Inside the Market’s roundup of some of today’s key analyst actions
He was one of a large group of equity analysts on the Street to lower his financial projections and target price for the Ottawa e-commerce following Thursday’s first-quarter earnings release, which sent its TSX-listed shares plummeting 14.3 per cent
“Shopify’s Q1 results were well below the street with a broad slowdown across virtually all key metrics, including GMV [gross merchandise volume] and subscription revenue growth, and profitability (gross/operating income),” said Mr. Radke. “There were a number of macro challenges (inflation/weaker consumer spending), which look to continue into Q2 driving slower 1H revenue vs. 2H. A shift in consumer spend to offline retail and travel starting in early Feb. was factor, contrasting last year’s resumption of consumer mobility in late March/April. Inflation also had an impact on GMV growth, pushing consumers toward discount retailers for both online and offline channels. New merchants tracked below last year, and appeared to be weaker than expected. Profitability was lower in Q1 with lower revenue and strong spending from continued R&D + S&M investments.”
Though revenue for the quarter rose 22 per cent year-over-year to US$1.20-billion, it represented Shopify’s slowest quarterly growth in about seven years, missing the Street’s expectation by 3 per cent (US$1.24-billion). Adjusted earnings per share of 20 US cents was well below the consensus forecast (63 US cents).
Mr. Radke also emphasized the presence of “continued caution” in the company’s guidance, given “tough” macro headwinds.
“While SHOP continues to give less specific guidance across key metrics, new merchant commentary was revised lower to a ‘level comparable with 2021′ vs. ‘greater than 2021,’” he said. “Additionally lower revenue growth is expected now in the 1H of 2022 vs. just Q1 of 2022, with highest growth expected in Q4. Merchant Solution growth is expected to be more than 2 times that of Subscription Solutions, which will likely result in slower gross profit growth vs. revenue growth, especially with incremental lower margin fulfillment revenue. The company continues to expect reinvestment of gross profit dollars back into the business, while the acquisition of Deliverr is expected to be incrementally dilutive to operating margins.”
After moderating his merchandise and payment volume estimates due to the miss and “commentary around continued headwinds into Q2,” Mr. Radke cut his EPS estimates fir 2022, 2023 and 2024 to US$2.30, US$1.35 and US$4.47, respectively, from US$2.73, US$3.64 and US$4.67.
Though he closed his “90-day negative catalyst watch” in response to the steep share price drop on Thursday, Mr. Radke cut his target to US$432 from US$534. The current average is US$709.21.
“Prior to the print, we had expected higher inflation/supply chain issues, higher CAC [customer acquisition costs] and extremely tough compares to drive GMV and most key metrics below consensus and for the weakness to persist into 2Q,” he said. “We also saw ramping investments and a seemingly higher M&A appetite reaffirmed in the Q1 print.”
“We rate Shopify shares as Neutral/High Risk (2H) because while we appreciate the magnitude of the TAM, an acceleration of secular tailwinds coming into focus, a strong management team, and record of execution, we believe much of this is priced in at the current multiple—which earns a significant premium to the implied multiple of its growth/margin framework and implies a 10-year revenue CAGR that appears potentially too high.”
Other analysts making target adjustments include:
* RBC’s Paul Treiber to US$800 from US$1,1000 with an “outperform” rating.
“Q1 may represent the peak of pessimism on Shopify,” said Mr. Treiber. “Q1 was the largest revenue miss in the company’s history, valuation is now 37 per cent below Shopify’s pre-COVID average, and concerns abound (consumer, competition, capex). However, headwinds are primarily market-driven (normalizing e-commerce spending), not internal. Our outlook implies growth re-acceleration 2H/CY22, while share gains and increasing scale sustain our long-term positive Shopify thesis.”
* DA Davidson’s Tom Forte to US$375 from US$800 with a “neutral” rating.
“In a February research report, we provided our thoughts on high-quality Consumer Technology growth stocks, including Shopify, that have come under significant pressure,” said Mr. Forte. “We found that shares could bottom at $258. We believe it is important for investors to understand our views on the company are often different than those for its stock. We hold the company, and, particularly, its Founder/CEO Tobi Lutke, in the highest regard.”
* National Bank Financial’s Richard Tse to US$750 from US$1,000 with an “outperform” rating.
