Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial analyst Patrick Kenny expects utility companies to benefit from the rise in demand for “affordable and reliable” energy sources in the year ahead, however lingering macroeconomic pressures will continue to provide significant obstacles.
“With affordability pressures and grid instability concerns top of mind, we believe the path of least resistance for the Big Data Buildout will be through ‘off-grid, behind-the-meter’ developers focused on natural gas-fired generation,” he said. “Coupled with rising demand for natural gas pipeline connections and storage capacity, we see attractive growth prospects and further valuation upside potential for energy infrastructure companies with material exposure to the data center growth theme in 2025, including TA, CPX, TRP, H, ENB and FTS.”
In a research report released Tuesday previewing 2025 for pipeline, utility and energy infrastructure companies, Mr. Kenny warned both interest rate uncertainty and the impact of inflation will remain troublesome, while the fallout from a weaker Canadian dollar will also be felt.
“With the overnight rate now down to the upper end of the Bank of Canada’s neutral range (2.25-3.25 per cent), further cuts are sensitive to prevailing geopolitical conditions such as potential tariffs, immigration policies and FX rates,” he said.”That said, our NBF Economics & Strategy group believes Canada’s sluggish economy warrants further rate relief through early 2025 with the 10-year GCAN rate settling in around 3.0 per cent by late 2026, in line with our unchanged long-term assumption. Our debt maturity analysis confirms strong liquidity positions relative to 2025 refinancing needs, which should support healthy credit spreads and strong access to debt markets ahead of any geopolitical turbulence.
“We have updated our long-term CAD/USD FX rate assumption to $1.40 (was $1.35), and highlight those companies with the most exposure to USD cash flow tailwinds, including EMA, ENB, FTS, TRP and ALA. Overall, every nickel increase to our long-term FX rate assumption represents on average 7-per-cent valuation upside for the Power & Utilities names and 5-per-cent upside for the Pipelines & Midstream names in our coverage universe with material exposure.”
From an investing perspective, Mr. Kenny recommends “high-quality, attractive FCF yields poised for continued valuation upside related to the confirmation of asset contracting opportunities and/or sanctioning brownfield expansions following the rise in demand for affordable and reliable energy sources through 2024 (i.e., walking the walk in 2025).”
“Our top picks continue to be screened using a multi-pronged approach: 1) Double-digit free cash flow (AFFO) yield; 2) improving balance sheet metrics; 3) attractive per share growth; and 4) strong catalyst potential .... Our catalyst potential for 2025 largely relates to the confirmation of asset contracting opportunities and/or sanctioning brownfield expansions following the rise in demand for affordable and reliable energy sources through 2024 (i.e., walking the walk in 2025),” he added.
He named six top picks for the year ahead. They are:
- AltaGas Ltd. (ALA-T) with an “outperform” rating and $41 target, up from $39. The average target on the Street is $38.
- Capital Power Corp. (CPX-T) with an “outperform” rating and $65 target. Average: $62.91.
- Gibson Energy Inc. (GEI-T) with an “outperform” rating and $29 target, rising from $27. Average: $27.
- Secure Waste Infrastructure Corp. (SES-T) with an “outperform” rating and $18 target. Average: $18.25.
- TransAlta Corp. (TA-T) with an “outperform” rating and $20 target, up from $16. Average: $17.48.
- TC Energy Corp. (TRP-T) with an “outperform” rating and $74 target, up from $71. Average: $69.93.
He also made these other target adjustments:
- Atco Ltd. (ACO.X-T, “sector perform”) to $48 from $46. The average on the Street is $50.75.
- Canadian Utilities Ltd. (CU-T, “sector perform”) to $38 from $37. Average: $37.60.
- Emera Inc. (EMA-T, “sector perform”) to $56 from $55. Average: $56.42.
- Enbridge Inc. (ENB-T, “sector perform”) to $63 from $60. Average: $62.11.
- Fortis Inc. (FTS-T, “sector perform”) to $64 from $63. Average: $61.75.
