Inside the Market’s roundup of some of today’s key analyst actions
CIBC analyst Stephanie Price upgraded her rating on CGI Inc. (GIB-A-T) to “outperformer,” believing the company is well positioned as spending recovers in IT services. She also raised her price target to C$123 from C$110.
“CGI is well positioned in both government and commercial sectors as the business environment improves and organizations look to enhance digital offerings, including cybersecurity and cloud,” Ms. Price said in a note. “We see the stock as attractively valued at these levels, trading below its pre-COVID valuation despite an improving environment.”
She added that with cash reserves of $1.3 billion and $1.5 billion in available credit, the company has ample room to continue its M&A strategy. “CGI has had a goal to double the size of the business in the next five to seven years. In the current environment, we see this plan as more achievable, requiring 5%-6% organic growth per year and 5%-6% acquired growth,” she said.
The average analyst price target is C$118, according to Refinitiv Eikon data.
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Canaccord Genuity analyst Dalton Baretto believes it’s going to be a case of “summertime sadness” but “fall madness” when it comes to major industrial commodity prices this year.
In recent weeks, prices for base metals have softened considerably from earlier in the year, as Chinese and global demand has slowed, supply has improved, and concerns around monetary tightening by the U.S. Federal Reserve has strengthened the U.S. dollar and created a headwind for commodities priced in the currency.
But next season, he thinks it’ll be a different story. “We view the factors driving the summer pullback as largely transitory, and as such, a compelling opportunity to add positions ahead of what we expect will be a strong fall and winter period,” he said in a research note.
“From a physical commodity demand perspective, we expect an inflection point in early fall as factory and construction activity picks up across the Northern Hemisphere (particularly in China) and the post-COVID re-stocking cycle finally begins in key manufacturing hubs such as Germany and Japan. From a macro perspective, we believe the global economic cycle will be firmly entrenched in its mid-cycle phase by then; at this stage, monetary and fiscal policies usually remain accommodative, which should allow for re-acceleration bouts. This is what we foresee later this year as more governments lift restrictions and the global inventory re-stocking cycle shifts to a higher gear. Finally, with the US government continuing to run sizable twin deficits and the Fed pledging to keep Fed Funds at 0% until the first half of 2023, both short- and long-term real interest rates are pointing to further depreciation in the US$; we believe this will resume in the fall as the global economy re-accelerates,” the Canaccord analyst said.
Canaccord analysts led by Mr. Baretto raised their commodity price forecasts across the board. They now expect the copper price to average US$4.50 in the fourth quarter, up $1 from their last forecast, and see it averaging $4.38 next year. They raised their forecasts for coking coal and iron ore for the fourth quarter by between 25 per cent and 40 per cent.
Canaccord made two rating changes to stocks under its coverage, with both Champion Iron Ltd. (CIA-T) and Lundin Mining Corp. (LUN-T) upgraded to “buy” from “hold”, “on anticipated commodity price-driven momentum in the fall, positive implied returns to revised target prices, and a lack of meaningful negative catalysts in the near future.”
Champion Iron’s price target went to C$7.50 from C$7 and Lundin Mining to C$13.50 from $12. Canaccord also raised price targets on most other industrial metals stocks that it covers, mostly due to its higher commodity price assumptions.
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BMO Capital Markets analyst Peter Sklar upgraded Alimentation Couche-Tard Inc. (ATD-B-T) to “outperform” from “market perform” after the company’s investor day highlighted several growth initiatives. He raised his price target to C$59 from $50.
“Overall, there were a number of positive takeaways that have impacted our view on the stock,” Mr. Sklar said in a note. “We believe Couche-Tard has developed into a progressive and sophisticated retailer as a result of several organic growth initiatives. These initiatives include the Fresh Food Fast program; optimizing merchandise through dynamic pricing, promotion, assortment, and layout; Circle K branded fuel; cost optimization; heavier investment in new stores and store renovations; among others.”
“In terms of M&A, management indicated that while it will continue to pursue adjacent retail verticals, there is no longer an interest in [French grocer] Carrefour, which we had viewed as an underperforming grocery business that presented operational and integration risks for Couche-Tard,” he added.
BMO wasn’t alone in coming away from investor day feeling more bullish on the stock. Canaccord raised its price target to $48 from $46, RBC to $65 from $57, Scotiabank to $59 from $56, and TD Securities to $54 from $49. TD also upgraded its rating to “buy” from “hold.”
“ATD management effectively addressed key investor pain points and outlined the bridge to double the EBITDA over five years to F23, with upside bias from better visibility on the contribution of organic initiatives,” commented RBC analyst Irene Nattel.
