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

Ahead of earnings season for North American railway companies, Citi’s Christian Wetherbee sees “modestly stronger” than previously anticipated volume growth and better operating ratios.

That led the analyst to raise his third-quarter 2020 and full-year 2021 earnings per share projections by an average of 1.4 per cent and 0.5 per cent, respectively.

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“As we look forward to 4Q20 and into 2021, we expect year-over-year revenue declines to continue improving sequentially, and we continue to see a path to strong revenue growth and incremental margins for full-year 2021,” he said in a research report released Friday.

“We continue to prefer the rails which are earlier in their PSR [precision scheduled railroading] processes, with our top picks remaining Kanas City Southern, Norfolk Southern and Union Pacific. While expectations are elevated heading into results which may dampen the positive reaction to 3Q beats, we continue to believe rail remains a key sector to be focused on as the group returns to robust earnings growth in 2021.”

For Canadian National Railway Co. (CNI-N, CNR-T), Mr. Wetherbee raised his third-quarter projection by 2.1 per cent to $1.48 from $1.45. His 2021 estimate is now $6.30, up from $6.20 (or 1.5 per cent).

Keeping a “neutral” rating, he increased his target for U.S.-listed CN shares to US$110 from US$95. The average on the Street is US$105.93.

“We rate Canadian National Neutral as it currently screens less attractively from a growth and valuation standpoint, while it also would have further to fall to reach a trough multiple,” he said.

Meanwhile, Mr. Wetherbee trimmed his third-quarter EPS projection for Canadian Pacific Railway Ltd. (CP-N, CP-T) to $4.15 from $4.20, a drop of 1.1 per cent. His 2021 estimate remains $19.85.

“Our lower 3Q20 EPS estimate is driven by increased expected cost headwinds, partially offset by better than expected revenues (on higher volumes), but we expect the cost headwinds to be overcome in 2021 and we are lowering our 2021 OR target by 20 basis points on better expected cost takeout execution, which offsets a weaker yield estimate,” he said.

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With a “buy” rating, he raised his target for CP shares to US$355 from US$295. The average is US$318.89.

“We rate shares of Canadian Pacific Buy as we are constructive on its continuing meaningful operational improvement, which we expect to drive year-over-year improvements in OR in 2020 and 2021 and 2022. In addition, we see several actionable revenue catalysts driving strong performance in 2020 and beyond,” he said.

Mr. Wetherbee also increased his target for Union Pacific Corp. (UNP-N, “buy”) to US$232 from US$195. The average is US$208.44.

Elsewhere, Raymond James analyst Steve Hansen raised his target to CP to $438 from $398 with an “outperform” rating, while his target for CN rose to $145 from $135 with a “market perform” rating.

“Canadian rail traffic continues to impress, in our view, staging a convincing surge back into positive growth territory as grain have flows started to flow (aggressively) and the broader economic recovery continues,” he said. “In many respects, the underlying categories contributing to this strength have evolved largely as expected, with Grain, Potash, Auto, and Forestry all previously identified as the most likely drivers of a 2H20 recovery. Still, the magnitude/pace of recovery in these key end-markets has surprised (exceeding our prior estimates), underpinned by several drivers/themes expected to carry into 4Q20 and 1H21. In this context, while we acknowledge some difficult short-term comps in late 4Q20 (crude-by-rail in particular), we maintain our constructive view on the North American traffic outlook for both CN and CP.”

J.P. Morgan analyst Brian Ossenbeck set a December 2021 price target for CP shares of $483, versus his Dec. 2020 target of $390. His target for CN is $154, up from $120.

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Cowen and Company analyst Jason Seidl raised his target for CP to US$330 from US$299 and CN to US$111 from US$110 with “outperform” ratings for both.


Credit Suisse analyst Mike Rizvanovic sees more near-term earnings headwinds for Toronto-Dominion Bank (TD-T) than its peers.

In a research note released Friday, he downgraded his rating for TD shares to “underperform” from “neutral” after reinstating coverage following a 10-month restriction period stemming from Charles Schwab Corp.'s US$22-billion acquisition of TD Ameritrade Holding Corp.

In justifying his move, Mr. Rizvanovic emphasized TD’s sensitivity to lower interest rates and the impact they will have on Charles Schwab’s earnings, which will weigh on the results from its remaining stake in TD Ameritrade.

