Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial analyst Rupert Merer acknowledges potential U.S. tariffs and the impact of artificial intelligence “headlines” are likely to remain a drag on Hammond Power Solutions Inc. (HPS.A-T), however he thinks the impact should be “transitory” with end market demand remaining strong.
“The potential 25-per-cent tariffs on all Canadian and Mexican products have weighed on HPSa shares,” he said. “We believe that most competing transformers used in the U.S. are made in Mexico, with most competitors manufacturing there. Given the ongoing supply gap and the critical demand for transformers to support U.S. economic growth, transformer prices should move higher to absorb any tariffs. Therefore, with tariffs, the margin impact could be muted and transitory (as detailed in our recent flash).
“HPS shares were also pressured by news on DeepSeek’s new LLM model, which requires less processing power than expected, causing concerns on reduced data center spending and energy demand forecasts. Though HPS does not disclose data center sales, it notes emerging segments represent 19 per cent, with data centers playing a key role. However, data center demand growth is driven by AI, cloud and crypto markets. Long-term demand for its products are also supported by reshoring incentives, electrification, and underinvestment in North America’s power infrastructure.”
In a research note released Tuesday previewing the late March release of the Guelph, Ont.-based transformer manufacturer’s fourth-quarter 2024 financial report, Mr. Merer raised his forecast in response to the impact of the weaker Canadian dollar, which he called a tailwind given 60 per cent of revenue is generate south of the border, and lower commodity pricing. He’s now projecting revenue to rise 9 per cent year-over-year to $204-million (from $203-million previously and exceeding the Street’s expectation of $202-million. His EBITDA estimate is now $35.1-million, rising from $33.6-million and topping the consensus of $34.3-million but flat versus the same period a year ago.
“We have refreshed our estimates for 2025 to reflect prevailing market uncertainties with respect to U.S. import tariffs,” he said. “As described in our recent flash, we believe tariffs could drive a transitory impact to HPS’ margins in 2025 as it works through its backlog. However, we ultimately believe that HPS should be able to implement price increases for the tariffs to be passed through to the end customer.”
With his new estimates, Mr. Merer trimmed his target for Hammond shares to $170 from $175 to reflect tariff risk, maintaining an “outperform” rating. The average on the Street is $164.
“While we are lowering out target, we highlight that shares are down 20 per cent from the start of the year, and we believe the negative news is priced in,” he concluded.
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A stronger U.S. dollar is likely to benefit both Alaris Equity Partners Income Trust’s (AD.UN-T) revenue and book value per unit when its reports fourth-quarter 2024 in early March, according to Desjardins Securities analyst Gary Ho, who raised his financial expectations for both fiscal 2025 and 2026.
“The portfolio remains healthy, with strong performance at Fleet and positive signs in SCR Mines Technology Inc. (we believe these two are redemption candidates), together with comfortable consolidated ECR [earnings coverage ratio,” he said. “The deployment pipeline is also active.”
Mr. Ho is currently projecting revenue for the quarter of $40.3-million, exceeding Alaris’ guidance of $38.9-million due to a stronger greenback ($1.44/US$1 at the end of Q4 versus guidance of $1.35/$10. His EBITDA estimate of $34.2-million matches the Street’s expectation.
“Portfolio investments. Fleet—continued strong performance; we believe this may be a material monetization in the medium term. BCC—top-line growth offset by lower margin given investments in the business and higher ad costs. Some noise from weight-loss drugs, which might present an opportunity for BCC to advertise its skin removal/tightening services as a standalone offering alongside liposuction. Ohana— the portfolio should fully reflect higher membership prices within three years; no major customer churn expected. SCR—positive recovery with more bidding activity; another redemption candidate. Heritage—management is working on a recovery plan,” he said.
With his forecast revisions, the analyst raised his target for Alaris units to $24 from $22.50, reiterating a “buy” recommendation. The current average is $24.90.
