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

Scotia Capital analyst Patricia Baker expects Aritzia Inc.’s (ATZ-T) “exceptional” momentum to continue through the remainder of its fiscal year.

On Thursday after the bell, the Vancouver-based women’s fashion retailer reported first-quarter 2023 earnings per share of 35 cents, up 84 per cent year-over-year and “handily” exceeding both Ms. Baker’s 31-cent estimate and the consensus forecast on the Street of 30 cents. The beat was driven by “very strong sales growth driven by exceptional demand for Aritzia products” with net sales rising 65.2 per cent to $407.9-million, also topping estimates ($375.3-million and $375.5-million, respectively).

“Despite the challenges associated with supply chain disruptions and the related use of higher cost air freight, ATZ delivered a 70-per-cent improvement in EBITDA in Q1 to $69.6-million, in line with our $69.3-million forecast,” the analyst said. “As expected Aritzia’s product offering, brand positioning, boutique experience and world-class ecommerce fulfillment continued to drive more clients to the brand. ATZ noted they have doubled their client base in the U.S.. Momentum continued into Q2 and we anticipate continued strength throughout FY23.”

In response to a 30.9-per-cent decline in Aritzia shares thus far in 2022, Ms. Baker now sees a “very good entry point for long term oriented investors.” She also expects the company’s ongoing buyback to provide support in the near term.

Keeping a “sector outperform” rating, she reduced her target to $63 from $66. The average on the Street is $58.43.

“Given the very strong momentum in the business and in particular a rapidly growing affinity for the Aritzia brand in the all-important U.S. market, we maintain our Sector Outperform rating on the shares,” she said. “Our constructive stance on ATZ shares also reflects our view on the management team, which we believe stands out in terms of strategic operational execution. Their ability to navigate the challenges facing apparel retailers in the context of global supply chain disruptions speaks well to the operational excellence at ATZ. We have confidence that both operating and strategic decisions at ATZ will be very much focused on what is good for the business and for the brand in the long term. There are few retailers in our coverage universe with the growth potential inherent at ATZ and none that have successfully competed in the US, one of the largest consumer in the world and a market where ATZ has ample room to grow the brand.”

Elsewhere, others reducing their targets include:

* BMO’s Stephen MacLeod to $59 from $61 with an “outperform” rating.

Strong growth momentum continued in Q1/23 (adj. EBITDA up 70.3 per cent), leading to another impressive earnings beat,” he said. “Topline momentum has continued into Q2 (no degradation in consumer spending), which led to Artizia increasing 2023 revenue guidance; continue to expect margin pressure from expedited freight costs, but longer-term bias is to the upside. The U.S. was again a key growth driver (up 81 per cent) and presents significant opportunity. Aritzia remains well-positioned to execute on its U.S. growth strategy, with ample liquidity, strong omnichannel, and a loyal employee and client base.”

* CIBC World Markets’ Mark Petrie to $48 from $54 with an “outperformer” rating

“Aritzia delivered another solid quarter well ahead of expectations and increased its full-year revenue outlook. Higher costs continue to weigh on gross margins, though the price/promo balance is healthy as consumer demand remains robust. We continue to believe the runway of white space in the U.S. outweighs recession concerns, and expect earnings growth more than 20 per cent in F24. We moderate our target multiple to 28 times amidst the more cautious market for discretionary, but see ATZ as well-positioned to outperform,” said Mr. Petrie.

Conversely, TD Securities’ Meaghen Annett raised her target to $57 from $55 with a “buy” rating.


Ahead of second-quarter earnings season for forestry, building products and packaging companies, CIBC World Markets analyst Hamir Patel reduced his commodity deck and estimates the remainder of the year and 2023, citing a “likely further contraction in housing starts across North America.”

“Our base case LumberCo targets (reduced by 15 per cent) still see over 40 per cent upside (though near-term catalysts admittedly seem limited),” he said. “As we highlighted last week, our bear case scenario for housing (1.35 million starts next year) points to downside scenario negative returns of 20-25 per cent on most wood products/building products names given the likely deterioration in operating rates that would result.”

