Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial analyst Gabriel Dechaine thinks Canadian life insurance companies “enter 2025 with wind in their sails, having outperformed the market for the third year in a row (also outperforming the Big-6 banks along the way).”
“There’s a lot to like about the Group, including: 1) ROE divergence: Lifeco ROEs have trended higher for several years, reflecting a more supportive regulatory environment and lower capital intensity of their business models, including a rising proportion of Wealth segment earnings. These secular trends have resulted in higher ROE targets delivered (by MFC & SLF) or anticipated (by GWO and IAG); 2) Excess capital: Even using a conservative measure of excess/deployable capital, the Group is in a comfortable position. Indeed, we estimate that excess capital represents 13 per cent of the average Lifeco market capitalization: 3) Geographic & Business exposure: Investors seeking greater exposure to the U.S. economy (or simply the USD) can do so effectively via the Canadian lifecos, with some (MFC and SLF) generating nearly two thirds of their earnings in USD,” he explained.
In a research report released Wednesday, Mr. Dechaine raised his estimates for the fourth quarter of fiscal 20-2024 primarily to reflect stronger market performance, which boosted their assets under management. That adjustment led to higher projections for fiscal 2025, while he also introduced his 2026 forecast, which currently implies average earnings per share growth of 9 per cent.
“Our growth forecasts incorporate a 7-per-cent increase in core insurance revenues and growth of 7 per cent in asset management income, with buyback activity factored in for IAG and MFC,” he noted. “MFC’s figures are adjusted to account for foregone earnings due to its recent reinsurance transaction.”
From an investing perspective, the analyst said 2024 was “another good year for lifeco stocks, with the group outperforming the market by 15 per cent, marking an unprecedented third year of outperformance by the group.”
“We attribute this performance to a variety of factors, including but not limited to: 1) growing comfort with and understanding of IFRS 17, which was adopted in 2023; 2) strong equity markets over this period, which is important considering around 40 per centof sector earnings are generated in Wealth segments; 3) recessionary concerns weighing on the Canadian banks, which pushes fund flows into other domestic sectors; 4) stock-specific catalysts, such as MFC’s disposal of LTC blocks; and 5) strong financial performance by the companies, evidenced by rising ROEs. The latter factor should still be a driver going forward, with companies hiking ROE targets (and others expected to do the same),” said Mr. Dechaine.
“One of the most common questions we receive is ‘lifecos vs. banks?, which reflects the nature of the Canadian market that is heavily skewed by the Big-6 banks (i.e., more than 30 per cent of S&P/TSX Composite consists of Financials, mainly banks). ... Lifecos outperformed the Big-6 banks for an unprecedented third year in a row in 2024. Although there are several reasons to be bullish on lifecos, which we explore in this report, we believe this period of relative outperformance will fade in 2025. We believe bank stocks should benefit from an economy more supportive of loan growth and Capital Markets activity, leading to positive EPS revisions, which we discuss in the outlook for that sector. However, that statement does not mean that we are negatively skewed towards the lifecos as we believe there are several tailwinds for the stocks.”
Emphasizing “quality comes at a price,” Mr. Dechaine upgraded Sun Life Financial Inc. (SLF-T) to an “outperform” from “sector perform” previously ahead of earnings season in the sector.
“We believe domestic investor appetite for U.S. exposure has increased,” he said. “SLF is in an enviable position in that regard. The company generates nearly two thirds of its earnings in USD, with the bulk of earnings generated in Wealth Management and Group Insurance. Moreover, the U.S. Group business (approximately 18 per cent of SLF earnings) should enjoy organic growth tailwinds if the U.S. economy is poised to benefit from job creation under a growth-oriented Trump administration.”
