Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial analyst Doug Taylor thinks the impact of rapidly advancing artificial intelligence tools “remains the primary issue impacting software and services sector valuations.”
In a report released Wednesday, he assumed the firm’s coverage of Canada’s technology sector, calling it “an extraordinarily volatile time for software and services, as investors weigh the impact of AI on the growth and durability of software business models.”
“Competition for IT spend wallet share from AI, combined with macroeconomic headwinds, have reduced sector growth expectations,” said Mr. Taylor. “Compounding this has been a precipitous decline in valuations as investors assess lower terminal values for software assets and rotate into tech infrastructure plays (or out of tech in general).”
The analyst introduced “a new standardized valuation methodology framework” for stocks in the sector, adding he elected “for more conservative target prices pending better visibility to both growth inflections and improving market sentiment.”
“Entry points in many cases look attractive, though investors must stomach elevated near-term headline risk from AI developments,” he said. “We continue to favour names at the growthier end of the spectrum, our top ideas at this point stand as KXS, ZDC and SHOP. On the value side, we find GIB.A and DTOL (resumed coverage) most compelling. Within the tech consolidators category, VHI stands out as a double threat of both organic and inorganic growth potential.”
Mr. Taylor made a pair of tactical upgrades to the firm’s previous ratings, citing “improved risk/reward from current levels.” They are:
* Constellation Software Inc. (CSU-T) to “outperform” from “sector perform” with a $3,500 target, up from $3,400. The average target on the Street is $3,919.29, according to LSEG data.
“Our view on Constellation Software surrounds its stellar track record of deploying capital across vertical software, supported by durable recurring revenue, strong cash flow generation and a balance sheet that still offers meaningful dry powder for acquisitions,” he said. “With that said, the model and valuation have come under significant pressure as investors assess how new AI advancements will ultimately impact Constellation’s portfolio of software assets and the terminal value therein; a (previously) slowing capital deployment cadence didn’t help either. The resulting valuation compression, at unprecedented levels (10.9 times NTM [next 12-month] EBITDA) makes this a compelling entry point for what has been a reliable capital compounder, while the Company has recently ramped back up its capital deployment cadence following a brief lull. That deployment inflection should support an associated revenue growth inflection higher in FY26.”
* Tecsys Inc. (TCS-T) to “outperform” from “sector perform” with a $46 target, up from $40. The average is $34.25.
“While Tecsys’ valuation is not as inexpensive as other software names of similar size in our coverage, its strong SaaS revenue growth, powered by Elite ARR conversions, pharmacy sector growth and TecsysIQ adoption is driving strengthening recurring revenue growth,” said Mr. Taylor. “This is coming in the face of macroeconomic pressure tied to U.S. healthcare policy shifts. Further, profit profile maturity remains a key sentiment and valuation driver, which is set to accelerate following recent restructuring efforts along with cost discipline.”
The analyst’s other ratings and targets are:
* Altus Group Ltd. (AIF-T) with a “sector perform” rating and $45 target, down from $52. Average: $52.50.
Analyst: “Altus Group is exiting a period of substantial change that has reoriented the Company around its core software businesses. This portfolio simplification should produce a better growth profile, operating leverage and more consistent disclosure. Success against these objectives should set up the shares for more consistent performance. We await traction to plan where Management has laid out an ambitious FY27-oriented roadmap toward being a Rule of 40 company, led by its core ARGUS software transitioning from being primarily a system of record for CRE financial modelling into a broader intelligence platform infused with (monetizable) AI tools. In the meantime, we think the stock still needs clearer evidence that the Company’s initiatives can translate into faster organic growth, while a still-challenged CRE macro landscape remains a modest headwind.”
* CGI Inc. (GIB.A-T) with an “outperform” rating and $135 target, down from $150. Average: $113.96.
Analyst: “CGI’s broad IT services exposure positions it at the center of a very transitional (and pivotal) time for systems integration and managed IT services businesses. Combined with pressure on U.S. Government budgets, organic growth has been challenged, driving resulting pressure on multiples. With that said, we maintain a positive view given what remains a very inexpensive valuation (6.7 times NTM EBITDA) and the Company’s proven ability to deploy its strong cash generation to drive EPS accretion through both capital structure – buybacks and deleveraging – and through accretive M&A."
* Computer Modelling Group Ltd. (CMG-T) with a “sector perform” rating and $4.50 target, down from $5. Average: $5.
