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

RBC Dominion Securities analyst Drew McReynolds thinks the environment for Canadian telecommunications companies remains “attractive” heading into third-quarter earnings season, expecting a “more robust” recovery through the second half of 2021 and into 2022.

“By May 2021, it was our view that the ‘core’ fundamental set-up for the Canadian telecom sector had improved,” he said. “From March 2020 through March 2021, we believed the Canadian telecom sector had been ‘neither here nor there’ within the Canadian equity market with the investor mindset evolving from one of buying relative capital protection during the March-April 2020 sell-off, to one of disappointing relative performance through the remainder of 2020 as the broader equity market rallied, and finally to one of indifference through March 2021. While we acknowledge an elevated degree of M&A risk among the cablecos and what is likely to be an uptick in competitive intensity in wireless in 2022, we believe the Canadian telecom sector will be mainly swimming downstream through 2022 with a more robust earnings recovery kicking-in, the resumption of 7-9-per-cent average annual NAV [net asset value] growth, manageable wireless competitive intensity, low regulatory risk and more compelling cableco valuations.”

In a research report released Monday, Mr. McReynolds predicted “healthy” wireless activity may lead to earnings upside surprises in the coming weeks, expecting results to reflect a multi-year recovery in the market.

“While we saw renewed year-over-year growth in most wireless KPIs in Q2/21, the bulk of this growth was off an unusually weak COVID-19 comp in Q2/20,” he said. “With renewed wireless market expansion (retail store openings, pent-up demand, back-to-school, immigration) and higher wireless ARPU (volume-driven fees, modest roaming/overage lifts on higher mobility) kicking-in in Q3/21, we see the potential for upside earnings surprises and upward revisions to our wireless forecasts through 2022. We continue to see modest but steady growth in wireline and sequentially stronger media performance. While competitive intensity and sector M&A represent risks to the outlook, current valuations (particularly cableco valuations) suggest these risks under most competitive and M&A scenarios are largely priced-in. Company-wise, we see a stronger sequential wireless recovery from Rogers this quarter relative to BCE and TELUS with Rogers benefiting from a strong gross loading and low churn environment, modest recovery in roaming as well as weaker year-over-year comparables versus peers.”

Currently, Mr. McReynolds said his level of conviction on Telus Corp. (T-T) “remains high,” seeing multiple sources of upside potential to its net asset value over the next few years. He reaffirmed it as his “top pick” in the sector.

“In our view, there is no other company in our coverage that has as many potential sources of upside to our NAV than TELUS,” he said. “We believe the key strategic benefit of the $1.5-billion of accelerated investment in 2021 and 2022 is an even stronger competitive positive, specifically: (i) broader FTTH [fiber-to-the-home] coverage, increasing from 80 per cent of the long-standing targeted FTTN footprint currently to 90 per cent by the end of 2022; (ii) a ‘substantial’ portion of the wireline customer base on FTTH by the end of 2022 (up from 50 per cent currently), with positive implications for churn reduction; and (iii) enhanced capex flexibility beginning in 2023 given substantial completion of the FTTH build, which should enable TELUS to capitalize on new 5G growth opportunities without meaningful capital constraints, opportunity costs, or FCF impairment.”

Keeping an “outperform” rating for its shares, he raised his target by $1 to $32. The average target on the Street is $30.56, according to Refinitiv data.

He also sees value in both Rogers Communications Inc. (RCI.B-T) and Quebecor Inc. (QBR.B-T), maintaining “outperform” recommendations for both but noting “some investor patience is required.”

His target for Rogers rose to $76 from $74, exceeding the $71.93 average, while his target for Quebecor, which he called “too cheap to ignore,” remains $39, above the Street by 71 cents.

“We see opportunity for a positive re-rating in the stock within the next 9 months as the outcome of the Rogers-Shaw transaction under most scenarios becomes clearer, easing fears around Quebecor’s wireless expansion plans,” he said. “In the meantime, we expect Quebecor to deliver 7-per-cent average annual NAV growth driven by positive operating leverage within a tightly integrated wireless-wireline network, a highly effective bundling/content strategy, penetration gains with Fizz Mobile and Fizz Internet and a strong balance sheet — all against the backdrop of a healthy capital return program of both dividend growth and share repurchases.”

