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

Given the escalating power battle hanging over Rogers Communications Inc. (RCI.B-T), RBC Dominion Securities analyst Drew McReynolds says he’s “stepping to the sidelines,” emphasizing the leadership and board dispute “does matter” to investors.

Accordingly, in a research report released Monday, he lowered his recommendation for the company’s shares to “sector perform” from “outperform,” looking for “more timely and/or attractive entry points.”

Edward Rogers’s reconstituted board reappoints him as chair

Board votes, backroom deals and betrayal: The battle for control at Rogers

“In our view, functioning governance and family-Board-executive alignment absolutely do matter at this juncture for Rogers with respect to creating value for shareholders from current levels (approximately $60 share price/7.8 times FTM [forward 12-month] EV/EBITDA valuation) – not just in executing on day-to-day operations but on critical upcoming decisions with respect to proposed remedies on the Shaw transaction, transaction financing, crystallization of any non-telecom assets, a multi-year integration, and key 5G spectrum auctions,” said Mr. McReynolds. “Assuming a timely and definitive resolution to the ongoing family-Board dispute, we continue to see a high probability of the Rogers-Shaw transaction closing as we believe there remains strong and broad internal support at Rogers for the transaction given its transformational nature and virtually indisputable industrial logic.”

The analyst also emphasized “collateral damage now seems inevitable” and expects the negative consequences to “grow the longer a definitive resolution takes.

“Our analytical lens on Rogers has and will continue to be the ability for the Board/management to create value for shareholders,” he said. “In the absence of an immediate and definitive resolution to the ongoing family-Board dispute, we see two sources of collateral damage irrespective of the ultimate resolution: (i) an executive management team that is likely less effective over the next 12 months in executing in whatis an operating environment still impacted by COVID-19 with competition intensifying as telcos double down on FTTH – either by the existing team that is now distracted if not handicapped, or a new team that will be in a sub-optimal period of transition; and (ii) what will be a difficult (but not impossible) road back to restoring investor confidence around governance and sustainable family-Board-executive alignment.”

To reflect the increasing risk, Mr. McReynolds lowered his target for Rogers shares to $72 from $76. The average target on the Street is $71.67, according to Refinitiv data.

“In light of this collateral damage and with the stock absorbing much-improved Q3/21 reported results along with the provision of detailed Q4/21 guidance that points to a continued recovery in wireless, the next fundamental catalysts timing wise include: (i) the provision of 2022 guidance in late January 2022; (ii) announcements on any required Rogers-Shaw regulatory remedies sometime in Q1/22 or Q2/22; and (iii) accelerated NAV growth beginning in H2/22 driven by the Shaw integration post-closing,” he said. “Valuation-wise, we view as a more attractive entry point any pullback in Rogers’ valuation to the 7.0-7.5 times FTM EV/EBITDA range, versus 7.8 times currently, a recent historical range of 7.0-8.0 times and 8.5-9.1 times for Canadian telco peers.”

Elsewhere, TD Securities analyst Vince Valentini cut his target to $69 from $76 with a “buy” rating.


Strong demand for oil and natural gas is solidifying a “foundation of returns” for shareholders, according to iA Capital Markets analyst Elias Foscolos.

In a research report released Monday, he said he’s “positioning for a new breed of investor” after raising his commodity price deck heading into both third-quarter earnings season and the important winter heating season.

“Strong pricing continues to move estimates upwards which leaves the door wide open for all companies we cover to increase returns to shareholders, be that through dividends, NCIB buybacks, debt repayments, a combination of the above, and/or increased drilling,” said Mr. Foscolos. “While producers won’t want to pump too much too soon and upset prices, demand continues to tick upwards, and if OPEC can’t tap ‘spare’ capacity, sooner or later we will see drilling activity increase in lockstep with world demand, and as egress allows.”

The analyst raised his WTI oil price forecast for the fourth quarter by 9.8 per cent (or $8.74) to $78.17, while his AECO natural gas estimate rose 5.9 per cent (or 28 cents) to $5.01 per thousand cubic feet.

With changes across his price deck, Mr. Foscolos raised his target prices for both producers and royalty companies in his coverage universe, resulting in a pair of rating upgrades after “superimposing current trading prices”:

* ARC Resources Ltd. (ARX-T) to “strong buy” from “buy” with a $17.50 target, up from $15. The average on the Street is $16.68.

“ARC Resources has not released a material update since it reported Q2/21 results back in July,” the analyst said. “It has reported a couple of strong months of production this quarter, however, we would not be surprised to see a production beat from ARC this quarter. With strong condensate markets and increased liquids production following the Seven Generations transaction, be on the lookout for strong cash flows in the results and beyond.”

