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

Raymond James analyst Stephen Boland thinks Canadian Western Bank’s (CWB-T) growth outlook is now stronger than anticipated.

Accordingly, given the weakness in its stock, he raised his rating for its shares to “outperform” from “market perform” in a research note released Monday.

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“Following the results we had the opportunity to speak with management in more detail regarding the quarter and the outlook for the bank ... Our discussion focused less on the quarter but on the initiatives and transformation the bank has been undergoing for the past 5 years,” said Mr. Boland. “The transformation occurred because we believe one of the largest stumbling blocks for CWB in the past was convincing their borrowers to utilize other products whether it was deposit services or day to day banking services. To essentially increase the products per customer. This transformation began with the installation of a Core banking system in 2016 which we discuss in more detail later in the report. When the pandemic began, the focus shifted from new product design and growth to credit. We believe the focus should now return to these initiatives and the impact they could have on revenue.”

The upgrade comes in the wake of better-than-expected third quarter results, including adjusted earnings per share of $1.01, up from 71 cents during the same period a year ago and beating beat the analyst’s projection by 3 cents. The bank also increased its guidance for the second consecutive quarter.

Citing higher growth forecasts that led him to raise his 2021 and 2022 EPS estimates, Mr. Boland bumped up his target for Canadian Western shares to $41 from $39.25. The average target on the Street is $41.79, according to Refinitiv data.


IA Capital Markets analyst Naji Baydoun thinks the sustainable growth potential for Brookfield Renewable Partners L.P. (BEP.UN-T, BEP-N) seems underappreciated by investors and could support further upside for its shares.

In a research report released Monday, he said its development pipeline has “meaningfully” expanded since 2018 after it “successfully executed on several transactions that have positioned it to significantly expand its greenfield project capabilities and organic growth capacity.” That has led it to increase its development activities “considerably” over the last two years, supported by the growth in the its pipeline of prospects.

“BEP currently targets 3-5 per cent per year FFO [funds from operations] per share growth from development activities; at this time, we estimate that 1.25-1.50GW per year of new gross capacity additions via project development could drive 2-4 per cent per year FFO/share growth,” said Mr. Baydoun. “However, given BEP’s (1) current development pipeline position and heightened focus on development, (2) unparalleled access to capital to execute on its growth ambitions, and (3) proven management team and track record, we see the potential for further near-term acceleration of project development activities, which could help the Company achieve its organic growth objectives. From a longer-term perspective, we see the potential for BEP’s current development pipeline (i.e., excluding new prospects) to underpin 3-4 per cent of sustainable annual FFO/share growth. Overall, we estimate that BEP’s current development pipeline could be worth $6-8 per share.”

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The analyst expects Brookfield Renewable’s capital allocation to remain focused on M&A activity, however he thinks its development activities are “likely to represent a greater portion of its growth profile going forward.”

“In our view, BEP’s competitive advantages (global scale, operating expertise, development capabilities, selectivity/flexibility in pursuing new growth, proven track record, flexible funding model) position the Company well to successfully execute on its development and growth ambitions,” he said. “Brookfield’s upcoming Investor Day could provide investors with greater visibility on the overall outlook (including organic growth initiatives), which could in turn act as a positive catalyst for the shares/estimates/valuation.”

Reaffirming his “buy” rating for its stock, he raised his target to $50 from $48 due largely to an increased value ascribed to its development pipeline. The average target on the Street is $42.83.

“We continue to like BEP’s (1) high-quality global renewable power platform (more than 20GW), (2) high degree of contracted cash flows (65-85 per cent through 2025), (3) long-term organic and M&A-based growth strategy (6.8GW under construction and in advanced development, and more than 30GW of prospects), and (4) attractive income characteristics (3.0-per-cent yield and a 5-9 per cent per year dividend growth target),” said Mr. Baydoun.


In a research report previewing 2022 for Canadian telecom, media and cable companies, BMO Nesbitt Burns analyst Tim Casey raised his target prices for a group of stocks.

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“The Wireless industry is starting to slowly emerge from COVID revenue pressure, particularly on profitable roaming revenues,” he said. “We expect encouraging loading despite strong comps from pent-up demand and return of immigration and foreign students,” he said. “While we expect the sector to return to GDP+ growth with better margins, the competitive landscape will change pending the outcome of the Rogers/Shaw transaction. In Wireline, broadband has been a stabilizing force with WFH and hybrid office models proving to be a catalyst for consumer services. The shift to broadband at the expense of video is favourable to operator margins. Capital allocation continues to converge (less delineation between wireline and wireless) and several operators have accelerated capex programs (FTTP/FWA edge outs). In Media, the pandemic’s impact is started to crest but the fallout of accelerated secular pressures will remain. Thomson Reuters’ digital pivot, supported by a sticky and resilient business, will drive its growth narrative with a healthy amount of flexibility for capital allocation opportunities based on its excellent balance sheet condition.”

