Inside the Market’s roundup of some of today’s key analyst actions
Seeing it “well positioned” to meet its 2024 guidance and expecting “further share price benefits from several material catalysts due out over the next few months,” National Bank Financial analyst Mike Parkin upgraded Alamos Gold Inc. (AGI-T) to an “outperform” recommendation from “sector perform” previously.
“In the past two years, Alamos has outperformed the S&P/TSX Global Gold Index during the first two months of the new year,” he said. “We believe this outperformance is driven by a combination of Alamos’ strong track record of hitting guidance (ops results typically released in early Jan), and positive R&R updates (mid February) which have seen reserves being more than replaced for five consecutive years. We expect this trend to continue into 2025, with Alamos well positioned to hit their production guidance of 550-590koz [thousand ounces] (NBF estimate 575koz), while strong exploration results at Mulatos and Island Gold are setting the stage for expectations of another strong R&R update for YE24. We also look forward to the Burnt Timber and Linkwood update due out later this month.”
In a research report released Tuesday before the bell, Mr. Parkin said the Toronto-based intermediate gold producer’s medium-term outlook “with the recently updated 3-year outlook calling for production to increase from 529koz in 2023 to 630-680koz in 2026, while costs are expected to decline year-over-year largely due to the ramp up of the Island Gold Complex.”
“At current metal prices, we see Alamos self funding this impressive growth pipeline,” he added. “We believe Alamos has one of the best potential NAV/sh growth profiles in the sector, which supports the potential to set new 52-week highs as EBITDA should continue to grow as more and more of the portfolio upside comes online. Alamos is also blessed with a portfolio heavily weighted to Canada, further supporting a premium valuation vs its peers. Thus, we continue to view Alamos Gold as one of the best ideas for a medium-term investment period.”
Despite “the expectation of upcoming share price outperformance driven by several upcoming key catalysts, which we expect to be NAV accretive,” Mr. Parkin maintained his target of $35 per share. The average target on the Street is $34.65, according to LSEG data.
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When Dollarama Inc. (DOL-T) reports its third-quarter fiscal 2025 financial results before the bell on Wednesday, Desjardins Securities analyst Chris Li expects to see a “continuing normalization” in same-store sales growth alongside a “slight contraction” in gross margins, stable expense rate and “continuing strong growth in Dollarcity’s earnings contribution.”
“While DOL’s premium valuation increases share price volatility, our positive view reflects relative outperformance in the near term given DOL’s strong earnings visibility against a challenging consumer backdrop, confidence in Dollarcity’s compelling long-term growth, improving FCF conversion and capital return potential,” he added in a research note on Tuesday.
The analyst is currently projecting quarterly earnings per share of 98 cents, which is 6 cents higher than the same period a year ago and matches the current consensus estimate. Sales are expecting to rise to $1.56-billion from $1.478-bilion in fiscal 2024, also matching the Street.
“Overall, we expect continuing normalization in SSSG as DOL laps low-double-digit SSSG in the past two years, two fewer Halloween selling days vs last year, softness in certain discretionary categories and moderation in price increases based on our observations,” said Mr. Li. “Our 3-per-cent SSSG estimate is in line with consensus. We expect gross margin to contract by approximately 50 basis points year-over-year, mainly due to higher logistics costs. We expect a stable SG&A rate with higher store labour and operating costs mitigated by efficiency and labour productivity initiatives. We expect Dollarcity’s earnings contribution to more than double to $30-milllion, driven by an increase in DOL’s ownership stake (to 60.1 per cent from 50.1 per cent) and continuing strong growth in the underlying business.
“When we value Dollarama’s (Canada) FY26 EPS at approximately 25 times (supported by low-teens EPS growth and a strong ROIC), the implied valuation for Dollarcity is $44/share based on the current share price. We believe the valuation is supported by our expectation for more than 25-per-cent average annual earnings growth over the next 7‒8 years, driven by nearly doubling the Dollarcity network to 1,050 by 2031 (ex Mexico), solid SSSG, and margin improvement from scaling and investments in distribution/logistics. There should also be upside from expansion to Mexico in 2026.”
