Inside the Market’s roundup of some of today’s key analyst actions
RBC Dominion Securities analyst Andrew Wong thinks Ag Growth International Inc.’s (AFN-T) surprise cut to its implied fourth-quarter guidance and “lukewarm” outlook for 2025 prospects released last week alongside a lack of market visibility, uncertainty on tariffs and a delay in realizing de-leveraging/growth plans may “weigh on shares until clear signs of a turnaround.”
Accordingly, while he applauds the Winnipeg-based company for “a good job with improving operations, evidenced through higher and sustained margins even through challenging market conditions” and sees long-term growth potential in ag infrastructure spend, he downgraded his recommendation for its shares to “sector perform” from “outperform” previously.
“AGI started 2024 with a more than $310-million EBITDA outlook, but lowered guidance through the year due to a combination of unexpected weakness in the U.S. Farm segment and delays in large-build Commercial deliveries, and now expects $260-million EBITDA (down 16 per cent vs. initial guide) — last week’s implied negative 21-per-cent Q4 guidance revision in particular came as a surprise,” said Mr. Wong. “We think the guidance revisions have raised investor questions on forward visibility given uncertainty on timing of Commercial project deliveries and soft ag conditions cited as a main driver, while ag market conditions were relatively unchanged through 2024 (canola, corn, soybean and wheat prices within a +/-10-per-cent range for the year, good weather, near-record yields). We believe this may continue to weigh on sentiment until investors can be comfortable with forward visibility on ag markets and Commercial segment opportunities.”
In a report released on Thursday, Mr. Wong warned North American farm conditions are likely to remain “soft” into 2025 and possibly beyond with Ag Growth’s management noting weak initial order intakes. That led him to take a “cautious” view on any “meaningful” improvement to 2025 results.
“While Farm segment sales could rebound in 2026 from pent- up demand, we see uncertainty on the timing and magnitude of a U.S. Farm segment recovery given very strong North American Farm segment sales in 2022/2023 and a typical replacement cycle for portable grain handling equipment of 3-7 years,” he said. “We also flag potential uncertainty around U.S./Canada trade tariffs, with ~10% Farm segment revenue related to Canadian-produced products sold into the U.S.. We lower 2025 and 2026 estimated EBITDA to $255-million and $267-million, from $292-million and $301-million.”
Seeing a delay in de-leveraging and growth plans pushing back re-rating potential, Mr. Wong dropped his target for Ag Growth shares to $45 from $75. The average target on the Street is $61.38, according to LSEG data.
:”With our more subdued outlook, we anticipate delays in paying down debt and AGI may reach its targeted 2.5 times net debt/EBITDA leverage ratio by mid-2026 (from H2/24 initial target), which likely pushes back plans to invest in high-growth opportunities,” he said. “This also puts into question timing on the company’s stated long-term goal to reach $2-billion sales ‘within several years’ of the February 2023 investor day event. We continue to see a long-term opportunity for shares to re-rate higher, given valuations below historical and peers, but this will likely require better line-of-sight and confidence on de-leveraging, free cash flow generation, and sales growth.”
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Ahead of quarterly earnings season for Canadian utility and energy infrastructure companies, Scotia Capital analyst Robert Hope’s expectations sit “slightly” below the consensus estimates on the Street, and he’s “calling for some sizable misses in the power space as pricing and generation is expected to be weak in a variety of geographies.
“We are most below consensus in the power group as weak Alberta pricing and utilization will be drag on CPX-T (10 per cent below) and TA-T (9 per cent below),” he said. “We are also below consensus for a number of renewable power companies (BEP — prior to asset gains, BLX-T) given another soft generation quarter. We have made some minor tweaks to our models heading into the quarter with a bias downwards
“We continue to see the most investor interest in the pipeline and thermal power companies, as they have the greatest exposure to increasing power and natural gas demand. We prefer the gas-levered pipeline/midstream names, followed by the renewables, and then the utility group. Our overall favourite names are ALA-T, CPX-T, KEY-T, PPL-T, and TRP-T.”
In a report released Thursday, Mr. Hope downgraded TransAlta Corp. (TA-T) to “sector perform” from “sector outperform” previously, saying “it’s been a good run.”
“Over the last year, TransAlta’s shares have doubled and the company is the top performing name in our coverage universe. We now see the shares trading at 10 times EV/EBITDA, which we believe reflects the value of the base business plus some upside related to adding contract/customers (data centers) at Centralia and Alberta.
