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

Though it reported “strong” first-quarter results that beat the Street alongside a raise its fiscal 2022 finance guidance, shares of BRP Inc. (DOO-T) fell by over 4.5 per cent on Thursday.

Pointing to a “significant disconnect” between the recreational vehicle manufacturer’s outlook and investors’ perceptions, Stifel analyst Martin Landry now sees an “appealing buying opportunity,” leading him to upgrade his rating for its shares to “buy” from “hold.”

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“BRP’s shares are down 17 per cent in the last month as investors are concerned with the impact of the economy reopening on demand for powersports products,” he said. “BRP’s shares trade at 10.8-times forward earnings, near its historical valuation floor of 10 times which limits downside risks, especially with BRP having its lowest debt leverage since being publicly traded. We see potential upside to our FY23 forecasts from the launch of an affordable line of pontoons and potential share buybacks.”

In a research report released Friday before the bell, Mr. Landry pointed to three factors in justifying his rating change:

1. An increased confidence in BRP’s 2023 outlook based on management’s comments and “the evolution of the inventory at dealerships.” That led him to increase his 2023 forecasts by 9 per cent, citing revenue gains from inventory replenishment, abating supply chain and logistics headwinds, capacity expansion and the introduction of the entry-level Manitou pontoon.

2. A “more compelling” valuation, noting: “Looking at DOO’s historical trading pattern, shares have often found strong support below 11 times forward earnings and have rarely traded at these levels for long periods of time. Hence, we see limited downside risks at current valuation levels and good potential for valuation to expand as investors get more confident in the company’s outlook.”

3. Its “strongest balance sheet since going public.” He added: “BRP’s balance sheet is very solid with net debt/ TTM EBITDA ratio at 1 times, the lowest level since the company has gone public. This provides the company with significant flexibility to return capital to shareholders while making investments that were planned for this year. We expect the company will generate $300-million in FCF for the remainder of this year, which when added to its $700-million cash balance, provides the company with significant flexibility. Although BRP has already repurchased the allowable 10 per cent of its float under its NCIB, a Dutch auction process, similar to what the company did in 2017 and 2019, could be possible.”

After raising his 2022 and 2023 earnings expectations, Mr. Landry hiked his target for BRP shares to $120 from $112. The current average target is $113.83, according to Refinitiv data.

Elsewhere, CIBC World Markets’ Mark Petrie trimmed his target for BRP shares to $108 from $117 with a “neutral” rating.

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“BRP delivered blowout Q1 results reflecting the record consumer demand for recreational vehicles and boosted by favourable product mix,” said Mr. Petrie. “Shares were weak on supply chain constraining near-term momentum and consistent with the market trend of not fully rewarding beats in Discretionary. We view guidance as credible and $1-billion-plus of inventory re-stocking provides a back-stop to F2023. Valuation is challenging but given the uncertain outlook for retail demand we moderate our multiple again on elevated earnings.”


While he thinks Saputo Inc.’s (SAP-T) strategic plan offers the potential for “attractive” organic EBITDA growth, Desjardins Securities analyst Chris Li warns investors that patience will be necessary.

“While investors will likely take a wait-and-see approach in the near term, we expect improving quarterly results to be a catalyst,” he said in a research note.

On Thursday, shares of the Montreal-based company fell 6.5 per cent on the release of weaker-than-anticipated fourth-quarter results and the strategic plan, which Mr. Li noted projects “solid” long-term organic EBITDA growth (with a four-year compound annual growth rate of 9.6 per cent) “but was limited on numerical details.”

For its final quarter of fiscal 2021, Saputo reported adjusted earnings per share of 25 cents, missing both Mr. Li’s 38-cent estimate and the consensus projection on the Street of 39 cents.

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“The miss was driven by lower-than-expected revenue and EBITDA for all markets except for Canada. EBITDA margin for the U.S., International and European segments were below our expectations,” the analyst said. “While the result was weaker than expected, key positives from the quarter include: (1) global supply and demand remain in balance; (2) U.S. foodservice (50 per cent of the business) should improve as vaccination levels increase; (3) dairy commodity volatility is expected to moderate vs FY21; (4) the export market is beginning to recover; and (5) retail segment sales should remain above pre-COVID-19 levels. The positive factors will be offset by higher input costs (transportation, freight constraints, labour shortages, etc), but SAP’s pricing initiatives should help to moderate the negative inflationary impacts.”

The company’s target of $2.125-billion by 2025 was slightly ahead of Mr. Li’s estimates, while a capital expenditure budget of $2.3-billion was in-line with his expectations.

