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A truck hauls a load at Teck Resources Coal Mountain operation near Sparwood, B.C.

The Canadian Press

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

Chemtrade Logistics Income Fund's (CHE.UN-T) operational issues are begin to fading, according to Raymond James analyst Steve Hansen, who believes 2018 is "shaping up well."

Though its fourth-quarter 2017 financial results fell short of expectations, Mr. Hansen raised his rating for the Toronto-based industrial chemicals supplier to "outperform" from "market perform."

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On Tuesday after market close, Chemtrade reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $70.1-million, which fell missed the expectations of both the Street and Mr. Hansen ($72.0-million and $71.5-million, respectively).

"While acknowledging recent operational setbacks, we are upgrading our rating on Chemtrade … based upon our view that: 1) the firm's lingering operational challenges are well understood (priced in), with the stock down 12.5 per cent since our Jan. 15, 2018 downgrade versus the S&P TSX Composite down 6 per cent, and 2) chlor-alkali industry fundamentals and broader macro conditions (US GDP growth) remain demonstrably constructive," the analyst said.

His target for the stock remains $20, which is 47 cents less than the consensus on the Street.

Elsewhere, Desjardins Securities analyst David Newman maintained a "buy" rating and $21.50, despite lowering his 2018 and 2019 EBITDA and FCF projections slightly.

Mr. Newman said: "As CHE looks to stabilize its base businesses in 2018, we believe it should increasingly be able to convert a strong top-line environment into higher EBITDA and cash flows. Our positive view on CHE is premised on: (1) its strong competitive moat (leadership positions, geographic reach and industry-leading cost advantages); (2) risk-mitigation strategies; (3) robust chlor-alkali fundamentals; and (4) attractive distribution yield of 7 per cent."

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Desjardins Securities analyst Maher Yaghi said he's "starting to see the light at the end of the tunnel" for Mediagrif Interactive Technologies Inc. (MDF-T), leading him to raise his rating for Longueuil, Que.-based company to "buy" from "hold."

"We are switching gears on MDF as we believe the stock is now pricing in continued deterioration in profitability while it is likely that profitability will begin to grow in the second half of calendar 2018," said Mr. Yaghi. "We highlight that this might be an early call, but sustained, strong cash production as well as an improvement in organic revenue growth make the current price a good entry point for value investors, in our view."

On Tuesday after market close, Mediagrif, which provides e-business solutions to consumers and businesses, reported third-quarter 2018 sales of $20.5-million, exceeding Mr. Yaghi's $19.7-million projection and in line with the consensus. It was an increase of 6.2 per cent year over year. EBITDA of $6.1-million also topped his expectation ($5.3-million).

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Despite the upgrade, Mr. Yaghi cautioned that an immediate catalyst for its stock does not exist, adding several segments of the company "remain under pressure." Citing the risk spread through those segments, he lowered his 2018 and 2019 earnings per share projections to 59 cents and 86 cents, respectively, from 65 cents and $1.01.

"However, we believe current expectations should be achievable and that FCF [free cash flow] generation provides downside protection," he said. "In fact, the FCF yield is now at around 11.0 per cent and the stock's long decline has pushed the dividend yield to 3.6 per cent."

Mr. Yaghi's target for the stock declined to $14 from $15.50. The analyst average is currently $14.25.

"MDF trades at attractive valuation multiples and the company generates solid free cash flow, which provides management with the flexibility to pay down debt, utilize its NCIB and/or improve recently acquired business lines," he said. "The recent improvement in organic revenue growth is notable, but we highlight that consistency on that metric will be key to future stock performance, in our view."

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Raymond James analyst Brian MacArthur expects "robust" cash flows in 2018 for Teck Resources Ltd. (TECK.B-T, TECK-N), leading him to raise his projections for the fiscal year to reflect both its higher guidance and a higher coking coal price.

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On Wednesday, Vancouver-based Teck, the second-largest exporter of steel-making coal in the world, reported adjusted earnings per share of $1.21, exceeding Mr. MacArthur's projection by 6 cents.

It expects 2018 output of 26 million to 27 million tons of coking coal. Production in 2019 to 2022 was guided to a range between 26.5 million and 27.5 million tons.

It's copper production guidance was set for between 270,000 to 330,000 tons in 2018 and 270,000 to 300,000 tons for 2019 to 2022. Zinc production is expected to be 645,000 to 670,000 tons in 2018, falling to a range of 575,000 and 625,000 tons in 2019 to 2022.