- Hydro One Ltd. (H-T, “sector perform”) to $46 from $45. Average: $44.82.
- Keyera Corp. (KEY-T, “sector perform”) to $41 from $39. Average: $45.50.
- Pembina Pipeline Corp. (PPL-T, “sector perform”) to $58 from $57. Average: $61.31.
- South Bow Corp. (SOBO-T, “sector perform”) to US$24 from $31 (Canadian) Average: $33.02 (Canadian).
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With several metrics pointing to a “strong” holiday performance, Stifel analyst Martin Landry is impressed by Aritzia Inc. (ATZ-T) ahead of Thursday’s release of its third-quarter 2025 financial results.
“Our analysis of Aritzia’s online sales suggests that December’s online sales may have increased by more than 50 per cent year-over-year,” he said. “While our analysis is far from perfect, it would represent the strongest monthly performance of the last year. In addition, data collected by Bloomberg Second Measure suggests a 56-per-cent increase year-over-year in Aritzia’s U.S. sales over the 4 weeks ending on December 29, 2024. We expect the performance in Canada to be more muted given Canada is a more mature market for Aritzia.
“What explains the recent successes? The fall and winter collections appear to have been well-received by customers based on online reviews. Products such as the Super Puff and the new Golden activewear lines are getting traction. In addition, celebrity endorsements such Nara Smith continue to increase Aritzia’s brand awareness in the United States.”
Mr. Landry is projecting quarterly revenue to rise 8.5 per cent year-over-year to $709-million, exceeding management’s guidance of a 3-7-per-cent gain, driven by strong holiday season performance. His earnings per share estimate of 60 cents is a jump of 29 per cent from the same period a year ago but 2 cents below the consensus on the Street.
“On the back of a strong performance during the holidays for Aritzia, we increased our revenue growth assumptions for Q4FY25 by 400 basis points to 15.3 per cent,” he said. “For the full year, we model revenue growth of 12 per cent, which is higher than management’s revenue growth range of 9-11 per cent, and as such, we expect management to increase its FY25 revenue guidance. We see further upside to our Q4FY25 revenue forecasts as we have remained conservative vs. what the metrics analyzed would suggest.
“We are introducing our FY27 estimates, calling for a 10-per-cent year-over-year revenue increase to $3.4 billion, driven by a 5-per-cent increase in comparable sales and the opening of 14 new locations. We anticipate a gross margin expansion of 90 bps to 45.9 per cent and a 100bps decrease in SG&A as a percentage of sales, resulting in an adjusted EBITDA margin of 18.5 per cent. Our FY27 EPS estimate of $3.50 represents a 35-per-cent increase year-over-year. However, our forecast remains below management’s recently reiterated FY27 target of $3.5-$3.8 billion in revenue and EBITDA margins of 19 per cent, suggesting potential upside to our estimates.”
Maintaining his “buy” recommendation for the Vancouver-based retailer’s shares, Mr. Landry increased his target to $66 from $58. The average on the Street is $63.94.
“The December performance is impressive, and it surely has caught investors’ attention, which recently sent the shares reaching 52-week highs of $59.00. Despite the recent performance, valuation remains reasonable at 17 times forward earnings,” he said.
Meanwhile, citing valuation concerns, Raymond James’ Michael Glen lowered Aritzia to “market perform” from “outperform” with a $58 target, rising from $52.50.
“This is largely a valuation-driven downgrade which we know can be unpopular for investors. But as we assess our current target P/E multiple of 25 times (was 22.5 times) we would be hesitant to expect much more in the way of multiple expansion from this point,” he said.
“Overall, we like the growth story surrounding Aritzia and have a number of positive things to say regarding the outlook and strategy. However, we believe the current valuation now reflects a number of positives and would encourage investors to be more opportunistic with purchasing shares.”
Elsewhere, RBC Dominion Securities’ Irene Nattel raised her target to $65 from $56 with an “outperform” rating.
