This TSX stock was a top gainer on the week with a 40% upside possible based on its growing market share, analyst says

Sea-Doo and Ski-Doo maker BRP Inc. reported earnings that featured 'good progress across the board,' analysts said. Photo by BOB DAVIES/Postmedia

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Why RBC Capital Markets is revising its price targets for the Big Banks, the case for a 35% dividend cut at Telus and more from The Week in Stocks. 

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Stock of the week: BRP Inc.

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Shares of BRP Inc. (DOO:TSX) closed out the week up just over nine per cent after the maker of the Sea-Doo and Ski-Doo reported earnings that featured “good progress across the board” on areas including new products, market share gains in the outdoor recreational vehicle segment and inventory sitting in a “healthy spot,” RBC Capital Markets analyst Sabahat Khan said in a note on March 26. Khan has a price target of $131 for shares of BRP, well above the 12-month consensus price target for 18 analysts of $119.84, based on Bloomberg data. Shares closed Friday at $91.83. BRP expanded its share of the North American market by approximately 12 per cent year over year and TD Cowen analyst Brian Morrison said he sees the “trend continuing based upon innovative and higher-end offerings.” Yet, “The macro environment clearly contains substantial uncertainty, but BRP is executing on its plans and we believe is well-positioned to outperform the industry, with levers to pull to achieve guidance even in a slower demand environment,” Mark Petrie, a CIBC Capital Markets analyst, said. Morrison has a price target of $119 and Petrie has a target of $118. However, Raymond James analyst Joseph Altobello trimmed back his price target for BRP to $115 from $117 on macroeconomic concerns, though he maintained a strong buy rating for the shares on earnings that “easily” beat estimates.

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Keeping score

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RBC revisits its take on the Big Banks

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RBC Capital Markets analyst Darko Mihelic cuts his price target for five of Canada’s Big Banks — excluding RBC, which they don’t cover — on broader risks. These include smouldering private credit risks, trade negotiations and geopolitics, and their effect on interest rates and the overall quality of credit. “We still see potential upside (but more modest upside) to current stock prices,” Mihelic said in a note on March 26.  RBC’s price target changes are as follows: Bank of Montreal (BMO:TSX) cut to $205 from $219. It closed Friday at $183.03; Bank of Nova Scotia (BNS:TSX) was cut to $98 from $106. It closed at $94.09; Canadian Imperial Bank of Commerce (CM:TSX) was cut to $147 from $158. It closed at $128.90; National Bank of Canada (NA:TSX) was cut to $180 from $193. It closed at $177.49; Toronto-Dominion Bank (TD:TSX) was cut to $138 from $148. It closed at $126.87. The S&P/TSX Canadian bank index is trading above historical averages for forward price to earnings (P/E) and price to book ratios, but Mihelic said his reduced median forward P/E of 14X is “defensible and reasonable” based on returns from previous comparable periods.

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Desjardins makes the case for a 35% dividend cut at Telus

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“Telus does not have to cut its dividend … but it should.” That’s the assessment of Desjardins Group analyst Jerome Dubreuil, who said in a note on March 26 that with a new chief executive in place the timing is right to rewire how capital is allocated. Telus Corp.‘s (T:TSX) balance sheet isn’t in trouble but the dividend payout ratio is slated to remain above 100 per cent for several years, Desjardins estimated. Dubreuil said a 35 per cent cut to the dividend and ending the discounted dividend reinvestment program (DDRIP), which he described as unpopular with investors, would help boost confidence in the company. The DDRIP program allows investors to purchase shares at a discounted price. “Share dilution has in fact been a persistent issue for T over the past decade,” Dubreuil said. The analyst also said Telus should sell its Telus Health unit and focus on core telecom operations. The funds generated from these moves would put Telus in a better debt position compared with BCE Inc. and Rogers Communications Inc., he said. Ultimately, Telus could start share buybacks to “directly address investor frustration around dilution,” Dubreuil said. Desjardins has a price target on Telus of $23 and a buy rating. Shares closed Friday at $17.73.