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

Canadian oil-weighted energy producers continued to create “significant” free cash flow in the third quarter, said Scotia Capital analyst Jason Bouvier, emphasizing most are “maintaining their capital discipline with healthy contributions to debt repayment, increased dividends and share buybacks.“

“This has not gone unnoticed by the market with the Canadian Large Caps and SMID Cap oil weighted companies up 30 per cent and 46 per cent, respectively in the past 6 months,” he said in a research report released Friday. “Even with the run-up, FCF Yields continue to remain robust under futures strip pricing. We continue to believe the Canadian oil space offers tremendous value, but also think investors will need additional clarity on de-carbonization costs before the valuation gap (between Canadian and U.S.) begins to narrow. We expect the federal government to provide additional details on both incentives to de-carbonize as well as the Clean Fuel Standards over the coming months.”

In a post-quarter review of ratings and target prices for companies in his coverage universe, Mr. Bouvier upgraded Imperial Oil Ltd. (IMO-T), one of his top large-cap picks, to “sector outperform” from “sector perform.”

“IMO’s upstream performance continues to improve and we see upside to management’s plan to reach 280 mbbl/d (gross) at Kearl by 2024/25,” he said. “The company’s downstream assets give IMO exposure to improving refined product demand and the advantaged Canadian refined product market. IMO’s net debt will hit zero in Q1 and the company is committed to maintaining capital discipline. As such, we believe the company will materially increase shareholder returns via both increased dividends and SBB. The company recently accelerated the pace of its NCIB. We expect further clarity regarding shareholder returns to be a meaningful catalyst for IMO.”

His target for Imperial Oil shares rose to $52 from $48. The average on the Street is $47.63, according to Refinitiv data.

Mr. Bouvier also raised his target for Cenovus Energy Inc. (CVE-T), his other large-cap preference, emphasizing its “continued balance sheet and operational streamlining via non-core asset sales and accelerated shareholder returns.”

With a “sector perform” rating, his Cenovus target rose to $19 from $16.50, exceeding the average of $19.57.

His other changes were:

* Baytex Energy Corp. (BTE-T, “sector perform”) to $4.25 from $3.75. Average: $4.73.

* Enerplus Corp. (ERF-T, “sector outperform”) to $15 from $13.50. Average: $15.13.

* Freehold Royalties Ltd. (FRU-T, “sector perform”) to $14 from $13.50. Average: $15.65.

* MEG Energy Corp. (MEG-T, “sector outperform”) to $14 from $13. Average: $14.35.

* Suncor Energy Inc. (SU-T, “sector outperform”) to $37 from $33. Average: $38.78.


RBC Dominion Securities analyst Michael Carroll remains “encouraged” by the outlook for Vancouver-based City Office REIT Inc. (CIO-N).

However, feeling it’s properly reflected in its current valuation, he lowered his rating for its shares to “sector perform” from “outperform” on Friday.

“CIO delivered healthy 3Q21 results and is making encouraging progress re-deploying the Sorrento Mesa sale proceeds,” said Mr. Carroll. “Therefore, management has elected to accelerate the closing of the entire life science disposition to December 2021. This quicker than expected redeployment drives our 2022 and 2023 estimates higher, but does not impact the longerterm earnings run-rate or our NAV assumptions.”

The analyst trimmed his funds from operations per unit projection for 2021 to US$1.32 from US$1.40 to account for a third-quarter earnings miss, due, in large part, to a US$5-million employee incentive compensation expense. However, he increased his 2022 and 2023 estimates to US$1.72 and US$1.63, respectively, from US$1.37 and US$1.52 previously.

“Our higher 2022 and 2023 estimates are driven by our expectation that management will complete $600-million of acquisitions near year-end 2021,” he said. “We previously expected the company would complete $395-million of deals in 1H22 and $181-million in 2Q23/3Q23.”

“Occupancy has remained healthy despite slower leasing environment. Management has been successful renewing its large upcoming lease expirations over the past few years keeping its occupancy in the high-80-per-cent and low-90-per-cent range. However, we expect occupancy will tick lower given the slower leasing environment combined with high near-term lease roll. The portfolio has 2.9 per cent of ABR expiring in 4Q21, 16.6 per cent in 2022 and 16.4 per cent in 2023. There are four large leases expirations over the next twelve months with two known move-outs (46K SF at FRP in 4Q21 and 133K SF at SanTan in 3Q22), one backfill (51K SF at Park Tower), and one renewal (72K SF at AmberGlenn). Overall, we expect this dynamic will push occupancy 350 basis points lower in 2022 and 50 bps lower in 2023.”

Mr. Carroll maintained a US$19 target for City Office shares. The average target on the Street is $20.50.


