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

Following Thursday’s close of its $403-million bought deal offering that will be used to fund its US$1.1-billion acquisition of the South Texas Gateway Terminal, a pair of equity analyst on the Street raised their recommendations for Gibson Energy Inc. (GEI-T).

Seeing STGT providing a “sizeable growth platform,” Canaccord Genuity’s John Bereznicki moved the Calgary-based company to “buy” from “hold” in response to a 13-per-cent drop in share price thus far in 2023.

“STGT is the second largest U.S. crude export facility and one of only two Texas Gulf Coast terminals with Very Large Crude Carrier (VLCC) loading capability,” he said. “It features 8.6 million barrels of oil of storage capacity and 1.0 million barrels of oil per day in permitted export capacity, with more than 95 per cent of its revenue under take-or-pay contract. The STGT has enjoyed strong volume growth since its 2018 inception and we estimate Gibson is paying 8.9 times 2024 estimated EBITDA for this operation (in line with where the stock traded prior to the announcement of this transaction). We are modelling DCFPS accretion of approximately 7 per cent next year. We view STGT as a sizeable new growth platform for Gibson but recognize it does shift the company’s historic oil sands-driven growth profile towards the Permian longer term. We are integrating STGT and the concurrent equity raise into our estimates.”

Mr. Bereznicki maintained a target price of $24 for Gibson share. The average target on the Street is $25.50, according to Refinitiv data.

Elsewhere, CIBC’s Robert Catellier upgraded Gibson to “outperformer” from “neutral” with a $27 target, up from $25.

“We view the facility as a high-quality asset, providing substantial accretion and adding a more substantial growth element to the investment proposition. These positive attributes offset the higher leverage and F/X exposure,” said Mr. Catellier.


Momentum is “gradually building” for Empire Company Ltd. (EMP.A-T), said National Bank Financial analyst Vishal Shreedhar, expecting improvements through the next fiscal year.

On Thursday, shares of Sobeys parent company jumped 4.8 per cent after it reported fourth-quarter 2023 earnings per share of 72 cents, up 4 cents from the previous year and exceeding both the analyst’s 69-cent estimate and the consensus forecast of 68 cents. Same-store sales growth, excluding fuel, jumped 2.6 per cent, also topping Mr. Shreedhar’s expectation (2.0 per cent).

The quarter marked the end of its six-year turnaround plan, called Project Horizon, the Stellarton, N.S.-based retailer said it’s reached its goal of adding $500-million in annual earnings before interest, taxes, depreciation and amortization (EBITDA).

“With Project Horizon now complete, management will focus on a broad agenda of improvement initiatives (store renovation/expansion including discount expansion, promotional effectiveness/data analytics, private label, and sourcing/supply chain efficiencies, etc.),” he said. “EMP believes that supplier requests for price increases have peaked in Q3/F23 (magnitude and volume). So far, Q1/F24 same-store sales growth is showing gradual improvement vs. Q4/F23. EMP established a long-term financial framework which contemplates 8-11 per cent in EPS growth driven by earnings growth and share repurchases ($400-million planned for F2024 vs. $350-million in F2023). Comparable e-Commerce sales declined 13.5 per cent year-over-year, adj. for an extra week last year. We expect gradual improvement in the e-Commerce business which represented an EPS drain of $0.28 in F2023.”

Raising his revenue and earnings expectations for the next two fiscal years, Mr. Shreedhar sees “trends inflecting” for Empire after the “positive” quarterly report.

“Empire indicated gradual momentum building in its business,” he said. “We accept this commentary, but similarly recognize that investors may look for repeated quarters of solid execution given an ongoing shift to discount formats (where Empire under-indexes). Given inexpensive valuation (vs. history and peers), and easy year-over-year comparisons, we see accelerating fundamental performance at Empire.

“We have increased our estimates - F2024 EPS goes to $3.17 from $3.02 and F2025 goes to $3.46 from $3.29.”

Maintaining an “outperform” recommendation for Empire shares, Mr. Shreedhar increased his target to $41 from $38 based on his higher estimates and advancements in his valuation. The average on the Street is $41.31.

