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

Industrial Alliance Securities analyst Elias Foscolos expects the market to largely ignore the second-quarter financial results of TSX-listed energy pipeline, utility, midstream and fuel distributions in companies.

In a research report released Monday, he said the impact of the “COVID-19 induced economic coma” will be visible “to varying degrees” after seeing little evidence in the previous quarter.

“For Pipelines, Midstream, and Fuels Distribution companies, the impact will be seen in lower volumes and margins than previous quarters and will likely be written off in investors’ minds as they will not be indicative of future results,” said Mr. Foscolos. “That said, there will likely be keen interest by the markets in margin and cost reduction initiatives that may translate into future upside. Utility stocks, the most COVID-19 immune stocks in our coverage universe, will likely see delays in deploying capital.”

Mr. Foscolos made one rating change ahead of the kickoff of earnings season, lowering TC Energy Corp. (TRP-T) to “hold” from “buy” after eliminating the upside from the Keystone XL project from his model.

His target price for TC Energy shares slid to $68 from $70. The average target on the Street is $72.09.

“TRP’s exposure to oil pipeline is relatively low compared with other companies within this sub-sector and as a result, the impact of reduced oil production is likely to be muted,” he said. “We are expecting Q2 EBITDA to decline sequentially to about $2.3-billion from $2.5-billion as a result of seasonal fluctuations.

“The big change for us is that we have removed the Keystone XL pipeline project from our model. Just a couple of weeks after Keystone XL received FID with funding from the Alberta government, a Montana court ruled against the current permitting process. Furthermore, US Presidential democratic candidate Joe Biden has gone on record stating that should he be elected, he will put a stop to the pipeline, reversing Donald Trump’s decision to push the project through. Then a few weeks ago, the U.S. Supreme Court sided with a Montana court blocking the use of a national permit and forcing the US Army Corp. of Engineers (on TC’s behalf) to obtain individual permits for each water crossing for the pipeline. The Canadian portion of the pipeline is progressing and is being funded by Alberta taxpayers. While there is no downside to TRP, the upside is very uncertain. We would change our view on Keystone XL if Donald Trump is re-elected but that does not seem likely at this time.”

After making minor changes to financial estimates to companies across his coverage universe, Mr. Foscolos raised his target prices for several stocks based on multiple revisions.

Those changes were:

  • Pembina Pipeline Corp. (PPL-T, “hold”) to $38 from $37. Average: $39.37.
  • Emera Inc. (EMA-T, “buy”) to $60 from $59. Average: $61.38.
  • Fortis Inc. (FTS-T, “buy”) to $59 from $58. Average: $59.30.
  • AltaGas Ltd. (ALA-T, “strong buy”) to $20 from $19. Average: $19.10.
  • Gibson Energy Inc. (GEI-T, “hold”) to $23 from $22. Average: $23.88.
  • Inter Pipeline Ltd. (IPL-T, “buy”) to $15 from $14.50. Average: $13.12.
  • Parkland Corp. (PKI-T, “buy”) to $42 from $40. Average: $40.83.
  • Superior Plus Corp. (SPB-T, “buy”) to $13.50 from $13. Average: $12.71.


Scotia Capital analyst Orest Wowkodaw upgraded Capstone Mining Corp. (CS-T) in response to Monday’s premarket announcement that it has approved an expanded partnership with Jetti Resources LLC to apply their patented catalytic technology at Pinto Valley’s existing dump leach operation.

"Overall, we view the update as positive for the shares," he said.

Also citing “an attractive valuation, near-term growth, and several anticipated near-term catalysts,” Mr. Wowkodaw moved Capstone to “sector outperform” from “sector perform” with a $1.40 target, rising from 90 cents. The average on the Street is $1.10.

“Although we remain relatively cautious on near-term copper fundamentals, we believe that the risk-reward proposition for CS shares makes sense at current levels,” he said.


RBC Dominion Securities analyst Steve Arthur predicts CAE Inc.‘s (CAE-T, CAE-N) first-quarter financial results will reflect “the brunt of the COVID-driven airlines crisis,” expecting to see a 55-per-cent drop in revenue for its Civil segment when it reports before the bell on Aug. 12.

