Canadian stock earnings this past week

Several Canadian companies reported earnings this past week – here’s a look at six companies covered by Morningstar analysts

Ruth Saldanha 16 February, 2019 | 7:00AM
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It’s been a busy week for Canadian companies declaring earnings, with several major names declaring results for 2018 this week. Here’s a look at six companies covered by Morningstar analysts – some with changes to fair value estimates as a result of their results!

Restaurant Brands International (QSR)

Morningstar Rating: ***

Restaurant Brands International, the company that owns Tim Hortons, Burger King, and Popeyes, announced its results early this week. Results were affected by roughly US$11 million in lower fees from franchisees due to the timing of certain restaurant openings/franchisee renewals as well as nonrecurring compensation expenses and temporary closures for the new Tim Hortons "Welcome Image" restaurant format, according to a Morningstar analyst report.

“While there were moving parts, we remain comfortable with our longer-term assumptions, including 5% annual net new unit growth, 2%-3% comps, and pro forma adjusted EBITDA margins growing to the mid-40s (reflecting franchisee fee/advertising fund accounting standards),” said Morningstar sector strategist R.J. Hottovy, who raised his fair value estimates by a few dollars.

Shopify (SHOP)

Morningstar Rating: ***

Ottawa-based cloud-based commerce platform Shopify announced that its total revenue for the full year 2018 was US$1.073 billion, a 59% increase over 2017. Within this, subscription solutions revenue grew 50% to US$465.0 million, while merchant solutions revenue grew 67% to US$608.2 million.

 “At checkout, Shopify reported fourth-quarter revenue surpassing our projections by a decent amount, while operating losses were not as bad as we expected for the growing software company. However, in 2019, Shopify will spend a significant amount on brand awareness and R&D to capture more international merchants. We now expect narrow-moat Shopify to become profitable in 2022, one year later than our previous estimate,” said Morningstar sector director Brian Colello, who slightly adjusted his fair value in Canadian dollars based on the foreign exchange rate.

Cenovus (CVE)

Morningstar Rating: ****

Cenovus Energy’s fourth-quarter upstream production averaged 432.7 thousand barrels of oil equivalent per day, down 13% sequentially, driven by voluntary curtailment of the company’s oil sands production.

“We expect the Keystone XL to be placed into service in 2021 and the Trans Mountain expansion to be placed into service by the end of 2022. Both of these projects will greatly improve the company’s upstream economics,” said Morningstar equity analyst Joe Gemino.

Manulife Financial (MFC)

Morningstar Rating: ***

Manulife Financial reported core earnings1 of US$5.6 billion in 2018, up 23% from 2017, and US$1.3 billion in 4Q18, up 8% from 4Q17.

“No-moat Manulife capped off a solid 2018 with slightly weaker fourth-quarter results. Though annualized return on equity fell to 5.3% (well below our 11% cost of equity) and net income dropped about 60% sequentially, these declines were primarily due to the impact of equity markets. Stripping out nonrecurring items, earnings were moderately lower across all business segments and down approximately 13% overall from the third quarter,” said Morningstar senior equity analyst Brett Horn, maintaining his fair value estimate for the stock.

TransCanada Corp (TRP)

Morningstar Rating: ****

TransCanada raised its dividends to 75 cents per quarter, up from 69 cents earlier, after it reported better higher profits.

“Comparable earnings surprised to the upside compared with our expectations, driven by better than-expected performance in the U.S. natural gas pipelines business, increased volumes on the Keystone Pipeline driven by excess Canadian crude supply, and lower U.S. income tax rates. The company also reported distributable cash flow of $1.7 billion, also above our expectations,” Gemino said. He did not change his fair value estimates for the stock.  

Bombardier (BBD.B)

Morningstar Rating: **** 


For the first time in five years, aircraft and train manufacturer Bombardier turned an annual profit, with a net income of US$318 in 2018. It also announced US$182 million of free cash flow for the full year, including the sale of the company's Downsview facility. “Since 2019 guidance wasn't materially different than what we heard at the 2018 investor day and the company confirmed 2020 targets, we're not changing our fair value estimate, which assumes the ongoing turnaround succeeds,” said Morningstar senior equity analyst Chris Higgins, who noted that the shares look cheap.


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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Bombardier Inc Registered Shs -A- Multiple Vtg Conv89.61 CAD3.94
Cenovus Energy Inc25.58 CAD-0.66
Manulife Financial Corp35.17 CAD-0.14Rating
Restaurant Brands International Inc94.84 CAD0.56Rating
Shopify Inc Registered Shs -A- Subord Vtg89.06 CAD1.88Rating
TC Energy Corp52.71 CAD0.94Rating

About Author

Ruth Saldanha

Ruth Saldanha  is Editorial Manager at Morningstar.ca. Follow her on Twitter @KarishmaRuth.

 
 
 

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