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

Seeing its valuation at a level that now aligns with its fundamentals and potential risks, RBC Dominion Securities analyst Paul Treiber raised his rating for BlackBerry Ltd. (BB-N, BB-T) to “sector perform” from “underperform” on Monday.

“Our upgrade is not predicated on a change in BlackBerry’s fundamentals. Overall, we believe that BlackBerry’s IoT [Internet of things] segment is likely to continue to rebound with the recovery in global auto production,” he said. “Additionally, BlackBerry’s ASP per vehicle is continuing to expand, as the software content per vehicle is rising. BlackBerry’s Cyber Security segment is facing challenges (e.g., negative 2-per-cent year-over-year ARR growth and 95-per-cent net revenue retention Q3); however, new sales & marketing investments and updated products may help stabilize Cyber Security revenue. Our financial estimates are unchanged.”

Ahead of the March 31 release of its fourth-quarter results, Mr. Treiber said he’s projecting Software & Services revenue to increase 15 per cent year-over-year to US$184-million, due largely to a 38-per-cent jump in IoT revenue. However, his estimate for total revenue of US$184-million falls below the consensus forecast of US$189-million. His forecasts for adjusted EBITDA and adjusted earnings per share of losses of US$16-million and 5 US cents are also beneath the Street’s view (losses of US$9-million and 4 US cents).

“Our upgrade is not based on a change in our view regarding BlackBerry’s fundamentals; we believe that the company is still in the midst of progressing through its turnaround,” said Mr. Treiber.

He maintained a US$7 target for BlackBerry shares. The average on the Street is US$7.50, according to Refinitiv data.

“Following the pullback in the stock, BlackBerry is now trading at 4.1 times FTM EV/S [forward 12-month enterprise value to sales], below cybersecurity peers at 8.2 times,” he said. “BlackBerry’s valuation is now slightly below its 5-year average of 4.5 times, down from a peak of 10.0 times. BlackBerry’s discount to peers is now slightly wider than its historical average (50-per-cent discount currently vs. 30-per-cent 5-year average).”


IA Capital Markets analyst Chelsea Stellick thinks Neighbourly Pharmacy Inc.’s (NBLY-T) $435-million acquisition of Rubicon Pharmacies “aligns with management’s superb track record of aggressive expansion without compromising on and executing on only the most complementary deal.”

In response to the deal, which is its largest yet, she raised her rating for Neighbourly shares to “buy” from “hold,” emphasizing it increases its scale and “further cements the brand in Western Canada.”

On March 10, Neighbourly announced the acquisition of Saskatchewan-based Rubicon, the largest owner and operator of independent pharmacies in Western Canadian. It will be partially funded through a $270-million equity issuance of subscription receipts.

“This acquisition will result in substantial growth of Neighbourly’s run rate earnings by more than 70 per cent,” said Ms. Stellick. “This deal is expected to close in Q2/C22 and further cements Neighbourly as the leading and fastest-growing pharmacy acquirer in Canada.”

“Rubicon aligns with and complements NBLY’s existing portfolio, with mostly rural, community pharmacies as well as some urban and suburban pharmacies and clinic pharmacies. These locations are largely in uncrowded markets and the same proportion of revenue is derived from pharmacy rather than front shop sales – similar to NBLY’s existing network. The healthcare orientation and rural locations of Rubicon Pharmacies will fit into NBLY’s brand identity, which is successful at maintaining customer loyalty.”

“We believe the Rubicon acquisition will provide Neighbourly with greater visibility for potential acquisition targets. Given Neighbourly’s liquidity and profitability, we continue to forecast around 40 acquisitions annually in the coming years as our base case”

She raised her target for Neighbourly shares to $40 from $31. The average is $37.58.

“Following this large acquisition we still seethe roll-up story continuing for many years without any concerns of encountering a lack of targets or any regulatory hurdles. ... The readily apparent flexibility and momentum will enable Neighbourly to continue sourcing more than enough targets for its M&A pipeline and executing on only high-quality opportunities, “ she said. “By acquiring Rubicon, which itself had grown from 32 to 100 pharmacies since 2017, Neighbourly is consolidating its position as the acquirer of choice for independent pharmacies. This acquisition will benefit NBLY’s already favourable negotiating position by removing a competing acquisition-focused pharmacy network in any bidding process in Western and Central Canada.

“We believe the Rubicon acquisition will provide Neighbourly with greater visibility for potential acquisition targets. GivenNeighbourly’s liquidity and profitability, we continue to forecast around 40 acquisitions annually in the coming years as our base case”

Elsewhere, others making adjustments include:

* RBC’s Irene Nattel to $42 from $39 with an “outperform” rating.

