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

Seeing it “valued as one of the most expensive specialty retail concepts ever,” Citi analyst Paul Lejuez downgraded Lululemon Athletica Inc. (LULU-Q) in the wake of recent share price appreciation, seeing the risk/reward proposition for investors as “fairly balanced.”

While raising his second-quarter financial expectations for the Vancouver-based apparel market, he lowered his rating for its stock to “neutral” from “buy.”

“Since March, the stock has surpassed our prior target price, and as we approach earnings with the stock near $400 we have to ask ourselves if we can realistically recommend buying LULU at $400 with a call it can go to at least $460 over the next 12 months,” said Mr. Lejuez.

“And we just can’t do it. The stock trades at 9 times fiscal 2021 estimated sales and has an enterprise value of $50-billion, making LULU the most highly valued specialty retail brand ever, double that of the second highest valued brand in history (Victoria’s Secret, in 2015). We love the LULU brand and growth prospects near term and long term, but the stock seems to be pricing in perfection (and we should keep in mind with expected strong results for the rest of F20, they will have tougher comparisons in F21 in a category everyone seems to be chasing after).”

He made the move in conjunction with the release of a research report titled “The Most Highly Valued Specialty Concepts of All-Time.”

“There is something special and unique about LULU (no doubt). It is truly a growing global brand in an extremely attractive category but as a result of how LULU is currently valued by the market, we don’t believe they have much room for error,” Mr. Lejuez said.

Ahead of the release of its second-quarter results on Sept. 8, he increased his earnings per share projection to 93 US cents from 66 US cents based on stronger than previously expected comparable same-store growth. He’s now estimated a rise 5 per cent versus a decline of 7 per cent.

Based on that improved comps view, Mr. Lejuez also hiked his full-year 2020 and 2021 EPS forecasts to US$5.22 and US$7.70, respectively, from US$4.88 and US$7.70.

“We believe LULU can deliver double-digits comps in 2H20, but we believe this is priced into shares at current levels,” he said.

The analyst increased his target for Lululemon shares to US$400 from US$340. The average on the Street is US$357.47.

“Comp momentum has been among the best in retail and margins have expanded almost 400 basis points since 2015,” he said. “Product innovation continues to drive strong results in seemingly developed categories such as women’s pants, the men’s business is a big opportunity, and the customer has given LULU license to broaden into new categories. While Covid-19 disruptions will be a near-term headwind, there is no change to LULU’s long-term earnings power.”

Elsewhere, after raising her earnings expectation for the second quarter and the second half of 2020, RBC Dominion Securities analyst Kate Fitzsimons raised her target to US$435 from US$348, keeping an “outperform” rating.

“While the shares are expensive, we believe rightly so as positive revisions can continue as LULU leverages its sweet spot of category momentum and customer loyalty beyond 2023′s $6-billion sales goal towards estimated $12-$15-billion over time (vs. $4-billion today) now inclusive of MIRROR,” she said.


In a separate note, Mr. Lejuez raised his projections and target price for shares of PVH Corp. (PVH-N) following the release of better-than-anticipated second-quarter results after the bell on Wednesday.

PVH, formerly known as Phillips-Van Heusen Corporation, is an American clothing company which owns several well-known brands, including Van Heusen, Tommy Hilfiger, Calvin Klein and IZOD.

“While 2Q wasn’t a great quarter on an absolute basis, it was significantly better than expected, and we expect further sequential improvement in sales for the remainder of the year,” he said. “Sales were stronger in the international businesses for both Tommy and Calvin, though the U.S. is more challenged due to its exposure to intl tourist travel and U.S. dept stores. Despite the better-than-expected performance in 2Q, visibility remains limited. We believe the risk-reward is balanced at these levels.”

Keeping a “neutral” rating, Mr. Lejuez moved his target to US$62 from US$49. The average is US$66.40.


Calian Group Ltd.’s (CGY-T) acquisition of Tallysman Wireless Inc. is “strategic, highly accretive and supports [its] strong M&A playbook,” said Desjardins Securities analyst Benoit Poirier.

On Thursday before the bell, Calian announced the $24.5-million deal for the Ottawa-based wireless antenna maker. It is the company’s second largest acquisition ever and third since equity financing back in February.

“We like how Tallysman complements Calian’s ground-based satellite communications business as well as its 10-per-cent-plus per year growth profile,” said Mr. Poirier.

With the deal, he raised his adjusted earnings per share projections for 2020, 2021 and 2022 to $2.73, $3.07 and $3.34, respectively, from $2.71, $2.79 and $3.03.

Keeping a “buy” rating, he increased his target for Calian shares to $68 from $65. The average on the Street is $69.63.

“We continue to be impressed by CGY’s robust growth opportunities and disciplined approach toward M&A,” said Mr. Poirier. “With management’s strong track record of delivering both organic and inorganic growth (M&A playbook), we believe CGY is well-positioned to unlock shareholder value with its pristine balance sheet.”

Meanwhile, Canaccord Genuity analyst Doug Taylor increased his target to $75 from $70 with a “buy” rating.


Seeing its Snow Lake gold strategy on track, Paradigm Capital analyst Jeff Woolley hiked his financial expectations and target price for shares of Hudbay Minerals Inc. (HBM-T, HBM-N) on Friday.

“Once HudBay completes the New Britannia gold mill refurbishment and commissions the facility in the latter half of 2021, the Lalor mine will transition to become a primary gold and precious metals mine,” he said.

