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

After share price appreciation through the fourth quarter of 2021, Scotia Capital analyst Robert Hope now sees Fortis Inc. (FTS-T) as “fairly valued.”

Accordingly, he lowered his rating for the St. John’s-based utility to “sector perform” from “sector outperform” on Friday, emphasizing its premium versus its peers has “widened out.”

“Shares of the overall utility group were strong through Q4/21 as interest rates softened and overall investor interest picked up (off of very low levels),” said Mr. Hope in a research report. “Fortis has been particularly strong since the start of December, gaining 8 per cent versus its peers AQN/EMA/H gaining 4 per cent/5 per cent/3 per cent. Interestingly, we also saw a strong divergence between the utility and renewable power groups, which we believe could reverse in 2022. Based on consensus estimates, this has pushed up Fortis’ forward P/E to 21 times, which is well ahead of its 2/5/10 year averages of 19.5 times/18.4 times/18.4 times. Relative to its closest peers, we have seen Fortis’ forward PE premium increase to 0.7 times for Emera and 1.0 times for Hydro One.

“While Fortis’ long track record is supportive of a premium valuation, we believe the magnitude of this premium is narrower than in prior years. In fact, we believe Emera and Fortis should trade relatively in-line given Emera’s stronger EPS growth outlook, partially offset by its slower dividend growth and higher payout ratio. We believe Fortis should trade at a 0.25-times premium to Hydro One given its stronger growth profile. ... Our regression based analysis shows the potential for higher valuations given where bond yields are. As we previously noted, since the onset of COVID, utility valuations had decoupled from those implied from our regression analysis (similar to what happened after the financial crisis). However, it appears that the gap is narrowing and we could see these relationships re-hook in 2022, which implies some additional upside for the group.”

Mr. Hope expects a “quieter” year for Fortis in 2022, seeing the potential for both positive and negative catalysts for its shares.

“On the positive side, additional transmission investments could increase the visibility of its growth profile,” he said. “We are watching for additional progress on the Lake Erie connector, which is a $1.7-billion project and could be worth $1 per share of value on a present value basis. We could see some additional clarity on LNG related investments in BC as well. On the negative side, the never-ending story of FERC ROEs at ITC is likely to continue and present some downside to our estimates (5 cents of EPS). Also, the regulatory environment in Arizona (22 per cent of 2022 income) could be more challenging in the future, though a new major rate case isn’t likely until 2023 in our opinion.”

Mr. Hope maintained a $60 target for Fortis shares. The average target on the Street is $58.97, according to Refinitiv data.


In a separate note, seeing “high-quality growth on sale,” Mr. Hope raised his rating for Brookfield Renewable Partners LP (BEP-N, BEP.UN-T) to “sector outperform” from “sector perform,” touting a “strong” growth outlook.

“We have long liked Brookfield Renewable’s collection of high-quality and diversified renewable assets and view the shares as an attractive way to play the de-carbonization theme,” he said. “We believe the company has a wide and deep pool of attractive opportunities, which should generate above-average cash flow growth. In fact, we see Brookfield Renewable’s growth outlook as quite a bit stronger than the majority of our coverage universe. The shares of the Canadian renewable power group were under pressure in 2021, with the December weakness likely in part related to tax loss selling. At recent levels, we believe Brookfield Renewable’s units are attractively valued and provide an entry point for those who have long liked the business but were previously held back by valuation.”

Mr. Hope is projecting funds from operations per unit growth in 2022 of 11 per cent followed by gains of 9 per cent and 7 per cent in 2023 and 2024, respectively. He said that forecast is at the upper end of his coverage universe.

“In fact, we see a long runway of high-single-digit / low-double-digit cash flow growth for Brookfield Renewable, whereas our more energy-focused coverage (pipeline, midstream) have moderated their growth outlooks in recent years,” he said. “Brookfield Renewable is uniquely positioned to benefit from the many tailwinds related to renewable power growth, which show no signs of abating over the coming decade. In fact, over the next five years, Brookfield’s management is targeting average annual 10-per-cent-plus FFO per unit growth, which is driven by improving returns on its existing assets (3-6 per cent), developing new projects (3-5 per cent), and up to 9-per-cent growth from its M&A activities. The company recently increased its targeted annual equity deployment to $1.0-$1.2-billion (from $0.8-$1.0-billion), which could provide some upside to our forecasts. The increase is based off of the wealth of opportunities that the company is seeing and supported by the launch of the Brookfield Global Transition Fund (BGTF) that could be up to $15-billion.”

