.Fred Lum/The Globe and Mail
Inside the Market's roundup of some of today's key analyst actions. This file will be updated often during the trading day so check back for new details.
Canadian box-office sales are "quite meaningfully" underperforming expectations in the second quarter, said Canaccord Genuity analyst Aravinda Galappatthige.
Mr. Galappatthige pointed to data from the Motion Picture Theatre Association of Canada that showed a drop of three per cent on the quarter as of June 4. If the quarter finishes with a decline year over year, it would be the eighth consecutive quarterly decline in sales, which he calls "an unusual streak from a historical context." Though he said the 2015 film state "carried (and still carries) high expectations," he thought that much of that strength was in the second quarter, making the drop more significant.
Accordingly, he downgraded his rating for Cineplex Inc. (CGX-T) to "hold" from "buy."
"Cineplex reported a very strong Q1, notwithstanding a flat box office, due to media and lower costs, and the stock has held up," said Mr. Galappatthige. "In fact, right through this period of box office declines, the stock has generally performed well, particularly over the last year. However, we suspect that given the high expectations that the Q2 and the 2015 slate carried, if in fact the final result is a decline, the stock may start to come under some pressure."
Due to "weaker" tracking in box office sales, he lowered his box-office forecast from 7-per-cent growth to no growth at all. Accordingly, his revenue estimate for the second quarter dropped to $333.2-million from $352.2-million, and his adjusted earnings before interest, taxes, depreciation and amortization fell to $61-million from $68.4-million.
He also lowered his third-quarter forecasts, include a decline in box-office growth from 10 per cent to 8 per cent.
Mr. Galappatthige adjusted his price target for the stock to $49 from $52 (Canadian). The analyst consensus is $49.73, according to Thomson Reuters.
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The "modest" recent weakness in the shares of Toromont Industries Ltd. (TIH-T) presents an "attractive buying opportunity," said Raymond James analyst Ben Cherniavsky, who upgraded the stock to "outperform" from "market perform."
"Our decision to downgrade Toromont to market perform seven weeks ago followed a very strong performance for the stock and was therefore largely made in the context of an explicit valuation call," said Mr. Cherniavksy. "Since then the shares have fallen 5 per cent (versus a fall of 3 per cent for the TSX) on no specific news for the company.
"Although this is an admittedly modest correction with potential for further near-term downside if the stock market remains weak, we believe the valuation at these levels looks sufficiently more attractive for this high quality company to warrant an upgrade."
Shares of Toromont are trading at 16.7 times Mr. Cherniavsky's 2015 earnings per share estimate. He points out that this price is "a full multiple point lower than at the time of our downgrade and within the range of its long-term average multiple. Its premium has also compressed relative to its closest peer, Finning. Including the dividend, there is now 13 per cent upside to our target, which is sufficient to justify an outperform rating."
Though he pointed to "prolonged headwinds" plaguing the machinery sector, the analyst said he remains optimistic about Toromont for a number of reasons, including: a strong infrastructure market in Ontario; production remaining active despite a "depressed" global mining market; growth in its agriculture platform and an "exceptionally strong" balance sheet.
He maintained his target price of $34.25. The analyst consensus is $32.03.
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Dollarama Inc. (DOL-T) enjoyed "another exceptional quarter," said BMO Nesbitt Burns analyst Peter Sklar.
"Dollarama continues to report strong basket growth as a result of the ongoing success of the company's multi-price point strategy, continues to hold its gross margin despite the decline in the Canadian dollar, and continues to improve its SG&A margin on technology initiatives that result in improvements in store labour productivity," he said.
On Wednesday, the discount retailer reported first-quarter 2016 earnings per share of 50 cents, beating both Mr. Sklar's estimate of 46 cents and the consensus of 47. He pointed to higher-than-expected same-store sales, of 6.9 per cent compared to his 4.7-per-cent estimate, and an improved [selling, general and administrative expense] margin as the main catalysts for the performance.
The analyst raised his price target to $75 from $71 (Canadian). The consensus is $75.
However, he does have concerns about the stock's valuation, saying:
"At the current stock price, the company is currently being valued at 18.4 times our fiscal 2016 (calendar 2015) EBITDA estimate, which is effectively an unprecedented level for the company since the IPO, and a relatively rich multiple compared to other Canadian retailing/consumer stocks."
Several other analysts also bumped their price targets in the wake of the earnings, including TD Securities' Brian Morrison (to $83 from $81) and Raymond James' Kenric Tyghe (to $78 from $75).
In contrast, Desjardins Securities analyst Keith Howlett downgraded the stock to "hold" from "buy" while raising his target by a loonie to $76.
He said: "Dollarama is opening 70–80 new stores per year while driving mid-single-digit same-store sales growth across the existing network of [about] 1,000 stores. The franchised dollar store competition (Buck or Two, Great Canadian Dollar Store, Your Dollar Store with More, etc) is struggling. While U.S.-based Dollar Tree has expanded to more than 200 corporate stores in Canada, 100 per cent of its sales are at the retail price point of $1.25 (Canadian). At Dollarama, 27 per cent of sales are at $1, and 73 per cent of sales are at price points between $1.25 and $3. Dollar Tree will be challenged by the sharp decline of the Canadian dollar to offer compelling value at the single price point of $1.25."
