Watch: Stella-Jones, Transat A.T. and Canadian Western Bank

What to do with the shares of Stella-Jones, Transat and Canadian Western Bank? Here are some analyst recommendations that could move prices soon. Note: the author may have a totally different opinion from that expressed by the analysts.

Stella-Jones (SJ, $60.53): the first day of investors gives confidence
Stella-Jones had given a taste of its outlook through 2025 when it released its first-quarter results, which explains why the stock of the maker of telephone poles and railway sleepers reacted little on the rise. financial objectives during the first Investor Day, held on May 25.

It must be said that the action of Stella-Jones had soared 28% for six months on the stock market following record results in 2022.

Hamir Patel, of CIBC Capital Markets, still came out more confident than before from the meeting that quantified the growth path by 2025.

Stella-Jones confirmed that the growth in revenues and margins will be mainly based on the performance of telephone poles, whose momentum will moderate after 2024. Indeed, poles will provide half of the revenues within three years.

Growth will be strongest in 2023 and 2024 based on the projected compound annual increase of 20% in pole sales in 2023 and 2024. In 2025, this growth will increase to a rate of 5 to 7%.

About 40% of the increase will come from the increase in the number of units sold and the rest from higher prices.

Moreover, the producer even increases its capacity by 20% to meet demand and automates certain tasks, including the stacking of poles.

“Stella-Jones does not assume any significant pole price increases after 2023,” says Hamir Pattel.

By 2025, the manufacturer is therefore aiming for a compound annual growth of 6% in revenue and 9% in operating profit, without taking into account potential acquisitions. “In 2025, total revenues will reach $3.6 billion while the operating margin is expected to be 16% for the three years, 140 percentage points higher than the 14.6% achieved in 2022. », Specifies the analyst.

While strong demand for poles is providing the lion’s share of the expected growth, Hamir Patel also appreciates the non-cyclical nature of power and telecom and railroad maintenance and the escalation of contract prices.

In particular, the company should benefit from the investments required to strengthen infrastructure for automotive electrification, 5G communications and optical fiber to the home.

The producer also plans to distribute $500 million to its shareholders between 2023 and 2025, in the form of dividends and share buybacks, while remaining on the lookout for small additional acquisitions.

Hamir Patel recommends buying the stock, but maintains his target price of $69, or 9.25 times expected operating profit in 2024, less debt. This multiple is lower than the 10 times average of the last five years because the growth prospects of the residential wood division are more uncertain than before.

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