I just initiated a position out the gate this morning. GLTA
Canadian Tire Corp. Ltd. finished 2020 “on an exceptionally strong note,” according to Desjardins Securities analyst Chris Li.
“The much better-than-expected 4Q results justify the strong share price performance over the past few months,” he said. “We believe further upside is possible if CTC shows a path to earnings growth in a post-COVID-19 world. While not easy, we believe CTC has multiple sales-growth and cost-reduction levers to lead the way.”
However, shares of the retailer closed down just over 0.1 per cent on Thursday following the premarket earnings release, leading Mr. Li to suggest the Street had largely expected the “exceptionally strong” retail results, that led to normalized earnings per share growth of 52 per cent, topping the consensus expectation of 26 per cent.
“CTC has been one of the best-performing stocks in our consumer coverage, with a one-year return of 20 per cent,” the analyst said. “While we do not view valuation as demanding at 13.2 times 2021 EPS (largely in line with the long-term average), we believe further upside will come only as investors gain more visibility on CTC’s earnings power in a post-COVID-19 world.
“A key question is whether CTC will be able to leverage its competitive advantages (ie Triangle loyalty program, enhanced data analytics, owned brands and e-commerce) to gain market share and replace lower at-home demand once the pandemic is under control. Getting the correct level of CTR revenue post the pandemic is critical. In 2022, we expect CTR revenue to be 16 per cent higher than in 2019. This implies an average annual growth rate of 5 per cent. Between 2015 and 2019, CTR revenue growth averaged only 3.5 per cent per year. All else equal, every 100 basis points change in our 2022 revenue growth assumption impacts our EPS forecast by 35 cents (2 per cent).”
Citing the near-term impact of COVID-19 lockdown restrictions, Mr. Li lowered his 2021 earnings per share expectation to $13.30 from $13.61. However, he raised his target price for its shares to $195 from $180. The average on the Street is $178.09.
He kept a “buy” rating.
Other analysts making target price adjustments include:
* CIBC’s Mark Petrie to $202 from $198 with an “outperformer” rating
* Scotia Capital’s Patricia Baker to $202 from $185 with a “sector outperformer” rating.
* Canaccord Genuity’s Derek Dley to $190 from $160 with a “hold” rating.
* BMO Nesbitt Burns’ Peter Sklar to $178 from $157 with an “outperform” rating.
* National Bank Financial’s Vishal Shreedhar to $199 from $189 with an “outperform” rating.