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

RBC Dominion Securities analyst Nelson Ng expects “higher for longer” methanol prices stemming from the the Ukraine conflict, supporting strong free cash flow generation and a robust pace of share buybacks for Methanex Corp. (MEOH-Q, MX-T).

“We also believe the shares offer a unique way for investors to gain indirect exposure to rising energy prices in an inflationary environment,” he said in a research note.

Mr. Ng raised his financial estimates for the Vancouver-based company following its recent release of higher methanol reference prices. He’s now forecasting 2022 and 2023 adjusted EBITDA of US$1.234-billion and US$1.068-billion, respectively (from US$1.089-billion and US$994-million, respectively). Those estimates point to a moderation in methanol prices as supply conditions improve.

“IHS recently increased its methanol price outlook to reflect the recent trends in international crude oil prices, China coal prices, and supply constraints in the Americas and China due to a heavy turnaround schedule,” he said. “Longer term, IHS forecast prices to moderate in 2023, but remain at elevated levels. However, we note that the Ukraine war and COVID-19 related lock downs in China add an increased level of uncertainty to global supply/demand dynamics.”

“In January and February the company repurchased 1.1 million shares, bringing the total to ~2.6 million shares purchased under the 3.8 million NCIB. Given the current pace of share buybacks we expect the company could complete the current NCIB in April or May. Our current forecast assumes Methanex will generate a total of $1 billion of excess cash flows over the next two years, which we believe could be allocated towards additional share buybacks.”

Maintaining an “outperform” rating for Methanex shares, he increased to US$65 from US$60 with an “outperform” rating. The average on the Street is US$53.17.

“We are increasing our price target ... based on a 50-per-cent weighting on 5.0 times our 2023 EBITDA estimate, which is a 1.5-times discount to Methanex’s trading multiple on a forward basis observed when methanol prices have been at levels similar to our 2023 forecast, and a 50-per-cent weighting on 6.5 times (1.0-times discount to the historical average) our 2023 EBITDA using the 10-year average realized methanol price,” said Mr. Ng. “We also give the company credit for the amount of capital spent to date on the Geismar 3 development.”

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After the late Thursday release of weaker-than-anticipated quarterly results, Raymond James analyst Steve Li reduced his forecast for BlackBerry Ltd. (BB-N, BB-T) as its Cyber Security segment continues to struggle.

“Cyber annual recurring revenue declined for a fourth quarter in a row and Cyber revenue outlook for F2023 was guided to flat,” he said. “Even though UEM [Unified Endpoint Manager] is predominantly regulated customers, we suspect there is still a meaningful portion that is mid-market where customers do not prioritize the security aspect as much leading to churn. We have reset our F2023 forecasts lower. Patent sale concluded but smaller windfall than expected drives our target price lower.”

Keeping a “market perform” rating for BlackBerry shares, Mr. Li cut his target to US$8 from US$9.50. The average is US$7.78.

Elsewhere, CIBC World Markets’ Todd Coupland lowered his target to US$8 from US$9, keeping an “underperformer” rating.

“Blackberry reported results in line with FactSet estimates on both revenue and EPS,” said Mr. Coupland. “The company also provided an annual revenue outlook for F23 below FactSet expectations by 12 per cent. Both business segments were below expectations. The company expects its Cybersecurity segment to be flat year-over-year as regulated industries’ demand is being offset by SMB churn. It also expects the IoT segment to grow by 12-18 per cent, benefiting from a strong pipeline of designs. We maintain our Underperformer rating, but lower our price target to $8 (prior $9) or 4 times our F23E Software & Services revenue of $682-million plus a contribution from IVY and net cash, including the lower than previously forecasted patent sale proceeds.”

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Topaz Energy Corp.’s (TPZ-T) acquisition of Keystone Royalty for share considerations of $85-million adds “low-cost, low-decline oil volumes from SE Saskatchewan and moves its oil-gas weighting a little closer to balance,” according to Desjardins Securities analyst Justin Bouchard.

“As commodity prices surged in 2022, it appeared as though M&A would pause given the growing bid-ask spread,” he said. “Despite that headwind, TPZ has managed to add another piece to the portfolio at attractive metrics — and oil weighted no less!”

