Inside the Market\u2019s roundup of some of today\u2019s key analyst actions<\/p>\n
RBC Capital Markets analyst Darko Mihelic has done a significant reassessment of Canadian banks and lifecos that now includes fresh assumptions on future stock buybacks and ability to meet return on equity targets. <\/p>\n
The review resulted in him upgrading Toronto-Dominion Bank (TD-T<\/a>) to \u201coutperform\u201d from \u201csector perform\u201d while downgrading Bank of Montreal (BMO-T<\/a>) to \u201csector perform\u201d from \u201coutperform\u201d. His price target for TD was raised to $120 from $93, while his price target for BMO was modestly lowered to $163 from $168.<\/p>\n All the large Canadian banks and lifecos that Mr. Mihelic covers currently have active normal course issuer bids that allow for share buybacks. They also, in Mr. Mihelic\u2019s view, have strong capital levels. <\/p>\n He noted that the average CET 1 ratio – a key measure of a bank\u2019s financial strength – increased 60 basis points year over year to 13.8% in the third quarter of this year. He updated his models to include additional normal course issuer bids [NCIBs] after current buyback programs are complete.<\/p>\n \u201cWe believe that in the absence of material acquisitions, share buybacks can continue beyond the current active NCIBs given current capital levels for the large Canadian banks and lifecos we cover,\u201d the RBC analyst said in a note to clients. <\/p>\n \u201cAfter including additional NCIBs, we still expect CET 1 ratios to remain strong at an average of 13.9% in Q4\/27 (previously 14.5%) for the large Canadian banks in our coverage. Despite the inclusion of additional buyback programs, we only expect BNS, NA, and IAG to achieve their respective medium-term core ROE [return on equity] targets by 2027. For the large Canadian banks we cover, we assume additional NCIBs of the same size as currently active programs, and that the banks will continue to buy back shares at levels equivalent to our current assumptions for the active programs throughout our remaining forecast period, subject to CET 1 ratios remaining at or above 13.0%. For the large Canadian lifecos in our coverage, we model additional NCIBs until the end of our forecast period of equal size to currently active programs and assume repurchases equivalent to the average percentage NCIB completion (of completed NCIBs) from 2022 to Q2\/25,\u201d he said. <\/p>\n For TD Bank specifically, he assigned a target price to earnings multiple of 13.3x.<\/p>\n \u201cOur target P\/E multiple is based on an imputed risk premium of 5.25%, ~100 bps higher than TD\u2019s current implied risk premium, and a forward return on equity of 15%, 100 bps below TD\u2019s medium-term core ROE target of ~16%. We view TD\u2019s increased focus on capital return and efficiency as a significant shift and we view its updated strategy favourably. We note the bank is still subject to an asset cap in the U.S. and AML risks may linger longer than we expect and furthermore execution is not guaranteed (a cost focus is culturally somewhat of a change for TD). We believe there is also risk to the approval of the incremental NCIB,\u201d Mr. Mihelic said.<\/p>\n For BMO, his target P\/E multiple was lowered to 12.5x from 12.9x. <\/p>\n \u201cOur 2027 core ROE estimate of 12.9% for BMO is the lowest versus its medium-term core ROE target of 15%+ and we expect it to have the lowest CET 1 ratio throughout our forecast period. Although we model incremental share buybacks in our models, the large Canadian banks tend to prefer organic growth over buybacks (we caveat that we do not argue one is superior to the other in this note). BMO recently terminated its NCIB early and launched a new increased buyback which leads us to believe that loan \/ organic growth may be difficult to achieve in the current economic environment. As a result, we suspect share buybacks will become very prominent for the foreseeable future (we believe this is also true for all large Canadian banks),\u201d the RBC analyst said. <\/p>\n He continues to rate Bank of Nova Scotia \u201csector perform\u201d, CIBC \u201coutperform\u201d and National Bank \u201csector perform.\u201d<\/p>\n ***<\/p>\n Scotia analyst Konark Gupta has trimmed his price targets on the Canadian rails. But he reiterated \u201csector outperform\u201d ratings while also issuing a \u201cdeep value alert\u201d on one of the names because it\u2019s trading as cheap as it ever has relative to peers. <\/p>\n His price target on Canadian National Railway Co. (CNR-T<\/a>) was trimmed to C$150 from C$153 and on Canadian Pacific Kansas City Ltd (CP-T<\/a>) to C$119 from C$122. He acknowledged that they have lost some attractiveness in the short term in light of the consolidation of railways south of the border. <\/p>\n The price target cuts were \u201cdriven by our reduced EPS outlook as we maintain our target P\/E multiples (17.5x for CNR [well below historical average] and 21.0x for CP) and our base valuation periods (average 2026-2027),\u201d Mr. Gupta said. \u201cCNR is currently trading at 16.3x and CP at 19.7x on our updated 2026E EPS, as compared to U.S. peers at 19.2x on consensus.