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

Pointing to the recent outperformance of its shares, Scotia Capital analyst Konark Gupta lowered his rating for Air Canada (AC-T) to “sector perform” from “sector outperform” on Friday.

“The shares are over 30 per cent year-to-date likely on recovery hopes, outperforming the rest of our coverage by 17 points and TSX by 22 points,” he said. “While the stock could have further upside potential in the long term from full recovery in air travel and strong FCF generation, we note at current levels the market is already largely pricing in our base case projections to 2023 (discounted back) as well as a scenario where EBITDA fully recovers to 2019 levels (not discounted back). Moreover, there could be two new risks facing our estimates in the near to medium term, including rising oil price (may be offset by cargo) and increase in net debt due to potential government loans (may drive ticket refunds) on top of ongoing cash burn. Thus, we see a balanced risk/reward here and would prefer a better entry point ($25 or lower) to mitigate shortterm uncertainties.”

In a research note released before the bell, Mr. Gupta laid out four recovery scenarios for the airline in the wake of the COVID-19 pandemic-related slowdown. Each assumed earnings before interest, taxes, depreciation and amortization will fully cover to 2019 levels, however he reiterated that the timing remains “uncertain.”

“However, cash flows are more difficult to predict during the recovery (uncertainty in net bookings), so we assumed different net debt scenarios (some also reflect conversion of convertible notes),” he said.

“The range of recovery valuation outcomes varies from $27 (conservative) to $46 (aggressive). We think $33.50 is a fair valuation to reflect full EBITDA recovery, assuming a 4.5x multiple (same as pre-pandemic) and no change in current net debt or share count ($31.50, assuming conversion of convertible notes). Thus, we don’t see a compelling risk/reward at current levels. In our downside scenario, we see an $18 valuation. If AC ends up acquiring Transat, our net debt estimates could be negatively impacted (at least in 2021) while the share count could also potentially increase.”

Mr. Gupta increased his target for Air Canada shares to $31 from $29 “on slight multiple expansion (no change in estimates), reflecting further COVID-19 vaccine momentum in Canada.” The average target on the Street is $27.81, according to Refinitiv data.


In response to a 20.7-per-cent jump in its share price on Thursday following the release of better-than-anticipated quarterly results, iA Capital Markets analyst Elias Foscolos downgraded Shawcor Ltd. (SCL-T) to “hold” from “speculative buy,” emphasizing its performance doesn’t “dramatically change” his outlook for the year ahead.

“SCL reported revenue of $326-million, which was ahead of our forecast primarily due to strong results in international Pipeline & Pipe Services (PL&PS), which experienced a ramp-up in the quarter,” he said. “North American ‘book-and-turn’ work and demand for composite pipe products remained suppressed, composite tank demand remained stable, and the Automotive & Industrial (A&I) business experienced a strong rebound that exceeded management’s expectations. The Company delivered pre-CEWS Adj. EBITDA of $40-million, surpassing analyst estimates and prior guidance of $25-30-million. SCL has exceeded cost reduction targets originally set when the pandemic hit early in 2020, and is now targeting run-rate quarterly SG&A of $60-million (previously $70-million).

“SCL ended the quarter with backlog of $453-million. SCL expects backlog to decline early in 2020 as work is executed, but to pick up in the back half of the year driven by the addition of secured projects beyond the 12-month timeframe and expected sanctioning of projects awarded pending FID. These conditional awards currently amount to more than $160-million.”

Mr. Foscolos said Shawcor now sits in a stronger financial position, and the beat helps “significant breathing room on its leverage ratios.”

However, he thinks the company’s commentary “indicates that Q1/21 will see downward pressure for a variety of reasons, and some factors that propelled the Q4/20 beat will likely reverse going forward.”

Accordingly, given the “seismic positive shift in stock price” seen both Thursday and thus far in 2021 “propelled by rising commodity prices and an improving industry outlook,” he lowered his rating with an increased target of $7.50 (up from $6.50). The average is $6.96.