Seeing an “attractive” entry point to its shares, Mr. Hope kept a US$42 target. That falls narrowly below the US$43.68 average.

“Renewable power stocks were out of favour in 2021 with the Canadian peer group declining a median of 17 per cent, while Brookfield Renewable declined by 17 per cent,” he said. “We see this driven by a variety of factors, including: (1) valuations coming off of lofty levels following a strong 2020, (2) concerns regarding inflation impacting growth outlooks (which we believe is less of an issue for BEP), (3) concerns about policy direction in the U.S., and (4) rotation out of defensive stocks into more torquey energy names. That said, in the majority of our marketing meetings in late 2021, we saw significant interest in the space. It appears that there is significant demand to invest in the renewable space, though the consistent downtrend through 2021 was holding some back.”


Equity analysts at National Bank Financial expect inflation to provide support for gold prices through 2022.

In a research report released Friday, the firm raised its near-term gold and silver prices for 2022 and 2023 “modestly,” prompting valuation changes for companies in its coverage universe that led to a series of target price adjustments.

In our view, the combination of U.S. interest rates and inflation (real rates) tends to be a better indicator for the spot gold price outlook,” the analysts said. “More specifically, we believe the trend in real rates is most important when it comes to predicting the outlook for the spot gold price. In our view, gold could see support into the spring if inflation trends continue to prove elevated and drive real rates to flatten out if not decline from current levels. The recent dramatic rise in U.S. COVID-19 cases tied to the Omicron variant is also something we are watching closely with respect to the potential impact on the U.S. economic recovery.”

The stocks seeing the largest target increases were:

  • Centerra Gold Inc. (CG-T, “outperform”) by 12 per cent to $14 from $12.50. The average target on the Street is $11.70.
  • Triple Flag Precious Metals Corp. (TFPM-T, “sector perform”) by 11.8 per cent to $19 from $17. Average: $19.89.
  • Minera Alamos Inc. (MAI-X, “outperform”) by 10 per cent to $1.10 from $1. Average: $1.05.

Those sustaining the largest declines were:

  • Maverix Metals Inc. (MMX-T, “sector perform”) by 12.9 per cent to $6.75 from $7.75. Average: $8.50.
  • Sandstorm Gold Ltd. (SSL-T, “outperform”) by 11.6 per cent to $9.50 from $10.75. Average: $11.62.
  • SSR Mining Inc. (SSRM-T, “outperform”) by 10.9 per cent to $28.50 from $32. Average: $32.63.

The firm also revealed its top picks for the year. They are:

Senior producers

* Endeavour Mining Corp. (EDV-T) with an “outperform” rating and $46 target, down from $49 but above the $44.12 average.

Analyst Don DeMarco: “EDV continues to be a conviction top pick, supported by elevated FCF, stable production outlook, multiple pipeline opportunities and discounted valuation. We model 2022 FCF of US$800-million for a yield of 15 per cent at spot prices, superior versus peers in a comparable over 1 million ounce production wheelhouse with yields averaging 10 per cent as per Bloomberg consensus. We model N5Y production of 1.4 million ounces per year at AISC of US$900 per ounce from a diversified production base. Moreover, we highlight multiple levers to maintain (or expand) its production base including (1) resources of 25 million ounces (exclusive of Reserves) for conversion opportunities and mine life extensions, (2) high-grade brownfield opportunities at cornerstone assets Ity (Le Plaque), Houndé (Kari Area) and Sabodala/Massawa, and (3) next-mine opportunities in Fetekro (2.5 million ounces), Golden Hill (1.4 million ounces), Kalana (2.6 million ounces) and Bantou (2.2 million ounces).”

