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Brian Jackson

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

Raymond James is initiating coverage on Zymeworks Inc. (ZYME-N; ZYME-T) with a strong rating as it is in the early stages of making a drug that treats tumors.

"We are initiating coverage of Zymeworks Inc. with an 'Outperform' rating and an US$18 target price (High Risk/Speculation suitability, given ZYME's current stage of clinical development). Looking back at 2016, seven of the top 10 innovative drugs worldwide were biologics, six of which were antibody-related molecules. In our view, antibody-based therapeutics will continue to dominate modern medicine, with bispecific antibody development holding significant promise. With robust platform technologies which have garnered significant partner interest, in addition to a growing pipeline of wholly owned assets, we believe ZYME represents Canada's Mother Of All Biotechnology (M.O.A.B.) plays amongst the early stage opportunities," said analyst David Novak.

"To date, ZYME has inked deals with six major biopharmaceutical companies: Celgene, GlaxoSmithKline, Eli Lilly, Merck, Daiichi Sankyo, and JNJ. These partnerships in aggregate have the potential to generate $5.5-billion in non-dilutive milestone payments for the company. We expect new licensing deals in the short term, representing potential catalysts to drive ZYME shares higher," he said.

"ZYME's lead candidate, ZW25, is a bispecific anti-HER2 antibody which has generated preliminary evidence of anti-tumor efficacy. We believe ZW25 has the potential to become a best-in-class therapeutic, in time competing with Herceptin and Perjeta, two HER2 targeted therapies that generated 2017 sales of $7.2 bln and $2.3 bln, respectively. In 2018, we anticipate that ZYME will file an IND for its second clinical asset; a bispecific HER2 targeted antibody drug conjugate. Furthermore, we expect a pipeline reveal of non-HER2 targeting therapeutic candidates within oncology as well as broader therapeutic areas such as autoimmune disease and/or inflammation," he said.

"Our US$18 target is based on a probability adjusted, net present value, sum-ofthe-parts analysis. Specifically, our model attributes $8.45 of per share value to ZYME's lead clinical asset ZW25, $1.17 of per share value to ZYME's upcoming follow-on clinical asset ZW49, $4.80 of per share value from ZYME's strategic partnership and collaboration agreements and $3.10 of per share value in cash," he said.

The median price target is US$19, according to Zack's Investment Research.


CIBC remains positive on AutoCanada Inc. (ACQ-T) and has kept it high rating on the stock but lowered its price target.

AutoCanada enters 2018 with strong organic sales momentum, the capacity and appetite to make acquisitions, and numerous margin opportunities. While there is execution and macro risk, we view the risk/return balance as favourable and rate the stock Outperformer," said analyst Matt Bank.

"AutoCanada reported a mixed quarter, but the takeaway was net positive in our view. Sales vastly outperformed and the company is bullish on 2018. Margins were well behind, largely due to aggressive year-end clear-outs of used vehicles, which we expect to normalize," he said.

"New vehicle same-store sales growth was 16%, far ahead of both our 5 per cent forecast and industry numbers — and continuing the recovery since Q2. The company has several growth levers in 2018, which in our view outshine the pressure from a peak auto market potentially moderating. Improved head office support and a re-launched Ram Truck, among other factors, will help," he said.

"Acquisitions under CEO Steven Landry have been strategic and methodical; the only two last year were for new brands that developed clusters in major metropolitan areas. The company is aiming to pick up the pace to about five per year (we use this in our valuation), for which there is ample pipeline and balance sheet capacity. Continuing to use 8.5x EBITDA and 12x EPS (a tighter premium to U.S. peers than historical) on F2018, we generate a $26 price target (was $29). Looking out to F2019 implies >$30."

He kept his "outperformer" rating but cut his price target to $26 from $29. The median price target is $27.

Separately, RBC raised its rating to "outperform" from "sector perform" while hiking its price target to $27 from $26.

AltaCorp Capital kept its "outperform" rating on the stock and raised its price target to $35 from $32.


