Inside the Market’s roundup of some of today’s key analyst actions
While noting shares of Canada auto suppliers are trading near multi-year lows, CIBC World Markets analyst Krista Friesen sees U.S. tariffs by the U.S. as “an existential threat to the industry.”
“Prior to any tariff talk, we had viewed 2025 as a ‘run-of-the-mill’ challenging year, given production was forecast to be flat year-over-year at best,” she said. “The implementation of tariffs creates significant uncertainty for an industry that has worked to integrate itself since the introduction of the Canada-United States Automotive Products Agreement in 1965, with vehicles crossing the border seven to eight times on average as they are being built.”
“At this time, there remains a significant amount of uncertainty as to how the industry will cope. In a best-case scenario, the tariffs are short-lived and given many suppliers and OEMs attempted to move product ahead of time, there should be minimal impact to earnings. In a worst-case scenario, these tariffs are long-lived and are compounded by the tariffs introduced by Canada. We would also note that our current understanding is the U.S. tariffs have no duty drawback ability, meaning each time a vehicle crosses to the U.S., the tariffs are compounded.
Citing the range of outcomes, Ms. Friesen thinks “it is challenging to estimate what the impact would be to the suppliers’ earnings.
“We have reduced our price target multiples to levels at which the suppliers traded during other crises, such as the pandemic or the European energy crisis,” she added.
With that view, she lowered her recommendations for these stocks:
* Linamar Corp. (LNR-T) to “neutral” from “outperformer” with a $55 target, falling from $82. The average on the Street is $73.20.
* Martinrea International Inc. (MRE-T) to “neutral” from “outperformer” with a $9 target, dropping from $14. The average is $15.25.
Ms. Friesen also cut her target for Magna International Inc. (MGA-N, MG-T) to US$36.50 from US$44, keeping a “neutral” rating. The average is currently US$46.35.
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In a research report released Wednesday wrapping up earnings season for domestic banks, CIBC World Markets analyst Paul Holden lowered his full-year earnings forecasts in response to the impact of U.S. tariffs.
“The only adjustment we are making to our models with this note is the addition of performing PCLs [provisions for credit losses] effective FQ2,” he said. “If tariffs stay, we anticipate further model adjustments will be required (e.g., lower loan growth, potentially lower NIM [net interest margins] for BoC monetary response, higher trading revenue, etc.). We are back playing for downside protection, a playbook used too often over the last five years. BMO and TD, the two banks with the lowest proportion of Canadian loans and highest proportion of USD earnings, are our tariff protection picks. We reduce our price targets for the big banks based on a higher risk premium.”
His target price adjustments are:
- Bank of Montreal (BMO-T, “outperformer”) to $152 from $156. The average on the Street is $151.87.
- Bank of Nova Scotia (BNS-T, “neutral”) to $75 from $81. Average: $79.32.
- National Bank of Canada (NA-T, “neutral”) to $127 from $135. Average: $136.36.
- Royal Bank of Canada (RY-T, “neutral”) to $167 from $175. Average: $181.39.
- Toronto-Dominion Bank (TD-T, “outperformer”) to $95 from $96. Average: $90.18.
“FQ1 results showed positive trends across all fronts and in isolation would have been taken to signal solid earnings growth ahead for the Canadian banks,” he said. “However, the results can’t be taken in isolation and even last week, when tariffs were a threat, not yet reality, share price reactions relative to the magnitude of EPS beats were fairly muted. Tariffs are THE narrative now and will dominate how the stocks will trade.
“That doesn’t mean there are not useful data points and takeaways from FQ1. ... Key points are: 1) we expect all banks will increase performing credit allowances in FQ2; 2) bank valuations had moved off recent highs in light of tariff risk, but P/BV is still closer to historical averages versus prior lows; 3) credit allowance coverage ratios are in a good starting spot and will help cushion some of the earnings impact; 4) capital ratios are very healthy and that might limit some of the valuation risk; and 5) U.S. banking results were quite good this quarter and we maintain that maximizing U.S. exposure is the best defense against tariffs.”
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Canaccord Genuity analyst Matthew Lee also thinks tariffs have cast “a grey cloud” over the banking sector with quarterly earnings season in the rear-view mirror.
