Inside the Market’s roundup of some of today’s key analyst actions
In response to a “fairly uninspired” first quarter to its fiscal 2022, Canaccord Genuity analyst Matt Bottomley reduced his revenue estimates and increased his near-term cash burn expectations for Canopy Growth Corp. (WEED-T).
Before the bell on Friday, the Smiths Falls, Ont., cannabis company reported total revenues of $136.2-million, down 8.2 per cent from the previous quarter and below Mr. Bottomley’s $148.2-million forecast. Though adult-use sales also fell narrowly below his expectations, the analysts attributed the miss largely to a 27-per-cent sequential drop in international sales.
With the results, Mr. Bottomley cut his full-year revenue estimate to $690.7-million from $817.7-million. His adjusted EBITDA projection slid to a loss of $140-million from a $117.9-million deficit.
Keeping a “hold” rating, he reduced his target to $25 from $30. The average on the Street is $28.96.
Other analysts making adjustments include:
* CIBC’s John Zamparo to $27 from $30 with a “neutral” rating.
“WEED’s latest top-line result makes the path to profitability more difficult, in our view, and we do not project positive EBITDA until FQ2/23. The more important takeaway from FQ1 was the disclosure that Canopy will actively seek incremental U.S. THC investments even in advance of regulatory reform (likely using a TerrAscend-style structure). We expect Canopy to use its $2-billion cash pile to target brands rather than just multi-state operators, but we note increasing competition for those assets,” said Mr. Zamparo.
* Stifel’s W. Andrew Carter to $18 from $21 with a “sell” rating.
“Despite the performance, the company reiterated a commitment to achieving positive EBITDA in 2H22 while affirming the 40-per-cent to 50-per-cent CAGR medium-term revenue growth target,” said Mr. Carter. “We believe plans predicated on swiftly and profitably improving the Canadian business’ performance are extremely aggressive and unachievable within the context of the structurally difficult market and with the company’s execution inconsistent. We are surprised the shares outperformed Friday furthering the stock’s premium valuation. Fundamentals lag industry peers, and our outlook suggests continued downside for the shares with our estimates meaningfully trailing management’s expectations with significant cash needs eroding Canopy’s capital advantage for capitalizing on future opportunities.”
* Piper Sandler’s Michael Lavery to US$19 from US$24 with a “neutral” rating.
“Canopy remains committed to positive EBITDA by the end of F22, though this depends on reaching a level of sales we consider very difficult to achieve, and it requires reversing mix shifts, successfully launching new innovation, and improving on execution. It also likely requires outsized gains in its US CBD and BioSteel businesses, which may prove challenging, but also could raise the non-marijuana piece of the company to 45 per cent of sales if it successfully builds these out,” said Mr. Lavery.
Pembina Pipeline Corp. (PPL-T) is “well-positioned to benefit from growing gas and liquids volumes,” according to RBC Dominion Securities analyst Robert Kwan, expressing “higher confidence” in its base business and growth outlook after an increase to its guidance.
“Whether it be uncontracted capacity or within its contract structures that blend minimum take-or-pay levels with fee-for-service upside as volumes grow, we expect Pembina to benefit from growing gas and liquids volumes in the Western Canada Sedimentary Basin (WCSB), particularly with its assets levered to the Montney, Duvernay and Deep Basin,” said Mr. Kwan. “Further, we expect growing volumes to result in contracted infrastructure opportunities, evidenced by the re-activation of the Phase IX expansion, some of which could be announced by the end of 2021.”
With the release of its quarterly results on Thursday, Calgary-based Pembina raised the low end of its 2021 adjusted EBITDA guidance to a range of $3.3-billion to $3.4-billion (from $3.2-$3.4-billion) due, in large part, to the impact of stronger commodity prices.
“We believe that the new guidance range has a measure of conservatism built into it,” the analyst said. “While we think some investors may have been disappointed in the specifics of the revision to guidance (i.e., we think some investors were looking for a shift higher for both the top and bottom ends of the range), management commented that it is still relatively early in the year, and we believe it has left the door open for a subsequent upward revision to guidance.
“We remain near the top-end of the guidance range. With the effective increase in guidance for 2021 giving us a greater degree of confidence in our forecast, our unchanged 2021 EBITDA estimate of $3.392-billion sits near the top-end of Pembina’s guidance range.”