”SLF’s balance sheet is in a very flexible position. Its 152-per-cent LICAT ratio and 20-per-cent leverage ratio are comfortably positioned versus what we view as ‘industry standards’ of 115 per cent and 25 per cent, respectively. If we use a more conservative regulatory capital metric, the Core LICAT ratio, we estimate SLF’s holding company has $5.4-bilion of excess capital above a 75-per-cent Core ratio (i.e., OSFI’s supervisory target level plus a 5-per-cent buffer). The company expects 30-40 per cent of underlying earnings to contribute to deployable capital, amounting to $1.5-billion of our 2025 estimate. We believe SLF will focus its excess capital deployment strategy on acquisitions to enhance the scale of its U.S. Group business and/or its Asia footprint.”
Seeing Sun Life having “arguably the easiest path to its ROE target,” he raised his target for its shares to $95 from $82. The average target on the Street is $91, according to LSEG data.
His other target adjustments are:
- Great-West Lifeco Inc. (GWO-T, “sector perform”) to $51 from $50. Average: $50.56.
- IA Financial Corp. Inc. (IAG-T, “sector perform”) to $133 from $121. Average: $137.13.
- Manulife Financial Corp. (MFC-T, “outperform”) to $50 from $47. Average: $47.18.
- Sagicor Financial Co. Ltd. (SFC-T, “outperform”) to $9.50 from $9. Average: $9.17.
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TD Cowen analyst Aaron MacNeil thinks Canada’s midstream energy companies offer income-oriented investors “low financial volatility and a growing dividend with an attractive yield.”
“The Canadian Midstream sector currently trades slightly above its 10-year mean and nearly a full multiple turn above its 5-year mean,” he said. “We believe that valuations have justifiably improved due to an increasingly robust growth outlook for natural gas infrastructure.”
In reports released Wednesday, Mr. MacNeil initiated coverage of six companies in the sector.
He named Pembina Pipeline Corp. (PPL-T) his “top pick for Canadian midstream exposure,” setting a “buy” rating and $66 target. The average on the Street is $61.65.
“Pembina is our top pick, with our view that it is fundamentally mispriced after ranking second overall in our concurrently published scorecard,” he said. “Pembina features the best capital structure, with the strongest track record, a competitive asset portfolio, and a robust growth opportunity pipeline.
“Pembina’s investment attributes are ‘just right’: Pembina ranked second overall in our concurrently published Canadian midstream scorecard. Key takeaways as follows: 1) The Best Capital Structure in Canadian Midstream: In our view, Pembina strikes the right balance on capital structure, featuring a below average leverage ratio, high contracted/ fee-based cash flow profile, meaningful exposure to investment grade counterparties, ability to fund capital spending and dividends with internally sourced cash flows and strict adherence to its financial guardrails. 2) Strong Historical Track Record: Pembina features a strong historical track record, with a consistent pattern of upward consensus estimate revisions over time and share price performance that features below average volatility with a higher ratio of relative outperformance to underperformance. 3) Highly Integrated Assets: Pembina’s assets in Canada span across all commodity verticals and most midstream capabilities, with comparable or better asset integration than even its largest peers. 4) Strong Growth Metrics: Pembina is leveraging its diverse platform to make outsized investments in natural gas infrastructure and stands out on our debt-adjusted EBITDA/ share growth metric, despite a high spending profile and no associated growth related to Cedar LNG.”
Calling it his “top yield idea,” Mr. MacNeill gave Enbridge Inc. (ENB-T) a “buy” rating and $66 target. The average is $62.46.
“Enbridge is leveraging its recently enhanced natural gas footprint to source compelling growth opportunities, which we believe should command a premium valuation and will facilitate continued increases in its already compelling dividend (6.0-per-cent yield) over time,” he said.
“With the 2017 acquisition of Spectra Energy and the 2024 acquisitions of three U.S. natural gas utilities, Enbridge has significantly diversified its commodity mix and, as a result, has drastically improved its exposure to a wider range of opportunities. In this context, Enbridge ranked third overall in our concurrently published Canadian midstream scorecard, including a second ranking in portfolio quality and consistently strong rankings in other categories. Currently, Enbridge trades at a 2025E EV/EBITDA multiple of 12.3 times, only modestly above its historical 10-year mean of 11.8 times. Natural gas-weighted midstream companies currently trade at a premium to crude oil weighted midstream companies. In this context, we believe that its prevailing valuation is beginning to price in its increasingly gasweighted cash flow profile and go-forward opportunity set.”
