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

IA Capital Markets’ Matthew Weekes attributed the 9.1-per-cent drop in Mullen Group Ltd. (MTL-T) shares on Thursday to “profit taking and concerns over economic growth downside and pricing declines going forward” following the premarket release of better-than-anticipated third-quarter results.

However, the equity analyst thinks the Alberta-based trucking and logistics company is making the right decision by focusing on returns and sees it poised to benefit from a “resurgence” in oilfield services activity.

“MTL continued to emphasize a cautious approach to M&A in the uncertain environment, preferring to focus on the balance sheet and optimizing yield and shareholder returns, while demand and margins may be impacted in the near future by an economic slowdown,” said Mr. Weekes in a research note. “While MTL has noted that valuations are compressing, it needs to identify a clear strategic fit and synergies before it will pursue a transaction. This strategy combined with the favourable industry environment position MTL to generate strong returns while positioning the balance sheet for either downside or upside scenarios. MTL reduced its net debt balance during the quarter and has the potential to fully pay down its credit facility should non-core asset sales close. Additionally, MTL has continued to buy back shares, repurchasing more than 200K shares in the quarter for $2.5-million. In 2022, we forecast that MTL will generate a double-digit after-tax ROIC while converting OIBDA into AFFO at an 55-60-per-cent ratio.”

For the quarter, Mullen reported operating income before depreciation and amortization (OIBDA) of $98-million, up 52 per cent year-over-year and exceeding the forecasts of both Mr. Weekes ($92-million) and the Street ($90-million).

“MTL continued to benefit from strong pricing and demand across the business, which have more than offset inflation,” he said. “Operating margin exceeded our forecasts in all of MTL’s asset-based segments. The beat firmly puts MTL on track to exceed its previous 2022 OIBDA guidance of $300-million. MTL indicated on the call that it could potentially earn OIBDA upwards of $90-million in Q4 (iA estimate: $85-million).”

“MTL indicated that it expects future results to moderate, but that this could take time and that demand is expected to remain strong through the balance of the year, supported by stable employment, consumer demand, and continued capital investment in the economy. Meanwhile, the Company expects supply chain issues and high fuel costs to persist, which are expected to have an outsized impact on independent contractors.”

Maintaining a “buy” rating, Mr. Weekes trimmed his target for Mullen shares by 50 cents to $17. The average on the Street is $16.70.

“While MTL will likely experience a degree of softening in freight rates through 2023, structurally tight OFS markets could provide a longer runway of pricing upside in those business units, providing a partial offset,” he said. :The economic outlook remains uncertain, but we believe MTL is taking a prudent approach to addressing this uncertainty, which includes (a) focusing on margin and remaining disciplined with capital while internal growth capacity is limited, (b) strengthening the balance sheet and generating strong returns for shareholders, and (c) positioning to shift back to strategic M&A once there is more clarity on interest rates, the direction of the economy, and M&A margin accretion potential.

“We are lowering our target price as we incorporate a more conservative valuation, reflecting higher interest rates and cautiousness on the economic outlook,” he said.

Elsewhere, RBC Dominion Securities’ Walter Spracklin cut the stock to “sector perform” from “outperform” with a $13 target, down from $17.

“Despite what was very strong Q3 results and increased guide for 2022, we are downgrading the stock for the following reasons: 1) with the current positive trends now announced, we see valuation downside, particularly if we see recessionary weakness emerge in 2023 (which we are now factoring in); and 2) we believe the market will react negatively to management’s indication of dialling back on M&A (which in our view was the main driver for the share price weakness Thursday),” said Mr. Spracklin.

Elsewhere, BMO’s John Gibson trimmed his target by $1 to $17 with an “outperform” rating.

“MTL’s Q3/22 results were once again strong, led by pricing increases and solid activity levels across the majority of its operating segments. Despite the strong print, MTL stock fell 9 per cent on the day on the back of a broader Trucking/Logistics sell-off. We feel the reaction was overdone, particularly given MTL’s strong outlook into Q4/22,” said Mr. Gibson.


RBC Dominion Securities analyst Paul Treiber thinks macro uncertainty and higher risk-free rates are likely to weigh on Shopify Inc. (SHOP-N, SHOP-T) through the end of 2022, continuing to “restrain” the performance of its shares.

