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

Though its first-quarter 2022 financial results fell in line with the Street’s expectations, CIBC World Markets analyst Todd Coupland sees a “muted” second-half recovery for Blackberry Ltd. (BB-N, BB-T).

Pointing to a delay in a rebound for its QNX operating system and an extended sales cycle for the Spark security offering, he downgraded the Waterloo, Ont.-based firm to “underperformer” from “neutral” on Monday.

“The company’s F2022 revenue outlook is now expected to be at the low end, or even below, prior revenue guidance of $675-million-$715-million for Software and Services. FactSet is at $692-million,” he said. “One important offset is that the probability of a patent portfolio sale occurring is now higher. According to management, negotiations have progressed and reached a point where a definitive agreement is under discussion.

“Despite that, the recent rise in Blackberry’s share price due to WallStreetBets/Reddit interest has pushed it past its fair value given muted growth prospects. We recommend waiting for a more attractive entry point.”

For fiscal 2022, Mr. Coupland is projecting revenue of US$777-million and an earnings per share loss of 17 US cents. Both are below the Street’s expectations (US$795-million and a 13-US-cent loss).

He did raise his target for Blackberry shares to US$11 from US$9. The average on the Street is US$8.36, according to Refinitiv data.

“Our Underperformer thesis is based on: 1) Minimal growth 2) A path to EPS of 40 cents will take time, and 3) The valuation is below peers due to lower growth,” he said.

Elsewhere, TD Securities analyst Daniel Chan cut Blackberry to “reduce” from “hold” with a US$8.50 target.


In response to recent share price depreciation, Credit Suisse analyst Andrew Kuske upgraded Brookfield Renewable Partners LP (BEP-N, BEP.UN-T) to “outperform” from “neutral,” calling it “a best in class developer of long-dated renewable power, an active capital recycler and a savvy purchaser of distressed assets.”

“Brookfield Renewable Partners LP (BEP) delivered lackluster stock market performance with declines of almost 6 per cent over the last month and 13 per cent for the year-to-date,” he said. “In our view, the recent pullback in BEP’s units looks to be largely related to a Russell Index Rebalance that negatively impacted Brookfield Renewable Corporation’s (BEPC) ‘paired’ security value. In our view, BEP is rather uniquely positioned versus many major renewable power stocks with a global platform, a robust and flexible funding model (Brookfield Group related) and a legacy skew towards higher value hydroelectric generation at the core of the asset base.”

Mr. Kuske maintained a US$45 target for its shares, which tops the current average of US$43.28.

“Accelerating the capital allocated to BEP’s development pipeline would likely aid valuation to a greater extent,” the analyst said. “Given Brookfield’s fund model and energy transition funds, BEP is in an enviable position to potentially accelerate growth not embedded in our current financial estimates. This pace of predictable growth is likely to be supplemented by a variety of M&A activities as witnessed in the past. Consistent with our approach across the coverage universe, we do not ascribe value to potential deal flow.”


IA Capital Markets’ Naji Baydoun thinks double-digit growth is “within reach” for Brookfield Infrastructure Partners LP (BIP.UN-T, BIP-N).

In a research report released Monday, the analyst said its mix of organic and M&A-based growth has paid off, despite foreign exchange headwinds. He now sees the positioning of its portfolio and “burgeoning opportunities” providing the potential for further gains.

“We believe that BIP’s (1) established track record of disciplined investments, (2) capital deployment targets, (3) portfolio scale advantages, and (4) capital recycling strategy (i.e., potential for less equity dilution as capital recycling activity ramps up), could lead to an acceleration of FFO/share growth,” said Mr. Baydoun. “We estimate that BIP could potentially deliver double-digit FFO/share growth going forward, supported by (1) 6-9 per cent per year organic growth, (2) ~4-5 per cent per year growth from M&A (net of asset sales and financings, by our calculations), and (3) a minor reversal of previous FX headwinds (1 per cent per year).

“Based on (1) the potential for double-digit cash flow growth (which should underpin BIP’s 5-9 per cent per year dividend growth target), and (2) BIP’s current 4-per-cent yield, we believe that the shares could deliver double-digit annualized total shareholder returns (TSR) over time, potentially towards the high end of the Company’s 12-15-per-cent long-term shareholder return objective.”

Calling it a “standout growth vehicle for long-term shareholders,” Mr. Baydoun raised his target to US$65 from US$60 with a “strong buy” rating (unchanged). The average is US$60.40.

