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

Rogers Communications Inc. (RCI.B-T) is “bouncing off oversold levels,” according to RBC Dominion Securities analyst Drew McReynolds, who continues to see an attractive valuation after raising his estimates in the wake of Thursday’s release of better-than-expected third-quarter results.

“While we anticipated greater than usual variances to our Q3/20 estimates given COVID-19-related volatility, results were well above our estimates across wireless, cable and media,” he said. Importantly, management sees sequential improvement in Q4/20 off this stronger quarter."

“Specifically: (i) wireless ARPU [average revenue per user] is expected to increase sequentially alongside an easing overage drag ($30-million versus $50-million in Q3/20); (ii) cable revenues, EBITDA, margins and loading are expected to improve sequentially with the lower cable capex intensity levels in Q3/20 being sustained; (iii) media revenues and EBITDA are expected to decline sequentially given the strong Q3/20 and new cadence of live sports due to COVID19, however, media EBITDA losses for 2020 are expected to be lower than originally anticipated; and (iv) FCF generation should be similar to Q3/20.”

Mr. McReynolds also emphasized Rogers is likely to come out of the quarter as the industry’s leader in wireless subscription additions, and he sees a “constructive set-up” for the fourth quarter and 2021.

“With postpaid net additions of 138k in Q3/20 (versus 103k in Q3/19), we expect Rogers to be the leader on wireless loading this quarter following a relatively weak quarter in Q2/20,” he said. “While some of the loading can be attributed to renewed promotional aggression across the industry, loading was bolstered by a recovery in wireless activity, unlimited plans and improving digital/online capabilities. Looking into Q4/20 and 2021, we see a constructive set-up reflecting: (i) solid alignment between the launch of the 5G-enabled iPhone 12 and industry-leading 5G coverage with the largest base of unlimited subscribers and the largest iPhone install base in Canada; (ii) the completion of the unlimited migration by Q2/21; and (iii) easier year-over-year comps.”

In response to the quarterly beat, he raised his 2020, 2021 and 2022 earnings per share projections to $3.34, $3.74 and $3.95, respectively, from $2.95, $3.56 and $3.82.

Seeing an “attractive” entry point for investors, Mr. McReynolds also increased his target for Rogers shares to $67 from $65, keeping an “outperform” rating. The current average is $66.07.

“At a FTM EV/EBITDA [forward 12 month enterprise value to earnings before interest, taxes, depreciation and amortization] multiple of 7.1 times, Rogers trades at a discount to large cap peers, which we attribute to a relatively weak Q2/20 and significant direct COVID-19 impacts on wireless and Rogers Media,” he said. “Potential catalysts to narrow the valuation discount include the completion of the migration to unlimited plans/EIPs (Q2/21), the continuation of live sports, a constructive CRTC wireless review decision, industry-leading 5G coverage to support a strong iPhone upgrade cycle and/or a better than expected 3500 MHz auction outcome. In addition to valuation, we believe Rogers provides a compelling 3.4-per-cent dividend yield (with the lowest dividend payout ratio among large cap peers), and a portfolio of non-telecom assets that under certain circumstances could become a major source of funds for strategic initiatives and/or any desired bolstering of the balance sheet.”

Elsewhere, Canaccord Genuity analyst Aravinda Galappatthige increased his target to $62 from $57 with a “buy” rating (unchanged).

Mr. Galappatthige said: “While we are cautious about not reading too much into a single quarter, we do believe the Q3 numbers went a long way to assuage concerns around Rogers, specifically regarding wireless. Post the weak Q2 results, cautionary outlook comments, and the notable variance with BCE/TELUS results, we suspect that investor caution toward Rogers was notably elevated. This involved concerns about subscriber volumes, bad debt provisioning (higher than peers), and ARPU declines (both due to and in excess of the roaming and overage impact). We believe Q3 directly addressed these issues. First, the wireless service revenue decline y/y in Q3 was almost entirely explained by roaming and overage, which we believe is relatively less concerning given the expectation that international travel will return at some point and the reality that overage is ramping down to near zero for all carriers. Second, comments on the call suggest no further bad debt provisioning and better than expected tracking in terms of collections, potentially easing worries about the relative quality of the subs base (vs BCE Inc.). Third, wireless volume strengthening was encouraging, especially on the back of more constructive comments around Q4 volumes as well. Going forward as one tracks Rogers' recovery, we believe the key item to consider will be volumes.”

