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

Element Fleet Management Corp. (EFN-T) is now a “de-risked, more profitable business you want to own,” according to Raymond James analyst Brenna Phelan.

Citing both the “dramatic increase to the profitability profile of the business” revealed in the Oct. 1 unveiling of its strategic plan and the removal of the overhang stemming from its 19th Capital joint venture, Ms. Phelan upgraded her rating for Toronto-based company to “strong buy” from “outperform.”

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“With the 19th Capital Band-Aid ripped off and a detailed profitability improvement plan developed and now in place, Element Fleet now finally seems poised to realize the benefits of operating as the largest corporate fleet manager in North America,” said Ms. Phelan. “We have always liked the attributes of the fleet management business, which include limited cyclicality, matched (and competitively low) funding costs, high barriers to entry and the opportunity for feebased growth. With the new plan comprised of 80–100 small projects to be undertaken over a two-year period, we think the company and its share price are set up well to be rewarded periodically for each successful step completed. We see share price upside from profitability-driven low-mid teens EPS growth over our forecast period, and from trading multiple expansion as execution risk dissipates.”

Ms. Phelan raised her earnings per share projections for fiscal 2019 to 23 cents from 21 cents and introduced her 2020 estimate of 25 cents.

She also increased her target price for Element Fleet shares to $10.50 from $8.50. The average target on the Street is currently $8.77, according to Thomson Reuters Eikon data.

“We ultimately think that the market leader in the counter-cyclical, low credit risk fleet management industry with a strong profitability profile and 2020 Adjusted ROE [return on equity] of 12 per cent should trade at 12–13 times earnings, a premium to peers that take the residual risk of leased vehicles (e.g., ALD-FP and R-NYSE),” the analyst said. “At this time, our target is based on 11 times our 2020 EPS estimate of $0.95, to reflect both the time horizon and the execution risk associated with achieving this earnings profile via the comprehensive cost reduction plan underway.”

Elsewhere, TD Securities analyst Mario Mendonca resumed coverage of Element Fleet with a “buy” rating and $10 target.


MAV Beauty Brands Inc. (MAV-T) "has a clear vision of creating an iconic portfolio of brands focused on bringing professional quality products to the masses at ‘masstige’ price points,” said BMO Nesbitt Burns analyst Shannon Coyne.

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She initiated initiated coverage of Toronto-based company with an “outperform” rating.

“We see 20-per-cent-plus annual sales growth on the back of accelerating hair-care category growth and MAV’s multi-brand portfolio that is strategically positioned to capitalize on mega industry trends including natural, millennial appeal, masstige price-points, and agile independently-founded brands that are taking share from slow-moving, larger CPG legacy brands that are grandfathered in at lower retail price points and margins," the analyst said.

Ms. Coyne set a target of $17 per share, matching the current consensus.

“Since its IPO on July 10, MAV shares are up 3 per cent (12 per cent off of the lowest close); we believe the stock presents a buying opportunity for investors based on MAV’s highly attractive long-term growth prospects,” she said. “MAV is currently trading at 18.2 times on a price-to-earnings basis versus approximately 24.9 times for its direct peer group and below other Canadian consumer products companies (27.3 times).”


Veritas Investment Research analyst Stuart Rolfe thinks the "tail end of the cannabis rainbow may be approaching much faster than investors realize."

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He initiated coverage of the stock of four marijuana producers with “sell” ratings, believing “the market still lacks perspective when it comes to the size, shape and sustainability of Canada’s proverbial pot of gold” and pointing to structural problems facing the companies in explaining his bearish view.

Mr. Rolfe set the following price targets:

Aphria Inc. (APH-T) with a $19 target. The average is $23.14.

Aurora Cannabis Inc. (ACB-T) with a $13 target. The average is $10.90.

Canopy Growth Corp. (WEED-T) with a $30 target. The average is $62.39.

Cronos Group Inc. (CRON-T) with a $4.50 target. The average $10.90.

