Inside the Market’s roundup of some of today’s key analyst actions
Equity analysts on the Street applauded Gildan Activewear Inc. (GIL-N, GIL-T) on Friday in the wake of better-than-anticipated third-quarter financial results.
A day earlier, the Montreal-based company reported adjusted earnings per share of 30 US cents, easily exceeding the consensus expectation of 10 US cents. Overall sales dropped 19 per cent year-over-year, however both its activewear segment (down 26 per cent) and underwear (up 21 per cent) topped projections (drops of 27 per cent and 6 per cent, respectively).
Seeing the company “moving in the right direction,” RBC Dominion Securities analyst Sabahat Khan raised his rating for Gildan to “outperform” from “sector perform.”
“Over the recent quarters, we have been encouraged by the cost containment measures, the FCF generation, and the improving POS trends in the Activewear segment,” he said in a research note released before the bell. “Heading into late-2020/early-2021, we think improving POS trends in the imprintables channel, the potential for distributor re-stocking through H1/21 as the demand environment further improves, and the dividend discussion potentially being revisited at some point early next year should all be supportive factors. We were surprised at the muted share price reaction to the stronger-than-expected Q3/20 results and believe that Gildan shares represent a good opportunity at current levels.”
Mr. Khan increased his target for Gildan shares to US$26 from US$18. The average on the Street is $23.78.
Elsewhere, seeing “current levels as an attractive entry point, with almost 30-per-cent estimated upside,” BMO Nesbitt Burns' Stephen MacLeod raised his rating to “outperform” from “market perform” with a US$27 target, rising from US$18.
“Gildan is coming off a Q3 beat, underlying demand fundamentals have improved from April lows, and the stock has lagged (down 28 per cent year-to-date),” he said. "Imprintables demand has recovered more robustly than expected, and retail has been trending positively.
“We believe Gildan is well-positioned to aggressively pursue market share gains and we see margin upside from improved capacity utilization.”
CIBC World Markets analyst Mark Petrie raised his rating for the stock to “outperformer” from “neutral” with a US$28 target, rising from US$18.
“Despite some challenged end-markets, Gildan has executed well on its Back to Basics strategy - simplifying its business, cutting costs, and improving capital efficiency,” said Mr. Petrie. “It has also delivered better revenues through both new customers and aggressive pricing strategies leading to market share gains. Recent performance leaves us more comfortable around downside, while there is significant upside as demand recovers. Either way, we believe GIL is a fundamentally stronger company than it was a year ago. Clearly uncertainty remains, but cash flow is strong, and valuation is compelling.”
Others adjusting their targets included:
* Citi analyst Paul Lejuez to US$24 from US$18 with a “neutral” rating.
“3Q was a big beat on the bottom line and a significant improvement vs 2Q. While activewear sales were in line with consensus, innerwear (hosiery/ underwear) was well above consensus forecasts,” said Citi analyst Paul Lejuez. “The performance this quarter underscores the significant opportunity GIL has to gain shelf space at mass merchants with its private label offerings. Still, innerwear represented just 20 per cent of sales last year, making it tough for it to offset the relative weakness in the core activewear/imprintables business. While business in its core imprintables channel is improving sequentially, it has been driven by promotions, and we expect the segment to be volatile for some time.”
* Desjardins Securities' Chris Li to $33 from $31 with a “buy” rating
“While macro uncertainty will keep the stock volatile near-term, we believe there is longterm value with GIL trading at 12 times pre-COVID-19 EPS (vs 15–16 times average),” he said.
* Scotia Capital’s Patricia Baker to US$25.50 from US$23 with an “outperform” rating.
* National Bank Financial’s Vishal Shreedhar to $33 from $31 with a “sector outperform” rating.
* Canaccord Genuity’s Luke Hannan to US$23 from US$18 with a “hold” rating.
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Several analysts raised their target prices for Shopify Inc. (SHOP-T, SHOP-N) following the release of better-than-anticipated third-quarter results and an in-line outlook on Thursday.
Those making changes included:
- Credit Suisse’s Brad Zelnick to US$1,100 from US$1,050 with a “neutral” rating. The average on the Street is US$1,123.13.
- CIBC’s Todd Coupland to US$1,225 from US$1,175 with a “neutral” rating.
- RBC Dominion Securities’ Mark Mahaney to US$1,290 from US$1,250 with an “outperform” rating.
- Morgan Stanley’s Keith Weiss raised his target to US$1,050 from US$970
Meanwhile, Citi analyst Walter Pritchard said Shopify took “another victory lap” with its “strong” quarter.
He kept a “neutral” rating and US$1,200 target.