After providing an update on the denial of its application to extend the environmental permits at its San Jose mine in Mexico early Friday, Canaccord Genuity analyst Dalton Baretto raised Fortuna Silver Mines Inc. (FVI-T) to “hold” from “sell” with a $5.50 target. The average is $6.50.

“It is becoming clear to us that while the Mexican authorities are determined to challenge San Jose’s EIA, the company’s lending syndicate is willing to work with the company,” he said. “As such, we believe the near-term pressure has been alleviated; however, longer-term risks remain. We are particularly focused on the company’s liquidity as they build the $174 million Seguala project, as the loss of the credit facility as well as operating cash flow from San Jose could create a substantial funding gap. Nonetheless, given the breathing room provided by the lenders and the significant recent decline in the share price, we are upgrading FVI.”


Desjardins Securities analyst David Newman thinks shares of Parkland Corp. (PKI-T) have been “unduly punished,” believing it is “on the verge of an inflection point on the back of its proven business model and investments in Develop, Diversify and Decarbonize, which will drive robust growth, a fundamental shift in the portfolio mix and lucrative cash flow generation.”

He raised his financial expectations for the Calgary-based company in response to a non-deal roadshow following its Nov. 16 Investor Day event.

“Management laid out a highly compelling case that served to address many investor misperceptions while outlining its strategic plans for the next decade,” said Mr. Newman.

He believes Parkland is “well on track” to achieve its “ambitious” target of $2-billion in earnings before interest, taxes, depreciation and amortization by 2025. He also emphasized its growing free cash conversion, the diversification strategy of its energy transaction and its ESG initiatives.

Maintaining a “buy” rating for its shares, Mr. Newman increased his target to $54 from $50. The current average on the Street is $51.21.

“We believe PKI trades at an unwarranted discount of 6.7 times on 2022 EBITDA, but 6.5 times on its $1.6-billion run rate, vs peers at 8.8 times (many at more than 10 times, including ATD at 10.3 times),” he said.

“The stock price represents a compelling entry point for value investors.”


Flagship Communities Real Estate Investment Trust (MHC.U-T) “continues to check all the boxes,” said Desjardins Securities’ Kyle Stanley.

Upon resuming coverage of the REIT following its US$46.5-million equity offering, he pointed to three consecutive earnings beats; an active external growth program, including US$173-million of acquisitions since its initial public offering in October of 2020 and a recent 5-per-cent increase to its annual distribution.

The proceeds from the equity offering are being deployed to partially fund the recent acquisition of three manufactured housing communities comprising of 957 lots.

“We believe there is a healthy mark-to-market opportunity across the three assets; moreover, management will implement sub-metering, which should improve utility reimbursements and enhance the going-in yield,” said Mr. Stanley.

“After incorporating better-than-expected 3Q21 results reported on November 10, the equity offering and acquisitions that are scheduled to close in December, our 2022 FFO [funds from operations] outlook increases by 5 per cent and our 2023 FFO outlook by 3 per cent. We see pro forma leverage (D/GBV) at 40 per cent (was 43 per cent at 3Q21).”

Reiterating a “buy” rating, Mr. Stanley increased his target to US$23 from US$22. The average is US$22.38.

Elsewhere, BMO’s Joanne Chen raised her target to US$22.50 from $20.50 with an “outperform” rating.

“Our positive outlook on Flagship remains unchanged after Q3/21 earnings and today’s equity raise,” said Ms. Chen. “We continue to believe the demand for MHCs will remain strong, supported by ongoing housing affordability issues and the corresponding attractiveness of Flagship’s product offering. In addition to solid organic cash flow growth, we expect MHC.U will continue to undertake accretive acquisitions within its core markets. Given the consistent solid performance since the IPO, we have increased our NAV estimate and continue to apply a slight premium to arrive at our target price.”


Declaring the “EV revolution is here,” Wedbush analyst Daniel Ives sees the Street “continuing to digest the massive transformation” coming to the auto industry in 2022, projecting the “green tidal wave” will result in a US$5-trillion market opportunity over the next decade with Tesla Inc. (TSLA-Q) “leading the way.”

“However, it is not just Tesla that will benefit with traditional stalwarts such as GM, Ford, VW and EV focused vendors such as Lucid, Rivian, Fisker and others going after massive consumers dollars up for grabs the next decade,” he said in a research note released Friday. “We also believe the Biden Infrastructure signing kicks off the first phase of EV infrastructure (charging stations, tax credits) build outs signaling a new era of adoption for electric vehicles in the US. While China and Europe have seen a clear acceleration to EVs, the US has been a laggard as today roughly 2 per cent of automobiles domestically are EVs. Its not just consumer EVs as commercial/last mile and EV supply chain plays such as Li-Cycle, ChargePoint, EVgo, Electric Last Mile, Hyzon, Xos among others are well positioned to benefit from the biggest transformation to the auto industry since the 1950′s. In our opinion based on the current trajectory EVs globally will represent 10 per cent of autos by 2025 and 30 per cent by 2030.”

