Friday's analyst upgrades and downgrades for May 23

Globe and Mail

23-05-2025

Inside the Market's roundup of some of today's key analyst actions
Desjardins Securities analyst Doug Young saw the second-quarter results from Toronto-Dominion Bank (TD-T) as 'encouraging' after cash earnings per share and adjusted pre-tax, pre-provision (PTPP) earnings exceeded his estimates by 16 per cent and 8 per cent, respectively.
'Much of the beat came from wealth management, insurance and capital markets (tougher to model), as well as better-than expected credit performance, which remains difficult to forecast in this environment— hence, 'slightly [positive]',' he said.
Shares of TD rose 3.2 per cent on Thursday following the premarket quarterly release and disclosure of a plan to reduce its work force by 2 per cent as part of a cost-cutting plan while the lender fixes gaps in its anti-money-laundering processes. Cash EPS Cash EPS came in at $1.97, topping both Mr. Young's $1.70 projection and the consensus forecast on the Street of $1.75 as wealth management (and insurance), capital markets and U.S. retail all topped estimates.
In a note released Friday, Mr. Young summarized the release by saying, 'Positives. (1) Solid beat. (2) Credit trends were encouraging. PCLs [provisions for credit losses] were below our forecast and new GIL formations declined sequentially. It provided disclosure on tariff-impacted commercial exposures (approximately 9 per cent of gross loans) and the watch list declined in all business segments. While it did not change its total PCL rate guidance for FY25 (45–55 basis points), there are risks to it given the macro backdrop. (3) US retail adjusted PTPP earnings were 2 per cent above our estimate. The balance sheet restructuring is on plan (expected to hit the upper end of its US$300–500-million NII benefit in FY25, with more in FY26). There was nothing new on the AML file. (4) Wealth management (and insurance) adjusted PTPP earnings were well above our estimate.
'Concerns. Canadian P&C adjusted PTPP earnings were 3 per cent below both our estimate and consensus. While a few items weighed on results this quarter, management is optimistic.'
After raising his cash EPS forecast through 2026, Mr. Young increased his target for TD shares to $97 from $95. The average target on the Street is $93.86, according to LSEG data.
'We maintain our Hold rating, but we are warming up to the name,' he concluded.
Elsewhere, others making target adjustments include:
* National Bank's Gabriel Dechaine to $98 from $80 with a 'sector perform' rating.
'We are increasing our 2025 and 2026 estimates to reflect higher interest income, primarily. We are also increasing our 2026E target multiple to 11.5 times from 10 times to reflect greater confidence in our earnings forecasts. As a result of these changes, our target goes to $98 from $80,' said Mr. Dechaine.
* RBC's Darko Mihelic to $93 from $87 with a 'sector perform' rating.
'Q2/25 results were strong with lower than expected impaired provisions for credit loss (PCLs), partially offset by higher than anticipated expenses and a credible performing PCL build,' said Mr. Mihelic. 'TD announced a restructuring program and an Investor Day this fall. We expect TD to be slightly above its expense guidance for 2025, but view the restructuring program positively. We still view our TD model as 'under construction' and most likely to change over the next couple of quarters but view our estimates as conservative. We increase our EPS estimates and raise our price target.'
* Barclays' Brian Morton to $83 from $81 with an 'underweight' rating.
* Scotia's Meny Grauman to $95 from $90 with a 'sector perform' rating.
* Canaccord Genuity's Matthew Lee to $101 from $96 with a 'buy' rating.
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Seeing 'reduced visibility' and a 'softer outlook' following weaker-than-expected fourth-quarter 2025 financial results, Echelon Capital Markets analyst Amr Ezzat expects shares of Computer Modelling Group Ltd. (CMG-T) to 'remain range-bound over the coming quarters,' leading him to lower his recommendation to 'neutral' from 'buy' previously.
'We approached Q4/F25 cautiously – a stance which turned out to be warranted,' he said. 'CMG delivered a softer-than-expected finish to the year, with revenue ($33.7-million) and EBITDA ($10.5-million) both below consensus ($36.0-million/$11.8-million), and our own estimates ($34.8-million/$11.2-million), which sat at the bottom of the range for sales and near the bottom for EBITDA.