“Going into Q1, we were optimistic that the banks would present early signs of an earnings growth acceleration,” he said in a Wednesday report. “Namely, we were looking for 1) fee revenue growth across Wealth and Capital Markets (ex-trading), 2) credit strength to create comfort around F25 guidance, and 3) improving loan momentum, particularly in the mortgage book ahead of the seasonally active spring period. In our view, the group went one for three with non-interest revenues above forecast but PCLs and loan growth mixed.
“As we look forward, our focus now turns to the impact of tariffs on the Canadian banks. While less affected than most other sectors, we have adjusted our views on PCLs (particularly performing), loan growth, and capital markets revenue to account for increased uncertainty but note that further adjustments will almost certainly be required as the story unfolds. At this juncture, it is too early to fully determine the net impact of reciprocal tariffs, fiscal stimulus, and domestic trade. Post-quarter, we maintain our pecking order with BUY ratings on BMO, TD, RY, and BNS with HOLD ratings on CM and NA.”
Mr. Lee lowered his target multiple for the group to account for “a more challenging, uncertain economic environment,” leading to reductions across the board. His changes are:
- Bank of Montreal (BMO-T, “buy”) to $163 from $165. The average on the Street is $151.87.
- Bank of Nova Scotia (BNS-T, “buy”) to $79 from $82. Average: $79.32.
- Canadian Imperial Bank of Commerce (CM-T, “hold”) to $93 from $97. Average: $97.45.
- National Bank of Canada (NA-T, “holdl”) to $130 from $136. Average: $136.36.
- Royal Bank of Canada (RY-T, “buy”) to $191 from $198. Average: $181.39.
- Toronto-Dominion Bank (TD-T, “buy”) to $96 from $100. Average: $90.18.
“We continue to prefer RY, TD, BMO, and BNS but reduce our target multiple on the group,” he said. “Our medium-term thesis on the banks’ earnings growth remains largely intact. Under the context of manageable unemployment levels and favourable interest rates, we would expect the group to deliver high single-digit growth. Adding the impact of fee-based revenues and share buybacks pushes our forecast into the double-digits, where we are currently positioned in F26.
“However, in the near term, we have moderated our assumptions and valuation multiples to contemplate the current phase of economic uncertainty. We have reduced our group target NTM+1 P/E multiple from 11.8 times to 11.3 times. The result is a reduction in target prices across the board. In terms of discounts and premiums, we have increased our premium valuation on BMO as it proves out the ability to lead the group in earnings growth, while maintaining our relative rankings on each of the remaining banks. We maintain our BUY rating on BMO, TD, RY, and BNS with HOLDs on CM and NA.”
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After a fourth-quarter earnings miss, National Bank Financial analyst Maxim Sytchev thinks valuation is “once again” not a catalyst for Wajax Corp. (WJX-T) amid slower macro and lack of general visibility, seeing “better opportunities elsewhere.”
“We are surprised to see the level of compression in the supposedly defensive IP/ERS [Industrial Parts/Engineered Repair Services] businesses,” he said. “When we launched coverage, our due diligence suggested a lack of differentiation vs. much larger competitors being a tough hurdle to overcome, and it feels that during slower economic times, the discrepancy becomes even more pronounced. SG&A savings were material but not enough to offset gross margin compression at the consolidated level. While seasonal/ cyclical working capital free-up was better than expected, EPS/EBITDA de-rating appears to be unabated. While an 8 times NTM [next 12-month] P/E (on uncertain ‘E’) does not sound bad, there are other names in our coverage that offer a much better risk/reward skew.”
Shares of the Mississauga-based industrial equipment and services provider plummeted 12 per cent on Tuesday after it reported revenue for the quarter of $566-mln, broadly in line with Mr. Sytchev’s forecast of $558-mln and the consensus estimate of $552-million on a 32-per-cent year-over-year jump in Equipment sales. However, adjusted EBITDA for the quarter came in at $35.1-million, missing projections ($37.4-million and $38.2-million, respectively, driven by a 2.5-per-cent year-over-year drop in margins due to a higher proportion of lower-margin equipment sales and lower realized equipment, ERS and rental margins amid increased market pressures. Adjusted diluted earnings per share of 35 cents also came in below expectations (38 cents and 43 cents, respectively).