Citi analyst P.J. Juvekar expects slower near-term growth for Ballard Power Systems Inc. (BLDP-Q, BLDP-T) after the release of fourth-quarter release that were “nothing to write home about.”

“We caution that the real growth is back-end loaded by mid-decade,” he added. “In our view, the hydrogen economy is still attractive and government policies are supportive. China is expected to announce demonstration city clusters and FCEV subsidies in short order. Bus orders continue to grow, particularly in Europe, while a 240kW heavy-duty (HD) truck prototype engine with MAHLE is expected by YE21 for customer testing.”

“The 3 key areas BLDP is focused on are: 1) product innovation, 2) product expansion and localization, noting opportunity in China and Europe; and 3) M&A to improve customer adoption and lower costs. The company is not considering greenfield expansion into electrolysis, but could do so with a partner or M&A. The order backlog fell $10-million quarter-over-quarter to $118-million, but the sales pipeline is up 55 per cent in 2020 with conversion to orders anticipated in 2H and 2022.”

Calling it “early innings” for its bus module orders, Mr. Juvekar cut his target for Ballard shares to US$33 from US$42, keeping a “buy” rating. The average is US$33.22.

“We raise our FY21-22 EPS estimates due to finance income, while our out-year EPS estimates are lowered due to a slower sales ramp. We do not expect BLDP to be profitable on the bottom-line before the 2023-24 timeframe,” he said. “Our stock price target is lowered ... due to higher interest rates, lower terminal growth rate, and slower order intake due to COVID-19. We continue to believe that the hydrogen economy is here to stay and Ballard is well-positioned in the emerging fuel cell applications for bus, truck, rail and marine.”

Other analysts adjusting their targets for Ballard shares include:

* Cowen and Co.’s Jeffrey Osborne to US$23.50 from US$18 with a “market perform” rating.

* Simmons Energy’s Pearce Hammond to US$25 from US$31 with a “buy” rating.

* National Bank Financial’s Rupert Merer to US$35 from US$38 with an “outperform” rating.


The $221-million strategic investment in Organigram Holdings Inc. (OGI-T) from British American Tobacco (BTI-N) is a “significant and positive step-up” for the Moncton-based company, according to ATB Capital Markets analyst David Kideckel, pointing to improvements in both its product development capabilities and competitive strengths in the Canadian and international cannabis markets.

“Moreover, we believe that BAT’s investment validates OGI’s management focus on quality and innovation, which is in-line with our investment thesis, and together with OGI’s forward-thinking investment in Hyasynth Biologicals (private, NR), a biosynthetic cannabinoid player, position the Company at the forefront of innovation in the cannabis industry,” he said in a research note titled Swinging For The Fences & Aiming For A Solid BAT-ting Average.

On Thursday, Organigram announced the deal that gives BAT a 19.9-per-cent ownership stake, sending its shares up 40 per cent in Toronto.

“We have increased OGI’s long-term revenue and profitability estimates due to two factors: (1) The collaboration with BAT enhances OGI’s competitive strengths and global reach; (2) Based on our thought piece on biosynthesis, biosynthetic cannabinoids may provide lower-cost inputs,” said Mr. Kidechel. “As such, OGI’s margin outlook may improve due to its investment in Hyasynth.”

Maintaining a “sector perform” rating for Organigram shares, he raised his target to $4.20 from $1.90. The average on the Street is $3.20..

Other equity analysts on the Street increasing their target prices included:

* CIBC World Markets’ John Zamparo to $5 from $4.25 with a “neutral” rating.

“Organigram’s $220-million investment from British American Tobacco (BATS) for a 20-per-cent stake lacks the global distribution and marketing elements that typically accompany strategic deals, but the cash infusion will bolster OGI’s balance sheet, may accelerate products in the vapour and oral products, and should provide optionality on an eventual U.S. THC entry. This deal justifies a re-rating, but [Thursday’s] 40-per-cemt move in the stock limits upside, in our view,” said Mr. Zamparo.

* Raymond James’ Rahul Sarugaser to $6 from $3 with an “outperform” rating.