“When it comes to Shopify’s fiscal Q1 results, they were consistent with what we had laid out in our recent earnings preview with an outsized shortfall in EPS vs our expectations,” said Mr. Tse. “Despite the numerous company-specific headwinds like the absence of a COVID tailwind and macro challenges, the results and outlook continued to show progress on our investment thesis. While we’re cognizant of the backdrop for growth, and particularly tech, SHOP’s relative valuation to other similar growth peers sets up SHOP for a potential reversion to the mean to the growth peer group in the short term. The reality is that the pullback has SHOP trading at 7.8 times EV/S on our F22 estimates, when similar growth names are in the range of 10 times-plus EV/S. In our view, we think that’s compelling for long-term investors given the Company’s current investment cycle which we believe will support a regrouping of growth and upward valuation re-rating in SHOP.”
* Piper Sandler’s Brent Bracelin to US$600 from US$800 with an “overweight” rating.
* Jefferies’ Samad Samana to US$550 from US$1,350 with a “buy” rating.
* CIBC’s Todd Coupland to US$430 from US$460 with a “neutral” rating.
* Credit Suisse’s Timothy Chiodo to US$525 from US$850 with a “neutral” rating.
* Mizuho’s Siti Panigrahi to US$400 from US$800 with a “neutral” rating.
* Deutsche Bank’s Bhavin Shah to US$500 from US$550 with a “hold” rating.
* Baird’s Colin Sebastian to US$630 from US$1,000 with an “outperform” rating.
RBC Dominion Securities’ Drew McReynolds called BCE Inc. (BCE-T) “a model of consistency with strong strategic and tactical execution” after Thursday’s release of better-than-expected first-quarter results.
The analyst sees the Montreal-based company “firmly on track” to meet its 2022 guidance, seeing a “slightly better wireless trajectory” and emphasizing its “overall positive” outlook.
“Management reiterated 2022 guidance, indicating a high degree of confidence in delivering results within the respective guidance ranges including revenue growth of 1-5 per cent (versus our estimate of 3.2 per cent) and adjusted EBITDA growth of 2-5 per cent (versus our estimate of 4.7 per cent),” said Mr. McReynolds. “While not providing specific longer-term guidance, management confirmed that 2022 capex of $5.0-billion (approximately 21-per-cent capex intensity) will represent ‘peak’ capex with consolidated capex subsequently easing beginning in 2023 (consistent with our forecast for a step-down from $5.0-billion in 2022E to $4.4-billion in 2023E). Other outlook notables: (i) management is seeing no signs of an economic slowdown through April; (ii) 2022 represents a year of ‘planning’ for copper de-commissioning, which is then expected to commence in earnest in 2023 (91 per cent of Internet/TV subscribers within its FTTH footprint are on fiber); and (iii) defined benefit pension plans in aggregate are in a solvency ratio surplus of 113 per cent, underpinning the $200-million contribution holiday that fully kicks-in in 2023.”
Following modest increases to his earnings estimates for both 2022 and 2023, Mr. McReynolds increased his target for BCE shares by $1 to $70, maintaining a “sector perform” rating. The average is $69.
“We believe BCE is a model of consistency with the company delivering an attractive balance of growth and profitability while continuing to make significant investments to future-proof the business,” he said. “In addition to major strategic initiatives anchored around FTTH [fiber to the home], we continue to be impressed by BCE’s extensive array of ongoing and new tactical initiatives. Bigger picture, we continue to believe BCE’s competitive position relative to peers could see the greatest gains over the medium term driven by FTTH expansion and 5G deployment across Canada’s largest integrated wireline-wireless network footprint, and growth in 5G B2B IoT.”
Elsewhere, Desjardins Securities’ Jerome Dubreuil raised his target to $70 from $68 with a “hold” rating, while Canaccord Genuity’s Aravinda Galappatthige cut his target by $1 to $70 with a “hold” rating.
“While we believe BCE will remain a core holding for many funds, we believe it is too early to put an overweight tag on the stock,” said Mr. Dubreuil. “We support the company’s strategy to accelerate its wireline network deployments, but its high exposure to legacy wireline and B2B and its lack of near-term catalysts keep us on the sidelines at this point.”
