Inside the Market’s roundup of some of today’s key analyst actions
In a research note released Friday reviewing recent virtual institutional meetings with company executives, he said the “reluctance” of institutional investors to embrace Ovintiv, formerly Encana Corp., “has much to do with sharp turns in direction at times.”
He now sees the Denver-based company “reengineering itself to generate free cash flow (beyond its $97 million dividend) in a $35 WTI and $2.75 Henry Hub world.”
“A big part of this equation reflects lower overhead and operating costs — and a $700-million reduction in sustaining capital to hold the company’s oil & condensate levels stable with its targeted 2020 exit rate of about 200,000 barrels per day,” he said. “Our 2021 outlook factors in production of 525,700 boe/d and would suggest a free cash flow deficiency of about $177-million post capital of $1.5-billion and dividends at $35 WTI and $2.75 Henry Hub. This this may be a matter of oil and gas differentials more than anything else.
“Ovintiv has dramatically reduced its activity levels since the onset of the COVID-19 pandemic and Saudi-Russia oil price war. The company cut its second-quarter capital spending by $500-million and arrested completions entirely. Ovintiv’s rig count has also fallen from 23 to 7 — a level that it expects to remain stable through 2021, with scope to increase to 10 rigs. The company also remains on track to deliver its previously announced $200-million cash cost savings target this year.”
After raising his earnings expectations for fiscal 2021, Mr. Pardy hiked his target for Ovintiv shares to US$11 from US$6.50, keeping a “sector perform” rating. The average target on the Street is US$14.01.
“To be sure, OVV has been on a tear since its share price troughed on March 9,” he said. “This outperformance has coincided with an improving oil tape, but also inclusion in U.S. indices and its unveiling of a 32-per-cent reduction of its 2021 sustaining capital to $1.5-billion. The company’s initiative to re-domicile to the United States and thrust to attract large pools of passive capital appear to have borne fruit. Ovintiv was recently added to the Russell 2000, 3000, and Value indices (effective for trading June 29). As per Ovintiv, known index inclusions to date have more than doubled demand for passive investment levels prior to the domicile shift to the U.S.”
H.C. Wainwright analyst Andrew Fein said he’s bullish on Bellus Health Inc.‘s (BLU-Q, BLU-T) ahead of the imminent release of top-line data from the RELIEF Trial for its BLU-5937 treatment for the chronic cough.
The analyst said the drug’s “differentiated profile” makes it a “formidable” candidate, suggesting “competitor readouts position BLU-5937 as best-in-class.”
In a research report released Friday, Mr. Fein initiated coverage of the Laval-based clinical-stage biopharmaceutical company with a “buy” rating.
“Based on our analysis of the current therapeutic landscape and BLU-5937′s mechanism of action (MOA), coupled to its PK/PD profile, we view a positive outcome for the RELIEF study well within reach,” he said.
“As we await data from the RELIEF trial, we continue to be encouraged by the increasing body of evidence validating the use of P2X3 in chronic cough. In May 2020, both Phase 3 studies of gefapixant in chronic cough (COUGH-1/COUGH-2) reached their primary endpoint of reduction of hourly cough frequency. While full efficacy and safety data have yet to be released, gefapixant safety profile was reported to be similar to previous Phase 2 studies.”
Mr. Fein models the U.S. commercial launch of BLU-5937 in 2025 with a price of US$4,800 per year. He’s projected 2 per cent year-over-year price growth with peak penetration of 20 per cent in 2030.
He set a target price for Bellus shares of US$28. The current average on the Street is US$15.86.
Canaccord Genuity analysts Kevin MacKenzie and Tom Gallo raised their financial expectations and target prices for companies in their precious metals junior developer/explorer coverage universe on Friday in response to changes to the firm's commodity and forex price forecasts.
Canaccord raised its 2020, 2021 and 2022 gold price expectations by 2.8 per cent, 6.6 per cent and 6.5 per cent, respectively, to US$1,696, US$1,769 and US$1,784 per ounce. Its silver forecast rose 14 per cent, 15.7 per cent and 15.7 per cent to US$17.10, US$17.46 and US$17.62.
“Since the onset of COVID-19 in early March we have seen a flurry of equity financing among the junior explorers/developers, this against the backdrop of a robust gold price environment,” the analysts said. “While this has contributed to a notable re-rating among the explorers/developers (GDXJ 3-month: up 77 per cent), project-based momentum is just now starting to recover from government- and/or company-mandated shutdowns. As field crews continue to remobilize back to site, or ramp-up for summer-based programs, we expect that H2/20 could be among the busiest in recent history, given the number of companies financed.”
With the target price increases, the analysts lowered a pair of stocks to "hold" from "speculative buy" ratings. They are:
Corvus Gold Inc. (KOR-T) with a $3.60 target, up from $3.40. The average on the Street is $4.68.
Rupert Resources Ltd. (RUP-X) with a $2.60 target, rising from $2.10.
Raymond James analyst Jeremy McCrea raised his financial expectations for Baytex Energy Corp. (BTE-T) in reaction to its Thursday announcement that 80 per cent of previously announced shut-in crude oil production has been restored.
“Although Baytex was making good progress on reducing debt over the past year, the commodity price collapse has made the challenge all that more difficult,” he said. “Not unexpectedly, BTE cut its 2020 spending guidance 50 per cent in March, with spending only allocated to its non-operated Eagle Ford position. Further measures with 1Q results included shutting in 25 mboe/d [thousand barrels of oil equivalent per day] (24 per cent of production). The Company has now announced that they are bringing back 80 per cent of those previously shut-in volumes as commodity pricing has improved. Production guidance for 2020 has been increased to 78-82 mboe/d from 70 - 74 mboe/d previously. The increased production combined with various cost savings results in a 6-per-cent increase in our funds flow estimate for the year.”
Keeping an "underperform" rating, he increased his target for Baytex shares to 40 cents from 30 cents. The average on the Street is 64 cents.
“Overall, with the company’s high debt position, we maintain our Underperform rating,” he said. “We’re impressed with what management has done within their control; however, given the challenges, we believe there still remains much risk.”
Elsewhere, Eight Capital analyst Phil Skolnick upgraded Baytex to “buy” from “neutral.”
In other analyst actions:
* BMO Nesbitt Burns resumed coverage of New Pacific Metals Corp. (NUAG-X) with a “market perform” rating and $5.50 target, up from $4.50 but below the $5.88 consensus.
“Since Profound Medical announced 1Q20 earnings on May 7, we have seen the company report positive 2-year data for its TULSA-PRO (”TULSA”) device at AUA, as well as broadened utility data in BPH and salvage patients at EAU; expanding — in our opinion — the case for stronger adoption of TULSA, and, expansion of its TAM up to a potential 1 million patients,” he said. “As such, we take this opportunity to update our model (Exhibit 1), in which we estimate revenue — without reimbursement — of $9.8-million, $26.1-million, and $61.0-million during 2020, 2021, and 2022 respectively.”