Inside the Market’s roundup of some of today’s key analyst actions
While investors continue to express concern over the potential impact of artificial intelligence on engineering and construction companies, Scotia Capital analyst Jonathan Goldman is taking a much more optimistic view, seeing it as a “net positive.”
“E&C sentiment went south pretty quickly over the past few weeks as investors extrapolate slower U.S. organic growth and valuations remain above historical averages,” he said. “The coup de grâce was a broker downgrade of ACM-US [Aecom] and J-US [Jacobs Solutions Inc.]– which read as a sector downgrade – on the above plus new AI fears, namely a ‘reduction of billable hours/revenue seems likely’. The argument is flawed as it ignores the positive impact on total factor productivity (recall first year economics class, Douglas-Cobb function Y= ALΒKa). So yes, a bridge may require fewer hours to design (lower L), but that enables engineers to design more bridges per hour (higher A). Incremental bridges could come from a larger TAM (higher consumption/standard of living) or share gains. Historical precedent and current data suggest total output (Y) will increase as a result of AI, which is ultimately what gets billed. AI should continue to aid margin expansion and could accelerate industry consolidation as benefits accrue to scale players with means to invest."
In a client report released Monday titled The E&Cs Are AI-ght, Mr. Goldman blamed Aecom’s (ACM-N) IR event on Nov. 18 for starting “the AI Firestorm.”
“In touting its development of in-house AI capabilities the company spooked markets by saying AI was an existential threat to the E&C business model insofar as it could dramatically reduce billable hours,” he explained. “AI is already capable of performing some engineering design and delivery tasks almost instantaneously. The company predicts AI will lower headcount and speed up project delivery from a few months to a few weeks.
“So, if billables = headcount x hours, it’s easy to infer how the trend may be negative for E&Cs. But what got lost in the messaging was how AI is a net positive for E&Cs insofar as it can dramatically increase project throughput, lower materials costs by 10 per cent to 20 per cent, and reduce labour costs. The potential impact on operating leverage is enormous as labour becomes a scalable cost. In the current E&C model, fixed overhead accounts for 15 per cent of the cost structure, while employee costs represent the balance of 85 per cent. In AECOM’s AI model, labour becomes a fixed cost as you do not need additional headcount to grow revenues. Thus, even if revenue/billables grow at a slower pace, operating leverage supports much higher EBITDA generation; decrementals go from 20 per cent to 80 per cent. The company estimates that for every 1 per cent of ‘AI efficiencies’, it can achieve 20bp margin improvement.”
Mr. Goldman said he’s now expecting a reacceleration of U.S. organic growth next year “as comps ease, fundamentals remain strong, and the industry laps a one-time elongation of procurement cycles.”
“Low leverage and strong FCF generation means E&Cs do not (repeat: do not) need equity to fund large-scale M&A,” he said. “Double-digit growth algos will prove resilient over a multi-year horizon which supports multiple reflation across the sector. With our coverage down mid-teens over the past eight weeks, we see this as a golden opportunity to pick up E&Cs on the cheap(er) in what could end up looking like NVIDIA’s DeepSeek moment.”
“Do E&Cs need equity for larger deals? We don’t think so. Rumours of a WSP/J combination led to an equity overhang for WSP shares. But, the company could fund $3-billion of M&A without requiring equity assuming it levers up to 2.25 times (current 1.4 times). For context, the company spent less than $3-billion on the last four transformational deals, namely POWER ($2.4-billion). Given the track record as disciplined acquirers, we’d expect management to walk away from a deal that wasn’t highly accretive. We estimate STN could debt-finance $1.5-billion of M&A while ATRL plans to deploy up to $1.5-billion on tuck-ins before the end of 2026.”
Following a reset to his valuations, Mr. Goldman moved WSP Global Inc. (WSP-T) to the top of his pecking order following by AtkinsRéalis Group Inc. (ATRL-T) and Stantec Inc. (STN-T).
