Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial analyst Maxim Sytchev thinks “soft” investor sentiment toward Toromont Industries Ltd. (TIH-T) has compressed its valuation to “attractive levels” and sees historical precedent suggesting a “reliable ‘buy’ signal.”
Accordingly, after acknowledging shares of the Toronto-based heavy equipment dealer shares have fallen faster than he expected following an October downgrade, he thinks it is “time to step in again” and raised his recommendation to “outperform” from “sector perform” previously.
“It’s not often that the market creates an opening for a high-quality compounder; when such an opportunity arises, we believe investors will be rewarded (over time) with a compelling risk-adjusted return,” he said. “We turned more cautious on the name when the shares hit an all-time high, downgrading the stock in October; margin concerns did come to fruition in Q3/24 and since then TIH earnings have been revised downward by 5 per cent on an NTM [next 12-month] basis (the largest negative earnings revision since 2019) while shares slid 17 per cent vs. S&P TSX at up 2 per cent over the same time frame.
“While technical indicators are not the purview of a typical fundamental valuation, it’s still instructive to note that in instances of similar RSI [relative strength index] retrenchment over the last eight years, TIH shares have rebounded, on median, by 18 per cent with no negative returns on the subsequent six-month basis.”
Mr. Sytchev thinks reductions to Canada’s immigration levels are a “headline/political issue” and the “likelihood of infra spending retrenchment appears to be low given the need to catch up for the last 10+ years; lower interest rates should also stabilize the residential market that we estimate represents around 10 per cent of the total top line for TIH.”
“On the positive side of the ledger, New Equipment sales momentum (strong mining deliveries) typically correlates positively to shares’ P/E multiple when examined with a three-year lag, something that’s actually counter to current trends,” he added. “With moderated margin expectations, we also believe we and the Street are now projecting more realistic expectations in 2025E and 2026E. M&A (pipeline appears to be active in key adjacencies to service the existing client base), greater use of the NCIB akin to what we have seen in November (444k shares bought back at a weighted average price of $116.70), potential hydro investments in Quebec, lesser working capital intensity after several years of material growth (hence higher FCF), and now a 17 times P/E valuation on 2026E projections once again makes the risk / reward profile attractive, especially for a company with a net cash position and an ROE of well over 18 per cent.”
Also arguing that positive earnings growth forecasts for OEM partner Caterpillar Inc. (CAT-N) “bodes well” for Toromont, Mr. Sytchev maintained his target for Toromont shares of $126. The average target on the Street is $134.67, according to LSEG data.
“TIH shares have pulled back a material 17 per cent following our October 21st downgrade when they traded near all-time highs, and soft investor sentiment has materialized in the Relative Strength Index (RSI) falling to below 22 – the lowest level in over five years,” he said.”Recall that RSI is a technical sentiment indicator where levels below 30 suggest a stock is oversold (and overbought above 70). While our analysis is, of course, fundamental in nature, the sell-off has led to a retraction in the NTM [next 12-month] P/E trading multiple to 17.7 times, the lowest in over a year. This has also been accompanied by a 5-per-cent decrease in consensus 2025E EPS following a Q3/24 miss, creating an opportunity for investors to pick up a high-quality compounder at a favourable valuation in advance of an eventual resumption of EPS growth.”
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National Bank Financial analyst Matt Kornack thinks 2025 could be “comeback season” for the real estate sector, seeing Canadian REITs as “down but not out.”
“A new political order within the U.S. adds a wider range of alternative outcomes over the near term,” he said. “However, underlying fundamentals remain – Canada’s consumer is challenged but there is light at the end of the tunnel with interest rate increases set to be fully passed through by mid-2026 with reprieve thereafter. The same cannot be said for the U.S., but there it is a question of discretion owing to longer mortgage terms, as a large segment of the population is tethered to their existing home.
“Trade wars aside, lower bond yields in Canada should help transition to a period of infrastructure investment to catch up with population growth. On the latter, we are less concerned about adding more people than we are about the current population seeing improved wages, employment and productivity. Turning to REITs, we are feeling better about the setup for 2025 given lower long bond yields and valuations on top of what we think will be a more durable top-line growth environment than the market is anticipating.”
