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

In response to the announcement of its $5.5-billion acquisition of the Canadian operations of TotalEnergies, National Bank Financial analyst Travis Wood raised his rating for Suncor Energy Inc. (SU-T) to “outperform” from “sector perform,” also pointing to a “compelling” valuation and believing its “relative operational downside is becoming limited as the company appears to be establishing a more conservative approach to operational milestones.”

Shares of the Calgary-based company jumped 3.4 per cent on Thursday following confirmation of the deal, which sees it gain the French company’s remaining stake in Fort Hills, and a share of the Surmont project, both in northern Alberta.

“Although some concerns exist around operational volatility at Fort Hills over the next three years, we believe the company is positioning for this message and therefore, should see relatively less share price volatility than over the past several years of missing expectations,” said Mr. Wood. “With the majority of human resource changes complete, asset focus and positioning near wrapping up (via A&D activity), a finalized retail strategic review, and a shift in a corporate culture that is working towards flatter internal communication, we see a critical path over the next one to three years that supports the broader goal of improving operational execution, and ultimately regaining an enhanced market valuation.”

“This $5.5 billion acquisition that positions Suncor as the 100-per-cent owner and operator of Fort Hills is important to the three-year asset enhancement plan and should help reduce costs and improve performance. While we acknowledge this will take some time (with inherent operational risk), we believe the current valuation provides a compelling investment opportunity given the strict focus Suncor appears to be demonstrating as it looks to improve and execute on operations.”

Increasing his 2023 and 2024 production and cash flow projections to reflect the acquisition and a 10-per-cent dividend hike, Mr. Wood raised his target for Suncor shares by $1 to $61. The average target on the Street is $53.17, according to Refinitiv data.

“Specifically focused on Fort Hills, we view the consolidation as constructive, as it will allow for opportunities to improve reliability, reduce operating costs and increase output,” he said. “Given Suncor’s priority on improving Fort Hills and TotalEnergies’ lesser focus on the project given their worldwide scope and operations, we believe the increased WI will provide motivation for management to get operations back on track. That being said, our investment thesis remains predicated on Suncor being able to showcase unencumbered, consistent operational execution for an extended period. We would highlight the well-documented qualitative shifts and strategic positioning that have forced us to lean towards an improved outlook given these meaningful changes which appear to be trending in the right direction.”

Others making changes include:

* RBC’s Greg Pardy to $54 from $52 with an “outperform” rating.

“Suncor’s $5.5 billion cash acquisition of TotalEnergies EP Canada is a strategically sound deal in our minds that will keep its base upgrading operations full and affords optionality as it relates to ultimately replacing the circa 50-per-cent balance of its approaching base mine depletion,” said Mr. Pardy.


Following a “solid” start to the year and seeing “material potential upside” for its stock, National Bank Financial analyst Cameron Doerksen upgraded Bombardier Inc. (BBD.B-T) to “outperform” from “sector perform,” despite warning “the macroeconomic backdrop may remain challenging and new jet order activity could soften.”

“We downgraded Bombardier in February this year following a tremendous run for the stock through 2022, and since that time the stock has traded almost 12 per cent lower,” he said. “Given that financial results have subsequently come in above our expectations and the company increased its 2025 targets in late March, we see the current share price as a more attractive entry point.”

Even though it reported a revenue and earnings beat for its first quarter before the bell on Thursday, Bombardier shares dropped 4.9 per cent as investors worried about negative $247-million in free cash usage and the delivery of 22 jets, which fell below Mr. Doerksen’s 26-jet forecast.

“Bombardier’s $14.8 billion backlog provides visibility on the company’s planned delivery ramp from 123 in 2022 to 138+ in 2023 and 150 in 2025 (noting that our 2025 forecast more conservatively assumes 142 deliveries),” said the analyst. “We are comforted by the fact that backlog was stable in Q1 despite significant economic volatility, and we are encouraged that the company is seeing steady new order interest so far in Q2.

