An Air Canada jet lands at Pearson International Airport in Toronto.J.P. MOCZULSKI/The Globe and Mail
Inside the Market's roundup of some of today's key analyst actions
Air Canada (AC-T) posted strong holiday weekend numbers and also said it expects its second quarter EBITDAR (earnings before interest, taxes, depreciation, amortization and rental costs) will "significantly exceed" consensus expectations, said Canaccord Genunity analyst Doug Taylor.
As a result, he boosted his price target on the stock to $23 from $21 and maintained his "buy" rating. The consensus is $20.02, according to Thomson Reuters.
"We had expected a solid Q2 leading into the seasonally strong third quarter which will this year feature a highly anticipated investor day," the analyst said. "We are revising our model higher based on favourable fuel price and currency movements and ongoing solid bookings data points. The increase in our forecasts leads us to once again raise our target (to $23 from $21). We continue to rate Air Canada a 'buy' and recommend investors build positions ahead of what we expect to be a strong autumn for the stock."
"Without quantifying, the company noted it expects to significantly exceed Q2 EBITDAR consensus of $475-million (we had been at $515-million). Note the magnitude of recent EBITDAR beats that have gone unmentioned by the company ahead of formal reporting which suggests significant potential upside. We have raised our already higher expectations to $580-million based largely on fuel benefits. We believe there is still potential for positive RASM [revenue per available seat mile] surprise versus our model," the analyst said.
"The strong holiday weekend falls partially into Q3 and echoes a growing chorus of carriers (Transat, Lufthansa) pointing to robust summer bookings. We have adjusted our fuel and currency expectations through the rest of the year while largely maintaining our RASM forecasts, essentially increasing the margin expectations for Air Canada. We now model 2017E EBITDAR of $2,760 (from $2,543M, Street $2,614M) and are increasingly comfortable that Air Canada can achieve or exceed the high-end of its FCF [free-cash flow] guidance."
"We are increasing our target to $23 (from $21) to reflect increased expectations and an unchanged 4.9 times EV [enterprise value]/EBITDAR multiple applied to our NTM [next 12 months] estimates, one year out. Air Canada currently trades at 4.9 times EV/NTM consensus EBITDAR, in line with its three-year average. Our target equates to 5.1 times forward EBITDAR and 6.0 times forward EPS [earnings per share] using our current mode. U.S. network carrier peers trade at 6.4 times forward EBITDAR and 10.0 times EPS," the analyst said.
***
Sales of Apple Inc.'s (AAPL-Q) iPhone remain steady ahead of its third quarter results, said Canaccord Genuity analyst T. Micheal Walkley.
"Our June North American smartphone surveys indicated steady sales of iPhone 7 devices through the June quarter with sales stable to improving later in the quarter as the initial Galaxy S8 enthusiasm appears to have waned in the U.S. market. As a result, we are leaving our iPhone unit and ASP estimates basically unchanged. We believe our iPhone unit estimates for the June and September quarters are consistent with consensus expectations at 42 million and 47 million units, respectively. However, our iPhone ASP assumptions remain slightly above consensus as we anticipate a greater mix of higher memory SKU iPhones and expect higher prices for the iPhone 8 in September," he said.
As a result, he boosted his earnings per share GAAP estimates to $8.99 (U.S.) for 2017, from $8.88, and to $11.16 for 2018, up from $11.10.
He maintained his "buy" rating and $180 per share target price. The consensus is $158.08.
"We expect Apple to launch the widely-anticipated iPhone 8 in September with a new form factor including the highest screen to body ratio ever released for a smartphone and a form factor slightly smaller than the current larger Plus models. We also believe Apple will launch two additional models the 7S and 7S Plus with the same form factor as existing 7 models. Consistent with our surveys, we expect steadier demand for legacy models to continue as the new iPhone model is likely going to cost more than past new iPhone models enticing consumers to continue buying the attractively priced next generation 7S models. As a result, we do not expect demand for these legacy models to fall as quickly as in prior launch cycles. In fact, we believe Apple could increase total market share globally with the iPhone 8 cycle from its current 14% level by regaining market share in China with updated features for premium consumers including an OLED display and wireless charging (already offered on Samsung and leading Chinese OEMs) and reaching a larger market with phones addressing a wider range of price points," the analyst said.
***
After the Supreme Court of Guatemala suspended the mining license for the Escobal mine owned by Tahoe Resources Inc. (THO-T;TAHO-N), Raymond James is downgrading its stock to "market perform" from "outperform" and cutting its price target to $10.75 (Canadian) from $15.75. The consensus is $14.31.
