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

Following “disappointing” second-quarter financial results, Stifel analyst Martin Landry downgraded Goodfood Market Corp. (FOOD-T) to “hold” from a “buy” recommendation on Monday, believing “the continued erosion of Goodfood’s revenue base warrants a lower valuation multiple ... especially given the recent risk-off market sentiment.”

Shares of the Montreal-based online grocery, home meal and meal kit company dropped 7.8 per cent on Thursday following the premarket earnings release. Revenue of $73.38-million and an adjusted earnings before interest, taxes, depreciation and amortization loss of $13.58-million, both missed Mr. Landry estimates of $83.45-million and a loss of $12.41-million. Adjusted earnings per share of a loss of 26 cents, a drop of 353 per cent year-over-year, also fell short of expectations (a 22-cent deficit).

In justifying his rating change, Mr. Landry emphasized his “lack of conviction” on the company’s near-term revenue growth potential, noting the Canadian meal kit subscription business has become “highly competitive with rising costs to acquire customers.”

“Management has decided to remain disciplined, which has resulted in Goodfood losing market share in the meal kits business,” he said. “We estimate that in the last year, Goodfood’s market share has declined by 800 basis points (from 38 per cent to 30 per cent). The revenue decline in meal kit subscriptions may abate, but we doubt this segment will return to the growth engine it once was.”

“Large players such as SkipTheDishes and Door Dash are increasing resources to grab market share in on-demand delivery of grocery and convenience products. In addition, traditional grocers have increased their online delivery capabilities with a more streamlined customer experience. While traditional grocers don’t offer on-demand delivery as rapid as Goodfood, they nonetheless represent a competitor and Voilà (Sobeys) continues to see rapidly rising website traffic. Hence, we believe that customer acquisition will be expensive for Goodfood and that competitors are better financed with larger existing customer base. Our visibility is limited as to the growth prospects for this segment, and we will stay on the sidelines until it improves.”

Believing its “path to profitability is unclear at this point given declining revenues,” Mr. Landry expects Goodfood will need to raise additional capital and thinks cost-cutting initiatives could impair its ability to grow rapidly.

“Goodfood announced an additional $12 million in cost-cutting measures coming from headcount reduction and additional initiatives to streamline operations,” he said. “The announcement follows the completion of a prior $12 million cost reduction plan, which was fully realized during the quarter. In our view, there is a risk that these aggressive cost-cutting measures could impair the company’s ability to grow rapidly and could create logistics challenges.”

Lowering his fiscal 2023 revenue forecast by a “significant” 20 per cent, Mr. Landry cut his target for Goodfood shares to $2.75 from $5 to reflect its current headwinds. The average target on the Street is $3.31.

“We would return to a more positive view upon a return to rapid revenue growth, significant reduction in cash burn and lower valuation,” he said.

Other analysts making target changes include:

* National Bank’s Ryan Li to $3.75 from $4.25 with an “outperform” rating.

“Despite recent underperformance and uncertainty associated with the shifting business model (subscription shifting to on-demand), we highlight that management has executed successfully against plans in the past,” said Mr. Li. “The focus on on-demand and private-label groceries provide credible drivers to grow sales/earnings over the medium term; however, investors will require sustained traction with revenue and margin improvement over the coming quarters. Goodfood currently trades at 0.7 times our NTM [next 12-month] sales, below the longterm average of 1.0 times.”

* Acumen Capital’s Jim Byrne to $2.75 from $3 with a “hold” rating.

“We believe the headwinds for profitability and growth will prevail for the next several quarters as it adds to its ondemand offering” said Mr. Byrne. “We believe the next several quarters will be challenging for the company as it pursues this new strategy.”

* Canaccord Genuity’s Luke Hannan to $2.50 from $2.25 with a “hold” rating.

“We anticipate investors will be unlikely to reward the stock with a higher multiple until (1) demand headwinds abate, and (2) the growth profile of its on-demand business is clearly shown in its financial results,” he said.

* Scotia Capital’s George Doumet to $2.75 from $3 with a “sector perform” rating.

“We remain on the sidelines until we get more visibility around the path to EBITDA/FCF break-even – and will be looking for evidence of normalization at the legacy business, continued execution of the on-demand strategy and further discipline around capital deployment (including wcap management),” said Mr. Doumet.

