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

Expecting inflationary pressure to push bond yields higher in the near term, iA Capital Markets analyst Elias Foscolos felt compelled to refresh his valuations for TSX-listed utility companies, leading him to downgrade three of the four stocks in his coverage universe on Monday.

“As most market observers know, over the short term, Utilities stocks typically trade in an inverse relationship to bond yields, as they exhibit fixed income characteristics with the key exception being that over the long term, Utilities’ dividends grow as earnings grow,” he said in a research report released before the bell. “As dividend yields relative to bond yields (the spread) become less attractive, investors are more inclined to use the sector as a source of funds by selling stock. Rising interest rates put pressure on Utilities stocks in late-2020 and early-2021, but in the past month, valuations have recently recovered as rates have stabilized.”

In 2021, Mr. Foscolos expects growth in rate bases to fall largely in line with company expectations. However, a stronger Canadian dollar could pressure earnings growth in the sector.

“For EMA and FTS, hot weather in core operating regions in the U.S. (Florida and Arizona, respectively) boosted earnings in 2020,” he said. “We expect normalized weather in 2021, with an offsetting earnings tailwind from the recovery of utilities that were negatively impacted by COVID-19 in 2020. We expect CU will benefit from a full year of earnings from its LUMA JV with the transition to operatorship under the terms of the 15-year contract. For H, we are expecting a reversal of several tailwinds experienced in 2020, including favourable weather in 2020, to be offset by rate base growth, resulting in flat earnings per share year-over-year in 2021.”

“Both EMA and FTS could face headwinds from a stronger Canadian dollar placing pressure on 2021 EPS growth. Since December 2020, consensus average 2021 and 2022 EPS estimates for EMA have been revised downward by 5 per cent and 2 per cent, respectively. For FTS, 2021 and 2022 EPS have only been revised downward 1 per cent, implying that growth was already being more conservatively forecast for the Company. We lowered our 2021 EPS for EMA by 5 per cent with the Q4 results, and are now trimming our 2022 EPS by 4 per cent.”

After increasing the risk-free rate in his dividend discount model (DDM) valuations, Mr. Foscolos lowered his ratings for Canadian Utilities Corp. (CU-T), Emera Inc. (EMA-T) and Hydro One Ltd. (H-T) to “hold” recommendations from “buy” previously.

He raised his target for Canadian Utilities to $37 from $35 in order to give it “more credit for its balance sheet and build in a slightly higher terminal value growth rate.” The average target on the Street is $34.97, according to Refinitiv data.

His target for Emera fell to $59 from $61 (versus a $58.71 consensus) and kept a $31 target for Hydro One (versus $31.14).

Mr. Foscolos kept a “buy” rating for Fortis Inc. (FTS-T) with a $58 target, sliding from $60 and 46 cents lower than the average on the Street.

“We believe the Company currently offers the best upside in the sector on a risk-adjusted basis with favourable fundamentals including (a) 6-per-cent dividend growth with a conservative payout ratio, (b) stable forward estimates, and (c) sector-leading ESG score,” he said.


Pointing to its “impressive track record and outlook at a cheap valuation,” Desjardins Securities analyst Frederic Tremblay thinks Lassonde Industries Inc. (LAS.A-T) offers “quality at a discount” following stronger-than-expected fourth-quarter 2020 results.

On Friday, the Rougemont, Que.-based juicemaker reported sales of $515.-million for the quarter, up 19.2 per cent year-over-year and beating Mr. Tremblay’s $495.4-million due to “persistently strong contributions from both the Sun-Rype acquisition and demand in the retail channel.” Adjusted earnings before interest, taxes, depreciation and amortization of $56.8-million also blew past his forecast ($53.5-million).

“Growth in sales and adjusted EBITDA was stronger than expected in 4Q as Lassonde continues to reap the benefits of internal initiatives, M&A and strong demand,” he said.

“We expect that Lassonde’s volumes remained above year-ago levels in January and February 2021, consistent with industry trends. The company faces its toughest comps in the last three weeks of March given last year’s COVID-19-driven panic buying by consumers (heavy pantry-loading). We believe that guidance of flat annual sales in 2021 even as the effects of COVID-19 evolve is an illustration of the strength of Lassonde’s relationships in the retail channel and of its ability to benefit from a gradual foodservice recovery.”

Mr. Tremblay thinks Lassonde’s 2021 capex plan, which includes a capacity increase in its U.S. single-serve category, is “driven by retailers’ demand and the likelihood that single-serve formats will regain popularity (vs larger formats) once COVID-19 restrictions are eased/lifted in various sectors of the economy. This new capacity underpins our expectation that sales growth will accelerate in 2022.”

After raising his earnings and revenue projections for the year, he increased his target for the company’s shares to $220 from $210, keeping a “buy” recommendation. The average is $198.

Elsewhere, National Bank Financial analyst Ryan Li increased his target to $186 from $182, reiterating an “outperform” rating.


In a research report wrapping up a fourth-quarter earnings season for real estate investment trusts that largely fell in line with financial expectations, Canaccord Genuity analysts Mark Rothschild and Brendon Abrams made a series of ratings changes and raised their target prices for 20 equities.

