Assorted beers and alesComstock
Inside the Market's roundup of some of today's key analyst actions
After revising his metals price and currency assumptions, Desjardins Securities analyst Michael Parkin said he views the current share price for First Majestic Silver Corp. (FR-T) as "expensive."
Accordingly, he downgraded his rating for the stock to "sell" from "hold."
"We have updated our model to include our revised metals price and currency assumptions, which drove our target price up 53 per cent," he said. "We have also factored in the La Encantada NI 43-101 update released on March 28, which had a somewhat offsetting effect. We had previously valued the asset at 32 cents (U.S.) per share and we now value it at 30 cents (Canadian) per share, even though we have moved to higher near-term metals prices. Despite now applying peak net asset value (NAV) and enterprise value (EV) to EBITDA target multiples, our higher target price does not indicate further potential upside, due largely to the 95-per-cent year-to-date stock price appreciation at the time of writing and thus, on a valuation basis, we are downgrading the stock."
His target price for First Majestic rose to $7.25 from $4.75. The analyst consensus price target is $12.25, according to Thomson Reuters.
At the same time, Mr. Parkin upgraded his rating for Detour Gold Corp. (DGC-T) to "buy" from "hold," saying it has a potential return of 13 per cent on his target price.
He said: "With the shares having declined 9 per cent over the past month, we are upgrading our recommendation ... With the higher near-term gold price improving operating cash flows over the next two years, we have adjusted our refinancing assumption of the $500-million (U.S.) convertible notes due in 4Q17. We now model the company refinancing $100-million instead of the $200-million assumed previously through a revolver. The stronger Canadian dollar assumption had a negative impact on the cash cost estimates."
He added: "There is much less volatility in Detour's earnings under the various scenarios compared with the other companies because Detour exhibits a strong sensitivity to the Canadian dollar. This acts as a strong offset to changes in the gold price if the Canadian dollar were to make an equivalent 5 per cent change, because in these scenarios a stronger (or weaker) gold price assumes a stronger (or weaker) Canadian dollar."
His target price for Detour rose to $21.50 from $21. Consensus is $22.60.
Mr. Parkin raised his 2016 gold price forecast by 12.6 per cent to $1,210 (U.S.) per ounce from $1,075 (U.S.). His silver price forecast jumped 10.2 per cent to $15.15 from $13.75. His long-term gold assumption did not change, but his long-term silver price declined by 1 per cent.
"If gold prices continue to benefit from a weakening U.S. dollar, we would be cautious on heavy exposure to the Canadian dollar, Australian dollar, and Chilean peso as all three currencies could become headwinds for companies with operations in these countries," he said.
With the alterations to his price decks, his target prices for several stocks also changed, including:
- Agnico Eagle Mines Ltd. (AEM-T, hold) to $51 from $48. Consensus: $50.13.
- Alamos Gold Inc. (AGI-T, buy) to $7.50 from $6. Consensus: $7.69.
- Argonaut Gold Inc. (AR-T, buy) to $2.25 from $1.75. Consensus: $2.61.
- Lake Shore Gold Corp. (LSG-T, tender) to $2.02 from $1.71. Consensus: $1.70.
- MAG Silver Corp. (MAG-T, buy) to $14 from $13.25. Consensus: $13.77.
- Mandalay Resources Corp. (MND-T, buy) to $1.20 from $1.15. Consensus: $1.08.
- New Gold Inc. (NGD-T, buy) to $5.25 from $5.50. Consensus: $5.19.
- Primero Mining Corp. (P-T, buy) to $3 from $2.75. Consensus: $3.58.
=====
Ahead of the release of its fourth-quarter 2016 results on April 7, M Partners analyst Steven Salz downgraded his rating for Brick Brewing Ltd. (BRB-T) to "hold" from "buy."
Mr. Salz is forecasting revenue of $8.8-million, below the consensus (consisting of only one other analyst covering the stock) of $9-million, and earnings before interest, taxes, depreciation and amortization (EBITDA) of $1.7-million, lower than the $1.8-million consensus. He is expecting fully diluted earnings per share of 2 cents.
He said he expects "another quarter of weakness" for its Laker brand, though he sees "modest" growth beginning in the next two quarters. He also predicted modest growth for its Seagram's product, particularly its Wildberry Cooler and cider products.