\u201d<\/p>\n \u201cAlthough we like both rails, with similar potential returns to our 12-month targets, we think CNR could offer slightly better risk\/reward here with a forward P\/E multiple near 7-year low, a wider-than-ever discount to peers, and a greater torque to potentially better EPS execution. That said, CP currently provides investors much more confidence in EPS execution relative to most of its peers, while valuation is as attractive as it was prior to CP announcing the final KCS merger deal in September 2021.\u201d<\/p>\n \u201cThe key reasons for our continued constructive view on Canadian rails are as follows. [1] They have been showing industry-leading top-line growth and still have industry-leading growth opportunities ahead, including various idiosyncratic elements, driven by Canada\u2019s export-oriented economy with an abundance of natural resources and their access to strategically located deep-water ports across the continent. [2] They have been generating industry-leading operating margins and still have network advantages to remain among the margin leaders going forward. [3] They have relatively low competitive risk from other transportation modes and vast networks that can\u2019t be easily challenged. [4] CNR offers very attractive risk\/reward at current levels. It is currently trading at the widest discount ever to its peers vs. normally a premium in the past, which limits downside risk, in our view. It could potentially offer a solid 20%-40% capital appreciation over the next two years, if management can execute better on both top-line growth and margin expansion, potentially steering EPS to $8-$9 and P\/E multiple to 20x. CNR also currently offers the second best free cash flow yield and the best dividend yield in the Class 1 industry.\u201d <\/p>\n ***<\/p>\n Canaccord Genuity analyst Robert Young raised his price target on mortgage services firm Real Matters Inc. (REAL-T<\/a>) to C$10 from C$7 while reiterating a \u201cbuy\u201d rating after management meetings with the company.<\/p>\n He\u2019s encouraged by the company continuing to win market share, and thinks business is likely to pick up as long-term U.S. mortgage rates trend lower. <\/p>\n \u201cWhile uncertainty remains on the sustainability of a recently lower US 30-year mortgage rate, management did confirm a surge in volume on its platform,\u201d Mr. Young said in a note to clients. \u201cTier 1 customers, Chase and U.S. Bank, have recently begun to quote 30-year fixed rates below 6%, suggesting a more aggressive competitive stance. Irrespective of volumes, Real Matters continues to gain share in both Appraisal and Title, driven by growing profile and performance on balanced scorecards. The company has ample capacity to handle higher transaction volumes and is also exploring strategies to remove cyclicality in its business over the longer term. In light of the improved outlook, we have increased our FQ1 and F26 estimates.\u201d<\/p>\n Elsewhere, TD Cowen resumed coverage on the stock with a target price C$9 and \u201cbuy\u201d rating.<\/p>\n ***<\/p>\n TD Cowen has resumed coverage on CGI Inc (GIB-A-T<\/a>) with a \u201cbuy\u201d rating but a significantly reduced price target of C$145, down from C$190. <\/p>\n Analyst Daniel Chan said macro uncertainty has hindered organic growth at CGI, while the rise of generative AI is raising concerns about its impact on the computer consulting firm. As a result, the usually steady-as-she-goes stock has taken a big hit lately. <\/p>\n However, he sees these concerns creating a buying opportunity for investors. <\/p>\n \u201cAs DOGE and tariff uncertainties diminish, we see an improving, but cautious, macro environment. We believe CGI, like its peers, will require a more meaningful recovery in growth to cast aside concerns looming over the industry; however, we believe investors should take advantage of the pullback to invest in a consistent, disciplined company that has ample dry powder to accelerate acquisitions,\u201d Mr. Chan said in a note to clients.<\/p>\n \u201cWe continue to believe that concerns of GenAI displacing the need for outsourcing remains overdone. We heard similar concerns during the cloud tech cycle and argue that AI\u2019s even more complex, and difficult to find resources including talent, to train and manage GenAI than it was to move workloads to the cloud. While it may take some time for investors to grow comfortable with this risk, we are already seeing demand for GenAI solutions improve q\/q both at CGI and peers including Accenture. 40% of CGI\u2019s Q3\/F25 IP revenue had AI embedded in it,\u201d he said.<\/p>\n The TD Cowen analyst believes merger and acquisition may provide an opportunity to counter slow organic growth.