Mr. McReynolds also increased his target for BCE Inc. (BCE-T) to $64 from $63. The average is $64.63.

“We continue to believe BCE’s competitive position relative to peers could see the greatest gains over the medium term driven by FTTH expansion and 5G deployment across Canada’s largest integrated wireline-wireless network footprint, and given growth in 5G B2B,” he said. “We believe the migration to unlimited plans/EIPs, residential Internet market share gains driven by sustained FTTH investment, a gradual improvement at Bell Media alongside digital initiatives, and the realization of additional cost efficiencies that leverage a scale advantage position BCE for continued dividend growth, albeit with an elevated but declining dividend payout ratio beginning in earnest in 2023.″

His Cogeco Communications Inc. (CCA-T) target jumped to $129 from $127 with a “sector perform” rating. The average is $131.20

“The volatility in bond yields is putting the valuation sensitivity of Canadian telecom stocks to such volatility back into focus,” said Mr. McReynolds. “For EV/EBITDA sensitivity, we believe each 50-100 basis points change in the GoC 10-year would translate to a 0.5-times change in FTM EV/EBITDA multiples, equating to approximately 7-8-per-cent change in share prices (all else being equal). In addition to rising bond yields, and despite structural differences between Canadian and U.S. telecom markets, we suspect some of the negative U.S. industry-specific sentiment has drifted north into Canadian telecom stocks, explaining some of the recent underperformance of Canadian telecom stocks relative to the S&P/TSX.”


After Raymond James raised its price deck assumptions for both oil and natural gas for the remainder of 2021, 2022 and the long term, analyst Jeremy McCrea upgraded Cenovus Energy Inc. (CVE-T) to “outperform” from “market perform,” citing “a significantly improved leverage outlook.”

“Under our updated commodity price assumptions, we see CVE turning quickly from a balance sheet repair story to a cash return story come 2022,” he said. “At current valuations, we believe the shares have the potential to offer investors an above average cash return profile compared to its large cap peers. The combination of rapidly falling leverage and attractive FCF yield supports a favourable risk-reward for investors looking for large cap torque to a constructive oil price outlook.”

Mr. McCrea’s target for Cenovus shares jumped to $18 from $14, exceeding the $17.13 average on the Street.

For senior oil and gas companies, Mr. McCrea made these target price adjustments:

  • Canadian Natural Resources Ltd. (CNQ-T, “outperform”) to $63 from $55. Average: $57.48.
  • Imperial Oil Ltd. (IMO-T, “market perform”) to $47 from $43. Average: $43.06.
  • Ovintiv Inc. (OVV-N/OVV-T, “market perform”) to US$45 from US$43. Averge: US$42.24.
  • Suncor Energy Inc. (SU-T, “outperform”) to $43 from $40. Average: $35.96.


In response to a period of “significant” and “unwarranted” share price underperformance, TD Securities analyst Michael Tupholme raised his rating for Stella-Jones Inc. (SJ-T) to “action list buy” from “buy,” seeing it offering investors “very attractive risk/reward potential” at its current level.

“On a YTD basis, SJ’s share price has declined 9 per cent,” he said. “Although, in our view, SJ has no directly comparable publicly traded peers, KOP-N — arguably SJ’s closest peer — has seen its share price increase 7 per cent year-to-date, while on average, companies that we see as comparable to SJ in some respects are up 19 per cent year-to-date. We also note that since benchmark lumber prices bottomed in late-August 2021, share prices of select Canadian lumber producers have increased by an average of 17 per cent, whereas SJ’s share price is down 2 per cent. In contrast to SJ’s recent performance, like lumber producers, SJ’s share price performed well during the run-up in lumber prices witnessed from mid-2020 to May 2021 (SJ up 50 per cent over that period).”

Mr. Tupholme pointed to several potential positive catalysts that he sees “supportive” of both the company’s overall prospects and his rating upgrade. They include: “1) the recent upturn in benchmark lumber prices; 2) evidence of a continued strong demand outlook for SJ’s utility poles business; 3) ongoing share repurchase activity; 4) potential benefits associated with increased U.S. infrastructure investment; and 5) potential upside to our forecasts from tuck-in acquisitions.”

