Inside the Market’s roundup of some of today’s key analyst actions
Citing improved internal execution, “encouraging” same-store sales trends and “the stock’s material negative reaction,” Scotia Capital analyst John Zamparo upgraded Empire Co. Ltd. (EMP.A-T) to “sector outperform” from “sector perform” on Friday.
“Results have moved from stable to solid, in our view: [gross[ margins continues to expand, while cost reduction efforts remain,” he said in a report released before the bell. “Meanwhile, food SSS aligns with peers, with the tailwinds of third-party e-comm growth and the ‘Buy Canada’ theme, which might also impact retailers rather than solely brands. These all help offset EMP’s lack of pharmacy and discount food presence. Finally, we consider 13.5 times P/E [price-to-earnings] an attractive point. We’ve increased our F26 & F27 EPS estimates by 2 per cent. We now project a double-digit EPS 2-year CAGR [compound annual growth rate], and a 5.5-per-cent EBIT 2-year CAGR. The market may be moving outside of staples, but we consider EMP relatively defensive with some upside.”
Empire’s U.S. product sales dropping during trade war, CEO says
On Thursday, shares of the Sobeys Inc. parent slid 4.5 per cent despite reporting third-quarter 2025 results that largely met expectations. Mr. Zamparo thought the in-line report “obscures a relatively strong same-store sales growth (SSSG) and gross margin performance, particularly in the context of a softer environment for consumer spending.”
“Q4′s SSS to date aligns with FQ3′s 2.6 per cent,” he said. “We attribute this to internal execution (a lower promo penn. rate in this environment is impressive); contribution from Farm Boy (likely comping better than the consol. figure); discount conversions; and e-comm,” he said. “Management’s commentary on consumers’ spending patterns suggest there’s potential sustainability to the buy local theme. That can be beneficial to CPG brands, which includes EMP’s private labels, but also Canadian grocers, who may take share. Finally, we anticipate an acceleration in food inflation — which could hit attractive levels for the grocers — from CPG supplier asks, certain commodities and a costlier USD.”
Looking forward, the analyst sees the Nova Scotia-based company’s e-commerce business become “a meaningful contributor” and also thinks “some modest margin expansion remains.”
“It didn’t take long for third-party aggregators to have a real impact,” he said. “We believe this is where the lion’s share of e-comm growth comes from industry wide; FQ3 seems to support that. Year-over-year e-comm growth accelerated to 72 per cent from just 12 per cent in FQ2; aggregators represent the primary difference. We believe this added 60 bps to SSS. With the national roll-out now complete, this could support comps for 2-3 more quarters. We estimate third-party providers already generate 1/3 of EMP’s e-comm sales.
“Matching Empire’s recent gross margin gains probably isn’t repeatable — these have averaged ~50 bps ex-fuel LTM [last 12 months] — though we do anticipate EMP can eke out another 20 bps in F26. We’re less optimistic on SG&A, though FQ3 represented unusual growth because of stock-based comp (we estimate it turned what would’ve been 11-per-cent EPS growth to flat year-over-year). We model a 3.5-per-cent SG&A CAGR through F27.”
Mr. Zamparo raised his target for Empire shares to $49 from $47. The average target on the Street is $48.38, according to LSEG data.
“Valuation gap reflects structural factors,” he said. “There’s no getting around EMP’s lower pharmacy and discount exposure. That said, EBITDA growth is accelerating, while EMP’s valuation gap to peers hasn’t much changed. We do not expect multiple contraction from peers, but EMP could gain 1-2 turns vs. the 13.4 times it trades at now; pair that with double-digit expected EPS growth (30 per cent from the buyback), and we believe investors will be rewarded here.”
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National Bank Financial analyst Maxim Sytchev thinks AtkinsRéalis Group Inc.’s (ATRL-T) soft quarterly results were offset by a higher-than-anticipated price for the sale of its remaining stake in Ontario’s 407 toll highway operator.
On Thursday, the Montreal-based company said Thursday it had signed agreements with subsidiaries of Spanish multinational Ferrovial SE and the Canada Pension Plan Investment Board to sell its current 6.76 per cent share of 407 International Inc in a $2.79-billion deal.