* Peyto Exploration & Development Corp. (PEY-T) to “speculative buy” from “hold” with a $13 target, up from $11.50 and above the $12.90 average.

Mr. Foscolos also made these target changes:

  • Birchcliff Energy Ltd. (BIR-T, “buy”) to $10 from $9.25. Average: $9.04.
  • Freehold Royalties Ltd. (FRU-T, “strong buy”) to $16.50 from $14. Average: $14.42.
  • Nuvista Energy Ltd. (NVA-T, “speculative buy”) to $8.25 from $7.25. Average: $7.34.
  • PrairieSky Royalty Ltd. (PSK-T, “buy”) to $18.50 from $17.50. Average: $17.67.
  • Topaz Energy Corp. (TPZ-T, “buy”) to $22 from $21. Average: $21.43.
  • Tourmaline Oil Corp. (TOU-T, “buy”) to $60 from $56. Average: $60.28.
  • Whitecap Resources Inc. (WCP-T, “buy”) to $9.50 from $8.50. Average: $10.32.

“Even before the announcement on October 15 that all major Canadian banks have joined the Net Zero Banking Alliance (NZBA), oil and gas producers have been reducing the absolute level of bank debt carried with the goal of moving to zero debt or moving to a low enough ratio (0.5-1.0 times debt/EBITDA) that debt could be repaid in one to two years without diverting too much cash flow from a minimum maintenance level required to keep production flat,” said Mr. Foscolos. “As such, excess funds for capital investing will probably not come from unused credit lines in the near term. On the equity issuance side, companies have felt that despite the run-up in their share prices, their stocks remain undervalued based on ‘historical’ multiples and current commodity prices. In our view, there is a measure of truth to this argument, but we do believe historical multiples should not be the benchmark for two reasons. First, at projected commodity prices, companies are highly profitable and will become cash taxable sooner rather than later, impacting cash flow. Second, the future for hydrocarbons (particularly oil in North America post 2030) is more challenging making the use of past multiples potentially misleading as governments around the globe insist on pushing energy transition. However, we do believe that sector is presently undervalued, and believe that paying dividends and repurchasing shares will likely become more predominate as E&P companies position themselves to attract a new breed of investor agnostic to their business but focused on shareholder returns.”


In a separate report released before the bell, Mr. Foscolos said he’s “become more cautious” on energy infrastructure companies heading into earnings season.

After a period during the quarter in which the sector’s “positive momentum essentially stalled in our coverage universe in tandem with the TSX,” he now sees share prices for a group of Pipeline and Midstream companies advancing “without any corresponding macro or fundamental improvement in outlook.”

“Focusing on the upcoming Q3 earnings, we are expecting a quarter devoid of surprises, and we do not expect those results to move share prices,” said Mr. Foscolos. “Perhaps our outlook will change with information from upcoming investor days which commence with force after mid-November. We slightly favour select Pipelines and Utilities, and for risk-neutral investors, Fuel Distributors.”

The analyst said he’s now “in a unique position,” projecting identical 14-per-cent returns for Pipelines, Utilities and Midstreamers over the next 12 months.

Seeing returns becoming “compressed,” Mr. Foscolos downgraded five stocks on Monday.

He moved these companies to “hold” from “buy” recommendations:

* Emera Inc. (EMA-T) with a $62 target from $63. The average on the Street is $61.16.

“We are also downgrading our recommendation ... as we believe that Canadian-focused peers are currently offering better value in the context of expected headwinds from FX, as well as rising bond yields,” he said.

* Gibson Energy Inc. (GEI-T) with a $26 target. Average: $24.88.

“We expect GEI’s marketing segment to remain steady on a quarter-over-quarter basis,” he said. “Looking into2022, our EBITDA estimate remains essentially unchanged at $520-million, which is the Street-high. It appears we are projecting stronger performance in both the Infrastructure and Marketing segments. Of importance to us is GEI’s growth projects. Catalyst events could be (a) increased tankage at Hardisty to support larger throughputs through Enbridge’s Line 3 expansion, (b)additional tankage at Edmonton to support increased throughput through the TMX pipeline expansion, or (c) an expansion of the DRU at Hardisty to add heavy oil egress capabilities.”

* Secure Energy Services Inc. (SES-T) with a $6.75 target from $6.50. Average: $6.96.

