Inside the Market\u2019s roundup of some of today\u2019s key analyst actions<\/p>\n
National Bank Financial analyst Richard Tse moved his rating for Telus International (Cda) Inc. (TIXT-N<\/a>, TIXT-T<\/a>) to \u201ctender\u201d from \u201csector perform\u201d following Monday\u2019s announcement Telus Inc. (T-T<\/a>) has signed a definitive agreement to take back control<\/a> of its affiliate.<\/p>\n The Vancouver-based telecom will acquire all outstanding multiple and subordinate shares of the company, which operates under the name Telus Digital, which offers technology outsourcing, for US$539-million or US$4.50 a share.<\/p>\n \u201cThe potential transaction represents an enterprise value of approximately US$2.9-billion ($1.3-billion equity value) and represents a valuation of 6.6 times EV\/EBITDA (6.3 times EV\/EBITDA including SBC) on our FY25 estimates,\u201d said Mr. Tse. \u201cWe believe the 6.3 times EV\/EBITDA valuation appears reasonable against CX peers. We see little to no risk that this transaction does not close; timing of the potential closing is expected in Q4\u203225. As such, we\u2019re revising our rating to Tender.”<\/p>\n He moved his target for Telus International\u2019s NYSE-listed shares to US$4.50 from US$4 to reflect the offer and the assumption it will close without adjustments. The average target on the Street is US$4.26, according to LSEG data.<\/p>\n Elsewhere, others making changes include: <\/p>\n * Stifel\u2019s Suthan Sukumar to \u201chold\u201d from \u201cbuy\u201d with a US$4.50 target, up from US$4.<\/p>\n \u201cThe higher bid implies 5.8 times C26 EBITDA (vs. 5.1 times for the initial bid), at the upper-end of the 4-6x range for customer experience outsourcing peers, which we believe is appropriate given the better-than-expected stabilization in Telus Digital\u2019s business as seen in recent quarters. The transaction has the unanimous recommendation of Telus Digital\u2019s special committee, with the 2nd largest shareholder EQT and Telus Digital directors\/officers in favor of the transaction. As such, we believe this is a done deal,\u201d said Mr. Sukumar.<\/p>\n * CIBC\u2019s Stephanie Price to \u201ctender\u201d from \u201cneutral\u201d with a US$4.50 target, up from US$3.40.<\/p>\n =====<\/p>\n National Bank Financial analyst Cameron Doerksen expects the third-quarter results from Transat AT Inc. (TRZ-T<\/a>) to be boosted by lower-than-anticipated fuel costs and the benefits of the strike by flight attendants at rival Air Canada (AC-T<\/a>).<\/p>\n After adjustments to his financial projections to reflect that optimism and the belief its stock will be “supported as the possibility of a takeout offer from one of the company\u2019s large shareholders will persist,” he raised his recommendation for Transat shares to \u201csector perform\u201d from \u201cunderperform\u201d previously.<\/p>\n In a client note released Wednesday, Mr. Doerksen suggested a bidding war for the Montreal-based tour operator could be emerging.<\/p>\n \u201cCould Transat be acquired? The question arises because of the public interest in acquiring the company from Pierre Karl Peladeau, one of Transat\u2019s largest shareholders (9 per cent plus),\u201d he explained.\u201c Recall that his family office, Financi\u00e8re Outremont, unsuccessfully legally challenged the debt restructuring deal between Transat and the Federal Government and, according to legal filings, had made an alternative bid to acquire Transat for $2.64\/share. Mr. Peladeau\u2019s interest in acquiring Transat goes back to the pre-pandemic period when Transat agreed to be acquired by Air Canada and based on public comments, it would appear that there still may be interest from him in acquiring the company.<\/p>\n \u201cGiven that Transat\u2019s balance sheet is improved (albeit with leverage still high) and the company has taken solid steps to improve margins, it is possible that the company could attract additional potential suitors as well (noting that as an airline, any acquiror would have to be Canadian, which limits the number of potential suitors). In either case, the potential prospect of an acquisition of the company seems likely to provide support for the stock and is a key reason for our upgrade to Sector Perform from Underperform.\u201d<\/p>\n In the near term, he raised his financial expectations after the average price of jet fuel in its fiscal third quarter was\u00a087 cents per litre, ending 3 cents below his expectation. He also noted the current spot price is\u00a089 cents,\u00a0which is a penny under his fourth-quarter forecast.<\/p>\n \u201cAs such, we see fuel being a year-over-year tailwind in Q3 (fuel price last year was\u00a098 cents per litre)\u00a0and relatively neutral year-over-year in Q4,\u201d he added.<\/p>\n \u201cTransat should also benefit in fiscal Q4 from the Air Canada flight attendant strike as disrupted passengers sought alternative flight arrangements, which we expect boosted trans-Atlantic loads and yields (given the last-minute nature of the bookings). Book-away from Air Canada in the lead-up to and during the strike may provide a boost beyond just the strike period. While the impact on Transat\u2019s financial results in the quarter is difficult to forecast, we have upped our revenue assumption for Q4.\u201d<\/p>\n Mr. Doerksen raised his target for Transat shares to $3 from $2.25. The average target on the Street is $3.20.