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

AirBoss of America Corp. (BOS-T) possesses a “deep pipeline of growth opportunities across its divisions,” according to CIBC World Markets analyst Kevin Chiang, who feels its earnings potential hasn’t been properly reflected in the Street’s expectations.

“ADG is benefiting from positive demand trends for protective equipment from the healthcare and defense industries,” he said upon assuming coverage of the Newmarket, Ont.-based company. “As well, BOS is consistently expanding its product line to grow the available market size it competes in as reflected by its recent acquisition of the Blast Gauge System. Within AEP, BOS has made a number of investments to improve productivity, shed low-quality revenue, and look to diversify its end-market exposure away from auto. Lastly, ARS is focused on shifting its revenue mix from black rubber to color/specialty compounds, which yield a higher margin. We would also note that BOS has spent the last few years making the necessary investments to better capture these revenue/earnings opportunities.”

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Excluding M&A possibilities, Mr. Chaing thinks AirBoss has the potential for annual earnings before interest, taxes, depreciation and amortization (EDITDA) of more than $130-million. However, the Street is currently projecting 2022 EBITDA of $87-million, down 15 per cent year-over-year from the expectations for this year.

“For argument’s sake, if we assume BOS hits its $130-million-plus of potential EBITDA excluding M&A and apply a 12 times EV/EBITDA multiple (in line with where its direct comps are trading) against its current net debt, we derive an inferred equity value of $70 per share,” he said.

AirBoss shares closed trading on Thursday at $41.18.

Keeping the firm’s “outperformer” recommendation for AirBoss, he hiked its target to $47 from $42. The average is currently $46.70.

“We arrive at our $47 price target using a 9.0 times EV/EBITDA multiple on our 2022 EBITDA estimate of $101-million,” he said. “This is above where it has historically traded to reflect BOS’ earnings optionality given its deep revenue pipeline, especially with ADG. This is still a discount to where its most direct peers are trading, which is 12 times.”


Enerplus Corp.’s (ERF-T) US$312-million acquisition assets in North Dakota’s Williston Basin from Hess Corp. (HES-N) “ticks key synergistic boxes,” according to ATB Capital Markets analyst Patrick O’Rourke, who views the deal, announced Thursday morning, as “positive and anticipate a positive relative performance.”

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He said the assets, which include 78,700 net acres adjacent to its current core Bakken acreage with about 6,000 barrels of oil equivalent per day of working interest production from Hess, are a “strong fit” with its existing footprint and a add “meaningful” inventory of 110 new tier-one locations relative to the prior 440 existing locations. He also said “prior judicious management of the capital structure allows the deal to be funded through a still conservative net debt position and create per share CF and FCF accretion.”

With the deal, Enerplus also revealed its five-year plan, projecting 3-5-per-cent liquids production growth on a $500-million annual capex program, which Mr. O’Rourke said “produces an impressive FCF forecast of $1.2-1.8-billion between now and 2025 that points to considerable flexibility for future debt repayment, return of capital (dividend growth path?) and further acquisitions.”

Keeping an “outperform” rating for its shares, he raised his target to $9 from $8.50. The average on the Street is $8.58.

Other analysts adjusting their targets include:

* Raymond James’ Chris Cox to $10.25 from $10 with an “outperform” rating.

“With a combined acquisition price of 50-per-cent year-end EV, we believe the value accretion here is evident,” he said. “Additional benefits are likely to be realized due to the increased scale and operational flexibility afforded by these transactions. Both acquisitions look attractive on their own merits, but we see a particularly compelling story when considering the impact of the combined transactions. With the stock still trading at a 0.5 times discount to peers on 2022 estimated DACF [debt-adjusted cash flow], we believe the risks posed by the potential shut-in of the DAPL pipeline are almost certainly being fully discounted into the current valuation, offering investors an attractive risk-reward set-up.”

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* RBC Dominion Securities’ Greg Pardy to $8.50 from $8 with an “outperform” rating.

“In our view, Enerplus’s US$312 million Williston Basin property acquisition is a strategically sound move that lengthens its Bakken development inventory,” he said.

* Scotia Capital’s Jason Bouvier to $7.50 from $5.75 with a “sector outperform” rating.

* National Bank Financial’s Travis Wood to $10 from $9.50 with an “outperform” rating.

* TD Securities’ Aaron Bilkoski to $10 from $9 with a “buy” rating.


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Despite the uncertain retail landscape, Roots Corp. (ROOT-T) is “managing through the pandemic,” according to Canaccord Genuity’s Matthew Lee, who said it “delivered another solid quarter.”

