Raised Targets National Bank’s Rupert Merer raised his GFL Environmental Inc. target to $58 from $55 with an “outperform” recommendation. Other changes include: CIBC’s Kevin Chiang to $59 from $58 with an “outperformer” rating and Scotia’s Michael Doumet to $60 from $58 with a “sector outperform” rating. The average is $53.04.
“GFL’s lagging share price effectively embedded lower expectations, which it comfortably exceeded,” said Mr. Doumet. “While the shares were up 5 per cent post-1Q, its valuation gap still remains: as it did prior to 1Q. GFL trades at a 10-per-cent discount to its historical average (using EV/EBITDA), while its peers trade an average premium of more than 10 per cent to their historical averages. GFL’s 1Q beat wasn’t the biggest, but its margin expansion may be the highest in 2024.
“We also believe the valuation delta is partly due to the unfavorable setup in 2024: its EBITDA/FCF growth is slower because it is focused on delevering. However, whereas, in 2024, GFL is limiting M&A to fund RNG/EPR and delever its B/S more rapidly, in 2025, rising contributions from RNG/ EPR and a sizable FCF ramp should permit GFL to re-accelerate M&A and delever its B/S at a solid pace. We view this combined M&A re-acceleration and B/S delevering in 2025 as an inflection point for the story. And, given the likelihood of an increase to the 2024 EBITDA guide in 2Q, we think the ‘urgency’ to own the name has moved up.”