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On Tuesday, CFRA analyst Garrett Nelson downgraded Canadian Tire Corp Ltd (TSX:CTCa). (CTC/A:CN) (OTC: CDNAF) stock rating from Buy to Hold and reduced the price target to Cdn$160.00 from Cdn$175.00. The revised price target is based on a 2026 P/E ratio of 11.2x, which represents a slight discount to the company’s five-year average forward P/E of 11.5x. The downgrade follows Canadian Tire’s fourth-quarter earnings, which fell short of consensus expectations.
Canadian Tire reported an adjusted EPS of Cdn$4.07 for the fourth quarter, a 20% increase from the previous year’s Cdn$3.38. However, this was below the anticipated Cdn$4.27. The earnings miss was attributed to weaker-than-expected comparable store sales, with revenue growing 1.4% to Cdn$4.51 billion, Cdn$80 million below the consensus. Comp (WA:CMP) store sales saw a modest 1.1% rise, which did not meet the expected 1.9% increase. Furthermore, the company’s gross margin contracted by 50 basis points to 32.4%, which was 40 basis points below the consensus forecast.
Despite the earnings miss, Canadian Tire’s management provided a positive outlook, indicating expectations of improved consumer sentiment and spending in the upcoming year. The company is also anticipating more favorable year-over-year comparisons in 2025. Nelson noted that while the outlook is positive, the potential impact of inflation on margins and consumer spending led to the decision to lower the stock’s rating to Hold.
Although the analyst has lowered the rating, he pointed out the attractiveness of Canadian Tire’s current 4.5% dividend yield. Investors are encouraged to consider this yield when evaluating the stock’s total return potential. Nelson’s analysis suggests that while near-term challenges may exist, the dividend yield remains a significant factor for investors.
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