Inside the Market’s roundup of some of today’s key analyst actions
Seeing its “risk-reward set-up more attractive following a period of downward estimate revisions and lowered expectations,” RBC Dominion Securities analyst Drew McReynolds upgraded his recommendation for Quebecor Inc. (QBR.B-T) to “outperform” from “sector perform” previously.
“Since the acquisition of Freedom Mobile, our focus has been two-fold: (i) assessing the true financial impact of wireless expansion including understanding the ways Quebecor can sustainably and profitably differentiate its wireless offerings; and (ii) monitoring notably higher competitive intensity inside Quebec,” he said. “Following a period of downward estimate revisions since the acquisition and what we believe are now lowered growth expectations for both inside and outside Quebec, we see the risk-reward set-up as more attractive.”
In a research note released Wednesday, Mr. McReynolds said he sees the Montreal-based media and telecommunications company as “a likely beneficiary of a more disciplined pricing environment beginning in 2025.”
“Despite stronger than forecast wireless net additions in 2024, wireless ARPU [average revenue per user] and cable revenues remain under considerable pressure acting as a drag on NAV [net asset value] growth,” he said. “While we expect the company’s growth versus profitability balance to remain a work-in-progress, we do see Quebecor as a likely beneficiary of a more disciplined wireless and Internet pricing environment beginning in 2025 with the potential for renewed growth in the Telecommunications segment, which could be a catalyst for multiple expansion versus the current FTM EV/EBITDA multiple of 6.2 times. In the absence of renewed growth and/or multiple expansion and even with rising capex, we still see some (albeit less) upside potential in the shares on the back of equity reflation driven by FCF generation and outright debt repayment given the relatively low dividend payout ratio (approximately 30 per cent of FCF).”
Mr. McReynolds’s rating adjustment coincided with the release of his 2025 industry outlook in which he concluded investor positioning will lean toward a preference for NAV growth and “any company-specific re-rating catalysts.”
“We expect the pricing environment to improve in 2025 but less market expansion points to another low revenue growth environment,” he said. “With this subdued growth outlook and valuations that we view as reasonable in the current interest rate environment – neither cheap nor expensive – we see limited potential for meaningful sector-wide multiple expansion therefore putting greater emphasis on NAV growth, dividend yields and any company-specific re- rating catalysts to drive total returns for investors.”
Following an increase to his medium-term wireless and Internet ARPU trajectories “on the assumption of a more disciplined pricing environment beginning in 2025,” Mr. McReynolds increased his target for Quebecor shares to $39 from $37. The average target on the Street is $38.33, according to LSEG data.
The analyst made these other target changes:
* BCE Inc. (BCE-T, “sector perform”) to $41 from $45. Average: $42.16.
Analyst: “We look for more timely entry points with the closing of the MLSE and Ziply transactions (H2/25), an associated uptick in revenue and EBITDA growth, and greater progress in tracking toward targeted dividend payout and leverage ratios (including additional non-core asset sales and/or asset crystallizations) being potential catalysts for the stock. While the current dividend yield is compelling, until these potential catalysts emerge, we see the stock as largely rangebound, compounded by a relatively high cost of equity following the pullback in the shares and with the newly instituted DRIP. Notwithstanding this higher cost of equity: (i) we believe the Ziply acquisition, the pause in dividend growth, and the instituting of the DRIP provide incremental visibility around dividend sustainability through 2025; and (ii) BCE is well equipped to navigate a slower revenue growth environment leaning on a scale advantage, FTTH investment and Internet market share gains, cost efficiencies, an extensive array of tactical initiatives across wireless, wireline, and media, and long-term growth in 5G B2B (IoT, MEC, private network, cloud, security) and business solutions”
* Rogers Communications Inc. (RCI.B-T, “outperform”) to $61 from $66. Average: $64.43.
Analyst: “Following the meaningful pullback in the shares in 2024, at 6.4x FTM EV/EBITDA the stock now trades at a notable discount to the Canadian telcos and in line with U.S. peers. With the more compelling valuation, we see an equity reflation story emerging in 2025 driven by FCF generation and outright debt repayment given the relatively low dividend payout ratio (less than 30 per cent of FCF post-DRIP). While the low revenue growth environment in 2025 works against sector- wide multiple expansion, we still see potential for Rogers to narrow the valuation discount to the Canadian telcos, driven by: (i) finalization of the proposed $7-billion structured equity financing with additional granularity around terms; and (ii) progress with respect to organic balance sheet de-levering including additional visibility on the financing strategy for the pending purchase of BCE’s MSLE stake.”