However, heading into third-quarter earnings season, he thinks the Ottawa-based e-commerce giant remains “one of the most compelling long-term growth stories” in his coverage universe.

“We believe Shopify may report Q3 revenue above RBC/consensus on stronger GMV growth. Data points indicate e-commerce sales were solid in Q3, despite macro headwinds,” said Mr. Treiber.

“We believe that Shopify could report Q3 revenue above our estimates and consensus (at $1.34-billion), and closer to $1.40-billion, due to more resilient than expected GMV growth. Due to higher opex relating to the acquisition of Deliverr, the new compensation framework, and investments in fulfilment, we anticipate adj. EBITDA of a loss of $93-million (consensus at a loss of $99-million), down from a loss of $33-million Q2. Similarly, we expect adj. EPS to fall to a loss of 8 cents (consensus at a 7-cent loss) from a loss of 3 cents Q2.”

Mr. Treiber said a series of data releases suggests U.S. e-commerce spending has been “resilient” despite “macro uncertainty and concerns surrounding consumer spending” and thinks there’s potential upside to gross merchandise volume estimates.

“Our model calls for GMV to grow 10 per cent year-over-year to $45.9-billion (consensus at $46.7-billion),” he said. “This implies GMV falls 2 per cent sequentially, which is conservative relative to typical seasonality (up 6 per cent quarter-over-quarter average over the past 5 years). Moreover, if the delta between Shopify’s GMV and U.S. Census Bureau e-commerce growth remains similar to Q2, Shopify’s GMV could be as high as $48.6-billion in Q3 (up 16 per cent year-over-year). At an assumed take rate of 2.10 per cent, an incremental $2.7-billion GMV would add $57-million to our Q3 revenue.

With its quarterly results, scheduled to be released on Oct. 27, Mr. Treiber expects Shopify to largely reiterate its outlook for 2022, noting: “We believe Shopify will reaffirm its outlook for: 1) GMV to continue to outperform the broader retail market in the second half of FY22; 2) the number of new merchants joining in the second half of the year to be higher than the first half; 3) GMV and total revenue in FY22 to be more evenly distributed across the year; 4) gross profit growth to trail revenue growth. Shopify could indicate that FX is likely an incremental headwind to Q4 revenue growth (we estimate $21-million year-over-year headwind or 150 basis points).”

Warning its shares are likely to remain “volatile,” Mr. Treiber trimmed his target to US$55 from US$60, citing the impact of higher risk-free rates and lower valuation multiples among peers, with an “outperform” recommendation. The average on the Street is US$40.23.

“Shopify’s valuation has materially reset this year, now at a 55-per-cent discount to Shopify’s pre-COVID average (5.4 times EV/S vs. 12.0 times average),” he said.

“Our revised $55 target equates to 8 times calendar 2024 estimated EV/S (down from 9 times previously) and is justified above peers (7 times FTM EV/S), given Shopify’s large TAM and attractive long-term opportunity.”

Concurrently, in a research report titled Waiting for visibility to 2023, Mr. Treiber made a group of other target price adjustments for Canadian tech stocks.

“The majority of stocks in our coverage universe are likely to remain under pressure through Q3 results and the end of the year, even though Q3 fundamentals are likely to remain healthy,” he said. “Rising risk-free rates will continue to pressure valuations, particularly unprofitable, high growth tech stocks. Sentiment is likely to remain muted on stocks that are exposed to consumer spending, given uncertainty regarding the sustainability of spending in light of macro headwinds (interest rates, energy, inflation, etc.). Therefore, we believe that the consolidators with low/no leverage and profitable secular growth stories are likely to be the most defensive stocks in our coverage universe.”

His changes are:

* Altus Group Ltd. (AIF-T, “outperform”) to $65 from $70. Average: $62.75.

* Celestica Inc. (CLS-N/CLS-T, “sector perform”) to US$11 from US$13. Average: US$11.79.

* Coveo Solutions Inc. (CVO-T, “outperform”) to $11 from $13. Average: $9.56.

* Nuvei Corp. (NVEI-Q/NVEI-T, “outperform”) to US$50 from US$60. Average: US$59.14.