“While SAP may benefit from reopening in the near term, most of the growth is expected to be generated in the second half of the four-year plan,” the analyst said. “The plan is focused on five key pillars, with a focus in the US market: (1) strengthen the core business; (2) accelerate product innovation; (3) increase the value of the ingredients portfolio; (4) optimize and enhance operations; and (5) create enablers to fuel investments. The plan will require capex of $2.3-billion, which is $550-million higher than the typical amount over the last four years. Capex includes both growth (innovation, capacity, improvement, automation, etc) and maintenance spending (replacement of equipment, building, maintenance, ERP, etc). Heavy investment is expected within the first half of the plan before levelling off in the second half. In FY22, SAP expects capex of $637-million.”

Citing near-term costs pressures and upfront investors, Mr. Li reduced his earnings and revenue expectations through fiscal 2023, leading him to trim his target for Saputo shares by $1 to $44 with a “buy” rating (unchanged). The average target on the Street is $42.63, according to Refinitiv data.

Other analysts making target changes include:

* Scotia Capital’s Patricia Baker to $45 from $44 with a “sector outperform” rating.

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“While SAP, of course, has developed many multi-year strategies over the decades, it is the first time the Company has chosen to share the details of its strategic agenda with investors,” said Ms. Baker. “There does seem to be a clear recognition on the part of management that investors not only want more, but they deserve more. Sharing specific details of the strategic agenda only serves to make management more accountable, and this can only be a good thing. There is no doubt from listening to the presentation of the plan that it is the result of an extensive effort across the business lines. There is perhaps some element of operating in and responding to challenges of the COVID pandemic that has spurred SAP to think differently and perhaps more aggressively about its business goals. We believe SAP, like many other companies, learned a lot about themselves amidst this pandemic and learned how much more the teams are capable of. In the past, any discussion around SAP seemed to start and finish with M&A opportunities. The reveal of SAP’s Bigger, Better, Stronger strategic agenda refreshingly was all about organic growth and will see SAP leverage its existing extensive asset base to drive growth, improve productivity, and leverage existing strengths within its product portfolio to access higher growth in the cheese export market, margin-up in the Ingredients segment, exploit plant-based opportunities, and drive further growth in the retail channel.”

* CIBC World Markets’ Mark Petrie to $45 from $43 with an “outperformer” rating.

“The strategic plan was short on targets beyond the F2025 EBITDA goal of $2.125-billion, but we believe the framework provides greater visibility for priorities for the medium-term, with an emphasis on efficiency. We see upside to the company’s EBITDA target and our estimates as commodity markets normalize and consumer demand recovers,” said Mr. Petrie.

* National Bank Financial’s Vishal Shreedhar to $41 from $40 with a “sector perform” rating.


After “solid” first-quarter results that displayed “broad based” strength, BTIG analyst Camilo Lyon thinks increases to Lululemon Athletica Inc.’s (LULU-Q) fiscal 2022 guidance remains “conservative.”

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“While we expect COVID-19 to materially impact the retail industry, we believe LULU is well-positioned to weather the current crisis from both a liquidity perspective and a brand perspective,” he said. “We believe LULU is among the few companies that entered the current environment from a position of strength and as such, will exit it stronger. In addition, we believe LULU is a beneficiary of consumers continuing to spend on at-home exercise/workout-related activities in the current COVID-19 environment.”

After the bell on Thursday, Lululemon reported earnings per share of US$1.16, exceeding both Mr. Lyon’s 88-US-cent forecast and the 91-US-cent estimate the Street. The company projected second-quarter EPS of US$1.10-$1.15, topping the consensus expectation of US$1.01.

“With respect to FQ1, the beat was driven by strength up and down the P&L with revenue growth of 88 per cent (vs. our 69-per-cent estimate), gross margin expansion of 581 basis points (vs. our 341 bps estimate), and SG&A leverage of 560bps (vs. our 523 bps estimate) all contributing to the beat,” the analyst said.

“Specifically, and as we highlighted in our preview, LULU posted another quarter of consistently solid results with both stores (store revenue up 106 per cent) and e-commerce (direct-to-consumer revenue up 55 per cent) beating expectations. In addition, FQ1 results were consistent across both geographies (North American revenue up 82 per cent, international revenue up 125 per cent) and product categories (women’s revenue up 77 per cent, men’s revenue up 112 per cent). We were particularly pleased to see the men’s business show signs of renewed traction which should only accelerate as its OTM (“on the move”) product is resonating well with men as more corporate offices reopen and social gatherings resume.”

