Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial analysts Richard Tse and John Shao see a “solid setup” for Canada’s publicly traded technology companies in 2025.
“While 2024 was a year of headwinds in enterprise, the early setup for 2025 suggests an improving enterprise spending environment through the year which should bode well for names like CGI, Coveo, Descartes, Docebo, Kinaxis, and OpenText,” they said.
“With respect to the broad indices, 2024 saw the S&P Info Tech index, Nasdaq 100, and S&P/TSX Info Tech Index return 36 per cent, 25 per cent, and 38 per cent, respectively, vs. the S&P 500 index 23 per cent. For those wondering whether we’ll see another year of strength in 2025, we’d point out that the Canadian Tech index had a 9-year consecutive run of positive performance from 2013 - 2021 which suggests multi-year runs are not unusual. In addition, we believe performance will be underscored by the continuation of (an active) M&A market.”
In a research report released Monday, the analysts said they see Descartes Systems Group Inc. (DSGX-Q, DSG-T) having “potential upside surprise” in the current earnings season, pointing to potential performance gains from recent acquisitions.
“We don’t believe Descartes’ quarterly performance mirrors the movement of the freight index and thus we follow the index only for significant directional changes,” he said. “On that note, November experienced a minor volume decline of 0.7 per cent, which deepened to 6.5 per cent in December. While the month-over-month decline is notable, this single data point may not be sufficient to signal a market turn. Similar declines were recorded in mid-2024, and during those months, Descartes was still able to deliver robust organic growth.
“We had an opportunity to host investor meetings with Descartes in December. We left these meetings with even greater confidence in Descartes’s ability to achieve its growth and profitability targets. A disciplined M&A approach, coupled with consistent organic growth and margin expansion potential, has established Descartes as a high-quality compounder and tech roll-up.”
Mr. Shao has an “outperform” recommendation and US$135 target for Descartes shares. The average on the Street is US$126.37, according to LSEG data.
“We consider Descartes one of the premium consolidators in Canada with a proven ability to consistently acquire and integrate businesses to generate strong growth in revenue, profitability and free cash flow,” he said.
The analysts pointed to three companies with potential downside risk:
* Altus Group Ltd. (AIF-T) with a “sector perform” rating and $60 target, up from $55. The average is $59.50.
Analysts: “We expect essentially in-line Q4 results from Altus, with potential downside risk given continued CRE headwinds. That CRE backdrop is consistent with Altus’ Q4′24 CRE Industry Conditions and Sentiment Survey that showed fewer firms plan to be net buyers over the next 6 months in the U.S. (22 per cent) and Canada (19 per cent) compared to 30 per cent and 26 per cent, respectively, in the prior quarter survey. Despite that, we see the recent divestiture of the Company’s Tax segment as a positive setup for a valuation re-rating higher.”
* Kinaxis Inc. (KXS-T) with an “outperform” rating an $225 target. The average is $193.37.
Analysts: “We’re expecting in-line Q4 results for Kinaxis. That said, we see heightened risk to those upcoming results given potential disruptions from last years executive departures. For the record, we believe Kinaxis continues on its path to finding a permanent CEO. In the interim, we believe the Company will benefit from the continuity and seasoned expertise from its interim CEO Bob Courteau and President of Global Commercial Operations Mark Morgan (announced Oct. 30th).”
* Telus Digital Inc. (TIXT-N, TIXT-T) with a “sector perform” rating and US$4.25 target, down from US$5. The average is US$4.89.
Analysts: “We’re expecting in-line results based on what we believe is reasonably conservative guidance. That said, we continue to see risk in the Company’s content moderation and data annotation segments.”
Mr. Shao and Mr. Tse also named four companies as their “favoured names” currently:
* Descartes Systems
* Kinaxis
* D2L Inc. (DTOL-T, “outperform”) with a $22 target. Average: $20.56.
Analysts: “D2L has a January 31st year end and won’t report until early April. For a Company with 90 per cent of its revenue recurring and serving large established institutions, the performance shortfall risk ahead of a quarter looks low to us. If anything, we see the potential of its trajectory being elevated due to future investments and consistent market share gains.”
* Shopify Inc. (SHOP-N/SHOP-T, “outperform” with a US$140 target. Average: US$119.54.
