Inside the Market’s roundup of some of today’s key analyst actions
Weakness in U.S. existing home sales and permits has prompted Canaccord Genuity analyst Yuri Lynk to slash his price target on Hardwoods Distribution Inc. (HDI-T), a North American wholesale distributor of non-structural architectural grade building products, to C$37 from C$59.
“While U.S. housing starts are actually remaining firm, sales of existing homes are down year to date, and permits are dropping. Any further macro weakness in the back half of the year is likely to impact HDI’s results in mid-2023,” Mr. Lynk said in a note to clients.
Mr. Lynk believes that the company’s gross margins of 23% over the past year are unsustainable, noting that in recent meetings with Canaccord, company management indicated that product prices are largely retreating after a strong run-up. “This is likely to pressure gross margin somewhat so that it trends down into the 20% - 21% range in 2023, according to our model. Management has proven over several cycles its ability to manage gross margin in a contracting market, and we view 20% as the new go-forward bottom end of the gross margin range,” the analyst said.
Mr. Lynk lowered his 2023 EBITDA estimates for the company but is maintaining a “buy” rating. He said management believes it has “several levers” to mitigate the impact of a slowing housing market.
“This management team has a demonstrated history going back to the 2008/2009 recession of generating cash during contracting markets. In short, this is achieved by selling through inventory and collecting receivables while enjoying the benefits of a capex-light business model,” he said.
“HDI is well positioned to benefit from the housing market’s strong long-term fundamentals, which include favourable demographics and a housing stock shortage,” he said. The Canaccord analyst added that recent acquisitions of Novo and Mid-Am are proving supportive of gross margins and “afford additional attractive cross-selling synergies.”
Overall, “we continue to like HDI on its discounted valuation, strong competitive market positioning, and acquisition upside potential.”
BMO Capital Markets analyst Andrew Mikitchook has initiated coverage on Skeena Resources Ltd. (SKE-T) with an “outperform” rating and C$15 price target.
“Our valuation is largely based on the Eskay Creek gold project in British Columbia, which Skeena is advancing towards targeted production in 2026. Eskay Creek boasts above-average grade and size with manageable capex, in our view warranting a premium valuation for Skeena as a developer. With significant early construction activities planned to begin in 2023, Skeena shares have numerous meaningful catalysts in the works,” Mr. Mikitchook said in a note to clients.
RBC analyst Brad Erickson has slashed his price target on Lyft Inc (LYFT-Q) almost in half while downgrading his rating to “sector perform” from “outperform”.
His concerns mostly relate to the competitive threat from Uber, and listed two primary reasons for turning much more bearish on the company and reducing his price target to US$16 from $30:
“1) Driver supply analysis raises our concerns that competitive challenges may be more structural than originally thought. Our most recent driver supply analysis found four incremental headwinds instructing our thinking: a) Directionally worse pick-up times for LYFT reinforcing the view of UBER’s structural supply advantage, b) UBER seeing shorter pick-up times for the first time since May ‘21 could be incremental conversion headwind for LYFT, c) UBER’s cheaper price getting cheaper vs. LYFT also adds to potential conversion headwinds (albeit small) and d) we think LA remains the potential canary in the coal mine given LYFT’s outsized west coast exposure and UBER continuing to outperform on supply improvements in LA.
2) Margin targets may limit LYFT’s ability to regain share beyond geographic reversion. Given the ongoing slower-than-expected recovery LYFT reported last qtr, management guided to a 2024 target of $1B of adjusted EBITDA and over $700M of FCF. While working towards profitability is, of course, a good thing in this new economic climate, we think it also has the potential to be a limiting factor for LYFT in the event it is finding rising competitive intensity. To the degree that 3p data and the company’s revenue volumes continue to suggest at least some marginal share loss, we’d expect the multiple to be flat to down from current levels in spite of its already somewhat anemic levels.”
More than 10 analysts cut their price targets on Advanced Micro Devices (AMD-Q) in the wake of the company pre-announcing surprisingly weak September quarter results after the bell on Thursday.
Revenue is now expected to be approximately US$5.6 billion, versus the company’s original guidance for sales of $6.7 billion. The company blamed reduced processor shipments due to a weaker than expected PC market and significant inventory correction actions across the PC supply chain.
Barclays was among the brokerages slashing price targets. Its price target went to US$68 from US$85.
The average price target is now US$108.69, down from US$123.85 a month ago, according to Refinitiv Eikon data.