In a research report released Monday previewing fourth-quarter earnings season as well as the year to come and introducing his 2026 financial forecast, Mr. Kornack made “modest” adjustments to his target prices for equities in the sector, noting “lower rates and moderating growth should serve as offsets to one another.”
“After taking our target prices up by 9 per cent heading into Q3/24 results on 30 to 50 bps lower cap rates, our adjustments heading into 2025 are modest (down by 2 per cent on Targets vs. flat on NAVs),” he said. “Cap rates are essentially the same as long bond yield forecasts are around 25 bps lower, but growth expectations are moderating in a less inflationary environment. The slight increase in discount applied is a function of access to capital for growth and heightened uncertainty on macro forces outside the control of REIT management teams. Nonetheless, our total return expectations are outsized and attractive from a real estate standpoint.
“2026 Estimates – Ops/rates collide but still expecting strong earnings growth. We are forecasting an acceleration in earnings growth in 2025 (up 7 per cent) vs. 2024 (up 4 per cent) on a number of factors including exposure to variable-rate debt, transaction activity and relative operating fundamentals. 2026 will see this pace continue (up 7 per cent) albeit predicated on a continued conducive interest rate environment (relative to some lower in-place expiring rates). A departure from this trajectory could be problematic, but only temporarily.”
He noted “valuations are looking the best, on a relative basis, they have in a while” and added: “Asset class pecking orders largely unchanged – doubling down on apartments, getting cautiously optimistic on an industrial inflection. By total return we favour Cdn. Apartments (34 per cent), industrial (27 per cent), seniors (25 per cent), retail (21 per cent), diversified (15 per cent) and office (14 per cent). Aggregate total return across our coverage universe is a lofty 24 per cent. We think this is achievable on the back of capital inflows as GIC / money market funds diminish in attractiveness relative to yield equities. Similar to what we saw late in the summer but on a more sustainable basis.”
For his “focus ideas,” Mr. Kornack’s changes are:
Canadian Multi-Family
Canadian Apartment Properties REIT (CAR.UN-T) with an “outperform” rating and $60.50 target, down from $61.50. The average is $55.63.
Analyst: While the tone has soured a bit for apartments around population growth as a driver of demand, we are less bearish on the outlook broadly but still think taking a defensive approach to the segment is advisable. On this basis, CAPREIT’s low turnover, which inhibited growth in the good times, provides a significant buffer should fundamentals deteriorate. The REIT has the most significant MTM opportunity and unlike peers that are finding ways to fund growth in a capital-constrained environment, CAP is flush with capital with more coming in the door. Its pivot to owning new does, at the margins, increase its economic sensitivity but the core portfolio of legacy assets still represents the bulk of the asset base. Liquidity is a plus and broadly speaking CAP is a REIT flow of funds proxy and technical fundamentals on the stock are positive. As such, the REIT tops our total return pecking order going into 2025.
Flagship Communities REIT (MHC.U-T, MHC.UN-T) with an “outperform” rating and US$20.50 target (unchanged). Average: US$20.11.
Analyst: “MHC is our top U.S. housing pick, and the seventh highest total return in our coverage (down from 1st in our Q3 preview as a result of relative trading performance). The valuation discount remains steep, despite offering some of the highest organic growth and defensibility in the REIT sector. Trading liquidity is sparse but for those that can we would happily buy and hold this name.”
Industrial
Dream Industrial REIT (DIR.UN-T) with an “outperform” rating and $16.25 target, down from $17. Average: $16.13.
Analyst: “Our highest total return to target for the industrial segment goes to Dream Industrial, again, as the REIT remains relatively inexpensive vs. its medium-term growth outlook. DIR’s ability to grow its NOI is driven by its exposures to Canadian urban mid-Bay properties. As was highlighted at its investor day, demand for this segment has remained more resilient supporting elevated market rents, with still a significant MTM opportunity. We see nearer-term industrial fundamentals as stabilizing with peak vacancy in Canada forecasted for Q2/25 with an inflection in market rent growth likely thereafter. DIR has generated solid SPNOI figures notwithstanding lower occupancy and our expectation is for continued strong growth with a fairly substantial positive inflection as occupancy moves back into historical ranges (likely an H2/25 and beyond story).”