“Given ERS trends, we compressed the consolidated top line as a result,” said Mr. Sytchev. “We assume low single-digit revenue growth reflecting pricing normalization for equipment sales, offset by some volume growth on the back of the 2-per-cent year-over-year backlog advance; at the same, even these projections are likely to be optimistic. Our EPS forecasts decrease reflecting higher interest expenses, commensurate with the higher interest rate borne by the company in 2024.”
With a reduction to his forecast, the analyst dropped his target for the company’s shares to $22 from $24, reiterating a “sector perform” recommendation. The average target on the Street is $23.
Elsewhere, Scotia Capital’s Jonathan Goldman downgraded Wajax to “sector perform” from “sector outperform” with a $22 target, down from $24.
“We are downgrading WJX to Sector Perform following the third material miss in the LTM [last 12 months],” said Mr. Goldman. “That raises questions around earnings visibility, and at the very least, we expect shares to be range-bound until management rebuilds the track record via a string of consistent results. Moreover, the weak 1H outlook (before considering tariffs) suggests the turnaround could get pushed further to the right, which stands in contrast to peers who reported stabilizing or improving trends. While our mining shovel delivery thesis played out correctly in the quarter with sales beating consensus by 3 per cent, we underestimated the competitive dynamics, particularly for Wajax being a sub-scale player. We applaud management’s efforts to control costs, but tough market conditions are likely to dominate the earnings profile in the near-term.
“We reduced our 2025 EPS estimate by more than 10 per cent to reflect lower product support revenues (flat year-over-year, which is consistent with peer commentary) and lower equipment, ERS, and rental margins through 1H25 (our read-through from the outlook), accentuated by negative mix and accelerated destocking. WJX shares trade at 7.4 times on our 2025E compared to historicals of 9.5 times. While FCF generation was strong in the quarter (including a nice inventory draw-down with $100 million more expected for 2025), leverage (ex leases) remains slightly above the high-end of the target range, which makes M&A less likely in the near-term, in our view. Shares are down 50 per cent in the LTM [last 12 months], but the given the macro backdrop and lack of catalysts, we think WJX falls into the ‘cheap for a reason’ category. We’re moving to the sidelines pending a stabilization of market/margin trends, and as we see better opportunities across our dealer/industrial coverage.”
TD Cowen’s Patrick Sullivan cut his target to $22 from $24 with a “buy” rating.
“Shares sold off almost 12 per cent following weak results on lower-than-expected margins, now trading at levels not seen since early 2021, which is unwarranted in our view,” he said. “WJX expects a meaningful and quick margin recovery, albeit not to the highs seen in H1/24, and we are encouraged by management’s efforts to reign in costs. We maintain our BUY rating based on the stock’s modest valuation and solid backlog.”
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While its fourth-quarter 2024 financial results exceeded estimates on the Street and its expectations for the current fiscal year largely fell in line with forecasts, Stifel analyst Martin Landry warned Pet Valu Holdings Ltd.’s (PET-T) guidance is “back-end loaded, increasing risks given the volatile macro environment.”
On Tuesday, the Markham, Ont.-based retailer surged 11.2 per cent after it reported revenue of $295-million, up 3 per cent year-over-year, falling narrowly below Mr. Landry’s $301-million projection but higher than consensus of $292-million as same-store sales declined 0.2 per cent year-over-year, missing expectations of gains of 1.5 per cent and 0.5 per cent respectively. Earnings per share of 45 cents represented a decline of 17 per cent, but the result topped estimates (41 cents and 40 cents, respectively) due largely to lower expenses.