Increasing his full-year 2026 earnings expectation, the analyst increased his target for Dollarama shares to $150 from $147 after moving ahead his valuation period, maintaining a “buy” recommendation. The average target is $145.27.
“While our target price offers a limited return, our positive view reflects relative outperformance within our coverage universe in the near term given DOL’s strong earnings visibility against a challenging consumer backdrop, and share buybacks supported by DOL’s solid balance sheet,” said Mr. Li.
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TD Cowen analyst Vince Valentini saw Black Friday promotions from Canada’s telecommunications companies as “arguably no worse than last year, however he warned “pricing is still not good in our view.”
“The longer that we see $34 promotions from the incumbents, we believe the risk increases that a larger percentage of higher ARPU [average revenue per user] subs will migrate down (or switch carriers to get a lower price),” he said.
“All three main flanker brands (Virgin/Koodo/Fido) are featuring $34/60GB, which is arguably even lower than $35/75GB advertised on the Freedom website (albeit Freedom is offering $30/50GB in-store, and the Freedom offer includes U.S./Mexico roaming). We still believe that more discipline will emerge early in 2025 (our recent podcast with QBR – LINK – reinforces our view that QBR/Freedom is willing to pursue higher pricing/ARPU because sales momentum is good enough without the need for a bigger price discount), but the flow through damage of what we have already seen in 2024 is likely to keep ARPU growth under pressure throughout most of 2025.”
In a research note released Tuesday, Mr. Valetini dropped his 2025 ARPU projection to a decline of 2 per cent year-over-year from a 1-per-cent drop previously. That led him to cu his targets for the Big 3 providers in the sector.
His changes are:
* BCE Inc. (BCE-T, “hold”) to $37 from $39. The average target is $43.09.
Analyst: “Lower wireless ARPU/EBITDA makes debt leverage and the dividend payout ratio even tougher to manage, plus we believe that any future non-core asset sales will likely be reinvested into more growth oriented acquisitions (most likely more FTTH J-curve assets in the U.S.). We now assume a 25-per-cent dividend cut in 2026, to approximately $3.00, which would represent a payout ratio of 93 per cent on TD Cowen definition FCF for 2026, and it would represent a yield of 7.9 per cent on the current share price. We believe the current $4.00 dividend will continue to be paid through the end of 2025, with cash flow support from estimated DRIP participation of 35 per cent. Our EBITDA estimate for 2025 has been lowered to $10,620-million from $10,661-million. Our estimate appears to be quite a bit below consensus ($10,765-million), but we suspect that consensus has some estimates that include Ziply for part of 2025 (we do not include Ziply EBITDA in our model until January 1, 2026).”
* Rogers Communications Inc. (RCI.B-T, “buy”) to $65 from $71. The average is $67.30.
Analyst: “Rogers wants investors to be patient, and trust that they will resolve the MLSE and infrastructure funding files in a manner that is net positive to FCF, debt leverage, and shareholder value. We share the view of many investors that we need more clarity before we can have confidence in the stock, and we fear that it could be several months before we get certainty on the funding and ownership structure for the sports teams. We maintain our BUY rating because Rogers still has good broadband assets, best-in-class wireless execution, and a much lower valuation than incumbent peers, but we have moved RCI.B to number three from number one in our pecking order”
* Telus Corp. (T-T, “buy”) to $25 from $26. The average is $24.38.
Analyst: “Dividend growth of 7 per cent supports the premium valuation, in our view, especially with more BoC cuts expected soon. We also think TELUS has more room to manage capex/opex as an offset to challenging top line growth, so that lower wireless ARPU estimates had minimal impact on our FCF estimates or our target price. The balance sheet looks slightly stretched, but we believe non-core asset sales will keep leverage at 3.5 times or less by 2026 (copper, real estate, and a minority interest in the Healthcare business – note that our published estimate is a bit higher, at 3.7 times, because we are not including Healthcare proceeds until we have certainty). T shares look like the safest place to hide amongst the big three telcos in the near-term, with upside beyond our target price being possible if we see either improved industry pricing discipline, or fund flows away from money market funds and/or BCE.”