“Currently, the Snow Lake operations (the Lalor mine plus several satellite deposits, the operating Stall base metal concentrator and the New Britannia gold mill currently being refurbished) are projected to have an 18-year operating life, as laid out in the most recent Phase 2 Snow Lake Gold Strategy mine plan. Lalor is projected to produce 10Kt copper, 50Kt zinc, and once the New Britannia mill is operating, gold production in Snow Lake is set to double and average 150Koz for the first eight years of the mine plan, while total LoM [life-of-mine] gold recoveries from the Snow Lake operations are forecast to be 1.7Moz.”

Mr. Woolley said the Toronto-based company’s management has identified “the potential to deliver some early gold production, which could and increase the current 2021 100Koz guidance.”

“Bigger plans for Snow Lake are contemplated however, and studies are currently underway evaluating options to increase gold and copper recoveries at the Stall mill, to potentially expand the New Britannia mill capacity by as much as 45 per cent, and to incorporate the newly discovered 1901 orebody into the LoM plan. Any/all these potential opportunities would be additive to our current operating and financial forecast. Management expects to complete these studies in H1/21,” he added.

Maintaining a “buy” rating, he raised his target to $7 from $4.75. The average target is currently $6.19.

“The flagship Constancia copper mine is operating well, and a just announced community agreement to develop the high-grade Pampacancha deposit removes an element of production uncertainty — copper production should recover by 2021, while gold production is set to increase materially,” he said. “In the Manitoba division, the expansion of the Lalor mine is now complete and the refurbishment of the New Britannia mill has commenced. These operations will increase HBM’s financial leverage to precious metals production by 2022.”

Elsewhere, Haywood Securities analyst Pierre Vaillancourt said Hudbay is “capitalizing on key catalysts” and possesses an “attractive” growth profile.

“Hudbay is well positioned to benefit from growth in Manitoba and development at Pampacancha. Despite a strong run since March, the stock remains attractively valued,” he said.

Calling it his top pick in the base metals sector, Mr. Vaillancourt maintained a “buy” rating and $7 target.


BSR Real Estate Investment Trust (HOM.U-T, HOM.UN-T) is “well positioned for growth in 2021,” said Echelon Capital Markets analyst Frederic Blondeau following the close of its US$40-million offering of convertible unsecured subordinated debentures.

“We do not expect HOM to make any new acquisitions during the remainder of 2020, and we now expect the REIT to acquire $100-million in property in 2021, which could prove to be conservative,” he said.

Maintaining a “buy” rating, Mr. Blondeau increased his target for BSR units to US$12 from US$11. The average is US$11.89.


Though he’s skeptical about the duration of the current pricing environment, Credit Suisse analyst Andrew Kuske raised his financial projections for Norbord Inc. (OSB-T, OSB-N), seeing it “positively exposed to a favourable North American OSB industry.”

“Norbord Inc.’s stock market performance for the year-to-date of 32 per cent (capital only) is positive, but cannot compare to North Central pricing of 193 per cent (US$220 per thousand board feet on Jan 6 to US$645/Msf most recently),” he said. “A combination of pandemic-related home projects and producer protocols clearly impacted supply-demand meaningfully and rather unexpectedly in terms of magnitude. That reality, in part, highlights the attractiveness of the overall North American OSB market structure. We don’t see that dynamic changing in a meaningful way, however, as in past pricing cycles, a reversion to ‘more normal’ levels looks likely and is embedded in our expectations. Yet, we believe near-term estimates are too low, however, the super normal nature of current pricing and future outlook are key factors for stock direction. In this context, we see a potential upside bias to Street numbers, the potential for a meaningful special (or one quarter variable) dividend, but believe the risk-adjusted rewards are better elsewhere.”

Pointing to its second-quarter results as well as greater OSB price realizations, margin expansion, and a C$4.50 special distribution in the fourth quarter, Mr. Kuske raised his 2020, 2021 and 2022 earnings per share projections to to US$4.75, US$4.34 and US$3.04, respectively, from 97 US cents, US$2.37 and US$2.07.

“In a very cyclical industry, NBD’s focus on capital discipline and returning capital to shareholders is very evident,” he said. “Longer-term, average North Central OSB pricing of US$278/Msf helps give context to the current pricing of US$645/Msf and QTD average of US$$489/Msf. Naturally, in different market conditions, we witnessed past large variable dividends as a part of the total return strategy (i.e., $4.50 in 2018).”

Mr. Kuske maintained an “underperform” rating and $38 target. The average on the Street is $52.03.


In other analyst actions:

* Scotia Capital analyst Orest Wowkodaw raised Titan Mining Corp. (TI-T) to “sector perform” from “sector underperform” with a 50-cent target, up from 10 cents and above the 35-cent consensus.

“Titan announced an option agreement to earn up to a 100% interest in the Mineral Ridge Au Project in Nevada from Scorpio Gold (SGN-T; not rated) for cash payments of up to $42-million,” he said. “Mineral Ridge is a fully permitted former producing Au camp with 350,000 ounces existing M&I resources. Titan plans to materially grow the resource base via exploration, following the typical road map of the Augusta Group.

“We are upgrading our rating on Titan to SP (from SU) given the strategic pivot to Au resource development and our markedly improved valuation.”

* Canfor Fitzgerald analyst Mike Kozak reinstated coverage of Northern Dynasty Minerals Ltd. (NDM-T) with a “speculative buy” rating and $2.50 target. The average is $3.09.

“We placed our target and rating on Northern Dynasty Under Review on August 23 after various news outlets broke highly conflicting reports on the permitting review process for the Pebble project,”he said. “Since that date, NAK shares have traded wildly, initially down 59 per cent, but rebounding sharply in recent days, up 66 per cent off the lows.”

* UBS analyst Ross Fowler lowered his target for shares of Hydro One Ltd. (H-T) to $25 from $26. The average is $28.71

He also lowered Canadian Utilities Ltd. (CU-T) to $34 from $36, which is below the $38.06 average.

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