Inside the Market’s roundup of some of today’s key analyst actions
Citi analyst P.J. Juvekar raised his financial estimates for North American fertilizer companies on Friday, seeing a confluence of factors leading to intriguing investment opportunities.
“While the phrase ‘perfect storm’ is overused, the literal storm in Hurricane Ida, the ammonia plant closures due to record run-up in European gas prices, and actions from China’s NDRC on exports and energy consumption, have all further tightened fertilizer markets,” he said in a research report. “Urea prices are up 240 per cent year-to-date, DAP [diammonium phosphate] is up 70 per cent, and potash up 90 per cent.
“We are raising our estimates on fertilizer names as companies begin to realize the run-up in spot prices with a typical 60-90 day lag.”
Mr. Juvekar named Nutrien Ltd. (NTR-N, NTR-T) his preferred North American fertilizer company, pointing to its diversified business model.
“We raise our 3Q and FY21 EPS estimates due to updated prices in nitrogen (N), phosphorus (P) and potassium (K),” he said. “Pricing in N and P should be enough to offset any run up in prices for their key cost components: natural gas and sulfur, respectively. Retail continues to be strong on solid overall Ag fundamentals. We raise out-year FY22-23 estimates based on higher market price forecasts.”
Mr. Juvekar is now projecting earnings per share for the current fiscal year of US$4.93, up from US$4.75. His 2022 projection jumped to US$5.52 from US$3.63.
Those increases led him to increase his target for Nutrien shares to US$89 from US$80, reaffirming a “buy” recommendation. The average target on the Street is US$74.35, according to Refinitiv data.
The analyst said: “Our Buy rating on the shares reflects: 1) Segment diversification by fertilizer, and large exposure to the historically stable nitrogen fertilizer industry. 2) Retail segment, which provides additional earnings stability against the more cyclical fertilizer segments. The Retail segment continues to be an area of growth for NTR, especially its online platform.3) Emphasis on shareholder return through both dividends and share repurchases. Management has proven itself to be effective capital decision makers, and has successfully executed and integrated M&A as well.”
Elsewhere, JP Morgan analyst Jeffrey Zekauskas hiked his target for Nutrien to US$85 from US$75, maintaining an “overweight” rating.
Mr. Juvekar’s other target changes were:
- CF Industries Holdings Inc. (CF-N, “buy”) to US$68 from US$56. Average: US$60.47.
- Corteva Inc. (CTVA-N, “buy”) to US$51 from US$53. Average: US$51.06.
- FMC Corp. (FMC-N, “neutral”) to US$101 from US$109. Average: US$122.61.
- Mosaic Co. (MOS-N, “buy”) to US$46 from US$39. Average: US$44.02.
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Equity analysts at TD Securities made a series of adjustments to their TSX-listed real estate stocks on Friday.
“With the Delta variant driving a delayed recovery from the impacts of the pandemic, together with supply chain problems interrupting economic activity, we are revising financial forecasts throughout much of our coverage,” they said. “We are also introducing estimates for 2023 and adjusting some target prices.
“Overall, our two preferred property sectors in terms of fundamentals continue to be Industrial and Apartments. We also like Seniors Housing (post-pandemic) and grocery-anchored Retail with residential/mixed-use developments.”
Jonathan Kelcher made these changes:
- Boardwalk Real Estate Investment Trust (BEI.UN-T, “action list buy”) to $60 from $59. The average on the Street is $53.93.
- Canadian Apartment Properties Real Estate Investment Trust (CAR.UN-T, “buy”) to $72 from $70. Average: $67.45.
- Cominar REIT (CUF.UN-T, “hold”) to $11 from $11.50. Average: $11.50.
- Extendicare Inc. (EXE-T, “hold”) to $8.50 from $9. Average: $8.60.
- Morguard Real Estate Investment Trust (MRT.UN-T, “hold”) to $6.50 from $7. Average: $6.25.
- Sienna Senior Living Inc. (SIA-T, “buy”) to $17.50 from $18. Action: $16.53.
- Tricon Residential Inc. (TCN-T, “buy”) to $19.50 from $18. Average: $17.64.
Sam Damiani’s changes were:
- Dream Industrial Real Estate Investment Trust (DIR.UN-T, “buy”) to $19 from $18.50. Average: $17.72.
- First Capital Real Estate Investment Trust (FCR.UN-T, “action list buy”) to $21 from $22. Average: $21.33.
- Granite Real Estate Investment Trust (GRT.UN-T, “buy”) to $105 from $101. Average: $96.50.
- Summit Industrial Income REIT (SMU.UN-T, “buy”) to $25 from $24. Average: $23.19.
