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

Seeing stronger-than-expected organic growth opportunities “supported by a robust pipeline of initiatives,” Desjardins Securities analyst Chris Li raised his financial expectations for Alimentation Couche-Tard Inc. (ATD.B-T) following its virtual Investor Day event last week.

“While high valuations remain a challenge to large-sized acquisitions, the focus on organic growth, combined with structurally higher fuel margins and strong capacity for share buybacks, support attractive longer-term EPS growth of more than 10 per cent, in our view,” he said.

On July 14, the Quebec-based retailer unveiled enhancements to growth strategy meant to achieve its 2018 goal of doubling earnings before in interest, taxes, depreciation and amortization to US$6.3-billion by the end of fiscal 2023.

“They include localized pricing, promo and assortment, ‘Fresh Food, Fast’ expansion, fuel initiatives (sourcing, logistics, pricing and product optimization), cost optimization and store network development,” the analyst said. “ATD expects these initiatives to drive incremental EBITDA of US$1,010–1,430-million by FY23 and support an organic EBITDA base of US$5.1-billion in FY23 vs our previous estimate of US$4.7-billion. Since we believe these strategies are credible and based on management’s strong track record of execution, we have increased our estimates to bring them in line with management’s target. If successful, this represents attractive organic EPS growth of 16 per cent in FY23.

“Management believes there is even upside to its US$5.1-billion target. Taking FY19 EBITDA of US$3.9-billion as a base (pre-pandemic) and growing it by 2.5 per cent per year (normal business growth) implies US$4.3-billion in FY23. Adding US$1.0–1.4b of EBITDA from organic growth initiatives would imply EBITDA of US$5.3–5.7-billion. We believe this presents a buffer against industry pressures (ie labour costs, fuel margin volatility, depressed fuel volumes, etc) and gives us confidence in management’s US$5.1b target. ATD has identified 25 organic growth initiatives, for which it has quantified only six that are the most important. As discussed, other initiatives include the Circle K franchise model initiative, age-restricted product initiatives (nicotine, alcohol, lottery and cannabis), benefits from investments in digital and other emerging businesses, and cost savings from HR initiatives such as gamified training, better hiring practices, etc.”

Calling its organic growth outlook “attractive,” Mr. Li raised his earnings per share projections for 2022 and 2023 to US$2.23 and US$2.58, respectively, from US$2.09 and US$2.30.

Keeping a “buy” recommendation, he hiked his target for Couche-Tard shares to $56 from $50. The average on the Street is $54.43.


Credit Suisse’s Manav Gupta thinks Cenovus Energy Inc. (CVE-T) is now transferring value from debt to equity holders, leading him to upgrade its shares to “outperform” from “neutral” on Monday.

In a research report, the equity analyst said the Calgary-based company could be looking to lower its net debt by $800-million to $1-billion in each of the next three quarters. He sees divesture opportunities existing as it looks closely at the assets of Husky Energy Inc. following its acquisition last year.

“We are already seeing CVE improve performance of HSE’s heavy oil assets by lower sustaining capex as well as cutting operating cost,” said Mr. Gupta.

He made the move concurrently with increases to the firm’s WTI and Brent price projections, which rose to US$67 and US$70 per barrel in 2021, respectively, (from US$62 and US$67) and US$66 and US$69 in 2022 (from US$63 and US$68).

“Based on revised estimates, we have the company generating almost 17-18-per-cent FCF yield in 2021 and 2022, which would allow it to de-lever at an accelerated pace,” he said. In

He raised his target for Cenovus shares to $15 from $13, exceeding the $14.91 average.

“CVE is 16 per cent off recent-highs representing a good entry point,” said Mr. Gupta.


At the same time, with the changes to its commodity price deck, Credit Suisse’s William Janela raised his rating for Ovintiv Inc. (OVV-N, OVV-T) to “outperform” from “neutral,” touting a “positive set-up” into 2022.

“Execution on asset sales & supportive commodity prices position OVV to hit its debt reduction targets by 4Q21, clearing the way for it to meaningfully accelerate cash returns to shareholders & giving optionality for modest growth in 2022,” he said. “While shares have outperformed year-to-date, OVV now trades at a wider relative discount on 2022-23 estimated EV/DACF (1.0 times below peers vs. 0.5 times relative discount in January) while offering an above-average FCF/EV yield of 21 per cent (vs. peers 16 per cent), attractive in our view given the step-change improvements to the balance sheet & positive set-up into 2022.”