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With construction of its Terronera silver-gold mine in Mexico nearing completion, US$73-million in financing secured and “momentum building” around the advancement of its Pitarrilla development, Ventum Capital analyst Alex Terentiew said he’s “encouraged” by Endeavour Silver Corp.’s (EDR-T) pace of progress.
“We remain optimistic about commencing commissioning activities at Terronera near year-end, marking a pivotal stage of growth and the founding of a new cornerstone asset within Endeavour’s portfolio,” he said. “We reiterate our thesis that Terronera will transform Endeavour into a lower-cost, higher-margin silver-focused producer, poised to attract a broader base of institutional investors. In 2025, we anticipate its Pitarrilla project to garner more attention, continuing the momentum started with Terronera and drawing more investor interest to the evolving company.”
In a research note released upon his resumption of coverage folowing the close of its bought deal equity financing, Mr. Terentiew sees the Vancouver-based company in a “final sprint” at Terronera while expecting the focus to shift to Pitarrila in 2025.
“As of September 30, 2024, Terronera was 77 per cent complete, with commissioning activities expected to commence within the next few weeks,” he said. “As some components are not essential for start-up (tailings storage facility lifts, completion of the LNG plant), we expect commissioning to begin before full completion, with Q1/25 likely to represent a ramp-up quarter and Q2/25 potentially the first full quarter of commercial production. Our estimates remain based on a more conservative, three-quarters ramp-up period, with full run rates achieved in Q4/25. We anticipate Endeavour transitioning to positive free cash flow at the end of Q1/25.”
“Endeavour is now well positioned to use a portion of the US$73-million financing to advance Pitarrilla, a project that we believe is under-appreciated and under-valued by the broader market. With surplus cash now on hand, we anticipate exploration and development at Pitarrilla may accelerate, taking the momentum and experience gained from Terronera and applying it to the Company’s next leg of growth. As a reminder from our note on progress at Pitarrilla, our estimates are based on the 2009 PFS, focusing on the underground sulphide resources only. A new economic study (Feasibility Study) is underway and expected by year-end 2025, which we expect could be a catalyst to support a higher valuation for the new project.”
The analyst reaffirmed a “buy” rating and $9 target for Endeavour shares. The current average is $8.55.
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TD Cowen analyst Menno Hulshof thinks Canadian Natural Resources Ltd. (CNQ-T) carries “significant” momentum into 2025, pointing to its high-margin synthetic crude oil volume growth and “material” exposure to the Duvernay field in central Alberta following its US$6.5-billion acquisition of a swath of Chevron Canada Ltd. assets.
“It also offers strong natural gas optionality as Canada’s second-largest producer (if/when fundamentals start to strengthen). It has materially (and unjustifiably, in our view) underperformed peers IMO/SU [Imperial Oil/Suncor] (i.e., those with Canadian refining exposure),” he said.
On Tuesday, he added the Calgary-based company to TD’s “Best Ideas 2025″ list.
“CNQ boasts a very sustainable business model (11-per-cent production decline) and has significant capital flexibility given best-in-class portfolio diversity and infrastructure dominance,” the analyst said. “Despite dropping return of FCF to 60 per cent to accommodate the US$6.5-billion CVX acquisition, we see it reverting to 75 per cent in Q3/26 on strip (plus a competitive 4.4-per-cent divvy yield, in the interim).
“What Is Underappreciated Or Misunderstood? While the Horizon production uplift from shifting to once-every-two-year turnarounds in 2025 is well understood (+28mbbl/d [thousand barrels per day] in non-turnaround year), the associated lower opex/capex and SCO margin uplift may not be. 2025 also captures 90 per cent of the AOSP post-CVX (vs. prior 70 per cent) and completion of the Scotford Upgrader debottleneck (up 7.2mbbl/d net). On strip, we model CFPS [cash flow per share] growth of 8 per cent in 2025 (vs. peer avg. 3 per cent) with a 36-per-cent SCO weighting (up 2 per cent year-over-year). CNQ also offers material natural gas optionality as the #2 Canadian producer, and fundamentals could strengthen as LNG Canada ramps up.”
