Hey there.
It was a quieter week on the earnings front, but there were still plenty of stocks here at Premium reporting, including one I’m getting a lot of questions about: Toromont Industries (TSE:TIH). Just over a year after its addition to the Bull List, it has nearly doubled in price, and many are asking whether it’s still an opportunity. So, that will be one of the first companies I go over in this issue.
Speaking generally about markets, I do believe we are in one of the strangest markets in history. Look at the chart below, which I got from The Compound. At first, it might seem a bit difficult to understand, but I will explain.
Over the last 8 days, 115 of the stocks in the S&P 500 have had their share prices decline by 7% or more in a single day. The strange thing? We’re only 2% off all-time highs in the S&P 500.
Why is this strange? Typically, when this situation occurs, the markets are in a 34% drawdown.
Widespread fears of AI overtaking numerous industries are becoming the main headline. We even watched trucking and logistics companies take a nosedive after reports that a piece of AI-related software could cut down on scheduling and logistics.
It gets even more difficult because the index, which is generally where people head to when they feel individual stocks are too risky, is now being propped up by a few major AI players.
The best thing we can do is continue to accumulate strong companies and hold them for the long term. Right now, I believe the truth lies somewhere in the middle.
What I mean is that the market is leaning towards AI effectively replacing everything. Almost everything at least. In reality, it is likely to replace some things but benefit companies substantially in other situations. This includes companies that are in the gutter right now, left for dead by the market.
Platform Improvements
The new Premium platform is coming along quite well. I can announce a few things and provide some screenshots.
The one thing I will say is that our screener will be down for now as we make the transition. I don’t expect this to take much longer, and the wait will be well worth it.
Some confirmed features of the new Premium platform:
- Portfolio tracking and portfolio analysis
- DCF and Reverse DCF calculators (for determining fair value)
- Earnings calendars
- Watchlists with earnings alerts
- 7000+ individual company reports
- An expansion of our grading system to now factor in over 150+ data points for each stock
- The ability for Premium members to see what other members are buying/selling/holding.
- Access to substantially more data
As current Premium members, you will unlock all of this functionality for the same price you pay now
However, the most important thing I can relay here is that we will no longer honour legacy pricing if subscriptions are cancelled.
Before these additions, I was flexible in this regard for returning members. However, moving forward, this will not be the case.
As always, these improvements continue my mission to bring Canadians the best platform possible for improving their portfolios at the most affordable price.
I’ve attached some images below of upcoming platform tools. Keep in mind that these are mostly mockups, as the platform isn’t being used yet. But it’s just a bit of a teaser.
I’ll keep members in the loop as we work our way through to going live!
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Earnings
Toromont Industries (TSE:TIH)
Before I dig into the results, I know I’m going to get a lot of “Is the company still a buy today?” questions.
I believe it is yes; however, I also acknowledge that the value gap that existed when I added it to the Bull List at $110 is now gone. Any volatility in the mining sector will affect Toromont. If you’re buying at this price, I still believe we have a margin of safety, but we also need to acknowledge we can see some price swings and need to set our eyes 5+ years down the line, not 6 months.
Toromont capped off an outstanding Fiscal 2025 with some solid results.
Revenue for the year increased 4%, while the fourth quarter saw a larger 9% jump, fueled primarily by the Equipment Group and strong performance from Cimco.
While full-year net income declined 2% from 2024, this was largely due to strategic growth investments and non-cash acquisition-related costs associated with its acquisition of AVL. The market isn’t really all that concerned with profits right now, as they should improve next year.
The Equipment Group remained the primary growth engine and the bulk of revenue. Revenue increased 9% in the quarter and 3% on the year.
Growth is attributable to the integration of AVL, higher rental income (up 9% year-to-date), and steady maintenance revenue.
So, despite all this, why was there only a 3% increase in the year? Because the mining sector showed its characteristic “lumpiness,” with equipment revenue decreasing 39% in Q4 against a very strong prior year. But, considering future bookings surged by 324%, the market yet again shrugged this off, given the positive forward outlook.
The Power Systems segment also saw a massive 131% increase in revenue in Q4. When I say AI is hitting every industry, I mean it. The surge in popularity of data centers is driving this segment.
Cimco, Toromont’s refrigeration segment, reported strong results, with 14% annual revenue growth and a 20% increase in operating income.
Growth was particularly strong in the recreational market, which grew 51% over the year as the company generated significant revenue from a deep backlog of ice rink and facility projects across Canada and the U.S.
Financially, Toromont’s balance sheet is rock-solid, ending the year with $1.3 billion in cash and only around $800M in debt. This liquidity allowed the company to increase the quarterly dividend by 7.7%, marking the 37th consecutive year of dividend increases. While the company’s Return on Equity (ROE) of 16.9% came in below its long-term target of 18%, the impression I got from management is that they are not worried.
With a total backlog of $1.5 billion, up 46% year-over-year, and a proactive plan to mitigate trade and currency volatility, Toromont is well-positioned to navigate the infrastructure projects anticipated for 2027 and beyond.