Elsewhere, other analysts making target adjustments include:

* Scotia Capital’s George Doumet to $42.50 from $42 with a “sector outperform” rating.

“Empire delivered a good operational quarter (strong margin performance and contained SG&A growth; comps in line with expectations – but gaining momentum) against a challenging backdrop,” he said. “Following a six-year turnaround, EMP.a outlined plans to continue top/bottom line initiatives, with a main focus on: (i) the stores (20-25-per-cent network renovations over the next 3 years, continued discount expansion and Own Brands program enhancements), (ii) digital and data (Voilà, Scene+, personalization, space productivity and promotional optimization) and (iii) efficiency and cost control (including SG&A rightsizing, strategic sourcing and supply chain initiatives). When combined, these initiatives are expected to position EMP.a to grow adj. EPS at a longer-term CAGR [compound annual growth rate] of 8 per cent to 11 per cent, largely in line with the MRU and L long-term framework.

“While we see limited upside in the grocers as a group, we believe EMP could outperform over the NTM – especially in an environment of rapidly declining food inflation (and especially under a more modest recession scenario). Valuation remains (significantly) discounted.”

* CIBC’s Mark Petrie to $43 from $41 with an “outperformer” rating.

“Empire delivered better-than-expected margins and earnings in the face of persistent top-line headwinds. Conventional store traffic is holding (or potentially improving), though there is plenty of noise in all market data given the materiality of consumer shifts. Net, discount is still taking share, but we believe this trend will be slowing in coming quarters, which will prove a tailwind to EMP. Our estimates are little changed and price target moves up,” said Mr. Petrie.


Desjardins Securities analyst Brent Stadler thinks Brookfield Renewable Partners LP’s (BEP.UN-T) US$1.05-billion deal of Duke Energy Renewables is a “solid” acquisition, adding “U.S. scale for a reasonable 9.0‒9.5 times; while the portfolio has a relatively higher weighting to Texas, curtailments and basis risk have been considered.”

“We expect the IRA to be a tailwind for the platform, which should accelerate growth, and also expect additional upside from synergies and repowerings,” he said in a note released Friday. “Recent pressure on BEP units could be partially due to the equity raise, which surprised investors somewhat, and macro headwinds.”

Mr. Stadler expects the deal, announced on June 12, to be immediately accretive to funds from operations.

“BEP expects the acquisition to be at least 3-per-cent accretive to FFO; we model closer to 4 per cent as we assume a majority of the excess proceeds reduces future interest expense,” he said. “We estimate that DER should generate EBITDA of US$300-million (US$60-million net to BEP) in 2024, implying a transaction multiple of 9.0‒9.5 times EV/EBITDA — solid for a U.S. renewables platform that should benefit from the IRA.

“BEP continues to rapidly deploy capital and expects to achieve double-digit FFO/unit growth over the next five years. It also expects to remain active on its US$1.5-billion capital recycling initiative and is well-positioned to exceed its five-year capital deployment target of US$6‒7-billion - which BEP believes it can achieve without additional equity.”

Reiterating a “hold” rating, Mr. Stadler raised his target by $1 to $47. The average is $46.13.

“We believe BEP continues to be well-positioned to capitalize on an ever-growing total addressable market and should remain a dominant industry player,” he concluded. “It offers a high-quality, diversified asset portfolio and provides stable, long-term cash flows/distributions. While we like its assets, management and growth strategy, we maintain our Hold rating at this time.”


In a research report titled A Spatial Long-Term Growth Story, Scotia Capital analyst Konark Gupta assumed coverage of MDA Ltd. (MDA-T) with a “sector outperform” rating on Friday, calling it “arare profitable, well-funded pure-play space company.”

“MDA was founded in 1969 in Canada and has been listed publicly three times in those 54 years (latest IPO was in April 2021), evolving its business model over the decades to now become a fast-growing, pure-play advanced space technology company that is profitable, unlike most of its pure-play space peers,” he said. “The company touches nearly every aspect of the space ecosystem and is benefiting from positive long-term secular tailwinds in the global space market, which has attracted significant public and private capital over the past decade as commercialization increases and investors realize the longterm potential of the industry.”

