Inside the Market’s roundup of some of today’s key analyst actions
Scotia Capital analyst Konark Gupta believes key indicators are now pointing to a rebound in the freight cycle rebound “after nearly two years of downturn, aided by rate cuts, capacity exits, and labour stability.”
“Our coverage is well-positioned for this while continuing the progress on self-help initiatives (organic growth, M&A and shareholder returns),” he said a research report released Monday titled Tariffs or No Tariffs, Attractive Opportunities Emerging.
“However, we are growing mindful of two themes that will dominate this year - U.S. tariffs and early Canadian elections - which causes us to trim our 2025-2026 organic earnings outlook and target prices by 2 per cent, on average. Our base case assumption is modest freight volume growth with the U.S. briefly imposing tariffs on select goods as a bargaining chip for renegotiating the USMCA, avoiding large blanket tariffs. We also assume some volume uncertainties heading into Canadian elections.”
Mr. Gupta is now expecting the group to increase its earnings by average 10 per cent year-over-year in 2025, led by Canadian Pacific Kansas City Ltd. (CP-T) and TFI International Inc. (TFII-T) with 16-per-cent gains.
“These forecasts already reflect our base case scenario for tariffs (i.e., U.S. imposes tariffs on select goods for a brief period which will see retaliation from Canada/Mexico) as well as uncertainties related to looming Canadian elections,” he explained. “Canadian rails are more sensitive to tariff scenarios than the rest of the group, given their relatively high exposure to cross-border traffic (CP 39 per cent and CNR 32 per cent). CJT has the least direct exposure (immaterial) to U.S. international trade, while TFII has the most exposure to the U.S. domestic market in this group. This means that TFII could stand to gain the most from Trump’s America-first policies while CJT could virtually have no direct impact of potential tariffs (there could be indirect impacts though).
”We trimmed our organic earnings outlook (excluding M&A) for the group for 2025-2026 by net 2 per cent, on average, to reflect direct and indirect impacts of potential tariffs, Canadian elections and CAD pullback, as well as company-specific and industry-specific factors. Our trucking names, MTL and TFII, have seen relatively bigger cuts, on an organic basis, because general freight market weakness has extended for longer than we had been anticipating. It is also important to note that TFII reports in USD and Canada represents ~30% of its revenue (based on traffic origin), which makes CAD pullback a headwind for its USD-denominated earnings (albeit a tailwind for CAD share price). We also note that MTL’s recently disclosed plans for M&A more than offset our reduced organic outlook. Our 2025-2026 EPS estimates for rails have come down by a little more than 1 per cent as our assumed impacts of tariffs (2-3 per cent) and Canadian elections (1 per cent) are partially offset by 3-per-cent FX tailwind (and KCS synergies, in CP’s case).”
Mr. Gupta’s target adjustments are:
- Cargojet Inc. (CJT-T, “sector outperform”) to $170 from $174. The average on the Street is $160.82, according to LSEG data.
- Canadian National Railway Co. (CNR-T, “sector outperform”) to $178 from $180. Average: $173.75.
- Canadian Pacific Kansas City Ltd. (CP-T, “sector outperform”) to $128 from $130. Average: $126.61.
- Mullen Group Ltd. (MTL-T, “sector outperform”) to $19 from $20. Average: $19.
“Our top picks in this scenario are TFII, CNR and CP for our projected 12-16-per-cent EPS growth. There could be further downside risk to our estimates if the U.S. imposes blanket or steeper tariffs, which could materially disrupt supply chains, favouring CJT in our view. Conversely, our estimates may prove conservative if cooler minds prevail (no disruptive tariffs), which could favour rails, particularly CP, as investors are pricing in tariff risks,” said Mr. Gupta.
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In a pair of reports previewing their fourth-quarter earnings, ATB Capital Markets analyst Chris Murray cut his forecast for both Canadian National Railway Co. (CNR-T) and Canadian Pacific Kansas City Ltd. (CP-T), seeing volumes remaining under pressure for both.
His CN target slid to $165 from $168 with a “sector perform” rating. The average on the Street is $173.75.