Analyst: “As we continue to track Computer Modelling Group, we focus on the pivot back to (positive) organic recurring revenue growth as the key signal to get more constructive on the name. The Company’s core reservoir simulation software business has been in a state of modest organic decline in recent years, with some customer churn exacerbating a muted backdrop for North American producers. Clearly, the energy markets that form CMG’s target customer base are experiencing a sharp increase in commodity prices, however CMG also counts Middle East customers as a key growth vector – the impact of the recent U.S./Iran conflict is likely to cause near-term hesitation in further purchasing while incentivizing medium-term adoption."
* Coveo Solutions Inc. (CVO-T) with a “sector perform” rating and $5.50 target, down from $7. Average: $10.
Analyst: “While Coveo’s differentiated position in AI-relevance for complex enterprise data makes it an intriguing story to follow in the current AI-influenced investment climate, we believe investor preferences will continue to be for names that are either demonstrating more consistent overall top line growth, a more mature margin profile, or a combination thereof that provides a clearer risk / reward balance. Coveo will need to work past short-term hits to revenue growth (i.e., Salesforce churn), to demonstrate the former; we believe the latter will follow in due time as the business scales into recent investments.”
* D2L Inc. (DTOL-T) with an “outperform” rating (previously “under review) and $14 target. Average: $12.58.
Analyst: “D2L’s steady progress in scaling its business has been hampered by multiple external headwinds pressuring the budgets of its education customers in core North American Higher-Ed and secondary K-12 end-markets. With that said, the competitive positioning for D2L’s Brightspace platform is robust, and methodical investments in adding AI features to its mission critical learning management platform are aimed at preserving that leadership. Against that backdrop, a very inexpensive valuation, 1.1 times NTM sales and 6.8 times EBITDA (13-per-cent-plus EV/FCF yield) suggest a low bar to deliver shareholder returns.”
* Docebo Inc. (DCBO-Q, DCBO-T) with a “sector perform” rating and US$21 target, down from US$24. Average: US$29.41.
Analyst: “While we view Docebo as a company that is (re)building momentum coming off positive (pre-released) Q1’26 results that handily beat initial expectations alongside an increased FY26 guidance, we still believe the market needs more durable proof that the Company’s broadened AI / skills platform and recent go-to-market (GTM) changes can translate into a sustained organic ARR re-acceleration as Dayforce and AWS noise rolls off. Additionally, near-term opportunities around enterprise and FedRAMP remain key levers for upside, particularly into FH2’26 and FY27.”
* Kinaxis Inc. (KXS-T) with an “outperform” rating and $200 target, down from $240. Average: $202.57.
Analyst: “Kinaxis’ more consistent demonstration of accelerating growth metrics, combined with a strong supply chain thematic and positive AI attributes continue to argue for a top-shelf valuation. Kinaxis is guiding to 13-16-per-cent overall growth (vs. 13 per cent across the last two years), which is being powered by 17 – 19-per-cent underlying SaaS growth (vs. 17 per cent in the last couple years); in each case, a rare re-acceleration of organic growth within the Canadian technology landscape. Further, margin pressures from recent platform transitions are now behind the Company allowing growth to drive profitability and improving cash flow. At 4.1 times NTM Sales and 16.2 times NTM EBITDA, the Company is still at the premium end of the valuation spectrum, albeit well off its valuation highs (and averages, for that matter)."
* Lightspeed Commerce Inc. (LSPD-N, LSPD-T) with a “sector perform” rating and US$11 target, down from US$15. Average: US$12.21.
Analyst: “Lightspeed’s repositioning around its key growth engines (NoAm Retail and EMEA Hospitality) has improved the quality of its business. Customer locations in its key growth markets accelerated throughout FY26 - 5-per-cent year-over-year growth in FQ1, 7 per cent in FQ2, 9 per cent in FQ3, and 11 per cent in FQ4, delivering 24-per-cent year-over-year associated revenue growth in FQ4 while now representing 75 per cent of the revenue base. The Company has paired that with stronger margins, positive free cash flow, and a more focused portfolio after the recent Upserve divestiture, which suggests the plan laid out at the Company’s March 2025 Capital Markets Day is moving in the right direction. That said, we still see a balanced risk-to-reward profile while investors wait for further software growth durability and better FCF conversion.”
* Open Text Corp. (OTEX-Q, OTEX-T) with an “outperform” rating and US$33 target, down from US$45. Average: US$27.89.
