Inside the Market’s roundup of some of today’s key analyst actions
Superior Plus Corp.’s (SPB-T) US$170-million deal for South Carolina-based Freeman Gas and Electric Co. Inc. aligns with well with its U.S. tuck-in acquisition strategy, according to iA Capital Markets analyst Elias Foscolos.
However, citing recent share price appreciation, he lowered his rating for its stock to “hold” from a “buy” recommendation on Friday.
“We expect the acquisition will be immediately accretive and the incremental EBITDA will somewhat offset the lost EBITDA from the sale of its SC [Specialty Chemicals] business earlier this year,” he said in a research note. “We expect SPB will continue to pursue strategic tuck-ins in 2021 with only $250-million out of our previously forecasted $400-million.”
“The acquisition follows SPB’s historical acquisition metrics of 7-8 times pre-synergy EV/EBITDA for tuck-in acquisitions. We previously forecasted $400-million worth of acquisitions in 2021 contributing $15-million in EBITDA during the current fiscal year.”
Mr. Foscolos maintained a $15.50 target for Superior shares, which closed Thursday at $14.72. The average target on the Street is $14.88, according to Refinitiv data.
Elsewhere, other analysts making target adjustments include:
* Raymond James’ Steve Hansen to $16.25 from $15.50 with an “outperform” rating.
“Freeman is expected to bolster/densify the company’s existing regional network and offer healthy associated synergies over the next 24 months,” said Mr. Hansen. “Representing Superior’s first major acquisition in 2021 (3 smaller-scale deals: Holden Oil, Miller Propane & Highland Propane) and first major purchase since its recent Specialty Chemicals unit sale, we view this latest deal as attractive strategic move consistent with the firm’s new pure-play Energy Distribution growth agenda.”
* Canaccord Genuity’s John Bereznicki to $15.50 from $15 with a “buy” recommendation.
* TD Securities’ Daryl Young to $16.50 from $15.50 with a “buy” rating.
However, the analyst thinks investor attention to be centred on the company’s outlook commentary on when it expects distributors to replenish inventories as well as its capital allocation plans for the remainder of 2021.
For the quarter, Mr. Khan is projecting adjusted earnings per share of 14 US cents, which is 4 US cents lower than the consensus on the Street but up 8 US cents year-over-year. That increase is fuelled by sales of US$480-million (up 4.6 per cent year-over-year) and lower expenses.
“At Q1 reporting, we expect investor focus to be on: 1) how POS trends in the U.S. Printwear channel evolved through Q1; 2) updates on trends in the retail channel and performance of the company’s private label offerings amidst the current backdrop; 3) commentary on the ramp-up of the company’s manufacturing facilities after the impact of hurricanes in Q4 (inventory levels were down 31 per cent year-over-year as of Q4 2020); 4) balance sheet position (leverage/liquidity) exiting Q1; and, 5) any updates on the capital allocation plans for the remainder of the year,” he said.
Ahead of the release, Mr. Khan raised his 2021 and 2022 EPS estimates to US$1.40 and US$1.99, respectively, from US$1.28 and US$1.87.
“At Q4 2020 reporting, management noted that early Q1 POS in the imprintables channel was down 10-15 per cent year-over-year in both the U.S. and International markets, likely a result of the second wave of lockdowns, as well as the challenging weather across some parts of the U.S.,” he said. “However, looking at trends over the recent months, we are encouraged by the pace of the vaccine roll-out in the U.S., which in our view provides a positive read-through for the pace of economic recovery, and also supports a more constructive outlook for the U.S. imprintables channel. Accordingly, we have revised our 2021 sales and EPS forecasts higher to reflect the improving backdrop in the U.S. and have also revised our 2022 forecasts higher on the expectation of a faster than previously anticipated return to ‘run-rate’ trends in the U.S. (2022 EPS forecast now at $1.99 vs. $1.87 previously). Over the recent quarters, ‘new’ WFH demand from consumers has helped to partially offset the weakness in traditional verticals like Tourism/Events. Looking ahead, we believe that some proportion of this ‘new’ demand will be sustained in a post-pandemic operating environment, resulting in a larger addressable market for Gildan as we exit the pandemic.”