However, he touted the “strong” financial and operational actions taken by the company to deal with the fallout from the pandemic, and sees an “attractive” long-term risk-reward proposition for investors.

“We expect CAE to scale disproportionately on an airline recovery, with pilots catching up to regulated training requirements,” he said. “Through this, we expect relative stability in Defence, and opportunities in Healthcare.”

For the quarter, Mr. Arthur is projecting total revenue of $563-million, down 31.8 per cent year-over-year but above the consensus projection of $519-million. His EBITDA and earnings per share estimates of $107-million and a 5-cent loss also sit ahead of the Street ($85-million and a 7-cent loss).

“Training utilization plummeted to 25 per cent in the early stages of the pandemic, and we expect updates on current operations and recovery in utilization rates,” he said. “Our forecast reflects no new equipment orders in FQ1, though we will look for commentary on pipeline activity and delivery of units in backlog. Defence should offer resilience, and we will look for discussion on how CAE is capturing new opportunities in Healthcare.”

“We see potential for greater outsourcing opportunities for CAE as airlines work through costcutting, restructuring and potential consolidation. Outsourcing reduces capital requirements for the airline and ties Opex to business needs, while providing CAE with a solid long-term contract to grow its training business. Further, as airlines rebuild their schedules we may see an uptick in training as pilots catch up to regulatory requirements, and an additional boost as pilots tasked to new aircraft types require more training. We have viewed Healthcare as a ‘free option’ for CAE, and recent contracts (in particular 10,000 ventilators) and industry tailwinds warrant greater attention.”

Seeing it as a “solid long-term holding” and a “industry leader at [a] more attractive valuation,” Mr. Arthur maintained an “outperform” rating for CAE shares while trimming his target by a loonie to $28, exceeding the average on the Street is $23.80.

“We believe a modest premium is warranted considering the company’s unique technology and market position, recurring business model and attractive long-term growth prospects,” the analyst said.


Citing mounting competition, Raymond James analyst Rahul Sarugaser downgraded Auxly Cannabis Group Inc. (XLY-X) ahead of the mid-August release of its second-quarter results.

Mr. Sarugaser is expecting the Toronto-based company to see a quarter-over-quarter drop in revenue to $8.7-million from $9.9-million, leading to an EBITDA loss of $9.8-million (from an $8.2-million deficit).

“While XLY was fast out the gate with its Cannabis 2.0 offering in 1Q20, our channel checks have revealed that 2Q20 included mounting competition from several incumbents, specifically in the C2.0 segment of the Canadian adult-use cannabis market,” he said. “Due to this, combined with the fact that provincial distributors have been reducing their days of inventory on-hand, we anticipate a brief, one quarter dip in revenue for XLY.”

Mr. Sarugaser moved Auxly to “outperform” from “strong buy” with a 60-cent target (unchanged). The average on the Street is 53 cents.


Though Aecon Group Inc.‘s (ARE-T) second-quarter financial results exceeded his expectations and viewing its business returning to “more normalized levels,” Industrial Alliance Securities analyst Neil Linsdell is taking a “slightly more conservative look at forecasts due to short-term deferrals in work and cost increases.”

On July 23 after the bell, the Toronto-based construction company reported revenue of $779-million for the quarter, down 10 per cent year-over-year but beating Mr. Linsdell’s $754-million projection and the consensus estimate on the Street of $697-million. EBITDA slid to $24.4-million from $57.3-million during the same period a year ago, but also ahead of expectations ($22.4-million and $21.6-million, respectively).

“Q2 included what was likely the most significant impact from COVID-19,” he said. “As business returns to more normalized levels, albeit with modified processes and somewhat more modest (short-term) expectations, we see the record high backlog and likely increase in government infrastructure spending to boost the economy as very positive developments. Despite slightly more cautious forecasts, we remain confident in Aecon’s abilities in this difficult time.”

Mr. Linsdell trimmed his revenue and earnings expectations from fiscal 2020 through 2022. He’s now projecting EPS of 67 cents, $1.13 and $1.28, respectively, falling from 76 cents, $1.33 and $1.50 previously.

