On Thursday, CFRA analyst upgraded Canadian Tire Corp Ltd (TSX:CTCa). (CTC/A:CN) (OTC: CDNAF) from Hold to Buy, setting a new price target of Cdn$175.00, up from the previous Cdn$145.00.
CFRA's decision came after Canadian Tire reported a notable increase in its third-quarter adjusted earnings per share (EPS), which at Cdn$3.59, surpassed the Cdn$2.96 reported in the same quarter of the previous year, marking a 21% rise. This performance exceeded the consensus expectation of Cdn$3.04.
The upgrade reflects revised earnings per share (EPS) estimates, which have been increased to Cdn$12.90 from Cdn$12.60 for 2024, and to Cdn$14.60 from Cdn$14.45 for 2025. The analyst's target price is based on a price-to-earnings (P/E) ratio of 12.0x, which is a discount to Canadian Tire's 10-year average forward P/E of 13.0x.
Canadian Tire's third-quarter results were bolstered by stronger-than-anticipated comparable store sales and margins. Despite a 1.4% decline in revenue to Cdn$4.19 billion, which was still Cdn$10 million ahead of the consensus, and a 1.5% drop in comparable store sales, the company's gross margin expanded by 30 basis points to 34.1%, 20 basis points ahead of consensus figures.
Management at Canadian Tire noted an improvement in sales trends, although they also acknowledged that consumer spending remains constrained, with customers looking for value. The analyst believes that the consensus estimates for Canadian Tire are too low and anticipates that headwinds related to consumer spending will begin to ease. He also expects year-over-year comparisons to be more favorable by 2025.
Additionally, the analyst finds Canadian Tire's current dividend yield of 4.7% attractive, especially after the company recently increased its annual dividend to $7.10 per share. The upgraded rating and price target reflect a positive outlook on the company's future performance.
InvestingPro Insights
To complement the analysis provided by CFRA's analyst, InvestingPro data offers additional insights into Canadian Tire's financial position and market performance. The company's market capitalization stands at USD 6.18 billion, reflecting its significant presence in the retail sector.
Canadian Tire's P/E ratio of 33.24 is notably higher than its adjusted P/E ratio of 16.79 for the last twelve months as of Q2 2024, suggesting that the market may be pricing in future growth expectations. This aligns with CFRA's optimistic outlook and increased EPS estimates for the coming years.
InvestingPro Tips highlight Canadian Tire's strong dividend history, having raised its dividend for 14 consecutive years and maintained payments for an impressive 52 consecutive years. This consistent dividend performance supports CFRA's view on the attractiveness of the company's 4.67% dividend yield.
Furthermore, InvestingPro Tips indicate that Canadian Tire's net income is expected to grow this year, and analysts predict the company will remain profitable. This positive outlook is in line with the upgraded rating and increased price target from CFRA.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips that could provide deeper insights into Canadian Tire's investment potential.
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