With those changes, Mr. Khan raised his target for Gildan shares by US$2 to US$35, which is 5 US cents below the consensus. It closed at US$33.40 on Thursday.
TD Securities analyst Sean Steuart raised his target prices for forestry, wood and paper stocks in his coverage universe on Friday.
His changes were:
- Canfor Pulp Products Inc. (CFX-T, “hold”) to $11.50 from $11. The average on the Street is $11.70.
- Canfor Corp. (CFP-T, “buy”) to $41 from $36. Average: $38.50.
- Interfor Corp. (IFP-T, “buy”) to $44 from $38. Average: $40.50.
- Western Forest Products Inc. (WEF-T, “buy”) to $2.75 from $2.25. Average: $2.32.
- West Fraser Timber Co. Ltd. (WFG-N, WFG-T, “action list buy”) to US$105 from US$95. Average: US$91.67.
Verano Holdings Corp. (VRNO-CN) secured the “building blocks of [its] Pennsylvania fortress” with the $207-million acquisition of two cultivation/processing and six retail dispensary licenses, according to Echelon Partners analyst Andrew Semple.
“This strategically deepens Verano’s operations in a key, sizable limited license market, while allowing Verano to become vertically integrated,” he said. “[Previously], we specifically called out that a Pennsylvania cultivation/processing license would be an “excellent fit” for Verano’s business, and so we are very pleased to see this announcement.”
Mr. Semple said the deals are likely to prove “highly” accretive for the Chicago-based multi-state cannabis operator.
“These acquisitions provide Verano with one of the largest license portfolios in the state of Pennsylvania,” he added. “he Company will hold 2 cultivation/processing licenses and licensing for 18 dispensaries upon closing of all pending M&A in the state. In a robust limited license market such as Pennsylvania, this sizeable license portfolio allows for Verano to build defensible market share, anchored by some of the best performing stores in the market and backed by a quality brand portfolio and high-quality production operations.
“On the upstream production side, we believe much of the existing capacity from the 62,000 SFT cultivation facility will be earmarked for the Company’s operating dispensaries, allowing Verano to be vertically integrated. We expect the remaining capacity will support the introduction of Verano’s branded products to the PA wholesale market. Growth in production capacity will largely come from the second cultivation/processing facility license that is currently undeveloped. We expect this facility to come online by Q222, or roughly one year from today. The Company has not yet confirmed the potential size of this facility or the capex required for its buildout, though we assume $30-million twelve-month capex budget in our model. We believe Verano is funded for this buildout.”
Seeing further “have attractive and accretive M&A opportunities in its pipeline,” Mr. Semple, keeping a “buy” recommendation, raised his target for Verano shares to $38 from $35. The average on the Street is $39.60.
Verano, which began trading on the Canadian Securities Exchange on Feb. 17, closed at $22 on Thursday.
Though its first-quarter results, released after the bell on Wednesday, fell narrowly below expectations on the Street, a group of equity analysts on the Street raised their target prices for Mullen Group Ltd. (MTL-T).
In response to the release, iA Capital Markets analyst Elias Foscolos cut his 2021 revenue projection, pointing to a slower-than-anticipated recovery in its Specialized & Industrial Services (S&IS) and Logistics & Warehousing (L&W) segments.
At the same time, he emphasized its recent acquisitions are likely to drive “significant” operating income growth and touted the value of its real estate holding.
That led him to increase his target by $1 to $15, keeping a “buy” recommendation. The average target on the Street is $13.75.
“Due to a delayed economic recovery in Canada causing weakness for certain areas of MTL’s business, our revised 2021 estimates project results closer to the low end of MTL’s guidance on an organic basis(pre-2021 acquisitions),” he said. “However, we expect these conditions to improve in H2/21, further boosted by recently announced acquisitions, driving substantial OIBDA growth into 2022. Building a full year of these acquisition sand the associated increase in debt into our valuation result in our increased $15.00 target.”