“As this is the first quarter since the Company merged with its single largest competitor, Tervita (delisted), we believe that the results and, more importantly, the outlook commentary, will provide a signal to the market of things to come,” he said. “Our estimates for the quarter are slightly above consensus. Besides the merger and initial synergy capture, we expect tailwinds from industry activity, both in the oilfield and environmental sides. Rig counts were strong during the quarter, averaging 150 compared to 129 in the comparable pre-pandemic quarter in 2019. Strong natural gas and liquids prices should continue to drive strong free cash flow for WCSB producers, particularly as hedges roll off, providing the backdrop for a constructive activity outlook. Strong ferrous metals prices should also benefit the metals recycling business, and we should start to see increased environmental service activity driven by the federal government’s accelerated wellsite reclamation and remediation program. Partially offsetting these tailwinds, we expect a continuation of limited crude oil marketing revenue opportunities. We continue to see room for multiple expansion in the context of industry tailwinds and the Company’s strong free cash flow outlook.”

* Pembina Pipeline Corp. (PPL-T) with a $44 target. Average: $43.08.

“PPL had an eventful quarter. Although it failed to acquire IPL, it walked away with a substantial break fee of $350-million (pre-tax, pre-fees) which will help bolster its balance sheet,” he said. “As disclosed in the IPL Director’s circular, PPL and BIP discussed a joint offer for IPL presumably to carve up the assets. However, the joint offer did not materialize and in our minds, PPL backed down. There has been speculation on whether BIP, post BIP acquiring 100% of IPL, would sell specific assets to PPL. While we believe this is a strong possibility, particularly with respect to the NG Processing Conventional pipelines business, and the PDH/PP facility, we believe it is difficult to quantify upside without knowing which assets might be available and the price paid.”

Mr. Foscolos downgraded TC Energy Corp. (TRP-T) to “buy” from “strong buy” with a $72 target. The average is $69.05.

“In our view, TRP had a relatively noiseless quarter as it continues its post KXL transition,” he said. “On September 16, 2021, TRP announced that Astisiy LP (a partnership between Suncor Energy (SU-T, Not Rated) and various Indigenous groups) will acquire TC Energy’s remaining 15 -per-cent equity interest in the Northern Courier Pipeline (NCP). The transaction is expected to close in Q4/21. On September 20, 2021, TRP agreed to a 15-year power purchase agreement (PPA) for 100% of the output of the 297MW Sharp Hills Wind Farm with EDP Renewables (Private). Finally, on October 7, TRP agreed to collaborate with Nikola Corporation (NKLA-Q, Not Rated) on co-developing, constructing, operating and owning large-scale hydrogen production facilities (hubs)producing more than 150 tonnes of hydrogen per day to supply Class 8 trucks. During the quarterly results, we hope to gain some clarity on the construction progress of the Coastal GasLink pipeline in terms of issues surrounding construction progress and costs.”


Citing “a combination of substantial outperformance versus peers in recent months bringing the name into fairly valued territory as well as our expectation of sequentially lower Alberta Power prices in 2022/2023,” Raymond James analyst David Quezada lowered Capital Power Corp. (CPX-T) to “market perform” from “outperform.”

“Buoyed by robust Alberta power pricing and favourable investor sentiment towards the company’s transition away from coal, CPX has enjoyed a period of stellar performance during where the stock has outperformed its IPP peers by an impressive margin so far this year — appreciating 27 per cent vs. peers down an average of 6 per cent and moving toward the higher end of its historical EV/EBITDA trading range,” he said.

“While we remain fans of Capital Power from a long term fundamental perspective, we now believe the name is fairly valued. First, while the strong energy price environment could very well support Alberta power prices in the near term, we believe the prevailing forward curve, which suggests sequentially lower pricing in each of 2022 and 2023 fairly represents the outlook going forward. As such, with a $50 sensitivity per $5/MWh change in spot pricing, we believe the stock will eventually begin to reflect a more benign power price outlook. Looking further out, we also harbor some concerns regarding new renewable capacity in the Alberta market which could depress prices towards the middle of the decade. To be clear, we continue to view CPX’s position as an incumbent in Alberta and solid pipeline of potential projects will provide opportunities, but we expect this will be somewhat offset by the lower price environment and CPX’s rising merchant exposure with the G1/G2 repowering. Lastly, with the new federal regulations treating natural gas repowering projects as new generation, with 0 t/MWh by 2030, we also see some regulatory uncertainty for these projects. As such, while we see much to like in CPX including an attractive (and growing) dividend, discounted valuation and strong slate of renewable power projects, we believe investors will be well served to move to the sidelines.

He maintained a $48.50 target. The average on the Street is $45.23.