“The acquisition of Rubicon announced on March 10 is an important step in the evolution of Neighbourly that: i) folds in a notable competitor, ii) adds significant scale in under-penetrated markets, and iii) brings NBLY closer to the critical mass at which strategic opportunities emerge. Updating our financial forecasts for the transaction, leverage moderating from 3.0 times to less than 2.5 times within 12 months. With a robust pipeline of potential transactions, in our view, NBLY remains well positioned for incremental M&A in F23, albeit at a more moderate pace; cadence reaccelerating in F24. Reiterating constructive view,” she said.

National Bank’s Zachary Evershed raised his target to $35.50 from $32, keeping a “sector perform” recommendation.

“Though Neighbourly has taken out what we view as its largest available single target, we still see significant growth potential in this roll-up story with 3,500 independent pharmacies that fit NBLY’s criteria remaining. However, we believe this is reflected in the stock’s premium valuation and therefore reiterate our Sector Perform rating given the tight return to target,” he said.


Following a “strong” share price performance on near-record revenue in 2021, iA Capital Markets analyst Matthew Weekes elected to lowered his recommendation for Pulse Seismic Inc. (PSD-T) to “hold” from “speculative buy,” citing “limited visibility for a more normalized sales outlook in a post-pandemic environment.”

The analyst noted transaction-based sales are “difficult to predict” and he expects M&A activity in oil and gas will likely be lower in 2022. He’s also “cautiously building in a more normalized level of these sales going forward.”

“PSD delivered the second-highest revenue in its history in 2021. PSD expects Transactional to continue to comprise the majority of its sales in 2022, while we cautiously build in a more normalized level of Transactionals sales going forward, resulting in an 50/50 mix with Traditional sales,” he said. “Strong fundamentals for producers and the longer-term outlook for gas production in conjunction with LNG Canada coming on stream in the middle of the decade could support growth in Traditional seismic sales. However, E&Ps remain cautious, and drilling is still slightly below pre-pandemic levels. While this creates uncertainty for near-term sales, PSD’s high margins with no debt will allow the majority of revenue earned to go directly to shareholders or value-creating initiatives.”

Currently the lone analyst on the Street covering the stock, Mr. Weekes has a $2.70 target for Pulse shares.

“We believe valuation upside remains for the stock, and future Transactional sales announcements and industry activity could provide potential catalysts,” he said.


Given its global operations and exposure to manufacturing, Brookfield Business Partners LP’s (BBU-N, BBU.UN-T) likely has “complex supply chains, which could pose a risk in the near term,” according to Mr. Weekes.

“Overall, however, we expect BBU’s strong diversification and essential nature of many of its businesses to help insulate against macro shocks,” he said. “Despite delivering strong Q4 results, with numerous tailwinds including recovery from COVID-19 and commodity price exposure in certain areas, BBU’s stock has underperformed year-to-date (down almost 9 per cent), which we believe creates a buying opportunity for investors.”

Mr. Weekes said Brookfield’s fourth-quarter earnings beat reinforced his positive outlook with number businesses across its portfolio performing “well.”

“Adj. EBITDA and earnings from operations beat estimates by a wide margin, with numerous contributing factors in both core businesses as well as some of the lesser talked about areas of the portfolio. These included a beat from Westinghouse, which offset timing and seasonality impacts from the prior quarter, oil price tailwinds related to certain profit-sharing agreements at Altera Infrastructure, tailwinds on natural gas prices at Ember Resources, and general recovery from COVID-19. Many of these tailwinds will likely continue, contributing to continued growth along with BBU’s ability to implement business improvement plans at recently acquired companies.”

In response to its recent special distribution of Brookfield Business Corp. (BBUC-N, BBUC-T) shares, he cut his target to US$39 from US$58 from with a “buy” rating. The average is US$45.67.

Elsewhere, Scotia’s Phil Hardie cut his target to US$38 from US$58 from with a “sector outperform” rating.

“We believe the unit split and C-Corp spin-off is likely to expand the investor base and support the narrowing of the NAV discount,” he said. “In our view, the restructuring provides investors with greater flexibility to invest in BBU’s underlying portfolio and targeted returns. The two entities are economically equivalent, but the corporate structure is likely to appeal to a broader investor base. The corporation likely has the potential to: (1) increase holdings from U.S. retail investors given simpler, or more favourable, tax attributes; (2) enhance institutional investor interest to include those that are not able to, or prefer not to, invest in LP units; and (3) be included in additional indices and ETFs that do not allow LPs.”

“We continue to view BBU as a top value idea with the stock trading at a wide discount despite stronger operating trends and a solid growth outlook. Our current target price implies a total return of 35 per cent over the next 12 months. We are projecting NAVPU to grow a solid 19 per cent in the coming 12 months, with the bulk of the growth being driven by its large platform companies.”