Mr. Janela hiked his target to US$38 from US$29, exceeding the US$37.12 average.


Though he’s “constructive” on Well Health Technologies Corp. (WELL-T), Scotia Capital analyst Adam Buckham initiated coverage with a “sector perform” rating on Monday.

“At a high level, we believe that WELL offers investors unique exposure to both physical and digital healthcare trends,” he said. “On top of this, with the recent closing of the CRH and MyHealth Partners (MyHealth) purchases, WELL’s financial profile has undergone significant financial transformation in 2021, and we believe that the company is now on a trajectory to generate in excess of $400-million in revenue per year.

“However, although we see this as a positive investment backdrop overall, with shares up 147 per cent over the last 12 months, it seems clear that at least a portion of the current upside has already been reflected in the share price. Thus, at this time, while we are positive on the story, we await evidence of further catalysts before reassessing our view.”

Mr. Buckham emphasized the Vancouver-based company provides investors with “exposure to several important tailwinds within the healthcare industry.”

“One of the most attractive parts of the WELL story, in our opinion, is its exposure to what we believe are disruptive and long-term trends within the healthcare market,” he said. “The most prevalent of these is the digitalization of both front-end and back-end solutions within the healthcare continuum. However, unlike many other public virtual-care providers, we believe that WELL’s physical presence offers investors exposure to two additional catalysts: (1) a likely shift in case volumes back to physical clinics with the easing of the pandemic and (2) increased use of diagnostic and speciality services for illnesses, screenings, and procedures that were delayed due to COVID-19 concerns or lockdowns. We expect these tailwinds to drive WELL’s revenues to $500-million by 2024.”

The analyst set a $10 target. The average is $11.92.


A group of analysts on the Street initiated coverage of Pet Valu Holdings Ltd. (PET-T) after coming off research restriction following the Markham, Ont.-based pet food retailer’s late June initial public offering.

RBC Dominion Securities’ Irene Nattel gave its shares a “sector perform” rating, seeing its “visible opportunity appropriately priced in at current levels.”

“We are highly constructive on the story and characterize Pet Valu as a compelling SMID-cap, defensive consumer retail idea underpinned by sector-leading top-line growth outlook, resilient industry backdrop, and an attractive franchise component that drives strong and sustainable free cash flow conversion and capitalreturn metrics,” she said. “Our Sector Perform rating reflects 35-per-cent share price appreciation since the June 24 IPO and current valuation that, in our view, appropriately factors in the near-term growth outlook.”

Ms. Nattel thinks Pet Valu’s franchise model and “realistic” catalysts “should underpin sustainable, sector-leading valuation with torque.”

“Valuation has solid underpinnings and bias to the upside in our view, with a rising penetration of franchise stores driving higher free cash flow conversion and capital return metrics,” she said. “As leverage moderates from 3.3 times over the next 12–18 months, returns to equity holders will naturally increase. In addition, we see further opportunity for deployment of free cash flow to enhance shareholder value, including: i) higher payout to drive dividend yield from 0.2 per cent currently toward the staples average in the range of 1.5 per cent; and/or ii) the introduction of an NCIB; and iii) longer-term, M&A optionality. Our model currently incorporates the adoption of an NCIB in mid-2023. ROIC in the range of 30 per cent, and rising, similarly supports valuation.”

She set a 12-month target of $29 per share, above its Friday close of $27.39.

Elsewhere, CIBC World Markets’ Mark Petrie initiated coverage with an “outperformer” rating and $32 target.

“We believe Pet Valu offers attractive growth potential underpinned by a healthy industry, a differentiated value proposition, significant network growth potential and the upside of modernization in its operations. Valuation is rich, but we expect PET to deliver consistent growth over time, and equity holders to benefit from material deleveraging,” he said.


In a research report titled Expecting New Business Wins in Digital Transformation, Scotia Capital analyst Paul Steep said he expects CGI Inc.’s (GIB.A-T) third-quarter financial results, scheduled for a July 28 release, to “reflect gradual improvements related to business reopening and increased vaccination efforts across various regions.”

“Our expectation is that CGI will continue to manage through a volatile demand environment as its clients shift priorities between near-term and longer-term IT projects. In our view, CGI remains positioned to execute well despite end-market volatility, generating strong FCF to invest in its business as well as providing returns to shareholders through capital deployment,” he said.

Mr. Steep thinks the Montreal-based information technology consulting and systems integration company will continue to see the benefits of digital transformation and modernization projects, pointing to bothrecent industry trends and customer wins.

“For example, over the past quarter, CGI has announced a number of notable wins, including: extending its five-year contract with Shell to modernize the firm’s Fleet Solutions business; upgrading a state-wide ERP system for the State of Michigan; and a new IT modernization and business transportation project for Nexelis,” he said. “Our focus in the coming quarters will be on CGI’s execution against its efforts to increase IP-driven revenues toward 30 per cent, up from 21-22 per cent currently, in support of customers’ key initiatives.

The analyst hiked his target by $10 to $124, keeping a “sector outperform” rating. The average is $118.07.


Equity analysts at National Bank Financial raised their target prices for a series of TSX-listed real estate investment trusts on Monday.

Matt Kornack made these changes:

  • Allied Properties REIT (AP.UN-T, “outperform”) to $49.25 from $44.50. The average on the Street is $47.73.
  • Artis REIT (AX.UN-T, “sector perform”) to $12.25 from $11.50. Average: $12.22.
  • Boardwalk REIT (BEI.UN-T, “outperform”) to $51.50 from $46.50. Average: $45.93.
  • BSR REIT (HOM.U-T, “outperform”) to $15 from $14. Average: $13.77.
  • CAP REIT (CAR.UN-T, “outperform”) to $68.50 from $65.50. Average: $62.24.
  • Dream Industrial REIT (DIR.UN-T, “outperform”) to $17 from $15.50. Average: $16.06.
  • European Residential REIT (ERE.UN-T, “outperform”) to $5.20 from $5.25. Average: $5.09.
  • Granite REIT (GRT.UN-T, “outperform”) to $94 from $90. Average: $89.60.
  • H&R REIT (HR.UN-T, “outperform”) to $19 from $18. Average: $17.57.
  • InterRent REIT (IIP.UN-T, “outperform”) to $20 from $17.50. Average: $17.51.
  • Killam Apartment REIT (KMP.UN-T, “outperform”) to $23.75 from $22. Average: $21.56.
  • Minto Apartment REIT (MI.UN-T, “sector perform”) to $26.25 from $23. Average: $24.95.
  • Slate Office REIT (SOT.UN-T, “sector perform”) to $5.50 from $4.50. Average: $5.02.
  • Summit Industrial REIT (SMU.UN-T, “outperform”) to $21 from $18. Average: $18.52.
  • True North Commercial REIT (TNT.UN-T, “sector perform”) to $7.50 from $7.25. Average: $7.20.
  • WPT Industrial REIT (WIR.UN-T, “outperform”) to $20 from $19. Average: $18.55.

Tal Woolley made the following changes:

  • Automotive Properties REIT (APR.UN-T, “outperform”) to $13.50 from $13. Average: $12.89.
  • Choice Properties REIT (CHP.UN-T, “sector perform”) to $15 from $14.50. Average: $14.78.
  • Crombie REIT (CRR.UN-T, “outperform”) to $19.50 from $18.50. Average: $17.75.
  • Extendicare Inc. (EXE-T, “sector perform”) to $9 from $8.50. Average: $8.50.
  • First Capital REIT (FCR.UN-T, “sector perform”) to $19.50 from $18.50. Average: $19.67.
  • Invesque Inc. (IVQ.U-T, “sector perform”) to $2.75 from $3. Average: $2.85.
  • RioCan REIT (REI.UN-T, “outperform”) to $25 from $23. Average: $22.34.
  • Sienna Senior Living Inc. (SIA-T, “outperform”) to $17.50 from $16.50. Average: $15.88.
  • SmartCentres REIT (SRU.UN-T, “sector perform”) to $31 from $30. Average: $30.50.


National Bank Financial’s Travis Wood made changes to his targets for a group of big-name TSX-listed energy companies on Monday.

They include:

  • Arc Resources Ltd. (ARX-T, “outperform”) to $13.50 from $15. Average: $14.
  • Canadian Natural Resources Ltd. (CNQ-T, “outperform”) to $63 from $66. Average: $52.69.
  • Cenovus Energy Inc. (CVE-T, “outperform”) to $20 from $19.50. Average: $14.91.
  • Freehold Royalties Ltd. (FRU-T, “outperform”) to $12 from $11.50. Average: $11.88.
  • MEG Energy Corp. (MEG-T, “sector perform”) to $15 from $13.50. Average: $10.98.
  • Suncor Energy Inc. (SU-T, “sector perform”) to $41 from $42. Average: $36.59.
  • Whitecap Resources Inc. (WCP-T, “outperform”) to $9.50 from $10. Average: $8.72.