Saying “this story still has legs,” Stifel analyst Martin Landry raised his earnings per share estimates for Spin Master Corp. (TOY-T) by 14 per cent for both 2022 and 2023 following the release of better-than-anticipated first-quarter results and an increase to its guidance.
“Management seems more open than in the past to deploy capital on larger acquisitions, indicating not being afraid of doing a transformational acquisition,” he added. “Hence, we see a higher likelihood of M&A in 2022 than previously, something which would be welcomed by investors, in our view. Despite the above, we believe that TOY’s capital structure is too conservative and that its valuation multiple would benefit from a dividend and share buyback.”
After the bell on Wednesday, the Toronto-based toymaker reported earnings per share of 55 cents, jumping from 8 cents during the same period a year ago and easily exceeding both Mr. Landry’s 12-cent estimate and the consensus forecast of 16 cents. He attributed the bat to higher revenues and gross profit margin.
Concurrently, the company said it is now expecting low double-digit revenue growth, versus mid- to high-single digits previously, with 40 per cent of the toy gross product sales expected in the first half of the year. That’s up from its historical average of 33-35 per cent.
“Management held presentations on Thursday afternoon discussing the company’s product portfolio and associated outlook,” said Mr. Landry. “The breath of the product portfolio is readily apparent with recent successes in licensing such as Gabby’s Dollhouse and D.C. Comics. Spin-off of Paw Patrol characters are expected in 2023 combined with new series scheduled to air this spring and fall, all of which should continue to sustain the Paw Patrol brand. Overall, we believe the company is well positioned to continue to gain market share in toys and digital games.”
Keeping a “buy” rating for Spin Master shares, which are on Stifel’s top picks list, Mr. Landry raised his target to $62 from $60. The average is $63.50.
“Now with operational issues largely behind the company, we have higher confidence in the ability for TOY to return to and potentially exceed historical levels of profitability,” he said. “Shares of Spin Master are currently trading at a 20-per-cent discount to toy industry peers Mattel and Hasbro on an EV basis, which we think is too wide given Spin Master’s clean balance sheet and our expectation for Spin Master to grow EPS and EBITDA faster.”
Others making changes include:
* Canaccord Genuity’s Luke Hannan to $67 from $60 with a “buy” rating.
* CIBC’s John Zamparo to $63 from $62 with an “outperformer” rating.
National Bank Financial analyst Maxim Sytchev says there’s “nothing wrong” with AutoCanada Inc.’s (ACQ-T) business, however he emphasized the volatile macro environment and rise in interest rates have changed his view of its near-term prospects.
Accordingly, despite calling the Edmonton-based company’s first-quarter results a “good start to the year,” he lowered his rating for its shares to “sector perform” from “outperform,” feeling they aren’t likely to “reignite the momentum.”
“In hindsight, we should have stuck with our neutral position that we changed in Aug 2021,” said Mr. Sytchev. “Late March 2022, the U.S. 10-year bond yields spike to 3 per cent from 2 per cent brought multiples down across the board. While it’s easy to make an argument that ‘real’ interest rates are still negative, we don’t want to ignore the tidal shift, something that continues to unravel in the high-multiple / unprofitable space. Auto dealerships have historically traded at 5 times EV/EBITDA forward; as margins spiked over the last two years, the market has become more comfortable ascribing a higher multiple on the rationale for healthier car pricing staying stronger for longer.
“As we look forward, where large U.S. peers trade at the moment, that valley appears to have been crossed. Used pricing rollover (at some point) also remains a concern. At 5.0 times EV/EBITDA on 2023 forecasts, we believe the potential upside no longer justifies an Outperform rating. We want to stress that management continues to execute well but believe the shares will have a challenge recapturing the prior highs.”
After the bell on Wednesday, AutoCanada reported revenue for the quarter of $1.342-billion, up 38.4 per cent year-over-year and exceeding the estimates of both Mr. Sytchev ($1.067-billion) and the Street ($1.067-billion). Diluted adjusted earnings per share of $1.09 also topped projections (83 cents and 94 cents, respectively).