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Enerplus Corp. (ERF-T, ERF-N) is poised to be rewarded if commodity prices rebound, said TD Securities analyst Aaron Bilkoski, who upgraded the energy producer's stock to "buy" from "hold."
On Wednesday, the light oil producer announced it is increasing its average production guidance for 2015 (to 97,000-103,000 barrels of oil equivalent per day from 93,000-100,000) and its capital budget to $540-million from $480-million to accelerate the completion of oils wells in North Dakota.
"Enerplus is a company that we had strongly advocated investors to add to their portfolios for much of the past two years," said Mr. Bilkoski. "However, as commodity prices eroded through [the second half of 2014 and first half of 2015], we lowered our recommendation from TD's highest conviction rating, Action List Buy, to Hold. This change was predicated on our view that under our current commodity price assumptions, the North Dakota Bakken had marginal full-cycle rates of return, Marcellus gas pricing and egress continued to be an issue, and the company was challenged to maintain production without spending materially more than cash flow on capex/dividends, resulting in escalating balance sheet leverage.
"Although some of these challenges persist, given the company's financial flexibility through 2016 (largely undrawn $1-billion bank credit facility), top-tier assets, and its ability to rapidly bring on behind pipe production or previously drilled wells, we believe that the company is well-positioned to benefit from the improving commodity prices. Moreover, given the [approximately] 25-per-cent decline in the share price over the past 1.5 months, we believe that valuation is once again compelling."
Mr. Bilkoski raised his price target to $16 (Canadian) from $14. Consensus is $15.53.
"Enerplus is trading at a material valuation discount to its Canadian dividend-paying peers," he said. "Moreover … Enerplus is also trading at a material valuation discount to its U.S. Bakken-focused peers despite lower balance sheet leverage and comparable [year over year] growth in 2016."
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Canaccord Genuity analyst Derek Dley emphasized the importance of the announcement by the management of Hudson's Bay Co. (HBC-T) that it is maintaining its guidance for the 2015 fiscal year.
On Wednesday, HBC announced first-quarter revenue increased 12 per cent to $2.07-billion. This was due largely, according to Mr. Dley, to "positive" same-store sales growth, the opening of additional Saks Fifth Avenue locations and the appreciation of the U.S. dollar. However, the company's adjusted earnings before interest, taxes, depreciation and amortization of $96-million did not meet the consensus forecast of $111-million.
Regardless, Mr. Dley said he views these results, from a "seasonally weak quarter," to be "relatively immaterial" given the company's positive outlook. HBC did not alter its revenue guidance of $9-billion to $9.3 billion, which "incorporates low-single-digit same-store sales growth and an average
U.S. dollar to Canadian dollar exchange rate of $1.24."
The analyst maintained his "buy" rating while lowering his target price by a loonie to $31 (Canadian), while BMO Nesbitt Burns analyst Wayne Hood dropped his target to $27 from $32. The consensus target price is $32.68.
In other analyst actions:
Blackbird Energy Inc. (BBI-X) was rated new "Buy" at Haywood Securities. The 12-month target price is 40 cents (Canadian) per share.
Boulder Brands Inc. (BDBD-Q) was downgraded to "Neutral" from "Overweight" at Piper Jaffray. The 12-month target price is $7 (U.S.) per share. The stock was also downgraded to "Neutral" from "Buy" at Janney Montgomery. The 12-month target price is $7 (U.S.) per share. And it was downgraded to "Hold" from "Buy" at Gabelli & Co.
HCC Insurance Holdings Inc. (HCC-N) was downgraded to "Market Perform" from "Outperform" at Keefe Bruyette. The 12-month target price is $78 (U.S.) per share.
Marquee Energy Ltd. (MQL-X) was rated new "Buy" at Cormark Securities. The 12-month target price is $1.50 (Canadian) per share.
North West Co. Inc. (NWC-T) was raised to "Buy" from "Hold" at TD Securities. The 12-month target price is $28 (Canadian) per share.
Astrix Networks Inc. (OEE-X) was rated new "Speculative Buy" at Clarus Securities. The 12-month target price is 90 cents (Canadian) per share.
Agenus Inc. (AGEN-Q) was rated new "Outperform" at Oppenheimer. The 12-month target price is $14 (U.S.) per share.
Digital Realty Trust Inc. (DLR-N) was raised to "Outperform" from "Market Perform" at Cowen. The 12-month target price is $73 (U.S.) per share.
Edison International (EIX-N) was raised to "Buy" from "Neutral" at Guggenheim Securities. The 12-month target price is $64 (U.S.) per share.
Fidelity National Information Services Inc. (FIS-N) was raised to "Outperform" from "Neutral" at Robert Baird. The target price is $70 (U.S.) per share.
Hilton Worldwide Holdings Inc. (HLT-N) was rated new "Buy" at Brean Capital. The target price is $34 (U.S.) per share.
NeoPhotonics Corp. (NPTN-N) was raised to "Outperform" from "Market Perform" at Raymond James. The 12-month target price is $11 (U.S.) per share.
Orchids Paper Products Co. (TIS-A) was rated new "Buy" at Craig-Hallum. The 12-month target price is $30.50 (U.S.) per share.
With files from Bloomberg News
David Leeder