What to do with Lion Electric, Air Canada and MTY stocks? Here are some analyst recommendations that might move prices in the near future. Note: the author may have a completely different opinion than the analysts.
Lion Electric (LEV: $1.23): New loan received with lukewarm reception
Lion Electric, a Quebec-based company that has been experiencing quarterly losses since 2022 and is facing dwindling cash flow, received another government loan on Tuesday.
A new agreement with Investissement Québec provides Lion with a $5 million loan under the ESSOR program. This loan might reach $7.5 million under certain unspecified conditions.
The agreement also outlines a minimum three-year loan term with a 13% annual interest rate. It includes a 12-month moratorium on principal and interest payments.
Lion also announced amendments to certain senior credit instruments with National Bank of Canada, Bank of Montreal, Fédération des caisses Desjardins du Québec, Finalta Capital, Caisse de dépôt et placement du Québec, as well as a group of investors led by Groupe Mach and the Mirella and Lino Saputo Foundation.
This news did not inspire investor confidence, as the Quebec company’s stock dropped by 4% on the Toronto Stock Exchange on Tuesday, closing at $1.18. However, Desjardins analysts remain optimistic.
“We view these announcements positively. We believe this demonstrates the importance the Quebec government places on becoming a leader in the transition to electric vehicles in North America. And Lion is playing a key role in this ambition,” writes analyst Benoit Poirier.
“While this news should be welcomed by investors, we believe that additional support will be necessary if the company is to achieve long-term success. Until that happens, we prefer to remain on the sidelines,” he continued.
Desjardins maintains its recommendation to hold Lion shares while rating the risk level as “speculative”.
Dominique Talbot
Air Canada (AC, $17.89): Exaggerated pessimism according to this analyst
Air Canada (AC, $17.89): Exaggerated pessimism according to this analyst
During the pandemic, Air Canada’s market capitalization declined from over $13 billion to just over $3 billion. While it has since rebounded to around $6.4 billion, it remains far from its pre-pandemic level.
Despite financial recovery and debt reduction during the 2023 fiscal year, the market remains pessimistic regarding the stock.
Cameron Doerksen, an analyst at National Bank Financial, believes this pessimism is exaggerated. “We understand that the market is concerned regarding the sustainability of air travel demand and pricing, as well as the ongoing contract negotiations with the Air Canada pilots’ union. However, we believe that the current share price reflects too catastrophic a scenario for Air Canada.”
According to airport passenger screening data from the Canadian Air Transport Security Authority, the most recent seven-day moving average of passenger numbers saw a 4.8% increase and has been significantly higher this year compared to last year.
Airfares in Canada have stabilized over the past three months, with Statistics Canada reporting a 4.5% increase in May and a 15.6% increase compared to May 2019.
Overall Canadian industry capacity for the third quarter of 2024, measured in seats, is projected to increase by 0.9% from the previous year, but will be down 7.1% from the same quarter in 2019.
In the transborder market with the United States, industry capacity for the third quarter is expected to increase by 13.7% compared to the previous year, while international capacity to and from Canada is anticipated to increase by 8.7% compared to the previous year.
Cameron Doerksen believes Air Canada should see particular strength this summer on Pacific routes, where traffic increased by 36% in the first quarter and yields remained stable despite a 38% increase in capacity.
Air Canada’s stock is trading at just 2.9 times its enterprise value divided by EBITDA and 7.0 times its price-to-earnings ratio. This is below the stock’s historical average multiples.
The National Bank Financial analyst maintains his “outperform” rating but takes a more conservative approach by lowering his target price to $28, from $30 previously.
Matthew Hains
MTY Group (MTY: $45.11) Sales and organic growth declines
MTY Group (MTY: $45.11) Sales and organic growth declines
MTY Group will announce its second quarter results for its 2024 fiscal year next week, though the exact date has not been disclosed.
Analysts anticipate a 1% decline in company sales compared to the same period last year, along with a 5% to 6% decline in earnings before interest, taxes, depreciation, and amortization.
“We expect the quarter to be focused on organic growth and new store openings given the challenges posed by the current macroeconomic environment,” RBC Capital Markets analysts stated in a note published Wednesday morning.
MTY is likely to explore new acquisitions considering its strong cash flow. Debt reduction and dividend returns to investors should also be on its agenda. “In our view, MTY’s stock trades at a 6.9 multiple to the ratio of enterprise value to earnings before interest, taxes, depreciation and amortization, over our 2024 estimates. Relative to our 2025 estimates, that multiple is 6.8. That is well below the consensus five-year multiple of 9.6,” writes Tom Callaghan, analyst at RBC Capital Markets.
“While we view the stock’s current valuation as attractive, particularly given its high franchise count and cash flow generation, we are struggling to see a catalyst for MTY in the short term. Particularly given macroeconomic uncertainties and consumer pressures, as well as the group’s current focus on its balance sheets rather than mergers and acquisitions,” the analyst said.
RBC Capital Markets maintains its “perform” rating on MTY stock and its 12-month target of $51. This target is based on a multiple of 8.3 times pre-tax earnings, interest, depreciation, and amortization over 2024 estimates.
Dominique Talbot
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What to do with Lion Electric, Air Canada and MTY stocks? Here are some analyst recommendations that might move prices in the near future. Note: the author may have a completely different opinion than the analysts.