Analyst: “OpenText has a financial profile and valuation that lies at the lower growth, inexpensive end of the investible spectrum of software assets in Canada. After years of aggressive M&A, in part using a significant degree of debt, the Company and its (new) Management team are articulating a new direction which continues to include high-grading the portfolio with proceeds used for investor returns and deleveraging. Currently trading at 5.6 times NTM EBITDA, given debt comprises a significant part of the enterprise value (3.0 times net debt/EBITDA), success here can have a dramatic effect on equity valuation. That fact is core to our positive bias on the name from current levels.”
* Real Matters Inc. (REAL-T) with a “sector perform” rating and $6.50 target, down from $7.50. Average: $7.63.
Analyst: “Our view on Real Matters remains balanced as improving company-specific execution is more readily visible, while macroeconomic variables still weigh on end-market fundamentals. The Company has built tangible momentum in U.S. Title, where recent client wins, market share gains and better refinance conditions have driven a much sharper improvement in segment volumes (albeit from a smaller base at 25 per cent of total net revenue, though growing quickly). At the same time, the core U.S. Appraisal business appears to be gaining some traction on the back of lower mortgage rates year-over-year, though still operates in a relatively muted purchase environment until rates can compress further. All said, our view is that the rate backdrop and the timing of a broader U.S. mortgage recovery are the main constraints on upside, which keeps the risk-to-reward balanced for now.”
* Shopify Inc. (SHOP-N, SHOP-T) with an “outperform” rating and US$155 target, down from US$200. Average: US$156.99.
Analyst: “Shopify remains a rare combination of high organic growth, scale, profitability and liquidity amidst the investable Canadian technology universe. While its model would seem to exhibit many qualities that should make it resilient to the AI-related questions dogging most software and services stories, it has nonetheless seen its premium multiple retreat from the highs alongside the broader sector, including a sharp recent negative reaction to otherwise solid in-line Q1 results. This has created what we see as a compelling entry point.”
* Vitalhub Corp. (VHI-T) with an “outperform” rating and $11 target, down from $14. Average: $12.80.
Analyst: “VitalHub continues to screen as one of the better balances between organic growth and disciplined M&A in Canadian vertical software, with mission-critical exposure across patient flow, referral management and care coordination. Recent results suggest the Novari and Induction integrations are tracking well, cross-sell is beginning to show up in the field, organic ARR remains healthy in the low double-digits, and the balance sheet still provides meaningful flexibility should attractive M&A opportunities emerge in FY26.”
* Zedcor Inc. (ZDC-T) with an “outperform” rating and $7.50 target (unchanged). Average: $8.50.
Analyst: “Our positive thesis on Zedcor is based largely on the Company’s impressive growth trajectory as it continues to build out its footprint into a U.S. market that represents a substantial land-grab opportunity. While this growth trajectory requires consistent capital investment and the valuation on near-term forecasts might appear high (at first blush), those multiples should compress quickly as the Company executes against our forecasts that call for 58 per cent and 54 per cent in (organic) growth across 2026 and 2027, respectively.”
Warning higher jet fuel costs are likely to be “a major profit headwind” in the coming quarters, National Bank Financial analyst Cameron Doerksen downgraded Transat A.T. Inc. (TRZ-T) to an “underperform” rating from “sector perform” previously.
“Whereas the average spot price of jet fuel in Transat’s H2/25 was $0.89/litre, the average for summer so far is $1.45/litre (up 63 per cent year-over-year) with the current spot price at $1.37/litre,” he said.
“Transat has implemented fuel surcharges and other pricing actions, but as a leisure-focused carrier, we expect raising fares may be more challenging than for other large network carriers that have greater premium customer exposure. Furthermore, Transat’s focus is on long-haul routes where a greater percentage of capacity has been sold in advance at prices that do not reflect the spike in jet fuel prices from late February.”
Mr. Doerksen noted the Montreal-based travel company has reduced capacity “but not much to Europe” and emphasized it is “more challenging” to raise fares for Transat than other airlines.
“Transat has implemented fuel surcharges and other pricing actions to offset higher fuel costs, but as a leisure-focused carrier, we expect raising fares may be more challenging than for other large network carriers with greater premium customer exposure,” he said. “Furthermore, in the summer period especially, Transat’s focus is on long-haul routes (mainly to Europe) where a greater percentage of capacity has been sold in advance at prices that do not reflect the spike in jet fuel prices from late February. As such, if fuel prices hold, it will take longer for fare actions to fully offset higher fuel costs.