Healthcare
Chartwell Retirement Residences (CSH.UN-T) with an “outperform” rating and $19 target, up from $18.50. Average: $18.18.
Analyst: “Within the healthcare group, CSH remains the top focus idea as interest in senior living continues to gather pace. Year-to-date, CSH has announced or closed $1.2-billion of acquisitions, representing the most active year in the REIT’s history. The timing seems optimal too, as we are now on the cusp of the oldest baby boomers (turning 80 next year) reaching the average entry age of low-80, propelling the growth in eligible tenant from 3 per cent to 4 per cent for the next decade. Looking out to 2026, with more limited development on the horizon, this demographic acceleration will result in steadily improving rental growth prospects for the industry, in turn leading to cap rate compression. Lastly, against a backdrop of immigration curtailments and softening economic demand impacting other real estate asset classes, the setup may leave seniors as the last industry niche to enjoy persistently positive tailwinds into next year – validating its premium valuation.”
Retail
RioCan REIT (REI.UN-T) with an “outperform” rating and $22.50 target, down from $22. Average: $22.08.
Analyst: “RioCan maintains its hold as our top total return potential in the retail segment. We like REI for its strong structural organic growth potential (3-plus-per-cent SPNOI growth guidance), comparably cheaper valuation, and limited value attributed to an established development vehicle with sizable near-term and leverage positive completions. On the latter, REI is slated to receive $700-million in condo sales and $500-plus-million in rental development completions through 2026, providing greater certainty over earnings and helping management achieve its 8x D/EBITDA target. REI trades at 11 times 2025E FFO/u, which is a half-turn discount to peers, despite offering above-average growth and a largely derisked development pipeline.”
Diversified
H&R REIT (HR.UN-T) with a “sector perform” rating and $11 target, down from $11.50. Average: $11.46.
Analyst: “Within the diversified group, H&R remains our top focus idea, driven by exposure to multi-family assets in U.S. markets and industrial development lease-up around the GTA combined with a better balance sheet and limited office maturities. Recent transaction activity was a plus (with possible additional funds coming from the sale of its ECHO position) as management continues to showcase their progress in achieving reasonable pricing on a blended basis for the REIT’s assets in a market where transactions are still at somewhat of a standstill. These sales are incrementally positive given that the stock trades at an implied cap rate of 9 per cent and continues to move the pro forma entity more towards apartment ownership (we are still waiting on a broader inflection within the Sunbelt markets). We think there is torque to the upside on lower rates as the portfolio remains defensive but don’t see urgency to this trade.”
Office
Allied Properties REIT (AP.UN-T) with a “sector perform” rating and $18.75 target, down from $19.50. Average: $20.19.
Analyst: “Our highest total return to target in the office sector remains Allied, given the REIT’s relative asset quality (including an exceptional urban land footprint) vs. its Canadian office peers. There is an ongoing flight to quality where tenants are prioritizing built-out space with access to amenities, and as such, we believe Allied is better positioned on a relative basis given broader office turbulence. Additionally, its above-noted ultra-core urban portfolio provides for a value floor and could appeal to investors with a long-term view on the Canadian market and particularly its top cities. We continue to like the quality and footprint of the portfolio offering relative to valuation and expect management to continue proving this value through monetization of select assets while also improving balance sheet metrics. Nonetheless, office fundamentals are likely to remain challenging.”
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RBC Dominion Securities analyst Irene Nattel is “constructive” on Groupe Dynamite Inc. (GRGD-T), seeing it as “an attractive SMID-cap, growth-oriented women’s apparel retailer underpinned by sector-leading growth outlook, and compelling optionality around deployment of FCF, and potential valuation expansion.”
In a report released Monday, she initiated coverage of the Montreal-based parent company of retailers Garage and Dynamite with an “outperform” rating, reflecting a “current valuation discount to peers that .... should normalize if GRGD delivers on the growth agenda and as it establishes a track record as a publicly traded entity.”
“GRGD generates margins at, or above, best-in-class peers underpinned by relatively recently developed but well honed business processes and subsequently industry-leading KPIs,” said Ms. Nattel. “EBITDA margin 30 per cent leads apparel retailers and should be sustainable, in our view, with key caveat that near- term visibility is somewhat muddled by evolving trade policy risk.
