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Shoppers at the Dollarama store on Spadina Ave. in Toronto.Deborah Baic/The Globe and Mail

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

A pair of analysts raised their ratings for shares of Home Capital Group Inc. (HCG-T) on Thursday morning.

TD Securities analyst Graham Ryding moved the troubled Toronto-based mortgage lender to "buy" from "hold."

His target for the stock moved to $15 from $23. The analyst average target price is $16.44, according to Bloomberg data.

Macquarie analyst Jason Bilodeau raised his recommendation to "outperform" from "neutral" with a target of $14, down from $25.


Valuation remains the biggest risk to Toromont Industries Ltd. (TIH-T) stock, according to Raymond James analyst Ben Cherniavsky.

"We see this as universally true for the Industrial sector that we follow, if not the whole market," he said. "We're sure this will change one day; we just can't say when. In the meantime, we expect news flow to remain positive for Toromont, which — in a market where even bad news is good news — should continue to support its [price-to-earnings] multiple and stock price."

Admitting he "foolishly" downgraded the stock based on its valuation in late April of 2016, Mr. Cherniavsky reversed course, upgraded the Toronto-based company to "outperform" from "market perform" in reaction to "strong" first-quarter financial results.

"Despite the reluctance that investors may have to 'chase' this stock, we believe an upgrade is in order," he said.

On Wednesday, Toromont reported earnings per share of 34 cents, meeting Mr. Cherniavsky's estimate and topping the consensus projection by a penny. It was an increase of 11 per cent year over year.

"In very difficult market conditions, Toromont continues to execute well," he said. "Right through this downturn, the company has generated consistent earnings growth that has met analyst forecasts. This stands in stark contrast to most of its peers, many of which are commanding equally high (if not higher) multiples. At least with Toromont, we feel that investors are buying a 'best in class' company with high quality earnings, good growth visibility, a strong balance sheet, and industry-leading returns. As the old saying goes: you get what you pay for!"

Based on the results, Mr. Cherniavksy raised his 2017 and 2018 EPS expectations to $2.18 and $2.45, respectively, from $2.15 and $2.35.

"Toromont's earnings growth over the last few years has been achieved despite the depressed condition in its Equipment Group, which continues to suffer from excess supply and intense pressure on margins," he said. "There are signs however, that some of these headwinds are finally abating, especially in mining (1Q17 EG backlog rose 40 per cent). We expect this to produce accelerated earnings growth off depressed levels going forward. Also, our thesis about this recovery being led by the aftermarket continues to gather momentum (EG service revenues up 10 per cent for 1Q17). Finally, we remain bullish on the growth opportunities for CIMCO, which saw backlog rise 23 per cent in 1Q17."

The analyst's target price for the stock jumped to $55 from $43. The consensus price target is $44.50, according to Thomson Reuters.

"Toromont continues to sit on a pristine balance sheet that gives investors downside protection and some 'optionality' for growth that is not captured in our forecasts," he said.


Shares of Western Energy Services Corp. (WRG-T) have underperformed its peers by a wide margin, creating "an attractive entry point for investors" in the view of Raymond James analyst Andrew Bradford.

On the heels of a first-quarter earnings beat, Mr. Bradford upgraded the Calgary-based oilfield services company to "outperform" from "market perform."

After market close on Wednesday, WES reported quarterly earnings before interest, taxes, depreciation and amortization (EBITDA) of $18.6-million, well above both the consensus projection of $9-million and the analyst's expectation of $11-million.

"But before we get too excited, the headline figure included $6.4-million in shortfall revenue (where customers' utilizations had fallen behind contractual obligations)," said Mr. Bradford. "Correcting for this to provide a representative run-rate EBITDA yields $12.2-million (which also excludes non-cash stock-based comp, per our general practice). This is the number we consider relevant and is still ahead of both our and consensus figures. For those purists who prefer to include the impacts of stock-based comp in the EBITDA calculation, this definition of EBITDA was $11.6-million. And for the truly hard-nosed who will want to include all the one-time costs related to the unsuccessful Savanna acquisition, $10.0-million would be the relevant EBITDA figure – notably still edging consensus."

