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

Believing both its execution and outlook are now properly reflected in its valuation, BoA Securities analyst David Barden downgraded BCE Inc. (BCE-T) to “neutral” from “buy” on Monday in response to its recent “rapid” appreciation and seeing a lack of “incrementally new catalyst drivers.”

“BCE has executed well in an uncertain environment,” he said in a research note. “Wireless subscriber growth was sustained through COVID lockdown restrictions by leveraging digital distribution channels. Broadband growth was sustained through fiber footprint expansion driving subscriber net adds. Looking forward, the wireless business will benefit from a return of wireless roaming, a rising immigration pace, and continued penetration growth. This momentum is now fairly reflected in BCE’s all-time high forward multiple 9.5 times, surpassed only by TELUS which has a faster growing asset mix and is several years ahead in terms of fiber deployment.”

Looking ahead, Mr. Barden expects “moderating” capital spending in 2023 should support dividend growth.

“BCE delivered stable results through the pandemic and shared positive 2022 guidance that includes 2-5-per-cent year-over-year adjusted EBITDA growth,” he said. “The wireless unit is delivering stable growth in both subscriber and ARPU [average revenue per user and is poised to benefit from the return of international roaming and an uptick in immigration to Canada. Overall, we see BCE executing well and on the cusp of benefiting from a capex step-down in 2023. The 2022 21-per-cent capital intensity guidance includes an incremental $0.9-billion of accelerated capex that won’t repeat in 2023 clearing a path to free cash flow growth, bolstered by pension funding savings.

“Inside the capex enveloped, BCE should add 600k fiber passings per year through 2025 as it pushes cover over 10 million homes and businesses (83 per cent of total) with its FTTH or WTTH network. Falling capex beyond ‘22E will enable BCE to maintain its 5% dividend growth while moving the dividend payout ratio (as a percent of FCF) closer to the targeted 65-75-per-cent range while maintaining flexibility to acquire spectrum in upcoming auctions (likely 2023) and pay down maturing debt in a rising interest rate environment.”

Mr. Barden maintained his $69 target for BCE shares. The average on the Street is $67.13, according to Refintiv data.

“Our $69 price objective is based on a forward EV/EBITDA multiple of 9.3 times compared to a 5-year average of 8.5 times. We believe a higher-than-historical multiple is supported by BCE’s advanced fiber deployment (6.2 million direct FTTH passings at year end ‘21) heading to 7.1 million FTTH by year-end 2022. The fiber investment is driving market share growth, higher penetration and improved ARPU, churn and costs. In our view, the current multiple fairly reflects our positive outlook.”


In reaction to “significant” share price appreciation, Scotia Capital analyst Orest Wowkodaw lowered his recommendation for Labrador Iron Ore Royalty Corp. (LIF-T) to “sector perform” from “sector outperform” on Monday, seeing a limited return to his revised target for its shares.

His move came following Friday’s release of better-than-anticipated fourth-quarter financial results. Adjusted earnings and cash flow per share of $1.22 and $1.27, respectively, exceeded his estimates of 92 cents and $1.20.

“Although spot Fe prices are tracking well above our expectations, and we have increased our target multiples accordingly, the risk/reward profile for LIF shares appears more balanced at current levels. LIF shares are trading at a spot 2022 estimated CFPS yield of 11 per cent, largely in line with the historical average,” said Mr. Wowkodaw, calling its dividend outlook “robust.”

He raised his target for Labrador Iron Ore shares to $50 from $43. The average on the Street is $41.43, according to Refinitiv data.


Ahead of Tuesday’s release of its third-quarter 2022 financial results, National Bank’s Vishal Shreedhar remains optimistic about the future prospects for Alimentation Couche-Tard Inc. (ATD-T), however he expects rising inflation to weigh on near-term performance.

For the quarter, he’s projecting earnings per share of 68 cents, up from 56 cents during the same period a year ago and 6 cents above the consensus estimate on the Street. He attributed the gains to elevated fuel margins in North America, year-over-year fuel volume growth, contributions from acquisitions and share repurchases.

While seeing fuel margins remaining “solid,” Mr. Shreedhar emphasized the Quebec-based company has “an inverse relationship” with the price of oil, which could weigh on results moving forward.

“We highlight the impacts to ATD as follows: (1) Consumer volume/demand may be suppressed; (2) Fuel margins could be temporarily negatively impacted as rack costs increase faster than retail prices; (3) Electronic payment fees could rise as petroleum prices increase; (4) A strengthening Canadian dollar (vs. the U.S. dollar) could negatively impact ATD’s shares (which are Canadian exchange traded; earnings are denoted in USD). Some of these factors may not manifest as they historically have given uncertainty related to the macroeconomic backdrop,” he said.