He trimmed his target for Stella-Jones shares to $56 from $57, exceeding the $54.44 average.

“We continue to view SJ as a high-quality company that offers investors a mix of growth potential and defensive characteristics. Given the stock’s notable recent underperformance and the significant disconnect between its current and historical valuation, we see SJ as offering investors compelling risk/reward potential. Meanwhile, we see further potential upside from tuck-in acquisitions.,” he added.


Black Diamond Group Ltd. (BDI-T) is “checking all the boxes,” said Canaccord Genuity analyst Matthew Lee.

He initiated coverage of the Calgary-based modular workforce accommodation and space rental solutions provider with a “buy” recommendation, believing it provides investors with a “potent combination of top-line growth, solid cash flow, and upside from acquisitions.”

“Black Diamond benefits from strong macroeconomic tailwinds and is achieving robust rental rate growth as demand for modular buildings outstrips supply,” he said. “We see several positive catalysts for the name over the medium term, including (1) continued rate increases and organic fleet growth, (2) the expansion of LodgeLink, (3) additional acquisitions, and (4) the potential for a dividend reinstatement.”

In justifying his bullish stance, Mr. Lee pointed to a number of positive attributes, including a “well diversified” customer base, “attractive” unit economics, macroeconomic tailwinds that are driving “strong” demand and a “manageable” balance sheet.

“BDI trades at a significant discount to its comparables at 5.8 times enterprise value to fiscal 2022 estimated EBITDA versus Modular Space peers at 9.4 times and Workforce Solutions peers at 6.7 times,” he said. “While some of the disconnect relates to BDI’s relatively small size, we believe that the discount is excessively punitive given our expectations for mid-single-digit revenue growth, the company’s solid cash flow profile, and the potential for accretive acquisitions. We expect that as BDI continues to shift its business toward the faster-growing MSS business and develops its LodgeLink platform, shares will face a positive rerating.”

Seeing its valuation as “attractive” given its growth potential and cash flow, Mr. Lee set a target of $5.50 per share. The current average is $6.30.


The current credit climate remains “favourable” for Goeasy Ltd. (GSY-T), according to Desjardins Securities analyst Gary Ho, who expects charge-offs to be “benign.”

Ahead of the Nov. 4 release of its third-quarter results, he raised his financial forecast and valuation for the Mississauga-based alternative financial company. He’s now projecting adjusted earnings per share of $2.72, up from $2 during the same period a year ago and from $2.61 in the previous quarter. It is, however, 8 cents below the consensus forecast.

“We forecast sequential gross loan book growth of $105-million (guidance of $100–120-million; this reflects our view that supply chain issues may have tempered LC loan book growth, especially in the powersports segment), total revenue yield of 40.8 per cent (guidance of 40–41 per cent) and net charge-offs of 8.5 per cent (guidance of 8.5–9.5 per cent; continued government support and elevated auto/powersport equipment should benefit net charge-offs),” Mr. Ho said. “We will look for commentary on how increased inflation expectations and the price of oil (two FLIs) may impact provisioning looking out.”

After raising his full-year 2021 and 2022 EPS estimates to $10.43 and $12.27, respectively, from $10.36 and $12.24, the analyst introduced a 2023 projection of $13.99.

Keeping a “buy” rating for Goeasy shares, Mr. Ho hiked his target to $202 from $190. The average on the Street is $214.50.

“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 [return on equity],” he said.


RBC Dominion Securities analyst Gregory Renza is seeing “strong” interest around the value of the recent positive trial results for Bellus Health Inc.’s (BLU-Q, BLU-T) BLU-5937 drug for refractory chronic cough patients ahead December’s key topline update.

“We see BLU in an increasingly competitive position among the P2X3 players and find the strategic set up towards the ph.IIb data as a cause for building optimism into a catalyst-rich end of year,” he said.