The analyst’s other ratings and targets are:
* Gibson Energy Inc. (GEI-T) with a “hold” rating and $25 target. Average: $27.
Analyst: “Gibson offers investors an attractive yield, supported by a leading liquids terminal franchise. We believe that the outlook for natural gas infrastructure is more constructive than crude oil infrastructure, and that Gibson is appropriately valued at this time.”
* Keyera Corp. (KEY-T) with a “hold” rating and $45 target. Average: $45.61.
Analyst: “Keyera is positioned to benefit from growing WCSB NGL volumes, and we believe that this is already reflected in its current valuation, noting that its coming off of a very strong year in 2024 with its total shareholder return of 43 per cent among the highest in the coverage universe.”
* South Bow Corp. (SOBO-T) with a “hold” rating and $34 target. Average: $33.25.
Average: “South Bow offers investors the highest yield in the sector, supported by a critical North American crude oil pipeline. South Bow’s share price has increased by 15 per cent since the spin out of TC and we believe that South Bow is appropriately valued at this time.”
* TC Energy Corp. (TRP-T) with a “buy” rating and $73 target. Average: $70.35.
Analyst: “Following the recent successful spin-off of its liquids pipeline business, TC has become a streamlined North American natural gas midstream and power infrastructure company, with a robust opportunity profile and competitive dividend yield (5.0 per cent).”
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RBC Dominion Securities analyst James McGarragle sees weaker leading indicators for Canadian airlines and aerospace companies heading into fourth-quarter earnings season, including airfares, web traffic, and decelerating North American revenue passenger kilometres (RPKs).
“Focus for [Air Canada] remains on 2025, which we expect to be a tough operating environment, with our Street-low estimates moving lower on fuel and reflecting our view that yields will remain pressured from a weaker consumer, currency headwinds and increased industry capacity,” he said. “Furthermore, our Business Jet Heatmap indicates minor year-over-year activity declines, low used inventories and solid fractional operator growth highlighting a continued supportive demand backdrop. However, we temper our 2025 margin for Bombardier on persistent engine supply chain issues, however, remain in line with company’s guidance and see an expected 2025 FCF inflection as a key catalyst.”
Mr. McGarragle said airfares “continue to be pressured” in Canada, seeing continued negative price growth in the past quarter. However, they are stronger south of the border, which he attributes to “tighter capacity conditions we do not see occurring to the same degree in Canada.”
“Share prices generally outperformed in Q4,” he noted. “Canadian Airlines & Aerospace share prices generally outperformed the index during the quarter with the exception of BBD, (down down 5 per cent) as continued supply chain issues impacted margins in Q3 adding risk in our view to 2025 FCF guidance. CAE’s performance was driven by strong defence margin growth in FQ2, the SIMCOM acquisition, and the announcement of a new CEO. AC’s shares were up meaningfully (off lows) on strong Q3 results and the increased 2024 guide driven by fuel and a one-time contract-related adjustment. However, shares gave back some gains after the company’s Investor Day which highlighted a tough 2025 set-up. Finally, both EIF and CHR outperformed, with EIF putting up a strong 2025 guide with continued momentum in Windows orders and CHR highlighting lease extensions locking in future lease revenues.”
“AC is trading at the low end of its historical average as the industry grapples with normalizing demand, yield pressure, higher costs, and capacity risk. Bombardier is also trading below its historical average, as well as at a meaningful discount to peers, and remains our top idea on the back of a meaningful FCF inflection in 2025, in addition to longer-term opportunities in services and defense. CAE is trading near the midpoint of its historical range after a re-rating in Q4. Similarly, EIF is trading in line with its historical average, while CHR’s valuation topped its historical 5-yr. range following the RAL sale which closed in Q4.”
While he lowered his quarterly forecast for Air Canada (AC-T), Mr. McGarragle continues to sit higher than the Street’s expectations and maintained a $23 target and “sector perform” rating for its shares. The average on the Street is $27.49.
