John Cervini of Aphria, inspects some of the company's Medical Marihuana plants at their greenhouse in Leamington, Ontario, May 26, 2014.The Globe and Mail
Inside the Market's roundup of some of today's key analyst actions
Mackie Research Capital Corp. has boosted its outlook for medical marijuana stock Aphria Inc. (APH-X) after the company raised $40-million in an equity financing.
Aphria plans to use the funds to expand its greenhouse operation and other infrastructure, such as a power co-generation facility.
"This expansion is expected to provide an additional 21,000 kg of annual production capacity and is scheduled to complete by December, 2017," wrote analyst Neal Gilmer.
"Aphria is in an excellent position to benefit in this growing market and is well positioned to execute on its growth strategy. The company has a solid balance sheet and positioned to expand towards 40,000kg in a little over a year. We are rolling forward our valuation basis to capture and reflect some of the earnings potential. We note however that the full realization of the company's earnings potential is not likely until F2020-2021."
"We are increasing our target price on Aphria as we roll our valuation basis forward. We had previously set our target using a 12-times multiple to the average of our Fiscal 2018/19 estimates (Note: May 31 fiscal year end). We now use Fiscal 2019 estimates as our valuation basis to capture the earnings growth we expect from the capacity expansion. We remind investors as we have before that the earnings capability following the outlined expansion is much higher than we currently forecast.
With forecast expansion to 40,000kg by 2018, APH is likely able to generate $200- to $250-million in sales once fully constructed. At the low end of the range and using an EBITDA [earnings before interest, taxes, depreciation and amoritization] margin of 38 per cent that we model for F2019 would imply approximately $75-million in EBITDA annually and about $95-million on the high end. We expect that the timing of recreational legalization, medical regulation evolution and Aphria's ability to scale production once the capital expenditures are complete will all factor into when Aphria will reach that earning capability."
He reiterated his "speculative buy" rating on the stock but boosted his target price to $6.40 from $4.35. The consensus is $5.10, according to Thomson Reuters.
**
Canaccord Genuity is upgrading BlackPearl Resources Inc. (PXX-T) after it has sold a royalty to PrarieSky (PSK-T).
"The royalty sale removes an overhang on financing Phase 2 at Onion Lake and provides recognition of value from PraireSky, in our view. This, BlackPearl's strong operational execution, and a constructive oil market backdrop all contribute to significantly lower risk in the stock, in our view," wrote analyst Sam Roach.
"Besides oil prices, the main overhang on PXX was funding future growth. BlackPearl stated it was looking to fill a about $100-million funding gap (50/50 debt and equity), so the $55-million royalty sale should fill the equity portion. The company may look to add term debt for the remaining approximately $45-million, reducing reliance on bank lines, but we think BlackPearl is fully financed for Phase 2 regardless. On futures pricing we see net debt peaking at $92-million (76-per-cent drawn) coincident with first steam in early 2018."
Canaccord upgraded the stock to "buy" from "speculative buy" and maintained its $2.25 price target. The consensus is $1.95.
**
Citi has boosted its target price on Capital One Financial Corp. (COF-N) after hosting an investor meeting with its CEO, CFO, and other executives.
"Overall, the meeting struck an upbeat tone on credit, the U.S. consumer and was particularly confident on the card business outlook," wrote analyst Donald Fandetti.
"While they recognize the potential benefits of a post-election environment such as pro-growth policies, [CEO/Chariman Rich] Fairbank cautioned that investors may be getting ahead of themselves on how fast regulatory changes could occur and was not convinced large banks would see meaningfully different capital requirements. Similar to other banks, COF would see a DTA [deferred tax assets] charge if corporate taxes are reduced, yet the amount depends on the timing of the tax change (DTA $3.7-billion in YE15). After the meeting, investors were quite constructive on the outlook for the stock and liked what they heard on credit," he said.
"COF remains our top card lender pick and the meeting gives us some incremental confidence in our '17 EPS est. Shares trade at 10.6-times our 2017 estimate."
He boosted his stock price target to $100 (U.S.) from $80 and kept his "buy" rating. The consensus is $83.33.
**
Canaccord Genuity has boosted its target price on Foot Locker (FL-N) after meeting with the company chief financial officer Lauren Peters, and other executives.
"We came away from our meetings with a greater appreciation for the solid consistency of execution the team has delivered over the past six years and the go-forward path that looks equally robust. FL has become an integral part of the athletic footwear industry, not just as a point of distribution, but as a brand facilitator and commercializer.
By this we refer to FL's intense, in-depth consumer work that splits along its banner archetypes (Foot Locker, Champs, Foot Action, FL Europe) enabling it to sit at the center of athletic, performance, and fashion and thus creating a virtuous cycle of demand (and positive traffic trends), irrespective of trend/brand shifts within the category.
Brands, both big and small, depend on FL's consumer insights to make product assortment updates or price/value equation improvements, therefore establishing a truly symbiotic relationship between it and the vendors. Outside a major preference shift away from fashion athletic footwear, we believe the visibility into FL's long-term top- (MSD comp) and bottom-line (DD EPS) growth path is high. As such, we view FL as a core long-term growth holding," wrote analyst Camillo Lyon.
"We reiterate our "buy" rating and raise our price target to $83 (U.S.) from $79."
The consensus is $77.67.
**
Acumen Capital Research has boosted it price target on Badger Daylighting Ltd. (BAD-T) after meeting with management last week.
"It appears that the new CEO is well entrenched into his position and is demonstrating a solid understanding of the big picture opportunity, the day-to-day operations, and how to improve the business in this next stage of growth. We anticipate that Q416 RPT [revenue per truck per month] will improve year over year as the industry isn't fighting the massive oil selloff it faced last year, and BAD isn't dealing with excess capacity. Our current forecast is for RPT of $26,000 per truck ($25,197/truck Q415). We see the potential for BAD to increase its monthly build rate in F17, as the Oil & Gas regions have stabilized and underutilized trucks have been relocated to active markets," wrote analyst Brian Pow.
"Key markets (Eastern Canada and U.S.) continue to show improvement, and the Oil & Gas regions have stabilized, albeit at lower operating levels. It is fair to assume a continual improvement in utilization as tempered build rates are maintained."
He kept his "buy" rating and boosted his price target to $35 from $31.20. The consensus is $31.74.
In other analyst actions:
Nomura upgraded McDonald's stock to "buy" from "neutral," saying the issue of tough U.S. comparable sales will subside and that it is enthusiastic about the company's planned menu updates.
**
HSBC initiated coverage on Goldman Sachs with a "buy" rating and a price target of $250. Goldman is up 28 per cent in the past month, but HSBC says it still thinks the stock has more room to run.
**
Citi downgraded Newmont Mining to "neutral" from "buy." It also and cut Kinross Gold to "sell" from "neutral," following a 10 per cent drop in the price of gold over the past month.
**
TripAdvisor was upgraded to "hold" from "sell" at Stifel Nicolaus, which cited valuation for its call. Its shares have fallen 28 per cent since the beginning of November.