Based on the results and guidance, Mr. MacArthur raised his 2018 EPS projection to $4.15 from $3.30.

"Catalysts in the year include the ramp up of Fort Hills, a PFS on NuevaUnion in 1Q18, QB2 permit in 2Q18, a feasibility on Zafranal in 4Q18 and potentially a sanctioning decision in 4Q18," he said.

His target for its stock jumped to $41 from $38.50 with an "outperform" rating (unchanged). The analyst consensus target is $41.21.

"We believe Teck offers good exposure to copper and zinc, our two preferred commodities, and is able to convert EBITDA from its Canadian operations efficiently with its large Canadian tax pools,"

Mr. MacArthur said. "Given Teck's long life, low jurisdictional risk, diversified asset base and our expectation of strong cash flow, we rate the shares Outperform."

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Colliers International Group Inc. (CIGI-Q, CIGI-T) is a valuable brand that is "just getting starting," said RBC Dominion Securities analyst Michael Smith.

"2018 is shaping up well for the fastest-growing global real estate services company," he said. "Colliers capped 2017 with robust Q4 results that were well ahead of our expectations and the Street's. Concurrent with Q4 results, management also provided inaugural 2018 guidance that calls for low- to mid-single-digit organic revenue growth, continued margin improvement, and the benefit of lower U.S. taxes. Moreover, CEO Jay Hennick commented that he is hopeful Colliers will meet or exceed the pace of M&A set in 2017 (i.e., external revenue growth of 12-per-cent-plus). Taken together, we believe Colliers is poised to deliver adjusted EPS growth of 15 per cent in 2018. While the macro environment and structural changes in the property sector are no doubt a positive driver, we believe that the Colliers brand has been a bigger factor for growth and profitability than some may appreciate."

On Wednesday, Toronto-based Colliers reported revenue for the quarter of US$734-million, up 27 per cent year over year and exceeding both Mr. Smith's US$653-million projection and the consensus of US$657-million. Adjusted earnings per share of US$1.41 also topped the estimates of both the analyst and Street of US$1.16 and US$1.23, respectively.

"On the Q4 conference call, Mr. Hennick highlighted how difficult it would be for a regional competitor to expand globally (following clients) given the industry's competitive nature and the scale that would be needed to compete with one of the three or four global brands in the real estate services industry. We agree," said Mr. Smith. "Indeed, we see significant value in the Colliers brand/competitive moat. Moreover, we believe that recognition of the brand and the company's moat will continue to increase."

Keeping his "outperform" rating for its stock, Mr. Smith's target rose to US$71 from US$66. The average target is US$71.75.

"Our constructive investment thesis remains firmly intact and we believe the company will achieve its ambitious Enterprise 2020 plan to double the size of the business without issuing equity or increasing its leverage ratios. In 2020, there very well could be a new five-year plan to yet again double the company's size – the industry is big enough and remains highly fragmented. A notable byproduct of executing its business plan is that Colliers will be a larger and more diversified business, both geographically and from source of revenue. In particular, Outsourcing and Advisory has seen a dramatic increase in revenue contribution over the last 10 years. This type of revenue can be characterized as recurring, as it is contractual in nature. As such, it would typically attract a higher valuation multiple than transaction income. In our view, this, in combination with a larger, more globally diversified company, is making Colliers revenue/income considerably more predictable/stable and opens the door to a structurally higher multiple"

Elsewhere, BMO Nesbitt Burns analyst Stephen MacLeod raised his target to US$75 from US$67 with an "outperform" rating.

Mr. MacLeod said: "The macroeconomic backdrop is supportive of record levels of commercial real estate transaction activity, and Colliers indicated its pipelines suggest an optimistic market outlook over the next 12-18 months. Acquisitions present further optionality to the upside, in our view."

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West Fraser Timber Co. Ltd.'s (WFT-T) fourth-quarter results are likely to be well received by the market, said Raymond James analyst Daryl Swetlishoff, who encourages investors to add to their position.

"We rate West Fraser Outperform, a function of our bullish outlook on lumber fundamentals, driving impressive FCF generation, and positive valuation implications," he said. "Momentum in lumber prices has not abated, with 1Q18 setting up to be another strong quarter."

