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

Desjardins Securities analyst Chris Li thinks Empire Company Ltd.'s (EMP.A-T) “strong” first-quarter 2021 financial results “largely reflect consumers' preference for the full-service format amid the pandemic” and exhibit “strong” execution of its cost reduction and margin enhancement initiatives.

On Thursday before the bell, the Nova Scotia-based parent company of Sobeys reported earnings per share of 71 cents, exceeding both Mr. Li’s 54-cent estimate and the 58-cent consensus forecast. The beat came largely from stronger-than-expected sales and gross margins.

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“Current market conditions benefit EMP as consumers continue to prefer one-stop shop,” said Mr. Li. "On the positive side, food sales are expected to remain elevated (albeit moderating). On the flip side, the gap between the full-service and discount format is narrowing, and competition is starting to increase and could intensify in a recessionary environment.

“We maintain our constructive view for EMP and believe its sales and cost-cutting initiatives will continue to drive outsized EPS growth.”

With the results, Mr. Li raised his earnings per share projections for both 2021 and 2022 to $2.31 and $2.58, respectively, from $2.21 and $2.54.

Maintaining a “buy” rating for Empire shares, he increased his target to $39 from $38. The average on the Street is $41.22, according to Refinitiv data.

“We have a neutral view on the grocers. Positives: (1) sales remain elevated (albeit moderating); (2) COVID costs are slowing with the conclusion of temporary wage hikes; (3) gross margins are supported by less promotional intensity vs a year ago, channel mix, strong sales of private label and vendor support; and (4) cost-reduction initiatives,” he said. "Concerns: (1) competition is starting to increase and will likely intensify next year as consumers seek value in a recession; (2) industry laps strong sales growth; and (3) potential funds flow from staples to discretionary as market conditions improve.

“We believe EMP is relatively better positioned in a scenario with a resurgence of COVID given its high exposure to full-service-format stores. Longer-term, there is upside to earnings growth assuming successful execution of Project Horizon, with the market reflecting only some of the benefits. On forward P/E, EMP is trading at 15 times (in line with L, below MRU at 18 times). On forward EV/EBITDA, EMP is trading at 8 times (in line with L, 11 times for MRU).”


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Transat A.T. Inc.'s (TRZ-T) operational results are unlikely to improve until a COVID-19 vaccine is widely available, said Desjardins Securities analyst Benoit Poirier, who feels the severity of the pandemic is also creating uncertainty around its acquisition by Air Canada (AC-T).

“TRZ still expects the transaction to close in 4Q CY20, assuming regulatory approvals are obtained,” he said. “On that front, the Canadian approval process to obtain a decision from the Minister of Transport is ongoing while the European regulatory authorities recently set a deadline to render their decision on the transaction on December 11. We continue to believe that the pandemic could make it more difficult to obtain the regulatory approvals needed in the current context as demonstrated by the delay experienced so far in Canada and Europe.”

Mr. Poirier thinks Transat’s current cash position should help it “weather this crisis,” but he thinks additional financing could be requited to “bridge through the recovery.”

On Thursday, the airline and tour operator reported third-quarter earnings per share of a loss of $3.70, missing the projections of both Mr. Poirier and the Street (losses of $2.05 and $2.33, respectively). Revenue fell 99 per cent year-over-year to $10-million, also falling short of expectations ($19-million and $34-million).

“Cash and cash equivalents stood at $576-million (down sequentially from $734-million) while restricted cash (in trust or otherwise reserved) stood at $280-million (stable sequentially) for total cash consideration of $856-million,” the analyst said. “Meanwhile, customer deposits and deferred revenue increased sequentially to $638-million from $605-million. On a net basis (excluding customer deposits and deferred revenue), the total cash position stood at $219-million. Based on management’s comments, we believe TRZ will burn $210-million of cash in 4Q.”

With the weaker-than-anticipated results, Mr. Poirier lowered his 2020 and 2021 EPS estimates to losses of $7.58 and $2.44, respectively, from losses of $5.45 and 98 cents.

