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

Expecting fuel margin compression to weigh on its outlook in the near term, Canaccord Genuity analyst Derek Dley downgraded Alimentation Couche-Tard Inc. (ATD.B-T) on Monday ahead of the release of its fourth-quarter 2021 results on June 29.

“In our view, the next few quarters are going to face challenging year-over-year comparables, as fuel margins were at record levels during the summer and fall months last year and have since reverted to more normalized (yet still above average) levels,” he said in a research note.

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“While we anticipate the company will benefit from an increase in fuel volumes sold over the coming quarters, we believe this will not be enough to offset the year-over-year decline in fuel margins.”

For the quarter, Mr. Dley is forecasting earnings per share of 43 cents, in line with the consensus estimate on the Street but 4 cents below the result during the same period a year ago.

“In our view, Q4/F21 will represent a reversal for same-site fuel volume sales given the loosening of restrictions across the U.S. and certain regions in Canada and the onset of warmer weather across the company’s operating footprint,” he said. “Accordingly, we are forecasting same-site fuel volumes to grow year-over-year in the US, Canada, and Europe by 12.0 per cent, 9.0 per cent, and 10.0 per cent, respectively.

“That said, we expect a continuation of the rack-to-retail fuel margin trend in the U.S. from last quarter with pump price increases lagging behind wholesale price increases and compressing margins for fuel marketers. As such, we expect fuel margins in the US for the quarter of 26.0 cents per gallon (cpg), down from both last year’s record 46.9 cpg and last quarter’s 31.9 cpg. Similarly, we are forecasting fuel margins of 8.5 cents per litre (cpl) in Canada and 9.0 cpl in Europe, both down from the previous quarter at 10.4 cpl and 11.4 cpl, respectively.”

Mr. Dley also said he thinks many investors are “likely nervously waiting” the Montreal-based company’s larger scale M&A target, noting: “Historically, the company has been rewarded with a premium multiple for its ability to acquire and integrate larger c-store acquisitions. However, the rumoured Carrefour acquisition at the beginning of 2021 has put a damper on the acquisition story, in our view. We believe the reaction of the share price when this potential transaction was first reported demonstrated the market’s unfavourable view of Couche-Tard stepping outside of its c-store sandbox into adjacent markets. Until the company addresses its long-term strategy or material c-store assets come up for sale again, we remain cautious about the next large M&A step.:

Pointing to “the challenging earnings backdrop Couche-Tard is facing over the next couple quarters, the cautious M&A thesis, and the fact the share price has bounced back to our target price,” Mr. Dley said he’s moving to the sidelines, moving his rating to “hold” from “buy” with an unchanged $46 target. The average on the Street is $47.79, according to Refintiv data.

Elsewhere, Stifel analyst Martin Landry increased his target by $1 to $43 with a “hold” rating (unchanged).

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“We expect CoucheTard Q4FY21 EPS to decrease by 20 per cent year-over-year,” said Mr. Landry. “The reopening of the U.S. economy should have favorably impacted merchandise same-store-sales and gasoline volumes and as such we have increased our forecasts for these metrics. However, in Canada, lockdown measures have lasted longer than expected and could have negatively impacted traffic.”


Scotia Capital analyst Ben Isaacson warns chemical stocks are not cheap, emphasizing half of his coverage universe is now trading at a premium multiples on 2022 estimated EBITDA.

“This would imply the 2022 outlook reflects either a below-mid-cycle commodity price environment or a year in which demand has not recovered from COVID-19,” he said. “As we think neither of these scenarios reflect a base-case outlook for 2022, it’s hard to get too excited about the sector. This is especially true given the commodity price forecasts over the next 12 to 18 months that generally call for price and margin erosion. Accordingly, most of our recommendations are Sector Perform, with little upside over the near term.”

“Investors should keep in mind why chemical prices/margins have been strong: (1) exceptionally strong Chinese demand; (2) a structural shift in consumer spending patterns that chemical markets were not prepared for; (3) a weaker U.S. dollar; (4) massive global government stimulus programs; (5) vaccine optimism; and (6) supply chain disruptions. While pent-up demand has led to some exuberance in equity markets, let’s remember that temporary supply problems are the real underlying cause for chemical margin strength. It won’t last.”

In his “playbook” for the summer released Monday, Mr. Isaacson cut Chemtrade Logistics Income Fund (CHE.UN-T) to a “underperform” recommendation from “sector perform” with it trading at historical multiple and seeing its dividend “unlikely to recover.”

