Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(}function setPanelState(o){dom.root.classList[o?"add":"remove"](,dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

David H. Lewis/iStockphoto

Inside the Market's roundup of some of today's key analyst actions

Manufactured wood products producer Stella-Jones Inc. (SJ-T) reported results that were in-line with recent expectations and as a result TD Securities upgraded the stock.

The company, which makes railway ties, telephone poles and other wood products, reported adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $37.4-million, which met expectation. However, TD was disappointed with the company management's margin outlook commentary.

Story continues below advertisement

"We are encouraged by the elements of the Q4/17 release, including certain organic growth details (i.e., +14.5 per cent in Utility Poles); we also view the announcement of two tuck-in acquisitions positively," said analyst Michael Tupholme.

"Conversely, we are disappointed by management's margin outlook commentary, which pointed to continued near-term year-over-year margin pressures (i.e., product mix and pricing pressures are expected to lead to lower year-over-year EBITDA margins in the first half of 2018, whereas we had forecast year-over-year improvement to start in the first quarter of 2018)."

"Further, management indicated that it does not expect to get back to what it sees as its normalized level of EBITDA margin of 15 per cent until toward the end of 2019(consensus and TD were forecasting 15 per cent for full-year 2019)," he said.

"Although disappointing, we are not overly concerned about near-term margin pressures, which we are confident will subside (industry data shows that raw tie pricing has already turned higher year over year. Regarding 2019, although the margin guidance is again disappointing, SJ noted that it is trying to be conservative. Further, we are encouraged that management did not back off of the 15 per cent EBITDA margin as the long-term normalized level that it believes can be achieved," he said.

We now forecast a 13.5 per cent EBITDA margin in 2018 (14.7 per cent previously) and 14.6 per cent in 2019 (15 per cent previously), with a slightly higher revenue forecast acting as a partial offset," he said.

He raised his rating on the stock to "buy" from "hold" but trimmed his price target to $53 from $54. The median price target is $54, according to Zack's Investment Research.

Laurentian Bank downgraded the stock to "hold" from "buy" and cut its price target to $50 from $57.

Story continues below advertisement

"While we believe that SJ remains a solid investment opportunity for those with a longer term time horizon, near term headwinds cause us to take our rating to a Hold reflecting a reduction in estimates and our valuation multiple to account for reduced visibility and a lower growth profile," said analyst Mona Nazir.


An increased debt load and higher capital spending requirements for Journey Energy Inc. (JOY-T) has made Canaccord Genuity analyst Sam Roach more cautious toward the stock. Journey's acquisitions in the Duvernay formation in Alberta, combined with a recent share repurchase program, have pushed Journey's indebtedness up to 3.9 times debt-to-cash-flow. And the Duvernay exploration drilling program could cost up to $40-million.

"Journey's strategic pivot to the Duvernay comes with plenty of upside, but also presents funding challenges. We recommend investors stay put as Journey's Duvernay story develops in 2018," Mr. Roach said.

He cut his rating on Journey's stock to "hold" from "speculative buy" and lowered his price target to $1.80 from $2.50. The stock has an average price target of $2.20.

Journey has acquired 103 sections of rights in the Gilby area of Duvernay over the last year. In addition to other Gilby assets, as well as ownerships stakes in gas plant and pipeline infrastructure assets, the company is faced with high capital requirements, Mr. Roach said.

Story continues below advertisement

"Journey's contiguous land position, which is situated between Raging River and Paramount's Duvernay land, could have more than 300 drilling locations. We estimate that a two-mile Duvernay well at Gilby would cost approximately $8-million, and that it would take maybe five to 10 wells to sufficiently delineate the play – which implies a total cost of $40-million to $80-million to delineate."

The company's recent $21-million share buyback program helped lift net debt to about $124-million. Considering a forecast of $32-million in cash flow in 2018, Journey's above-average debt and spending plans may create an overhang on the stock, Mr. Roach said.


After Ag Growth International Inc. (AFN-T) reported fourth quarter results that beat expectations and provided an optimistic outlook, Laurentian Bank boosted its price target for the stock.

"On the back of a Q4 beat, the company provided a bullish outlook for Canada (commercial business), an optimistic outlook in the U.S. (veresus our more tempered outlook) and reiterated record international backlog and order activity. This reinforces our earlier expectations that 2018 should be a good year for AFN," said analyst John Chu.

"While the company continues to have a cautious view regarding the on-farm segment suggesting it will be challenging for 2018 sales to exceed a tough 2017 comparable period (record sales plus a dry and early harvest), it did indicate market conditions remain positive. On the commercial side, backlog is at record levels entering 2018 and should also benefit from deferred sales from Q4/17. More importantly, management feels the commercial momentum should last a few more years as there are some projects in the bidding process and others yet to hit the bid stage," he said.