Lion Electric (LEV: $1.23): New loan received with lukewarm reception
As it has been racking up quarterly losses since 2022 and its cash flow is dwindling, the Quebec company Lion Electric received another helping hand from the government on Tuesday.
A new agreement with Investissement Québec provides that the Saint-Jérôme manufacturer of electric buses and trucks will obtain a loan of $5 million under the ESSOR program. Under certain conditions that have not been specified, this loan might reach $7.5 million.
The agreement also stipulates that the loan will be for a minimum term of three years, at an annual rate of 13% per year. A 12-month moratorium on the payment of principal and interest is also provided.
Lion also announced Tuesday that it has entered into amendments to certain of its senior credit instruments with National Bank of Canada, Bank of Montreal, Fédération des caisses Desjardins du Québec, Finalta Capital, Caisse de dépôt et placement du Québec, as well as with a group of investors led by Groupe Mach and the Mirella and Lino Saputo Foundation.
All this news did not reassure investors since the Quebec company’s stock fell 4% on the Toronto Stock Exchange on Tuesday, closing the day at $1.18. But for Desjardins analysts, there is still some good in these new acts of faith in Lion.
“Overall, we view these announcements positively. We believe this demonstrates the importance the Quebec government places on becoming a leader in the transition to electric vehicles in North America. And Lion is playing a key role in this ambition,” writes analyst Benoit Poirier.
“While this news should be welcomed by investors, we believe that additional support will be necessary if the company is to achieve long-term success. Until that happens, we prefer to remain on the sidelines,” he continued.
The financial institution therefore maintains its recommendation to hold Lion shares, while maintaining its risk level at “speculative”.
Dominique Talbot
Air Canada (AC, $17.89): Exaggerated pessimism according to this analyst
Air Canada (AC, $17.89): Exaggerated pessimism according to this analyst
During the pandemic, Air Canada’s market capitalization fell from over $13 billion to just over $3 billion and, while it has since rebounded to around $6.4 billion, it is still a long way from its pre-pandemic level.
Despite a financial recovery and debt reduction during the 2023 financial year, the market continues to be pessimistic regarding the stock.
For Cameron Doerksen, an analyst at National Bank Financial, this pessimism is exaggerated. “We understand that the market is concerned regarding the sustainability of air travel demand and pricing, as well as the ongoing contract negotiations with the Air Canada pilots’ union. However, we believe that the current share price reflects too catastrophic a scenario for Air Canada.” He said.
According to airport passenger screening data from the Canadian Air Transport Security Authority, the most recent seven-day moving average of passenger numbers was up 4.8 per cent and, so far this year, has been significantly higher than last year.
Airfares in Canada have also stabilized over the past three months, with the most recent figures from Statistics Canada showing prices up 4.5% in May and 15.6% compared to May 2019.
Overall Canadian industry capacity for the third quarter of 2024, measured in seats, is expected to be up 0.9% from the previous year, but down 7.1% from the same quarter in 2019.
In the transborder market with the United States, industry capacity will increase by 13.7% compared to the previous year in the third quarter, while international capacity to and from Canada is expected to increase by 8.7% compared to the previous year.
Cameron Doerksen believes Air Canada should see particular strength this summer on Pacific routes, where traffic increased 36 per cent in the first quarter and yields remained flat despite a 38 per cent increase in capacity.
Air Canada’s stock is trading at just 2.9 times its enterprise value divided by EBITDA and 7.0 times its price-to-earnings ratio. This is below the stock’s historical average multiples.
The National Bank Financial analyst maintains his “outperform” rating, but has decided to take a more conservative approach and lowers his target price to $28, from $30 previously.
Matthew Hains
MTY Group (MTY: $45.11) Sales and organic growth declines
MTY Group (MTY: $45.11) Sales and organic growth declines
The exact timing has not yet been specified, but next week MTY Group will announce its results for the second quarter of its 2024 financial year.
Analysts expect the company’s sales to decline by regarding 1% compared to the same period last year, as well as a 5% to 6% decline in earnings before interest, taxes, depreciation and amortization.
“We expect the quarter to be focused on organic growth and new store openings given the challenges posed by the current macroeconomic environment,” RBC Capital Markets analysts said in a note published Wednesday morning.
New acquisitions should also be on MTY’s radar given its strong cash flow. But so too should debt reduction and returns to investors in the form of dividends. “In our view, MTY’s stock trades at a 6.9 multiple to the ratio of enterprise value to earnings before interest, taxes, depreciation and amortization, over our 2024 estimates. Relative to our 2025 estimates, that multiple is 6.8. That is well below the consensus five-year multiple of 9.6,” writes Tom Callaghan, analyst at RBC Capital Markets.
“While we view the stock’s current valuation as attractive, particularly given its high franchise count and cash flow generation, we are struggling to see a catalyst for MTY in the short term. Particularly given macroeconomic uncertainties and consumer pressures, as well as the group’s current focus on its balance sheets rather than mergers and acquisitions,” the analyst said.
RBC Capital Markets maintains its “perform” rating on MTY stock, while maintaining its 12-month target of $51. This target is based on a multiple of 8.3 times pre-tax earnings, interest, depreciation and amortization over 2024 estimates.
Dominique Talbot
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Personal Finance — Every Friday
Get inspired by the advice of our financial planning experts and all the news that might affect the management of your assets.
