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

Pointing to escalating macro economic pressures, Industrial Alliance Securities analyst Elias Foscolos lowered his North American drilling outlook on Friday.

"The COVID-19 virus has shocked the global economy and dominated headlines, and we have seen the EIA, IEA, and OPEC all reduce their 2020 demand projections," said Mr. Foscolos in a research report released before the bell. "On the supply front, Russia contemplates proposed incremental output cuts by OPEC+ of 600,000 bbls/d to counteract the drop in consumption, and U.S. sanctions against Rosneft Trading SA (Private) could squeeze supply from Venezuela.

"The true impact of the virus and its potential effect on global economic growth remains uncertain, but we believe it does temper the near-term outlook for oil & gas, reinforcing constrained capital spending by North American producers."

For Canada, Mr. Foscolos reduced his 2020 rig count to 135, a rise of 2 per cent year-over-year but down 8 per cent from his previous expectation. His 2021 estimate fell by 7 per cent to 149.

“Up to this point, Canadian rig counts have played out fairly in line with our expectations, however going forward we are lowering our growth expectations,” he said.

For the United States, he dropped his 2020 estimate by 3 per cent to 783, representing a 15-per-cent year-over-year decline. His 2021 projection is 800, sliding 5 per cent.

“We believe that U.S. drilling will be weaker and dependent on very uncertain global macro factors,” he said.

With those adjustments, Mr. Foscolos downgraded Pason Systems Inc. (PSI-T) to “hold” from “buy” rating “until we can gain a clearer picture of how these near-term macro factors will play out.”

His target for Pason shares fell by a dollar to $15.50. The average target on the Street is $18.42, according to Thomson Reuters Eikon data

At the same time, Mr. Foscolos lowered his target price for shares of CES Energy Solutions Corp. (CEU-T) to $3.25 from $3.50, keeping a “strong buy” rating. The average is $3.50.

“While it is unclear exactly how events in the macro landscape will unfold, we believe they will most likely serve to reinforce commitment from E&Ps to scale back spending,” he said. “For CEU, these impacts are partially offset by exposure to production and large customers.”


AltaCorp Capital analyst Chris Murray thinks Cargojet Inc. (CJT-T) could enjoy a second-half recovery that could be “quite significant” once air cargo demand in China stabilizes as the impact of the coronavirus stabilizes.

However, he said the company's current premium valuation stemming from its growth potential has caused him to take a more cautious neat-term stance in the "in the face of some uncertainty."

Accordingly, he lowered his rating for Cargojet shares to "sector perform" from "outperform."

On Thursday before the bell, the Mississauga-based company reported fourth-quarter 2019 results that largely fell in line with expectations after accounting for timing issues related to incentive compensation.

At the same time, it released 2020 guidance that disappointed to the analyst.

"The outlook was weaker than we were anticipating with management guiding to growth similar to levels seen in 2019, which carried a higher level of drag from more conventional freight business due to trade issues and now the impact of COVID-19," he said.

Revising his estimates to incorporate the results, guidance and changes to his fuel and forex expectations, Mr. Murray reduced his 2020 and 2021 EBITDA projections to $173.8-million and $191..5-million, respectively, from $184.2-million and $200.1-million.

Mr. Murray maintained a target price of $120 per share, which sits 8 cents lower than the average on the Street.

“Since initiating, shares have appreciated toward our price target, reducing our future expectation for implied returns, which now sit at a total return of 2.3 per cent,” he said. “Based on current share prices relative to our fair value estimates we are moderating our rating to Sector Perform from Outperform.”

Elsewhere, Raymond James analyst Ben Cherniavsky raised his target for Cargojet shares to $120 from $95 with a "market perform" rating.