“Management expects 2025 revenue of $1.17-1.20 billion, up 8 per cent year-over-year, at the mid-point. Management expects to start the year with same-store sales near 1 per cent, accelerating to 4 per cent by year-end as comparisons ease,” said Mr. Landry. “2025 guidance calls for EBITDA of $254-260 million, up 4 per cent year-over-year, at the mid-point. The guidance also calls for adjusted EPS of $1.60 to $1.66, up 4 per cent year-over-year at the mid-point, which aligns with our expectation of $1.64 and consensus of $1.61. 2025 EPS guidance includes a $0.12 negative impact from incremental depreciation and interest expenses related to new distribution centers. We expect 2025 EPS growth to be back-end loaded, modeling Q1/25 EPS to decline 1 per cent year-over-year. Management expects strong cash generation, with FCF conversion rate above 40 per cent, and plans to use a significant part of this FCF for opportunistic share buybacks.
“Investors reacted positively to the earnings beat and the return to same-store sales growth, sending the shares up 11 per cent on the day. However, EPS growth remains muted with 2025 guidance calling for an increase of 2 per cent year-over-year, at the mid-point when excluding the extra week.”
While he emphasized Pet Valu’s implementation of pricing and promotional optimization systems, Mr. Landry lowered his 2025 same-store-sales growth assumption by 50 basis points to 2.2 per cent to “reflect a slow start to 2025 and limited visibility on H2/25.” He also reduced his EBITDA margin assumption on higher expenses than expected “as management re-start projects that had been delayed in recent years due to the distribution center upgrade.”
Maintaining a “buy” rating for the company’s shares, he bumped his target by $1 to $28 after rolling forward is valuation. The average is $31.82.
“While Pet Valu’s shares are down almost 20 per cent since February 2024, the decline was related to negative earnings revision and hence did not translate to cheaper valuation metrics,” he said. “In fact, we see limited multiple expansion potential from current levels as we believe Pet Valu’s shares are fairly valued, trading at 15 times 2026 earnings estimates. This represents a PEG ratio of 1.25-1.85 times assuming a normalized earnings growth rate of 8-12 per cent. Hence, we see the risk/reward profile currently balanced on Pet Valu’s shares.”
Elsewhere, other analysts making target adjustments include:
* RBC’s Irene Nattel to $34 from $35 with an “outperform” rating.
“Notwithstanding ongoing cautious consumer spending, PET delivered Q4 results a whisker above forecast as the Company leaned into the consumer value proposition, stepping up marketing/promo investments to drive share/ loyalty. 2025 guidance largely consistent with expectations, although we had under-estimated impact of higher D&A related to infrastructure spend. In our view, Pet Valu continues to appropriately manage the business to satisfy value-oriented consumer demand while leveraging benefits of prior period investments to enhance productivity and efficiency. Even post-[Tuesday’s] 9-per-cent share price move, valuation remains toward the bottom of the long-term range,” said Ms. Nattel.
* TD Cowen’s Michael Van Aelst to $32 from $30 with a “buy” rating.
“With the outlook improving for industrial market fundamentals across the country, barring the threat of U.S. tariffs, we believe PRV should benefit from a multiple re-rating as it progresses in its transition to a pure-play industrial REIT,” said Mr. Van Aelst. “The limited opportunity set for public REITs with institutional-quality Canadian industrial exposure should translate into enhanced investor attention on PRV over time.”
* ATB Capital Markets’ Chris Murray to $39 from $41 with an “outperform” rating.
“While consumer trends remain a headwind, we continue to see value in PET, with its improving supply chain infrastructure supportive of the asset-light growth strategy,” he said.
* CIBC’s Mark Petrie to $33 from $29 with an “outperformer” rating.
“Pet Valu delivered a solid Q4 amid a difficult environment and modest expectations. Supply chain investments are paying off in the form of revenue growth and distribution productivity, though [gross margin] will remain under pressure in 2025. We are encouraged by PET’s promo and in-store engagement, and have gained conviction in SSS inflection in 2025. Our target multiple returns to 18 per cent (was 16 per cent), with further upside potential as EPS growth re-accelerates. Macro uncertainty weighs, but we see PET as relatively well-positioned,” he said.
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Desjardins Securities analyst Kyle Stanley sees PRO Real Estate Investment Trust (PRV.UN-T) as “a story in transition [with a goal] to become a pure-play industrial REIT with significant exposure to Halifax, while doubling its asset base over a 3–5-year period.”
