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

BTIG analyst Mark Palmer thinks the accelerated demand for cloud-based point-of-sale systems appears baked into the current valuation of Lightspeed POS Inc. (LSPD-T).

Accordingly, in reaction to a “strong” rally from March lows, he lowered his rating for the Montreal software company to “neutral” from “buy.”

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“Shares of LSPD have surged by 376 per cent since we initiated coverage of the stock amidst the pandemic-driven March lows, including an increase of more than 68 per cent during the past month versus a 7.0-per-cent increase in the S&P 500 during that span,” said Mr. Palmer in a research note. “We remain constructive on LSPD’s growth prospects as its cloud-based point-of-sale (POS) and payments offerings – the demand for which has been accelerated significantly by the COVID-19 pandemic – are rolled out to a $100-billion-plus restaurant and retail market. However, with LSPD trading at 26.5 times consensus NTM [next 12-month] revenues and 22.3 times consensus fiscal 2022 estimated revenues, we believe a significant portion of that upside is already reflected in the stock’s valuation.”

Mr. Palmer continues to expect LSPD to post top-line growth of approximately 40 per cent over the next few years. However, he notes the majority of the market it’s targeting continues to be “served by legacy cash registers and on-site servers, the shortcomings of which have been exposed during the pandemic.”

“We have also pointed to the potential for Lightspeed Payments to double its ARPU [average revenue per user], which was $170 in its last quarterly report, as the company’s existing and new customers adopt that module,” he said.

“With that said, LSPD’s path to sustained, rapid growth is not without execution risk. The company continues to experience elevated churn as many of the small-and medium-sized restaurants and retailers it serves continue to struggle with the impact of lockdowns and the economic fallout of the pandemic. It also faces the integration of its recently announced acquisition of ShopKeep, expected to close by the end of CY21, although management has demonstrated their ability to amplify the growth of the companies it acquires within six months after acquisition.”

Despite a “strong” uptake in its payment offering, Mr. Palmer emphasized “competition within the space from rivals combining software with payments remains a challenge.”

“Some uncertainty remains regarding the timing of LSPD’s adjusted EBITDA, which we estimate will be negative $16.5-million in FY21, turning positive,” he said. “We note that LSPD, which we estimate will generate negative adjusted EBITDA until FY23, trades at a significant premium to SQ [Square Inc.], which is valued at 7.8 times consensus NTM revenues and 6.8 times consensus FY22 revenues. We estimate that SQ also will post revenue growth in the 40-per-cent context during FY21, and it benefits from profitability and significantly greater scale than LSPD.”

Expecting LSPD shares to remain within 15 per cent of its current levels over the next 12 months, Mr. Palmer removed his target price, which was previously $58, noting BTIG does not assign targets to neutral-rated stocks. The average on the Street is $61.77, according to Refinitiv data.

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“We appreciate that many investors in LSPD shares have demonstrated a willingness to look through the near-term, pandemic-related headwinds that the company faces, choosing instead to focus on the long-term benefits to the company from the accelerated demand for cloud-based POS solutions stemming from the crisis,” he said. “We do not disagree with this approach, and it has certainly worked well in recent months. However, we also believe that with the stock trading at a valuation that even many of its proponents would acknowledge as appearing quite lofty, any near-term negative optics – such as the impact of the resurgent pandemic on the table-service restaurants in Europe that the company serves – may begin to weigh more heavily on its performance, in our view.”

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Wells Fargo analyst Praneeth Satish made a series of rating changes to Canadian energy companies on Monday.

He upgraded Enbridge Inc. (ENB-T) to “overweight” from “equal weight” with a target of $46, rising from $44. The average is $50.61.

Mr. Satish downgraded the following stocks:

  • TC Energy Corp. (TRP-T) to “equal weight” from “overweight” with a $67 target, down from $73. Average: $70.35.
  • Pembina Pipeline Corp. (PPL-T) to “equal weight” from “overweight” with a $37 target. Average: $37.95.

He also made these target price changes:

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  • Keyera Corp. (KEY-T, “overweight”) to $26 from $24. Average: $26.32.
  • Inter Pipeline Ltd. (IPL-T, “equal weight”) to $13 from $12. Average: $14.49.
  • Gibson Energy Inc. (GEI-T, “overweight”) to $24 from $22. Average: $24.63.