"In identifying the source of the beat vis-à-vis our estimates, almost every operating metric was just slightly better than we had modeled. The Canadian dayrate, for instance, was $300 higher than we had anticipated, which resulted in about $0.7-million incremental EBITDA. Canadian utilization was 1 per cent higher, U.S. utilization was marginally higher, the U.S. dayrate was marginally higher, and the hourly service rig rate was marginally higher."

Mr. Bradford raised his full-year EBITDA estimates for 2017, 2018 and 2019 to $46-million, $63-million and $67-million, respectively, from $38-million, $61-million and $65-million.

"Given that we're already projecting higher dayrates for 2H17 in our estimates, we're reluctant to change our forecasts significantly based on what we've seen in 1Q," he said. "Put another way, 1Q dayrates will have largely reflected dayrates set in the fall, which we don't expect has much bearing on what WRG's rigs will command in 3Q and 4Q. For this reason, we are keeping our dayrate forecasts largely unchanged and are upping our utilization forecasts modestly."

His target price rose to $2.65 from $2.50. Consensus is $3.53.


TD Securities analyst Linda Ezergailis downgraded Atco Ltd. (ACO.X-T) after its first-quarter results failed to meet expectations.

""We continue to believe that ATCO's medium-term growth outlook is positive, largely driven by its 53% interest in Canadian Utilities," she said. "ATCO — through Canadian Utilities — is expected to benefit from the high level of electric transmission investment that is required in Alberta, which should result in strong, low-risk regulated earnings growth. Through ATCO, investors can invest in Canadian Utilities at a slight discount and have an option for eventual recovery in the Structures & Logistics business. That being said, we are downgrading ATCO shares to HOLD as the share price has risen significantly over the short-term and is approaching fair value, in our view."

On Wednesday, the Calgary-based company reported normalized earnings per share of $1.02, two cents below Ms. Ezergailis's projections while beating the consensus by a penny.

"Q1/17 results were slightly below our expectations on weaker-than-expected Structures and Logistics (S&L) contribution," she said. "These decreases were partially offset by stronger contribution from regulated utilities."

She moved her rating to "hold" from "buy" and raised her target to $53 from $50. Consensus is $48.50.

"We have updated our ATCO financial forecasts and NAV, primarily to reflect the quarter's results, our updated CU forecasts and target price, in addition to slightly lower corporate costs and assumptions around activity levels in the S&L business," said Ms. Ezergailis. "We continue to use a 5-per-cent discount to NAV in our ATCO valuation and believe that this modest discount should persist given the diminishing relative importance of the S&L business and increasing importance of the growing utility franchise at Canadian Utilities. The net effect of our updates is reflected in our revised target price."


Following the release of in-line first-quarter results, Citi analyst Adam Ilkowitz said he remains a buyer of BCE Inc. (BCE-T, BCE-N) shares, citing "solid" execution and its outlook for free cash flow remaining intact.

On Wednesday prior to market open, BCE reported first-quarter normalized earnings per share of 87 cents, topping Mr. Ilkowitz's expectation of 85 cents and the consensus of a penny less. Total revenue of $5.38-billion met his projection and topped the Street by $0.01-billion.

"Financial results in C1Q met expectations while customer activity levels were a bit more mixed, with better postpaid wireless net adds but fewer consumer wireline adds," the analyst said. "We view BCE as resisting the temptation to meet aggressive promotional activity, particularly from Cable, as it concentrates on margin and free cash flow. The promised OTT [over-the-top] video launch is intriguing, but we are cautious with so many details (price, availability, targeting, etc.) yet to be revealed."