Seeing further deleveraging ahead, he added: “Bombardier has been highly successful in reducing debt and leverage and we forecast that leverage will fall from 5.4 times at the end of 2022 to a comfortable 2.2 times at the end of 2025.”

Raising his revenue and earnings projections through 2024 after Bombardier reaffirmed its 2023 guidance and 2025 targets, Mr. Doerksen increased his target for its shares to $85 from $79. The average is $78.14.

“If Bombardier can achieve its 2025 EBITDA target of $1.6 billion, based on a reasonable 7.0 times EV/EBITDA multiple, we would derive a future valuation of $115.00 per share,” he said. “Using our more conservative 2025 estimate, we still derive a future target of over $100.00 per share, which is materially higher than where the stock is trading today.”

Elsewhere, others making target adjustments include:

* Desjardins Securities’ Benoit Poirier to $100 from $99 with a “buy” rating.

“BBD reported neutral 1Q results,” said Mr. Poirier. “Management’s overall tone and messaging on the bizjet market remain positive, and we view the negative stock reaction as a buying opportunity. BBD continues to pay down debt (we expect further debt repayment in 2023) and improve its credit rating, which could open the company up to a larger pool of investors. We remain bullish on the short- and long-term prospects for BBD.”

* Scotia’s Konark Gupta to $84 from $83 with a “sector outperform” rating.

“BBD reported yet another strong quarter in terms of top-line and bottom-line growth while backlog and book:bill ratio remained steady as demand and pricing are holding up well,” said Mr. Gupta. “However, FCF didn’t impress this time given production seasonality and timing/magnitude of certain cash flows. Management’s near-term outlook and unchanged guidance suggest FCF could remain weak in Q2 before rebounding to potentially more than $600-million in 2H. Leverage ratio remained steady q/q but should improve substantially by year-end, marching toward BBD’s 2025 target of 2.0-2.5 times. We remain positive with our Sector Outperform rating while raising our target ... on our slightly improved net debt estimate.”

* RBC’s Walter Spracklin to $103 from $100 with an “outperform” rating.


Raymond James analyst Michael Freeman thinks Well Health Technologies Corp. (WELL-T) has “become the center of gravity in Canada’s primary healthcare and digital health ecosystem, and is a rapidly ascendant power in U.S. hybrid care, growing by way of disciplined, accretive M&A.”

In a research report titled Tech-enabling Doctors is the Right Idea, he initiated coverage of Vancouver-based company, which meshes digital health technology and in-person clinics, with an “outperform” recommendation.

“WELL leverages its large, growing footprint of physical clinics, combined with its increasingly broad and interconnected suite of digital tools to empower healthcare practitioners and patients, looking to improve health outcomes and yield efficiencies in overstressed healthcare markets often fraught with long wait-times and outdated tech,” said Mr. Freeman. “WELL’s two broad operating categories—omni-channel patient services (‘bricks and clicks’) and virtual services (‘clicks only’)—are core to the company’s hybrid approach to healthcare, enabling WELL to leverage cross-platform operational and technological synergies, and situating the company nicely to take advantage of structural and capital markets-oriented tailwinds (see Tailwinds section).”

In justifying his bullish stance, the analyst pointed to three key “stories” driving Well’s rapid growth.

  1. “The Canadian story” as the country’s largest private outpatient clinic network with its digital tools used by approximately one quarter of practitioners. He noted: “Tailwinds: i) massive federal funding to improve capacity and modernize systems; ii) provincial governments tapping private sector to provide publicly-funded services; iii) profitable clinic networks on market for 3-4 times EBITDA today; iv) WELL’s outpatient clinic market share is only 1 per cent, with significant room to grow, and; v) WELL is one of Canada’s largest holders of health data (others: Telus, Loblaw), and is the most likely group, in our view, to quickly adopt generative AI to high-grade its tech offerings by building on its hard-to-beat tech stack.”
  2. “The U.S. story” with 60 per cent of its 2022 revenue coming from south of the border, representing a rise of 100 per cent year-over-year. He pointed to “high-profile” M&A activity in the country and calling it “a not-yet Nasdaq-listed rising star in the U.S. (and, importantly, a profitable one).”
  3. “The revenue story,” noting: “WELL exited FY22 with run-rate Rev. of $626-million and 17-per-cent adj. EBITDA margins, guides to FY23 Rev. of $665-685-million, and indicates that it sees a path to $1-billion in Rev. within 3 years. Given WELL’s strong management team, track record of driving high organic growth and prudent M&A, and pronounced sector tailwinds, we don’t need to squint much to see this too.”