Waste Connections (TSE:WCN)
Waste Connections reported a solid quarter. Revenue came in at $2.45 billion, a 5.1% increase year-over-year, driven by strong solid waste pricing and acquisitions. This has been the case for quite some time. Volumes are declining due to a sluggish macro environment, but pricing increases are offsetting the impact.
Volumes declined another 2.8%. However, management stated it was intentional. They’re shedding low-margin contracts.
But, in addition to this, they did mention the sluggishness in construction-related activity. I’ve attached a chart below highlighting the growth since 2023. The construction & industrial segment is effectively just keeping up with inflation.
Despite all this, the company posted adjusted EBITDA margins of 33.8%.
On the margin front, there was an 80-basis-point expansion in solid waste margins, which ultimately offset 70 basis points of headwinds from declining recycled commodity prices. Another very underrated aspect of margin expansion was the company’s personnel improvements.
The company reported record-low safety incident rates, and the voluntary employee turnover rate has plummeted 55% from its peak in late 2022. These improvements translate into pure profit growth, directly impacting margins.
The company’s growth strategy remains intact, with approximately $300 million in annualized revenues from acquisitions closed or under agreement year-to-date, including two major wins in Florida and a transfer station in New York City. Looking ahead to 2026, the company provided guidance, projecting mid-single-digit revenue growth and continued margin expansion.
The company is investing heavily in Renewable Natural Gas (RNG) projects. The difficulty here is that the money will be spent today and won’t affect the bottom line until at least the end of 2027. However, there is a large financial benefit here; you just need patience.
Additionally, the company is roughly one-third of the way through its digital transformation, using AI for pricing analytics and route optimization. Early results from these investments have already shown a 30% to 40% reduction in customer churn in pilot locations. AI is hitting every area of the market. For most, in a bad way. But in Waste Connection’s case, it’s a good thing.
The company also raised its dividend by 11.1%, marking its 15th consecutive annual double-digit increase, and continues to be opportunistic with share repurchases. With valuations here becoming more attractive, I would not be surprised if they ramped up repurchases.
Of note, the dividend chart below only tracks after the merger with Progressive Waste. However, the dividend had grown before that.
Despite economic uncertainty and commodity volatility, Waste Connections is performing well. With leverage ratios in the 2.75x range, the balance sheet is strong enough to sustain further acquisitions, which should allow it to continue to compound.
Ignore the noise on this one in the short term. It is an outstanding business, now trading at an even better price.
Intact Financial (TSE:IFC)
Intact Financial’s fourth-quarter results were exceptional. Net operating income per share (NOIPS) of $5.50 far outpaced the $4.70 analyst consensus, and EPS of $5.24 also came in well ahead of the $4.48 consensus.
A quick refresher on NOIPS versus EPS. Think of it like a professional athlete. EPS is their total bank account balance, including endorsements, advertising, and guest appearances, while NOIPS is just the salary they earned for actually playing the game. NOIPS is the money Intact makes by doing what it does best: selling insurance.
This was a record-breaking year, with full-year NOIPS coming in at $19.21, a 33% increase over 2024. The bulk of this was due to a massive 61% jump in underwriting income to $2.7 billion. The combined ratio came in at 88.2% for the year, which benefited from a relatively mild catastrophe season.
It seems like this is the first time in forever we haven’t had a massive year of floods, fires, or other catastrophes. Remember, the combined ratio is premiums collected versus claims paid out. For a long time, catastrophe losses had been in the low 90% range. Now we’re seeing the benefits of a mild situation. How long does it last? It is difficult to say.
However, another thing to note is that the company reported it is currently trimming around $150M in expenses per year due to AI. I don’t think this can be overlooked. As technology improves, the savings are likely to ramp up. If underwriting can be improved via AI, this ultimately leads to more money in Intact’s pocket.
While the Canadian segment remained the primary growth driver with a 76.4% personal property combined ratio, the US business showed the most dramatic improvement, dropping its combined ratio by 3.3 points to 82.8% on the back of solid underwriting. If you look at the revenue by country below, you can see the US portion of the business is seeing outstanding growth.
The UK and Ireland remained a transition story, with premiums dipping 2% as the company prioritized quality versus quantity. This has been a drag on the business for a while, in my opinion. However, it is a smaller portion of the business, so it has some time to turn around. What you really want to see is the strong operations in Canada and the US, and we’re seeing that.
The company saw a 16% year-over-year increase in book value per share to $107.35 and an operating ROE of 19.5%. The company raised the dividend by 11% and repurchased $198 million in shares during the year.
Beyond the immediate numbers, the long-term outlook remains bullish. The company is targeting 10% annual NOIPS growth and a return on equity that outpaces the industry by 500 basis points. It’s already doing this on both fronts. So, I guess the outlook is status quo, and the status quo is currently outstanding.
This growth is expected to be fueled by high-single-digit premium increases in personal lines and the continued expansion of high-margin specialty verticals. With a total capital margin of $3.7 billion and a debt-to-capital ratio of 16.5%, the company is now positioned with significant dry powder for future acquisitions. It has paid off all of its debt from its acquisition of Direct Line’s commercial operations in the UK.
This remains one of the best insurers in North America, in my opinion.