“With a positive delta of close to $5.00/sh on 407 vs. our standalone valuation, today’s share price reaction would imply a negative $3 per share move down for the rest of the business, which sounds fair to us given greater than modeled LSTK losses and some timing-related impacts to the 2025E outlook that made 2024 look better than it is, creating a tougher comp for 2025 ($100-million swing in operating cash flow due to pre-payments in nuclear),” Mr. Sytchev. “All in, with higher mark-to-market on 407 ETR selling price, it also automatically compresses the stub P/E (around 16 times on 2026E) and EV/EBITDA valuation, still creating a positive risk/reward skew. We were also pleased to hear that no large-scale M&A is being contemplated (at least not over the next 18-months time horizon).”
The announcement of the transaction coincided with the release of AtkinsRéalis’ fourth-quarter financial results. Consolidated revenue of $2.588-billion exceeded the expectations of both Mr. Sytchev and the Street by 7 per cent ($2.411-billion and $2.410-billion, respectively), while consolidated earnings before interest, taxes, depreciation and amortization of $203.6-million fell 22 per cent under estimates ($263-million and $261-million due to “more pronounced (than expected) losses in LSTK on commissioning costs for Trillium and additional provisions taken on delays for Eglinton LRT (Engineering and Nuclear were in line).”Consolidated adjusted EPS came in at 56 cents, falling short of the analyst’s 81-cent projection and the Street’s 78-cent forecast.
Despite the miss, Mr. Sytchev thinks the company’s Engineering Services business appears “solid” though growth is likely weighted toward the second half of the current fiscal year, and its Nuclear segment is “strong” with “robust” market momentum. The focus now turning to capital deployment following the monetization of its 407 stake, which he emphasized creates “significant” balance sheet optionality.
“With about half of the $2.8-billlion sale proceeds (likely closer to $2.5-billion on a net basis) to be available upon closing next quarter and the remainder within a year and a half, ATRL could potentially eliminate all debt on its balance sheet while retaining significant dry powder for buybacks (management’s preferred method of shareholder returns) and further acquisitions,” he said. “On the latter front, management reiterated its preference for smaller and midsize targets to ensure the integration process/strategic execution proceeds smoothly.”
While he “moderated” his 2025 forecast to align with the company’s guidance for 2025 with organic growth for engineering services more weighed towards the second half of the year, Mr. Sytchev increased his target for the company’s shares by $1 to $89 “as the higher 407 valuation more than offsets modeling compressions around the core business.” The average target on the Street is $89.69.
He maintained an “outperform” recommendation for AtkinsRéalis shares, citing “margin expansion upside, soon a net cash position, NCIB potential and a discounted valuation versus engineering consulting peers.”
“We would be buyers at current levels,” he concluded.
Elsewhere, other analysts making target adjustments include:
* RBC’s Sabahat Khan to $92 from $89 with an “outperform” rating.
“While Q4 results were below expectations, the proceeds from the 407 disposition likely served as an offset, driving a ‘flat’ share price reaction [Thursday] (against a tough market print),” said Mr. Khan. “Looking ahead, AtkinsRéalis is making progress toward becoming a cleaner/simpler story. Following the announced sale of its 407 ETR ownership position and the completion of the Trillium LRT, investor focus will likely shift toward the wind-down of the remaining 2 LSTK projects (Eglinton LRT + REM [Réseau express métropolitain]; majority of the remaining $234-million backlog relates to REM), while a potential sale of Linxon would also be a positive development. Heading into the print, we had some concerns around the 2025 guidance given tough recent comps; however, guidance for Engineering (7-9-per-cent organic growth and 60 basis points of year-over-year Adj. EBITDA margin improvement) and Nuclear (10-per-cent year-over-year revenue growth at mid-point) points to a year of good top-line growth and margin progression.”
* ATB Capital Markets’ Chris Murray to $100 from $80 with an “outperform” rating.