Though its shares surged last week after its quarterly earnings report, Desjardins Securities analyst Chris Li expects macro challenges to keep Alimentation Couche-Tard Inc. (ATD-T) “range-bound in the near term.”

“ATD is up 11 per cent since its 3Q results beat on March 15 (3 per cent for S&P/TSX),” he said. “We attribute the outperformance to positive commentary around cost pass-through (fuel and instore),supported by rational competition, a relatively healthy consumer and reopening; limited impact on demand so far from high fuel prices; sustainability of fuel margins; and management’s confidence that growth initiatives will offset any moderation in fuel margins and keep EBITDA stable in FY23 vs FY22, with upside potential.”

In a research report released Monday, Mr. Li said Couche-Tard possesses “attractive” longer-term organic growth opportunities with management targeting 8-10-per-cent annual growth.

“This implies low-double-digit-percentage total shareholder return (TSR) including share buybacks, supported by ATD’s strong FCF and balance sheet,” he said. “We believe the sustainability of structurally higher fuel margins is key. If ATD is successful, we believe low-double-digit-percentage TSR is attractive vs ATD’s valuation of 16.5 times forward P/E. Some of the large-cap Canadian staples (Loblaw, Metro and Saputo) trade at 18–19 times P/E with similar long-term TSR. We recognize that ongoing concerns about energy transition risks and M&A uncertainty will likely keep valuation from exceeding its long-term average of 17 times forward P/E. On M&A, our sense from management is that valuation is becoming more reasonable with potential opportunities in a rising rate environment for highly levered assets.”

Reaffirming his “positive long-term view,” Mr. Li raised his target for Couche-Tard shares by $1 to $60, keeping a “buy” recommendation. The average is $60.74.


While Canaccord Genuity analyst Yuri Lynk saw its earnings report as “another weak quarter,” he sees “a favourable setup” for Badger Infrastructure Solutions Ltd. (BDGI-T) to generate “material” earnings growth through 2023.

Shares of the Calgary-based company soared over 11 per cent on Friday with the premarket release based on that optimism. However, adjusted EBITDA for its fourth quarter of 2021 fell 16 per cent year-over-year to $17.2-million, missing the projections of both Mr. Lynk and the Street by over 30 per cent ($24.8-million and $26.5-million, respectively). Revenue rose 17 per cent to $152.9-million, which was 3 per cent above Mr. Lynk’s forecast.

“While Q1 continued to face Omicron challenges that could weigh on gross margin, Badger expects to benefit from the recovery in non-residential activity in the U.S. and the improved macro backdrop for the oil and gas industry,” the analyst said. “This view is reflected in the company’s plan to build 150 to 180 hydrovacs in 2022 and retire between 40 and 60, up from 32 additions and 53 retirements in 2021. Management has secured the chassis and other components it needs to build these units via inventory on hand and proactive pre-ordering.”

“The weak print was on severe margin compression, but we maintain our positive view on the company’s long-term growth prospects and EPS/DPS upside on the combination of favourable macro trends and an emerging tight market for hydrovacs that has positive pricing implications”

Touting its “excellent financial flexibility,” Mr. Lynk trimmed his target for Badger shares by $1 to $37, reaffirming a “buy” rating. The average is $34.69.

“In summary, if volumes can continue to recover and management can deliver the substantial operating leverage inherent in Badger’s operating model, we see nearly $2.00 of earnings power in 2023,” he said.

Other analysts making target adjustments include:

* Acumen Capital’s Trevor Reynolds to $37 from $38.75 with a “speculative buy” rating.

“Revenue was in-line which is positive while EBITDA came-in well below our estimate and consensus due to increased costs,” he said. “With COVID-19 continuing to impact labour through January and most of March we now expect similar margins for Q1/22 before operating leverage builds over the coming quarters. Note that BDGI announced plans to build 165 trucks in 2022 which could be a sign that the marketing and restructuring investments are having an impact.”

* Scotia’s Michael Doumet to $34 from $36 with a “sector perform” rating.

“The magnitude of the 4Q miss came as a surprise to us, but the drivers of it were not,” he said. “Once again, COVID-19 caused a mismatch of revenues and expenses, i.e., higher case counts resulted in an increase in non-billable hours, overtime and recruiting/training costs and reduced overall productivity. Omicron (and fuel) will weigh on margins in 1Q22, but lower case counts should go a long way to normalizing margins starting in March. Incrementally, management appeared positive on pricing through 2022.”

