Inside the Market’s roundup of some of today’s key analyst actions
While acknowledging the recent market volatility has “been for the worse” across Canada’s Real Estate sector, National Bank Financial analysts Matt Kornack and Giuliano Thornhill thinks “there is still a window of opportunity to un-do some of the damage before broader market contagion takes hold and REIT valuations look relatively attractive under more normal circumstances.”
“These days it’s hard to know whether Toronto’s spring weather or Katy Perry’s Hot N Cold is a better representative of U.S. economic/trade policy,” they added. “Regardless, uncertainty is bad for business and at this point it looks like defense is an investor’s best bet.”
In a research report released Monday, the duo reduced his target prices for equities across the sector by an average of 9 per cent as well as net asset value estimates, noting ”economic turmoil weighs on growth outlooks while policy decisions and geopolitics are driving long bond yields higher (a 50-basis points gap exists today vs. NBF forecast while unsecured spreads have widened by 40 bps).”
“To say the last two decades have been volatile is an understatement, but this uncertainty has necessitated a shift towards more institutionalized owners of real estate with better balance sheets and an inherently defensive posturing from an asset class standpoint,” they said. “The REIT index skews heavily towards apartments and necessity-based retail with smaller concentrations in the more economically sensitive office and industrial segments (here the larger names are well capitalized with high-quality portfolios). Leverage levels are reasonable from a Canadian standpoint but elevated vs. U.S. peers. That said, the domestic lending environment tends to remain stable / supportive during periods of dislocation, a benefit of a concentrated banking system with strong capital controls. On this basis, we see the current crisis as one with potentially dramatic consequences for the Canadian economy but as something that can be weathered by the REITs with some downside protection to trading performance given already depressed valuations following post-pandemic interest rate shocks. The setup in the medium term is more positive ... as the country is being forced to tackle important growth impediments, but this will take time.
“While we had previously espoused the idea of owning defensive names, we are honing our focus on those that we think offer the most protection. The goal is to weather a period of uncertainty and dislocation. We have reduced our Outperform rated names and focused the list on those that have at least one but preferably all the following characteristics: 1) tenant / asset class exposure that is defensive or has counter-cyclical attributes, 2) strong balance sheet positioning and 3) high-quality properties, in dominant markets at attractive valuations.”
With his priority now skewing toward “more defensive names, with solid balance sheet metrics and / or attractive enough valuations,” the analysts lowered his rating for five REITs on Monday. They are:
* Automotive Properties REIT (APR.UN-T) to “sector perform” from “outperform” with a $10.75 target, down from $12. The average on the Street is $12.30.
Mr. Thornhill: “Heightened macro risks favour employing a defensive approach. The President’s focus of not only U.S. steel & aluminum, but specifically made-in-U.S. autos, leads us to believe this headline risk will persist. As such, we are downgrading APR to Sector Perform.”
* Boardwalk REIT (BEI.UN-T) to “sector perform” from “outperform” with a $72 target, down from $80. Average: $80.35.
* Mr. Kornack: “Boardwalk had a nice run and materially outperformed the broader peer set. That said, its primarily western Canada-focused portfolio has historically felt economic gyrations more than peers as the lack of rent controls tends to mean more torque up and down to broader economic conditions. We wouldn’t go as far as saying the REIT is an energy proxy, but it has been more susceptible to economic shocks.”
“Valuation looks relatively attractive but may not be enough to entice investors if rent growth doesn’t inflect. Moving to Sector Perform wasn’t an easy decision as admittedly BEI trades at one of the cheapest valuations with still one of the best trailing growth profiles. Should the macro shift positively we would be inclined to get back into the name but for now see some more asymmetric downside potential.”
* InterRent REIT (IIP.UN-T) to “sector perform” from “outperform” with a $11.75 target, down from $12.25. Average: $12.59.
Mr. Kornack: “We are moving to Sector Perform on InterRent as the spectre of an activist campaign has spurred relative trading outperformance and raised the prospects of a change of control transaction. Nonetheless, on a going concern basis the REIT’s valuation remains high vs. potential growth and relative to peers. The probability of privatization has clearly increased, but this market isn’t exactly chock-full of institutional investors looking to make splashy acquisitions (unless they can be done at a substantial discount).
“An activist campaign, should one arise, also threatens to poke holes in perceptions of the REIT’s strategy / management platform. Absent a change of control transaction, the likely proposal of selling assets and buying back stock is being broadly deployed by the peer set.”