* Kinross Gold Corp. (K-T, “outperform”) with a $13 target, up from $12.50 and above the $12.57 average.

Analyst Michael Parkin: “Kinross trades at a significant discount to senior peers on a P/NAV and EV/EBITDA basis, which we continue to believe is unwarranted. Our thesis hinges on a number of factors including (1) a strong operational track record, with guidance achieved for nine consecutive years, with the first recent miss being 2021, coupled with senior peer best year-over-year production growth potential (up 27 per cent for 2022 vs. 2021), with unit costs expected to fall with the significant production growth; (2) a healthy balance sheet; (3) strong multi-year FCF generation, coupled with a 2022 FCF yield (after dividends) of ~16.4%, well above the senior producer average; (4) excellent exploration potential at producing and development projects; and (5) a trustworthy and disciplined management team that has recently demonstrated the ability to de-risk its operations (Tasiast mill restarted and on schedule to achieve 21 ktpd by the end of 1Q22).”

Intermediate and Junior Producers

* Centerra Gold Inc. (CG-T) with an “outperform” rating and $14 target, exceeding the $11.70 average.

Mr. Parkin: “By our estimates, we see Centerra having the potential to grow GEO production by nearly 20 per cent year-over-year (excluding Kumtor) thanks to an expected step-up in performance from the high-margin Oksut gold mine (NBF estimated 2021 AISC of US$710 per ounce) in Turkey. The significant depreciation of the Turkish lira may also prove to enhance margins at this asset even further, which are already expected to improve significantly in 2022 thanks to the far higher gold production expected as the mine continues to ramp up. The Company recently announced that the BC floods have not derailed its production and sales budget for the Mount Milligan mine, and thus we expect continued strong performance out of this mine again in 2022. Together, we expect these two strongly performing assets to drive FCF of over US$220 million in 2022.”

* Wesdome Gold Mines Ltd. (WDO-T) with an “outperform” rating and $15.50 target, up from $14.50 and above the $14.67 average.

Mr DeMarco: “Our thesis is supported by NAV accretion from near-mine exploration success; low capex intensity production growth; M&A appeal as a Canadian producer; and visibility for a higher target after Kiena ramp-up de-risked. At Kiena, we currently model LOM production with significant potential for upside from exploration success. We highlight the recent Kiena Footwall discovery announced on March 23 and additional results on May 19 as a driver of improved sentiment.”

Royalty Companies

* Sandstorm Gold Royalties Ltd. (SSL-T) with an “outperform” rating and $9.50 target, below the $11.62 average.

Analyst Shane Nagle: “The current valuation discount to senior royalty companies continues to support rotation down-cap within the royalty sector where Sandstorm continues to trade at a 0.62-times NAV discount to FNV/WPM/RGLD vs. 0.5 times historically. The company has an attractive near-term growth outlook (including a 14-per-cent five-year CAGR) and is expected to benefit from de-risking the Hod Maden project as it continues to advance.”

Other notable target changes include:

  • Agnico Eagle Mines Ltd. (AEM-T, “sector perform”) to $81 from $80. Average: $95.46.
  • Newmont Corp. (NGT-T, “outperform”) to $98 from $92. Average: $92.
  • Dundee Precious Metals Inc. (DPM-T, “outperform”) to $11 from $11.50. Average: $12.47.
  • Equinox Gold Corp. (EQX-T, “outperform”) to $12.50 from $12.25. Average: $14.56.
  • Iamgold Corp. (IMG-T, “outperform”) to $4.75 from $4.50. Average: $4.17.
  • Yamana Gold Inc. (YRI-T, “outperform”) to $7 from $6.75. Average: $7.34.


Concurrently, National Bank expects the rise demand for green energy could provide a catalyst for silver moving forward.