“We decrease Q4/24E EBITDA to $687-million (from $725-million) on the weaker CAD dollar and higher fuel, though our estimate remains above consensus of $628-million given commentary from Transat that yields and load factors are both trending higher in November and December,” he sai. “Our 2025E moves to $3.272-billion (from $3.399-billion), which represents the Street low (cons. $3.581-billion) given our view yields will remain pressured into next year on a weaker consumer, currency and fuel headwinds, as well as increased industry capacity. We also flag risk to costs related to the full effects of the pilot deal, upcoming FA contract in March, and new AAPR rules.”
Keeping Bombardier Inc. (BBD.B-T) as his “top idea” in the space, he trimmed his target to $130 from $133 with an “outperform” recommendation. The average is $119.33.
“We continue to flag Bombardier as our top idea reflecting a double-digit FCF yield on our 2026 estimates and the opportunity to compound FCF at a double-digit CAGR [compound annual growth rate] out to 2030E, which we see as underappreciated at current levels,” he said.
The analyst raised his CAE Inc. (CAE-T) target to $38 from $34, exceeding the $33.88 average, with an “outperform” rating.
“Key focus into the quarter will be on margins in the Defence segment, the impact of commercial aero supply chains and temporary hiring freezes on results in Civil, and the selection process for a new CEO which has seen activist involvement,” he said.
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CIBC World Markets’ paper and forest products analyst Hamir Patel thinks elevated mortgage rates are likely to lead to a rebound in the repair and remodelling (R&R) market over the next 12 months.
“Heading into 2025, we generally continue to favor the packaging names over wood/building products (with even Neutral-rated Cascades having catalysts from containerboard prices),” he said a Wednesday report. “CCL remains our top pick for the second year in a row. We believe CCL’s diversified global platform and end‑market exposure should support steady top-line growth over the cycle, while the breadth of its operations minimizes tariff risks. With leverage of only 1.1x, the company is well positioned to be opportunistic with M&A and share repurchases.
“On the wood products side, our preferred name remains West Fraser. WFG’s low-cost position, strong balance sheet and diversified commodity exposure (evenly split between lumber and OSB) place it well to take advantage of M&A opportunities that may emerge among lumber peers with weaker balance sheets. We also rate Canfor, Stella-Jones and Weyerhaeuser Outperformer in wood products (the latter two companies we upgrade from Neutral to Outperformer). Across our broader housing‑related coverage, we also have Outperformer ratings on ADENTRA and Doman. With limited signs of renovation spending rebounding this year given stubbornly high mortgage rates, we have tempered our demand expectations for wood products in 2025.”
Mr. Patel’s upgrade to Stella-Jones Inc. (SJ-T) to “outperformer” came with an increase to his target to $86 from $83. The average on the Street is $86.
“While we have been on the sidelines on SJ since July 19, 2023, we see an attractive entry point emerging, with guidance having been reset post Q3 results (shares down 23 per cent since then), our belief that producers can hold on to pole price gains accrued since 2021, and SJ trading at 8.6 times forward EBITDA (below its 11.25 times five-year average),” he said. “At the same time, we expect the company to see stronger near-term pole volumes as it will likely be called upon to meet reconstruction-related demand following the ongoing wildfires in California. We believe the major utilities in California (PG&E and SoCal Edison) are some of SJ’s largest customers.”
Meanwhile, he raised his targets for these companies:
- Cascades Inc. (CAS-T, “neutral”) to $13 from $12. Average: $12.67.
- CCL Industries Inc. (CCL.B-T, “outperformer”) to $97 from $96. Average: $89.80.
- West Fraser Timber Co. Ltd. (WFG-T, “outperformer”) to $171 from $164. Average: $113.79.
Mr. Patel lowered his targets for these:
- Adentra Inc. (ADEN-T, “outperformer”) to $49 from $53. The average is $53.94.
- Canfor Corp. (CFP-T, “outperformer”) to $19 from $21. Average: $21.33.
- Doman Building Materials Group Ltd. (DBM-T, “outperformer”) to $11.50 from $12. Average: $11.75.