Analysts: “Our analysis has Q4 GMV coming in above consensus at US$95-billion (Street: US$93-billion), a 25-per-cent year-over-year increase (37 per cent quarter-over-quarter). We see continued share gains with the Company powering 29 per cent of global stores (vs. 26 per cent in Q4′23) with continued gains in the U.S. eCommerce market with a share more than 10 per cent. From a geographic mix perspective, we see 55 per cent plus of new merchants coming from non-North American markets. We estimate Shopify’s merchant count was up 6 per cent sequentially in Q4. Importantly, we see a (continued) growing proportion of additions came from larger merchants.”
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Citing “expectations around top-line quality (market share and new vertical opportunities), improving profitability (margin guardrails and mix), and meaningful FCF growth (margin and working-capital management),” TD Cowen analyst Derek Lessard upgraded GDI Integrated Facility Services Inc. (GDI-T) to a “buy” recommendation from “hold” with its shares sitting near a 52-week low and its valuation at “an all-time trough levels.”
“Improving margin and working-capital management should drive FCF growth. Business Services (BS) margins excluding Atalian turnaround have finally adjusted closer to their 7-8 per cent pre-pandemic levels, while Technical Services (TS) margin has shown meaningful improvements (reached 7.6 per cent in Q3/24; +200bps in backlog) after implementing bidding guardrails,” he said. “Together with further improvements in payment terms over time, we see better profitability and working capital driving 13-per-cent FCF growth in 2025 (excluding building sale) and pushing FCF conversion towards management’s long-term goal of 50-60-per-cent adjusted EBITDA.
“Expecting growth despite a challenging operating environment. Elevated vacancy rates and trade-down to lower-cost janitorial services are still headwinds in commercial real estate (CRE), given the general economic uncertainty. However, we expect GDI to continue winning market share and potentially regain some of its recent contract churns (the major customer it lost in 1H/24 is inviting GDI to bid again), given its scale and unmatched service. It is this strong competitive advantage in scale and specialization that allows GDI to participate in almost every RFP in Canada, bid on contracts in specialized facilities, and service clients across geographies. On that front, GDI is actively pursuing growth in newer (high-margin) verticals such as food sanitation (GDI is #3 in the U.S.), life science, and data centres, which, in addition to contributing to organic growth, should mitigate its exposure to the CRE market.”
Seeing its valuation presenting a “compelling risk-reward tradeoff,” Mr. Lessard hiked his target for GDI shares to $50 from $40. The average is currently $44.30.
“The stock has traded around alltime trough levels of 7.5-8.5 times since late 2023, given the deteriorating CRE market, loss of a major BS contract, and TS cost overruns,” he said. “However, with these headwinds largely mitigated and given the positive outlook outlined above, we are increasingly confident about continued operational improvement in the coming quarters and consequently, valuation expansion in 2025.”
In separate reports, Mr. Lessard made these other target changes to stocks in his coverage universe:
* Boyd Group Services Inc. (BYD-T, “buy”) to $290 from $270. The average is $266.46.
Analyst: “2024 share price performance (down 22 per cent) was the bottom tier of our coverage, pressured by lower repair volumes (mostly due to insurance premium inflation causing delays/nonfiling of claims) and consequently applying additional pressure to the margin. We expect the improving outlook and incremental margin contribution from maturing greenfield builds to drive 20-per-cent-plus EBITDA growth in 2025/26.”
* Primo Brands Corp. (PRMB-N, “buy”) to US$40 from US$32. Average: US$36.83.
Analyst: “PRMB shares have re-rated following its merger with BlueTriton Brands lead to an increase in market cap and a wider investor base. We are raising our price target ... to reflect the higher valuation. Despite the strong run in the share price we see more upside as we expect PRMB to exceed its original $200-million synergy target, which does not include revenue synergies.”
* Savaria Corp. (SIS-T, “buy”) to $25 from $30. Average: $25.93.
Analyst: “Despite an impressive run-up in 2024, SIS shares pulled back from their October high, which we attribute to a combination of temporary sales pressure in Europe (after implementing margin guardrails) and some profit taking. We remain positive on the strong secular growth drivers (aging population), but lower our near-term valuation expectation as Savaria One nears its conclusion.”
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After a recent day of marketing with institutional investors that included new president and chief executive Hugues Simon, National Bank Financial analyst Zachary Evershed thinks Cascades Inc. (CAS-T) is “charting a new course in an uncertain environment.”
“We were impressed with CAS’ new CEO who, with only 7 months in the seat, already has a firm grasp of the finer details of each operating segment,” he said. “Under his purview, we believe the game plan will be emphasizing operational efficiency to maximize dollar per hour per machine (SKU rationalization, safety, culture), cross-selling (unified Packaging segment), and focusing on the right customers, to grow by supporting their growth (become supplier of choice); we expect FCF thus generated will be aimed almost entirely at reducing debt, with a tight lid on capex.”