Before the bell on Thursday, it reported fourth-quarter revenue of $99.4-million was ahead of the analyst’s $99.3-million estimate (but below the $108-million consensus forecast). Conversely, EBITDA of $26.1-million fell narrowly below Mr. Lee’s $27.4-million estimate but topped the Street’s projection of $24.6-million.

“Despite revenue being down 22 per cent year-over-year, the company managed to produce FCF of $33-million in the quarter, which helps improve its balance sheet flexibility and highlights Roots’ ability to utilize pandemic-related cost reductions and subsidies to help offset declines,” said Mr. Lee. “Given the significant uncertainty around retail traffic in F21 and the 69 stores shut down as of April, we believe maintaining profitability and cash generation despite revenue declines is significant for the thesis.”

Though its priorities have shifted to its ecommerce business, Mr. Lee does not expect Roots will make significant cuts to its store count.

“Roots’ omnichannel strategy allowed it to deliver continued eCommerce growth in the quarter, with management highlighting that online channels now represent 50 per cent of total revenue,” he said. “While eCommerce remains the key focus, the company noted the importance of its physical locations for consumers, with 60 per cent of those surveyed saying they preferred to try on items in stores and 35 per cent saying they mainly or only shop in-store. As a result, we expect the company will largely maintain its retail network, especially given new rental agreements helping to bolster profitability at store locations.”

However, given the return to temporary, pandemic-driven store closures in Ontario and an “opaque outlook for retail stores in Canada,” Mr. Lee thinks roots will likely require a longer timeframe for revenues to recover to fiscal 2019 levels, which led him to trim his 2021 expectations.

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“With that said, we still expect Q1 to deliver a year-over-year improvement given that Q1/20 closures impacted the entire 113 store network, versus 69 in Q1/21,” he said.

Touting “some recovery in revenue trends and an improving balance sheet,” Mr. Lee raised his target for Roots shares to $3.25 from $2.25 with a “hold” rating. The average is $3.79.

" While Roots’ brand and omnichannel strategy continue to resonate with consumers, we maintain our HOLD rating based on the opaque outlook around COVID-19 on retailers,” he said.

Other analysts making target price changes include:

* Scotia Capital’s Patricia Baker to $4 from $3 with a “sector perform” rating.

“Despite operating against a challenged backdrop which saw Roots stores closed for 35 per cent of Q4 on government-mandated restrictions, the company posted a very strong operating performance in Q4, ending F20 on a welcome high note. Management’s disciplined approach around inventory management and promotions coupled with decisive actions taken last year on shifting to digital and closing U.S. stores drove this solid performance,” she said.

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* TD Securities’ Brian Morrison to $4.50 from $4 with a “buy” rating.

* National Bank Financial’s Vishal Shreedhar to $5 from $3 with a “sector perform” rating.

* BMO Nesbitt Burns’ Stephen MacLeod to $4 from $2.75 with a “market perform” rating.


Raymond James analyst Andrew Bradford raised his WTI price deck to US$58 per barrel for the remainder of 2021 and 2022, leading him to increase his financial expectations for companies in his coverage universe.

“Caution being the better part of valour, we positioned our deck at the low-end of the trailing 2-month range,” he said. “We think this is a reasonable starting point given that WTI’s daily volatility has been 2 times to 3 times higher than normal for much of 1Q21 - and it was already a fairly volatile

commodity to begin with. E&Ps are seeing the same volatility as us and are probably as suspicious of the day-to-day quote. Perhaps even more so since their investors have them under a spotlight, ensuring reinvestment ratios are limited to 70 per cent.”

In a research report released Friday, Mr. Bradford said the Street’s expectations for the remainder of 2021 are “far too light.”

“We find this to especially true of the frackers (TCW, CFW, and STEP) and CEU,” he said. “Objectively, several contributors to TCW, CFW, and STEP’s consensus are implicitly calling for a material structural decline in activity vis-a-vis 1Q21 in Canada. TCW’s 3Q and 4Q estimates, the only Canada pure-play, are 43 per cent and 26 per cent below the 1Q estimate.

“The consensus-forecasted decline in 3Q and 4Q Canadian fracking estimates cannot be chalked-up to seasonality - over the long-run, 3Q and 4Q Canadian fracking revenue is roughly equal to 1Q. The downward trajectory for 3Q and 4Q EBITDA consensus figures implies a decline in fracturing demand in the second half of the year, which would be counter to the move in WTI over the last several weeks and the narrative from the market.”

The analyst lowered his ratings for a pair of stocks:

  • Trican Well Service Ltd. (TCW-T) to “outperform” from “strong buy” with a $2.70 target, up from $2.50. The average on the Street is $2.34.
  • Mullen Group Ltd. (MTL-T) to “market perform” from “outperform” with a $12.50 target (unchanged). Average: $12.94.

