TD Raises Target TD Cowen analyst Cherilyn Radbourne is “somewhat cautious” on Canadian heavy equipment dealers heading into earnings season, believing near-term conditions remain “fluid”.
“We see an improving medium- to long-term growth trajectory: 1) strong new equipment sales (2021-2025E) provide visibility to a future product support annuity; 2) there is a long runway of opportunities in power, related to data centres, distributed power, and natural gas as a transition fuel; and 3) the establishment of a Major Projects Office to expedite large infrastructure projects in the national interest is positive,” she added. “The initial list of 5 major projects skews west vs. east, but the broader list spans Canada. We have increased our target multiples for Finning/Toromont and rolled forward our price target horizon to the 12 months ending 9/30/2027 for all 3 companies.
“[Bellwether] Caterpillar is hosting an Investor Day on November 4. We anticipate a focus on 1) growing the services business; 2) new technology; and 3) the energy transition, which stimulates demand for key commodities/expands the addressable market in power. Caterpillar has always credited its dealer network as a competitive advantage, and we believe the company is increasingly reliant on large, sophisticated, well-capitalized dealers like Finning/Toromont to achieve its strategic objectives.”
Ms. Radbourne made these target changes:
* Finning International Inc. ( “buy”) to $81 from $69. Average: $67.44.
Analyst: “Finning has enjoyed approximately 5 turns of P/E multiple expansion year-to-date, but the starting point was low, and the increase has been supported by improved execution. Our price target is now based on 16.5 times, which is just slightly above where the stock currently trades, and well within the 10-year range.”
* Toromont Industries Ltd. ( “buy”) to $179 from $154. Average: $152.22.
Analyst: “Our price target on Toromont is now based on 25 times, which is somewhat above its 10-year range, but we are comfortable with a premium, based on our sector outlook and view of Toromont as a core industrial holding.”