“We view BIP as a unique and diversified way for investors to play the broad long-term infrastructure investment theme, with (1) access to a global, large-scale infrastructure investment platform (ownership interests in more than US$60-billion of assets), (2) defensive cash flows (95 per cent of FFO regulated/contracted), (3) visible and sustainable organic cash flow growth (6-9 per cent per year, CAGR 2020-25), (4) potential upside from accretive M&A, and (5) attractive income characteristics (4-per-cent yield, 60-70-per-cent long-term FFO payout, and a 5-9 per cent per year dividend growth target),” he said.


Ahead of the release of its fourth-quarter financial results on June 29, Desjardins Securities analyst Chris Li raised his financial expectations for Alimentation Couche-Tard Inc. (ATD.B-T), expecting the Quebec-based retailer to see continuing benefits from its growth and efficiency improvement initiatives as well as “solid” industry fundamentals.

Mr. Li does not see the earnings release as a potential catalyst for its shares, however he said investors should be focused on its July 14 Investor Day instead. He’s hoping that event will provide greater clarity on the earnings potential of its organic growth plans.

“For perspective, our FY23 (April 2023) EPS forecast of US$2.20 (largely in line with consensus) implies a 7-per-cent three-year CAGR vs EPS of US$1.80 in the last four quarters before the pandemic,” said Mr. Li. “We believe this may be conservative considering that share buybacks alone would account for 3–4 per cent of the growth, implying only low-single-digit earnings growth. Sentiment could improve if ATD shows a clear path to organic earnings growth. More disclosures on the performance of its EV charging stations in Norway and M&A strategy would also help, but we are not sure how much will be said.”

Increasing his revenue projections for both 2021 and 2022, Mr. Li also bumped up his earnings per share estimates to US$2.35 and US$2, respectively, from US$2.13 and US$1.95 previously.

Maintaining a “buy” rating for Couche-Tard shares, he raised his target to $48 (Canadian) from $45 to fall in line with its current valuation. The current average on the Street is $48.66.

“ATD has recovered to its pre-Carrefour level and now trades largely in line with its five-year average (approximately 17.5 times forward P/E), reflecting solid industry fundamentals, share buybacks (supported by strong FCF and balance sheet) and perhaps investors being a little more comfortable about ATD’s desire to diversify its fuel business by expanding to adjacent channels,” said Mr. Li. “But with ATD lapping strong comps (EPS expected to decline 14 per cent in FY22) and ongoing EV concerns, we see limited room for further multiple expansion unless ATD makes an attractive acquisition or provides a strong organic growth outlook.”


Canaccord Genuity analysts Mark Rothschild and Brendon Abrams sees a return-to-the-office trend beginning to emerge in North America, however they emphasize the presence of “no clear uniformity amongst markets and companies.”

In a research report released Monday, they warn activity levels in major financial centres remain well below pre-pandemic levels, leaving investors in a difficult position.

“While some real estate asset classes have thrived over the past year, and some have obvious signs of recovery, the office sector faces a high degree of uncertainty,” he said. “In particular, the timing and extent to which employees currently working remotely will transition back to physical workplaces are critical to future demand and office market fundamentals.

“Although many Canadian firms have delayed plans to return employees to the office, several large technology and financial services firms have announced return-to-office policies for their U.S. employees. What is clear from these announcements is that the office is here to stay, however post-pandemic office policies will be wide-ranging and specific to their operations and the needs of employees. We note that most executives acknowledge the limitations of a fully remote workforce, including the challenges relating to employee distraction/efficiency, communication with colleagues, and difficulty creating and/or maintaining a corporate culture.”

Seeing office REITS “positioned for stable or improving financial performance over the next few years,” the analysts raised their targets for a trio of equities.

“While we had initially anticipated that the drop in cash flow from office properties due to the pandemic and the negative impact on demand for office space would have a negative impact on office property values, low interest rates, as well as an anticipated recovery, have combined to drive strong interest in acquiring office properties and values have largely held stable,” they said.

Their changes were:

* Allied Properties REIT (AP.UN-T, “buy”) to $47 from $45.50. The average on the Street is $47.33.

“Allied owns a portfolio of unique, well located assets in Toronto/Kitchener, Montreal, Vancouver, and Calgary that are distinct from ‘commodity’ office space and for which tenant demand should be relatively stable,” they said. “Excluding leases signed in Calgary, where rental rates have declined materially over the past few years, Allied achieved leasing spreads of 10.6 per cent in Q1/21. We are encouraged that even in this environment, Allied can achieve positive leasing spreads. We note that management estimates in-place rents are currently, on average, 21.8 per cent and 11.3 per cent below market rent for leases expiring in 2021 and 2022, respectively, which should allow for positive internal growth.”

* Dream Office REIT (D.UN-T, “buy”) to $26.50 from $24.50. Average: $24.63.