Mr. Ilkowitz also emphasized the company's ability to grow its share of the internet market, noting: "Greater cable competition may depress wireline customer growth in 2017, compounded by less footprint expansion than seen in previous years. We expect an improvement in 2018 as Fibe marketing in the GTA ramps and Montreal is built out. The disclosure that there are less than 1 million fiber Internet subs implies 25-per-cent penetration, well below the current 40-per-cent Verizon FiOS data penetration. There are competing factors, such as cable being more promotional and already having faster speeds, but we expect Fibe to improve towards the 30-35 per cent penetration BCE has in its copper (FTTN and DSL) markets."

"BCE updated guidance for the MTS transaction, with revenue and OIBDA [operating income before depreciation and amortization] growth of 4-6 per cent each meeting our expectations. We expect OIBDA results to come in at the high end (5.6 per cent) as we see a greater contribution from MTS and synergies than the midpoint. Free cash flow was increased by $50-100-million, highlighting the accretive nature of the transaction, though we note post-dividend FCF [free cash flow] is largely unchanged at $900-million."

Mr. Ilkowitz did lower his full-year EPS expectations for 2017 and 2018 "modestly" to $3.44 and $3.70, respectively, from $3.47 and $3.75. His 2019 projection remains $4.02.

With a "buy" rating (unchanged), he increased his target price for the stock by a loonie to $67. The analyst average is $62.06, according to Bloomberg data.

Elsewhere, RBC Dominion Securities analyst Drew McReynolds also bumped his target up by a dollar to $61 with a "sector perform" rating.

Mr. McReynolds said: "BCE remains a solid core holding in Canadian telecom. Despite a more challenging wireline environment for BCE in 2017 (maturation, competition, regulation), our view of BCE as a core holding in Canadian telecom is unchanged, reflecting: (i) industry-leading execution; (ii) the expectation of continued wireless leadership; (iii) strong cost management; (iv) a valuation (forward 12 months enterprise value/EBITDA of 8.3 times) underpinned by healthy FCF generation (FTM FCF yield of 6.4 per cent) and mid-single digit annual dividend growth; and (v) synergies from the acquisition of Manitoba Telecom."


Pengrowth Energy Corp. (PGF-T, PGH-N) sits in a "much better" financial position than it did a year ago, said TD Securities analyst Aaron Bilkoski.

Following Tuesday's announcement of the $185-million sale of its remaining Swan Hill assets in Alberta, Mr. Bilkoski raised his rating for the stock to "hold" from "reduce."

"The production sold is primarily low-decline light-oil," he said. "Based on an annualized NOI [net operating income] assumption of $20-million, the transaction occurred at an attractive metric of 9.3 times cash flow ($36,000 per barrel of oil equivalent per day and $8.81/BOE of 2P reserves). We believe the strong CF metric may be the result of area specific infrastructure being included in the transaction. Notably, the area boasts 19 mbbl/d of oil processing capacity and 177 mmcf/d of gas processing (based on Oct-2015 asset teaser).

"Recall that the prior Swan Hills asset sale   occurred at 4.2 times CF. In our view, this low metric did not materially improve Pengrowth's leverage position relative to the 3.5 times Senior Debt / EBITDA covenant. However, given that the most recent disposition occurred at a significantly stronger CF metric (9.3 times), it was much more helpful in reducing Pengrowth's debt without materially impacting CF - therefore, this helps Pengrowth stay on side with debt covenants through Q4/17 (under our price deck)."

Mr. Billoski stressed the company's debt covenant concerns are now less pressing, and he is no longer forecasting a convenant breach for the fourth quarter.

"However, given that Pengrowth currently has no oil hedged, we believe that risk of a potential breach remains if crude prices stay below $50 (U.S.) per barrel WTI," he said. "It is our understanding that discussions with lenders surrounding current covenants and maturities remain ongoing, with Pengrowth now negotiating from a stronger financial position than six months ago."

Mr. Bilkoski raised his target price to $1.55 per share from $1.20. Consensus is $1.60.

