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

CIBC World Markets analyst Stephanie Price sees “little visibility” of a return to profitability for Maxar Technologies Ltd.'s (MAXR-N, MAXR-T) geostationary satellite manufacturing business.

Also expecting Maxar, once known as MacDonald Dettwiler & Associates Ltd., to "consume cash" in 2019 through the build the WorldView Legion satellie fleet and the restructuring of its subsidiary SSL, Ms. Price downgraded her rating for the company's shares to "underperformer" from "neutral" in a research note released late Thursday following the release of "weak" fourth-quarter results.

Maxar reported revenue for the quarter of US$496-million, missing the consensus expectation on the Street of US$518-million. Earnings per share of 7 US cents was also well short of projections (64 US cents).

"With no buyers for the GEO business, Maxar announced it will keep the business ($821 million revenue/negative $80 million EBITDA in 2018), noting restructuring was less capital intensive than winding it down," said Ms. Price. "We expect GEO to remain an EBITDA and cash flow drag in 2019."

"Management declined to give full 2019 guidance, suggesting that EBITDA (ex-SSL) should be above $550- million and capex up year-over-year given the Legion build out. We are forecasting $480-million in EBITDA (versus prior $587-million) as we add SSL back into our forecast (we had assumed a wind-down). We are forecasting cash usage of $68-million in 2019."

Ms. Price dropped her 2019 and 2020 EPS estimates to 91 US cents and US$2.23, respectively, from US$2.59 and US$2.98.

Her target for the stock dipped to US$5 from US$6. The average target on the Street is US$12.19.

“Maxar remains in transition, with a new management team attempting to navigate a weak GEO industry, a failed satellite and a significant WorldView Legion capex program,” the analyst said.


Desjardins Securities analyst Justin Bouchard thinks AltaGas Ltd. (ALA-T) is “setting the stage for a reset” with its fourth-quarter results and 2019 guidance.

On Thursday, the Calgary-based energy infrastructure company reported EBITDA for the final quarter of fiscal 2018 of $394-million, exceeding Mr. Bouchard's $379-million estimate due largely to outperformance in its power and utilities segments. With the results, the company also reiterated its 2019 EBITDA ($1.2-billion to $1.3-billion) and spending guidance ($1.3-billion).

"There has clearly been a market correction following the excessive sell-off that began in late 2018; the name has rallied accordingly over the past month," said Mr. Bouchard. "The company has outlined its 2019 plan, but there is still risk with the divestiture program, its leverage metrics are still elevated and midstream growth post 2019 is unclear."

Keeping a “hold” rating for AltaGas shares, Mr. Bouchard raised his target to $19, matching the current consensus on the Street, from $16.

Elsewhere, Industrial Alliance Securities' Elias Foscolos said 2019 is "shaping up to be a pivotal year."

“As expected, the contributions from WGL in Q4/18 provided confidence and we expect strength to continue into Q1/19,” said Mr. Foscolos. “Operational strength and contributions from WGL pushed Q4/18 EBITDA to $394-million. We anticipate there to be a continual reduction to debt as the Company further pursues asset dispositions to the tune of $1.5-2.0-billion for 2019.”

He maintained a "buy" rating and $21 target.

Raymond James' Chris Cox kept a "market perform" rating and $19 target.

Mr. Cox said: "With the stock outperforming peers by 7.5 per cent on the news yesterday and 10 per cent since the beginning of the year, we believe most of the upside relating to the asset sale program is likely priced into the stock and see more attractive return opportunities elsewhere within the Canadian Midstream space."


Following a recent share price rally sparked by its Jan. 29 Investor Day event, Raymond James analyst Brenna Phelan thinks “most of a more constructive outlook is already priced in” to ECN Capital Corp. (ECN-T).

Accordingly, she lowered her rating for the Toronto-based financial business service provider to "market perform" from "outperform" despite Thursday's release of in-line fourth-quarter financial results.

After market close, ECN reported adjusted earnings per share for the quarter of 5 cents, a penny ahead of the projection of Ms. Phelan and the consensus on the Street.

