a level of predictability that should lower risk. With this and the evolution of the business increasingly towards businesses that command a higher margin and multiples (like its specialty metal and space peers), it should see its trading multiple close the gap with peers.”
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In other analyst actions:
* Scotia’s Maher Yaghi downgraded Transcontinental Inc. (TCL.A-T) to “sector perform” from “sector outperform” while raising his target to $23.25 from $22. Analysts making target changes include: National Bank’s Adam Shine to $24 from $23 with an “outperform” rating, TD Cowen’s Sean Steuart to $26 from $23 with a “buy” rating and RBC’s Drew McReynolds to $25 from $24 with an “outperform” rating. The average is $23.75.
“TCL’s shares have delivered outsized performance in the last year thanks to a true transformation that management has been able to undertake in realigning the cost structure to improve margins,” said Mr. Yaghi. “In the process, the stock’s multiple has expanded by more than 1 turn on EV/EBITDA even while organic revenue growth has been essentially flat to down low single digits. The next stage to unlocking additional upside in the shares will require, in our view, a meaningful and sustainable step up in organic revenue growth in the packaging segment. Unlike the first objective, which was more internally focused, the next objective will require taking share from peers in a very competitive market. We are currently valuing TCL’s packaging business at 7.5 times while packaging peers trade in the 9-10-times zone so upside in valuations does exist, however unlike TCL, which we are expecting to register flat organic revenue growth in packaging in 2025, peers trading at higher multiples are growing sustainably in the 3-5-per-cent range. We will reassess our view on the shares as the year progresses but for now, and given the stock’s valuation and remaining upside to our target, we believe it is prudent to move to a SP rating.”
* Scotia’s Konark Gupta raised his Canadian National Railway Co. (CNR-T) target to $165 from $160, keeping a “sector outperform” rating. The average is $165.20.
“We came quite impressed with the industrial and construction activity from our tour of the Port of Prince Rupert, which boosts our confidence in CNR’s ability to grow earnings from the port, particularly from 2027 onward,“ said Mr. Gupta. ”Although Prince Rupert’s strategic value proposition, or ‘The Rupert Advantage’, remains intact, we noticed two major differences vs. our 2017 tour. First, the port has significantly expanded capacity but volumes are tracking only slightly up vs. 2017 (down from the 2020 peak) as utilization has fallen to 50 per cent due to port/rail labour disruptions over 2023-2024, so capacity should not be a constraint for years. Second, a record $3-billion worth of capital projects are underway to prepare for future growth across containers and bulks. Overall, we see potential for CNR’s revenue from the port to double within the next decade.”
* In response to Thursday’s announcement of a debt restructuring deal with the Canada Enterprise Emergency Funding Corporation, National Bank’s Cameron Doerksen increased his target for shares of Transat A.T. Inc. (TRZ-T) to $1.75, matching the average on the Street, from $1.50, keeping an “underperform” rating, while Scotia’s Konark Gupta raised his target to $1.75 from $1.25 with a “sector underperform” rating.
“We maintain our Sector Underperform rating while raising our target to $1.75 (was $1.25) to reflect equity accretion from government debt restructuring, partially offset by our reduced assumptions for forward bookings due to macro uncertainties,“ said Mr. Gupta. ”The debt restructuring transaction, pending the finalization of definitive agreements, will effectively cut TRZ’s pro forma net debt by $380-million while reducing annualized interest costs by more than $40-million for the first five years (more than $30-million for the next five years). However, we think equity dilution risk will increase given the issuance of preferred shares that will be convertible into common shares while the expiry of equity warrants will also be extended to 2035. That said, the net outcome is not as concerning as we had feared, which causes us to raise our share price outlook. Still, we remain cautious on TRZ due to its elevated pro forma leverage ratio at sub-7 times, which creates high risk for equity investors especially during these uncertain times given TRZ’s strong sensitivity to external variables (including yield, inflation, fuel and FX)."