With the deal, announced before the bell on Thursday, Topaz adds royalty production of approximately 450 barrels of oil equivalent per day over 310,000 gross acres of fee mineral title lands. It expects to generate approximately $17-million of annualized royalty revenue in 2022 from the Keystone Royalty Assets, based on current strip pricing.

“Pro forma, the company’s production’s mix will be close to its corporate target of 75-per-cent natural gas (from 82 per cent in 4Q21),” said Mr. Bouchard. “The southeast Saskatchewan area is known for its lowcost, low-decline oily production. Of note, 70 per cent of the acquired lands are undeveloped. Over the past three months, 10 gross wells have been drilled on the lands, which are expected to add volumes in the near term.

“Assuming the deal close sin mid-2Q22, we anticipate that TPZ will generate cash flow of $325-million in 2022 at strip pricing, which implies a dividend payout ratio of 46 per cent. Given the strong and steady nature of the cash flows, we believe the company has ample room to increase the dividend — which could happen sooner than later. Its current dividend is sustainable at estimated 2022 volumes and a less than 90-per-cent payout ratio in a price scenario of US$45/bbl WTI and US$2.25/mmbtu NYMEX. It is also worth noting the $460-million available on its credit capacity — if there are other deals to be had, TPZ has the dry powder.”

Maintaining a “buy” recommendation for Topaz shares, Mr. Bouchard increased his target by $1 to $24. The average on the Street is $25.55.

Others making changes include:

*ATB Capital Markets’ Patrick O’Rourke to $26 from $25 with an “outperform” rating.

“While we have conservatively modelled the production profile for the acquired asset to hold flat in the near term, given the oily nature and strong geology for the acquired lands we believe there is the potential for increased lease bonus and drilling activity going forward. Finally, the all share transaction, with 56% of shares going to a single shareholder, represents a high vote of confidence in the TPZ value proposition/return expectations for the seller, in our view,” he said.

* iA Capital Markets’ Matthew Weekes to $24 from $23.50 with a “buy” rating.

“The acquisition increases TPZ’s mineral title lands, providing option value on future drilling activity and potential development projects in EOR [enhanced oil recovery] and alternative minerals,” he said.

* Stifel’s Robert Fitzmartyn to $27.25 from $24 with a “buy” rating.

“While the market may scour the landscape for higher operational leverage across the E&P landscape, the royalty model continues to deliver solid returns, juiced by chunky growth in the M&A/A&D market that management has proven adept at sourcing through the cycle,” he said.

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Seeing elevated risks, Scotia Capital analyst Mark Neville reduced his forecast for Canadian auto parts manufacturers on Friday.

“Sometimes the best time to buy an auto stock is when it doesn’t feel like the right time to buy an auto stock – look back to the spring of 2020 for a recent example,” he said. “Now feels like one of those times as demand still appears to be strong, with the added need for inventory levels to be rebuilt – although consumer demand will likely be tested by higher interest rates and inflationary pressures. What complicates the issue at the current moment is supply-side challenges, which are being further stressed by the war in Ukraine and COVID-19-related shutdowns in China. We have reduced our estimates to reflect a combination of incremental supply chain pressures as well as demand erosion, with our revised estimates being at (or near) street lows. Given the elevated risk to forecasts (i.e., ongoing war in Europe, inflation at 40-year highs, etc.), we have also reduced our valuation multiples across the group.”

With that view, he cut his targets for stocks in his coverage universe. His changes were:

* ABC Technologies Holdings Inc. (ABCT-T, “sector perform”) to $8 from $9. The average is $7.92.

* Linamar Corp. (LNR-T, “sector outperform”) to $85 from $90. Average: $82.60.

* Magna International Inc. (MGA-N/MG-T, “sector outperform”) to US$90 from US$110. Average: US$89.71.

* Martinrea International Inc. (MRE-T, “sector perform”) to $12 from $16. Average: $14.14.

“Our target prices move lower, but this is already largely reflected in stock prices. In the absence of a meaningful global economic slowdown, in our opinion, the equites look attractively priced. A diplomatic resolution to the war in Ukraine would likely provide an immediate near-term catalyst,” said Mr. Neville.