Credit Suisse has rased its price target for JPMorgan Chase & Co. (JPM-N) " to reflect the trading environment, the benefit of higher interest rates and somewhat lower credit costs," said analyst Susan Roth Katzke.

She kept her "outperform" rating on the stock and raised her price target to US$127 from US$125. The median price target is US$125.

"Our full year 2018 forecast is unchanged at US$8.80 per share, for now— we've baked in a somewhat higher level of investment spend. We've raised our 2019 estimate to US$9.70 (from US$9.65) on the benefit of a more gradual upward migration in commercial credit costs. Base case estimate risk/sensitivity is driven first and foremost by the level of economic activity, with that in turn driving (i) the level and shape of the yield, (ii) credit quality trends, and (iii) capital markets conditions," she said.

"Applying our weighted average valuation methodology (using a 35 per cent weight on our blue sky scenario, a 50 per cent weight on our base case scenario, and a 15 per cent weight on our gray sky scenario), our target price of US$127 translates to a price to forecast year-end 2018 book value of 1.8 times (2.3 times P/TBV [price to tangible book value])," she said.

"Look to JPMorgan for best-in-class execution -- sustainable organic revenue growth and market share gains (leveraging the benefits of its complete, scaled and well-integrated product set), a willingness to drive down unit operating costs (capacity for investment to drive incremental growth; a virtuous circle) and an ability to optimize capital; this should sustain above-average earnings growth and returns on equity," she said.


Morgan Stanley is sticking with its "overweight" rating for Boston Scientific (BSX-N) and raising its price target.

"Our "Overweight" thesis on Boston Scientific centers on the triple threat: (1) upper quartile growth, (2) top decile EPS and (3) an emerging flexible balance sheet. In our first note in this three part series we focus on revenue acceleration from 4-5 per cent in 1Q18 to high single digits through 2020. Boston is trading at a ~19x NTM [next 12 months] P/E multiple, which is ~2 turns below Q17 levels, reflecting Lotus induced growth concerns. Irrespective of Lotus, our extensive work suggests durable 6-7 per cent organic growth driven by the pipeline and shift to higher growth end markets," said analyst David Lewis.

Boston Scientific initiated a voluntary recall for Lotus and Lotus Edge Aortic Value Systems in 2017, an artificial heart valve.

"Large cap device peers grew about 4 per cent organically FY15-FY17 while Boston grew about 7 per cent. Management achieved best in class growth with minimal Lotus contribution. The framework that drove upper single digit growth remains intact as Boston (i) maintains share in core businesses;(ii) innovates in its strongest channels, and (iii) pivots into faster growth adjacencies," the analyst said.

He kept his "overweight" rating and raised his price target to US$33 from US$30. The median price target is US$31.


With a positive outlook on it drug pipeline, Morgan Stanley upgraded Jazz Pharmaceuticals (JAZZ-Q) saying the "sleepy stock is set to awaken."

"We expect strong growth in 2018 along with P/E expansion on rising pipeline expectations. Jazz also has a strong balance sheet which yields M&A optionality in our bull case," said analyst David Risinger.

He upgraded the stock to "overweight" from "equal-weight" and raised his price target to US$183 from US$167. The median price target is US$182.50.

"We have confidence that JAZZ will be able to extend the durability of its Xyrem franchise and add future growth drivers, and we expect the market to come around to our view over time. JAZZ has been trading between US$130 and US$155 for the past eight months. We believe Jazz is set to break out above this range based upon: 1) strong earnings growth visibility, 2) potential for multiple expansion as investors gain greater confidence in the extension of Xyrem franchise durability in the face of generic entry in 2023 via its 90 pe3r cent lower sodium version [of Xyrem, a treatment for excessive daytime sleepiness associated with narcolepsy] JZP-258, and 3) potential M&A optionality, which could help JAZZ diversify."


CIBC lowered its price target on Enbridge Inc. to $60 from $63.


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