* Eight Capital’s Graeme Kindler to $3.85 from $2.40 with a “neutral” rating.


Following share price depreciation in 2021, Canaccord Genuity analyst Robert Young now sees the risk-reward proposition for Haivision Systems Inc. (HAI-T) “as balanced again to the upside.”

Accordingly, following the release of better-than-anticipated first-quarter results, he raised his rating for Montreal-based video solutions provider to “buy” from “hold.”

“Haivision kicked off F21 with a strong print ahead of our forecast for both revenue and EBITDA,” said Mr. Young. “Revenue growth was driven by strong product sales in Defense and Broadcast, along with a $1.1-million programmatic defense order being pulled into Q1 from Q2. Gross and EBITDA margins both came in ahead of our numbers, driven by better mix and efficiencies, although operating margins were impacted by a one-time legacy ESOP payment (non-cash). In addition to operating leverage in Q1 providing confidence, in our view, of EBITDA margin expansion, we observed several positives in the quarter. Revenue in seasonally weak Q1 was greater than in seasonally strong Q4, a strong start. Emerging cloud products Hub and Connect are in beta testing and are seeing a positive response from early customers. Importantly, management reiterated its confidence in announcing a material acquisition in F21 given a pipeline of 50 targets and advanced discussions.”

Though he trimmed his 2021 and 2022 financial estimates to reflect lower cloud sales and bring his revenue projections in line with management’s expectations, Mr. Young, currently the lone analyst on the Street covering the stock, maintained a $13.50 target for Haivision shares.

“With shares correcting downward, we believe risk reward is balanced to the upside again, particularly in light of more confidence on the M&A timeline,” he said. “As a reminder, we have not built M&A into our target, preferring to reflect it in our multiple. We continue to use a multiple of 17 times EV/2022E EBITDA to reflect the company’s (1) focus on modern IP infrastructure solutions without the need to support older SDI or baseband products; (2) leading gross margin profile; (3) growing SaaS and software-driven product segments; and (4) premium positioning in the market. As well, Haivision is a mid-size vendor in a highly fragmented market, which we believe places it in a top tier for video streaming.”


Premium Brands Holdings Corp. (PBH-T) enjoyed a “solid end to a challenging year,” according to iA Capital Markets analyst Neil Linsdell.

On Thursday, the Vancouver-based company reported fourth-quarter revenue of $1.056-billion, up 10.1 per cent year-over-year and in line with both Mr. Linsdell’s $1.054-billion forecast and the consensus projectio of $1.055-billion. Adjusted earnings per share rose to 86 cents from 79 cents a year ago, also topping expectations (80 cents and 78 cents, respectively).

It also raised its quarterly dividend by 10 cents to 63.5 cents per share.

“Given the uncertainty surrounding COVID-19, the Company is unsurprisingly still holding off on specific short-term guidance, but is maintaining that both sales and Adj. EBITDA will continue to show year-over-year growth through 2021, and is committed to meeting or exceeding 2023 objectives of $6B in revenue and $600-million in Adj. EBITDA,” said Mr. Linsdell, who sees its “active” acquisition strategy providing a large pipeline of potential revenue.

After raising his financial expectations following the better-than-expected results, Mr. Linsdell hiked his target to $130 from $115. The average is $121.45.

“Despite the uncertainty of how 2021 will continue to unfold, the Company demonstrated significant growth in Q4, and we expect to see solid performance through the remainder of the year and into next year,” he said. “As the Company returns to its pipeline of acquisitions, we could see further transactions leading up to the realization of 2023 goals of $6-billion in revenue and $600-million of Adj. EBITDA.”

Other analysts making target adjustments included:

* CIBC’s John Zamparo to $118 from $108 with a “neutral” rating.

“Margin expansion was the most notable positive surprise in Q4, and we expect total EBITDA growth of over 35 per cent in 2021. The business has been managed well during the pandemic, but we believe valuation reflects this. In our view, the greatest risk to PBH stock in 2021 is Clearwater’s (CLR) performance, while its accounting has the potential to add complexity to an otherwise simple story,” said Mr. Zamparo.

