Inside the Market’s roundup of some of today’s key analyst actions
Ahead of the release of its second-quarter 2020 financial results on Jan. 30 after the bell, Citi analyst Daniel Jester raised his target price for shares of OpenText Corp. (OTEX-Q, OTEX-T), expecting management to “refresh” the Waterloo, Ont.-based firm’s outlook following the US$1.4-billion acquisition of Carbonite Inc.
“Our view of investor sentiment of the deal is relatively positive amid estimated 10-per-cent accretion (details forthcoming on the call), although partially offset by the potential risk from new exposure to down-market ‘prosumer’ customers," he said. "At the deal close OTEX reiterated its goal to fully integrate the acquisition by the end of FY21 (approximately 18 months), and we anticipate details on the call regarding the cadence of margin improvement and accretion given the longer than usual integration window.”
Keeping a “neutral” rating for the stock, he hiked his target to US$48 from US$43. The average on the Street is US$48.54.
“We see three themes driving the shares in the near-term, including: 1) The integration of Carbonite; 2) Momentum of the cloud franchise ahead the launch of Cloud Editions in FY4Q20; and 3) The potential for additional M&A in 2020 given pro forma leverage in the mid-2-times range following the Carbonite acquisition close,” said the analyst.
“Since the deal was announced on Nov. 11, 2019, OTEX shares are up 10 per cent, roughly in-line with the comps, as multiples have expanded for most of the group. We are lifting our target price to $48, based on 15 times fiscal 2021 core OTEX EPS of $3.01, (1 times turn vs. prior multiple) plus the pro forma benefit from Carbonite. Our 2Q20 EPS estimate of 79 US cents is unchanged, and while we fine-tune the cadence of earnings in the out-years of the forecast, our 2020-2022 EPS estimates are also unchanged (excludes Carbonite).”
Cardiol Therapeutics Inc. (CRDL-T) is “on a catalyst-studded path that could see investors realizing significant upside in the near-term,” said Raymond James analyst Rahul Sarugaser.
In a research report released Friday, Mr. Sarugaser initiated coverage of the Oakville, Ont.-based company with an "outperform" rating.
“Cardiol Therapeutics (CRDL) is a biopharmaceutical company,” he said. "What CRDL is not: a cannabis company. The cause for confusion? CRDL focuses its therapeutic strategy around the active pharmaceutical ingredient (API) cannabidiol (CBD): a molecule that occurs naturally in the cannabis plant. The key differentiator: CRDL formulates its products using pharmaceutical manufacturing quality standards, deriving its CBD by chemical synthesis and directing its products toward sensitive, underserved—i.e., paediatric and geriatric—patient populations that most need their source of CBD to be THC-free (THC is the psychoactive component of cannabis). We appreciate that even modest penetration of these patient populations with pharmaceutical-quality, data-supported CBD products in Canada would represent material upside for CRDL. This said, CRDL’s concurrent development of a pharmaceutical treatment for heart disease — through Health Canada and the U.S. FDA — we see as the real prize here.
“CRDL, leveraging its biopharmaceutical heritage and pedigree, is taking advantage of an opportunity that, as far as we understand, is unique to this moment in time in Canada. Because of the Cannabis Act, for the first time in history a pharmaceutically-manufactured drug, CardiolRx (chemically-synthesized cGMP-quality CBD) can be sold to medical cannabis patients while, concurrently, being developed as a pharmaceutical drug in gold-standard clinical trials with Health Canada and the U.S. FDA. We believe CRDL’s veteran management team—with its deep pharmaceutical roots, many hailing from Vasogen (VSGN)—has the discipline and experience to pull off this tandem commercial/clinical enterprise.”
He set a target price of $5 per share, which falls $4 short of the consensus.
“Given Canada’s unique regulatory architecture that now allows for the sale of cannabis and cannabis-derived products, we believe CRDL benefits from manifold opportunities to leverage its multi-tonne scale supply of pharmaceutically produced and formulated CBD (inherently cGMP accredited),” said Mr. Sarugaser. “The opportunities we believe should create the greatest—and nearest-term—value for shareholders”
However, ahead of its Jan. 29 earnings release, he said that view is "not thesis changing."
Pointing to a later close of its $131-million acquisition of SCISYS PLC as well as loyal share buybacks and forex considerations, Mr. Treiber lowered his revenue, adjusted EBITDA and earnings per share projections for the Montreal-based information technology consulting firm to $3.15-billion, $566-million and $1.22, respectively, frm $3.16-billion, $567-million and $1.23. The consensus expectations on the Street are $3.16-billion, $573-million and $1.26.