Stifel GMP’s Martin Landry has become the latest analyst to lower his forecasts on Sleep Country Holdings (ZZZ-T) on weakening demand for mattresses. His price target went to C$33 from C$38, but he still suggests investors buy the stock, believing a weak macro outlook is already priced in.
“Our recent consumer survey suggests that Canadians’ purchasing intentions for mattresses are at the lowest point of the last 18 months. Sleep Country’s website traffic depict a similar picture being down 21% Y/Y over the last three months ending September 30th. These results are not surprising as consumer demand for big ticket items has slowed down recently after a banner year in 2021. On the back of these data points and the difficult comps ahead in H2/22, we are decreasing our Q3/22 EPS estimates by 7% and Q4/22 EPS by 4%. ZZZ’s shares trade at 7.5x our 2023 EPS estimates, half the company’s historical valuation multiple and at a 2023 FCF yield of 15%. In our view, ZZZ’s valuation already reflects the headwinds discussed above and offers long-term investors an appealing entry point,” he said in a note.
Mr. Landry also joined other analysts in cutting his price target on Goodfood Market (FOOD-T). He rates the company as a “hold” and lowered his target to C$1 from C$1.45.
“We believe the meal kit category is currently under pressure with difficult Y/Y comps and a blurring economic outlook. Canadians appear to trade down to lower priced food alternatives as suggested by our recent consumer survey indicating that 18% of meal kits subscribers expect to cancel their subscription in the next 12 months up from 11% in July 2021. This raises concerns as to the near term demand outlook for meal kits. Recent website traffic trends also support this concern with Goodfood’s website traffic down 36% Y/Y in the last 3 months ended September 30th. While none of this is totally surprising, we believe our forecasts were not capturing adequately the magnitude of the changes and hence we have reduced our revenue estimates for Q4FY22 and FY23 by 13% and 15%, respectively,” he said.
CIBC Capital Markets upgraded NFI Group Inc. (NFI-T) to “neutral” from “underperformer”. CIBC said the upgrade reflects that the stock is trading below its target price of C$14, “and our increasing comfort that the company’s supply chain issues are stabilizing.”
In other analyst actions:
Air Canada (AC-T): CIBC cuts target price to C$27 from C$29
Airboss of America Corp (BOS-T): CIBC cuts target price to C$22 from C$29
Algonquin Power & Utilities Corp (ACQ-T, ACQ-N): National Bank of Canada ups rating to “outperform” from “sector perform”. It cut its price target to US$14.25 from US$16
Cae Inc (CAE-T): CIBC cuts target price to C$32 from C$35
Canadian National Railway Co (CNR-T): CIBC cuts target price to C$163 from C$167
Canadian Natural Resources Ltd (CNQ-T): CIBC raises target price to C$90 from C$85
Chorus Aviation Inc (CHR-T): CIBC cuts target price to C$4 from C$4.75
Cogeco Communications Inc (CCA-T): National Bank of Canada cuts PT to C$100 from C$108
Imperial Oil Ltd (IMO-T): CIBC raises target price to C$80 from C$74
Medexus Pharmaceuticals Inc (MDP-T): Canaccord Genuity raises PT to C$3 from C$2.75
Mullen Group Ltd (MTL-T): CIBC cuts target price to C$15 from C$15.5
Nuvista Energy Ltd (NVA-T): CIBC raises target price to C$17 from C$15
Paramount Resources Ltd (POU-T): CIBC cuts target price to C$37.5 from C$40
Parkland Corp (PKI-T): National Bank of Canada cuts target price to C$44 from C$45
Precision Drilling Corp (PD-T): CIBC cuts target price to C$110 from C$120
Richelieu Hardware Ltd (RCH-T): National Bank of Canada raises PT to C$55 from C$54
Secure Energy Services Inc (SES-T): CIBC raises target price to C$8.5 from C$8
Suncor Energy Inc (SU-T): CIBC cuts target price to C$60 from C$65
Goldman Sachs (GS-N): KBW raises target price to US$429 from US$395; KBW raises to “outperform” from “market perform”
Norfolk Southern Corp (NSC-N): Baird cuts to neutral; Benchmark cuts target price to US$250 from US$292
Tyson Foods Inc (TSN-N): BofA Global Research cuts price objective to US$73 from US$90
Union Pacific Corp (UNP-N): Baird cuts target price to US$228 from US$255; Benchmark cuts target price to US$220 from US$255
With files from Reuters
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