* Open Text Corp. (OTEX-Q/OTEX-T, “outperform”) to US$50 from US$52. Average: US$47.


Seeing “compelling valuations for a mix of decent growth and resilience,” Desjardins Securities analyst Jerome Dubreuil initiated coverage of four information technology companies with “buy” recommendations on Friday, touting “the continued robust demand for digital transformation services, growing adoption of the cloud and relative resilience of IT services vs other tech sub-sectors.”

“The IT services stocks under our coverage were not spared from the tech stock rout which began last November, with the share prices of our covered names down an average of 8.5 per cent since November 15,” he said. “Excluding GIB.A, our covered names are down 39 per cent, mirroring the S&P/TSX Information Technology Index. With the economy not out of the woods yet, we see the robust profitability and cash flow generation of the IT services sub-sector as attributes that investors may continue to favour in the coming months. Moreover, with valuations for our coverage universe being below the peer average despite expectations for faster 2023 EBITDA growth, we view the current valuations as attractive.”

“While the pandemic forced many companies to increase investment in their remote work capabilities, we do not see a reversal in IT budget spend with a ‘return to normal’. On the contrary, given management teams have seen solid returns and employees have adapted to an evolving work environment, companies now view IT investment as a competitive advantage vs just a cost of doing business. Moreover, given that general labour market tightness appears to be increasingly structural, we see a long runway of accelerated technology adoption as companies seek to cut costs and spur growth in this more difficult economic environment.”

Mr. Dubreuil named Quisitive Technology Solutions Inc. (QUIS-X) his “preferred name” and gave it a $1.40 target. The average on the Street is $1.69.

“With its low valuation, high insider ownership, strong organic growth of approximately 20 per cent and LedgerPay optionality, QUIS is our preferred name,” he said. “We view its core Cloud business as a solid foundation which should continue to grow at 15–20 per cent year-over-year due to recent acquisitions and attractive IP/SaaS products (as evidenced by its relatively high margins). Its Payment segment currently grows at an even faster 20 per cent year-over-year organically and with the introduction of LedgerPay, provides exposure to the payments industry (which is relatively shielded from inflation) while using core data analytics and cloud competencies. Our view is that the market gives QUIS no credit for LedgerPay’s potential and currently undervalues the core Cloud business, which is growing much faster than its peers.”

In order of preference, he also initiated coverage of these stocks:

2. Converge Technology Solutions Corp. (CTS-T) with a $10 target. Average: $10.55

3. CGI Inc. (GIB.A-T) with a $126 target. Average: $127.77.

4. Alithya Group Inc. (ALYA-T) with a $3.75 target. Average: $3.88.


While sentiment around the trucking industry “remains tough” amid signs of some market “softness,” National Bank Financial analyst Cameron Doerksen thinks TFI International Inc. (TFII-T, TFII-N) is likely to outperform the industry, expecting a “solid” third-quarter.

“While trucking rates continue to soften in the U.S. and the broader economic outlook points to further weakening, we note that LTL [less than truckload] now represents 47 per cent of TFII’s revenue and the U.S. LTL Producer Price Index (which we view as an indicator of LTL pricing) was up 16.0 per cent year-over-year in September. TFII will also benefit from company-specific margin expansion opportunities in its LTL operation in the coming quarters that are independent of end-market demand.”

Ahead of the release of the company’s third-quarter results on Oct. 27, Mr. Doerksen is projecting earnings per share of $1.78, up from $1.46 during the same period a year ago but below the consensus on the Street of $1.93 (though he notes the estimate range is “quite wide”).

“As for full year 2022 guidance (currently at $8.00 in EPS), we do not expect any major changes as the recent share buyback activity will be partially offset by the sale of the CFI TL division, which closed in late August,” he said.

Mr. Doerksen emphasized the Montreal-based company’s balance sheet is “well positioned” for an ecomoic showdown.

“Leverage remains low, at an estimated 1.0 times following the close of the CFI business sale at the end of August which should facilitate M&A,” he said. “Current market conditions are also favourable from a target valuation perspective. In the absence of imminent M&A, we expect TFII to be active with its NCIB. The company repurchased 2.1 million shares at an average price of $125.97 throughout Q3/22. We anticipate that TFII will renew the NCIB once the current one expires on November 1st.”

