On Friday, BMO Capital Markets adjusted its stock price target for Transcontinental Inc. (TCL/A:CN) (OTC: TCLAF), raising it to C$16.50 from the previous C$15.50 while maintaining a Market Perform rating on the stock.

The revision follows the company’s second-quarter adjusted EBITDA, which reflected higher than anticipated results in its Packaging (NYSE:) division due to cost savings, although its Printing division performed below expectations.

The analyst from BMO Capital noted that the outlook for 2024 has improved, with expectations for higher year-over-year adjusted EBITDA. The Packaging division is projected to contribute to this increase, while the Recycling and Specialty Packaging (RS&P) division is expected to remain stable.

Transcontinental is currently in the midst of a two-year cost savings initiative that aims to achieve $40 million in annualized savings by 2025. The progress of this program was acknowledged, although the underlying growth for the company is still considered modest.

The analyst’s commentary highlighted the potential for a valuation re-rating for Transcontinental over time. However, for a significant shift in the company’s valuation, there would need to be a consistent improvement in return on invested capital (ROIC). The current Market Perform rating suggests that the firm’s expectations for the stock’s performance are in line with the general market trend.

Transcontinental’s recent performance in its Packaging division, driven by effective cost-saving measures, has been a key factor in the improved earnings outlook for 2024. While the company continues to work on enhancing its growth and profitability, the market awaits signs of sustained improvement in financial metrics such as ROIC. The updated stock price target reflects a cautiously optimistic view of the company’s financial prospects.

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