Mr. Cherniavsky said: “We continue to struggle with Cargojet’s valuation and indomitable share price performance in the face of recurring earnings disappointments. In three of the last four quarterly reports — 4Q19 included — the company’s results have fallen short of Street expectations, triggering a correction in the share price on the print that is subsequently followed by a relentless surge higher. Thus we are presented with the seemingly incongruent phenomena of a stock that is up 60 per cent over roughly the past year while consensus 2020 EPS forecasts are down 40 per cent. Considering our views on the market’s valuation of Cargojet when we initiated coverage last summer, we are even more perplexed at today’s price -- effectively representing a forward P/E of 69 times! We understand the allure of this story, e-commerce and all, but we believe it is unlikely that the company’s future results will live up to investors’ inflated expectations. To support this conclusion, we continue to present our scenario map of assumptions that must transpire by 2023 in order for the potential upside in this stock to remain sufficient. Facing this kind of asymmetric riskreturn profile -- and assuming that fundamentals will eventually matter -- we continue to maintain a relatively guarded view of Cargojet shares.”


Calling it a “market leader with solid growth” and providing “predictability from recurring revenues,” CIBC World Markets analyst Sumayya Syed initiated coverage of FirstService Corp. (FSV-Q, FSV-T) with a “neutral” rating.

“We regard FSV’s platform of essential property services as defensive with uncorrelated demand drivers,” she said." The company’s market-leading positions in highly fragmented industries bode well for organic and acquisitive growth, and we believe FSV can comfortably grow revenues by high single digits annually. At current levels (17.3 times EBITDA), we consider growth prospects as largely priced in.

Ms. Syed set a target of US$118, which exceeds the average of US$114.50.


RBC Dominion Securities analyst Sabahat Khan raised his financial expectations and target price for shares of Gildan Activewear Inc. (GIL-N, GIL-T) following Thursday’s release of fourth-quarter results and guidance that largely met the Street’s expectations.

The Montreal-based clothing manufacturer reported earnings per share of 41 US cents, matching the estimates of both Mr. Khan and the Street. Its 2020 EPS guidance of US$1.85-$1.95 also aligned with projections (US$1.90 and US$1.94, respectively).

“The 2020 sales guidance calls for year-over-year growth in the 2-4-per-cent range, with more of the sales growth coming in H2 this year (management expects Q1 sales to be down high-single-digits to lowdouble digits year-over-year, with the non-recurrence of the A/R impairment from Q1/19 driving EPS growth year-over-year),” said Mr. Khan. "The two items we will be watching over the coming quarters will be the pace of inventory re-stocking by distributors following the headwinds noted in Q3/19 and any potential impact from the evolving coronavirus situation (for now, management does not expect a material impact).

"By category, Activewear sales are expected to rebound in H2/20 as Gildan's imprintables sales recover following the weakness in H2/19, and 2020 Hosiery and Underwear sales are expected to reflect 'flat' year-over-year socks sales being more than offset by stronger underwear sales (growth to be driven by Gildan-branded products in the online channel and further progress with private label initiatives).

After nudging higher his 2020 and 2021 EPS estimates, Mr. Khan raised his target price for Gildan shares to US$31 from US$30. The average on the Street is US$32.96.

“The upward price target revision is primarily driven by the rollforward of our valuation horizon to year-end 2021,” he said. “Our valuation multiple reflects our view that Gildan is increasingly a ‘mature’ company, with a greater proportion of the total return to investors coming in the form of return of capital versus growth in the underlying operations, and is in-line with its long-term historical average. Our price target supports a Sector Perform rating.”

Elsewhere, Citi analyst Paul Lejuez maintained a "neutral" rating and US$29 target.

Mr. Lejuez said: “Activewear sales were weak in 4Q and while POS trends have improved so far in 1Q, they remain down. Management expects sales to be down in 1H overall but rebound in 2H and be up for the year. While trends are moving in the right direction, we do not believe there is much visibility beyond this quarter in activewear. Visibility is better in the hosiery/underwear business, where new private label programs and increased shelf space seem likely to drive sales higher. Overall, we believe the company’s low cost manufacturing base positions it to win more private label business in the future. Currently, however, the core activewear business (80 per cent of sales) is weighing them down.”


Canaccord Genuity analyst Dalton Baretto lowered his ratings for a pair of North American mining stocks in response to fourth-quarter results.

