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

Despite Precision Drilling Corp.’s (PD-T) third-quarter financial results falling largely in line with expectations, Canaccord Genuity analyst John Bereznicki lowered his rating for its shares to “hold” from “buy” based on expected return following recent gains.

Shares of the Calgary-based company dropped 7.1 per cent on Thursday dropped it reported revenue for the quarter of $254-million, up from $164.8-million a year ago but “modestly” below the analyst’s $260-million projection. EBITDA, adjusted for share-based compensation, came in at $58.7-million, meeting Mr. Bereznicki’s forecast.

“Operationally Precision’s third quarter revenue shortfall was driven primarily by its domestic drilling segment, with its U.S. and International drilling segments largely in line from our perspective,” he said. “Precision exited Q3/21 with $57-million in cash and (pre IFRS 16) net debt to 2021 estimated EBITDA of 5.5 times. The company has reiterated its $100- to $125-million debt reduction target for 2021 and has increased its capital program this year to $74 million (from $63 million). Precision reports U.S. pricing gains in Q3/21 along with a constructive market outlook, although notes its current US active rig count (of 45) is below previous guidance due to customer work delays and management’s reluctance to pursue pricing discounts.”

Even though he trimmed his sales and EBITDA estimates for 2021 and 2022, Mr. Bereznicki maintained a $65 target for Precision Drilling shares, saying it has “generally been a strong performer” despite Thursday’s decline. The average target on the Street is $66.61, according to Refinitiv data.

Elsewhere, Raymond James’ Andrew Bradford cut Precision Drilling to “market perform” from “outperform” with a $62.50 target, rising from $55.

“PD stock took a hit on the apparent miss, down 8 per cent and as much as 10-per-cent intra-day versus declines of 2 per cent to 5 per cent for other North American land drillers (TSX up 0.1 per cent),” said Mr. Bradford. “Even including [Thursday’s] price action, PD has been the best performing of the “Big 5″ North American drilling stocks year-to-date — up 167 per cent versus its peers up 136 per cent to 48 per cent. The apparent miss in combination with the strong stock performance year-to-date sets the stage for more moderated relative performance going forward. At $54.65, Precision is priced at 5.9 times our 2022 EBITDA estimate ($317-million vs the $320-million consensus). This multiple is approaching fair value based heavily on the 2019 precedent.”

Analysts making target changes include:

* Stifel’s Cole Pereira to $71 from $69 with a “buy” rating.

“The guidance for both drilling margin and activity improvements offered on its 3Q21 call continues to support our positive view on the stock and drives an increase in our target price,” he said.

* ATB Capital Markets’ Waqar Syed to $75 from $81 with an “outperform” rating.

“So far in Q3 earnings season – albeit only four companies have reported so far – a general trend is weaker than expected third quarter results, but an optimistic industry outlook, and even more so compared to the Q2/21 guidance/commentary. PD fits this theme to a tee, and while its Q3 results were somewhat disappointing, we think investors should be focused on the very strong outlook,” said Mr. Syed.

* National Bank Financial’s Dan Payne to $65 from $55 with an “outperform” rating.

* TD Securities’ Aaron MacNeil to $57 from $60 with a “hold” rating.


Though he thinks the outlook for CES Energy Solutions Corp. (CEU-T) remains “constructive,” iA Capital Markets analyst Elias Foscolos is “reserving some short-term caution” following a recent share price surge.

Accordingly, despite seeing a “robust” recovery in drilling activity on both sides of the border, he lowered his rating for the Calgary-based company to “speculative buy” from “buy.”

“We believe CEU is remaining disciplined with its pricing and foregoing unprofitable work,” said Mr. Foscolos. “The result is that CEU has maintained solid margins, but has also given back some market share in U.S. drilling fluids. CEU’s margin performance since the onset of COVID-19 has been impressive, in our view, and a key contributing factor in driving multiple quarterly EBITDA beats.”

“We believe the new dividend is sustainable. We see CEU trading at a 2022 estimated AFFO [adjusted funds from operations] yield of 15 per cent, although we estimate the “true” yield is lower after deducting a charge for stock based compensation (SBC). CEU has signalled confidence in its outlook and ability to generate free cash flow (FCF) through cycles by reinstating a dividend, which is currently yielding 3 per cent.”

While he raised his rig count estimates for the United States, Mr. Foscolos warned that CES’s streak of quarterly EBITDA beats could end when it reports third-quarter results, projecting lower margins moving forward due to inflation and supply chain concerns.

He maintained a $2.80 target for its shares. The average on the Street is $3.03.

