Canadian National locomotives are seen Monday, February 23, 2015 in Montreal. THE CANADIAN PRESS/Ryan Remiorz
Inside the Market's roundup of some of today's key analyst actions
In the wake of the sudden departure of Canadian National Railway (CNR-T;CNI-N) chief executive officer, RBC Capital Markets is cutting its price target on the railway.
"We attribute the company's operating issues as a result of too much growth, too quickly; culminating in the Board decision to replace the CEO. The focus now will be on rebuilding executive leadership and grinding through congestion issues. We advise investors be opportunistic as we maintain our positive view on the company's core asset base and the attractive dynamic of the industry in which it operates," said analyst Walter Spracklin.
" CN's Board announced the immediate departure of Luc Jobin and has appointed JJ Ruest as Interim President and CEO. The move comes as a result of significant congestion-related operating challenges that began in H2/17," he said.
" We believe that following years of successful cost cutting, the company (appropriately) shifted focus to customer service improvement and growth. Unfortunately, in 2017 that growth went into overdrive, leading to volume increases that were above what the company could manage. This in turn led to severe congestion and a deterioration in customer service. Correcting the issue would not prove cheap: more workers, more locomotives, more capex. Unfortunately this has been aggravated by high levels of customer dissatisfaction as YTD volumes trended down -6 per cent (versus industry average of +2 per cent)," he said.
"Two key areas of investor focus are now important. First will be rebuilding the leadership team through the selection of a new CEO. Second will be the company plan to address the near term issues of congestion and disrupted service. In the meantime, we expect the company's profitability growth to be interrupted and we see both the company's 2018 and long-term guidance as likely to come under review," the analyst said.
"CN has incurred volume declines YTD of -6 per cent, which is below the +4 per cent that we had forecast and worse than the level anticipated under management's full-year +3 per cent to +5 per cent guidance level. We believe higher than anticipated costs have also come into play, resulting in a hit to near-term earnings. Accordingly we are bringing down our 2018E EPS growth to +1 per cent (from our previous 8 per cent and the 5 per cent to 8 per cent guidance). We are assuming that the worst comes in the near term and that the company does begin to realign itself to resume growth in 2019."
He cut his price target on the railway's TSX-listed stock to $105 from $112 on the back of the lower estimates. He maintained his outperform rating. The median price target is $108.82, according to Zack's Investment Research.
"The issues currently facing the company in our view are not systemic. We continue to view the company positively for its high quality asset base, operating in a very attractive competitive environment. We believe value investors should take advantage of any near term weakness."
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After Clearwater Seafoods Inc. (CLR-T) reported disappointing quarterly results yet again, Beacon Securities Ltd. cut its price target for the stock.
"Clearwater reported another disappointing quarterly result yesterday. While fourth quarter revenue was in-line with expectations at $174.8-million, EBITDA (shareholder) [earnings before interest, taxes, depreciation and amortization] was lower than expected at $22.9-million – the weakest Q4 result since the acquisition of Macduff. For the year, this translated into revenue of $621-million with shareholder EBITDA of $89.1-million. The last two years have been painful for CLR shareholders (to say the least) with the stock down 70 per cent. The company's 'guidance' for FY18 doesn't paint a picture that it will get better anytime soon," said analyst Doug Cooper.
He cut his target price to $8 from $12 but kept his "buy" rating on the stock. The median target price is $9.88. The stock is currently trading at about $4.25.
"Clearwater listed a litany of headwinds in FY18 including: a) The expropriation of 25 per cent of its clam license. While the situation certainly seems "fishy" and the Clearwater has plans to litigate, as it stands now, revenue will be down about $25-million in FY18; b) Scallop revenue will likely be down about $15-million given the potential for TAC [total allowable catches] cuts and increased U.S. supply (pressuring prices); c) The shrimp TAC cut in March, 2017 will likely result in lower y/y revenue in Q1 and FY18."