* Raymond James’ Michael Glen to $3 from $4 with a “market perform” rating.

“Overall, we do have escalating concerns regarding the competitive intensity, product offering (i.e., branded vs. private label), customer acquisition cost and longer-term retention rates associated with the business model,” he said.


Calling it “a highly compelling growth story supported by a robust pipeline of organic and M&A opportunities,” Desjardins Securities analyst Chris Li assumed coverage of Premium Brands Holdings Corp. (PBH-T) with a “buy” rating.

In a research report released Monday, he said the Richmond, B.C.-based specialty food manufacturer and distributor’s “strong” growth has been unvalued given concerns about high inflation and its impact on margins and demand. However, he thinks they are “manageable.”

“Despite macro challenges, PBH is on track to exceed its five-year (2023) financial targets, implying attractive EBITDA and EPS CAGR [compound annual growth rate] (2021‒23) of 20 per cent plus and 26 per cent plus, respectively,” said Mr. Li. “But the strong growth potential is being overshadowed by concerns around high inflation and the impact on margins and demand. Current valuation (12.2 times 2022 consensus EBITDA) is 10 per cent below the five-year average. We believe these headwinds are manageable and mostly transitory. We see attractive long-term upside, driven by both double-digit-percentage earnings growth and trading multiple expansion as macro conditions and margin visibility improve.”

“Our 2022 EBITDA margin of 9.0 per cent is in line with the midpoint of management’s guidance and up 30 basis points vs 2021. Our downside scenario assumes no margin improvement as PBH is unable to fully pass through the higher costs as macro headwinds (persistently high inflation, rising interest rates, war in Ukraine, etc) weigh on consumer confidence, causing demand to be more elastic vs previous market downturns. All else equal, we estimate that no margin improvement in 2022 would imply downside valuation of $96, which is not too far from the current share price (6‒7-per-cent downside). As PBH is already trading at a depressed valuation, we do not assume further multiple contraction in our downside valuation.”

Touting its “solid” balance sheet and “strong” liquidity, Mr. Li set a target for Premium Brands shares of $150. The average is currently $144.30.


Citing its valuation after share price appreciation thus far in 2022 and concerns about the impact of the ongoing review of its Côté Gold Project in Northern Ontario, BMO Nesbitt Burns analyst Jackie Przybylowski downgraded Iamgold Corp. (IAG-N, IMG-T) to “market perform” from “outperform.”

IAMGOLD is currently undergoing a review of the project scope and budget, expected to be released in Q2/22,” she said. “We expect this will be negative versus previous guidance; however, we consider the previous guidance optimistic.”

“We currently estimate project spending US$1.96-billion (100-per-cent basis), above the US$1.866-billion guidance; however, we see risk that the budget could grow further (or the timeline could be extended beyond our Q1/24 startup, or both). We are also correcting our estimates. We expect that IAMGOLD will report a relatively strong result at Essakane and Rosebel/Saramacca; however, as a part of the exercise to preparing our Q1 preview, we recognized that our estimates were significantly above 2022 guidance. We have now adjusted this to bring our targets closer to forecasts.”

Ms. Przybylowski cut her target for Iamgold’s NYSE-listed shares to US$2.75 from US$4. The average on the Street is US$3.13.

“We continue to see a potential positive catalyst,” he said. “We upgraded IAMGOLD to Outperform (from Market Perform) just in February 2022 due to the agreement between IAMGOLD and shareholder Resource Capital Funds. The agreement prompted renewal to the company’s Board of Directors and expected appointment of a strong permanent CEO with company turnaround experience. While we continue to expect the Board renewal is positive and the CEO search will also be successful, we believe the near-term risks to Côté guidance will outweigh these positives.

“Our downgrade is partly on valuation. IAMGOLD’s share price appreciated 19 per cent year-to-date, above the 8-per-cent improvement in gold bullion. IAMGOLD has also appreciated 27 per cent since mid-February, above the 5.5-per-cent improvement in bullion.”

Concurrently, Ms. Przybylowski made a series of target changes in a research note previewing quarterly earnings season, expecting it to have “a negative tone as companies attempt to quantify the magnitude and duration of cost inflation headwinds.”