Canaccord Genuity analyst Matthew Lee expects the recent spike in oil prices to provide a significant additional challenge for the Canadian airline sector.

“Given that fuel cost is the largest operating expense to airlines (20-25 per cent), the appreciation of prices will serve to be a meaningful headwind for profitability as demand recovers,” he said. “While airlines have traditionally passed this cost through to consumers, we believe that given the light booking activity (especially for business travellers), airlines may have to absorb more of the cost.”

In a research note previewing earnings season, Mr. Lee said a recovery in capacity is progressing as he expected, however he warned traffic remains two quarters behind American peers.

“While the Canadian border is now open for international visitors and VFR/Leisure travel appear to be recovering, the delay in return-to-office mandates likely implies a slower-than-expected business recovery,” he said. “On the cargo front, demand continues to be robust with ecommerce trends and disrupted ocean supply chains providing tailwinds.”

Accordingly, Mr. Lee declared “cargo remains king,” benefitting Cargojet Inc. (CJT-T) and Exchange Income Corp. (EIF-T).

“While commercial travel is certainly improving, we continue to prefer the cargo space where ecommerce tailwinds are likely to propel growth even as the added demand from supply chain disruptions abates,” he said. “We are also bullish on essential travel, which appears to be nearly back to full steam. Given our macro view on the industry, we expect that CJT and EIF are likely to deliver robust fundamentals in Q3 with CHR seeing a slightly slower recovery and AC remaining somewhat more challenged. With that said, we continue to see AC as an attractive source of torque to the rebound in travel and leisure longer term.”

He raised his target for Cargojet shares to $240 from $230, keeping a “buy” rating. The average on the Street is $250.58.

After tweaking his projections to reflect weaker-than-anticipated business travel and rising fuel costs, Mr. Lee cut his target for Air Canada (AC-T, “hold”) to $26 from $28. The average is $29.10.

“Air Canada’s shares have fallen 9 per cent since reporting June-quarter results. We believe that the combination of a slower recovery in travel (especially for business passengers) and increasing fuel costs have put pressure on the medium-term outlook for the company. While we continue to believe that AC is well positioned for a recovery given its fleet and has the balance sheet to sustain through an extended downturn, we remain on the sidelines given the uncertainty around Canadian travel and the additional headwinds from rising oil prices,” he said.


A group of equity analysts on the Street resumed coverage of Dream Industrial Real Estate Investment Trust (DIR.UN-T) following its $288-million equity offering.

The proceeds are being used to help fund $831-million in recent acquisitions both in Canada and Europe.

They include:

* Desjardins Securities’ Michael Markidis to $18 from $17 with a “buy” rating. The average is $18.28.

“DIR has tapped the equity capital markets to raise more than $1-billion of equity this year. A large portion of this capital has been used to expand its portfolio throughout continental Europe, which now accounts for 40 per cent of portfolio value. Reflecting positive revisions to our FFO outlook and NAV, we have increased our target,” he said.

* CIBC World Markets’ Sumayya Syed with an “outperformer” rating and $18 target.

“DIR’s latest acquisitions further the REIT’s objective of growing globally in markets with strong fundamentals that offer runway for organic growth. On completion of the pending acquisitions, the portfolio will have grown by over 75 per cent since the start of the year, to over $5.5B-billion of assets. More importantly, we see an improving per unit growth profile, with 17% FFO/unit growth expected in 2022. The financial position is solid, with leverage below 40 per cent providing the flexibility to pursue acquisitions while benefiting from a declining cost of debt. We continue to view DIR positively given the REIT’s growth pipeline.”

* RBC Dominion Securities’ Pammi Bir to $19 from $18 with an “outperform” rating.

“On balance, we view the assets as complementary additions that continue to advance portfolio quality, bolster cash flow durability, and provide additional organic growth opportunities. Supported by a solid growth profile and strength in industrial fundamentals, we maintain our Outperform,” said Mr. Bir.

* TD Securities’ Sam Damiani with a $19 target with a “buy” rating.

* National Bank’s Matt Kornack with a $19 target with an “outperform” rating.


In other analyst actions:

* BMO Nesbitt Burns analyst Fadi Chamoun raised his target for Canadian National Railway Co. (CNR-T) to $170 from $160, maintaining a “market perform” rating. The average is $157.92.

“On September 19, we published a detailed analysis demonstrating CNR should be able to operate at an OR [operating ratio] of 53 per cent if it restores its unit revenue and unit cost to bestin-class levels,” he said. “Recent developments open the possibility for a strategic change that can underwrite a multi-year margin improvement opportunity. Our analysis presented in this comment suggests attractive upside potential even from current levels in a 53-per-cent OR scenario by 2024 — but at a valuation premium relative to other investment opportunities in the rail sector.”