“Our investment thesis: (1) AD’s diverse portfolio is well-positioned to weather an economic downturn; (2) foray into managing third-party capital adds another revenue stream; (3) strong balance sheet supports continued pace of deployment; (4) healthy sub-75-per-cent payout ratio; and (5) attractively valued at 0.86 times P/BV, with a 7.0-per-cent distribution yield,” said Mr. Ho.
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Stifel analyst Ruben Roy thinks Celestica Inc. (CLS-N, CLS-T) is continuing to “improve its positioning and exposure to hyperscalers,” which he expects will spark growth for both its Hardware Platform Solutions and Connectivity & Cloud Solutions businesses moving forward.
“While we have seen multiple re-rating as CLS has been identified as a beneficiary of AI infrastructure spend, we believe that we remain in the early stages of a long-tailed investment cycle,” he said. “Recent new HPS customer program wins would indicate that CLS continues to execute against this longer-term opportunity. We also expect gradual stabilization and improvement in the company’s Advanced Technology Solutions (ATS) segment as we progress through 2025.”
In a report released Tuesday, Mr. Roy resumed coverage of the Toronto-based company with a “buy” recommendation following last week’s quarterly earnings release, which sent its shares surging.
“We believe Celestica will continue to benefit from multiple expansion as the company continues to execute on adding specialized capabilities to serve the emerging needs of a broad and diverse customer base.” he sai. “Believe that a focused and long, multi-year effort through investments in engineering capabilities, strategic manufacturing footprint and process innovation, Celestica has emerged as a key partner to leading U.S. hyperscaler customers. We expect Celestica to benefit, longer-term, from a market leadership position as AI infrastructure investments continue over the next several year.”
His US$140 target exceeds the average on the Street of US$137.09.
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Raymond James analyst Farooq Hamed expects the fourth quarter to be the strongest from a production results perspective in 2024 for most of the mid-tier gold producers in his coverage universe.
“With the average gold price increasing 7 per cent quarter-over-quarter, we expect strong margin and FCF performance across the gold producer sector but expect stronger performance coming from the mid-tiers versus the seniors on the strength of more 4Q weighted production,” he said.
In a report released Tuesday, he said he expects the trend of “mid-tiers showing better operating performance than the seniors can continue.”
“In our coverage, we expect production growth from each of the mid-tier gold producers in 2025 (BTG, CXB, IAG, NGD and OGC) whereas we expect flat to declining production from AEM and KGC,” he said..”Combining the improving operating profile with a strong gold price, we expect the mid-tier gold producers to grow FCF year-over-year at a faster pace than the senior producers. At spot gold prices we calculate 2025 FCF yields ranging from 7-18 per cent for the mid-tier producers as compared to 6-8 per cent for the seniors.
“Given the expected operating outperformance from mid-tiers in 2025, we expect the mid-tier gold producers can continue to attract investment due to lagging valuations versus seniors (we estimate senior producers trading at an average P/NAV of 1.3 times versus mid-tiers at 0.8 times), increased probability of becoming acquisition targets and increased balance sheet flexibility to organically add value within their portfolios.
Mr. Hamed raised his recommendation for Iamgold Corp. (IAG-N, IMG-T) to a “market perform” recommendation from “underperform” to “reflect reduced risk at the Cote mine.”
His target for its shares rose by US$1 to US$7. The average on the Street is US$6.97.
He also made these target changes:
- Agnico Eagle Mines Ltd. (AEM-N/AEM-T, “outperform”) to US$105 from US$97. Average: US$101.61.
- B2Gold Corp. (BTG-N/BTO-T, “outperform”) to US$3.50 from US$4. Average: US$3.58.
- OceanaGold Corp. (OGC-T, “outperform”) to $6 from $5.50. Average: $5.93.
“With expected strong FCF performance in the quarter, we estimate producer balance sheets have significant slack with net debt/EBITDA ratios near or below 1.0 times amongst our coverage group,” said Mr. Hamed. “With our expectation for senior producer operating profiles to be stagnating while mid-tiers are on the cusp of growth, we believe the strong sector balance sheets lend more support to an M&A theme in 2025. While we are specifically referencing the potential for senior producers to acquire mid-tier counterparts, we note that the mid-tier producers are also expected to enjoy strong balance sheets and could also be potentials buyers in the strong gold price environment.”