After “modest” downward revisions to his forecast and valuations, Mr. Doerksen trimmed his target for TFI shares to $150 from $152, maintaining an “outperform” recommendation. The average is $142.97.

“Recession fears continue to weigh on all trucking stocks and investor sentiment is likely to remain challenging for TFII shares in the near term,” he said. “However, we remain positive on TFII’s prospects so longer-term oriented investors should look to add to positions on share price weakness.”


National Bank Financial analyst Vishal Shreedhar expects the release of Loblaw Companies Ltd.’s (L-T) third-quarter results on Nov. 16 to highlight a beneficial shift in consumer patterns as inflation remains “elevated.”

“Through L’s Q3, StatCan food store inflation averaged about 10.5 per cent vs. Q2 at about 9.6 per cent,” he said. “We anticipate a similar upward trend with L’s internal inflation.

“Our review of management commentary from grocery peers suggests a continuation of shifts in consumer behaviour: (a) Trade-down in certain categories; (b) Increasing preference for discount over conventional; (c) Growing private label penetration; and (d) A shift back to grocery from restaurants. (3) Given L’s high exposure to discount (vs. Canadian peer grocers), high inflation and strong private label offering, we anticipate sequentially improving sssg [same-store sales growth] trends in food.”

For the quarter, he’s forecasting earnings per share of $1.90, jumping 20-per-cent year-over-year (from $1.59) but a penny below the consensus on the Street. He said the significant increase reflects “positive food retail same-store sales growth (sssg), continued momentum at SC (F/E and Rx), lower year-over-year COVID-19 costs, benefits from Loblaw’s ongoing efficiency programs and share repurchases.”

“We continue to maintain a favourable view on Loblaw and recommend it as our preferred grocer, supported by several key themes: (1) Anticipated continued execution and benefits from management’s improvement initiatives; (2) Continued earnings growth (we forecast up 18 per cent year-over-year in 2022 and 8-per-cent-plus thereafter); (3) The ability to pass on elevated food inflation; and (4) Potential structural benefits, including longer-term stronger grocery demand.”

Maintaining an “outperform” rating for its shares, he trimmed his target to $126 from $127 after lowering his valuation for its Financial segment “given increasing uncertainty regarding consumer financial health.” The average on the Street is $130.60.


Citing higher expected relative returns elsewhere in his coverage universe, RBC Dominion Securities analyst Greg Pardy downgraded Ovintiv Inc. (OVV-N, OVV-T) to “sector perform” from “outperform” on Friday.

“Our rating change comes alongside estimate revisions and our updated outlook for Ovintiv following our Global Energy Research Commodity Price Update,” he said. “While we move to Sector Perform, we maintain our constructive stance towards the company’s formula driven shareholder returns model which should move its share repurchases appreciably higher in the quarters to come.”

Ahead of the Nov. 8 of its quarterly results, Mr. Pardy trimmed his target to US$57 from US$58. The current average is US$68.88.

“Ovintiv is trading at a 2022 debt-adjusted cash flow multiple on futures pricing of 3.9 times (vs. our North American senior E&P peer group avg. of 4.3 times) and an 18-per-cent free cash flow yield (vs. our peer group avg. of 16 per cent),” said Mr. Pardy. “We believe the company should trade at an average/modest discount vis-à-vis our peer group given its solid execution capability, strengthening balance sheet and rising shareholder returns, partly offset by its unconventional strategic moves at times.”


Desjardins Securities analyst Doug Young is expecting “another tough quarter” for Canadian life insurance companies.

“Equity market volatility and rising interest rates likely negatively impacted wealth management results yet again,” he said. “Restrictions in various regions in Asia are still a headwind. Hurricane Ian will impact MFC’s and GWO’s P&C retrocession businesses. And 3Q is when SLF and MFC do deeper dives on actuarial assumptions, which could get noisy, in our view. That said, the setup for 4Q22 and 2023 looks interesting, as COVID-19 restrictions begin to fade and the lifecos reap the benefits from past acquisitions and higher interest rates.”

In a report released Friday, he lowered his estimates and adjusted his target prices for the four stocks in his coverage universe. He maintained his ratings and pecking order.