Mr. Kwan also sees an improving outlook for 2022 and beyond, citing “encouraging commentary on producer activity” and the reactivation of its Peace Phase IX project.
Keeping an “outperform” rating for Pembina shares, he bumped up his target to $48 from $42. The average on the Street is $41.81.
“Following the end of the IPL saga, we maintain our midstream thesis favouring stocks, such as Pembina, that we believe are well positioned to benefit from growing WCSB gas and liquids volumes, both from filling spare capacity as well as underpinning new contracted infrastructure,” he said. “Further, while we believe some in the market were hoping for an increase in the entire guidance range, we think that Pembina continues to position its guidance conservatively with a reasonable chance that actual results will be at, or through, the high-end of the range.”
Desjardins Securities analyst Doug Young thinks “the passing of the torch” could occur during the upcoming third-quarter earnings season for Canadian banks amid “moderating” capital markets activity and “stronger” Canadian P&C growth.
“While we believe the banks could still beat cash EPS expectations off higher performing loan ACL releases, investors appear to have priced in a benign credit environment and are likely looking for a more concrete sign of economic recovery via loan growth, as shown in U.S. bank reporting,” he said.
In a research report released Monday, Mr. Young raised his estimates for the Big 6 banks, pointing to the impact of “the accelerated vaccine progress in Canada, higher releases in performing loan ACLs and a slight rebound in NIMs in the second half of fiscal 2022.”
He’s now forecasting a 43-per-cent year-over-year increase in cash earnings per share on average for the Big 6, noting: “Last year, the banks built significant performing loan ACLs, while we expect releases in performing loan ACLs this quarter. Given the degree of discretion in releasing ACLs under IFRS 9, we expect estimates to run wide; our focus remains on pre-tax, pre-provision (PTPP) earnings, which we discuss next. However, with all of the banks guiding toward further performing loan ACL releases, the banks may have a harder time beating expectations purely on the back of lower PCLs.”
Remaining overweight on Canadian banks, Mr. Young made a pair of target changes:
- Canadian Imperial Bank of Commerce (CM-T, “hold”) to $150 from $145. The average on the Street is $152.15.
- Bank of Montreal (BMO-T, “hold”) to $133 from $128. Average: $133.67.
His pecking order for the sector remains unchanged. In order, it is: Toronto-Dominion Bank (TD-T), Bank of Nova Scotia (BNS-T), Canadian Western Bank (CWB-T), Royal Bank of Canada (RY-T), National Bank of Canada (NA-T), Canadian Imperial Bank of Canada (CM-T), Bank of Montreal (BMO-T) and Laurentian Bank of Canada (LB-T).
“The stocks underperformed in FY20 on the back of the unprecedented economic situation caused by COVID-19; however, they recovered nicely in FY21 from better-than-anticipated credit results and an improved economic outlook,” he said. “With the accelerated vaccine progress in Canada and the economic reopening well underway, we believe the setup is good for the banks over the next year. That said, there are some near-term headwinds such as normalizing capital markets activity and a cooling housing market which may not be offset by stubbornly low card and loan balances. In addition, it’ll be a tough year-overyear comp for FY22 cash EPS, given FY21 cash EPS was inflated by significant performing loan ACL releases. And while COVID-19 cases are trending in the right direction in Canada, additional fears with regard to the Delta variant and rising cases globally could put a damper on global growth.”
Desjardins Securities analyst Benoit Poirier is “very pleased” with Uni-Select Inc.’s (UNS-T) second-quarter financial results, which he thinks “demonstrated the early potential of the business under the new management team” and reinforced his bullish stance.
On Friday before the bell, the Quebec-based distributor of automotive refinish and industrial paint and related products reported adjusted earnings before interest, taxes, depreciation and amortization of US$34.1-million, exceeding both Mr. Poirier’s US$29.1-million forecast and the consensus estimate on the Street of US$29.8-million. Adjusted earnings per share of 21 US cents also topped projections (10 US cents and 13 US cents, respectively).
“We are encouraged by management’s comments on the opportunities for further operational improvement and growth,” the analyst said. “With the balance sheet now at a more manageable level, management should have the flexibility to execute its turnaround plan.”
