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

Following Thursday’s release of “solid” third-quarter 2022 financial results and a better-than-anticipated full-year outlook despite significant COVID-related disruptions,” RBC Dominion Securities analyst Irene Nattel sees Dollarama Inc. (DOL-T) “underscoring its positioning as a destination retailer and demonstrating the strength of the business model.”

While acknowledging investors are “hyper-focused” on the impact of global supply chain issues on gross margins for the second half of the year and into its fiscal 2023, she thinks the discount retailer is likely to “navigate those choppy waters without significant disruption to margins,” pointing to its previous performance during periods of cost inflation.

“Management commentary re: stable FQ3-to-date same-store sales consistent with expectations, balance of FQ3 will be determined by performance of Halloween, strong in F21, said Ms. Natel. “Assuming schools stay open and trick or treating returns to normal, we would expect stable’ish SSS for FQ3 overall. Regardless of quarterly ebb and flow due to COVID, distortions have proven highly transitory and underlying trends are solid, underpinned by DOL’s strong value proposition in everyday household basics and key destination categories. “

Seeing its long-term outlook as unchanged following the report, she added: “Looking further ahead, we forecast solid SSS growth in the 3.5-4.5-per-cent range annually. But it is gross margins that are the focus of investor concern, our model reflects GM in the 43.5-per-cent range, down only 30 basis points relative to F21 levels despite headwinds of product cost inflation and rising inbound shipping costs. Our confidence stems from DOL’s demonstrated ability to manage its GM, notably through: i) annual refresh of 25-30 per cent of the assortment, which enables buyers to adjust offering/ packaging size/unit counts/product materials, ii) multiple price point strategy that enables DOL to shift pricing upward where necessary, and iii) rising penetration of higher price points. In our view, and confirmed on [Thursday’s] call, accelerating inflation could be a key trigger for the introduction of a new pricing tier up to $5 if deemed to be more permanent/structural.”

Largely maintaining her financial projections for the Montreal-based company, Ms. Nattel raised her target for its shares to $70 from $68, reiterating an “outperform” rating. The average target on the Street is $61.93, according to Refinitiv data.

Elsewhere, Scotia Capital’s Patricia Baker bumped up her target to $64 from $62 with a “sector outperform” rating, while TD Securities’ Brian Morrison increased his target to $68 from $64 with a “buy” rating.

Conversely, National Bank Financial’s Vishal Shreedhar cut his target to $63 from $65 with an “outperform” rating.


Though he sees Air Canada (AC-T) as “a solid carrier,” Citi analyst Stephen Trent is concerned about its heavy reliance on international travel as the industry continues to grapple with the impact of the COVID-19 pandemic.

Accordingly, upon reinstating coverage of the airline on Friday, he called its operational trajectory “somewhat mixed, with better prospects for some short-haul/cross border travel demand, balanced against greater uncertainty on the cadence of international long haul’s recovery.”

“In contrast with its U.S. peers, Air Canada has more dominant share of both domestic- and cross-border air travel, while the carrier also has greater exposure to scheduled, international long-haul business travel,” he said. “The latter segments could take a longer time to recover, while the stock’s valuation is not particularly compelling.

“On a global basis, reduced long haul- and premium network airline capacity might provide opportunities for substitute products – at least temporarily. Within the context of Canadian aerospace vs. aviation, the latter tendency might lead Buy/High Risk-rated Bombardier to continue outperforming Air Canada. Separately, looking at the quartet of North America-based, Citi-covered network carriers, Buy-rated Delta seems to have the path of least resistance, owing to its balance sheet, its defense of its brand, along with that carrier’s relative absence of pandemic-era equity dilution.”

Mr. Trent lowered his revenue and earnings expectations for Air Canada to account for a “somewhat slower” recovery from pandemic-related restrictions that previously expected, particularly with its “important” cross-border U.S. and overseas international markets. Though he sees a stronger-than-anticipated performance from its cargo segment, his 2023 earnings per share projection slid to $2.50 from $2.90.

