Friday’s analyst upgrades and downgrades

Inside the Market’s roundup of some of today’s key analyst actions
RBC Dominion Securities analyst Paul Treiber says data from third-party sources suggests a “healthy” third quarter for Shopify Inc. (SHOP-N, SHOP-T) with “solid” merchant growth leading to ”sustained healthy” monthly recurring revenue gains.
“U.S. Census data suggests Q3 GMV [gross merchandise value] growth may slightly exceed consensus,” he added. “The sequential drop in job postings implies continued cost discipline and potential margin upside.”
In a research report released Friday, Mr. Treiber said his analysis of BuiltWith data showed the number of websites using the Ottawa-based e-commerce software provider has increased 40 per cent year-over-year, exceeding his prior forecast of a 35-per-cent gain
“BuiltWith also shows that websites using Shopify Plus were up 30 per cent year-over-year (flat sequentially),” he said. “Sensor Tower data shows that monthly active users (MAUs) of the Shopify POS app rose 58 per cent year-over-year Q3, with sequential growth strengthening to 7 per cent quarter-over-quarter from 5 per cet quarter-over-quarter Q/Q Q2.
“MRR momentum [is] likely to continue. Our outlook calls for MRR up 28 per cent year-over-year Q3, slightly above consensus (at 27 per cent year-over-year). In light of continued strong merchant growth Q3 and sequentially strong POS uptake, we believe MRR momentum is likely to continue. We view high 20-per-cent MRR growth as healthy, as it compares against an average of 10-per-cent year-over-year growth in the 12 months prior to Shopify’s Basic price increase in 2023.”
The equity analyst also sees Shopify’s GMV tracking slightly above consensus and emphasizing job postings remain muted, “suggesting margin upside.”
“Shopify’s job postings are down 30 per cent quarter-over-quarter to 114 in Q3 and well below the peak of 1705 in Q1/CY22,” he said. “This is consistent with management’s target for nominal headcount growth this year. We believe Q3 is likely tracking to stronger than consensus profitability. Our model calls for adj. EBIT margins up 136 basis points quarter-over-quarter to 16.0 per cent Q3, above consensus (15.5 per cent).”
After introducing his fiscal 2026 estimates, including revenue of US$12.62-billion (up 18 per cent year-over-year) and adjusted earnings per share of US$1.89 (up 43 per cent), Mr. Treiber thinks Shopify’s growth momentum and margin expansion are “likely to be sustained through FY26.”
That led him to raise his target for its shares to US$100 from US$85 with an “outperform” recommendation. The average target on the Street is US$80.70, according to LSEG data.
“We believe Shopify is one of the most compelling growth stories in our coverage,” he said. “Shopify is trading at 10 times NTM EV/S [next 12-month enterprise value to sales], below its 3-year pre-COVID average (13 times) and effectively in line with fast-growing SaaS peers (9.5 times).”
“Our Outperform rating reflects: 1) Shopify is likely a key beneficiary of the transition to next-generation commerce platforms and is just starting to monetize many new offerings; 2) further margin expansion due to operating leverage is likely over time; and 3) Shopify is likely to sustain a premium valuation.”
=====
Citing the impact of “sustained macro headwinds across the Ag complex (i.e. weak crop prices, ⇓ farmer income/sentiment) and commensurate revisions to [his] financial estimates,” Raymond James analyst Steve Hansen downgraded Ag Growth International Inc. (AFN-T) to a “market perform” recommendation from “outperform” previously.
“After a brief September rally, crop prices have since turned lower, shedding most of their prior gains in response to healthy NA harvest expectations and global macro/trade uncertainty,” he said. “Consistent with this pattern, Purdue University’s Sept-24 Ag Economy Barometer declined another 12 points to 88, its lowest reading since 1H16, with farmers citing elevated input prices, lower output prices (i.e. crop prices) & high interest rates as primary areas of concern. Consistent with management commentary last quarter, we expect this lackluster backdrop will continue to weigh on grower purchase decisions, most notably for on-farm portable equipment.
“Recent channel checks and conversations with management also suggest the aforementioned sales malaise has caused dealer inventories of portable equipment (i.e. augers) to accumulate, likely introducing a short-to-medium term sales headwind that will drift into 2025.”
