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

Ahead of the release of their first-quarter earnings reports, National Bank Financial analyst Cameron Doerksen reiterated his “neutral stances” on both Canadian National Railway Co. (CNR-T) and Canadian Pacific Railway Ltd. (CP-T), expecting “soft” volume results but seeing the second half of 2022 looking “better.”

“Canadian railroad traffic as measured by carloads is down 10.3 per cent in the past four weeks and down 9.4 per cent through Q1,” he said in a research report released Friday. “While the Q1 volumes would not indicate a particularly healthy demand environment, overall volumes were heavily skewed by very weak grain volumes, some operational challenges related to weather and broader supply chain issues (impacting automotive volumes especially). We continue to believe that both CN and CP will see some more pronounced volume tailwinds in the second half of the year including a better grain harvest, ongoing strength in coal, higher potash production, and a normalization of the automotive supply chain. The key risk to the outlook is the health of the broader economy and potential deterioration in consumer demand.”

Mr. Doerksen lowered his first-quarter projections for CN Rail, predicting others on the Street will follow in the coming weeks.

“A decline in Q1 volumes (revenue ton miles down 7.5 per cent) combined with a more challenging operating environment will make for a soft Q1,” he said. “We have reduced our Q1 EPS forecast to $1.17 while consensus still sits at $1.41. More importantly, given the lower-than-expected profitability in Q1, we believe it will be very challenging for the company to meet its current target of 20-per-cent EPS growth for 2022. CN’s new CEO, Tracy Robinson also inherited the 2022 guidance from her predecessor so the release of Q1 results may be the opportune time to revise the prior targets lower.

Though he remains “positive” on CN’s long-term growth prospects, Mr. Doerksen thinks CN’s valuation “remains rich in the context of economic uncertainty,” leading him to trim his target for its shares to $168 from $172 with a “sector perform” rating. The average on the Street is $157.92, according to Refinitiv data.

“Based on our revised 2022 EPS estimates, CN shares are trading at 23.6 times, which is above the historical average of 21.5 times for the stock, much higher than the U.S. Class I average of 19.7 times 2022 EPS and approaching peak-like levels for the stock,” he said. “This valuation is despite the growing market concerns over a possible economic slowdown emerging later in 2022 or into 2023. We note that while most other transportation stocks, including the U.S. rails, are lower so far in 2022, CN shares are up slightly.”

Mr. Doerksen maintained a “sector perform” rating and $98 target for CP shares, below the $107.44 average.

“We continue to believe that the STB will ultimately approve CP’s merger with Kansas City Southern with minimal concessions, and we remain very positive about the strategic benefits and long-term growth prospects of the merged company,” he said. “However, there remains some risk the deal is not approved or approved with material conditions. Looking ahead to 2023 when we assume the full merger with KCS, CP is trading at 20.7 times P/E [price-to-earnings], which is close to in line with the historical average for CP (20.1 times) and a premium to the U.S. peer group at 17.9 times 2023 EPS.”


Desjardins Securities analyst Benoit Poirier also previewed the first quarter for railway companies on Friday, expecting volumes to be “negatively impacted” by both harsh winter conditions and the CP strike.

However, he also sees the war in the Ukraine as a potential tailwind.

“We have adjusted our numbers to reflect the weaker-than-expected RTM volumes in 1Q: down 7.5 per cent for CN vs our previous forecast of negative 3.4 per cent and down 14.2 per cent for CP vs our initial forecast of negative 2.8 per cent,” he said. “The notable difference can be explained by a combination of the harsh winter conditions experienced in Canada and the strike at CP.”

“The crisis could provide some upside for rail bulk volumes in Canada as importers look for alternative commodity suppliers. Grain crop conditions are already trending wetter in the northern U.S. Plains and Canadian Prairies heading into spring.”

Mr. Poirier said he’s maintaining his preference for CP over CN, noting: “CP’s shares offer a higher risk-adjusted potential return than CN’s given our view that future OR [operating ratio] improvement at CN is largely reflected in its current share price. The integration plan presented by CP/KCS in their merger application is impressive, in our view, and leads us to believe that the US$1b of revenue synergies targeted over three years may be conservative.”

Mr. Poirier raised his CN target by $1 to $173 with a “hold” rating. He maintained a CP target of $114 with a “buy” recommendation.”