“Considering what could be a slow recovery for international business travel, business jet manufacturers could find themselves with better, short-term positioning. For example, high-end customers could turn to private jet travel, as commercial carriers reduce, eliminate or suspend some premium service,” he said. “Moreover, business jets’ increased share of premium travel could include everything across the aviation ecosystem from direct ownership a private jet, to fractional ownership, air taxi services and the like.”

Mr. Trent established a “neutral” rating and $25 target for Air Canada shares. The average target on the Street is $30.63.

“We rate AC at Neutral primarily on uncertain short-medium term profitability due to severely depressed passenger volumes stemming from COVID-19 and the related government restrictions on travel from some of its key neighboring nations,” he said. “Valuation looks full, in our view, relative to recent historical trading levels and compared to its large US network carrier peers. Given the higher uncertainty in North American aviation markets, we prefer to have more earnings visibility before getting more aggressive with Air Canada shares.”


Citing concerns about its high financial leverage, Scotia Capital analyst Konark Gupta downgraded Transat AT Inc. (TRZ-T) to a “sector underperform” recommendation from “sector perform.”

“It has become more evident that there is no take-out scenario in sight while the company’s financial leverage has more than doubled year-to-date such that net debt is now almost 6 times market cap,” he said. “Even based on pre-pandemic earnings, which might not be achieved until 2023, the leverage ratio looks elevated at more than 4 times net debt to EBITDAR, making valuation quite unattractive at 4.9x current EV to pre-pandemic EBITDAR. For context, Air Canada is currently valued at 4.4 times under similar methodology. Thus, we are growing concerned that the market is not discounting the risks associated with high financial leverage and potential for equity dilution.”

Mr. Gupta cut his target for Transat shares to $3 from $5.25. The average on the Street is $3.35.

“Even with a generous valuation approach (4.5 times EV/EBITDAR and full recovery in EBITDAR), our target decreases ... as we have removed our take-out scenarios ($6-$7 with a 50-per-cent probability) given no new take-over interest has surfaced since discussions with Pierre Karl Péladeau ended in June 2021,” he said. “We also note that our target includes potential $1 per share accretion from hotel land sale, which could have a different outcome.”

Elsewhere, Desjardins Securities analyst Benoit Poirier trimmed his target for shares of to $4.25 from $5.25, maintaining a “hold” rating, while TD Securities’ Tim James increased his target to $3.25 from $3 with a “reduce” recommendation.

“We are pleased with the company’s better-than-expected cash management in the quarter despite the resumption of airline activities. In 4Q, management is aiming to keep the burn rate stable at $20-million per month. We believe management’s long-term strategy makes sense although we prefer to wait for additional signs of execution,” Mr. Poirier said.


Turning bearish on copper equities with the expectation inflation support will wane, Credit Suisse analyst Curt Woodworth downgraded First Quantum Minerals Ltd. (FM-T) to “neutral” from “outperform.”

“The red metal is called Dr. Copper for a reason but we argue copper prices are more a reflection of future inflation expectations than a real-time gauge of the health of the global economy,” he said. “The empirical data is incredibly consistent over both short and longer term time horizons whereby copper prices move in direct correlation to the US 10-Year breakeven rate and we advise investors to examine this relationship. Copper has a low weighting in CPI / PCE which tend to drive the overall inflation narrative and therefore inform copper price direction.”

“Despite surplus markets in 4Q-20 and 1Q-21, copper prices surged higher to levels not seen even during the China super-cycle period from 2004-2008. Even with China PMIs and copper imports falling for the past five months, copper prices have remained incredibly resilient on a historical basis, with prices tracking the 10-year breakeven almost perfectly. The global stimulus response to Covid was over 3 times the support post the 2008-09 GFC and therefore when inflation metrics reached 30 year highs in 2021, so too did copper prices. Historically, copper prices have very major 12-24 month bull cycles post major stimulus events and we are concerned that copper markets could see similar price behavior to 2011-2015, whereby despite strong global demand trends, copper prices fell each year, inline with movement in inflation metric.”

His target for First Quantum shares rose to $25 target from $16 but below the $33.61 average on the Street.