With that view, he downgraded Acadian Timber Corp. (ADN-T) to “neutral” from “outperformer” with a target of $18, rising from $17. The average on the Street is $18.45.

Mr. Patel also lowered Doman Building Materials Group Ltd. (DBM-T) to “neutral” from “outperformer” with a $7.50 target, down from $9 and below the $9.29 average.

“Following recent changes to New Brunswick stumpage rates, ADN should see stronger pricing power for its own log sales. For DBM, we are turning more cautious, with our Q2 estimates over 20 per cent below consensus and increased forecasting uncertainty for treated lumber volumes in Canada, as home prices come under more pressure,” he said.

The analyst also made these target changes:

  • Canfor Corp. (CFP-T, “outperformer”) to $36 from $38. Average: $41.67.
  • Conifex Timber Inc. (CFF-T, “neutral”) to $2.25 from $2.50. Average: $2.75.
  • Hardwoods Distribution Inc. (HDI-T, “outperformer”) to $41 from $50. Average: $66.36.
  • Interfor Corp. (IFP-T, “outperformer”) to $40 from $45. Average: $48.
  • Mercer International Inc. (MERC-Q, “outperformer”) to US$17 from US$19. Average: US$18.40.
  • Stella-Jones Inc. (SJ-T, “outperformer”) to $41 from $45. Average: $49.13.
  • Transcontinental Inc. (TCL.A-T, “neutral”) to $18 from $19. Average: $22.
  • West Fraser Timber Co. Ltd. (WFG-T, “outperformer”) to $124 from $146. Average: $119.43.
  • Western Forest Products Inc. (WEF-T, “neutral”) to $1.75 from $2.50. Average: $2.65.

“Our pecking order in wood products: 1) IFP (lower-cost lumber pure-play), 2) CFP (potential downside support if its largest shareholder attempts another bid in a recession scenario) and 3) WFG (attractive mid-cycle valuation once medium-term OSB expectations have reset lower),” said Mr. Patel. “WFG is trading at only 4 times mid-cycle EBITDA, well below its 6 times historical average. On the packaging side, we continue to recommend CCL and highlight WPK for its defensive attributes (90 per cent of sales tied to food/beverage packaging).”


Calling it “an emerging silver producer with growing production,” BMO Nesbitt Burns analyst Ryan Thompson initiated coverage of Aya Gold & Silver Inc. (AYA-T) with an “outperform” rating.

“We see Aya as unique for three main reasons: 1) it offers an above average leverage to the silver price as it is the only TSX listed pure-play silver producer, deriving 100 per cent of its revenue from silver, and 2) annual production is expected to quadruple once the mine expansion is complete (2024), offering a superior growth profile compared with many silver producer peers, 3) the company has established a first mover advantage in Morocco, an underexplored region for precious metals,” he said.

“Aya is a turnaround story; a new management team, with a proven track record in Africa, took over the company (and struggling Zgounder mine) about two years ago. The new team has spent the past two years successfully increasing production and delivering on an exploration program which increased the reserve and resource base substantially. The focus for the next two years has now turned to construction of the Zgounder expansion.”

Mr. Thompson set a target of $10 per share, which falls below the $13.50 average on the Street.

“Evaluating Aya through the lens of our scorecard framework, we conclude: Aya’s valuation is middle of the group on a P/NAV basis and expensive on near-term cash flow metrics but attractive on 2024 cash flow valuation; the balance sheet is reasonably well positioned with $74 million in cash and the company is currently in advanced discussions to secure debt financing; expected production growth is peer leading; and, the reserve life is above average with good potential for growth,” he concluded.


Wedbush analyst Daniel Ives thinks Rivian Automotive Inc. (RIVN-Q) has “now finally starting to turn the corner (slowly but surely)” following positive supply results heading into the second half of its fiscal 2023.