"Pengrowth is not without its challenges, but the company is currently in a significantly better financial position today than a year ago," he said. "With 2017 note maturities covered with asset dispositions and covenant breaches/renegotiation no longer imminent, we are now comfortable increasing our rating …  There remains uncertainty regarding the timing and funding of Lindbergh Phase 2. Additional clarity regarding the financing and timing of Phase 2 would allow us to become increasingly constructive with time."


Calling its transformation in size and scale in the five years since its initial public offering "remarkable," RBC Dominion Securities analyst Neil Downey initiated coverage of Dream Global REIT (DRG.UN-T) with an "outperform" rating.

"The REIT has also recharacterized its tenant profile, improved occupancy, trebled its equity market cap and strengthened its financial profile," said Mr. Downey. "At inception, the $1-billion portfolio consisted of 292 office, logistics and other commercial properties encompassing 12.3 million square feet. Spread across an estimated 200 markets (including many smaller towns), these properties were 87 per cent leased and heavily concentrated upon Deutsche Post as a tenant (75 per cent of total gross leaseable area and 85 per cent of total gross rental income).

"Today, the business has grown to more than $3-billion of portfolio gross asset value ('PGAV'). The portfolio quality has transformed into one that is more than 80 per cent (by value) institutional-quality office complexes. And, it is much more focused on major markets, with an estimated 63 per cent of GRI coming from properties located in Germany's 'Big seven' office markets. While the REIT is headquartered in Toronto, the past five years of acquisition, disposition, leasing and redevelopment activities have transformed Dream Global into what is now Germany's second-largest listed office company."

Noting the German economy and office markets remain "strong," Mr. Downey said there is the possibility for further growth through acquisitions.

"Germany's property market is very large and, by extension, so is the consolidation opportunity. With €53 billion ($77-billion) of commercial real estate transaction volume in 2016, Germany's investment market was more than twice the size of Canada's 2016 investment volume of $35-billion," he said. "Accounting for 43 per cent of total volume, investments in the office sector were €23 billion (~$34 billion), more than 4 times larger than Canada's $8-billion. Selectively, we also believe DRG will consider acquiring properties elsewhere in Europe. For instance, the REIT owns an interest in a large and high-quality property in Vienna, Austria."

He added: "We believe DRG's acquisition, disposition, redevelopment, leasing, and financing strategies are sound, and are being executed effectively."

Also expecting further outreach to investors in Europe following the REIT's listing on the Frankfurt Stock Exchange last November, Mr. Downey set a target price of $11 per unit. Consensus is $9.94.

He said : "We see the opportunity for a moderate valuation re-rating in the units, supported by: 1) favourable German economic and office sector trends; 2) resolving the significant Deutsche Post 2018 lease maturities; and 3) a broadening European investment community profile."


Citing price appreciation, Industrial Alliance Securities analyst Neil Linsdell downgraded Dollarama Inc. (DOL-T) to "hold" from "buy."

"Although we continue to like the ongoing runway for revenue growth and the ability of the Company to maintain profitability, we believe that a share price of $120.14 fully reflects all of these positive factors, and as such, we are reducing our recommendation," he said.

Ahead of the release of its first-quarter 2018 results on June 7, Mr. Linsdell said:" We expect to see continued strength throughout sales growth and profitability improvements as the Company continues to see traction from sales of higher-price point items."

He did not change his target of $120. The consensus is $120.94.

"DOL shares are up 20.5 per cent since reporting Q4 results approximately one month ago, and up 19.9 per cent since we upgraded our rating from Hold to Buy on Dec. 7," he said.


BMO Nesbitt Burns analyst Stephen MacLeod raised his target for shares of FirstService Corp. (FSV-Q, FSV-T) following stronger-than-anticipated first-quarter results.

On Wednesday, the Toronto-based company reported earnings per share for the quarter of 17 cents (U.S.), topping the 12-cent projection of both Mr. MacLeod and the Street. Revenues grew by 22 per cent to $376-million, also topping his estimate ($349-million), while EBITDA was up 63 per cent to $20.7-million, versus the expectation of $16-million from both the analyst and the Street.