Mr. Ives said valuations are now “focused on identifying the winners in this arms race” and sees a “paradigm shift in the way the Street is analyzing leading EV players such as Tesla and Lucid.”

“We have always treated Tesla as a disruptive technology vendor and not a traditional auto vendor, with now Lucid being viewed as the next golden child in the EV landscape,” he said. “How do you value EV vendors in this parabolic growth backdrop with a fundamental profile still in the early days of playing out? Herein speaks to the emotional bull/bear debate on EV names as valuations continue to move higher and many wondering if this is a bubble or the first stage of a decade long EV metamorphosis?

“To this point, we believe there is $5 trillion of auto/software driven market dollars up for grabs with Tesla likely to own $2.5 trillion of this pie, leaving 50 per cent of the EV market to 100+ OEMs attacking this opportunity. The EV stocks are reflecting future parabolic growth and margin potential over the coming years, with now the execution/capacity story taking hold into 2022. We also believe a re-rating for the likes of traditional auto stalwarts such as GM, Ford, and VW is likely on the horizon as the SOTP EV valuations change the Street’s view of these names. In a bull case scenario we believe GM could be a $100 stock by the end of 2022 with our base case price target $85.”

Mr. Ives called China the “linchpin” for Tesla’s bull thesis, estimating it will represent 40 per cent of deliveries in 2022 and seeing it worth US$400 per share.

“While PR/safety headwinds were front and centre in China earlier this year, we have seen this demand trend reverse aggressively in a bullish way for Tesla into year-end with the company now on a 50k monthly run-rate for China into 2022,” he said. “The chip/component shortage remains a headwind for Tesla (and every other automaker) however we view this as a transitory issue with our core focus on Model 3/Y demand which is outstripping supply by roughly 15 per cent as of today.”

That prompted him to raise his target for Tesla shares to US$1,400 from US$1,100 (with a bull case remaining US$1,800). The average on the Street is US$836.72.

He maintained an “outperform” rating.


In other analyst actions:

* Deutsche Bank analyst Brian Bedel raised his Brookfield Asset Management Inc. (BAM-N, BAM.A-T) target to US$55 from US$54 with a “hold” rating. The average is US$67.21.

* RBC’s Matt Logan increased his target for units of Crombie Real Estate Investment Trust (CRR.UN-T) to $19.50 from $19 with a “sector perform” rating. The average is $19.61.

“On the back of an in-line Q3/21 print, CRR continues to execute well,” he said. “Operationally, the portfolio is in solid form, with rising occupancy and modest leasing spreads setting up 2022 for healthy organic growth. As well, value created from the first round of major developments has surpassed our initial estimates on strong execution, and a little help from cap rate compression. At current levels, we view CRR’s premium valuation as well supported.”

* RBC’s Irene Nattel raised her George Weston Ltd. (WN-T) target to $162 from $154, exceeding the $151.43 average, with an “outperform” rating.

“Investor focus is and should be on future use/timing/magnitude of WNF divestiture proceeds,” she said. “Our constructive outlook on WN is predicated on our favourable outlook for more than 50-per-cent owned Loblaw (L-T) augmented by the application of a portion of proceeds from the sale of WN Foods to an SIB. Raising Q3 estimates on the back of strong results from Loblaw.”

* JP Morgan analyst Tyler Langton raised his Lithium Americas Corp. (LAC-T) target to $49 from $35, above the $44.91 average, with an “overweight” recommendation.

* Scotia Capital analyst Patricia Baker bumped up her target for Metro Inc. (MRU-T) target to $73 from $70, keeping a “sector perform” rating. The average is $67.27.

* National Bank Financial analyst Michael Parkin raised his New Gold Inc. (NGD-T) target to $2.50 from $2.25, topping the $2.40 average, with a “sector perform” rating.

* Canaccord Genuity’s Tania Gonsalves increased her Quipt Home Medical Corp. (QIPT-X) by $1 to $11, keeping a “buy” rating. The average is $12.13.

* RBC’s Pammi Bir raised his SmartCentres Real Estate Investment Trust (SRU.UN-T) target to $34 from $33 with an “outperform” rating. The average is

“Post in-line Q3 results, our outlook on SRU remains constructive,” he said. “Fundamentals continue to mend, with a solid rebound in organic growth and occupancy on its way back to pre-pandemic levels on the strength of Walmart’s consumer and tenant draw. Value-creation initiatives are making solid progress, with the next substantial mixed-use project set to advance in short order. As well, we’re encouraged to see capital recycling on the agenda, as the strong private market appetite for defensive retail and density provides attractively priced capital.”

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