Mr. Freeman set a target of $8.50 per share. The current average is $7.96.


While reiterating Spin Master Corp. (TOY-T) faces a “very tough comp” with its first quarter versus a year ago, National Bank Financial analyst Adam Shine upgraded the Toronto-based toymaker to “outperform” from “sector perform” after U.S. peers Mattel Inc. (MAT-Q) and Hasbro Inc. (HAS-Q) saw significant share price jumps following better-than-anticipated results.

“Consensus (ex-outliers) is largely unchanged with total revs at $241.2-million and Adj. EBITDA at $22.7-million,” he said. “TOY’s 2022 began with carry-over strength in Preschool and Dolls & Interactive driven by Gabby’s Dollhouse, Wizarding World and PAW Patrol while Wheels & Action benefitted from DC Comics products given The Batman movie. 1Q23 has been characterized by retailer destocking. TOY noted with its 2023 outlook that 1H would represent 30-35 per cent of annual GPS versus an anomalously high 44.6 per cent in 1H22 and 1Q would account for 10 per cent versus 20 per cent of GPS.”

On Thursday, shares of Hasbro jumped 14.6 per cent and Mattel by 6.1 per cent following their quarterly releases, providing optimism for Spin Master’s May 3 report.

“We see some room to move up our 1QE without stretching too far from TOY’s comments,” said Mr. Shine. “We’re pushing 1Q Gross Product Sales (GPS) to 11 per cent of 2023E which moves our estimate up to $218.0-million (down 45 per cent year-over-year) from $198.2-million (down 50 per cent). This raises our Total Revs to $255.0-million (down 40 per cent) from $237.9-million (down 44 per cent) and Adj. EBITDA to $25.5-million (down 73 per cent) from $24.2-million (down 75 per cent). The Street looks a bit low.”

“TOY’s outlook is ex-distribution revs from second PAW Patrol movie (debuts Sept. 29). It expects GPS to be flat to slightly down, Total Revs to be flat, and Adj. EBITDA margin flat to slightly up. On its 4Q22 call in early March, TOY said it expects $17-million of distribution revs from the movie in 3Q.”

Mr. Shine kept his Street-low $42 target for Spin Master shares. The current average is $48.11.

“We’re two thirds through a tough 1H comp with 4 easy comps ahead post-2Q. Importantly for TOY is that 2023 will see new TV series debut whose toys and L&M will only come in 2024,” he concluded.

Elsewhere, Elsewhere, Canaccord Genuity’s Luke Hannan raised his target to $48 from $46 with a “buy” rating.

“The headwinds facing toymakers in the first half of 2023 have been well telegraphed, with retailers’ focus on destocking weighing on both shipments growth and full-price selling,” said Mr. Hannan. “As a result, Spin Master noted that the first half of 2023 would have the typical 30-35 per cent of full-year gross product sales (GPS), with only 10 per cent falling into Q1/23, compared to the 15-per-cent historical average and the 20 per cent from Q1/22, which we have already reflected in our model. Consequently, we expect the lower revenues to lead to cost deleveraging across the board compared to the year-ago period. We forecast an adjusted EBITDA margin for the quarter of 10.6 per cent, or a 12-percentage point decline from Q1/22.

“We’re encouraged by the results from TOY’s public peers, specifically Hasbro, Inc. (HAS-US | Not Rated) and Mattel, Inc. (MAT-US | Not Rated), both of which called out (1) better than expected POS trends, indicating consumer demand for toys remains healthy, and (2) cleaner retailer inventories (with retailers expecting clean shelves by the end of Q2/23).”