"We believe investors should continue to hold Brick given our expectation for step-function growth, BRB's quarterly dividend (12 cents per share), and a possible takeout option," said Mr. Salz. "First, beginning first-quarter 2017, Brick has begun selling its LandShark/Margaritaville brands (est. 10,000 – 15,000 hectolitres/year). This segment is expected to be EBITDA positive in F2018 following the F2017 rollout. We believe the company will continue pursuing opportunistic license agreements for further incremental volume in coming years. Second, beer in grocers will continue to roll out from 60 stores currently to 450 over the next three years, further growing volume. Third, possible regulatory changes coming to the LCBO with small brewer shelf space stipulation similar to grocers and The Beer Store (approximately 20 per cent). Beyond these multi-year growth levers, we believe there is a takeout option as well, which at average multiples of 12.5 times EBITDA, would value BRB at $2.50/share, without compensating BRB for unutilized capacity. BRB is trading at 11.8-times F2017E EBITDA vs. peers at 12.8 times."
His target price is $2.15, compared to a $1.98 consensus.
=====
The acquisition of Jemi Fibre Corp. (JFI-X) is "highly complementary" to the existing value-added platform of CanWel Building Materials Group Ltd. (CWX-T), according to Raymond James analyst Steve Hansen.
Mr. Hansen upgraded CanWel to "outperform" from "market perform."
On March 9, CanWel announced the $86-million acquisition, in which it will buy Jemi's outstanding shares at a rate of 31.13 for every 1 share of CWX. It also announced a $21.8-million bought deal to pay down debt.
Mr. Hansen said: "We view the acquisition of JFI as highly complementary to CWX's existing value-added platform, offering a suite of both strategic and financial benefits including: 1) Further fortification of the company's high-margin, value-added lumber treatment operations with the addition of two lumber treatment plants and six post and peeling yards; 2) The addition of upstream integrated fibre supply which increases CWX's exposure to the U.S. housing market and 3) Several financial benefits including favourable accretion metrics and tax savings."
He raised his target price to $6 from $5.50. Consensus is $6.29.
=====
The fourth-quarter 2016 financial results for Dollarama Inc. (DOL-T) provide "a sterling finish to an outstanding year," said Desjardins Securities analyst Keith Howlett.
On Wednesday, the discount retail reported diluted earnings per share of $1, ahead of Mr. Howlett's forecast of 92 cents and representing a 31.6-per-cent increase year over year. Its full-year diluted EPS of $3 was a 35.7-per-cent jump.
"Same-store sales growth, in addition to gross margin rate, has been consistently exceeding management and Street expectations in recent quarters," said Mr. Howlett. "The strong same-store traffic growth of 4.2 per cent in 4Q FY16 was particularly notable. This was complemented by the 3.5-per-cent increase in same-store transaction size, generating the total same-store sales growth of 7.9 per cent. Management's underlying assumption of 4- to 5-per-cent same-store sales growth in FY17 may prove conservative if the surge in customer traffic is sustained. For quarters in FY17, we are forecasting same-store sales growth of 5 to 6 per cent."
Mr. Howlett also emphasized the company's strength on both sides of the border.
"Dollarama management indicated that sales trends were relatively uniform across the country, with no sign of an upsurge in visits by financially strapped households in economically stressed provinces such as Alberta and Newfoundland," said Mr. Howlett. "Sales by category were also relatively stable. There was no surge in sales of consumables as might occur if households were trading down to a lower-priced retail channel for everyday necessities. Unlike U.S. dollar-store peers, Dollarama does not sell refrigerated or frozen food. Consumables are less than 40 per cent of Dollarama's sales, compared with [approximately] 75 per cent at Dollar General in the U.S. While the economy and retail spending in Canada are weaker than in the U.S., Dollarama significantly outperformed its peer group in the U.S. in 4Q. This included the high-growth Five Below chain, focused on tweens, teens and their parents (buying for them)."
The analyst raised his 2017 fiscal year EPS projection to $3.47 from $3.25. His 2018 estimate was introduced at $4.
Maintaining his "buy" rating, he also raised his target price for the stock to $97 from $91. The analyst average is $93.61, according to Bloomberg.
