Inside the Market’s roundup of some of today’s key analyst actions
National Financial analyst Maxim Sytchev thinks negative macroeconomic sentiment has led to a “punitive” valuation for Aecon Group Inc. (ARE-T) relative to its higher quality backlog and “significantly de-risked” earnings profile.
Accordingly, in a research report released Monday titled Welcome to the despondence stage, he raised his recommendation for the Toronto-based construction company to “outperform” from “sector perform” previously, believing soft investor sentiment has compressed its valuation to “attractive levels” and “historical precedent suggests a reliable ‘buy’ signal.”
“ARE shares have pulled back a material 36 per cent (vs. down 3 per cent for the TSX) following our downgrade three months ago when they traded at an 18.5 times P/E on 2025 NBF estimates; now they trade at 11.0 times 2025 P/E and are also valued at a considerable discount to peers who are similarly exposed to the electrification and utilities themes in the U.S. construction space such as Quanta (NYSE: PWR) and MasTec (NYSE: MTZ),” he said.
“Soft investor sentiment seems to be phenomenon shared by the entire space as it has also materialized in these peers along with Aecon year-to-date performance — ARE: down 34 per cent/PWR: down 22 per cent/ MTZ: down 15 per cent), but Quanta and MasTec were trading at or above 25 times P/E and hence, were facing a higher hurdle rate. Structurally, however, we view the negatives as being reflected in Aecon’s investment thesis, while taking advantage of current negative market and company-specific sentiment once again creates a better risk / reward skew at a now de-rated share price. Tactically-speaking, the RSI below 18, and the lowest level in seven years, also creates an opportunity for trading-focused investors to take advantage of a current dislocation.”
In the wake of last week’s steep post-earnings selloff, Mr. Sytchev now thinks a “larger, higher quality backlog should lower pro-forma earnings volatility materially.”
“2024 saw the resolution of the problematic CGL project and improved visibility for the Eglinton and Finch reaching substantial completion by mid-year, while the Gordie Howe bridge remains on schedule for completion later in Q3/25,” he said. “As at year-end 2024, the associated backlog from these three projects stood at $121-million (only 2 per cent of the consolidated backlog). More importantly, ongoing momentum in the nuclear, power, utilities and transportation infrastructure sectors will see a number of large, lower-risk collaborative projects added to the backlog in the near term. With the addition of the $2.8-billion Scarborough Transit Connect project and the $500-milllion second phase of Pickering nuclear refurb work, we believe the backlog could reach close to $10-billion this quarter with imbedded margins being significantly less volatile (various construction projects entering long-term O&M agreements will provide further de-risking).”
Since his late November downgraded, Mr. Sytchev now sees a “mirror opposite backdrop,” pointing to several changes, including a view “market is rolling over, dragging prior high performers in concert, and then some” and believing an “unorthodox approach to policy-making [has] injected uncertainty, potentially leading (or not) to a change in government in Canada (continuity is easier to digest for large capital programs as there is less risk of re-prioritization, etc.).”
However, he touted Aecon’s “vast” discounted valuation to peers and a “despondence dynamic as captured in an oversold RSI.” He also sees “upside to what we view as a conservative NAV is now close to 30 per cent, more than enough to again go long the stock,” leading to his rating revision.
He maintained a $23 target for Aecon shares. The average target on the Street is $26.41, according to LSEG data.
Elsewhere, other analysts making target changes include:
* ATB Capital Markets’ Chris Murray to $33.50 from $33 with an “outperform” rating.
“While Aecon reported mixed results, demand conditions remain intact, and we expect higher-quality backlog growth and better execution to translate into revenue growth and margin expansion in 2025 and beyond,” sai Mr. Murray. “We view the post-earnings sell-off as overdone, and we would remain buyers with shares trading at 3.2 times 2025 estimates.”
* RBC’s Sabahat Khan to $20 from $27 with a “sector perform” rating.
