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

In response to Thursday’s release of “positive” third-quarter financial results, Desjardins Securities analyst Doug Young raised his target price for shares of Toronto-Dominion Bank (TD-T, TD-N).

TD reported cash earnings per share of $1.66, exceeding both Mr. Young's $1.60 projection and the consensus expectation on the street of $1.63. The beat was driven by better-than-anticipated results from both its U.S. Retail and Canadian Personal and Commercial segments.

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“The quality of the beat was good. Expenses remain a focus with TD and contrary to expectations, trends on this front were better than expected, helped by robust revenue growth,” the analyst said. “TD has the highest CET1 ratio of the group at 11.7 per cent, and we believe the market is rewarding banks with capital buffers.”

After raising his EPS projections for both fiscal 2018 and 2019, Mr. Young increased his target for TD shares by a loonie to $87, maintaining a “buy” rating. The average target is currently $84.87, according to Bloomberg data.

“We are encouraged by recent expense trends, the higher relative CET1 ratio vs Canadian peers and the potential benefit if interest rates are increased further in Canada and the U.S.,” he said.

Elsewhere, Canaccord Genuity's Scott Chan raised his target to $89 from $86 with a "buy" rating (unchanged).

“We believe relative valuation remains favorable due to Canaccord Genuity’s higher EPS forecasts (12-per-cent average for fiscal 2018/2019), dividend growth (i.e. up 12 per cent in FQ1/18), AMTD [TD Ameritrade ] gains, U.S. peer comps increase, strong deposit franchise, leading capital position, and low capital markets exposure,” said Mr. Chan. “On the latter, Wholesale banking was impacted by mark to market accounting on growing trading deposits (i.e. tightening of funding and credit spreads), but the core business was strong in advisory and corporate lending.”


Lululemon Athletica Inc. (LULU-Q) looks to be “well on its way” to achieving its US$4-billion revenue target by 2020, said RBC Dominion Securities analyst Brian Tunick following Thursday’s release of “blowout” quarterly results.

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"In our view, the good news is that it sounds like the path to $6B in revenues should look relatively similar to what the company is delivering on today," he said. "A framework of 10-per-cent square footage growth, a men’s business north of $1-billion, a digital ecomm penetration of 30 per cent or more, and a bigger International business with Asia alone adding over $1-billion would be the ongoing building blocks. Certainly the company’s real estate strategies appear to be drivers too of the growth plan, with colocations driving gains in store productivity such as seven new co-located stores seeing 40-per-cent footage growth but 70-per-cent gains in men’s, for example."

The Vancouver-based athletic apparel maker reported earnings per share of 71 U.S. cents for the quarter, exceeding the Street's expectation of 49 U.S. cents and exceeding the company's guidance of 46 U.S. cents to 48 U.S. cents. Same-store comparable sales growth of 19 per cent also blew past the consensus projection (9.6 per cent).

"Total sales rose 25 per cent on a very strong 19-per-cent comp (guidance of high single digits), on par with 1Q, and an 800/500-basis points acceleration on a 2/3-year stack," said Mr. Tunick. "Stores accelerated to 10 per cent from 6 per cent, with Direct up 47 per cent on a constant dollar basis. Accelerating store traffic and accelerating digital traffic/conversion drove the upside"

He added: “Updated annual outlook of $3.45-$3.53 from prior $3.10-$3.18 implies $1.54-$1.60 in 4Q EPS including mid-single-digit to high-single-digit comps from 19 per cent year-to-date and flattish GMs (backing into annual 100-150-basis points annual GM guidance update). We expect this is very conservative given current momentum, moderating assumptions on the women’s pants business (which saw 30-per-cent growth in 2Q), strategic investments in 3Q to support sales, and LULU generally as holiday destination. Note that 4Q historically generates the biggest comp and EPS beats for LULU, so coming off a $0.24 EPS beat to the 2Q guide, we’d expect more beats into 2H18.”

Mr. Tunick raised his 2018 EPS projection to US$3.58 from US$3.22, while his 2019 expectation increased to US$4.25 from US$3.74.

Keeping an "outperform" rating for the stock, his target jumped to US$160 from US$130. The average is currently US$144.48.

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“In a specialty retail space desperate for growth, our Outperform rating on LULU is based on our expectation for sustained baseline mid-teens top-line, assuming: (1) low- to mid-teens footage growth, including international expansion; (2) baseline high mid-single-digit comps aided by men's and ongoing strength in the women's business as innovation, omnichannel, and brand-building efforts take hold; and (3) at least a 400-basis points benefit from the Direct business,” the analyst said. “Despite prior peak margins at 28 per cent, we believe that LULU's margins troughed at 18-per-cent in 2015-2016 but are making progress to the low-20s level in 2018. We expect LULU can see at least a superior high- teens, low-20s EPS growth profile in 2018-2020, aided by: (1) merchandise margin expansion due to more favorable product costs including freight opportunities; (2) eventual leverage in non-merchandise items in COGS; and (3) a return to SG&A leverage. Assuming a rebuild to a 22-per-cent level, our longer-term base case model suggests a $4-billion brand with earnings power of $5+/share.”

Meanwhile, maintaining a “hold” rating for the stock while raising his target to US$152 from US$131, Canaccord Genuity’s Camilo Lyon expressed caution, noting: “The company is facing difficult comparisons next year and while there is opportunity for incremental EBIT margin expansion, it is likely modest. With the stock already seemingly priced to perfection, any hint of disappointment could lead to a sharp pullback.”


Citing “strong” momentum and “solid” market fundamentals, Desjardins Securities analyst Benoit Poirier said he’s maintaining his positive stance on BRP Inc. (DOO-T) following the release of “stellar” second-quarter financial results.

