Carney in Washington, Palantir falls, Ford warns of tariff costs, Parkland drama, Toronto home sales plunge
Normally when we go to the store, my eldest shops like she’s 140th in line to the Saudi throne and just got dropped off at Harrods. But this weekend we told her she can spend her tooth fairy money on anything she likes. Suddenly she went from being a shopaholic to a stone-cold value investor – scrutinizing every item and its potential return on joy. Fiscal conservatives aren’t born, they’re made.
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Trade and trading: Futures are under pressure this morning after a sloppy session yesterday in which both Canadian and American markets fell. Prime Minister Mark Carney is in Washington this morning and is expected to meet with US President Donald Trump at 11:45amET. It is the first major test of Carney who came to power in part because of a perception that he was better equipped to handle negotiations with the US. The tone of the conversation will also likely matter to global markets who are desperate for any sign of progress on trade deals with any country. Beyond trade, earnings are in focus on the TSX with 21 companies reporting today and seven reporting last night. In the US, there are 31 companies reporting today including Palantir (more below) and DoorDash (which beat, but announced an acquisition and the stock is down 3.6% in the pre-market). Tomorrow is the Federal Reserve’s rate decision. I’m also watching oil which is bouncing off a four-year low this morning, up about 2%. I must say, oil stocks in Canada have held up pretty well considering the big drop in crude. Perhaps that relative strength suggests investors don’t believe the slump in prices will be prolonged or beyond what companies can manage.
I’ll clap when I’m impressed: Shares of AI-darling Palantir are falling 7.5% in the pre-market despite better than expected quarterly results and boosting its full year sales forecast. It seems the boosted forecast isn’t enough to satisfy investors who are riding monster gains in the stock. With the stock trading near a record high, investors appear disappointed with a forecast that calls for only 36% sales growth amidst what Palantir says is “ravenous whirlwind” demand for AI software. Investors have had concerns that a pull back in government spending could weigh on the stock, but this quarter showed no signs of that. In fact, sales to the US government jumped 45% from last year. “We view Palantir as a generational tech name that we see as a trillion market cap over the next three years with PLTR being a core name in the AI Revolution theme over the coming years,” wrote Wedbush’s Dan Ives. Still, for a stock that has soared 390% over the past year it has its fair share of haters. Only a handful of analysts recommend you buy the stock here given the rich valuation (7 buys, 16 holds, 4 sells.) “…We are maintaining our Market Perform rating given our view that shares need to consolidate stellar gains over the last couple of years and grow into its rich valuation,” wrote Brian Gesuale of Raymond James at the same time that he nudged up his forecasts to a street-high. There in lies the rub, it performs – but it’s a very expensive stock. Gesuale notes it trades at 60x sales, vs its historical average of 17x sales.
After party: Keep an eye on shares of TMX Group at the open after profit missed expectations and expenses came in higher than expected. The owner of the Toronto Stock Exchange is trading near a record high so the miss could create pressure on the stock. Nevertheless, the results are solid says Scotia’s Phil Hardie. “The recent spike in market volatility has helped drive stronger equity and derivatives trading volumes, which, combined with continued momentum across data & analytics-oriented businesses, has supported a healthy near-term top-line environment,” wrote Hardie. TD wouldn’t chase the stock here, noting valuation looks full. “TMX is currently trading at 19.2x EV/EBITDA, and 27.9x P/E (4QF). These multiples are 12% and 8% premiums, respectively, to TMX’s closest comparables (ICE, NDAQ, and LSE in our view). TMX has historically traded at a discount to these comparables given their higher recurring / market data revenue mix,” wrote TD’s Graham Ryding. Baytex is bouncing in the pre-market as oil prices move higher and the company announced that it will be pausing buybacks in favour of debt reduction. Given the lower oil prices it will now shift 100% of it’s free cash flow to paying down debt instead of its previous 50/50 model between debt reduction and buybacks. “While buybacks will be paused, the net benefit of the free cashflow still flows indirectly to equity holders through debt reduction,” wrote ATB’s Amir Arif. Shares of Ford are under pressure in the pre-market (down 2%) after yanking its financial forecast and warning that tariffs were going to increase costs by $1.5 billion. It’s quarterly results actually came in better than expected with profit better and sales not falling as much as feared.
Drama: Dissident shareholder Simpson Oil lost a bid in court to force Parkland to hold its AGM today after the company announced it was being sold to Sunoco. It was a dramatic turn of events because just Friday Simpson said they have the votes to overthrow the board. Then yesterday the board announced they’ve sold the company and the meeting to vote on that transaction will now take place on June 24th. Process matters here in terms of their ability to get the deal done. For one thing, will Canada allow a US acquisition post-Liberation day? If Japan can say their gas stations are a matter of national security, will Canada do the same? Shareholders will now have to decide whether they want to take the $44/share all-cash offer or continue to fight. “(Sunoco) is attempting a friendly takeover and needs 66 and 2/3 percent approval but if it feels like it won’t get it, (Sunoco) can initiate a takeover bid that would only require 50%+1,” wrote ATB’s Nate Heywood, “If the vote for the transaction is unsuccessful, the PKI Board would be expected to resign.” There is also the chance Sunoco will be forced to sweeten the bid according to Steve Hansen at Raymond James. “While we’re inclined to believe that many shareholders will be enamored with this proposed deal, Simpson Oil (19.8% shareholder) is clearly not, leading us to believe SUN will need to sweeten the offer to get it done,” Hansen said.
Buyers market: Home sales in Toronto for April plunged 23% from last year and home prices fell. Prices were down 5.4% in April, worse than the 3.8% decline in March. This comes as buyers have a plethora of choice, there was a 54% increase in listings from last year. “Bottom line: Despite a string of BoC rate cuts, the Toronto housing market remains under pressure as households face major uncertainty,” wrote BMO Senior Economist Priscilla Thiagamoorthy.
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