“Aecon Group Inc. reported Q4 Adjusted EBITDA that was below RBC/consensus forecasts, with the quarter reflecting $35.8-million of losses from the legacy fixed price projects,” said Mr. Khan. “Looking ahead, while 2025 is likely to see top-line growth given a number of projects moving into the construction phase/backlog + M&A completed in 2024, we continue to believe that further losses from the legacy fixed price projects are possible.”
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Citi analyst Spiro Dounis raised his recommendation for Pembina Pipeline Corp. (PPL-T) to “buy” from “neutral” on Monday in response to almost 12-per-cent “underperformance” since the U.S. election.
“We see a stream of positive catalysts emerging that should close the performance gap,” he said. “First, with the announcement of the Greenlight power project (data center demand), PPL now boasts one of the largest growth backlogs relative to its size at over $8-bilion, which has the potential to add over 20-per-cent EBITDA growth. Moving these projects to FID should be positive catalysts. We also expect 2025 to be a year of overhang removals.”
“First, we expect PPL to resolve the Alliance pipeline toll review with minimal impact to EBITDA. Second, PPL should be in a position to announce its ethane supply plan for the Dow ethane cracker by mid-year. Third, we expect PPL to assign Cedar LNG volumes and upgrade project EBITDA. Finally, we see the potential for PPL to upgrade both marketing and fee-based EBITDA guidance.”
In a note released before the bell, Mr. Dounis emphasized Pembina’s growth backlog is “actually quite large” and thinks the worries about the federal Clean Electricity Regulation (CER) proposal “might be overblown.”
“With the announcement of the Greenlight power project (more than $3-billion net to PPL), PPL’s backlog of projects grows to more than $8-billion, albeit at various stages of development,” he said. “In fact, PPL seems to be punching above its weight in opportunities. For example, some U.S. peers point to backlogs roughly 1x the size of annual EBITDA, PPL appears to be approaching a backlog that is nearly 2 times its current EBITDA. The opportunity set represents $1-billion of incremental EBITDA, or over 20-per-cent growth from current levels at an 8x return multiple.”
“We estimate a $50-million negative EBITDA revision from the CER toll review on the Alliance Pipeline (1 per cent of company-wide EBITDA), although a more stringent $0.1-billion revision remains a risk, in our view. Nonetheless, the stock has materially underperformed and we estimate a C$1/share impact if the more stringent scenario is realized. PPL is working on a negotiated settlement with ~40 shippers; this is something we believe is being done in order to minimize the risk of a more stringent toll cut under the purview of the CER if a settlement is not reached. We expect an update from PPL in May and full resolution of the CER review in 2025.”
While he said the impact of U.S. tariffs cannot be ignore, Mr. Dounis noted Citi’s Commodities team expects “flows to be unchanged as markets have few economic alternatives.”
“PPL also has 70 per cent of earnings supported by take-or-pay contracts, providing further insulation from any production changes,” he added. “Nonetheless, we believe tariff noise has put pressure on the stock – something we expect also presents upside opportunity if tariffs are lifted.”
He maintained a $63 target for Pembina shares. The current average is $61.69.
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Greg Pardy, RBC’s Head of Global Energy Research, thinks Athabasca Oil Corp. (ATH-T) “possesses everything we are looking for in an energy producer — a capable leadership team, shareholder alignment, solid operating performance, a strong balance sheet, organic growth profile and 100-per-cent payout of (thermal) free cash flow to shareholders.”
Accordingly, in response to a recent pullback and expressing “confidence in its outlook,” he raised his rating for the Calgary-based company to “outperform” from “sector perform” following an in-line fourth-quarter results that held no surprises for the analyst.
“Our recent series of institutional meetings in Boston with Athabasca Oil Corporation’s President & CEO, Robert Broen and CFO, Matt Taylor were informative and dug into the company’s strategic game plan, importance of a strong balance sheet (which affords flexibility and financial durability), and stepwise growth plans at its Leismer in-situ SAGD operations,” said Mr. Pardy.