Maintaining an “outperform” rating for CGI shares, Mr. Treiber increased his target to $125 to $115 to better reflect its current valuation. The average on the Street is $113.15.
“We rate CGI shares Outperform on: 1) strengthening constant currency growth; 2) further Margin expansion; 3) continued growth through acquisition; 4) healthy cashflow; and 5) sustained re-valuation above global peers,” he said.
“CGI has created the majority of shareholder value through acquisitions. Management indicated on the Q4 conference call that it is seeing more attractive valuations in the market, which suggests a higher probability of additional acquisitions in the near-term, in our view. CGI continues to focus on metro-market acquisitions (more than $500-million annual revenue) where the targets have deep client relationships in key local markets. Unannounced acquisitions are not reflected in Street estimates and represent a potential catalyst for the stock.”
"Our positive view reflects the likelihood that Celestica would see continued improvement in investor sentiment as the company’s near-term results appear likely to benefit from the recovering semicap market, which would likely more than offset headwinds in Celestica’s CCS segment."
With a “sector perform” rating, Mr. Treiber raised his target to US$9 from US$7.50. The average is US$7.86.
Pointing to a “challenging” environment for outwear makers in the fourth quarter and the “likelihood of lingering effects” into 2020, Citi analyst Paul Lejuez lowered Columbia Sportswear Co. (COLM-Q) to “neutral” from “buy.”
“While others had mentioned a tough outerwear season with holiday releases (AEO, URBN), and we noticed higher than expected markdowns from others during the period (LULU, M), VFC’s comments about North Face’s challenges make us even more concerned that COLM also had a tough quarter," he said. "And with VFC calling out high inventories across the sector, it could mean higher promos for all in 1Q. This may impact near term ordering and cause more conservative planning by retailers for 2H20. While we still like the long-term story, we believe the risk reward is more balanced.”
With the expectation for a decline in both sales and margins in the fourth quarter, Mr. Lejuez lowered his target for the Portland-based company to US$100 from US$110. The average is US$110.55.
Separately, seeing momentum with its UGG offerings and hidden value in its Hoka footwear, Mr. Lejuez raised Deckers Outdoor Corp. (DECK-N) to “neutral” from “buy” with a target of US$230, rising from US$180. The average is US$190.54.
“It is our view that Hoka, DECK’s fast growing running brand, which is on track to achieve over $400-million in revenue next year, represents hidden value within DECK’s current share price," he said. “On a stand-alone basis, we believe Hoka could be valued at $2.8-billion, which would imply the rest of the DECK portfolio (mainly UGG) is trading at 5.6 times EV/EBITDA (an attractive value in our view). From a stock perspective the UGG brand must continue to perform well for the stock to work, and our checks and industry data point to another strong holiday for the UGG brand (despite a lackluster performance in many cold weather categories this holiday).”
Though Intel Corp. (INTC-Q) possesses “even more upside” than he expected following the release of “strong” first-quarter results on Thursday, Citi analyst Christopher Danely closed his catalyst watch for its stock in reaction to its guidance, which anticipated slowing growth in the second half of 2020.
“We believe current strength is due to double ordering driven by shortages and note Intel is increasing capacity by high-single digits in 2020 against a backdrop of flat PC demand,” said Mr. Danely. “As such, we expect a correction in Intel’s processor business in 2H20 when shortages end along with downside to consensus estimates.”
He raised his financial expectations for 2020 and 2021, leading to an increased target of US$67 (from US$60). The average is US$61.88.
Mr. Danely maintained a “neutral” rating.
In other analyst actions:
- Cowen and Co. analyst Gabriel Daoud cut Encana Corp. (ECA-N, ECA-T) to “market perform” from “outperform” with a US$5 target, down from US$6. The average on the Street is US$6.55.
- National Bank Financial analyst Zachary Evershed lowered Richelieu Hardware Ltd. (RCH-T) to “sector perform” from “outperform” with a target of $29.50, up from the current consensus of $28.50.
- With the closing of previously announced US$20-million offering of common shares, Laurentian Bank Securities analyst Chris Blake lowered his target for shares of Hexo Corp. (HEXO-T, HEXO-N) to $3.25 from $3.50 with a “buy” rating. The average is $2.60. He said: “We believe the lenders will provide temporary covenant relief but under what terms is still uncertain," said the analyst HEXO has the ability to repay this term loan in the event the proposed terms are too onerous while at the same time maintaining sufficient capital to pursue current and future growth initiatives.”