In order of preference, his changes are:

1. Sun Life Financial Inc. (SLF-T, “buy”) to $67 from $68. Average: $67.31.

2. iA Financial Corp. Inc. (IAG-T, “buy”) to $82 from $78. Average: $82.83.

3. Manulife Financial Corp. (MFC-T, “hold”) to $24 from $25. Average: $26.54.

4. Great-West Lifeco Inc. (GWO-T, “hold”) to $32 from $35. Average: $34.44.

“We expect core EPS to decline on average by approximately 7 per cent in 3Q22, decline by 1 per cent in 2022 and increase by 3 per cent in 2023,” said Mr. Young. “Our 2022 numbers are based on IFRS 4 while our 2023 numbers are loosely based on the pending IFRS 17 guidelines based on what we know currently. Despite various headwinds, there are several earnings growth drivers for each company for 2H22 and 2023, including: (1) SLF—contribution from the DentaQuest (DQ) acquisition, easier U.S. group comps (2H22), potential turnaround in Asia (late 2022) and SLC Management; (2) MFC—a potential turnaround in Asia (late 2022) and stock buybacks; (3) IAG—integration of IAS in the U.S., organic growth, digital initiatives, potential buybacks and leveraging distribution capabilities domestically; and (4) GWO—addition of MassMutual’s and Prudential’s U.S. retirement businesses.”


Heading into earnings season for the Canadian energy sector, Desjardins Securities analyst Chris MacCulloch sees rising downside risk for investors in the short term.

“Gravol, anyone? It’s certainly been a wild ride in the energy sector, consistent with the broader financial market turmoil, as we enter 3Q22 financial reporting, which kicks off next week,” he said. Oil prices tumbled in the quarter as global economic prospects darkened following the fastest pace of interest rate hikes in a generation. Meanwhile, the bullish setup for natural gas appears to be reaching its zenith due to a fresh wave of supply, which has eroded most of the US storage deficit in recent weeks. Although softer commodity prices are obviously painful for producers, we believe they have been properly reflected in sector multiples, with most stocks still trading south of 3.0 times 2023 strip DACF [debt-adjusted cash flow] while offering FCF yields of more than 15 per cent. Despite the gloomy economic outlook, we expect commodity prices to remain well-supported over the next 12 months, which should result in continued sector outperformance.”

Updating his commodity price forecast and making “minor” reductions to his financial forecast, Mr. MacCulloch tweaked his targets for several companies in his coverage universe.

For large-cap stocks, his changes are:

  • Arc Resources Ltd. (ARX-T, “buy”) to $25 from $27. Average: $24.52.
  • Canadian Natural Resources Ltd. (CNQ-T, “buy”) to $94 from $97. Average: $94.81.
  • Tourmaline Oil Corp. (TOU-T, “buy”) to $92 from $100. Average: $95.58.

For dividend-paying stocks, his changes are:

  • Crescent Point Energy Corp. (CPG-T, “buy”) to $15.50 from $16. Average: $14.92.
  • Enerplus Corp. (ERF-T, “buy”) to $20.50 from $21. Average: $23.46.
  • Freehold Royalties Ltd. (FRU-T, “buy”) to $19 from $21. Average: $20.22.
  • Peyto Exploration & Development Corp. (PEY-T, “buy”) to $18.50 from $19.50. Average: $18.
  • Pine Cliff Energy Ltd. (PNE-T, “buy”) to $2.15 from $2.35. Average: $2.24.
  • Topaz Energy Corp. (TPZ-T, “buy”) to $29 from $30.50. Average: $29.91.
  • Tamarack Valley Energy Ltd. (TVE-T, “buy”) to $6.25 from $7. Average: $7.35.
  • Whitecap Resources Inc. (WCP-T, “buy”) to $14 from $15. Average: $14.93.


In other analyst actions:

* Expecting secular tailwinds to drive long-term growth, Scotia Capital’s Divya Goyal assumed coverage of Telus International Canada Inc. (TIXT-N, TIXT-T) with a “sector outperform” rating and US$33 target. The average on the Street is US$33.83

“We believe TI has a unique value proposition in an exponentially growing customer experience industry, whereby the company’s current business solutions accentuate traditional CX capabilities through digital technologies, including AI-based data solutions and content-moderation capabilities,” she said. “So far, we believe TI has significantly benefited from its interdependent relationship with Telus Corporation (TELUS). However, as the company continues to expand and enhance its product offerings, while growing organically with existing clients and simultaneously adding new client relationships, we expect material upside from this investment.”