“CN reported weaker-than-expected volumes in Q4/24, reflecting the impact of work stoppages at key Canadian ports and softer levels of industrial production,” he said.” Our estimates for Q4/24 have been revised lower to account for volume weakness, with 2024e EPS below guidance. Guidance for 2025 is anticipated with Q4/24 results. While we expect CN’s outlook to call for stronger growth in 2025, we see potential for conservative guidance given macro conditions and the threat of tariffs. We will be looking for an update on volume/yield expectations, particularly intermodal and industrial freight, the expected impact from CN-specific initiatives, and capital allocation after temporarily suspending share repurchases in Q4/24. While valuations have improved, the uncertainty surrounding several key freight types keeps us neutral on CN.”
For CP, his target fell to $129 from $134 with an “outperform” rating. The average is $126.61.
“Volumes remained positive (up 1.0 per cent year-over-year) in Q4/24, albeit below prior ATB estimate, reflecting the impact of Canadian port strikes in October, with y/y growth driven by grain and automotive,” said Mr. Murray. “Our revised Q4/24 estimates call for 4.0-per-cent year-over-year EPS growth, reflecting moderate volume growth and healthy underlying pricing conditions. We expect fewer operating headwinds and revenue synergies to support growth and margin trends in 2025, with full-year guidance expected with Q4/24 results. Our focus with the results will be on volume/yield expectations in 2025, management’s base case surrounding potential tariffs, and the expected impact from Company-specific growth opportunities. CPKC remains our preferred Class 1 name, with ongoing synergy realization expected to support volume and O/R [operating ratio] trends in 2025.”
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While acknowledging new U.S. tariffs could have a noticeable impact on Shopify Inc.’s (SHOP-N, SHOP-T) business, National Bank Financial analyst Richard Tse reaffirmed the Ottawa-based e-commerce giant as one of his “Top Picks” for 2025.
“In recent weeks, we’ve had a number of investor inbounds on Shopify with respect to the potential tariff implications for the Company,” he said. “We think the genesis of those inbounds has to do with a perception that many of Shopify’s merchants source from China and given the new Trump administration has proposed significant tariffs, it’s become increasingly more topical. That had us looking to assess the potential impact which is summarized in this note.
“Overall, our conclusion is that while we see some impact on Gross Merchandise Volume (GMV) and in turn Merchant Services (MS) revenue should the tariffs be fully imposed, we believe it’s relatively less severe in the context of all the current impending growth vectors in front of Shopify. We believe those scaling growth vectors increasingly reduce the potential headline exposure from tariffs. As such, we’d view any pullback from a tariff narrative as an opportunity to add a position(s) in the name.”
In a research note released Monday, Mr. Tse examined the potential losses from president-elect Donald Trump’s broad 10-per-cent tariff across all imports and an additional 50-per-cent tariff on all Chinese imports, estimating Shopify’s gross merchandise volume would see contraction of 4.9 per cent (or a US$17.2-bilion decrease to his fiscal 2025 forecast of US$353-billion). He sees that leading to a drop of US$387-million to its Merchandise Services revenue (or 3.6-per-cent to his full-year expectation).
“All in, our analysis suggests that of Shopify’s U.S. imported merchandise (GMV), 24 per cent (or $21-billion) is sourced from China, with 76 per cent (or $69-billion) from RoW [rest of the world],” he added. “Recall, we estimated that these aggregated imports amount to 39 per cent of Shopify’s U.S. GMV while notably, our findings suggest that U.S. Chinese imports might represent just 6 per cent of Shopify’s Global GMV which we think is meaningfully lower than some perceptions in the market.”
“Bottom line, while a tariff scenario has yet to play out, we think this narrative will gain momentum and given the number of inbounds we’ve had from investors – the goal of this note is to highlight our findings ahead of that potential.”
Mr. Tse reaffirmed an “outperform” recommendation and US$140 target for Shopify shares. The average target on the Street is US$119.54.
“Our investment thesis is based on outsized growth from 1) International; 2) increasing take rate across new services; 3) large enterprise; and 4) POS [point of sale], which we don’t believe are (collectively) priced into the stock,” he said. “Our target price of US$140 is based on a staged DCF which normalizes expectations across a longer time horizon. That DCF-based target implies a valuation of 16.5 times EV/Sales on FY25E (unchanged); this is heightened by our view that much of the growth comes from beyond 2025 which is why we employ a staged DCF.”
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RBC Dominion Securities analyst Michael Harvey expects focal points of the approaching earnings season for Canadian energy exploration and production companies, including growth expectations and return of capital programs, to “likely overshadowed in the near term by tariff concerns and other global macro risks.”
