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

RBC Dominion Securities analyst Paul Quinn remains “cautious” on North American pulp and paper stocks heading into 2021, given their current valuations and seeing the risk-reward proposition for investors as “mostly balanced.”

In a research report released Friday, he emphasized that the downside risk appears “underpriced.”

“Packaging demand surged to close out the year, resulting in some of the strongest market conditions we have ever seen; however, we think that there is still some risk that this demand creation will prove only temporary,” Mr. Quinn said. “Even pulp & paper stocks have run up ahead of an expected demand rebound as economies re-open in 2021, but in our view, market prices largely reflect the balance of probable outcomes.”

He pointed to five themes to watch in the new year: “1) Pulp market improvements should only be incremental; 2) Containerboard demand likely to be strong as long as lockdowns last; 3) New containerboard capacity will reduce pricing power; 4) Uncoated freesheet demand should be stronger in 2021; and, 5) Recycled packaging solutions set to experience continued tailwinds.”

Mr. Quinn called Cascades Inc. (CAS-T) his “Top Pulp & Paper Idea for 2021” in Canada, raising his rating Kingsey Falls, Que.-based company to “outperform” from “sector perform.”

“We like the company’s exposure to recycled containerboard and tissue,” he said. “In addition, Cascades trades at a substantial discount to its US packaging peers, which has increased to one of the widest margins over the last 5 years.”

He raised his target for its shares to $18 from $17. The average on the Street is $18.17.

After increasing his 2021 and 2022 pulp and containerboard price forecasts, Mr. Quinn also raised his targets for these stocks:

  • Canfor Pulp Products Inc. (CFX-T, “sector perform”) to $8 from $6. Average: $7.10.
  • Domtar Corp. (UFS-N/UFS-T, “outperform”) to US$30 from US$27. Average: US$34.61.
  • International Paper Co. (IP-N, “sector perform”) to US$48 from US$42. Average: US$51.55.
  • Mercer International Inc. (MERC-Q, “sector perform”) to US$11 from US$8. Average: US$10.70.
  • Rayonier Advanced Materials Inc. (RYAM-N, “outperform”) to US$10 from US$5.50. Average: US$5.07.
  • Resolute Forest Products Inc. (RFP-N/RFP-T, “outperform”) to US$9.50 from US$7.50. Average: US$6.75.
  • WestRock Co. (WRK-N, “sector perform”) to US$46 from US$40. Average: US$47.62.

Conversely, he trimmed his target for KP Tissue Inc. (KPT-T, “sector perform”) to $12 from $13 to reflect “weaker tissue markets than the record levels seen in 2020.” The average is $13.17.


Citing “continuing near-term headwinds related to its International banking segment, Credit Suisse analyst Mike Rizvanovic downgraded Bank of Nova Scotia (BNS-T) on Friday, seeing a “less compelling relative valuation following its share price outperformance vs. large-cap Canadian bank peers through Q4-F20 earnings season.”

“Since the end of BNS’s FQ4, 2021 EPS [earnings per share] consensus has increased only modestly (2-3 per cent) for publicly-traded banks in Mexico, Peru, and Chile, while declining 7 per cent for banks in Colombia,” he said. “Key macroeconomic variables for 2021 have not moved much over that same period with mixed results across the 4 countries. The lack of evidence for a stronger recovery, coupled with the underwhelming results reported by BNS’s Int’l segment in Q4, leads us to believe that management’s guidance for a full earnings recovery to $500-million per quarter by Q4-F2021 is too optimistic.”

“Access to COVID-19 vaccines (confirmed and potential doses) appears to be a major issue for Peru, Colombia, and Mexico, where vaccine procurement is significantly lower than in Canada or the U.S. Unless that dynamic changes, we see elevated risk that the COVID-19 pandemic could remain an economic drag for longer in the Pacific Alliance countries.”

Moving the stock to “underperform” from “neutral,” Mr. Rizvanovic lowered his target to $64 from $66. The average target on the Street is $70.68.

“While we have not changed our EPS estimates for BNS at this time, we do see more relative near-term risk to the bank’s earnings,” he said. “As such, our target price declines modestly ... as we use a lower multiple to value BNS on our F2022 EPS estimates (the 9.5-times multiple that we apply represents a 9-per-cent discount to what we use for the peer group).”


Canadian Solar Inc. (CSIQ-Q) possesses “multiple growth angles with a strong solar market,” said Citi analyst J.B. Lowe.

In a research report released Friday, he initiated coverage of the Guelph, Ont.-based company with a “buy” recommendation, calling it a “leading panel maker with upside from energy storage and project development.”