“Recall BLU announced one or more dose levels in the ph.IIb trial passed the interim analysis in early September - investors’ questions revolved around the set up and implications of the interim outcome. Without disclosing point estimates and p-values for the PE, management reiterated that the interim analysis was based on stringent probability thresholds and clinically meaningful efficacy levels - therefore passing the interim adds to confidence into the topline readout that is ontrack for December 2021. The company plans to leverage the IA outcome to accelerate ph.III planning in terms of CMC steps, dose range narrowing, logistical preparations for EOP2 meeting (ph.III protocol, preclinical data relevant to dose selection), as well as operational planning for the ph.III following the ultimate program readout. The company does not foresee significant differences in baseline characteristics between the first 50 per cent and second 50 per cent of the enrolled patients of the ph.IIb trial - the first 50 per cent of patients were skewed more towards U.S. sites though there is no meaningful difference in geography. Management remains optimistic going into the topline given the set-up of the placebo run-in period and enrichment strategy in place to optimize patient selection and control of a placebo response, which could drive more pronounced efficacy.”

Mr. Renza said the competitive landscape for the Laval, Que.-based company “continues to evolve based on recent developments in the P2X3 space that have put BLU in a more competitive position.”

With that view and seeing its BLU-5937 program “gaining emerging investor traction though mostly considered as upside opportunity,” he raised his target for Bellus’ U.S.-listed shares to US$9 from US$8, citing increasing conviction “on improved likelihood of success reflecting increasing conviction into the important ph.IIb December readout, indications of a continued path forward to a meaningful pivotal program, and higher probabilities of ultimate program success for BLU-5937 in the high opportunity recurrent chronic cough indication.” The current average on the Street is US$10.49.

He reiterating an “outperform” recommendation.


Calling it “West Africa’s premier gold producer,” Raymond James analyst Craig Stanley initiated coverage of Endeavour Gold Corp. (EDV-T) with an “outperform” recommendation on Monday.

“West Africa is the second-largest gold producing region in the world and the top for discoveries with 79 million ounces discovered over the last decade,” he noted. “Endeavour is the largest gold producer in each of the three countries in which it has mines: Senegal, Burkina Faso, and Cote d’Ivoire. These countries share the West African Franc currency that is pegged to the Euro.”

Touting its “healthy” balance sheet with $833-million in cash and a net debt of $77-million exiting the second quarter of this year, Mr. Stanley also sees Endeavour on pace to hit the top of end of 2021 guidance after producing 756,000 ounces in the first half of the year at an all-in sustaining cost of $860 per ounce. It would be the ninth consecutive year it has passed its projections.

“Following a period of investment and debt reduction, management has initiated a minimum progressive dividend policy with a target of distributing at least $500-million to shareholders over the next three years,” the analyst said. “The company paid its first dividend of 37 cents per share ($60-million) on Feb. 5, 2021, and an interim dividend of 28 cents per share ($70-million) on September 29, 2021. We also calculate 4.4 million shares have been repurchased since March.”

He set a target of $40 per share. The current average is $44.29.


BSR Real Estate Investment Trust (HOM.U-T, HOM.UN-T) is likely to “deliver incremental fair value gains reflecting further cap rate compression and benefit from accelerating rent growth in its core markets,” according to Desjardins Securities analyst Kyle Stanley.

Ahead of the release of its third-quarter financial results on Nov. 19., he thinks the REIT, which is focused on a portfolio of multifamily properties in the U.S. Sunbelt, offers investors “a compelling growth profile at a discounted valuation,” despite an impressive total return of 49 per cent thus far in 2021.

Mr. Stanley is forecasting funds from operations per unit of 15 US cents, up 2 US cents from the previous quarter but a penny below the consensus on the Street. He also expects to see 2 US cents per unit ahead from the stabilization of new-build assets.

“Robust population and employment growth in BSR’s core Texas markets has driven material year-to-date market rent growth,” he said. “A number of the REIT’s Sun Belt–focused peers have reported blended rent growth in the 10–16-per-cent range in 3Q, well above the 8-per-cent growth BSR achieved in 2Q. Moreover, our forecast incorporates 7–8-per-cent blended rent growth through 2022, which could prove conservative.”