On average, the REITs in their coverage universe reported a year-over-year decline in funds from operations of 4.1 per cent, narrowly higher than their forecast of a 4.7-per-cent drop. Driven by “strong” organic and external growth, Industrial REITs saw a 10.3-per-cent improvement, matching the analysts’ projections.

“Following Q4/20 results, our estimates are essentially unchanged, and on average, our FFO per unit estimates for 2021 and 2022 decreased 0.2 per cent and increased 0.5 per cent, respectively,” they said. “For the most part, our forecasts assume a continued recovery in operating fundamentals from the sectors hardest hit from the pandemic, although for the seniors housing sector we still expect fundamentals will remain well-below pre-pandemic levels for some time. Following a decline in FFO per unit of, on average, 3.2 per cent in 2020, our updated estimates translate to year-over-year growth of 6.1 per cent and 5.9 per cent in 2021 and 2022, respectively.”

In response to the results, Mr. Abrams raised his rating for Smart Centres Real Estate Investment Trust (SRU.UN-T) to “buy” from “hold” with a target of $28.25, rising from $26 previously and above the $26.39 average on the Street.

“We upgraded our rating for SmartCentres REIT .. reflecting our view that the discount to NAV, which was 18 per cent at the time of the upgrade, will narrow over the next year given the current low interest rate environment, a re-opening of the economy and SmartCentres’ growing development pipeline,” he said.

Mr. Abrams also raised Plaza Retail REIT (PLZ.UN-T) to “buy” from “hold” after “better-than expected results and given our view that the discount to NAV should narrow over the next year. At the date of our rating upgrade, Plaza was trading at a 12.7-per-cent discount to NAV.”

His target for Plaza units moved to $4, matching the consensus, from $3.75.

Conversely, Mr. Rothschild lowered American Hotel Income Properties REIT LP (HOT.UN-T) to “hold” from “buy” with a US$4.50 target, up from US$4 and above the US$3.41 average.

“While we had upgraded our rating for AHIP from HOLD to BUY at the end of January, the REIT’s unit price increased 45 per cent over the subsequent six weeks,” he said. “As a result, we believe the improvement in fundamentals that we expect over the next year is now largely reflected in the unit price and we recently reduced our rating from BUY to HOLD.”


Despite its 2021 reserve and resource estimates falling “significantly” year-over-year at both its San Jose mine in Mexico and Lindero mine in Argentina, Laurentian Bank Securities analyst Jacques Wortman raised his rating for Fortuna Silver Mines Inc. (FVI-T) to “buy” from “hold” in response to recent share price depreciation.

“Reserves and Resources fell materially for both the San Jose and Caylloma mines as a result of: 1) 2020 production depletion, 2) the impact on tonnes and grades from changes in metal prices, and 3) a general lack of exploration to replace depletion, due to both the COVID-19 pandemic and a focus on completing the construction of the Lindero mine in Argentina,” he said. “For Lindero, Reserves were largely unchanged as the mine was in the ramp-up phase in 2020, but Resources increased due to an increase in the size of the pit shell associated with the higher gold price.

“Post a review of the new estimates, we have adjusted life-of-mine (LOM) grades (generally lower) and cost estimates (higher) for San Jose and Caylloma, starting in 2022. Our 2021 estimates are largely unchanged as they are based on guidance provided earlier this year by FVI. However, our 2022 estimates were revised lower ... Our NAVPS was also revised lower, to $6.82 from $7.67.”

Mr. Wortman trimmed his target for Fortuna shares to $9.75 from $10.25. The average is $11.04.

Meanwhile, BMO Nesbitt Burns analyst Ryan Thompson trimmed his target to $12.75 from $13, maintaining an “outperform” rating.


Clean Air Metals Inc. (AIR-X) is “chasing lightning” at its Thunder Bay North project, according to Echelon Capital Markets analyst Ryan Walker.

Seeing the potential for higher-grade Norilsk-style massive sulphide mineralization as “a potential game changer,” he initiated coverage with a “speculative buy” rating on Monday.

“An investment in AIR affords exposure to a growing high-grade Pt-Pd-Cu-Ni [platinum, palladium, copper and nickel] resource 50 kilometres northeast of Thunder Bay, Ontario,” said Mr. Walker. “Indeed, a recently updated resource estimate at the TBN project saw global contained Pt and Pd more than double to 1.82 million ounces from 732,000 ounces under a historic resource estimate (we note here that both the Current Lake and Escape deposits have a Pt:Pd ratio of 1:1). Importantly, the updated resource also includes a maiden estimate of the adjacent Escape Lake deposit, which contains another 441,000 ounces of Pt and Pd. The latter deposit remains open and will be subject to extensive systematic drilling as part of a 45,000m drill campaign in 2021.”