“We increase our target price to $21 from $19 largely to reflect the optionality of its Centralia and Alberta sites. However, in the near term, we believe Q4/24 and 2025 could be challenging for its Alberta assets given the oversupplied market, and as such, we bring down our estimates. Our Q4/24 EBITDA estimate is 9 per cent below consensus. In the thermal power space, we prefer Capital Power as we believe it has greater optionality in relation to increasing electric demand (re-contracting, new customers, M&A) as well as greater U.S. exposure.”
Mr. Hope’s new target of $21 exceeds the average on the Street of $18.48.
He also made these other target adjustments:
- Brookfield Renewable Partners LP (BEP-N/BEP.UN-T, “sector outperform”) to US$28 from US$32. Average: US$29.84.
- Boralex Inc. (BLX-T, “sector outperform”) to $36 from $42. Average: $41.50.
- Innergex Renewable Energy Inc. (INE-T, “sector outperform”) to $10.50 from $11.50. Average: $11.80.
- Northland Power Inc. (NPI-T, “sector perform”) to $25 from $28. Average: $29.08.
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With “optimism for structural change” in the North American gas market and pointing to its strategic pivot to “reinvestment from income,” National Bank Financial analyst Dan Payne raised his rating for Birchcliff Energy Ltd. (BIR-T) to “outperform” from “sector perform” previously.
“This is meant to partially reflect the tactical upside and is principally based on a revised 4.5 times multiple (from 5 times) now risked to our 2026 estimates (from 2025), which we believe fairly depicts how the market is discounting names,” he said. “BIR holds one of the highest sensitivities to the evolving gas price landscape, while its operating leverage in association with its recent pivot towards reinvestment, positions it to maximize its value proposition over the long term (incl. massive LNG option value).
“To summarize, the company provided its 2025 outlook and revised its five-year plan, which suggests a pivot to reinvestment from its prior stance of income. Notably, the investments laid out within its program are positioned to opportunistically capitalize on the inherent operating leverage of its excess infrastructure capacity, towards maximizing long-term cash flow (free cash flow) and associated value in to an improving price environment.”
After the bell on Wednesday, the Calgary-based company announced its 2025 budget and guidance and updated five-year outlook and capital allocation strategy for 2025 to 2029. That included a decision to reduce its annual base dividend to 12 cents (from 40 cents) in favour of investing in its asset base, increase production and “strengthen” its balance sheet.
“It detailed a minor ‘25 growth program within the context of a 65-per-cent payout ratio, which continues to imply a 10-per-cent FCF yield (generally in line with strip) that should support a reset cash dividend (down 70 per cent; 2-per-cent cash yield) and leverage trending towards 1.0 times D/CF [debt to cash flow],” said Mr. Payne. “In sum, the company will spend approximately $280-million through 2025 to D&C 27 wells and support production of 77.5 mboe/d [thousand barrels of oil equivalent per day] (18-per-cent liquids).
“Similarly, assessing its long-term capital allocation goals, it is set to deliver 5-per-cent CAGR [compound annual growth rate] within the context of a 70-per-cent payout ratio, which implies an 8-per-cent FCF yield that should continue to support its dividend and see its leverage contract (7-per-cent total return while reducing leverage to 0.3-0.4 times), as a reflection of the value profile.”
Also emphasizing the long-term “massive potential option value it maintains through its positioning in the Rockies LNG project in association with the soon-to-be FID’ed Ksi Lisims LNG project,” Mr. Payne raised his target for Birchcliff shares to $8 from $6. The average on the Street is $6.91.
Elsewhere, TD Cowen’s Aaron Bilkoski raised Birchcliff to “buy” from “hold” with a $7 target, rising from $5.50.
“With the dividend now rightsized, we feel comfortable upgrading our rating to BUY (from Hold). 2024 showed positive operational momentum, with improving well results driving improved capital efficiencies. We anticipate this trend to continue into 2025. Furthermore, Birchcliff is unique among Canadian gas producers as it fetches non-WCSB pricing on more than 75 per cent of its volumes,” he said.
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In a note titled “A Growth Bank” That Will Reward Investors, Jefferies analyst John Aiken initiated coverage of EQB Inc. (EQB-T) with a “buy” recommendation on Thursday.
“While EQ Bank is currently attempting to clear the decks from a few missteps in credit, we believe that this provides a strong opportunity as, over the medium and long term, we have the utmost confidence that its growth trajectory and profitability are unimpeded,” he said. “Consequently, EQB provides investors with the prospect of outsized growth at a discounted valuation.”
Mr. Aiken sees the Toronto-based bank’s growth and return on equity as “impressive and argues for multiple expansion.”