While warning the Kingsey Falls, Que.-based paper and packaging company will face a significant impact from proposed U.S. tariffs, Mr. Evershed cautioned “the devil is in the details.”
“Approximately 10 per cent of external sales are manufactured in Canada and sold in the U.S. and are thus directly exposed to tariffs, with additional friction in some supply chains (eg: OCC collected in ON, used in NY to produce containerboard, and shipped back to ON), though CAS would likely be able to restructure logistics to avoid moving inputs cross-border,” he said. “More than the tariffs themselves, however, management believes the larger risk would be the second order effects, as U.S. end customers substitute to non-tariffed goods, reducing imports from Canadian manufacturers (and the boxes they ship in), plus the toll on the Canadian economy affecting spending on goods at home.”
He added: “Our forecasts do not bake in the impact of potential tariffs. Following a brief reprieve when trade barriers were not enacted immediately upon his inauguration, President Trump’s latest rhetoric on the subject is not particularly comforting, given Cascades’ non-negligible exposure to cross-border commerce. We also note the second order impacts of a trade war dragging on each country’s economy would likely have an even more pronounced impact on earnings, as box shipments are closely tied to economic activity.”
Pointing to the latest macro and commodity data points, Mr. Evershed raised his 2025 earnings expectation and introduced his 2026 forecast, which includes earnings per share of $1.44, rising from his 2025 estimate of $1.35 (from $1.00 previously). That led him to increase his target for Cascades shares to $14.50 from $12.50 with a “sector perform” rating (unchanged). The average on the Street is $13.50.
“Though we are excited by the company’s direction and priorities under the new CEO, too much macro uncertainty clouds the outlook, leaving us reticent to leave the sidelines; we reiterate our Sector Perform rating,” he said.
Elsewhere, Scotia Capital’s Jonathan Goldman upgraded Cascades to “sector outperform” from “sector perform” with a $15.50 target, up from $12.
“We like the setup heading into 4Q and 2025,” he said. “OCC stabilized in January, but is down US$33/ton from the August peak due to tepid demand and increased fibre generation. The way we see, either OCC demand remains weak and prices stay at low levels (or potentially fall further) – or OCC demand improves, which signals industry conditions are improving and supportive of higher ASPs. Either way, we think you’re looking at a minimum of US$65/ton boost to CAS’ price-cost spread, which equates to $120 million to annualized EBITDA (up 25 per cent year-over-year). Our base case is higher as we expect the industry to gain some traction on the December price increase, likely in February or March, likely in the $35-40 range. We believe consensus is imputing no increase at all in 2025. Important to note that lower input costs immediately impact Cascades’ P/L whereas it takes four to six months for benchmark pricing changes to flow through the company’s index-contracted business (50 per cent of volumes). Recall, Cascades will be annualizing the June 2024 increase this January.
“We don’t think you need a re-rate for the stock to work. CAS shares trade at 5.3 times EV/EBITDA on our 2025E, which splits out to 3.2 times debt and 2.1 times equity. We forecast FCF of $185 million in 2025 (14-per-cent yield), which effectively transfers $2.85/share of value to equity holders from debt holders. A renewed focus on operational improvement, FCF generation, and deleveraging, could be catalysts for a re-rate. With its spread to peers having blown out to 5 times vs. historicals at 2 times, we’re not ruling that out either.”
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Citi analyst Bryan Burgmeier sees a good entry point for GFL Environmental Inc. (GFL-N, GFL-T), calling it a growth leader possessing a pure-play portfolio.
Believing its current valuation does not reflect its medium-term growth potential, he initiated coverage with a “buy” recommendation on Monday.
“GFL is the fourth-largest Solid Waste service provider in North America and the largest in Canada (approximately 30 per cent of revenue), founded by Patrick Dovigi in 2007,” said Mr. Burgmeier. “The stock has outperformed large-cap peers since the 2020 IPO (up 137 per cent vs. up 90 per cent) with EBITDA 109 per cent from ‘20-’24E on M&A and margin expansion in a historic pricing cycle. Shares have lagged over the past 18 months (up 8 per cent vs. up 29 per cent), potentially on higher-for-longer interest rates and stronger USD, creating an attractive entry point to a younger Waste company with years of M&A runway and internal investment.”
Saying he’s “broadly positive on the Waste space with strong industry fundamentals and reasonable valuations,” the analyst sees several potential near-term catalysts for the Vaughan, Ont.-based company, including completion of the previously announced ES [environmental services] sale, February 27 Investor Day, and eventual re-rating to IG credit, along with a favorable industry-wide backdrop from positive net price.”