Mr. Sytchev emphasized the company’s management reiterated its positive outlook for 2022 and beyond, noting: “1) Management believes that supply tightness might last as far as 2025 (as lack of new supply now will perpetuate used penury down the line); 2) Used inventory has been 2 times vs. last year, more than several competitors combined as ACQ hones its used strategy; 3) Used pricing at dealer level remains healthy as 75 per cent of supply comes from trade-ins, off-lease vehicles. 4) On capital allocation, both M&A and NCIB (or SIB) are under consideration – ROIC is the determining factor.”
Largely keeping his estimates intact, Mr. Sytchev cut his target for AutoCanada shares to $37 from $52, concluding: “Overall, we believe investors could pick up the shares at lower levels as volatility creates intermittent opportunities.”
The average target on the Street is currently $53.73.
Elsewhere, ATB Capital Markets’ Chris Murray raised his Street-high target to $90 from $87 with an “outperform” rating, while Scotia’s Michael Doumet increased his target to $50 from $48 with a “sector outperform” rating.
“The results were impressive, particularly since Q1 represents a seasonally weak quarter and with a limited supply of new vehicles remaining a significant headwind,” said Mr. Murray. “Management expects OEM production capacity to begin to normalize to pre-pandemic levels in 2022 or early 2023, consistent with our view, and we see it representing a potential near-term catalyst for ACQ. We remain positive on the sustainability of the margin profile, improving U.S. operations, and near-term M&A opportunity, and we view recent weakness as a buying opportunity.”
Expecting external headwinds to weigh on near-term performance, Desjardins Securities analyst Frederic Tremblay downgraded 5N Plus Inc. (VNP-T) to “hold” from “buy” after a “mixed” first-quarter that displayed the impact of supply chain disruptions, rising inflation and the war in Ukraine.
“We are reducing our estimates and downgrading VNP... to reflect the near-term effect and uncertainties associated with the business environment — notably, pressure from the supply chain, inflation and the geopolitical situation — which are masking the impact of VNP’s business evolution,” he said. “An easing of headwinds, the successful integration of AZUR, further progress on the optimization of the legacy business and new contracts would contribute to our returning to a more constructive stance.”
Mr. Tremblay reduced his target to $2.50 from $4. The current average is $3.15.
“VNP is calling for adjusted EBITDA of US$25–30-million in 2022, essentially flat year-over-year despite the addition of AZUR; at the mid-point, this is 27 per cent lower than consensus,” he said. “While external factors are playing a part in the underwhelming 2022 outlook, we are disappointed with the fact that guidance is significantly below consensus for the second year in a row. We have revised our 2022 estimate to US$26.7-million (was US$37.1-million) and trimmed our 2023 forecast given current headwinds and the gradual nature of VNP’s pricing/margin enhancement efforts.”
Elsewhere, Raymond James’ Michael Glen trimmed his target to $3 from $4 with an “outperform” rating.
“While we acknowledge that VNP’s 1Q results were below our forecast and 2022 guidance for EBITDA of $25-30-million has prompted us to take a cut to our forecast, we continue to believe that the company is proceeding with the right steps to transition the business towards higher value-add / margin accretive end markets, while at the same time de-emphasizing business lines that are more commoditized in nature,” said Mr. Glen.
In other analyst actions:
* RBC’s Walter Spracklin cut his Andlauer Healthcare Group Inc. (AND-T) target to $48 from $52, keeping a “sector perform” rating, while National Bank’s Endri Leno bumped up his target to $50 from $49.50 with a “buy” rating. The average is $53.17.
“While, in our view, AND is a well-run healthcare logistics/transport market-leader in Canada, the current valuation appropriately reflects our concerns (Canadian pharma industry outlook, transitory Covid-19 vaccine opportunity, etc.) and what we like (well-run, strong margins). Thus, we maintain a neutral view,” said Mr. Leno.
* BMO’s Randy Ollenberger raised his target for Arc Resources Ltd. (ARX-T) to $22 from $20 with an “outperform” rating. The average target on the Street is $22.95.
“ARC reported worse-than-expected first-quarter results but generated $410 million of free cash flow and raised its dividend by 20 per cent,” he said. “The company also signed a longterm agreement with Cheniere Energy to provide natural gas feedstock to its Corpus Christie Phase III LNG plant. We believe that ARC is uniquely positioned to generate considerable free cash flow, which combined with its strong balance sheet, allows for growth optionality and enhances its ability to increase returns to shareholders.”
* Mr. Ollenberger also increased his target for Canadian Natural Resources Ltd. (CNQ-T) to $95 from $92, above the $89.38 average, with an “outperform” rating. Other changes include: Wells Fargo’s Roger Read to $84 from $79 with an “equal weight” rating and Stifel’s Robert Fitzmartyn to $111 from $100 with a “buy” rating.
“Canadian Natural boasts one of the lowest breakevens among its peer group due to its industry-leading operating performance, cost structure, scale, and commodity diversification. These factors have translated into a resilient free cash flow profile that has allowed the company to grow its shareholder returns more than peers. We believe that as Canadian Natural reduces its debt position, it will have further flexibility to enhance shareholder returns while also providing optionality for opportunistic acquisitions and growth projects that should boost the company’s free cash flow profile,” Mr. Ollenberger said.
* CIBC’s Mark Petrie lowered his Aritzia Inc. (ATZ-T) target to $54 from $64, below the $62.14 average, with an “outperformer” rating, while BMO’s Stephen MacLeod trimmed his target to $61 from $70 with an “outperform” rating.
“Strong growth momentum continued in Q4/22 (adj. EBITDA up 88.3 per cent), leading to another impressive earnings beat,” said Mr. MacLeod. “The U.S. market remains a key growth driver (+109%) and presents significant growth. 2023E expectation is for strong topline, margin pressure from expedited freight costs; longer-term, underlying margin bias is to upside. Aritzia is well-positioned to execute on its U.S. growth strategy (unchanged by CEO transition), with ample liquidity to support growth, strong omnichannel platform, category expansion opportunities, and a loyal employee and client base.”
* RBC’s Andrew Wong cut his Cameco Corp. (CCO-T) target to $45 from $50 with an “outperform” rating, while Canaccord’s Katie Lachapelle cut her target to $43 from $44 with a “buy” rating. The average is $42.91.
“We continue to believe that the company is well positioned to capitalize on growing demand for nuclear power through contracting of material from its tier-one operations,” said Ms. Lachapelle. “In our view, Russia’s invasion of Ukraine has highlighted the importance of energy security of supply and geopolitical supply diversification in the nuclear fuel cycle. We believe CCO is uniquely positioned with operating production facilities in North America that are not yet fully committed.
“As the only large capitalization, pure-play uranium producer listed in North American, CCO remains one of our go-to-stocks for investors seeking exposure to improving uranium fundamentals and rising price.”
* CIBC’s Stephanie Price reduced her target for Constellation Software Inc. (CSU-T) to $2,450 from $2,900, reiterating an “outperformer” rating. The average is $2,554.44.
* National Bank’s Rupert Merer cut his DIRTT Environmental Solutions Ltd. (DRTT-Q, DRT-T) target to US$2.25 from US$2.75, keeping a “sector perform” rating, while iA Capital Markets’ Neil Linsdell reduced his target to US$1.45 from US$1.55 with a “buy” rating. The average is US$1.80.
“While DRTT continues to make progress on improving its business and regaining momentum, we remain cautious as COVID-related weakness could continue for a few more quarters,” he said.
* RBC’s Pammi Bir lowered his Dream Industrial Real Estate Investment Trust (DIR.UN-T) target to $18.50 from $19.50, below the $18.83 average, with an “outperform” rating.
“While DIR registered ‘in-line’ results, we’re encouraged by solid operational and strategic advances. Indeed, the record pace of organic growth and tight fundamentals prompted an increase to organic growth guidance.” he said. “The development program also took a sizeable step forward with the newly formed $1.5B sovereign wealth fund JV, while the expanding pipeline of projects ($547-million at 6-per-cent unlevered yields) provides a window into incremental earnings and NAV growth. In short, we see the year-to-date pullback as an attractive entry point.”
* CIBC’s Nik Priebe lowered his Fiera Capital Corp. (FSZ-T) target to $10.50 from $11, keeping a “neutral” rating. The average is $10.86.
* CIBC’s Paul Holden cut his Great-West Lifeco Inc. (GWO-T) target to $38 from $39 with a “neutral” rating. Other changes include: BMO’s Tom MacKinnon to $38 from $41 with a “market perform” rating and Desjardins’ Doug Young to $38 from $40 with a “hold” rating. The average is $39.67.
