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

Canopy Growth Corp.'s (WEED-T) latest operational pullbacks ease its path to profitability, according to Canaccord Genuity analyst Matt Bottomley.

On Thursday, the Smith Falls, Ont.-based company announced a series of adjustments on the heels of an early March decision to close a pair of large B.C. greenhouses. The latest moves include closing its Yorkton, Sask. facility, exiting operations in South Africa and Lesotho as well as ceasing farming in Springfield, N.Y.

"We note that the crux of these changes is the exit from a variety of cultivation/production initiatives in a number of different markets, as a result of the company’s assessment of global supply/demand dynamics," said Mr. Bottomley.

"Canopy reiterated its expectation, as previously communicated, of booking $0.7-billion to $0.8-billion of impairments as a result of these optimizations, as part of its FQ4 reporting for the period ending March 2020. We believe that over the long term the winners in the sector will gradually pivot away from agriculture and operate more like traditional CPG companies; however, we believe the quantum of the charges expected to be booked next quarter indicates, in hindsight, that there was poor capital allocation."

With the moves, Mr. Bottomley lowered his target for Canopy shares after reducing his estimated international sales ramp, decreasing his premium to book value for U.S. CBD investments and further shrinking his Canadian pricing assumptions.

Keeping a “hold” rating, his target dropped to $23 from $28. The average on the Street is currently $29.13.


Industrial Alliance Securities analyst Elias Foscolos reduced his estimates and downgraded his rating for shares of CES Energy Solutions Corp. (CEU-T) in response to its decision to suspend its dividend.

After the bell on Thursday, CES announced the move after previously reducing its monthly payout by 75 per cent.

“We last updated CEU on March 16, 2020, with the Q4/19 results,” said Mr. Foscolos. “We believe that the outlook for North American oil & gas has become clearer and arguably worse since then, despite a new curtailment agreement from OPEC+. North American producers have generally cut 2020 budgets by 30 per cent on our calculations. We are reducing our estimates to reflect current expectations, assuming a more significant impact on Production Services, partially offset by lower assumed G&A and stock based compensation. We are not changing our rig counts at this time.”

"We expect a working capital release, which could substantially extinguish CEU’s senior facility. Before working capital, free cash flow is likely to be tight on our revised estimates. However, we expect a release in working capital that will ultimately allow CEU to pay down a substantial portion (if not all) of its credit facility, which is the Company’s only covenant-carrying debt. Regardless, at 2019 year-end debt levels, we calculate net senior debt/EBITDA 2020 of 1.0 times (covenant 2.5 times) and interest coverage in 2020 of more than 4.5 times (covenant 2.5 times)."

Moving the stock to "hold" from speculative buy," Mr. Foscolos cut his target to $1.50 from $1.75. The average on the Street is $1.90.

“CEU’s announcement of a dividend suspension is simply another step the Company has taken to ensure survivability,” the analyst said. “In light of this dividend elimination, we have elected to refine our estimates lowering them 10 per cent. Post Q2/20, we expect CEU’s covenant bearing debt will be minimal due to working capital unwind. We are rolling our valuation forward to capture more normalized operating income, and lowering our target to $1.50. Despite the 50 per cent stock return upside, we are moving to a Hold ... due to the combination of drilling count uncertainty and the fact that the projected return now places the Company in line with its peers.”


Industrial Alliance Securities analyst Brad Sturges trimmed his 2020 financial estimates for Minto Apartment Real Estate Investment Trust (MI.UN-T) in response to its operational and liquidity update.

On Thursday, the Ottawa-based REIT said it has collected 97 per cent of rental revenue for the month as of April 14, which it said is consistent with its normal collection cycle. Occupancy of available unfurnished suites was 97.34 per cent at March 31, versus 98.67 per cent at the same point a year ago.

Minto also announced it has completed a $100-million mortgage financing secured by one of its Ottawa properties, which it said adds "significantly" to its liquidity. The proceeds were used to pay down outstanding amounts on the REIT's revolving credit facility.

“In the medium term, we believe MI remains very well positioned to capture a healthy gain-to-lease opportunity that is reflective of the gap between in-place average monthly rents (AMR) and estimated market rents psf in the REIT’s Canadian urban multifamily markets such as Toronto, Ottawa and Montreal, which may be further augmented by MI’s planned suite renovation program,” said Mr. Sturges. “Furthermore, the REIT’s AMR per occupied suite is the highest among the Canadian apartment REIT landlords, perhaps suggesting a higher average household income tenant profile versus its Canadian multifamily REIT peers.”

Maintaining a "buy" rating, the analyst lowered his target to $26 from $28.50. The average on the Street is $25.06.