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TD Cowen analyst Wayne Lam assumed coverage of a group of gold stocks on Tuesday.
He made one rating revision, lowering B2Gold Corp. (BTO-T) to “hold” from “buy” with a $4 target, down from $6. The average on the Street is $5.14.
“Our cautious outlook is based on (1) heightened geopolitical risk in Mali despite recently announced economic agreement for BTO and (2) ongoing construction/ramp up risk at Back River alongside the upcoming LOM update,” he said.
Mr. Lam gave these companies “buy” recommendations:
* Artemis Gold Inc. (ARTG-X) with a $20 target. The average target is $19.53.
Analyst: “In our view, first gold from the Blackwater project in BC is well-timed given scarcity of large-scale assets in Tier I jurisdictions. While we anticipate near-term caution around funding capacity through ramp up, we view longer term re-rating opportunity for Canada’s newest gold producer.”
* Dundee Precious Metals Inc. (DPM-T) with a $18 target. Average: $18.58.
Analyst: ‘We view the company as having quietly compiled an industry leading operational track record while adding FCF to a mounting cash balance. The company has been disciplined on M&A and investors appear more receptive to strategic acquisitions, which we view as boding well for DPM, which remains patient as they advance Coka Rakita.”
* Endeavour Mining PLC (EDV-T) with a $38 target. Average: $41.73.
Analyst: “While geopolitical risk in West Africa remains elevated, we view EDV’s exposure as better managed, with current valuation suggesting a sufficient risk/reward profile for investors via a high quality asset portfolio and another Tier I asset in the pipeline.”
* K92 Mining Inc. (KNT-T) with a $13 target. Average: $13.07.
Analyst: “In our view, operational momentum in H2/24 has put Kainantu in a strong position as underground development begins to unlock additional mining fronts ahead of completion of the Stage 3 mill. We view KNT as well positioned, providing robust production growth along with significant exploration upside via a Tier I deposit.”
* OceanaGold Corp. (OGC-T) with a $5.50 target. Average: $5.93.
Analyst: “We anticipate focus on improved operational consistency as OGC looks to right the ship following an uneven year in 2024. With the Haile underground now ramped up, we view steady FCF generation building on the net cash position, supporting advancement of internal growth projects with significant growth ahead through prime years at Haile in 2026/27.”
These companies received “hold” ratings:
* Equinox Gold Corp. (EQX-T) with a $10 target. Average: $11.25.
Analyst: “We view EQX at a critical crossroads in 2025 with outsized importance on the ramp up at Greenstone. Our cautious outlook is based on: (1) operational risk at Greenstone, (2) elevated financial leverage, and (3) focus on execution following missteps vs. guidance in recent years.”
* Orla Mining Ltd. (OLA-T) with a $9.50 target. Average: $9.
Analyst: “We view Musselwhite as transformational in providing increased scale and improved geographical mix via an established asset in Canada. However, we are cautious on valuation following recent rerating post-transaction and await visibility to (1) optimization of Musselwhite, (2) permitting in Mexico, and (3) balance sheet deleveraging.”
* Wesdome Gold Mines Ltd. (WDO-T) with a $16 target. Average: $16.07.
Analyst: “In our view, management has taken steps to outline steady sequential production growth with FCF inflection achieved in mid-2024. However, we view the shares as being fairly valued at present amidst solid operational momentum and await progress on value creation initiatives including cost optimization and access to Level 33 at Kiena.”
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CIBC World Markets analyst Cosmos Chiu made a series of target price adjustments to gold equities in his coverage universe on Tuesday.