Story continues below advertisement

"The USDA's estimated about 5 per cent decline in 2018 net farm income does not appear to have acted as a headwind for AFN as a 2-per-cent increase in 2017 organic farm sales appears to signal to AFN the beginning of a recovery. Strong in-season sales and high participation levels of post-harvest sales programs (usually at a discount) have resulted in a significantly higher backlog entering 2018 (AFN does not normally discuss farm backlogs, more so commercial only, which we believe is indicative of AFN's optimism of an on-farm recovery). While storage sales remain at cyclical lows, AFN is optimistic signs of a recovery started to emerge in late-2017, which is a nice surprise. AFN's belief of on-farm underinvestment also ties in with our replacement cycle thesis," he said.

"With significant sales in E. Europe (Black Sea, Ukraine), S. America (Brazil, Argentina), SE Asia/Australia, EMEA, AFN should be well positioned going forward. A record backlog should support strong 2018 sales and we believe strong quoting activity and sales momentum can be sustained given its geographic diversity," he said.

"AFN's outlook is consistent with our view and as such, our forecast is relatively unchanged, with potential upside to U.S. sales and some risk to Canadian sales," he said.

He kept his "buy" rating on the stock but raised his price target to $68 from $65 "driven mostly by moving our valuation period to reflect 2019 earnings; 17 times P/E multiple is unchanged. AFN is trading at 16.5 times forward P/E (about an 8 per cent discount to historical average of 18 times)." The median price target is $68.


A strong set of numbers from Wednesday's earnings release by The Stars Group (TSGI-T; TSG-Q) has Canaccord Genuity analyst Simon Davies materially raising his target price on the stock. While maintaining a "buy" rating, Mr. Davies increased his target to $39.80 from $33.40 to reflect higher earnings forecasts for the next two years.

Story continues below advertisement

"We continue to see Stars as an attractive play on industry consolidation and the opening up of the U.S.," Mr. Davies said.

The stock had a rocky day on Wednesday after the company released its financial statements before the opening bell. While earnings before interest, taxes, depreciation, and amortization, for the final quarter of its fiscal year were within the range of company guidance, the market's expectations were closer to the higher end of that range, Mr. Davies said.

The stock declined by as much as as 9 per cent in morning trading on Wednesday, but gained back most of those losses by the closing bell as the market digested the results. It closed at $37.27.

"This was a good set of numbers, and while there was some disappointment at the EBITDA shortfall, this was down to an increase in marketing spend," Mr. Davies said, noting that the company's selling costs for fiscal 2017 were well ahead of forecast, while marketing rose by 45 per cent in the fourth quarter. "This was consistent with management commentary and should accelerate growth into the first quarter."

Meanwhile, concerns about a Russian clamp-down on online gaming were largely offset by favourable currency shifts, the analyst pointed out.

"Even after yesterday's decline, Stars has been the best performing online gaming stock under coverage, up by 21 per cent year to date and 81 per cent in the past year," he said, adding that the stock looks attractive on a valuation basis, with an enterprise-value-to-EBITDA ratio of about 10.5 times for fiscal 2019.

Story continues below advertisement


Raymond James analyst Brian MacArthur raised his target price on Royal Gold Inc. (RGLD-Q) in part to reflect the impact of U.S. tax reform on company profits. The one-year target price moves to US$98 from US$90, Mr. MacArthur said, noting lower tax rates of 21 per cent for the company's royalty business and 13 per cent for its streaming business. The average analyst target price on Royal Gold's stock is US$94.58. He kept his "outperform" rating for the stock.

The company's royalty and streaming business took a bit of a hit recently through its interest in Centerra Gold Inc.'s Mount Milligan mine in British Columbia, which has had production issues partly due to a lack of sufficient fresh water resources. Royal Gold has a streaming interest on 35 per cent of the gold and 18.75 per cent of the copper from Mount Milligan.

But even with the negative impact from Mount Milligan on Royal's earnings, the company should realize year-over-year growth in fiscal 2019 as a result of its interests in New Gold Inc.'s Rainy River project in Northern Ontario, Barrick Gold Corp.'s Cortez Crossroads in Nevade, and Goldcorp Inc.'s Penasquito project in Mexico, Mr. MacArthur said.

"Royal Gold has a high-quality, diversified asset base in lower-risk jurisdictions, as well as a flexible balance sheet to support future investments and a growing dividend. Given the improvement in its balance sheet, growth and implied return, we rate the shares 'outperform,' " he said.


Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the authors of this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to
Comments are closed

We have closed comments on this story for legal reasons or for abuse. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies