Inside the Market’s roundup of some of today’s key analyst actions
RBC analysts now believe uranium is in store for an extended period of higher prices and have upgraded their rating on Cameco Corp (CCO-T) as a result.
The bank’s rating on Cameco is now “sector perform” and its price target has gone all the way to C$26 from C$17. Previously, it rated Cameco “underperform” - which is the equivalent of a sell rating.
“We believe the combination of a rising spot price and a strong undercurrent of positive sentiment for the uranium sector may support elevated valuation multiples for uranium equities for the foreseeable future,” RBC analysts led by Andrew D. Wong said in a note to clients.
The Sprott Physical Uranium Trust has magnified financial interest to invest in physical uranium, the RBC analysts pointed out. Since launching on Aug 17, the trust has consistently raised funds to purchase uranium in a short period of time, accumulating C$130 million and 2.7 million pounds of uranium to the beginning of this month.
That has quickly pushed up spot prices to about $37 a pound, from about $31 in mid-August. A potential listing on the New York Stock Exchange in 2022 may provide access to an even larger pool of capital given strong investor interest in uranium, the analysts said.
“While the depth of capital available and willingness to invest in [the trust] is unknown, every pound sequestered in the trust accelerates a uranium market recovery and supports a rising spot price,” RBC said.
Meanwhile, social media activity in the uranium sector has slowed recently but remains elevated relative to historical levels, an indication of strong investor interest in uranium, RBC said. This strong sentiment on social media could drive more capital into the trust, pushing up spot prices in its wake.
“However, we note downside risk if/when capital flows into [the trust] slow, resulting in less upward pressure on uranium prices,” RBC warns.
Rising spot prices are a positive factor for uranium equities and will be beneficial for current producers to varying degrees based on contract coverage. But the RBC analysts point out that producers and developers would benefit most from increased term market activity and prices, “which remains elusive as utilities continue to have solid contract and inventory coverage.”
“Cameco’s valuation may remain elevated as an incumbent producer with idled capacity, given strong investor sentiment and limited options for exposure to proven uranium operators,” RBC concluded.
RBC analysts also raised their price target on NexGen Energy Ltd. (NXE-T) to C$7 from $6. They rate that uranium sector stock as “sector perform.”
And in a related move, Canaccord Genuity analyst Katie Lachapelle raised her price target on Sprott Physical Uranium Trust (U-UN-T) to C$15 from $12.50 while reiterating a “buy” rating.
She expects the trust’s momentum to continue as the uranium price continues its rise and inflows accelerate into the trust and other uranium equities. Since the beginning of last week, spot uranium prices have risen an additional 10 per cent and uranium equities are up about 20 per cent to 40 per cent this week.
“We continue to believe that strong seasonality (uranium equities typically outperform October through December) and additional uranium purchases by [the trust], producers and other financial players will drive positive equity performance into year-end,” Ms. Lachapelle said.
She noted that the Sprott trust is “potentially transformative for the uranium market, as it adds an active bid to an opaque and tight market, putting upward pressure on prices. Based on our discussions with market participants, this increase in activity has not gone unnoticed by utilities; interest in contracting is picking up and off-market discussions are accelerating.”
Desjardins Securities analyst John Chu initiated coverage on High Tide Inc (HITI-X) with a “buy” rating and C$15 target price.
High Tide is Canada’s second largest cannabis retailer by store count and revenue. It also generates the highest EBITDA (in absolute dollars and as a percentage of sales), which is driven by strong gross margins and low operating expenses, Mr. Chu noted.
The analyst believes High Tide is well positioned in a market where the competitive landscape is fragmented.
“It also operates in a low-risk, underserved segment of the cannabis sector and has the most diversified sales among its retail peers, generating meaningful revenue from its e-commerce platform as well as from the U.S.,” which provides for future investment opportunities, Mr. Chu said.
Several analysts raised their price targets on BRP Inc. (DOO-T) as they applauded better-than-expected quarterly results this week.
BRP saw revenue of $1.904 billion in its latest quarter, up 54% from a year earlier and well ahead of Street estimates. The company also raised its forward guidance.
CIBC incrased its price target to C$134 from C$108 and upgraded its rating to “outperformer” from “neutral”; National Bank of Canada raised its target price to C$135 from C$125; Raymond James raised its target price to C$137 from C$122.
Canaccord Genuity raised its target to $125 from $120, but also offered some words of caution.
“BRP has had a strong first half of the year with strong product demand seen across all segments and with the company being able to successfully navigate issues caused by supply chain issues resulting in record low network inventory levels. That said, external factors such as the ongoing global chip shortage and inflationary pressures on commodities and wages continue to have an impact on output with management noting that they expect these factors to weigh more heavily in Q3/ F22 due to a higher number of units having to be retrofitted. Accordingly, we are expecting a deceleration of growth for Q3/F22 followed by stronger growth in Q4/ F22 as supply chain issues are rectified,” Canaccord analyst Derek Dley said in a note.
Argus analyst John Staszak downgraded The Clorox Co. (CLX-N) to “hold” from “buy” citing deterioration in its earnings and an increasingly challenged outlook. The household products company is best known for its bleach and hygiene products that saw a surge in demand in the early days of the pandemic.
“The company’s revenue has fallen from peak levels during the early months of the pandemic last year, with sequential declines in three of the past four quarters. Revenue also fell 9% year-over-year in fiscal 4Q21. Management now expects revenue to decline 2%-6% in FY22 on both a reported and an organic basis, leading to a 21%-26% decline in EPS,” the analyst noted.
“Given the weaker revenue and earnings outlook, we believe that CLX shares are fully valued at 29-times our FY22 EPS forecast, and that a HOLD rating is now appropriate,” he added.
Mr. Staszak does not have a price target on the stock.
In other analyst actions:
* Telus Corp. (T-T): Cormark Securities downgrades rating to “market perform” with a price target of C$30.
* Thomson Reuters Corp. (TRI-T): TD Securities downgrades rating to “hold” from “buy” and raises price target to C$160 from C$155.
* Aurora Cannabis Inc (ACB-T): Jefferies raises rating to “hold” but cuts price target to C$8.56 from C$9.44
* Hexo Corp (HEXO-T): Jefferies cuts price target to C$2.54 from C$5.97
* Alcoa Corp (AA-N): CFRA raises target price by US$12 to US$52
* Charter Communications Inc (CHTR-Q): TD Securities cuts to “hold” from “buy” and raises price target to US$870 from US$840.
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