After making narrow increases to his revenue and earnings expectations for 2022 and 2023, Mr. Shreedhar trimmed his target for Couche-Tard shares to $53 from $55 to reflect “increased uncertainty regarding inflation.” The average on the Street is $58.41.

“Though we believe that Couche-Tard has solid longer-term growth prospects (network development, merchandising improvement, fuel optimization, capital return to shareholders and potential acquisitions), limited near-term growth expectations keep us on the sidelines,” said Mr. Shreedhar, keeping a “sector perform” rating, .

Elsewhere, Scotia’s Patricia Baker raised her target to $64 from $61 with a “sector outperform” rating.

“We remain constructive on the outlook for ATD and view the company as well positioned to capture incremental growth and share. ATD appears well on track to deliver on its “Double Again” five-year plan, which, in turn, should support the share price,” she said.


After “another strong quarterly result,” Scotia Capital analyst Patricia Baker sees Empire Company Ltd.’s (EMP.A-T) valuation as “compelling” with its shares trading at a “sizable” discount to peers.

On Feb. 10, the parent company of Sobeys reported third-quarter earnings per share of 77 cents, up 16.7 per cent year-over-year and exceeding the estimates of both Ms. Baker and the Street (68 cents and 67 cents, respectively).

“On a two-year basis EPS growth was an impressive 67 per cent,” she said. “The solid Q3 performance reflects strong retail execution and underscores a growing momentum in the business. Looking over the past several years what is notable is the fact that Sobeys has been driving a consistent performance quarter after quarter with respect to its ability to balance sales and margin.

“Q3F22 built on the strong contribution from Project Horizon strategic initiatives in Q3F21 delivering a 41 basis points improvement in the GM rate. Sobeys navigated well through the many challenges in Q3 including supply chain disruptions and labour issues associated with omicron. The quarter also benefited from a strong year-over-year contribution from the Investments & Other segment, primarily driven by gains at Crombie Reit.”

Ms. Baker emphasized the impact of inflation on grocers is “ubiquitous at present and is showing up everywhere and that includes the cost of food.” However, she sees Empire having done a “good job working through this challenge.”

Keeping a “sector outperform” rating for its shares, she raised her target to $50 from $48, which is the current average on the Street.

“In our view EMP.a shares offer compelling value with the shares trading at only 13.8 and 13 times P/E multiple on our F22 and F23 forecasts, respectively,” said Ms. Baker. “The NA group average is 15.3 and 14.5 times. The shares are also trading below their five-year average, which to us represents a clear disconnect given the massively improved market position over the last five years and the clearly sharpened execution, not to mention the consistent results profile. The domestic peers are trading at 6.9 times and 17.2 times, and in our view, this is far too wide a gap, particularly in the context of the strong execution at EMP.a and the promise of more to come in the final year of Project Horizon.”


RBC Dominion Securities analyst Greg Pardy came away with a recent update with Ovintiv Inc. (OVV-N, OVV-T) CEO Brendan McCracken with a “reinforced confidence” in its “game plan to meet its production guidance while living within its $1.5 billion capital program.”

“The company pivoted its drilling plan from the Montney in British Columbia to the Pipestone area in the Alberta Montney and Bakken in North Dakota during the fourth-quarter of 2021 due to the ongoing Blueberry First Nations issue in B.C.,” he said in a research note released Monday. “In terms of mitigating oilfield cost inflation beyond longer lateral lengths and level loaded completions activity, Ovintiv is continuing to enhance its D&C speed (faster cycle-times) and supply-chain management.”

Mr. Pardy expects shareholder returns to rise as it executes “a disciplined game plan to reduce its leverage via absolute debt reduction.”

“Once the company reaches its $3.0 billion net debt target (expected in the second half of 2022), it plans to increase quarterly shareholder returns to 50 per cent of the previous quarter’s free cash flow after base dividends,” he said. “We peg Ovintiv’s free cash flow (before dividends) at $4.2-billion in 2022 ($98 WTI, $3.85 Henry Hub).”

Calling its current relative valuation as “attractive,” Mr. Pardy raised his target for Ovintiv shares by 6 per cent to US$53 (from US$50), keeping an “outperform” recommendation. The average is

“Ovintiv is trading at a discount 2022 estimated debt-adjusted cash flow multiple of 2.2 times (vs. our North American E&P peer group average of 3.8 times) and elevated 36-per-cent free cash flow yield (vs. our peer group at 19 per cent). We believe the company should trade at a modest discount to our peer group given its solid execution capability partially offset by its unconventional strategic moves in the past,” he said.

