Inside the Market's roundup of some of today's key analyst actions
Pembina Pipeline Corp.'s (PPL-T, PBA-N) project backlog provides investors with a "significant growth profile," according to Alta Corp. Capital analyst Dirk Lever.
However, he downgraded his rating for the company to "sector perform" from "outperform" following an "impressive recovery" in its stock price.
"Within our coverage group, and year to date, Pembina has enjoyed the highest stock appreciation at 25 per cent," said Mr. Lever. "Pembina hit a 52-week low in January, 2016, when oil dropped to $26 (U.S.) per barrel."
Pembina reported first-quarter 2016 earnings before interest, taxes, depreciation and amortization (EBITDA) of $262-million, in line with Mr. Lever's projection ($257-million) and the consensus ($268-million). Funds from operations (FFO) per unit of 55 cents also met expectations (54 cents and 57 cents, respectively).
Mr. Lever said: "Pembina continues to expand operations with the phasing into service of three capital projects in 2016: 1) subsequent to Q1/2016 the 100 mmcf/d [million cubic feet per day] (gross) expansion of the Resthaven facility was placed into service. This increased the plant capacity to 300 mmcf/d; 2) the 100 mmcf/d shallow cut Musreau III facility was placed into service in April, 2016; and 3) on April 1, 2016, the second ethane-plus fractionator at Pembina's Redwater site (RFS II) was completed on budget but one quarter later than originally expected. With RFS II in service, Pembina's Redwater fractionation capacity has more than doubled with over 146 mbbls/d of fractionation capacity."
He added: "With projects under construction backed by contracts (take-or-pay or fee-for-service), dividend increases have corresponded with major project completions. The company has stated its intention to continue growing the dividend at a rate of 4 per cent to 6 per cent per year and our model supports management's claim."
Mr. Lever raised his target price to $40 from $38. The analyst consensus is $40.67.
Industrial Alliance Securities analyst Elias Foscolos downgraded his rating for Enerflex Ltd. (EFX-T) in reaction to "noisy" first-quarter 2016 results.
The Calgary-based energy company reported revenue of $272-million, missing Mr. Foscolos's projection of $319-million and the consensus of $308-million. The result was a drop of $87-million year over year, due largely, according to the analyst, to weaker-than-anticipated compressor servicing and engineered systems sales.
"The Q1/16 headline EBITDA displayed a significant amount of noise resulting in a negative headline EBITDA of [a loss] of $68.5-million," he said. "This headline value took into account several one-time charges that, in our view, made it misleadingly low … This included a goodwill impairment of $92.1-million among other one-time charges, resulting in a substantially negative impact in the calculation of the headline EBITDA. After we adjusted the headline EBITDA for noise, the adjusted EBITDA was calculated at $41-million.
"The impairment charge strikes us as perplexing for two reasons. First, the charge does not relate to any recent acquisition. Second, the discount rate applied to the assets of 10.5 per cent to determine impairment seems exceedingly high for an 'asset' considering our view that EFX's equity cost of capital appears to be below 10 per cent."
Mr. Foscolos emphasized a decline in revenue in the company's service segment, which he notes is normally a "steady" contributor to revenue and EBITDA.
"Every geographic segment experienced a decline due to oil and gas producers deferring scheduled maintenance," he said. "Canadian servicing revenue declined more substantially due to the loss of an exclusive part distributorship for certain lines of compressors."
Accordingly, he said the most notable element of his adjusted financial model for the company is the decline in the service segment. He now projects 2016 and 2017 revenue of $1.028-billion and $1.227-billion, respectively, from $1.176-billion and $1.336-billion. His EBITDA estimates are now $150-million and $201-million from $171-million and $217-million.
Moving his rating to "buy" from "strong buy," Mr. Foscolos lowered his target price to $13.50 from $15. The analyst consensus price target is $14.38, according to Thomson Reuters.
"[Thursday's] 17-per-cent sell-off appears steep and we believe represents a very attractive entry point for risk tolerant, value-oriented investors," he said. "Based on [Thursday's] closing price our revised target results in a potential one-year return of 49 per cent.
Though he expects KP Tissue Inc. (KPT-T) to have a better second half of 2016 through price increases in Canada, Desjardins Securities analyst Keith Howlett does not think it will be able to offset the shortfall in adjusted EBITDA from the opening six months.
Accordingly, following "disappointing" first-quarter results, he downgraded the stock to "hold" from "buy."
The company's operating entity, Kruger Products L.P. (KPLP), reported adjusted EBITDA of $28.1-million, below Mr. Howlett's projection of $30.5-million and the consensus of $30-million. It was a drop of $3-million year over year.
Mr. Howlett's "greatest concern" was a drop in revenue growth in the U.S. market, which fell 2.1 per cent year over year on the heels of "minimal" growth in the previous quarter."
"KPLP is one of a number of players trying to capitalize on the longer-term trend of growth of premium private-label products at U.S. retailers," the analyst said. "Three of KPLP's competitors in the consumer tissue market had improved results in the U.S. market in 1Q16. KPLP's EBITDA, expressed in U.S. dollars, generated from the TAD [Through-Air Drying] machine (designed to serve the premium private-label market in the U.S.) declined versus a year ago. This follows tepid revenue growth in the U.S. market in 4Q15.