“While we are monitoring the situation closely, the key economic indicators we follow continue to suggest an optimistic outlook for the sector,” he added.

Elsewhere, Barclays’ Allison Poliniak-Cusic and Ryan Deveikis raised their CP target to US$88 from US$87 with an “overweight” rating, calling it one of “our top Rails to own to start 2022.”

“We believe CP is uniquely positioned for growth over the long term, with competitive access to key markets in both Canada and the U.S., including ports on both the east and west coast,” they said. “Such access should drive durable above market growth. Adding to its core strength is the pending combination with KSU, which will serve in our view to enhance CP’s existing network, improve efficiencies further given the seamless network of the combination, and elevate growth opportunities across Canada, the U.S., and Mexico.”

Their CN target rose to US$134 from US$130 with an “equal weight” recommendation.

“We believe the next goal for CNI is how to bring incremental volume onto the rail network, which is a multi-year solution. CNI is also already running efficiently, exhibiting a 61.8-per-cent OR in 2021, while the company has also improved velocity and dwell times; room for improvement persists,” the analysts said.


The federal government’s “tax grab” on Canadian banks was “lighter” than Stifel analyst Mike Rizvanovic had expected.

“While the Federal Government’s 2022 budget affects the Canadian banks under our coverage in numerous ways, at first look we find the aggregate impact to be less severe than we had anticipated based on previously disclosed details,” he said. “From an earnings run-rate perspective, we estimate less than a 1-per-cent decline for the Big Six banks through F2023. Perhaps most notably, the government’s tax grab from large Canadian Financials (including the life insurers) in aggregate is expected to fetch slightly more than $6-billion over a five-year period, which compares favorably with the $11-billion that was previously anticipated over a four-year period. And while we see some lingering uncertainty around the government’s commentary with respect to tax havens, which we understand are used by each of the Big Six, we don’t expect any material impact on bank share prices with only modest downside pressure to EPS consensus.”

Ottawa’s tax on banks and life insurers to deliver $6.1-billion over five years, 40 per cent less than Liberal campaign pledge

In a research note released Friday morning, Mr. Rizvanovic emphasized three “notable” proposals that will affect the sector: “1) Canada Recovery Dividend - The banks will see a one-time 15-per-cent tax on taxable income above $1 billion (based on the 2021 tax year), with the amount payable in equal installments over the next five years; 2) A modest increase in the tax rate - The corporate tax rate for the group increases by 1.5 per cent (to 16.5 per cent) on taxable income above $100 million; and, 3) The removal of a double-deduction loophole - The loophole is currently used by the banks to gain from special tax treatment related to hedging and short-selling arrangement on Canadian dividend-paying stocks. The federal government is expecting to see a $150-million annual tax windfall from the elimination of such arrangements.”

The analyst trimmed his earnings per share estimates for fiscal 2022 by an average of 0.3 per cent and for 2023 by 0.6 per cent.

That led him to make modest reductions to target prices for the Big 6′s stocks in the sector. They are:

  • Bank of Montreal (BMO-T, “buy”) to $171 from $172. The average on the Street is $167.74.
  • Bank of Nova Scotia (BNS-T, “buy”) to $106 from $107. Average: $97.88.
  • Canadian Imperial Bank of Commerce (CM-T, “hold”) to $172 from $174. Average: $176.03.
  • National Bank of Canada (NA-T, “buy”) to $117 from $118. Average: $110.73.
  • Royal Bank of Canada (RY-T, “hold”) to $150 from $152. Average: $150.86.
  • Toronto-Dominion Bank (TD-T, “hold”) to $104 from $105. Average: $110.11.


With base metal prices remaining “well-supported based on tightly balanced markets and low global inventory levels,” National Bank Financial analyst Shane Nagle sees equity valuations remaining discounted despite strong performance thus far in 2022.

“Our base metal coverage universe is currently implying a copper price of US$3.19 per pound (producers: US$3.44 per pound, developers: US$2.67 per pound) compared to US$3.39 per pound at the start of the year, while copper prices have increased from US$4.40 per pound to over US$4.70 per pound over the same period,” he said. “In terms of relative valuation, base metal producers are trading at an implied price that represents 73% of spot, at the lower end of the recent range, despite year-to-date performance of producers within our universe of up 20 per cent.”