“A tighter trading discount relative to historical levels and a slightly less attractive growth-adjusted valuation vs its peers keep us on the sidelines; we would become more constructive should secondary market exposure mitigate trade uncertainty,” he added.
In a research report released Wednesday titled No broken men on a Halifax pier, he initiate coverage of the Montreal-based REIT with a “hold” recommendation, believing it “offers unique secondary market industrial exposure, particularly in Halifax which has outperformed the broader national market, and a highly attractive 8.5-per-cent cash distribution yield.”
“However, our Hold–Average Risk rating is predicated on (1) PRV trading at a tighter discount to LTA vs its larger industrial peers; (2) heightened economic uncertainty in Canada and potential negative implications for occupancy; and (3) the lowest, albeit healthy, valuation-adjusted growth outlook,” he added. “That said, PRV’s secondary market exposure could serve to insulate its operations against tariffs.”
Mr. Stanley acknowledged that he expects to “become more constructive on the story” in the near term as clarity on the impact of tariff emerges in the months to come, “particularly if secondary market exposures mitigate their impact on PRV’s portfolio and tenant base: and “should investor interest in the industrial sector return in a material fashion, with improving underlying fundamentals.”
He set a target of $5.75 per unit. The current average is $6.16.
“With the outlook improving for industrial market fundamentals across the country, barring the threat of US tariffs, we believe PRV should benefit from a multiple re-rating as it progresses in its transition to a pure-play industrial REIT. The limited opportunity set for public REITs with institutional-quality Canadian industrial exposure should translate into enhanced investor attention on PRV over time,” he said.
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Seeing its upside potential asymmetric to downside risk,” TD Cowen analyst Vince Valentini upgraded Illumin Holdings Inc. (ILLM-T) to “buy” from “hold” previously, emphasizing its “stock has started to gain momentum over the past month, and we see continued upside potential related to sales momentum.”
“Over the past five years, ILLM’s trading range has been dramatically wider, and the valuation has ranged all the way from over 25 times EV/net revenue (over 80 times EV/EBITDA) at the peak, to only about 0.5 times EV/net revenue at the trough,” he said. “This volatility has been keeping us cautious and patient on recommending the name, but we now believe that the sales momentum is improving (partially owing to new management and new sales tactics), so that the upside potential could be asymmetric relative to downside risk (especially given that downside risk is mitigated by a healthy net cash position of $51.4-million, or $1.01 per ILLM share at Q3/24). Q3/24 results were better than expected (LINK), and we stated at that time that we wanted to see one more quarter of improved sales execution before considering a move to a higher target multiple and a more bullish recommendation.
“Given the improved trends in the overall U.S. digital advertising market (FY2025 estimated growth of 10 per cent at Google Advertising, 14 per cent at Snap, 14 per cent at Meta, and 18 per cent at Amazon Advertising Services, and given our confidence that Q4/24 results should not disappoint (March 14 – unchanged estimates), we have decided to make the favourable valuation adjustment prior to the release. We are particularly excited about the increase in CTV (connected TV) advertising demand, given the material increase in premium digital video inventory that needs to be monetized now that most of the major streaming platforms (including Netflix, Amazon Prime, and Disney+) are promoting ad-supported tiers. ILLM expects CTV to be an increasingly more meaningful part of its earnings mix over time, with contributions expected to exceed 50 per cent by 2028, from only 30 per cent at 2023.”
Mr. Valentini bumped his target for the Toronto-based company, formerly known as AcuityAds Holdings Inc., to $4 from $2.25. The average is $2.81.
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In other analyst actions:
* Ahead of its March 5 earnings release, TD Cowen’s Michael Tupholme dropped his target for shares of Ag Growth International Inc. (AFN-T) to $48 from $57 with a “buy” rating. The average is $55.50.
“Our Q4/24 estimates are unchanged. However, we have lowered our 2025 forecast; reflects various factors, including our belief that recent farm market weakness will persist over coming quarters, and a recalibration of our margin expectations. While near-term demand weakness and market uncertainties may continue to weigh on sentiment, we like AFN’s long-term potential and see its valuation as attractive,” he said.