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“CHE.un is trading at a slight discount, although we think a steeper discount is warranted given demand weakness in EC is structural, plus continued concerns regarding leverage,” he said.

“We remain concerned that strong demand for chlorine could keep caustic soda under pressure; ultrapure and merchant acid volume remain issues.”

He cut his target for Chemtrade units to $7 per share, down from $7.50 and below the $9.06 average.

“Chemtrade is trading at 6.7 times 2022 estimated EBITDA, which is below its historical average of 7.6x forward EBITDA,” he said.

“Normally, we would suggest a company trade at trough-cycle multiples in this environment (i.e., a premium). However, the company’s continued struggle with high leverage warrants a below-average multiple, in our view.”


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Desjardins Securities analyst Benoit Poirier is “encouraged” by the level of demand in the North American transportation industry.

In a mid-year outlook on the sector, he said he expects industrial production will continue to recover as economies across North America continue to reopen from pandemic-related restrictions and seeing inventory replenishment initiatives providing support well into 2022.

“In the past two years, we have maintained our preference for trucking over railroads in light of several events: (1) the pandemic, (2) TFII’s transformative acquisition of UPS Freight, and (3) the bidding war for KCS, to name a few. Initially, our view was based on the significant disconnect between the two segments as well as the long-term value creation opportunities embedded within the TFII story,” said Mr. Poirier.

“TFII has significantly outperformed CN and CP over this period (up 166 per cent vs 6 per cent and 51 per cent for CN and CP, respectively); we have therefore gone back to the drawing board to reassess our investment thesis for the transportation sector.”

Despite its strong run during that period, Mr. Poirier reaffirmed TFI International Inc. (TFII-T) as his “favourite” transportation stock for the remainder of 2021, seeing “numerous value creation opportunities ahead.”

“While we do not see a slowdown in market conditions for the trucking industry anytime soon, we note that TFII has significant opportunities for value creation to compensate for their eventual normalization: (1) successful integration of the transformative UPS Freight acquisition; (2) continued e-commerce growth; (3) opportunistic share buybacks; (4) additional strategic tuck-ins throughout the integration of UPS Freight; and (5) eventual deployment of disruptive technologies to reduce costs,”

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Citing its long-term potential, Mr. Poirier raised his target for TFI shares to $124 from $117 with a “buy” rating. The average on the Street is $110.22.

“In an environment where everything is relatively expensive (at least vs historical averages), we maintain our preference for TFII over the rails given the solid slate of value creation opportunities embedded in the TFII story,” he said. “The fact that these opportunities are not dependent on the sustainability of current market conditions is also a deciding factor for us. For the railroads, we continue to favour CP (Buy rating) over CN (Hold rating) due to the ongoing uncertainty related to voting trust approval for CN. For CP, we believe the company is well-positioned strategically whether or not the transaction between CN and KCS goes through. On the other hand, we prefer to remain on the sidelines for CN while we wait for additional details on the regulatory process to obtain approval for the voting trust. If voting trust approval is not granted, we would be inclined to revisit our investment thesis (with a positive bias) as it would remove the uncertainty and allow management to focus on unlocking growth opportunities as well as potentially closing the OR gap vs other Class l railroads.”

Pointing a “dynamic M&A environment,” he raised his target for Canadian Pacific Railway Ltd. (CP-T) to $110 from $106 ahead of the release of its second-quarter results on July 28, reiterating a “buy” recommendation. The average is $105.71.

“We expect CP to consider its strategic options and look to a potential merger with a US Class l railroad (CSX, NSC as well as BNSF could be potential suitors, in our view) if the STB grants CN voting trust approval,” said Mr. Poirier. “Assuming CP garners the same valuation as that offered by CN for KCS (likely justified by the presence of CEO Keith Creel), we estimate CP could be worth $118–146 per share.”

Conversely, citing “the adverse effect of FX movements and fuel lag,” he trimmed his target for Canadian National Railway Co. (CNR-T) to $143 from $145 with a “hold” rating. The average is $150.60.

“Based on the procedural schedule, we do not believe that the STB’s decision on the voting trust in relation to the KCS transaction will be rendered until late July at the earliest. While management has expressed a high degree of confidence that the voting trust will be approved, the regulator’s recent comments have raised concerns. If the voting trust is not approved, we believe management could either appeal the decision, which would likely delay the potential closing of the transaction, or step away from the merger agreement and focus on its solid pipeline of growth opportunities and potentially closing the OR gap vs its Class l peers,” the analyst said.