Scotia Capital analyst Phil Hardie continues to see opportunities across the Diversified Financials space, recommending investors take a “a barbell approach that balances quality defensive plays with attractive value opportunities.”

“We continue to believe that stock selection will be key to generating outperformance in 2023,” he said. “Average year-to-date stock performance across the Diversified Financials space has modestly lagged the S&P/TSX Index, however returns across the group have been uneven with a number generating a significant amount of alpha. Value-oriented names have generally outperformed while growth names lagged across our coverage universe. The failure of Silicon Valley Bank, the collapse of Credit Suisse and an apparent crisis of confidence in U.S. regional banks have likely kept risks at the forefront for financial services investors. These developments and encouraging inflationary trends have also likely contributed to a major shift in investor expectations for how the interest rate environment unfolds through 2023. We expect the investment environment and risk appetite to improve over the next 12 months but given lingering uncertainties, we continue to recommend a barbell approach that balances defensive plays with attractive value opportunities.

“We believe that Fairfax Financial (Sector Outperform) is well-positioned to navigate the current environment, and it remains our top pick for 2023. Fairfax has demonstrated resilience through the business cycle and turbulent financial markets, but we view it as a less-defensive play than more traditional publicly listed insurers. At this stage of the market cycle, this likely provides an attractive balance: downside protection thanks to the relative resilience of insurance operations through a potential recession, and upside potential when markets recover. There have been significant changes at Fairfax that we believe investors have yet to fully recognized.”

In a research report released Friday, he made a series of target price adjustments to stocks in his coverage universe ahead of first-quarter earnings season. They are:

* Brookfield Business Partners LP (BBU-N/BBU.UN-T, “sector outperform”) to US$26 from US$30. The average is US$27.86.

* Definity Financial Corp. (DFY-T, “sector outperform”) to $50 from $46. Average: $43.23.

* Fairfax Financial Holdings Ltd. (FFH-T, “sector outperform”) to $1,350 from $1,100. Average: $1,211.31.

* First National Financial Corp. (FN-T, “sector perform”) to $40 from $38. Average: $38.50.

* Intact Financial Corp. (IFC-T, “sector outperform”) to $225 from $220. Average: $220.29.

* TMX Group Ltd. (X-T, “sector perform”) to $159 from $160. Average: $150.71.

Mr. Hardie noted: “Top ideas by investment style: Fairfax remains our top pick for 2023. For defensive quality, our top name remains Intact, and for small-cap growth, we like Trisura. We continue to like Definity and believe it is attractive for GARP investors looking for a defensive mid-cap play with solid growth prospects. Our other top-value ideas include Guardian Capital, Onex and Brookfield Business Partners. goeasy is on our radar but we still think it’s a bit early and believe that reduced risk to the economic outlook, improved earnings visibility and a broader shift in risk appetite are likely needed for the stock to sustain a meaningful rebound.”


In other analyst actions:

* RBC Dominion Securities’ Sabahat Khan lowered his Aecon Group Inc. (ARE-T) target to $14 from $15, keeping a “sector perform” rating. The average on the Street is $16.09.

* CIBC’s Dean Wilkinson lowered his target for Allied Properties REIT (AP.UN-T) to $27, below the $30.14 average, from $30 with a “neutral” rating. Other changes include: Desjardins Securities’ Lorne Kalmar to $31 from $34.75 with a “buy” rating and TD Securities’ Jonathan Kelcher to $32 from $34 with a “buy” rating.

“While 1Q23 results were below expectations, management expects committed occupancy to trend up to the low-90-per-cent range by year-end,” said Mr. Kalmar. “At this point, we are confident in the REIT’s ability to execute on the sale of its UDC portfolio. We have revised our target price to ... reflect a decline in our NAVPU estimate. With an 8-per-cent distribution yield, we believe investors are being well-compensated as they wait for the valuation to improve.”

* CIBC’s Mark Jarvi bumped his Atco Ltd. (ACO.X-T) target to $53 from $52 with an “outperformer” rating. The average is $50.