“Stocks have re-rated substantially from a decade ago, but multiples have compressed due to fears of organic plateau and AI,” he explained. “Our bear case (= unused IIJA funds lapse) still supports consistent mid-single-digits organic growth while we view AI as an enabler rather than a cannibalizer of growth. Consistent margin expansion and lengthy M&A runway supports double-digits compounding over a mult-year period. We like WSP – on leading AI deployment, M&A optionality/track record/ambition, and valuation – followed by ATRL and STN.”
Keeping “sector outperform” ratings for all three companies, Mr. Goldman reaffirmed his one-year targets, which are:
- AtkinsRéalis Group Inc. at $113. The average on the Street is $121, according to LSEG data.
- Stantec at $161. Average: $170.14.
- WSP Global at $308. Average: $322.60.
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National Bank Financial analyst Maxim Sytchev thinks Ag Growth International Inc.‘s (AFN-T) recent struggles in Brazil are isolated and "unlikely to contaminate the rest of the Commercial business."
On Nov. 13, the Winnipeg-based equipment manufacturer delayed the release of its quarterly results, announcing it needed further time to review “various matters relating to the company’s financial reporting and internal controls with respect to its operations in Brazil.”
In a client report released on Monday before the bell titled It’s painful, but there is a floor, Mr. Sytchev said recent channel checks “suggest accounting uncertainties are related to revenue recognition of project-specific SPVs (special purpose vehicle; a structure likely limited to the Brazilian market), but reassurance of Brazilian long-term market momentum is encouraging.”
“As discussed previously, we don’t know what exactly transpired in Brazil; it could be aggressive revenue recognition, enabled via project SPVs (we are leaning towards that one as discussed in detail in the note), factoring charge-offs that are of materially greater magnitude (too early and unlikely to infect the entire business), or outright unethical behaviour à la SNC (impossible to objectively know at this point),” he said. “Our channel checks, however, confer that SPV-type structures around large Commercial projects were a Brazil-only endeavour, while, of course, the factoring was only applied to this geography as per public press releases. That means that even if a portion (or all) of Brazil is impaired, the issue is likely contained within the 15-per-cent revenue exposure, compared to a disproportionate 40-per-cent collapse in share price (down 32 per cent now compared to the confirmation of filing delay on Nov. 13; TSX up 4 per cent in the same time span).
“The Farm backdrop is weak (hence why we lowered our future projections) and Commercial uncertainty naturally leads to slower prospective growth and lower multiple (we now use 7.0 times EV/EBITDA vs. prior 7.5 times). At the same time, we have Bunge Limited (NYSE: BG; Not Rated) and GSI now potentially looking at Kepler Weber (B3: KEPL3; Not Rated), while AFN itself was part of an M&A overture. Is the company worth $62.00 now? No. But is a 31-per-cent decline on 15-per-cent revenue exposure still excessive despite a trough in ag sentiment? We would think so, again, assuming there is no contagion.”
Mr. Sytchev said he remains bullish on Ag Growth’s future in South America, pointing to four factors: “1) BDR Construction acquisition and execution of recently announced BRL1.2-billion investment fund were complicated from an accounting point of view; 2)Persistent weakness in NA Farm markets likely an impetus for aggressive Brazilian Commercial expansion; 3) Brazil’s long-term growth profile is firmly intact; 4) Precedent transactions in Brazil all point to a valuation floor for AFN that is currently being disregarded by the market.”
The analyst reiterated his “outperform” rating on Ag Growth shares but lowered his target price to $37 from $49 to “account for a weaker ag backdrop.” The average target on the Street is $39.25.
“We introduce 2027 forecasts and account for the weak sentiment in the Farm segment, translating to 1-per-cent revenue growth in the latter in 2026 (this is a similar absolute revenue level to 2019 and directionally in line to where farmer incomes and crop receipts are trending towards after peaking in 2022-2024), driven by poorer farmer income conditions in the U.S. & Canada that have plagued the segment in 2025 (AFN Farm sales down 40 per cent since the 2023 peak),” Mr. Sytchev added. “We model a modest recovery in 2027E, assuming 4-per-cent revenue growth in the Farm segment. Our view is that the recent decline in corn, soybean and wheat prices has dampened farmer spending, meaning an immediate rebound in 2026E is unlikely - even if commodity prices recover - because most farmers upgraded equipment during the prior boom. This supports our expectation of trough revenue for the Farm segment in 2026, consistent with Deere’s recent comments that 2026 will mark the low point for large equipment spending. For the Commercial segment, 2025 revenue is projected to rise 23 per cent year-over-year, creating a tougher comparison base for subsequent years. We therefore model Commercial revenue growth at 3-per-cent CAGR [compound annual growth rate] across 2026E and 2027E, despite the order book being up 15 per cent year-over-year, which suggests our estimate may be conservative. These dynamics imply EBITDA margin pressure, driven by a higher proportion of lower-margin Commercial revenue in the mix versus the historically higher-margin Farm segment.”
