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

Despite the market reacting positively to Quebecor Inc.'s (QBR.B-T) second-quarter financial results on Thursday, driving its share price up 5.11 per cent, Desjardins Securities analyst Maher Yaghi sees the stock now trading in line with the sector, leading him to downgrade his rating for the Montreal-based media company.

Noting its historical discount to peers has diminished recently following the buyback of Caisse de dépôt et placement du Québec's interest in Quebecor Media, Mr. Yaghi moved the stock to "hold" from "buy."

"We estimate that 2Q18 results were generally in line with expectations on both the financial and subscriber fronts," the analyst said. "The company reported continued strength in wireless subscribers (although this was expected), but ABPU [average billings per user] growth was disappointing, following the rest of the industry. It was a difficult quarter for media, as broadcasting was affected by the absence of the Montréal Canadiens in the NHL playoffs. However, we highlight that media represents a low proportion of the company’s consolidated EBITDA.

"It is possible that the stock will overshoot our fundamental valuation following a convertible debenture cash buyback, as arbitrageurs might have to buy shares in the open market to offset previous hedge positions. However, we believe such trade-based support will not last in the long term."

Mr. Yaghi maintained a target price of $31.50 for Quebecor shares. The average target on the Street is $30.57, according to Thomson Reuters Eikon dats.

“While we continue to view QBR as very well-positioned to continue to post good EBITDA growth rates, supported by wireless, the stock now trades in line with its peers (vs a discount historically),” he said. “Given our view that QBR does not have the scale to generate similar wireless margins vs incumbents, we do not see a fundamental reason for the stock to trade at a sustained premium. We prefer to look for a better entry point before rejoining the bullish crowd.”


Computer Modelling Group Ltd.'s (CMG-T) second-quarter financial results were “not as severe as headline numbers imply,” according to Industrial Alliance Securities analyst Elias Foscolos.

Calling Thursday's 11.7-per-cent drop in share price an "overreaction," Mr. Foscolos upgraded his rating for the stock to "buy" from "hold," citing a 17-per-cent one-year return to his revised target price.

On Wednesday, the Calgary-based computer software technology company, which primarily serves the oil and gas industry, reported quarterly revenue of $16.7-million, missing Mr. Foscolos's $19.4-million forecast and the Street's expectation of $19.2-million. Headline EBITDA of $5.8-million also missed estimates.

However, Mr. Foscolos said the results actually fall in line with expectations after factoring in the adoption of IFRS 15 and the timing of revenue recognition.

"Once adjusting for the miss in revenue, we estimate EBITDA would have been near our forecasted value," he said. "We have updated our fiscal 2019, 2020, and our long-term growth rate which results in a lower DCF [discounted cash flow] value."

Mr. Foscolos's target for CMG shares dipped to $10 from $10.50 with the lower estimates. The average on the Street is $9.66.


Credit Suisse analyst Andrew Kuske lowered his rating for Emera Inc. (EMA-T) largely in reaction to its dividend growth reduction

On Thursday, the Halifax-based energy and services company reported adjusted earnings per share for the second quarter of 48 cents, missing the projections of Mr. Kuske (55 cents) and the consensus on the Street (56.5 cents).

It also declared an annualized dividend of $2.35, rising from $2.26. However, the company narrowed its annual dividend growth target to a range of 4-5 per cent through 2021 from 8 per cent previously, citing the need to allocate funds to "significant regulated rate base investment opportunities," including its US$1.7-billion investment in Tampa Electric.

"In our view, EMA's core Florida asset base growth along with the transmission assets are major longer-term positives. Yet, in our view, the near-term noise and a lower growth rate detract from these positives," said Mr. Kuske.

He moved the stock to “neutral” from “outperform” with a target of $45, falling from $48.The average is $48.09.


Citing stock momentum and “hot” fundamentals, Raymond James analyst Ken Avalos upgraded his rating for Killam Apartment Real Estate Investment Trust (KMP.UN-T) to “outperform” from “market perform” following better-than-anticipated second-quarter financial results.

“We had downgraded the stock in early January at $14.39 and saw the stock fall to a low of $12.79 (Feb 9),” said Mr. Avalos. “However, we missed the strong move since. The Ontario-based apartment REITs have enjoyed a fantastic 18 months, but fundamentals out East are proving to be quite strong as well; however, there’s a 130 basis point delta between CAR/IIP [Canadian Apartment Properties REIT/InterRent Real Estate Investment Trust] and Killam’s implied cap rates. The stock trades 3 per cent above our $15.00 NAV (vs 14 per cent for Ontario peers), but we could argue that with stable 3-per-cent-plus SPNOI [same-property net operating income], a 3,000-suite repositioning program and a 2,400-suite development pipeline, the NAV could be $16.50+ in 12-18 months. Shorter lease duration to protect against rising rates, the second-highest distribution yield in the sector, and a much improved balance sheet also help.”

On Thursday, Halifax-based Killam reported quarterly funds from operations of 25 cents per unit, up 9 per cent year-over-year and 1 cent higher than the projection of both Mr. Avalos and the Street. Both overall and apartment SPNOI jumped 6 per cent, due largely to higher apartment rents, lower incentives and a record net operating income (NOI) margin for the second quarter.

Mr. Avalos target price is $17 per unit, exceeding the consensus of $16.34.