“Since its Oct-2016 spin-off from Element Financial, ECN Capital has been transitioning its business from a balance-sheet intensive, low ROE [return on equity] less or of equipment and capital assets to an asset-light, consumer finance-focused originator, servicer and adviser,” said Ms. Phelan. “This transition has been more noisy and expensive than we had initially envisioned, which has clouded otherwise mostly strong performance from Service Finance and Triad. We think that large charges/write-downs are finally behind ECN, and we think there is likely room for multiple expansion as the company’s new businesses demonstrate that they can meet or beat recently provided guidance. However at this time, we would prefer to wait to see a few consecutive quarters of the guided-to high growth and earnings power on display, with a consistent build in retained earnings before becoming much more constructive.”

Her target for the stock rose to $4.50 from $4. The average is $5.01.


Though he saw its fourth-quarter results as “slightly weak,” Industrial Alliance Securities analyst Jeremy Rosenfield raised his target price for shares of Canadian Utilities Ltd. (CU-T), emphasizing a favourable performance-based ratemaking (PBR) decision eliminates regulatory risk.

"The Alberta Utilities Commission (AUC) issued a decision to not re-examine achieved ROEs for its Alberta distribution utilities under the first term of performance-based ratemaking (PBR1, 2013-17)," he said. "We see the AUC decision as a positive development that eliminates some regulatory risk and supports investor confidence in the regulatory jurisdiction, as well as the earnings outlook for the distribution utilities under the current regime (PBR2, 2018-22)."

On Thursday, Canadian Utilities reported adjusted earnings per share of 69 cents, exceeding the projections of both Mr. Rosenfield (63 cents) and the consensus on the Street (62 cents).

Despite the miss, Mr. Rosenfield said its overall growth outlook remains unchanged, calling it “healthy.”

"We continue to expect CU to generate low-to-mid single digit EPS and DPS growth over the forecast period, driven by its three-year organic investment plan," he said.

Maintaining a "hold" rating for its stock, his target rose to $34 from $32. The average is currently $35.

"We continue to view CU as a defensive utility sector investment, with (1) a stable core of regulated utility investments (more than 90 per cent of adjusted earnings), (2) low single-digit EPS growth (3-5 per cent per year, CAGR 2018-23), (3) a healthy dividend (5-per-cent yield, roughly 75-per-cent EPS payout through 2023), and (4) potential longer-term upside from large-scale energy infrastructure investments," the analyst said. "We continue to see the stock as fairly valued, and would continue to wait for the next potential growth catalyst, such as an update on the strategic review of its Canadian power business, and/or other material developments that could justify a re-rating."


After a “strong” fourth-quarter earnings beat, Raymond James analyst Kurt Molnar upgraded his rating for Storm Resources Ltd. (SRX-T) to “strong buy” from “outperform.”

"Storm had pre-released 4Q18 production so there was little surprise on that front (22,432 barrels of oil equivalent per day versus our forecast of 22,300 Boe/d) but cash flow of $30.9-million was a big beat versus our $25.6-million estimate on the back of greater than forecast condensate and lower than forecast cash costs," said Mr. Molnar.

"This is doubly impressive in light of the fact that 4Q18 also had more than $8.00/Boe of hedging losses. Despite this, cash netback was a highly impressive $14.98/Boe. To top it all off, Storm reported a PDP FD&A cost of $5.24/Boe ... by far the best number we have seen among lean gas companies. The combination of these results allowed Storm to post 28-per-cent production growth, reduce net debt by $15-million while facing a very weak Station 2 natural gas price environment on a portion of production."

He raised his target by a loonie to $4.50, which exceeds the consensus of $3.56.


2019 is “poised to be a ‘breakout’ year” for Kelt Exploration Inc. (KEL-T), according to Canaccord Genuity analyst Anthony Petrucci, who initiated coverage of the stock with a “buy” rating.