Elsewhere, Wells Fargo’s Colin Langan cut his Magna target to US$80 from US$85 with an “overweight” rating.

“Most suppliers will likely miss Q1 EPS expectations, and despite conservative market assumptions, we expect most will guide 2022 to the low end of their guidance range,” he said. “GM should be a stand out in Q1 given better than expected production & strong mix, though we expect lower guidance given commodity headwinds. MGA & LEA should perform better than peers in Q1 given their exposure to strong GM platforms. BWA and ADNT are most likely to hold guidance in our view, while VC & ALV are most likely to cut guidance. Importantly, the revisions will likely be more mild than feared.”

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Pointing to its growth and “solid” balance sheet, Canaccord Genuity analyst Aravinda Galappatthige continues to see Boat Rocker Media Inc. (BRMI-T) as “a deeply undervalued name” following “strong” fourth-quarter results on Thursday.

“Boat Rocker reported its Q4 results, reflecting a beat in adj. EBITDA, led by a strong performance in Kids & Family,” he said. “As was the case in Q3, we saw steep growth in topline (as was expected) driven by partial S1 deliveries of American Rust and Invasion. The company also provided adj. EBITDA guidance for 2022, indicating $40-50-million, representing solid growth off the $31.6-million level in F2021. We do, however, note this is somewhat lower than our pre-quarter expectation of $54-million, largely relating to changes in production timing, as well as supply chain impacting merchandise/brand revenues. The company also closed with cash of $97-million, translating to $1.73 per share.”

While that EBITA disparity drew concern from investors, sending the shares of the Toronto-based company down 5.7 per cent during the trading session, Mr. Galappatthige continues to see it “positioned for multi-year growth.”

“Notwithstanding the downtick to our adj. EBITDA estimate for F2022, we still see the financial guidance as supportive of our thesis that BRMI is on track for high double-digit multi-year growth, as a combination of drivers plays out, including greater traction in premium series, upside from Kids, and merchandise revenues in particular,” he said. “We were especially encouraged by the disclosure of five premium scripted shows (already greenlit) that are either in production or about to go into production this year. Management clarified that some of the initial episodes of these titles would hit F2022, the rest in F2023. This includes the high budget Invasion season II (for Apple TV+), the previously disclosed Beacon 23 for Spectrum/AMC and Mrs. American Pie (Kristen Wiig) for Apple TV+. This gives us confidence around not just F2022 expectations, but also F2023 trends. A key item to watch, however, would be TV margins, an area we think investors would like to see more traction.”

After modest reductions to his sales and earnings projections based on the updated guidance, he trimmed his target for Boat Rocker shares to $11, matching the consensus, from $13 with a “buy” rating.

Elsewhere, seeing it in “deep value territory despite ticking all of the boxes,” RBC’s Drew McReynolds lowered his target to $10 from $11 with an “outperform” rating

“In an environment of unprecedented global demand for content, we believe Boat Rocker continues to tick all of the boxes for an independent content company: a diversified and synergistic business, solid management team/execution, and commercially focused and FCF-minded approach,” he said. “In our view, the provision of 2022 adjusted EBITDA guidance has now lowered the risk profile of the stock post-IPO. Given the double-digit adjusted EBITDA growth and lower risk profile, a net debt-free balance sheet, high-margin assets (Kids and Family, Representation), and heavily discounted relative valuation (5.3 times 2022 EV/EBITDA versus 12 times for peers), we continue to see very good value in the name.”

Meanwhile, TD Securities’ Vince Valentini trimmed the stock to $10 from $11 with a “buy” rating.

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While his “growth conviction [is] unwavering” and he continues to see it as “catalyst rich,” Raymond James analyst Steve Hansen downgraded Cubicfarm Systems Corp. (CUB-T) to “outperform” from “strong buy” on Thursday after its fourth-quarter results disappointed.

Before the bell on Thursday, the Vancouver-based agricultural technology company reported revenue of $819,196, down 63.2 per cent year-over-year and below the estimates of both Mr. Hansen and the Street ($2.3-million and $2-million, respectively). Operating expenses jumped 149.1 per cent to $10.4-million (versus the analyst’s $8.8-million estimate).

