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

While warning its problems are “not yet fully resolved,” Raymond James analyst Michael Shaw thinks the “worst of the pain is behind” TC Energy Corp. (TRP-T).

Accordingly, he raised his recommendation for the Calgary-based company to “outperform” from “market perform” in a research report released Friday titled TRP’s “Terrible, Horrible, No Good, Very Bad” Year has Ended.

“Few were happier to see the calendar flip from 2022 to 2023 than TC Energy. 2022 was a very difficult year for the company that included cost overruns at CGL, which led to the reinstatement of the DRIP, an equity raise, and was ultimately punctuated by December’s spill on its Keystone system,” said Mr. Shaw.

“The ‘series of unfortunate events’ resulted in TRP’s equity meaningfully underperforming; TRP is down 13 per cent over the last year while its peer group is up 6 per cent to 15 per cent; TRP is impressively 29 per cent below its 52-week-high, set in June. At $52.33, TRP is at its lowest levels in the last half decade and is testing Covid period lows.”

Mr. Shaw now expects the company to release an update on Coastal Gaslink project cost overruns, but he noted investors “were prepped via pre-announcement at its 2022 Investor Day in November.”

“TRP has not hinted at the exact magnitude of the 2nd round of cost overruns at CGL, except to say they are ‘material’,” he said. “We expect the cost overruns on the $11-billion project to be at least $1-billion, but a higher cost overrun is a distinct possibility.

“A negative reaction to a large cost estimate is always possible, but in our view the impact from CGL is more than priced into the equity. Since announcing the cost overruns in late November, TRP’s market cap is down $13.6-billion – more than any reasonable estimate of the potential cost overrun.”

The analyst said the issues facing TC Energy shouldn’t be minimized, however he thinks the reaction from the Street has “gone too far.”

“In no way are we minimizing the challenges ahead of TRP in completing the CGL pipeline, executing the planned asset sales, and working through the large capital spending program,” he said. “But at a sub 12 times EBITDA multiple, 12 times forward P/E multiple, and 6.9-per-cent dividend yield, these risks are more than fully-priced into the equity and create a rare opportunity to build on positions in TRP in our view.

“The challenges in 2022 have overshadowed the strong long-term prospects for TC Energy. TRP continues to have a best-in-class asset base and leading secured capital outlook that will drive EBITDA, earnings, and dividend growth while it right sizing the balance sheet. We expect TC will be able to hit its 6-per-cent EBITDA CAGR [compound annual growth rate] target and grow the dividend by 3 per cent to 5 per cent annually. We recommend investors take advantage of the move lower in the equity and are upgrading to Outperform.”

Mr. Shaw maintained a 12-month target price of $63 for the company’s shares. The current average target on the Street is $64.85, according to Refinitiv data.


Seeing an absence of positive near-term valuation catalysts, RBC Dominion Securities analyst Geoffrey Kwan lowered Onex Corp. (ONEX-T) to “sector perform” from “outperform” previously, seeing its discount to its net asset value remaining “substantially wide based on various metrics.”

“We’ve viewed Onex’s shares as undervalued for a while and despite this along with investment performance of its private equity investments being favorable vs. equity indices for the past couple of years, this has not improved Onex’s discount to NAV,” he said. “In fact, Onex’s discount to NAV has gradually widened further, also in part due to the equity market downturn and higher interest rates and their impact on the likelihood of monetizations (which could be a positive valuation catalyst), M&A pipeline/activity, valuation of carried interest, etc. Furthermore, delays in fundraising likely push out when we may get more visibility of Onex hitting its run-rate US$110-$130-million Fee Related Earnings target by the end of 2026 and therefore another potential positive valuation catalyst.

“Bigger picture, we don’t see evidence to suggest that Onex’s substantial discount to NAV cannot return to trading at or even a premium to NAV (which would imply substantial valuation upside), but the emergence of a positive valuation catalyst(s) is necessary to materially narrow the discount to NAV.”

While he sees Onex’s current share price as “attractive” to long-term investors, Mr. Kwan cut his target to $83 from $103. The average on the Street is $91.80.

“Onex’s shares trade at a 52-per-cent discount to NAV; a 50-per-cent discount to Hard NAV (which values the asset/wealth management business and carried interest at zero); and the current share price implies a substantial 72-per-cent discount to Onex’s privately held investments,” he concluded.


Mr. Kwan’s Onex change came alongside the release of his 2023 outlook for Canadian diversified financial companies titled Kind of like finding sharks with laser beams attached to their heads.

“Inflation remains elevated, interest rates continue to increase and economic data continue to weaken, yet equity markets have pulled back (S&P/TSX down 13 per cent, S&P500 down 20 per cent since their peaks),” he said. “Consequently, we think stock-picking in Diversified Financials might be almost as tricky as trying to find sharks with laser beams attached to their heads (or even ill-tempered mutated sea bass) and require a more dynamic approach. Defensive stocks significantly outperformed within our coverage in 2022 and we think it’s still prudent to remain defensive to start 2023, but market conditions could change warranting a pivot to more offensive stocks.”