* Raymond James’ Luke Davis reduced his Baytex Energy Corp. (BTE-T) target to $5 from $5.50 with a “market perform” rating. Other changes include: Canaccord Genuity’s Mike Mueller to $5.50 from $6 with a “buy” rating, BMO’s Jeremy McCrea to $4 from $5 with a “market perform” rating and TD Cowen’s Menno Hulshof to $5 from $5.50 with a “buy” rating. The average is $5.55.
“Baytex’s 4Q24 results were generally as expected with a slight cash flow beat largely driven by non-recurring items,” Mr. Davis said. “The company left its 2025 outlook unchanged despite some weather impacts in the first quarter with management focused on optimization of operated volumes in the Eagle Ford and continued growth in select plays in Canada with the Duvernay continuing to screen favourably. While Canadian SMID-caps have been under pressure in light of macro uncertainty (tariffs, OPEC production cut reversals), we believe the company’s cross border asset mix should provide some insulation with recent relative underperformance likely overdone. That said, we continue to believe a mid-US$70 oil price is required for Baytex to make meaningful improvements to the current capital structure and enhance flexibility.”
* CIBC’s Scott Fletcher cut his DRI Healthcare Trust (DHT.UN-T) target to $16 from $18 with an “outperformer” rating. Other changes include: Canaccord Genuity’s Tania Armstrong-Whitworth to $20.50 from $19 with a “buy” rating and National Bank’s Zachary Evershed to $18 from $17.50 with an “outperform” rating. The average on the Street is $19.19.
“As the existing portfolio alone boasts a FCF yield in the low 20s, we see a compelling entry point with a free option on the growth potential from new deployments,” said Mr. Evershed. “With growing confidence in the Trust’s growth prospects and governance, we reiterate our Outperform rating.”
* CIBC’s Robert Catellier increased his target for Enbridge Inc. (ENB-T) to $67 from $66, remaining above the $64.26 average, with an “outperformer” rating.
“We characterize the 2025 Enbridge Day as a reiteration of strategy and financial guidance, with management providing a more detailed playbook in an effort to increase growth visibility. We agree with this strategy, but it may take some time to gain traction with investors. Including the significant Mainline investment, $2.5-billion of new projects were announced, considerably more than the $0.5-billion last year. We remain constructive on the company’s shares and reiterate our Outperformer rating,” said Mr. Catellier.
* RBC’s Pammi Bir raised his target for Extendicare Inc. (EXE-T) to $13.50 from $11 with a “sector perform” rating. The average is $13.54.
“Our outlook on EXE continues to improve, with further progress made across segments,” said Mr. Bir. “The substantial lift in govt funding has stabilized LTC, with our forecasts reflecting a return to more typical inflationary-type growth. As well, demand at ParaMed is accelerating as it fills the gap created by capacity constraints in LTC and retirement homes. Together with the benefits of its shift to a capital light model, a clearer and improving picture of growth continues to form.”
* Scotia’s Konark Gupta increased his GFL Environmental Inc. (GFL-N, GFL-T) target to US$52 from US$50 with a “sector outperform” rating. The average is US$50.57.
“We came away from GFL’s investor day more positive on the long-term growth, margin and FCF story,” said Mr. Gupta “Management laid out a clear strategy to grow EBITDA at 10-15-per-cent CAGR [compound annual growth rate] during 2025-2028 vs. pro forma 2024, along with faster FCF CAGR, driven by solid waste organic growth (pricing-led), sustainability earnings, self-help levers, and M&A. It is not only anticipating an average annual expansion of 100 basis points in margin and 250 basis points in FCF conversion, but also projecting the leverage ratio to fall to 2 times by 2028 without incremental buybacks or atypical M&A. Such KPIs, if achieved, would help GFL close the gap to its peers (assuming peers also improve KPIs by 2028), warranting an in-line valuation multiple. Based on GFL’s 2028 projections, barring upside risk from lower interest rates or share buybacks beyond $2.25-billlion, and an EV/EBITDA multiple of 16 times, we estimate the stock could be worth at least US$75 ($110) in three years, up 65% from current levels, excluding any value for its minority stakes in GIP and ES.”