* Telus Corp. (T-T, “outperform”) to $24 from $25. Average: $24.12.
Analyst: “With TELUS outperforming large cap peers in 2024, the company’s premium valuation has notably widened (FTM [forward 12-month] EV/EBITDA of 8.0 times versus 6.4 times for Rogers and 7.2 times for BCE), suggesting that valuation risk has risen on the stock, particularly in the low revenue growth environment. While given this premium valuation we see limited potential for multiple expansion in 2025, we believe TELUS as the structural leader within the group can maintain a premium valuation provided that certain boxes are ticked through 2025E–27”
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Stifel analyst Martin Landry thinks Groupe Dynamite Inc. (GRGD-T) “successfully” passed its first test as a public company with Tuesday’s release of “strong” third-quarter financial results.
The Montreal-based clothing retailer, which made its debut on the Toronto Stock Exchange last month, reported net revenue of $258.77-million, up 17.5 per cent and exceeding the analyst’s estimate of $259.03-million. Net earnings rose 22 per cent to $43.7-million and also topped Mr. Landry’s $42.4-million.
“These results were not a surprise as the company had pre-released some metrics related to Q3FY24 in its prospectus,” he said. “However, results came-in at the high end of the pre-released ranges. Momentum for Q4FY24 appears to continue with a good performance on Black Friday as per management. While the shares’ reaction was muted, up 0.5 per cent, they should trade higher once the IPO overhang clears as we believe that some investors with a shorter-term horizon may still be recycling their shares in the market.”
Alongside that momentum, Mr. Landry also emphasized “healthy” market share gains were visible.
“GDI’s comparable store sales increased by 10.1 per cent year-over-year, slightly higher than our expectations of 9.5 per cent and suggesting continued market share gains,” he said. “Comparable store sales growth was driven by increases in basket size and transactions. The Garage brand in the U.S. had the highest increase followed by Garage Canada and Dynamite. GDI executed marketing campaigns and organized brand moments and activations initiatives to increase brand awareness and attract new customers. For instance, the ‘off-duty’ marketing campaigns at Garage was a success. GDI also opened a Garage pop-up shop in New York City and piloted Garage’s first-ever store employee ambassador program, rolling out pop-up stores at over 250 universities across the U.S.
“With some big holiday weeks ahead of GDI in Q4FY24, management did not offer much color on Q4FY24 trends apart from describing the Black Friday performance as satisfactory and meeting internal expectations. We are conservatively modeling a deceleration in GDI’s Q4FY24 comparable-store sales to 7.2 per cent, although the deceleration is less pronounced when looking at numbers on a two-year stack. Commentary from peers also point to a small slowdown in Q4/24 relative to Q3/24.”
Maintaining a “buy” recommendation, Mr. Landry increased his target by $1 to $28.50. The average is $26.42.
Elsewhere, National Bank’s Vishal Shreedhar bumped his target to $26 from $25 with an “outperform” rating, saying the company’s “solid performance reaffirms our favourable disposition.”
“GRGD trades at 8.5 times our NTM [next 12-month] EBITDA and 16.7 times our NTM EPS, which is at a premium to the apparel group EV/EBITDA average of 7.6 times,” said Mr. Shreedhar. “In our view, a premium valuation to this group is justified given GRGD’s leading financial metrics and superior growth expectations. That said, GRGD trades at a discount to relevant peers (Inditex and Aritzia), partly reflecting insufficient financial data to assess track record, investor concerns about future secondary offerings, and tariffs etc. As GRGD establishes a successful track record, we expect upward pressure on the valuation multiple over time.”
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Resuming coverage following its upsized $460-million equity financing, National Bank Financial analyst Patrick Kenny sees Capital Power Corp. (CPX-T) “supercharging” [its] U.S.-based FlexGen growth strategy
“Net proceeds [are] earmarked to fund the company’s strategy to capitalize on the Energy Expansion by acquiring and building reliable and affordable natural gas-fired generation capacity,” he said. “This follows the recent agreement with Axium Infrastructure to sell a 49 per cent interest in its 142 MW Quality Wind (BC) and 104 MW Port Dover & Nanticoke Wind (Ontario) facilities for $340-million ($270-$280-million after-tax). Overall, the company has beefed up its liquidity by over $700-million to accelerate organic growth or execute on M&A.
