Stockchase Insights

Telus has seen decent momentum in the recent months as the Bank of Canada has begun cutting rates, further helping to support highly-indebted telco names. It has a strong yield of 6.8%, and with bond yields declining, investors will likely seek out high-dividend paying stocks in light of this. We think it can see positive momentum from here, but there may be some chop along the way. 

The utilities sector should also benefit from declining rates, and we think this is an attractive area in the medium to long-term.
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DOO reported EPS of 61c, beating estimates of 44c but declining from prior quarterly levels of $3.21. Revenue came in at $1.84B missing estimates of $1.89B and declining 34% year-over-year. Lower revenues were attributed to lower volume across most product lines as it continued to reduce its network inventory levels. Operating margins also dropped 470 basis points as a result of the lower volumes. DOO also cut its FY2025 guidace significantly. Revenue of C$7.8B-C$8B is expected from C$8.6B-C$8.9B, and normalized EPS of C$2.75-C$3.25 is expected from C$6.00-C$7.00. The results were of course not good and highlight the softening industry demand and transitional period the company is entering, as described in our recent report.
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EPS of 37c beat estimates of 35.7c. Revenue of $130.5M slightly beat estimates of $129.7M. EBITDA of $37.7M beat estimates by 4.6%. Revenue rose 18%. EBITDA rose 13%. Recurring revenue rose 22.8%. Net income rosr 17%. Seachange is being integrated well. Net cash is $245M. Nothing too extraordinary here, but a beat and decent overall growth. Earnings are expected to rise 13% in 2025. 
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Company Highlight: Boralex Inc. (BLX)

BLX is a Canadian developer, owner, and operator of renewable energy power facilities in Canada, France the United States, and United Kingdom. BLX has been working in renewable energy for the past 30 years and has a workforce of over 790 people. The company operates primarily across three types of renewable energy: wind, solar, and hydroelectric (including energy storage). It has 102 Wind Farms, 13 Solar Power Stations, 15 Hydroelectric power stations and 2 storage units. This gives the company an installed capacity of 3,133 MW across 132 sites. BLX has 264 MW under construction expected to be commissioned in 2024 & 2025, and a pipeline of 587 MW.
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SNY touched the bottom of its range in October 2023 on weak earnings and news that it would spin-off its consumer healthcare operations. The stock looks to be breaking out and while very hard to predict we think it is possible it trades in a higher new range. The drop last year was likely a one-off driven by the spin-off news, and barring a significant news item as such or consistently weak earnings, we would be surprised if it got back to the low-end of its range.
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For the quarter-ended, SES reported EPS of 12c missing estimates of 13c. Revenue (Excl oil purchase and resale) beat estimates of $333M coming in at $337M declining from $353M from the year prior. Adjusted EBITDA was $114M, declining from $119M but coming in well-ahead of forecasts of $102.15M. The comapny's CEO stated, "Strong second quarter results were driven by robust industry fundamentals, favorable weather conditions, and continued operational execution across our business units, resulting in double digit revenue growth on a same store sales basis." SES also raised its full-year adjusted EBITDA guidance and repurchased approximately 11% of outstanding shares in the quarter. The decline in revenue appears to be driven by wek industry conditions, but we think the results are fine outside of that. The adjusted EBITDA guidance raise is good to see and SES continues to be cheap at 13.5x forward earnings. 
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E has doubled this year, bringing market cap to $91M. It remains cheap at 10X earnings. There has been no major news, but Q2 earnings were fine with EBITDA more than doubling and margins increasing. It got new coverage from Acumen Capital. It has leverage to large contracts. There has been some insider buying. With its small size and 35% insider ownership we do not want to underestimate its risks here, but its fundamentals look good, the balance sheet is OK and as small caps move towards $100M market cap they do tend to get more attention from investors. We would be OK owning a small position as part of an overall small cap allocation. 
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Company Highlight: Northland Power Inc. (NPI)

