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Summary
- Baring tech and gold stocks, most companies’ quarter earnings have suffered due to coronavirus-led economic disruptions
- Analysts project a decline or flat growth in revenue and earnings for major sectors such as energy, financial and real estate
- We look at three potential future growth stocks based on reported earnings this quarter
The ongoing earning season has been a mixed bag for the pandemic-roiled Canadian markets so far. Energy, finance, real estate and industrial stocks have taken big hits in the last couple of months while technology and gold stocks emerged as the winners.
The Toronto Stock Exchange slumped on July 31 after energy stocks failed to post recovery, a situation likely to continue under the threat of resurgence of COVID-19 cases worldwide. Shares of Canadian Natural Resources, Suncor Energy and Cenovus Energy have lost ground in the second quarter of the year. Shares of some Canadian banks and financial institutions also took earnings hit this year due to bad loans from COVID-led economic disruptions.
Tech stocks, as expected, have continued to outperform the broader TSX gauge. Shopify Inc. reported a net income of US$ 36 million or US$ 0.29 per diluted share in Q2. Another tech firm to post stellar financial result was Real Matters.
Other market bellwethers set to announce earnings this week are Docebo, Bombardier, BCE Inc. Baring gold and tech stocks, analysts have projected decline or flat growth in earnings and revenue for most firms.
Based on the bright spots of this earning season, we look at potential future growth stocks to build investors’ portfolio:
Real Matters Inc (TSX:REAL)
Move over Shopify! Real Matters is the next big stock to grab this year. The firm declared 52.7 percent increase in consolidated net revenues for the third quarter, up from US$ 28.8 million to US$ 43.9 million. Its consolidated Q3 EBITDA of US$ 20.9 million is twice the amount posted in the same quarter last year. Cash in hand swelled by US$ 20.4 million to US$ 109.5 million.
The C$ 2.5 billion-dollar tech firm posted a massive 70 percent surge in net revenues for nine months ending June 30. Acquisition of new clients and increase in market share also helped the tech firm drive up its sales amid the pandemic, which transpired into stellar financial results.
The company had also posted strong second-quarter earnings with massive gains in the US Appraisal and Title revenues.
Canadian network management services provider’s stocks gained a whopping 141.8 percent this year, outperforming the broader TSX gauge that declined by 5.24 percent in the same time frame. It is currently trading at C$ 29.80 and has an EPS of C$ 0.57.
Aphria Inc. (TSX:APHA)
Aphria Inc achieved fifth consecutive quarter of growth after its top line for adult-use cannabis increased 27 percent quarter-on-quarter (q/q) to touch C$ 56.7 million in the fourth quarter. Year-over-year (YoY) revenue spiked by 81 percent to reach C$ 53.1 million in Q4 while net revenue jumped by 18 percent YoY to C$ 152.2 million. Adjusted EBITDA was at C$ 8.6 million, up 49 percent q/q. The company ended its fourth quarter with a healthy balance sheet and C$ 497.2 million liquidity in hand.
Highlighting the strong quarter, Chairman and CEO Irwin Simon pointed out that Aphria’s net revenue surged 129 percent from fiscal year 2019.
On the TSX, the pot stock has advanced 29 percent in three months. Over a decade’s time, it has charted nearly 300 percent growth.
Aphria shares were trading at C$ 6.39 at the time of filing this report.
Recreational pot market is expected to touch C$ 4.1 billion in 2021, according to a Canadian Imperial Bank of Commerce report. Globally, the cannabis market will touch US$ 97.35 billion by 2026, projects Fortune Business Insights.
With Canadian markets gearing up for Cannabis 2.0, Aphria is likely to be a long-term player.
TELUS Corporation Common (TSX:T)
This Canadian telecommunications firm stunned analysts by putting up a better than expected results in the second quarter of 2020. Its consolidated revenue grew 3.6 per cent while free cash flow surged 57 per cent to C$ 511 million. TELUS announced C$ 0.29125 quarterly dividend which is payable on October 1 this year.
However, the firm’s adjusted EBITDA declined by 2.9 percent and net income fell 39 percent to C$ 315 million. TELUS says the decline was due to financial impacts arising out of the pandemic and lower wireless roaming revenue.
In the second quarter, TELUS reported 141,000 net additions to wireless, internet, TV and security customer base including 61,000 high-quality mobile phone and 94,000 total wireless net additions.
It rolled out 5G network in Calgary, Edmonton, Greater Toronto Area and Montreal and aims to expand to 26 new markets by 2020-end. It has also increased investments to enhance systems reliability during the pandemic. The telecommunications firm owns Telus, Koodo and Public Mobile wireless brands. It also offers wireline internet and video services.
Based on the momentum of the first half of 2020, TELUS expects to close the year with free cash flow in the range of C$ 1.4 to C$ 1.7 billion. TELUS shares are currently trading at C$ 23.23.