“EBITDA CAGR [compound annual growth rate] 19 per cent (F23-28E) primarily driven by 15-per-cent revenue growth driven fairly equally between SSS [same-store sales], NTIs notably in the U.S./real estate premiumization, rising e-commerce penetration, and compelling unit economics. Importantly, traffic analysis from RBC Elements underscores that Garage enjoys high relative intentionality and appears to be gaining awareness relative to competitive set. Our forecasts are predicated on stable GM% [gross margins] and modest SG&A leverage underpinned by scaling, managed AUR and IMU, and industry-leading inventory turnover and markdown rates, offsetting higher overhead, rising occupancy costs, and modest ecommerce dilution. Sector- leading margins, if sustained, should underpin strong operating leverage and FCF conversion.”
Touting a “compelling valuation with upside optionality,” Ms. Nattel, coming off research restriction following its November market debut, set a target for its shares of $27.
“Our target EV/EBITDA 10 times is less than 1 times turn premium to calendar 2024 valuation and a 2 times turn discount to the target multiple we apply on Aritzia (TSX:ATZ),” she said. “In our view, valuation is attractive with room to expand if GRGD delivers forecasted growth and ROIC, and given clean BS and capital return optionality.”
Elsewhere, other analysts initiated coverage on Monday include:
* Desjardins Securities’ Chris Li with a “buy” rating and $25 target.
“We believe GRGD is well-positioned to achieve low-double-digit EPS growth over the longer term, supported by mid-single-digit industry growth, new store openings, the optimization of the store network and an increase in e-commerce penetration. Despite the potential tariff overhang, we believe valuation is supported by its strong balance sheet and FCF generation, with the possibility of capital returns being initiated in the future,” said Mr. Li.
* Canaccord Genuity’s Luke Hannan with a “buy” rating and $32 target.
“In our view, GDI’s store economics should continue to improve as the reconfiguration of its store base increases the company’s exposure to tier 1-3 shopping centres,” said Mr. Hannan. “Combined with average unit retail (AUR) expansion well above the pace of inflation, a shorter production cycle for its SKUs, and ample white space in both the US and international markets for its brands, we see plenty of opportunity for GDI to improve its impressive returns on invested capital that are already near the high end of its peer group. Accordingly, we are comfortable assigning a premium target multiple to GDI shares.”
* Scotia’s John Zamparo with a “sector outperform” rating and $25 target.
“GDI’s financial profile is superior to peers on most key metrics, including SSS, four-wall margins, EBITDA growth, and ROCE/ROIC,” he said. “GDI’s attempt to ‘de-risk fashion’ is brave but extremely difficult – even the industry’s top performers have shown more volatility than many Canadian investors want. Still, the company’s renaissance since 2019 is remarkable, and the Garage brand has gained customer affinity, leading to strong performance that looks sustainable for at least the short term. At approximately 14 times forward earnings, current valuation is a discount to most peers and provides a good risk-return dynamic.”
* Stifel’s Martin Landry with a “buy” rating and $27.50 target.
“The Garage brand has significant momentum and is expected to be the main growth vector in the near term. With estimated U.S. sales of $400 million, we see a long growth runway for the Garage Brand. GDI has impressive operating metrics including: (1) high EBITDA margins, (2) high ROCE of 38 per cent and (3) high inventory turns (approximately 8 times year) reducing fashion risk and translating into lower markdowns than the industry. Valuation is not demanding with shares trading at 15 times forward earnings, a 3-per-cent discount to peers despite growing 18 per cent faster than peers,” said Mr. Landry.
* TD Cowen’s Brian Morrison with a “buy” rating and $28 target.
“Groupe Dynamite implemented a transformation that de-risked to an extent the fast-fashion model,” he said. “Key steps included an aggressive open-to-buy strategy, the streamlining of its real estate, and investments to optimize inventory and enhance its omnichannel platform. It is now positioned for its next growth phase that should support multiple expansion, should it achieve our growth targets.”