GFL sells environmental services unit to pay down debt, but deal complicates end goal
“Once the deal closes, GFL will move to 3 times net leverage and buyback ~40mm shares from a large investor, directly addressing shareholder concerns on elevated net leverage vs. peers (especially in a higher-for-longer macro) and the overhang from PE ownership,” he said. “We forecast 9-per-cent ‘24-’27 EBITDA CAGR [compound annual growth rate] from a positive net price spread, extended producer responsibility recycling contracts, and internal investment levers (CNG trucks, side-loaders). With only MSD% [mid single digits] market share in NA Solid Waste and a cleaner balance sheet, GFL is positioned to grow revenue +LSD% p.a. [up low single digits per annum] from low-risk roll-ups in existing geographies for the next decade. We conservatively value GFL at 28 times ‘26 FCFPS [free cash flow per share] (15.5 times ‘26 EBITDA), a slight discount to peers to reflect lesser scale and margins, despite outsized growth potential in the near-to-medium term and a pure-play Solid Waste portfolio. In our view, attractive valuation, industry-leading medium-term growth prospects, and a cleaner balance sheet outweigh risks from persistently high rates, ongoing M&A integration, and ramping RNG production.”
Seeing GFL likely to close its valuation gap to peers, Mr. Burgmeier set a target of US$53 per share. The current average is US$49.63.
Elsewhere, Scotia’s Konark Gupta cut his target for GFL to US$50 from US$51 with a “sector outperform” rating, while he raised his Secure Waste Infrastructure Corp. (SES-T) target to $21, above the $18.22 average, from $18 to also with a “sector outperform” recommendation.
“We maintain a favourable long-term view on the [waste and environmental services] sector, given pricing power, M&A momentum, upside in FCF conversion from sustainability, and shareholder-friendly capital discipline,” said Mr. Gupta. “While volume is likely to rebound as industrial activity recovers, we have grown more cautious about recycling and RNG due to commodity price volatility. The new U.S. government could also bring some uncertainties, potentially around tax credits or renewables, although M&A regulation could become less stringent. Sector valuation is generally less attractive especially with the U.S. 10-year yield sitting at north of 4.5 per cent, but we continue to see compelling opportunities in GFL and SES, while upgrading WM. GFL shares have seen some volatility lately but we maintain our thesis that ES sale ($6.2B net proceeds) will create significant shareholder value through buybacks, deleveraging (investment grade rating) and accelerated M&A. Our GFL target (in USD) has slightly come down due to FX. SES has performed quite well and we see further upside risk from M&A and buybacks, which drives our multiple and target higher. WM has underperformed and we now see upside risk to its guided Stericycle synergies, which moves our multiple and target up.”
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Acknowledging broader consumer spending weakness lingers, RBC Dominion Securities analyst Irene Nattel thinks “modest” positive trends emerged for Canadian Tire Corp. Ltd. (CTC.A-T) during the fourth quarter of 2024.
“While the macro environment remains challenging and likely to be so well into 2025, we expect Q4 performance to underscore the defensive bent to CTR’s offering, solid owned brands penetration, good/better/best architecture,” she said.
Ms. Nattel is now projecting fourth-quarter year-over-year revenue growth of 1.2 per cent with normalize earnings before interest, taxes, depreciation and amortization (EBITDA) rising 4.5 per cent. Her earnings per share estimate is $3.73, up 10 per cent but at the low end of the Street’s current forecast range of $3.73-$4.76 (average: $4.29).
“CTC delivered strong results 2020 to mid-23 through category re-sets, strategic partnerships, and focus on building private brands to ensure a differentiated offering that resonates. CTC effectively captured share of wallet, and stepped up investments in data analytics to establish stronger directto-consumer communications and promotions,” she said. “However, the macro backdrop with cost of living increases outstripping real income growth and mortgage re-sets at higher levels and spillover effect on broader shelter costs are causing extremely cautious consumer spending and pullback in spending on discretionary goods and services. While we had expected improving cadence in H2, while comps are easier consumer demand remains as cautious.”
Maintaining an “outperform” rating, Ms. Nattel bumped her Street-high target to $195 from $192. The average is $166.
“Our analysis indicates valuation appropriately discounts spending headwinds, valuation remains attractive,” she said. “While SSS [same-store sales] and earnings have been pressured through 2024, CTC earnings have held up better than expected. RBC Economics anticipates improving trends in consumer spending in H2/2025, Retail target multiple of 6.5x reflects the challenging demand/earnings visibility. As we move through 2025 and as we move closer to anticipated inflection on consumer spending, we should see improving share price performance.”