“Our checks through the pre-Q update resulted in minor revisions to our production outlooks, reflective of outages and select company specific factors ... Our updated estimates placing Q4/24 cash flow per share up 1 per cent/23 per cent quarter-over-quarter for oil/gas-weighted names, a reflection of commodity pricing and weakened Canadian dollar,” he said. “Our Q4/24 CFPS estimates are 2 per cent below consensus while production is in line .... While Q4 AECO prices mapped to $1.49/mcf (up 110 per cent quarter-over-quarterand down 35 per cent year-over-year), this was in part offset by diversified sales points, hedging, and liquids production.”
Mr. Harvey is now projecting 6-per-cent year-over-year aggregate production growth for both 2025 and 2026, which he sees leading to cash flows of $16.7-billion and $16.8-billion.
“We expect 100 per cent of our coverage universe to grow volumes in 2025/26E based on our current outlook,” he said. “While AECO gas prices remain very low and we have seen only selective shut-ins to date, we believe this is largely due to the expectation of higher winter pricing (implied by the strip) plus the effect of fairly robust liquids pricing and hedging.”
Also seeing return on capital as “top of mind,” Mr. Harvey made target price adjustments to five stocks in his coverage universe on Monday:
- Arc Resources Ltd. (ARX-T, “outperform”) to $32 from $30. The average on the Street is $32.40.
- Kiwetinohk Energy Corp. (KEC-T, “outperform”) to $18 from $17. Average: $19.80.
- Paramount Resources Ltd. (POU-T, “sector perform”) to $34 from $37. Average: $39.19.
- Peyto Exporation & Development Corp. (PEY-T, “sector perform”) to $18 from $17. Average: $18.55.
- Tamarack Valley Energy Ltd. (TVE-T, “outperform”) to $5.50 from $5. Average: $5.75.
“Our top ideas include names that we believe are best positioned on operational sustainability, RoC metrics, and asset quality,” he said. “These include ARC Resources and PrairieSky Royalty (PSK-T), as highlighted in the latest iteration of RBC’s Global Energy Best Ideas list.”
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Desjardins Securities analyst Gary Ho cut his forecast for Ag Growth International Inc. (AFN-T) following its guidance cut and “tepid” 2025 outlook, agreeing with management’s cautious expectations but warning of the need for “several quarters of rightsized expectations to restore investor confidence.”
“It appears the issue is mostly isolated to U.S./North America Farm, with Commercial continuing to be extremely robust, which we believe highlights the merits of its diversification,” he noted.
“In 2024, Canada Farm performed largely as expected, but U.S. Farm performed poorly despite a healthy early order program in late 2023. There appear to be complex market dynamics other than crop volumes (2024 saw a very strong harvest) driving the supply/demand imbalance and keeping commodity prices down. Despite strong crop yields, average net cash farm income is expected to fall 3.2 per cent year-over-year in 2024. AFN continues to run rebate programs to help reduce dealer inventory, but we expect the North American Farm top line could remain soft for the balance of 2025.”
While he sees its Commercial segment “performing extremely well” with its order book at an all-time high “with significant momentum in International and a robust pipeline,” Mr. Ho reduced his revenue and earnings estimates through 2026, leading him to cut his target for Ag Growth shares to $57 from $72 with a “buy” recommendation. The average on the Street is $61.38.
“Our positive investment thesis is predicated on: (1) strong growth in Commercial and International businesses; (2) margin resiliency through operational excellence; (3) deleveraging; and (4) organic growth through product transfers and other initiatives (offset by weakness in North American farm),” he said.
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National Bank Financial analyst Vishal Shreedhar continues to see a “choppy” macro backdrop for MTY Food Group Inc. (MTY-T) ahead of the early February release of its fourth-quarter 2024 financial results, however he expects to see positive sales trends on both sides of the border.
“Our expectations reflect positive sssg [same-store sales growth] in Canada and the U.S., partly offset by negative sssg in International,” he said. “We expect slight impact due to hurricanes in Florida during Q4/F24 (4-per-cent system sales as of Q3/F24). Our data suggests U.S. industry sales (until November 2024) grew 5.3 per cent year-over-year (from 5.2 per cent year-over-year last quarter) and Canada industry sales (data until October 2024) moderated to 3.8 per cent year-over-year (from 4.1 per cent year-over-year last quarter).
