CIX capped 2021 with “significant advancement in strategic initiatives,” according to Scotia Capital’s Phil Hardie. He was one of several equity analysts on the Street to raise their target price for shares of the Toronto-based firm following Tuesday’s release of its fourth-quarter financial results.
Mr. Hardie deemed the report as “mixed,” noting operating results were in line with expectations but January sales were “disappointing.”
“CI delivered a record 2021,” he said. “The year also showcased significant progress related to the company’s key strategic pillars: expand wealth management, modernize its asset management business, and globalize the company. The highlights for the year were (1) the dramatic growth in its U.S. wealth management platform and (2) the strongest flows from its asset management business since 2015.”
“The stock performed extremely well through 2021 and reached a multi-year high in November. This was driven by a combination of solid earnings growth and multiple expansion, reflecting improved sentiment as investors began to recognize the benefit of the U.S. expansion strategy and also reacted to improved sales momentum. The stock is now down 30 per cent from its November high. We attribute the weakness to a dramatic shift in the operating environment and market conditions with CIX stock likely better positioned to outperform peers in a market rally with an industry tailwind and underperform in a downmarket or period of elevated volatility.”
While he raised his financial projections to reflect an increase to his earnings outlook for the wealth management segment, Mr. Hardie trimmed his target for CI shares to $27 from $29, below the $29.50 average on the Street, “given higher-than-expected net debt levels heading into 2022.”
“We view CI as a great early cycle or market rebound play, but more vulnerable in choppy or downmarket as it transitions its business model,” he said. “CIX stock dramatically outperformed its peers in 2021, however as the operating environment and market conditions shifted, it has underperformed over recent months. In times of market volatility, we tend to favour the asset managers with strong operational performance over those mounting a turnaround into potentially rising industry headwinds. We believe CIX stock is likely to be more vulnerable to a market downturn than IGM. This reflects (1) its higher financial leverage, (2) risk of derailing improved retail flow momentum, and (3) risk of eroding AUA and, as a result, earnings contribution from the recent flurry of U.S. RIA acquisitions. Recent stock weakness is likely prompting investors to take a second look at CIX. We believe CIX management is executing its strategy well, but we need more confidence in the broader market outlook to become more constructive on the stock given that it continues to trade at a premium to IGM.”
He kept a “sector perform” rating.
Others making changes include:
* RBC’s Geoffrey Kwan to $29 from $34 with an “outperform” rating
“There is potentially substantial valuation upside, BUT we think it’s primarily predicated on 2 things: (1) enhanced disclosure providing clear evidence of value creation in the RIA segment; and to a slightly lesser extent (2) sustained or stronger net sales performance,” said Mr. Kwan. “We think lack of progress in the short-term on one or both of these could limit valuation multiple expansion as significant share buybacks and meaningful insider buying in the past year or so have not driven sustainable increases in the share price. Ultimately, we think the shares are undervalued and that improvements in fundamentals in the past year warrant a higher valuation multiple, hence our Outperform rating.”
* KBW analyst Rob Lee to $29 from $36 with an “overweight” rating.
* CIBC’s Nik Priebe to $30 from $32 with an “outperformer” rating.