“What stood out most from our discussions was the straightforward approach under which Athabasca is led, shareholder alignment, technical depth, and appreciation for consistent operational delivery. Athabasca’s leadership team owns about 7.0 million shares (1.3 per cent of outstanding shares).”
He views Athabasca as being in “a capital growth cycle as it pursues a two-pronged approach to upstream expansion at its Leismer (100-per-cent wi) in-situ operations and emerging Kaybob Duvernay (70-per-cent equity interest) segment (which is self-funded).”
“Together, we peg the company’s 2024-26 top line production growth (CAGR) at 5 per cent, which should move higher on a per share basis given its favorable shareholder returns policy. Under a stable US$70 WTI, US$12.50 WCS-WTI, $2-$3 AECO, and US$0.725 FX rate, the company pegs its AFFO/shr. CAGR at approximately 20 per cent over the 2025-29 timeframe (assuming a 10-per-cent annual buyback program and 4.5 time EV/DACF multiple in 2026-29).”
Mr. Pardy moved his target to $6.50 from $6. The average on the Street is $6.42.
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While his long-term view on Methanex Corp.’s (MEOH-Q, MX-T) earnings power remains intact, Scotia Capital analyst Ben Isaacson said he’s “stepping to the sidelines” and downgraded its shares to “sector perform” from “sector outperform” on Monday, citing three reasons.
“First, MEOH has taken G3 offline until May, due to another issue with the autothermal reformer,” he said. “During the downtime, MEOH will bring forward its three-week planned maintenance. While required repairs won’t have a material cash outlay, it will impact Q2 via lower produced sales (we will adjust for this later). Rightly or wrongly, another G3 issue will shake near-term confidence, in our view. Second, as the winter eases in Iran, gas is being redirected back to methanol plants, with a subsequent ramp in exports to follow. Argus is seeing similar indications, and we’ve already seen urea output increasing. Third, there is no question that macro headwinds are accelerating - through both data and investor sentiment; markets are becoming increasingly shaky too. Market meltdowns on growing recession risk will be most painful for deep cyclicals like MEOH, by definition! On reciprocal tariffs due April 2, prepare to buckle up, add to any MEOH weakness, and see it through.”
Cutting his multiples on near-term downside risk, Mr. Isaacson reduced his target to US$53 from US$66. The average is US$62.10.
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Following “solid” in-line fourth-quarter financial results, Constellation Software Inc. (CSU-T) remains “a solid acquisition growth compounder” with a “healthy pipeline of 40K+ targets and attractive defensive attributes (strong FCF generation),” according to National Bank Financial analyst Richard Tse.
On Friday after the bell, the Toronto-based company reported quarterly revenue of $2.7-billion, up 16 per cent year-over-year and matching the expectations of both Mr. Tse and the Street. Adjusted earnings per share of $24.93, topped estimates ($22.10 and $22.98, respectively).
“That said, we’d note the bulk of Adj. EPS upside came from FX tailwinds associated with certain non-USD liability revaluations.,” he said. “With respect to the key KPI of capital deployment, Constellation deployed $620-million (up 34 per cent year-over-year) in the quarter (inclusive of acquired cash and deferred payments) bringing the year’s total capital deployed to $1.8-billion (down 31 per cent year-over-year), representing 78 per cent of our $2.3-billlion FY24 estimate.
“Despite the shortfall in capital deployment in FY24 relative to our expectations, a potentially increasing attractive valuation environment under macro volatility should broaden out Constellation’s opportunities for its $3.1-billion in liquidity and low leverage. We’d note those larger opportunities like Optimal Blue ($700-million) tend to be more organic in their development, which means their timelines are not predictable from a trendline perspective. Additionally, we continue to believe Constellation will pursue more spinoffs as a way of driving incremental value creation for investors given the success of Topicus and Lumine, which have collectively driven $6.7-billion in incremental market value to Constellation.”