Pointing to recent share price weakness, TD Securities analyst David Kwan raised his rating for information technology services company Softchoice Corp. (SFTC-T) to “buy” from “hold” on Friday after recent investor meetings with President and CEO Vince De Palma and CFO Bryan Rocco.

“Softchoice is continuing to invest to help it deliver double-digit organic growth, with it looking to add 40-50 AEs over 2021 and 2022, along with significant additions to the technical teams that support the AEs,” he said. “Hiring technical experts has been the key priority in recent quarters while the pace of AE hires is expected to pick up heading into year-end and in 2022. The investments in adding technical experts is being partially funded by some of its technology vendor partners, as they appear to be investing more with channel partners to help broaden their reach.”

“Softchoice has quickly de-levered, with net debt/Adjusted EBITDA (LTM) falling from almost 3 times exiting 2020 to 1.3 times exiting Q2/F21. Debt reduction and paying the dividend remain Softchoice’s key capital allocation priorities, with management highlighting the room for potential increase in dividend payments down the road, given the low payout ratio (20 per cent of our F2022 estimated Adjusted EPS).”

Also expecting the Toronto, Ont.-based company, which began trading on the TSX in May, to seek further M&A activity to boost its technical capabilities, Mr. Kwan maintained a $40 target for Softchoice shares. The current average is $35.

“The stock has declined 20 oer cent since our downgrade following its Q2/F21 release and at just under 17 times EV/EBITDA (C2022E), Softchoice is trading at 30-per-cent discount to its software-focused IT solutions provider/VAR peers,” he added.


North West Company Inc.’s (NWC-T) better-than-anticipated second-quarter results show the “stickiness in pandemic-related spending,” according to CIBC World Markets analyst Mark Petrie, who expects earnings to remain elevated through 2022 “as more at-home spending leads to market share gains and deeper customer relationships.”

“Q2 results came in well ahead of expectations, driven primarily by higher sales in the Canadian segment,” he said. “Same-store sales (SSS) growth posted modest declines across all segments (in line with our estimates) but are still up 21.4 per cent compared to Q2/F19. Government stimulus and an increase in tourism in international markets continue to be a benefit to sales, though these were partially offset by forest fires in Manitoba and Ontario. Earnings were ahead of forecasts and benefited from healthy gross margins and good cost control cross both regions.”

“In-market shopping continued to benefit North West, especially in Canada, as vaccination rates remain lower in those communities. The return to more normal shopping habits (and an increase in out-of-market shopping) will likely pick up as the year progresses as vaccination rate rises, and presents a headwind to sales. That said, there is an opportunity for the overall base business to be permanently larger going forward and North West to hold onto share gains even as the environment normalizes. Management has gained unprecedented insight into consumer demand and price sensitivity. Selected price investments, which management is still testing and recalibrating, will attempt to seize this opportunity. Though the sales of some categories will likely revert to pre-pandemic levels, the rollout of these strategic price investments should help support some stickiness.”

Mr. Petrie now sees the Winnipeg-based company “well-positioned financially” to pursue potential tuck-in acquisitions, calling it cash flows and balance sheet as “sound” given an increase to its quarterly dividend (up 1 cent to 7 cents).

Keeping a “neutral” rating, he raised his target by $1 to $39. The average on the Street is $38.60.


National Bank Financial analyst Michael Parkin downgraded Agnico Eagle Mines Ltd. (AEM-T) to “sector perform” from “outperform” with a $90 target, down from $97 and below the $103.57 average on the Street.

National Bank’s Shane Nagle upgraded Hudbay Minerals Inc. (HBM-T) to “outperform” from “sector perform” with a $12.50 target, down from $14 and lower than the $12.94 consensus.

The firm also reduced its target prices for a series of mining stocks, including:

* Alamos Gold Inc. (AGI-T, “outperform”) to $13.25 from $13.50. Average: $13.95.

* Barrick Gold Corp. (ABX-T, “outperform”) to $36 from $37. Average: $28.90.

* B2Gold Corp. (BTO-T, “outperform”) to $8 from $9. Average: $8.57.

* Dundee Precious Metals Inc. (DPM-T, “outperform”) to $11.50 from $12.50. Average: $12.61.