Elsewhere, RBC Dominion Securities’ Walter Spracklin increased his target to $15 from $13 with an “outperform” rating, while CIBC World Markets’ Kevin Chiang bumped his to $14.75 from $14.25 with an “outperformer” recommendation.
“We maintain our positive outlook on the North American freight economy as the Canadian economy reopens, which is a tailwind for MTL, particularly as it continues to pivot its business towards the consumer,” said Mr. Chiang.
The Okotoks, Alta.-based company closed at $13.20 on Thursday.
In other analyst actions:
* National Bank Financial analyst Gabriel Dechaine upgraded Laurentian Bank of Canada (LB-T) to “sector perform” from “underperform” and increased his target to $40 from $34. The average on the Street is $40.90.
* Ahead of the May 12 release of its results, Credit Suisse analyst Andrew Kuske increased his Emera Inc. (EMA-T) target to $59 from $58, keeping a “neutral” recommendation. The average is currently $58.93.
“For those with large U.S. footprints (like EMA), a few of the cross-border dynamics are in focus given FX trends, potential U.S. tax policy changes and the recent announcements from the Canadian government on interest deductibility in the budget,” he said in a research note on Canadian infrastructure companies. “In addition, decarbonization and renewable ramp-up are significant for EMA – especially in the context of ongoing emissions reduction efforts by both the Canadian and the U.S. governments. Given the long-cycle nature of our coverage universe, we do not place undue emphasis on short-term quarterly results.”
“Emera is positively exposed to Florida and the balance of funding and growth looks to be turning more favourably for the company.”
* TD’s Mario Mendonca increased his Intact Financial Corp. (IFC-T) target to $185 from $175 with a “buy” rating (unchanged). The average is $181.70.
* TD’s David Kwan bumped up his Well Health Technologies Corp. (WELL-T) target to $10.50 from $10 with a “buy” rating. The average is $11.93.
* Scotia Capital analyst Paul Steep hiked his CGI Inc. (GIB.A-T) target to $112 from $106 with a “sector outperform” rating. The average is $111.41.
* After releasing an update on its Heartland Petrochemical Complex, Scotia’s Robert Hope raised his Inter Pipeline Ltd. (IPL-T) target to $18 from $17.50 with a “sector perform” rating, while iA Capital Markets analyst Elias Foscolos bumped up his target to $19 from $18.50 with a “hold” recommendation. The average is $17.58.
“The additional colour released [Thursday] morning on the HPC basically reaffirmed our previous forecasts for the facility,” said Mr. Foscolos. “Contracting levels are coming along as we expected, and the EBITDA guidance provided essentially matched our forecast. Heading into the Q1/21results expected on May 6, we are anticipating very strong EBITDA performance off the back of strong marketing margins.”
* IA Capital Markets analyst Chelsea Stellick trimmed her Carebook Technologies Inc. (CRBK-X) target to $2.25 from $2.50, which is the current consensus, with a “buy” rating, while Canaccord Genuity’s Doug Taylor lowered his target to $2 from $2.50 with a “speculative buy” recommendation.
“Carebook reported Q4 results with revenue in line with our estimates and a wider loss than we had modelled,” said Mr. Taylor. “Our SPECULATIVE BUY rating (unchanged) is based on the company expanding its customer roster, which has been challenging as COVID persists. The recently closed InfoTech acquisition broadens the revenue base and should provide incremental cross-selling opportunities. However, the use of debt financing increases the risk profile and the anticipated dilution tied to the related equity financing (a condition of the debt deal) will impact the return profile once finalized.”
* Seeing his growth thesis intact after in-line fourth-quarter results and seeing the hot housing market boosting its outlook for the first half of the year, Desjardins Securities analyst Gary Ho raised his target for shares of Dominion Lending Centres Inc. (DLCG-X) to $5.25 from $4.75 with a “buy” recommendation (unchanged). The current average is $4.38.
“Our positive thesis is predicated on: (1) robust housing activity bodes well for DLC in the near term; (2) reflagging efforts to add new brokers could bolster DLC growth in 2021; (3) a potential fintech play with Newton/Velocity, a business which is already EBITDA and FCF positive; and (4) the monetization of non-core assets could reduce leverage,” he said.