Wednesday’s analyst upgrades and downgrades

Inside the Market’s roundup of some of today’s key analyst actions

National Bank Financial analyst Zachary Evershed thinks Richelieu Hardware Ltd.’s (RCH-T) recent deal for The Penrod Company’s hardware division, which is its largest acquisition to date, expands its U.S. door presence and enables cross-selling of products already offered in Canada.

“We estimate total consideration at US$70-million ($100-million), roughly 1 times P/S,” he said. “Margins are expected to be broadly in line with RCH’s, implying a transaction multiple above RCH’s typical 4-6-times EBITDA acquisition range. Integration is expected to be approached with a light touch, maintaining Penrod as somewhat of a standalone operation given its distinct customer base. While Penrod immediately satisfies the company’s $100-million annual acquired sales target, RCH intends to continue pursuing M&A. We see pro forma Net Debt/EBITDA rising to 1.5 times from 1.3 times, leaving meaningful capacity for future acquisitions.”

He adjusted his third-quarter forecast for the Montreal-based specialty hardware distribution and manufacturing company to reflect the close of the deal and the announcement of a $15-million-plus expansion of its Drummondville distribution centre. While his sales projection rose to $538-million (versus the consensus of $536-million), he cut his EBITDA estimate to $60.3-million (versus $60.7-million) and EPS to 46 cents (versus 48 cents) “as tariff passthroughs are expected to weigh on margins.”

In a client report released Wednesday, Mr. Evershed also introduced his 2028 estimates, but he warned a “more bearish near-term backdrop for housing keeps our [the] rollout muted.”

“Home Depot and Lowe’s both attended a U.S. consumer and retailer conference on September 15, providing valuable readthroughs for RCH’s sales to retailers,” he said. “HD indicated no clear H2 inflection in housing or consumer demand. Management noted that consumers still have the means to spend but remain cautious given elevated interest rates, inflation, fuel prices and employment concerns, resulting in continued deferral of larger discretionary projects. LOW indicated H2 is expected to look broadly similar to H1, with no meaningful improvement or deterioration in the broader macro backdrop assumed. Consumers are favouring smaller, more deliberate renovations such as countertops and cabinets, although management characterized both the consumer and small-to-medium Pro customer as resilient.”

“Increasing economic uncertainty is also weighing on the housing complex north of the border in Canada even before the impact of the uptick in bond yields presents itself. With a lacklustre outlook for end market demand across North America, we trim our 2027 organic growth forecasts, resulting in lower operating leverage as management has indicated material margin expansion is contingent on a recovery in volumes. On the balance, this sees our 2027 EPS fall, despite the accretion brought by Penrod.”

The analyst added “higher long-term yields, continued softness in housing activity and a delayed recovery in residential construction also keep our expectations muted for 2028e, though we do assume a recovery in U.S. and Canadian new residential construction and R&R spending, with 40-per-cent organic growth and another 40 bps of margin expansion for RCH.”

Maintaining his “sector perform” rating for Richelieu shares, Mr. Evershed bumped his target to $38.50 from $38. The averge is $38.75.

“While we expect Penrod to yield LSD [low-single-digit] EPS accretion, this is partially offset by our more cautious outlook as our hopes for a housing recovery are once again pushed to the right by rising yields,” he said. “Nevertheless, as we roll out our model to 2028, we raise our target to $38.50 (was $38) ... Given limited near-term catalysts and a fulsome valuation, we reiterate our SP rating.”

TD Cowen analyst Derek Lessard sees the setup for High Tide Inc. (HITI-X) as “compelling” and reaffirmed Calgary-based company as his “Canada Best Idea” in cannabis.

“The company has leading retail share, best-in-class operating metrics, and several underappreciated growth levers,” he said. “With the stock down more than 30 per cent over the past year and trading at a 20-per-cent discount to its two-year average on forward consensus EV/EBITDA, we see meaningful upside from here.

“High Tide’s retail position and industry-leading KPIs are supported by hard-to-replicate advantages. Cabana Club is a resilient loyalty platform that has driven meaningful share gains, while multiple margin levers and a long runway for store growth should support continued earnings momentum. Remexian adds a second growth engine that should contribute incremental earnings and help drive a valuation re-rating over time.”

In a client note released Wednesday, Mr. Lessard said investors appear to be “overlooking just how consistently HITI continues to outperform peers.”

“Chained SSS [same-store sales] are up triple digits since Cabana Club launched versus a 1-per-cent decline for the average operator, while flat Q3 SSS compared favorably against SNDL’s latest print of negative 5 per cent,” he explained. “In our view, these results demonstrate HITI’s ability to capture a disproportionate share of traffic across consumer environments. The market also appears to be giving limited credit to Remexian’s longer-term earnings potential as volumes scale and sourcing efficiencies improve.

“Catalysts and milestones to watch key catalysts include execution, further Remexian gains (i.e., volume growth and margin expansion supported by Canadian-sourced supply), improving SSS trends, and ongoing industry consolidation. Longer term, we see upside from a higher Ontario store cap, potential SNDL store divestitures, and international expansion beyond Germany.”

Mr. Lessard has a “buy” rating and $6.50 target for High Tide shares. The average on the Street is $5.33.

“Our target price applies a 7.3 times multiple to our adjusted EBITDA estimate for the 12 months ending July 2028,” he said. This represents a slight premium to HITI’s two-year historical average of 7.0 times on NTM [next 12-month] consensus EV/EBITDA, which we view as justified given the company’s clear retail market leadership, potentially replicable international model, and unparalleled store economics.”

In separate notes, these stocks were selected for the “Canada Best Ideas” list:

* Barrick Mining Corp. (B-N, ABX-T) with a “buy” rating and US$59 target. Average: US$50.33.

