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

Pointing to a “challenging” U.S. retail banking outlook and wih its Canadian personal and commercial (P&C) segment tracking below peers, Canaccord Genuity analyst Scott Chan lowered his rating for Toronto-Dominion Bank (TD-T, TD-N) on Friday following the release of first-quarter results that narrowly missed his expectations.

Before the bell on Thursday, TD reported first-quarter adjusted earnings per share of $1.66, missing Mr. Chan’s expectation by 4 cents and the consensus projection on the Street by 3 cents.

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“Our next 12-month EPS estimate is revised down less than 2 per cent mainly related to higher PCLs [provisions for credit losses] and lower NIM [net interest margin] (U.S. and Canada),” the analyst said. “Our fiscal 2020/ 2021 EPS forecast reflects 3-per-cent/ 5-per-cent growth (more in line with peers). As a result, we are lowering our target P/E [price-to-earnings] premium to 2 per cent (from 7 per cent). TD’s US and CA core P&C platforms are tracking below peers, with market sensitive businesses (e.g. Capital markets and Wealth) potentially impacted by recent market declines.”

Moving TD shares to “hold” from “buy,” Mr. Chan reduced his target to $75 from $79. The average on the Street is $78.71, according to Thomson Reuters Eikon data.

Elsewhere, RBC Dominion Securities analyst Darko Mihelic expects TD to continue to see “softer” Canadian P&C results in 2020.

For the quarter, the bank’s Canadian P&C earnings of $1.813-billion were “well” below the analyst’s $1.943-billion estimate, leading him to lower his earnings growth forecast to nil in 2020 from 4 per cent. He does expect growth to resume at approximately 5 per cent in 2021.

Based on that change, Mr. Mihelic lowered his 2020 and 2021 EPS estimates to $6.80 and $7.30, respectively, from $6.91 and $7.38.

Keeping a “sector perform” rating, Mr. Mihelic reduced his target for TD shares to $78 from $80.


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In a separate research note, Mr. Chan lowered his target price for shares of Canadian Western Bank (CWB-T) to $33 from $34, which falls below the $34.67 consensus.

“We maintain our HOLD rating and slightly reduce our target price ... due to raising our target P/E discount to 6 per cent (from 3 per cent) relative to peers and less than 1-per-cent decrease to our NTM EPS forecast,” he said. “We see elevated risk in CWB’s business model near term from slowing loan growth (up 1 per cent quarter-over-quarter) and potentially higher credit (GILs up 78 per cent year-over-year). We believe FQ1 BVPS of $29.81 implying current P/B of 1.06x provides share support.”

He maintained a “hold” rating and $72.50 target for National Bank of Canada (NA-T). The average is $73.41.

Mr. Chan said: “NA reported another clean adj. EPS beat driven by P&C Banking (albeit decelerating slightly), Capital markets (less financial volatility vs. peers), Wealth management (NI up 10 per cent yeart-over-year; in line with medium-term target), and International (earnings up 42 per cent year-over-year; similar to last quarter). ... Our F2020 / F2021 EPS forecasts are down marginally mostly accounting for International (e.g. above-average growth; potential COVID-19 implications for ABA bank), which was offset by rolling forward our valuation quarter.”


Following “very strong” fourth-quarter results and possessing a “reasonable” valuation, Canadian Apartment Properties REIT (CAR.UN-T) was upgraded to “buy” from “hold” by Canaccord Genuity analyst Mark Rothschild.

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On Thursday evening, the Toronto-based REIT reported quarterly funds from operations per diluted unit of 54 cents, up 6 cents year-over-year and exceeded the consensus expectation on the Street by 4 cents. For the year, FFO per unit was $2.10, up 5.7 per cent.

“The strong performance was driven by both healthy same-property NOI [net operating income] growth and accretive acquisitions,” said Mr. Rothschild.

Same-property NOI rose 5.7 per cent year-over-year, which the analyst attributed to rental rate growth and a drop in operating expenses.

“Management of CAP REIT continues to be aggressive in growing the portfolio, although with the rise in values for rental apartments in Canada, it has become more difficult to grow accretively,” he said. “During and subsequent to the quarter, CAP REIT acquired $438.5-million of properties, totalling 828 suites.”

