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Inside the Market's roundup of some of today's key analyst actions
Desjardins Securities has upgraded its rating and boosted its target price on AltaGas Ltd. (ALA-T) after the company's North Pine facility was sanctioned.
"We believe AltaGas has taken a significant step towards its vision of a liquids hub in the Fort St. John area of B.C., which will presumably be combined with NGL exports off west coast Canada (assuming the Ridley terminal is sanctioned)," said Desjardins analyst Justin Bouchard.
"We believe ALA is moving in the right direction with its liquids hub in the Fort St. John area. The next step is the FID [final investment decision] on the Ridley Island propane export terminal in Prince Rupert; we view project sanctioning as a forgone conclusion. Combined, these two assets should provide a compelling value-proposition alternative for producers. We thus believe the strategy will provide numerous bolt-on investment opportunities (with relatively attractive return profiles) for ALA as liquids production grows in the Montney and producers are enticed by its unique midstream offering. Further, as liquids prices continue to recover, ALA should see an uplift to cash flow — both via increasing dividends from Petrogas and a wider NGL [Natural gas liquids] fractional spread [the difference between the revenue from the sale of natural gas liquids (NGLs) if removed from a gas stream and the value they would have had if left in the gas stream and sold at natural gas prices]. And while ALA might be in a less favourable recontracting position with regard to its Gordondale plant, the facility is new (efficient) and in a solid location; as a result, we view the risk to cash flow from recontracting as limited."
"Accelerating growth, a 6 per cent dividend yield and a BBB credit rating" all contributed to his decision to upgrade his rating to "buy" from "hold", and to boost his price target to $38 from $34. The analyst 12-month price target consensus is $35.33, according to Thomson Reuters.
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CIBC World Markets says oil prices just aren't high enough at the moment to support the stock price of Methanex Corp. (MEOH-Q).
"We are downgrading MEOH from 'Sector Outperformer' to 'Sector Performer' as recent share price performance does not reflect our modest methanol price outlook. While the recent oil price improvement has helped MTO [methanol-to-olefin; an energy process] economics, MEOH is currently trading at an EV/EBITDA [enterprice value to earning before interest, taxes, depreciation and amoritization] multiple of 11.1-times and 9.5-times on consensus 2017 and 2018 estimates, respectively. Indeed, we believe that to be a buyer of MEOH today, one would have to assume oil prices of greater than $70 (U.S.) per barrel in 2018," said analyst Jacob Bout.
"We expect Methanex to perform better in the second half the year driven by the improvement in methanol pricing," he said, citing contract price increases the company had signed.
"We increase our H2/16 estimates to reflect the improvement in methanol prices. Our Q3/16 EBITDA estimate is revised to $65.6-million from $47.7-million. That said, we lower our 2017 and 2018 EBITDA estimates to $430-million from $570-million and to $654-million from $678-million, reflecting a lower crude oil price assumption," he said.
"We increase our price target to $39 from $35 as we shift our outlook from 2017 to 2018, but, as of Oct 23, we reduce our rating from 'Sector Outperformer' to 'Sector Performer' on valuation."
The analyst consensus is $39.16 (U.S.)
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After a strong share price performance recently, CIBC World Markets is lowering its rating on forest products company Norbord Inc. (OSB-T), as it doesn't see strong upside in its stock price in the coming months.
"Norbord was one of our two top ideas when we launched coverage of the sector earlier this year; however, following substantial share price appreciation, we no longer see sufficient upside remaining to warrant a Sector Outperformer rating. At the same time, we believe Street estimates are too bullish on OSB [oriented strand board/particle board] prices in 2017 and overestimate the earnings upside for Norbord from higher commodity prices given its mix of less volatile specialty business. While we are moving to the sidelines, we do view Norbord as the best-managed forest products company in Canada with exceptional mill operating performance over the last two years, impressive Margin Improvement Program (MIP) gains (an area where lumber peers have struggled), and a clear strategy to reduce commodity price exposure over time (by growing specialty volumes)," said analyst Hamir Patel.