After increasing his EPS projections for 2021 and 2022, Mr. Lyon raised his target for Lululemon shares to US$440 from US$434, keeping a “buy” rating. The average on the Street is US$386.57.

“We believe LULU’s 2023 CAGR targets (low-teens revenue growth with higher EPS growth) at its investor day remain achievable as well as its goals laid out in its 5-year plan, calling for the company to double sales in men’s and online, quadruple international sales, and continue double-digit growth in women’s and in North America,” he said. “The company continues to introduce innovative products in its legacy categories as well as expand into new product offerings, which should allow LULU to continue on a path of growth post-pandemic. In addition, we believe LULU’s international expansion efforts, particularly in China, will continue to enhance profitability.”

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Other analysts raising their targets include:

* Barclays’ Ike Boruchow to US$418 from US$401 with an “overweight” rating.

“LULU reported strong 1Q results, with comps and EPS both coming in nicely above expectations. GMs were strong, ecomm momentum continued (despite tough compares) and management commented that the active categories continue to perform very well (no sign of “normalization” yet). Importantly, the company guided 2Q ahead of the Street and raised its FY outlook largely on the 1Q beat and strong 2Q start. All in, we found very few holes to pick at in LULU’s print,” he said.

* Deutsche Bank’s Paul Trussell to US$401 from US$390 with a “buy” rating.

* MKM Partners’ Roxanne Meyer to US$390 from US$388 with a “buy” rating.

* Cowen and Co.’s John Kernan to US$405 from US$392 with an “outperform” rating.

Analysts reducing their targets include:

* JP Morgan’s Brian Tunick to US$400 from US$418 with an “overweight” rating.

* B. Riley’s Susan Anderson to US$370 from US$374 with a “buy” rating.

* Piper Sandler’s Erinn Murphy to US$445 from US$465 with an “overweight” rating.


RBC Dominion Securities analyst Michael Harvey sees momentum growing for Advantage Energy Ltd.’s (AAV-T) clean tech subsidiary Entropy, seeing the announcement of several project evaluations displaying “buy-in from other industry players, which improves visibility.”

“Entropy Inc. has now signed Memoranda of Understanding (“MOUs”) with four separate emitting corporations, including two upstream producers (Athabasca Oil, Black Swan Energy) and two unnamed midstream companies to evaluate commercial deployment of Entropy’s modular CCS technology, with projects totaling 1 million tonnes per annum (“TPA”),” he said. “

“The signing of additional MOUs increases visibility of the Entropy product and the breadth of potential applications. The Glacier Phase 1 project remains on track, with initial capital costs of $27-million positioned to deliver a 12-per-cent IRR [internal rate of return] at carbon prices of $50 per ton. For this project annual CF maps to about $1.6-million at a $50 per ton price point (CCS only) plus additional revenue ($1 million) for heat capture /fuel displacement. Larger projects are expected to generate more significant economies of scale with lower break-evens and importantly, would feature a recurring-revenue model less impacted by the cyclicality of energy markets.”

Keeping a “sector perform” rating for Advantage shares, Mr. Harvey increased his target to $5.50 from $4. The current average is $4.66.

“We increase our target price to $5.50/share - now reflecting a premium valuation to the group - with a view to recognizing latent value contained within the Entropy vehicle plus higher commodity prices,” he said.

Elsewhere, CIBC World Markets’ Jamie Kubik raised his target to $5 from $4.25 with an “outperformer” recommendation.


Seeing the presence of a “homecare super cycle,” Scotia Capital analyst Michael Doumet thinks Savaria Corp.’s (SIS-T) ambitious target of reaching $1-billion in annual sales by 2025 is achievable.

“In our view, the pandemic will accelerate private (and public) spend in homecare,” he said. “Besides the preference for aging in place, costs of homecare are estimated to be significantly less than building and operating long-term care facilities. While it has been known for a while that a rapidly aging population will require significant investment in healthcare and senior living facilities, the pandemic only served to highlight the urgency and accelerate government investment. President Biden’s ‘American Jobs Plan’ calls for spending an incremental $400-billion over eight years on “home or community-based care” for elderly and people with disabilities.”

In a conference call following the release of the Laval, Que.-based company’s first-quarter results three weeks ago. Mr. Doumet said Savaria management, like many peers, “didn’t hide their bullishness on the near-term revenue growth opportunity.”