* Coming off restriction following the close of its $175-million equity financial, National Bank Financial’s Don DeMarco trimmed his target for shares of Artemis Gold Inc. (ARTG-X) by $1 to $8 with an “outperform” rating. The average is $10.42.

“Provides measurable project finance de-risking while ARTG is approaching the heart of early works, gearing up for mobilization in Feb. and major works in March,” he said. “The raise represents 25-per-cent dilution, with management and insiders participating significantly, aka an endorsement to the project.”

* “To reflect the higher rate environment (higher discount rates applied to fee-related earnings and carried interest) and current market prices of listed affiliates,” BMO’s Sohrab Movahedi cut his Brookfield Asset Management Inc. (BAM-N, BAM.A-T) target to US$57, below the US$60.91 average, from US$71 with an “outperform” rating.

* Following its virtual annual customer event, Canaccord Genuity’s Robert Young cut his Docebo Inc. (DCBO-Q, DCBO-T) target to US$45 from US$55, below the US$59 average, with a “buy” rating.

“Docebo continues to position itself as an emerging leader in LMS and a defacto leader in external facing LMS for customers and partners,” he said. “The event had significant customer involvement with companies such as Fannie Mae, Tripadvisor, Cyncly, Intel, Stanford University and Omnicell presenting. An update to the product roadmap, which we would frame as evolutionary versus revolutionary, laid out enhancements to automation, embedded analytics, content discoverability and administration, user engagement tools and reporting. For external LMS, Docebo set out plans for greater automation and commerce functions (multi-currency support, tax, etc). Docebo also showcased developments in its communities for customer self-service. Closing the event, CFO Sukaran Mehta provided advice and perspective from a financial perspective on Docebo ROI. While we expect further visibility from the company’s upcoming Q3 results and Investor day in November, we believe Docebo’s top line will likely be impacted by a strong USD/weak EUR (we estimate a 4-5-per-cent headwind). We also expect some delays in signings as CFO/CEOs operate with tighter budgets. That said, we expect the higher ROI of Docebo’s external facing learning functions and the ongoing shift to larger enterprise to reduce the risk.”

* Though he thinks the North American waste sector “continues to live up to its defensive characteristics,” RBC’s Walter Spracklin cut his GFL Environmental Inc. (GFL-N, GFL-T) target to US$33 from US$37. The average is $42.67.

“We are leaving our Q3 EBITDA estimate unchanged at $462-million (consensus $471-million) and our target comes down due to our adjustment to our target multiple (which has a more pronounced effect on GFL relative to the group). In terms of potential variance to our Q3 estimates, on the downside we could see softer-than-anticipated project-driven volumes on the downside, and on the upside we could see higher contribution/synergies from recently completed acquisitions. Our focus for the quarter will be on the magnitude of FCF inflection, commentary on the acquisition environment, and news on any new RNG projects since changes to U.S. renewable tax credits,” said Mr. Spracklin.

* TD Securities’ Brian Morrison lowered his targets for Linamar Corp. (LNR-T) target to $77 from $86 with a “buy” rating and Magna International Inc. (MGA-N, MG-T) to US$76 from US$81 with a “buy” rating. The averages are $74 and US$72.13, respectively.

“We see tremendous value in Magna; however, until such time that we get improved visibility with respect to inflation (Europe) and a peak in U.S. bond yields, it is difficult to identify an immediate near-term catalyst. We are maintaining our positive recommendation, as we believe we should see improved earnings visibility by spring 2023, which should lead to share-price appreciation in the back half of our investment horizon. In the interim, we believe the strength of Magna’s balance sheet and FCF outlook should support its annual Q4 dividend increase and active NCIB,” said Mr. Morrison.

* Raymond James’ Craig Stanley downgraded Montage Gold Corp. (MAU-X) to “outperform” from “strong buy” with a $1.75 target, down from $2, and Orezone Gold Corp. (ORE-T) to “outperform” from “strong buy” with a $2.15 target, falling from $2.40. The averages are $2.10 and $2.53, respectively.

