A survey of North American equities heading in both directions
On the rise
Shares of pipeline operator TC Energy Corp. (TRP-T) gained 3.3 per cent after it beat first-quarter profit estimates on Friday, helped by robust demand for liquefied natural gas (LNG).
Demand in the U.S., the largest importer of Canada’s oil and gas, rose in the first quarter according to the U.S. Energy Information Administration, benefiting Canadian energy firms.
Total earnings from TC Energy’s pipeline segments came in at $2.27-billion, compared with $2.17-billion last year.
The United States was the world’s top liquefied natural gas (LNG) exporter last year, but in January, President Joe Biden paused approvals for pending and future applications for export projects.
Countries including Greece, Germany and Japan have expressed interest in purchasing Canada’s LNG at a time when the U.S. has paused expansion of American LNG exports.
TC Energy posted an adjusted profit of $1.24 per share for the quarter ended March 31, compared with analysts’ average estimate of $1.14 per share, according to LSEG data.
TMX Group Inc. (X-T) was higher by 1.9 per cent after saying it earned $139.5-million in its first quarter, up from $89-million a year earlier.
The operator of the Toronto Stock Exchange says its revenues totalled $345.9-million in the quarter ended March 31, up from $299.1 million.
Earnings per diluted share were 50 cents, up from 32 cents during the same quarter a year earlier.
Adjusted earnings per diluted share were 38 cents, up from 37 cents.
CEO John McKenzie says the higher revenue was largely due to the newly acquired TMX VettaFi, the company’s U.S. based indexing, digital distribution and analytics division, as well as year-over-year growth from TMX Trayport.
The company raised its dividend by six per cent to 19 cents per common share.
In a research note released before the bell, RBC Dominion Securities analyst Geoffrey Kwan said: “Q1/24 operating EPS was right in line with consensus, but was ahead of our forecast. Trading at 22 times P/E (at the high end of its historical range), we view the shares as fairly valued, particularly given that listings activity remains weak and equity trading volumes have yet to stabilize (LTM industry volumes are almost 10 per cent below pre-pandemic levels and almost 45 per cent below peak pandemic levels), although Trayport continues to deliver strong results and derivative trading volumes continue to improve. Increasing target to $39 (was $38), but maintaining Sector Perform rating.”
Winnipeg-based NFI Group Inc. (NFI-T) saw a gain of 14.2 per cent after it reported a net loss of US$9.4-million in its first quarter, compared with a net loss of US$46-million a year earlier.
The bus maker says its net loss per share was 8 US cents, compared with a loss of 60 US cents during the same quarter last year.
Revenues totalled US$722.7 million, up almost 38 per cent from US$525.2-million a year earlier.
The majority of that revenue came from transit buses, which brought in US$449.5-million in revenue, up almost 66 per cent.
The company says its manufacturing revenue increased almost 46 per cent year-over-year, largely driven by higher new vehicle deliveries, higher average sales prices per unit and product mix.
NFI Group says its deliveries of zero-emission buses and coaches were up more than 21 per cent in the quarter.
Apple Inc. (AAPL-Q) shares jumped 6 per cent on Friday as the iPhone maker’s record stock buyback plan and promise of sales growth brought back investors who have shunned the stock on concerns over weak demand and increased competition in China.
The company late on Thursday forecast fiscal third-quarter sales that exceeded Wall Street’s modest expectations.
It also approved an additional US$110-billion in share repurchases, the largest ever buyback authorization by a U.S. company, according to EPFR analyst Winston Chua.
Friday’s stock gain added nearly US$200-billion to Apple’s market capitalization, lifting it to US$2.86-billion, second only to Microsoft, worth US$3-trillion.
At Friday’s stock price, executing Apple’s full buyback authorization would amount to repurchasing nearly 4 per cent of the company’s shares.
Apple’s forecast showed it is confident that product updates, starting with an iPad event on May 7, will drive demand in its hardware business after months of sluggish growth that made some investors doubt its status as a must-own stock.
“Many investors had begun to question if Apple still has what it takes to deliver the top growth they have become accustomed to over the years, but CEO Tim Cook turned on the charm and offered relief to investors,” said Josh Gilbert, analyst at investment platform eToro.
The buyback aligned Apple with other U.S. tech giants that have showered investors with cash in recent earnings seasons to soothe concerns about rising investments in generative AI. Some analysts also saw it as a sign that the industry was maturing.
“Growth stocks must demonstrate they are still growing at a pace that satisfies their shareholders. Once that growth slows, and Apple is a prime example, then buybacks or dividends can persuade investors to keep the faith,” said Danni Hewson, head of financial analysis at AJ Bell.