“Starting 2Q21, we expect growth to reaccelerate (partially due to easy comps), but also to exceed pre-pandemic levels in 2H21,” he said. “During the pandemic, residential end-markets proved resilient while commercial softened – we believe the economic reopening will accelerate a commercial recovery, which will be additive to residential growth. That said, our high-growth thesis goes well beyond the cyclical recovery. While we expect FX and input headwinds to partially temper organic growth rates in upcoming quarters, we expect strong post-pandemic tailwinds in homecare and a rebound in commercial activity to drive high-single digit organic growth well beyond 2021.”

Seeing “strong secular (and post-pandemic) tailwinds as well as the opportunities to leverage the combined platform,” Mr. Doumet increased his target for Savaria shares to $23.50 from $22 with a “sector outperform” rating. The average is $23.25.

“Accordingly, we believe such growth will lead to a multiple expansion and B/S deleveraging, accruing strong shareholder gains,” he said.


In other analyst actions:

* Barclays analyst Jeanine Wai upgraded Ovintiv Inc. (OVV-T, OVV-N) by two levels to “overweight” from “underweight” with a US$33 target, rising from US$21. The average is US$30.62.

“It’s had a good run year-to-date, but incremental cash pay out is a catalyst, has top tier FCF yield, and is no longer lagging on de-levering.

* After hosting C-hosted investor meetings, Citi analyst William Katz raised his target for Brookfield Asset Management Inc. (BAM-N, BAM.A-T) to US$60 from US$54.50 with a “buy” rating (unchanged). The average is US$54.98.

“Though not much on the ground-breaking news front, the day nonetheless, raised our confidence around several key flywheel drivers for growth, fee rates, margins and FCF. Additionally, we did pick up a few favorable nuggets along the way,” he said.

“While the Canada-based H/Q somewhat limits relative appeal, the day was among the better attended set of hosted management sessions in recent memory, geared more evenly between HFs and L/O. Looking ahead, we expect further refinement in already strong supplement disclosure that can help bridge the valuation to key U.S. peers, while BAM’s investor day in September should reinforce favorable DE compounding elements.”

* In a research report reviewing earnings season for Canadian banks, Scotia Capital analyst Meny Grauman raised his target for Equitable Group Inc. (EQB-T) to $157 from $155, falling short of the $164.50 average, with a “sector perform” rating.

“Every bank we cover beat consensus in Q2, but RY and BMO stood out to us as the strongest performers this earnings season followed by CIBC,” said Mr. Grauman. “BMO continued to deliver the most impressive numbers, but RY was stronger in our view once we factor in the overall tone of Management as we look to the second half of the year and into 2022. RY now replaces CM at the top our pecking order and we also have SO ratings on CM, BMO, NA and CWB. Our Sector Performer names remain TD, EQB and LB. TD put up the weakest result of the quarter, and we remain more cautious on this name due to elevated M&A risk and its premium valuation. That said, we reiterate that we continue to see strong upside for the group as a whole, even our SP-rated names, and continue to value the group at 12.0 times our F2022 EPS estimates.”

* Following the acquisition of Nebu BV, a Dutch provider of market research and data analytics software solutions, Scotia’s Paul Steep cut his Enghouse Systems Ltd. (ENGH-T) target by $2 to a Street-low $67, keeping a “sector perform” rating. The average is $75.

“We continue to believe upside in the stock is largely centered on management’s ability to deploy capital toward acquisitions while maintaining at least neutral growth in the core business,” said Mr. Steep. “The stock continues to see challenges relating to weak organic growth in its Asset Management segment and historical variability in deploying capital on a consistent basis.”

* Canaccord Genuity analyst Matthew Lee raised his Stingray Group Inc. (RAY.A-T) target to $9, matching the current consensus on the Street, from $8.50 with a “buy” rating.

* CIBC World Markets analyst Cosmos Chiu raised his Osisko Gold Royalties Ltd. (OR-T) target to $21 from $19.50 with an “outperformer” recommendation. The average is $23.08.

* CIBC’s John Zamparo cut his RIV Capital Inc. (RIV-T) target to $2.50 from $2.75, matching the consensus. He kept an “outperformer” rating.

“Following the close of RIV’s milestone transaction with Canopy Growth, and the PharmHouse divestiture, all eyes are on one or more transactions in the U.S.,” said Mr. Zamparo. “We believe the most likely scenarios are the purchase of a series of single-state operators (SSOs), or one moderate size multi-state operator (MSO) with a footprint across two to three states. Regardless, the event should act as a material catalyst for RIV, and we believe the company can benefit from multiple arbitrage on public vs. private valuations. A lower contribution from WEED shares leads us to reduce our price target.”

* Stifel analyst Michael Hoffman increased his GFL Environmental Inc. (GFL-T) target to $46 from $45 with a “buy” rating. The average is $37.01.

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