“Our review of peer commentary points to sequentially consistent themes, including a focus on value, moderating consumer spending and softness in QSR [Restaurant Brands International Inc.] traffic. Notably, select peers have suggested early signs of improvement are emerging.”
Mr. Shreedhar is expecting the Montreal-based restaurant chain operator’s performance to improve sequentially, which he thinks reflects “organic growth initiatives across the business, operating efficiency initiatives and easier year-over-year compares, partly offset by moderating industry growth in Canada.” He now estimates system sales of $1.337-bilion, versus $1.342-billion a year ago, with revenue rising $5-milion to $285-million, exceeding the Street’s forecast of $274-million. He sees adjusted EBITDA of $60.5-million versus consensus at $57.9-million and up $0.1-million from the same period a year ago.
“We expect debt reduction and cost efficiencies to be priorities to prepare for future acquisition opportunities,” he said. “M&A has historically been a significant value driver for MTY. NBF models net debt (including lease liabilities) to EBITDA of 3.1 times in Q4/F24, declining to 2.8 times by the end of F2025. In our view, MTY’s improving balance sheet and positive FCF generation reflects increased acquisitions likelihood.”
After modest adjustments to his forecast, Mr. Shreedhar reaffirmed an “outperform” recommendation and $57 target for MTY shares. The current average is $56.75.
“Investors will, in our view, focus on: (i) traction with sssg (and indications on when sssg will turn positive), (ii) organic store network stability, and (iii) outlook commentary and the consumer backdrop given ongoing macroeconomic choppiness,” he concluded.
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In other analyst actions:
* Calling it “a SMID-cap heavy oil North Star,” CIBC World Markets’ Christopher Thompson initiated coverage of Headwater Exploration Inc. (HWX-T) with an “outperformer” rating and $9 target. The average on the Street is $9.22.
“We view Headwater as the premier publicly traded pure play Clearwater and Mannville Stack operator, boasting top-tier assets, a track record of inventory growth, a clean balance sheet, and attractive total return via its dividend and 10-per-cent annual production growth rate. We expect 2024 reserves will demonstrate strong volume growth and finding costs, while 2025 brings continued exploration activity and waterflood expansion. Our net asset value demonstrates underlying asset support for our price target, but we believe waterflood success is an important component in reducing the corporate decline rate and sustainably growing production,” he said.
* Canaccord Genuity’s Matthew Lee initiated coverage of Sprott Inc. (SII-T) with a “buy” rating and $67 target, exceeding the $64.75 average.
“Sprott Inc. has experienced a tremendous shift over the prior five years, evolving from a wide-reaching asset manager to a specialized, mining-focused firm, offering a unique value proposition to its fund investors,” he said. “Through the development of its popular physical trusts, SII has delivered substantial AUM growth, which has translated into expanding fee revenues and robust underlying earnings power. Looking forward, we expect management to continue to drive growth through both organic capital inflows and the broadening of its product suite. Given the firm’s moat, fund structure, and diversification, we opine that Sprott has now become an ‘all weather’ business, capable of thriving in a variety of macroeconomic scenarios. Our forecasts include contributions from Canaccord Genuity’s Mining Equity Research team, which guides our expectations on the underlying resource pricing. On valuation, we use a 22 times NTM+1 [next 12 months plus one] P/E multiple to determine our price target, which is a premium to Canadian asset managers but below specialty AM peers and in line with SII’s historical trading range.”
* CIBC’s Kevin Chiang lowered his target for Bombardier Inc. (BBD.B-T) to $126 from $127 with an “outperformer” rating. The average is $120.53.
* Ventum Capital Markets’ Alex Terentiew resumed coverage of Calibre Mining Corp. (CXB-T) with a “buy” rating and $3.30 target. The average is $3.60.
“Calibre is a growing mid-tier gold producer with a track record of accretive M&A and successful exploration, in both Nicaragua and Canada, that has underpinned production growth and strong share price performance,” he said. “Despite outperforming its peers in 2024, we think Calibre’s potential has yet to be adequately valued in the market, with upside to be realized once Valentine commences production in mid-2025 and the project’s substantial exploration upside is tested.
“Once in full production, we expect Valentine to account for almost half of the Company’s ounces, but more than half of its earnings given its lower-cost profile.”
* JP Morgan’s Patrick Jones cut his First Quantum Minerals Ltd. (FM-T) target to $17 from $18 with a “neutral” rating. The average is $21.25.