“CAP REIT has a growing development pipeline, which we believe can be accretive to NAV and FFO, although it will take several years for projects to have a material impact on the current portfolio. The pipeline currently represents potential growth of 8,790 new suites, and while most of these projects are in the pre-application stage, simply obtaining zoning can materially increase the property values, and therefore be immediately accretive to NAV.”

After raising his NAV estimate, Mr. Rothschild increased his target for CAP REIT shares to $62 from $56. The average is currently $60.15.

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“CAP REIT’s portfolio is well positioned to benefit from record rental apartment fundamentals across Canada, particularly in the GTA and Vancouver,” the analyst said. “With low vacancies in these markets, and continued strong immigration and rent growth, we expect strong internal growth to continue to drive cash flow and NAV higher.”


In response to a “strong” fourth-quarter earnings beat driven by its “volatile” WiLAN patent assertion business, Canaccord Genuity analyst Doug Taylor raised his rating for Ottawa-based Quarterhill Inc. (QTRH-T) to “speculative buy” from “hold.”

"While there remain questions about Quarterhill’s management team and M&A strategy going forward, we find it hard to ignore the strong financial performance and cash generation shown in Q4 and 2019," said Mr. Taylor. "We believe this presents a compelling risk/reward opportunity. Shares of Quarterhill traded down 1 per cent in a tough overall equity markets tape after what we would characterize as a strong beat and positive outlook."

Mr. Taylor said the tech firm's outlook suggests continued growth in each business unit in 2020, leading him to raise his financial expectations for the year.

“We have made small increases to our 2020 forecast based on the positive outlook; however, we caution that quarterly results are likely to remain extremely volatile,” he said. “Note that we removed the Apple settlement from our explicit forecast given timing uncertainty. This is still included in our SotP [sum-of-the-parts] valuation. We forecast 2020 revenue of $108.9-million (from $186.3-million reflecting the removal of Apple; Street $126.0-million) and EBITDA of $5.8-million (from $70.1-million; Street $32.6-million). We are introducing our 2021 forecast for revenue of $117.2-million (Street $104.6-million) and EBITDA of $9.8-million.”

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Expecting the announcement of a new CEO by the spring, Mr. Taylor maintained a $2.40 target for Quarterhill shares. The average on the Street is xxx.

“The SPECULATIVE nature of our thesis reflects ongoing quarterly unpredictability in the company’s results,” the analyst said. “The combination of existing cash on hand and potential proceeds from the Apple suit alone represent $1.67 per share, which we believe presents effective downside protection at these levels while we await a refreshed C-suite and M&A outlook.”


Equity mining analysts at Raymond James adjusted their commodity price projections in a research note released Friday, raising their near- and long-term forecasts for gold prices while lowering their expectations for copper.

"In Summer 2019 we shifted our preference to precious metals from base metals based on the thesis that the ongoing trade/tariff negotiations between the U.S. and China would impact growth and spending, thereby having an adverse effect on demand for industrial metals and increase the potential for interest rates to stagnate or drift lower," said analysts Brian MacArthur and Farooq Hamed.

“While the driver behind our preference for precious metals, in the near term, may have changed - swap trade negotiations with virus/contagion concerns - we believe the effect could be similar (lower industrial demand and lower rates). As a result, we have updated our commodity price forecasts increasing our price outlook for gold and silver while reducing our price expectations for the base metals and bulk materials.”

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The firm increased its 2020 gold price forecast to US$1,638 per ounce from US$1,500, while its 2021/2022 estimate rose to US$1,600 from US$1,650. Its long-term projection is now US$1,500, rising from US$1,400.

For copper, the firm lowered its 2020 and 2021 forecasts to US$2.69 and US$2.80 per pound, respectively, from US$2.80 and US$2.90.

At the same time, the analysts reduced their our near-term prices for nickel, lead, uranium and hard coking coal to “reflect current market conditions.”