Mr. Avalos thinks Sienna Senior Living Inc.'s (SIA-T) “strong” business fundamentals sit “detached” from its current stock price, leading him to raise his rating to “outperform” from “market perform.”

"Sienna’s business continues to show strength, with solid SPNOI growth out of both the LTC [long-term care] and RR [retirement residence] segments," he said. "While we wouldn’t expect growth to continue to 2Q18’s rate, it should still lead the healthcare sector. Along with a much-improved balance sheet, a dividend increase and a year-to-date 10-per-cent drop in the stock (versus a 5-per-cent increase for the Capped REIT Index), these reasons justify upgrading Sienna."

On Wednesday, Markham, Ont.-based Sienna reported funds from operations per share for the second quarter of 37 cents, a rise of 13 per cent year over year and 3 cents above the forecast of both Mr. Avalos and the Street. The beat was due largely to higher margins and lower interest.

The company also raised its monthly dividend for the first time since August of 2012 to 7.65 cents from 7.5 cents.

Mr. Avalos's target for the stock is $19, which is 14 cents less than the consensus.

Elsewhere, CIBC World Markets' Chris Couprie upgraded Sienna to "outperformer" from "neutral" with a $19 target.

Mr. Couprie said: “Sienna is a strong operator with margins and health care quality metrics that outperform peers. Recent softness in the shares, we believe, was a function of mixed Q1 results, and headline risks surrounding a recently filed statement of claim (which we believe will have little financial impact). With solid Q2 results and the combination of the stock trading near trough absolute and relative P/NAV [price-to-net asset value] valuation levels, and a 5.4-per-cent yield, the total return potential is attractive for this solid operator.”


Though Canadian Tire Corporation Ltd. (CTC.A-T) “shocked the market” with its weaker-than-expected second-quarter financial results, Desjardins Securities analyst Keith Howlett is maintaining his positive outlook for the second half of 2018 and 2019, dismissing the impact of a “ruinous” month of April.

Shares of the retail dropped 7.9 per cent on Thursday after reported adjusted earnings before interest, taxes, depreciation and amortization of $393.3-million, missing the projections of both Mr. Howlett ($450-million) and the Street ($442-million). Retail revenue of $89-million also fell below the analyst’s expectations, due largely to a significant drop in April before a rebound in May and June.

“A double-digit decline in sales in April due to unusually cold ‘spring’ weather (lost sales) and the impact of a change in accounting presentation (IFRS 9) were the drivers,” said Mr. Howlett. “Our outlook on the business is largely unchanged. We have neutralized the impact of IFRS 9 by adjusting our valuation multiple. IFRS was not intended to affect valuation, but to delineate and smooth longer-term risk.”

Based on the results, Mr. Howlett lowered his 2018 and 2019 earnings per share estimates to $11.45 and $13.24, respectively, from $12.11 and $13.63.

However, he kept a "buy" rating for Canadian Tire shares and raised his target price to $205 from $200. The average target on the Street is currently $190.25.

Elsewhere, Canaccord Genuity's Derek Dley lowered his target to $172 from $175, keeping a "hold" rating.

Mr. Dley said: "We continue to expect near-term results to remain challenged. In particular, we believe the company will continue to incur increased operating expenses related to the ramp up of the Bolton Distribution Centre, while the roll-out of Canadian Tire’s deliver-to-home initiative in late summer of 2018 and the execution of the company’s digital strategy are expected to negatively impact EBITDA margins in the near term.

“That being said, we continue to like the medium- to long-term opportunities created by Canadian Tire’s Triangle Rewards program. While we believe this program will help to improve the Retail segment’s growth profile, it should also lend supportive to incremental GAAR growth at CTFS [ Canadian Tire Financial Services]. In our view, CTFS is well positioned to continue to generate meaningful GAAR growth, particularly as the Triangle Rewards program expands and Canadian Tire continues to integrate its financial services offering with the loyalty program as well as the company’s Retail business.”


CIBC World Markets analyst Mark Jarvi lowered Just Energy Group Inc. (JE-T) to “neutral” from “outperformer” upon assuming coverage from Kevin Chiang. He also reduced his target to $5 from $6, which is below the $6.06 consensus.

“After a challenging F2018, we expected improving fundamentals and an improving growth outlook,” said Mr. Jarvi. “However, soft FQ1/19 results (adjusted EBITDA was 35 per cent below consensus despite a favorable shift in accounting of selling expenses) temper our outlook and we believe the benefits of investments in new products/channels to drive growth could take a few quarters to play out. While arguably you could own the stock to collect a healthy dividend (over 10-per-cent yield) and wait for improving results, we do not have sufficient conviction that materially stronger results will come in the next couple quarters and it’s not clear where yield support lies. JE maintained fiscal 2019 EBITDA guidance, which implies roughly 10-per-cent year-over-year growth at the midpoint ($210-million); management has suggested growth is more weighted to H2, but will have to push hard to offset these soft FQ1 results.”


In other analyst actions:

Barclays lowered CI Financial Corp. (CIX-T) to “equal weight” from “overweight” with a target of $24, falling from $29. The average on the Street is $25.67.

BMO Nesbitt Burns upgraded Echelon Financial Holdings Inc. (EFH-T) to “market perform” from “underperform” with a target of $14, which is the consensus, from $13.

National Bank analyst Maxim Sytchev downgraded AutoCanada Inc. (ACQ-T) to “sector perform” from “outperform” with a $15 target, falling from $23.50.The average is $22.78.

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