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Raymond James analyst Savanthi Syth made a series of rating changes to North American airlines on Monday.

She raised Air Canada (AC-T) to “outperform” from “market perform” with a $32 target, exceeding the $24.23 average:

Ms. Syth also upgraded United Airlines Holdings Inc. (UAL-Q) to “outperform” from “market perform” and introduced a US$60 target. The average is US$43.11

She lowered:

  • American Airlines Group Inc. (AAL-Q) to “underperform” from “market perform” without a specified target. The average on the Street is US$10.92.
  • Delta Air Lines Inc. (DAL-N) to “market perform” from “outperform” with a US$38 target. Average: US$40.55.
  • Southwest Airlines Co. (LUV-N) to “outperform” from “strong buy” with a US$54 target, up from US$49. Average: US$49.20.

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Pointing to “increasingly tight” crop fundamentals, Raymond James analyst Steve Hansen raised his financial expectations for Nutrien Ltd. (NTR-N, NTR-T) ahead of Monday’s Investor Day event.

“By almost all accounts, global crop fundamentals have gone from ‘firming’ to ‘glaringly tight’ in recent months, with the prices of key bellwether crops all pushing multi-year highs on the back of compounding international weather events and a sudden reawakening of Chinese import demand,” he said. “Serendipitously, with North America coming off one of the largest (& earliest) crops on record, the set up for NA farmer income, fall application demand, and the 1H21 plant is similarly robust, in our view, a backdrop that bodes well for both crop input demand and, ultimately, NPK prices — which now appear to be responding.”

Seeing its stock as “cheaper than it looks,” Mr. Hansen raised his target for Nutrien shares to US$55 from US$48, maintaining a “strong buy” rating. The average is US$48.68.

“While the 28-per-cent rally in NTR shares since Oct. 1 may give some investors pause, we argue the stock still represents good value at current levels (it is more undervalued than it looks),” he said. “Our thesis is pretty simple: crop fundamentals and NPK prices have both shifted quickly, while Street estimates have not. In this context, we note the stock currently trades at 9.0 times our 2021 EBITDA estimate (vs. 10.0 times the Street mean), still an attractive metric given that we still remain early in the potash recovery cycle.”

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In a research report titled Dr. Copper sees a cure on the horizon, RBC Dominion Securities analyst Sam Crittenden predicts recovery trade will continue to drive “strong” copper prices moving forward.

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“We continue to forecast a small surplus in these years driven by supply growth from new projects but we have tempered our supply estimates due to lingering impacts from COVID-19 disruptions,” he said. “We also forecast stronger demand in 2020 and 2021, driven largely by China which together means rather than seeing the large inventory builds we envisioned earlier this year, the opposite has happened and inventories remain below the critical level which has historically supported higher prices. We see these low inventories, combined with the anticipation of rising deficits from 2025 supporting higher copper prices.”

Mr. Crittenden increased his 2021 price forecast to $3.25 per pound from $2.75 and raised his 2022-2023 estimates to $3.00 from $2.50.

“We expect industrials metals prices to remain elevated in 2021 as the global economy recovers, while strength in China continues to underpin demand,” he said. “Copper prices and the equities have rallied sharply in recent weeks on improving macro indicators globally and optimism around vaccine effectiveness. This has certainly been amplified by speculative investment demand and Chinese apparent consumption is running above trend but we don’t expect the positive narrative to change anytime soon with governments willing to do whatever it takes to ensure the global economy gets back on track. We think this positive momentum can continue into 2021.”

In response to his forecast change, Mr. Crittenden raised his target prices for a group of TSX-listed copper miners.

His changes included:

* First Quantum Minerals Ltd. (FM-T, “outperform”) to $23 from $17. Average: $19.04.

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“We expect significant growth in FCF from First Quantum as Cobre Panama ramps up and capex comes off,” he said. “We believe the shares can continue to re-rate as CP reaches its potential as a top 10 global copper mine and see potential for further upside on operating costs as the mine has performed well thus far. A sale of a stake in Zambia and/or Ravensthorpe could help reduce debt and are potential catalysts.”