“Despite some recent downward pressure due to last Friday’s unexpected leadership transition announcement, the stock has surged over the past several weeks,” said Mr. Foscolos. “We continue to see valuation upside for the stock but we are reserving a degree of caution ahead of Q3 reporting.”


National Bank Financial analyst Maxim Sytchev says he likes Stantec Inc.’s (STN-T) US$500-million acquisition of Cardno Ltd.’s North American and Asia Pacific engineering and consulting business “a lot,” believing it demonstrates to the market that its platform and management team are “at the maturation point of completing/integrating a sizeable M&A.”

Shares of the Edmonton-based engineering services company soared 9.7 per cent on Thursday in response to the premarket announcement with the Australian firm. The deal is expected to add almost 2,7500 engineers and increases its presence both in the United States and Australia.

“We are, of course, going to see more of these [deals] in the future as management reiterated its long-term objective of infilling in Australia (6K personnel potential vs. current 2.5K headcount), expanding in the U.S. and the UK, etc.,” said Mr. Sytchev. “Infra bill in the U.S. is also just around the corner (hopefully) and the new platform will enable the combined company to better penetrate Federal work scope while opening the door to Health sciences vertical. Australia turnaround also appears to be well thought out.

“For a $620-million EV transaction, STN’s market cap moved up promptly by $800-million [Thursday] morning, faster than we would have hoped for if we were to revisit the recommendation. With 16.0 times EV/EBITDA multiple on 2022 estimates (in line with WSP and up from 14.0 times), our NAV also imputes an accelerated growth profile.”

After raising his revenue and earnings expectations for 2021 and 2022, Mr. Sytchev increased his target for Stantec shares to $72 from $60 with a “sector perform” rating. The average on the Street is $71.29.

“Investors will of course be anchoring their expectations to 2023 soon, providing some upside from the usual rollover,” he added

“We are waiting for any market-related volatility to step back into this quality name.”

Other analysts making target changes include:

* Desjardins Securities’ Benoit Poirier to $75 from $66 with a “buy” rating.

“We are very pleased with the acquisition announced by STN as we believe the evolution of its M&A strategy beyond the 1,000-employee threshold demonstrates management’s openness to accelerate growth by strategically leveraging the balance sheet,” he said. If successful, this transaction should serve as a blueprint for future larger transactions as STN’s balance sheet is expected to remain fairly healthy post closing at 1.5 times.”

* ATB Capital Markets’ Chris Murray to $71 from $60 with a “sector perform” rating.

“Overall, we are constructive on the acquisition as it will support STN’s strategic plan to expand its presence in targeted geographies and sectors with the assets acquired at an attractive valuation. Despite our positive view on the transaction and future M&A impacting our price target increase, we maintain our Sector Perform rating, largely due to prevailing valuations,” said Mr. Murray.

* BMO Nesbitt Burns’ Devin Dodge to $76 from $67 with an “outperform” rating.

“Stantec remains our preferred idea within our E&C coverage owing to its strong presence in the U.S .market (more than 50 per cent of its revenues), margin upside potential, and attractive earnings growth outlook,” said Mr. Dodge. “Moreover, we believe there is a strengthening case that Stantec’s valuation discount to WSP shouldnarrow (currently 8 turns on P/E).”

* RBC Dominion Securities’ Sabahat Khan to $65 from $59 with a “sector perform” rating.

* CIBC World Markets’ Jacob Bout to $78 from $73 with an “outperformer” rating.

* Scotia Capital’s Mark Neville to $78 from $72 with a “sector outperform” rating.

* Raymond James’ Frederic Bastien to $76 from $67 with an “outperform” rating.

* TD Securities’ Michael Tupholme to $80 from $69 with a “buy” rating.


Though it faces “tough” comps, Citi analyst Tyler Radke expects Shopify Inc. (SHOP-T, SHOP-N) to report “strong” third-quarter merchant addition results.

“We see a largely mixed set-up for SHOP as the company continues to benefit from e-comm/ payment tailwinds offset by difficult compares in Q3, and potentially sluggish summer seasonality trends,” he said. “Our third party data points to continued strength in net merchant additions year-to-date, though we believe the reliability has been more mixed recently. That said, we believe new merchant additions can continue to be somewhat of an offset to potential reopening headwinds to GMV per average merchant. We continue to see healthy prospects for durable growth at Shopify (we model a 40-per-cent-plus 3-year CAGR in merchant solutions), but we are concerned that much of this appears much of this is priced in (shares trade at 31 times calendar 2022 revenues with gross margins below SaaS peers). With growth slowing, we think it will be difficult for shares to re-rate beyond a better understanding of how the magnitude & timing of new products get monetized (e.g. Shop App, Fulfillment Network, social channels).”