“Broadly speaking, silver continues to be supported by many of the same factors as gold, primary of which is inflation and negative real rates, in our view, with additional support from industrial demand (50 per cent of silver demand driven by industrial activity),” the firm said. “The latter includes green energy applications in solar photovoltaic panels, which represent about 10 per cent of silver demand, which are expected to increase though there is a potential offset from innovation. ETF demand shows outflows over the LTM, as expected with the decline in silver prices. Silver price upside may be tempered by a strengthening DXY, sharply higher bond yields (the US10Y is currently 1.74 per cent, up from 1.5 per cent at YE21), contraction in negative real rates, a slowing pace of industrial activity or innovation in photovoltaics

After price deck changes, its target price adjustments were:

  • Aya Gold & Silver Inc. (AYA-T, “outperform”) to $13.50 from $13. Average: $13.
  • First Majestic Silver Corp. (FR-T, “sector perform”) to $18.50 from $19. Average: $19.87.
  • MAG Silver Corp. (MAG-T, “outperform”) to $30 from $32. Average: $27.83.
  • Pan American Silver Corp. (PAAS-T, “outperform”) to $48 from $44. Average: $45.

“Our top silver pick is PAAS, on continued recovery from COVID impacts and an expected operational rebound at several mines including its flagship La Colorada mine,” it said. “Moreover, PAAS offers trading liquidity, a strong balance sheet and diversified production, desirable attributes in a volatile silver market. For torque, we recommend AYA, a pure-play silver producer and compelling exploration prospect and at a $1-billion market cap, a wheelhouse where exploration can still move the needle. A detailed investment thesis for each company is included within.”


A pair of equity analysts on the Street downgraded Starbucks Corp. (SBUX-Q) on Friday, expecting its shares to remain rangebound amid pricing pressures.

Seeing a “more balanced risk-reward in the near term,” RBC Dominion Securities’ Christopher Carril moved the stock to “sector perform” from “outperform” with a US$122 target, down from US$124. The average on the Street is US$123.

“While we continue to view SBUX as among the more compelling long-term, large cap growth stories across consumer discretionary, we see shares as close to fully valued (currently trading at 28 times FY23 estimated EPS, roughly in line with itstrailing three-year average), limiting upside in the near-term,” he said.

“We will continue to watch for potential signs of margin improvement beyond our current expectations.”

Oppenheimer’s Brian Bittner moved Stabrucks to “perform” from “outperform” with a US$130 target.

“We are most attracted to SBUX when we’re early to identify an earnings revision cycle (e.g., ‘21 EPS revised up 14 per cent),” he said. “Our updated analysis suggests EPS forecasts in ‘22 and ‘23 lack upside levers needed to drive outperformance. While 2022 is a well-telegraphed ‘investment year,’ the Street already underwrites outsized margin and EPS growth in ‘23. We believe this elevates degree of difficulty through ‘23. We remain upbeat toward the company’s unit growth and SSS trends, but await a more favorable risk/reward setup.”

Concurrently, Mr. Bittner cut his target for Restaurant Brands International Inc. (QSR-N, QSR-T) to US$70 from US$76 with an “outperform” rating. The average is US$69.92.

“We upgraded QSR on 8/26/21 at $64.11 as we identified an opportunity to take advantage of negative investor sentiment and favorable risk/reward highlighted but an unprecedented valuation discount,” he said. “We remain attracted to the investment opportunity in 2022 as: 1) an improving global development pipeline drives 5-per-cent-plus unit growth, which appears under-appreciated; 2) Street’s ‘22 SSS expectations for Tim Hortons appear too pessimistic if Canada fully reopens; and 3) we see a lack of operational EBITDA downside in ‘22 and ‘23 based on our analysis of consensus. The primary reason QSR isn’t in our 2022 top pick list is uncertainty regarding potential near-term investments that could be announced to revitalize the Burger King brand and its potential impact on our financial model and shares.”


In other analyst actions:

* Bearish on the fundamentals for U.S. retail softline stocks and predicting negative sentiment will linger, UBS analyst Jay Sole cut Canada Goose Holdings Inc. (GOOS-N, GOOS-T) to “neutral” from “buy” with a US$35 target, down from US$59 and below the US$50.55 average.