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The global environmental consulting market is “poised for growth” as environmental, social, and governance (ESG) considerations take on added importance, according to Canaccord Genuity analyst Yuri Lynk.

“In our view, the consulting engineers under coverage are uniquely positioned to deliver sustainable solutions that are increasingly required to green’ the global economy and infrastructure,” he said. “We view the transition to a low-carbon, circular economy as one of the most compelling mega-trends for investors. As such, we are reiterating our BUY ratings on SNC-Lavalin, Stantec, and WSP Global and increasing our target prices across the board. As consolidators operating in the fragmented, US$200-billion global design market, we see upside potential beyond our published estimates stemming from future acquisitions.”

In a research report released Monday, Mr. Lynk made these target changes:

* SNC-Lavalin Group Inc. (SNC-T, “buy”) to $46 from $44. The average on the Street is $39.

“SNC remains a compelling turnaround story as its exposure to loss-making lump-sum turnkey (LSTK) contracts diminishes with each passing quarter. Our work demonstrates the operating cash flow conversion of EBITDA of SNCL Engineering Services, the future core of the company, is no different than that of its peers. We therefore expect the company’s valuation multiple slowly to close the valuation gap visa-vis its peers,” he said.

* Stantec Inc. (STN-T, “buy”) to $61 from $67. Average: $60.18

“Stantec is seeing strong organic growth in its water practice and Q1/2021 featured double-digit organic growth in its Environmental Services backlog. In our view, Stantec’s valuation is compelling,” he said.

* WSP Global Inc. (WSP-T, “buy”) to $155 from $137. Average: $144.46.

“As an emerging global champion in environmental consulting, WSP is the go-to stock for investors looking for exposure to the sustainability mega-trend,” he said.


Solaris Resources Inc. (SLS-T) is “warranting an extra look,” according to RBC Dominion Securities analyst Alexander Jackson.

He initiated coverage of the Vancouver-based miner with an “outperform” rating on Monday, calling its flagship Warintza project in Ecudador “a top-tier, open-pit, development-stage copper asset given its shallow, high-grade mineralization, close proximity to infrastructure and its meaningful scale with potential for expansion.”

Mr. Jackson sees both the project and company having “strong take-out potential” and expects Solaris shares to “benefit from continued exploration of the highly prospective land package.”

“The project is particularly attractive given the medium- and long-term outlook for copper, and the current state of commodity markets, which has resulted in strong balance sheets and free cash flow generation for miners,” he said. Solaris is well funded with $69-million in cash at the end of Q1/21, which we expect to be adequate to finance exploration and development through to the completion of the preliminary economic assessment (“PEA”) on the Central deposit.”

“The Warintza project has a historical initial resource based on minimal exploration done in 2000 & 2001. The current strategy is to grow the resource at the Central deposit to support a PEA that demonstrates strong economics and meaningful scale of the project, while also generating value through the drill bit with exploration results showing the potential for resource estimates at the Warintza East, Warintza South and Yawi deposits. Solaris is in the exploration and discovery phase of the lifecycle of a mining company, in our view, with the Warintza Project. We expect the shares to re-rate higher as Solaris uncovers the potential of the Warintza land package through further successful exploration drilling and with the delivery of a PEA next year.”

Seeing its shares trading at a discount to similar developing copper projects and producers, he set a Street-high target of $18 per share, exceeding the average of $13.49.


In his weekly update on TSX-listed energy infrastructure companies, iA Capital Markets analyst Elias Foscolos raised his target prices for a group of stocks in response to recent strong price performance, seeing “the kinetic energy” of higher oil prices leading the sector higher.

“With the recent unrelenting surge in the price of WTI and the continued advance of stock returns, particularly in the pipeline and midstream space, we have elected to superimpose our coverage universe’s share price movements relative to movements in oil prices (WTI),” he said. “Prior to March 2020, our Midstream and Pipelines companies seemed to have a modest correlation to movements in WTI. However, since March 2020, a stronger coupling appears to have occurred as the sub-segment’s selloff happened simultaneously with the COVID-19-induced oil price crash, tightening the correlation between the Pipelines and Midstream stocks’ returns and WTI prices.

“Our take is that the rebound in WTI year-to-date, let’s call it sector momentum, has been a major factor in the sector rebound, as we have not materially changed our 2022 outlook.”