'More notable than the miss, however, was the drop in disclosure. Segment-level details – elements that had become standard in CMG's MD&A since it began making acquisitions – were absent. While the President's letter reaffirmed the outperformance of the acquired businesses relative to legacy solutions, the lack of granularity makes it more difficult to track the pace and effectiveness of that transition.'
Following Thursday's premarket quarterly release, which caused its shares to plummet 17.7 per cent, Mr. Ezzat thinks the operational weakness of the Calgary-based company, which makes software to evaluate underground oil and gas reservoirs, as 'multi-faceted – and admittedly more pronounced than we expected.'
'The U.S. CCS market has cooled, with many tax-incentive-driven feasibility studies (under the IRA) not renewing,' he added. 'Smaller operators are under pressure, and customers are increasingly rationalizing software spend across vendors. Meanwhile, professional services revenue is expected to decline by $6–7-million in F2026, simulation growth visibility has deteriorated faster than anticipated, and while Seismic is a bright spot, it still represents a smaller portion of the mix.
'The stock reaction [Thursday] likely reflects not just the miss, but also investor uncertainty stemming from reduced disclosure, and the market beginning to digest a more rapidly softening simulation outlook. With FQ1 and FQ2 expected to be seasonally weaker and recurring revenue needing to grow 7–8 per cent just to offset the services decline, we believe the stock is likely to remain range-bound in the near term.'
Mr. Ezzat reduced his target for Computer Modelling Group shares to $9 from $14. The average target is $11.
Elsewhere, other target adjustments include:
* National Bank's John Shao to $10 from $13 with an 'outperform' rating.
'CMG reported FQ4 results below our forecasts due to continued macro headwinds that weighed down renewal activity of its marginal customers,' said Mr. Shao. 'As much as the company benefited from strong energy transition-related demand last year, the opposite appears to be happening this quarter, as what used to be a favourable policy environment now turned against it. With the stock pulling back to a recent low and expectations now reset based on a set of clear guidelines, we believe the stock has largely priced in those macro challenges. Looking ahead, the recovery will be driven by a combination of efforts to preserve the core customer base while pursuing M&A for incremental growth. On the latter point, we now believe CMG is at a comfortable spot to deploy more capital as the company expanded its scope to include more targets across the oil and gas value chain. While we've reduced our target based on our estimate revisions that capture the near-term challenges, we reiterate our Outperform rating as we believe M&A as a growth driver remains intact and will accelerate in the coming year.'
* Canaccord Genuity's Doug Taylor to $8 from $12 with a 'hold' rating.
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Following first-quarter earnings season, TD Cowen's Aaron MacNeil said the Canadian Midstream sector continues to offer income-oriented investors 'low financial volatility and a growing dividend with an attractive yield.'
In a report released Friday, the analyst updated his 'scorecard' for stocks in the sector, which he said is used to evaluate companies based on 'relative portfolio quality, growth platform, capital structure, track record and the potential impact of prevailing regulatory exposure.'
'TC continues to rank 1st in our scorecard, with Enbridge moving to 2nd (from 3rd),' said Mr. MacNeil. 'Pembina now ranks 3rd (from 2nd), but remains our Top Pick given its combination of asset quality, growth outlook and relative value. Scorecard rankings have a direct read-through to target multiples.
'If You're Explaining, You're Losing: A quote attributable to Ronald Reagan, but extremely applicable in the context of prevailing investor sentiment. Specifically, companies that have provided investors with a clearly articulated long-term growth outlook atop a base of highly contracted cash flows, no single-asset issues or exposure to increasingly challenged marketing operations have outperformed peers since our last scorecard update and over a period of time that featured meaningful macro uncertainty. To this end, our updated scorecard ranking increasingly reflects these preferences.'
Mr. MacNeil made two changes to the six stocks he covers in the sector. They are:
* Enbridge Inc. (ENB-T, 'buy') to $69 from $67
Analyst: " Enbridge moves to 2nd (3rd previously) given similar contract (98 per cent)/growth thematics to TC. We believe Enbridge's discount to TC is a function of its crude oil exposure. We view Enbridge's oil exposure as a non-issue, but do not expect the valuation gap to narrow.'