* Teck Resources Ltd. (TECK.B-T, “outperform”) to $27 from $22. Average: $23.45.

“Exploration and continued development at Platreef could also provide additional catalysts,” the analyst said. “Teck Resources has been held back by weak coal prices, however we don’t expect the current situation to persist with China’s ban on Australian coal imports. We expect the shares to benefit from strengthening coal prices in 2021 as well as higher zinc and copper prices which have benefited from supply disruptions and increased demand due to stimulus.”

* Lundin Mining Corp. (LUN-T, “sector perform”) to $12 from $9. Average: $10.66.

“Lundin has had a string of challenges of late and we expect Q4 results to be similar, with Candelaria operations suspended since mid-October,” Mr. Crittenden said. “We could see the company conservatively downgrade near term production guidance with the annual 3-year update expected for the first week of December but still the view name a solid operator with leverage to copper.”

* Hudbay Minerals Inc. (HBM-T, “sector perform”) to $10 from $7. Average: $8.36.

“2021 looks to be a transition year for Hudbay as it realizes increased precious metals production from its growth projects, however the full benefits may not be realized until 2022,” he said.

* Labrador Iron Ore Royalty Corp. (LIF-T, “sector perform”) to $38 from $33. Average: $32.43.

“Labrador Iron Ore shares are essentially flat this year despite a 40-per-cent rally in the iron ore price and could catch up now that IOC has increased payments following COVID disruptions in 2020,” he said.

* Capstone Mining Corp. (CS-T, “sector perform”) to $2.50 from $1.50. Average: $1.95.

“Capstone has strong leverage to copper prices and has made progress on growth plans,” Mr. Crittenden said.

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Following the closing of its upsized $46.2-million share offering, Echelon Capital Markets analyst Rob Goff expects Converge Technology Solutions Corp. (CTS-X) to “move forward executing against its deep pipeline of strategic, accretive acquisitions.”

Mr. Goff raised his price target for the Toronto-based IT services provider to reflect “the prospects of resumed momentum on the acquisition front where the Company’s ability to source and execute accretive deals has enabled it to achieve a scale where its cross-selling revenue generation, vendor advantages and platform efficiencies support continued accretive inorganic growth.”

He added: “With its debt costs now lowered to roughly 2.5-3.0 per cent from 8-9 per cent, with cash reserves of $102-million (including $81-million raised through two equity issues) and the Company’s legacy acquisitions on-pace to be fully integrated onto one platform entering the new year, it is in its strongest position to date as an acquirer.”

In response to “gains associated with its refinancing, its financial flexibility, and on the strength of non-product sales and margin expansion,” Mr. Goff increased his target to $4.60 from $4, maintaining a “speculative buy” rating. The average target on the Street is $4.18.

The analyst had earlier nominated Converge for the firm’s “Q420 Top Pick Portfolio.”

“The shares are now up 137 per cent year-to-date including gains of 94 per cent since reaching recent lows of $1.70 in early September,” the analyst said. “We look for both tuck-in acquisitions and modestly larger targets in N. America before the company executes on its stated goal of acquiring in Europe post Brexit.”

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Calling it “an attractive, innovative growth story,” Scotia Capital analyst Phil Hardie initiated coverage of Trisura Group Ltd. (TSU-T) with a “sector outperform” rating on Monday.

He thinks the Toronto-based specialty insurance provider’s “unique and diversified” specialty property and casualty insurance platform “provides a high-growth business with an attractive risk profile.”

“Trisura Group’s business combines (1) a leading Canadian specialty insurer with a long history of underwriting profitability and ROE [return on equity] outperformance; (2) a high-growth U.S. specialty line insurer operating a low-risk and capital-light, fee-based hybrid fronting business model; and (3) an international reinsurer,” he said. “We like Trisura Group for its strong growth profile that includes a unique hybrid platform. We believe this will enable the company to generate a more consistent and capital-efficient earnings stream than traditional insurers, resulting in a superior ROE and risk profile. As the business continues to transform, we believe these characteristics are likely to support a premium valuation relative to its peers.”

Mr. Hardie is projecting expect average annual earnings per share growth of at least 30 per cent over the next two years and ROE of 15 per cent by 2022.