Mr. Gupta sees the Brampton, Ont.-based company “growing faster than the fast-growing space market” and sees the potential for it to double or triple its organic revenue within the current decade.

“MDA’s revenue has grown at a 10-per-cent CAGR [compound annual growth rate] since 2019 (12 per cent to Q1/23), despite a challenging 2020, and the company expects accelerated growth of 17-25 per cent this year, on top of 34 per cent in 2022,” he said. “We conservatively forecast a 16-per-cent revenue CAGR to $1.2 billion in 2026 from 2023E driven by a solid backlog and a significant revenue pipeline. While the Robotics & Space Operations segment has grown faster than MDA’s two other segments since 2019, we expect its largest segment, Satellite Systems, to be in the driver’s seat with a 24-per-cent CAGR to 2026E versus 2022 due to the proliferation of low Earth orbit (LEO) satellites that play a crucial role in global connectivity. Just a handful of companies (OneWeb, SES, Telesat, SpaceX, and Amazon) are poised to deploy several thousand satellites over the coming years. MDA is currently building 17 LEO satellites for Apple under a contract with Globalstar; it recently supplied a significant number of antennas for OneWeb’s LEO constellation. The company has identified a revenue pipeline worth over $15 billion for the next five years, comprising $10 billion–plus for Satellite Systems, $3 billion–plus for Geointelligence, and $2 billion–plus for Robotics & Space Operations. Euroconsult expects the addressable global space market to grow at a healthy 6.3-per-cent CAGR to US$737 billion by 2031, led by satellite systems, as the average cost of launching a satellite is declining rapidly.”

Seeing its valuation as “attractive,” Mr. Gupta set a target of $12 per share, exceeding the $10.71 average on the Street.

“While MDA’s growth potential is solid, driven by several large programs and a strong opportunity pipeline, the stock’s valuation is deeply discounted as management rebuilds credibility after reducing 2022 guidance twice since the initial public offering (IPO) and given investor concern about ongoing cash burn amid elevated capex from an internal growth project that may complete in 2025/2026,” he said. “We believe the combination of cheap valuation, solid growth outlook, and potential free cash flow (FCF) inflection creates an attractive buying opportunity for medium- and long-term investors. We expect consistent management execution, visibility into the capex peak, and major contract wins to serve as positive catalysts over the next 12 months. The key risks to our thesis are a potential guidance cut (similar to 2022), extended cash burn, or major delays in backlog replenishment. Also, while we believe the mix-driven margin-normalization story is well understood by most investors, the market would be negatively surprised if margins fall below 18 per cent.”


While its brokered private placement of $5-million improves Good Natured Products Inc.’s (GDNP-X) liquidity and net debt profile, National Bank Financial analyst Ahmed Abdullah warned reduced demand levels at its Industrial segment are likely to continue to weigh on results.

“As such, GDNP’s previously noted outlook commentary around expected revenue declines through the next several quarters may hold a little longer than we anticipated,” he said. “Therefore, we trimmed our forecasts to be better aligned and now expect 2023 total revenue to be decline 17.6 per cent (previously down 12.1 per cent). For 2Q, we moved revenue down to $19.2-million from our previous $20.4-million and Adj. EBITDA moved to $0.4-million from $0.7-million. Consensus estimates ex-outliers are at roughly $20-million and $0.5-million.

“Our updated estimates suggest that GDNP will likely need to get a credit agreement amendment soon. We are now forecasting a $1.9-million LTM [last 12-month] adjusted EBITDA level at 2Q while the minimum EBITDA covenant level was last amended to $2-million.”

With his reduced forecast and pushing back his expectation of a return to growth until next year at the earliest, Mr. Abdullah dropped his target for shares of the Vancouver-based manufacturer of plant-based products by 5 cents to 20 cents, maintaining a “sector perform” recommendation. The current average is 28 cents.