“With 85 per cent of its asset value in downtown Toronto, Dream Office REIT is the most heavily exposed REIT to this market,” they said. “As fundamentals in downtown Toronto have softened and it has been challenging to market vacant space due to lockdown measures, occupancy in Dream Office’s portfolio declined 450 basis points year-over-year in Q1/21. However, the REIT’s management team believes the rise in sublease space is less of a concern for demand at its properties, which typically cater to smaller companies, and there should be a gradual recovery in both utilization and leasing activity over the next few quarters. This should support a recovery in parking revenue and occupancy for Dream Office.”

* Slate Office REIT (SOT.UN-T, “buy”) to $6 from $5. Average: $4.85.

“In our view, Slate Office is relatively well positioned to navigate the uncertain outlook facing the office sector given that its portfolio predominantly located in suburban and secondary markets, which may be less sensitive in the near term to disruptions in demand and quicker to recover post-lockdown,” they said. “Slate Office also benefits from a stable tenant base, deriving 60 per cent of base revenue from government or credit rated tenants. In our view, the REIT’s recent leasing activity provides evidence of the stability of the REIT’s portfolio as it signed 264,640 sf of leases in April and May (4 per cent of total GLA) at leasing spreads of, on average, 26.6 per cent.”


Analysts at TD Securities also raised their target prices for a group of real estate investment trusts in their coverage universe on Monday.

Sam Damiani made the following changes:

  • Choice Properties REIT (CHP.UN-T, “hold”) to $15.50 from $15. Average: $14.72.
  • Crombie REIT (CRR.UN-T, “hold”) to $18 from $17. Average: $17.50.
  • CT REIT (CRT.UN-T, “hold”) to $17.50 from $17. Average: $17.39.
  • Dream Office REIT (D.UN-T, “buy”) to $26 from $25. Average: $24.63.
  • First Capital REIT (FCR.UN-T, “action list buy”) to $22 from $21. Average: $19.50.
  • Granite REIT (GRT.UN-T, “buy”) to $94 from $92. Average: $89.40.
  • H&R REIT (HR.UN-T, “buy”) to $18.50 from $17.50. Average: $17.29.
  • Riocan REIT (REI.UN-T, “buy”) to $25 from $24. Average: $21.97.
  • SmartCentres REIT (SRU.UN-T, “hold”) to $30 from $29. Average: $30.36.

Jonathan Kelcher made these changes:

  • Allied Properties REIT (AP.UN-T, “buy”) to $51 from $48. Average: $47.33.
  • Artis REIT (AX.UN-T, “hold”) to $12 from $11. Average: $12.13.
  • Automotive Properties REIT (APR.UN-T, “buy”) to $13.50 from $13. Average: $12.84.
  • Boardwalk REIT (BEI.UN-T, “buy”) to $52 from $50. Average: $44.50.
  • CAP REIT (CAR.UN-T, “action list buy”) to $70 from $67. Average: $61.82.
  • Cominar REIT (CUF.UN-T, “hold”) to $11.50 from $10.50. Average: $10.60.
  • InterRent REIT (IIP.UN-T, “buy”) to $19 from $19. Average: $16.76.
  • Killam Apartment REIT (KMP.UN-T, “buy”) to $24 from $23. Average: $21.42.
  • Minto Apartment REIT (MI.UN-T, “buy”) to $27 from $26. Average: $24.63.
  • Morguard REIT (MRT.UN-T, “hold”) to $7 from $5.50. Average: $5.
  • Slate Office REIT (SOT.UN-T) to $5.50 from $4.75. Average: $4.85.
  • Tricon Residential Inc. (TCN-T, “buy”) to $16.50 from $15.50. Average: $15.53.

Lorne Kalmar’s changes are:

  • Morguard North American Residential REIT (MRG.UN-T, “buy”) to $19.50 from $19. Average: $19.10.
  • Mainstreet Equity Corp. (MEQ-T, “hold”) to $105 from $90. Average: $102.
  • WPT Industrial REIT (WIR.U-T, “buy”) to US$20 from US$19. Average: US$18.45.


Touting its “market leading” position and “attractive” valuation, Acumen Capital analyst Jim Byrne initiated coverage of Hammond Power Solutions Inc. (HPS.A-T) with a “buy” recommendation, seeing the Guelph, Ont.-based manufacturer of dry-type electrical transformers positioned for a “strong future.”

“Hammond’s management estimates their North American market share at 25 per cent in the dry-type transformer sector. Various research reports estimate the dry-type market will see annual growth of 5-9 per cent over the next several years driven by the upgrading of the electrical grid, electric vehicle adoption, increased urbanization, and the increasing use of renewable energy. The company has a growing presence in India, one of the fastest growing electrical markets in the world.