“CSIQ shares were up over 130 per cent in 2020, as a supportive macro outlook for solar installation growth was compounded by investor rotation into the energy transition theme,” said Mr. Lowe. “We think the stock has more room to run given 1) continued macro tailwinds support module capacity expansion and vertical integration; 2) a growing and stabilizing project development business should help improve the valuation multiple; and 3) upside from energy storage installations.”

He thinks Canadian Solar can benefit from its early mover status in the development of utility-scale energy storage projects, calling it an “underappreciated growth avenue.”

“CSIQ has upside potential from the growing energy storage market. The largest opportunity lies in project development in geographies where solar penetration is highest and CSIQ can add a storage component to its established solar system capabilities,” he said. “CSIQ has a backlog of 1.2 GWh across both new and retrofit storage projects, which can add a stream of profitable growth given the limited incremental cost required to grow the business.”

With his financial forecasts for 2021 and 2022 sitting well above the consensus, Mr. Lowe set a Street-high target of US$71. The average on the Street is US$47.43.

Concurrently, Mr. Lowe initiated coverage of First Solar Inc. (FSLR-Q) with a “neutral” recommendation and US$106 target, expressing concern over its valuation and margin headwinds. The average is US$85.28.

“We are also initiating a pair trade with our other initiation published today: overweight CSIQ and underweight FSLR,” he said. “We see more upside in CSIQ as the stock has multiple growth avenues including module capacity expansion, project development acceleration and energy storage attachment. We see more risks to FSLR given its exposure to the potential expiry Section 201 tariffs in 2022. Risks to the pair trade include 1) FSLR benefits from Section 201 tariff extension; 2) CSIQ’s growth initiatives are unsuccessful and/or margin dilutive.”


Canadian auto parts suppliers are “outperforming the industry recovery,” according to RBC Dominion Securities analyst Steve Arthur, who thinks valuations remain “attractive.”

In a research report previewing fourth-quarter earnings season in the sector, he projects global auto volumes to be “moderately softer,” however he expects a “gradual” recovery to continue through 021.

“Q4 auto production was down slightly year-over-year in North America and Europe (down 0.8 per cent and down 0.3 per cent, respectively),” said Mr. Arthur. “We forecast a solid recovery in 2021 from COVID-impacted 2020 levels (NA production up 23 per cent year-over-year, EU up 13 per cent), though still 2 per cent and 12 per cent below 2019, respectively.”

“Our focus remains: 1) Regional production outlook for 2021; 2) efficiency initiatives and margin profiles; 3) status of plant capacity and health/safety – some near-term caution is warranted with rising COVID cases, risk of lockdowns/disruptions and slower vaccine deployment in some regions; 3) EV program wins and exposure to new mobility technologies; and 4) capital allocation priorities.”

Mr. Arthur raised his outlook for the three companies in his coverage universe for 2021 and beyond, leading to increased target prices.

His changes were:

  • * Magna International Inc. (MGA-N, MG-T) to US$80 from US$70 with an “outperform” rating. The average on the Street is US$70.97..
  • * Linamar Corp. (LNR-T) to $70 from $60 with a “sector perform” rating. Average: $66.67.
  • * Martinrea International Inc. (MRE-T) to $21 from $19 with an “outperform” rating. Average: $19.56.

“Following a year of discounted valuation vs. peers, MGA and LNR have closed the gap in recent weeks, with MGA now trading at a warranted premium in our view vs. the group,” he said. “Despite solid operating performance through the shutdown and early stages of the recovery, MRE still trades at an unjustified 2 times discount to the global suppliers.”


Redishred Capital Corp. (KUT-X) has “solid business fundamentals with strong profitable growth,” according to Echelon Capital analyst Amr Ezzat, calling it a “catalyst rich story” and emphasizing its “low-risk, fully-funded, roll-up strategy with sizeable M&A pipeline.”

He initiated coverage of the Mississauga-based document destruction company with a “buy” rating.

“We see the share price weakness in 2020 (down 31 per cent in the last year) as an opportunity to accumulate a position in a solid and profitable operation with significant room for growth through consolidation and organic opportunities,” said Mr. Ezzat. “We attribute the recent underperformance to lower paper prices impacting the Company’s recycling business (10.4 per cent of revenues), and the ongoing pandemic impacting operations, but with demand for shredding stabilizing in key markets and the stock yet to recover, we believe Redishred presents attractive risk-reward characteristics at current levels. We urge investors to shrug off the short-term weakness in favour of the long-term business fundamentals.”