In a research report released Friday, Mr. Nagle raised his near-term price assumptions to fall in line with spot prices for the remainder of 2022 and 2023. His biggest increases were for copper prices for 2022 and 2023 to US$4.70 per pound (from US$4.30), nickel prices for 2022 and 2023 to US$14.00 per pound (from US$9.50) and 2022 hard coked coal prices to US$375 per ton (from US$350).

“There also remains significant uncertainty on continued impacts of COVID-19 variants, Russia/Ukraine conflict, supply chain issues and rising inflationary pressures on the global economic recovery,” he said. “Given this backdrop, we continue to anticipate some price volatility in the near term while longer-term fundamentals remain well-supported by demand for global energy transition, lack of supply growth and rising incentive prices.”

With those commodity deck changes, Mr. Nagle made a series of target price changes for stocks in his coverage universe, including two of his three top picks in the sector. They are:

* Hudbay Minerals Inc. (HBM-T, “outperform”) to $13 from $12.50. The average on the Street is $13.37.

“2022 represents an operational inflection point with Pampacancha grades and New Britannia production ramping up throughout the year,” he said. “A technical report on Copper Wold in Q3/22 is expected to provide more clarity on the private land-only development alternative in Arizona which currently represents a free-option within the portfolio. An update in early-2023 on processing 777 tailings will also provide an opportunity to extend the operations life and reduce long-term reclamation expenditures.”

* Teck Resources Ltd. (TECK.B-T, “outperform”) to $60 from $55. Average: $54.95.

“Despite logistical challenges from heavy rainfall in B.C. to start the year, strong FCF [free cash flow] from the coal division and completion of QB2 in 2022 will drive near-term FCF growth, leading to increased shareholder returns,” he said. “Elevated oil prices will drive significant CF generation from the company’s interest in Fort Hills and several advancements of non-core copper projects like San Nicolas, Masaba and Zafranel may lead to a number of noncore assets being monetized beginning in H2/22.”

He maintained an “outperform” rating and $4.75 target for Copper Mountain Mining Corp. (CMMC-T). The average is $5.21.

“Despite processing lower grades and mill downtime associated with repairs to the secondary crusher shaft early in the year, the mill expansion to 45,000 tpd at Copper Mountain Mine is complete and a LOM plan based on updated reserves and 100,000 tpd mill throughput is anticipated in Q3/22,” he said. “While the company is embarking on a large capital spend at Eva (where a funding package is anticipated by midyear), CMMC has several additional catalysts and ongoing exploration efforts are expected to showcase the longer-term optionality of the portfolio.”

Mr. Nagle’s other changes are:

  • Adventus Mining Corp. (ADZN-T, “outperform”) to $1.40 from $1.60. Average: $1.91.
  • Ero Copper Corp. (ERO-T, “sector perform”) to $21.50 from $20.50. Average: $25.23.
  • Filo Mining Corp. (FIL-T, “outperform”) to $25 from $22.50. Average: $19.97.
  • First Quantum Minerals Ltd. (FM-T, “outperform”) to $48 from $40. Average: $40.61.
  • Josemaria Resources Inc. (JOSE-T, “tender”) to $1.80 from $1.55. Average: $1.59.
  • Lundin Mining Corp. (LUN-T, “sector perform”) to $14 from $12.25. Average: $13.37.
  • Sherritt International Corp. (S-T, “sector perform”) to $1.10 from $1. Average: $1
  • Taseko Mines Ltd. (TKO-T, “sector perform”) to $3.25 from $3. Average: $3.29.
  • Trevali Mining Corp. (TV-T, “sector perform”) to $2.20 from $2. Average: $2.28.


Touting a “favorable macro environment with multi-year tailwinds” and seeing it as an attractive M&A target, National Bank Financial analyst John Shao initiated coverage of Copperleaf Technologies Inc. (CPLF-T) with an “outperform” recommendation on Friday.

“Copperleaf serves clients in sectors such as utility, oil & gas and transportation that tend to be asset-heavy,” he said. “As such, asset management is an integral part of those businesses, which are also subject to numerous macro conditions. In light of that, we see three major catalysts that could accelerate the adoption of asset/portfolio management solutions: (1) The ‘green switch’ calls for more PP&E Investments. (2) The rise of EVs needs smart asset planning and management. (3) The occurrence of extreme weather puts pressure on existing infrastructure.”