Mr. Baretto downgraded Coeur Mining Inc. (CDE-N) to “sell” from “hold” with a US$5 target, down from US$7 and below the US$6.91 average.

"CDE reported its Q4 financial results [Wednesday] night, along with 2020 guidance," he said. "Production guidance for both Au and Ag was below our forecasts, while cost guidance at every asset was above our forecast for the year. Capex guidance was in line with our forecast, but we note that this guidance excludes a number of items related to Silvertip. At Silvertip, the company announced a substantial $251 million write-down in the carrying value to $150 million (vs. our previous carrying value of $100 million); in addition, the company announced that operations at the mine have been suspended for now."

"We have updated our estimates for the company's 2020 guidance, and have written down our value for Silvertip to zero (rationale below). As a result, our 2020 EBITDA has declined by 36 per cent, while our NAV has declined by 28 per cent to $2.94 per share. We are reducing our 12-month target price on CDE to $5.00 per share, from $7.00 per share previously; our target price remains based on an equal weighting of 6.0 times NTM EBITDA and 1.4 times NAV, both measured as at Jan. 1, 2021. Given the negative implied return to our target price, we are downgrading CDE."

Expressing concern about its valuation, Mr. Baretto moved Pan American Silver Corp. (PAAS-Q, PAAS-T) to “hold” from “buy,” despite its quarterly results largely meeting his expectations.

"We continue to like PAAS for its size, margins and cash flow generation, as well as the strength of its balance sheet and management team," he said. "However, given the recent rally in the share price and the limited implied return to our target price, we are downgrading PAAS.

His target remains US$26. The average is currently US$25.19.


In other analyst actions:

* CIBC World Markets analyst Mark Petrie lowered Cott Corp. (COT-N, BCB-T) to “neutral” from “outperformer” with a $17 target, up from $16. The average is $18.15.

“COT has delivered a more consistent execution in 2019, and initial 2020 guidance (which excludes Primo) appears achievable,” said Mr. Petrie. “We also believe Primo is a good strategic fit, and the focus as a pure-play water company is a positive step. We have increased both our EBITDA estimate and target EV/EBITDA multiple to reflect these improvements. However, this still only generates a price target modestly above today’s price and while benchmarking to route-based peers highlights valuation upside, it also shines a light on Cott’s limited track record of consistent growth and more modest profitability. We believe further multiple expansion will require continued execution, particularly on the integration of Primo.”

* TD Securities analyst Greg Barnes cut Hudbay Minerals Inc. (HBM-T) to “hold” from “buy” with a $5 target, down from $6.50. The average is $6.90

* After updating his investment theses “on the back of recent positive developments with the story,” Desjardins Securities analyst Benoit Poirier hiked his target for SNC-Lavalin Group Inc. (SNC-T) shares to $43 from $34 with a “buy” rating. The average on the Street is $37.08.

“We are pleased with the recent positive developments at SNC — namely the settlement of legal issues and a favourable agreement for the REM — as well as its strong 3Q19 financial performance since we upgraded the stock on Oct. 1 (up 91 per cent versus 9 per cent for the S&P/TSX),” he said. “SNC has settled its legal issues with the Canadian government and reached a favourable work optimization agreement between CDPQ Infra and the REM’s consortium, reinforcing the project’s delivery schedule and increasing the consortium’s budget by $230-million .... Our in-depth analysis supports our view that the potential cost to complete the remaining LSTK projects, as implied by the current share price, is overstated. At current levels, the stock offers an attractive risk/reward profile for long-term investors to revisit the story and buy shares.”

* Following its all-cash acquisition offer from Starlight Investments and KingSett Capital, Laurentian Bank Securities analyst Yashwant Sankpal moved Northview Apartment REIT (NVU.UN-T) to “tender” from “hold.”

“We recommend that unitholders tender their units to this offer as we believe the odds of a superior offer are quite low given Starlight’s history of completing such transactions and that [Starlight principal Daniel] Drimmer owns a 13-per-cent interest in NVU,” said Mr. Sankpal.

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