“While ATRL reported mixed results for Q4/24 on the back of the LSTK loss, the Company is positioned to deliver organic growth and margin expansion in 2025, with M&A set to provide a complementary source of growth,” said Mr. Murray. “Management issued guidance for 7.0-9.0-per-cent organic growth and moderate margin expansion in Engineering Services and 10.0 per cent in Nuclear. While management remained positive about demand conditions across its ES regions/sectors, the Company expects to deliver stronger growth and margin performance in Canada in 2025, with its US-based business primarily focused on growth, including inorganic component following its recently announced acquisition of David Evans & Associates. Management remained bullish on its outlook for Nuclear, given growing demand conditions and its ability to leverage the CANDU technology to perform life extension and services work, with ongoing investment in the new Monark next-generation CANDU reactor offering a significant opportunity for the Company over the longer term. We see ATRL as favourably positioned to deliver on its guidance with M&A providing an additional source of growth.”
* Desjardins Securities’ Benoit Poirier to $98 from $91 with a “buy” rating.
“While the weaker-than-expected 4Q caused many to view the results as mixed, we do not believe the non-recurring nature of the LSTK drag and FCF cash advance headwind should be a cause for concern. In our view, the market is significantly underestimating the optionality and quantum of the cash proceeds provided by the 407 divestiture. On the call, management confirmed that no transformative M&A is being considered at the moment and we expect ATRL to be active on the NCIB,” he said.
* Scotia’s Jonathan Goldman to $84 from $81 with a “sector outperform” rating.
“Higher-than-expected proceeds on the sale of the 407 should outweigh higher LSTK losses and weaker-than-expected CFO guidance,” said Mr. Goldman. “We estimate NPV of the 407 sale at $13.85/share compared to our prior estimate of $10.50/share. LSTK cash outflows are expected to approximate 2024 levels of $130 million this year, $45 million higher than we had expected. Both items represent a positive net delta of $3/share. Nuclear continues to surprise to the upside, and we forecast a 45-per-cent quarter-over-quarter increase in the backlog in 1Q25 underpinned by announced project wins (Cernavoda 1 and Pickering 5-8). ES continues to perform in line with expectations. Organic growth should accelerate in the 2H as it laps easier comps while the outlook calls for continued margin expansion (up 50 year-over-year at the midpoint).”
* Stifel’s Ian Gillies to $100 from $102 with a “buy” rating.
“When we launched on AtkinsRéalis in February, two of our key theses are 1) bolt-on M&A; and 2) capital flexibility provided by Highway 407 once it is sold,” he said. “Fast forward five weeks, Atkins announced a US$300-million acquisition on February 18 and the sale of its 6.76-per-cent interest in Highway 407 [Thursday]. The company is doing exactly what they told the market they were going to do, and we believe investors will view this positively and shift their focus to ATRL’s capital deployment, on top of driving organic growth and margin improvements. We estimate ATRL’s 2026E dry powder to be $3.7-billion, which could be used to acquire $335-million of EBITDA, leading to an implied share price of $114/sh under this scenario. We are changing our Target Price to $100 from $102, while we await capital deployment.”
* Raymond James’ Frederic Bastien to $105 from $100 with an “outperform” rating.
“The press releases were coming fast and furious yesterday, with AtkinsRéalis announcing in rapid succession the sale of its remaining 6.76% stake in Highway 407, a buyback program for up to 10 per cent of its public float, and much-weaker-than-expected 4Q24 results,” said Mr. Bastien. “To the extent the firm will net approximately $725-million (or $4.10 per ATRL share) more from Highway 407 than what consensus valued its interest at, we are surprised the Street got hung on the $84-million of additional LSTK project losses incurred in the period. Keeping AtkinsRéalis’ attractive nuclear exposure, strong balance sheet, above-average growth prospects and improving margin profile in mind, we reaffirm our Outperform rating and raise our target price.”
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While Bird Construction Ltd. (BDT-T) reported “solid” quarterly results that fell in line with his expectations, Mr. Sychev emphasized its outlook for the current year is weighted toward the second half, leading to ask: “Is that compelling enough as shares come off a 19-per-cent [decline] year-to-date (vs. TSX at down 1 per cent)?”