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Keeping a “hold” rating for Transat shares, he also trimmed his target to $6.50 from $9. The average on the Street is $10.

“In light of the uncertainty surrounding the closing of the proposed transaction and the impact of the pandemic, we prefer to remain on the sidelines as we await greater evidence of a market recovery and the closing of the proposed transaction with Air Canada,” he said.

Elsewhere, Scotia Capital’s Konark Gupta cut his target by a loonie to $7 with a “sector perform” rating.


NFI Group Inc. (NFI-T) is “riding the electric vehicle growth opportunity,” according to Laurentian Bank Securities analyst Nauman Satti.

Touting its attractive valuation in the wake of its share price being “battered” by the impact of the COVID-19 pandemic, he initiated coverage of the Winnipeg-based bus and coach manufacturer with a “buy” rating.

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“With an increased focus on the environment by policymakers, adoption to EV is expected to accelerate from the traditional Diesel/CNG transit buses,” he said. “Wood Mackenzie (resources focused research firm) expects global EV adoption to triple by 2025, and BloombergNEF expects EV buses to command 80 per cent of new purchases by 2040. NFI’s 10-per-cent backlog is for Zero-Emission Buses (ZEB), which we expect to gradually grow from EV adoption.”

“We believe NFI should weather the COVID storm due to its strong backlog of $2.0-billion in firm orders, which represents 10 months of revenue. The majority of the backlog (70 per cent plus) is within the Heavy-duty transit segment with most of the customers being government-funded transit agencies. In addition to the firm orders, the optional order-backlog stands at $2.8-billion. Although we expect near-term headwinds for the private coach market, long term demand for buses and coaches remains intact from the transition to electric buses.”

Mr. Satti set a target price of $23 per share. The average on the Street is $21.83.

“While recognizing that COVID should have negative implications on demand for buses, the stock price decline from $34 to $18 is overdone in our opinion as the backlog remains strong, and NFI’s main customers are government agencies with deep pockets,” he said. “The stock is currently trading at 6.5 times 2022 EBITDA versus its five-year NTM average of 8.0 times, and peer group average of 10 times.”


Taking a bullish tone on Canadian miners, equity analysts at National Bank raised their target prices for a large group of TSX-listed stocks on Friday.

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The firm has a positive view of the macroeconomic outlook for the gold price due to near-term safe-haven demand and an environment of persistently low or negative real rates

It increased its long-term gold price forecast by $25 per ounce to $1,475.

Analyst Michael Parkin’s changes included:

  • Barrick Gold Corp. (ABX-T, “outperform”) to $44 from $42. The average on the Street is $32.64.
  • Kinross Gold Corp. (K-T, “outperform”) to $17 from $16. Average: $15.37.
  • Kirkland Lake Gold Corp. (KL-T, “sector perform”) to $79 from $76. Average: $76.02.
  • Eldorado Gold Corp. (ELD-T, “outperform”) to $21 from $21.50. Average: $18.86.

Analyst Shane Nagle’s moves include:

  • First Quantum Minerals Ltd. (FM-T, “outperform”) to $16.75 from $16.25. Average: $15.05.
  • Hudbay Minerals Inc. (HBM-T, “sector perform”) to $6.75 from $5.75. Average: $6.24.
  • Capstone Mining Corp. (CS-T, “outperform”) to $1.70 from $1.55. Average: $1.51.
  • Lundin Mining Corp. (LUN-T, “outperform”) to $9.75 from $8.50. Average: $9.55.
  • Franco-Nevada Corp. (FNV-T, “sector perform”) to $225 from $220. Average: $206.97.
  • Wheaton Precious Metals Corp. (WPM-T, “outperform”) to $90 from $78. Average: $58.45.