Mr. Casey made the following changes:

* BCE Inc. (BCE-T, “outperform”) to $69 from $63.50. The average on the Street is $64.56.

Analyst: “Scale matters in the networks business and we believe this is reflected in its EV/EBITDA multiple. BCE has reported consistent albeit modest growth over the medium term (COVID-19 impacts notwithstanding) and we expect this will continue over our forecast period. We believe it has an execution opportunity over the next 12-18 months as Rogers manages regulatory and integration issues regarding its proposed acquisition of Shaw. BCE share price performance is relatively more correlated to interest rates than other names. We believe the steady compression on 10-year yields since March has been a contributing factor to BCE’s performance over that period.”

* Rogers Communications Inc. (RCI.B-T, “outperform”) to $72 from $68. Average: $72.12.

Analyst: “We believe the proposed acquisition of Shaw by Rogers represents compelling medium-term upside for Rogers’ shareholders. It is a long-awaited transaction with irrefutable industrial logic; at its core, a doubling of its wireline footprint to national scale. We think the share price range is likely range bound until the transaction closes, which we estimate will be in Q2/22. Regulatory remedies will likely be required with Shaw Wireless assets, which represent an area of uncertainty. Beyond close, we expect share price performance will be tied to the pace of balance sheet deleveraging.”

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* Telus Corp. (T-T, “outperform”) to $32 from $31. Average: $30.50.

Analyst: “TELUS remains our top pick among domestic telecom and cable names. It has consistently reported the most attractive mix of KPIs and growth. It has a differentiated asset mix with a unique mix of traditional and related businesses (TELUS International, TELUS Health and TELUS Ag) within its wireline business and a leading wireless franchise. We believe TELUS has an execution opportunity over the next 12-18 months as Rogers manages regulatory and integration issues regarding its proposed acquisition of Shaw. We note the setup for 2023 of increasing EBITDA and declining capex to be particularly compelling.”

* Thomson Reuters Corp. (TRI-N, TRI-T, “outperform”) to US$122 from US$120. Average: US$110.49.

Analyst: “Thomson Reuters’ business fundamentals are unique within our coverage universe. We view Thomson Reuters as a core holding with attractive business stability and growth opportunities. It is an information services provider with a leading position in the legal and tax & accounting segment. Its more than US$6-billion revenue base is spread across 460,000 customers and is 80 per cent recurring.”

* Cineplex Inc. (CGX-T, “market perform”) to $14 from $12. Average: $15.64.

Analyst: “We remain cautious on the outlook for Cineplex shares. The core business continues to reflect pandemic-related attendance restrictions. While attendance will recover, the pace and consistency remain unclear given COVID uncertainty. Concurrently, the film ecosystem continues to shift toward streaming models and exclusivity windows have contracted dramatically. We do not expect a timely final resolution with Cineworld.”

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While its revenue “remains challenged,” Canaccord Genuity analyst Matthew Lee thinks Roots Corp.’s (ROOT-T) pricing model is improving profitability.

On Friday, the Toronto-based clothing retailer reported second-quarter results that largely fell in line with his expectations. Revenue grew 1.8 per cent year-over-year to $38.9-million, versus Mr. Lee’s $37.8-million estimate and the consensus on the Street of $39.3-million. Earnings before interest, taxes, depreciation and amortization rose to $2.9-million from $1.1-million year ago, exceeding estimates (losses of $2.2-million and $1.9-million), which Mr. Lee attributed to lower promotional activity, cost-cutting, and COVID-based rent and wage subsidies. Accordingly, adjusted earnings per share of 1 cent topped both Mr. Lee’s estimate of an 8-cent loss and the consensus of a 9-cent loss.

“Roots delivered a solid quarter in Q2 with revenue in line with estimates but with margins coming in much better than expected as the company continues to efficiently manage its promotional activity,” the analyst said. “DTC revenue in the quarter was up 7 per cent year-over-year despite stores being closed for 34 per cent of the quarter (vs. 3 per cent% of Q2/20). Equally importantly, the company managed its operating expenses, allowing it to deliver $2.9-million in EBITDA, which was better than our estimates and consensus, and an improvement from $1.1-million in Q2/20. While the company did benefit from ~$5M in CEWS/CERS, the company still saw a marked organic EBITDA increase year-over-year, which we believe reflects pricing discipline and an improved cost basis.”