Resuming coverage following Pembina Pipeline Corp.’s (PPL-T) aggregate $500-million note offering, ATB Capital Markets analyst Nate Heywood thinks it “could explore a return to meaningful growth in the coming years,” pointing to the state of its balance sheet and “solid financing footing” as well as a “supportive commodity environment.”

“The proceeds will be used to increase near-term financial flexibility, largely being directed toward repaying current indebtedness under the Company’s credit facility and for general corporate purposes,” he said. “Overall, we view the balance sheet maintenance as supportive to PPL’s growth outlook, as management continues to build a backlog of potential growth projects. Near-term we expect management to focus on its sanctioned Peace Expansion project, the Nipisi reactivation, and the RFS IV fractionator project. Longer-term PPL is evaluating Cedar LNG, the Alberta Carbon Grid (ACG) project, a Low Carbon Complex, and the potential purchase of Trans Mountain.”

Calling its capital expenditure for 2023 of $800-million “modest,” Mr. Heywood thinks Pembina’s management continues to prioritize balance sheet management and near-term financial flexibility.

“Following a capital disciplined 2020, 2021 and 2022, we view Pembina’s approach to positioning itself for long-term growth and efforts towards diversification as unique investment characteristics given its size and breadth of expertise,” he said. “We remain supportive of PPL’s underpinned fee-based growth initiatives and expect it to increase shareholder returns through the long-term as the dividend is tied to fee-based cash flow growth. With the strengthened upstream sector and improved activity, we are expecting the Company to continue to realize improvements in volumes. We have estimated a 2023 EBITDA outlook of $3.75-billion (Guidance: $3.5-3.8-billion); which provides an EV/EBITDA valuation of 10.2 times, compared to the Canadian midstream average near 10.0 times.”

After “modest” revisions to his forecast, Mr. Heywood maintained a $53 target for Pembina shares with an “outperform” recommendation (previously “restricted”). The average is $52.06.


While acknowledging balance sheet risks remain for Medexus Pharmaceuticals Inc. (MDP-T), Stifel analyst Justin Keywood raised his recommendation to “speculative buy” from “hold” on Friday as its stock has “retraced with improved fundamentals.”

“Medexus reported in-line FQ4 results but demonstrating sustained improvement,” he said. “Q4 sales were US$28.6-million, up 41 per cent year-over-year, matching estimates. Adj. EBITDA was US$4.8-million (17-per-cent margin), up 30 per cent year-over-year, vs. estimates at US$4.5-million. MDP finished Q4 with US$13.1-million in cash and expects to have US$20-million in September, ahead of US$40-million in convertible debentures that is due in October. The debentures could be settled in cash or shares and have an interest rate of 6 per cent. Medexus also highlighted a US$20-million uncommitted accordion feature of its term facility that may be used to satisfy the liability. This still highlights balance sheet risk, but we see the risk as manageable with an improving business that can be used as a liquidity source, including through royalty deals. We also see the share price retracing as factoring in risk but now suggesting upside to our maintained $1.80 target.

Mr. Keywood’s $1.80 target is below the $3.30 average.


IA Capital Markets analyst Sehaj Anand initiated coverage of a pair of lithium stocks on Friday.

They are:

* Critical Elements Lithium Corp. (CRE-X) with a “speculative buy” rating and $5 target. The average on the Street is $4.71.

“Critical Elements Lithium Corp. is a Quebec-focused hard rock lithium developer currently advancing its flagship Rose Lithium-Tantalum project, located in Quebec’s James Bay region. Rose is a feasibility stage project, which is fully permitted for construction which is expected to begin in H2/C23,” he said. “We estimate a 16.5-year mine life (Phase 1, producing an average of 204Kt of spodumene concentrate (SC) per year at a robust AISC of US$662 per ton). While the grades at Rose are lower (less than 1 per cent Li2O, excluding Ta) compared to other hard rock lithium mines/projects around the world, the deposit has high purity (low iron oxide and mica content), allowing for better recoveries and production of technical-grade spodumene concentrate (used in glass/ceramics), which garners premium pricing compared to battery-grade spodumene concentrate. The James Bay region has recently become a hot spot for lithium exploration and extraction with several major lithium players operating development projects including Livent’s Whabouchi, Allkem’s James Bay, Sayona’s NAL & Moblan, and Patriot Battery Metals’ Corvette, to name a few. Rose’s location, next door to major lithium producers/developers, makes it an attractive acquisition target going forward. Overall, the stock provides an attractive entry point into a construction-ready, high-purity, large-scale, lithium project in North America.”