"We have reduced our EBITDA forecasts for 2017 and 2018 to $450-million and $409-million (from $509-million and $436-million), respectively, reflecting lower North American OSB realizations than previously forecast (particularly in the South). We now expect North Central benchmark OSB prices to average $280/msf in 2017 and $260/msf in 2018. While North Central OSB prices remained unchanged last week at $287/msf, Random Lengths noted that buyers remained cautious, with many expecting discounts in coming weeks," he said.
As a result, he has lowered his rating on Norbord to 'sector performer' from 'sector outperformer' and reduced his price target to $35 (Canadian) from $39. The consensus is $38.65.
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Although TransForce Inc. (TFI-T) reported slightly weaker-than-expected third quarter results with soft revenue and in-line margins, Desjardins Capital Markets raised its price target for the transportation and logistics firm.
"However, management maintained its 2016 EBITDA guidance to $435-million to $450-million and pointed to a stronger fourth quarter year-over-year amid solid e-commerce growth prospects. "Overall, we maintain our positive view of TFI coming out of the third quarter, supported by the potential for further margin improvement in P&C [Package and Courier segment] next year and a stabilization in the TL [Truckload segment] and LTL [Less-than-Truckload segment] markets. We also expect TFI [Transforce ]to use its balance sheet to buy back shares and for mergers and acquisitions," said analyst Benoit Poirier.
"TFI is still guiding for 2016 EBITDA of $435-million to $450-million, with FCF [free cash flow] generation of about $300-million (currently at $190-million after the third quarter) amid expectations for stronger year-over-year 4Q16 results. Management also maintained a cautious outlook for TL and LTL, as subdued manufacturing activity in both the U.S. and Canada is expected to continue. Looking at 2017, the company believes it can improve EBITDA to about $450-million to $460-million (excluding asset sales), in light of solid growth prospects within the P&C business and a modest recovery in U.S. TL volumes," the analyst said.
Mr. Poirier maintained his "buy" rating on the stock and increased his target to $31 from $28. The consensus is $27.55.
"We are rolling forward our valuation to our 2018 estimates. Our new target is based on the average of three valuation methods: (1) a 14 times multiple on our 2018 adjusted EPS [earnings per share} estimate, (2) a 7.0 times EV/EBITDA multiple on our 2018 EBITDA estimate, and (3) a DCF [discounted cash flow] value of $29.54 (was $27.91)."
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Precision Drilling Corp.'s (PD-T) recent third-quarter results were modestly below expectations for Canaccord Genuity, and "while we believe Precision is benefiting from the early stages of a fundamental recovery, we remain on the sidelines due to relative valuation," said analyst John Bereznicki.
"U.S. sentiment continues to improve, with virtually all of the company's customers in this market looking to add rigs in 2017. Management expects U.S. fundamentals to remain relatively more buoyant than in Canada in a $50 (U.S.) WTI [West Texas Intermediate crude oil] environment, due primarily to more favourable access to capital for producers. Precision nonetheless expects its 32 domestic Super Triples [drill rigs] to be fully utilized through the coming winter drilling season in the Deep Basin and Montney, along with a modest improvement in heavy oil directed activity," the analyst said.
"We are increasing our estimates primarily to reflect stronger pricing and utilization assumptions and raising our target to $7.25, from $6.75, based on a 7.5 times EV/EBITDA multiple applied to our 2018 estimates," the analyst said, adding that he kept his "hold" recommendation. The consensus target price is $7.65.
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3M (MMM-N)was upgraded to "overweight" from "equal weight" at Barclays, based on a recent pullback and a recovery in emerging markets, where 3M has significant exposure.
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Macquarie upgraded Comcast (CCV-N), the NBCUniversal and CNBC parent to "outperform" from "neutral," mentioning Comcast's DreamWorks acquisition, digital initiatives, and the focus on distribution and content highlighted by the AT&T/Time Warner deal and other transactions.
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Cowen upgraded Dick's Sporting Goods (DKS-N) to "outperform" from "neutral," citing increased customer traffic and a rise in consumer satisfaction.
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Amazon's (AMZN-Q) price target raised to $1,050 from $920 at Goldman Sachs, which maintains a "conviction buy" rating on the stock. Goldman cites both outperformance in Amazon's retailing operation, as well as growth in the Amazon Web Services business.