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Ahead of the release of its third-quarter results on Dec. 9, RBC Dominion Securities analyst Irene Nattel reaffirmed her “constructive view” on Groupe Dynamite Inc. (GRGD-T), calling it “an attractive SMID-cap name with sector-leading growth outlook, compelling optionality for FCF deployment/potential valuation expansion.”
“GRGD delivered strong H1/F25 KPIs [key performance indicators] and noted that momentum was continuing into Q3,” she said. “Solid, sharply revised upward F25 guidance, in conjunction with the Q2 release driven by an agile, capital-light, high FCF generative business model. Tweaking forecasts, revising multiples to reflect multiple expansion driven by strong ongoing momentum, and rolling our valuation basis from LTM [last 12 months] Q2/F27E to F27E to reflect the passage of time.”
Ms. Nattel is now expecting the Montreal-based clothing retailer to reported quarterly earnings per share of 56 cents, a penny above the average on the Street and up 38.7 per cent year-over-year. That is driven by same-store sales growth of 21.8 per cent, exceeding the high-end of the company’s revised annual guidance range 17.0-19.0 per cent, “reflecting strong first half up 22 per cent, with momentum expected to continue in H2 as channel checks point to ongoing strong demand/momentum.”
“While the tariff situation remains fluid, rhetoric has been toned down,” she added. “Tariffs implemented to date have already transited through GRGD’s P&L, guidance incorporates cautious approach with bias toward upper end of guidance if ‘tariffs were to stay where they are’ at the time of Q2 call. That said, the company is in a position to effectively offset incremental tariff pressures with more than 50-per-cent reduction of China receipts into the U.S. and with U.S. DC-related efficiencies starting Q3.
“Based on year-to-date results and GRGD momentum, our analysis indicates GRGD is on track to meet or exceed the higher end of revised guidance. NCIB activity underpinned by clean BS and strong FCF , capital allocation priority remains reinvestment in the business”
Maintaining her “outperform” rating for Groupe Dynamite, Ms. Nattel hiked her target to $77 from $58. The average is $64.25.
“Based on our analysis, valuation has room to expand if GRGD delivers growth above current forecast range, supported by strong ROIC and considering the Company’s clean BS and enhanced capital return optionality,” she concluded.
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RBC Dominion Securities analyst Paul Treiber predicts The Descartes Systems Group Inc.’s (DSGX-Q, DSG-T) organic growth will likely to remain “sequentially stable” when it reports quarterly results after the bell on Wednesday.
“Despite the challenging freight environment, we expect Descartes’ Q3 adj. EBITDA to increase 15 per cent year-over-year, at the high-end of its long-term target (10-15 per cent) and in line with consensus,” he said. “We believe organic growth is likely sequentially stable, as Descartes’ continued market share gains offset slower freight volumes. We see attractive risk-reward on the shares, as valuation is now at a 5-year low, while we anticipate Descartes to continue to compound capital through acquisitions and organic growth.”
Mr. Treiber is now forecasting third-quarter revenue for the Waterloo, Ont.-based software company of US$186-million, up 10 per cent year-over-year and above the consensus projection of US$184-million, driven "largely from acquisitions, including the first quarter of the $40-million Finale Inventory acquisition." He sees adjusted EBITDA rising 15 per cent year-over-year “faster than revenue growth due to margin expansion and restructuring-related cost savings.”
