Canadian private airline company Transat's plane is pictured after arriving at Toussaint Louverture airport in Port-au-Prince January 23, 2013.Swoan Parker/Reuters
Inside the Market's roundup of some of today's key analyst actions
Transat A.T. Inc. (TRZ-T) has signed an agreement with H10 Hotels for the sale of its minority 35-per-cent stake interest in Ocean Hotels for $190-million, which was higher than the $136-million expected by Desjardins Capital Markets analyst Benoit Poirier, "and implies a rich multiple of 11.6 times EBITDA [earnings before interest, taxes, depreciation and amortization]."
As a result, he upgraded the stock.
"With about $340-million of surplus cash, management intends to develop its own hotel chain in the south, which should create shareholder value in the long term," he said.
As a result, he upgraded his rating to "buy" from "hold" and raised his target price to $9 from $7.50. The consensus is $7.78, according to Thomson Reuters.
"The [sale price] amount is also well ahead of its book value of $109-million as at April 30. The sale price implies an EBITDA multiple of 11.6 times, which is rich given TRZ's minority stake," said Mr. Poirier.
"With the proceeds and current surplus cash totalling about $340-million -- which far exceeds market cap of $244-million -- management intends to develop its own hotel chain in the south, which should create shareholder value in the long term. Management is looking for a new president to manage the hotel division and expects to disclose more details on its strategy later in the year," he said.
"We are increasing our target based on: (1) $190-million for its stake in Ocean Hotels ($136-million forecast) or $5.20/share, plus (2) $140-million of excess cash at the end of 4Q FY17 or $3.78/share. Note that our valuation does not reflect any value for the tour operating business although this could change pending an improvement in profitability," he said.
"While we are still awaiting details on Transat's hotel strategy, its total surplus cash position of about $340-million is difficult to ignore as this far exceeds its market cap of $244-million, with potential upside coming from the tour operating business and Canadian dollar appreciation."
Laurentian Bank Securities Equity Research raised its price target on the stock to $7 from $6.60 and kept its "hold" rating.
CIBC Institutional Equity Research upgraded Transat to "neutral" from "underperformer" and raised its price target to $9:50 from $7.
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Canadian Pacific Railway Ltd. (CP-T; CP-N) reported solid second quarter results but Desjardins Capital Markets cut its price target on the railway due to higher costs and the effect of the stronger loonie.
"CP reported solid 2Q17 results, with strong revenue and an EPS beat. Management did not revisit its 2017 guidance due to forex [foreign exchange] changes and uncertainties around oil prices, interest rates and grain volumes, although it remains cautiously upbeat. Nevertheless, we continue to like the stock given the relatively strong outlook for 2H17 and the potential share price appreciation to our target," said Benoit Poirier.
He kept his "buy" rating on the stock but trimmed his target price to $230 from $232. The consensus is $226.47.
"Sales of $1.643-billion (+13 per cent year over year) were in line with our forecast of $1.644-billion and consensus of $1.623-billion. CP officially reported EPS of $2.77 (we calculate $2.79), ahead of our forecast of $2.72 and consensus of $2.71, thanks to a strong operating ratio (OR) in 2Q (58.7 per cent; we expected 59.1 per cent ), down an impressive 330bps [basis points] year over year," he said.
"Our target represents the average of (1) a 16 times P/E multiple on our 2019 adjusted EPS estimate, (2) a 10.0 times EV [enterprise value] /EBITDA multiple on our 2019 EBITDA estimate, and (3) a DCF [discounted cash flow] value of $227.79 (was $229.96). We have reduced our estimates to reflect higher purchased services and the negative effect of Canadian dollar appreciation on EPS (we now assume $1.26 (Canadian)/$1 (U.S.))," he said.
"We maintain our positive stance on the stock based on a strong outlook and decent potential upside to our target price (14 per cent potential return). We continue to find the name attractive as we see further growth opportunities as well as cost-reduction initiatives that should translate into further OR improvement."
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Raymond James cut its target price on Superior Plus Corp. (SPB-T) due to its supply portfolio management group, but is still positive on the stock.
Analyst Steve Hansen kept his "outperform" rating but cut his target to $14.50 from $15. The consensus is $13.83.
"We are trimming our target price to $14.50 (versus $15 prior) to account for near-term uncertainty surrounding the firm's Supply Portfolio Management group. That said, we continue to recommend investors accumulate SPB shares based upon our constructive view of: 1) the firm's re-invigorated growth plans under its Evolution 2020 strategy, with strong momentum already accumulating; 2) further evidence that Specialty Chemicals fundamentals are improving; and 3) SPB's attractive valuation & dividend."