Unlike Alphabet and Microsoft, Apple has not seen a cost surge as it has not made big AI investments. But the slow rollout of AI services has been punished by investors, which partly fueled the 10-per-cent drop in its share price this year.
CEO Cook said Apple plans to share “some very exciting things,” fanning expectations among several analysts that Apple would announce AI integrations at its upcoming annual developer conference, which is expected to be the biggest ever.
Bernstein analysts said they expected “a strong iPhone 16 cycle fueled by AI functionality as well as elongated replacement cycles.”
At least 13 analysts raised their target price on Apple, pushing up the median view to US$200, which is 15 per cent higher than the stock’s last closing price.
Apple’s stock recently traded at 25 times its 12-month forward earnings estimates, compared with 30.5 for Microsoft. The Windows maker took the crown as the world’s most valuable firm from Apple earlier this year, thanks to its AI efforts.
On the decline
Magna International (MG-T) fell 3.5 per cent after it missed analysts’ estimates for first-quarter profit and cut its full-year overall sales forecast on Friday, as the auto parts supplier navigates headwinds from supply chain snags.
The Aurora, Ont.-based company also recorded asset impairments and restructuring costs of US$316-million related to troubled electric-vehicle startup Fisker.
Magna, which produces powertrains, along with assembling complete vehicles, signed agreements with Fisker in 2020 to engineer and manufacture its Ocean SUV.
Fisker has been grappling with mounting uncertainties after talks with a large automaker for a potential investment collapsed in March.
Peer Aptiv (APTV-N) also cut its annual sales forecast on Thursday and said it would reduce equity interest in its self-driving joint venture, Motional, with Hyundai Motor .
Auto parts suppliers have been struggling with lower-than-expected demand for their EV components as carmakers shift their focus toward producing affordable hybrids.
Supply chain constraints, coupled with labor shortages which began during the pandemic, also continue to impact the auto industry as they try to ramp up production.
Magna said it expects full-year 2024 sales of US$42.6-billion to US$44.2-billion, compared with its prior forecast range of US$43.8-billion to US$45.4-billion.
On an adjusted basis, it earned US$1.08 per share in the first quarter, compared with analysts’ average estimate of US$1.24 per share, according to LSEG data.
In a research note, Citi analyst Itay Michaeli said: “Mixed results with negatives coming from a Q1 miss (led by soft Power & Vison margins), lower revenue guidance (including for active safety) and a higher tax rate, partially offset by a confirmed 2024 margin guide and slightly lower capex outlook. Management does expect Q2 margins to step-up. Overall, the quarter revealed more top-line headwinds than expected, though with higher cost offsets to mitigate the net guide-down. Still, we’d expect consensus estimates to come down, including in the out-years, and for the shares to come under some pressure on the soft Q1 results (vs. estimates) and incremental revenue headwinds. We’re reducing estimates and taking our price target to $52 from $57. Maintain Neutral.”
Aritzia Inc. (ATZ-T) was down 0.9 per cent after its net income fell by 58 per cent in its latest fiscal year, which the retailer’s chief executive said was spent laying the groundwork for the business’s rebound.
Reaction from the Street: Friday's analyst upgrades and downgrades
“After two years of exceptional growth in our business — 74 per cent in fiscal 2022 and 47 per cent in fiscal 2023 — fiscal 2024 was a year of building infrastructure and rightsizing our inventory,” Jennifer Wong told analysts on a Thursday call.
Those efforts proved costly to the Vancouver-based apparel company, which is also behind the Babaton, TNA, Wilfred and Golden brands. Aritzia reported Thursday its 2024 fiscal year ended with a net income of $78.7-million, down from $187.5-million in its fiscal 2023.
In its fourth quarter, which ended March 3, net income fell 35 per cent to $24.2-million compared with $37.3-million a year ago. That amounted to 21 cents per diluted share, down from 32 cents per diluted share.
Aritzia partially attributed the drops to an increase in stock-based compensation expenses, but also noted the business was affected by inflation and pre-opening lease amortization costs for its flagship boutiques.
Despite the headwinds, Wong maintained that the company had made “substantial progress” toward setting “the stage for our next phase of expected growth.”
That progress included the expansion of its distribution centre network, which now has a 550,000 square-foot facility in Vaughan, Ont., and moves to revamp its inventory strategy and digital sales channels.
Aritzia also uncovered $60-million in annualized run-rate savings and developed a “pipeline” of boutiques, mostly in the U.S., that have opened or will open soon.