Lorne Kalmar raised his target for Mainstreet Equity Corp. (MEQ-T, “hold”) to $115 from $110. Average: $120.20.
“Our two ACTION LIST BUYs remain BEI.un (value) and FCR.un (re-opening upside). Other larger-cap top picks include CAR.un, DIR.un, GRT.un, KMP.un, and REI.un. We also see attractive risk/reward in most of the Seniors Housing and Office REITs/REOCs, and see potential near-term catalyst-driven upside in the Diversified sector (particularly HR.un and potentially CUF.un).”
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Tidewater Midstream and Infrastructure Ltd. (TWM-T) “offers niche energy infrastructure exposure in Western Canada at an attractive discounted valuation – especially on a net asset value basis,” according to Credit Suisse analyst Andrew Kuske.
Touting its “renewable runway,” he initiated coverage of the stock with an “outperform” rating on Friday.
“In general, Western Canada’s energy/infrastructure ecosystem offers differentiated exposure versus a number of other regions,” said Mr. Kuske. “Given improving egress (across the hydrocarbon spectrum) along with an overall positive carbon capture opportunity, we like TWM’s asset position and valuation – especially in the context of the stock’s renewable fuels exposure.
“A distinguishing feature for TWM versus other parts of our coverage is the renewable fuels growth potential along with the structural reality. We believe TWM helped surface value along by solving a near-term financial conundrum with the IPO of Tidewater Renewables Ltd. (LCFS-T). That IPO helped showcase the underlying renewable fuels potential and, to us, the valuation dichotomy and discount of TWM. One of the next phases of potential upside looks to be executing on the renewable fuels growth plan. We acknowledge the debate about undue complexity with the creation of LCFS and the legacy concerns associated with the Prince George Refinery (PGR), but these factors look to be excessively discounted in TWM’s valuation, in our view.”
Mr. Kuske established a $2 target for Tidewater shares, exceeding the $1.86 average on the Street.
“We believe Tidewater trades at a discounted valuation – which is partly a function of its unique asset base (midstream and refinery exposure) and market cap (i.e., small-cap status). Given its unique niche regional exposure along with the structure of the renewable fuels business, we believe the stock offers a compelling risk-reward, combined with additional growth potential in light of basin dynamics,” he said.
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Seeing it poised to thrive in “a still under-appreciated broader gaming ecosystem,” RBC Dominion Securities analyst Drew McReynolds initiated coverage of Enthusiast Gaming Holdings Inc. (EGLX-T) with an “outperform” rating on Friday, calling it “a unique gaming media pure-play that can garner a scarcity premium.”
“Despite explosive growth in video gaming, we believe the ‘broader’ gaming ecosystem including gaming video content, dedicated news and fan websites, esports and live events, is still under-appreciated by many investors in terms of its size, influence and growth potential,” he said. “We believe secular growth in the video game industry should translate directly into a growing broader ecosystem for gaming media companies. We also believe this broader gaming ecosystem should be a structural winner as our mid-2020s content inflection period approaches.”
Mr. McReynolds believes the Toronto-based company’s “transition to monetization” is likely to both improve earnings visibility and act as a positive catalyst for the stock.
“Enthusiast Gaming is undergoing a transition from ‘proof of concept’ under a first-mover aggregation strategy, to one of monetization,” he said. “With a reach of 300-million-plus gamers, we believe Enthusiast Gaming has now established itself as a leading gaming media platform with scaled access to a highly coveted Gen Z and Millennial audience. As a result, we believe the company is very well positioned to now fully exploit monetization opportunities by instituting a multi-revenue stream playbook with a near-term focus on direct advertising sales, subscription revenues and content licensing revenues. We forecast an increase in revenues from $159-million in 2021 (up 24 per cent year-over-year on a proforma basis) to $337-million by 2025 (21-per-cent compound annual growth rate).”
Seeing its current trading level as “an attractive and timely entry point,” Mr. McReynolds set a $9 target for Enthusiast Gaming shares. The average is $11.06.
“Within the Canadian public market, we believe there is relatively limited opportunity forinvestorsto gain pure-play exposure to the global gaming ecosystem. With greater ecosystem appreciation and improving earnings visibility, we believe Enthusiast Gaming can garner a growing scarcity premium as a gaming media pure-play,” he said.
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Believing the “relatively steep” discount its trading at versus its peers will not persist, Raymond James analyst David Quezada raised his rating for Altius Renewable Royalties Corp. (ARR-T), saying it’s “trouncing expectations on capital deployment.”