“MI provides investors with attractive exposure to improving underlying property fundamentals, particularly in Ontario, through the ownership of newer-generation luxury rental assets and traditional format rental apartment properties,” he said. “The REIT’s properties are well-located in urban residential areas along major transit corridors, which may provide above-average leasing demand over the longer term. Based on MI’s Canadian multifamily portfolio inclusion of newer-generation luxury rental properties along major transit corridors, the REIT’s AMR per occupied suite is the highest among the Canadian apartment REIT landlords, perhaps suggesting a higher average household income tenant profile versus its Canadian multifamily REIT peers.”


Calian Group Ltd. (CGY-T) is “on the verge of completing its transition from a stable dividend payer, to a growth company,” said Laurentian Bank Securities analyst Furaz Ahmad.

“We believe this is underpinned by the company’s ‘5 + 5’ strategy, which emphasizes a growth mindset across the business,” he said. “The strategy is predicated on achieving a minimum 5-per-cent organic growth and 5-per-cent acquisition related growth on an annual basis. It is our view that Calian’s ‘5 + 5’ strategy is conservative in light of the opportunities available to the company.”

Mr. Ahmad sees a “long runway” for organic growth, noting it grew by 6.4 per cent on 2019, exceeding its 5-per-cent target. He thinks its four operating segments possess growth opportunities, in particular its Advanced Technologies and Health segments

“As Calian shifts towards a meaningful growth strategy, we expect acquisitions to play a larger part of its year-over-year revenue and EBITDA growth going forward," the analyst said. "Future acquisition activity is expected to be focused on: 1) expanding the Health business into adjacent technology focused areas; 2) expanding the IntraGrain platform geographically in Canada and the U.S., and into adjacent markets that may be able use IntraGrain’s technology; and 3) bolstering SED’s satellite communications business in Europe by using SatService as a platform for growth. Resultant from its strong balance sheet and internal cash flow generation, we estimate Calian can complete over $130-million of acquisitions that can potentially lead to EBITDA accretion of 40 per cent.”

He resumed coverage of the stock with a “buy” rating and $53 target. The average is $50.50.


Citing the near-term impact of demand stemming from COVID-19 and seeing a lower-than-anticipated recovery in 2021, Goldman Sachs analyst Rod Hall lowered his rating for Apple Inc. (AAPL-Q) to “sell” from “neutral.”

“We are now modeling a deeper reduction in unit demand through mid 2020,” said Mr. Hall. "We believe that Services growth slows substantially in 2021.

Mr. Hall is projecting a second-quarter drop in iPhone demand of 36 per cent year-over-year and a 24-per-cent drop in the first half of calendar 2020.

It’s the third time since Feb. 17 that the analyst has lowered his financial estimates for the tech giant.

“We also assume some lingering ASP (average selling price) weakness as consumers look to economize similar to what we have seen in prior downturns,” he said. “In addition to this we believe that Services growth slows substantially in 2021 and that Services as a percentage of revenue actually stagnates in that year.”

The analyst lowered his target to US$233 from US$250. The average on the Street is US$304.10.


Barclays analyst Brandon Oglenski downgraded a group of stocks on Friday, including:

  • Canadian Pacific Railway Ltd. (CP-T) to “equal weight” from “overweight” with a $320 target (unchanged). The average is $331.51.
  • Canadian National Railway Co. (CNR-T) to “underweight” from “equal weight” with a $105 target (unchanged). Average: $114.03.
  • FedEx Corp. (FDX-N) to “equal weight” from “overweight” with a US$135 target, down from US$160. Average: US$141.92.
  • Norfolk Southern Corp. (NSC-N) to “underweight” from “equal weight” with a US$150 target, down from US$160. Average: US$170.86.
  • United Parcel Service Inc. (UPS-N) to “underweight” from “equal weight” with a US$90 target, down from US$100. Average: US$107.78.


In other analyst actions:

  • National Bank Financial analyst Cameron Doerksen lowered Air Canada (AC-T) to “sector perform” from “outperform” with a $22 target, down from $30. The average on the Street is $32.77.
  • UBS analyst Myles Walton lowered Bombardier Inc. (BBD.B-T) to “neutral” from “buy” and lowered its target to 50 cents from $2.40. The current average is $1.11.
  • National Bank’s Zachary Evershed raised Uni-Select Inc. (UNS-T) to “sector perform” from “underperform” with a $6.50 target, down from $7.50. The average is $6.31.
  • Peel Hunt cut Gran Tierra Energy Inc. (GTE-T) to “hold” from “buy”

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