Mr. Shao said the Vancouver decision analytics software company, which went public in early October of 2021, possesses a “highly scalable” platform and emphasized its “zero” churn rate.

“Copperleaf has a product-driven market expansion strategy,” he said. “For each new vertical Copperleaf targets, it will first work with a group of cornerstone customers to build the industry best-practice library – think of it more like a large configuration project to fine-tune its products to meet the specific demands from customers in that vertical. As such, the costs for each vertical expansion is usually front-loaded. But once that ‘configuration’ is finished, the Company could leverage that best-practice library as the main selling point to land more customers in that vertical, thus effectively reducing the marginal customer acquisition cost while increasing the win rate. We saw Copperleaf successfully replicate this model in several verticals such as electricity, water, and natural gas, and we also believe the expansion into new verticals such as transportation, oil & gas, and government, is about to scale. According to Management, it usually takes 6-12 months for Copperleaf to ramp up its knowledge and sales initiatives in each vertical.”

“The relationship between Copperleaf and its customers goes beyond the traditional ‘vendor/ client’ relationship in that those customers trust Copperleaf and sometimes see the Company as its ‘Centre of Excellence’ when it comes to solving asset management/planning issues.”

Mr. Shao set a target of $20 for Copperleaf shares. The average is currently $26.25.

“Having seen a couple of high-profile privatizations over the past two years in the enterprise analytics software space, it’s not unreasonable to assume that Copperleaf might be a good acquisition target given its industry expertise and a high-quality customer base,” he said. “In our view, potential acquirers could be private equity firms seeking ROI (e.g., Thoma Bravo acquiring Anaplan), or industry players looking to complement their capabilities (e.g., Panasonic acquiring Blue Yonder). In the case of Copperleaf, the Company has already developed a relationship with some of the industry players. For instance, Mitsubishi Electric has been a key distribution partner for Copperleaf in Japan.”


In response to “solid” first-quarter operating results and announcement of a new chief executive officer, RBC Dominion Securities analyst Michael Siperco raised his rating for Gatos Silver Inc. (GATO-N, GATO-T) to “sector perform” from “underperform” on Friday.

“Our upgrade reflects our view that the bottom for GATO is likely in, pending further disclosure regarding the resource/mine plan expected in 2H22,” he said. “Nonetheless, we continue to see uncertainty weighing on the stock and capping potential upside until then. While we expect solid operating results and cash flow generation in 2022, we remain cautious until there is more visibility into 2023 and beyond.”

After the bell on Thursday, Gato reported results that fell in line with Mr. Siperco’s estimates, including quarter-over-quarter increases in silver and zinc production of 4 per cent and 7 per cent, respectively. It also announced current president Dale Andres will take over as Chief Executive Officer and member of the Board of Directors as part of a succession plan, as well as two additional executive management changes.

Mr. Siperco maintained a US$4 target for Gatos shares. The average on the Street is currently US$4.75.

“We remain cautious; however, our view could change with incremental information about the resource, stronger than expected operating results, visibility into 2023+ production, or regional exploration success,” he said.

Elsewhere, BMO Nesbitt Burns analyst Ryan Thomson raised his target to US$5.25 from US$5 with a “market perform” rating.

“Gatos offers investors above-average leverage to silver. We see the potential for the company to deliver longerterm value to shareholders by exploring the company’s large 103,000-hectare land package. At current valuation, we think the risk-reward is balanced, underpinning our Market Perform rating,” he said.


Scotia Capital’s Konark Gupta thinks the recent selloff in shares of TFI International Inc. (TFII-T) is “likely overdone” even though freight recession risks continue to linger.

“TFII is down 22 per cent since March 22, in line with U.S. comps (ODFL, SAIA, and KNX), underperforming Mullen (MTL-T), TSX and S&P 500 by 20 per cent points as well as Class 1 rails by 16 percentage points,” he said. “While investors may be fearing a downturn, based on the yield curve and other macro indicators, we believe TFII and its U.S. peers are underperforming other economically-sensitive stocks as spot rates are falling and industry experts are painting a bleak picture. We understand the risks given the cycle tends to last 2-3 years, justifying the multiple compression. However ... we have reasons to believe that TFII can potentially grow during a downturn, similar to the past 15 years.”