* Eldorado Gold Corp. (ELD-T, “outperform”) to $17.50 from $18.50. Average: $14.39.

* Endeavour Mining PLC (EDV-T, “outperform”) to $49 from $55. Average: $44.25.

* First Majestic Silver Corp. (FR-T, “sector perform”) to $18 from $21. Average: $20.47.

* First Quantum Minerals Ltd. (FM-T, “outperform”) to $36.50 from $37.50. Average: $33.61.

* Fortuna Silver Mines Inc. (FVI-T, “sector perform”) to $7 from $7.50. Average: $7.49.

* Franco-Nevada Corp. (FNV-T, “sector perform”) to $200 from $205. Average: $202.50.

* Iamgold Corp. (IMG-T, “outperform”) to $3.75 from $4. Average: $4.12.

* Kirkland Lake Gold Ltd. (KL-T, “sector perform”) to $58 from $59. Average: $65.92.

* Lundin Gold Inc. (LUG-T, “sector perform”) to $13.25 from $13.75. Average: $14.81.

* New Gold Inc. (NGD-T, “sector perform”) to $2.50 from $2.75. Average: $2.55.

* Newmont Corp. (NGT-T, “outperform”) to $99 from $104. Average: $99.

* Oceanagold Corp. (OGC-T, “outperform”) to $3 from $3.25. Average: $3.20.

* Pan American Silver Corp. (PAAS-T, “outperform”) to $50 from $53. Average: US$37.93.

* Sandstorm Gold Ltd. (SSL-T, “outperform”) to $11.50 from $12.75. Average: $12.20.

* Wheaton Precious Metals Corp. (WPM-T) to $72 from $75. Average: US$59.90.

* Yamana Gold Inc. (YRI-T, “outperform”) to $7.25 from $7.75. Average: $8.53.


Touting its high exposure to the expanding light truck segment, Desjardins Securities analyst John Chu thinks ABC Technologies Holdings Inc. (ABCT-T) is “is well positioned to take advantage of key industry trends—vehicle weight reduction to improve fuel efficiency and a rapidly emerging electric vehicle (EV) market.”

He initiated coverage of the Toronto-based automotive systems and components manufacturer, which began trading on the Toronto Stock Exchange in late February, with a “buy” recommendation on Friday.

“ABC leverages its vertical integration and plastic lightweighting capabilities to drive leading margins vs its exterior/interior peers,” said Mr. Chu. “It also generates solid FCF and has one of the strongest sales and EBITDA outlooks in the industry (based on consensus 2020–22 CAGR).”

“More than 90 per cent of ABC’s revenue is generated from North America, with more than 80 per cent coming from the Big Three OEMs (we estimate GM represents greater than 50 per cent of revenue); however, recent contract wins suggest a broadening of its customer base. In addition, more than 90 per cent of revenue is generated from light trucks (pickups, CUVs, SUVs), the fastest-growing vehicle segment in North America (especially CUVs). It supplies 130 vehicle lines in North America and has content on more than 75 per cent of all North American light vehicles.”

The analyst expects ABC to benefit as plastics play an increasingly important role in increased fuel efficiency as vehicle weight reduction becomes a greater priority.

“This should create continued opportunities for lightweight plastic materials and for ABC, given continued momentum on the lightweighting front for light trucks,” the analyst said. “Interestingly, the weight in CUVs has continued on an upward trend, suggesting an opportunity for lightweighting that has not yet been realized to the extent that it has for pickups and SUVs. With ABC’s high exposure to light trucks, and CUVs in particular, this could represent an excellent opportunity to assist with the lightweighting of CUVs. Despite the increase in passenger car weights and the opportunities that should emerge on the lightweight front, ABC is likely to remain focused on light truck lightweighting opportunities because these are still the heaviest vehicles, as well as being the vehicles where consumer tastes have moved.”

Forecasting “solid” growth, he set a target of $10.50 per share. The current average on the Street is $11.30.


In other analyst actions:

* Desjardins’ Frederic Tremblay increased his Savaria Corp. (SIS-T) target to $25.50 from $25, reaffirming a “buy” recommendation. The average is $24.81.

