Canadian Armed Forces contract could boost this TSX drone maker 59%, says analyst

TD Cowen’s three ‘best ideas’ for Canada, why Group Dynamite’s outlook may not calm investors’ macro fears and more from The Week in Stocks.

Shares of Volatus Aerospace Inc. (FLT:TSX) have climbed and descended this year, rising as high as 89 cents and as low as 46 cents. They got a 26 per cent boost this week after the company won its first order from the Canadian Defence Drone Initiative. The order is for 100 systems worth up to $500,000. The Canadian Armed Forces (CAF) holds options for 4,900 more, which would be worth up to $24.5 million. Stifel Canada analyst Greg MacDonald maintained his 12-month price target of $1 and shares closed Friday at $0.63, which would be a potential upside of about 59 per cent on his target. MacDonald said he thinks the CAF is using the small, initial order to test how operational Volatus’s systems are before pulling the trigger on a larger contract in 2027. “We think Volatus clears that gate on technology and, more importantly, manufacturing capability since fast, mass drone production is what the government needs most,” MacDonald said. Volatus has a 12-month price target of 95 cents based on the calls of five analysts, according to Bloomberg.

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TD Cowen analysts said in a recent note that these “best” stock ideas for Canada will give investors exposure to defensive, growth and undervalued names. Here is a look at the companies and their theses. The North West Co. Inc. (NWC:TSX) : “We believe the base business alone is undervalued, presenting an attractive opportunity to build a position ahead of re-rating,” Cheryl Zhang said in a note on Sept. 11, arguing that the northern Canada retail chain benefits from its remote location, its food business and a potential boost from infrastructure investment in the country’s upper reaches. Zhang said the shares should also benefit from First Nations Child and Family Services settlement payments from the federal government though she added that only accounts for $4 of her $63 price target. Shares closed Friday at $51.67. Whitecap Resources Inc. (WCP:TSX): “We believe there is underappreciated upside to WCP,” analyst Aaron Bilkoski said in a note, hiking his price target to $21 from $18, adding that the company has a track record of earnings beats and raises. However, an investor debate persists that Whitecap is too conservative in its estimates, he said. Shares closed Friday at $18.50. Chartwell Retirement Residences (CSH/U:TSX): Shares pulled back about 13 per cent during the summer with investors worried about a metric that measures net operating income for the same properties. Chartwell is trading at a 46 per cent discount to peers and that offers investors an opportunity to jump in, analyst Jonathan Kelcher said in a note, adding that the backdrop for the retirement sector is on Chartwell’s side including a three year gap before any new supply becomes available and an approximately four per cent a year increase in the number of people aged 80 and up. Kelcher has a price target of $27. Shares closed Friday at $20.13.