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

After reporting better-than-expected second-quarter financial results on Thursday before market open, shares of Gildan Activewear Inc. (GIL-T, GIL-N) jumped 21.6 per cent.

Based on that rise, Desjardins Securities analyst Keith Howlett lowered his rating for the Montreal-based apparel manufacturer to “hold” from “buy.”

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“In response to changing retail channel customer needs, as well as consumer behaviour, Gildan has made rapid adjustments to its organizational structure and go-to-market strategy over the last six months,” he said. “This has been in addition to proceeding with existing major initiatives such as commissioning new and/or upgraded production facilities in Honduras and Mexico, and relaunching the acquired American Apparel brand. The benefits of a lower SGA expense rate will be reflected in 2H18 results, while production and distribution enhancements should be largely reflected by 3Q19. While transitional risks remain, progress to date is impressive.”

For the quarter, Gildan reported adjusted earnings per share of 52 U.S. cents, exceeded the expectation from the Street by 3 U.S. cents and topping last year’s 49 U.S. cent result. Revenue rose 6.8 per cent, stemming from 17.3-per-cent growth in its activewear segment (versus a 23.8-per-cent drop in hosiery and underwear).

The company also shifted its annual guidance to the high-end of its current range for 2018.

“Gildan is generating stronger sales growth than management expected entering 2018, despite slightly slower sales growth of American Apparel than projected and a steeper decline in sock sales than expected,” said Mr. Howlett. “The activewear business is driving the company’s sales growth, both in North America and internationally.”

Though he lowered his 2018 EPS projection by a penny, Mr. Howlett raised his 2019 estimate by 4 U.S. cents to $2.12.

He also increased his target price for Gildan shares to $44 (Canadian) from $41.50. The average target on the Street is $43.69, according to Thomson Reuters Eikon data.


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Despite reporting quarterly results that met his expectations, Raymond James analyst Jeremy McCrea downgraded Freehold Royalties Ltd. (FRU-T) to “market perform” from “outperform” based on relative growth expectations.

“We have applauded Freehold’s royalty business over the past few years given the lower risk, higher return business compared to many traditional E&P operators (that for the most part, have mixed track-record on capital return),” he said. "Unfortunately, given the improvement in oil prices and relative growth that traditional E&P companies should see, we are downgrading our rating to Market Perform.

“Given the flatter growth expected into 2019 for Freehold, partially based on lower new wells seen with 2Q and an activity slowdown worry with some key operators across Freehold’s mineral title, we are taking a wait-and-see approach for now.”

His target fell to $16 from $16.75. The average is $17.55.


Raymond James' Daryl Swetlishoff added Interfor Corp. (IFP-T) to the firm’s “Canadian Analyst Current Favourites” list, replacing Norbord Inc. (OSB-T, OSB-N).

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“We are adding Interfor to our Analyst Current Favourites list given our constructive view on building materials markets which backstops strong earnings and free cash flow growth,” said Mr. Swetlishoff. “The pullback in the stock which can be attributed to seasonal weakness and with no change in our long term outlook, this represents an opportunity for investors to take advantage of an attractive entry point.”

He has a “strong buy” rating and $35 target for Interfor shares. The average is $31.08.

Mr. Swetlishoff also pegs Norbord a “strong buy” with a $66 target, which exceeds the consensus of $57.12.

“We are removing Norbord from our Analyst Current Favourites list following over a year on the list,” he said. “We see the stock reaction following recent record results and special dividend announcement as warranted and continue to see upside given an inexpensive valuation (relative to current fundamentals) and strong FCF generation supporting return of capital to shareholders.”


Sierra Wireless Inc.'s (SWIR-Q, SW-T) stronger-than-anticipated second-quarter financial results led CIBC World Markets analyst Todd Coupland to raise his rating for its stock to “neutral” from “underperformer.”

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On Thursday, the Vancouver-based company reported sales for the quarter of $200-million, exceeded the projections of Mr. Coupland ($200-million) and the Street ($199-million). Adjusted earnings per share of 27 cents easily topped the 21-cent estimate of both the analyst and the Street.

“Management indicated its business is growing again and margins are improving. The outlook for Q3 was also consistent with our forecast,” he said. “We were encouraged by both, given the company has a record of uneven performance.”

Mr. Coupland maintained a US$20 target, which is slightly lower than the consensus of US$22.08.

“Sierra’s valuation is below its fair value and supports our revision to a Neutral rating,” he said.


Though BCE Inc.'s (BCE-T, BCE-N) second-quarter results largely fell in-line with this expectations, Desjardins Securities analyst Maher Yaghi said he was “underwhelmed” by its wireless average billing per user (ABPU), which he deems “one of the main pillars for consolidated growth.”

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"While we recognize that the company’s dividend yield is attractive, we believe the stock is fairly valued given its lower-than-average organic earnings growth," said Mr. Yaghi.

On Thursday, BCE reported revenue and adjusted EBITDA of $5.79-billion and $2.43-billion, respectively, for the quarter, meeting the Street’s estimates of $5.81-billion and $2.43-billion. Postpaid wireless net additions of 122,092 exceeding the consensus expectation of 104,000.

"However, blended ABPU growth missed the target, as we believe the improvement of Freedom’s service and the reaction of incumbents to this new product are negatively impacting general pricing power," the analyst said. "In addition, BCE has been adding new subscribers from a government contract that has a low ARPU profile."

"Media EBITDA declined 8.5 per cent year over year (and missed consensus) amid a soft advertising market and rising content costs. Our negative view on the media industry has led us to decrease the valuation multiple we apply to media in our NAV [net asset value] to 6 times (from 8 times)."