* Mr. Jarvi also increased his Canadian Utilities Ltd. (CU-T) target by $1 to $40, above the $39.67 average, wit a “neutral” rating, while IA Capital Markets’ Matthew Weekes also raised his target to $40 from $39 with a “hold” rating.

* RBC’s Maxim Matushansky cut his Celestica Inc. (CLS-N, CLS-T) target to US$14 from US$15 with a “sector perform” rating. Other changes include: CIBC’s Todd Coupland to US$14 from US$15 with a “neutral” rating and BMO’s Thanos Moschopoulos to US$14.50 from US$15.50 with a “market perform” rating. The average is $14.33.

“Celestica reported a solid Q1 above consensus, provided Q2 guidance above consensus, and raised its FY23 outlook,” said Mr. Matushansky. “Growth in the ATS (specifically in A&D, HealthTech, and Industrial) and Enterprise businesses is offsetting slowdowns in Capital Equipment and HPS, which we expect to lead to growth slowing in FY23 from the record FY22 levels.”

“We see Celestica’s stock as defensive, considering its discounted valuation and positive FCF. Even though Celestica’s mix is shifting to higher quality end markets, we believe Celestica’s cyclically slower growth in 2023 and macro uncertainty may restrain valuation multiple expansion in the near-term.”

* Barclays’ John Aiken lowered his targets for Definity Financial Corp. (DFY-T, “overweight”) to $43 from $44 and Intact Financial Corp. (IFC-T, “overweight”) to $220 from $235. The averages are $43.23 and $220.29, respectively.

“The hard pricing market and anticipated moderation of Cat losses should be supportive to the first quarter earnings, offsetting any additional inflationary pressures on claims,” said Mr. Aiken. “Further, the companies are not anticipating any real earnings impact on the transition to IFRS 17, outside of increased volatility.”

* Following the sale of its royalty interest and milestone payment obligations in the worldwide sales of TZIELD to a Sanofi subsidiary for $210-million, RBC’s Douglas Miehm increased his DRI Healthcare Trust (DHT.UN-T) target to $17, exceeding the $15.27 average, from $16 with an “outperform” rating, while Canaccord Genuity’s Tania Armstrong-Whitworth bumped her target to $18.75 from $18.50 with a “buy” rating.

* CIBC’s Cosmos Chiu increased his target for Eldorado Gold Corp. (EGO-N, ELD-T) to US$15 from US$14 with an “outperformer” rating. The average is US$12.38.

* JP Morgan’s Patrick Jones raised his First Quantum Minerals Ltd. (FM-T) target to $29 from $28 with a “neutral” rating. The average is $33.68.

* RBC’s Matt Logan cut his Morguard North American REIT (MRG.UN-T) target by $1 to $23, which is 33 cents below the average, with an “outperform” rating.

* CIBC’s Kevin Chiang raised his target for Mullen Group Ltd. (MTL-T) to $15.50 from $14 with a “neutral” rating. Others making changes include: IA Capital Markets’ Matthew Weekes to $17 from $16.50 with a “buy” rating, BMO’s John Gibson to $15.50 from $15 with a “market perform” rating, TD Securities’ Tim James to $17 from $16 with a “hold” rating, National Bank’s Cameron Doerksen to $19 from $18.50 with an “outperform” rating and Scotia Capital’s Konark Gupta to $18 from $17.50 with a “sector outperform” rating. The average is $16.60.

“MTL posted a solid Q1 beat, with EBITDA exceeding the highest estimate on the Street, while positively surprising by maintaining guidance despite visible signs of a freight recession,” said Mr. Gupta. “This is quite a contrast to the ongoing theme of earnings and guidance disappointment from most freight carriers, including MTL’s peers. Management noted the Canadian freight market is less volatile than its U.S. counterpart, while the company is not seeing any dramatic weakness in volume or pricing due to a healthy job market. We also think that MTL’s diversification by end-markets, strong market share, and solid cost control are key differentiating factors. We have raised our estimates to match the low-end of EBITDA guidance, which implies relatively stable EBITDA over the next three quarters, driven primarily by the LTL and S&I segments. While there could be downside risk to our estimates if MTL’s end-markets soften materially, there could also be upside risk if the company executes on M&A the way it did in 2021.”