The company has long focused its expansion efforts south of the border, and Aritzia’s fourth quarter showed it has reaped some of the benefits.
During the quarter, its net revenue linked to its U.S. business rose 9.4 per cent to $369.1-million, as overall net revenue reached $682 million, up seven per cent from the year prior.
However, Aritzia’s e-commerce net revenue fell 3.2 per cent to $265.6-million in the quarter.
Over Aritzia’s fiscal 2024, its net revenue increased by 6.2 per cent to $2.33-billion, with roughly $1.5-billion attributable to in-store sales and the rest coming from its e-commerce business.
Its adjusted net income for the year was $105.6 million, a decrease of 50.9 per cent compared with $214.8-million in fiscal 2023.
Aritzia’s net revenue results matched analysts’ expectations. The company’s adjusted net income beat the $103.37-million analysts had predicted, according to financial markets data firm Refinitiv.
Open Text Corp. (OTEX-T) slipped 14.8 per cent after saying it earned US$98.3-million, up from US$57.6-million a year earlier.
The Waterloo, Ont.-based software company says its revenues totalled US$1.4-billion, up 16 per cent from US$1.2-billion during the same quarter last year.
CEO Mark Barrenechea says the stronger revenues reflect customer demand for information management and new artificial intelligence capabilities.
Diluted earnings per share were 36 US cents, up from 21 US cents a year earlier.
Operating income was US$227.1-million, up from US$64.0-million a year earlier.
During the quarter, the company completed the divestment of its AMC business to Rocket Software for US$2.3 billion in cash before taxes, fees and other adjustments.
“We’ve downgraded OTEX to Market Perform and have reduced our target price following Q3/24 results that were roughly in line, while OTEX’s preliminary FY2025 guidance was significantly weaker than expected,” said BMO analyst Thanos Moschopoulos. “While the stock’s valuation is undemanding, we believe that OTEX’s plans to prioritize capital return and M&A at the expense of further deleveraging, coupled with its subdued organic growth, will constrain the opportunity for near-term multiple expansion.”
Shares in Danish drugmaker Novo Nordisk (NVO-N) dropped 0.8 per cent after rival Amgen (AMGN-Q) said it was encouraged by interim trial data on its experimental obesity drug.
Amgen on Thursday said it was very encouraged after completing an interim analysis of its mid-stage study of experimental weight-loss drug MariTide, which, if approved, would compete Novo’s Wegovy and Eli Lilly’s Zepbound.
“Novo’s share price today is certainly factoring in some negative reaction to Amgen’s positive commentary on MariTide development yesterday,” Kepler Cheuvreux analyst David Evans said, but added that “a continued negative reaction to results and pricing concerns yesterday is likely also a smaller part of the move today”.
Amgen did not provide any specifics on the actual data of its trial, but competition is heating up in a market estimated to be worth as much as US$100-billion by the end of the decade, in which Novo Nordisk has the lead for now.
Expedia (EXPE-Q) sank 15.3 per cent on Friday, after the online booking firm cut its annual forecast for revenue growth due to weakness at its vacation rentals brand Vrbo.
The company, which is known for its three brands Expedia, Hotels.com and Vrbo, projected full-year revenue growth in the mid-to-high-single digit percentage range late on Thursday, down from a prior forecast of double-digit growth.
The company had migrated its Vrbo brand to the Expedia platform along with the rollout of its consolidated loyalty program covering all three brands, in a bid to allow customers to book across nameplates under one platform.
While Expedia hoped for a profit boost from the re-platforming of Vrbo, it said the brand was seeing a slower rebound, which weighed on overall bookings.
“We had pulled back on Vrbo marketing in the second half of last year... And while we have been ramping that spend and the product has been improving, we have seen a slower-than-expected recovery,” outgoing CEO Peter Kern said.
At least seven brokerages cut their price targets on Expedia, with Piper Sandler downgrading the stock to “neutral” from “overweight.”
“The near-term growth trajectory is uncertain as the company struggles to sustainably improve growth and materially raise traffic at two of its core brands (Vrbo and Hotels.com),” Wedbush analysts said in a note.
Shares of Expedia trade about 25.32 times their forward profit estimates, below the 29.44 multiple for rival Booking Holdings, which on Thursday topped market estimates for quarterly profits.
“Expedia’s in a tough spot. The broader business is growing ... however, Vrbo is displaying issues which may be more difficult to fix than management is letting on,” brokerage RBC said.
With files from staff and wires
David Leeder