Inside the Market’s roundup of some of today’s key analyst actions
Raymond James analyst Stephen Boland has trimmed both his earnings estimates and price target on Intact Financial Corp. (IFC-T) after what he found to be surprisingly high catastrophe losses in its latest quarter - much of which was related to Canadian forest fire damages.
Intact reported its second quarter catastrophe loss estimate Monday night of $421 million, or $1.79 per share after taxes. Canada accounted for $335 million, UK and Ireland $62 million and $24 million in the U.S.
Half of the losses in Canada were attributable to the wildfires, with the greatest impact from Atlantic Canada.
“The losses were well above our estimate of $188 million for the quarter. We are surprised by the magnitude of the losses. Preliminary industry estimates were much lower regarding the Atlantic fires,” Mr. Boland said.
“The stock may be weak as the market absorbs this news and the impact to consensus,” he added.
Mr. Boland now estimates second quarter net operating income per share of $2.17, down from $3.22. He did not adjust estimates for the remaining 2023 quarters.
His price target was lowered to C$221 from C$224 and he maintained an “outperform” rating.
Other than a short-term hit to earnings, Barclays analyst John Aiken did not expect the surprisingly high losses to lead to a change in strategy at the insurer.
“A very active wildfire season and severe weather are expected to weigh heavily on second quarter earnings; however, we do not view this as a serious impediment to capital or Intact’s growth ambitions nor the sustainability or growth of its dividend,” Mr. Aiken said in a note to clients.
Mr. Aiken maintained a C$220 price target and “overweight” rating.
Elsewhere, RBC cut its target price on Intact to C$228 from C$229 but maintained an “outperform” rating. RBC analyst Geoffrey Kwan commented: “Bigger picture, we think IFC is likely to implement premium rate increases to address the negative impact of higher cat loss activity. IFC continues to deliver positive fundamentals and we still view IFC as a core holding, reflecting positive company/industry fundamentals and strong track record of growth and profitability; potential catalyst(s); defensive attributes, particularly given slightly higher market volatility and macro uncertainty; and a reasonable valuation.”
CIBC analyst Paul Holden suggested investors take advantage of any selloff in shares related to the news as he reiterated an “outperformer” rating and C$225 price target.
“The updated catastrophe loss estimate for Q2 does not impact our forward assumptions or price target. The market has started to look through CAT losses as dips in the stock are quickly recognized as buying opportunities. We like Intact for its strong performance history and recession resilient business model, and this hasn’t changed. Intact is trading at 2.5x P/BV, a slight premium to its trailing average of 2.4x. We would recommend adding to positions if there is a negative share price reaction on this news,” Mr. Holden said in a note to clients.
The average analyst target is C$219.60, according to Refinitiv Eikon data.
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Citi analyst Stephen Trent raised his price target on Air Canada (AC-T) to C$30 from C$26 while reiterating a “buy” rating.
While cost risks loom because of the recent labour contract reopening for its pilots, Air Canada’s strong international long-haul flight schedule positions the airline well, he said.
“Air Canada had the highest pre-pandemic, international long-haul exposure of any Citi-covered North American airline. This exposure should at least somewhat mitigate Air Canada’s earnings risks from higher labor costs,” Mr. Trent said.
He noted the increase in his price target stems in part from increasing the target multiple from 6.5x to 7.1x – with the latter now in-line with the stock’s pre-pandemic historical average.
His recommendation to buy shares “is based on strong global potential for a continued recovery in international long-haul passenger revenue, and what looks to be a stock price dip.”
The average analyst price target is C$29.37.
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RBC analyst Michael Harvey initiated coverage on Hammerhead Energy Inc. (HHRS-T), an oil and natural gas exploration, development and production company in Alberta, with a “sector perform” rating and C$13 price target. That’s well below the average analyst target of C$17.
Mr. Harvey expects the company’s share price performance to be in-line with peers over the next year. “Hammerhead’s project base features some of Western Canadian Sedimentary Basin’s highest rate IP30 oil wells based on our analysis, with this dynamic balanced against what we expect will be a higher base decline rate, and free cash flow generation metrics comparable to peers,” he said in a note.
IP30 is an industry term that means the average production rate over the first 30 days of production.
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Desjardins Securities analyst Chris Li said he was “both surprised and disappointed” to hear that JP Towner will be leaving Dollarama Inc. (DOL-T) as its chief financial officer to pursue another career opportunity.
Mr. Towner became CFO in March 2021 and played an integral role in navigating the discount retailer through COVID-19 and supply chain challenges.
While Mr. Towner was highly regarded by the investment community, “we do not believe his departure reflects any negative read-through to DOL’s financial performance,” said Mr. Li.
Dollarama has commenced a formal search process for a new CFO. “While it is difficult to predict the length of the search, we believe DOL’s reputation as a high-quality retailer should attract many strong candidates. A timely appointment will enable an orderly transition.”
Mr. Towner will remain at the company through to mid-September when the company releases its fiscal second quarter results.
Mr. Li maintained a “buy” rating on Dollarama shares with a C$93 price target.
The average analyst target is $91.18.
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Jefferies upgraded JP Morgan (JPM-N) to a “buy” rating as part of its preview of second quarter bank earnings, which begin to be released at the end of this week.
Jefferies also increased its target price on JP Morgan to US$165 from US$149.
“We believe that the company’s balance sheet strength, strong liquidity position and best-in-class earnings generation potential continue to position the bank for absolute and relative performance,” Jefferies analysts led by Ken Usdin said.
“With the addition of First Republic, the ratio of loans and securities to deposits will be around 80%, below the large bank average of about 105%. Even with rising credit losses, higher capital levels and lower interest rates built into our ‘24 EPS model, we believe JPM can still deliver an upper-teens ROTCE [Return on Average Tangible Common Shareholders’ Equity] which will likely be the best among peers. We note that our ‘23/’24 EPS is well ahead of the Street,” Jefferies said in a note to clients.
The average analyst target is US$162.75.
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In other analyst actions:
Canadian National Railway Co (CNR-T): JP Morgan cuts target price to C$167 from C$171
Dri Healthcare Trust (DHT-UN-T): Raymond James raises target price to C$20 from C$18
K92 Mining Inc (KNT-T): Stifel raises target price to C$14 from C$13
American Express Co (AXP-N): JP Morgan raises target price to US$195 from US$170
BlackRock Inc (BLK-N): KBW raises target price to US$835 from US$770 and upgrades rating to “outperform” from “market perform”
Zillow Group Inc (ZG-Q): Piper Sandler raises target price to US$62 from US$42 and upgrades rating to “overweight” from “neutral”
Nvidia Corp (NVDA-Q): Goldman Sachs raises target price to US$495 from US$440
SECTOR AND REGIONAL CHANGES:
RBC cuts US Utilities to market weight from overweight. RBC raises US financials to overweight from market weight
Citi downgrades US to neutral, while upgrading Europe to overweight. “The European market is trading at a record discount to the US and is pricing in a more reasonable EPS growth path,” it said. Citi also downgraded the IT sector to neutral on a potential pullback in megacap growth stocks.