“On a consolidated basis TD is the most exposed to low rates among the Big Six and has the least exposure to the Capital Markets business, which we expect will perform well in the coming quarters due to heightened uncertainty in the macroeconomic outlook,” he said.

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Mr. Rizvanovic also expressed concern over the tax rate implications of a potential election victory by Joe Biden on TD’s U.S. accounts, which represent 36 per cent of its earnings and also exceed most peers.

“We estimate that an increase in the U.S. corporate tax rate following a potential Biden victory could reduce TD’s EPS by 3 per cent,” he said.

Seeing its current relative valuation as “misaligned,” he set a $59 target. The average on the Street is $67.11.

“We don’t view TD’s current PE multiple premium relative to peers as justified, and given more prominent headwinds we expect TD to report a 3-per-cent decline in pre-tax, pre-provision earnings in F2021 versus a peer average of 1 per cent,” said Mr. Rizvanovic.


Though he trimmed his earnings expectations ahead of the Nov. 11 release of its third-quarter results, Desjardins Securities analyst David Newman remains optimistic about the near-term for Superior Plus Corp. (SPB-T) following its recent acquisition of Rymes Propane and Oil.

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“Despite the modest downward revision to our 3Q20 estimates, it is important to note that 3Q is typically the weakest quarter of the year for propane demand, with greater variability in the results,” he said. “Further, we are increasing our full-year estimates on the back of the recent Rymes acquisition to the mid-point of SPB’s EBITDA guidance range (C$495-million versus SPB’s full-year EBITDA guidance range of $475–515-million). SPB’s current guidance is at the lower end of its EBITDA guidance range, which could be increased to the mid-point upon release of its results, in our view.”

For the third quarter, Mr. Newman trimmed his EBITDA estimate to $30-million from $36-million and well below the $37-million consensus on the Street.

“We have revised our 3Q20 adjusted EBITDA estimate ... driven by (1) stable Energy Distribution (ED) residential volumes (consistent weather vs a year ago across North America), offset by a continued COVID-19-related impact on its other sectors (although having recovered from the trough in April and May); (2) a tepid chemicals picture for Specialty Chemicals (SC) (lower volume and pricing for sodium chlorate, caustic soda and HCl (early signs of stabilization and improvement in HCl), offset by a mild sequential improvement in chlorine); and (3) slightly higher corporate costs of C$7-million versus our initial expectation of $4-million (more in line with 2Q20),” he said. “Recall that management’s earlier cost-cutting measures reduced opex by $30-million annually, of which $15-million is expected to be permanent.”

Citing a “more optimistic” view of the coming year based on “nascent signs of recovery in HCl and strength in chlorine,” Mr. Newman raised his target for Superior Plus shares to $15 from $13.50 with a “buy” rating (unchanged). The average on the Street is $13.73.


A “refocused” Golden Star Resources Ltd. (GSC-T) is “primed for growth,” said Canaccord Genuity analyst Carey MacRury.

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In a research report released Friday, he initiated coverage of Toronto-based company, which focuses on operations in Ghana, with a “buy” rating.

“Golden Star operates the Wassa gold mine (90 per cent GSC) in Ghana, after recently selling its high-cost (and negative cash flowing) Bogoso-Prestea mine, also in Ghana, for consideration of up to $95-milllion,” he said. “The sale refocuses the company’s resources on its flagship Wassa mine that, in our view, has historically been capital-constrained and has strong potential to increase production and reserves, given an underutilized mill and a substantial underground resource.”

Mr. MacRury focused on the near-term production growth displayed at Wassa since it transitioned from an open-pit mine to an exclusively underground operation in 2018, which has brought a “steady” increase in output.

“In 2018, Golden Star announced a doubling of the underground resource base at Wassa to 7.7 million ounces grading 3.77 grams per ton from 3.9 million ounces previously,” he said. “At year-end 2019, the resource further expanded to 9.1 million ounces grading 3.78 grams per ton. While P&P reserves total just 889,000 ounces (4-year reserve life), we believe the substantial total resource base offers a platform to extend mine life (potential more than 40-year mine life at current production rates),” he said. “While the resource is substantial, it extends down to a depth of 1.5km and is still open. The company is studying how best to access the deeper portion of the mine economically (i.e., extending the existing declines and/or developing a new decline or a shaft). A PEA outlining the plan is expected to be complete by year-end. We believe that the company has 3-5 years of mining ahead of it before requiring a more significant capital decision to access the deeper portions of the mine.”