<\/p>\n “Transat continues to take steps towards improving margins through its Elevation Program, but net debt remains high relative to earnings. We forecast leverage at year-end F2025 at approximately 4.4 times (which assumes a meaningful improvement in EBITDA). We note that based on our updated forecast, Transat shares are trading at 6.1 times F2025 EV\/EBITDA, which is a sizable premium to Air Canada at 3.4 times CY EV\/EBITDA even though Air Canada\u2019s leverage is much lower and its margins considerably higher.”<\/p>\n =====<\/p>\n Scotia Capital analyst Konark Gupta has reduced his third-quarter forecast for Air Canada (AC-T<\/a>) significantly due to the \u201cunexpected\u201d multi-day operational disruption.<\/p>\n \u201cThe good news, however, is that AC was able to accelerate the normalization of its large-scale network in short order, while reaching a deal with the union for no strike\/lockout if the tentative agreement fails (vote ends September 6) – a scenario some media reports are painting,\u201d he said in a client note.<\/p>\n \u201cReflecting the aforementioned along with AC\u2019s other disclosures since the disruption, including traffic impact and compensation policies, we are reducing our 2025 revenue and EBITDA\/FCF estimates by more than $400-million and more than $350-million, respectively, with almost the entire delta occurring in Q3. Our post-2025 estimates are largely intact. Any deviation in pending guidance (currently suspended) due to further wage negotiations (to be mediated or arbitrated if the tentative agreement is voted down) should be relatively minor, in our view.\u201d<\/p>\n Despite the changes, Mr. Gupta emphasized Air Canada stock \u201cremains attractively valued\u201d at 3.5 times estimated 2026 EV\/EBITDA, which is \u201cwell below U.S. peers at 5.5 times although some discount is warranted for FCF weakness.\u201d<\/p>\n \u201cWe view Air Canada as a value play in the airline sector with its industry-leading balance sheet and potential for margins to rebound toward high-teens along with mid- to high-single digit top-line growth over the next several years,\u201d he added. \u201cWhile cost inflation is higher this year due to labour contracts and uncertainties continue around U.S. tariffs, CAD\/USD and fuel price, the demand and yield environment is holding up well as AC is keeping capacity and costs in check. FCF is tracking ahead of the company\u2019s plan so far even with the upswing in capex to support fleet recovery and renewal.\u201d<\/p>\n He reiterated his \u201csector outperform\u201d rating for Air Canada shares but trimmed his target by $1 to $26. The average on the Street is $26.08.<\/p>\n =====<\/p>\n Emphasizing Alimentation Couche-Tard Inc. (ATD-T<\/a>) is one of few recent large-cap \u201claggards\u201d following recent share price depreciation, RBC Dominion Securities analyst Irene Nattel thinks the retailer\u2019s valuation now \u201clooks compelling\u201d and remains \u201cconstructive on this Global Top 30 name based on track record of capital allocation discipline, ability to manage through challenging times.\u201d<\/p>\n “The fade in ATD share price performance since the initial bump after the Company walked way from 7&i reinforces our view that THE key to ATD generating higher investor conviction\/multiple re-rating remain improvements in underlying performance. Q1\/F26 results a step (albeit small) in the right direction, with KPI\u2019s showing sequential improvements, notably US inside store sales,” she said in a research note titled Road to recovery: ATD Q1\/F26 results show green shoots of improvement. <\/p>\n After the bell on Tuesday, Couche-Tard reported<\/a> quarterly revenue of $17.347-billion, down 5.1 per cent year-over-year and under Ms. Nattel\u2019s $17.819-bilion estimate. Adjusted diluted earnings per share of 78 cents was a decline of 5.9 per cent and a penny under the analyst\u2019s expectation.<\/p>\n “Although not the kind of robust growth quarter everyone would like from ATD, in our view investors should be somewhat encouraged by the modest growth in both inside store and gas gross profit despite the challenging macro backdrop that continues to weigh on demand, notably for low income consumers that typically make up 50 per cent of c-store business,” she said. \u201cAdjusted EBITDA $1.615-billion, up 4.7 per cent year-over-year and a slushie straw above forecast $1.59-billion\/consensus $1.55-billion despite higher than expected non-recurring expenses, normalized opex growth well controlled at 2.4 per cent. <\/p>\n \u201cQ1 results reflect deepening traction on initiatives to drive inside sales, offset by pressure on consumer spending: U.S. SSS [same-store sales] finally moved (slightly) into positive territory and nicely outperformed closest peer 7-Eleven, better than expected in Canada\/Europe&Other. Release notes benefit of favourable legislative changes in the Netherlands and Canada, latter offset by unfavourable changes in legislation around nicotine pouches. In the U.S., strong food execution key call-out, and on gross margins, higher support from vendors and favourable mix shift. SSG negative in U.S. and Europe, Canada positive although slightly less than expected.”<\/p>\n Trimming her forecasts to \u201creflect more stable gas margin environment,\u201d Ms. Nattel lowered her target for Couche-Tard shares to $91 from $94, keeping an \u201coutperform\u201d rating. The average target is $83.22.<\/p>\n “ATD typically performs well across the cycle; in our view, extended SSS pressures reflect protracted, unexpected headwinds for low-end consumer,” she noted.<\/p>\n =====<\/p>\n