He said Element Fleet Management Corp. (EFN-T) is his top “high-conviction best idea” for the year, believing it stock can “outperform in both recession and recovery scenarios.”

“EFN is delivering accelerating EPS growth driven by new customer wins and cross-selling clients more fleet services, even despite OEM production issues,” said Mr. Kwan. “Originations should improve significantly in 2023 and this should further improve EPS. EFN shares did well in 2022, but we still view EFN as undervalued.”

He has an “outperform” rating and a Street-high $26 target for Element Fleet shares. The average is $22.08.

The analyst’s No. 2 best idea is TMX Group Ltd. (X-T) with an “outperform” rating and $173 target, up from $160 and above the $153.86 average.

“We think the TMX offers an attractive mix of positive fundamentals; potential catalyst(s); solid defensive attributes; and attractive valuation,” he said.

Mr. Kwan’s No. 3 best idea is Brookfield Asset Management Ltd. (BAM-T) with an “outperform” rating and US$35 target. The average is US$35.93.

“We like BAM reflecting positive fundamentals; potential catalyst(s); some defensive attributes (revenues are less dependent on public markets); and a reasonable valuation,” he said.

Mr. Kwan added: “Overall, our Top 3 best ideas are slightly less defensive than last quarter, but still offer a combination of growth, catalysts, defensive attributes and attractive valuations. If we see a market recovery in 2023, we recognize there may be other stocks that might generate higher total returns, but we believe our Top 3 best ideas offer an attractive mix of defensive and offensive attributes.”

The analyst also made these target revisions:

  • AGF Management Ltd. (AGF.B-T, “underperform”) to $7.50 from $6.50. Average: $7.93.
  • Alaris Equity Partners Income Trust (AD.UN-T, “sector perform”) to $19 from $18. Average: $20.96.
  • Chesswood Group Ltd. (CHW-T, “sector perform”) to $13 from $14. Average: $15.42.
  • ECN Capital Corp. (ECN-T, “sector perform”) to $4 from $5. Average: $4.94.
  • EQB Inc. (EQB-T, “outperform”) to $72 from $70. Average: $80.38.
  • First National Financial Corp. (FN-T, “sector perform”) to $39 from $40. Average: $35.67.
  • IGM Financial Inc. (IGM-T, “sector perform”) to $43 from $42. Average: $41.71.
  • Sprott Inc. (SII-T, “sector perform”) to $55 from $54. Average: $50.67.


Seeing improved market conditions, BMO Nesbitt Burns analyst Peter Sklar raised his financial projections for Saputo Inc.’s (SAP-T) third quarter of fiscal 2023.

“We believe that Saputo is benefiting from improving cheese-milk spread and labour availability in the U.S. segment, and we anticipate healthy export margins in the International segment,” he said.

Mr. Sklar bumped his earnings per share estimate for the quarter by 5 cents to 47 cents. The consensus on the Street is currently 44 cents.

“The U.S. cheese milk spread has rebounded from -$0.16/cwt in FQ2/23 to -$0.05 in FQ3/23E,” he said. “The improving spread is a result of higher block cheese prices and lower Whey prices. Whey is an important component in the milk pricing formula. A lower Whey price results in a lower price paid by dairies such as Saputo for milk, which thereby improves the cheese-milk spread. Saputo has also tackled its labour shortage in the U.S. through increased recruitment and retention efforts resulting in staffing levels at over 90 per cent. All these factors should help improve FQ3/23 EBITDA in the U.S. segment versus our previous estimate.

“In the International segment, the upcoming quarter will have the full benefit of price increases, rolled out earlier in 2022 in Australia, while in Argentina we anticipate that export margins are running strong as export sales are denominated in U.S. dollars while costs are incurred in the weaker Argentine Peso.”

With the change, Mr. Sklar raised his target for Saputo shares to $43 from $41, above the $40 average, with an “outperform” rating.

“We continue to believe Saputo is an appealing turnaround story. Saputo has demonstrated that it is now ahead of the curve in terms of passing cost pressures through to customers and operations should continue to benefit as Saputo tackles labour shortages in the U.S. Despite the recent run-up, we believe the stock presents attractive value,” he concluded.


In response to recent share price depreciation, Leede Jones Gable analyst Douglas Loe raised his recommendation for Theratechnologies Inc. (TH-T) to “speculative buy” from “hold” following Thursday’s corporate update.

He said the recent “downdraft” was largely driven by the decision to voluntarily pause enrollment in the Phase 1 clinical trial of TH1902, its sortilin peptide-based cancer drug, and has widened the gap between his target price for its shares versus their present value.

“Ironically, the negative impact on TH share price that the Phase I TH-1902 halt last year imposed had no bearing on our fundamental valuation of the firm, and this continues to be the case in our ongoing investment thesis for the firm,” said Mr. Loe. “As before, our valuation is based on NPV (30-per-cent discount rate) and on ascribing multiples to our F2026 EBITDA/EPS forecasts (now US$31.6-million/US$0.12).