* Despite reducing his third-quarter earnings estimate to reflect “temporary headwinds created by pandemic-related disruptions” BMO Nesbitt Burns’ Stephen MacLeod raised his target for Dentalcorp Holdings Ltd. (DNTL-T) to $20 from $19 with an “ouperform” rating. The average is $20.19.

“These factors are not new, but, rather, are continuing to linger in Canada and are non-recurring in nature,” he said. “Importantly, our positive view on the stock is unchanged. We continue to view dentalcorp as a unique Canadian growth stock with a niche market position and multi-year opportunity to continue to grow its market-leading network of dental clinics (market is approximately 95-per-cent unconsolidated). We see attractive risk-reward, with multiple expansion opportunity over time.”

* Expecting the streak of “good” results to continue in the third quarter for Canadian insurance firms, Canaccord Genuity analyst Scott Chan raised his targets for these stocks: IA Financial Corp. (IAG-T, “buy”) to $85.50 from $83.50; Manulife Financial Corp. (MFC-T, “buy”) to $30.50 from $30 and Sun Life Financial Inc. (SLF-T, “buy”) to $75 from $74. The average is $83.17, $30.03 and $74, respectively.

* Canaccord’s Aravinda Galappatthige increased his target for Corus Entertainment Inc. (CJR.B-T) to $8.50 from $7.50, keeping a “buy” rating. The average is $8.21.

“Corus reported Q4 results Friday morning that showed a good rebound off the COVID-19 impacted base period (Q4/20), with EBITDA higher than expected due to stronger margins, in both TV and radio and advertising moving closer toward pre-pandemic levels,” he said.

* Citing an “insufficient” return to his target, Credit Suisse Andrew Kuske downgraded Enbridge Inc. (ENB-T) to “neutral” from “outperform” with a $55 target, falling 2 cents below the consensus.

*Mr. Kuske lowered his target for TC Energy Corp. (TRP-T) to $74 from $77 with an “outperform” rating. The average is $69.05.

“Among the larger cap Canadian energy infrastructure stocks, our bias is clear with TC Energy Corporation (TRP) as Outperform rated with a slightly reduced $74 target price (from C$77) given a slight reductions to EBITDA forecasts. In our view, the large energy infrastructure stocks and other similarly situated network infrastructure companies can often offer an extended amount of growth from existing assets given physical positions. Both ENB and TRP look favourable on that reality, however, the broader energy transition theme looks to benefit a less liquids skewed asset base, in our view. Yet, Carbon Capture and Storage (CCS) related capital can challenge that statement. In terms of stocks, we consider indexed performance since H2 2021.”

* Desjardins Securities analyst John Sclodnick lowered Lundin Gold Inc. (LUG-T) to “hold” from “buy” based on valuation. His target slid to $13.75 from $14.50, which is below the $14.86 average.

“Over the past two years, LUG has averaged a consensus P/NAV premium of 29 per cent vs intermediate peers,” he said. “The premium is now 43 per cent after the stock outperformed the index by 18% per cent over the last three months and by 8 per cent in the past month. We believe the production drop in 2023 will come into greater focus next year. The company also faces M&A risk as it looks to diversify production.”

* TD Securities analyst Sean Steuart lowered West Fraser Timber Co. Ltd. (WFG-N, WFG-T) to “buy” from “action list buy” with a US$113 target, exceeding the US$106 average.

* National Bank Financial analyst Richard Tse raised his Telus International Canada Inc. (TIXT-N, TIXT-T) target to $50 from $40, keeping an “outperform” recommendation. The average is $38.32.

* Mr. Tse lowered his targets for Real Matters Inc. (REAL-T) to $12 from $15.50, MDF Commerce Inc. (MDF-T) to $8 from $13.50 and Farmers Edge Inc. (FDGE-T) target to $6 from $10, maintaining “sector perform” ratings for each. The average targets are $17.25, $14.50 and $6.13, respectively.

* National Bank’s John Shao cut his Softchoice Corp. (SFTC-T) target to $35 from $40 with a “sector perform” rating. The average is $36.50.

* TD Securities analyst Jonathan Kelcher resumed coverage of Tricon Residential Inc. (TCN-N, TCN-T) with a “buy” rating and $16 target. The average is $17.38.

* National Bank Financial analyst Rupert Merer initiated coverage of Next Hydrogen Solutions Inc. (NXH-X) with a “sector perform” rating and $7 target. The average is $9.83.

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