While he expects Ag Growth’s Commercial segment to “exhibit sustained momentum in 2H24 and 2025 as the company executes on a near-record order book and originates new orders from key international markets where storage deficits remain a secular tailwind (Brazil, SE Asia),” Mr. Hansen lowered his financial forecast for both the second half of 2024 and 2025. He emphasized his full-year 2024 EBITDA projection of $288-million is now “notably perched” below the company’s guidance of $300-310-million
“We struggled with our downgrade decision today,” he said. “On the one hand, we continue to admire AFN’s strategy and long-term growth outlook, and still view the shares as attractively valued (i.e. ‘cheap’). On the other, our confidence in the 2H24/FY2025 outlook has clearly waned, having already digested back-to-back weak quarters this year, with another likely now on the horizon. We will continue to monitor for signs of increased visibility.”
His target for Ag Growth shares slid to $62 from $72. The average is $76.50.
=====
While emphasizing end markets “remain generally positive” for CAE Inc. (CAE-T) ahead of the Nov. 12 release of its second-quarter fiscal 2025 results, National Bank Financial analyst Cameron Doerksen warns some near-term headwinds continue to persist for its Civil segment.
“We acknowledge that the company’s financial performance has generally underperformed expectations over the past year, but our fundamentally positive view on CAE longer-term is unchanged based on the following,” he said. “Although there are some short-term headwinds in the broader civil aerospace sector, we still believe that CAE will enjoy a multi-year period of growth in its Civil segment supported by global growth in pilot training demand and increased aircraft deliveries that will drive strong simulator sales.
“With a $10.4 billion backlog at the end of last quarter, a F2025 expected margin of 6-7 per cent with upside beyond, and the positive underlying defense spending backdrop, we believe investors will ultimately come to ascribe more value to CAE’s Defense segment once the company demonstrates some persistently positive margin trends.”
After making “minor” adjustments to second-quarter forecast and trimming his expectations for the Civil segment for the balance of fiscal 2025 to “reflect the incremental headwinds to training demand,” Mr. Doerksen is now projecting revenue of $1.066-billion, down from $1.072-billion and below the Street’s expectation of $1.094-billion. His earnings per share projection remains 17 cents, which is 2 cents below the consensus.
“CAE lowered its forecast for the Civil segment when it reported fiscal Q1 results, in part due to slower training activity in the U.S,” he said. “Given the incremental aircraft availability headwinds across the aviation industry, there is a risk that CAE could further temper F2025 expectations and trim its F2025 Civil guide again (current guide is for operating income growth of 10 per cent with an EBIT margin of 22-23 per cent). We nevertheless remain positive on the long-term growth prospects for Civil.
“We believe that a key catalyst for CAE shares will be progress on improving Defense segment margins. In Q1, the EBIT margin was 5.7 per cent, slightly below the company’s full-year margin guide of 6-7 per cent. For Q2/25, we forecast an EBIT margin of 5.5 per cent. Backlog (with better embedded margins) sat at $10.4-billion at the end of last quarter with a bid pipeline of $10.0-billion, so demand remains supportive for segment growth and margin expansion.”
Maintaining an “outperform” recommendation for the Montreal-based company’s shares, Mr. Doerksen increased his target by $1 to $30. The average on the Street is $28.75.
=====
Emphasizing some may see BRP Inc.’s (DOO-T) decision to put the bulk of its marine business up for sale as an “acknowledgement that the business has not lived up to expectations as well as the removal of a growth vector,” Desjardins Securities analyst Benoit Poirier thinks it is “the right decision,” pointing to “the material financial drag versus its small size.”
“The sale should also enable BRP to redirect its industry-leading innovation capabilities and resources toward the powersports vectors,” he added.
“When BRP reports its 3Q FY25 results on December 6, we expect the Marine segment to be accounted for as discontinued operations. Consequently, while we have decreased our revenue estimates, we have increased our adjusted EBITDA and EPS forecasts for 3Q/4Q and FY26/27, as Marine was expected to weigh on EBITDA by $150-million and EPS by $1.50 this year. We expect BRP to sell the business in 1Q FY26 (in line with the timeline in the press release) and conservatively assume proceeds of $150-million (below 1 times sales given the segment is losing money). Because of the lower sale price vs invested capital, we also forecast a loss on disposal in the ballpark of $200-million (will not impact adjusted EBITDA or EPS). As a result, we expect margins to improve and we now forecast leverage ending FY26 at 1.6 times (down from 2.1 times previously). We still assume that buybacks will not restart until 1Q FY27.”
Mr. Poirier sees BRP becoming a “more focused business,” noting the sale aligns with a broader capital markets trend where companies across industries are streamlining operations to create more “easily valued businesses.”
“We expect BRP’s industry-leading innovation capabilities and resources to be redirected to the highly profitable ORV, SSV and ATV powersports vectors,” he said.