Though he saw the quarter as “generally positive,” Mr. Lee lowered his financial projections for the third and fourth quarter to “reflect lower sales and the removal of CEWS/CERS, offset somewhat by strength in gross margins.”

“Management highlighted that Q3 will likely see revenue challenges as the company scales back its marketing efforts and offers fewer discounts to consumers,” he said. “We believe this is prudent as the company works to adjust its market position and increase the lustre of its brand. Nevertheless, the more modest promotions will likely impact sales and, as a result, we have moved our forecast for Q3 downward and now expect flat year-over-year revenue growth in DTC for the quarter.”

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Also expecting global supply chain issues to hurt its performance in the second half of the year, Mr. Lee trimmed his target for Roots shares to $3.50 from $4, keeping a “hold” rating. The average is $4.38.

“While Roots’ brand and omnichannel strategy continue to resonate with consumers, we maintain our HOLD rating based on the opaque outlook around COVID-19 on retailers,” he said.


Following the release of largely in-line results that exhibited “structurally higher profitability is sustainable,” RBC Dominion Securities analyst Paul Treiber expects Enghouse Systems Ltd.’s (ENGH-T) improving organic growth to reach its historical average in the next 2-3 quarters and a re-acceleration in M&A activity over the next 12-18 months.

On Thursday, the Markham, Ont.-based software company reported revenue of $118-million, down 10 per cent year-over-year and below the estimates of both Mr. Treiber ($119-million) and the Street ($122-million) due largely to foreign exchange headwinds. Adjusted earnings per share of 39 cents topped the analyst’s forecast by 2 cents and matched the consensus.

“Organic growth is tracking in line with our expectations,” he said. “Constant currency organic growth was down 12 per cent Q3, essentially in line with our estimate for a 13-per-cent drop and up from a decline of 19 per cent Q2. Negative organic growth reflects normalization of Vidyo subscriptions, which surged in the months immediately following COVID-related lockdowns in 2020. Excluding Vidyo, Enghouse’s customer churn is ‘relatively in line’ with pre-COVID levels. As a result, we believe Enghouse’s organic growth is likely to stabilize in coming quarters. We expect constant currency organic growth to improve to a 4-per-cent decline Q4/FY21, down 2 per cent Q1/FY22, and up 1 per cent Q2/FY22.”

“Q3 adj. EBITDA margins rose 70 basis points year-over-year to 35.4 per cent, above our estimate for 33.6 per cent and up from 34.3 per cent Q2. While travel & entertainment spending is likely to increase to historical levels, management believes facilities costs are likely to decrease, as employees switch to hybrid/work from home and Enghouse consolidates smaller facilities. Following Q3, our FY22e adj. EBITDA margin estimates move up from 31.9 per cent to 34.1 per cent.”

After using $32-million in capital on three acquisitions in its fiscal 2021, Mr. Treiber expects the pace of its M&A actions to increase moving forward, noting: “Enghouse’s secret sauce is its ability to deploy capital at high rates, which may involve lumpiness periodically. While valuation expectations remain elevated, Enghouse continues to have a large M&A pipeline, as targets have not been purchased by other acquirers. By Q2/FY22, we expect Enghouse’s M&A run-rate to rise to $90-million per annum.”

Maintaining an “outperform” rating for its shares, he raised his target to $70 from $65, exceeding the $68.50 average.


Though Crown Capital Partners Inc.’s (CRWN-T) second-quarter results fell short of his expectations, ATB Capital Markets analyst Chris Murray nonetheless deemed them “solid” as its transitions to becoming a “capital-light asset manager” with its alternative lending business “now in run-off”

On Aug. 12, the Calgary-based specialty finance company reported revenue, adjusted EBITDA and fully diluted earnings per share of $13.1-million, $1.9-million and a loss of 3 cents, respectively, missing Mr. Murray’s estimates of $16.5-million, $3.6-million and an 18-cent profit.

“Network services generated revenue of $6.9-million in Q/21 (up 8 per cent sequentially), representing 52 per cent of total revenue,” he said. “Network services delivered annualized EBITDA of $9.4-million in H1/21, reflecting a shifting mix across the Company’s business. Management noted that the H1/21 EBITDA run-rate represents a conservative guide for forward-looking expectations, given the Company maintains new contract and M&A pipelines of $80-million and $40-million, respectively with the ability to attract third-party capital to facilitate further growth.”