He also made these target changes:

  • CES Energy Solutions Corp. (CEU-T, “strong buy”) to $2.15 from $2. Average: $2.40.
  • Questor Technology Inc. (QST-X, “market perform”) to $2.15 from $1.85. Average: $2.47.
  • Ensign Energy Services Inc. (ESI-T, “market perform”) to $1.30 from $1.20. Average: $1.55.
  • Precision Drilling Corp. (PD-T, “strong buy”) to $47 from $40. Average: $37.54.
  • Western Energy Services Corp. (WRG-T, “underperform”) to 40 cents from 35 cents. Average: 24 cents.


Ahead of first-quarter earnings season, Scotia Capital analyst Konark Gupta trimmed his expectations for both Canadian National Railway Co. (CNR-T) and Canadian Pacific Railway Ltd. (CP-T) based on the impact of February weather.

Mr. Gupta said he’s now “slightly more optimistic” on CN, projecting earnings per share of $1.28, up 5 per cent year-over-year and 2 cents above the consensus forecast on the Street. His CP estimate is $4.32, down 2 per cent and 8 cents below the Street.

“Similar to the prior quarter, we expect CNR to lead Class 1s on Q1 EPS and revenue growth (lapped Q1/20 blockades and Q4/19 strike) but its operating ratio (OR) may continue to lag at 65 per cent,” he said. “On the other hand, we expect CP to lag on Q1 top-line growth and potentially show the only y/y OR deterioration in the group (lapped a record Q1 OR). We track Q1 RTMs [revenue ton miles] up 6 per cent year-over-year for CNR and flat for CP with record volumes in January and March (February was CNR’s record but CP’s second-best due to tough comps). Yield (¢/RTM) likely remained negative despite potential pricing tailwind (on capacity tightness) as FX was an incremental headwind in Q1 (tracking worse in Q2) and fuel/mix headwinds continued. ORs should also be negatively impacted by fuel (lag effect) and FX as well as pension and other headwinds, offset by fuel efficiency and productivity gains. In addition, we estimate a 250 basis points OR [operation ratio] headwind for CP from stock-based comp.”

At the same time, pointing to “slightly improved traffic outlook, particularly for grain, forest products, intermodal and autos,” Mr. Gupta increased his full-year expectations for both, leading him to raise his target prices for their shares.

Maintaining a “sector perform” rating for both, he raised his CN target to $145 from $140 (versus a $138.61 consensus on the Street) and CP target to $516 from $510 (versus $522.60).

“Canadian rail traffic reached a record for January and March (February was very close to prior record) and is trending well into Q2 (also lapping COVID-19 comps),” he said. “Pricing environment is also looking better but offset by FX headwind. Against that backdrop, we think CNR’s guidance is looking a bit more conservative, although its premium valuation could already be reflecting upside risk. We remain comfortable with CP’s guidance despite stock-based comp headwind and buyback suspension.”


Hamilton Thorne Ltd. (HTL-T) closed out a “challenging” year with “market share growth and improved liquidity setting the stage for a return to M&A,” said iA Capital Markets analyst Chelsea Stellick following the release of better-than-anticipated fourth-quarter financial results.

“Not only is the global fertility market growing consistently and rapidly, HTL gained market share in 2020 which positions the Company for a reopening earnings bounce in H2/21 as ART clinics return to full capacity and HTL’s increased R&D and sales investments consolidate the Company’s strong market position,” she said. “Growing its share of the fast-growing IVF market through increased direct sales (particularly in less saturated geographies), introduction of new products and services, acquisitions, and cross-selling the expanding offering, will unlock economies of scale to create value by improving margins. As global clinic activity begins to normalize, HTL will execute on this compelling roadmap to deliver revenue growth alongside gradually increasing profitability.”

On Thursday before the bell, the Beverly, Mass.-based company reported revenue of the quarter of US$12.3-million, up 13 per cent year-over-year and ahead of the estimates of both Ms. Stellick (US$12.2-million) and the Street (US$10.7-million). Adjusted EBITDA rose 14 per cent to US$2.5-million, matching the analyst’s view and slightly ahead of the US$2.1-million consensus.

“These results highlight HTL’s bright post-pandemic future with 10-per-cent constant currency organic growth for the quarter, and for 2020 HTL achieved 1-per-cent organic growth despite an extremely challenging year with ART clinics operating below capacity,” said Ms. Stellick.

“As anticipated, in Q4/20 the Consumables business segment continued to show double digit growth and to gain market share. Consumables strength was offset by lower equipment sales in 2020, although Q4 was seasonally strong. Management made it clear that R&D and sales investments were maintained in 2020, including a direct sales force in the UK and development of cell culture media which will ramp slowly but increase U.S. sales meaningfully long-term. ART clinics worldwide are operating at around 90-per-cent capacity, management expects a slow H1/21 with renewed public health measures but a return to rapid growth in H2/21 as the pandemic recedes.”