“We are forecasting Q3 EPS $0.63 (up 36 per cent year-over-year) when ATZ reports January 9,” she said. “Forecasts predicated on early Q3 momentum continuing in the second part of the period, with better relative performance from the U.S. segment. Despite cautious spending in Canada, we reiterate our confidence in U.S. consumer spending and Aritzia’s ability to leverage its growth algorithm and progress toward compelling financial targets in F27. Raising our PT to $65 (+$9) with upside bias to our financial forecasts that remain conservative relative to company target.”
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Despite a “strong” performance in 2024 with its shares soaring 78 per cent, RBC Dominion Securities analyst Douglas Miehm reaffirmed Well Health Technologies Corp. (WELL-T) as one of his preferred stocks entering the new year, seeing “room for further upside” given a “strong moat in consolidating and transforming Canadian clinics that is difficult to replicate.”
“We believe there is a significant long-term opportunity for value creation in transforming CDN primary and Dx care, as underscored by our strong forecasted ROIC and IRR metrics (our work suggests the MCI/Manitoba clinic acquisitions could generate ROIC of more than 30 per cent in aggregate over time and an IRR of 30 per cent),” he said. “In our view, the recent entry of ELNA Medical Group (private), Canada’s second- largest clinic chain, into creditor protection highlights the operational challenges and complexities in consolidating clinics in Canada, a segment where WELL has demonstrated continued success and built a significant competitive advantage of transforming the acquired loss-making clinics into profitable operations by leveraging its internal IT capabilities.”
“During the Q3 earnings call, management highlighted the significant improvement in adj. EBITDA margins for the 2023 cohort of clinic absorptions and acquisitions. These clinics have transitioned from an adj. EBITDA margin of negative 1.6 per cent at the time of acquisition to 6.6-per-cent margins as of Q3, a substantial improvement of 820 basis points. Management anticipates further progress at these clinics over the next 1–2 years, targeting operating margins of greater than 10 per cent for all clinics and 20 per cent for specialized care clinics.”
After transitioning to a discounted cash flow valuation for the Vancouver-based digital healthcare company, Mr. Miehm raised his target for its shares to $8.50 from $7, reaffirming an “outperform” rating. The average on the Street is $8.57.
“In our view, WELL could potentially acquire some distressed ELNA clinics at minimal cost, and if it can replicate its successful track record of transforming loss-making clinics, it could generate exceptionally high ROICs, thereby creating significant shareholder value,” he sai. “We note that our forecasts do not account for any unannounced acquisitions, which could provide potential upside to our estimates and valuation for WELL shares.”
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Touting “new year, new plays,” Raymond James analyst Luke Davis upgraded Headwater Exploration Inc. (HWX-T) to “outperform” from “market perform” following an update that confirmed fourth-quarter volumes fell in line with its prior guidance.
“We are upgrading HWX shares to Outperform with a $9/share target price, driven by an enhanced runway of drilling prospects and plenty of exploration-related catalysts in 2025, in addition to what we expect will be a strong reserve update in March,” he said. “The pre-released 4Q24 volumes were largely in-line with expectations, with our financial estimates relatively unchanged; we forecast cash flow of $338/$318-million and dividend payments of $95/$105-million in 2024E/25E.”
Mr. Davis added: “Notably, management profiled progress in the Pelican and Peavine areas including the addition of 57.5 and 10 sections of land, respectively, and plans for 5-7 new play tests and 8-10 offset/follow-ups this year. In our view, exploration results will provide catalysts for the stock through 2025 and come on the back of strong performance in 2024 with 9 successful exploration wells of the 10 drilled. By extension, we believe the updated reserve book is likely to provide a tailwind (expected March 6, 2025), and with nearly 200 sections of land added in 2024, we see plenty of development optionality throughout the portfolio.”
His $9 target is 50 cents higher than his previous objective. The average on the Street is $9.71.
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Entering 2025, Citi analyst Ryan Levine sees Brookfield Infrastructure Partners LP (BIP-N, BIP.UN-T) possessing “flexibility to invest in many infrastructure assets” and “prioritizing decarbonization and digitization themes with an AI overlay and selling midstream” while emphasizing its investment priorities “suggest a bullish capex outlook for electric utilities.”