* TD Securities’ Arun Lamba initiated coverage of Orezone with a “speculative buy” rating and $2.25 target.

“The company’s share price outperformed over the past 12 months (down 7 per cent vs the other developers in our coverage universe which were down 43 per cent), distinguishing itself from most developers by largely beating the inflationary capex environment and building the [flagship Bomboré gold project in Burkina Faso] on time,” said Mr. Lamba

* After lowering his 2023 revenue and earnings forecast to “reflect the timing of M&A, a more gradual return of in-person physician visits (and consequently a slower rebound in new-script volume in NBLY’s clinic locations), and the ongoing labour challenges,” TD Securities’ Derek Lessard cut his Neighbourly Pharmacy Inc. (NBLY-T) to $28 from $33 with a “buy” rating. The average is $28.80.

“We believe that NBLY shares, now trading at 11.6 times forward consensus EBITDA (well off of the 21.3 times they were trading at at the start of 2022), have overcorrected,” said Mr. Lessard. “However, with M&A no longer a catalyst for the time being, they are more likely to be range-bound in the short term. In the long term, we expect the shares to recover more meaningfully as we move closer to the end of the interest-rate-tightening cycle.”

* In a quarterly earnings preview for base metals producers, National Bank’s Shane Nagle raised his Sherritt International Corp. (S-T) target to 80 cents from 70 cents with a “sector perform” rating. The average is 96 cents.

“While H1/22 costs were elevated, higher diesel and other consumables didn’t truly start taking effect until mid-Q2 with higher priced consumables flowing through Q3 results. Names where we’re above 2022 annual cost guidance and could anticipate an increase include: CMMC, FM, LUN and TECK/B (coal). Companies that can highlight improving cost structure into 2023 via operational improvements like: CMMC, CS, HBM and TKO may offset any negative market reaction to elevated costs in the quarter,” he said.

* Prior to its Nov. 9 earnings release, Canaccord Genuity’s John Bereznicki lowered cut his target for Superior Plus Corp. (SPB-T) to $12 from $13.25 with a “buy” rating. The average is $13.33.

“Operationally, we believe the company faced relatively warm weather in Canada through much of the third quarter, offset partially by cooler U.S. weather and the company’s acquisitions over the past year (along with relatively steady margins),” he said. “We are calling for Q3/22 EBITDA of a loss of $8.5-million versus consensus of a profit of $3.0-million and expect the company to generate full-year EBITDA at the mid-range of its existing 2022 guidance (of $425-$465 million). We also estimate Superior exited Q3/22 with net debt of $1.9 billion, which reflects the impact of a weakening C$ on the company’s US$-denominated debt. This equates to 4.3 times our 2022E EBITDA outlook and 3.9 times on our 2023 estimates (which include a full-year contribution from Kamps and Quarles). We expect these metrics to fall over the next few quarters as the company focuses on integration, leaving it positioned to become more active on the acquisition front this spring.”

* In response to Thursday’s earnings release, Scotia Capital’s Mark Neville cut his target for Winpak Ltd. (WPK-T) to $60 from $62, keeping a “sector outperform” rating, while BMO’s Stephen MacLeod trimmed his target to $52 from $54 with a “market perform” rating. The average is $54.50.

“BITDA came in at $51 million vs. consensus of $57 million,” Mr. Neville said. “However, in our opinion, this is an overstatement as there were several ‘one-time’ items in the Q that the company didn’t adjust for (e.g., revaluation of B/S items, obsolescence of inventory, higher pre-production costs, etc.) that we estimate would bring ‘adjusted EBITDA’ closer to $55-million. So, still a miss, but not the same order of magnitude. While we understand the weakness in the share price given the stock was up 22 per cent year-to-date into the Q, we don’t want to lose sight of the fact that the company is defensive, growing, has cost tailwinds (e.g., declining resin prices and a stronger USD), and is cheap – trading at just 6.8 times EV/EBITDA on our 2023E, with $8 per share of net cash on the B/S.”

* SVB Securities’ Andrew Berens downgraded Zymeworks Inc. (ZYME-N) to “market perform” from “outperform” with an US$8 target, down from US$19 and below the US$17.34 average.

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