A survey of North American equities heading in both directions
On the rise
Canadian Imperial Bank of Commerce (CM-T) closed 0.4 per cent higher after it launched a major leadership shakeup, aimed at developing key senior executives and bolstering the lender’s growth strategy as chief executive officer Victor Dodig and the board set the stage for eventual succession at the country’s fifth-largest bank.
The shuffle in the senior ranks of the bank references the three executives widely considered to be candidates for the role of CEO. Chief financial officer Hratch Panossian is moving to a role in the Canadian banking division, capital markets head Harry Culham’s role is expanded to include new mandates, and Shawn Beber will continue in his current role as head of the U.S. division.
“I look at it as just a natural evolution,” Mr. Dodig said in an interview. “This is a team sport. This is about the baton. Sometimes you hold it on your own for a while, but you hand it over. Sometimes it’s about giving the torch to the next generation. That’s what this is all about.”
Succession at some of Canada’s largest lenders has been thrust into the spotlight as long-time CEOs grapple with the economic downturn and the high interest rates squeezing consumer and business wallets, and regulators crack down on anti-money laundering weaknesses and other threats to the banking system. Questions on the effectiveness of succession planning have swirled since Bank of Nova Scotia stunned Bay Street by taking the rare route of tapping a board member for its CEO seat.
Mr. Dodig has been in the top job at CIBC for nearly a decade, which is the typical tenure for a Canadian bank CEO. But he has no plans to retire any time soon.
“Having started as a teller here, the bank’s particularly dear to me, so I want to do everything to make sure that the bank continues to perform, and we have that deep talent pool so when the board decides what they want to decide, they can make that decision with great comfort,” Mr. Dodig said.
- Stefanie Marotta
Constellation Software Inc. (CSU-T) increased 4.5 per cent on Thursday despite reporting a decline in its net income attributable to common shareholders to US$141-million in the fourth quarter of 2023 from US$152-million a year earlier.
Full reaction from the Street: Thursday's analyst upgrades and downrgades
The Toronto-based company says revenue was US$2.32-billion, up from US$1.8-billion during the fourth quarter of 2022 and above the Street’s expectation of US$2.275-billion.
Earnings per diluted share were US$6.64, down from US$7.19 a year earlier.
Revenues for the full financial year rose to US$8.4-billion, up from US$6.6-billion in 2022.
Constellation says that the uptick in revenues for the fourth quarter and the full year are primarily attributable to growth from acquisitions.
Constellation’s earnings for the full financial year were US$565-million, up from US$514-million in 2022.
“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 Raymond James analyst Steven Li.
Waterloo, Ont.-based Descartes Systems Group Inc. (DSG-T) gained 4.6 per cent after reporting fourth-quarter adjusted earnings of 37 cents per share up from 34 cents during the same period a year ago and in line with the Street’s forecast.
Revenue rose 18.4 per cent to $148.20-million from a year ago, topping analysts’ expectation of $143.9-million.
“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,” Scotia’s Kevin Krishnaratne 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.”
Linamar Corp. (LNR-T) rose 11.4 per cent after reporting it earned $104.4-million in the fourth quarter of 2023, up from $92.2-million a year earlier.
The Guelph, Ont.-based manufacturing company says sales were $2.5-billion, up from $2.1-billion during the same quarter in 2022.
Diluted earnings per share were $1.69, up from $1.49.
Earnings in 2023 rose year over year to $503.1-million, while sales for the full year also rose, to $7.9-billion.
Executive chair and CEO Linda Hasenfratz said the company is looking forward to another year of double-digit growth in 2024.
The company increased its dividend to shareholders to 25 cents per share.
“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 Scotia analyst Jonathan 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).”
Sleep Country Canada Holdings Inc. (ZZZ-T) was up 3.1 per cent after reporting it earned $22.5-million in the fourth quarter of 2023, down from $40.5-million a year earlier.
The Toronto-based company says revenues were $255.6-million, up from $253.0-million during the fourth quarter of 2022.
Diluted earnings per share were 65 cents, down from $1.13 a year earlier.
President and CEO Stewart Schaefer said the company delivered strong results despite ongoing “industry challenges” across North America.