"We have trimmed our 2Q17 adjusted EBITDA forecast to $37-million (versus $43-million prior) to account for the recent narrowing in spread between east-west propane prices (Edmonton versus Sarnia) -- a phenomenon that's reportedly squeezed previous arbitrage opportunities, and likely tempered the earnings power of SPB's supply management group. We expect this compression to last through the balance of the low-demand summer season, before widening again into winter's high-demand season," he said.
"Our new $14.50 target price is derived by applying a 9.25 times EV/EBITDA multiple to our 2018E consolidated EBITDA estimate (inclusive of CanWest), a metric at the high end of its historical trading range (6.0 times - 10.0 times) due to the company's reinvigorated growth outlook."
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Due to a challenging restaurant industry and ahead of the company releasing results on July 31, Canaccord Genuity cut its target price for Cara Operations Ltd. (CARA-T).
"We are forecasting revenue of $145-million, and EBITDA of $45-million, which is below consensus at $48-million but above last year's $32-million. We are forecasting EPS of $0.36, below consensus of $0.39, and above last year's EPS of $0.34. We estimate same-store sales to decline -1.0 per cent, below the 2.5-4.0 per cent same-store sales growth guidance incorporated into management's long-term financial targets, as we expect the slowdown in sales from Alberta-based restaurants to continue to challenge the overall network growth targets," said analyst Derek Dley.
He kept his "hold" rating but cut his price target to $27 from $29. The consensus is $30.63.
"We are reiterating our 'hold' rating and revising our target price to $27 (from $29 previously). Our revised target price represents 11.0 times (from 11.7 times, previously) our 2017 EBITDA estimate of $187-million. We have lowered our multiple to reflect continued headwinds on system-wide sales in commodity sensitive regions. In our view, Cara offers a clear organic growth profile, healthy return on equity, and acquisition upside. However, given the challenging near-term trends and seasonal weakness during the front half of the year, we recommend investors remain on the sidelines."
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Ahead of Spin Master Corp.'s (TOY-T) second quarter results, set to be released on Aug. 1, Canaccord Genuity reduced its price target for the company.
"We are forecasting net sales of $223-million, and adjusted EBITDA of $32-million, which is slightly above consensus of $30-million, and ahead of last year at $25-million. As a reminder, Q2/17 includes a full contribution from Swimways, which generates the bulk of its sales during the spring season. Given our expectation for strong Q2/17 results, we believe management is likely to provide an upward revision to its yearly guidance alongside the upcoming quarterly release," said analyst Derek Dley.
He kept his "buy" rating on the stock but trimmed his price target to $43 from $46. The consensus is $48.60.
"In our view, Spin Master is well positioned to remain a key consolidator in the highly fragmented toy products industry. The company's balance sheet is healthy, with net debt/EBITDA of only 0.2 times. The company has commented it would prefer to remain under 1.5 times net debt/EBITDA, but would leverage up to 2.5 times if an accretive, transformational acquisition were to present itself," he said.
"We are reiterating our 'buy' rating and revising our target price of $43 (from $46 previously). Our target represents 14.8 times (14.5 times previously) our 2017 EBITDA estimate of $239-million, which is converted into Canadian dollars to account for the company's TSX listed share price. We are revising the target price to maintain a consistent multiple, in accordance with the impact of the recent strengthening in the Canadian dollar, relative to the U.S. dollar, on Spin Master's share price. While not inexpensive, we believe a premium valuation is warranted as Spin Master offers investors robust top-line growth, a healthy balance sheet which will allow for accretive acquisitions, and robust free cash flow generation."
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Morgan Stanley analyst Jay Sole upgraded Nike Inc. (NKE-N) to "overweight" from "equal weight" and raised his price target to to $68 (U.S.) from $54.
The consensus is $61.75.
"The opportunity to buy NKE at the bottom of a cycle is closing and [our] thesis is predicated on three elements: 1) we have increased conviction in NKE's ability to grow North America sales to 5 per cent (from -2 per cent currently) by mid-FY2018. 2) NKE supply chain benefits should accelerate over the medium term, and 3) NKE's operating model has competitive moats. In Jay's view, peers won't be able to emulate Nike's operating model, allowing Nike to sustain EBIT margins for longer," he said.
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