“Production is also likely low versus the 2022 run-rate — also likely to raise unit costs in the quarter. While we don’t expect that companies will update full-year cost guidance yet, potential impacts of cost inflation will be top-of-mind in the reporting season,” she said.

“Investors may want to hide out — we expect that Agnico Eagle, First Quantum, Hudbay, and Teck Resources’ earnings in particular could have a negative tone. But for those who want to maintain exposure to Metals & Mining, we highlight the royalty/streamers, Ero Copper, and Nexa.”

Her changes include:

  • Agnico Eagle Mines Ltd. (AEM-N/AEM-T, “outperform”) to US$76 from US$77. Average: US$72.50.
  • Barrick Gold Corp. (GOLD-N/ABX-T, “outperform”) to US$27 from US$26. Average: US$27.56.
  • First Quantum Minerals Ltd. (FM-T, “market perform”) to $41 from $39. Average: $41.30.
  • Franco-Nevada Corp. (FNV-T, “outperform”) to $227 from $228. Average: $214.92.
  • Hudbay Minerals Inc. (HBM-T, “outperform”) to $15 from $16. Average: $13.42.
  • Kinross Gold Corp. (KGC-N/K-T, “outperform”) to US$9.50 from US$10. Average: US$7.84.
  • Osisko Gold Royalties Ltd. (OR-T, “market perform”) to $18 from $19. Average: $22.96.
  • Yamana Gold Inc. (AUY-N/YRI-T, “outperform”) to US$7.25 from US$7.75. Average: US$6.88.


Citing an upturn in key North American steel prices since early March and the recent emergence of several trends within the market that he sees as “supportive,” TD Securities analyst Michael Tupholme raised his rating for Russel Metals Inc. (RUS-T) to “buy” from “hold.”

“U.S. HRC peaked at US$1,960 per ton in early-October 2021 and then declined US$1,000 per ton over the ensuing five months,” he said. “However, HRC found a bottom in early-March 2022 and has risen 50 per cent since (now at US$1,500 per ton), supported in part by increased raw-material prices. U.S. carbon plate prices have also risen of-late (albeit less so, as they did not decline as much in late-2021/early-2022).”

“Monthly North American service center shipments of total steel products continue to be down year-over-year (it has been the case since H2/21). However, on a trailing three-month basis, the year-over-year rate of change has recently become less negative. Meanwhile, service center inventory levels have recently tightened and mill lead times have started to lengthen. We also see the recent strengthening of oil & gas prices as positive for Russel’s Energy Products segment outlook.”

Mr. Tupholme raised his earnings forecast for Russel to account for his higher steel price forecast,. He’s projections now sit 14 per cent above the consensus on the Street for the first quarter and 16 per cent for the full year.

He maintained a $40 target for its shares. The average is $38.89.

“From a share-price perspective, Russel has notably underperformed other North American steel distributor peers on average over multiple time periods during the past year,” the analyst said.

Elsewhere, RBC’s Alexander Jackson raised his target to $41 from $40, reaffirming an “outperform” rating.


Believing the “pendulum swung back too hard,” Desjardins Securities analyst Jerome Dubreuil is “generally bullish” on the Canadian healthcare technology sector, citing low valuations and “strong” long-term fundamentals.

“With healthcare tech stock prices feeling the COVID-19 hangover but revenues still cruising along a massive growth runway, we believe sector valuations are too cheap vs non-healthcare SaaS-based companies, even when considering profitability,” he said in a research note. “With the opportunity to help the healthcare sector catch up to other industries from a digitization standpoint, we view healthcare tech as a much bigger story than telemedicine. We note that there has been a dislocation recently in the correlation between the number of active COVID-19 cases and sector valuations. While this is bad news for shareholders in the near term given the growing number of active cases, we believe this development is generally positive in the context of the reopening of the economy.”

“We believe the sector was hit by the renewed focus on profitability along with rising interest rates. However, we believe the elevated gross margins, combined with significant operational leverage and rapid growth, should alleviate some of these concerns. Moreover, the fear of a looming recession resulting from high inflation could position the sector well given the healthcare industry is relatively resilient, especially in Canada. Our top two picks in the sector (LSPK and CARE) are not exposed to clinics and have little to no exposure to B2C and transactional services, all of which may be more affected by the economic backdrop.”