“We believe an anticipated short-term pause in production growth (Q1/19), against the backdrop of widespread investor skepticism on the broader space, has created a compelling investment opportunity in KEL,” said Mr. Petrucci in a research note released Friday. “We believe KEL offers significant upside potential, while trading at just 5.2 times 2019 estimated enterprise value-to-debt-adjusted cash flow [EV/DACF] (futures strip pricing of ~US$55 WTI). With step changes planned for 2019 (facility build-outs, pad testing, exploration drilling, ramp in production), we see potential for significant value realization in the share price in 2019.”

Pointing to “huge value potential” with its holdings in the “liquids-rich window” of the Montney and its stock trading at a “modest” discount to peers, Mr. Petrucci set a target of $10 for Kelt shares, which sits above the consensus of $8.28.

"We believe the opportunity has been created by (i) indiscriminate selling across the space in Q4/18; (ii) an expectation of reduced production levels in Q1/19 by the market; and (iii) KEL's forecast growth in 2019 (particularly in H2) not being acknowledged," he said.


Seeing “several indications that point to a slowdown in the firm’s key end-markets,” Raymond James analyst Steve Hansen lowered CanWel Building Materials Group Ltd. (CWX-T) to “market perform” from “outperform.”

“Housing starts across Canada and California continues to struggle, in our view, burdened by a series of external factors that likely portend slower near-term demand/activity,” said Mr. Hansen. “In Canada, 4Q18 housing starts (seasonally adjusted) declined 4.5 per cent year-over-year, while single-family housing starts notably dropped 17.5 per cent year-over-year, impacted by recent changes to domestic mortgage approvals (stress-tests) and a lackluster overall economy. In California, 4Q18 single-family permits declined 17 per cent year-over-year as rising mortgage rates, labor market constraints and record home values all weighed on affordability and market activity. We also point to cautious commentary by U.S. home builders (i.e., Toll Brothers) relating to the California market. Lastly, softness in housing data on both sides of the border has carried into 1Q19 tempering our outlook.”

“While our Forestry Team continues to maintain a robust outlook for softwood lumber prices (vs. current levels), we note that 2019 is up against some very stiff comparables given the acute spike in prices last year. In this context, notwithstanding our view that prices will likely recover from here, we feel it is prudent to take a more reserved view of any commodity-related headwinds/tailwinds.”

Mr. Hansen lowered his target for CanWel shares to $5 from $6.50. The average on the Street is currently $5.74.

“Notwithstanding the macro challenges highlighted, we continue to admire CWX’s value-added growth strategy and proven leadership team as evidenced by recent acquisitions in key west coast markets,” he said. “Honsador, for instance, has already helped bolster margins given its solid competitive footprint and unique basket of services. Similarly, the Jun-2018 acquisition of a pressure treated lumber and specialty products plant in Junction City, Oregon is also expected to buoy 2019 results as the facility ramps up through the year.”


Despite thinking Whitecap Resources Inc.'s (WCP-T) production is “poised to pop” in the second half of 2019, Industrial Alliance Securities analyst Michael Charlton lowered his target for its stock following a “volatile” quarter.

"Whitecap has opted to slide into 2019 with a cautious capital program, prioritizing balance sheet strength," he said. "The monthly dividend and $450-million capital program are fully funded within cash flow as the company looks to ramp up production in the back half of 2019, exiting at 78,000 boe/d, with organic growth of 6-8% per share anticipated in 2020 and 2021. We note the $219-million impairment on its West Central Saskatchewan Viking play drove a loss on the year, however, with management reporting encouraging results from secondary recoveries at Kerrobbert and Dodsland, we are reluctant to let this event cast a negative shadow on the upside. We continue to see exponential upside for investors as 49 per cent of its 2,830 potential locations remain unbooked and the Company trades at an 12-per-cent discount to its $5.53 PDP less Net Debt/share value."

With a "buy" rating, Mr. Charlton lowered his target to $9.50 from $11.50. The average on the Street is $8.21.


In other analyst actions:

National Bank Financial analyst Dan Payne cut Cardinal Energy Ltd. (CJ-T) to “sector perform” from “outperform” with a target of $3.25, down from $4.25. The average is $3.75.

TD Securities analyst Sean Steuart lowered Innergex Renewable Energy Inc. (INE-T) to “hold” from “buy” with a $16 target, rising from $15. The average is $15.64.

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