On Thursday, National Bank Financial revised its rating on shares of AutoCanada (ACQ:CN) (OTC: AOCIF), moving from Sector Perform to Outperform. The firm also increased its price target on the stock to C$21.00, up from the previous C$17.00. The adjustment comes after a period of contemplation regarding the company's positioning ahead of the quarterly results. Although the market did not experience a significant downturn, the analyst indicated that a "cleaner quarter" was sufficient to improve investor sentiment towards AutoCanada.
The analyst referenced a previous decision to step back from AutoCanada in May 2022 when the stock was trading at C$29.86. Since then, the shares have seen a decline of approximately 49%. For a notable reassessment of the stock's value, the analyst suggested that evidence of a soft landing in the Canadian economy would be necessary.
However, in the interim, the analyst pointed out that U.S. auto dealers have seen a year-to-date increase of 14%, in contrast to AutoCanada's 34% decline. This is set against the backdrop of the TSX rising by 19% and the S&P 500 by 26%.
The analyst noted that U.S. peers have demonstrated stronger fundamental performance but also highlighted the potential for "good enough" trades, referencing similar market dynamics observed with Aecon and Quanta in 2024. The upgrade in AutoCanada's rating and the price target adjustment are based on improved projections due to a more streamlined cost structure.
In conclusion, National Bank Financial's new target price for AutoCanada is derived using a 4.5x EV/EBITDA multiple applied to the 2025E forecasts. The analyst's comments suggest optimism for AutoCanada's shares, anticipating that the company's efforts to refine its costs could lead to a higher valuation in the near future.
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