Reiterating his “hold” recommendation for the Valcourt, Que.-based company’s shares, Mr. Poirier raised his target to $96 from $94 after increasing his earnings projections through fiscal 2027. The average on the Street is $92.61.
“Given the constrained consumer, irrational competitor actions and obstacles to BRP protecting its share price with buybacks, we believe the stock could face more downward pressure,” he said. “We suggest investors wait for a more attractive entry point or signs of an inflection in retail sales.”
=====
Raymond James analyst Luke Davis initiated coverage of eight small-to-mid-cap oil and gas producers and two royalty companies on Friday, believing the relative positioning of the group “looks compelling with many of the equities trading at material discounts to both larger-cap peers and underlying resource value.”
“While many of the business models have converged (at least on paper), we think differentiating by asset quality and duration, management track record and alignment, and valuation is a good starting point when coupled with a look at potential needle moving catalysts,” he said in a report. “With respect to the royalty cohort, we like the enduring nature of the model and, while equity performance is intrinsically linked to underlying commodity prices, the subdued relative risk profile may be better suited to more risk averse investors or those preferring a defensive tact.
“Structural shift in financial positioning is a theme with durability, in our view. At risk of sounding entirely redundant, we would be remiss to ignore industry’s shift in capital allocation priorities, which was undoubtedly fortified coming out of the depths of the latest energy downturn in 2020. Financial positioning (with respect to absolute leverage and term) is structurally better than any time in recent memory, certainly the past decade, and while we shared some skepticism early in the cycle, industry as a whole has put its money where its mouth is, with our coverage group returning $2.2-billion to shareholders over the past six years, while retiring 9 per cent of outstanding shares on average (including 2024). Reinvestment rates have fallen materially (circa 100 per cent to 63 per cent on average), with underlying corporate decline rates and capital efficiencies improving despite inflationary pressures, and are broadly managed with a more conservative undertone. While the wounds of the past cycle have largely been healed, we believe the scars run deep and have left a lasting impression, a feature we think will drive a persistent focus on shareholder returns and aid in a shift of broader stakeholder perception toward that of a mature and sustainable industry.”
Mr. Davis initiated coverage of the following companies:
“Our top E&P picks are quite selective and oriented around where we see large dispersions in fundamental value vs what the market is currently pricing in. We also consider ability to weather potential near-term commodity price volatility, asset duration/inventory depth, and clear catalysts that we think could move the needle on valuation. We highlight OBE (SB), VRN (SB), and SGY (OP),” he said.
======
TD Cowen analyst Sean Steuart thinks the end of the extended earnings trough for lumber-weighted equities is in sight, but he does not expect relief this earnings season.
“Our Q3/24 adjusted EBITDA estimates are below consensus estimates for four of the eight companies,” he said. “We expect that weaker Q3/24 lumber prices were exacerbated by extensive sawmill production curtailments and associated unit cost pressure. In certain cases, we expect that inventory valuation provisions and retroactive duty reconciliation will undermine Q3/24 results. Our estimates for all lumber-focused equities are below consensus forecasts; IFP to a lesser extent than CFP, WFG, and WEF.”
In a research report released Friday, Mr. Steuart adjusted his commodity price deck for the remainder of 2024 and 2025 as well as introduced his 2026 forecaast.
“Changes to commodity price forecasts over the next 18 months are relatively minor. We expect that lumber margins will start a gradual recovery by H1/25, gaining momentum over our forecast horizon as demand recovers,” he said. ” For lumber producers, we expect that margins will approach mid-cycle (trend) run-rate levels by the end of 2026. We are raising our target prices for five of the eight names, reflecting the inclusion of expected 2026 FCF in our adjusted EV/EBITDA target derivation and expanded target multiples.”
“Forest product equities and valuations have rallied over the past three months, led by long-anticipated catalysts: interest-rate relief and lumber capacity closure announcements. Since mid-July, the average share-price return for our coverage universe is 13 per cent (28 per cent for lumber and panel-weighted names). Valuations have expanded ahead of the expected cyclical earnings recovery: the average trend TEV/EBITDA multiple for lumber equities has improved to 4.2 times from 3.6 times in July. Although we are optimistic that earnings for the sector are set to improve, we are incrementally cautious at the margin headed into this earnings season. Our BUY ratings are WFG, CAS and CFP.”
Citing recent share price “strength,” Mr. Steuart downgraded Interfor Corp. (IFP-T) to a “hold” recommendation from “buy” previously.