The California-based electric vehicle automaker announced Wednesday second-quarter production of 4,401 units and deliveries of 4,467 units, while it said it remains on track to reached its annual production goal of 22,000 vehicles. The results exceeded the Street’s expectation and, according to Mr. Ives, “a much needed confidence boost for the story after the malaise seen over the past 9 months.”

“We believe Rivian is beginning to gain some Street credibility as they navigate this difficult supply chain environment incrementally better which we ultimately will lead to an improving financial profile for the story into 2023,” he said. “The demand story for Rivian trucks remains firm as the reservation/order book is impressive looking out into 2023, with production now starting to finally ramp after the doldrums at its factory in Normal, IL.

“After major issues out of the gates Rivian starting to find their sea legs. To say the Rivian story has been disappointing to us (and the Street) so far would be an understatement. However, the performance last quarter coupled with the 2Q delivery numbers show that Rivian (and the management team) is finally starting to get their act together and live up to some of the massive hype for the company coming out of the gates. We believe Rivian from a core engineering and design perspective along with the Amazon commercial relationship has the potential to be a major EV stalwart over the next decade. However, for that to happen they need to start delivering models to customers and stop the excuses AND we like what we see so far. The investment in the Georgia facility to accelerate the R2 platform will also be a long-term positive. With over 90,000 pre-orders in the United States/Canada and winning Motor Trend’s 2022 Truck of the Year, we are starting to gain confidence that Rivian management can turn this ship around and begin to properly deliver to what the Street once envisioned.”

Touting the significant opportunity present in the EV market, Mr. Ives said Rivian is “primed to capture the massive influx of current and future demand.”

“In a nutshell, the production story at Rivian is so important especially as 2023 is slated to be major inflection year for the EV pickup market with the F-150 Lightning, GM’s Silverado, and the Cybertruck on the near-term map battling for consumers,” he said. “Rivian has a major window of opportunity and its brand/software vertical integration is unique in the EV industry to capture major market share looking ahead.”

Maintaining an “outperform” rating for Rivian shares, Mr. Ives raised his target to US$40 from US$30 to reflect “increased confidence in the Rivian story.” The average on the Street is US$58.50.


Jefferies analyst Chris Lafemina reduced his targets for these mining stocks on Friday:

  • Barrick Gold Corp. (GOLD-N/ABX-T, “hold”) to US$19 from US$23. Average: US$28.31.
  • First Quantum Minerals Ltd. (FM-T, “buy”) to $45 from $53. Average: $41.92.
  • Kinross Gold Corp. (KGC-N/K-T, “hold”) US$4 from US$4.50. Average: US$7.24.
  • Sierra Metals Inc. (SMT-T, “hold”) target to $1.25 from $1.50. Average: $3.13.


Seeing “the potential for meaningful equity upside as it continues to grow its rig fleet,” Stifel analyst Cole Pereira initiated coverage of Stampede Drilling Inc. (SDI-X) with a “buy” rating on Friday.

“Throughout a very challenging 2020 for the broader oilfield services sector, SDI remained focused on managing its balance sheet and improving utilization, and exited 2021 as the sixth busiest contract driller in Canada with one of the highest utilization rates in the sector,” he said. “In early 2022 the company announced the acquisition of another three rigs from an unnamed third party, with its 13 rigs now making it the fifth largest driller in Canada by rig count. Moving forward, we view Stampede as well-positioned to deliver value to its shareholders by conducting further accretive acquisitions and continuing to consolidate the heavily fragmented double class drilling rig market in Canada.”

Mr. Pereira sees Stampede’s “true” upside potential coming from growth as it continues to acquire drilling assets at “attractive” metrics.

“We estimate that future acquisitions could pay back in 1.8 years on an EBITDAS basis vs. its current valuation at 2.1 times 2023 estimated EV/EBITDAS,” he said. “If Stampede could increase its rig count from 13 rigs currently to between 20 and 40, we estimate the company could generate EBITDAS of $36-76 million, which implies an equity value of $0.78-0.97 per share, or 161-222-per-cent upside.”