Following the quarter, Crown Capital announced it has divested its a majority stake in Crown Private Credit Partners Inc. and lowered its stake in Capital Partners Fund to 28 per cent (from 36.5 per cent) for net proceeds of $16.3-million, representing a notable shift in its business model.

“During a more fulsome than normal investor call at Q2/21, management reiterated its intention to increase liquidity as investments in the alternative financing business run-off, which it anticipates will be augmented by prepayments from better performing portfolio companies in H2/21,” said Mr. Murray. “We anticipate proceeds will be used to pursue growth opportunities within the Network Services and Distributable Power segments, deleverage, and return capital to shareholders through repurchases. The Network Services business demonstrated solid performance in H1/21 with management issuing positive commentary around the growth potential it sees for the business. We anticipate that Network Service will become an even larger piece of the business over the near to medium term as management looks to build scale in the business through both organic and acquisitive growth initiatives while continuing to rationalize the balance sheet and reposition the Company as a capital-light, asset manager.

“With the sale of CPCP, we have assumed that corporate costs are likely to fall as several key executives left the Company as well as a reduction in the Company’s footprint. We believe there is the potential for changes to the Company’s financial presentation by year-end, reflecting the change in ownership and control of the CPF, which may simplify understanding of the Company’s assets and income potential.”

Though he trimmed his 2021 and 2022 earnings and adjusted funds from operations estimates, Mr. Murray raised his target for Crown Capital shares to $7.10 from $6.50, keeping an “outperform” recommendation. The average on the Street is $7.30.


Quebec-based vehicle maker The Lion Electric Company (LEV-N, LEV-T) is progressing well with its long-term production expansion projects, said Desjardins Securities’ Benoit Poirier following recent virtual meetings with its executive team, including president and founder Marc Bédard.

The equity analyst thinks the “commercial successes are inconsistent with the stock price performance over the period, offering an attractive buying opportunity.”

“LEV highlighted that 80 per cent of the construction for the 900,000sf manufacturing facility in Illinois has been completed (LEV plans to occupy the facility by late 2021),” he said. “The selection of Merkur as advisor to assist with global project planning, as well as the selection and commissioning of production equipment, gives us confidence in LEV’s capacity to rapidly ramp up production at the plant. For the battery plant and innovation centre in Mirabel, LEV noted that this facility is highly strategic as it includes a test track necessary for the development of new vehicles (eight new vehicles to be released by the end of 2022). The facility remains on track to be commissioned in late 2022.”

“While the truck venture is younger than the bus venture (19 deliveries as of 2Q21 vs more than 420 bus deliveries), we note that management has been able to secure orders from flagship customers, including Amazon, CN and more recently Day & Ross (ranked #3 in the 2021 Today’s Trucking Top 100 firms in Canada). Day & Ross is currently conducting test pilot programs with its Lion6 trucks. These pilot programs are critical for the success of the truck venture and could lead to more sizeable orders.”

Mr. Poirier thinks Lion Electric’s Investor Day event on Sept. 21 will be an “excellent opportunity” for investors to learn about its progressing, seeing it as a potential catalyst for its shares.

He reaffirmed his bullish stance on the stock, keeping a “buy” rating and US$26 target. The average on the Street is $24.86 (Canadian).


In other analyst actions:

* Scotia Capital analyst Orest Wowkodaw reduced his target for shares of Lundin Mining Corp. (LUN-T) to $12.50 from $13, keeping a “sector perform” rating. The average on the Street is $14.07.

“Lundin released its annual mineral reserve and resource statement for its asset base that, on an overall basis, resulted in a 4-per-cent decline in total attributable contained Cu, although our 8% NAVPS was largely unchanged,” he said. " Exploration failed to offset mining depletion this year as drilling efforts were hampered by pandemic restrictions. The lack of exploration progress at Chapada was particularly disappointing. Overall, we view the update as a modest negative for the shares.”

* National Bank Financial analyst Rupert Merer initiated coverage of Anaergia Inc. (ANRG-T) with a “sector perform” rating and $28 target. The average target on the Street is $30.13.

* Eight Capital initiated coverage of Ballard Power Systems Inc. (BLDP-T) with a “neutral” rating and $18 target, below the $31.33 average.

* Canaccord’s Tania Gonsalves lowered her Sol Cuisine Ltd. (VEG-X) to $1.80 from $2 with a “buy” rating.

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