Elsewhere, BMO’s Tamy Chen raised her target to $170 from $152 with a “market perform” rating.
“With the stock’s recent move up, our SOTP valuation indicates CTC’s implied Retail multiple is now at the high end of the historical 4.5-6 times range,” she said. “Our current 2025 estimates assume some year-over-year recovery at CTC.”
“At this point, amidst escalating tariff rhetoric by Trump, we are hesitant to assume a materially higher earnings scenario.”
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In other analyst actions:
* CIBC’s Krista Friesen cut her Ag Growth International Inc. (AFN-T) target to $58 from $61 with an “outperformer” rating. The average is $59.50.
* TD Cowen’s Cherilyn Radbourne trimmed her ATS Corp. (ATS-T) target to $56 from $57 with a “buy” rating. The average is $49.
“Investors we speak with largely agree with our positive long-term view of ATS’ secular growth prospects, but lean cautiously in the short term,” she said. “We/the Street expect Q3/F25 EBITDA to be up 10 per cent quarter-over-quarter, which should establish Q2/F25 as a bottom. Bookings could also surprise to the upside for the 4th qtr in a row. That said, we do not expect progress on collecting the $325-million owing from the large EV customer (about $3 per share).”
* BMO’s Thanos Moschopoulos hiked his Celestica Inc. (CLS-N, CLS-T) target to US$140 from US$72 with an “outperform” rating. The average is US$102.90.
“We’ve raised our estimates based on our incremental confidence regarding both the near-term and longer-term outlook for AI-related capex, and CLS’s ability to continue taking share,” he said.
“We believe the stock remains attractive and view its recent multiple expansion as warranted—given CLS’s AI exposure and market position, and the potential for upside to estimates.”
* In a note on auto parts manufacturers titled Santa Claus Rally or Reality?, Scotia Capital’s Jonathan Goldman lowered his targets for Linamar Corp. (LNR-T, “sector perform”) to $73 from $75 and Magna International Inc. (MGA-N/MG-T, “sector perform”) to US$49 from US$52. The averages are $76.17 and US$50.53.
“strong December sales numbers may be sending a false signal about the health of the auto market,” he said. “The 16.8 million SAAR was the highest since May 2021, but it appears that it was supported by destocking with inventories declining an unusually high 6% m/m (days’ supply declined to 47 from 56). Affordability issues continue to suppress new car demand with OEMs committed, at least for now, to pricing discipline and resisting the temptation to goose incentives. The average new car payment in the U.S. was US$756 in December, flat m/m, while incentives averaged 8% of ATP, also flat m/m, and off pre-COVID levels of 11 per cent to 12 per cent. The Cox Affordability Index, which measures the weeks of Income needed to purchase a new light vehicle, was 38.2 in December, or 3 months above pre-COVID levels.
“While supplier valuations remain attractive at about 15 per cent below historicals, we are still not ready to get constructive on the space. Auto industry sentiment is rightly cautious with the outlook incrementally negative since 3Q24, in our view, given (1) the tariff overhang; (2) lower rate cut expectations; (3) potential destocking and decoupling of sales from production; and (4) likely further deterioration in EV demand given the stance of the new administration in the U.S. We don’t think 2025 guidance will be outright disappointing – we are within 1 per cent to 3 per cent of consensus for 2025 – but it probably won’t be exciting either given the challenging operating environment. Where we could be wrong is on costs. Cost reductions may be sufficient to support, or even grow profit levels y/y, despite tepid LVP, which would likely be rewarded by the market (see DAN-US prelim results released last week).”
* TD Cowen’s Brian Morrison trimmed his Magna target to $50 from $52 with a “buy” rating.
“We are positive on Magna’s mid-term outlook, but maintain near-term catalysts may prove limited. Although U.S. consumer demand remains resilient, OEM inventory management, foreign exchange volatility, and tariff threats all present near-term headwinds. We are of the view that these issues should be addressed by H2/25, at which time we anticipate improved earnings visibility and investor sentiment,” he said.
* Jefferies’ John Aiken raised his target for Manulife Financial Corp. (MFC-T) to $51 from $50 with a “buy” rating. The average is $47.25.
* Stifel’s Justin Keywood lowered his Quipt Home Medical Corp. (QIPT-T) target to $7 from $7.50 with a “buy” rating. The average is $9.41.