* RBC Dominion Securities’ Sabahat Khan to $113 from $103 with a “sector perform” rating.

* TD Securities’ Derek Lessard to $145 from $125 with a “buy” rating.

* Desjardins Securities’ David Newman to $128 from $124 with a “buy” rating.

* Scotia Capital’s George Doumet to $135 from $128 with a “sector outperform” rating.

* National Bank Financial’s Vishal Shreedhar to $125 from $116 with an “outperform” rating.


Calling it an “e-commerce acquirer with plenty of optionality,” Raymond James analyst Steven Li initiated coverage of Toronto-based Emerge Commerce Ltd. (ECOM-X) with an “outperform” rating and $2.75 target.

“EMERGE Commerce is a diversified fast-growing acquirer and operator of direct-to-consumer (D2C) brands in North America,” he said. “The global e-commerce market is seeing unprecedented growth. But even as e-commerce SMBs benefit from this surge, many find themselves unable to scale (due to a lack of capital). This has led to the emergence of a new group of e-commerce acquirers. Very few are public companies (although that can quickly change). With a seasoned M&A team and the recent upsized $11.9-million private placement, EMERGE looks poised to convert on its $35-million-plus EBITDA M&A pipeline.”


In other analyst actions:

* JP Morgan analyst John Royall upgraded Alimentation Couche-Tard Inc. (ATD.B-T) to “overweight” from “neutral” with a $52 target. The average on the Street is $48.85.

* Though its fourth-quarter results narrowly topped his expectations, Laurentian Bank Securities analyst Jacques Wortman lowered Fortuna Silver Mines Inc. (FVI-T) to “hold” from “buy” with a $10.25 target, up from $10 but below the $11.15 average.

“With the early adoption of IAS 16, FVI will continue to include revenue from gold sales in its financial results during the production ramp-up phase and our estimates previously reflected this approach,” he said. “FVI will provide an update on the status of the ramp-up to commercial production in the coming weeks. At this time, we have elected to maintain our target price multiples ahead of commercial production being declared at Lindero.”

* Eight Capital analyst Phil Skolnick resumed coverage of PrairieSky Royalty Ltd. (PSK-T) with a “buy” rating, rising from a “hold” recommendation previously, and increased his target to $18.50 from $10.40. The average is $13.36.

* TD Securities analyst Lorne Kalmar raised American Hotel Income Properties REIT (HOT.UN-T) to “buy” from “hold” with a US$4 target, up from US$3, while Canaccord Genuity’s Mark Rothschild increased his target for to US$3.25 from US$2.65 with a “buy” rating. The average is US$2.78.

“While the pace of recovery in hotel demand remains highly uncertain, AHIP’s portfolio of limited service hotels should prove far more defensive and resilient than hotels in large coastal markets that cater largely to international and business travellers. We expect fundamentals to improve throughout the second half of 2021; however, the distribution is unlikely to be reinstated until 2022. AHIP has received covenant waivers from its lending syndicate until the end of 2021, which provides greater financial flexibility, but also restricts the REIT from reinstating the distribution this year,” Mr. Rothschild said.

* Citi analyst Daniel Jester raised his Open Text Corp. (OTEX-Q, OTEX-T) target to US$51 from US$50 with a “neutral” rating. The average is US$56.59.

“A reasonable case for modestly higher organic growth over the next 3 years was our key takeaway from OTEX’s analyst day, including a soft guide for 1-2-per-cent organic growth in FY22 (starts July 2021),” he said. “The shift in focus toward more organic growth was incremental, reflecting ongoing investment in go-to-market and the evolution of the business around the 5 key cloud platforms. In our view, the tone on M&A was marginally more cautious (seeing higher multiples even for legacy assets), another factor potentially shifting more of the focus to organic as part of the “total growth” equation. The strategy evolution on growth was well foreshadowed and the uplift appears achievable, especially under the expectation of improved IT spending in FY22/23.”