Analyst Don DeMarco’s changes included:

  • Copper Mountain Mining Corp. (CMMC-T, “sector perform”) to $1.25 from 90 cents. Average: $1.02.
  • First Majestic Silver Corp. (FR-T, “sector perform”) to $20 from $19. Average: $17.41.
  • Fortuna Silver Mines Inc. (FVI-T, “sector perform”) to $11 from $10.50. Average: $10.46.
  • Pan American Silver Corp. (PAAS-T, “sector perform”) to $58 from $54. Average: $39.41.
  • Silvercrest Metals Inc. (SIL-T, “outperform”) to $17.50 from $16. Average: $14.31.
  • Osisko Mining Inc. (OSK-T, “outperform”) to $6.25 from $6. Average: $6.02.
  • MAG Silver Corp. (MAG-T, “outperform”) to $29 from $28. Average: $25.83.

Analyst John Sclodnick’s moves include:

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  • Lundin Gold Corp. (LUG-T, “outperform”) to $14.75 from $14.25. Average: $14.93.


Canaccord Genuity analyst Matthew Lee expects Roots Corp. (ROOT-T) to see improved results in its seasonally strong second half of the year despite the presence of lingering headwinds stemming from COVID-19.

On Thursday, the retailer reported mixed second-quarter results with revenue falling short of Mr. Lee’s expectation ($38.2-million versus $42.5-million) and EBITDA beating his forecast ($1.1-million versus a loss of $5-million).

“Roots executed a staggered reopening in Q2 with a large contingent of its retail stores closed for a portion of the quarter, resulting in DTC [direct-to-consumer] revenue declines of 41 per cent,” the analyst said. “Looking forward, 113 of 114 Canadian stores are now fully reopened and management is looking to utilize marketing and promotional levers to attract customers back to the stores while also catering to online-only shoppers. We expect this omnichannel strategy will drive a moderation in sales declines to 15-25 per cent in H2 from 35-45 per cent in H1. We note that H2 traditionally accounts for 60-70 per cent of total sales, hence marketing execution throughout this period is especially critical.”

Mr. Lee applauded management’s work on reducing costs and sees its balance sheet as “manageable based on current forecasts.”

Though he raised his 2020 and 2021 earnings per share projections to 13 cents and 21 cents, respectively, from 12 cents and 18 cents, Mr. Lee maintained a “hold” rating and $1.25 target. The average is $1.78.

“We have lowered our revenue estimates for F20 to reflect the continued impact of COVID-19 with EBITDA forecasts largely remaining the same thanks to cost-cutting initiatives by the company and improving gross margins,” he said. “Despite Roots' strong brand and our expectation for a recovering revenue trajectory, we opt to remain conservative on our estimates given the uncertainties around COVID-19.”


In other analyst actions:

* BofA Securities analyst George Staphos cut Norbord Inc. (OSB-N, OSB-T) to “neutral” from “buy” with an unchanged US$37 target. The average is US$41.

* CIBC World Markets analyst Raphael de Souza started Sierra Metals Inc. (SMT-T) with an “outperformer” rating and target of $2.60, matching the current consensus.

“SMT provides investors diversified exposure to copper (Cu), zinc (Zn), silver (Ag) and lead (Pb) through three operating assets and a strong balance sheet position,” he said. “We forecast a significant pick-up in free cash flow (FCF) generation over the next 18 months, at an average 13-per-cent FCF yield in 2020-2021 versus negative 4 per cent in 2019, which by our estimates would be sufficient to fund growth, debt repayments and potentially distribute cash to shareholders. Also, we note that our current 2021 Ag price forecast is $19 per ounce, well below the current spot price of $28 per ounce. While we acknowledge the risks of COVID-19 to SMT’s operations in Peru and Mexico, we believe these are captured in our valuation through a discounted P/NAV multiple (0.7 times vs. small/mid-cap peer average at 0.8 times) and a 10-per-cent discount rate across all assets.”

* PI Financial initiated coverage of Artemis Gold Inc. (ARTG-X) with a “buy” rating and $9 target. The average is $10.75.

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