“Leverage remains high. We do not see Transat facing imminent financial difficulties (noting that on-balance sheet government debt has highly favourable conditions), but leverage remains high at an estimated 6.5 times for F2026 and 3.7 times in F2027.”
The analyst said a “caveat” to his downgrade is “that dissident shareholder, Pierre Karl Péladeau, has been consistently buying Transat shares in recent months.”
“If the buying continues, the stock may continue to find support and there also remains the possibility of an outright offer from this shareholder for the entire company,” he said.
After adjustments to his forecast to account for the impact of higher fuel charges, Mr. Doerksen lowered his target for Transat shares to $2.25 from $3, seeing its valuation “well above peers.” The average target on the Street is $2.19.
“On our updated F2027 estimate, which assumes a normalization of fuel costs and a significant profitability improvement, Transat shares are trading at 5.1 times EV/EBITDA versus Air Canada, which trades at just 3.1 times calendar 2027, even though Air Canada has much lower leverage and significantly higher margins,” he noted.
Believing First Capital REIT’s (FCR.UN-T) $5.2-billion deal to be acquired Choice Properties REIT (CHP-UN-T) and KingSett Capital “should clear the hurdles,” RBC Dominion Securities analyst Pammi Bir moved his rating for its units to “sector perform” from “outperform” previously.
“From our lens, the offer’s valuation premium stacks up well, even if a bit below our expectation,” he said in a note. “With unanimous board support, a thorough process, credible buyers, and low likelihood of an interloper, we see high probability of unitholder approval. As upside from here seems limited, we downgrade FCR to Sector Perform.”
Mr. Bir says the deal, which sees First Capital unitholders receiving $24.40 per unit, represents a “decent premium,” however he emphasized he’s “left somewhat wanting.”
“The deal metrics are well above FCR’s retail peers trading at negative 3-per-cent P/NAV, 6.8-per-cent implied cap, 15.6 times 2026 estimated AFFO,” he explained. “The 7-per-cent premium to IFRS NAV is substantially better than the proposed privatizations of IIP & MI at 17-per-cent & 20-per-cent discounts. The 8-per-cent premium to our NAV also exceeds the average 3-per-cent P/NAV in CDN REIT M&A over the L10Y [last 10 years] and is modestly below the 11-per-cent LTA [long-term average.
“In short, we see the offer as enough to get a deal done. Still, the premium is a bit below our expectation. We have consistently viewed FCR’s portfolio as the highest quality retail in CDN public markets; look no further than its superior demographics and SP NOI [same-property net operating income] growth. Considering the portfolio and platform calibre, a robust outlook for grocery anchored retail fundamentals, and substantial non-core asset sales over the past 2+ years at double-digit premiums to IFRS NAV, one could reasonably justify a 10-20-per-cent NAV premium in an environment of firmer REIT sentiment. Nonetheless, as detailed here-in, the process run by FCR’s board appears thorough, particularly considering proposals received in summer 2025, none of which reflected premiums to IFRS NAV.”
Mr. Bir moved his target to $24.40 from $23 to reflect the deal. The average is currently $24.38.
“We see high probability of unitholder approval given the offer’s premium valuation, credible buyers, and low likelihood of interloper,” he concluded. “As questions around a potential FCR takeout had escalated over the L12M, the transaction may not come as a surprise to some. Still, it will likely mark the departure (at least in part) of among the sector’s longest standing premier entities. It also offers another illustration of dislocation in public market pricing, while underscoring the strong appetite for defensive urban retail assets, which we expect will push cap rates modestly lower.”
“To maintain retail exposure, we recommend redeploying into REI, CHP, PMZ, and SRU.”
In a separate report, Mr. Bir raised his rating for Choice Properties REIT (CHP-UN-T) to “outperform” from “sector perform” previously, seeing the deal for First Capital as “a strategically compelling transaction that should ultimately enhance CHP’s growth profile & quality.”
“Short-term earnings dilution and higher leverage may give some investors pause,” he added. “Yet, from our vantage point, CHP’s recent underperformance provides patient investors an attractive entry to a name with strong leadership, a proven ability to execute, and superior cash flow durability.”
Despite the near-term costs, Mr. Bir sees it as a “transformative deal” that “bolsters portfolio quality and long-term growth.”