The average analyst target is now $53.67, up more than $6 from a month ago.
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Delta Air Lines Inc. (DAL-N) shares have become “too hard to ignore” at current trading prices, said Raymond James analyst Savanthi Syth. She upgraded her rating on Delta to “strong buy” from “market perform” and set a US$58 price target.
“While we have been constructive on Delta’s long term outlook along with an increasingly favorable view on the sector in general following the sell-off in recent weeks, we were somewhat cautious heading into the quarter due to the potential for cost volatility to weigh on investor sentiment. Following the earnings call on Wednesday, we believe expectations have been reset, albeit with some risk if the recovery stalls. Moreover, the recent leg down in U.S. airline shares may be more interest rate/ inflation-related spillover to value, but we expect improving fundamentals to prevail particularly given our favorable view on business demand recovery. While stocks such as Alaska Air Group provide leverage to business demand recovery without the risk of further delays in long-haul international market reopenings, we find DAL too hard to ignore at current levels,” the analyst said in a note.
The average analyst price target is US$55.89.
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Citi analyst Christopher Danely hiked his price target on Advanced Micro Devices Inc. (AMD-Q) - and it’s not a subtle one.
He raised his target to US$95 from $17, while upgrading his rating to “neutral” from his previous suggestion that investors should sell the stock. AMD closed at US$89.05 on Wednesday, so a lot of that price hike of his is already reflected in the trading price.
“Our checks indicate AMD share gains are finally accelerating in the server market, especially at hyper-scale companies such as AWS and Google. We expect the momentum to continue and Intel gross margins could dip in to the 40′s, similar to the last AMD product cycle,” Mr. Danely said in a note.
He recommends investors do a pair trade, where they overweight AMD and underweight Intel.
Even with the upgrade and price target hike, Mr. Danely is still one of the more bearish analysts on the stock. The average analyst price target on AMD is about US$104.
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Scotiabank analysts led by Paul Y. Cheng have downgraded three stocks as part of a review of of the U.S. integrated oil, refining and large cap exploration and production space.
* Cimarex Energy Co. (XEC-N) was downgraded to “sector underperform” from “sector perform” with an increased price target of US$71 (from $67). “Although we continue to like XEC’s assets and its strong operating free cash flow generation capability, we think the shares will likely continue to underperform other high-quality large cap E&P companies until there is more certainty regarding the pending merger with COG (Cabot Oil & Gas Corp). Cabot’s significant valuation premium is expected to create dilution for XEC shareholders on the basis of several key metrics including EV FCF yield and EV/ After-Tax Cash Flow. Thus, while there may not be a third-party pursuer, it is far from certain that the deal will close on the current terms.”
• Eog Resources (EOG-N) was downgraded to “sector perform” from “sector outperform” while maintaining a US$95 price target. “While we do believe EOG is shifting toward a balanced growth and cash return model, the shares are relatively expensive compared to other high quality large cap E&P companies. EOG trades at a lower free cash flow yield to market cap and to enterprise value, as well as higher EV/EBIDA + deferred tax compared to its peers. Furthermore, since EOG has become mostly a cash tax payer, the company has less leverage than its peers to changes in oil price over the next couple years. We recommend shifting from EOG to COP (Conocophillips), an equally high quality and good operator which offers a strong free cash flow yield and cash return to shareholders as well as a lower reinvestment requirement given its more diversified asset base.”
• Cvr Energy Inc. (CVI-N) was downgraded to “sector underperform” from “sector perform” with a lowered price target of US$13 from $15. “While we remain impressed by the company’s strong operating performance, we think the shares will remain under pressure due to high RIN (renewable identification number) prices which significantly hinder CVI margin capture, plus the company’s large outstanding RIN obligation. We don’t foresee any meaningful sustaining RIN relief until late 2022 or early 2023 when the wave of renewable diesel plants currently under construction will begin to come onstream.”
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In other analyst actions:
* Wells Fargo & Co (WFC-N): CFRA raises to “buy” from “hold”; raises target price by US$6 to US$52
* Southern Copper Corp (SCCO-N): HSBC raises target price to US$68.5 from US$67 and upgrades rating to “hold” from “reduce”
* Sigma Lithium (SGMA-X): Canaccord Genuity initiates coverage with “speculative buy” rating and C$9 price target
* Voxtur Analytics (VXTR-X): Eight Capital initiates coverage with “buy” rating and C$1 price target
* Anaergia (ANRG-T): TD Securities initiates coverage with “speculative buy” rating and price target of C$40
More to come
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Darcy Keith