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

Though he likes Telus International Canada Inc.’s (TIXT-N, TIXT-T) “strategy, management team, financial metrics and client base,” Citi analyst Ashwin Shirvaikar gave it a “neutral” recommendation, preferring “a better entry point.”

Telus International, which provides outsourced online customer service for brands such as Fitbit Inc., Uber Technologies Inc. and online gamer Zynga Inc., began trading on the Toronto Stock Exchange and the New York Stock Exchange on Feb. 3. after boosting the size of its initial public offering and pricing its stock at the top of its planned IPO range.

On Monday, a group of equity analysts on the Street, including Mr. Shirvaikar, initiated coverage after coming off research restriction

“The upsized offering, pricing at the upper-end of the range, and opening above the range all indicate the good level of investor interest in the IPO,” said Mr. Shirvaikar. “We believe many investors became interested in the evolving growth acceleration story for the company that has been driven by recent acquisitions (CCC and Lionbridge AI) with some investors potentially looking toward faster-growing, more established companies as possible valuation comps. We also note the likely high level of interest that this received from Canadian investors with the stock being the largest tech IPO in the history of the TSX (Toronto Stock Exchange – stock is listed on both the NYSE and TSX) and more limited amount of high growth Canadian-listed companies to invest in (vs. level that is seen in the U.S.).”

The analyst emphasized Telus International has done a “good job” in moving its business toward an emphasize on “faster growth areas through organically landing and expanding with high growth clients in its traditional digital customer experience business while also acquiring high growth businesses in adjacent areas to its core business (i.e. content moderation and data annotation).”

Mr. Shirvaikar added: “The company is generally in a large and growing end market where it has been able to achieve headline financial metrics at or above industry-leading levels. TELUS International’s business does carry with it a number of risks. One factor to consider is that the company has come together in its current form fairly recently and so proof points on sustainable revenue and earnings growth metrics in its current form will need to be proven in coming quarters and years. We would also keep in mind the exposure to economic cycles, geopolitical risks related to its delivery, high client concentration, and M&A-related risks (both integration risk and industry-specific risks related to entering adjacent areas) given the significant investments it has made. Finally, we believe the current valuation reflects a balanced risk/reward given the items mentioned. Taken together, we believe a Neutral rating on TIXT is justified.”

He set a target price of US$32 for Telus International shares, which is below its opening price of US$33.10 when it began trading but above its IPO price of US$25 a share.

“TELUS International has consistently diversified itself to increase its available TAM and potential growth rate, built a strong list of 600 clients including many easily recognizable names and it has industry-leading headline financials (esp. margins),” said Mr. Shirvaikar. “Key risks include M&A integration, specific risks associated with its recent deals (gig economy worker rules, content moderation employee risks), client concentration, ownership structure, economic risks etc.”

Others initiating coverage on Monday included:

* RBC Dominion Securities’ Daniel Perlin with an “outperform” rating and US$36 target.

“We believe TELUS International is uniquely positioned within the customer experience portion of the IT Services market and will drive double-digit organic revenue in FY21-FY23 on an increasing pivot to digital solutions, a normalized macro backdrop and the expansion of its content moderation and data annotation capabilities via acquisition,” he said.

* Credit Suisse’s Matthew Cabral with a “neutral” rating and US$33 target.

“We believe TI’s track record of organic growth, high-quality M&A, and strong execution support a 15-per-cent revenue CAGR [compound annual growth rate] thru CY23, along with tailwinds to industry-leading margins from a greater mix of highvalue digital services ahead.,” he said. “At the same time, a desire to expand go-to-market (GTM) capabilities and diversify its customer mix (top 10 currently 64 per cent of pro forma sales) likely requires investments in SG&A as it looks to build out a more robust GTM engine. At 14 times our CY22 estimated adjusted EBITDA, we think current valuation largely reflects TI’s growth prospects and path forward.”

* Scotia Capital’s Paul Steep with a “sector outperform” rating and US$38 target.

“Our one-year target price of US$38.00 is based on an EV/EBITDA valuation multiple of 17.0 times on our one-year forward next 12 months (NTM) estimate,” said Mr. Steep. “We believe TI warrants a valuation at the upper end of traditional IT services providers, a discount to high-growth digital transformation/data analytics peers, and a premium to globally diversified IT services and BPO providers, given the firm’s above-average organic revenue growth and higher adjusted EBITDA margins. Long term, we expect that TI’s exposure to digital CX trends will continue to help drive organic revenue growth over our forecast horizon.”