In justifying his bullish stance, the analyst also emphasized the company’s management and board’s “history of building North American drilling businesses” as well as “its unique positioning to consolidate double class rigs at attractive metrics.”

Seeing an “attractive” valuation, Mr. Pereira, currently the lone equity analyst covering the Calgary-based company, set a target of 65 cents per share.

“SDI currently trades at 2.1 times 2023 estimated EV/EBITDAS vs. the Canadian driller average of 3.3 times and the U.S. driller average of 4.5 times,” he said. “While we acknowledge its significantly smaller size, we would also highlight its growth trajectory and the strength of its gross margins and return metrics.

“We forecast Stampede to generate EBITDAS of $15-million in 2022 and $22-million in 2023. We have assigned SDI a target price of $0.65/share based off a 4.5 times 2023 estimated EV/EBITDAS target multiple, and the implied return of 117 per cent merits a Buy rating.”


In other analyst actions:

* TD Securities analyst Meaghen Annett upgraded Richelieu Hardware Ltd. (RCH-T) to “buy” from “hold” with a $45 target, up from $44. The average on the Street is $48.83.

* Raymond James’ Stephen Boland cut his target for shares of Goeasy Ltd. (GSY-T) to $202 from $213, maintaining a “strong buy” recommendation. The average on the Street is $204.22.

“We recently had an update call with management heading into 2Q22 reporting,” he said. “Our medium-term positive outlook remains unchanged. We do not believe the 3-year guidance will be adjusted materially despite the concerns surrounding higher interest rates and the impact on credit conditions and growth. As a reminder, GSY made an equity investment into Canada Drives recently that should bolster originations in the used car segment. We are lowering our estimates slightly heading into 2Q22. The major change to our estimates is due to operating margin. Similar to many of our companies, we believe that inflation is impacting many aspects of the business, including salaries and technology. Additionally, as interest rates continue to rise quickly, we are being more conservative in our charge-off assumptions.”

* Scotia Capital’s Mark Neville lowered his Linamar Corp. (LNR-T) target to $80 from $85 with a “sector outperform” rating. The average is $75.

“Linamar’s Q2 market update spoke to some incremental softness since Q1 reporting, but this was primarily in Asia where the company has modest exposure,” he said. “Post the update, our Q2 EPS forecast goes to $1.28 (vs. $1.30 previously) on lower estimates in Industrial. Consensus was $1.36, pre-update. Given elevated macro risks we have also made modest downward adjustments to our already street-low 2022/2023 estimates. For 2022/2023, we now sit approximately 11 per cent/18 per cent below consensus.

* Haywood Securities analyst Pierre Vaillancourt cut his Nevada Copper Corp. (NCU-T) target to 25 cents from 60 cents, below the 50-cent average, with a “hold” rating.

“With the latest financing agreement, NCU can now continue with development plans at its Pumpkin Hollow underground mine,” he said. “However, with operations on hold, debt now close to $200-million and 38-per-cent equity ownership by Pala, attracting interest from new investors will be a challenge.”

* In response to its acquisition of Farris Funeral Service and Affiliated Service Group in Virginia, Scotia Capital’s George Doumet raised his Park Lawn Corp. (PLC-T) target to $42.50 from $42 with a “sector outperform” rating. The average is $46.25.

“The transaction is a continuation of a series of smaller size, yet highly accretive deals that would help PLC to continue to benefit from the public/private arbitrage,” he said.

* BMO’s Jackie Przybylowski cut her Teck Resources Ltd. (TECK.B-T) target to $61 from $67 with an “outperform” rating. The average is $60.16.

“Teck has provided actual Q2/22 coal sales volumes and realized coal prices which are below our and consensus expectations,” she said. “We have reflected the company’s results in our estimates, which has dropped our one-year target ... We maintain our Outperform rating. Despite the missed expectations we continue to expect Teck will report record quarterly profit, EBITDA, and earnings - more than sufficient to continue to fund QB2 completion and an aggressive shareholder returns program.”

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

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