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

National Bank Financial analyst Maxim Sytchev thinks macro conditions in the industrials sector will “continue to deteriorate before getting better.”

In a research report previewing the coming third-quarter earnings season, he said the Street’s growth expectations are likely excessive.

“As prior interest rate hikes are filtering through the broader economy with typical delays, we are also leery of 2023 consensus EPS projections that are bound to hit the reset/macro wall,” he said. “The street is now projecting a 15-per-cent year-over-year EPS increase for the TSX Industrial sub-index next year – that feels aggressive to us; TSX is projected to generate 14 per cent - energy being the biggest driver (we of course do not cover the entire sub-index but nevertheless only model a 9-per-cent EPS advance in 2023). However, even a 9-per-cent increase feels rather optimistic now as our own Stagflation and Yield inversion work points to further pain ahead.”

Modelling “a worst-case scenario” for both earnings per share and trading multiples to reflect the market’s “current circumstances,” Mr. Sytchev upgraded his “recession NAVs” “to provide sensitivity entry points and expectations around individual names.”

“Spoiler alert, quality names are nowhere close to discounting a negative macro outcome, but we are not eager to bottom fish anywhere else,” he said.

With that view, Mr. Sytchev updated his top picks for the sector.

“While we are all trying to decipher if ‘bad (macro) news is good (Fed) news’ or vice versa, when taking into the account higher rates (negative), stronger US$ (negative) & oil price (negative), we are perplexed to see Industrial S&P / TSX projected EPS growth of 15 per cent in 2023 (we are modeling 9 per cent and even then, we wince at that projected trajectory),” he said. “We of course understand that long-only investors have to own something but as we presented in our prior research, Industrials are not a likely candidate for positive absolute performance when the yield curve inverts, oil rallies dramatically, or we are hearing bells of stagflation. We however know that quality companies with strong management teams will be able to get over the hump. The very concise positioning list is: STN, WSP, CIGI and ATA. Of note, only CIGI now imputes a recession-type NAV while for others we’ll need to roll through the punches. In the equipment space, RBA is countercyclical but expensive; TIH is very high quality and defensive but not exactly cheap. FTT’s EPS trajectory looks strong for now, but we need to see a catalyst for copper going higher (China re-opening / real estate stabilization?). Anything more cyclical (STLC) or second derivative of consumer sentiment (autos and their variants) are to be avoided. Construction names are in no man’s land with fixed top lines and rising inflation.”

He made a pair of target price changes:

* SNC-Lavalin Group Inc. (SNC-T, “outperform”) to $39 from $42. The average on the Street is $37.08.

He said the changes are based “on lower mark-to-market Westinghouse EV/EBITDA transactional multiple as the latter is a much larger/more established asset when it comes to installed base; we have also lowered 407 valuation to $9.00/SNC share from $10.60 on sluggish volume rebound and higher discount rates.”

* Stelco Holdings Inc. (STLC-T) to $44 from $48. Average: $50.53.

“With spot HRC [hot-rolled coil] at US$760, materially higher vs. prior potentially pre-recession periods, we are struggling to see any positive commodity momentum here,” he said.

Mr. Sytchev added: “We also lowered Q3/22 forecasts for ABCT (margins), RBA (tougher comps but don’t see a major dislocation), SNC (a bit more conservatism on core EPS), STLC (lower HRC) and WSP (timing of M&A closing).”


Struggling to find positive catalysts for AutoCanada Inc. (ACQ-T), BMO Nesbitt Burns analyst Tamy Chen initiated coverage with a “market perform” rating on Friday.

“We believe downside may be limited with the stock at the low end of its historical valuation range,” she said. “Our rating reflects that we have yet to see clear catalysts that could drive the stock meaningfully higher. We have a cautious outlook for vehicle demand when new vehicle supply normalizes because of BoC’s monetary tightening, and we are coming from an unprecedented last two years. We are worried the pent-up demand being accumulated from the new vehicle shortage could be deferred for longer until the macroeconomic outlook is more favourable.”