“In the medium term, the key value drivers for TH will be updates on its revised (and presumably FDA-endorsed) Phase I strategy for TH-1902 (we assume that no other sortilin peptide-conjugated drugs like doxorubicin-conjugated TH-1904 will advance into Phase I until ‘1902 Phase I testing concludes favorably) that we expect in coming weeks, and quarterly updates on sales trajectory for Egrifta/Trogarzo that we are optimistic will be consistent with guidance just provided.”

The analyst said there’s no major changes to his investment thesis stemming from the corporate update, which included projected sales for its Egrifta/Trogarzo commercial HIV-targeted biologics of US$80-million (versus Mr. Loe’s US$87.8-million forecast) in 2022 and US$90-$95-million (versus US$83.4-million) in 2023.

“F2023 revenue guidance seems reasonable to us at the low end, likely driven by Trogarzo growth from pandemic-constrained F2021/22 levels,” said the analyst. “We will provide commentary on our own Egrifta/Trogarzo sales expectations below, but our key takeaway is that our legacy expectations in retrospect were conservative and based mostly on Trogarzo upside from COVID-19-constrained F2021/22 levels, we agree that the low end of Thera’s F2023 revenue guidance represents a reasonable baseline expectation for collective performance of both drugs.”

While he expressing “caution” on TH-1902′s valuation, Mr. Loew endorsed “proceeding with Phase I activities for what we see as an attractive targeted anticancer platform,” maintaining a $3.75 for Theratechnologies shares. The average is $4.18.


Until the “legislative narrative” around the legalization of cannabis in the United States resumes later this year, BTIG analyst Jonathan DeCourcey expects the stocks of second- and third-tier sized operators to outperform in the near term, seeing them “positioned for share gains along with outperforming profitability.”

“Historically, this group has cheaper valuations than larger MSO peers despite in many cases having equal or better fundamentals due to a more limited investability,” he said. “Beyond operations, we believe these companies can also be viewed as potential M&A plays during the next round of consolidation in the industry which we continue to think will come this year.”

Mr. DeCourcey reaffirmed Ascend Wellness Holdings Inc. (AAWH.U-CN) his top pick for the first half, maintaining a “buy” rating and US$4 target.

“We expect execution with growth initiatives to drive share gains and outperforming profitability in key state markets while the company’s clean balance sheet permits the funding additional growth opportunities including further state expansion in the near term,” he said. “Meanwhile, despite favorable fundamentals, Ascend is one of the cheapest stocks in the space, trading at a steep discount to other top MSOs and even the broader U.S. cannabis market.”

He pointed to four other companies in his coverage universe that also may be set for outperformance. They are:

  • Cansortium Inc. (TIUM.U-CN) with a “buy” rating and 74-US-cent target.
  • Glass House Brands Inc. (GLASF-US) with a “buy” rating and US$6 target.
  • Jushi Holdings Inc. (JUSH-CN) with a “buy” rating and $3 target.
  • Schwazze (SHWZ-NE) with a “buy” rating and US$2.50 target.


In other analyst actions:

* Calling it a “rare name with momentum,” Wells Fargo’s Ike Boruchow upgraded Lululemon Athletica Inc. (LULU-Q) to “overweight” from “equal-weight” with a US$380 target, rising from US$360 but below the US$395.75 average.

* SVB Securities’ Puneet Souda cut his target for Vancouver-based AbCellera Biologics Inc. (ABCL-Q) to a Street-low US$18 from US$20. The average is US$29.40.

* Bernstein’s Bob Brackett raised his Barrick Gold Corp. (ABX-T) target to $24 from $21 with a “market perform” rating. The average on the Street is $27.70.

* BMO’s Michael Markidis lowered his target for NorthWest Healthcare Properties REIT (NWH.UN-T) to $11 from $13.75, reiterating an “outperform” rating. The average is $12.71.

“Following a comprehensive review of our thesis, we are reiterating our Outperform rating. NWH’s underperformance in 2022 (negative 26-per-cent total return vs. negative 17 per centfor the S&P/TSX Capped REIT Index) was solely due to disappointing Q322 results, in our view. Our revised FFOPU outlook incorporates more conservative assumptions regarding capital redeployment, interest expense and management fee growth. Visibility is admittedly limited; however, we believe there are multiple levers that management can pull to drive upside vs. our forecast. Execution is a potential catalyst,” he said.

* KBW’s Sanjay Sakhrani lowered his target for Nuvei Corp. (NVEI-Q, NVEI-T) to US$42 from US$48, below the US$56.75 average, with an “outperform” rating.

* In response to Thursday’s debt repayment update and fourth-quarter 2022 outlook, BMO’s John Gibson raised his target for Precision Drilling Corp. (PD-T) to $175 from $155 with an “outperform” rating. The average is $150.63.

“PD provided a Q4/22 and early-2023 operations update, signalling better-than-expected field margins relative to prior guidance. The company also exceeded its 2022 debt repayment targets, and we expect leverage to fall to ~1.2x by year-end 2023. With leading-edge rates now approaching US$40,000/day, the company holds significant financial torque over the next few quarters. Post update, we are increasing estimates as well as our target price,” said Mr. Gibson.

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