Inside the Market's roundup of some of today's key analyst actions
WestJet Airlines Ltd. (WJA-T) revised down its first quarter 2018 traffic outlook and its CEO announced his retirement and that's led Beacon Securities to cut its price target on the company.
"WestJet delivered an unpleasant surprise with its February monthly traffic press release, revising its RASM [revenue per available seat mile]/ASM guidance for Q1/FY18 down. WestJet blamed weather conditions as the reason behind this revision. The company now expects its Q1/FY18 RASM to be up 2.5 per cent to 3.5 per cent year over year (200bps downward revision) and its domestic capacity to be up 5.5 per cent to 6.5 per cent year over year (200bps downward revision)," said analyst Ahmad Shaath.
He revised his target price to $25.50 from $27 and he maintained his "hold" rating on the stock. The median is $30, according to Zack's Investment Research.
"WestJet recorded strong YTD load factors of 84.4 per cent (up 200bps y/y). However this is largely due to capacity additions coming below guidance/expectations (YTD up only 3.8 per cent versus previous Q1/FY18 guidance of up 4 per cent to 5 per cent)," he said.
"WestJet also announced the retirement of its CEO Mr. Gregg Saretsky, effective immediately. Mr. Ed Sims (was VP Commercial) was appointed as President and CEO, and was also appointed to the Board of Directors. Mr. Saretsky has been at the helm for eight years and oversaw many successful initiatives at WJA (doubling of the fleet size, launch of WestJet Encore, starting service to Europe). Mr. Saretsky's retirement comes at a critical point, in the middle of WJA's launch of the ULCC Swoop (which is facing a lot of pushback from WJA's pilots) and its wide-body program."
"We are revising our target price to $25.50 (from $27) based on 10 times (unchanged) our revised FY18E EPS estimate. The negative guidance revision combined with leadership changes at this critical point in time for WJA should put material pressure on the shares in the short-to-medium term. We also note that this negative RASM guidance should put short-term pressure on the sector in general."
After Canadian Western Bank (CWB-T) reported weaker-than-expected results, CIBC downgraded the bank.
"One of the key trends that had underpinned our positive view on the shares was the steady upward trend in our estimate revisions. With these results, which we view as largely in line with our EPS estimate but behind on revenue growth after accounting for an unusual gain, that trend has ended, at least for this quarter. Both the net interest margin and loan growth came in below our expectations. As of the close on 03/07/18, the shares traded at 12.2 times our F2018 EPS estimate and 11.0 times our F2019 estimate, which represents a premium to the Big Six banks of 5 per cent on F2019. We remain favourably inclined to this story over the longer term and still believe it can grow more rapidly than some of its larger peers," said analyst Robert Sedran.
He downgraded the stock to "neutral" from "outperform" and cut his price target to $40 from $42. The median is $38.50.
"CWB reported Q1/F18 adjusted EPS of $0.75, above our estimate of $0.70 and consensus of $0.71. This includes a $0.03 gain related to the appointment of successor trustees for certain CWT accounts, implying a result that was closer to what was expected (management noted that such gains are unlikely to be material going forward). The CET1 ratio remains strong at 9.4 per cent (down 10 bps, though the acquisition was expected to have a 30 bps impact). Book value increased to $24.98 from $24.82. The dividend was increased $0.01/share to $0.25, whereas we and the Street expected no move. In terms of variances, fee-based income (pretty much all the gain) and expenses (not normally a positive catalyst here) added $0.03/share and credit was a $0.02/share positive. Management expects positive operating leverage, but less positive than Q1/F18. Loan losses were at the low end of the bank's traditional 18 to 23 bps range, which suggests limited upside from here. The only negative, and most surprising, was lending net interest income at $0.03/share. Excluding the ECN capital acquisition, loan growth was 1 per cent Q/Q and 8 per cent Y/Y, below our expectations. The bank also opted to hold more liquidity around the acquisition, which brought the margin down 11 bps Q/Q when we were expecting a flat margin."
With construction firm Stuart Olson Inc. (SOX-T) showing strength in recent earnings, Raymond James upgraded the stock.
"We seldom change our recommendations on construction stocks because the industry moves at glacial speeds. This has been the case with Stuart Olson since we went neutral [in June 2016] on it due to a depressed Alberta economy . But with the company now more nimble and diversified than ever before, financially stronger, and better equipped to service its clients, we believe it's time to change our tune," said analyst Frederic Bastien.
He upgraded Stuart Olson to "outperform" from "market perform" and raised his price target to $8 from $6. The median price target is $8, according to Zack's Investment Research.
"Adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] of $11.5-million comfortably exceeded our target of $10.6-million and the consensus of $10.1-million. The positive surprise to our EBITDA estimate is attributable to much-improved segmented margins, as revenues of $283-million loosely matched our forecast. The beat was all the more impressive considering 4Q17's healthy share price gain triggered a significant mark-to-market expense related to Stuart Olson's share-based comp program. The one disappointment was SOX's backlog of $1.72-billion as at Dec. 31, 2017. It was off 2 per cent sequentially, but a more pronounced 14 per cent year-over-year."
"Our new target is based on an EV [enterprise value] /EBITDA multiple of 6.5 times our revised estimates for 2018 (up from 6.0 times previously). We are comfortable valuing SOX in-line with the contractors' 10-year average multiple of 6.3 times given firm's capex light attributes, its healthy and well protected dividend, and the 14 per cent EBITDA growth we forecast for this year."