* Nexus Industrial REIT (NXR.UN-T) to “sector perform” from “outperform” with a $6.75 target, down from $8.75. Average: $8.25.
Mr. Kornack: “We are moving to a Sector Perform rating on the back of a tough period for trading of industrial names and in the context of a broader move to a more select focus list as a result of a cloudy economic outlook combined with a less favourable long-term bond yield environment.
“Relative valuation less compelling vs. a heavily discounted peer set. Even with a high implied cap rate, we need to see a more sizable spread versus larger, better structured (leverage and payout ratio) and more liquid peers in order to justify an Outperform rating. At current trading levels, NXR is actually more expensive than DIR and only offers a modest positive variance to GRT.”
* RioCan REIT (REI.UN-T) to “sector perform” from “outperform” with a $18 target, down from $22.25. Average: $20.95.
Mr. Kornack: “We like RioCan’s core assets, but the noise has grown too loud on the periphery of its portfolio (apartment portfolio monetization, condo sales, density values and the HBC JV/CCAA process) to remain overly constructive on the near-term trading prospects. Furthermore, the broader sentiment on retail has soured as consumers grow increasingly concerned about economic dislocations arising from the growing global trade war.
“We don’t expect an overnight deterioration in operating metrics, but it’s possible that cracks will form and rent growth will slow. The bigger issues have been more strategic in nature – after spending time and resources to build out a residential rental platform, it now appears to be on the block with the potential to be carved up and sold for pieces (albeit accretively and to the benefit of overall leverage). Condo projects have been a distraction as investors worry about the ability to close sale transactions. The complications around the HBC bankruptcy seem to have been a final strike against the REIT as again the perceived risk was underappreciated with a workout that may be profitable but take an extended period of time.”
Conversely, calling it “a safe harbour in a storm of uncertainty” and touting its defensive tenant profile and balance sheet, Mr. Thornhill upgraded Choice Properties REIT (CHP.UN-T) to “outperform” from “sector perform” with a $16 target, rising from $15.50.
“Macro risks have heightened uncertainty across industries. We expect this to continue to negatively impact sentiment as it appears to be a lingering headline risk. With lower growth and less investment on the horizon, CHP is more than capable of lasting these times. We therefore are upgrading CHP,” he said.
Mr. Kornack and Mr. Thornhill added: “Asset class pecking order shuffle with Seniors leading the way, apartments following but a defensive shift in focus names provides excess total returns. By total return we favour seniors (28 per cent), apartments (25 per cent), industrial (21 per cent), retail (21 per cent), office (14 per cent) and diversified (15 per cent). The aggregate total return across our coverage universe is currently at 21% although admittedly there could be downside to this if economic dislocations worsen. As noted, we have honed our focus on names with defensive attributes and/or valuation downside protection.”
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RBC Dominion Securities analyst Irene Nattel said the current backdrop from Canadian grocery companies reinforces her “stronger for longer” sector thesis.
“Against the backdrop of plummeting consumer confidence in March, probable deterioration in economic activity and upside bias to inflation, we reiterate our ‘stronger for longer’ view of the sector overall and continue to favour Loblaw for its store base that skews to discount, its industry-leading private label program and penetration, and the depth and scale of its loyalty program,” she explained. “Loblaw is our 2025 Consumer Outlook best idea overall.”
In a report released before the bell, Ms. Nattel emphasized the potential for reaccelerating inflation “at a time when consumers are still adjusting to four-year stacked food CPI more than 20 percent.” She thinks that is likely to sustain “value-oriented behaviour.”
“Anecdotal evidence from Costco Canada March SSS [same-store sales] ex fuel and FX 10.6 per cent (9.1 per cent excluding calendar shift) suggests consumers continue to lean into value, with no meaningful blowback on U.S.-based retailers, for now,” she said. “Inflation backdrop and potential impact of tariffs on employment remains supportive of higher traffic to discount banners/channels, discount/private label/promotions outperforming conventional/national brands/full-price sales.”
“Raising L and MRU target EBITDA valuation by half a turn to 11 times to reflect safety premium on large- cap staples with strong value offering/positioning. Also rolling valuation basis forward to CQ1/2017 to reflect passage of time. Revised target multiples in-line with the mid-point of current valuation on C2025, in-line with MRU 10-year average NTM [next 12-month] EV/EBITDA valuation, and consistent with our thesis that L and MRU valuation should converge over time.”
With that view, Ms. Nattel made these target changes to stocks in her coverage universe:
* George Weston Ltd. (WN-T, “outperform”) to $284 from $264. The average is $251.67.