“While there are still some uncertainties due to the pandemic and ongoing supply chain issues, management remains cautiously optimistic about the prospects of the business for 2021 and beyond. In the near term, management will be focused on rebuilding the executive leadership team. Management alluded to internal opportunities to better manage all three segments through operational excellence. Finally, management intends to strategically implement targeted growth initiatives. We expect to hear more about these three strategic priorities throughout 3Q. While management highlighted that M&A opportunities exist across all three segments, it does not intend to be active in the near term considering the size of the internal opportunities mentioned above.”
After “another solid quarter of working capital management,” Mr. Poirier raised his earnings expectations for 2021 and 2022, leading him to hike his target for Uni-Select shares to $22 from $19. The average on the Street is $19.40.
“We recommend investors revisit the story and buy the shares ahead of the disclosure of further details on the long-term strategy,” he said.
Elsewhere, others making target changes include:
* BMO’s Jonathan Lamers to $20 from $17 with an “outperform” rating.
“We believe there is meaningful upside to earnings and the valuation has room to expand if debt is reduced paired with a new growth strategy,” said Mr. Lamers.
* National Bank’s Zachary Evershed to $20 from $17 with an “outperform” rating.
* TD Securities’ Daryl Young to $21 from $18 with a “buy” rating.
Emphasizing the potential synergies from its recent $320-million acquisition of LendCare Holdings Inc., BMO Nesbitt Burns analyst Étienne Ricard thinks Goeasy Ltd.’s (GSY-T) potential for 20-per-cent-plus annual earnings gwroth “becoming increasingly clear.”
“The integration of LendCare is progressing as planned with management focused on: i) the progressive consolidation of the two point-of-sale platforms, positioning LendCare favourably to underwrite borrowers deeper in the non-prime space; and ii) capturing cross-selling opportunities across the combined company borrower base,” he said. “Point-of-sale lending (Q2/21: 34 per cent of new customers; Q2/20: 23 per cent) is attractive in the sense it serves as a customer-acquisition channel to convert borrowers to other loan products, with goeasy having historically experienced a 30-per-cent cross-selling rate. In addition, the ‘vast majority’ of LendCare’s originations are currently extended to new customers (vs. 60-per-cent for GSY pre-acquisition), providing opportunities to strengthen customer lifetime value.”
Also seeing origination tailwinds from the reopening of the economy and “sufficient” access to capital for further growth, Mr. Ricard raised his target for Goeasy shares to $207 from $166 with an “outperform” rating. The average is $195.83.
“The backdrop for goeasy’s shares remains favourable, in our view, underpinned by accelerating portfolio growth, record funding capacity, and low credit losses relative to history,” he said.
“We do recognize the stock’s valuation has significantly expanded in recent quarters (16 times earnings; late 2020: 12 times). That being said, we believe the stock warrants a valuation at the higher end of its history given management’s track record, credit losses resiliency, strategic merits of the LendCare acquisition, funding diversification, and relative value consideration.”
Elsewhere, Desjardins Securities analyst Gary Ho increased his target to $190 from $178 with a “buy” recommendation.
“Our investment thesis is predicated on: (1) The on-strategy LC acquisition should bolster GSY’s growth profile, including meaningful revenue and cost synergies; (2) management has shifted its focus toward offence, suggesting growth through organic initiatives and more M&A potential; (3) GSY has been able to successfully weather the pandemic; and (4) the business has consistently generated a mid-20-per-cent ROE,” he said.
After being handed a further delay for the approval of its treosulfan drug, Canaccord Genuity analyst Tania Gonsalves lowered her rating for Medexus Pharmaceuticals Inc. (MDP-T) to “speculative buy” from “buy.”
Last week, the U.S. Food and Drug Administration handed the Toronto-based company a complete response (CRL) letter indicating it cannot approve the application for treosulfan, which is a conditioning agent used prior to allogeneic hematopoietic stem cell transplantation.
“We have delayed our launch timeline by six months from October 2021 to April 2022,” said Ms. Gonsalves. “We continue to model sales peaking at US$186.1-million, however, this now occurs in F2027, six months later than originally forecast. We have also delayed the expiration of orphan drug exclusivity by six months to April 2029 (clock starts upon approval). Although MDP has already hired some individuals in preparation of the expected FDA approval this month, it has not started building out its salesforce yet. It will re-purpose the already onboarded personnel toward IXINITY in the interim and wait until closer to estimated new approval date to hire a treosulfan sales team. To date, MDP has made over $10.0-million worth of payments to medac for the US rights to treosulfan; however, is not liable for another milestone payment until it receives FDA approval.”