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Believing the recent stock market sell-off brings “an opportunity to own a high-quality franchise with attractive upside potential,” Citi analyst Mark May upgraded his rating for Netflix Inc. (NFLX-Q) ahead of the release of its third-quarter financial results on Tuesday.

"As the market corrects, we scour our coverage universe to see if companies we fundamentally like but that were Neutral rated due primarily to valuation have reached valuation levels that result in a change in our investment view – and NFLX meets that criteria," said Mr. May, moving the stock to "buy" from "neutral."

“Like GDDY, which we upgraded yesterday, NFLX too is a highly recurring subscription-based revenue business that delivers significant value to consumers, and its management team has a strong track record of execution. Fundamentals remain strong (including positive Q3 datapoints), and the opportunity to continue growing international subs and to exert pricing power leverage remain, in our view.”

Mr. May sees "slight" upside to his third-quarter forecasts and believes buy-side expectations for the media company's fourth-quarter guidance is "already sufficiently low/conservative."

"Beyond 2018, we forecast Total Revenue growth of 27 per cent in 2019, which is slightly above consensus’ 24-per-cent forecast," he said. "Our forecast is driven by an 18-per-cent increase in average streaming subs (vs. 23 per cent in 2018 and 25 per cent in 2017) and a 9-per-cent increase in ARPU [average revenue per user] (vs. 12 per cent in 2018 and 10 per cent in 2017). We forecast Operating Income of $3.4-billion in 2019 (17-per-cent margin), which is well above consensus at $2.7-billion and is driven in part by a slowdown in content spend per sub. We see GAAP EPS growing 98-per-cent year over year to $5.69 in 2019 versus consensus of $4.35."

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Mr. May maintained a US$375 target price for Netflix shares. The average target on the Street is currently US$381.80.

"While NFLX trades at a high absolute multiple on near-term earnings (e.g., 56 times 2019 GAAP EPS) and the company is currently burning cash, earnings are growing more than 100 per cent (e.g., NFLX is currently valued at 35 times our ’21 GAAP EPS when discounted back) and we forecast FCF burn to peak this year and for Netflix to turn FCF positive in the 2020/2021 timeframe," he said.

Elsewhere, RBC Dominion Securities' Mark Mahaney kept an "outperform" rating and US$440 target in his earnings preview note.

Mr. Mahaney said: “Based on intra-quarter data points, our proprietary quarterly survey work, and our model sensitivity work, we believe Street Revenue, Subs and EPS estimates for the September quarter are reasonable.”


In reaction to recent share price weakness, Mackie Research analyst Andre Uddin upgraded Correvio Pharma Corp. (CORV-Q, CORV-T) to “speculative buy” from hold."

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“We expect Correvio’s total revenues to grow going forward, largely driven by existing product sales (primarily Xydalba and Zevtera) and new product launches (Trevyent),” he said. “The EU filing for Trevyent should occur in H1 2019 – which is expected to launch in 2020. Correvio is also looking to in-license a product in 2018 for a launch in 2019.”

Mr. Uddin maintained a target of US$4.70 per share. The average is US$6.74.

“CORV has traded down 48 per cent since we downgraded the stock on Aug. 13, 2018 – which we believe represents an entry point for investors,” he said. “Our total calls on CORV have generated a 529-per-cent return since we initiated coverage.”


Though Premium Brands Holdings Corp.'s (PBH-T) stock is “under pressure,” Desjardins Securities analyst David Newman feels its outlook “remains favourable.”

“With some lingering issues, offset by strength in SF [Specialty Foods] and recent acquisitions (eg Ready Seafood), we anticipate PBH will hold its current guidance intact,” said Mr. Newman in a research note previewing the specialty food manufacturing and distribution company’s third-quarter results, which are scheduled to be released on Nov. 13.