“As we are starting 2025, it is interesting to see Brookfield continues to monetize midstream assets (Mexican pipes, gas storage, etc.), while investing in decarbonization and digitalization themes,” he said in a Tuesday research note. “Meanwhile, AI is helping growth opportunities across all of its platform, helping drive 20-per-cent growth in its backlog. On geography, BIP sees the most deal flow coming from the U.S. followed by Korea. BIP, with scale, is chasing the biggest capital deployment opportunities.”
“BIP benefits from theme data business (i.e. hyper-scaler growth in Milan, Phoenix, Dallas), the utility business benefits from higher loads, and the midstream gas asset benefits from higher volumes. We expect BIP to try to continue to optimize its cap structure for these businesses given capital markets.”
Mr. Levine sees Brookfield “focusing on blend and extend debt deals” with lending markets “becoming attractive,” and he thinks “infrastructure companies that access markets sooner than later are getting rewarded from investors and we would expect this to continue.”
“BIP has $4.6-billion of total liquidity as of Q3 ending in a target-rich environment,” he noted.
“BIP generally should benefit from the strengthening US dollar post US election as its platform allows it geographic flexibility and to invest in public and private deals. As a result, the currency movements, although hard to predict, have historically proven to create investment opportunities for BIP.”
After modest adjustments to his financial forecast, Mr. Levine maintained a “neutral” rating and US$34 target. The average on the Street is US$39.36.
“BIP’s risk-averse (long-term contracts) and diversified business model (across industries & geographic locations) offer a stable cash flow stream with solid distribution growth,” he said. “Despite our view on the stability and growth of BIP’s cash flow stream, the shares appear appropriately valued.”
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Believing its business in North America has “bottomed” and is now set for a modest recovery, following growth deceleration last year, maturation of brand in U.S. and increased competition, Bernstein’s Aneesha Sherman upgraded Lululemon Athletica Inc. (LULU-Q) to “outperform” from “market perform” on Tuesday.
She now sees stronger and new spring 2025 product assortment, easier comparables from weak 2024 and more positive U.S. higher-income consumers aiding the recovery.
The analyst also pointed to data saying China is an under-penetrated, high-potential growth market for the Vancouver-base company and relatively immune to macro risk, given its low market share.
She raised her target to US$460 target from US$360, exceeding the US$377.91 average on the Street.
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In other analyst actions:
* JP Morgan’s Brian Ossenbeck upgraded Canadian National Railway Co. (CNR-T) to “overweight” from “hold” with a $179 target, exceeding the $174.94 average on the Street.
* In his 2025 outlook for North American transportation companies, Citi’s Ariel Rosa cut his targets for Canadian National Railway Co. (CNI-N/CNR-T, “buy”) to US$119 from US$130, Canadian Pacific Kansas City Ltd. (CP-N/CP-T, “buy”) to US$88 from US$91 and TFI International Inc. (TFII-N/TFII-T, “buy”) to US$162 from US$170. The averages are US$129, US$94.23 and US$164.78, respectively.
“When we started contemplating our Year-Ahead note, we anticipated sharing our view that transport stocks are expensive, consistent with our mid-Nov. comment,” said Mr. Rosa. “However, the pull-back in share prices over the past 8 weeks has created a more balanced set-up for Transports heading into 2025, with the Dow Jones Transportation Index once again under-performing the broader market (down 8.9 per cent since mid-Nov. vs. S&P500 down 1.0 per cent). Many of the key themes we have been following since our Oct. initiation continue to be relevant – potential inflection in freight rates, prospects for improving manufacturing activity boosting transportation demand, rationalization of excess freight capacity. With 2025 possibly marking the long-awaited inflection in many trends which are unquestionably over-extended, these have taken on elevated importance. Alternatively, policy uncertainty and sentiment shifts present material risks. We prefer out-of-favor names with idiosyncratic catalysts and reasonable valuations, with UPS our top pick for 2025.”