The Quebec-based recreational vehicle maker reported an 18-per-cent jump in year-over-year revenue to $1.207-billion, exceeding Mr. Poirier’s forecast of $1.085-billion. Earnings per share of 67 cents also topped his expectation (20 per cent).

“The EPS beat was driven by solid gross margin of 23.2 per cent due to higher SSV [side-by-side] sales volumes, a favourable pricing and product mix, and favourable FX variations, partially offset by higher production costs,” he said. “By segment, growth was most prominent in year-round products (up 26 per cent year-over-year) and seasonal products (up 21 per cent).

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“FY18 guidance lifted again. The new normalized EPS guidance is $2.94–3.06 (from $2.82–2.94; our forecast was C$2.93), supported by an increase in expected revenue for year-round products and seasonal products.”

Mr. Poirier sees the company’s Club BRP 2019 event, scheduled for Sept. 9-10 in Denver, as a potential near-term catalyst for the stock, noting: “This event provides an opportunity to witness the unveiling of new Can-Am and Sea Doo products such as the entry-level Spyder Project S, meet with BRP dealers, management and employees, and try some newly introduced products. We expect more product introductions at the event—a driver for market share and a catalyst for the stock.”

After raising his financial estimates for the company in both fiscal 2018 and 2019, Mr. Poirier hiked his target for BRP shares to $76 from $68. The average is $68.59

He kept a “buy” rating, noting: “Overall, we maintain our positive stance on BRP at current levels, based on its (1) unmatched retail sales momentum, (2) new growth platform with its marine segment, (3) proven track record of market share gains through innovation, and (4) solid management team.”

Elsewhere, Canaccord Genuity's Derek Dley raised his target to $80 from $69, keeping a "buy" rating.

Mr. Dley said: “In our view, BRP is well positioned to capture additional market share in a growing powersports market, as it introduces new products, and extends its reach into complementary product lines.”

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Conversely, GMP analyst Martin Landry downgraded his rating for the stock to “hold” from “buy” with a target of $70, rising from $65.


Bank of America Merrill Lynch downgraded Electronic Arts Inc. (EA-Q) to “neutral” from “buy," believing the software maker’s guidance reduction is likely to change the dynamics of investor optimism and presents unit sales concerns.

Shares of EA dropped 9.8 per cent on Thursday after the company cut its annual forecasts in response to a delay in the launch of the latest edition of its popular Battlefield game series.

BofAML said the reduced guidance highlights risks of a back-end loaded year, a crowded holiday title slate and continued pressure from the popular Fortnite game.

At the same time, the firm also lowered rival Activision Blizzard Inc. (ATVI-Q) to “neutral” from “buy.”

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Elsewhere, Credit Suisse’s Stephen Ju lowered his target for EA to US$146 from US$155, maintaining an “outperform” rating.

Mr. Ju said: “Case: We believe the updated guidance parameters contemplate ~10mm units for Battlefield V for the year, which versus the previous track record for this franchise of 12-15 million per release (setting aside outperformance of Battlefield One) seems appropriately conservative - we are hence buyers of EA shares as we expect Street expectations to be derisked and the company returns to a cycle of beat and raise earnings reports. We now model Battlefield V units at 10.5 million for FY19 - we maintain our Outperform rating on EA shares as our focus remains on the ongoing multi-pronged secular shift for the industry: 1) further positive mix shift to digital, 2) consumer adoption of microtransactions driving incremental monetization, as well as 3) the expansion of EA’s addressable market to target the global online user base. Our target price decreases to $146 as we also lower unit volume projections for subsequent Battlefield releases as well.”


CIBC World Markets analyst Oscar Cabrera expressed concern over near-term commodity prices, but he maintained optimism over the long term in a research note entitled “Trade Wars Trump Commodity Forecasts.”

“We lower our 2018-2019 copper and zinc forecasts on the back of slower demand (given increasing trade barriers and tariffs) but increase our 2018-2020 met coal, molybdenum and nickel forecasts despite lower (or largely similar) demand due to tighter supply and higher marginal all-in cost of production (i.e., consumables),” he said. “We maintain our long-term price forecasts (2023E), with the exception of that for nickel ($8.00/lb, up from $6.68/lb).”

Based on those changes, Mr. Cabrera adjusted his price target for stocks in his coverage universe, adding: “After revising our downside scenario for an all-out trade war, we highlight the attractive risk/return for Hudbay Minerals (HBM, 1.45:1), Turquoise Hill (TRQ, 1.74:1), Lundin Mining (LUN, 1.78:1), Teck Resources (TECK, 1.89:1) and Trevali Mining (TV, 3.21:1). TECK and LUN have better (or improving) 2018- 20 free cash flow yields and a stronger balance sheet than their peers.”

His changes were:

Trevali Mining Corp. (TV-T, “outperformer”) to $1.40 from $1.90. Consensus: $1.70.

Freeport-McMoran Inc. (FCX-N, “outperformer”) to US$19 from US$20. Consensus: US$18.77.

Lundin Mining Corp. (LUN-T, “outperformer”) to $9 from $10. Consensus: $9.72.

First Quantum Minerals Ltd. (FM-T, “neutral”) to $18 from $20. Consensus: $22.89.

Imperial Metals Corp. (III-T, “underperformer”) to 60 cents from 90 cents. Consensus: $1.76.

Teck Resources Ltd. (TECK.B-T, “outperformer”) to $44 from $46. Consensus: $41.62.

Capstone Mining Corp. (CS-T, “outperformer”) to $1.40 from $1.80. Consensus: $1.68.

Hudbay Minerals Inc. (HBM-T, “outperformer”) to $10 from $12. Consensus: $11.14.

Turquoise Hill Resources Ltd. (TRQ-T, “outperformer”) to $5.10 from $5.30. Consensus: $5.30.

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