“Groupe Dynamite Inc. (“GDI”) has positioned itself for attractive EBITDA/EPS growth over our forecast horizon, in our view. We believe it has a number of key growth drivers in place that should enable the company to grow its top-line and take market share over our forecast horizon, notably in the U.S. This includes an elevated open-to-buy strategy, an acceleration of brand awareness, store repositions into top-tier locations, heightened expansion into the U.S. market, and operational leverage from its proprietary innovation and scale. We believe our applied P/E valuation multiple of 18.0 times on our F2026E EPS could prove conservative should GDI demonstrate a track record of meeting/beating expectations, we gain clarity on its potential exposure to tariffs, and with a greater proportion of float shares in the market.”
* BMO’s Stephen MacLeod with an “outperform” rating and $25 target.
“We believe the company is positioned for growth in the North American fast fashion women’s apparel market, and we see several drivers of annual mid-teens adj. EBITDA growth,” he said. “Our proprietary brand awareness surveys show room for growth in the U.S. (and opportunity for differentiation), and our pricing analysis shows room for future price increases.
“With the stock trading close to the IPO price and below the peer group average, we see upside in the stock.”
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Expecting a “strong” year for ECN Capital Corp. (ECN-T), National Bank Financial analyst Jaeme Gloyn named it his top pick for 2025.
In a research note released before the bell, he pointed to four factors in justifying his pick:
* An “Underappreciated growth outlook”
Analyst: “Consensus EPS of US$0.20 at the low end of ECN’s 2025 guidance of US$0.19 to $0.25 suggests the street is missing several positive aspects of the outlook.”
* Increased confidence in key drivers at Triad Financial Services, which is ECN’s Manufactured Home finance business.
Analyst: Triad boasts a strong setup for growth with i) long-term tailwinds taking hold (i.e., affordability, demographics, undersupply, government policy), ii) operational improvements expected to drive outperformance (i.e., streamlined org structure, investments in technology and improved funding mix), and iii) the joint venture with SKY set to accelerate in 2025.”
* Confidence in a recovery at its RV & Marine (RVM) finance business.
Analyst: “Take share initiatives (e.g., dealer network expansion, enhanced origination/portfolio analytics), combined with a macro recovery (i.e., lower rates, improved consumer sentiment) is creating a setup for a recovery year in 2025. In addition, ECN’s acquisition of a servicing platform in 2024 will help stabilize the go-forward earnings stream (i.e., recurring servicing revenues drives ~40% of RVM’s operating income).”
* Significant valuation upside:
Analyst: We believe progress towards 2025 guidance, and inevitably a shift in view to 2026, will drive upward EPS revisions and a valuation re-rate. Moreover, the approaching end of the standstill date for Triad could cause the multiple to reflect a deal premium. At a mid-teen P/E, a Triad acquisition could come at our $5.00 price target for all of ECN.”
To reflect his confidence, Mr. Gloyn raised his target for ECN shares to a Street high of $5 from $3.25, reiterating his “outperform” recommendation. The average is now $3.60.
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RBC Dominion Securities analyst Paul Treiber saw Enghouse Systems Ltd.’s (ENGH-T) weaker-than-anticipated fourth-quarter results as “more complicated than usual.”
“Enghouse provides few/no forward-looking comments, which tends to increase quarterly volatility if there are surprises against expectations,” he said. “Q4 missed RBC/consensus due to normalization in revenue at Lifesize. However, FCF was better than expected, Lifesize is tracking to a high IRR, and management sees an attractive M&A environment.”
Shares of the Markham, Ont.-based enterprise software solutions provider plummeted 12.9 per cent on Friday after it reported quarterly revenue of $126-million, up 2 per cent year-over-year but below the $133-million estimates of both the analyst and the Street. Adjusted EBITDA slid 6 per cent to $36-million also missing projections ($39-million from both).
“FCF and acquisition IRR are the most important metrics,” he said. “Q4 FCF rose 11 per cent year-over-year to $31-million, above RBC [estimate] of $26-million. TTM [trailing 12-month] FCF is up 14 per cent year-over-year. Management disclosed Lifesize is tracking to a cash-on-cash payback of 2 years, ahead of its target for 5-6 years. We estimate Lifesize would likely generate more than 32-per-cent IRR, even under conservative assumptions (FCF drops to zero in 5 years). Lifesize is an example of Enghouse’s M&A strategy; even though Lifesize is now a drag on organic growth, it represents a high IRR investment.