* Sigma Lithium Corp. (SGML-X) with a “buy” rating and $68.50 target. The average is $63.07.

“Sigma Lithium Corporation is a Brazil-focused lithium spodumene producer that is currently ramping up Phase 1 of its flagship Grota do Cirilo (GDC) operation, located in southeastern Brazil,” he said. “GDC has one of the largest and highest-grade hard rock lithium deposits in the world. While Sigma is currently ramping up GDC Phase 1 with a nameplate capacity of 270K spodumene concentrate (SC)/year, the Company plans to further expand GDC through a combined Phase 2 & 3 expansion, which will essentially triple its production rate to 770Kt/year of 5.5-per-cent SC (104Kt LCE) by 2025, making it one of the world’s top lithium producers. Overall, we estimate a 14-year mine life (Phase 1 + 2 & 3), producing an average of 577Kt of 5.5-per-cent spodumene concentrate (SC) per year at a robust AISC of US$595 per ton. We expect Sigma to start generating meaningful cashflow by Q3/23 and expect it to become a cash machine generating on average $800-million of free cash flow (FCF) per year from 2024 to 2036. Overall, SGML provides an attractive entry point into a low-cost, high-quality, large-scale lithium operation in a mining-friendly jurisdiction with significant organic growth and exploration upside opportunities, making it a strong takeout candidate for any major lithium producer.”


In other analyst actions:

* In response to its fourth-quarter financial report, Stifel’s Ian Gillies cut his Algoma Steel Group Inc. (ASTL-T) target to $14.25 from $16 with a “buy” rating, while BMO’s Katja Jancic trimmed her target by $1 to $14 with an “outperform” recommendation. The average is $13.25.

“Our thesis remains largely unchanged following this quarter’s update as we continue to believe there is significant upside potential for the stock,” Mr. Gillies said. “Firstly on the positives, the company’s nearterm financial performance is expected to be strong while they continue to generate FCF through working capital releases. On the other hand, capex is expected to be $220-million higher during fiscal 2024 and 2025, however, we believe the company is able to fund its projects with no external equity required.”

“Our investment thesis of ASTL’s valuation re-rating has taken a hit, as the elevated construction costs have eaten into the equity value by $1.75 per share. Nonetheless, we believe this can be made up by higher-than-currently-forecasted profitability in FY2025E if spot steel persists at US$925/ton versus our modeled US$800/ton. We continue to believe that the risk/reward is attractive.”

* Raymond James’ Rahul Sarugaser initiated coverage of Hamilton-based Fusion Pharmaceuticals Inc. (FUSN-Q) with an “outperform” recommendation and US$13 target. The average on the Street is US$13.11

“Fusion Pharmaceuticals is a precision oncology company that has built a platform for the design, manufacture, clinical development, and commercialization of next-generation radiopharmaceutical drugs, with a singular focus on targeted alpha therapies (TATs): theoretically the most potent and specific breed of radiotherapies yet designed,” he said. “Radiopharma has already chalked up a handful of clinical and commercial wins, with NVS’s Pluvicto (a beta-emitter vs. metastatic prostate cancer) representing today’s highest-profile radiotherapeutic, with approximately $1-billion in sales expected during 2023 (growing so big that the Pluvicto-refractory mCRPC population could drive a $500-million per year peak sales opportunity for FUSN; see FPI-2265). We believe radiotherapeutics are on the verge of an inflection in the broader oncology landscape, and realistically have the potential to become a crucial new pillar of cancer treatment.”

* TD Securities’ Michael Tupholme raised his Stella-Jones Inc. (SJ-T) target to $78 from $72 with a “buy” rating. The average is $71.57.

Editor’s note: An earlier version misstated National Bank Financial's price target for Good Natured Products Inc.

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