The company says its higher revenues during the quarter were mainly due to new stores and acquisitions, but were partially offset by a decrease in same-store sales.
Earnings for the full year were $71.2-million, down 36 per cent from $110.5-million in 2022.
In a research note, Stifel analyst Martin Landry said: “Sleep Country reported better-than-expected Q4/23 results with EPS of $0.56, down 16 per cent year-over-year, but better than our expectations and consensus of $0.53. The $0.03 difference vs. our forecast comes from higher revenues (accounting for $0.02/share), and lower SG&A (accounting for $0.01/share). Same-store sales (SSS) decreased by 3.2 per cent year-over-year, better than our expectations of a 4-per-cent year-over-year decline. While Sleep Country capped a challenging year with 2023 SSS down 6.4 per cent year-over-year and 2023 EPS down 25 per cent year-over-year, the pace of deterioration seems to have abated in Q4/23 vs other quarters in 2023 with ZZZ reporting the lowest decline year-over-year in SSS and EBITDA in Q4/23 relative to other quarters in 2023. We forecast sales growth and EPS growth to return in 2024, but the year-over-year growth is likely to be muted as Canadians continue to face headwinds on their disposable income. We do not expect a material stock reaction [Thursday].”
AutoCanada Inc. (ACQ-T) closed 2.2 per cent higher with the premarket release of a fourth-quarter 2023 earnings miss as higher operating expenses weighed on results.
The Edmonton-based automotive retailer reported revenue of $1.484-billion, up 7 per cent year-over-year and above the Street’s forecast of $1.410-billion. However, adjusted EBITDA slid 9 per cent to $46.4-million, missing the consensus estimate of $53.2-million.
“Consumer economics remain challenging; executing on streamlining initiatives will be key,” said National Bank Financial analyst Maxim Sytchev. “Interest rates in Canada and the US remain high, pressuring broader economic activity and especially discretionary spending, especially in the former geography where ACQ derives most of its revenues. On the cost side, floorplan financing expense saw another big year-over-year jump (up $4.1-million or 26 per cent) and we expect this to remain elevated in the near term. Normalizing new vehicle inventory is expected to continue pressuring margins, and we do not believe the sequential declines seen over the last number of quarters (again, pressuring margins as more expensive inventory needs to be sold). Management completed the reorganization of the struggling US business earlier this year, and targets reaching sustained profitability by the end of the year. Work on the 5-year strategic plan – ‘Project Elevate’ – is still in the very early innings, as the company seeks to rationalize its cost structure and close the margin gap to U.S. peers (and private Canadian peer Dilawri).”
“Financing costs and customer preference for cheaper vehicles is not a short-term trend, in our view. We believe the Canadian consumer will remain under pressure for foreseeable future, creating potential pressure on gross new and used margins (note that gross new margins are down 80 basis points and 150 basis points, respectively). With U.S. operations again generating a loss, we are likely to be in a break-even scenario there as the U.S. market remains competitive. Overall, while we agree that the shares are not expensive per se (4.9 times EV/EBITDA on 2024E pre-Q), there is not a huge amount of urgency to be there for the time being. While we of course appreciate management pushing through operational improvements and now also fostering digital used initiatives, the complex structure of that relationship could be difficult to capture for public shareholders of ACQ.”
Novo Nordisk (NVO-N) said on Thursday early trial data for its highly anticipated experimental obesity drug amycretin showed a higher weight loss compared with its popular Wegovy treatment, sending its shares to new record highs.
A Phase I trial of amycretin pill version showed participants lost 13.1 per cent of their weight after 12 weeks, the company said at an investor meeting. That compares to a weight loss of about 6 per cent after 12 weeks in a trial for Wegovy, its blockbuster obesity drug.
Investors welcomed the news as indicating Novo had more in its pipeline beyond its hugely successful Wegovy. Its shares have soared since launching the weekly injections in the United States in 2021 and are now Europe’s most valuable listed company, ahead of LVMH.
“Novo has made clear that the amycretin molecule likely will form the foundation of the company’s rapidly growing pipeline,” said Guggenheim analyst Seamus Fernandez.