“Bird’s management team continues to execute well, surpassing 2022 strategic plan objectives and on the way towards 2027 ambitions,” he said. “Earnings revisions and corresponding share price momentum has been extremely robust over the last 36 months but late 2024 euphoria had pushed the shares towards what we viewed as unsustainable levels. Now, at 5.4 times EV/2025 estimated EBITDA and an FCF yield of 5 per cent (on 2025E), expectations appear to be more realistic. The outlook does suggest that the bulk of revenue growth will be H2/25E-weighted and investors are never keen on pushed out growth when it comes to timing. At the same time, most end-markets to which BDT now has exposure are showing growth (with perhaps iron ore being slower). From a positioning perspective, we get a sense that earnings revision momentum might slow in the short term; we are therefore biding our time somewhat. Perhaps re-industrialization could be a positive catalyst over the longer term, but for the time being, we want to see how these conflicting dynamics settle down.
Keeping a “sector perform” rating, Mr. Sytchev trimmed his target to $30 from $32 after adjusting his expectations around growth and margins. The average is $34.38.
“We incorporated seasonality changes due to tough comps from H1/24 leading to 2025E organic growth to be 2/3 weighted towards the back half,” he said. “We maintain our forward margin estimates to account for Investor Day targets set for 2027 which imply a 60 basis points per year margin improvement and 12-per-cent revenue CAGR per year, although we are a bit below that objective as we are more cautious on how much more internal efficiency opportunity remains; after all, our 2026E margin implies a 220 bps improvement from healthy 2023 levels.”
Elsewhere, CIBC’s Krista Friesen upgraded Bird to “outperfomer” from “neutral” with a $31 target, down from $36.
“After posting solid Q4 results with a margin above our and Street expectations, we were surprised to see BDT shares trade down [Thursday]. The company reiterated the long-term guidance it had issued at its Investor Day in October, and provided commentary around 2025 that was in line with our expectations. We were previously of the thought that the market had largely priced in strong execution by BDT against the targets it had laid out; however, with shares of the company now down 22 per cent year-to-date and 37 per cent since its Investor Day, we view current levels as a compelling entry point,” said Ms. Friesen.
Analysts making target changes include:
* Stifel’s Ian Gillies to $37 from $38 with a “buy” rating.
“Bird delivered a strong quarter that included a 4.7-per-cent consensus EBITDA beat while with minimal changes to our 2025E outlook and no changes to the 2025-2027 strategic plan. We view the quarter positively and believe it should alleviate some prior concerns of project delays. We believe the company is well positioned to deliver 15.0-per-cent revenue growth and expand its EBITDA margins 70 bps to 7.0 per cent in 2025E. The company’s valuation remains very inexpensive at 6.3 times 2026E P/E (peers: 10.7 times), and we see significant upsides for the stock,” said Mr. Gillies.
* Canaccord Genuity’s Yuri Lynk to $35 from $36 with a “buy” rating.
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National Bank Financial analyst Rupert Merer sees Ballard Power Systems Inc.’s (BLDP-Q, BLDP-T) “strong balance sheet and growing backlog [are] nice to have with a tough market outlook.”
TSX-listed shares of the Vancouver-based company rose 3.4 per cent on Thursday despite reporting revenue of US$24.5-million, below the Street’s US$30.7-milion estimate with all of its segments except for the bus segment seeing year-over-year declines. Adjusted EBITDA of a loss of US$36-million was also below the consensus forecast of a loss of US$34-million, while gross margins showed signs of improvement.
Mr. Merer emphasized market adoption “remains challenging,” but its backlog is ticking up. He also sees cost-cutting initiatives set to deliver results in 2025.
“Hydrogen and EV markets face challenging times, with falling demand leading to industry rationalization,” said Mr. Merer. “However, BLDP’s order backlog stands at $173.5-million (up 41 per cent quarter-over-quarter) with $75.4-million in new orders during Q4. With this, the 12-month order book moved higher to $98.9-million (above 2024 revenue at $7-million). The bus segment continues to be a bright spot and the greatest contributor to BLDP’s revenue mix (approximately 63 per cent of FY’24 revenue). BLDP highlights 50 per cent of its current backlog is tied to the bus market, which includes its 200-fuel cell order ($20-million) from NFI (TSX: NFI, Rating: “outperform”, $19 TP, Analyst: Cameron Doerksen). The remainder should largely be from the rail vertical, including its recent orders for 98-fuel cell engines with CPKC (TSX: CP, Rating: SP, $123 TP, Analyst: Doerksen) and 8 MW of fuel cell engines with Stadler Rail.