“Despite the miss, BDGI shares were up. There are two things, we presume, the bulls like: valuation and the fleet guidance. On valuation, BDGI never traded at an EV/truck below $0.8 million (a low reached in 2013, 2016, and 2020). And, that’s where it trades now (roughly). It also announced that it would expand its fleet by 8 per cent in 2022, despite remaining well below its revenue capacity of $700 million. In our view, that is a bullish signal that management believes demand will strengthen through 2022 and into 2023. As margins normalize, there could be upside. If Badger can hit its margin targets, there could be significant upside. For now, we continue to look for evidence of such a normalization.”

* BMO’s Jonathan Lamers to $37 from $39 with an “outperform” rating.

“Our sense is Badger’s results are set to turn the corner after the upcoming Q1, with margins set to trend up toward historical levels as COVID effects fade, and the company accelerating new truck builds to capitalize on rising nonresidential construction and energy markets,” he said.

* CIBC World Markets analyst Krista Friesen to $30 from $29 with a “neutral” rating.

* TD Securities’ Daryl Young to $33 from $34 with a “hold” rating.


In other analyst actions:

* Desjardins Securities analyst David Newman raised his CareRx Corp. (CRRX-T) target to $10, above the $9.14 average, from $9.50 with a “buy” rating.

* RBC Dominion Securities’ Douglas Miehm cut his Dialogue Health Technologies Inc. (CARE-T) target to $10 from $12 with a “sector perform” rating, while Scotia Capital’s Adam Buckham lowered his target to $11 from $13 with a “sector outperform” rating. The average is $10.06.

“While market-headwinds may continue to keep shares in check, for patient LT capital, we continue to see an interesting value opportunity,” said Mr. Buckham.

* National Bank’s Don DeMarco lowered his Endeavour Mining PLC (EDV-T) target to $44.25, above the $43.37 average, from $45.50 with an “outperform” rating.

* Scotia’s Himanshu Gupta raised his Flagship Communities Real Estate Investment Trust (MHC.U-T) target to US$24 from US$22 with a “sector outperform” rating, while BMO’s Joanne Chen increased his target to US$25 from US$22.50 with an “outperform” rating. The average is US$23.63.

“Flagship is one of the few names in our entire coverage universe with double-digit AFFO and NAV growth profile,” Mr. Gupta said. “We estimate AFFOPU CAGR of 15.2 per cent in 2021A-2023E and NAVPU growth of 11.1 per cent – both are much ahead relative to REIT sector average. We recommend Flagship to small-cap growth investors.”

* CIBC’s John Zamparo reduced his Hexo Corp. (HEXO-T) target to 70 cents from 80 cents with an “underperformer” rating, while Canaccord Genuity’s Matt Bottomley cut his target to $1 from $1.25 with a “speculative buy” rating. The average is $1.41.

“Significant asset impairments in the cannabis space are nothing new, but this quarter’s $600-million-plus figure was striking,” said Mr. Zamparo. “There are some reasons for optimism as adjusted GM% was well above most peers, and we agree costs can be cut significantly to improve profitability. Details around the nature and timing of these are uncertain and the target ($140-million) appears aggressive. Our greater concern is material organic revenue declines. Reliance on such an ambitious turnaround plan, combined with the company’s history, will mean the stock has limited upside until meaningful progress is shown, in our view, and there is heightened risk until the convertible debt deal with TLRY closes.”

* RBC’s Pammi Bir raised his target for shares of Melcor Developments Ltd. (MRD-T) to $19 from $18 with a “sector perform” rating.

“Our outlook for Melcor Developments continues to improve post Q4/21 results which handily topped our estimates on the back of impressive growth from the Community Development segment,” he said. “After managing through six-plus years of macro headwinds in Alberta (driven by commodity prices) and the COVID-19 pandemic, the setup now appears to be shifting in MRD’sfavour. Indeed, the 17-per-cent increase in the Q1/22 dividend to $0.14/share ($0.56 annualized) speaks to its growing confidence in the outlook.”

* After an inline quarter, National Bank Financial’s Jaeme Gloyn trimmed his target for Power Corporation of Canada (POW-T) to $46 from $48 with a “sector perform” rating, while Barclays’ John Aiken raised his target to $46 from $45 with an “equal-weight” rating. The average is $46.88.

“We see near-term NAV upside from strategies to i) further simplify the business model, ii) drive a rerate of operating company valuations, and iii) realize value on standalone businesses and other investments,” Mr. Gloyn said. “Longer term, we see upside from growth in the alternative asset management platform. We reflect these views through i) our above-consensus Price Target (PT) on IGM, and ii) a narrowing of POW’s discount to NAV to 20 per cent (was 17 per cent, given increased market risk) from the current 22 per cent. Our PT declines slightly on a wider discount and lower NAV. We remain Sector Perform given stronger total returns elsewhere in our coverage universe - including the 40-per-cent return to target at IGM”

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