After updating her financial projections due to the delay, she also lowered her target for Medexus shares to $6 from $9. The average is $10.
“Treosulfan’s primary advantage over busulfan, the market-leading alkylating agent for allo-HSCT, is its much cleaner safety profile,” she added. “This is beneficial to vulnerable patient groups like the elderly, pediatric patients and individuals with major comorbidities. In fact, several KOLs have voiced their displeasure with the FDA’s decision given the number of patients waiting for treosulfan to become available. Seeing as no regulatory agency to date has denied treosulfan, management remains confident that it will ultimately receive approval, albeit on a delayed schedule. We agree with management that the odds of treosulfan winning approval are in MDP’s favour.”
In other analyst actions:
* TD Securities analyst Graham Ryding upgraded Sprott Inc. (SII-T) to “buy” from “hold” and raised his target to $57 from $54, exceeding the $53.82 average.
* Raymond James analyst Bryan Fast raised his Wajax Corp. (WJX-T) target to $26 from $21 with a “market perform” rating. Others making changes include: TD’s Michael Tupholme to $30 from $26 with a “buy” rating; BMO’s Devin Dodge to $26 from $24 with a “market perform” rating and Scotia Capital’s Michael Doumet to $31 from $28 with a “sector outperform.” The average is $28.25.
“We have sat on the sidelines of the Wajax story with a Market Perform, and have admittedly missed out on one of the best performing stocks in our coverage,” said Mr. Fast. “Wajax is up nearly 400 per cent since the pandemic lows (vs. the TSX up 82 per cent). Shareholders have been rewarded as the company executes on their strategy (expand the Parts/ERS verticals), and benefits from the recovery equipment markets. We expect Wajax to continue down the path of expanding the Parts/ERS verticals, which benefit from lower working capital needs and less cyclicality. That said, Wajax is hitting valuation thresholds and trading at above the 15-yr average P/E multiple.”
* Stifel analyst Maggie MacDougall lowered her Badger Infrastructure Solutions Ltd. (BDGI-T) target to $34.50 from $46.50 with a “hold” rating. Others making changes include: TD Securities’ Daryl Young to $35 from $37 with a “hold” rating; BMO’s Jonathan Lamers to $42 from $44 with an “outperform” rating and Canaccord’s Yuri Lynk to $35 from $38 with a “hold” recommendation.
“Non-residential construction has continued to decline, and while Badger continues to see gradual improvement in demand, management is focused on matching costs to revenue to bring margins back to historical levels. Longer term, we continue to believe that a cyclical recovery in infrastructure spending and rising demand for non-destructive excavation should drive improving results in 2022 and beyond,” said Ms. MacDougall.
* Calling it “an underappreciated growth story, trading at a compelling valuation,” CIBC World Markets analyst Kevin Chiang raised his Parkland Corp. (PKI-T) target to $51 from $49, above the $49.77 average, with an “outperformer” rating. Others making changes include: RBC’s Luke Davis to $49 from $48 with an “outperform” rating; National Bank Financial’s Vishal Shreedhar to $47 from $45 with an “outperform” rating; BMO’s Peter Sklar to $49 from $50 with an “outperform” rating and TD Securities’ Michael Aelst to $53 from $51 with a “buy” rating.
“PKI’s Q2 results and upward revised outlook for 2021 highlight that the company’s earnings are proving to be resilient despite the impact of the pandemic on fuel demand. While the $50-million increase in PKI’s 2021 EBITDA guidance may be perceived as underwhelming given the Q2 beat, we would argue the company is being conservative in its outlook. We recognize the pandemic remains a fluid situation, especially with the spread of the Delta variant, but we remain optimistic on the broad re-opening tailwinds that should benefit PKI as we look out into H2 and beyond,” said Mr. Chiang.