“BLDP is actively working on its restructuring plan, which targets operating expense reduction of 30 per cent per year through workforce reductions, operational consolidation and decreased CapEx, most of which should be realized in H1′25E. The restructuring involves delaying plans to invest in its Texas gigafactory to 2026, preserving over $94-million in government funding potential. BLDP will also halt investment into its Weichai JV and will continue to evaluate business options. Ending Q4 with $604-million in cash ($2.02/sh) and no near or mid-term financing requirements, BLDP is well-positioned for 2025.”
Trimming his forecast to account for the quarterly results and the company’s outlook for 2025E, Mr. Merer cut his target for Ballard shares to US$2 from US$2.60, keeping a “sector perform” rating. The average target is US$2.06.
“Although BLDP has a strong balance sheet and leading market share in key segments, we remain cautious on the hydrogen industry. With adjustments to our forecasts and softness across the peer group, we are lowering our target,” he explained.
Elsewhere, others making target adjustments include:
* Raymond James’ Michael Glen to US$2 from US$2.50 with a “market perform” rating.
“Exiting 4Q24, Ballard remained well capitalized with $604-million in cash and equivalents, which equates to $2.02 per share,” he sai. “There is no debt, and the company is not expected to seek financing inthe short to medium term. That said, the stock currently trades at 62 per cent of cash per share which should help provide some perspective of the value investors are assigning to the business and operations. In that regard, we believe if the industry slow down continues to be much longer and more protracted, Ballard will take additional steps to control its cash burn.”
* HSBC’s Samantha Hoh to US$1.40 from US$1.90 with a “hold” rating.
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Desjardins Securities analyst Chris MacCulloch sees Freehold Royalties Ltd. (FRU-T) as “fun and (mostly) tariff free” after its release of “constructive” fourth-quarter 2024 financial results and guidance for 2025.
“To close out 2024 on a high note, FRU feathered in another accretive transaction south of the border in the Permian, which contributed to the 4Q24 production and cash flow beat,” he said. “The company’s success was a reflection in part of its expanding position in the most economically attractive basins in North America, which continue to attract investment capital in the face of softening oil prices. Specifically, FRU’s growing footprint in the Permian in the U.S. and the Clearwater and Mannville stack plays in Canada appears poised to continue delivering modest organic production growth in 2025, the latter of which is expected to offset declines in other parts of the WCSB. Meanwhile, the company continues to realize additional value from its U.S. mineral title holdings amid the escalating cross-border trade war to the extent that 50 per cent of corporate revenue is now derived south of the border. However, we caution that the combination of steel tariffs and sliding oil prices could emerge as a governor on U.S. industry drilling activity.
“With respect to capital allocation, FRU maintained its C$0.09/share monthly dividend, which has remained steady since 4Q22, driving a 70-per-cent strip payout ratio, at the midpoint of the 60–80-per-cent corporate target. While some investors may be frustrated by the static dividend, particularly given the lack of share buybacks, we continue to view accretive acquisitions as the best long-term use of capital.”
Mr. MacCulloch increased his liquids weighting model for Freehold, noting “operator activity on both sides of the border continues to focus primarily on light and heavy oil targets.”
“While debt repayment remains the immediate priority, we still see opportunities for the company to continue scaling the business model through accretive M&A,” he said.
After raising his cash flow expectations through fiscal 2026, the analyst bumped his target for the Calgary-based company’s shares to $17 from $16.50, reiterating a “buy” recommendation. The average is $17.10.
“Our revised $17.00 target implies 10.0 times EV/DACF [enterprise value to debt-adjusted cash flow] (2026 estimate) on a hedge-adjusted basis, which is well above the stock’s historical consensus multiple of 7.7 times,” he explained. “For context, our multiple would expand slightly to 11.1 times based on current strip prices. Alternatively, our target also implies a 10.0-per-cent FCF yield (2026E), which would contract slightly to 9.0 per cent at the strip.”