* CIBC World Markets’ Stephanie Price with an “outperformer” rating and US$37 target.

“TI has a unique mix of stability and growth, expanding organically at a double-digit rate from a solid base of long-term customers. We view the company as well positioned to benefit from increasing digitization, with a differentiated end-to-end solution catering to its core verticals. We foresee multiple avenues of future growth, including: expansion within existing customers, the addition of new clients in core verticals, and an extension of its digital offerings,” she said.

* JP Morgan with an “overweight” rating and $35 target.

* BMO Nesbitt Burns with an “outperform” rating and US$34 target.

* Scotia Capital with an “outperform” rating and US$38 target.

* BofA Global Research with a “buy” rating and $48 target.


After its first-quarter financial results blew past expectations on the Street and led to a jump on share price of almost of 7 per cent on Friday, CIBC World Markets analyst Paul Holden raised his rating for Canadian Western Bank (CWB-T) to “outperformer” from “neutral” with a $38 target, up from $34 and above the average target on the Street of $34.54.

Conversely, Raymond James analyst Stephen Boland thinks the bank’s “appropriately valued near book value,“ pointing to the “combination of single digit growth expectations and the delay of a possible return of capital.”

That led him to downgrade it to “market perform” from “outperform” with a $35.50 target, up from $33.50.

“CWB reported its 1Q21 results with adjusted EPS of 93 cents (vs. 83 cents last year) compared to our estimate of 72 cents,” said Mr. Boland. “The higher than expected EPS was due to lower provisions and lower expenses. Management has guided to mid single digit earnings guidance for the year. This implies low 70-cent EPS per quarter for the remainder of the year. That is due to higher provisions and expenses (for growth purposes). Additionally, the final application for the conversion to AIRB is now expected to occur in mid 2022. This has been pushed back to roughly 6 months and then OSFI still has to provide approval.”

“We apply a 1.0 times multiple to our new fiscal 2022 book value estimate to arrive at our target of $35.50. The closest comparables Home Capital, Equitable Group, and Laurentian Bank are all trading at book value. We believe with the 10-per-cent ROE [return on equity] expectations the stock is appropriately valued.”

Other analysts making target adjustments included:

* Desjardins Securities’ Doug Young to $39 from $35 with a “buy” rating.

“Results were solid, the outlook looks encouraging and we view valuation as compelling,” said Mr. Young.

* Credit Suisse’s Mike Rizvanovic to $36 from $32 with an “outperform” rating.

“CWB’s EPS beat (93 cent vs. our 75-cent [estimate] and consensus of 77 cents) was driven by very positive fundamentals, particularly solid growth in NII that resulted in a 12-per-cent sequential increase in PTPP earnings,” said Mr. Rizvanovic. “We see further upside for CWB relative to its larger Canadian bank peers as its shares now trade at a still-subdued PE of 9.3 times on our revised F2022E EPS (a 7-per-cent discount to the Big Six).”

* Scotia Capital’s Meny Grauman to $36 from $34 with a “sector perform” rating.

* TD Securities’ Mario Mendonca to $36 from $33 with a “buy” rating.

* BMO’s Sohrab Movahedi to $33 from $31 with a “market perform” rating.

* National Bank Financial’s Gabriel Dechaine to $35 from $32 with a “sector perform” rating.


Citing an “uncertain growth outlook, Desjardins Securities analyst Justin Bouchard lowered Pembina Pipeline Corp. (PPL-T) to “hold” from “buy,” despite its fourth-quarter financial exceeding the expectations.

On Thursday after the bell, Calgary-based Pembina reported adjusted earnings before interest, taxes, depreciation and amortization of $866-million, ahead of the $835-million consensus estimate on the Street. The beat was due largely to “robust” margins from its Marketing segment.

“On the call, management noted that the dividend and the sanctioned growth slate will have first call on capital. The challenge, in our view, is that most unsanctioned growth projects that PPL could undertake are predicated on a critical mass of customers also electing to grow — and that is something we do not see happening in 2021. Of course, that could change if oil prices continue to rise or if present pricing proves sustainable. But we need not remind anyone that a mere six months ago, a vast majority of Canada’s E&P sector was seemingly at death’s door; it is hard to imagine how that does not leave a lasting impression on management teams. For the last decade, PPL has successfully executed on one growth opportunity after another, but that cycle has slowed for the time being — and the announcement of a share buyback program is telling in this regard. Absent additional near-term investment opportunities, expect surplus FCF to go to share buybacks or debt reduction, at least for 2021.”