“For the 39 stocks in our coverage universe, our FY22 EPS estimates are, on average, 8 per cent below consensus,” he said. “We also expect the downward revision cycle to last into CY23 and this will keep P/Es low. In this environment, we prefer stocks from companies which will deliver big EPS growth and beats. Therefore, we anticipate stocks like Buy-rated Nike, On Holding, Deckers, Skechers, and Bath & Body Works perform well. Alternatively, we predict Sell-rated Nordstrom, Dillard’s, and Macy’s perform poorly.”

* Conversely, Barclays’ Adrienne Yih upgraded Canada Goose to “overweight” from “equal-weight” with a US$56 target (unchanged), citing: “1) shift to direct-to-consumer brand, 2) catalyst of return to travel, and 3) high-end HH income target.”

* Adjusting his valuation methodology to “better reflect the various puts and takes associated with the ramping of Lightspeed payments and the integration of Ecwid, which will affect reported customer locations and ARPU [average revenue per user],” RBC Dominion Securities analyst Daniel Perlin cut his target for Lightspeed Commerce Inc. (LSPD-N, LSPD-T) to US$62 from US$104, keeping an “outperform” rating. The average on the Street is US$98.82.

“Although we have reduced our price target, which now better reflect the peer group range, we are no less confident in the company’s ability to achieve its mid-term organic revenue CAGR [compound annual growth rate] target of 35-40 per cent, which is peer leading,” he said. “Our thesis that LSPD is evolving into a commerce platform remains unchanged, as increased monetization via payments, within its embedded base, coupled with new customer growth and rising ARPU, could provide upside to our estimates throughout FY23.”

* After a negative revision to its fourth-quarter 2021 production guidance and a lower-than-expected production level in 1Q22, Scotia Capital analyst Michael Doumet cut his Stelco Holdings Inc. (STLC-T) target to $54 from $55, below the $55.75 average, with a “sector perform” rating.

“Big picture, we view the impact as temporary and relatively mild (we had already assumed a larger discount to ASPs versus CRU spot in 4Q21 and 1Q22 due to softening prices/demand),” he said. “On our lowered estimates, we estimate Stelco will still generate more than 40 per cent of its market cap in FCF through 2022, leaving ample opportunity for accretive capital deployment. We estimate the net impact of the outages to our FCFPS estimate will be 70 cents per share.”

* ATB Capital Markets analyst Patrick O’Rourke initiated coverage of Prairiesky Royalty Ltd. (PSK-T) with a “sector perform” rating and $15.50 target. The average on the Street is $18.95.

“While we see PSK as holding a unique and high-quality asset base, run by a top-tier management team; we believe management has done an excellent job of conveying these strengths to the market and, as a result the Company is more efficiently priced relative to peers at this time,” he said.

* Mr. O’Rourke also initiated coverage of Freehold Royalties Ltd. (FRU-T) with an “outperform” rating and $16.50 target. The average is $15.82.

“Freehold has been a disciplined acquirer, and believes targeting the highest quality resource will give the Company downside risk protection against commodity prices,” he said. “The Company has been a consistent acquirer over the last decade, making annual acquisitions ranging in scale from $8-million (2020 - no initial production) to $410-million (2015 – 2.1 mboe/d initial production). FRU has been consistent in messaging that it continues to look for opportunities that enhance the resiliency and durability of its existing portfolio – the Company expects that it can maintain its current dividend at sub US$40/bbl WTI.”

* JP Morgan analyst Richard Sunderland raised his Emera Inc. (EMA-T) target by $1 to $62 with an “underweight” rating. The average is $62.10.

* Evercore ISI analyst James West increased his target for Precision Drilling Corp. (PD-T) to $82 from $78, exceeding the $66.91 average, with an “outperform” rating.

* Alliance Global Partners analyst Aaron Grey slashed his Canopy Growth Corp. (WEED-T) to $11 from $18 with a “neutral” rating. The average is $14.

* Mr. Grey also lowered his Organigram Holdings Corp. (OGI-T) target to $2.25 from $4, below the $3.36 average, with a “neutral” rating.

* Raymond James analyst Farooq Hamed cut his Calibre Mining Corp. (CXB-T) target to $2.25 from $2.50, below the $2.62 average, with a a “strong buy” rating based on the expectation for higher 2022 operating costs.

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