“We surveyed U.S. and Canadian dealers of home accessibility products to enhance our understanding of Handicare’s growth prospects in the North American stairlift market. Overall, dealers have a positive opinion of Handicare’s products and their comments lead us to believe that Savaria’s decision to establish North American manufacturing capacity (with very short lead times) could be a game-changer as it relates to augmenting Handicare’s market share,” said Mr. Tremblay.

* CIBC World Markets analyst Stephanie Price increased her Descartes Systems Group Inc. (DSGX-Q, DSG-T) target to US$89 from US$68.50 with a “neutral” rating, while Canaccord Genuity’s Robert Young raised his target to US$90 from US$74 with a “buy” recommendation. The current average is $87.75.

“Descartes reported very strong FQ2 (July) results ahead of consensus and our model in every respect,” said Mr. Young. “A broad-based tailwind across multiple elements of Descartes’ business is being driven by strong volumes and pricing environment amongst logistics customers, growth in ecommerce/last mile and extreme supply chain challenges and material shortages faced by businesses dependent upon logistics services. Descartes has always been a steady, predictable business that is now seeing an unusually strong demand environment for technology and information services which is creating an acceleration of organic growth (roughly 15-16 per cent year-over-year in Q2) and margin expansion. In our view, Descartes is well positioned as supply chain and logistics networks digitize over the next several years. We continue to see Descartes as an expensive, but highly predictable core technology holding, now with a more attractive (albeit temporary) growth profile with margin expansion.”

* TD Securities analyst Michael Tupholme raised his Bird Construction Inc. (BDT-T) target to $12 from $11.50, reiterating a “buy” rating. The average is $11.91.

“We remain constructive on Bird’s outlook, supported by the level and composition of its backlog (at a record level), new awards prospects, and margin improvement potential over time (underpinned by the Dagmar acquisition and the potential for increased levels of self-perform work),” he said.

* Scotia Capital analyst Paul Steep increased his Docebo Inc. (DCBO-Q, DCBO-T) target to US$80 from US$73 with a “sector perform” rating. The average is $98.93.

* Scotia’s Trevor Turnbull raised his target for Silvercrest Metals Inc. (SILV-N, SIL-T) to US$14, matching the consensus, from US$13.50, keeping a “sector outperform” rating.

* National Bank analyst John Shao hiked his target for Tecsys Inc. (TCS-T) to $65 from $55, maintaining an “outperform” recommendation, while Laurentian Bank Securities analyst Nick Agostino raised his target to $63 from $60 with a “buy” rating. The average is $64.

“We welcome the revenue beat and strong SaaS growth, and expect SaaS bookings to normalize as the current bottlenecks subside. The EBITDA miss is also likely a blip on sales mix and F/X. TCS’s spend has translated into strong organic growth, which is our primary focus as this remains a sales-driven story at this time,” Mr. Agostino said.

* National Bank’s Vishal Shreedhar cut his Empire Company Ltd. (EMP.A-T) to $45 from $46, keeping an “outperform” rating, while TD Securities’ Michael Aelst raised his target to $44 from $42 with a “hold” rating. The average is $45.20.

“Empire’s shares have delivered a reasonable 12-per-cent return year-to-date, though this is a fraction of Loblaw’s 45 per cent,” said Mr. Aelst. “The difference is not so large since the end of 2019 (28 per cent vs. 36 per cent), though EMP’s lack of near-term catalysts and concerns over slowing eCommerce demand have held back its valuation. At 14.0 times our NTM EPS (vs Loblaw/ Metro at 17.5 times/17.8 times), we would argue that Empire’s valuation is now quite attractive, though investors are expected to use this period of minimal EPS growth to evaluate the likelihood of Empire achieving its Project Horizon and eCommerce targets. Assuming Empire’s sizeable eCommerce investment stays on track to generate reasonable returns, we would expect investors to capitalize on this valuation gap as we approach the anticipated return to earnings growth in H1/F23.”

* Piper Sandler analyst Michael Lavery lowered his Tilray Inc. (TLRY-Q, TLRY-T) target to US$14 from US$15, below the US$17.39 average, with a “neutral” rating.

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