Though he thinks a Final Investment Decision (FID) on the expansion of its Prince Rupert LPG export terminal and Peace pipeline Phase VIII and IX, would “help backstop growth,” Mr. Bouchard emphasized “larger-scale M&A may be needed to fuel the PPL growth machine,” given his “challenging organic growth profile for the broader energy sector.”

He maintained a $35 target price for Pembina Pipeline shares. The current average is $38.38.

“While the recent rally in commodity prices has provided some much needed breathing room for E&P companies, we still expect to see industry focus on debt repayment and shareholder returns rather than on growth. Perhaps that changes later on in the year, but until such time, we are moving to a Hold,” he said.


With the release of “solid” fourth-quarter financial results, Canaccord Genuity analyst Brendon Abrams thinks units of Plaza Retail REIT (PLZ.UN-T) “offer attractive value with worst of pandemic in rear-view mirror.”

Accordingly, he raised his rating for the Fredericton-based REIT to “buy” from “hold.”

“In our view, Plaza owns a relatively defensive portfolio predominantly tenanted by value-oriented and necessity-based national retailers,” he said.

On Thursday, Plaza report funds from operations per diluted unit of 10 cents, up 15 per cent year-over-year and topping both Mr. Abrams’s estimate (8 cents) and the consensus on the Street (9 cents). He attributed the beat to a rise in NOI from development completions as well as a drop in in administrative expenses and a 1.7-per-cent increase in same property net operating income.

“Occupancy for the REIT’s portfolio remained high at over 95 per cent, and Plaza continued to execute on its value-add strategy by advancing several key development projects during the quarter,” he said.

“Overall, following the better-than-expected Q4/20 results, we are upgrading our rating from Hold to BUY and increasing our target price to $4.00 (from $3.75), which is set at a 5-per-cent discount (unchanged) to our revised NAV estimate. We expect Plaza’s portfolio, which is tenanted predominantly by value-oriented and necessity-based national retailers, will deliver steady growth in cash flow per unit and SPNOI over the next, which we view as attractive within the current low bond-yield environment. Combined with a 7.5-per-cent distribution yield, our target price implies a one-year total return of 15.4 per cent.”

The average target on the Street is currently $4.

Elsewhere CIBC’s Dean Wilkinson raised his target to $4 from $3.75 with a “neutral” recommendation.


In a research note previewing earnings season for base metals companies, CIBC World Markets analyst Bryce Adams raised his targets for stocks in his coverage universe on Monday.

His changes included:

* Teck Resources Ltd. (TECK.B-T, “neutral”) target to $32 from $25. The average on the Street is $29.76.

* Lundin Mining Corp. (LUN-T, “neutral”) to $15 from $12.25. Average: $14.03.

* Hudbay Minerals Inc. (HBM-T, “outperformer”) to $13 from $10.75. Average: $11.54.

* First Quantum Minerals Ltd. (FM-T, “outperformer) to $35 from $24. Average: $28.50.


Seeing its shares trading at an attractive valuation, Acumen Capital analyst Jim Byrne initiated coverage of Premier Health of America Inc. (PHA-X) with a “buy” recommendation.

The Montreal-based company provides outsourced healthcare service solutions fo governments, corporations, and individuals, utilizing its proprietary PSweb platform for real-time workforce optimization.

“PHA is pursuing an acquisition strategy that looks for attractive agencies in specific market regions they would like to target for expansion,” said Mr. Byrne. “These potential targets bring existing contracts and a staffing base, typically focused in a particular geography. Once acquired, PHA can apply their technology to streamline and automate systems and improve margins. With the acquisition of Code Bleu, PHA estimates it has now reached 25-per-cent share in the Quebec market. The company is now targeting deals in other regions of the country, namely Alberta, B.C., and Ontario. Given the higher margins associated with work in the Far North, we expect the company will also look to expand their presence in that region as well.

“We believe the pipeline for acquisitions is full and anticipate the company will look to complete 2-4 transactions per year over the next several years as they look to gain market share and scale across the country. The most recent transactions have been completed at attractive valuation metrics of 2.5x-4.0x EBITDA. Management anticipates future deals can be completed at similar multiples given the smaller size and lack of technology typically associated with its acquisition targets. Organic growth is driven by contract wins and recruiting staff. The company actively recruits new staff through marketing campaigns, including using social media. The company’s non-emergency medical transport group offers exposure to a new vertical within the healthcare segment. We like the exposure beyond hospitals and clinics and look forward to the company exploring other market segment in the coming years.”