“The North American lumber market is in the early stages of a cyclical recovery, which is expected to support a gradual earnings improvement for IFP starting 2025,” he said. “Despite our view that the worst of this earnings cycle is behind the company, we are lowering our rating to HOLD following recent share-price strength/valuation expansion and our view that IFP is a higher-risk investment than its peers.
“Since the mid-July trough, IFP’s share price has increased 34 per cent — above the average improvement of 28 per cent for the company’s peers over this duration. We attribute the recent strength to interest-rate relief and an accelerating pace of lumber capacity closure announcements. For IFP, we also believe that investors have gravitated to the company’s relatively high leverage with potential for improved lumber prices. In our view, IFP’s valuation has expanded back to fair levels”
While he predicts “ongoing weak operating results” for the third quarter and cut his 2025 adjusted EBITDA forecast by 15 per cent, Mr. Steuart raised his target for Interfor shares to $23 from $21 based on adjustments to his valuation parameters and inclusion of its 2026 free cash flow yield. The average on the Street is $23.22.
“Our HOLD recommendation for Interfor reflects our view that the valuation has expanded to fair levels in anticipation of a gradual cyclical recovery for North American lumber markets,” he concluded. “Balance-sheet constraints are a differentiating factor for the company; conservative discretionary capex plans follow sawmill acquisitions and aggressive share-buyback activity in 2021 and 2022. Relatively weak Southern Yellow Pine lumber prices are starting to recover, led by more disciplined supply management, but this region (46 per cent of Interfor’s pro forma capacity) retains a compromised margin profile. With aggressive capex until 2024, Interfor has narrowed the margin gap with sector leaders over the past decade, but risks losing relative ground given constrained capex over our forecast horizon.”
The analyst’s other target adjustments for TSX-listed shares are:
=====
Analysts at TD Cowen are expecting a “strong” third quarter for precious minerals companies, pointing to record-high gold prices and relatively flat cost expectations.
“Q3/24 saw a record-high quarterly gold price of $2,477/oz (Q2/24: $2,338/oz),” they said. “Geopolitical instability in the Middle East, Fed rate cuts, safe haven flows, central bank buying and a weakening U.S. dollar are all contributing to bringing gold to multiple record highs in Q3/24, touching $2,685/oz in late September.
“Physical gold ETF flows flip to net positive in Q3 on the back of a surging gold price. After witnessing net outflows in Q1 and Q2, physical gold ETFs experienced a 3-per-cent net inflow in Q3. Precious metal equity ETF fund flows also turned positive in September, after four months of outflows. This is lining up well to buoy the price of gold, in our view, as physical demand for gold is expected improve on the back of stronger gold consumption in Q4, which is typically the peak season, and as Chinese demand picks up.”
Reaffirming a bullish outlook with the expectation that “the easing cycle will support gold prices, and see geopolitical risk and U.S. election politics as potential tailwinds,” the analysts increased their near- and long-term price deck assumptions. Their 2024 gold projection grew 4.7 per cent to US$2,397 per ounce (from US$2,290), while their long-term estimate jumped 10 per cent to US$2,200 from US$2,000.
With those changes, they raised their targets for stocks in their coverage universe by an average of 13 per cent.
“Our top picks are Agnico-Eagle among the large caps; Alamos and Torex among the mid/ small caps; and MAG among the silvers. Our top picks among the royalties are Wheaton Precious Metals and Royal Gold,” they said.
For large caps, their changes are:
=====
In other analyst actions:
* In an earnings preview report on Canadian power and energy infrastructure companies, Raymond James’ Theo Genzebu cut his Algonquin Power & Utilities Corp. (AQN-N, AQN-T) target to US$5 from US$7, keeping a “market perform” rating. The average is US$6.
“While we take a positive view on AQN long term and the company’s non-regulated renewable business sale—which we believe occurred at a strong multiple of 11.5-12.5 times 2025 EV/EBITDA — we remain cautious as to the outlook for the regulated business in the near term, where the company intends to curtail capex to maintenance/safety spending, and where delays in the regulatory calendar are expected to impact 2025 earnings,” he said. “We do continue to believe Algonquin maintains a viable pathway through these issues with the sale of its wind/solar renewables business to LS Power for a total price tag of $2.5-billion (including a $0.2-billion earn-out), which was ahead of the $2.3-billion we had anticipated, the 40-per-cent reduction in its quarterly dividend ($0.065 vs $0.1085 per share prior), as well as the expected sale of Atlantica Sustainable Infrastructure to Equity Capital Partners — expected to close late 4Q24 or early 1Q25. Further, the possible catalyst in the sale of the company’s non-regulated hydro assets, which we believe could result in deleveraging, could be considered a positive for the company’s credit metrics. That said, our reduction in our FY2025 earnings estimates and target price to $5.00 (vs $7.00 prior) are largely predicated on the delays to rate filings, reduction in capital investments (which could weigh on rate-base growth in the near term), and the $1-billion of regulated investments not yet included in rates that the company will likely be incurring depreciation and finance costs on.”