In other analyst actions:

* In a second-quarter earnings preview, Credit Suisse analyst Fahad Tariq trimmed his target for Hudbay Minerals Inc. (HBM-T) by $1 to $13 with an “outperform” rating. The average is $13.52.

“For the two copper companies we cover – Hudbay and Lundin Mining – the major Q2 themes are (i) a revenue lift from sales that were deferred from Q1 to Q2; (ii) idiosyncratic operational issues: a four-day suspension of operations at Hudbay’s Lalor mine following a fatal incident, updated production guidance at Lundin’s Candelaria mine following a revision to Phase 10 sequencing (updated 2021 cost guidance and colour on medium-term guidance is expected in the Q2 release); and (iii) the political situation in South America (Peru for Hudbay and Chile for Lundin) and what that could mean for taxes going forward,” he said.

* Seeing its acquisition of Denmark-based IVFTECH ApS and its affiliated reseller arm K4 Technology ApS as a “complementary addition,” Canaccord Genuity analyst Tania Gonsalves raised her target for Hamilton Thorne Ltd. (HTL-X) to $2.75 from $2.40 with a “buy” rating. The average is $2.48.

* To reflect the strength in steel prices, Stifel analyst Anoop Prihar raised his target for Stelco Holdings Inc. (STLC-T) to $53 from $48 with a “buy” recommendation. The average is $48.11.

* Following the restart of construction on its Geismar 3 project, Scotia Capital analyst Ben Isaacson raised his Methanex Corp. (MEOH-Q, MX-T) target to US$40 from US$37, maintaining a “sector perform” rating, while TD Securities analyst Cherilyn Radbourne bumped up her target to US$54 from US$51 with a “buy” rating. The average on the Street is US$43.83.

“While G3 had been a controversial project with investors in recent years, there are several reasons why the restart of G3 construction is a net positive for the stock: (1) whether or not we agree with Methanex’s S/D assessment, one thing is clear: the cost curve has steepened dramatically on the back of near-record thermal coal and LNG prices in China + gas in Europe; (2) G3 will materially strengthen the overall reliability of Methanex’s asset portfolio, which had been in decline over the past 18 months; and (3) G3 will boost Methanex’s global methanol market share and sphere of influence, and as a result, potentially allow Methanex’s realized discount to its contract prices to improve over time,” said Mr. Isaacson.

* BMO Nesbitt Burns analyst Devin Dodger raised his target for WSP Global Inc. (WSP-T) to $145 from $138 with a “market perform” rating. The average is $146.86.

“The demand recovery is gaining traction across most of its markets and the recent addition of Golder should provide cross-selling opportunities. However, WSP’s multiple premium vs. peers is currently at/near record levels and there is downside risk to valuation if M&A opportunities are slow to materialize,” he said.

* In a quarterly earnings preview, Scotia Capital’s Orest Wowkodaw raised his Teck Resources Ltd. (TECK.B-T) target by $1 to $36, keeping a “sector outperform” rating. The average is $33.53.

“We anticipate the market to focus on any updates to Teck’s 2021 guidance, Teck’s coking coal market outlook, a project progress update for QB2, the ramp-up at the Neptune terminal expansion, and any updates to the water management plan in the Elk Valley,” he said. “In our view, the outlook for QB2 will remain in heightened focus this quarter given ongoing COVID restrictions in Chile. The company may be forced to further reduce its 2021 coal sales guidance due to ongoing rail constraints related to recent wildfires in BC. Moreover, we would not be surprised to see slightly higher cost and capex guidance across

the portfolio.”

* Cowen and Co. analyst Vivien Azer cut her target for Canopy Growth Corp. (WEED-T) to $33 from $39, keeping an “outperform” recommendation. The average is $31.97.

* National Bank Financial analyst Vishal Shreedhar raised his target for Loblaw Companies Ltd. (L-T) to $84 from $77 with an “outperform” rating. The average is $80.

* JP Morgan analyst John Royall cut his Parkland Corp. (PKI-T) target by $1 to $51 with an “overweight” recommendation. The average on the Street is $49.54.

* JP Morgan’s Richard Sunderland raised his Fortis Inc. (FTS-T) target to $58 from $57, keeping a “neutral” rating. The average is $58.97.

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