The analyst did acknowledge that the Edmonton-based company is a more resilient company than pre-2018″ due to a management “turnaround.” However, she warned “t its earnings power is not immune to the auto cycle.”

“AutoCanada has become a used vehicles “powerhouse” and is reaping the benefits of improvements made in F&I and seems much better at operating its fixed services segment,” said Ms. Chen. “We believe the company should experience less earnings deterioration in a downturn and stronger earnings growth in a cyclical expansion than before.

“But, the company is not immune to the auto cycle, and we are coming from an unprecedented last two years of positive tailwinds due to a shortage of new vehicles. We have a cautious outlook for vehicle demand when new vehicle supply normalizes because of the Bank of Canada’s monetary tightening and its impact on the economy. Although we believe there is significant pent-up demand accumulating as a result of the new vehicle shortage, we are worried this demand could be deferred for longer until the macroeconomic outlook is more favourable.”

Though she thinks “downside in the stock may be limited at this point,” Ms. Chen set a Street-low target for AutoCanada shares $25. The average is $49.52.

“Our 2024 EBITDA forecast is 16 per cent lower than 2021 actual. For comparison, during the 2009 Great Financial Crisis, AutoCanada’s EBITDA declined 17 per cent,” she said. “Based on our 2024 EBITDA estimate, the stock price implies just below 6 times, which would be around the low end of its pre-COVID-19 range.”

“The silver lining during a downturn in the auto cycle is that the longer vehicle demand is deferred, the stronger the cyclical recovery should be when the macroeconomic environment becomes more favourable. So, it is critical to monitor the key macroeconomic indicators that drive vehicle demand. If the Bank of Canada shifts away from their hawkish stance sooner than expected, or if after the rate hikes we observe positive greenshoots in the unemployment rate and/or consumer confidence, we may become more favourable on the stock. In addition, if AutoCanada’s stock declines even further from here without a dramatic change in industry or company fundamentals, we may also re-evaluate our rating.”


Following Thursday morning’s release of its third-quarter operating results and sales, National Bank Financial analyst Mike Parkin trimmed his target price for shares of Barrick Gold Corp. (ABX-T) as well as peer Newmont Corp. (NEM-N, NGT-T).

Barrick reports drop in quarterly gold output, expects full-year forecast to be at low end of range

“Barrick’s Q3 gold production came in at 988-thousand ounces and copper production at 123 million pounds,” he said. “Gold production proved to be light vs consensus and our estimates, offset somewhat by better than expected copper production. Management noted to expect Q3 gold AISC [all-in sustaining costs] to be up 3-5 per cent and copper AISC to be up 8-10 per cent quarter-over-quarter. Barrick’s realized copper price in the quarter was communicated to be 7-9 per cent below the quarterly average of US$3.51/lb. Our revised model is now well aligned to these details.”

Keeping a “sector perform” rating for Barrick shares, Mr. Parkin cut his target by $1 to $25. The average on the Street is $23.16.

“We have bumped up our 4Q22 estimates after the weaker Q3 and continue to expect Barrick to come in at the bottom end of the 4.2-4.6Moz guidance range for gold production,” he said. “We have lowered our 1Q23 estimates on the back of the expected stronger fourth quarter, which has pushed down our 2023 annual production by 100koz. Our 3Q22 cost estimates have been adjusted higher for both gold and copper, in line with the messaging in the operations release. Additionally, we have increased our provisional pricing impact to account for the weaker realized copper price versus the spot price over the quarter as well as making adjustments for the gold exposed to provisional pricing. Overall, our EBITDA, EPS, CFPS and FCF estimates are down over 2022 and 2023, while 2024 remains relatively unchanged.”

His target for Newmont also fell by a loonie to $79, matching the Street’s view, with an “outperform” rating.