"Dollarama exited 4Q FY16 with surprisingly strong operating momentum," he said. "Sales in 1Q FY17 should modestly benefit from Easter falling within the quarter. By the end of FY17, we expect new $3.50 and $4 price points and acceptance of credit cards will further sustain the trend of solid same-store sales growth. The executive management transition appears to be as smooth as could occur, with all hands remaining on deck. Current CEO Larry Rossy ascends to executive chairman, and will focus on merchandise buying and new store leases. Long-time executive Neil Rossy becomes President and CEO."
=====
Lululemon Athletica Inc. (LULU-Q) ended 2015 "on a strong note," said BMO Nesbitt Burns analyst John Morris.
The Vancouver-based retailer reported fourth-quarter earnings per share of 85 cents, ahead of its guidance of 78 to 80 cents and the consensus of 80 cents. Mr. Morris pointed to "strong" comparable same-store sales of 11 per cent, comparable to a consensus of 8.2 per cent and its single-digit guidance. He also emphasized gross margin improvement.
"Comp strength in the quarter indicates the company is benefiting from momentum going into 1Q and 2016," the analyst said. "Strength in several categories, including women's tops and the Align pant, as well as strength in men's, were key drivers. Latent inventory issues remain a drag on performance but are rebalancing with sales deep into first quarter and should be addressed by the end of 1Q.
"BMO Big Data indicates a favourable year-over-year markdown inflection for this and last week. Key growth vectors for 2016 and beyond include a revitalized women's category with more innovative product launches, growth in men's where it remains underpenetrated, e-commerce expansion, and square footage growth in North America and international markets."
Calling the company's guidance for both the first quarter and all of 2016 "cautious," he raised his price target for the stock to $64 (U.S.) from $47. The analyst average is $69.03.
He did not change his "market perform" rating.
=====
In other analyst actions:
Ball Corp. (BLL-N) was raised to "overweight" from "neutral" at JPMorgan by equity analyst Tyler Langton. The 12-month target price is $79 (U.S.) per share.
Eversource Energy (ES-N) was downgraded to "neutral" from "buy" at Janney Montgomery by equity analyst Michael Gaugler. The 12-month target price is $58 (U.S.) per share.
Expedia Inc. (EXPE-Q) was rated new "sector weight" at Pacific Crest by equity analyst Brad Erickson.
Fitbit Inc. (FIT-N) was rated new "buy" at Longbow Research by equity analyst Joe Wittine. The 12-month target price is $20 (U.S.) per share.
First Solar Inc. (FSLR-Q) was rated new "neutral" at Mizuho Securities USA by equity analyst Jim Von Riesemann. The 12-month target price is $71 (U.S.) per share.
InnVest Real Estate Investment Trust (INN.UN-T) was rated new "buy" at TD Securities by equity analyst Sam Damiani. The 12-month target price is $6 (Canadian) per share.
Kinross Gold Corp. (K-T) was downgraded to "market perform" from "buy" at Cormark Securities by equity analyst Richard Gray. The 12-month target price is $4.50 (Canadian) per share.
Kinross Gold Corp. (KGC-N) was raised to "buy" from "hold" at TD Securities by equity analyst Greg Barnes. The 12-month target price is $4.50 (U.S.) per share. It was raised to "outperform" from "market perform" at Raymond James by equity analyst Phil Russo with a 12-month target price of $5 per share.
Leucrotta Exploration Inc. (LXE-X) was rated new "buy" at Beacon Secs by equity analyst Kirk Wilson. The 12-month target price is $1.85 (Canadian) per share.
Micron Technology Inc. (MU-Q) was downgraded to "neutral" from "outperform" at Macquarie by equity analyst Deepon Nag. The 12-month target price is $12 (U.S.) per share. It was downgraded to "market perform" from "outperform" at Bernstein by equity analyst Mark Newman with a target price of $10 per share.
NorthWestern Corp. (NWE-N) was rated new "neutral" at Mizuho Securities USA by equity analyst Jim Von Riesemann. The 12-month target price is $65 (U.S.) per share.
Rio Tinto PLC (RIO-N) was downgraded to "sell" from "hold" at Axiom Capital by equity analyst Gordon Johnson. The target price is $14 (U.S.) per share.
SunPower Corp. (SPWR-Q) was rated new "neutral" at Mizuho Securities USA by equity analyst Jim Von Riesemann. The 12-month target price is $25.00 per share.
With files from Bloomberg News
David Leeder