Mr. Hulshof has a “buy” rating and $58 target for CNQ shares. The average on the Street is currently $56.28.
“CNQ boasts one of the most sustainable business models within our coverage, and we continue to recommend it as a core energy holding,” he concluded. “We highlight significant capital flexibility given best-in-class portfolio diversity and infrastructure dominance as key tenets of our investment thesis. Infrastructure dominance, in particular, drives a material cost structure advantage, and an abundance of highly economic, half-cycle, drill-to-fill opportunities. We also see significant momentum on its high-margin SCO volumes into 2025, given a triple-tailwind (no Horizon turnaround, 90 per cent of the AOSP post-CVX, and completion of the Scotford Upgrader Debottleneck). While a return to 100 per cent of FCF (from 60 per cent post-CVX transaction) extends beyond 2026 on a backwardated WTI strip, RoC in absolute dollar terms is expected to be similar on a pre-and-post-deal basis given the dividend hike (concurrent with the CVX deal) and FCF generation from the acquired assets.”
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Desjardins Securities analyst Frederic Tremblay sees a buying opportunity in France’s Foraco International SA (FAR-T), initiating coverage of world’s third largest drilling service provider to the mining sector with a “buy” recommendation.
“We see commodity prices, demand and an improving financing environment as supportive of increased drilling activity,” he said. “We expect Foraco’s growth to come from existing geographies, and opportunities in the untapped U.S. market. We like its healthy cash flow profile, which supports a combination of debt reduction and growth investments.”
“Foraco predominantly serves tier-1 mining customers, along with some select junior-related opportunities, in politically and economically stable jurisdictions. Its expertise and a client-first approach contribute to customer loyalty, with 70 per cent of revenue coming from contracts that have been in place for 10+ years. Foraco has a world-class customer base with a diversified commodity mix, complemented by water-related services.”
Mr. Tremblay sees the United States as a “major near-term opportunity” while also touting the emerging presence of tailwinds “capable of driving an uptick in drilling activity.”
“With recently added local management and existing international customer relationships, Foraco appears well-positioned for what could be a game-changing expansion into the U.S.,” he said.
“Record gold prices could be a tailwind for exploration activity. Meanwhile, the demand outlook for copper looks positive, thanks in part to the energy transition. Moreover, we are encouraged by October 2024 data showing that funds raised by junior and intermediate companies reached their highest level since March 2022.”
Believing its current valuation is “cheap” and “attractive,” Mr. Tremblay set a target of $4.25. The current average is $4.35.
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In other analyst actions:
* Desjardins Securities’ Gary Ho raised his Dominion Lending Centres Inc. (DLCG-T) target tp $7.25 from $6 with a “buy” rating. The average target is $7.
“We participated in a well-attended conference hosted by DLCG in Toronto with 650 broker attendees,” he said. “We came away very impressed by the various speakers and panelists, and have a greater appreciation for DLC’s path toward C$100-billion in FMV [funded mortgage volume] (vs less than $70-billion today).
“Our target price increases ... driven by increases in our estimates and multiple, recognizing DLCG as a market-leading mortgage broker distribution platform with a strategic and unique fintech asset.”
* Ahead of its fourth-quarter 2024 earnings release on Wednesday, TD Cowen’s Graham Ryding hiked his EQB Inc. (EQB-T) target to $126 from $109, reiterating a “buy” rating. The average is $122.01
“We are updating our estimates ahead of FQ4/24 results,” he said. “The primary change is our expectation for lower loan growth in FQ4/24. However, we remain constructive looking into F2025 on the expectation that loan growth and credit trends improve as interest rates move lower. Our target price moves to $126 (from $109) as we align our valuation with the larger Canadian banks.”
* TD Cowen’s John Kernan raised his target for Lululemon Athletica Inc. (LULU-Q) to US$383 from US$382 with a “buy” rating. The average target is US$321.47.