Analyst: “Minor forecast adjustments reflect Loblaw tweaks.”
* Loblaw Companies Ltd. (L-T, “outperform”) to $234 from $215. Average: $201.50.
Analyst: “Best positioned against current consumer backdrop of greater value-seeking consumer behaviour.”
“We see significant upside potential to Loblaw’s share price. Results of our survey on What Matters in Grocery Now underscore key metrics that matter to Canadian grocery shoppers, and Loblaw’s leading market position in those key metrics. The outlook for Loblaw Companies Limited (TSX: L), which represents more than 80 per cent of Weston’s total value, continues to be strong as Loblaw leverages its scale advantage in both food and drug to drive tonnage growth, enhance customer loyalty, and consumer value proposition. As we move through the current period of constrained consumer spending, as Canada’s leading discount food retailer (60 per cent of revenues) with an enviable position in loyalty with over 18 MM active PC Optimum cardholders, L is well positioned to capture share of wallet as consumers increasingly seek value. Expanding scope of service is bringing increased traffic to Loblaw-owned Shoppers Drug Mart, Canada’s leading drug store retailer, and the largest retailers of prestige and mass cosmetics in Canada. "
* Metro Inc. (MRU-T, “sector perform”) to $98 from $90. Average: $97.40.
Analyst: “Appears well positioned to leverage 2024 supply chain investments and accelerate growth in F25. Medium-term forecast CAGR [compound annual growth rate] within financial framework 8-10-per-cent EPS growth.”
Ms. Nattel maintained her Empire Co. Ltd. (EMP.A-T, “sector perform”) target of $50, exceeding the $48.38 average.
" Empire executing well on its strategy to maximize revenues in full-service, but we maintain our cautious outlook given consumer confidence at historic lows, potential reacceleration of inflation, and uncertainty with respect to the employment and macro backdrop,” she said.
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Scotia Capital analyst Tanya Jakusconek predicts the focus of first-quarter earnings season for North American gold companies will be squarely on commentary around the impact of the tariff war both in the near and long term.
“We are expecting flat margins quarter-over-quarter (increase year-over-year) given Q1/25 is a weaker operating quarter (for most companies), with stronger operating performance expected in 2H/25,” she said. “This should result in further margin expansion later this year. Commentary on potential tariff impacts will be a focus as companies review supply chain/purchases and overall impact to costs (see details below on SC preliminary impacts). Heading into reporting, we prefer to be positioned in AEM, KGC (margin expansion) and WPM. NEM and GOLD are expected to have weak Q1/25, with market focus on delivering on operating targets. Should both deliver on targets and announce decent share buy backs, there maybe the potential for a catch up trade since they have underperformed peers.”
On Monday, the firm increased its 2025 gold price forecast to US$3,000 per ounce from US$2,600. Its 2026 and 2027 assumptions are now US$2,800 and US$2,500, respectively, from US$2,500 and USS$2,300 with a long-term (2028+) target of US$2,000 from US$1,900.”
With those changes, Ms. Jakusconek increased her net asset value assumptions for companies in her coverage universe on average by 10 per cent with target prices rising approximately 15 per cent
She made two rating changes:
* Osisko Gold Royalties Ltd. (OR-N, OR-T) to “sector outperform” from “sector perform” with a US$24 target, up from US$22. The average on the Street is US$23.33.
* Royal Gold Inc. (RGLD-Q) to “sector outperform” from “sector perform” with a US$189 target, up from US$166. Average: US$179.40.
For senior gold companies, her target adjustments are:
* Agnico Eagle Mines Ltd. (AEM-N/AEM-T, “sector outperform”) to US$126 from US$105. Average: US$117.38.
* Barrick Gold Corp. (GOLD-N/ABX-T, “sector perform”) to US$22 from US$20. Average: US$23.19.
* Kinross Gold Corp. (KGC-N/K-T, “sector outperform”) to US$16 from US$13. Average: US$14.41.
* Newmont Corp. (NEM-N/NGT-T, “sector perform”) to US$55 from US$48. Average: US$57.77.
The analyst noted: “Positioning heading into the quarter: stocks to own? Heading into Q1/25 reporting, we are most comfortable recommending AEM and KGC (both stocks have slightly outperformed peers and both have margin expansion) and WPM in the streamers (has underperformed peers). We expect all three to have good quarters. Of note, GOLD and NEM may see a catch up trade if both deliver on their quarters and report decent share buy backs (we are forecasting $150M for NEM and $125M for GOLD in share buy backs).”