“Although its market performance has suffered from its strategic choices over the years, we get the sense that Ovintiv has no plans for any hard left-hand turns.”


National Bank’s Endri Leno expects to see evidence of a series of difficult obstacles facing K-Bro Linen Inc. (KBL-T), including a moderation in revenue from its healthcare business and a signs of a longer-than-anticipated road to recovery in hospitality, when it reports fourth-quarter financial results after the bell on Tuesday.

The analyst is projecting revenue of $59.5-million, up from $50.4-million a year ago. However, he expects adjusted earnings before interest, taxes, depreciation and amortization and distributable cash flow per share to fall to $10.8-million and 59 cents, respectively, from $11.1-million and 77 cents.

“In Q4/21, we expect Healthcare revenues [to] decline 4 per cent year-over-year to $40.2-million due to 1) moderation in Covid testing in early Q4 partially offset by a pickup in Dec; and 2) B.C. weather disrupting access to some sites,” he said. “We also expect elevated costs from the AHS volume transition (wraps up mid-2022), energy and labour. The latter two likely stretch into 2022 as natural gas prices remain elevated while the Ontario min wage increased in Jan-22.”

“For Hospitality, we forecast year-over-year revenue gains of 130 pr cent (down 30 per cent vs. 2019) to $19.2-million. We expect leisure travel to be the main contributor to year-over-year improvements especially in the U.K. while Canada’s Q4 hotel occupancy was, on average, down 19 per cent below 2019. Occupancy fell in Jan-22 to down 36 per cent (vs. 2019) in Canada and has also been weak in the U.K. (per peer). However, removal of 1) U.K. testing travel requirements; and 2) restrictions in Scotland (from March 21st) bode well for a continued but partial recovery. Labour and energy likely remain concerns for both U.K. (per peer) and Canada.”

While Mr. Leno introduced his 2023 financial projections that estimate approximately 5-per-cent year-over-year as its hospitality business continues to recover from COVID-related weakness, he warned that rebound will now be swift.

“Both the healthcare and hospitality sectors of the laundry & linen services industry tend to generate, pandemic aside, recurring business with the added long-term stability and visibility for the former sector,” he said. “KBro’s contracts typically range from seven to 10 years in healthcare and two to five years in hospitality with low turnover rates – customer retention has been 90-per-cent-plus in the last few years. Although K-Bro has significant market share in Canada (29 per cent market share) and Scotland (28 per cent market share; 4 per cent market share in the U.K.), both markets tend to be fragmented presenting acquisition opportunities for larger industry participants, particularly in the hospitality industry.

“While K-Bro has been negatively impacted by the pandemic in the hospitality segment, healthcare volumes have been resilient with tailwinds including more frequent use of reusable personal protective clothing and elevated hospital occupancies alongside the outsourcing of laundry volumes by provincial governments and long-term care facilities. Although we expect opportunities for KBL, particularly in Canadian healthcare (such as clearing of surgical backlogs), hospitality M&A activity will likely depend on the sector’s postpandemic recovery that several organizations do not anticipate occurs in full until 2024.”

Keeping a “sector perform” rating for the Edmonton-based company’s shares, Mr. Leno cut his target to $42 from $45, below the $50.44 average.

“Although KBL has a conservative balance sheet and is well-run by a strong management team, we maintain a neutral stance given the expected long road to hospitality recovery and potential margin risk given the inflationary backdrop,” he said.


Citing the impact of near-term margin headwinds, Raymond James analyst Andrew Bradford lowered CES Energy Solutions Corp. (CEU-T) to “outperform” from “strong buy” on Monday.

“CES ended 2021 with a bang, reporting $48-million headline EBITDA against a $42-million consensus,” he said. “Revenues were encouraging on both sides of the border and across both major service lines. However, the pace of 1Q23 cost inflation has been so unprecedentedly high that CES has been challenged to keep up with the mechanical logistics of passing costs through via price increases to its customers. Such has been the acceleration of costs that CES is guiding 1Q EBITDA to be 20 per cent lower sequentially or approximately $38-million.