“We are trimming our target price on CubicFarm Systems (Cubic) to $2.00 (vs. $2.30 prior) and lowering our rating to Outperform (vs. Strong Buy prior) following the company’s light 4Q21 print (soft revenue, elevated expense trajectory) and corresponding revisions to our estimates, including a new equity raise modeled in 1Q23,” said Mr. Hansen. “Notwithstanding these changes, our long-term conviction remains unwavering, rooted in our belief that Cubic boasts an unrivaled portfolio of automated growing technologies perfectly suited to addressing some of today’s most pressing challenges.”

Elsewhere, Stifel’s Ian Gillies cut his target to $1.75 from $2, below the $2.14 average, with a “speculative buy” recommendation.

“CUB’s commercial activity continues to progress nicely as we expect further contract wins, which would be positive for the stock,” said Mr. Gillies. “Our revenue expectation of $25-million in 2022 is easily supported by existing backlog. The key current risks are margin performance given rising input costs such as steel, and the need for external financing to fund its growth strategy.”

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Stifel’s Andrew Partheniou initiated coverage of a pair of psychedelics companies with “speculative buy” recommendations on Friday:

* Awakn Life Sciences Corp. (AWKN-NE) with an $8 target.

“The psychedelic space within the biotech industry has been challenging, with shares not far off all-time lows amid the recent risk-off sentiment,” he said. “We view this environment as favourable to long-term investors who can pick among the best candidates at a de-risked entry point. As a result, we highlight AWKN as a pure-play psychedelic company focused on treating addiction with a world-renowned management team including famed Prof. David Nutt, a differentiated clinic strategy leveraging the only clinical trial-backed ketamine therapy protocol for Alcohol Use Disorder (KARE) and a de-risked drug development pathway with its lead candidate MDMA for Alcohol Use Disorder (AUD) currently in phase 2. At an EV below $50-million, we believe shares offer an attractive risk-reward profile with investors receiving its KARE licensing strategy, on label potential for KARE as well as second generation candidates all for ‘free.’”

* Wesana Health Holdings Inc. (WESA-CN) with $4 target.

“We highlight WESA as a pure-play psychedelics company that is targeting to revolutionize the Traumatic Brain Injury (TBI) treatment industry, which suffers from no approved therapies and a large patient population,” he said. “We see the company as best positioned to succeed in this difficult-to-treat area given the CEO has personally recovered from TBI using a psilocybin-CBD pharmacotherapy that forms the foundation of its lead candidate SANA-013, initially targeting TBI-related Major Depressive Disorder (MDD).”

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In other analyst actions:

* Citing “earlier-than-expected pricing increases in WCSB pressure pumping, coupled with the company’s strong line of sight for work across both its Canadian and U.S. platforms,” BMO Nesbitt Burns analyst John Gibson upgraded Step Energy Services Ltd. (STEP-T) to “outperform” from “market perform” with a $4 target, rising from $2.50. The average on the Street is $4.07.

“STEP should no longer be overlooked when it comes to leverage to rising North American activity levels,” said Mr. Gibson.

* National Bank Financial analyst Don DeMarco raised his target for shares of Aya Gold & Silver Inc. (AYA-T) to $11.50 from $11.25 with an “outperform” rating. The average target on the Street is $13.44.

* In a research report on North American commodity chemicals companies, Citi analyst P.J. Juvekar raised his Ballard Power Systems Inc. (BLDP-Q, BLDP-T) target to US$13 from US$11, below the US$15.96 average, with a “neutral” rating.

He said: “Our top themes for 1Q are similar to last quarter including: 1) The conflict in Ukraine has kept supply chains constrained and higher energy costs, particularly in Europe, will likely impact margins negatively for Specialties (coatings and cleaning/sanitizing companies). Stay on the sidelines on Specialties. USGC Advantage has widened. 2) Underlying demand remains strong in packaging, construction, durables and coatings for the spring season, with the exception for autos due to continued chip shortages. Lithium deficit likely to continue in the long run. 3) We initiate a pair trade of overweight Dow and underweight ECL due to RM movements. Our 1Q EPS estimates are down only by more than 1 per cent on average with larger cuts in specialties, but higher earnings in lithium/ECU.”