- Interfor Corp. (IFP-T, “neutral”) to $22 from $23. Average: $25.33.
- KP Tissue Inc. (KPT-T, “neutral”) to $8.50 from $9. Average: $9.13.
- Richelieu Hardware Ltd. (RCH-T, “neutral”) to $42 from $43. Average: $43.75.
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National Bank Financial analyst Vishal Shreedhar thinks macroeconomic and commodity challenges are “partly offsetting” improvement initiatives by Saputo Inc. (SAP-T).
Ahead of the Feb. 6 release of its latest financial report, Mr. Shreedhar is projecting adjusted earnings per share for the third quarter of its fiscal 2025 of 39 cents, up a penny from the same period a year ago but 2 cents lower than the Street’s expectation. He attributed that 2.1-per-cent gain to “improvements in Canada, USA and Europe, partly offset by weakness in International (decline in Argentina, partly offset by growth in Australia).”
“We acknowledge heightened uncertainty with our estimates given a volatile commodity backdrop,” he added.
“In USA, we anticipate higher block cheese prices to benefit sales growth,” he added. “We expect flattish EBITDA margin year-over-year, reflecting a negative milk-cheese spread, offset by better efficiencies and lower duplicate costs, in addition to other factors. (2) We expect Canada to benefit from pricing initiatives and efficiency improvement programs. (3) In International, we anticipate continued pressure on the Argentina export business, partly offset by benefits from lower farmgate milk prices and higher milk intake in Australia. (4) In Europe, notwithstanding higher farmgate milk prices, we expect performance to sequentially improve, reflecting an improved inventory position, higher volumes, and site consolidation, partly offset by competitive activity.”
Mr. Shreehdar expects improvements to become increasingly evident through its current fiscal year, noting: “We see EBITDA improvement through F2025: approximately $100-milion in facility savings ($44-million in H1/F25), $50-million from lower-priced inventory in Europe, $40-million in moderate growth and better farmgate milk prices in Australia, among other factors, partly offset by negative U.S. market factors and pressure in Argentina ($110-million). (2) Additionally, we are constructive on: (i) share buybacks (2 per cent; NBF is 1.7 per cent), and (ii) a focus on organic growth vs. M&A, for now.:
To reflect the “heightened macro/commodity uncertainty,” the analyst adjusted his valuation multiple, leading him to reduce his target for Saputo shares to $28 from $31, keeping an “outperform” rating. The average is $32.50.
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In other analyst actions:
* With the announcement that it will initiate a temporary suspension of operations at its Loulo-Gounkoto complex in Mali, Canaccord Genuity’s Carey MacRury lowered his target for Barrick Gold Corp. (ABX-T) to $30 from $33.50 with a “buy” recommendation. The average is $33.72.
* In response to Tuesday’s quarterly release, CIBC’s Stephanie Price cut her targets for Cogeco Inc. (CGO-T, “neutral”) to $64 from $67 and Cogeco Communications Inc. (CCA-T, “neutral”) to $71 from $73. The averages are $84 and $79.15, respectively. Elsewhere, TD Cowen’s Vince Valentini increased his Cogeco Communications target to $90 from $89 and Cogeco target to $106 from $104 with “buy” ratings for both, while Desjardins Securities’ Jerome Dubreuil reduced his Cogeco Communications target to $72 from $79 with a “hold” rating and Scotia’s Maher Yaghi lowered his target to $75.50 from $77.50 with a “sector perform” rating.
“The negative 6-per-cent reaction in CCA was probably too harsh for an update with no guidance change,” said Mr. Dubreuil. “However, the disappointing 2Q FY25 guidance provided on the call means that for a second consecutive year, the company will have to play catch-up in 2H with guidance that was not particularly ambitious to begin with. We believe the company has a strong plan in place, but we anticipate that growth will remain challenged for the foreseeable future due to competitive and secular headwinds.”
* Raymond James’ Farooq Hamed cut his Iamgold Corp. (IAG-N, IMG-T) target to US$6 from US$6.50 with an “underperform” rating. The average is $9.47 (Canadian).