* Citi’s Ashwin Shirvaikar increased his Nuvei Corp. (NVEI-T) target to US$68 from US$59 with a “neutral” rating. The average is US$72.18.

“The consistent element across Nuvei’s 2H-2020 performance is volume growth,” he said. “We believe the implied forward outlook should support the stock at current levels but also that a combination of sustained follow-through on the profitability metrics and better disclosure is needed to provide a material upside catalyst, especially given the “reopening trade” is not necessarily what drives improving volumes. From a disclosure standpoint, even though the company suggests looking past the revenue yield (take rate) trend, we know that investors rarely do this…more detailed (and importantly, consistent) disclosure on this front will help. Better disclosure on breaking down the future opportunity, including for margin improvement, would also be a positive, in our view.”

* Canaccord Genuity analyst Mark Rothschild raised his target for Invesque Inc. (IVQ.U-T) to $2.50 from $2.25 with a “hold” rating. The average is $2.52.

* CIBC World Markets analyst Stephanie Price cut her target for Docebo Inc. (DCBO-T) to $83 from $98, keeping an “outperformer” rating, while Scotia Capital’s Paul Steep lowered his target to US$57 from US$59 with a “sector perform” recommendation. Canaccord Genuity’s Robert Young cut his target to US$65 from US$72 with a “buy” rating, while TD Securities’ Daniel Chan lowered his target to $75 (Canadian) from $100 also with a “buy” recommendation. The average is $82.79.

“Our thesis on DCBO remains that the long-term opportunity depends largely on the company’s ability to sustain or accelerate its organic growth, as it continues to invest in growing its sales resources to drive growth in North America and Europe over the medium term,” said Mr. Steep. “We continue to see M&A as a potential for driving value as well as management’s ability to maintain the firm as a rule of 40 SaaS company.”

* CIBC’s David Popowich increased his target for Tourmaline Oil Corp. (TOU-T) to $30 from $28 with an “outperformer” recommendation, while Desjardins Securities analyst Justin Bouchard raised his target to $40 from $36 with a “buy” rating. The average is $32.28.

“Tourmaline reported 4Q20 CFPS of $1.44, a touch above the Street at $1.42, and 4Q20 production of 336.3 mboe/d vs consensus of 335.6 mboe/d,” said Mr. Bouchard. “And, as a result of the underlying strength in the business model, coupled with the company’s ample running room, track record of disciplined growth, low cost structure, investment-grade balance sheet, strong FCF profile and compelling ESG, we are increasing our target price.”

* CIBC’s Dean Wilkinson raised his target for WPT Industrial REIT (WIR.U-T) to $17 from $15 with an “outperformer” rating, while Canaccord Genuity’s Mark Rothschild raised his target to $16.75 from $16 with a “buy” recommendation. IA Capital Markets analyst Frédéric Blondeau raised his target to $17.50 from $14.50 with a “buy” rating. The average is $15.93.

* Scotia Capital analyst Phil Hardie raised his target for Morneau Shepell Inc. (MSI-T) by a loonie to $36 with a “sector outperform” rating, while CIBC’s Stephanie Price raised her target to $43 from $38 with an “outperformer” recommendation. TD Securities’ Graham Ryding moved his target to $38, matching the consensus, from $35 with a “buy” rating.

“Morneau’s fourth-quarter earnings demonstrated sustained mid-single-digit organic top-line growth,” said Mr. Hardie. “Investor concerns related to MSI’s ability to attain this level of growth given pandemic lockdown measures that constrained some of its face-to-face services weighed on the stock through much of 2020. While the return to this growth rate in Q3/20 served as a primary catalyst for the stock, we believe this additional data point is likely to add further confidence and support valuation levels.

“Another key development in the quarter is a proposed name change to LifeWorks. The company believes its next stage of expansion is going to require more focus on branding and that the new name will support its growth strategy in the global market for well-being solutions. We believe that the name change speaks to continued international growth aspirations. A decade ago, roughly 6 per cent of revenue was derived outside of Canada, while in 2020, that figure has grown to 40 per cent.”

