Tuesday’s analyst upgrades and downgrades

Analysts were mostly constructive across Canadian banks and several industrial names, with Desjardins expecting about 20% year-over-year cash earnings growth for Canadian banks and better-than-expected capital markets results. Dollarama was upgraded to buy with a $190 target on valuation and inflation-driven market share potential, while Russel Metals and Stella-Jones both saw higher earnings estimates and buy-rated support. Offset by some caution, Wajax faced an earnings cut and softer operating momentum, and RBC Global and TMX were described as solid but not without some concerns.

Analysis

The cleanest near-term signal is that earnings dispersion is being driven less by top-line demand and more by balance-sheet/operating mix. For banks, the market is likely underappreciating that stronger capital markets activity can offset softer credit signals for a quarter or two, but that this is a timing benefit rather than a durable earnings inflection if macro/geopolitical uncertainty bleeds into loan growth and provisions in 2H. The better setup is the large-cap banks with fee leverage and diversified revenue streams; the weaker setup remains the domestic credit-sensitive franchises where a modest ACL build can compress sentiment even if reported earnings beat.

Dollarama is the most interesting second-order trade: the bull case is not just inflation protection, but a trade-down engine that can reaccelerate traffic and mix even if unit economics remain tight. That said, the market may already be paying for “defensive retailer” quality, so the higher-probability upside is from a faster-than-feared same-store-sales reacceleration, not from multiple expansion alone. If inflation does not actually reaccelerate in the next 1-2 quarters, the stock can stall despite the narrative support.

In industrials, Russell Metals and Stella-Jones both benefit from a surprisingly favorable commodity/pricing backdrop, but the risk asymmetry differs: Russel is more cyclical and should move quickly with steel spreads, while SJ is a slower-burn re-rating story tied to utility capex visibility. Wajax looks like the weakest relative value because the market will likely demand proof of organic reacceleration before rewarding cost-out and deleveraging; without that, cheap can stay cheap. RB Global stands out as a compounding quality story where AI concerns look like a sentiment discount rather than a fundamental issue, and any pullback from that overhang is a buyable event over months, not days.

Key Decisions for Investors

• Long RBA vs short WJX for a 3-6 month relative-value pair: own the higher-quality compounding model and fade the business that still needs proof of reacceleration; target 10-15% spread outperformance.
• Add to TD/RY over BMO/BNS into bank results over the next 2-4 weeks: the setup favors fee diversification and capital markets upside over more credit-sensitive franchises; risk is a larger-than-expected ACL build.
• Buy DOL on weakness, but size modestly and use a 1-2 quarter horizon: best risk/reward is a traffic surprise, while the main risk is that the market already capitalized the defensive thesis.
• Long RUS into the quarter/next 1-2 months if steel pricing remains firm: favorable leverage to spreads and demand, with a cleaner catalyst than most industrials; trim if HRC/plate momentum stalls.
• Hold SJ as a medium-duration compounder rather than chase momentum: best entry is on any post-print hesitation; downside is limited by defensive characteristics, but upside likely unfolds over 2-4 quarters.