Though he raised his 2018 and 2019 EPS estimates to $3.48 and $3.69, respectively, from $3.45 and $3.64, Mr. Yaghi lowered his target price for BCE shares to $60.75 from $61. The average target is $59.39.

He maintained a “hold” rating.

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“Although BCE is a model of consistency, we believe the current valuation is fair for a company with slower organic growth than other large Canadian telcos,” said the analyst. “While BCE’s FCF [free cash flow] yield is still healthy, we believe opportunities for further FCF growth vectors through acquisitions could become harder to find in the coming years.”

Elsewhere, RBC Dominion Securities' Drew McReynolds lowered his target to $60 from $61, keeping a "sector perform" rating.

Mr. McReynolds said: "Given BCE’s position within the group as a reliable dividend grower and bond proxy, we would expect the stock to remain susceptible to changes in interest rate expectations – this despite some FCF benefit on the back of lower pension funding should bond yields back up. Notwithstanding macro headwinds, we believe underlying company fundamentals remain intact driven by wireless leadership, an expanding FTTH [fiber-to-the-home] footprint and cost management."


Nutrien Ltd.'s (NTR-N, NTR-T) “strong” execution is underpinned by “solid” fertilizer markets, said RBC Dominion Securities analyst Andrew Wong.

On Thursday, the Saskatoon-based company raised its earnings guidance, emphasizing it is ahead of schedule on previously announced cost-cutting initiatives. Its stock rose over 4.5 per cent on the day.

"Nutrien reported progress across several areas,” said Mr. Wong. “Synergy realizations are well-ahead of original timeline, expected to realize $350-million by end-2018 vs. $250-million prior. Equity investment sales are almost complete, with SQM sale to Tianqi set to close by end-2018. Capital return [is] on-track as Nutrien has completed 90 per cent of share buyback announced earlier this year and we expect a dividend increase before end-2018 given strong financial performance. Retail acquisitions this past quarter included two businesses, Waypoint and Agrible, that will bolster the company's digital platform.”

Mr. Wong sees fertilizer market fundamentals as a near-term tailwind, noting: “We are seeing broad-based strength across all major fertilizer markets which we think is sustainable.”

Maintaining an “outperform” rating for Nutrien shares, Mr. Wong increased his target to US$63 from US$60. The average is US$59.

“We think Nutrien has executed very well on multiple fronts including synergy realizations, equity investment sales, capital return, Retail acquisitions, and operations,” he said. “The company is now also benefiting from much improved fertilizer prices that we expect are sustainable at current levels. We believe the combination of strong execution and constructive underlying fertilizer prices supports our positive view.”

Meanwhile, TD Securities' Greg Barnes downgraded the stock to “hold” from “buy” with a target of US$63, down from US$60.


Desjardins Securities analyst Benoit Poirier applauded SNC-Lavalin Group Inc.'s (SNC-T) decision to sell a portion of its stake in Ontario’s Highway 407, calling it a “nice opportunity to unlock its full intrinsic value.”

On Thursday, with the announcement of its quarterly results, deemed "decent" by Mr. Poirier, SNC announced is evaluating a sale of 6.76 per cent of its 16.76-per-cent stake in the road with the aim of creating further shareholder value.

"We welcome this decision, as we believe it will enable SNC to demonstrate the intrinsic value of Highway 407 while maintaining a significant investment in it (approximately 10 per cent) to benefit from future appreciation of the asset (recall that management previously mentioned that its entire stake of 16.67 per cent could be worth $6.0–7.0-billion by 2026 ($34–40/share)."

"Highway 407 recently reported strong results. Not only did revenue grow by an impressive 9.5 per cent year-over-year in 2Q18 (traffic up 1.5 per cent year-over-year, with average pricing up 9.2 per cent year-over-year), but EBITDA also increased by 9.5 per cent year-over-year to $319-million for a margin of 88.0 per cent (flat vs a year ago). These strong numbers support management’s positive stance on SNC’s value for Highway 407 (after tax, we calculate a value of $26.39)."

Maintaining a "buy" rating for SNC shares, Mr. Poirier increased his target by a loonie to $73. The average is $71.05.


Canaccord Genuity analyst Jed Dorsheimer thinks Tesla Inc. (TSLA-Q) should be “applauded for disrupting the auto industry in such a short period of time.”

However he sees notable risks with its financing, cash burn and "general maturity" in the industry, leading him to initiated coverage of its stock with a "hold" rating.

"In our opinion, TSLA has undoubtedly developed a superior product with its Model S, X and Model 3," said Mr. Dorsheimer. "We believe these cars exhibit a far greater value proposition than the ICE competition. As the company grows into this product portfolio, we are encouraged by the opportunities to change how we travel.

“We would look to become more constructive on opportunistic pullbacks or catalysts that we feel would de-risk the shares such as shifts in corporate governance, consistent production levels, and a CEO who is not working 120 hours per week to hold things together.”

Mr. Dorsheimer set a target price of US$336 for Tesla shares, which exceeds the current average of US$317.75.

“As TSLA shares enter a phase of stability, we see value that could be far greater than investors are attributing,” he said. “However, the risks that we have noted above keep us and we believe others at bay at the moment.”


In other analyst actions:

Cormark Securities analyst David Tyerman upgraded Bombardier Inc. (BBD.B-T) to “market perform” from “reduce” and raised his target by 65 cents to $5.25. The average on the Street is $5.87.

Cormark’s David McFadgen raised Spin Master Corp. (TOY-T) to “buy” from “marker perform” with a $66 target, rising from $57. The average is $62.

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