Mr. MacRury also emphasized the company’s improving balance sheet and free cash flow as well as the presence of a “cornerstone” shareholder in privately held La Mancha Resources of Luxembourg, which holds a 34.7-per-cent stake.

He set a target of $8 per share. The average on the Street is $6.77.

“We see potential for the shares to re-rate on 1) an improved FCF profile and balance sheet following the sale of Prestea; 2) Ghana being a more stable mining jurisdiction in West Africa; and 3) significant growth potential with a substantial underground resource,” the analyst said.


MDF Commerce Inc. (MDF-T) has “transitioned to a high-quality profitable SaaS company” under the leadership of President and CEO Luc Filiatreault, said Acumen Capital analyst Nick Corcoran.

In a research note released Friday, he raised his rating for the Montreal-based tech firm, known as Mediagrif Interactive Technologies Inc. prior to a late September rebranding, to “buy” from “speculative buy,” citing both management’s progress to date and a revised valuation.

“Growth is focused on Strategic Sourcing and Unified Commerce, allowing it to capture growth in digital commerce,” he said.

“MDF has experienced multiple expansion as the market gains confidence in the new strategy. Catalysts for the story include an acceleration in organic growth and potential acquisitions.”

Mr. Corcoran raised his target to $12.50 from $9.00, saying an “increased multiple is justified due to MDF’s growing monthly recurring revenues (77 per cent in Q2/FY21) and organic growth that is expected to accelerate outside our forecast period (currently 10.2 per cent in FY/22).” The average on the Street is $10.67.


Citing higher-than-expected met coal prices and a positive provisional pricing adjustment, Citi analyst Alexander Hacking raised his third-quarter financial expectations for Teck Resources Ltd. (TECK.B-T) on Friday.

He’s now estimating earnings before interest, taxes, depreciation and amortization of $623-million, rising from $443-million previously and now falling in line with the consensus projection on the Street. His earnings per share forecast is now 20 cents, an increase of 7 cents.

“Key questions in the quarter will be progress on QB2 projects and any color on recent improvements in the seaborne coking coal,” he said.

Mr. Hacking also raised his target for its shares to $19 from $15. The average on the Street is $22.55.

“We rate Teck as a Neutral. Investment positives include a solid portfolio of mining assets including the world’s second biggest export met coal business; a strong balance sheet; increased capital returns in recent years and a good record on ESG relative to peers. Negatives include risk of lower met coal demand in future; a history of questionable capital allocation and dual class share structure. On balance we see equal upside and downside at current levels,” he said.


A “solid” quarter for its El Limón Guajes mining complex in Mexico “demonstrates significant near-term value” for Torex Gold Resources Inc. (TXG-T), according to Desjardins Securities analyst Andrew Breichmanas.

On Thursday, the Toronto-based company reported third-quarter production at the mine of 131,790 ounces and sales of 133,030 ounces. Both easily exceeded the projections of both Mr. Breichmanas and the Street.

“Production of 299,830 ounces through the first nine months of 2020 places the company well on track to achieve the upper end of its 390,000–420,000 ounce full-year guidance range,” he said. “Our estimate for 2020 production was 399,845 ounces compared with consensus of 401,000 ounces. Based on incorporating 3Q20 production and higher plant throughput, our estimate has increased to 417,535 ounces.”

After raising his earnings expectations for 2020 through 2022, the analyst maintained a “buy” rating and $32.50 target for Torex shares. The average target is $33.05.

“The stock appears attractively valued on near-term cash flow metrics as El Limón Guajes executes the remainder of its mine plan,” he said. “Longer-term, the discount ascribed to the Media Luna project should narrow as the feasibility study details development plans in mid-2021 and the balance sheet improves to demonstrate funding capacity.”

“We maintain our Buy rating on Torex. In our view, the stock offers attractive valuation and exposure to a top-tier asset with potential for meaningful growth, operated by a capable management team with a track record of prudent capital allocation.”


Citi analyst P.J. Juvekar raised his target prices for several North American chemical and agricultural stocks ahead of earnings season, seeing increased momentum in end-markets through the third-quarter as economies continue to reopen.

“Auto, construction, and housing end-markets were all strong,” he said. "Plastics and DIY paint demand has remained quite resilient. On the flip side, aerospace, general industrial, and marine have been slow.