“IAG’s 4Q24 production results were lower than our expectations on a slower ramp up at the Cote mine and lower than expected grade at Essakane,” he said. “Overall production was in-line with full-year guidance.
“Overall 2025 production guidance was lower than expected at the Cote mine on a longer than expected mill ramp up and lower grade than previously forecast. Production guidance for Essakane was in-line to slightly better than expected offset by slightly lower than previously forecast production from Westwood.”
* Wells Fargo’s Boruchow raised his Lululemon Athletica Inc. (LULU-Q) target to US$375 from US$350 with an “equal-weight” rating. The average is US$392.76.
* Scotia’s Eric Winmill resumed coverage of Metalla Royalty & Streaming Ltd. (MTA-A, MTA-X) with a “sector perform” rating an US$4.50 target. The average is US$5.75.
“MTA’s largely Americas-focused portfolio holds an impressive collection of royalties on relatively long mine life assets operated by a variety of senior, intermediate, and junior companies that provide exposure to gold, silver, copper, and other metals,” he said. “The company’s focus is to increase shareholder value through prudent capital allocation and through building an asset base with exposure to proven geological trends, best-in-class operators and safe jurisdictions. Within the portfolio, MTA has exposure to several copper development assets that have the potential to “move the needle,” such as Taca Taca and Vizcachitas, among others. As these projects reach key milestones on the path to producer status, we see potential for MTA shares to re-rate higher. Further, as other portfolio assets advance and generate ounces for MTA, this could generate positive NAV accretion and/or higher target multiples, providing an upside re-rating opportunity. We forecast production of nearly 5,000 GEOs in 2025, with production reaching 9,800 GEOs in 2027, implying revenue growth to $22.5-million in 202
* Ahead of its Jan. 28 earnings release, TD Cowen’s Michael Van Aelst raised his Metro Inc. (MRU-T) target to $99 from $97 with a “buy” rating. The average is $94.40.
“With earnings growth resuming, FCF rising, and an active NCIB, we see Metro building EPS momentum over the course of the year,” he said. “Solid top-line growth and declining duplicate O/H costs should allow EPS growth to reach 7 per cent by Q1/F25 and, coupled with [gross margin] expansion starting in Q2, accelerate to 12 per cent by Q4/F25 (sticking around that level in F26).”
* With “softness” in offshore wind driving lower generation forecast, National Bank’s Rupert Merer trimmed his Street-high Northland Power Inc. (NPI-T) target by $1 to $34 with an “outperform” rating ahead of its fourth-quarter results. The average is $29.08.
“We are revising our Q4E generation forecast lower to 2,104 GWh (was 2,274 GWh), driven predominantly by soft offshore wind conditions across NPI’s portfolio. However, there were some bright spots in its onshore portfolio in North America. With these changes, our adj. EBITDA estimate for the quarter moves lower to $314-million was $339-million, cons. $328-million). Despite a potentially weak quarter, for ‘24E, we believe NPI is set to achieve its adj. EBITDA guidance of $1.2-1.3-billion (NBF $1.264-billion) and adj. FCF/sh of $1.30-1.50/sh (NBF $1.44/sh),” he said.
“Despite recent concerns on U.S. support for the wind power industry, we view this as a headline risk rather than a real threat to NPI. With no in-construction offshore wind projects in the U.S., NPI should remain unaffected. With our updated estimates, our target edges down.”
* Desjardins Securities’ Gary Ho increased his Superior Plus Corp. (SPB-T) target to $8.75 from $8.50 with a “buy” rating. The average is $9.16.
“We reduced our 4Q EBITDA to US$167-million (consensus US$174-million) on warmer weather vs five-year averages, a softer carbon credit market and some lingering pricing pressure on Certarus. We are turning our focus to the frigid winter so far and Superior Delivers/upcoming investor day,” said Mr. Ho. “Capital allocation remains topical — SPB repurchased 10.4 million shares (4.2 per cent of float) in 4Q24, and we believe it could delever at 0.2 times a year. Our target is $8.75 (was $8.50) after rolling our model forward.”