Should you sell your Canadian Tire stock?

TD Cowen analyst Brian Morrison, who maintains a “Hold” rating and has lowered his target price to $183.00 from $184.00, said in an Oct. 20 note that Canadian Tire (Canadian Tire Stock Quote, Chart, News, Analysts, Financials TSX:CTC.A) is unlikely to see its shares move meaningfully on the release of its third-quarter results on Nov. 5, as the retailer remains in the early stages of a multiyear investment cycle across both its retail and financial services operations.

“The anticipated timing to realize benefits and operating leverage from heightened IT investment is our key focus, followed by dealer inventory and replenishment trends, the outlook for credit trends, and its go-forward capital allocation strategy,” Morrison said.

He is projecting earnings per share of $2.97, ahead of the Street’s forecast by six cents but down 5% year-over-year after adjusting for one-time real estate gains and insurance recoveries realized in 2024.

“On the positive, we forecast revenue growth for both segments, with Retail improving on positive demand trends and dealer replenishment beginning to take hold, and CTFS due to on GAAR growth,” he said. “This should be more than offset by heightened SG&A (IT investment) in Retail and CTFS to support future growth.”

He said the company’s push to become a “more tech-driven, agile, and efficient” operator will require sustained investment in digital and in-store experiences, loyalty expansion, and data analytics. The incremental annual investment of $60-million, outlined in spring 2025, “appears to have been increased in Q2/25 specifically within CTFS,” he said, adding that restructuring costs to streamline operations and capture synergies are expected to begin in Q4/25.

“Clarity on the timing of these initiatives driving operating leverage we view as key to identifying a potential catalyst.”

As reported by the Globe and Mail, TD Cowen remains upbeat on the company’s midterm outlook as its True North strategy should facilitate top-line growth, facilitate operating leverage as this takes hold, and support an active NCIB

“With this transformation potentially weighing upon near-term financial performance, we see alternatives within our Consumer Demand coverage that could generate more attractive returns at this time,” Morrison said.

“We see attractive value in CTC at the current level over the midterm as it takes positive steps toward becoming a better retailer aligned with the required trends of the future, that we believe should sustain solid top-line growth,” he said. “We feel that near-term catalysts are pushed out slightly, as investment expenses limit the ability to significantly outperform consensus in H2/25, that will also be a headwind to near-term multiple expansion.”

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