Inside the Market\u2019s roundup of some of today\u2019s key analyst actions<\/p>\n
Raymond James analyst Steven Li initiated coverage on the Canadian telecom industry in a lengthy report titled Old Dogs, New Tricks, and Starlink.<\/p>\n
He began by acknowledging the many challenges of the sector. <\/p>\n
\u201cThe Canadian telecommunications industry is navigating a period of many changes \u2014 some structural, some less so, but all still impactful. Following recent consolidation events, such as Rogers integrating Shaw and the acquisition of Freedom Mobile by Quebecor, wireless competition has intensified with the establishment of a credible fourth national carrier. On the wireline side, the regulatory agencies (CRTC, ISED) with an increasingly pro-consumer mandate, have explicitly targeted pricing affordability and competitive intensity as primary objectives. These structural changes are coinciding with a deteriorating macroeconomic environment and a deceleration in aggregate population growth driven by federal revisions to immigration targets. Looming in the background is the longer-term emergence of SpaceX\u2019s Starlink as a potential broadband and mobility disruptor, although we believe meaningful competitive impact is at minimum two to three years away. In a nutshell: it\u2019s a perfect storm \u2014 we believe it is going to be difficult to grow (revenues, EBITDA) organically in our forecast horizon,” Mr. Li said. <\/p>\n
But the analyst also sees opportunities in the sector. <\/p>\n
\u201cWith AI driving efficiencies and declining capex intensity, it is also the perfect time for free cash flow harvesting,\u201d he said. \u201cNo doubt investors have found very few reasons to engage with the sector over the past couple of years, but maybe a more risk-off environment would be just what the doctor ordered, prompting investors to re-evaluate companies with depressed valuations, growing and recurring cash flows, essential infrastructure assets, and in some cases, attractive income characteristics.\u201d<\/p>\n
BCE Inc. (BCE-T<\/a>) was given a \u201cmarket perform\u201d rating and C$37 price target. <\/p>\n \u201cIn the past year, BCE has made two bets: AI Fabric and Ziply. While these initiatives together represent only ~10% of BCE\u2019s enterprise value, we believe they can have an outsized impact on BCE\u2019s growth profile and prospects and subsequently trading multiple. Depending on execution, these strategic initiatives could alleviate legacy pressures and provide growth optionality or hurt BCE\u2019s value.\u201d<\/p>\n Quebecor Inc. (QBR-B-T<\/a>) was also assigned a \u201cmarket perform\u201d rating, with a price target of C$72.<\/p>\n \u201cQuebecor is aggressively fulfilling its federal mandate as a national challenger, with plans to expand into Western Canada to pressure the \u201cBig 3\u201d. While Quebecor has been the clear wireless share gainer since its acquisition of Freedom, in an environment where lower international migration and a weak consumer are headwinds, it is hard to justify a higher multiple, in our view. We forecast flattish free cash flow in F2026 as capex intensity rises to fulfill its national carrier obligation. As part of the acquisition of Freedom, the Canadian government required Quebecor to meaningfully invest to expand and upgrade Freedom\u2019s network to sustain long-term competition.”<\/p>\n Rogers Communications Inc. (RCI-B-T<\/a>) was given an \u201coutperform\u201d rating and C$68 price target.<\/p>\n \u201cRogers Communications is the current sector\u2019s leader in free cash flow growth, with a forecast increase of 25% in 2026 driven by declining capital intensity even if its high leverage remains a primary vulnerability for the time being. The path to multiple expansion lies in monetizing its $20+ bln sports and media portfolio. The July 6 announcement that Rogers had signed an agreement to acquire the remaining 25% minority stake in MLSE from Kilmer Sports for C$4.35 bln in cash to now own 100% of MLSE, serves as a critical catalyst, potentially allowing Rogers to surface the value of its sports portfolio to aggressively pay down debt.\u201d<\/p>\n Finally, Telus Corp. (T-T<\/a>) received a \u201cmarket perform\u201d rating and C$18.50 price target. <\/p>\n \u201cUnlike its peers, Telus has actively diversified its revenue streams beyond traditional telecom connectivity, creating distinct business segments that present both immense opportunities and risks. Today, 25+% of the company\u2019s sales are derived from non-telecom businesses. But now, at the same time, the company faces a leadership transition with a new CEO, growth headwinds similar to peers, ongoing questions around dividend sustainability (dividend increases paused for now, but >100% payout) and leverage. We believe a lot hinges on Telus\u2019 ~10% free cash flow compounded annual growth rate target through 2028 and the potential monetization of Telus Health. With successful execution on that free cash growth target, Telus\u2019 payout ratio should start to look more comfortable, especially with declining capital intensity following a largely complete fiber build and moderating 5G spend.\u201d <\/p>\n TD Cowen analyst Aaron MacNeil downgraded Rockpoint Gas Storage Inc. (RGSI-T<\/a>) to \u201chold\u201d from \u201cbuy\u201d while slicing his price target to C$32 from C$35. The action was tied to the company\u2019s business activities in California, and also the stock\u2019s 10% price gain since April. <\/p>\n \u201cWe are now forecasting that 2027 California Take-or-Pay volumes will track relatively flat y\/ y versus our prior expectations for growth. This results in downward estimate revisions and a negative mix shift in our PT calculation,\u201d Mr. MacNeil said.