Canaccord Genuity also raised its price target to $8.50 from $7.50 and maintained its "buy" rating on the stock.
"Franco Nevada reported adjusted EPS [earnings per share] of $0.28, in line with our estimate. Attributable GEO production of 120kozs was below our estimate of 127kozs mainly due to lower attributable output from Goldstrike, Candelaria and Stillwater and a lower-than-anticipated inventory release from Hemlo. Oil and gas revenue was also below expectations at $14-million versus $16-million. A lower depreciation run-rate effectively offset the weaker revenues," said analyst Tony Leslak.
"Attributable GEO guidance for 2018 of 450 to 490kozs (CG previous estimate of 495kozs) implies a sequential reduction from 498kozs sold in 2017. FNV is not assuming any sales from Cobre Panama before year-end (we had assumed a modest ~2kozs) and has also incorporated decreased production from Candelaria (transition year), a grade reversion at Palmarejo and unfavourable royalty ore sequencing at Bald Mountain. Sales are expected to improve 19 per cent into 2019, mainly driven by the ramp-up at Cobre Panama, Stillwater and Cerro Moro. FNV also provided 5-year guidance to 2022 which indicates organic attributable GEO growth from 475kozs to 580kozs. We view the 2022 guidance range as conservative with potential for mine life additions/expansions and new production not currently in third-party guidance (e.g., South Arturo, Barkerville, Castle Mountain, Hollister, Hardrock, Bullabulling) and more favourable GEO conversion factors," he said.
He maintained his "buy" rating on the stock but cut his price target to $122 from $126. The median is $111.88.
"We are decreasing our target price to $122 from $126 to reflect moderation in our near-term attributable sales expectations to reflect guidance. Our target price remains predicated on an industry-leading 2.20 times (unchanged) multiple to our 5 per cent/operating NAVPS [net asset value per share] estimate of $55.64/sh (from $57.51/sh) plus net cash and other corporate adjustments. We maintain our BUY rating. In our opinion, FNV's recent underperformance versus its peers (-5 per cent) and gold (-10 per cent) is not linked to any de-rating but has rather been largely driven by redemption and fund liquidation-linked selling of higher quality gold equities despite the strong fundamentals. FNV currently trades at a 1.58 times P/NAV multiple on our revised estimate, well off the peak valuation of 2.38 times (July 2016) and approaching the low of 1.3 times (July 2015)."
After Agnico Eagle Mines Ltd. (AEM-N) released its fourth quarter results, Credit Suisse cut its price target on the company.
Analyst Anita Soni cut her price target to US$60.50 from US$62 but maintained its "outperform" rating. The median is US$52.65. She also revised her 2018 earnings per share estimate to US$0.94 from US$1.20.
"On Feb. 14, AEM released its Q4/17 financial results, refreshed 2018 guidance and updated reserves and resources. After several model revisions, largely on higher operating costs across all of AEM's assets, we have revised our target price to US$60.50 from US$62.00 and maintained our Outperform rating. Our TP is based on a 50/50 weighting between our DCF [discounted cash flow] of US$35.74, using a 2.1 times multiple less net debt of US$3.11 (up from US$33.59 and net debt of US$2.67, driven by LOM in Lapa and Meliadine), and our FY18 OpCFa of US$2.22 using a 22.0 times multiple (down from US$2.52, driven by higher costs guidance)," said the analyst.
"AEM updated its guidance to 1,525kozs in 2018, a range of 1,625-1,775kozs in 2019 and 1,950-2,050kozs in 2020, improved over previous guidance of 1,500kozs, 1,600kozs and 2,000kozs, respectively. We note that AEM has a history of providing conservative guidance and has delivered actual production averaging ~8% beat over guidance for the last five years, and that the Company has stated in its earnings call that it has a track record for "under-promising and over-delivering". Our revised CS estimates are 1,593kozs in 2018, 1,790kozs in 2019 and 2,013ozs in 2020."
Raymond James is initiating coverage of VersaPay Corp. (VPY-X), "a financial technology company that provides cloud-based invoicing, accounts receivable management, and payment solutions to business customers through its flagship product, Accounts Receivable Cloud (ARC)."
Analyst Brenna Phelan started coverage with an "outperform" rating and a price target of $3.50. The media is $2.88.
"VersaPay has been a high-growth story since its focus shifted to the ARC product, and 2017 was a milestone year where material customer wins and a partnership with RBC set the stage for accelerated growth. Armed with $10.7-million of equity capital raised in 4Q17, we are modelling investment for growth over the next two years, with the company reaching breakeven in later 2019. We also have a favourable view of the company's skilled and experienced management team and Board of Directors. With 67 per cent upside to our $3.50 target price, we are initiating coverage of VersaPay with an Outperform rating," she said.
"Our target price is based on an EV/Revenue multiple of 7.0 times our 2019E revenue estimate, established at a about 3.0 times discount to a sample of 20 U.S. software companies that operate under a SaaS model and are forecast by consensus to grow 2018E revenues at 25 per cent or greater. We believe this multiple discount appropriately reflects VersaPay's smaller size, reduced liquidity and its earlier stage in software solution adoption versus its meaningfully faster forecast revenue growth."
In other analyst actions:
CIBC started coverage on Cameco Corp. with a "neutral" rating and $12 price target.
BMO upgraded Cona Resources Ltd. to "market perform" from "underperform."
Raymond James upgraded Stuart Olson Inc. to "outperform" from "market perform."
CIBC raised Obsidian Energy Ltd. to "neutral" from "underperformer."