Expecting the demand for outsourced healthcare personnel to “significantly” increase, Mr. Byrne, currently the lone analyst on the Street covering the stock, set a target of $1.90.

“PHA’s shares currently trade at 12.9 times and 10.6 times 2021 and 2022 EV/EBITDA multiples respectively,” he said. “In our view, the shares are attractively valued at current levels given the prospects for strong organic and acquisitive growth and the company’s stronger margin profile. PHA’s automated platform drives gross margins higher than industry norms, and we believe gives the company a competitive edge when acquiring potential targets and competing for new contracts. The company has a strong, experienced management team that is capable of bringing the organization to the next level and becoming the national leader in its sector.”


Calling it a “well positioned early stage ag-biotech company,” Noble Capital Markets analyst Joe Gomes initiated coverage of Ottawa-based Avivagen Inc. (VIV-X) with an “outperform” rating and $1 target. The current average is US$2.20.

“Avivagen is an early-stage revenue company focused on developing and commercializing products for livestock, companion animals, and humans,” he said. “We believe the Company is at an inflection point with significant sales increases just around the corner and presents a favorable risk/reward proposition.”

“Over the past fifteen months, Avivagen has received approvals from a number of countries for the sale of OxC-beta, received additional research confirmation of OxC-beta’s effectiveness, signed new distributors, and has seen increasing orders for the product, breaking its order records three times in 2020. We believe additional meaningful sized orders will occur in 2021, driving revenues higher.”


In other analyst actions:

* Citing its valuation, ATB Capital Markets analyst Patrick O’Rourke downgraded Tamarack Valley Energy Ltd. (TVE-T) to “sector perform” from “outperform” with a $2.50 target, up from $2. The average is $2.21.

“The base business model and capital structure remain intact (with a highly durable capital structure in our view); however, after increasing 69 per cent year-to-date, the stock now offers the lowest 2022 FCF/EV yield of its peer group in our modelling, and second-lowest return to target of its peer group currently,” he said.

* RBC Dominion Securities analyst Nelson Ng cut his Innergex Renewable Energy Inc. (INE-T) target to $29 from $35 with a “sector perform” rating, while CIBC World Markets’ Mark Jarvi reduced his target to $27 from $32 with a “neutral” recommendation and Industrial Alliance Securities’ Naji Baydoun lowered his target to $27 from $30 with a “hold” rating. The average target on the Street is $29.50.

“INE reported mixed Q4/20 results on February 25, and provided several strategic updates. INE (1) provided additional visibility on its development pipeline, (2) introduced weaker-than-expected 2021 financial guidance, (3) unveiled strong 2025 financial targets (implying high single-digit growth CAGR 2021-25), and (4) prudently elected to maintain its current dividend. Overall, we believe it will take time for investors to fully digest these updates and recalibrate their expectations; we would remain on the sidelines and wait for additional updates on several key moving pieces,” said Mr. Baydoun.

* Mr. Ng raised his target for Just Energy Group Inc. (JE-T) to $3 from $2 with an “underperform” rating, while Mr. Jarvi increased his target to $2.50 from $1 with an “underperformer” recommendation. The average is $2.42.

* RBC’s Sabahat Khan increased his Aecon Group Inc. (ARE-T) target by a loonie to $18 with a “sector perform” rating, while Desjardins Securities’ Benoit Poirier raised his target to $23 from $20 with a “buy” rating. The average is $21.35.

“ARE delivered its 11th consecutive EBITDA beat, solidified its balance sheet further and increased its quarterly dividend by 9 per cent while maintaining a healthy backlog of $6.5-billion. The 2021 outlook remains solid. Management has demonstrated its ability to unlock shareholder value through rigorous execution and risk management. We see multiple catalysts ahead, including large contract wins and potential tuck-in acquisitions,” said Mr. Poirier.

* RBC’s Geoffrey Kwan hiked his Sprott Inc. (SII-T) target to $49 from $43 with a “sector perform” recommendation, while Desjardins Securities’ Gary Ho raised his target to US$35 from US$34 with a “hold” recommendation and TD Securities’ Graham Ryding increased his target to $48 from $43 also with a “hold.” The current average is $45.37.

“Adjusted EBITDA was well ahead of our forecast and consensus and SII experienced outsized physical trust net inflows year-to-date, benefiting from the renewed silver trade. Managed equities saw positive flows in January. While product launches and distribution expansion offer upside, the current valuation appears fair. We increased our EBITDA estimates and multiple to reflect better net flows momentum,” said Mr. Ho.