* Canaccord Genuity analyst John Bereznicki raised his Tidewater Midstream and Infrastructure Ltd. (TWM-T) target to $1.50 from $1.30, maintaining a “buy” rating. The average is $1.27.

* TD Securities analyst Michael Tupholme increased his Bird Construction Inc. (BDT-T) target to $10.50 from $9 with a “buy” rating. The average is $10.86.

* BMO Nesbitt Burns analyst John Gibson raised his CES Energy Solutions Corp. (CEU-T) to $2.50 from $2 with an “outperform” rating. Other analysts raising their targets include: ATB Capital Markets’ Tim Monachello to $2.50 from $2.25 with an “outperform” rating; TD Securities’ Aaron MacNeil to $3 from $2.75 with a “buy” rating and National Bank Financial’s Dan Payne to $2.30 from $2 with a “sector perform” recommendation. The average on the Street is $2.18.

“CEU posted a largely in-line Q4/20 result, highlighted by continued expansion of its U.S. drilling fluids market share in Q4/20 to a new record at 20 per cent, and its activity and market share continue to expand in Q1/21,” said Mr. Monachello. “CEU continues to prove its strategy to the market through 1) continued U.S. drilling fluids market share expansion; 2) margin expansion, which we believe is poised to continue by virtue of operating leverage and excess capacity in core operations; and 3) free cash flow generation, which we believe should benefit from limited capex requirements over the recovery and should position CEU well to return cash to shareholders through repurchases and eventually dividends (absent attractive growth opportunities).”

* National Bank Financial analyst Zachary Evershed trimmed his KP Tissue Inc. (KPT-T) target to $12 from $15 with an “outperform” rating, while Desjardins Securities’ Frederic Tremblay trimmed his target by a loonie to $12.50 with a “hold” recommendation. The average is $12.25.

“4Q20 results were mixed, with a beat on revenue and a miss on adjusted EBITDA,” he said. “In our opinion, although adequate actions are being taken to position the company for long-term success, the near-term environment looks challenging, due in part to a rapid and substantial increase in pulp costs. Meanwhile, 2021 consumer volumes face tough comps following 2020′s COVID-19-related surge in demand.”

* National Bank’s Shane Nagle lowered his Franco-Nevada Corp. (FNV-T) target to $205 from $210, keeping a “sector perform” recommendation. The average is $204.10.

* IA Capital Markets analyst Michael Charlton raised his Crew Energy Inc. (CR-T) target to $1.50 from $1 with a “speculative buy” rating, while ATB Capital Markets’ Patrick O’Rourke increased his target to $1.50 from $1.35 also with a “speculative buy” recommendation and Scotia Capital’s Cameron Bean hiked his target to $1.50 from 75 cents with a “sector outperform” rating.. The average is $1.06.

“Under a planned Q1/21 capital program of $50-53-million the Company anticipates production volumes of 25,500-26,500 boe/d which would mark a nice increase over Q4/20, right as prices are rising. While the plan is ambitious, we look forward to watching the show unfold and believe the Company has the assets to get there, and may be propelled quickly down its path as prices rise and its two-year plan continues to be put into action,” said Mr. Charlton.

* Scotia Capital’s Gavin Wylie raised his Parex Resources Inc. (PXT-T) target to $28 from $26 with a “sector outperform” rating. The average is $30.02.

* Canaccord Genuity analyst Matt Bottomley increased his Ayr Wellness Inc. (AYR.A-CN) target to $70 from $60 with a “speculative buy” rating. The average is $56.

“Although Q4/20 came in just under our forecasts, we were largely encouraged by management’s commentary during the earnings call, the reiteration of previously communicated timelines for expected deal closing, and a 2022 outlook that came in higher than our expectations. As a result, we have increased our forecasted revenue ramp (primarily in AZ and NJ), incrementally increased our margin expectations in Ayr’s core markets, and decreased our overall discount rate by 50 basis points (to a range of 9.5 per cent to 13 per cent) on continued execution,” he said.

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