"[FirstService Brands] was the main driver of the earnings beat, with EBITDA of $9-million above our estimate of $5-million," said Mr. MacLeod. "This was attributable to strong top-line growth, both organic (10 per cent versus 6-per-cent forecast) and from acquisitions, as well as Century Fire (acquired April 2016) not being as seasonally weak in Q1 as the 'base' business, which positively impacted margins (up 260 basis points to 8.1 per cent versus our forecast of 5.6 per cent). Organic growth is expected to be mid-to-high single digits through 2017, with a targeted 'mid-teens' margin.

"The tuck-in acquisition pipeline remains robust, focused on the company-owned strategy at FSB, as the company manages to overall revenue growth of 10-per-cent-plus (midsingle-digit organic + acquisitions)."

Mr. MacLeod raised his full-year EPS estimates for 2017 and 2018 to $2.01 and $2.28, respectively, from $1.96 and $2.18.

He kept a "market perform" rating for the stock and increased his target price to $65 (U.S.) from $59. Consensus is $55.50.

"While we have a positive fundamental view, we believe the stock is reasonably valued given the strength over the last five months and current high-water valuation metrics," said Mr. MacLeod.

Elsewhere, Raymond James analyst Frederic Bastien raised his target to $63 from $61 with a "market perform" rating.

"While this impressive performance and the constructive earnings call commentary from management are compelling us to bump our target price …. they do not put into question our recent decision to downgrade the stock," said Mr. Bastien. "With the share price up 38 per cent since our selection of FirstService as Best Pick for 2017 on Dec. 12, 2016, versus a 4 per cent for the S&P 500, we believe the firm's envious leadership position in North America's property management and services sector is receiving appropriate recognition from the Street."


Accountability Research analyst Jim Marrone raised his rating for Metro Inc. (MRU-T) to "hold" from "sell" in response to its second-quarter financial results.

"Q2 results showed sales, net earnings and tonnage growth against a backdrop of food deflation and intense competition," he said. "The growth was reflective of effective execution and strong expense control and we now believe that MRU can continue this growth path over the next few quarters as food deflation eases. Although the industry is still experiencing deflation, the worst is likely over, and Metro will be comping lower levels of inflation in the second half of 2017."

His target for the stock is $47. Consensus is $49.33.

"While we believe that headwinds for the industry will continue to persist, namely low food prices, aggressive promotional discounting, and fierce competition from both conventional and nonconventional retailers, Metro appears to be outperforming the sector and we expect this this to continue for the remainder of F2017," said Mr. Marrone.


In other analyst actions:

BTIG LLC analyst Abhinav Kapur downgraded the recommendation on Shopify Inc. (SHOP-N, SHOP-T) to "neutral" from "buy" without a specified target price. The analyst average target is $97.47 (Canadian).

TD Securities analyst Sean Steuart downgraded Canfor Pulp Products Inc. (CFX-T) to "hold" from "buy" with a target of $13.50, down from $14. The average is $13.35.

Pioneering Technology Corp. (PTE-X) was rated new "speculative buy" at Echelon Wealth Partners by analyst Russell Stanley. He set a target of $1.60 and is currently the sole analyst covering the stock, according to Bloomberg.

Canaccord Genuity analyst John Quealy downgraded Lumenpulse Inc. (LMP-T) to "hold" from "buy." He raised his target to $21.25 from $18, while the consensus average is $18. Meanwhile, Craig Irwin at Roth Capital downgraded the stock to "neutral" from "buy" with a target of $21.50 (from $16).

National Bank Financial analyst Jaeme Gloyn downgraded Street Capital Group Inc. (SCB-T) to "sector perform" from "outperform" with a target of $1.30, down from $2. The average is $1.79.

Mr. Gloyn also downgraded Equitable Group Inc. (EQB-T) to "underperform" from "outperform" with a $39 target (from $77). The average is $69.33.

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