In a research report released Monday, he initiated coverage of four companies, including Lifespeak Inc. (LSPK-T), which is his “preferred name” in the sector.

“Although LSPK is not the most tech-enabled company under our coverage, it operates a model that is simple yet faces little direct competition, generates organic growth above the average of our coverage, has proven profitability with leading gross margins (90 per cent) and provides takeout potential,” he said.

His ratings and targets are:

* Lifespeak Inc. (LSPK-T) with a “buy” rating and $13 target. The average on the Street is $12.14.

“We are hesitant to call LSPK ‘the Netflix of mental health’ given the lack of comparable scale and the different market focus (B2B for LSPK, B2C for Netflix). We nonetheless see similarities between the models as both companies leverage a content portfolio in a very scalable way. In our view, industry tailwinds abound for LSPK, including the rapid increase in mental health awareness and labour market tightness,” he said.

* Dialogue Health Technologies Inc. (CARE-T) with a “buy” rating and $10.50 target. Average: $10.14.

“In our view, the attractiveness of CARE’s product is clearly demonstrated by the company’s high-profile client list (including Scotiabank and Sun Life) and by its impressive win rates (87 per cent when last disclosed in 3Q21)” he said. “We believe the company’s focus on B2B is attractive for investors given this segment of the market (1) remains largely under-penetrated despite the rapid increase in the wake of the pandemic; and (2) provides much better customer retention metrics than B2C. Indeed, we view CARE’s offering as an attractive way to reduce employee turnover, which is a crucial issue amid the current tightness in the labour market. CARE’s product is an indirect substitute for the free health services provided by the government. The company therefore needs to continually innovate to maintain the attractiveness of its platform.”

* Think Research Corp. (THNK-X) with a “buy” rating and $2.25 target. Average: $3.08.

“With the deluge of new clinical knowledge available every year, we believe it is increasingly difficult for health professionals to keep up with the latest medical information,” he said. “Hence, we have no doubt that the adoption of integrated platforms has significant growth runway and that THNK is well-positioned to benefit from this trend with its SaaS-based offerings. We believe it is fair to wonder how a small company such as THNK can be a meaningful player with monetization potential in an industry in which IT behemoths participate and which is notoriously complex. That said, healthcare is an enormous category that has been lagging other sectors in terms of digital adoption and we believe that—sadly for fax enthusiasts—COVID-19 was an inflection point for healthcare organizations’ willingness to adopt new ways of working. We also believe that management can leverage THNK’s small size to rapidly adapt to new industry trends. Other industry challenges that we believe THNK can help address include (1) the growing desire for convenience and enhanced technology solutions by younger generations—including physicians and healthcare practitioners, and (2) the burdened healthcare system which is in need of finding efficiencies.”

* Well Health Technologies Corp. (WELL-T) with a “hold” rating and $7 target. Average: $9.92.

“After completing 10 acquisitions in 2020 and 23 in 2021, WELL appears to be transitioning to a strategy that involves less M&A (albeit still some) but more integration of the existing portfolio,” he said. “In our view, this strategy tilt is consistent with the valuation gap between private and publicly traded healthcare companies, and with the integration potential we see for WELL’s assets. Nonetheless, we believe that M&A remains an important part of the company’s strategy, possibly continuing the rollup strategy in anesthesia services.”


Canaccord Genuity analyst Roman Rossi initiating coverage of two oil & gas producers operating in Colombia and Ecuador - Fronterra Energy Inc. (FEC-T) and Gran Tierra Energy Inc. (GTE-T).

“We view Colombia as one of the most stable and investor-friendly jurisdictions in Latin America, and one with historically strong exposure to the oil & gas sector. However, reserves and output have been declining since the oil crash in 2014/15, and we believe the country will need some heavy investments in order to reverse the trend.

“We believe Ecuador’s image among investors has improved after it elected a centerright government last year. Its oil & gas industry experienced stagnation for many years, but this has recently started to change. We believe some market-friendly movements have increased the country’s appeal to international investors, translating into increased investment and exploratory commitments.”

Mr. Rossi set “buy” recommendations for both companies. He gave Frontera a target of $17.50 per share, which exceeds the average on the Street is $10.63.