Others raising their target for Rogers shares included TD Securities' Vince Valentini to $73 from $69 with a “buy” rating and BMO Nesbitt Burns to $70 from $68 with an “outperform” rating.


Raymond James analyst Daryl Swetlishoff hiked his target for shares of Canfor Corp. (CFP-T) following a third-quarter earnings beat that he said “sets the bar high.”

On Thursday after the bell, it reported EBITA for the quarter of $390.2-million after adjusting for a $3-million write down, exceeding both the analyst’s $375-million forecast and the $356-million consensus estimate. The variance came largely due to a strong performance from its lumber segment.

“Despite aggressive recent upward analyst earnings revisions Canfor delivered a material beat – providing a good read through for building materials competitors reporting over the next two weeks,” said Mr. Swetlishoff. "While the 3Q20 number is unlikely to be a huge surprise to investors (given the press lumber has received) we look forward to management commentary on the conference call specifically with respect to future earnings. Lumber pricing has come off white-hot levels, however, it remains exceptional on a historic basis; we estimate Canfor could generate $175-million (50 per cent of 3Q20 EBITDA) in Oct. 2020 alone! Free cash flow during the quarter was sufficient to enable us to hike our target by $3/share.

“In a departure from historic norms, Canfor’s share price has dramatically lagged the summer lumber rally and current profitability. In fact, annualizing 2H20 estimated EBITDA covers more than 2/3 of Canfor’s market cap on a no multiple basis! Traders indicate lumber sales volumes are starting to pick up which we expect to put a seasonal floor in lumber pricing at the US$550-600 level. We expect this event to be a sustainable catalyst for building materials share prices and advocate investors add to positions.”

Keeping an “outperform” rating for Canfor shares, the analyst increased his target to $26.50 from $23.50. The average is $23.92.


Element Fleet Management Corp. (EFN-T) is “still very misunderstood,” according to Credit Suisse analyst Mike Rizvanovic.

“The market tends to view EFN, incorrectly in our view, in the same vein as a traditional lender,” he said. “We believe EFN is far more comparable to companies operating in the Business Services sector due to: (1) a recurring revenue model with half of the top-line coming from servicing fees and net interest income driven by steady consistent volume origination; (2) low credit risk through the cycle and only modestly impacted by low rates; and (3) resilience through an economic downturn as the services EFN provides are mostly critical functions for their clients' business.”

In a research report released Friday, Mr. Rizvanovic initiated coverage of Element Fleet with an “outperform” rating, calling it a “compelling free cash flow story.”

“We value EFN using a FCF multiple, which unlike EPS is not affected by accounting-related items that have no bearing on EFN’s ability to grow and return capital to shareholders, and which we believe is justified by a free cash flow (FCF) conversion ratio that now sits at more than 130 per cent,” he said.

The analyst set a Street-high target of $19 per share, exceeding the current consensus of $14.20.

“EFN has undergone a material transformation in recent years, which has driven significantly better financial performance that has exceeded management’s original target, while also improving the company’s risk profile following the wind-down of 19th Capital,” said Mr. Rizvanovic. “We believe that EFN is a very different company now post-transformation, with strong organic growth potential across its geographic footprint, which we expect will drive 16-per-cent growth in FCF/share through 2022.”


Desjardins Securities analyst David Newman resumed coverage of WELL Health Technologies Corp. (WELL-T) following the completion of a $80.5-million bought-deal financing, seeing it “now flush with more than $100-million in dry powder to execute its robust M&A pipeline.”

“We have made minor adjustments to our 2020 estimates but have increased our 2021 and 2022 forecasts given imminent acquisition opportunities and continued strong growth in all five business units,” he said. “We expect the company to achieve breakeven EBITDA by mid-2021, as Canada turns profitable by the end of this year while the U.S. (Circle Medical) ramps up its expansion.”

Ahead of the release of its third-quarter results on Nov. 12, Mr. Newman maintained his $10.8-million revenue estimated, citing “(1) strong revenue growth in clinical services given telehealth and a sticky patient base (family practice vs walk-ins); (2) accelerating digital services growth (EMR, telehealth and other), aided by COVID-19- related tailwinds; and (3) the benefit of previous acquisitions, including Cycura.”