“With Trisura’s Canadian unit generating an estimated top-decile ROE performance in the last five years, we expect further top-line momentum and the scaleup of the U.S. segment to be the primary contributor to earnings growth and enhanced ROE over the next 24 months,” he said. “Management targets consolidated ROE in the midteens, but we believe the potential sale of its legacy run-off annuity reinsurance book of business could enhance ROE potential to the upper teens.”

The analyst set a target of $110 for Trisura shares. The average on the Street is $107.71.

“Trisura Group shares have enjoyed an exceptionally strong run, but we see a number of remaining catalysts over the near-term to mid-term,” he said. “These catalysts generally relate to factors that would accelerate (1) EPS and BVPS [book value per share] growth or (2) the transformation of the business, enhancing ROE and profitability. These catalysts could be achieved largely through organic initiatives, but have the potential to be accelerated through mergers and acquisitions (M&A). Over the longer term, we see additional catalysts related to the potential deployment of excess capital after the company achieves sufficient scale and further re-rates as its innovative hybrid-fronting model demonstrates resilience through a full business and pricing cycle.”

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After it posted higher reference pricing for December and IHS Markit increased its near-term methanol price forecast, RBC Dominion Securities analyst Nelson Ng raised his financial expectations for Methanex Corp. (MEOH-Q, MX-T).

“Methanol prices continue their fast pace of recovery, and we still see good upside in the shares as global economies and oil prices recover from the COVID-19 pandemic,” he said. “A key risk is severity of a second wave, the timing and availability of vaccines, and the actions taken by governments to mitigate the impact of the pandemic.”

Mr. Ng raised his 2020, 2021 and 2022 Adjusted EBITDA estimates to US$344-million, US$463-million and US$582-million, respectively, from US$324-million, US$418-million and US$595-million, respectively.

“Methanex estimates that before growth capex (e.g., G3 spending) the company begins to generate positive free cash flow at methanol prices around $240-250 per metric ton,” he said. “This compares to our realized methanol price forecast of $271 and $288 in 2021 and 2022, respectively. If methanol prices remain at current levels, we expect the company to move forward with the G3 project.”

Mr. Ng hiked his target for Methanex shares to US$48 from US$35 with an “outperform” rating. The average is US$32.23.

Meanwhile, Bernstein analyst Jonas Oxgaard lowered Methanex to “underperform” from “market perform,” believing his “dim” price outlook fails to justify it “rich” valuation. He kept a Street-low US$13 target.

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In other analyst actions:

* TD Securities analyst Aaron MacNeil resumed coverage of Ballard Power Systems Inc. (BLDP-Q, BLDP-T) with a “speculative buy” rating and US$27 target, up from US$20. The average is US$23.08.

* PI Financial analyst Philip Ker raised Superior Gold Inc. (SGI-X) to “buy” from “neutral” with a $1.10 target, which is 6 cents lower than the consensus.

* Deutsche Bank analyst Amit Mehrotra cut his target for Canadian National Railway Co. (CNI-N, CNR-T) to US$99 from US$101 with a “hold” rating. The average is US$111.17.

* Mr. Mehrotra raised its target for Canadian Pacific Railway Ltd. (CP-N, CP-T) to US$368 from US$367 with a “buy” recommendation. The average is currently US$344.92.

* Seeing a “massive” financial impact from its “impressive” graphene demand projections, Paradigm Capital analyst J. Marvin Wolff hiked his target for NanoXplore Inc. (GRA-X) to $10.50 from $6, maintaining a “buy” rating. The average is $4.69.

* Acumen Capital analyst Nick Corcoran raised his target for shares of Redishred Capital Corp. (KUT-X) to 90 cents from 80 cents, keeping a “buy” rating. The average is 85 cents.

“KUT continues to execute on its business plan despite near-term impacts from COVID-19,” he said.

* Mr. Corcoran cut his target for Diamond Estates Wines & Spirits Inc. (DWS-X) to 17.5 cents from 20 cents with a “speculative buy” recommendation.

“We view the Q2/FY21 results as mixed. The closure of retail and on premise combined with consumers shifting to higher volume, lower margin brands is expected to continue to weigh on DWS’s financial results for the remainder of FY/21,” he said.

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