* National Bank’s Michael Parkin cut his New Gold Inc. (NGD-T) target to $2 from $2.25 with a “sector perform” rating. The average is $1.94.

* CIBC’s Dean Wilkinson cut his Northwest Healthcare Properties REIT (NWH.UN-T) target to $11 from $12 with an “outperformer” rating. The average is $10.83.

* CIBC increased its North American Construction Group Ltd. (NOA-T) target to $27.50 from $23.50 with a “neutral” rating. Others making changes include: Raymond James’ Bryan Fast to $30 from $26 with an “outperform” rating, ATB Capital Markets’ Tim Monachello to $32 from $30 with an “outperform” rating, National Bank’s Maxim Sytchev to $33 from $27 with an “outperform” rating and Canaccord Genuity’s Yuri Lynk to $30 from $28 with a “buy” rating. The average is $27.40.

“We remain convinced that NACG has a defensible business model given the fleet size, dominant position in the oil sands and more balanced end-market exposure,” said Mr. Fast. “The company delivered another knockout quarter. Results came in ahead of both our forecast and the Street consensus, exceeding the prior first quarter record by 40 per cent. This strength was driven by equipment utilization levels hitting multi-year highs. This has been a clear focus for the company after navigating headwinds related to technician availability and cost escalations in the first half of last year. Looking ahead, NACG is well positioned to take advantage of a robust project pipeline nearing $5-billion, which provides upside to an already constructive outlook and guide. With solid demand for the company’s earth moving services, NACG can focus maintaining high utilization levels.”

* Previewing its May 2 earnings release, BMO’s Peter Sklar bumped his Restaurant Brands International Inc. (QSR-N, QSR-T) target to US$79 from US$76, keeping an “outperform” recommendation. The average on the Street is US$71.

“Based on traffic data in both U.S. and Canada, and recent results from competitors, we believe Restaurant Brands could report Q1/23 comps towards the high-end of the current estimate range,” he said. “Headline EPS results should remain within the estimate range, as variability in costs continue and BK U.S. has accelerated its ‘Reclaim the Flame’ investment. We continue to rate Restaurant Brands Outperform, based on improving momentum at all three major brands. Tim’s is benefiting from trade-down, and BK U.S. is narrowing the gap vs. its peers.”

* National Bank’s Tal Woolley reduced his target for StorageVault Canada Inc. (SVI-T) to $6.50 from $7 with an “outperform” rating. Other changes include: RBC’s Jimmy Shan to $7.50 from $8.50 with an “outperform” rating and Canaccord Genuity’s Mark Rothschild to $7 from $7.50 with a “buy” rating. The average is $7.61.

* Credit Suisse’s Ariel Rosa lowered his TFI International Inc. (TFII-N, TFII-T) target to US$121 from US$137 with an “outperform” rating. The average is US$130.54.

“Like several of its peers, TFI fell sharply [Wednesday] after reporting earnings (down 11 per cent),” said Mr. Rosa. “Unlike some other carriers, however, we did not view TFI as having a particularly rich valuation going into earnings, with the stock offering a free cash flow yield of roughly 7 per cent. Even with the challenging quarter, TFI’s FCF in the quarter was nearly $200-million, up 113 per cent year-over-year. CEO Alain Bedard acknowledged the challenges from the soft demand environment, which is hurting density in its most challenged segments such as US LTL. This drove a cut to the company’s’23 EPS outlook to $7.00-7.25 from $7.50-7.60. Nevertheless, TFI continues making acquisitions (including 5 year-to-date), which should continue to deliver compound earnings growth over time. The company’s relentless focus on free cash flow generation should give it options to drive earnings through the cycle, both through continued buybacks and with its target for a large acquisition. With the stock now at 14 itmes our estimate of cyclically depressed 2023 earnings, its valuation appears reasonable, particularly for those investors who can hold through the cyclical downturn.”

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