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After MTY Food Group Inc.’s (MTY-T) in-line first-quarter results, National Bank Financial analyst Vishal Shreedhar thinks early trends for the current quarter “suggest improvement, notwithstanding macroeconomic concerns.”
“Q1/F25 performance was pressured by adverse weather, particularly in U.S. frozen treats, while Canada performance was consistent,” he said. “Encouragingly, early Q2/F25 trends point to more normal operating conditions and MTY indicated consumer behaviour has not materially changed. That said, we acknowledge that the macroeconomic backdrop remains volatile and consistent execution will be key.
“Tariff impacts, currently, are not expected to be material; mitigation tools include substitution and pricing. Our EBITDA expectations are revised slightly: F2025 goes to $261.4-million from $260.4-million and F2026 goes to $263.9-million from $265.2-million.”
Before the bell, the Montreal-based fast food operator and franchisor reported revenue for the first quarter of $285-milion, up from $279-million a year ago and narrowly under Mr. Shreedhar’s $291-million estimate but above the consensus of $274-milllion. That year-over-year gain came despite a consolidated same-store sales growth decline of 1.5 per cent that exceeded the analyst expectation of a 0.2-per-cent fall.
“Capex is expected to be lower year-over-year (no dollar guidance given),” said the analyst. “An improving balance sheet and FCF generation support tuck-in acquisitions. Also, given low valuation MTY expects to execute on its NCIB. We model net-debt-to-EBITDA of 2.7 times in Q4/F26 (from 3.2 times currently).”
Reiterating his “outperform” recommendation for MTY shares and emphasizing a “double-digit FCF yield underpins opportunity,” Mr. Shreedhar trimmed his target to $51 from $54. The average target is $52.
“We believe valuation at 6.7 times our NTM [next 12-month] EBITDA vs. the five-year average of 9.1 times is attractive,” he said. “In addition, the FCF yield of over 11 per cent is supportive.
“We value MTY at 7.25 times (from 7.50 times; reflects heightened macroeconomic uncertainty) our F26/F27 EBITDA.”
Elsewhere, Raymond James’ Michael Glen lowered his target to $50 from $55 with a “market perform” rating.
“As we assess an increase in investor interest in MTY, we believe this will be aided from three things: 1. Steady activity with the share repurchase plan. Recall that MTY currently has an active NCIB for the repurchase of up to 1.2 million shares (or 5 per cent), with 1.12 million shares repurchased on an LTM [last 12-month] basis (includes 287k shares bought in 1Q at a $48 avg price); 2. The narrowing of the store closure gap much closer to zero, further supported by a positive net store openings expected (or communicated targets for net store openings in the year); and 3. We continue to believe some combination of system sales, EBITDA and FCF guidance would be helpful for investors to have a set of financial goals to more readily measure operating performance. We often hear management speak to stability and resilience in the underlying business, and we view a demonstration of this would come in the form of full-year guidance,” said Mr. Glen.
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Desjardins Securities analyst Frederic Tremblay thinks “tariff turbulence has amplified” since Cascades Inc. (CAS-T) refrained from releasing its usual near-term guidance in February.
“We believe that the tariff situation is causing demand levels to deteriorate, particularly in the economically sensitive packaging sector,” he said.
In a note released Monday, Mr. Tremblay tempered his forecast for the Kingsey Falls, Que.-based company’s first quarter and also “adopted a more conservative approach for the rest of 2025 (and, to a lesser extent, 2026) as macro headwinds could linger.”
“First, a bit of good news. We expect a positive effect on the Containerboard segment from past selling price increases and the relatively low cost of a key raw material (OCC),” he said.
“Now, the bad news. In our review of 4Q24 results, we highlighted that demand for CAS’s products would be negatively impacted if trade tensions caused economic turbulence. We are now seeing clear signs of this in the packaging sector: (1) International Paper (IP, NYSE, not rated) flagged softness in its order book in March and market demand was lower than it had expected coming into the quarter; and (2) according to Fastmarkets, a major containerboard producer plans to take seven days of market-related downtime at two mills in April. In the tissue business, we see risks from higher costs (eg pulp, transportation), retailers’ inventory management efforts and slower activity in the away-from-home channel.”
Ahead of the release of its first-quarter results on May 8, Mr. Tremblay thinks “ increased caution appears warranted,” given recent macro developments are likely to “amplify a seasonality headwind on volumes and fixed-cost absorption. Accordingly, he dropped his quarterly adjusted EBITDA estimate to $124-million from $146m-million.