“We remain bullish on gold and silver, both near-term and long-term,” said the firm. “Q4/24 metals prices averaged $2,662/oz for gold, a solid 7.5% Q/Q increase over Q3/24. Silver delivered an equally strong 6.2% Q/Q rise to $31.30/oz. In summary, geopolitical uncertainties continue to serve as a tailwind for a strengthening gold price, while increasing central bank demand for gold, especially with China’s Central Bank resuming gold purchases in November after a six-month pause, provided fundamental support for the commodity’s upward trend. In addition, the scarcity of the silver commodity and stagnant global production create a struggle to supply the exponential growth in demand for electrification and solar panels. Overall, we believe that companies will continue taking advantage of the commodity cycle to improve both their balance sheets and production profiles. We reiterate our 2025 forecast of an average gold price of $2,800/oz gold and silver price of $35/oz, representing 17.3% and 24.0% Y/Y increases, respectively.”
His changes include:
- Alamos Gold Inc. (AGI-T, “outperformer”) to $44 from $40. The average is $35.52.
- Aya Gold & Silver Inc. (AYA-T, “outperformer”) to $23 from $24. Average: $21.44.
- Franco-Nevada Corp. (FNV-T, “outperformer”) to $260 from $245. Average: $213.10.
- OceanaGold Corp. (OGC-T, “outperformer”) to $6 from $5.75. Average: $5.93.
- Orla Mining Ltd. (OLA-T, “outperformer”) to $11 from $9.25. Average: $9.
- Torex Gold Resources Inc. (TXG-T, “neutral”) to $36 from $34.50. Average: $37.72.
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RBC Dominion Securities analyst James McGarragle saw Monday’s 4-per-cent drop in shares of Exchange Income Corp. (EIF-T) as “overdone” given its limited exposure to potential, leading him to reaffirm the Winnipeg-based industrial company as “a top idea.”
“We view Exchange’s Aviation segment (60 per cent of revenues and 70 per cent of EBITDA in 2023) as relatively insulated from tariffs and flag that 33 per cent of consolidated revenues are government-contracted,” he said. “Moreover, Exchange’s airline business generally serves domestic routes and is therefore minimally exposed to transborder fluctuations. Key is that we view demand in Exchange’s Aviation segment as very much inelastic and therefore expect revenues to hold up much better in the event of a recession caused by tariffs. Moreover, we believe Exchange can pass through cost inflation caused by a weak CAD via its contract structure.”
Mr. McGarragle sees tariffs representing “a slight negative” to its Manufacturing segment, but he does think “workarounds exist.”
“We see the impact to Exchange’s Manufacturing segment (40 per cent of revenues and 30 per cent of EBITDA in 2023) from potential tariffs as limited but relatively higher versus the company’s Aviation segment. We note that the company has the ability to serve Window customers in the U.S. through its Dallas facility and Canadian customers via its Southern Ontario locations. Moreover, we note the temporary road business does not draw significant revenue from cross-border activity. We therefore see Exchange’s two largest Manufacturing subsidiaries as less affected by tariffs. However, we flag some impact to the legacy Manufacturing business in which crossborder sales are more relevant.”
Given Exchange Income’s limited tariff exposure, Mr. McGarragle thinks its growth targets for 2025 remain intact, leading him to maintain an “outperform” recommendation and $71 target. The average on the Street is $69.73.
“Overall, we continue to see EIF’s growth profile as robust (guidance for 13-per-cent EBITDA growth in 2025) and do not believe this growth profile is dependent on cross-border trade,” he said. “Key is that we really like the growth and value opportunity in Exchange shares at current levels, and like the opportunity even more on a relative basis given the heightened uncertainty from tariffs on other companies in our coverage. Reiterate Exchange as a top idea in Canadian aerospace.”
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In other analyst actions:
* Ahead of its quarterly release, Desjardins Securities’ Doug Young lowered his Trisura Group Ltd. (TSU-T) target to $51 from $55 with a “buy” rating. The average is $55.22.
* CIBC’s Hamir Patel cut his target for Winpak Ltd. (WPK-T) to $52 from $54, keeping a “neutral” recommendation. The average is $53.