Mr. Gupta “cautiously” trimmed his 2022 earnings per share projection to $6.24 from $6.48, below the company’s guidance, and 2023 and 2024 by 10 per cent (to $7.17 and $7.96, respectively) to assume “potential headwinds.”

“We still forecast double-digit EPS growth annually. While our initial cuts may prove conservative, they can also prove aggressive if TFII goes big on M&A. It can also repurchase more shares,” he said.

Keeping a “sector outperform” rating for TFI shares, Mr. Gupta reduced his target to $135 from $165, The average is $146.33.


In other analyst actions:

* CIBC World Markets analyst John Zamparo downgraded Diversified Royalty Corp. (DIV-T) to “neutral” from “outperformer” with a $3.25 target. The average on the Street is $4.13.

* RBC Dominion Securities’ Michael Harvey raised his target for shares of Advantage Energy Ltd. (AAV-T) to $10 from $8.50 with a “sector perform” rating. The average is $11.13.

“Supported by strong commodity prices, AAV is set to generate material FCF in 2022 ($310-million at strip, or 17-per-cent FCF yield), sufficient to pay down debt and meaningfully reduce share count. We have updated our model to account for the NCIB, quarterly tweaks, and increase our price target,” said Mr. Harvey.

* JP Morgan’s Phil Gresh increased his Imperial Oil Ltd. (IMO-T) target to $77 from $75, keeping a “neutral” rating. The average is $62.

* With the sale of its Iroquois Falls and Kingston gas-fired generation assets to Validus Power Corp., Scotia Capital’s Justin Strong increased his target for Northland Power Inc. (NPI-T) target to $46.25, above the $46.02 average, from $42.25 with a “sector outperform” rating.

“We note that management has been looking to unload these assets since their PPA terms ended in 2017 and 2021 given their misalignment with the company’s strategy to developing renewable resources. This transaction represents the company’s further success in pursuing its decarbonization targets,” he said.

* Though its first-quarter results missed his expectations as “normal seasonal weakness ... was more impactful than recent tailwinds to margins,” National Bank Financial’s Zachary Evershed raised his Richelieu Hardware Ltd. (RCH-T) target by $1 to $54.50 with an “outperform” rating, while TD Securities’ Meaghen Annett cut her target to $48 from $52 with a “hold” rating. The average is $53.83.

“We previously assumed that easing supply chain and logistics conditions through the year would see prices fall, affecting both organic growth and margins, with the sequential impact of the normalization curve dominating seasonality,” Mr. Evershed said. “As that no longer appears likely and given sales to manufacturers continue to exhibit sustained strength, we now expect normal seasonal patterns will play out. To reflect this, we raise our organic growth forecasts in the coming quarters and adjust our margin forecasts to return to usual seasonality. We remain exceptionally conservative in 2023, baking in negative organic growth and margin compression in an effort to incorporate the risk presented by interest rate increases.”

* Following Thursday’s release of better-than-expected quarterly results, RBC’s Sabahat Khan raised his Roots Corp. (ROOT-T) target by $1 to $5, above the $4.50 average, with a “sector perform” recommendation.

“Looking ahead, we expect the supply chain and inflationary pressures on margins to be partially offset by promotional discipline and pricing increase,” he said.

* TD Securities’ Daryl Young resumed coverage of Superior Plus Corp. (SPB-T) with a “buy” rating and $15.50 target, down from $16 but above the $13.88 average, while Raymond James’ Steve Hansen cut his target by $1 to $13 with a “market perform” rating.

* CIBC’s Allison Carson lowered her Victoria Gold Corp. (VGCX-T) target to $21 from $23 with an “outperformer” rating. The average is $20.70.

* In the wake of in-line quarterly results, Canaccord Genuity’s Luke Hannan trimmed his Waterloo Brewing Ltd. (WBR-T) target to $7.25 from $7.50 with a “buy” rating, while Acumen Capital’s Nick Corcoran cut his target to $6.50 from $8 with a “buy” rating.. The average is $8.23.

“A challenging inflationary environment that is expected to persist longer than we originally thought has spurred us to modestly trim our fiscal 2023 EBITDA estimate and, consequently, our target price,” Mr. Hannan said. “We remain optimistic about WBR’s ability to navigate the current environment and believe the selloff into the print was overdone, presenting a compelling entry point for investors.”

Follow David Leeder on Twitter: @daveleederOpens in a new window

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