“HPS’ customers are diversified across many sectors including those in the industrial and commercial construction sectors as well as utilities, oil & gas, mining, and public infrastructure. The company also supplies transformers to several original equipment manufacturers (OEMs) that include the largest electrical manufacturing companies in the world.”

Seeing “strong” growth coming over the next several years “as electricity demand, upgrading of infrastructure, EV charging stations, and renewable energy installations all drive demand for transformers,” Mr. Byrne set a target of $12.75 per share.

“In our view, HPS offers investors an attractive investment opportunity in the electrical sector with a long track record of stable growth,” he said. “The company is well positioned for organic growth given the underlying market fundamentals, and we believe strategic acquisitions could act as positive catalysts over the next few years as they look to expand its product portfolio and/or its geographic presence. The shares trade at just 5.3 times 2022 EV/EBITDA and the current dividend yield is 3.3 per cent.”


Desjardins Securities analyst David Newman sees Chemtrade Logistics Income Fund (CHE.UN-T) as “an excellent reopening trade.”

After hosting a non-deal roadshow with the Toronto-based industrial chemicals and services company on June 15, he said he “walked away even more convinced by its strategic plans, with a focus on organic growth and deleveraging.”

“The main focus of our discussions was CHE’s long-term strategy to deliver sustained earnings growth and reward investors, which should be accomplished through: (1) a recovery in its end markets post-COVID-19, with numerous green shoots; (2) organic growth opportunities in ultrapure acid, water treatment and hydrogen; and (3) operational efficiencies (productivity and reliability),” he said. “While CHE has previously outlined its agenda, management provided more details and displayed greater conviction during the roadshow. In addition to the company’s long-term strategy, CHE also discussed its balance sheet expectations and corporate ESG goals.”

Though he trimmed his second-quarter 2021 earnings expectations to reflect the short-term impact of the work stoppage at Vale on its Sulphur Products & Performance Chemicals (SPPC) segment, Mr. Newman maintained a $12 target and “buy” recommendation. The current average is $9.


Stifel analysts Robert Fitzmartyn and Cody Kwong made a trio of rating changes to Canadian energy companies in their coverage universe in response to strong commodity prices.

“There are no overt changes to the market perspective since our last update, though given the current outlook for E&P profitability, supported by a narrative conditioned to limit hydrocarbon growth if not outright shrink output, crude oil and natural gas price futures strip movements look solid and could continue to support the pursuit of returns downmarket into equities exhibiting the most leverage to the shareholder,” they said. “Distribution of excess FCF remains top of mind in the market as the financial outlook for many looks very strong.”

Mr. Fitzmartyn lowered PrairieSky Royalty Ltd. (PSK-T) to “hold” from “buy” with a $17.25 target, up from $15.75 and exceeding the $15.85 average on the Street.

He upgraded Altura Energy Inc. (ATU-X) to “buy” from “hold” with a 30-cent target, up from 25 cents and above the 26-cent average.

Mr. Kwong raised Nuvista Energy Ltd. (NVA-T) to “buy” from “hold” with a $5 target, rising from $3.75. The average is currently $3.28.


In other analyst actions:

* Barclays analyst Trevor Young hiked his Shopify Inc. (SHOP-N, SHOP-T) target to US$1,700 from US$1,340, keeping an “equalweight” rating. The average is US$1,503.66.

* Berenberg analyst Adrien Tamagno raised his Nutrien Ltd. (NTR-N, NTR-T) to US$75 from US$70, exceeding the US$68.69 average, with a “buy” rating, while TD Securities’ Michael Tupholme raised his target to US$72 from US$69 with a “buy” recommendation..

* TD’s Meaghen Annett initiated coverage of Richelieu Hardware Ltd. (RCH-T) with a “hold” rating and $44 target. The average is $43.83.

* TD Securities’ Daryl Young cut his Westshore Terminals Investment Corp. (WTE-T) target to $19 from $21 with a “hold” rating. The average is $21.30.

* RBC Dominion Securities analyst Robert Kwan increased his target for Tidewater Midstream and Infrastructure Ltd. (TWM-T) to $1.75 from $1.25 with an “outperform” rating. The average is $1.37.

* BMO Nesbitt Burns analyst Devin Dodge raised his Russel Metals Corp. (RUS-T) target to $32 from $28 with a “market perform” rating. The average is $34.18.

* National Bank Financial analyst Jaeme Gloyn increased his Brookfield Business Partners LP (BBU-N, BBU.UN-T) to US$60 from US$56, keeping an “outperform” rating. The average is $55.63.

* Wells Fargo analyst Jon Tower bumped up his Restaurant Brands International Inc. (QSR-N, QSR-T) target to US$86 from US$83, topping the US$71.88 average, with an “overweight” rating.

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