* BMO’s Ben Pham raised his Brookfield Renewable Partners LP (BEP-N, BEP.UN-T) to US$42, above the US$40.89 average, from US$38 with an “outperform” rating.

“While total potential return is more modest to our new US$42 target price (vs. US$38), many of the other companies in our coverage have also rallied hard and BEP’s premium valuation appears justified by the above-average growth, scale, long-life hydro assets, and BAM sponsorship,” said Mr. Pham. “Given those positive trends that will likely sustain this year, we are maintaining our Outperform rating.”

* Piper Sandler’s Michael Lavery lowered his Canopy Growth Corp. (CGC-Q, WEED-T) target to US$6 from US$7 with an “underweight” recommendation. The average is US$10.85.

* Seeing the sale of its long-term care (LTC) platform portfolio leading to improved margins and stronger cash flow growth, Canaccord Genutiy’s Christopher Koutsikaloudis raised his Chartwell Retirement Residences (CSH.UN-T) to $13.75 from $13.25, which is the current consensus, with a “buy” rating.

“Chartwell remains our top pick in the seniors housing sector given its significant exposure to private-pay retirement properties, which should benefit disproportionately (relative to LTC) as seniors housing fundamentals improve,” said Mr. Koutsikaloudis.

* Barclays’ Karen Short hiked her Dollarama Inc. (DOL-T) target to $80, above the $75.77 average, from $62 with an “overweight” recommendation.

“We roll valuation to FY24 (CY23) and reflect EPS upside potential given the price point expansion, DOL’s best-in-class execution, and the company’s unique ability to excel in a volatile backdrop,” she said.

* After reducing her sales forecast to account for new product launch delays following “mixed” fourth-quarte results, Canaccord Genuity’s Tania Armstrong-Whitworth cut her target for Else Nutrition Holdings Inc. (BABY-T) shares to $3 from $4 with a “speculative buy” rating.

“The COVID-19 pandemic and supply chain issues have impacted all areas of BABY’s business,” she said. “For instance, raw material deliveries have been delayed, transportation costs have risen and clinical and product development projects have been delayed. Moreover, most of the marketing events, conferences and expos BABY participates in were either cancelled or turned virtual, slowing down its pace of its business development efforts.”

* Canacocrd Genuity’s John Bereznicki made a trio of target changes to stocks in his coverage universe: Gibson Energy Inc. (GEI-T, “hold”) to $27 from $26; Keyera Corp. (KEY-T, “buy”) to $37 from $35 and Pembina Pipeline Corp. (PPL-T, “buy”) to $52 from $49. The averages on the Street are $25.18, $34.94 and $47.41, respectively.

* BMO’s Ryan Thompson cut his First Majestic Silver Corp. (FR-T) target to $13 from $13.50 with a “market perform” rating. The average is $19.05.

* Canaccord Genuity’s Robert Young trimmed his Pivotree Inc. (PVT-X) target to $5 from $5.50 with a “hold” rating. The average is $7.50.

* TD Securities’ Meaghen Annett lowered his Richelieu Hardware Ltd. (RCH-T) target to $52 from $55 with a “hold” rating. The average is $53.50.

* In response to its acquisition of UK-based Brewin Dolphin Holdings Plc, Stifel’s Mike Rizvanovic raised his Royal Bank of Canada (RY-T) target to $152, exceeding the $150.86 average, from $150 with a “hold” rating.

“Post close, RY will become a top 3 wealth manager in the UK and Ireland market, adding much needed scale to its existing operations in the region, which in our view, makes the deal a good strategic fit,” he said. “We view the transaction as a modest positive from an earnings perspective (1-per-cent accretive with upside potential from revenue synergies) and we note that the bank’s excess capital will remain at healthy levels after close ($9-billion pro forma), leaving potential for further deployment into growth initiatives.”

* Raymond James; Andrew Bradford raised his target for Secure Energy Services Inc. (SES-T) to $8.50, from $8.25, which is the current average, with a “strong buy” rating.

* Scotia’s Jeff Fan cut his Trilogy International Partners Inc. (TRL-T) target to $2 from $2.60 with a “sector perform” rating. The average is $2.25.

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