* RBC’s Maurice Choy raised his Hydro One Ltd. (H-T) target to $37 from $33 with an “outperform” rating. Others making changes include: Scotia’s Robert Hope to $35 from $34 with a “sector perform” rating, IA Capital Markets’ Matthew Weekes to $37 from $36 with a “buy” rating and CIBC’s Mark Jarvi to $37 from $36 with an “outperformer” rating. The average is $35.57.
“The Company delivered strong growth year-over-year, driven by base rate increases and higher peak demand and energy consumption YoY, while O&M escalation was minimal,” said Mr. Weekes. “H indicated that inflation will likely catch up to the business more over the coming quarters, which along with earnings sharing on excess ROE, should temper EPS growth for the remainder of the year. While political uncertainty continues to be a factor, we believe that a constructive outlook will ultimately be reached for the JRAP, driven by the need for investment to refurbish and grow Ontario’s ageing grid to meet growing electricity demand. Meanwhile, H is developing incremental transmission investment opportunities to support economic growth in the province. H provides a safe haven in the uncertain macro environment, offering stable earnings and dividend growth through a pure-play electric T&D platform, with a strong balance sheet.”
* RBC’s Paul Treiber cut his Information Services Corp. (ISV-T) target to $25 from $27, keeping a “sector perform” rating, while Raymond James’ Stephen Boland trimmed his target to $27 from $29 with an “outperform” rating. The average is $27.90.
“Q1 results were above RBC/consensus on strong services growth,” he said. “However, FY22 guidance is unchanged, implying a slowdown in organic growth in subsequent quarters. We believe ISC is one of the more defensive stocks in our coverage given valuation, FCF, and the likely stability of the Saskatchewan economy (predominantly commodity-based).”
* Mr. Treiber also lowered his target for Magnet Forensics Inc. (MAGT-T) to $35 from $42 with an “outperform” rating, while Canaccord Genuity’s Doug Taylor cut his target to $40 from $45 with a “buy” rating and BMO’s Thanos Moschopoulos reduced his target to $32 from $38 with a “market perform” rating. The average is $39.26.
“Financial performance from Magnet remains very robust, highlighted by the 49-per-cent ARR growth year-over-year,” said Mr. Taylor. “Magnet’s valuation, at 7 times current year and 6 times 2023 estimatd revenue, is in our view attractive, considering the growth rate, execution, and profitability. We believe that Magnet should remain a core holding for investors of software stories in Canada.”
* Canaccord Genuity’s Tania Armstrong-Whitworth cut her target for Jamieson Wellness Inc. (JWEL-T) to $40.25 from $45.75 with a “buy” rating. The average is $42.
* Canaccord Genuity’s Mark Rothschild lowered his Killam Apartment REIT (KMP.UN-T) target to $23.50 from $25.50 with a “buy” rating, while CIBC’s Dean Wilkinson cut his target to $25 from $26 with an “outperformer” rating and Scotia’s Mario Saric trimmed his target to $23.75 from $24.75 with a “sector perform” rating. The average is $24.83.
* CIBC’s Krista Friesen trimmed her Martinrea International Inc. (MRE-T) target to $12, below the $13.42 average, from $13 with an “outperformer” rating, while Scotia’s Mark Neville raised his target to $13 from $12 with a “sector perform” rating.
* RBC’s Luke Davis cut his Parkland Fuel Corp. (PKI-T) target to $45 from $50 with an “outperformer” rating. The average is $47.83.
* CIBC’s Robert Catellier raised his Pembina Pipeline Corp. (PPL-T) target to $54 from $53, maintaining an “outperformer” rating. Others making changes include: Raymond James’ Michael Shaw to $50 from $49.50 with a “market perform” rating, BMO’s Ben Pham to $55 from $54 with an “outperform” rating and Scotia’s Robert Hope to $55 from $54 with a “sector outperform” rating. The average is $50.70.
“Q1/22 results underscore the upside leverage from the favorable commodity price environment, namely the step-change in Marketing ($268-million vs. $90-million last year) and physical volumes on conventional pipe (reached a high in April). At the same time, tight capacity and PPL’s well positioned “Store” is driving new organic growth (Peace VIII reactivated), supporting further capital return ($41-million shares repurchased year-to-date and 3.6-per-cent dividend increase expected in Q3 post KKR JV close). What’s not to like? Maintain Outperform rating, Top 3 Best Idea designation,” said Mr. Pham.