“M&A is a potential catalyst. Management sees a large number of acquisition opportunities. With cash at record highs ($275-million Q4) and our outlook for Enghouse to generate $122-million NTM [next 12-month] FCF, we believe M&A is a potential catalyst. We estimate every $100-million deployed on acquisitions is 17-per-cent accretive to annual adj. EPS.”
Maintaining an “outperform” recommendation for Enghouse shares, Mr. Treiber dropped his Street-high target to $40 from $43 after cutting his revenue and earnings forecast through 2026. The average is $33.
“Enghouse is trading 63 per cent below peers and 44 per cent below its 10-year average,” he noted. “Enghouse has a strong track record of allocating capital at high rates. We believe risk-reward on the shares is attractive given Enghouse’s discounted valuation and our outlook for M&A to ramp over the next 12-18 months. We are rolling forward the basis of our price target from CY25 to CY26; our revised $40.00 price target is based on 12 times CY26 estimated EV/EBITDA, down from 13 times CY25 EV/ EBITDA, given the increased quarterly volatility of the shares.”
Elsewhere, other analysts making target adjustments include:
* TD Cowen’s Daniel Chan to $29 from $34 with a “hold” rating.
* CIBC’s Stephanie Price to $31 from $37 with a “neutral” rating.
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In other analyst actions:
* BMO’s Tamy Chen downgraded Martinrea International Inc. (MRE-T) to “market perform” from “outperform” and cut his target to $11 from $13. The average on the Street is $15.92.
“We expect flat industry production in North America in 2025. Our relative preference is MGA, then LNR as we see better visibility for y/y auto margin improvement at those companies while we expect MRE’s performance to largely trend with industry production,” she said.
“There is likely limited downside in the stock, but we see less potential upside in MRE shares relative to MGA.”
* Jefferies’ Anthony Linton raised his target prices for these energy stocks: Arc Resources Ltd. (ARX-T, “buy”) to $29 from $27, NuVista Energy Ltd. (NVA-T, “buy”) to $19 from $14, Paramount Resources Ltd. (POU-T, “buy”) to $37 from $36, Strathcona Resources Ltd. (SCR-T, “hold”) to $32 from $30, Tourmaline Oil Corp. (TOU-T, “buy”) to $76 from $73 and Topaz Energy Corp. (TPZ-T, “buy”) to $31 from $30. The averages are $31.87, $17.30, $39.19, $34.88, $77.88 and $31.38, respectively.
* CIBC’s Jamie Kubik resumed coverage of Freehold Royalties Ltd. (FRU-T) with a “neutral” rating and $16 target. The average is $17.16.
* In a research report previewing 2025 for copper producers, Stifel’s Cole McGill raised his target for Lundin Mining Corp. (LUN-T) to $18 from $17.50 with a “buy” rating. The average is $17.33.
“Into 2025, we continue to see price support for the red metal at current levels,” he said. “While ‘slowbalisation’ is inherently metal consumptive, further clarity on potential Chinese tariffs should help to offset the recent perception of vague Chinese stimulus. We see buckets of Chinese fiscal stimulus (property/infra versus consumption) benefiting different commodity markets, with the focus so far being on the consumer, leaving upside to copper price support should we see stimulus targeting the former in 2025. While M&A was a main theme of 2024, we think margin stabilization can drive FCF profiles, and continue to improve sector balance sheets. As this pertains to the equities, we think balance sheet strength can provide multiple durability across our coverage, but would note our coverage is currently implying near spot copper. Given this, we think growthy/catalyst rich producers outperform, and continue to favour HBM (growth/explo catalysts + strong 2025 FCF) and CS (ramp up of MVDP driving peer leading durable volume CAGR).”
* Desjardins Securities’ Gary Ho hiked his TerraVest Industries Inc. (TVK-T) target to $125 from $100 with a “buy” rating. The average is $128.33.
“TVK reported mixed 4Q results; however, we believe the 7.8-per-cent share price impact [on Friday] is unwarranted (likely some profit-taking post the 25-per-cent appreciation in the last 1½ months),” he said. “FY25 should be an exciting year for TVK, with easy comps across certain verticals (domestic tanks, boilers), the Cowansville expansion ramp-up and our view that M&A activity should pick up (additive to the recently announced Aureus deal).”