“CPX remains focused on its core dispatchable natural gas-fired generation growth strategy within its key U.S. markets, including the MISO and WECC, with potential expansion into PJM and ERCOT. Recall CPX expects to deploy 70 per cent of its 2025-2029 growth capital towards natural gas fired generation opportunities with a development pipeline that includes a conservative 700 MW portfolio of largely U.S.-based FlexGen opportunities incremental to possible M&A activity. Elsewhere, the company recently achieved full commercial operations of its $1.6-billion Genesee Repowering project, adding 512 MW of capacity while reducing emissions by 40 per cent.”
Mr. Kenny incorporating the proceeds of the equity financing and refreshed our near-term Alberta power price assumptions, including $55/MWh for 2025e and $65/MWh for 2026. He also introduce our 2026 estimates with adjusted funds from operations per share of $6.33 (versus $6.40 in 2024 and $6.35 in 2025) and D/EBITDA at 2.9 times, “sitting well below S&P’s 4.0 times investment-grade threshold pending future growth/M&A activity.”
Maintaining an “outperform” recommendation, he hiked his target for Capital Power shares to $65 from $56. The average is $60.56.
Elsewhere, others resuming coverage with target changes include:
* Scotia’s Robert Hope to $69 from $66 with a “sector outperform” rating.
“The raise further strengthens Capital Power’s balance sheet, and comes in addition to its recent renewable selldown,” said Mr. Hope. “We believe this positions the company favourably to pursue the next wave of accretive M&A. We recently upgraded the shares to Sector Outperform, as we believe the company is well-positioned to benefit from rising power demand and an improved outlook for thermal assets. Capital Power is currently trading at 9.6 times 2025E estimated EV/EBITDA, and as such, we expect some multiple expansion as our target implies a 10.1 times multiple.”
* ATB Capital Markets’ Nate Heywood to $63 from $57 with a “sector perform” rating.
“Proceeds from the offering are expected to be used to fund growth opportunities, which could include M&A. CPX has recently illustrated an interest in US natural gas generation opportunities and has previously flagged the MISO, WECC, California, and the Desert SW as markets with attractive growth prospects, but is also looking at new markets like PJM and ERCOT. Beyond M&A, we see CPX as well situated for data center development, previously pointing to opportunities across the fleet, but Alberta and Genesee remain a unique spot to meet near-term demand and offer reliable power on a competitive timeline. CPX has a total of 1.5 GW of potential data center load demand currently set in the AESO queue, not yet underpinned with contracts or sanctioned projects. On December 13, CPX announced the completion of the Genesee Repowering project, transitioning Units 1 and 2 to combined cycle operations,” said Mr. Heywood.
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Eight Capital analyst Jamie Somerville expects the waste and recycling sector to “continue generating above average returns on investment.”
“We have a similarly positive outlook for small-cap waste-focused companies that can successfully build waste management businesses, as these should benefit from the tailwinds that have helped larger waste companies significantly outperform wider equity markets,” he added.
With that view, Mr. Somerville initiated coverage of Calgary-based CVW CleanTech Inc. (CVW-X) with a “buy” recommendation on Wednesday, touting its “very impressive management team and board, with a significant track record of execution and value creation.
“We have a very positive view of CVW’s management, board, and chosen business strategy,” he added. “We like the company’s focus on providing royalty financing to companies focusing on cleantech within traditional industries, including oil and gas production, mining, and agriculture, many of which have substantial waste-to-value projects. We view CVW’s first royalty asset with Northstar Clean Technologies (ROOF-X, Not Rated), acquired for $14-million in Q3/24, as a positive indication that management will be able to build a substantial portfolio of valuable royalty assets (and create value for CVW shareholders while doing so).”
The analyst also likes CVW’s ownership of its own technology, which focuses on the recovery of bitumen, solvents, critical minerals and water from oil sands froth treatment tailings.
“Due to a combination of political, economic, and social factors, as well as management’s focus on creating value for shareholders, we’re optimistic that after many years of technology development and planning, 2025 will likely see a commercialization breakthrough,” he said. ”We anticipate CVW could announce an agreement to commercialize the technology with at least one oil sands mine operator during 2025, which would be transformative for the company and its share price.
“Our NAVPS [net asset value per share] estimates are based on post-tax discounted cash flow at a 10-per-cent nominal discount rate, using relatively conservative assumptions. Our target is based on relatively high NAVPS multiples, because i) we see significant upside potential to our DCF assumptions for both the first royalty asset and the oil sands tailings technology, and ii) those DCF assumptions do not take into account management’s ability to create value by negotiating and closing additional royalty deals.”