Steven Green: “Barrick offers an attractive combination of improving operational execution, strong FCF generation and near-term IPO catalysts. While the recent Fourmile transaction was completed at a discount to the asset’s value in our view, it clears a key hurdle for the planned NA IPO and should accelerate Fourmile’s development. We see meaningful valuation upside with a narrowing of B’s discount to peer.”

* Celestica Inc. (CLS-N, CLS-T) with a “buy” rating and US$430 target. Average: US$467.45.

John Shao: “Long-term demand visibility remains the key investor debate. Using a proprietary framework built on the latest industry data, we estimate more stable refresh-driven demand in 2030+ could support $20-billion of annual revenue, or equivalent to its F26E run rate today. This improved visibility, plus the added confidence from our revamped modeling approach, underpins CLS as our Canada Best Idea.”

While the financial guidance NanoXplore Inc. (GRA-T) came in “meaningfully below” his expectations, RBC Dominion Securities analyst James McGarragle sees “several opportunities, with insulating foam the most near-term, as representing potential upside not reflected in the guide.”

“Management is also targeting positive FCF in F27, and we view scaling volumes and margin expansion as key to operating leverage and FCF generation through F28; both of which we see as important catalyst,” he added.

In a note released before the bell, Mr. McGarragle warned shares of the Montreal-based manufacturer and supplier of high-volume graphene powder are likely to be under pressure on Wednesday despite reporting stronger-than-anticipated fourth-quarter results. The concern stems from management’s expectation for fiscal 2027 and 2028 revenues of $130–$140-million and $160–$170-million, respectively, which are both below the consensus projections of $149-million and $210-million, respectively.

“The F27 shortfall was attributable to the delay of two Volvo programs into F28 due to regulatory changes,” he added. “That said, management commentary implied the guide is conservative, and we flag below several opportunities representing potential upside not reflected in current numbers.

“Key opportunities represent upside potential to guidance. Insulating foam is the most near-term opportunity, with one major customer in the final stages of approvals (expected demand: 1,000 tons of masterbatch at 30-per-cent graphene loading in the first full year). Management expects to begin supplying ‘later this year,’ which we view as within 3–6 months. Foam carries higher graphene loading than existing products, making it structurally higher-margin. Beyond foam, Industrial & Consumer Plastic Films, Drilling Fluids, and Conductive Graphene could represent additional upside opportunities with attractive margin profiles, none of which are fully baked into guidance.”

Mr. McGarragle also emphasized the presence of a “meaningful FCF inflection opportunity” for NanoXplore.

“Management highlighted FCF turning positive in F27, enabled by lower capex ($1-million/quarter starting FQ1/27), tooling receivable collections, and 200 basis points of gross margin expansion by FQ4/27,” he said. “We view execution on margin expansion and commercialization as the key variables to watch. Looking to F28, we see the combination of a revenue step-up and continued margin expansion from high-margin graphene driving operating leverage and supporting a meaningfully stronger FCF profile. We forecast a 5-per-cent FCF yield in F28.”

To reflect the late Tuesday quarterly announcement as well as changes to his valuation methodology, Mr. McGarragle cut his target for the company’s shares to $1.75 from $2.50, keeping a “sector perform” rating. The average target on the Street is $2.65.

In the wake of a recent sell-off in Canada’s Real Estate sector, Desjardins Securities analyst Lorne Kalmar now sees “significant upside” for retail REIT valuations.

“Grocery-anchored retail has become one of the most sought-after property types as rapid growth in retailer store counts and a shortage of space have pushed occupancy rates to near-full levels, rent growth firmly into the double digits, and investor demand sharply higher,” he said. “This has translated into a meaningful decline in cap rates since the 2Q24 peak, with the pending FCR deal set to represent a highwater mark for retail valuations. We do not believe the cap rate compression observed in the private market has been appropriately reflected in consensus estimates or REIT IFRS NAVs.”

In a client report released before the bell on Wednesday, Mr. Kalmar said retail cap rates have declined by 30 basis points since peaking in the second quarter of 2024, including a 50-basis-points drop for grocery-anchored assets, emphasizing that is “the most significant cap rate compression of any asset class over that period, excluding seniors housing.”

“Based on recent transaction comps, including CHP’s pending acquisition of FCR’s core retail portfolio, we see room for additional compression near-term. However, we do not believe this is reflected in consensus or REIT IFRS NAVs,” he added. “We also found that retail REIT IFRS NAV cap rates have been more stagnant than reported market cap rates over the past several years. Given pricing on the FCR deal and other recent transaction comps, we see room for further compression of REIT IFRS NAV cap rates in the coming quarters.

“After a strong 1H26, retail REIT unit prices have retreated, alongside the broader REIT sector, as bond yields climbed higher. The FCR takeout initially helped propel unit prices and, in our view, provided much-needed validation for retail sector NAVs. At the 2026 peak, retail REITs were trading in line with NAV, with several trading at premiums. However, on the back of the recent pullback, the sub-sector now trades at an average NAV discount of 10 per cent. We believe retail REITs should trade largely in line with NAV given the current fundamental landscape, improved SPNOI outlook, lower leverage, and portfolio quality enhancements achieved since the pandemic, along with the pricing validation from recent transaction comps. Combined with further potential cap rate compression, we see meaningful upside to retail REIT valuations from current levels.”

In other analyst actions:

* Expecting Restaurant Brands International Inc. (QSR-N, QSR-T) to return to 5-per-cent global unit growth and high-single-digit system-wide sales growth by 2028, Seaport Global Securities’ Eric Gonzalez initiated coverage of the parent company of Tim Hortons and Burger King with a “buy” rating and US$88. The average on the Street is US$84.13.