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On Monday, BMO Capital Markets adjusted their outlook on Canadian Tire Corp Ltd (TSX:CTCa). (CTC/A:CN) (OTC: CDNAF), increasing the price target to Cdn$170.00, up from the previous Cdn$152.00. Despite this change, the firm retained its Market Perform rating on the stock.
The revision comes ahead of Canadian Tire's fourth-quarter earnings report for the fiscal year 2024, which is scheduled to be released on February 13, before the market opens. BMO Capital's analyst has modified the earnings per share (EPS) forecast to $4.12 from $4.24, which is below the consensus estimate of $4.25, with analyst expectations ranging from $3.40 to $4.76.
The new price target is based on a sum-of-the-parts (SOTP) valuation, which implies a retail target multiple of approximately 6 times. The stock has experienced an upward trend recently, and according to BMO's SOTP analysis, Canadian Tire's implied retail multiple is now at the upper end of the historical 4.5 to 6 times range. BMO's projections for 2025 suggest some year-over-year recovery for Canadian Tire.
The analyst noted that Canadian Tire's stock performance seems to be driven by several factors, including anticipation of the fourth-quarter results against a weak comparison quarter, a relative preference among discretionary stocks due to Canadian Tire's lower direct impact from tariffs, and expectations for the resumption of the Normal Course Issuer Bid (NCIB), with a moderate buyback forecasted.
The report also highlighted potential challenges for Canadian Tire, specifically the impact of escalating tariff rhetoric from the Trump administration. If significant and broad-ranging tariffs are implemented on Canada, it could negatively affect economic growth and consumer spending. For Canadian Tire to achieve strong earnings growth, a robust recovery in discretionary spending is necessary, with same-store sales (SSS) increasing towards 3% or better.
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