“We expect a favourable regulatory environment to provide secular tailwinds for the foreseeable future driving healthy organic growth. As well, with many of the Company’s eighteen franchisees up for renewal in the next three years, we expect management to go cherry picking and deploy capital into acquiring some of the profitable operations. Namely, we expect the number of corporate locations to increase from the current 12 to 19 locations by year-end 2023, driving an exceptional sales CAGR [compound annual growth rate] of 20.4 per cent through 2023.”

He set a target price of $1.10 per share. The average is 87 cents.


RBC Dominion Securities added Pembina Pipeline Corp. (PPL-T) to its “Global Energy Best Ideas” list for January on Friday.

Conversely, TC Energy Corp. (TRP-T) was removed.

Analyst Robert Kwan said Pembina now has an “attractive risk-reward profile with a big focus on risk mitigation.”

“Although other WCSB-focused midstream peers may have greater upside potential in a market recovery, we believe that the market is also very focused on risk mitigation/downside protection. On that front, we think that Pembina gets a lot of credit for being well-ahead of its peers with respect to taking swift and decisive action to protect the balance sheet and dividend. Specifically, Pembina decided to materially cut its growth capex (i.e., the ‘nice to do’ projects) and make it clear to the market that it is willing to make the hard decisions to protect the dividend. With the macro environment slowly improving, Pembina remains focused on the strategic projects with a conservative funding scenario.”

Mr. Kwan has an “outperform” rating and $40 target for Pembina shares. The average is $37.82.

On the removal of TC Energy, Mr. Kwan said: “Although we think its ‘utility-like’ business and self-funded capital plan should result in its being the defensive pipeline stock of choice for investors globally, we are tilting more offensively, and with that, we see better opportunities in other stocks in our coverage universe.”

Other Canadian stocks on the list are Canadian Natural Resources Inc. (CNQ-T), Suncor Energy Inc. (SU-T), Tourmaline Oil Corp. (TOU-T) and Freehold Royalties Ltd. (FRU-T).


TD Securities analyst Michael Aelst downgraded a pair of retailers on Friday.

He lowered Empire Company Ltd. (EMP.A-T) to “hold” from “buy” on Friday with a $39 target, falling from $45 previously. The average on the Street is $43.

Mr. Aelst also lowered Alimentation Couche-Tard Inc. (ATD.B-T) to “hold” from “buy” with a $49 target, down from $53 and below the $53.51 average.

Concurrently, he made the following target price changes:

  • Loblaw Companies Ltd. (L-T, “hold”) to $70 from $78. Average: $79.45.
  • Metro Inc. (MRU-T, “hold”) to $60 from $62. Average: $63.27.
  • North West Company Inc. (NWC-T, “hold”) to $36 from $38. Average: $37.
  • Parkland Corp. (PKI-T, “buy”) to $50 from $46. Average: $48.23.


In response to recent share price appreciation, National Bank Financial analyst Maxim Sytchev upgraded Ritchie Bros. Auctioneers Inc. (RBA-N, RBA-T) to “sector perform” from “underperform” with a US$68.50 target, up from US$65. The average is US$76.79.

In a research report examining 2021 macro themes for Canadian industrial products companies, Mr. Sytchev said: “First the negatives … rates are low (which in part drove multiple expansions) but sentiment could shift swiftly. Commodity momentum sustainability is in question once supply constraints fade. State & local funding prospects in the U.S. remain unclear given a polarized government. That said, we view Pete Buttigieg’s appointment as transportation czar as a positive for infra-exposed names. Geopolitical risks remain as the United States and China continue to grapple with a deteriorating bilateral relationship (the latter’s growth is an attributable factor for the commodity strength). Then the positives … healthy balance sheets afford M&A and NCIB optionality; strong backlogs underpin near-term revenue generation. Engineers have the ability to right-size office space for additional efficiencies while enjoying the ESG tailwinds.”

He made these target price changes:

  • SNC Lavalin Group Inc. (SNC-T, “outperform”) to $34.50 from $34. Average: $32.27.
  • Stantec Inc. (STN-T, “outperform”) to $50.50 from $47. Average: $46.27.
  • Aecon Group Inc. (ARE-T, “outperform”) to $21 from $18. Average: $19.63.
  • IBI Group Inc. (IBG-T, “outperform”) to $12 from $9. Average: $9.43.
  • Bird Construction Inc. (BDT-T, “outperform”) to $11 from $10. Average: $9.92.
  • North American Construction Group Ltd. (NOA-T, “outperform”) to $18 from $17. Average: $14.80.
  • Finning International Inc. (FTT-T, “outperform”) to $35 from $26. Average: $29.13.
  • AutoCanada Inc. (ACQ-T, “sector perform”) to $27 from $26. Average: $30.76.
  • Stelco Holdings Inc. (STLC-T, “sector perform”) to $26.50 from $16. Average: $22.40.
  • Stella-Jones Inc. (SJ-T, “sector perform”) to $47.50 from $42. Average: $51.88.