* Stifel’s Stephen Soock bumped his Aya Gold & Silver Inc. (AYA-T) target to $22.50 from $22 with a “buy” rating. The average is $21.98.
“Aya is a growth company with a major first-mover advantage in the under-explored country of Morocco,” he said. “The company hit a major milestone by declaring commercial production for its 2ktpd expansion at Zgounder on December 30th with the mill and underground mine continuing to ramp up. We expect the company’s production to gap up to 6.8Moz this year, generating $86-million in operating cash flow at current spot prices (vs production of 1.9Moz and negative $8-million in 2024). This windfall will allow Aya to continue along its path of aggressive growth, funding expansion of the high grade Zgounder orebody, drilling new zones at Boumadine and ‘boots on the ground’ exploration across its broad portfolio of earlier stage properties. The stock currently trades at a bargain spot P/NAV of 0.49 times, or 10 times P/CF at spot vs our modeled 21-year mine life, with investors currently getting Boumadine and the regional exploration upside for free.”
* BMO’s Fadi Chamoun increased his Bombardier Inc. (BBD.B-T) target to $135 from $129 with an “outperform” rating. The average is $119.93.
“BBD is expected to report Q4/24 results on February 6, and we believe the company will meet or even exceed in some cases its 2024 financial targets. The next catalyst will likely be the 2025 outlook. While some tariff-related uncertainties may be a source of near-term disruptions in orders, we continue to see strong demand environment providing visibility into aircraft deliveries well into 2026. We continue to see compelling upside opportunity,” he said.
* In response to a special distribution paid on Dec. 31, RBC’s Jimmy Shan lowered his target for units of European Residential REIT (ERE.UN-T) to $2.60 from $3.90 with a “sector perform” recommendation, while Desjardins Securities’ Kyle Stanley cut his target to $2.75 from $4.25 with a “buy” rating. The average is $3.33.
* Barclays’ Alex Scott raised his targets for Great-West Lifeco Inc. (GWO-T, “underweight”) to $46 from $45, Manulife Financial Corp. (MFC-T, “equalweight”) to $47 from $40 and Sun Life Financial Inc. (SLF-T, “equalweight”) to $87 from $82. The averages are $50.56, $46.90 and $89.25, respectively.
* Piper Sandler’s Charles Neivert lowered his Lithium Americas Corp. (LAC-N, LAC-T) target to US$3.50 from US$3.90 with a “neutral” rating. The average is US$5.53.
* Canaccord Genuity’s Aravinda Galappatthige cut his Rogers Communications Inc. (RCI.B-T) target to $46 from $55 with a “hold” rating. The average is $62.68.
“Ahead of Rogers’ Q4 results on January 30, we have made further revisions to our estimates, including to adjust for the fact that the previously announced structured equity financing of $7-billion did not close as initially anticipated during Q4/24,” he said. “We have moved this to Q1/25. However, as we discuss below there appears to be a degree of uncertainty on this front. Recall, this financing was intended to help meaningfully de-lever Rogers’ balance sheet. In terms of the 2025 outlook, we continue to expect more moderated EBITDA growth of 2.1 per cent versus Street expectations which were closer to 4 per cent, and down from the recent quarterly trend of 6-per-cent growth. This is due to sustained competitive intensity in the market, including some device financing initiatives. Factoring the still challenged conditions in the market and Rogers’ own balance sheet uncertainty, we have reduced our target.”
* Barclays’ Jeff Bernstein lowered his target for Restaurant Brands International Inc. (QSR-N, QSR-T) to US$83 from US$84, remaining above the US$81.44 average, with an “overweight” rating.
“Our ‘24 outlook was titled “Return to Normalcy, with Discretionary Still Preferred.” Such came to fruition. We expect more of the same in ‘25, with growth to prevail over value, led by fast casual, with comps & inflation moving favorably. We make four rating changes: upgrading SHAK & BROS, downgrading BLMN & DIN,” he said.
* BoA Securities’ Ken Hoexter cut his TFI International Inc. (TFII-N, TFII-T) target to US$145 from US$159. The average is US$164.78.