Analyst Actions: Credit Suisse Rotating Out of Toromont, Into Finning

Time to Rotate Into FTT: "We are upgrading shares of FTT to Outperform from Neutral and downgrading shares of TIH to Neutral from Outperform. We believe it is time for investors to play Finning ( FTT ) for CAT dealer exposure relative to Toromont (TIH) based on 1) the CAT BUCY deal could be a significant positive catalyst for FTT, 2) Finning's more favorable end market mix, and 3) FTT's capex build is likely nearing its end, which should boost free cash flow in the intermediate term."

CAT Nearing Decision Regarding Dealer Implications from BUCY Deal: "We believe CAT is likely in the final stages with its Tier 1 dealers which operate in shovel ready markets regarding which ones will be able to acquire a piece of the BUCY sales channel. Although it is widely known that selling an entire mining product suite has certain synergies which dealers such as Finning and Toromont can exploit, the structure of the transaction is still unknown and has kept investors on the sidelines (synergies include better pricing and the ability to operate as a one stop shop for mining customers). We would note that based on how disciplined Finning has been under Mike Waites, we do not believe Finning will overpay for a piece of the BUCY sales in Finning's territories."

More Favorable Mix in a Slower Growth Environment Helps FTT: "We believe Finning is better positioned relative to Toromont heading into a slower growth environment given its exposure to emerging markets and less exposure to Canadian construction/infrastructure market. Finning also has greater mining and product support business relative to Toromont as a percent of total mix, both of which are likely more resilient if we enter a global slowdown."

Valuation and Estimates. "There is no change to our EPS estimates for 2011 and 2012 for Finning or Toromont. Our 2013 EPS estimates for Finning is lowered from C$2.95 to C$2.78 and for Toromont from C$1.64 to C$1.48. Our target price of C$30 for FTT shares also remains unchanged."

"We are cutting our target price on TIH shares to C$19 (from C$21.5) to account for a slower than anticipated recovery in Canada. Our target price is derived based on $1.50 of normalized EPS at a 15x multiple discounted back slightly less than 2 years."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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