* Mr. Kwan raised his target by a loonie to AltaGas Ltd. (ALA-T) to $22 with an “outperform” rating, while Industrial Alliance Securities’ Elias Foscolos moved his target to $24 from $23 with a “strong buy” recommendation. The average is $22.50.

“ALA’s reported results were in line for the quarter and its 2021 guidance remains unchanged. Event-driven investors are unlikely to find this year as exciting as the last two on the news front when restructuring took centre stage. In 2021, we expect that ALA will be laser focused on extracting value from its existing Midstream and Utilities asset base. In our view, AltaGas offers investors one of the best growth profiles adjusted for risk,” said Mr. Foscolos.

* Desjardins Securities analyst Chris MacCulloch increased his target for shares of Advantage Oil & Gas Ltd. (AAV-T) to $5.50 from $5.25 with a “buy” rating, while TD Securities’ Aaron Bilkoski raised his target to $3.25 from $2.50 with a “buy” recommendation and CIBC World Markets’ Jamie Kubik moved his target to $3 from $2.25 with a “neutral” rating. The average is $3.77.

“We continue to highlight the stock as one of our top picks in the small-cap space as we believe it provides the best upside potential to our bullish thesis on North American natural gas prices on a risk-adjusted basis,” said Mr. MacCulloch.

* National Bank Financial’s Matt Kornack raised his target for Boardwalk REIT (BEI.UN-T) to $44 from $42 with an “outperform” rating, while CIBC’s Dean Wilkinson hiked his target to $40 from $35 with a “neutral” recommendation. The average is $41.58.

* Berenberg analyst Jonathan Guy raised his Yamana Gold Inc. (AUY-N, YRI-T) target to US$8.40 from US$7.90, keeping a “buy” rating. The average is US$7.28.

* Berenberg’s Richard Hatch increased his Wheaton Precious Metals Corp. (WPM-N, WPM-T) target to US$51 from US$48 with a “buy” rating. The average is US$60.12.

* CIBC’s John Zamparo cut his target for Cronos Group Inc. (CRON-Q, CRON-T) to US$11 from US$12.50 with a “neutral” rating, while Cowen’s Vivien Azer raised his target to $14 from $8 with a “market perform” recommendation and Canaccord Genuity’s Matt Bottomley increased his target to $7.50 from $6.50 with a “sell” rating. The average is US$5.65.

“Although CRON’s Q4/20 print was behind our expectations on margins/profitability, we note that the Canadian sector as a whole has experienced significant value appreciation as of late — very likely due to positive macro headlines coming out of the U.S. (Biden presidency; Democratic control of Senate; commitment to push U.S. cannabis reform at the federal level),” said Mr. Bottomley. “Although we do not believe that CRON has a near-term path to accessing U.S. THC markets, we have elected to lower our discount rate by 200 basis points (which now ranges from 8 per cent to 13 per cent) to account for overall higher optionality in these markets (while also rolling forward our valuation by one year to 2021).”

* CIBC’s Hamir Patel increased his targets for Canfor Corp. (CFP-T) to $35 from $34 with an “outperformer” rating and Canfor Pulp Products Inc. (CFX-T) to $10 from $8.50 with a “neutral” recommendation. The average targets on the Street are $33.83 and $10.50, respectively.

* TD Securities analyst Steven Green cut his target for Eldorado Gold Corp. (EGO-N, ELD-T) shares to US$13 from US$13.50 with a “hold” rating. The average is US$16.16.

* National Bank Financial’s Vishal Shreehar lowered his Premium Brands Holdings Corp. (PBH-T) to $116 from $117 with an “outperform” rating. The average is $116.45.

* Canaccord Genuity analyst Scott Chan raised his target for shares of Onex Corp. (ONEX-T) to $91 from $88, keeping a “buy” rating, while Scotia Capital’s Phil Hardie moved his target to $89 from $87 with a “sector outperform” recommendation. The average is $95.

“Currently, ONEX shares trade attractively at a 23-per-cent discount to Q4 hard NAV, while essentially getting the company’s growing Asset & Wealth Management business for free. We believe the largest catalysts on narrowing the discount include: (1) accruing more carried interest; (2) growing AUM, management fees, and NI; (3) successful monetizations (e.g. PowerSchool); (4) deployment of excess capital into new investments; and (5) share repurchases through its NCIB,” Mr. Chan said.

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