Calling it a “continuing compounder,” Mr. Tse said the quarterly report confirmed his investment thesis, leading to raise his target to $5,500 from $5,000 after modest adjustments to his forecast and rolling forward his valuation. The average target is $5,200.
“We like Constellation for its continued (consistent) acquisition growth strategy and defensive attributes (recurring revenue and cash flow),” he said. “In our view, we see a high probability of potential spinoffs as driving incremental value creation for investors.”
Elsewhere, other analysts making target adjustments include:
* RBC’s Paul Treiber to $5,700 from $5,300 with an “outperform” rating.
“Constellation reported Q4 revenue and adj. EBITDA effectively in line with RBC/consensus estimates. The surprise was M&A, which was well above our M&A tracker. Additionally, Q1 to date capital deployed is solid. The strong pace of M&A, combined with healthy organic growth and margin expansion, raise investor visibility to continued compounding of capital,” said Mr. Treiber.
* CIBC’s Stephanie Price to $5,450 from $5,300 with an “outperformer” rating.
“Constellation reported revenue 1 per cent below the Street and EBITDA margin in line. Constant currency organic growth of 2 per cent was below our expectation and below the company’s historical average of 4 per cent, but up 100 bps sequentially. Maintenance organic growth of 5 per cent was more in line with our expectation of 6 per cent and historical average, leaving us less concerned,” said Ms. Price.
* Raymond James’ Steven Li to $5,250 from $4,550 with a “market perform” rating.
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After a “positive” finish to 2024 and encouraging outlook for the current fiscal year, ATB Capital Markets analyst Chris Murray sees Dexterra Group Inc. (DXT-T) “positioned for two-pronged growth” in 2025.
“DXT delivered another strong quarter, reflecting the more predictable nature of its remaining businesses,” he said. “Management issued a constructive outlook for Support Services and Asset Based Services, highlighting expectations for favourable contract pricing and high camp occupancy levels, which is expected to support healthy levels of organic growth and margin expansion, particularly in ABS on increased asset rentals. Management believes its direct exposure to tariffs can be largely mitigated through contract pricing adjustments and cost management and does not expect the situation to have a material impact on 2025 results. Leverage stepped down further in Q4/24 providing significant support for potential M&A and/or buyback activity in 2025.”
On Thursday, the Toronto-based integrated facility management and operations company reported quarterly EBITDA of $26.6-million, up 12.7 per cent year-over-year and above Mr. Murray’s expectation “driven by better contract pricing, which supported organic growth and margin trends in Support Services, combined with a contribution from the acquisition of CMI.”
“The Company resegmented with Q4/24 results (as expected) and now operates under ‘Support Services’ and “Asset-Based Services” (ABS), limiting comparability versus ATB estimates for Q4/24,” he said. “Consolidated results were mixed versus ATBe, with better-than-expected EBITDA growth driven by Support Services (formerly Integrated Facilities Management and catering services within WAFES) reflecting new contracts and M&A. Management issued a constructive outlook for 2025, with camp occupancy to remain firm and margins in Support Services expected to benefit from better contract pricing, which it believes can support mid-single-digit organic growth and margin expansion in 2025. DXT delivered another solid quarter and is positioned to deliver further growth in 2025 while remaining active in M&A and on its NCIB.”
Raising his 2025 and 2026 earnings expectations, Mr. Murray increased his target for Dexterra shares to $10.50 from $9.25 with an “outperform” rating. The average is $10.41.
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In other analyst actions:
* TD Cowen’s Michael Tupholme lowered his target for Ag Growth International Inc. (AFN-T) to $46 from $48 with a “buy” rating. The average is $48.25.
“Q4/24 EBITDA was above consensus and AFN’s implied guidance. That said, newly introduced Q1/25 and FY2025 EBITDA guidance (which does not include any potential tariff impact) are both below consensus, with weak visibility in the Farm segment through at least H1/25. While near-term demand weakness may continue to weigh on sentiment, we like AFN’s long-term potential and see its valuation as attractive,” said Mr. Tupholme.