“ARR continues to outpace expectations on key deliverables including capital deployment and the creation of royalties out of developer partner portfolios — bolstering our view of impressive execution of the company’s innovative business model,” he said.
On Thursday, St. John’s-based Altius announced it joint venture subsidiary Great Bay Renewables has closed a US$52.5-million royalty investment with Northleaf Capital Partners related to three operating-stage wind and solar renewable energy projects in Texas.
“The royalty is structured under a variable rate arrangement with US$4-7-million per year being earned over the first 10 years of the investment; thus meeting ARR’s return hurdle while allowing Northleaf to optimize project cash flows,” said Mr. Quezada. “We believe this is yet further evidence that operational renewable projects can utilize ARR’s royalty based financing in respective capital structures; something that implies significant upside to ARR’s addressable market.”
“Including this investment, ARR has now deployed $107.5-million so far for 2021 — far outpacing our initial $40-million estimate and representing impressive execution on the company’s innovative royalty model. Looking back to ARR’s inception (Feb-19), capital deployed now sits at $200-million; a remarkable feat, in our view, which speaks to managements’ unique capabilities in royalty structuring and renewable power. While we continue to value ARR based on capital available today, this pace of deployment, if sustained, implies a materially faster scale up in the business than previously expected.”
Moving the stock to “strong buy” from “outperform,” the analyst maintained a $13.75 target. The average is currently $13.58.
“In light of the brisk pace of capital deployment, we now have increased conviction that ARR will successfully deploy the capital it has raised and build a highly diversified portfolio of high-return royalty investments,” said Mr. Quezada. “While no direct royalty comps exist targeting the renewable market, we argue that the stock should trade at least in line with resource-based royalty peers given the relatively stable underlying asset base. As such, we believe ARR’s valuation, currently sitting at just under 1.0 times P/NAV by our estimates, will steadily approach, and potentially exceed, royalty streaming peers at an average of 1.4 times.”
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In a research note titled Your data, my data, our data, RBC Dominion Securities analyst Brad Erickson initiated coverage of five large-cap internet stocks with a focus on advertising, e-commerce and cloud computing.
“With several trillions of dollars of consumers spending expected to shift online in the coming years, we believe digital advertising will be one of the biggest beneficiaries as digital advertising dollars have historically tracked in parallel to incremental e-commerce spending,” he said. “We like this secular tailwind to drive durable outer-year growth rates for current industry leaders (particularly FB and GOOGL) while large-scale down-funnel operators like AMZN leverage 1P data to likely take share in digital advertising.”
“For the mega-caps (AMZN, FB, GOOGL), we believe the focus will be on funnel migration (down-funnel for FB and GOOGL, up-funnel for AMZN; essentially trying to “get into each other’s sandboxes”) and platform expansion. For SNAP and PINS we believe the focus will be finding product-fueled ways (content) to attract new users and subsequently monetization, while operating at a structural data disadvantage vs. the mega-caps.”
Mr. Erickson named Amazon (AMZN-Q) his favourite idea for the group, pointing to “its proprietary channel work on the advertising industry, namely the impact to advertisers from Apple’s App Tracking Transparency (ATT) changes.”
“While this channel work is the foundation for our thinking on the stocks, our broader thesis on the Internet space remains intact - that is, we continue to favor most platforms with dominant user engagement and bottom or down-funnel opportunities thatshould drive long-term equity value creation,” he added.
He gave four stocks “outperform” ratings. They are:
* Amazon.com Inc. (AMZN-Q) with a US$4,150 target. The average on the Street is US$4,149.52
“AMZN is one of the internet’s largest true alpha dogs, in our view,” he said. “The company’s unmatched scale and advantage in verticalized E-commerce combined with its industry-leading cloud business gives it many shots on goal for future growth opportunities in new verticals. Our channel checks indicate the burgeoning advertising business in particular has a massive opportunity to drive accretive growth. Regulatory scrutiny is inevitable but carries relatively low risk to long-term equity value, in our view.
* Facebook Inc. (FB-Q) with a US$425 target. Average: US$417.62.
“FB has captured unmatched knowledge of the world’s consumers but the next leg of growth, and stock appreciation, in our view, depends on the company’s ability to deepen its relationship with its nearly 3 billion users,” he said. “Through multiple product initiatives, we think the company is well positioned to transition from a social-centric platform to a fuller source of online utility, which should steadily benefit shareholders over time. Our channel checks detected little fundamental impact owed to recent IDFA changes though we’ll be monitoring this going forward.”
* Alphabet Inc. (GOOGL-Q) with a US$3,400 target. Average: US$3,164.56.