Mr. Foscolos’s changes were:

  • AltaGas Ltd. (ALA-T, “buy”) to $27 from $26. The average on the Street is $25.70.
  • Enbridge Inc. (ENB-T, “strong buy”) to $56 from $54. Average: $52.77.
  • Gibson Energy Inc. (GEI-T, “hold”) to $26.50 from $25.50. Average: $24.82.
  • Keyera Corp. (KEY-T, “hold”) to $34 from $33. Average: $32.07.
  • TC Energy Corp. (TRP-T, “strong buy”) to $76 from $74. Average: $70.42.


After analysts at BMO Nesbitt Burns raised their oil price deck assumptions on Monday, Mike Murphy lowered Canacol Energy Ltd. (CNE-T) to “market perform” from an “outperform” recommendation.

“While we still like the company’s long-term business model and growth prospects, we see better value in oil-leveraged peers that have greater near-term free cash flow potential based on our improved outlook for crude,” he said. “As the Colombian economy recovers from the pandemic, we look for a rebound in spot natural gas demand, which has been slow to materialize to date.”

His target remains $4.50. The average is $5.62.


Ahead of the release of its first-quarter 2021 financial results on Thursday, RBC Dominion Securities analyst Paul Treiber thinks a “normalization of investor sentiment” on BlackBerry Ltd. (BB-N, BB-T) is a potential risk for its shares after a “significant” rally since its last earnings release.

The Waterloo, Ont.-based tech firm’s U.S.-listed shares are up 53 per cent since March 30 versus a 5-per-cent increase in the S&P 500. The analyst notes it is now trading at 8.5 times its enterprise value to sales, a 15-per-cent premium to peers (at 7.4 times) and compared to an averaged discount of 32 per cent over the last five years.

“We believe the rally reflects trading dynamics, as opposed to materially improved fundamentals,” said Mr. Treiber. “We anticipate that BlackBerry’s core software business would remain soft. BlackBerry may provide an update on the pending sale of its IP portfolio, though we believe the value is already reflected in the stock.”

For the quarter, he is projecting revenue of US$176-million, down 18 per cent year-over-year but above the consensus estimate on the Street of US$171-million, pointing to lower IP licensing revenue due to the pending sale of its patent portfolio. He’s expected adjusted EBITDA to fall to a loss of US$5-million, versus the consensus of a profit of US$1-million and down from a gain of US$35-million in the fourth quarter.

Mr. Treiber maintained an “underperform” rating and US$7.50 target for BlackBerry shares. The average is currently US$7.75.


Seeing a balanced risk/reward proposition for investors, BMO Nesbitt Burns analyst Étienne Ricard initiated coverage of TMX Group Ltd. (X-T) with a “market perform” rating on Monday.

“TMX Group is executing on strategic priorities since its 2015 realignment, delivering rising revenue growth, operating expense discipline, and declining leverage. However, we believe the valuation re-rating opportunity is limited with: i) absolute valuations near cyclical highs; and ii) limited visibility into revenue growth and return on equity outperformance relative to peers,” he said.

Saying he’ll “monitor for a better valuation entry point,” Mr. Richard set a $150 target, exceeding the average by 14 cents.

“A further meaningful relative re-rating appears unlikely, in our view,” he added. “Without improving visibility into revenue growth and ROE outperformance, we believe the relative valuation of TMX Group’s shares is unlikely to fully close the gap with peers.”


In other analyst actions:

* In response to updated 2021 production guidance for its flagship Candelaria mine in Chile, Scotia Capital analyst Orest Wowkodaw trimmed his target for Lundin Mining Corp. (LUN-T) by $1 to $14, keeping a “sector outperform” rating. The current average is $16.32.

“The guidance cut reflects a more cautious planned mining approach through known fault zones of the open-pit during H2/21,” he said. “The impact to the mine plan in future years is under review. Overall, given the material reduction to our near-term estimates, we view the update as negative for the shares. Moreover, after a very challenging 2020 and a slow start in Q1/21, this update is likely to further compound the current operating overhang on the shares.

“Despite the negative update, we continue to rate LUN shares SO based on a very attractive valuation, a solid balance sheet, and growing near-term Cu-Zn production.”

* After discussions with its management, Acumen Capital analyst Trevor Reynolds raised his target for Black Diamond Group Ltd. (BDI-T) shares to $6.25 from $5 with a “buy” recommendation. The average is $5.25.

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