* RBC’s Paul Quinn raised his Resolute Forest Products Inc. (RFP-T) target to $19 from $18, exceeding the $17.50 average, with an “outperform” rating.
* CIBC’s Jacob Bout lowered his SNC-Lavalin Group Inc. (SNC-T) target to $36 from $37 with an “outperformer” rating. Others making changes include: BMO’s Devin Dodge to $30 from $31 with a “market perform” rating, RBC’s Sabahat Khan to $36 from $37 with an “outperform” rating and Desjardins’ Benoit Poirier to $42 from $43 with a “buy” rating. The average is $40.31.
“While we were disappointed by the weaker-than-expected 1Q results, the key pillars of our long-term investment thesis on SNC remain intact: (1) significantly reduced LSTK backlog by the end of 2022 of $450-million; (2) FCF profile to turn positive in 2023; and (3) acceleration of revenue growth for core engineering services business,” said Mr. Poirier
* CIBC’s John Zamparo cut his Sleep Country Canada Holdings Inc. (ZZZ-T) target to $37 from $39, keeping an “outperformer” rating. Others making changes include: Scotia’s Patricia Baker to $47 from $46 with a “sector outperform” rating, National Bank’s Vishal Shreedhar to $37 from $34 with a “sector perform” rating and Stifel’s Martin Landry to $42 from $46 with a “buy” rating. The average is $37.29.
“ZZZ reported record Q1/22 results with adjusted EPS of $0.56, up 115 per cent year-over-year, and higher than both our estimates of $0.36 and consensus of $0.29,” said Mr. Landry. “The company succeeded at increasing its gross profit margin in a steep inflationary environment, suggesting strong pricing power. This is the eight consecutive quarter of year-over-year margin expansion, an impressive execution, which contrast with U.S. peers, most of which reported a margin erosion in Q1/22. Traffic patterns continue to be healthy in April and May, according to management. As a result of these positive comments combined with continued expected margin expansion, we have increased our Q2/22 EPS estimate by 14 per cent vs previously. Management reiterated its desire to act of its buyback program and potentially implementing automatic purchases to avoid blackout periods, a positive, in our view.”
* BMO’s Thanos Moschopoulos cut his Thinkific Labs Inc. (THNC-T) target to $4.50 from $7, below the $7.38 average, with an “outperform” rating.
“We remain Outperform on THNC,” said Mr. Moschopoulos. “Results and guidance were both roughly in line on revenue, and above consensus on EBITDA. We’ve trimmed our revenue forecasts, but have raised our EBITDA forecasts. We’ve reduced our target price ... recognizing that THNC will likely continue trading at a significant discount to its growth rate — particularly given the current market backdrop—until it starts to demonstrate better sales/marketing efficiency (although we do see a path to that, given the Payments ramp and THNC’s current size and market position relative to its large TAM).”
* National Bank’s Zachary Evershed raised his Uni-Select Inc. (UNS-T) target to $33.50 from $31 with an “outperform” rating, while Desjardins’ Benoit Poirier increased his target to $37 from $35 with a “buy” rating and BMO’s Jonathan Lamers bumped his target to $37 from $36 with an “outperform” rating. The average is $34.92.
“We were impressed once again with UNS’s results, which confirmed the potential for value creation under the new management team,” said Mr. Poirier. “We are encouraged by management’s operational excellence and the improved leverage ratio, which opens the door for strategic acquisition opportunities. We believe the best is yet to come as we see many opportunities to grow revenue and improve margins.”
* BMO’s Fadi Chamoun raised his Westshore Terminals Investment Corp. (WTE-T) target to $27 from $25 with a “market perform” rating. The average is $32.80.
“First-quarter results were ahead of consensus expectations and benefited from $2.9-million of customer shortfall payments,” he said. “Guidance is revised higher but could still prove conservative given the current thermal coal demand environment. Despite a near-term constructive demand outlook, we maintain our Market Perform rating, reflective of increased exposure to structurally declining thermal coal and limited visibility into more meaningful potash volumes.”