“Large-cap top picks are STN (valuation gap vs. ESG-levered peers) and FTT (normalizing execution can point to next cyclical EPS peak); while TIH remains a must-own name in the industrial sphere,” he said. “For small caps, we like ATA, ARE and IBG.”


InPlay Oil Corp. (IPO-T) is “positioned for success (and valuation bump) in 2021,” said Canaccord Genuity analyst Anthony Petrucci, who raised his rating for its shares to “speculative buy” from “hold.”

“In 2021, IPO is forecast to grow production to above pre-COVID levels, while spending well within cash flow at current oil prices,” he said.

“With a return to an active drilling program, we expect IPO will be able to replenish its reserve base and maintain its borrowing base with its syndicate of lenders.

Seeing its liquidity position “significantly enhanced,” Mr. Petrucci set a a 50-cent target, up from 30 cents and above the 38-cent consensus.

“The stock is trading at just 2.5 times 2021 estimated EV/DACF, which is well below peers at 3.8 times,” he said.


In other analyst actions:

* Stephens analyst James Rutherford upgraded Restaurant Brands International Inc. (QSR-T, QSR-N) to “overweight” from “equal-weight” with a US$73 target, rising from US$55. The average is US$65.37.

* TD Securities’ Derek Lessard upgraded Cineplex Inc. (CGX-T) to “buy” from “hold” with a $12 target, up from $8 and above the $8.50 average.

* Mr. Lessard hiked his target for MTY Food Group Inc. (MTY-T) to $56 from $45 with a “hold” rating. The average is $50.71.

* TD Securities analyst John Mould lowered TransAlta Renewables Inc. (RNW-T) to “hold” from “buy” with a $24 target, up from $18.50 and exceeding the $18.33 average.

* National Bank’s Cameron Doerksen raised his target for TFI International Inc. (TFII-T) to $85 from $77, keeping an “outperform” rating. The average is $77.74.

* CIBC World Markets analyst Cosmos Chiu raised his target for Endeavour Silver Corp. (EDR-T) to $7.75 from $7, reiterating a “neutral” rating. The average is $6.71.

* CIBC’s Bryce Adams increased his target for Copper Mountain Mining Corp. (CMMC-T) to $2.75 from $2.40 with an “outperformer” rating, while TD Securities’ Craig Hutchison raised his target to $2.75 from $2.25 with a “buy” recommendation. The average is $2.21.

* Scotia Capital analyst Phil Hardie raised his target for Alaris Equity Partners Income Trust (AD.UN-T) by a loonie to $17 with a “sector perform” rating, while CIBC’s Scott Fromson increased his target to $20 from $19 with an “outperformer” recommendation. The average is $17.63.

* Scotia’s Jeff Fan increased his target for Corus Entertainment Inc. (CJR.B-T) to $6 from $5, maintaining a “sector outperform” rating. The average is $5.34.

* Scotia’s Ben Isaacson hiked his target for Methanex Corp. (MEOH-Q, MX-T) to US$49 from US$42 with a “sector perform” rating. The average is US$46.

* Mr. Isaacson also raised his target for Nutrien Ltd. (NTR-N, NTR-T) to US$60 from US$54 with a “sector outperform” rating. The average is US$51.63.

* Scotia’s Michael Doumet raised his target for shares of Russel Metals Inc. (RUS-T) to $26 from $22, exceeding the $21.07 consensus. He kept a “sector outperform” rating.

* Raymond James analyst David Quezada raised his target for Greenlane Renewables Inc. (GRN-X) to $3 from $2.25, keeping a “strong buy” rating. The average on the Street is $2.18.

“Our bullish stance on GRN is a function of robust expected industry growth in RNG and a continuation of the momentum seen in 2020,” he said. “We see numerous large project wins providing a source of catalysts, which, combined with recent multiple expansion in the clean tech peer group, supports our increased price target.”

* Raymond James’ Steven Li hiked his target for Mogo Inc. (MOGO-T) to $7.50 from $4.40 with an “outperform” recommendation. The average is $5.63.

* Colliers Securities initiated coverage of Enthusiast Gaming Holdings Inc. (EGLX-T) with a “buy” rating and $6.50 target. The average on the Street is $4.75.

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