Several Upgrades ==
In the wake of “stellar” first-quarter results, Toromont Industries Ltd. (
) deserves a premium valuation, according to Canaccord Genuity analyst Yuri Lynk, citing its lack of net debt, 32 years of consecutive dividend growth and the ability to generate 20-per-cent return on invested capital in a down year.
“Mining orders inflected in Q1/2021, driving Equipment Group (EG) backlog up 108 per cent year-over-year and improving the outlook for equipment sales and follow-on, higher margin after-market revenue,” he said. “Toromont is nearly net debt free and boasts a management team and board that are excellent stewards of capital. We continue to view Toromont as a core holding.”
After the bell on Tuesday, the Toronto-based heavy equipment dealer reported earnings per share for the first quarter of 58 cents, up 38 per cent year-over-year and easily exceeding both Mr. Lynk’s 45-cent estimate and the consensus forecast on the Street of 48 cents. Revenue increased 13 per cent to $806 million, also topping expectations ($734-million and $733-million, respectively).
“With management noting the pandemic has caused different ordering patterns from its customers, we believe some sales may have been pulled forward,” said Mr. Lynk. “Nevertheless, it was a strong top-line beat. Operating income was $70-million and 8.7 per cent of revenue versus our $56-million and 7.6-per-cent respective estimates.”
“We take our 2021 EPS estimate to $3.81 from $3.66 and adjust 2022 to $4.28 from $4.26. Q1/2021 was a substantial beat yet mining and rental had little contribution. Once these begin to contribute, while construction and power systems demand remains healthy, we see EPS and DPS continuing to increase through our forecast horizon.”
Keeping a “buy” rating for Toromont shares, Mr. Lynk hiked his target to $111 from $107, topping the consensus of $105.56.
Elsewhere, BMO Nesbitt Burns’ Devin Dodge increased his target to $105 from $96 with a “market perform” rating.
“TIH delivered strong Q1 results and the record equipment bookings confirm that underlying demand in its regions is very favourable,” said Mr. Dodge. “Cost discipline remains a core philosophy that should support attractive incremental margins and earnings growth as revenues shift higher. Moreover, the balance sheet is under-levered, which provides TIH with flexibility to pursue attractive capital deployment opportunities as they arise. However, we believe the current valuation captures this optimism.”