“We estimate CHP’s acquisition cap rate at 4.7 per cent on 2027 estimate NOI ($595/sf),” he explained. “Though certainly premium pricing, CHP handpicked FCR’s properties which should boost its longer-term earnings & NAV growth via: 1) higher annual SP NOI growth (3.5 per cent from acquisition portfolio vs. 2 per cent for CHP’s existing retail), 2) stronger demographics (major market exposure 7 per cent to 54 per cent of retail GLA [gross leasable area]), 3) increased tenant diversification & exposure to higher growth third parties (Loblaw down 8 per cent to 61 per cent of retail GLA), and 4) new opportunities to leverage its scale. Trading liquidity should also improve (float up 26 per cent).”
His target for Choice units is now $17.50, up from $17 and above the $17.13 average on the Street.
“Bottom line, we see CHP’s approximately 800 basis points of recent underperformance vs. its retail comps as an attractive entry to a name with strong management, a healthy NAV growth outlook (more correlated with CHP’s historical outperformance), & superior cash flow durability,” said Mr. Bir.
With its multi-year capital expenditure cycle and the spin-off of Canada Packers Inc. (CPKR-T) now complete, Desjardins Securities analyst Chris Li thinks Maple Leaf Foods Inc. (MFI-T) is “well-positioned to continue building on its market-leading share in Canada while also strengthening its niche position in the U.S..
“We believe this should translate into industry-leading mid-single-digit revenue and at least high-single-digit EBITDA growth,” he said. “Despite the strong outlook, MFI continues to trade near its 10-year average (9 times NTM [next 12-month] EBITDA).”
In a client report released before the bell titled Mighty Protein! Entering an era of potentially meaty returns, Mr. Li initiated coverage of the Mississauga-based company with a “buy” recommendation, touting notable upside for its shares from current levels based on “multiple levers expected to drive industry-leading organic revenue growth in the mid-single-digit percentage (boosted by protein intake trends), structural adjusted EBITDA margins expected to reach around the mid-teens range by 2030 and the completion of its large capex projects.”
“With the CPKR spin-off relatively fresh in the books and MFI positioning itself as a pure CPG player, we believe the company presents a more attractive investment opportunity vs (1) larger players with lower expected growth (JBS, Tyson Foods, Hormel Foods); (2) players that have notable pork complex or pork processing operations which expose them more to pork commodity volatility (Smithfield Foods, JBS, Tyson Foods); and (3) players still not as developed on the CPG spectrum, with exposure to fresh pork and/or chicken (Smithfield Foods, Pilgrim’s Pride),” the analyst said.
“We believe the following catalysts could drive further valuation expansion and share price appreciation: (1) better visibility on sustaining mid-single-digit percentage revenue and margin improvement; (2) identification of further cost savings as part of its Fuel for Growth program; (3) continued market share gains and mix improvement in Canada and the U.S. within its sustainable meats and plant protein operations; (4) an improvement in macroeconomic trends supportive of consumer spending; (5) the announcement of complementary M&A, which we believe MFI could use to expand its brand portfolio (eg in growing areas such as tempeh, dips and hummus); and (6) an acceleration in share buybacks as the company continues to focus on capital returns.
Mr. Li set a target of $39 per share, exceeding the current average of $37.29.
In other analyst actions:
* After hosting the management team of Extendicare Inc. (EXE-T) at the firm’s annual real estate conference in Montreal, National Bank’s Giuliano Thornhill raised his target for its shares to $40 from $34, keeping an “outperform” rating. The average on the Street is $38.42.
“EXE’s 30k person workforce requires significant logistical coordination to effectively recruit, manage and allocate caretakers to patients,” said Mr. Thornhill. “For example, scheduling requires more than 10k daily phone calls. Similar to routing optimization, management expect AI and automation to support operational improvements over time. In addition, the quality of care administered by EXE’s staff also leads to advantages over smaller competitors. These include speed, continuity of service and overall employee morale.
“Long-term HHC volume growth should normalize. In time, the ALC volume tailwind will fade as hospital capacity is relieved, and the long-term growth rate will be driven by demographics, acuity, plus LTC capacity constraints (approximately 8 per cent). However, visibility on the normalization of the ALC driver is limited, although we expect the discharge issue may persist longer than expected. Additional upside could emerge from ALC volumes if other provinces copy Ontario’s successful approach."