“We have no reason to expect CES’ pricing won’t be able to catch back up. Pricing across several primary inputs has been rising for at least 12 months, but CES’ margins have been trending modestly upward regardless, indicating success at passing through higher costs when those cost increases come at a manageable pace. But in the interim, increases are coming in faster than they can be communicated and re-written into service agreements. We expect it will take several weeks before CES is more or less ‘caught-up’ and margins more or less normalize.”

Mr. Bradford raised his target by 10 cents to $3.25. The average is $3.48.

“As an aside, investors should appreciate that full cost recovery does not equate to full percent margin recovery. Pricing increases that just offset unit cost increases mean the unit dollar margin will fully recover, but percent margins will be lower than before,” he added.

Elsewhere, National Bank’s Michael Robertson increased his target to $3.35 from $2.85, maintaining a “sector perform” rating, while Stifel’s Cole Pereira bumped his target to $3.25 from $3 with a “buy” rating.


In other analyst actions:

* In response to the Clearlake Capital Group LP’s US$2.6-billion acquisition offer, RBC Dominion Securities’ Walter Spracklin lowered Intertape Polymer Group Inc. (ITP-T) to “sector perform” from “outperform” with a $40.50 target, up from $37.

“We view counter offers as less likely to materialize given the high premium (82 per cent), management’s full support of the transaction and costly termination fees on both sides if the deal falls through,” he said.

* CIBC World Markets’ Krista Friesen initiated coverage of Badger Infrastructure Solutions Ltd. (BDGI-T) with a “neutral” recommendation and $29 target. The average target on the Street is $36.53.

“We hold a positive long-term view of Badger Infrastructure Solutions (Badger) given its organic growth opportunities and the initiatives taken to improve margins. That being said, in the near term we believe the company’s valuation is capped until there is concrete evidence of margin improvement and better free cash flow (FCF) conversion,” he said.

* CIBC’s Allison Carson initiated coverage of Ascot Resources Ltd. (AOT-T) with an “outperformer” rating and $1.65 target, Artemis Gold Inc. (ARTG-X) with an “outperformer” rating and $12.50 target and Skeena Resources Ltd. (SKE-T) with an “outperformer” rating and $20 target. The average targets are $1.74, $12.73 and $22.44, respectively.

* CIBC’s Nik Priebe increased his Alaris Equity Partners Income Trust (AD.UN-T) target to $23.50 from $22, keeping an “outperformer” rating. The average is $24.11.

“The follow-on investment in BCC reflects a sizeable cheque that pushes the payout ratio down towards the low 60-per-cent range (closer to where we believe the company would consider an increase to the unitholder distribution). It also lowers the reinvestment risk associated with a potential redemption event from Kimco. We have increased our earnings estimates accordingly,” he said.

* Canaccord Genuity’s Carey MacRury raised his target for Altius Minerals Corp. (ALS-T) to $27 from $21, exceeding the $25.86 average, with a “buy” rating.

* BMO Nesbitt Burns’ Jonathan Lamers raised his Ballard Power Systems Inc. (BLDP-Q, BLDP-T) target to US$11.50 from US$10 with a “market perform” rating. The average is US$18.70.

“The Q4 release had mixed implications. Revenue exceeded estimates and Weichai-Ballard JV sales stepped up to new levels. However, the order backlog declined to a four-year low,” he said.

“We consider this consistent with our view Ballard’s revenue growth will remain lower than fuel cell sector leaders over 2022.”

* While he expects to see growth across all its segments when it reports quarterly results on March 23, National Bank’s Endri Leno cut his target for Dialogue Health Technologies Inc. (CARE-T) to $11.50, above the $10.72 average, from $14 with an “outperform” rating based on sector compression.

“We maintain a positive view on CARE due to its 1) topline visibility through recurring and reoccurring revenues; 2) significant market position in Canadian virtual primary health and mental care; 3) its potential to disrupt the in-person primary/mental healthcare and EAP delivery; 4) expectations of continued growth; and 5) the integrated and well-liked approach/platform/user experience,” he said.

* BMO’s Stephen MacLeod cut his target for Dorel Industries Inc. (DII.B-T) to $17 from $32, keeping a “market perform” rating. The average is $21.

“Q4/21 results were well below our estimates, as supply chain constraints and inflation weighed on earnings even more than guidance had contemplated. These headwinds are expected to continue to weigh, leading to increased earnings volatility and reduced visibility. While monetization of Home & Juvenile remains a potential future outcome, Dorel faces more acute headwinds (supply chain, inflation). While valuation is undemanding (stock is back to pre-Sports sale levels), in the absence of incremental sale clarity low earnings visibility will limit the stock’s upside,” said Mr. MacLeod.