Currently the lone analyst covering the company, he set a target of $1.40 per share, but he acknowledged “significant” risks “as a result of which any investment in CVW should be considered speculative in nature.”
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After a “mixed” year for his power and utilities coverage universe, Desjardins Securities analyst Brent Stadler expects power demand to “remain exceptionally strong” in 2025, but he acknowledged sector-wide uncertainty will linger due to a lack of clarity on the Trump administration’s plans for clean energy credits and other fiscal policies for indications on inflation and rates.
“Renewables names generally had a tough year as bond yields were volatile but remained elevated, weather resources were weak and U.S. policy uncertainty weighed on performance,” he said. “On the other hand, the Alberta power names performed extremely well as natural gas came back into favour given the need for grid reliability, and optimism around the potential for a data centre offtake. Moving into 2025, we expect themes that were topical in 2024 to carry over: (1) we are looking for policy clarity from the Trump administration, although we do not expect a material impact due to the strong demand for power; (2) forecast load growth will likely continue to drive robust demand for electricity, which is positive for our coverage and could result in continued upsized calls for power; (3) technology partnerships to power data centres and/or decarbonization will likely continue to be announced in 2025 (providing opportunities for gas and renewables); (4) project returns should remain elevated; and (5) continued focus on baseload power, including decarbonizing gas and nuclear.”
In a report released Wednesday, Mr. Stadler raised his targets for Capital Power Corp. (CPX-T) to $64 from $60 with a “buy” rating and TransAlta Corp. (TA-T) to $16 from $15.50 with a “hold” rating after increasing his long-term run-rate Alberta spot price assumption. The averages are $60.56 and $16.73, respectively.
“BLX remains our Top Pick, and CPX and INE remain our preferred names,” Mr. Stadler said.
“BLX remains our Top Pick given our view that it has a robust pipeline of contracted projects that should enable it to be the top grower in the space. CPX remains a favourite name as we continue to believe a lot of value can be unlocked as the company recontracts its gas fleet in the US and executes on a technology company partnership—we believe execution can take it above $75.00. INE took decisive action in 2024 to reset expectations and allocate more cash flow to growth, which should position it for success in 2025 and beyond. We believe its valuation is extremely attractive at current levels. NPI has a big year ahead and will primarily focus on derisking Hai Long through installing half of the turbines and achieving first power in 2H25, while also executing on major in-water construction at Baltic Power and introducing its new management team to the Street. BEP’s outlook remains positive and we expect it to continue deploying capital into attractive opportunities while executing on its capitalrecycling initiatives (creating value for shareholders); it could also expand upon/announce additional technology company partnerships. The near-term investor focus for TA remains on data centres in Alberta—depending on the size of the data centres, we could see upside to $21.00, although we do see higher risk with this story at current levels. AQN recently reset expectations by moving to a pure-play utility, and we are looking for clarity on its earnings power and growth outlook in early 2025. EVGN’s assets continue to ramp, albeit more slowly than we had expected—but we look forward to details on its achieving FID on GrowTEC Phase 2 and PCR over the near term.”
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In other analyst actions:
* BMO’s Michael Markidis upgraded RioCan REIT (REI.UN-T) to “outperform” from “market perform” with a $20.50 target, down from $21 and below the $21.54 average.
* Mr. Markidis downgraded Boardwalk REIT (BEI.UN-T) to “market perform” from “outperform” with a $73 target, down from $84. The average is $86.79.
* Wells Fargo downgraded a trio of Canadian energy stocks: Gibson Energy Inc. (GEI-T) and Pembina Pipeline Corp. (PPL-T) to “equal weight” from “overweight” previously and South Bow Corp. (SOBO-T) to “underweight” from a “equal weight” recommendation.
* Haywood Securities’ Christopher Jones downgraded Lucero Energy Corp. (LOU-X) to “tender” from “buy” and cut his target to 48 cents from 80 cents. The average is 53 cents.
* Scotia’s Konark Gupta raised his Air Canada (AC-T) target to $29 from $26.50 with a “sector outperform” rating, while ATB Capital Markets’ Chris Murray moved his target to $31 from $28 with an “outperform” rating. The average is $27.24.