* Pembina Pipeline Corp. (PPL-T, 'buy') to $64 from $66.
Analyst: 'Pembina moves to 3rd (2nd previously) given changes to our ranking of growth outlook and recent headwinds affecting its track record ranking. Pembina remains our Top Pick, noting that it is the only Canadian midstream company trading below its 10-year mean.'
He maintained a 'buy' rating and $76 target for top pick TC Energy Corp. (TRP-T).
'TC continues to top our scorecard ranking, due to its contracted cash flows (97 per cent) as well as its growth outlook. Investors are attributing a premium value on the name and it is a beneficiary of current funds flows,' he explained.
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While emphasizing High Liner Foods Inc. (HLF-T) has 'not been immune to recent industry headwinds,' RBC Dominion Securities analyst Ryland Conrad see 'a long runway for seafood consumption growth in North America and management continues to execute against its profitable growth strategy underpinned by expanded distribution and innovation.'
However, he initiated coverage of the Lunenburg, N.S.-based company with a 'sector perform' rating on Friday, preferring to 'remain on the sidelines given the challenging demand environment and look for greater visibility on potential catalysts' after a share price performance over the last 12 months (up 37 per cent).
'We believe High Liner is well positioned to navigate headwinds including an uncertain macro backdrop, value-seeking consumer behaviour and a challenging outlook for out-of-home dining, leaning on: (i) a wide range of products, brands and price points across retail (approximately 33 per cent of revenues); (ii) a stable non-commercial foodservice business (40 per cent of revenues); and (iii) strong market positioning with a manufacturing presence in both the U.S. and Canada,' said Mr. Conrad.
'Despite a long runway for seafood consumption growth in North America and strong execution against the company's profitable growth strategy, we see more headwinds (macro uncertainty, raw material inflation, moderating population growth, elevated promotional activity) than tailwinds for volume growth in the near-term with risk skewing to the downside. As such, we are taking a cautious approach to our forecast through 2026 (we forecast a 2024-2026 adjusted EBITDA CAGR [compound annual growth rate] of 1 per cent).'
Noting aquaculture 'underpins a supportive long-term supply outlook' and seeing the company " actively pursuing M&A with a focus on the North American frozen seafood market," the analyst set a target of $20 per share, pointing to a 'more balanced risk-reward profile following re-rating.' The current average is $20.92.
'At 6.0 times FTM [forward 12-month] EV/ EBITDA (in-line with the five-year historical average), we believe the current valuation is justified, reflecting a balance between the company's defensive characteristics, solid execution, healthy balance sheet and steady FCF generation (2025E FCF yield of 10 per cent), against an uncertain macro backdrop and modest growth outlook,' said Mr. Conrad.
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In other analyst actions:
* J.P. Morgan's Tami Zakaria downgraded GFL Environmental Inc. (GFL-N, GFL-T) to 'neutral' from 'overweight' with a US$54 target. The average on the Street is US$56.07.
* In response to the approval of its 3-to-1 consolidation of its common shares in connection with its application to list on the NYSE, National Bank's Mohamed Sidibé increased his Allied Gold Corp. (AAUC-T) target to $27 from $9 with an 'outperform' rating. The average is now $25.29.
* Desjardins Securities' Brent Stadler cut his Green Impact Partners Inc. (GIP-X) target by $1 to $8 with a 'buy' rating. The average is $6.
'We have updated our model following the sale of the water, waste and recycling facilities, which we believe should ease the going-concern issue noted in GIP's 4Q financials,' he said. 'Our focus remains on FEP [Future Energy Park]. GIP announced that it has finalized a non-binding lead equity term sheet with a Japanese company as it marches toward financial close, which could put cash on the balance sheet and drive a recurring management fee.'
* Morgan Stanley's Ioannis Masvoulas raised his Lundin Mining Corp. (LUN-T) target to $12.50 from $12 with an 'equalweight' recommendation. The average is $15.22.