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In other analyst actions:
* Stifel’s Ian Gillies lowered his Algoma Steel Group Inc. (ASTL-T) target to $15.25 from $21 with a “buy” rating. The average is $19.58.
“We believe an investor is going to view Algoma through one of two ways: (1) tariffs will be temporary and the stock is a buy given the medium-term EBITDA potential of $426-million which suggest a valuation of 3.2 times EV/EBITDA; or (2) the duration of tariffs is uncertain and if they last a number of years there could be liquidity risk,” said Mr. Gillies. “We lean towards the first option, and discount the second view because we believe a Canadian government put option will appear if necessary. We continue to use run-rate EBITDA of $426-million to set our target price, but have lowered our target multiple to 5.0 times EV/EBITDA from 6.0 times given ongoing geopolitical risks. We are lowering our target price to $15.25 from $21.00. We will be quick to reverse course on our target multiple if and when geopolitical risks subside.”
* RBC’s Keith Mackey reduced his Calfrac Well Services Ltd. (CFW-T) target to $4.50 from $5 with a “sector perform” rating. The average target is $5.
“4Q24 results were below our expectations on softer North America results. From here, Calfrac is generating operational momentum in Argentina, while capital requirements from its Tier 4 upgrade program should begin to slow. Granted, NAM free cash flow looks to be turning positive, but we await margin expansion and increased FCF durability before potentially becoming more bullish,” said Mr. Mackey.
* In a note titled Outperformance hard to ignore, units should trade higher, National Bank’s Matt Kornack raised his Flagship Communities REIT (MHC.U-T, MHC.UN-T) target by US$1 to US$21 with an “outperform” rating. Elsewhere, other changes include: Desjardins Securities’ Kyle Stanley to US$20.50 from US$19.50 with a “buy” rating and Raymond James’ Brad Sturges to US$20 from US$19 with a “strong buy” rating. The average is $20.20.
“Q4 results continued to exceed our expectations, building on outperformance witnessed during Q3,” said Mr. Kornack. “NOI [net operating income] was ahead on strong rental growth, incremental margin improvements, a product of further ancillary revenues. The business remains inflation/recession resilient with management expecting mid-to-high single digit SPNOI [same-property net operating income] growth in 2025 on 6-per-cent rental growth, improved occupancy and expanding margins. Looking out to next year, we expect these robust results should persist despite tariff headlines impacting other asset classes. On this basis, we think the stock should outperform the broader REIT offering.”
* CIBC’s Kevin Chiang cut his Transat AT Inc. (TRZ-T) target to $1.20 from $1.80, below the $1.64 average, with an “underperformer” rating.
“On the back of TRZ’s FQ1 results, the company continues to see a rational competitive environment for the sun destination and transatlantic markets, while its Elevation Program is progressing well. That said, growing concerns over an economic slowdown are weighing on TRZ’s shares given it is more exposed to leisure travellers, while its debt level remains elevated,” he said.
* In response to a quarterly earnings beat, National Bank’s Adam Shine increased his target for shares of Verticalscope Holdings Inc. (FORA-T) to $15 from $13 with an “outperform” rating. Other changes include: TD’s Vince Valentini to $18 from $17 with a “buy” rating and Raymond James’ Steven Li to $14.50 from $13 with an “outperform” rating. The average is $16.13.
“MAU [monthly active users] expected to grow double-digits organically in 2025 after an initial flat 1Q, with improvements in DAU [daily active users],” Mr. Shine said. “Management continues to see promise in its mobile app, but is particularly excited about using AI to translate its content and expand internationally. We will continue to monitor macro conditions and any Google search engine changes (impact in 4Q24 & 1Q25). FORA now sits with a better cost structure and balance sheet.”
* CIBC’s Cosmos Chiu raised his Street-high target for Wheaton Precious Metals Corp. (WPM-N, WPM-T) to US$88 from US$85, exceeding the US$76.38 average, with an “outperformer” rating.