RBC Dominion Securities analyst Paul Treiber expects few surprises from first-quarter earnings season in Canada’s technology sector, predicting most companies will match the Street’s expectations and reiterated their annual guidance.
“Similarly, our U.S. Software team expects largely in-line March quarter results, but sees an upward bias to estimates through 2024 on stabilizing macros,” he said in a report released Monday. “For stocks in our coverage that are dependent on consumer spending, we believe consumer spending remained healthy through March. For those dependent on enterprise spending, we believe the environment remains similar to previous quarters, with sustained elongated sales cycles as a headwind to near-term growth.
“Canadian tech stocks have slightly underperformed broader markets Q1 (S&P/TSX Info Tech up 5 per cent Q1 vs. S&P/TSX Composite up 6 per cent and S&P 500 Info Tech up 12.5 per cent). While increasing interest rates are a headwind to valuation multiples, a large number of Canadian tech stocks trade below historical averages and at larger than historical discounts to peers. We believe improving growth and profitability through 2024 would help sustain valuation multiple expansion.”
Mr. Treiber sees three stocks as “best positioned” for the first quarter. They are:
* Celestica Inc. with an “outperform” rating and US$47 target, rising from US$38. The average on the Street is US$43.88.
Analyst: “Celestica may deliver another beat and raise on hyperscaler data centre build out. We believe Celestica is likely to report solid Q1 results, as hyperscalers continue to rapidly build out data centers to address strong AI demand. Since hyperscalers account for 35 per cent of Celestica’s revenue, hyperscaler strength, in our view, is likely to offset the slowdown in electrical vehicles (EVs), which represents less than 10 per cent of Celestica’s revenue. Similar to last year, we believe that Celestica is likely to raise FY24 guidance.”