"Given the expected lower revenue y/y in FY18, we have revised our forecast. We now model $577-million in revenue (was $602-million) with consolidated and shareholder EBITDA of $95-million and $76-million respectively (were $118-million and $95-million). "
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After Organigram Holdings Inc. (OGI-X) announced that it had received Health Canada approval for the remaining 13 rooms of is 23-room Phase 2 expansion, Mackie Research Capital boosted its price target for the stock.
"Additionally, has been achieving yields that are in some cases 50 per cent higher than its previous estimates. As a result, management has increased its production capacity targets to 113,000 kg/year from 65,000 kg/year," said analyst Greg McLeish.
"The company expects harvests from the Phase 2 expansion to begin the third week of April."
As a result, he raised his price target to $7 from $6.50 and kept his "buy" rating on the stock. The median is $5.75.
"The company's Phase 2 expansion includes significant improvements and efficiencies to the cultivation and processing systems. Enhancements include a fully automated irrigation system, automated potting, a fully automated waste destruction system and automated packaging lines. This has resulted in immediate and ongoing cost savings as well as increased yields," he said. "Management fully anticipates this will continue to increase with enhanced improvements in cultivation and environmental design in Phase 3 and Phase 4 and through optimization of its pre-vegetation and cloning processes. This will result in higher economies of scale."
Canaccord Genuity raised its price target $5.50 from $5.25 and kept its "speculative buy" rating on the stock.
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Wajax Corp. (WJX-T) reported improved fourth quarter results and Raymond James raised its target price on the company.
"Consistent with the broad recovery underway in the equipment markets, Wajax reported improved 4Q17 adjusted EPS of $0.54 versus $0.44 last year. While the "rising tide" will likely lift all stocks in the sector — especially those that were beaten down the most — we prefer to remain selective with our Market Perform rating. Wajax' 4Q17 results marked a significant improvement over 4Q16, but underperformed relative to its closest peers. Similarly, as the recovery unfolds Wajax has yet to reclaim as much lost ground as the other equipment dealers with which it competes. Management has outlined a new strategic plan to close this gap, but it remains in the early stages and will involve some initiatives that have yet to be implemented and validated. It will also involve some capital. With debt up to fund both growth and the dividend, we believe the company's financial flexibility may be limited. The leverage is not alarming, and the new strategic plan has some merit, but we prefer to see how it (and the market) evolves in 2018 before upgrading our recommendation," said analyst Ben Cherniavsky.
While he kept his "market perform" rating, he boosted his target price for the stock to $28.50 from $25. The median is $29.
"While Wajax remains on a mission to close the valuation gap with its peers, we believe the prevailing financial discrepancies outlined herein warrant a discount on the stock until the strategy gains traction. Accordingly, we apply a P/E multiple of 15 times, roughly a approximately 2 times discount to peers (and towards the upper end of the stock's historical valuation range), to our 2018 EPS forecast to derive our target price."
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The U.S. Food and Drug Administration has given the early green light to the drug Theratechnologies Inc. (TH-T) has been working on with a partner that treats multi-drug resistant HIV, Trogarzo.
"While this decision from the Agency is not unexpected (we had assumed a 95 per cent likelihood of FDA approval), the timing will likely be a surprise to investors that were anticipating an approval on the drug's April 3rd PDUFA [prescription drug user fee act] date. Moreover, any concerns that investors may have had following the PDUFA delay last November (fears that the FDA's issues went beyond a request for additional manufacturing data) will be allayed with this approval. Overall, we believe this is a positive milestone for the company given the FDA's faster turnaround for the file. We believe Trogarzo addresses an unmet clinical need in MDR HIV patients, as it represents the first novel HIV therapeutic class to be approved by the FDA in the last 10 years," said Canaccord Genuity analyst Neil Maruoka.
He raised his price target to $13 from $9.50 and kept his "speculative buy" rating. The median target is $9.90.
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