<\/p>\n \u201cWith access to $2.7bln of capital, we believe the company is well-positioned to accelerate acquisitions should the weak macro persist and challenge less well-capitalized companies. Management reiterated they continue to be very active on the M&A front.\u201d<\/p>\n Meanwhile, he said he\u2019s looking for key performance indicators \u201cto start showing green shoots while margins expand.\u201d <\/p>\n \u201cCGI\u2019s backlog stood at C$30.6bln, down ~1.3% q\/q in Q3\/F25 and was driven by more extensions over new bookings. We expect the pipeline to start improving as macro concerns abate. Meanwhile, we expect EBIT margin to expand in F26 following the integration of recent acquisitions and a restructuring,\u201d he said. <\/p>\n ***<\/p>\n Daniel Chan of TD Cowen also resumed coverage on Celestica Inc. (CLS-T<\/a>) and his rating went to a \u201chold\u201d from a \u201cbuy\u201d. His price target went to C$238 from C$130. <\/p>\n \u201cWe are impressed with Celestica\u2019s execution, market position, and management, for its foresight and transformation of a contract manufacturer into an engineering services business. We were early supporters of Celestica\u2019s business as the AI cycle ramped, but with a P\/E multiple that exceeds NVDA\u2019s, we\u2019re tapping the brakes,\u201d he said in a note. <\/p>\n \u201cOur expectations are supported by hyperscaler customers who maintain a y\/y increase in capex levels into 2026. Our new 2026 EPS estimate of $6.94 represents 22% growth and is above the Street at $6.87, though we believe still below some buy-side estimates. … but we believe it\u2019s largely priced in. CLS is trading at 39x next twelve months EPS, well above industry bellwether NVDA at 33x. While we recognize Celestica\u2019s supplier and customer agnosticism puts it in a unique position, we highlight that nearly a quarter of Celestica\u2019s EBIAT could come from traditional EMS programs that have no exposure to the AI cycle. Even if we ascribe a generous NVDA-like \u201cfair value\u201d P\/E to all of CLS\u2019s EPS, it implies the market is expecting $8.53 of EPS in 2026, which we consider to be at the high end of the range,\u201c he said.<\/p>\n ***<\/p>\n Mr. Chan also resumed coverage on BlackBerry Ltd. (BB-N<\/a>) with a \u201chold\u201d rating and US$5 price target. He previously had a \u201cbuy\u201d rating and US$4 target. <\/p>\n \u201cWe like the new BlackBerry profile with growth and expanding margins expected. However, with the stock having run 61% since December 2024, we believe the shares are fairly valued,\u201d he said. <\/p>\n And he resumed coverage on Open Text Corp. (OTEX-Q<\/a>), with a \u201chold\u201d rating and US$40 price target. He previously had a \u201cbuy\u201d rating and US$35 target. <\/p>\n “We believe the CEO void leaves uncertainty, while the newly appointed CFO will need time. We are optimistic the board will simplify the business by selling non-strategic assets and new management will be able to accelerate organic growth; however, until the leadership changes are complete, we rate the shares hold,” he said.<\/p>\n ***<\/p>\n BMO analyst \u00c9tienne Ricard initiated coverage on Canada Packers Inc. (CPKR-T<\/a>), the Maple Leaf Foods spinoff that began trading on the TSX this week, with a \u201cmarket perform\u201d rating and C$20 price target. <\/p>\n “The set-up for CPKR could prove attractive to the extent the firm executes on raising facilities\u2019 utilization, albeit we believe the improvement could prove gradual given it partially relies on factors outside management\u2019s control. Further, exposure to pork commodity spreads limits financial visibility,\u201c the BMO analyst said in a note. <\/p>\n \u201dWe acknowledge the stock\u2019s discounted valuation relative to peers, albeit believe a longer track record for operational execution is warranted for the multiple to expand,” he said.<\/p>\n ***<\/p>\n In other analyst actions:<\/p>\n Altus Group Ltd (AIF-T<\/a>): TD Cowen resumes coverage with target price of C$70 and a \u201cbuy\u201d rating.<\/p>\n Cargojet Inc (CJT-T<\/a>): Scotiabank cuts target price to C$135 from C$140<\/p>\n D2L Inc (DTOL-T<\/a>): TD Cowen resumes coverage with \u201cbuy\u201d rating and target price of C$22<\/p>\n Dorel Industries Inc (DII-B-T<\/a>): BMO raises target price to C$2 from C$1.5<\/p>\n Dye & Durham Ltd (DND-T<\/a>): CIBC cuts target price to C$8.5 from C$16 and downgrades rating to \u201cneutral\u201d from \u201coutperformer\u201d<\/p>\n Enghouse Systems Ltd (ENGH-T<\/a>): TD Cowen resumes coverage with target price C$22 and resumes coverage with a \u201chold\u201d rating<\/p>\n Kinaxis Inc (KSX-T<\/a>): TD Cowen resumes coverage with target price C$225 and a \u201cbuy\u201d rating <\/p>\n TFI International Inc (TFII-T<\/a>): Scotiabank cuts target price to C$140 from C$144<\/p>\n Apple Inc. (AAPL-Q<\/a>): Morgan Stanley raises target price to US$298.00 from US$240.00<\/p>\n