* Canaccord Genuity’s Matthew Lee raised his Toronto-Dominion Bank (TD-T) target to $89 from $87, maintaining a “buy” rating. The average is $83.26.
“TD’s Q4 was a hard one to swallow as a BUY-rated analyst,” said Mr. Lee. “With pedestrian results, the promise of ‘challenging’ earnings growth this year, and the removal of medium-term guidance, investors were left without the clarity they’ve been hungry for since the beginning of the bank’s US AML saga. In our review note, we noted that investors are unlikely to get comfortable with TD until the completion of the firm’s strategic review and reinstatement of medium-term guidance. In this note, we take a more comprehensive view into what TD’s guidance could look like using a segment-by-segment approach, talking to the firm’s business leaders, and trying to wade through the noise. Our conclusion is that, over the medium term, TD still has the earnings power to deliver 4-6-per-cent adjusted EPS growth and 14-per-cent ROE, even with the US business weighing on both metrics. While this is a step down from F23 guidance (7-10-per-cent EPS growth, 16-per-cent-plus ROE) and below the peer group, we believe that it is more than enough to allow TD to begin closing the valuation gap. As such, we view TD’s current 2.2 times P/E discount to peers as an attractive buying opportunity, particularly for investors with a longer-term view.”
* BMO’s Ben Pham moved TransAlta Corp. (TA-T) to his “top pick” within the Canadian Energy Infrastructure space and raised his target to a Street-high of $22 from $17 with an “outperform” rating. The average is $16.73.
“we believe the company is one of the best-positioned in our coverage to benefit from Alberta data center co-located deals, potentially as early as 2025 where we anticipate material potential EBITDA/FCF and valuation upside and in turn outsized investment returns,” he said.
“Our new Top 5 Best Ideas roster is now TA, NPI, BLX, ALA, and GEI (previously NPI, TA, BLX, ALA, and PPL).”
* Desjardins Securities’ Benoit Poirier raised his Transat AT Inc. (TRZ-T) target to $2.25 from $2 with a “hold” rating. The average is $1.86.
“Overall, while the 4Q beat was mainly driven by non-recurring items, we are pleased with the early signs of progress under the $100-million Elevation program and the positive pricing indicators in 1Q,” he said. “Cost savings of $25-million (on a run-rate basis) have already been achieved, demonstrating solid progress toward management’s objective. We are also pleased to see that 40 per cent of the $100-million will be driven by additional revenue generation (incremental from Porter JV), mainly from new, more disciplined pricing systems.”
* CIBC’s Hamir Patel raised his Transcontinental Inc. (TCL.A-T) target to $21 from $20 with an “outperformer” rating. The average is $22.67.
“TCL.A has now beat estimates for five consecutive quarters while simultaneously executing on its buyback program and continuing to improve mix (Packaging forecast to represent 61 per cent of EBITDA in F2026 vs. 57 per cent last year). We see TCL.A continuing to reduce debt over the coming year (reaching 1.2x by year-end F2025) given strong free cash flow (FCF) generation and real estate asset sales (on-track to reach its multi-year target of $100 million by year-end F2025),” he said.
* Scotia’s Kevin Krishnaratne bumped his Well Health Technologies Corp. (WELL-T) target to $7 from $6 with a “sector outperform” rating. The average is $8.37.
“Last week, WELL announced that it had closed an $50-million preferred share private placement to help fund its SaaS business, now branded as WELLSTAR, ahead of its spinout planned to occur by the end of 2025,” he said. “The financing values WELLSTAR at 4.0 times PF 2025 Sales, higher than the 2.5 times our prior sum-of-the-parts valuation was reflecting. We’ve updated our model to include two acquisitions WELLSTAR made concurrent with the financing ($15-million of LTM [last 12-month] revenue at 20-per-cent Adj. EBITDA margins), in addition to increasing our target multiple used for WELLSTAR to 4.0x sales. Our target for WELL moves to $7 (prior $6), but we see potential for further upside from many of the company’s other businesses, including Canadian Clinics (M&A pipeline has been increasing) and at Wisp and Circle Medical (strategic reviews at both were recently noted as progressing well during Q3′s earnings call).”