Keeping a “strong buy” rating for Aecon shares, he cut his target to $24 from $26. The average on the Street is $20.14.

Elsewhere, Desjardins Securities analyst Benoit Poirier maintained a "buy" rating and $20 target.

“ARE has a market-leading position in the growing infrastructure market in Canada, strong operational track record, solid balance sheet and unique portfolio of long-term concessions,” said Mr. Poirier. “We believe the current valuation gap vs U.S. peers — an implied 1.7 times EV/FY2 discount for the construction division after excluding the value of the Bermuda Airport concession — is unjustified and offers an attractive entry point for long-term investors.”


Seeing its path to US$5-billion in EBITDA as “achievable,” Citi analyst Scott Gruber upgraded Schlumberger N.V. (SLB-N) after raising his earnings expectations for the Houston-based oilfield services company based on improved benefits from recent corporate restructuring.

His third-quarter EBITDA forecast rose by 18 per cent to US$940-million, while his fourth-quarter projection jumped 22 per cent to US$950-million. Mr. Gruber’s full-year 2021 EBITDA expectation increased 15 per cent to $4.05-billion, and he introduced a 2022 EBITDA estimate of $4.8-billion.

“At $5-billion of EBITDA, SLB would be trading at 8 times with their current BS, however, this would likely trend toward 7.5 times assuming $2-billion of cash accumulates while on the recovery path,” he said. “Given greater than anticipated benefits from SLB’s cost restructuring, including rapidly leveraging digital, we believe SLB can achieve $5-billion of run rate EBITDA by late 2022. Simplistically, this is achievable on revenues of $26-billion (down 22 per cent from 2019) and EBITDA margins of over 19 per cent, up just 200 basis points from our 3q estimate and equivalent to a seemingly achievable 27-per-cent incremental. At this EBITDA threshold, SLB appears cheap and thus we upgrade the stock.”

He raised Schlumberger to “buy” from “neutral” with a US$26 target, up from US$20. The average on the Street is US$22.04.

“SLB is down 50 per cent year-to-date while the S&P is flat,” said Mr. Gruber. “SLB’s market cap today is $27-billion, whereas the FAANG stocks sit at $5-trillion. A slight rotation could go a long way. Also given the market multiple, we don’t think it’s a stretch to start looking two years out especially with the OFS markets bottoming. Furthermore, while political risk has been much debated, the election season headlines could still be a headwind for those more leveraged to the U.S. SLB will only generate 25 per cent of revenues from the U.S. next year. Key risks include stagnation in the oil price recovery which would limit the OFS industry recovery (this would contradict Citi Commodities team’s bullish view) and/or SLB not realizing the forecast benefits of their cost restructuring plan.”


Parkland Corp. (PKI-T) is “accelerating out of the COVID-19-induced trough with a full tank,” said Desjardins Securities analyst David Newman.

In a research note previewing its second-quarter results, he raised his EBITDA estimate for the Calgary-based company to $138-million from $120-million previously.

“We are encouraged by (1) a stronger-than-expected recovery in fuel sales across North America, resilient margins in Canada and robust margins in the U.S.; (2) slightly positive convenience store SSSG [same-store sales growth]; (3) reduced operating and MG&A costs with various cost-saving initiatives; and (4) a healthy balance sheet, recently bolstered by $400-million in senior notes (pushes its earliest debt maturity to 2024 at little incremental cost) and $1.2-billion in liquidity,” the analyst said.

After raising his 2020 and 2021 EBITDA projections to $830-million and $1.155-billion from $810-million and $1.145-billion, Mr. Newman increased his target for Parkland shares to $40 from $39 with a "buy" rating (unchanged). The average on the Street is $40.83.

“PKI is positioned for long-term success, supported by a strong recovery and growth potential, in our view,” he said.


Desjardins Securities analyst Gary Ho is taking a “more optimistic” view on Canadian asset managers ahead of the release of second-quarter results, seeing a “strong” rebound in assets under management providing a potential an earnings tailwind for the remainder of the year.