* BMO Nesbitt Burns’ Stephen MacLeod raised his target for CCL Industries Inc. (CCL.B-T) target to $83 from $79 with an “outperform” rating. Others making target changes include: Raymond James’ Michael Glen to $81 from $79 with an “outperform” rating; TD Securities’ Daryl Young to $83 from $77 with a “buy” rating and Cormark’s David McFadgen to $80 from $79 with a “buy” rating. The average is $79.67.
“CL reported a solid Q2 beat, highlighted by mid-teens organic growth in CCL, ongoing recovery in Checkpoint and Avery, and strong EBIT growth at Innovia. The outlook is, on balance, positive, with all businesses performing well, but H2/21 comps become more challenging and F/X is a headwind (5 cents H2 EPS impact). CCL’s performance through the pandemic has highlighted its resilience, and the company is well-positioned to participate in recovery across all its segments. We view CCL as a best-in-class packaging company,” said Mr. MacLeod.
* CIBC’s Nik Priebe increased his target for Power Corporation of Canada (POW-T) to $47 from $44, exceeding the $44.25 average, with an “outperformer” rating, while National Bank Financial’s Jaeme Gloyn raised his target to $45 from $41 with a “sector perform” rating and RBC’s Geoffrey Kwan moved his target to $45 from $44 also with a “sector perform” recommendation.
“POW continues to do a good job simplifying the structure, surfacing value and making acquisitions to increase scale as evidenced by the shares being up 42 per cent this year, in part driven by the discount to NAV narrowing from 30.5 per cent to 22.0 per cent. We view the shares as appropriate for investors looking for a stock with increasingly positive fundamentals, attractive dividend yield (4.3 per cent) and potential catalysts (e.g., we believe POW is likely to pursue other transactions that simplify the structure and/or surface value, although the timing is difficult to predict),” said Mr. Kwan.
* RBC Dominion Securities analyst Alexander Jackson raised his Russel Metals Inc. (RUS-T) to $41 from $39, maintaining an “outperform” rating, while TD Securities’ Michael Tupholme increased his target by $1 to $40 with a “buy” recommendation. The average is $37.57.
“We continue to like Russel for its strong leverage to the North American steel market and its improving margin profile through the reallocation of capital and resources to its Metals Service Center segment. We have revised our model following Q2 results, as Russel is capitalizing in the current market environment and performed better than expected. We increased our margins and volumes for the back half of 2021 which increased our price target,” said Mr. Jackson.
* RBC’s Walter Spracklin reduced his Street-high target for shares of Westshore Terminals Investment Corp. (WTE-T) to $41 from $44 with an “outperform” rating, while TD Securities’ Daryl Young raised his target by $1 to $23 with a “hold” rating. The average is $25.
“We consider quarterly earnings a non-event at this point, with so much of WTE’s long-term value contingent on other factors, namely: 1) Teck’s demand for capacity (a function of Neptune’s effective true capacity; 2) final investment decision on Jansen; and 3) new long-term customer wins. We have a positive view on all three, which we highlight is an outright contrarian view. Our target is double the consensus target on WTE and we are the only buy on the name — reflective of the non-consensus nature of our view. Westshore represents our #1 best idea in our coverage universe today,” said Mr. Spracklin.
* RBC’s Sabahat Khan raised his Recipe Unlimited Corp. (RECP-T) target to $22 from $20 with a “sector perform” rating, while CIBC’s John Zamparo increased his target to $23 from $22 with a “neutral” recommendation. The average is $25.
“Q2 aside, we expect that Recipe is on the path to recovery. We forecast 2022 results to be very close to 2019 with restaurant system sales just 1 per cent below, EBITDA 2 per cent below, and FCF 5 per cent above. We feel this is priced into the stock, however, and investor focus will revert back to what it was prepandemic. This means questions about unit growth, further digital evolution, the capital return program, and other possible brand portfolio changes. Ultimate Kitchens hold real promise but we believe must grow much faster,” said Mr. Zamparo.
* JP Morgan analyst Patrick Jones cut his Lundin Mining Corp. (LUN-T) target to $11.90 from $13.90 with an “overweight” rating. The average is $14.60.
* Mr. Jones also lowered his First Quantum Minerals Ltd. (FM-T) target to $27 from $28 with an “underweight” rating. The average is $34.
* Canaccord Genuity analyst Matt Bottomley cut his target for Cronos Group Inc. (CRON-T) to $7 from $7.50 with a “sell” rating. The average is $9.25.