“With the effects of U.S. trade policy unlikely to be isolated to 1Q, we have also tempered our expectations for the balance of 2025,” he added. We expect CAS to stick with its prudent capital-allocation strategy, but note that the environment could slow the pace of deleveraging.”
Maintaining a “hold” rating for Cascades shares, Mr. Tremblay reduced his target to $11 (a Street low) from $12.50. The average is currently $13.83.
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National Bank Financial analyst Zachary Evershed argues geopolitical uncertainty has clouded Richelieu Hardware Inc.’s (RCH-T) “path to margin recovery.”
“Management noted that less than 20 percent of its products imported to the U.S. come from China, and the company’s tariff mitigation strategy focuses on substituting products within the existing SKU portfolio, as expected,” he said. “The company has flexibility within its 35,000 SKU portfolio to substitute products from countries from which it already sources, such as Italy, Austria, Germany, or even domestic U.S. suppliers. With the rapidly changing tariff landscape, management remains cautiously optimistic for a relatively quick resolution to U.S-China tensions. If an agreement is not reached soon, however, Richelieu plans to replace import volumes with new additions from e.g., Turkey and Southeast Europe.”
In a note following the release of the first-quarter results from the Montreal-based manufacturer of specialty hardware and complementary products, which featured “respectable” revenue alongside a margin miss, Mr. Evershed predicted the pace of its M&A activity “may accelerate in tumultuous environment.”
“Despite the noise, management continues to drive the M&A program forward, noting that the disruption in the market could see more favourable conditions for acquisition in the future, while obviously exercising caution with acquisitions reliant on Chinese products,” he said. “The accelerated M&A activity seen in 2009-2010 was alluded to, and management expressed readiness to leverage the balance sheet up to 2-3 times from the current 0.3 times Net Debt/EBITDA (1.5 times including leases) for strategic targets with sustainable EBITDA.”
After updating his estimates to reflect quarterly results, management commentary and the “rapidly evolving macroeconomic picture, including a strengthening Canadian dollar,” Mr. Evershed dropped his target to $37.50 from $44.50 with a “sector perform” rating. The average is $37.75.
“Given the drastic rise in macro uncertainty seeing consumer sentiment plummet, we no longer forecast organic growth in Q2, except for sales to retailers in Canada, which should benefit from recent investments with large partners,” he explained. “We lower our organic growth forecasts in the back half of 2025 as well, as we believe the macro noise introduced by the rapidly changing tariff regime south of the border and the potential for an escalation into a full-blown trade war is not conducive to consumer spending on large discretionary projects.”
“Richelieu’s fairly pronounced exposure to the most highly tariffed country in the U.S.’s cross hairs is further compounded by the company’s dependence on operating leverage to drive margin recovery. With plummeting consumer sentiment, we expect slower organic growth, lower operating leverage and friction in the supply chain as substitute products are cycled in, which sees our target fall ... based on an unchanged 18.5 times 2026 estimated EPS (17 times base and 1.5x M&A growth premium based on $75 million in incremental revenue added through M&A each year without baking it into our estimates). Our target is equivalent to a 4.8-per-cent FCF yield and can be replicated in our DCF using a 9.9-per-cent discount rate. Given near-term tariff uncertainty compounding a cloudy outlook in R&R and new residential end markets, we reiterate our Sector Perform rating.
Elsewhere, CIBC’s Hamir Patel cut his target to $38 from $42 with a “neutral” rating.
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In other analyst actions:
* CIBC’s Cosmos Chiu raised Torex Gold Resources Inc. (TXG-T) to “outperformer” from “neutral” and increased his target to $58, exceeding the $45.68 average on the Street, from $42.
“With TXG shares approaching our price target, we have taken this opportunity to revisit our investment thesis for this company. 2025 is an important year for Torex Gold and the company has been achieving its key milestones, including the completion of the four-week tie-in period for the Media Luna project by the end of March 2025,” he said.
* Jones Trading’s Justin Walsh upgraded Theratechnologies Inc. (THTX-Q, TH-T) to “buy” from “hold” with a US$3 target. The average is US$3.40.
* Jefferies’ Julien Dumoulin-Smith raised his target for Fortis Inc. (FTS-T) to $70 from $67 with a “hold” rating. The average is $65.63.
* JP Morgan’s Matthew Boss trimmed his Lululemon Athletica Inc. (LULU-Q) target to US$389 from US$391 with an “overweight” rating. The average is US$349.41