* Expecting 2025 to be “a transition year,” Desjardins Securities’ Brent Stadler trimmed his Algonquin Power & Utilities Corp. (AQN-N, AQN-T) target to US$4.75 from US$5 with a “hold” rating. The average is US$5.39.
“In 90 days, we expect clarity on the near-term earnings power of the business and when AQN can reach its optimal portfolio run rate. In our interactions, we have been quite impressed with CEO Rod West. Commentary on the call suggests the potential to accelerate the timeframe as to when AQN can reach its optimal run rate. At this point, we are taking a wait-and-see approach. We have reduced our estimates, reflecting the 4Q results and the Empire rate case delay,” he said.
* Scotia’s Robert Hope increased his target for AltaGas Ltd. (ALA-T) shares to $42 from $40 with a “sector outperform” rating, while ATB Capital Markets’ Nate Heywood raised his target to $40 from $38 with an “outperform” rating. The average is $39.22.
“Our key takeaway from AltaGas’s Q4 results is how large and visible the next wave of growth projects is becoming,” Mr. Hope said. “These would largely be easy-to-execute, high-return brownfield expansions or upside to its core utility capital plan. We believe this could support AltaGas’s above-average growth outlook to the end of the decade. To reflect this growth optionality, we increase our midstream target EV / EBITDA multiple by 1 times to 11.2 times to put it more in line with its peers, Keyera and Pembina. This increases our target by $2 to $42. Our go-forward estimates do not materially change, and management reiterated its 2025 guidance outlook. AltaGas continues to see strong demand for its core assets, and progress on contracting has advanced at a pace that was faster than expected.
“AltaGas’s utility and midstream segments are seeing strong growth, and we believe these assets are not properly reflected in the share price. At 14.5 times 2026 estimated P/E, we view AltaGas as a way for investors to get exposure to high-growth utility and midstream assets at a discounted valuation (the other Canadian utilities are trading in the 14-22 times range).”
* TD Cowen’s Sean Steuart lowered his Canfor Corp. (CFP-T) target to $19, below the $19.33 average, from $20 with a “buy” rating.
“On Friday’s Q4 conference call, management reiterated significant changes to CFP’s asset base in recent years, partly motivated to mitigate U.S. market access restrictions. We expect rising lumber ADD deposit rates by Q3/25 and the potential for additional tariffs could continue to weigh on near-term sentiment, but CFP’s valuation is attractive, particularly given balance sheet flexibility,” said Mr. Steuart.
* CIBC’s Hamir Patel cut his Canfor Pulp Products Inc. (CFX-T) target to $1 from $1.25 with a “neutral” rating. The average is $1.35.
“We remain Neutral on Canfor Pulp and moderate our price target ... on lower free cash flow estimates. At the same time, elevated fiber costs in British Columbia (home to 100 per cent of CFX’s capacity) and tariff risks for Canadian lumber could further threaten chip availability later this year if sawmill curtailments materialize in a weaker demand/high tariff and duty environment,” he said.
* Raymond James’ Michael Barth bumped his CES Energy Solutions Corp. (CEU-T) target to $12.25 from $12 with a “strong buy” rating. The average is $11.19.
“CEU delivered 4Q24 results that exceeded consensus expectations for the 24th consecutive quarter. The business continues to execute well, with top line growth, margin expansion, increased dividend and a continued reduction in the share count. Given the recent stock price weakness, we view this as a buying opportunity,” said Mr. Barth.
* RBC’s Keith Mackey trimmed his Ensign Energy Services Inc. (ESI-T) target to $3.50 from $4.25 with an “outperform” rating, while ATB Capital Markets’ Waqar Syed cut his target by $1 to $4.50 with an “outperform” rating. The average is $3.54.
“Ensign’s 4Q24 adj. EBITDA was in-line with consensus and our estimate. Ensign reiterated its focus on debt reduction, maintaining its confidence in repaying $200-million of debt in FY25. Ensign trades at a discount to land drilling peers, which largely reflects its tight, but so-far manageable, liquidity position in our view,” he said.
