Thomson Reuters wins price target raise at RBC

RBC Dominion Securities analyst Drew McReynolds said in a July 28 report that Canadian media companies offer few compelling investment opportunities ahead of second-quarter earnings, though he raised his price target on Thomson Reuters (Thomson Reuters Stock Quote, Chart, News, Analysts, Financials TSX:TRI) to US $215 from US $185, maintaining a “Sector Perform” rating.

“Despite decent year-to-date performance as well as reasonably resilient advertising spend in Q2/25, we continue to see downside risk to our earnings estimates and share prices for most stocks in our diversified media coverage until better clarity emerges on the impacts of a new global tariff regime,” he said. “As H2/25 progresses, we would not be surprised to see some further softness in the advertising market as lingering tariff-induced uncertainty weighs on advertisers and advertising budgets. Should North America enter a recession in 2025-2026, we see few places to hide. But provided a less uncertain and more workable global tariff regime begins to emerge in H2/25 with the North American economy finding a firmer footing while avoiding a recession, we continue to recommend riding out the current volatility in the higher-quality names with respect to earnings resilience and/or balance sheets and FCF.”

As reported by the Globe and Mail, McReynolds said advertising has been more resilient than expected despite tariff-related uncertainty, but the focus this earnings season will likely shift to how U.S. tariffs could affect media companies in the second half of 2025. While most of the tariff impact so far has been indirect, through weaker economic growth and inflation, he expects advertising softness in Q2 among companies with ad exposure. He added that investor attention will be on management commentary regarding the H2 outlook, advertiser sentiment, and Q3 pacing.

“In Q2/25, we expect Thomson Reuters to provide an update on the macro environment and the extent to which lingering tariff-induced uncertainty is negatively impacting net sales as well as some of the small cyclical revenue pockets,” he said. “While we do not expect meaningful revisions to the 2025 and 2026 outlooks, we would not be surprised to see modest upward revisions given in-quarter management commentary around what remains solid underlying momentum.”

McReynolds said Thomson Reuters has consistently met rising expectations over the past five years, particularly on organic revenue growth and margin expansion. RBC stepped back from the stock in August 2023 after a strong run-up. However, McReynolds noted that the company’s valuation. 23 times forward EV/EBITDA at the time, was still justified if it continued to deliver on growth, margin improvement, and solid execution of its AI strategy.

“Although we believe emerging line-of-sight on >+8% consolidated organic revenue growth through 2026E justifies yet another increase in our target multiple, our focus is sizing up the growth and risk profile of the stock at these valuation levels, which for us, boils down to visibility over the next 3-5 years in three key areas: (i) the nature of TAM expansion as the rate of change within what has historically been predictable professional end-markets now begins to accelerate; (ii) the ability for Thomson Reuters to maintain an incumbent number one or two market position within this TAM across core segments as competition intensifies; and (iii) the potential for further margin expansion more than 40 per cent (more than 45 per cent for the Big 3) that can translate to accelerated EBITDA growth.”

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