“EQB’s target for EPS growth of between 12-15 per cent is demonstrably higher than its Big 6 peers,” he noted. “Further, its ROE is impressive given a lack of wealth management and arguably excess capital. Management is focused on increasing its fee-based revenues, which should be supportive to ROE while providing greater diversification. We believe that management will hit its guidance for 2025 (and meet most, if not all, of its medium term targets) which should support a lift in its valuation multiple.
“We see several avenues for earnings growth. While EQB is Canada’s 7th largest Schedule I bank, its market share is still a fraction of its Big 6 peers and our outlook for growth is predicated on: EQB’s relatively modest market share (estimated 1.5-per-cent lending) provides a long runway for growth, with an effective competitive profile as a ‘Challenger Bank’ to the ‘Big 6′; Digital customer acquisition (both personal and business) should benefit funding through deposit growth; Management is focused on increasing fee based revenues providing additional diversification and a tailwind to ROE with additional wealth management offerings likely to be introduced; EQB’s niche decumulation business provides upside to growth and profitability given the margins associated with the business and the unlikeliness that its larger competitors will follow down this path; EQB should be able to fund its outsized growth through organic capital growth as it has a low payout ratio (despite outsized dividend growth) and excess capital, which we estimate to represent roughly $250-million.”
The analyst sees “economic clouds (and question marks)” as EQB’s biggest risk, noting: “If the Canadian economy cannot resume even modest growth, our forecasts for loan growth and more normalized credit losses will be a challenge for EQB to meet.”
He set a target of $129 for EQB shares. The current average is $119.27.
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Higher interest rates are “not necessarily bad” for Canadian industrial stocks, according to National Bank Financial analyst Maxim Sytchev, noting the four prior similar periods did not “derail” the sector’s performance.
“To contextualize the 111 basis points jump in the US 10-year yield over the last four months, we examined NTM [next 12-month] (absolute and relative) price returns of our coverage (and broader industrial indexes) over the past 12 years,” he said. “In fact, our coverage (and Canadian industrials) outperformed broader indices as yields moved upwards. For our current coverage specifically, average relative outperformance stood at 8 per cent and 6 per cent, respectively, for industrials vs. the TSX and S&P 500, respectively, on a 12-months basis.”
In a research report released before the bell, Mr. Sytchev called the threat of blanket tariffs from U.S. president Donald Trump “seems like typical day-to-day rhetoric,” noting most of his coverage universe sells services.
“That being said, ATS (18-per-cent top line) and AFN (15 per cent of top line) could see marginal disruptions in the short-term, ACQ could lean more into Used vs. New, while RUS would actually benefit from tariffs as we could finally find a floor in HRC [hot rolled coil steel],” he said. “Equipment dealers’ affordability issues would not be helped but here again used market could be become more compelling as a product offering (RBA might benefit also).
“Top 2025 ideas should do well as the year progresses. We continue to like STN, RBA, ATS, FTT, and RUS from a structural risk-reward perspective on a relative basis in our coverage. For the upcoming quarter specifically, [we] summarize where one would want to be more tactically — low expectations and somewhat better earnings visibility; the most attractive quadrant is populated by small caps but that is largely a function of very low expectations (NOA / ACQ / ATS / FTT) set-up; the large caps — WSP / STN / RBA — are all in the high expectations + strong visibility camp. SJ feels more uncertain than hoped for while ARE is still staring at potential mark-downs on projects (even if within the projected envelope, will still impact FCF in 2025E).”
After combining industry trends and foreign exchange considerations with recent discussions with management teams, Mr. Sytchev now sees “more downward than upward adjustments” for fourth-quarter 2024 results for companies in his coverage universe with the lone exception being AtkinsRéalis Group Inc. (ATRL-T, “outperform” and $87 target).
He also made a pair of target adjustments on Thursday:
* Ag Growth International Inc. (AFN-T, “outperform”) to $55 from $67. The average is $61.38.
“While we believe the broader agriculture space is at or near a trough (corn futures, for example, continue their steady recovery and are up over 30 per cent from late August 2024) and we continue to like AFN structurally for its exposure to numerous thematic tailwinds, we believe Canadian and U.S. farmer CapEx will take longer to turn around (management issued a cautious outlook in its January 13 commentary — see 2024 guidance cut by 7 per cent — not a good look),” he said. “We are therefore taking a more conservative view here and (further) lower near-term Farm top-line estimates and moderating our expectations for the expected inflection in Commercial. In addition, we see further downside on margins on a shift in the sales mix; any potential tariffs or much higher steel pricing would also act as an additional drag.”
* North American Construction Group Ltd. (NOA-T, “outperform”) to $44 from $45. The average is $39.80.