"Given uncertainty on timelines for a potential reversal of the suspension order and the importance of Escobal to funding THO's near-term growth plans, we expect the suspension to (unfortunately) weigh on the stock in the near-term," said analyst Chris Thompson.
"Whilst timelines regarding any potential reversal of the suspension remain uncertain, we now model a 12-month suspension of operations at Escobal, with production resuming in 3Q18E, and $30-million in standby costs incurred while operations are suspended (mid-2017 to mid-2018E). We also assume THO will suspend its dividend (we assume until mid-2019E). THO is guiding for 2-4 months to appeal the suspension at the higher Constitutional Court level and 6-12 months for the current action in the Supreme Court to be heard."
"Despite Escobal no longer helping fund THO's growth plans at Bell Creek and Shahuindo, we believe that THO has no option but to maintain its planned Capex schedule and growth plans at Bell Creek and Shahuindo," the analyst said.
"To maintain its planned growth Capex program we believe THO will need to raise funds to offset the lost revenue and standby costs from Escobal, likely by drawing on its currently undrawn $150-million revolving line of credit (lenders remain supportive and discussions to amend the current facility to provide flexibility are ongoing). Without raising funds we see THO depleting its current cash reserves in late 4Q17E at our base case metal price assumptions, and using spot metal prices ($1,225/oz Au, $16/oz Ag) we see cash reserves dropping below zero in mid-4Q17E. We model THO drawing $50-million on the LOC in 3Q17E and a further $60-million in 2Q18E in order to maintain its current Capex plan, and repaying the current outstanding $35-million credit facility (due Apr 2018)."
***
Mackie Research Capital Corp. is cutting its target price on Condor Petroleum Inc. (CPI-T) after a gas well in Turkey was deemed "non-commercial" and will be abandoned.
Analyst Bill Newman said he maintained his "buy" rating on the stock but cut his target price to $1.90 from $2.65. The consensus is $1.95.
"The Yakzmoz-1 well proved that an active petroleum system extends to the north of the Poyraz Ridge field. CPI will integrate the log results of the Yakomoz-1 well with the regional 2D seismic data in order to high grade exploration prospects in the area. CPI believes that the Yakamoz structure remains prospective and a follow up well may be drilled depending on the results of a future 3D seismic program. We have removed the Yakamoz prospect from our risked NAV [net asset value]. As a results or risked NAV estimate decreases to $3.01/fd [fully diluted] share (from $3.55/fd share) and our target price decrease to $1.90 (from $2.85) equivalent to a 0.65 times (from 0.8 times) multiple of our new NAV estimate. "
***
Mogo Finance Technology Inc. (MOGO-T) has the ability to narrow its valuation discount relative to its peers, said Mackie Research Capital Corp. analyst Nikhil Thadani.
"We believe Mogo can further benefit from a narrowing valuation discount to peers. On a 2018 basis, Mogo trades at 2.2 times net sales versus FinTech names at about 3.9 times (unchanged in the last couple weeks). Recall, we exclude funding debt (i.e. credit facilities to fund loan book including recent $15-million debt raise) from net debt and account for loan book interest revenue net of funding interest expenses. Relative to Fintech stocks, our revised $7 per share price target reflects a discount revenue multiple of 3 times net 2018 revenue (2.7 times previously)," the analyst said.
He maintained his "speculative buy" rating on the stock but boosted his price target to $7 from $6. The consensus is $4.31.
***
BMO Capital Markets boosted its price target on Paramount Resources Inc. (POU-T) after it acquired assets from Apache Canada and agreed to buy Trilogy Energy in a share agreement.
" Paramount acquired Apache Canada with surplus cash and Trilogy in a share exchange agreement. The resulting entity has ~90,000 boe/d of production, a strong inventory of growth assets, and a pristine balance sheet, in our view," said analyst Joe Levesque.
" The resulting company will have anticipated Q4 production >90,000 boe/d (35% liquids), 2P reserves of ~600 MMboe, ~2.7 million acres of land including ~370,000 acres of Montney, ~225,000 acres of Duvernay and ~175,000 acres of fee title that they would likely monetize," he said.
"We are maintaining our 'outperform' rating and increasing our target price to $27. The stock trades at 2018E EV/ EBITDA of 5.4 times, a discount to the peer group of 6.4 times. Our target price implies a 2018E EV/EBITDA of 7.4 times reflecting what we see as a pristine balance sheet and strong growth potential," the analyst said.
His previous target price was $25. The consensus is $23.60.
***