Concurrent with those changes, the firm downgraded Centerra Gold Inc. (CG-T) to “market perform” from “outperform,” citing share price appreciation and the risk of a Mt. Milligan writedown. Their target rose to $14 from $13, which is 18 cents below the consensus.

With those price deck changes, the analysts raised their target prices for a number of precious metals equities and lowered them for basic metals stocks.

Those changes included:

Agnico Eagle Mines Ltd. (AEM-N/AEM-T, “outperform”) to US$67 from US$64. Average: US$62.16.

Barrick Gold Corp. (GOLD-N/ABX-T, “outperform”) to US$25 from US$22. Average: US$21.11.

First Quantum Minerals Ltd. (FM-T, “outperform”) to $14 from $15. Average: $15.85.

Franco-Nevada Corp. (FNV-N/FNV-T, “outperform”) to US$130 from US$114. Average: US$101.70.

Newmont Corp. (NEM-N/NGT-T, “outperform”) to US$58 from US$51. Average: US$50.87.

Teck Resources Ltd. (TECK.B-T, “outperform”) to $26 from $27. Average: $28.49.


In other analyst actions:

* Raymond James analyst Chris Cox said Husky Energy Inc.'s (HSE-T) quarterly results were “expected to be bad, proved to be worse.”

With an "underperform" rating, he dropped his target to $9 from $11. The average is $10.60.

Mr. Cox said: “While 4Q19 results were widely anticipated to be bad, the magnitude of the miss was still noteworthy. The good news is that most of the factors that drove the disappointing print are one-time in nature; furthermore, recent concerns of lower gas demand in China impacting Liwan appear to be temporary, with the project back to full rates after a brief dip earlier in the year. The bad news - the strategic review of the Canadian retail business remains ongoing (now at 13 months), although apparently in the later stages. The ugly news? Even if Husky reduces capex over the near-term, our outlook still suggests the company will be free cash flow negative for the next two years, and potentially significantly so, especially when we take into account capitalized interest and the portion of the Superior rebuild not covered by insurance. With Husky the only global integrated not generating free cash flow, the company’s normally defensive characteristics become muted and valuation support becomes more challenging.”

* Haywood Securities analyst Darrell Bishop initiated coverage of Greenlane Renewables Inc. (GRN-X), a Burnaby, B.C.-based with a “buy” rating and $1 target. The average target is currently $1.15.

Mr. Bishop said: “While the business has been in operation for three decades, shares of Greenlane have been publicly listed for less than a year – a timely go-public given the surge of ESG investment interest. Post-closing the book on a heavily oversubscribed $11.5-million financing at 50 cents per share (free trading) on February 19th the stock has pulled back from a February high of 85 cents per share with the overall macro-economic market concerns. We view the pullback to near deal price as a great opportunity for investors looking to profit on an alternative energy investment. With a backlog of $23-million of 2020 revenue and material growth potential in the sale of biogas systems, in addition to the launch of a build-own-operate recurring revenue business segment, we anticipate growing interest in Greenlane and ample opportunities to expand our outlook beyond our starting estimates.”

* BMO Nesbitt Burns analyst Jenny Ma raised Crombie REIT (CRR.UN-T) and SmartCentres REIT (SRU.UN-T) to “outperform” from “market perform” based on changes to her valuation method.

Her target for Crombie rose to $18 from $16.25. The average is $17.11.

Ms. Ma’s target for SmartCentres increased by 50 cents to $33.50, but it remains lower than the currenty consensus of $34.38.

* Scotia Capital analyst Vladislav Vlad raised Trican Well Service Ltd. (TCW-T) to “sector outperform” from “sector perform” with a $1.75 target, rising from $1.30. The average on the Street is $1.27.

* Bryan Garnier analyst Nikolaas Faes cut Aurora Cannabis Inc. (ACB-T) to “sell” from “neutral” with a target of $1.1, down from $7. The average is $2.42.

* Oppenheimer analyst Noah Kaye upgraded Waste Connections Inc. (WCN-T) to “outperform” from “perform”

* PI Financial initiated coverage of Calibre Mining Corp. (CXB-T) with a “buy” rating and $1.90 target. The average is $1.82.

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