“Several companies like PPG, HUN, and SHW pre-announced higher. We think the following companies could have upside surprise in 3Q20 earnings: DD (robust electronics and autos), EMN (greater exports to China and tire end-markets), and AXTA (autos and lower raw materials). DOW, LYB, and WLK should benefit from higher PE pricing. New Top Picks: FMC, LIN, and PPG. LIN has underperformed APD and is cheaper, and PPG has housing exposure that AXTA does not."

Mr. Juvekar’s target changes included:

  • Methanex Corp. (MEOH-Q/MX-T, “neutral”) to US$30 from US$20. The average on the Street is US$24.69.
  • Nutrien Ltd. (NTR-N/NTR-T, “buy”) to US$48 from US$45. Average: US$48.58.


In other analyst actions:

* National Bank Financial analyst Cameron Doerksen upgraded Cargojet Inc. (CJT-T) to “outperform” from “sector perform” with a $245 target, up from $191. The average on the Street is $216.

* RBC Dominion Securities analyst Josh Wolfson raised Eldorado Gold Corp. (ELD-T, EGO-N) to “sector perform” from “underperform” with a US$12 target, up from US$11 but below the US$14.39 average.

* Haywood Securities analyst Christopher Jones initiated coverage of Headwater Energy Inc. (HMX-T) with a “buy” rating and $2 target, matching the consensus.

“The core of the current management team has built and sold three prior franchises, and is in a position to take advantage of the pandemic induced oil price collapse which has served as a catalyst for the next consolidation phase that, in our view, is necessary to bring a fragmented and under-capitalized basin to a more rationale and sustainable level,” he said. “This has created an opportunity for well-capitalized buyers (like Headwater) to target operators that while holding desirable assets, and relatively clean capital structures, do not have access to sufficient capital, as such the value proposition for shareholders of these entities is challenged. With a rock-solid balance sheet, and solid institutional sponsorship, we see Headwater as a strong contender to capitalize on this consolidation wave, ultimately creating a formidable operator in the sector with strong equity market interest.”

* National Bank’s Adam Shine increased its target for Thomson Reuters Corp. (TRI-T, “sector perform”) to $108 from $96. The average is $78.79.

* CIBC World Markets analyst Hamir Patel raised his target for Richelieu Hardware Ltd. (RCH-T, “neutral”) to $40 from $37 and above the $36.50 average.

“Indoor renovation activity has been less affected by COVID-19 than we initially feared, with our revised forecast calling for flat organic growth this year, very different than the 4.5-per-cent decline experienced during the Great Recession in 2009,” he said. “We see organic growth of 4.3 per cent next year. This could be conservative as RCH pointed to potential for 4-7-per-cent price hikes next year across 30- 40 per cent of its product categories (not built into our forecast). At the same time, RCH continues to be active on the M&A front (capital allocation priority), with transactions this fiscal year representing over $70-million of annualized sales (7 per cent of F2019 sales).”

* CIBC’s Scott Fromson raised its target for Alaris Equity Income Trust (AD.UN-T, “neutral”) to $15.50 from $15. The average is $15.38.

* J.P. Morgan analyst Brian Ossenbeck set a Dec. 2021 target for TFI International Inc. (TFII-N, TFII-T, “overweight”) of $58, up from its Dec. 2020 target of $51. The current average is $53.

* BMO Nesbitt Burns analyst Peter Sklar raised his target for Canadian Tire Corp. Ltd. (CTC.A-T, “market perform”) to $136 from $125. The average is $139.22.

* Raymond James analyst Ben Cherniavsky initiated coverage of Michigan-based Alta Equipment Group Inc. (ALTG-N) with a “market perform” rating and US$9 target. The average on the Street is US$12.50.

"The company has made impressive strides over the last +12 years, growing revenue from $60-million to more than $800-million, through acquisitions and organic growth, earning respect of OEMs and consolidating a highly fragmented equipment dealer market,” he said. “The company’s successful path forward will be predicated on continued implementation of the M&A and growth strategies discussed in this report. While we conclude that the long-term outlook for Alta looks promising, the combination of COVID-induced economic headwinds, the mixed track record of public equipment dealer stocks, and the political uncertainty regarding infrastructure funding have compelled us to conclude with a ‘wait and see’ position on the stock.”

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