In a research note previewing earnings season for North American application software and systems software providers, Mr. Radke trimmed his quarterly projections for the Ottawa-based firm “slightly” to account for gross merchandise value growth and the pace of margin expansion.

Mr. Radke did note he remains slightly above the consensus GMV forecast on the Street, but sees “more modest” upside than in the last quarter.

His target for Shopify shares slid to US$1,570 from US$1,650 with a “neutral/high risk” recommendation. The current average is US$1,682.43.

Elsewhere, CIBC World Markets analyst Todd Coupland kept a “neutral” recommendation and US$1,750 ahead of the Oct. 28 earnings release.

Mr. Coupland said: “Achieving Q3 revenue growth expectations of 50 per cent could be challenging given the slowdown in e-commerce web traffic. Year-on-year web traffic growth in Q3 to Shopify’s website was only 8 per cent compared to 19 per cent in Q2 and 69 per cent in Q1. We recommend investors wait for a more attractive entry point.”


IA Capital Markets analyst analyst Naji Baydoun sees the clean energy transition of both TransAlta Corp. (TA-T) and Capital Power Corp. (CPX-T) potentially driving both additional growth and diversification.

“Incremental investments in renewable projects at high single-digit returns will clearly act as additional growth catalysts for both companies,” he said in a research report released Friday. “However, we believe that the real upside lies in the diversification benefits of these incremental investments; increased exposure to lower-risk, contracted renewable assets outside of Alberta should reduce both companies’ risk profiles, and therefore improve their relative valuations.”

Mr. Baydoun thinks TranAlta’s plan to invest $3-billion through 2025, adding almost 2 gigawatts of renewable power capacity and adding $250-million in incremental EBITDA, is “achievable” and thinks it can “source significant opportunities from its existing development pipeline (and potentially M&A).”

For Capital Power, Mr. Baydoun emphasized its $1.6-billion plan is aimed largely toward gas assets, adding: “Even if the Company is able to successfully source $500-million per year of new investment opportunities on a self-funded basis (as per its objectives, with the majority potentially allocated to renewables), we estimate that CPX will remain a predominantly thermal IPP. Therefore, in order to accelerate its clean energy transition, we believe that CPX will need to execute on additional strategic initiatives and source additional development prospects (e.g., M&A).”

Keeping a “buy” recommendation for TranAlta shares, he raised his target by $1 to $16.50. The average is $15.45.

His target for Capital Power increased to $46 from $44, exceeding the $45.15 average, with a “hold” recommendation.

“Assuming that TA can execute on its growth plans (highly likely), and that CPX can source an additional $2-billion of investments through 2025 (could require additional strategic initiatives), we estimate that both companies’ shares could deliver 7-8-per-cent average annual total shareholder returns (TSR),” he said. “However, we believe that the upside potential in TA carries a lower risk profile, due to the Company’s (1) faster transition towards lower risk renewable assets, (2) incremental diversification efforts, and (3) better visibility on future growth projects. Furthermore, we see both downside protection and upside optionality for TA shareholders from Brookfield’s strategic support. Overall, for investors looking for value in the Canadian IPP sector, we continue to see further upside in both TA and CPX, although we prefer the lower relative risk profile and upside optionality in TA at this time.”


National Bank Financial analyst Michael parkin upgraded Alamos Gold Inc. (AGI-T) to “sector perform” from “outperform” with a $12 target, down from $13.25 and below the $13.83 average.

Mr. Parkin and his colleagues also adjusted their target prices for a group of mining equities on Friday. Their changes include:

  • Agnico Eagle Mines Ltd. (AEM-T, “sector perform”) to $83 from $90. Average: $101.23
  • B2Gold Corp. (BTO-T, “outperform”) to $8.50 from $8. Average: $8.24.
  • Capstone Mining Corp. (CS-T, “outperform”) to $7.50 from $7. Average: $7.03.
  • Copper Mountain Mining Corp. (CMMC-T, “outperform”) to $5.25 from $5. Average: $5.05.
  • First Quantum Minerals Ltd. (FM-T, “outperform”) to $37 from $36.50. Average: $33.07.
  • Taseko Mines Ltd. (TKO-T, “sector perform”) to $3.25 from $3. Average: $3.09.
  • Teck Resources Ltd. (TECK.B-T, “outperform”) to $48.50 from $43. Average: $39.72.
  • Lundin Mining Corp. (LUN-T, “sector perform”) to $13 from $14. Average: $12.96.
  • Kinross Gold Corp. (BTO-T, “outperform”) to $11 from $11. Average: $8.24.
  • Kirkland Lake Gold Ltd. (KL-T, “sector perform”) to $55.50 from $50. Average: $63.28.
  • Wheaton Previous Metals Corp. (WPM-T, “outperform”) to $65 from $72. Average: $73.65.
  • Triple Flag Precious Metals Corp. (TFPM-T, “sector perform”) to $17 from $19.50. Average: $20.20.
  • Sandstorm Gold Ltd. (SSL-T, “outperform”) to $10.75 from $11.50. Average: $12.03.
  • Centerra Gold Inc. (CG-T, “outperform”) to $12.25 from $12. Average: $10.68.
  • Osisko Gold Royalties Ltd. (OR-T, “outperform”) to $20.50 from $21.50. Average: $23.01.
  • Equinox Gold Corp. (EQX-T, “outperform”) to $13.75 from $14. Average: $14.60.
  • Maverix Metals Inc. (MMX-T, “sector perform”) to $7.75 from $7.25. Average: $8.71.
  • Iamgold Corp. (IMG-T, “outperform”) to $4.50 from $3.75. Average: $4.10.
  • Franco-Nevada Corp. (FNV-T, “sector perform”) to $205 from $200. Average: $200.13.
  • Pan American Silver Corp. (PAAS-T) to $49 from $50. Average: $35.84.
  • Lundin Gold Inc. (LUG-T) to $13.75 from $13.50.


In other analyst actions:

* Following a “strong” quarter and the removal of Edward Rogers as Chairman, BMO Nesbitt Burns analyst Tim Casey raised his target for Rogers Communications Inc. (RCI.B-T) to $72 from $68 with an “outperform” rating, while TD Securities analyst Vince Valentini bumped up his target to $76 from $74 with a “buy” rating. The average on the Street is $72.27.

“The move resolves a major level of uncertainty since an abrupt CFO change three weeks ago. For Q3, Wireless posted an encouraging quarter with very strong subscriber loading. Fundamentally, we expect Wireless to continue to recover given economic reopening and more international consumer travel, and we expect Cable results will be stable to up slightly until H2/22. We are reinstating our $72 target price (from $68) given the governance resolution.”

* RBC Dominion Securities analyst Brad Heffern raised the firm’s target for Tricon Residential Inc. (TCN-N, TCN-T) to US$16 from US$15.50, maintaining an “outperform” rating, upon assuming coverage of the stock. The average is $17.38 (Canadian).

“We think TCN adds a unique strategy to the U.S. [single-family rental] market, and the company’s focus on middle-market homes has generated stronger rent growth and lower turnover than peers,” he said. “Acquisition pace has also led the group. The price of the higher growth is additional complexity and higher leverage, but non-SFR businesses will likely be exited over time and we are comfortable with higher leverage in the SFR business.”

* In a Canadian auto sector earnings preview. CIBC World Markets analyst Krista Friesen cut her AutoCanada Inc. (ACQ-T) target to $50 from $54 with a “neutral” rating. The average is $64.83.

Ms. Friesen hiked her Boyd Group Services Inc. (BYD-T) target to $284 from $260, keeping an “outperformer” rating. The average is $261.46.

“We are often asked for our thoughts on the near- and long-term implications of the chip shortage on the auto suppliers .... We estimate that U.S. vehicle inventories may not begin to return to normal until 2024,” she said. “We see the auto industry approaching previous cycle peak production levels even as vehicle sales continue to ramp up, coming out of the pandemic. This sets the stage for a longer peak production period during this current auto cycle, which is a positive for auto suppliers. Our top pick is MGA given its bellwether status amongst the Canadian auto suppliers and its EV/ADAS exposure.

* “Taking a slightly more conservative stance on pace of [its] recovery,” RBC Dominion Securities analyst Irene Nattel cut her Saputo Inc. (SAP-T) target to $41 from $43, keeping an “outperform” rating. The average is $39.88.

“Consistent with management’s commentary during recent investor events, we remain cautious on the outlook for F22, although we remain confident in SAP’s ability to return to growth in F23 and beyond, underpinned by a sustained focus on plant efficiency and profitable sales growth, augmented by the optionality of global M&A,” she said. “We trim our near-term forecasts against the backdrop of challenging supply chain and labour issues but maintain our view that the SAP story is ripening and offers potential for significant torque as the environment normalizes.”

* CIBC’s Mark Jarvi lowered his Fortis Inc. (FTS-T) target by $1 to $58 with a “neutral” rating. The average is $58.97.

* TD Securities analyst Tim James raised his TFI International Inc. (TFII-T) target to $165 from $155, exceeding the $131.66 average, with a “hold” rating.

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