* TD Cowen’s Craig Hutchison cut his Ero Copper Corp. (ERO-T) target to $22 from $23 with a “buy” rating. The average is $26.09.
“We have updated our estimates to reflect Q4 financials, which resulted in a slight drop in our target price to $22.00 from $23.00 mostly due to higher debt levels. Guidance for 2025 remains unchanged along with our investment thesis which anticipates a positive inflection on production, earnings, and FCF starting in Q2 and increasing through the year with the Tucumã ramp,” he said.
* CIBC’s Nik Priebe raised his Fairfax Financial Holdings Ltd. (FFH-T) target to $2,500 from $2,400, maintaining an “outperformer” rating. The average is $2,438.58.
“After reporting Q4 highlights in mid-February, Fairfax filed its full annual report on Friday evening. The annual report did not dramatically change our interpretation of results, but we are taking the opportunity to update our estimates and price target. Although Fairfax is no longer our top pick, we continue to like the short-term setup and are edging our price target higher,” said Mr. Priebe.
* Desjardins Securities’ Benoit Poirier raised his MDA Space Ltd. (MDA-T) target to $37 from $31 with a “buy” rating, while Scotia’s Konark Gupta hiked his target to $34 from $28.50 with a “sector outperform” rating. The average is $34.
“MDA reported an outstanding 4Q24, and the stronger-than-expected 2025 guidance and management’s confidence demonstrate that the tariff risk is manageable. We look forward to seeing if MDA can secure another constellation before year-end (the next big catalyst) as it would signal upside to 2025 FCF and lead to an uptick in our 2026 revenue expectations (some positive market signals include Telesat being among those seeking to win Brazil’s government constellation and the UAE reportedly considering a constellation),” he said.
* RBC’s Douglas Miehm lowered his Oncolytics Biotech Inc. (ONC-T) target by $1 to $5 with an “outperform” rating. The average is $6.20.
“ONC is planning to enroll 180 HR+/HER2- mBC patients in a large Ph2 clinical trial that the company anticipates will support an accelerated approval of pela in breast cancer,” he said. “Management anticipates that it can generate the primary endpoint (PFS) within two years following the start of patient enrollment, which is expected in H2/25. ONC presented two posters focusing on research in anal and pancreatic cancers at the ASCO Gastrointestinal Cancers Symposium held in San Francisco in January 2025, highlighting pela’s potential across multiple indications. PT to $5 as we incorporate equity financing and corresponding dilution.”
* Seeing “robust fundamentals at a steep discount,” ATB Capital Markets’ Tim Monachello trimmed his Total Energy Services Inc. (TOT-T) by $1 to $17, matching the average, with an “outperform” rating.
“Relative to ATB estimates, we believe TOT’s below expectation Q4/24 adj. EBITDAS and FCF were largely a function of higher than forecasted reactivation costs related to Australian drilling and well servicing rigs that entered service in Q4/24,” he said.” Management believes its focused efforts to more efficiently manage labour costs during rig activations, streamline the rig start-up processes to minimize downtime, and collaborate with customers will materially reduce rig reactivation costs on its upcoming H1/25 reactivations of two Australian drilling rigs and one heavy service rig. While Q4/24 results fell short of expectations, we believe TOT’s outlook remains strong as it continues to execute on contracted growth opportunities in Australia, pursues exciting rig upgrade opportunities in Canada, and faces a strong outlook for gas compression and processing demand. Financially, TOT’s clean balance sheet (0.5 times net leverage) and robust FCF generation ($85-million in 2025e after capex, before distributions) affords it capacity to execute on additional high-return organic growth opportunities and continue to divert excess funds to share repurchases with optionality for potential strategic M&A. TOT remains a top idea in our coverage as we believe its strong fundamental set-up is significantly detached from its highly attractive valuation; down 22 per cent year-to-date.”