Calling the Thunder Bay-based company “well funded” for its 2021 exploration program, he also emphasized its ESG attributes, noting: “We highlight here TBN’s “green” characteristics, which include the project’s metals mix — Pt-Pd-Cu-Ni. Most palladium is used in catalytic converters for gasoline automobiles to convert up to 90 per cent of the harmful gas emissions into less noxious substances. Pt is a key component of fuel cells and platinum is an important component of catalytic converters for diesel-fuelled vehicles, and acts as a catalyst in hydrogen-powered fuel cell electric vehicles (FCEVs). Copper and nickel both play important roles in the increasing electrification of the world, both in transmission and battery applications. We also highlight that AIR envisages TBN solely as an underground mine giving it a smaller environmental footprint, compared with historic plans that included an open-pit component. Additionally, AIR recently signed a Memorandum of Agreement (MOA) with the Fort William First Nation, Red Rock Indian Band, and Biinjitiwaabik Zaaging Anishinaabek First Nations confirming a framework for a mutually beneficial relationship regarding the project. Peter Collins, Chief of Fort William First Nation recently stated: ‘Clean Air Metals is the type of company we can get behind and we look forward to a productive working relationship with them.’”

He called Clean Air’s management , and emphasized both Executive Chairman Jim Gallagher and CEO Abraham Drost are recent buyer of the company’s shares “thereby further aligning them with the interests of shareholders.”

He set an 80-cent target for Clean Air shares, which sits 20 cents below the consensus.


Wedbush analyst Dan Ives tells investors it is “not the time to panic” after a “brutal” sell-off in the electric vehicle sector over the past few months.

Instead, he sees it as “just part of the multi-year ride higher.”

“From a stock perspective, the sell off we have seen in EV land creates a massive buying opportunity in our opinion to own the Chinese EV players as well as the leader of the pack Tesla heading into this golden age of EVs,” said Mr. Ives. “While the stocks and the EV space is clearly going through a painful digestion period, we view this as a short-term pullback in a multi-year upward rally. The EV investing landscape is bigger than just the auto makers as over the coming years the Street will have an enormous ecosystem of EV battery players (QS among others), green driven EV recycle pure plays (Li-Cycle), and super charger infrastructure vendors driving this transformational market still in the early days of playing out. In the US, there are many pure play innovative EV players (consumer/commercial) on the horizon poised to capitalize on a Biden driven green tidal wave domestically with our expectations that the tax credits and incentives around EVs will ramp significantly in the coming years given recent chatter out of the Beltway. We forecast the EV market represents a $5 trillion TAM over the next decade with many EV OEMs/supply chain players poised to be major winners over the coming years.”

Mr. Ives called Tesla Inc. (TSLA-Q) the “poster child” for the recent weakness in the sector, having seen “a painful risk off moment and sell-off on a combination of three factors: 1. EV/Tesla valuation concerns, 2. EV competition increasing across the board globally, and 3. chip shortages causing softness (Nio, etc.) out of the gates so far in 2021.”

However, seeing a green agenda from U.S. President Joe Biden as the next big catalyst, he maintained a “neutral” rating and US$950 target for Tesla shares. The average on the Street is US$619.

“Is the EV party and rally over after a parabolic run? Our answer is emphatically that the EV party and transformation is just beginning as this industry is on the cusp of a $5 trillion market opportunity over the next decade,” said Mr. Ives. “With GM, Ford, and VW all jumping into the deep end of the pool on EVs it speaks to the massive pent up demand globally around EV technology on the horizon. EV penetration is only 3 per cent today globally and we believe going to 10 per cent by 2025 with a green tidal wave on the horizon. We compare EV to the early days of the Internet boom as the whole ecosystem globally is just starting to get its sea legs with potential to be 20-per-cent-plus of all auto sales globally by 2030 based on our forecasts.”


In other analyst actions:

* Piper Sandler analyst Nicole Miller Regan cut her target for Restaurant Brands International Inc. (QSR-N, QSR-T) to US$70 from US$71, maintaining an “overweight” rating. The average target on the Street is US$66.92.

* Raymond James analyst Craig Stanley initiated coverage of Toronto-based miner Rio2 Ltd. (RIO-X) with a “strong buy” recommendation and $1.50 target. The current average on the Street is $1.93.

* RBC Dominion Securities analyst Drew McReynolds bumped up his Aimia Inc. (AIM-T) target by a loonie to $6 with an “outperform” rating. The average is $7.33.

* RBC’s Irene Nattel increased her Aritzia Inc. (ATZ-T) target to $35 from $32, keeping an “outperform” recommendation. The average on the Street is $31.94.

* Scotia Capital initiated coverage of Altius Renewable Royalties Corp. (ARR-T) with a “sector outperform” rating with a $13.50 target. The average is $13.75.

* Scotia’s Phil Hardie raised his target for AGF Management Ltd. (AGF.B-T) to $8 from $7.50 with a “sector perform” rating. The average is currently $8.07.

* BMO’s Jenny Ma raised her Inovalis Real Estate Investment Trust (INO.UN-T) target to $9.50 from $9 with a “market perform” rating. The current average is $9.81.

* Ms. Ma also increased her Pro REIT (PRV.UN-T) to $6.50 from $5.75 with a “market perform” recommendation. The average is $6.75.

* Eight Capital initiated coverage of Inc. (KSI-X) with a “buy” rating and $4.25 target, exceeding the $4.03 average.

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