Novo’s shares surged to a record peak following the announcement. Shares have risen more than three-fold since June 2021 when it launched Wegovy in the United States.
Nearly half of Novo’s current valuation is based on the company’s pipeline of new experimental drugs such as amycretin, according to calculations by Berenberg analysts last week.
Wegovy, which showed an overall weight loss of 15% after 68 weeks, belongs to a class of drugs known as GLP-1 agonists, originally designed to treat type 2 diabetes, that have been shown to reduce food cravings and empty the stomach more slowly.
On the decline
Shares of Tourmaline Oil Corp. (TOU-T) were down 1.1 per cent on Thursday after reporting it earned $700.2-million in the last quarter of 2023, up from a loss of $30.4-million a year earlier, and a further increase to its quarterly dividend
The Calgary-based company says revenues were $1.7-billion, down from $2.2-billion in the fourth quarter of 2022.
Diluted earnings per share were $2.00, up from a loss of nine cents per share a year earlier.
Tourmaline says its average production in the fourth quarter was 556,957 barrels of oil equivalent per day, up nine per cent from the fourth quarter of 2022.
Due to continuing weak natural gas prices, the company says it has decided to reduce its forecast 2024 capital expenditures to $2.13-billion, down from $2.35-billion.
It says the budget reductions include a reduction in its rig count and a deferral of select exploration drilling and facility projects.
Tourmaline also increased its quarterly base dividend by 7 per cent to 30 cents a share. It’s company’s 13th raise since the first quarter of 2018 and represents 20-per-cent year-over-year growth and a 25-per-cent compound annual growth rate since inception.
“TOU delivered solid Q4/23 results, with Adjusted Funds Flow (AFF) ahead of expectations on lower cash costs and Free Cash Flow (FCF) in line with consensus,” said Scotia analyst. “The company put up solid PDP reserves metrics, with 20-per-cent growth (we estimate 6-per-cent organic) and a 2.2 times corporate recycle ratio. TOU’s Q1/24 special dividend of $0.50/share met our expectations, while the 7-pre-cent base dividend increase to $0.30 per share/quarter was bigger (and sooner) than we expected. The company held to its plan to maximize FCF and reduced its 2024 all-in capital budget by 9 per cent, with a 2.5-per-cent decrease to production guidance. As a result, we estimate FCF will increase by more than 10 per cent versus the original budget on both our price deck and current strip. Importantly, TOU expects liquids production to decrease slightly under its updated guidance, while natural gas production will decrease 100 mmcf/d (all priced at AECO). Overall, we see TOU’s release as a positive for the stock, with capex and gas production down slightly and FCF and the base dividend up. We believe these moves demonstrate the company’s commitment to generate value for shareholders. We continue to see TOU as best in class in the North American natural gas space.”
Victoria’s Secret & Co’s (VSCO-N) shares plunged on Thursday after the lingerie brand forecast weaker annual sales following a sluggish start to the year as shoppers in its key North America market switch to cheaper options.
The company, popular for its PINK brand of intimates, forecast fiscal 2024 net sales of US$6-billion, indicating a third annual sales dip in a row, below LSEG estimates of US$6.14-billion.
“Broader intimates market in North America will remain pressured throughout the first and second quarter, with sales trends improving throughout the back half of 2024,” the company said as it forecast a glum first quarter.
It expects first-quarter net sales to decline in the mid-single-digit range, compared with analysts’ expectation of a 2.5-per-cent fall.
The company, however, announced repurchase of up to US$250-million worth of shares.
“While the newly announced share repurchase program can help support the stock near-term, ultimate visibility to operational improvements remains challenging,” said Dana Telsey of Telsey Advisory Group.
Shares of the company, which has been grappling with declining demand, lost nearly 26 per cent of their value last year, and were down 3.5 per cent so far this year.
While the company’s fourth-quarter margins jumped 240 basis points helped by lower freight costs, merchandising strategies and easing inflation, they reflected challenging demand.
The quarter “reflected a shift towards value and Amazon... in addition to sportswear players such as Lululemon taking share in the sports bra category,” J.P.Morgan analyst Matthew Boss said in a note.
With files from staff and wires