Expecting Hamilton Thorne to resumed M&A activity in the second half of the year, Ms. Stellick raised her target for its shares to $1.90 from $1.80, keeping a “buy” rating. The average on the Street is $1.94.

“When looking at HTL’s peer group, we note an average 2021 EV/EBITDA multiple of 20.1 times. Currently, HTL is trading at 17.4 times, which we believe is unwarranted given its strong macroeconomic fundamentals supporting long-term organic growth in ART supply. We consider HTL’s positive track record of growth via acquisition to be an indicator for future upside as the Company can continue to grow its bottom line,” she said.

Elsewhere, Acumen Capital’s Jim Byrne moved his target to $2 from $1.60 with a “buy” rating.

“Given the long-term outlook for IVF demand globally, we believe HTL is well positioned to continue their strong organic growth and acquisition strategy over the next several years,” he said. “HTL continues to build its direct sales force and increase its product portfolio to drive organic growth and improved margins into 2021 and beyond.”

Others raising their targets include: Canaccord Genuity’s Tania Gonsalves to $2.10 from $1.85 with a “buy” rating and Colliers’ Kyle Bauser to $1.60 from $1.50 with a “buy” recommendation.


In other analyst actions:

* CIBC World Markets analyst Kevin Chiang increased his Air Canada (AC-T) target to $34 from $28, maintaining an “outperformer” rating. The average is $28.68.

“We see air traffic in Canada poised to experience a faster recovery versus the global average when considering its vaccination timeline, household savings rates, and economic outlook. We see AC as well positioned to benefit from this pent-up demand,” he said.

* Canaccord Genuity analyst Dalton Baretto raised Turquoise Hill Resources Ltd. (TRQ-T) to “hold” from “sell” and increased his target price to $22.50 from $14. The average on the Street is $23.09.

* Red Cloud Securities analyst Taylor Combaluzier initiated coverage of Vancouver-based Trillium Gold Mines Inc. (TGM-X) with a “buy” rating and $3 target.

“In our view, Trillium offers investors the unparalleled opportunity to get significant exposure to the discovery potential of one of the most prolific gold camps in the world. We also believe the stock is poised for a potential re-rating from the forthcoming resource update at Newman Todd,” the analyst said.

* Raymond James analyst Jeremy McCrea raised his target for Freehold Royalties Ltd. (FRU-T) to $11 from $10.50 with an “outperform” rating. The average is $9.81.

“We can’t think of a better set-up than the outlook for Freehold today,” he said. “With CDN par prices at $75 per barrel, activity on FRU’s land base is quickly returning to one of the highest paces FRU has seen in years. Leverage levels are also at company lows, yet the valuation of FRU remains still quite inexpensive to historical periods.”

* RBC Dominion Securities analyst Nelson Ng upgraded Chemtrade Logistics Income Fund (CHE.UN-T) to “outperform” from “sector perform” with a $9 target, up from $8 and above the $8.07 average on the Street.

* Cowen and Co. analyst Vivien Azer cut her Canopy Growth Corp. (WEED-T) target to $44 from $75 with an “outperform” recommendation. The current average is $41.14.

* Jefferies analyst Owen Bennett raised his target for Cronos Group Inc. (CRON-T) to $5.90 from $5, reiterating an “underperform” rating. The average is $11.12.

* National Bank Financial analyst Michael Parkin upgraded Equinox Gold Corp. (EQX-T) to “outperform” from “sector perform” with a $15.50 target, down from $16. The average on the Street is $18.80.

* National Bank’s Zachary Evershed raised his Richelieu Hardware Ltd. (RCH-T) target to $43.50 from $37.50 with a “sector perform” recommendation. The average is $42.25.

* National Bank Financial’s Michael Robertson raised his Mullen Group Ltd. (MTL-T) to $14.50 from $13.75 with an “outperform” rating. The average is $12.94.

* BMO Nesbitt Burns analyst Tom MacKinnon raised his IGM Financial Inc. (IGM-T) target to $41 from $38, reaffirming a “market perform” recommendation. The current average on the Street is $40.25.

* BMO’s Ryan Thompson increased his target for Endeavour Silver Corp. (EDR-T) to $6.25 from $6 with a “market perform” rating. The average is $7.51.

* Mr. Thompson also raised his Torex Gold Resources Inc. (TXG-T) target to $30 from $29 with an “outperform” rating. The average is $31.31.

* TD Securities analyst Cherilyn Radbourne hiked her Methanex Corp. (MEOH-Q, MX-T) target to US$50 from US$46, keeping a “buy” rating. The average is $43.25.

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