* In a base metals earnings preview, TD Cowen’s Craig Hutchison made four target changes: Altius Minerals Corp. (ALS-T, “buy”) to $30 from $26, Cameco Corp. (CCO-T, “buy”) to $91 from $80, Labrador Iron Ore Royalty Corp. (LIF-T, “buy”) to $34 from $33 and Teck Resources Ltd. (TECK.B-T, “buy”) to $83 from $80. The averages are $28, $77.28, $33.67 and $75.26, respectively.
“While minimal changes were made to our base metals price forecasts, we now model higher gold and silver price outlook,” he said. “Uranium equities have increasingly become a focus of investors of late as the nuclear thematic gains further momentum, while stimulus out of China remains core to sentiment across the base metals complex.”
“We have increased target prices for Cameco on higher multiples reflecting strong tailwinds in nuclear, along with increases at Teck, LIORC and Altius reflecting a combination of a weaker CAD/USD FX rate and higher multiples. We have made no rating changes and our Top Picks remain Hudbay, Cameco, and Capstone.”
* Raymond James’ Brad Sturges initiated coverage of First Capital REIT (FCR.UN-T) with an “outperform” rating and $20.50 target, touting its “Canadian urban grocery-anchored portfolio that can benefit from shorter WALTs [weighted-average lease terms] to capture its embedded rent mark-to-market growth opportunity.” The average is $19.48.
“We believe First Capital is well advanced in achieving or exceeding its 3-year strategic plan through to the end of 2026, which included the following objectives: 1) achieve minimum annual average SP-NOI and FFO/unit growth of 3 per cent year-over-year ; 2) complete $1-billion in non-core, low-yielding income property and development site divestitures (average exit cap rate: 3 per cent); 3) invest $500-million into planned development and redevelopment activities; 4) complete development projects totaling $200-million; 5) execute core grocery-anchored retail asset acquisitions of $100-150-milion; and 6) reduce its debt to adjusted EBITDA ratio into the low 8x range (vs. 9.2 times at June 30),” he said.
* Following the the results of its updated Integrated Development Plan for its Kainantu project, Eight Capital’s Ralph Profiti raised his K92 Mining Inc. (KNT-T) to $16 from $14 with a “buy” rating. The average is $12.
“KNT’s pathway to 1.8Mtpa Stage 4 Expansion and FY28 EV/EBITDA multiple less than 3.0 times at $2,500/oz gold price puts K92 in the elite category of growth-oriented mid-tier gold producers and exploration catalysts remain strong with up to 11 drill rigs operating at Kora, Kora South, Judd, Judd South and A1 porphyry target,” he said.
* CIBC’s Jacob Bout cut his Nutrien Ltd. (NTR-N, NTR-T) target to US$60 from US$64, keeping an “outperformer” rating. The average is US$59.66.
“We are currently seeing a potash market with supply/demand fundamentals more balanced, nitrogen and phosphate prices more robust, better nitrogen operating reliability, and lower capex levels. We lower our DCF-based price target from $64 to $60 due to lower potash price assumptions, but maintain our Outperformer rating,” said Mr. Bout.
* Believing a “renewed interest in smid-caps should support [its] valuation,” TD Cowen’s Derek Lessard hiked his target for Savaria Corp. (SIS-T) to a high on the Street of $30 from $24 with a “buy” rating ahead of its Nov. 6 earnings release. The average is $25.79.
“SIS is a defensive-growth name with both near-term (Savaria One) and strong secular growth drivers (aging population), and should benefit from rising valuations of quality SMID-cap companies,” he said. “The stock is at an all-time high and up 54 per cent year-to-date, but valuation remains low (trading below its pre-pandemic historical average of 12.5 times forward cons EBITDA) despite 16-per-cent forecasted EBITDA CAGR through 2026.”
* BMO’s Devin Dodge increased his Toromont Industries Ltd. (TIH-T) target to $143 from $136 with an “outperform” rating. The average is $138.89.
“Earlier this week, we hosted TIH management (Michael McMillan, President & CEO; John Doolittle, CFO) for meetings with investors. While the business is encountering some headwinds this year, we believe the outlook for 2025 is favourable, which should support a re-acceleration of EPS growth in the coming quarters,” said Mr. Dodge.