NPI is a diversified Canadian utilities company specializing in developing offshore wind and onshore renewable energy projects. NPI was established in 1987 and is one of Canada’s first independent power producers and is now headquartered in Toronto with global offices in eight countries. NPI owns an economic interest in 3.4 GW (net 2.9 GW) of operating generating capacity and a significant inventory of early-to-mid-stage development opportunities encompassing approximately 15 GW of potential capacity. The company’s primary focus is on offshore wind, onshore renewable solar, wind, and battery storage.
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MDT is a mature MedTech company that is now trading at a 15.9x Forward P/E. Over the last few years, MDT’s valuation has ranged from 13.4x to 22.8x Forward P/E, we think the current valuation is fairly attractive. MDT’s share price has performed well recently due to a combination of 1) investors moving to defensive sectors with stable cash flows 2) MDT reported very solid earnings with a 5.3% organic growth rate.
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REG is a mineral exploration company that acquires mineral resources that management feels have overlooked potential, it adds value by investing in the sites, and monetized by selling to a major mining company. In 2005, it acquired Antares Mineral, invested in exploration on the site, and sold to First Quantum in 2010 for $650M. Currently, it is focusing in its flagship project, the AntaKori copper-gold project in Northern Peru. REG is conducting drilling programs at AntaKori, and has some partnerships with Osisko Gold Royalties in respect to AntaKori. It could sell the project down the line to monetize it and add shareholder value. For now, it is pre-revenue, its momentum has been good, and the management team is experienced. We think it looks interesting, but being a small company and with no revenues, we would consider it to be on the riskier side. We would be OK with a small position, while acknowledging its small-cap risks, and slightly more speculative in nature.
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MEDP’s share price has been under pressure since the company reported its earnings and is now trading at 29.5x Forward P/E. In the last few years, MEDP managed to grow its topline by double-digits organically, which is a very solid growth rate. The balance sheet is strong, with no long-term debt. The company has a track record of repurchasing shares aggressively. Based on consensus estimates, sales are expected to grow by 12%-15% over the next few years. That being said, MEDP is still not trading at attractive levels yet, we think it can get interesting if it gets to around $340.
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The Value of Dividends + Indexing:

Most media outlets report on how the S&P/TSX composite, S&P 500, Dow Jones or Nasdaq indexes are doing. In almost every case, however, they are reporting an incomplete picture. Most quoted indexes do not include dividends. A better index to use, especially when looking at annual returns, is a total return index.

For example, the S&P/TSX composite in 2023 rose eight per cent, but its total return index rose 11.8 per cent. It is important to include dividends when comparing investment performance because they form a very big part of a portfolio’s total return.
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MDT is a mature MedTech company that is now trading at a 15.9x Forward P/E. Over the last few years, MDT’s valuation has ranged from 13.4x to 22.8x Forward P/E, we think the current valuation is fairly attractive. MDT’s share price has performed well recently due to a combination of 1) investors moving to defensive sectors with stable cash flows 2) MDT reported very solid earnings with a 5.3% organic growth rate.
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DG dropped significantly after the earnings release and is now trading at 11.8x Forward P/E, a record low compared to historical averages. The reason for the sharp drawdown was mainly due to weak operating results and a downward revision in guidance. In the 2Q, DG’s revenue grew 4% to $10.2B, missing estimates of $10.37B and EPS of $1.7 also missed estimates of $1.79. DG revised guidance in same-store sales down, which is expected to be between 1%-1.6%, a reduction from 2%-2.7% that DG previously forecasted. The company mentioned the weak results were largely due to financially constrained customers, however, both WMT and TGT reported solid numbers a few weeks ago. The balance sheet is leveraged with a net debt/EBITDA of 3.0x, which DG is paying down gradually. DG brought back the old CEO with the hopes that he could turn around the company’s operations, which have decelerated meaningfully in recent years. Overall, a very weak earnings result - we think investors are better off looking somewhere else until DG demonstrates a path to recovery.
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PXT EPS was $4.32, vs estimates $4.19; revenue of $1.17B missed estimates of $1.26B. But production guidance was lowered. Parex's disappointing operational performance again in 2Q  was caused by flooding at LLA-34 and lower-than-expected results at Arauca. Still, solid financial results suggest free-cash-flow momentum may extend into 2H amid a constructive oil price backdrop. Suppressed 1H volume indicates full-year production may be at or below the low end of guidance of 54,000-60,000 barrels a day, amid an operational halt at Arauca. Climbing operating cash should cover capital outlays, which will likely be at the lower end of $390-$430 million range this year. A 32% surge in 2Q free cash underscores Parex's cash-generative profile and should accommodate its annual dividend payout of $115 million (8% yield), suggesting scope for share buybacks in 3Q. But the CFO resignation adds uncertainty, and investors will probably start questioning the dividend. The stock is VERY cheap, but it was cheap three months ago as well. Operational performance needs to improve. We think, while it is generally OK due to the revised valuation and balance sheet, buyers can wait for this to shake out some more. 
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