Keeping a “buy” rating for shares of the Vancouver-based company, he increased his target to $10 from $9.50. The average is $8.49.

Meanwhile, Doug Taylor of Canaccord Genuity increase his target to $8.50 from $8 with a “speculative buy” rating.

“While valuations continue to edge higher, we see strong investor confidence supporting management’s strategy in achieving growth through continued M&A and investment activity, which is underscored by the completion of its significant capital raise,” said Mr. Taylor.


Seeing “strong” execution and the potential for significant market share gains, Canaccord Genuity analyst Aravinda Galappattige initiated coverage of AcuityAds Holdings Inc. (AT-T) with a “buy” rating, seeing it “breaking into the big leagues.”

“AcuityAds Holdings is an ad-tech business that services its clientele through its programmatic marketing platform,” he said. "Programmatic refers to the process of buying/selling digital ads on an automated, real-time basis.

“The company resides in a sector with a long runway of structural growth and generates robust revenue growth while delivering margin expansion and increasing FCF. Adding to this, the company possesses a solid balance sheet and a track record of execution on the technological, sales and financial management fronts. AcuityAds is led by Tal Hayek, CEO and cofounder, an industry veteran of 18 years, backed by a team with a deep technology background. Insider ownership is at 35 per cent. We highlight that investor interest in this space has been piqued by the success of The Trade Desk (TTD-Q), whose share price has risen over 20x over the past four years and stands as AcuityAds' most direct (although larger) public comp.”

Mr. Galappatthige emphasized the “significant” tailwinds enjoyed by programmatic advertising, which he said is “taking advantage of the strong underlying growth in digital advertising, while gaining an increasing share of digital ad spending.”

“This year, programmatic advertising is expected to rise to 85 per cent of digital (from 73 per cent in 2016), as advertisers lean in further on ROI [return on investment] and data-driven attribution,” he said. “We believe the emerging connected TV advertising wave could further propel the broader digital ad industry forward, potentially in a similar fashion to mobile years ago.”

The analyst also sees ActuityAds recently unveiled illumin self-serve platform as its “most significant innovation to date” and called it an “enhanced value proposition that management believes can disrupt the industry.”

Though he cautioned its growth has stalled after a “strong” 2019 due to the COVID-19 pandemic, Mr. Galappatthige said he expects a “robust” recovery in the second half of 2020 and return to growth by the first quarter of 2021, citing “strong” sector trends and traction from newer clients.

“Our current projections call for a near-20-per-cent top-line growth trajectory, with continued lift in EBITDA margins, facilitating a 73-per-cent upswing in EBITDA from 2019 to 2021,” he said.

He set a $6 per share target, exceeding the average on the Street of $3.82.


Fundamental Research analyst Sid Rajeev initiated coverage of Calgary-based E3 Metals Corp. (ETMC-X) with a “buy” rating and named it one of the firm’s top picks.

“Tesla’s recently announced plans to build its own cathode factory in North America. Ford (NYSE: F) is building an electric vehicle plant in Ontario. These are positive developments for advanced stage companies, such as E3, as they are now prime targets of EV/battery manufacturers seeking a longterm stable supply of lithium,” he said.

“We estimate that lithium juniors are currently trading at US$19 per ton, while E3 is trading at just US$3. Direct comparable, but more advanced stage, Standard Lithium (SLL-X), is trading at $97. SLL commenced pilot operations this year. E3 is trading at just 7 per cent of SLL, despite having over 2 times SLL’s resource.”

Currently the lone analyst covering the stock, Mr. Rajeev set a fair value of $1.43.


In a research report on the Canadian mortgage services sector, Scotia Capital analyst Phil Hardie increased his target for Home Capital Group Inc. (HCG-T, “sector perform”) to $26 from $25. The average is $26.25.

Mr. Hardie also raised his targets for First National Financial Corp. (FN-T, “sector perform”) to $34 from $33 and Equitable Group Inc. (EQB-T, “sector perform”) to $94 from $91. The current averages are $34 and $92.68, respectively.

“We believe the underlying operating environment for the mortgage services sector through Q3/20 was far better than even the most optimistic projections would have suggested six months ago," said Mr. Hardie. "Mortgage services stocks have shed their steep discounts but continue to trade well below pre-pandemic levels, likely reflecting near-term profitability pressures and lingering uncertainties.”