“We have also updated our Newmont model to incorporate the preliminary 3Q22 results from the Nevada Gold Mines (61.5-per-cent Barrick/38.5-per-cent Newmont) and Pueblo Viejo (60-per-cent Barrick/40-per-cent Newmont) joint ventures included in Barrick’s release,” said Mr. Parkin. “This has resulted in our production estimates falling lower on the quarter, partly offset by an increase in our Penasquito estimates which we tweaked up based on a more robust outlook upon further review of recent trends. We have bumped up both 4Q22 estimates for both NGM and PV, resulting in full-year 2022 production increasing at relatively unchanged costs and helping to boost our financial metrics higher on the year. Overall, we see our NAV decrease slightly.”

Elsewhere, Raymond James’ Brian MacArthur cut his Barrick target to US$26 from US$27, reiterating an “outperform” rating.


In the wake of Thursday’s announcement of a special dividend and release of its updated 2022 and preliminary 2023 guidance, TD Securities’ analyst Aaron Bilkoski sees Birchcliff Energy Ltd. (BIR-T) “on the cusp of accomplishing the primary goal of its previously articulated five-year plan — drive debt to nil.”

“This is resulting in increasing cash returns to equity holders,” he said following the declaration a special 20-cent-per-share dividend, representing 1.7-per-cent of the current share price.

However, he lowered his recommendation for its shares to “hold” from “buy,” noting his forecast 12-month total return for Birchcliff “falls short of the hurdle rate to maintain a Buy rating.”

“For valuation purposes, we are, in part, using a 5 times EV/DACF [enterprise value to debt-adjusted cash flow] multiple (vs. historical threeyear average of 3.5 times) based on US$4/mcf natural gas,” he said. “Although some may be willing to underwrite equity investments using materially higher-than-historical multiples or higher-for-longer natural-gas prices, we are taking a more cautious stance for now.”

His target for its shares remains $12.50, below the average of $14.25.

Elsewhere, Raymond James’ Jeremy McCrea bumped his target for to $13.50 from $13 with an “outperform” rating.

“In anticipation of the press release, the stock has performed well, outperforming many other gas-weighted names over the last week,” he said. “Overall, our thesis on BIR remains. The company continues to benefit from its unhedged production strategy. At strip prices, the Company expects to still have a cash balance in 1Q23 after increasing its capex plans for 2022 and declaring a special dividend. Although many companies in the sector have talked about more aggressive means to return capital, few have been as articulate as BIR, with the $0.80 annualized dividend effectively starting today (with the special dividend) – putting BIR as one of the highest dividend yield names in the sector now at approximately 7 per cent. With strong well results (and an expedited capex program to take advantage of unused infrastructure and quick payouts), and a low-cost structure, there remains an attractive risk-reward for the stock given the current valuation.”


Raymond James analysts Jeremy McCrea and Michael Shaw made a series of target adjustments to energy sector stocks in their coverage universe in response to updates to the firm’s commodity price assumptions.

It lowered its WTI estimate for 2022 by 6 per cent to US$95.70 from US$101.70 per barrel and 2023 by 8 per cent to US$80.80 from US$88 to “match the move lower in the forward prices.” Its long-term price assumption beyond 2023 remains US$70.

For natural gas, the firm raised its 2022 NYMEX price projection by 8 per cent to US$6.70 per thousand cubic feet from US$6.20 and 2023 by 7 per cent to US$5.60 from US$5.20. Its long-term assumption beyond 2023 remains US$3.50/mcf

With those changes, the analysts’ target adjustments for senior producers were:

  • Canadian Natural Resources Ltd. (CNQ-T, “outperform”) to $90 from $85. The average on the Street is $95.50.
  • Imperial Oil Ltd. (IMO-T, “market perform”) to $71 from $70. Average: $74.71.
  • Suncor Energy Inc. (SU-T, “outperform”) to $53 from $50. Average: $54.72.