On Wednesday, the Vancouver-based company reported adjusted EBITDA for the quarter of $341-million, topping the projections of both Mr. Swetlishoff ($320-million) and the Street ($311-million). It was a rise of 43 per cent from the previous quarter due largely to higher product pricing and southern yellow pine (SYP) production.

"Lumber prices have been on fire to start the year, with WSPF benchmark pricing up 8 per cent quarter to date compared to 4Q17, and SYP performing even better up 15 per cent," the analyst said. "The most recent SYP quote of US$541 per thousand board feel (mfbm) represents a significant premium to our 2018 estimate of US$450/mfbm. We expect continued volatility in lumber prices, but the QTD pricing suggest that 1Q18 will be another impressive quarter. We suggest investors keep adding to positions. w

"As West Fraser enters a period of significant free cash flow generation, we expect the focus of the market will be on capital allocation. The company made a sizeable acquisition last year (Gilman assets in the US South), which was seen as expensive by the market, but considering where lumber prices are trending they could prove the naysayers wrong. We expect that all options are on the table including share buybacks, increasing dividend (as evidenced by two increases in the last six months), and continued focus on organic growth. With spot pricing trading above $500/mfbm (for both WSPF and SYP), we forecast WFT could generate a 20-22-per-cent FCF Yield in 2018."

With the results, Mr. Swetlishoff raised his 2018 EPS projection to $7.64 from $7.56.

He kept an "outperform" rating for the stock, increasing his target to $97 from $94. Consensus is $84.29.

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Favourable commodity prices are likely to support Maple Leaf Foods Inc.'s (MFI-T) fourth-quarter financial results, said Canaccord Genuity analyst Derek Dley ahead of the release of the company's earnings on Feb. 21.

Mr. Dley is EBITDA for the quarter of $99-million, in line with the consensus and a rise of $13-million year over year. His earnings per share projection is 39 cents, up 8 cents year over year and again in line with the Street.

"We are forecasting revenue of $876-million during the quarter, which represents a 6-per-cent increase year over year," he said. "Growth will likely be driven by continued penetration of the U.S. market from the company's Greenfield Natural Meat company, new product introductions, and the contribution from the Lightlife Foods acquisition.

"We expect sequential EBITDA margin growth resumed during Q4/17, as Q3/17 was impacted by a spike in pork belly prices during June and July to over US$200 per hundredweight (cwt). Since that time, pork belly costs retreated down to US$90/cwt in October, before trading in a range of US$110/cwt to US$145/cwt for the remainder of 2017 and early 2018. This reduction in pork belly costs on a sequential basis, coupled with a 2.0-2.5-per-cent price increase implemented by Maple Leaf in late Q3/17 should lead to healthy prepared meats EBITDA margin growth during Q4/17."

Mr. Dley raised his 2017 EPS projection by 2 cents (Canadian) to $1.52. His 2018 estimate rose by 3 cents to $1.72.

"As a reminder, Maple Leaf introduced a new long-term EBITDA margin target of 14-16 per cent by 2021, which is in line with best-in-class North American packaged goods companies," he said. "In our view, margin gains will come with increased exposure to higher margin RWA products, market share gains through new product introductions, and consolidation of a portion of the company's poultry manufacturing assets. Furthermore, expanding the company's exposure into higher growth categories, such as vegetable-based protein remains a strategic priority, as evidenced by the accretive acquisition of Field Roast which closed at the end of January. We calculate Field Roast will be $0.04 accretive to our 2018 EPS estimate."

Maintaining a "buy" rating for the stock, his target rose by a loonie to $39, which is 40 cents above the consensus.

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In other analyst actions:

Macquarie analyst Mike Rizvanovic upgraded Bank of Montreal (BMO-T) to "outperform" from "neutral" and increased his target by $2 to $107. The average on the Street is $108.33.

TD Securities analyst Damir Gunja upgraded Superior Plus Corp. (SPB-T) to "buy" from "hold" with a target of $15, up a loonie. The average target is $13.95.


National Bank Financial analyst Leon Aghazarian upgraded New Look Vision Group Inc. (BCI-T) to "outperform" from "sector perform" with a target of $38, rising from $35. The average is $39.40.

Morgan Stanley analyst David Risinger upgraded Bristol-Myers Squibb Co. (BMY-N) to "overweight" from "equal-weight" with a target of US$78, up from US$63. The average is US$67.80.

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