* CIBC’s Scott Fromson raised his Dream Office Real Estate Investment Trust (D.UN-T) target to $31.50 from $27.25 with an “outperformer” rating. The average is $27.78.

* Berenberg’s Jonathan Guy cut his Endeavour Mining Corp. (EDV-T) target to $44 from $46 with a “buy” rating. The average is $43.62.

* TD Securities’ Craig Hutchison raised his Endeavour Silver Corp. (EDR-T) target to $7 from $6, maintaining a “hold” rating. The average is $7.48.

* Desjardins Securities’ Frederic Tremblay cut his Goodfood Market Corp. (FOOD-T) target to $5 from $7 with a “buy” rating. The average is $4.06.

“We are off restriction following FOOD’s $30-million bought deal of convertible unsecured debentures,” he said. “With proceeds from the offering supporting an acceleration of the rollout of micro fulfillment centres, we believe that FOOD should be better positioned for success in the increasingly competitive on-demand delivery market. Speed and scale matter if FOOD wants a decent piece of the pie, instead of just the crumbs. We view FOOD’s depressed valuation as another reason to revisit the story.”

* BMO’s Jonathan Lamers increased his Granite Real Estate Investment Trust (GRT.UN-T) target to $115 from $112 with an “outperform” rating. The average is $110.09.

* Desjardins Securities’ Benoit Poirier raised his IBI Group Inc. (IBG-T) target by $1 to $17 with a “buy” rating. The average is $17.38.

“While we were surprised by the softness in margins in 4Q, we are confident that the adverse impact was only temporary. We are encouraged by IBI’s record backlog and strong balance sheet, which should enable the company to deliver stronger growth than we are targeting in 2022. We are also looking forward to the launch of IBI’s next strategic plan with 1Q22 results (May 6),” he said.

“We remain bullish on IBI as we see strong potential for organic (near record backlog) and inorganic (very strong balance sheet with a robust pipeline of opportunities) growth ahead.”

* CIBC’s Dennis Fong raised his Imperial Oil Ltd. (IMO-T) target to $60 from $58 with a “neutral” rating. Others making changes include: Desjardins Securities’ Justin Bouchard to $65 from $60 with a “buy” rating and BMO’s Randy Ollenberger to $65 from $60 with a “market perform” rating. The average is $60.11.

“IMO’s investor day provided a plethora of details on many initiatives related to optimizing assets and improving ESG performance,” said Mr. Bouchard. “IMO is generating massive amounts of FCF and is working through the details on how best to allocate it to investors. That said, the market was expecting the announcement of a SIB, which didn’t happen. But increased shareholder returns are coming — it is just a matter of timing, in our view. The challenge now is that the share price is up more than 40 per cent since the start of talks on an SIB.”

* Credit Suisse’s Fahad Tariq increased his Lundin Mining Corp. (LUN-T) target to $13 from $11.50 with a “neutral” rating. The average is $13.08.

* Scotia’s Phil Hardie trimmed his Power Corporation of Canada (POW-T) target to $48 from $48.50 with a “sector perform” rating. The average is $47.38.

“We continue to believe that holding POW shares offer investors better value and embedded optionality than owning its underlying publicly-traded holdings,” he said. “POW’s announcement at the beginning of the year that it was selling its 13.9-per-cent interest in ChinaAMC to IGM further advances management’s strategic goal of simplifying POW’s corporate structure and provides another example of the value creation opportunities embedded within its private stub.”

* Scotia Capital’s Mark Neville cut his WSP Global Inc. (WSP-T) target to $185 from $190 with a “sector perform” rating. The average is $195.43.

“WSP’s 2022 – 2024 Strategic Plan sets ambitious growth targets, but also makes further commitments to ESG imperatives, greening of the portfolio, and diversification of the business mix and geographic exposure — all while further strengthening its core,” he said. “While we view the plan in a positive light, it was also largely as expected given the company’s history of setting (and then exceeding) robust targets and objectives. The company’s aspirational target (i.e., to double in size and achieve an adjusted EBITDA margin more than 20 per cent) also frames the L/T vision, as well as potential upside in the equity. We have made modest upward revisions to our forecasts — reflecting higher assumed organic growth rates as margin objectives were in line with our prior forecasts.”

* TD Securities’ Arun Lamba raised his Wesdome Gold Mines Ltd. (WDO-T) target to $17.50 from $15.50 with a “buy” rating, while National Bank’s Don DeMarco increased his target to $18.75 from $15.25 with an “outperform” rating. The average is $15.83.

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