"Despite a solid pipeline of acquisitions and organic growth opportunities, as well as capital projects coming to fruition (GTA facility, new lines in Phoenix), the stock has been under pressure for several unwarranted reasons including a meat glut (positive for input costs), tariffs (North America–centric), freight and labour cost inflation (some transport moves covered by customers, raising prices to offset cost inflation), moderating growth and restructuring at Starbucks (growth within strategic food envelope), and the Amazon effect."

Mr. Newman lowered his adjusted EBITDA estimate for the quarter to $81-million from $84-million, which sits below the consensus on the Street of $83-million. His adjusted EPS estimate is now $1.19, falling from $1.25, which is the consensus.

He maintained a "buy" rating and $115 target for the stock. The average is $127.75.

"PBH’s share price has been on the decline for the past six months, despite the company posting enviable consolidated organic growth of 7.5–8.0 per cent (9.0–10.0 per cent for Specialty Food, 3.5–4.0 per cent for Premium Food Distribution) on average over the last 10 quarters and announcing a number of accretive acquisitions year-to-date in 2018 (a total of nine acquisitions totalling $630-million)," he said. "PBH’s current share price is now well below the level when it announced the acquisition of Oberto ($246-million in sales and an estimated $27-million in EBITDA) and Concord Premium Meats, The Meat Factory, Country Prime Meats and Frandon Seafoods ($267-million in sales and an estimated $27-million in EBITDA), which reinforces our view that the recent weakness is mostly unwarranted."


Canaccord Genuity analyst Michael Graham sees weakness stemming from both a recent drop in share price and the departure of highly regarding chief financial officer Sarah Friar creating an investment opportunity in Square Inc. (SQ-N).

Accordingly, he raised his rating for the California-based mobile payment company’s stock to “buy” from “hold.”

“Having been on the wrong side of Square stock for some time, we believe the recent sharp selloff creates a long-term opportunity in a truly disruptive and well-run company,” said Mr. Graham. “While we usually are very careful around C-level departures (and believe Ms Friar is very talented and a significant loss), the fact she is leaving to take a CEO role at a promising company leaves us comfortable that she is moving toward an opportunity and not away from a risk. That said, it will be important for Square to swiftly find a replacement with the experience to help the company scale from here.”

Seeing “plenty of opportunity in the core,” including the potential significant international expansion in markets such as Canada and Japan, Mr. Graham hiked his target for its stock to US$90 from US$60, exceeding the consensus target of US$82.74.

“We are raising our price target to $90, essentially adopting the very premium valuation framework we think is warranted by the strong operating performance,” he said.


In other analyst actions:

Stifel upgraded Canadian Pacific Railway Ltd. (CP-N, CP-T) to “buy” from “hold” with a target of US$244, down from US$247. The average is US$227.36.

Bryan, Garnier & Co analyst Nikolaas Faes initiated coverage of Aphria Inc. (APH-T) with a “buy” rating and fair value of $31. The average is $23.14.

Canaccord Genuity analyst Matt Bottomley downgraded MedMen Enteprises Inc. (MMEN-CN) to “speculative buy” from “hold” with a $6.50 target, rising from $5.25. The average is $8.50.

Macquarie raised Microsoft Corp. (MSFT-Q) to “outperform” from “neutral” with a target of US$121, up from US$106. The average is currently US$123.55.

Morgan Stanley downgraded MEG Energy Corp. (MEG-T) to “equal-weight” from “overweight” and reduced its target to $11 from $14. The average is $11.70.

National Bank Financial analyst Shane Nagle downgraded Capstone Mining Corp. (CS-T) to “sector perform” from “outperform” and lowered his target to 85 cents from $1. The average is $1.45.

Pivotal Research upgraded Twitter Inc. (TWTR-N) to “hold” from “sell” with a target of US$24, falling from US$26 and below the consensus of US$33.35.

The firm also upgraded Snap Inc. (SNAP-N) to “buy” from “hold” while lowering its target to US$8 from US$9. The average is US$10.89.

With a file from Bloomberg News

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