* National Bank’s Richard Tse increased his Constellation Software Inc. (CSU-T) target to $2,100 from $1,900 with a “sector perform” rating. The average is $2,186.90.
* National Bank’s Rupert Merer cut his Ballard Power Systems Inc. (BLDP-Q, BLDP-T) target to US$26 from US$27 with an “outperform” rating, while BMO’s Jonathan Lamers lowered his target to $20 from $23 also with an “outperform” rating. The average is US$24.69.
* TD Securities analyst Brian Morrison lowered his Magna International Inc. (MGA-N, MG-T) target to US$105 from US$110 with a “buy” rating, while CIBC World Markets’ Kevin Chiang cut his target to US$102 from US$113 with an “outperformer” rating and BMO’s Peter Sklar trimmed his target to US$114 from US$115 with an “outperform” rating. The average is US$107.
* BMO Nesbitt Burns analyst Thanos Moschopoulos raised his target for Kinaxis Inc. (KXS-T) to $195 from $170 with an “outperform” rating, while TD Securities’ Daniel Chan bumped his target to $200 from $190 with a “buy” rating. The average is $199.
“We remain Outperform rated on KXS shares and have raised our target price ... following Q2/21 results - as the quarter reaffirmed our view that KXS is seeing a reacceleration in its business (with ARR being up 24 per cent year-over-year in the quarter),” said Mr. Moschopoulos. “We see further room for multiple expansion, as KXS is currently trading at a slight discount to the median SaaS company, despite a slightly better forecasted SaaS revenue growth rate.”
* Scotia Capital analyst Ovais Habib cut his Equinox Gold Corp. (EQX-T) target to $14.50 from $16.75, maintaining a “sector outperform” rating. The average is $15.21.
* Desjardins Securities analyst Michael Markidis bumped up his Artis Real Estate Investment Trust (AX.UN-T) target to $12.50 from $12.
* Mr. Markidis also increased his Crombie Real Estate Investment Trust (CRR.UN-T) target to $19 from $18.50 with a “hold” rating. The average is $18.47.
“CRR’s 2Q21 results continued to demonstrate the resilience of this portfolio that is dominated by grocery and pharmacy retailers. Upcoming potential catalysts include the scheduled completion of two mixed-use development projects (Le Duke and Bronte Village) in 2H, which should generate meaningful incremental NOI and NAV upside,” he said.
* Mr. Markidis’s target for Granite Real Estate Investment Trust (GRT.UN-T) target to $94 from $90, topping the $93.50 average, with a “buy” rating, while BMO’s Joanne Chen raised her target to $95 from $89 with an “outperform” recommendation and RBC’s Pammi Bir’s target jumped to $96 from $87 with an “outperform.”
“Our positive view on the fundamental strength of GRT.UN’s portfolio remains unchanged following Q2/21 results. We expect the positive tailwinds to continue over the near term and for the REIT to further surface value via its development pipeline over the longer term,” said Ms. Chen.
* Desjardins’ Chris MacCulloch raised his Enerplus Corp. (ERF-T) target to $11.50 from $11 with a “buy” rating. The average is $11.44.
“Integration of the two newly acquired Williston Basin asset packages appears to have been seamless, providing the company with greater scale to drive further improvements to capital and operational efficiencies. We also believe that ERF is well-positioned to continue increasing returns to shareholders moving into early 2022 when its balance sheet targets should be met,” said Mr. MacCulloch.
* TD Securities analyst Aaron MacNeil cut his Ensign Energy Services Inc. (ESI-T) target to $2 from $2.50 with a “hold” rating. Others making changes include: ATB Capital Markets’ Waqar Syed to $3 from $3.25 with an “outperform” rating; Stifel’s Cole Pereira to $2.30 from $2.10 with a “hold” rating and RBC’s Keith Mackey to $2.75 from $3 with a “sector perform” recommendation. The average is $2.25.
* TD’s Arun Lamba lowered his target for Orla Mining Ltd. (OLA-T) to $7.50 from $8, below the $7.22 average, with a “speculative buy” rating.
Editor’s note: An earlier version of this article incorrectly stated CIBC's target price for Parkland Corp. This version has been updated.