“As we suspected in our preview, significant additions in capacity (merchants) to the Shopify platform kept pace through Q3 where Street estimates were again caught flat-footed,” he said. “This, combined with persistence of trends on the consumer side benefitting e-commerce generally have positioned Shopify to capitalize on what is a large and evolving market opportunity. Despite the company’s continued success, we continue to believe that shares are more fully valued at these levels, and giving credit for compounding growth rates for the foreseeable future. Upside to shares from here will likely come from further articulation around monetization levers in MS, particularly fulfillment, and magnitude of contribution to incremental topline over time.”
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Saying he’s “increasingly more confident on the risk-reward opportunity,” CIBC World Markets analyst Mark Jarvi raised Atco Ltd. (ACO-X-T) to “outperformer” from “neutral.”
“The unregulated businesses (S&L, Neltume) have shown more resilient results than expected and we do not believe should be viewed as a drag on valuation,” he said. “ACO.X shares currently trade at a 5.5-per-cent discount to its CU ownership at current prices. With some modest upside potential in CU, plus value from the non-CU assets coupled with a solid, growing dividend, we see ACO.X has an interesting utility value play.”
He maintained a $46 target. The average is $47.14.
Elsewhere, BMO Nesbitt Burns' Ben Pham lowered his target for Atco to $46 from $47 with an “outperform” rating, while TD’s Linda Ezergailis lowered his target to $51 from $53 with a “buy” rating.
“While our positive thesis is taking longer to play out, the stock remains quite discounted (13 times P/E vs. utility peers trading 18-20 times) and the existing assets are still highly regulated and/or contracted providing resiliency to the uncertain commodity price environment,” said Mr. Pham.
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TC Energy Corp. (TRP-T) appears poised to be a “winner” from the U.S. election regardless of the result, according to RBC Dominion Securities analyst Robert Kwan.
“With the upcoming November 3 election, a Trump re-election should give the company a four-year window to complete the financially attractive Keystone XL project (6 times EBITDA cashon-cash build multiple),” he said. “However, if Biden becomes president, we see multiple avenues for upside, including: (1) potential for increased natural gas demand to firm up accelerated renewable power deployment and also drive meaningful GHG emissions reductions from coal-to-gas switching; (2) removing the distraction of KXL; and (3) with KXL out of the picture, we see potential for an attractive move to monetize the Liquids Pipelines assets, which would have numerous benefits.”
Following Thursday’s release of its third-quarter results that largely met his expectations, Mr. Kwan said TC Energy shares now sit at a 15-year low valuation, and sees “potential asymmetric payoff skewed to the upside that could be kick started by multiple possible catalysts” that include both the election and Columbia Gas' request to increase its transportation rates.
“TC Energy intends to pursue a ‘collaborative process to reach a mutually beneficial outcome with [its] customers through settlement negotiations’ that could extend into Q2/21,” he said. “While the company has not provided guidance on the financial impact, management confirmed that it would not be pursuing the rate case at this time unless it were financially material.”
After minor adjustment to his financial projections, Mr. Kwan cut his target for TC Energy shares to $72 from $81 to better reflect the “current market dynamics,” keeping an “outperform” rating. The average is $71.61.
Elsewhere, Industrial Alliance Securities analyst Elias Foscolos lowered his target to $68 from $69 with a “buy” rating.
“We characterize [Thursday’s] Q3/20 results as in line despite being marginally above our projections,” he said. “The company once again reaffirmed its earnings and dividend outlook for 2020 which anticipates an 8-10-per-cent dividend increase next year and 5-7 per cent thereafter.”
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Despite the release of third-quarter financial results on Thursday that narrowly exceeded the Street’s expectations, several equities analyst trimmed their targets for Allied Properties Real Estate Investment Trust (AP.UN-T), seeing muted growth in the near term.
“Allied Properties REIT (Allied) reported results that were slightly ahead of expectations,” said Canaccord Genuity’s Mark Rothschild. “In addition, management presented an extremely bullish tone on the conference call, and believes that its portfolio will come out of 2020 relatively unscathed, both in terms of operating performance as well as value. In our view, there is likely to be some pressure on NAV as transaction volume recovers, although the magnitude is difficult to know at this point. Having said that, and while there is no near-term clear catalyst, we view the current valuation as attractive.”
Keeping a “buy” recommendation, Mr. Rothschild moved his target to $45 from $50. The average target on the Street is $46.09.
Elsewhere, TD’s Jonathan Kelcher cut his target to $45 from $52 with a “buy” recommendation, while CIBC’s Chris Couprie trimmed his target to $43 from $46.50, keeping an “outperformer” rating.
Conversely, Desjardins Securities' Michael Markidis raised his target to $46 from $47 with a “buy” rating.
“Office demand has clearly hit a rough patch; however, AP continues to capture impressive leasing spreads,” he said. “We are very cognizant of the strength of AP’s asset base and internal leasing platform; however, we believe it will be challenging to drive meaningful occupancy improvement over the next several quarters.”