“We maintain our SO rating while raising our target to $29 (was $26.50) on multiple expansion to 4.2 times (was 3.7 times) to reflect our improved visibility into near-term outlook, long-term prospects, and shareholder returns,” Mr. Gupta said. “We came away from AC’s well-attended investor day with a deeper understanding of its six-year plan (detailed over a 160-page deck), which offers something to everyone - buybacks for returns-focused investors and strong growth for earnings-oriented investors - while ensuring capital discipline. We are not overly surprised by the negative market reaction Tuesday (stock down 9 per cent), especially given the recent outperformance, as we pointed out in our first take note that AC’s long-term FCF and margin targets could disappoint some. We are, in fact, encouraged that management is realistic with targets rather than aggressive and is prudently investing in the right tools to capture unique growth opportunities for Canada’s leading international airline with best-in-class offering. We recommend buying the dip as EV/EBITDA valuation is attractive at 3.6 times on 2025E vs. U.S. peers at 5.5 times and we see a potential double-bagger on 2028 estimates.”
* Previewing its fourth-quarter results, National Bank’s Rupert Merer trimmed his Brookfield Renewable Partners LP (BEP-N, BEP.UN-T) target to US$32 from US$33 with an “outperform” rating. The average is US$30.31.
“With unusually dry conditions in Colombia, the Eastern U.S. and Canada, we forecast lower prop. generation of 3,920 GWh (79 per cent of LTA) in BEP’s hydro portfolio,” he said. “Despite this weakness, our adj. EBITDA and FFO/unit forecasts remain relatively flat at $622-million (was $614-million, cons. $613-million) and $0.48 (was $0.46, cons. $0.46), respectively, with help of gains from asset sales. We model other income at $185-million (was $94-million) with the assumed closing of the sales of the Saeta and Shepherds Flat assets. This result reinforces BEP’s differentiated business model compared to IPP peers, as it leverages private equity activity.”
* CIBC’s Scott Fletcher raised his Dye & Durham Ltd. (DND-T) target to $30 from $22 with an “outperformer” rating, while Canaccord Genuity’s Robert Young cut his target to $27.50 from $30 with a “buy” rating. The average is $24.27.
“After Engine Capital announced on Friday afternoon that it expected that a majority of DND shares had voted in favour of all six of Engine’s nominees, DND’s Board resigned in advance of the AGM [Tuesday] morning, confirming that Engine and OneMove would have their seven-member slate elected to the Board,” said Mr. Fletcher. “Investor concerns around management oversight and Board governance have clearly been a major contributor to DND trading at a discount to peers, and the positive share price reaction to the news on Friday (up 11.5 per cent) shows that the market is already optimistic about the prospect of a multiple re-rate under a new Board. With a major overhang now removed from the stock, we are increasing our target multiple from 9 times to 11 times, taking our price target from $22 to $30. Fundamentally, we believe DND stands to benefit from improved housing markets in CY 2025 that when combined with a refinanced debt package should ensure DND returns to generating solid free cash flow to the equity. Over time, consistent execution could result in further EBITDA multiple expansion, closer in line to peers that trade in the mid-to-high teens. While there is a possibility that the transition period is somewhat turbulent as the new Board begins to implement its strategy while transferring knowledge from the incumbent management team, we remain optimistic about the company’s near- and longer-term prospects.
* In response to the Dec. 5 release of an updated mineral resource and reserve estimates and an accompanying updated life-of-mine plan for the its Westwood Complex in Quebec, National Bank’s Mike Parkin bumped his target for shares of Iamgold Corp. (IMG-T) to $12.50 from $12 with an “outperform” rating. The average is $10.14.
“The updated LOM plan has extended the mine life to 2032 with gold production from 2025 onwards estimated at 925koz,” said Mr. Parkin. “However, management expects to mine and process some non-reserves each year, which after discussing with management, we have adopted into our mine model. Closure costs came in less than anticipated at US$224-million, with the company looking at ways to decrease the cost of closure with the next planned update due in 2029. The mineralized zones remain open, offering potential further LOM extension beyond this update. As a result of our updates, we see our NAV increase by 5 per cent. Overall, we are pleased by the update and the ability of management to show good value for an asset that is operating consistently well and proving the market incorrect for writing it off as a potential net liability not long ago. IAMGOLD remains our Top Pick in the Intermediates due to the incremental de-risking of the Côté gold mine ramp-up and strong operational performance over the last several quarters. In our view, IAMGOLD is a potential acquisition target given its discounted valuation and high quality asset base that supports a robust FCF generation outlook, with the bulk of its NAV tied to low-risk jurisdictions.”