Mr. Stanley predicts further cap rate compression is likely to support more book value upside, noting: “According to the 1H21 CBRE cap rate survey, cap rates in Dallas, Houston and Austin compressed by 50–100 basis points vs the prior survey in 2H19. In 2Q, BSR recognized a US$1.61 per unit fair value gain within investment properties, reflecting 20 basis points of cap rate compression (4.5-per-cent IFRS cap rate); we believe 3Q results could be highlighted by further fair value gains. As a result, we have compressed our portfolio cap rate by 25 basis points to 4.25 per cent and increased our NAVPU [net asset value per unit] by 11 per cent to US$18.50.”

Reiterating his “buy” rating for the REIT, he raised his target for BSR units to US$19.50 from US$17.50. The average on the Street is US$17.75.


Calling it a “monster in the Andes,” Scotia Capital analyst Eric Winmill initiated coverage of Filo Mining Corp. (FIL-T) with a “sector outperform” rating, pointing its “positive re-rating potential.”

“The company’s flagship project is Filo del Sol, a wholly owned, advanced-exploration copper and precious metals project located in the border region of Argentina and Chile,” he said. “The company has already outlined a robust near-surface heap-leachable oxide project producing 67 kt copper, 159 koz gold, and 8.7 Moz silver annually over a 13-year mine life; however, recent sulfide intersections beneath the planned open pit indicate what we believe is a significantly larger copper and precious metals deposit (potentially a ‘monster deposit’). Furthermore, Filo is backed by the Lundin family, with 35-per-cent ownership, which has a proven track record of building mining companies and with deep access to capital.”

Mr. Winmill set a $13.50 target for Filo shares, exceeding the average on the Street by 6 cents.

“In our view, Filo has identified a highly compelling copper and precious metal asset at Filo del Sol with strong upside potential through continued exploration and advancement, which we think could also position Filo as a possible takeout candidate.”


National Bank’ analyst Maxim Sytchev made a trio of target changes in a third-quarter earnings preview on Monday.

He lowered his targets for:

* Stelco Holdings Inc. (STLC-T) to $60 from $62 with an “outperform” rating. The average is $58.89.

“We are positively positioned for commodity-levered STLC and NOA as strong results and positive outlook are likely to reverse the recently negative course for the former while continue pushing the latter to new decade-highs,” Mr. Sytchev said.

* AutoCanada Inc. (ACQ-T) to $60 from $64 with an “outperform” rating. Average: $64.83.

* ABC Technologies Holdings Inc. (ABCT-T) to $9 from $9.50 with a “sector perform” rating. Average: $10.67.

“ACQ and ABCT are likely to see tougher narratives when it comes to chip shortages and its subsequent impact on new auto sales (hence us compressing the target price on ACQ to $60.00 from prior $64.00; M&A optionality and a strong used car market is keeping us on the buy side of the ledger, however),” he said.


Citing its valuation, Laurentian Bank Securities analyst Nick Agostino raised Softchoice Corp. (SFTC-T) to “hold” from “reduce” following the completion of its $150-million bought deal offering and expecting the impact of the global chip shortage to remain limited.

“Despite minimal impact on SFTC’s balance sheet from the recent bought deal, the company remains well funded to manage its operations though our forecast period ending 2022,” he said. “More importantly, while we expect the ongoing global supply chain issues to weigh on near-term results, the company’s lower Hardware weighting/mix, particularly on GP, should help minimize the impact on financial results. The immaterial impact on Q2 results is a testament to this.”

“With the shares down 28 per cent since we downgraded following SFTC’s Q2 results in August, given our current RoR projection we upgrade our recommendation.”

Mr. Agostino maintained a $30 target for shares of the Toronto-based company. The average is $38.

Elsewhere, Cormark Securities analyst Gavin Fairweather resumed coverage with a “buy” rating and $38 target, down from $40, while TD Securities’ David Kwan resumed with a “buy” rating and target of $40.


In other analyst actions:

* In a research note previewing earnings season for Canadian property and casualty insurance firms, Scotia Capital analyst Phil Hardie cut his target for Intact Financial Corp. (IFC-T, “sector outperform”) to $190 from $193 and raised his target for Trisura Group Ltd. (TSU-T, “sector outperform”) to $53 from $44. The averages on the Street are $197.08 and $54.25, respectively.