“We adjusted our model and the upcoming quarter to reflect the guidance released by the company on Dec 5th 2024; we are still relatively conservative for our 2025E EBITDA projection of $415-million (vs. guidance of $415-million — $445-million) to account for a margin of safety when it comes to weather-related seasonal impacts to NOA’s equipment utilization that plagued 2024,” he said. “The recent spate of contracts ($125-million in heavy civil work on Nov 21 and Dec 5th’s $500-million oil sands win) should assuage concerns about oil sands visibility for NOA even though this end-market now represents 25 per cent of total EBIT vs. 90 per cent 5 years ago. These factors give us confidence in our mid-single digit revenue growth estimate for the next two years. The inflection of 2025E FCF guidance at $140-million (company definition using maintenance CapEx instead of total CapEx), implies 30-per-cent to 40-per-cent growth vs. 2023′s run-rate. Debt repayment and NCIB remain key priorities.”
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2025 “could be a critical year” for Teck Resources Ltd. (TECK.B-T), according to Citi analyst Alexander Hacking, who sees the top catalyst being “proving out the full potential of QB2 (note: November and December production was encouraging).”
“This would both reassure investors on the asset and also set the table for growth projects,” he added. “That said, we remain Neutral given Citi’s cautious ST view on copper, preferring the most idiosyncratic coppers (IVN, FM, GMEXICO).”
In a note released late Wednesday, Mr. Hacking updated his financial forecast for the Vancouver-based miner to reflect fourth-quarter production results, adjusted 2025-28 guidance and the firm’s latest commodity price deck. His 2024 EBITDA estimate increased by 1 per cent to $5.3-billlion, but his 2025 expectation dropped by 31 per cent to $3.5-billion to reflect a lower copper price projection.
Pointing to a “muted” near-term outlook, he lowered his target for Teck shares to $68 from $74 with a “neutral” rating. The average on the Street is $71.88.
“We rate Teck at Neutral. Positive factors include exposure to copper, several interesting growth options, and a strong balance sheet,” he said. “Negative factors include historical challenges on execution and a dual-class share structure. On balance, we see equal upside and downside at current levels.”
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In other analyst actions:
* Stifel’s Ian Gillies increased his Badger Infrastructure Solutions Ltd. (BDGI-T) target to $53 from $51 with a “buy” rating. The average target is $49.31.
“We think it is time investors re-visit Badger,” he said. “This view is predicated on proprietary Stifel survey work, constructive macro data points and the company’s compelling financial metrics. Survey work suggests that the U.S. operating environment is set to improve, which aligns with BDGI management’s commentary. Meanwhile, we forecast revenue/EBITDA/EPS growth of 9 per cent/12 per cent/23 per cent in 2025E, which is amongst the best organic growth in our coverage universe. Meanwhile, the company continues to offer an attractive return profile with 3-year trailing ROE/ROCE of 17.4 per cent/12.9 per cent and better met”
* Scotia’s Orest Wowkodaw trimmed his Champion Iron Ltd. (CIA-T) to $6.50 from $6.75 with a “sector perform” rating. The average is $7.57.
“We have fine-tuned our CIA estimates ahead of Q3/F25 results scheduled for release on January 29,” he sai. “Although we have made no changes to our forecast Fe sales volumes, we have reduced our near-term realized price expectations. Overall, we anticipate a relatively weak operating quarter from CIA due to the previously disclosed train loader breakage, which suspended Bloom Lake Fe shipments for a full two weeks. Given our lower estimates, we view the update as a modest negative for the shares.
“We rate CIA shares Sector Perform based on a fairly balanced risk–reward outlook and our expectation of weaker Fe prices ahead (we remain concerned by the health of the Chinese steel complex and the impact of material new high-grade Fe supply growth on the horizon).”
* Raymond James’ Daniel Magder initiated coverage of Electrovaya Inc. (ELVA-Q, ELVA-T), a Mississauga-based company specializing in lithium-ion batteries, with a “strong buy” rating and a price target of US$4.50, matching the average.
“When most of us think of lithium-ion batteries, what comes to mind is powertrains for electric vehicles, a massive but crowded market. Electrovaya is a different story. Its current focus is on the material handling electric vehicles (E-forklifts/aisle-trucks) market, a below-the-radar, moderate-volume application that avoids excessive commoditization. Electrovaya also has longer-term ambitions to commercialize solid-state battery technology, which should be looked at as option value,” said Mr. Magder.
