Analysts adjust targets for Canadian financial and retail firms amid mixed earnings outlook

National Bank Financial analyst Jaeme Gloyn warned that 2024 will be a difficult year for Canadian diversified financial companies as higher interest rates add pressure, with the market pricing in an additional 90 basis points of Bank of Canada tightening over the next year. He noted that the equity coverage universe has fallen 12% year-to-date, compared with a 19% gain for the S&P/TSX Financials Index, and only three names have posted positive returns.

"Our review of disclosed sensitivities and debt maturities suggests limited direct negative earnings impacts and near-term refinancing exposure, with Brookfield Business Corp. most exposed to higher cash interest costs," Gloyn said. He said the sector still offers attractive valuations, especially for property-and-casualty insurers and TMX Group, which he expects to deliver double-digit EPS growth through 2028. Gloyn also highlighted Element Fleet Management Corp., whose shares have fallen 33% since its Q2 results. While the company posted earnings and revenue growth, declines in originations and vehicle-under-management growth raised concerns. He cut the earnings per-share estimate by 5% and lowered the price target by almost 30% to $35, matching the Street average, but kept an “outperform” rating, describing the stock as a value play with an 11% free-cash-flow yield. Other target revisions from Gloyn included reductions for Atrium Mortgage Investment Corp., Brookfield Business Corp., Definity Financial Corp., Dominion Lending Centres, Fairfax Financial Holdings, Fiera Capital Corp., Firm Capital Mortgage Investment Corp., MCAN Mortgage Corp., Timbercreek Financial Corp. and an increase for TMX Group to $67. RBC Dominion Securities analysts Drew McReynolds and Ryland Conrad said Canadian diversified media companies will continue to navigate accelerating structural change into the third-quarter earnings season. They expect modest growth in advertising and global content spend, and identified Cineplex, Transcontinental and Stingray as their top ideas. Scotia Capital analyst Mike Rizvanovic maintained a constructive view on Canadian life insurers but downgraded Manulife Financial to “sector perform” and raised Sun Life Financial to “sector outperform,” citing differing growth prospects and capital return potential. Ventum Capital Markets analyst Bahamin Abdolpanah raised Aritzia’s price target to $173, noting the company’s five-year strategic plan aims for 15-17% annual revenue growth to 2032, driven by U.S. store openings and digital sales, while maintaining a neutral rating. Other analysts adjusted targets for a range of firms, including upgrades for CAE Inc. after its sale of Flightscape, target raises for CCL Industries, K-Bro Linen and Celestica, and downgrades for Nutrien and Colliers International based on sector-specific risks. Overall, the analyst actions reflect a cautious outlook for financials amid higher rates, selective optimism for insurers and media, and varied expectations for retail and industrial companies depending on strategic initiatives and market conditions.