“We forecast Q3 constant currency (CC) organic growth to remain stable quarter-over-quarter at 0.4 per cent year-over-year,” he said. “Services organic growth is also likely sequentially stable at 4 per cent. Our outlook assumes continued market share gains (MacroPoint, customs filings), ecommerce momentum, and uptake of Descartes’ tariff database, which helps offset continued freight market headwinds.
While emphasizing “the trade environment remains challenging,” Mr. Treiber expects fourth-quarter baselines to “imply increased headline organic growth.”
“Valuation at a 5-year trough improves risk-reward on the stock,” he added. “Given investor concerns regarding the freight environment and ‘AI disruption’ of software, Descartes is trading at 20 times NTM [next 12-month] EV/EBITDA, which is at the low-end of its 5-year historical range (20-36 times) and below peers (22 times). We believe valuation is attractive, given the company’s strong track record of compounding capital; we see M&A as a key potential catalyst for the stock.”
He kept an “outperform” rating and US$126 target for Descartes shares. The average is US$117.67.
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Ventum Capital Markets analyst Maximilian Myers came away from a recent site visit to Montage Gold Corp.’s (MAU-T) Koné Gold Project in Côte d’Ivoire seeing “the foundation for a multi-asset producer” and touting the site’s rapid progress and “several avenues for upside.”
“Koné continues to advance ahead of schedule, prompting us to move first gold to Q1/27 (from Q2/27) and accelerate our ramp-up assumptions, driving materially higher 2027 production,” he said.
“Site observations support potential throughput above nameplate, quicker-than-modelled commissioning, and satellite sequencing that prioritizes higher-grade feed early in the mine life. Each scenario could enhance front-end production, and together they offer clear upside to our NAV assumptions.”
Maintaining his “buy” rating for the Vancouver-based company’s shares, Mr. Myers raised his target to $9.75 from $8. The average is $8.17.
“With construction now well de-risked, we view the African Gold acquisition as a strategic expansion of the long-term pipeline, positioning Montage to evolve into a multi-asset West African producer,” he said.
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In other analyst actions:
* After assuming coverage of New Gold Inc. (NGD-A, NGD-T), TD Cowen’s Wayne Lam upgraded the firm’s recommendation to “buy” from “hold” previously, recommending investors tender shares in respond to its proposed acquisition by Coeur Mining Inc. (CDE-N). His target rose to US$12 from US$7.50, exceeding the US$8.24 average on the Street.
" Our base case scenario is that NGD will be successfully acquired by CDE due to a premium multiple being paid and limited likelihood of superior competing bid," he said. “We estimate Coeur is paying 1.8 times NAV (1.50 times at spot), based on our NAV5-per-cent of $3.8-billion. This is an attractive value for NGD’s asset base, in our view, with New Afton being a high quality operation with a long mine life, and exploration upside; but Rainy River having a limited mine life, with limited upside.
“Given the attractive P/NAV premium being paid (by a higher multiple silver producer), sizable break fees (4-6 per cent of equity value), and asset mix, we do not view an interloper being likely for NGD.”
* ATB Capital Markets’ Martin Toner, currently the lone analyst covering Toronto-based Zoomd Technologies Ltd. (ZOMD-X), cut his target to $3.50 from $4 with an “outperform” rating.
“Before market open on November 28, ZOMD reported Q3/25 results, revenue declined 3 per cent year-over-year to US$16.1-million, reflecting the absence of one-time Euro Cuprelated demand in Q3/24,” said Mr. Toner. “Despite top-line pressure, operating fundamentals improved, gross margin expanded 330 basis points year-over-year to 42.6 per cent, aided by operating efficiencies and improved mix, Adj. EBITDA came it at US$4-million, with EBITDA margins in the 25-per-cent range. The company generated record quarterly operating cash flow of US$5.4-million and exited the quarter with US$18.3-million of cash and no long-term debt, reinforcing financial flexibility to invest organically, deepen partnerships, or pursue selective M&A. We have reduced our 2025 & 2026 revenue estimates to reflect near-term headwinds, created by several changes to Zoomd clients’ adtech stack. Despite the disruption, we believe Zoomd’s relationships with these clients remains strong. We continue to see a favorable setup into H2/26, supported by an uplift in digital marketing demand ahead of the 2026 FIFA World Cup.”