<\/p>\n National Bank analyst Cameron Doerksen raised his price target on NFI Group Inc. (NFI-T<\/a>) to C$29 from C$26, citing increased confidence in government funding for transit in the U.S. and the Winnipeg-based bus manufacturer\u2019s solid backlog of work. He is maintaining an \u201coutperform\u201d rating.<\/p>\n The Infrastructure Investment and Jobs Act (IIJA), which funds U.S. transit bus purchases, expires at the end of September 2026, and a new bill will need to be passed to establish the framework for public transit funding over the next five years. The proposed House bill replacing the IIJA would see a slight dip in allocated funds on a net basis, Mr. Doerksen noted. <\/p>\n But, \u201cbased on our analysis, total net funding proposed under the bill across the main sections that impact transit bus purchases is projected to come in at ~$55.7 billion, a ~7% increase versus what was seen during the five years of the IIJA. We also stress that NFI\u2019s firm backlog is supported by already allocated funds under the IIJA, which would be available for transit agencies beyond the expiry of the bill,\u201d the analyst said.<\/p>\n He concluded, \u201cOur constructive view on the stock is based on the following: (1) NFI has a solid ~$13 billion backlog that, along with a still supportive transit funding backdrop that we see continuing, should facilitate bus delivery growth through 2027; (2) the company\u2019s margins should benefit from ongoing tailwinds from better pricing in backlog as well as higher throughput; (3) supply chain issues, particularly around seats, have eased; (4) higher EBITDA and cash flows will bring leverage down, leading to lower interest expense.\u201c <\/p>\n \u201cWe previously valued the stock by applying a 7.5x EV\/EBITDA multiple to our 2027 forecast, but with more certainty around public transit funding in the U.S. remaining supportive beyond the current funding bill that expires at the end of September, we are comfortable increasing our target multiple to 8.0x. This would still be a discount to NFI\u2019s pre-pandemic average forward multiple of 8.7x as well as the bus\/truck builder peer group average of 8.5x next year,\u201d he added. <\/p>\n Scotiabank analyst Konark Gupta upgraded TFI International Inc. (TFII-T<\/a>) to \u201csector outperform\u201d from \u201csector perform\u201d with a C$260 price target, up from C$200.<\/p>\n Although the stock has already significantly outperformed other stocks in the transportation sector since mid-March on early investor bets on improving conditions in the freight industry, Mr. Gupta expects further upside over the next 12 months.<\/p>\n \u201cEPS is poised to grow materially this year after three years of declines. Q2 EPS guidance ofUS$1.50-US$1.60 points to first y\/y growth since Q3\/24 and looks highly achievable to us. In fact, we expect TFII to beat the guidance and consensus given the continued upward momentum in TL pricing and a rebound in LTL volumes. Similarly, we expect management to guide ahead of Q3 consensus (currently US$1.64)while maintaining some conservatism (we forecast US$1.80). Given TFII\u2019s significant exposure to contract rates as opposed to spot rates, we expect a gradual recovery in annualized EPS to its prior peak ofUS$8.02 (2022), which could potentially be possible by as early as mid\/late-2027. Valuation remains quite attractive vs. U.S. TL and LTL peers, despite the significant multiple expansion recently, although some discount is still warranted due to LTL segment\u2019s margin gap vs. peers,\u201d the analyst said in a note to clients.<\/p>\n He added, \u201cWe believe the current market setup, particularly pricing and capacity, along with TFII\u2019s new acquisitions since early 2022, especially Daseke (a leading flatbed and specialized TL carrier), and previously done share buybacks should help EPS recover to the prior peak ofUS$8.02(2022) rather quickly (likely by late-2027 to early-2028) as compared to the rate at which EPS fell from the peak (three years). In addition, the company\u2019s leverage ratio remains low as FCF generation has continued to be strong despite weaker EPS, which should support TFII\u2019s M&A aspirations for additional EPS growth. We are currently not modeling any large M&A deals other than regular tuck-ins.\u201d<\/p>\n Investors have been expressing concerns that MDA Space Ltd. (MDA-T<\/a>) has been moving away from its traditional focus on satellite manufacturing, but RBC analyst Ken Herbert suggests the company\u2019s diversification into other businesses is a net positive. <\/p>\n Mr. Herbert is preparing to adjust some of his estimates to reflect the company\u2019s recent C$1.27 billion equity offering tied to its acquisition of a 70% interest in Collecte Localisation Satellites (CLS). He already has adjusted estimates for the company\u2019s acquisition of Blue Canyon Technologies from RTX (Raytheon) for US$620 million.<\/p>\n For now, he is maintaining a C$58 price target and \u201coutperform\u201d rating on the stock. <\/p>\n \u201cWe can appreciate some investor concerns with the greater diversification in the business, and the fact that MDA now has a more complex operating structure. Moreover, the CLS acquisition, on the surface, does not directly support the company\u2019s push into national security markets. However, we appreciate the greater options both Blue Canyon Technologies (BCT) and CLS bring to the business, and we view these acquisitions as consistent with management\u2019s expectations for M&A activity. We believe each transaction was important for market access, and we believe the capabilities will provide greater synergies as the space economy continues to evolve,\u201d Mr. Herbert said in a note to clients. <\/p>\n \u201cThe focus for investors remains on bookings and backlog growth, especially in Satellite Systems segment, but we value the diversity and geographic expansion,\u201d he added.<\/p>\n