In Canada, revenues increased 1.5 per cent but EBITDA was negatively affected by the impact of the lower Canadian dollar on U.S. dollar-denominated input costs. Over the last two years, the inputs have also risen in U.S. dollar terms. Gross margins have been squeezed. The cost in 1Q16 was $2-million of EBITDA. A price increase in the Canadian retail channel is planned for late May or early June of this year. It is much overdue, in our view. We expect it to be followed by the major U.S. branded players. Cascades indicates it is raising prices."
Mr. Howlett lowered his adjusted EBITDA forecasts to $133-million (from $145-million) in 2016 and $152-million (from $157-million) in 2017. His EPS projections moved to 57 cents and 71 cents from 89 cents and 98 cents, respectively.
He also dropped his target price for the stock to $13.50 from $15. Consensus is $15.
On Thursday, Brookfield reported funds from operations per unit of $1.02 (U.S.), meeting Mr. Kwan's projection and a jump from 89 cents in the first quarter of 2015. In explaining the result, Mr. Kwan pointed to lower-than-expected corporate costs, partially off-set by weaker contributions from VLI SA and Natural Gas Pipeline Co. of America LLC.
Mr. Kwan said the company's record capital backlog is now "a trending topic."
"We are seeing the benefits of the company's strategy in establishing platforms that allow BIP to deploy capital on an organic basis at generally higher returns," he said. "We like the internally generated growth developments that we are seeing, particularly with regard to the rollout of the U.K. smart meters, the rate base additions within the Chilean transmission system, and the new expansion projects under way at NGPL."
"With a new agreement to acquire Asciano's ports business as well as other acquisitions including Niska and the privatization of Arteris that are expected to close within the year, the long-term growth potential also looks promising as BIP continues to demonstrate its competitive M&A edge by having the ability to participate in more complex transactions and also access large pools of private capital. We see good potential for upside in BIP re-entering the Brazilian electric transmission business given its prior success and what appear to be attractive contracted return characteristics."
Maintaining his "outperform" rating, Mr. Kwan raised his target price for the stock to $49 (U.S.) from $47. Consensus is $46.18.
In other analyst actions:
Ag Growth International Inc (AFN-T) was downgraded to "hold" from "buy" at Laurentian Bank by equity analyst Nelson Mah. The 12-month target price is $38 (Canadian) per share.
Berkshire Hathaway Inc (BRK.B-T) was rated new "buy" at UBS by equity analyst Brian Meredith. The 12-month target price is $163 (U.S.) per share.
Churchill Downs Inc (CHDN-Q) was raised to "buy" from "neutral" at Hilliard Lyons by equity analyst Jeffrey Thomison. The 12-month target price is $150 (U.S.) per share.
Dream Industrial Real Estate Investment Trust (DIR.UN-T) was downgraded to "hold" from "buy" at Industrial Alliance by equity analyst Brad Sturges. The 12-month target price is $8.50 (Canadian) per share.
Endo International PLC (ENDP-Q) was downgraded to "Market Perform" from "Outperform" at Leerink Partners by equity analyst Jason Gerberry. The 12-month target price is $23 (U.S.) per share. It was also downgraded to "underperform" from "neutral" at Mizuho Securities USA by equity analyst Irina Koffler with a 12-month target price of $13 per share.
Essential Energy Services Ltd (ESN-T) was downgraded to "market perform" from "buy" at Cormark Securities by equity analyst Jason Zhang. The 12-month target price is 65 cents (Canadian) per share.
Finning International Inc (FTT-T) was downgraded to "hold" from "buy" at TD Securities by equity analyst Cherilyn Radbourne. The 12-month target price is $20 (Canadian) per share.
Macerich Co (MAC-N) was raised to "outperform" from "sector perform" at RBC Capital by equity analyst Richard Moore. The 12-month target price is $87 (U.S.) per share.
National Bank of Canada (NA-T) was downgraded to "buy" from "top pick" at Cormark Securities by equity analyst Meny Grauman. The 12-month target price is $44 (Canadian) per share.
Nokia OYJ (NOK-N) was raised to "market perform" from "underperform" at Raymond James by equity analyst Simon Leopold.
Polaris Infrastructure Inc (PIF-T) was rated new "buy" at Cormark Securities by equity analyst Macmurray Whale. The 12-month target price is $12.60 (Canadian) per share.
Phillips 66 Partners LP (PSXP-N) was raised to "overweight" from "neutral" at Mitsubishi UFJ Securities USA by equity analyst Barrett Blaschke. The 12-month target price is $76 (U.S.) per share.
SNC-Lavalin Group Inc (SNC-T) was raised to "buy" from "hold" at TD Securities by equity analyst Michael Tupholme. The 12-month target price is $56 (Canadian) per share.
Thompson Creek Metals Co Inc (TCM-T) was downgraded to "hold" from "buy" at Paradigm Capital by equity analyst Jeffrey Woolley. The 12-month target price is 50 cents (Canadian) per share.
Trican Well Service Ltd (TCW-T) was downgraded to "Reduce" from "Market Perform" at Cormark Securities by equity analyst Jason Zhang. The 12-month target price is $1 (Canadian) per share.
Total System Services Inc (TSS-N) was raised to "outperform" from "market perform" at Cowen by equity analyst George Mihalos. The 12-month target price is $61 (U.S.) per share.
exactEarth Ltd (XCT-T) was downgraded to "hold" from "buy" at Paradigm Capital by equity analyst Daniel Kim. The 12-month target price is $1.50 (Canadian) per share.
With files from Bloomberg News