For intermediate producers, their changes were:

  • Birchcliff Energy Ltd. (BIR-T, “outperform”) to $13 from $13.50. Average: $14.25.
  • Paramount Resources Ltd. (POU-T, “outperform”) to $45 from $40. Average: $41.95.
  • Tamarack Valley Energy Ltd. (TVE-T, “strong buy”) to $7.50 from $6.50. Average: $7.48.
  • Whitecap Resources Inc. (WCP-T, “strong buy”) to $17 from $16. Average: $15.31.


ATB Capital Markets analyst Chris Murray expects WSP Global Inc. (WSP-T) to deliver “healthy” organic growth in the third quarter despite “significant” currency exchange movements creating a “moderate” headwind.

In a research note previewing the firm’s Nov. 9 earnings release, he predicted M&A will be the focus “given the integration of the Wood assets combined with management’s recent decision to walk away from its proposed acquisition of RPS Group Plc (RPS-LN), which is reflected in our revised estimates and was the primary contributor to the lowered price target.”

For the seasonally strong quarter, Mr. Murray is projecting organic growth of 7.6 per cent.

“It is expected to represent the primary source of growth given limited M&A activity in H1/22 and the acquisition of the John Wood assets closing on September 21,” he said. “Solid organic growth trends are expected in H2/22, with M&A growth set to accelerate in Q4/22 and 2023.”

“On October 11, WSP confirmed it would not increase its bid for RPS Group after being outbid by Tetra Tech Inc. (TTEK-Q). Topping TTEK’s offer for RPS would have required a bid of approximately 18 times EBITDA, in our opinion, for an asset that we expected to be initially dilutive to margins. The Company’s response reinforces our view that management remains a disciplined acquirer and is likely to remain active on the M&A front over the near term. With excess capital now available, we are expecting a more fulsome discussion of strategy with the Q3/22 report.”

Lowering his full-year 2022 and 2023 revenue and earnings projections due to the RPS decision and foreign exchange considerations, Mr. Murray trimmed his target for WSP shares to $172 from $175, keeping a “sector perform” recommendation. The current average on the Street is $178.54.

“We maintain our SP rating, as valuations largely reflect our estimate of fair value, though we would become more positive should a larger pullback widen our return to target,” he said.


CIBC’s paper and forest product analyst Hamir Patel cut his targets for several stocks in his coverage universe on Friday.

“Heading into Q3 reporting, we are making only modest revisions to our forecasts after significantly reducing our wood products estimates last week in our LumberCo downgrade,” he said.

“We remain on the sidelines on all lumber/OSB names as we see limited catalysts over the next six months given global demand headwinds for wood products caused by higher mortgage rates (now over 7%). At the same time, declines in home prices (already off 10-per-cent-plus in major California markets) and inflationary pressures are likely to weigh on consumers’ willingness to embark on major home renovation projects next year after excess home investments during the pandemic. Richelieu is our preferred housing-leveraged name in a recessionary-type environment. In the building products space, we also have Outperformer ratings on HDI and Stella-Jones. In the pulp/packaging space, our Outperformer-rated names include CCL and Mercer. We also continue to view Winpak as a defensive name for a recessionary environment (90 per cent of sales tied to food/beverage packaging), with strong margin visibility and above-market growth prospects.”

His changes are:

  • Acadian Timber Corp. (ADN-T, “neutral”) to $17 from $18. The average on the Street is $18.
  • CCL Industries Inc. (CCL.B-T, “outperformer”) to $73 from $74. Average: $78.40.
  • Hardwoods Distribution Inc. (HDI-T, “outperformer”) to $37 from $46. Average: $55.13.
  • KP Tissue Inc. (KPT-T, “neutral”) to $10.50 from $11. Average: $10.33.
  • Winpak Ltd. (WPK-T, “neutral”) to $52 from $51. Average: $55.