“Google earned its place as the gateway to the internet affording it significant advantages and capital to invest in numerous large, important adjacent markets as it searches for incremental areas of future growth,” he said. “While we think regulatory scrutiny is arguably higher vs. peers and sentiment is positive at the moment, we initiate at Outperform given 1) GOOGL’s ability to perpetually custom-tailor its down-funnel strategy by vertical for maximum equity value creation, and 2) our bullish checks on core search’s long-term pricing power alongside clear YouTube share gains.”
* Snap Inc. (SNAP-N) with a US$88 target. Average: US$86.11.
“We think SNAP has all the trimmings of a strong social media business narrative: stable footing in an attractive secularly growing ad market, an evolving direct response/ad-load/down-funnel commerce narrative leading to potential ARPU and profitability upside and finally, new products that could invite broader usage and incremental monetization,” he said.
“Worth noting were our more mixed checks, but we think the odds of adverse near/medium-term effects seem low where our bias to estimates is to the upside given the still early point the company is at in its monetization.”
Mr. Erickson gave Pinterest Inc. (PINS-N) a “sector perform” recommendation with a US$58, which is below the average of US$71.28.
“With its solid foothold at the beginning of a users’ inspiration/topical discovery journey, PINS is running a prudent play of steadily ramping monetization through an improving ad platform and eventually, commerce,” he said. “We believe user growth is likely closer to plateauing than not and our channel feedback indicated that outside of targeted categories, conversion needs improvement, particularly vs. FB where we think user crossover is virtually 100%. Expectations have come down after last quarter’s miss, however, we need to see an improving content or commerce experience before we consider getting more constructive.”
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In other analyst actions:
* National Bank Financial analyst Gabriel Dechaine upgraded Toronto-Dominion Bank (TD-T) to “outperform” from “sector perform” with a $93 target, rising from $89. The average on the Street is $93.52.
* CIBC World Markets analyst John Zamparo initiated coverage of Guru Organic Energy Corp. (GURU-T) with an “outperformer” recommendation and $21 target. The average on the Street is $21.88.
“GURU Organic Energy (GURU) offers investors an emerging brand with potential for significant share gains in a category with attractive growth, compelling margins and high returns on capital,” he said. “The deal with PepsiCo Beverages Canada (PBC) should materially accelerate domestic distribution, while GURU’s $65-million net cash position provides ample ammunition for U.S. growth. The stock is not without risks, including execution, oligopolistic competition, extended timeline to profitability, high valuation, and low liquidity. However, we consider GURU to be a rare investment opportunity in a domestic consumer staple with potentially 30-per-cent-plus annual revenue growth for many years to come.”
* Following the US$155-million sale of its potassium chloride and vaccine adjuvants businesses to Vertellus, Scotia Capital analyst Ben Isaacson raised his target for Chemtrade Logistics Income Fund (CHE.UN-T) to $7 from $6.25 with a “sector underperform” rating, while Raymond James analyst Steve Hansen raised his target to $12 from $11.50 with an “outperform” rating. The average is $8.57.
“We regard Chemtrade’s sale of its Potassium Chloride and Vaccine Adjuvants business units to Vertellus, a manufacturer of niche specialty products, as a solid strategic move designed to reduce leverage and hone focus,” said Mr. Hansen. “First contemplated back in 2Q19, this strategy was temporarily shelved when COVID first emerged. We are pleased to see it come to fruition. With the two businesses generating US$14.3-million (in TTM EBITDA (ending Jun-30-21), we also like the price, equivalent to 10.8 times TTM EBITDA, an accretive value relative to CHE’s recent trading metrics (8.5 times FY21 & 7.0 times FY22).”
* With the announcement of its acquisition of royalties on Oracea (doxycycline) for US$46.4-million as well as a share buyback program, RBC Dominion Securities analyst Douglas Miehm increased his DRI Healthcare Trust (DHT.UN-T) target by $1 to $16, keeping an “outperform” rating. The average is $14.42.
“We believe the shares are materially undervalued at 0.6 times our NAV,” said Mr. Miehm.
* TD Securities analyst Cherilyn Radbourne cut Cervus Equipment Corp. (CERV-T) to “tender” from “hold” with a $19.50 target, exceeding the $19.25 average.
* TD’s David Kwan raised his target for Sangoma Technologies Corp. (STC-X) to $4.75 from $4.50, reaffirming the “buy” rating. The average is $5.37.
* Piper Sandler initiated coverage of Lithium Americas Corp. (LAC-N, LAC-T) with a “neutral” rating and US$20 target. The average is US$26.07.
David Leeder