"Barring another major market correction, the group should continue to perform well in 2H20, driven by a recovery in AUM (at or near December 2019 levels, with SII much higher), a rebound in retail net flows and benefits from lower SG&A costs," he said in a research note.

"For 2Q20, the focus is on: (1) Given the sharp bounce in AUM, will there be any change in tone in how SG&A is managed? (2) how management teams are coping with COVID-19 (operationally and financially); (3) uses of capital — AGF (post S&W deal) and SII are in a net cash position, IGM sold its stake in Personal Capital at a high valuation, and both CIX and FSZ are looking to buy back stock; (4) update on net flows outlook for 2H20."

Though he maintained a "neutral" outlook on the sector, Mr. Ho raised his target price for stocks in his coverage universe.

Based on his pecking order, they are:

  • Fiera Capital Corp. (FSZ-T, “buy”) to $12 from $11. Average: $10.31.
  • AGF Management Ltd. (AGF.B-T, “buy”) to $6.50 from $6.25. Average: $5.33.
  • IGM Financial Inc. (IGM-T, “buy”) to $37 from $33. Average: $31.71.
  • Sprott Inc. (SII-T, “hold”) to $35 from $26. Average: $44.83.
  • CI Financial Corp. (CIX-T, “hold”) to $19 from $16. Average: $18.

Meanwhile, Canaccord Genuity's Scott Chan raised his target price for shares of the two asset managers in his coverage universe.

He moved CI Financial Corp. to $21 from $18 with a "buy" rating.

His target for IGM Financial Inc. to $31 from $27 with a “hold” rating.


Several equity analysts initiated coverage of Dun & Bradstreet Holdings Inc. (DNB-N) after coming off research restriction following the U.S. business analytics firm’s market debut on July 1.

RBC Dominion Securities’ Seth Weber set an “outperform” rating and US$31 target.

He said: “D&B’s proprietary and important data assets align well with the trend toward more data/analytics in corporate decision making. New management should provide the framework to better leverage/expand its deeply embedded solutions, supporting more consistent rev growth versus the ‘old’ D&B, with higher margins and cash flow.”

Citi’s Peter Christiansen gave the Millburn, N.J.-based company a “neutral” rating and US$28 target.

Mr. Christiansen said: “There is undoubtedly a lot to like about Dun & Bradstreet – a mission critical data platform with a reputation for unrivaled coverage and depth, sticky/recurring client relationships; top class management team with a solid prior track record. Further, it seems these assets were likely under-managed and under-resourced and the playbook to turn the business around is well on track – this creates an opportunity. The new team has done quite a bit in a short period to repair much of the technology debt and reposition the culture of the business. Still, aspirations for mid-single organic growth, normalized leverage, GAAP profitability, and FCF conversion comparable with peers is not expected until 2022. It’s our view that current stock levels are pricing in a faster turnaround with no major hiccups along away. In baseball terms, management believes the company is in the top of the 6th inning in its turnaround efforts. We would expect the fruit of the company’s efforts to gradually materialize over the next 2-3 years. We think investors can wait see more proof points as it relates to trajectory of turnaround before becoming more aggressive on the name.”


Expecting a “strong” production and free cash profile in the second half of 2020, Raymond James analyst Farooq Hamed raised his financial expectations and target price for shares of Yamana Gold Inc. (AUY-N, YRI-T).

"Overall, we believe AUY has done well to improve its operations and add longevity through exploration while also improving its balance sheet over the past two years," he said. "Looking forward, given the improved financial condition of the company and robust commodity prices, we would like to see AUY conservatively reinvest some proceeds back into its development pipeline to improve the overall duration or potentially grow its production profile."

Keeping a “market perform” rating, he increased his target to US$7 from US$6.50. The average on the Street is US$6.30.


In other analyst actions:

National Bank Financial analyst Zachary Evershed raised Alaris Royalty Corp. (AD-T) to “outperform” from “sector perform” with a target of $14.50, up from $14. The average on the Street is $14.46.

National Bank’s Vishal Shreedhar resumed coverage of Premium Brands Holdings Corp. (PBH-T) with an “outperform” rating and $95 target, rising from $95. The average is $95.89.

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