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In other analyst actions:
* Ahead of the release of its quarterly results on Nov. 3, RBC Dominion Securities analyst Drew McReynolds raised his target for Thomson Reuters Corp. (TRI-N, TRI-T) shares to US$85 from US$84 with an “outperform” rating (unchanged). The average on the Street is US$79.29.
“Our focus is on the rate of improvement heading into 2021,” he said. “We believe H2/20 will track to updated guidance provided with Q2/20 results. Given the resilience of the ‘Big 3’ segments, new organic revenue growth opportunities due to COVID-19 and what is likely to be a multi-year period of EBITDA margin expansion driven by positive operating leverage and cost-efficiencies, our focus is now on the rate of improvement heading into 2021.”
* Seeing an attractive valuation but a lack of near-term catalysts, Canaccord Genuity analyst Mark Rotschild trimmed his target for RioCan REIT (REI.UN-T) to $17.50 from $18.25 with a “buy” rating. The average is $20.88.
“While the economy has to a large degree reopened, and most stores in RioCan’s portfolio are paying rent, the unit price remains under significant pressure,” he said. “In our view, investors are assuming a far more draconian scenario than is likely to happen, and the REIT’s valuation is compelling. Rent collections improved from 78.1 per cent of rent in Q2/20 to 90.9 per cent in Q3/20 and should continue to improve. The REIT also recognized a smaller amount of rent abatements and bad debt provisions, which declined from 6.8 per cent of rent in Q2/20 to 5.3 per cent in Q3/20. With a solid liquidity position to cover any temporary shortfalls between cash flow and distributions, management stated there is no immediate need to change the distribution policy however it will also consider other approaches of returning capital to unitholders, including buybacks.”
* After a third-quarter earnings beat, Raymond James analyst Steve Hansen increased his target for Methanex Corp. (MEOH-Q/MX-T) to US$35 from US$32, keeping an “outperform” rating. The average is US$28.
“We believe Methanex’s latest results and recent contract postings provide strong confirmatory support for our constructive view on the stock and broader thesis that methanol prices are still ‘on the mend,’” he said.
CIBC World Markets analyst Jacob Bout increased his target for Methanex to US$29 from US$28 with a “neutral” rating. BMO Nesbitt Burns' Joel Jackson raised his target to US$40 from US$35 with an “outperform” rating.
* Raymond James analyst Brian MacArthur increased his target for Newmont Corp. (NEM-N/NGT-T) to US$88 from US$85, maintaining an “outperform” rating. The average is US$80.06.
“Over the past several years, we believe Newmont has done a good job of restructuring its portfolio and improving its operational excellence, and offers investors exposure to gold through a lower jurisdictional risk, global portfolio that generates solid cash flow and is supported by a strong balance sheet,” he said. “In addition, it is the only S&P-listed gold stock.”
* National Bank Financial analyst Ryan Li raised his target for Goodfood Market Corp. (FOOD-T, “outperform”) to $10.50 from $9. The average is $10.46.
* National Bank’s Zachary Evershed raised his target for Alaris Equity Partners Income Trust (AD.UN-T, “neutral”) to $16.50 from $15, exceeding the consensus of $15.63.
* Scotia Capital analyst Orest Wowkodaw increased his target for First Quantum Minerals Ltd. (FM-T, “sector outperform”) to $17.50 from $17. The average is $17.01.
* Scotia’s Phil Hardie lowered his target for Morneau Shepell Inc. (MSI-T, “sector outperform”) to $35 from $36, which is the current consensus.
* Scotia’s Paul Steep cut his target for Open Text Corp. (OTEX-Q/OTEX-T, “sector outperform”) to US$52, matching the average on the Street, from US$53.
* TD Securities analyst Juan Jarrah increased his target for Crescent Point Energy Corp. (CPG-T, “buy”) to $3.25 from $3. The average is $2.67.
* JP Morgan analyst Phil Gresh lowered its target for Suncor Energy Inc. (SU-T) by a loonie to $19 with a “neutral” rating. The average is $26.75.
* TD’s Linda Ezergailis lowered his target for Canadian Utilities Ltd. (CU-T) to $38 from $40 with a “buy” rating, while BMO’s Ben Pham moved his target to $35 from $36 with a “market perform” rating. The average is $36.81.
“·Q3/20 results were largely in line with expectations, but future growth is anticipated to be lower than expected with a 25-per-cent reduction to 2020 capex,” said Mr. Pham. "Rate base growth of 1 per cent is now expected vs. 3-4 per cent, and is well below the peer group average.
“The stock still offers value (16 times forward P/E vs. peers 18-20 times), but could stay inexpensive until the Alberta business environment turns.”
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David Leeder