“Heading into Q3/21 reporting, we expect a challenging quarter in terms of underwriting profitability driven by higher-than-usual CAT losses for the three P&C insurers under our coverage,” he said. “Despite those challenges, we continue to expect a sequential increase in BVPS for all three names. Valuation looks increasingly attractive for IFC and FFH, with both stocks under some pressure over the last few months likely caused by anticipated elevated CAT exposures in Q3 that saw many large weather-related CAT events in North America and across the globe. For TSU, we remain positive on the name and see further potential upside to our target price.”

* Scotia Capital’s Mario Saric reinstated coverage of RioCan Real Estate Investment Trust (REI.UN-T) with a “sector outperform” rating and $25 target as well as First Capital Real Estate Investment Trust (FCR.UN-T) with a “sector perform” rating and $19.50 target. The averages are $24.44 and $20.93, respectively.

* Scotia Capital’s George Doumet cut his target for Spin Master Corp. (TOY-T) to $48 from $50 with a “sector perform” rating. The average is $53.91.

TOY shares are down 20 per cent since reporting Q2 results, where the company nudged up its 2021 guidance,” he said. “Since then, concerns around global supply chains have intensified, with the focus on container shortages and power outages in China, semiconductor shortages, and higher commodity costs, notably resins and plastics. The concern, from a timing standpoint, is that this could lead to shortages of product for the busy holiday season.

“We are of the view that demand this holiday season will remain high and products should arrive on the shelves in time (although more products could arrive in Q4 than seasonally expected). Transportation and commodity related costs will be higher. We have made modest changes to our estimates and remain well within TOY’s 2021 guidance parameters of revenue growth in the mid-teens (we are at 17 per cent) and adj. EBITDA margins to be at the high end of the mid to high teens range (we are at 18.3 per cent).”

* TD Securities Graham Ryding raised his IGM Financial Inc. (IGM-T) target to $56 from $53, reiterating a “buy” recommendation. The average is $52.

* Mr. Ryding also increased his CI Financial Corp. (CIX-T) target by $1 to $29 with a “buy” rating, while he cut his Sprott Inc. (SII-T) target by $1 to $56. The averages are currently $29.33 and $54.82, respectively.

* TD’s John Mould raised his Capital Power Corp. (CPX-T, “buy”) and TranAlta Corp. (TA-T, “buy”) targets to $49 and $16.50, respectively, from $47 and $15.50. The averages are $44.69 and $15.05.

* Eight Capital analyst Ralph Profiti downgraded Turquoise Hill Resources Ltd. (TRQ-T) to “sell” from “buy” with a $16 target, falling from $30 and below the $19.79 average.

* Credit Suisse analyst Manav Gupta increased his Canadian Natural Resources Ltd. (CNQ-T) target to $59 from $53 with a “neutral” rating. The average is $57.48.

* Barclays analyst Matthew Murphy trimmed his Barrick Gold Corp. (GOLD-N, ABX-T) target to US$27 from US$28, which is the current average on the Street, with an “overweight” recommendation.

* Mr. Murphy increased his Ero Copper Corp. (ERO-T) target to $23 from $21 with an “equalweight” rating. The average is $30.68.

* CIBC World Markets analyst Scott Fromson lowered his Park Lawn Corp. (PLC-T) target to $43 from $45 with an “outperformer” recommendation. The average is $44.33.

* National Bank Financial analyst Vishal Shreedhar raised his Premium Brands Holdings Corp. (PBH-T) target to $148 from $141 with an “outperform” rating. The average is $141.18.

* National Bank’s Michael Robertson raised his Enerflex Ltd. (EFX-T) target by $2 to $12.50 with an “outperform” rating. The average is $11.69.

* National Bank’s Maxim Sytchev lowered his Stelco Holdings Inc. (STLC-T) target to $60 from $62, maintaining an “outperform” rating. The average is $58.89.

* Mr. Sytchev also cut his AutoCanada Inc. (ACQ-T) target to $60 from $64 with an “outperform” rating and his ABC Technologies Holdings Inc. (ABCT-T) target to $9 from $9.50, keeping a “sector perform” rating. The averages are $64.83 and $10.67, respectively.

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