“In late July and early August, mortgage services stocks rallied solidly on the back of: (1) better-than-expected Q2/20 results; (2) reduced risks as borrowers under deferral programs declined significantly; and (3) an improved outlook given a robust rebound in housing activity. The stocks have since been range-bound, with the better-than-expected near-term operating conditions likely offset by continued uncertainties. These relate to: implications on labour recovery from a second wave of the COVID-19 pandemic; questions about where housing activity and home price activity will settle as pent-up demand eventually subsides; and the trajectory and ultimate peak of actual credit losses. Underlying themes from management teams remain both confidence in successfully navigating the crisis and the resumption of prudent growth.”


In other analyst actions:

* TD Securities analyst Aaron MacNeil upgraded North American Construction Group Ltd. (NOA-T) to “buy” from “hold” with a $14.50 target, up from $12. The average is $14.50.

* RBC Dominion Securities analyst Drew McReynolds upgraded Corus Entertainment Inc. (CJR.B-T) to “outperform” from “sector perform” with a $5 target, up from $1. The average on the Street is $5.21.

TD Securities' Vince Valentini raised his target for Corus to $7.50 from $7 with an “action list buy” rating, while BMO’s Tim Casey raised his target to $4 from $3 with a “market perform” rating.

* Barclays analyst Raimo Lenschow cut his target for Open Text Corp. (OTEX-Q, OTEX-T) to US$51 from US$52.

* Mr. Lenschow raised its target for Lightspeed POS Inc. (LSPD-T, LSPD-N, “overweight”) to US$45 from US$40, while BTIG’s Mark Palmer raised his target to $53 (Canadian) from $47 with a “buy” rating. The average on the Street is $48.46.

“With LSPD preparing to report its 2Q21 results on November 5, we believe its story remains compelling as it has just begun to capture the significant opportunity arising from the COVID-19 pandemic: the acceleration by several years of demand from small- and medium-sized businesses for the cloud-based, omnichannel B2C commerce solutions it offers,” said Mr. Palmer.

* In response to its plan to go ahead with mill conversion project in Bear Island, Virginia, Scotia’s Benoit Laprade increased his target for Cascades Inc. (CAS-T, “sector perform”) to $18, matching the current average on the Street, from $16.

“We believe the project will meaningfully improve CAS' containerboard segment profitability,” he said. “The company expects first-quartile positioning on the North American cost curve, stemming from 30 per cent-plus estimated EBITDA margins at current commodity prices (i.e., excluding the recently announced potential US$50 per short ton [st] price increase). The project should have a limited effect on financial leverage, and we expect net debt to EBITDA to remain below 3.0 times throughout the project horizon.”

* In response to third-quarter results that missed his expectations, Mr. Laprade lowered his target for Canfor Pulp Products Inc. (CFX-T, “sector perform”) to $6 from $6.50, falling below the $6.25 consensus.

“While 2H/20 results are negatively impacted by longer-than-expected downtime (80 days; 70,000 lost tonnes of production), incremental investments of $30-million will extend the useful life of recovery boiler #5 at Northwood by 15-20 years (compared to $400-million should a new boiler be required in the next few years),” he said.

* TD’s Aaron MacNeil raised his Precision Drilling Corp. (PD-T) target to $1.60 from $1.50, keeping a “buy” rating. The average is $1.26.

* BMO analyst Stephen MacLeod raised his target for CCL Industries Inc. (CCL.B-T) to $61 from $66 with an “outperform” rating. The average is $57.89.

* Raymond James analyst Farooq Hamed raised his target for Hudbay Minerals Inc. (HBM-T, “outperform”) to $7 from $6.50. The average is $6.91.

* Mr. Hamed also increased his target for Lundin Mining Corp. (LUN-T, “market perform”) to $9 from $8.50, exceeding the $10.25 average.

* Haywood Securities analyst Pierre Vaillancourt initiated coverage of Velocity Minerals Ltd. (VLC-X) with a “buy” rating and 90-cent target. The average is $1.15.

“While we recognize there remains significant work ahead to build a critical resource, we believe there is good potential to develop satellite deposits as part of a broader mine complex in Bulgaria,” he said. “Over the next year, the key driver for the stock will be drill results on Rozino and surrounding projects."

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