“Significant” copper discoveries like ATEX Resources Inc.’s (ATX-X) high-grade Valeriano deposit in Chile will “become increasingly important over the coming years to fill the forecast supply gap,” according to Desjardins Securities analyst Jonathan Egilo.

Emphasizing a “multi-decade drought of significant discoveries should have investors looking at copper,” he initiated coverage of the Toronto-based exploration-stage company with a “buy-speculative” rating on Friday.

“Of the 228 significant discoveries since 1990, only 12 were made over the past decade,” he note.

Calling Valeriano a “high-grade porphyry project that is due for a re-rate,” Mr. Egilo added: “Valeriano is located on the Chilean side of the Link Belt (Filo del Sol, Josemaria, Los Helados, El Encierro). A resource of 297 million tons grading 0.77-per-cent Cueq [copper equivalent] has already been defined, yet step-out holes seen in the recent drilling program showed that the system is much bigger, as the program displayed impressive results of 1,160 metres grading 0.78-per-cent Cueq with a high-grade core of 550 metres grading 1.03-per-cent Cueq. Recent drilling demonstrated that the resource footprint is rapidly growing. However, even when using the conservative 297Mt resource, ATEX trades among the bottom copper porphyry developers on EV/lb, despite boasting the highest grades.”

He set a target of $1.40 per share. The current average is $1.60.


In other analyst actions:

* Following a visit to its PureGold mine in the Red Lake district of northwestern Ontario, Desjardins Securities’ John Sclodnick trimmed his Street-low target for shares of Pure Gold Mining Inc. (PGM-X) by a penny to 13 cents, keeping a “hold” rating. The average is 50 cents.

“Overall, the operation showed positive progress being made from the turnaround plan. However, the possible improvements would require an infusion of capital and, based on our estimates, the turnaround might be too little, too late to save the company from its financial strain,” he said.

* CIBC World Markets’ Jacob Bout lowered his targets for Aecon Group Inc. (ARE-T, “neutral”) target to $11.50 from $14 and Bird Construction Inc. (BDT-T, “neutral”) to $6.75 from $9. The averages on the Street are $14.04 and $9.42, respectively.

* CIBC’s Mark Petrie raised his Aritzia Inc. (ATZ-T) target by $1 to $60, keeping an “outperformer” rating. The average is $52.29.

* RBC’s Luke Davis cut his Parex Resources Inc. (PXT-T) target to $36 from $38 with an “outperform” rating. The average is $38.94.

* Following its Investor Day event and property tour of its Halifax industrial portfolio, Raymond James’ Brad Sturges trimmed his Pro Real Estate Investment Trust (PRV.UN-T) target to $7, below the $7.44 average, from $7.50 with a “market perform” rating.

“As the dominant industrial landlord in the market, combined with tight local industrial real estate conditions, we believe PROREIT can generate strong average industrial rent leasing spreads and therefore organic growth YoY in Halifax as in-place leases approach their respective expiry dates,” he said.

* Lowering his forecast due to currency headwinds, Stifel’s Justin Keywood cut his Savaria Corp. (SIS-T) target to $24 from $25 with a “buy” rating. The average is $21.71.

“Europe makes up 40 per cent of Savaria’s business and faces currency headwinds with the weakness of the Euro and pound (down 15 per cent) vs the USD over the past quarter,” he said. “We adjust our Q3 sales estimates from $200-million to $193-million and Q4 from $211-million to $201-million, while maintaining 17-per-cent EBITDA margins. Our expectation for solid constant currency growth and broader thesis remain unchanged. We see Savaria as executing on a multi-year secular trend with an aging population and a preference to age at home, where assisted lift solutions are likely needed. We also see validity in Savaria’s long-term goals, given the track record, including expanding sales from $745-million (LTM) to $1-billion by 2025.”

* BMO’s Étienne Ricard raised his target for TMX Group Ltd. (X-T) by $2 to $149, maintaining an “outperform” rating.. The average is $150.57.

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

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