* In a report titled Copper opportunities from the eyes of Gretzky, Stifel’s Cole McGilll made three target price changes: Hudbay Minerals Inc. (HBM-T, “buy”) to $16.50 from $16; Lundin Mining Corp. (LUN-T, “buy”) to $16 from $17.50 and Talon Metals Corp. (TLO-T, buy”) to 45 cents from 50 cents. The averages are $15.77, $16.48 and 52 cents, respectively.
“‘A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.’ – Wayne Gretzky The current setup in copper equities has the potential to benefit non-consensus thinking,” he said. “Just as Gretzky’s hockey IQ drove him to skate not to where the puck was but where it was going to be – we think the current setup in copper equities ascribes the same wisdom. Against the consensus worry on the global economic impact of Trump tariffs and Chinese deflation, copper has started the year climbing a wall of worry – with the red metal telling a different story than the equities. We think the physical market provides investors positive insight into a chance to be opportunistic with equity exposure – and skate to where the puck is going to be. While the threat of tariffs continues to be strong – we think much of this is priced in – and the risk-reward to start the year favours Cu equity exposure. Given the Trumpian agenda, we see domestic tailwinds and recommend HBM, ASCU and AMC.”
* KeyBanc’s Ashley Owens raised her Lululemon Athletica Inc. (LULU-Q) target to US$420 from US$400 with an “overweight” rating. The average on the Street is US$395.51.
“As we enter 2025, we’re feeling solid – though not overly strong – about our covered names,” she said. “While the holiday season likely outperformed expectations, as evidenced by commentary and preannouncements at ICR, we believe certain headwinds persist, suggesting potential choppiness in the months ahead. However, our recent conversations suggest a slightly more optimistic backdrop than 2024. That said, we see potential for volatility through the balance of the year, driven by: 1) fluctuations in consumer confidence; 2) ongoing pressure on discretionary spending as consumers make selective, value-oriented purchases; and 3) broader macro uncertainty.
“Despite these challenges, we believe strong brands will continue to thrive. Companies with clear value propositions and a track record of innovation remain well positioned to navigate these dynamics successfully. Broadly, we believe that enthusiasm has picked up across our names, and the U.S. consumer – while navigating some pressures – is showing resilience in select pockets. A stronger holiday, wage growth, and the potential easing of inflationary pressures provide a foundation for cautious optimism, particularly for companies capable of meeting consumers’ evolving preferences and delivering differentiated value. We are most constructive on growth companies within footwear poised to demonstrate continued improvements in profitability. Additionally, these companies stand to benefit from increasing consumer awareness and the appeal of new offerings, particularly as they operate from a lower (but growing) baseline of awareness relative to more established players.”
* After Toronto-based Medexus Pharmaceuticals Inc. (MDP-T) received approval from the U.S. Food and Drug Administration for its GRAFAPEX drug, Ventum Capital’s Max Czmielewski raised his target to $6.25, matching the average, from $5 with a “buy” rating.
“We continue to see further opportunity for a positive revaluation in the stock given the refreshed outlook that GRAFAPEX lends to the business. As such, we see further upside to our PT,” he said.
* Jefferies’ Andrew Barish cut his Restaurant Brands International Inc. (QSR-N, QSR-T) target to US$67 from US$73, below the US$80.69 average, with an “equal-weight” rating.
* In the firm’s 2025 transportation outlook, Stifel’s J. Bruce Chan raised his target for TFI International Inc. (TFII-N, TFII-T) to US$147 from US$139 with a “hold” rating. The average is US$161.12.
“TFI International is a well-established consolidator of transportation and logistics assets across North America,” he said. “We believe future deals are likely accretive and beneficial, as the management team has done over 100 deals since 2008 with good (but not perfect) success. The biggest opportunity in the existing portfolio remains margin improvement at TForce Freight, the company’s U.S. LTL [less-than-truckload] division spawned by the acquisition of UPS Freight, though, progress slowed materially in 2024. TFI recently divested its dry van TL assets to focus its U.S. TL operation on more specialized niche markets, which as of April includes flatbed/specialized carrier Daseke, representing another longterm operational optimization opportunity. Management’s primary focus remains on improving and growing U.S. operations, which continue to lean into modes with better return profiles, including LTL, asset-light Logistics, and specialized TL. However, recent results raised some fundamental concerns with the pace, progress, and opportunity in the turnaround that shake our conviction in TFII, particularly at current valuation. We think this story is back to a “show me” despite post-acquisition optimism and early progress.”
* Jefferies’ Stephanie Moore lowered her target for Waste Connections Inc. (WCN-N, WCN-T) to US$210 from US$225 with a “buy” rating. The average is US$198.89.