“Our PT implies 17-per-cent upside over the next 12 months. We like Frontera and its exploratory upside, and we see more upside in light of higher oil prices,” he said.

His Gran Tierra target is $2.70 also tops the consensus ($2.93).

“While the share price has experienced a significant increase over the past year, we believe the stock could be poised for further growth as the deleveraging process crystallizes and the drilling campaign advances,” he said.


Ahead of the start of first-quarter earnings season for North American energy services companies, ATB Capital Markets analysts Waqar Syed and Tim Monachello raised their estimates and rig count assumptions, seeing a “strong” macro environment for the year.

They are now projecting an increase of 29 per cent year-over-year for Canadian drilling rig activity and 50 per cent in the United States.

“Service pricing has strengthened considerably in Q1/22, especially for the U.S. pressure pumping business and for the NAM based high-spec drilling rigs,” they said. “Consequently, we raise our estimates for a number of companies. Higher estimates, along with an upward revision to target multiples drives our PT increase across the group.

“In our view, Q1/22 results for the service sector were impacted by several items, some negative and others positive. Negatively impacting the large cap service sector was the aftermath of Russian sanctions and the supply-chain challenges that impacted their global manufacturing/distribution business lines. Moreover, underlying input-cost inflation impacted most business lines, with inflation highest for labor, frac sand, chemicals etc. Artificial lift business saw some disruptions owing to shortages of semiconductor chips. Offsetting these negative impacts were increases in service prices. Price increases were seen for most asset classes, with land drillers and pumpers particularly advantaged. However, individual company results could be impacted due to a mismatch in the timing of input cost inflation and increases in realized pricing.”

Based on that view, they raised their estimates and target prices for stocks in their coverage universe, including:

  • Calfrac Well Services Ltd. (CFW-T, “sector perform”) to $6 from $5.75. Average: $5.79.
  • Ensign Energy Services Inc. (ESI-T, “outperform”) to $7 from $6. Average: $4.58.
  • Precision Drilling Corp. (PD-T, “outperform”) to $130 from $114. Average: $103.48.
  • Trican Well Service Ltd. (TCW-T, “outperform”) to $5 from $4.25. Average: $4.43.

“Within the land drillers group, we see the highest upside in ESI-T and PD-T,” they said. “In our view, given the high pace at which rig rates are rising, investors will start to focus on the NAV and especially what value is reflected in the stock price for a company’s highly marketable Super-Spec rig fleets. Both ESI-T and PD-T offer the most upside to replacement values of $25-million to $35-million. ESI-T and PD-T are trading at a 420 basis points discount to U.S. peers on average on 2022 EBITDA and at a 300 bp discount on 2023e EBITDA.

“Similarly, on EV/Active-US Rig or EV/US Super-Spec Rig, ESI-T and PD-T are trading at a deep discount to US peers. However, we would like to point out that all the land drillers under coverage are currently priced at a significant discount to the replacement value of Super-Spec rigs, estimated to be $25-million to $35-million.”


IA Capital Markets analyst Matthew Weekes raised his target prices for TSX-listed utilities in his coverage universe on Monday.

“Despite the Bank of Canada’s 50 bp rate hike last week, one of the first 50 bp hikes by a major central bank in approximately 20 years, with further tightening to come, Utilities stocks have outperformed the TSX year-to-date,” he said. “While the Bank of Canada is maintaining a constructive view on economic growth, investors appear to be taking a defensive stance given numerous uncertainties that could impact growth, including rising COVID-19 cases, geopolitical issues, inflation, and the impact of monetary policy tightening.”

His changes are:

  • AltaGas Ltd. (ALA-T, “buy”) to $32 from $31. Average: $31.97.
  • Canadian Utilities Ltd. (CU-T, “buy”) to $40 from $39. Average: $37.97.
  • Emera Inc. (EMA-T, “hold”) to $66 from $64. Average: $63.23.
  • Fortis Inc. (FTS-T, “hold”) to $62 from $62. Average: $60.25.
  • Hydro One Ltd. (H-T, “buy”) to $36 from $35. Average: $33.61.


Scotia Capital analyst Cameron Bean and Jason Bouvier expect oil prices to “remain robust due to resilient demand and discipline among Canadian producers.”

“Stronger prices are supported by excess egress, declining inventories, and tightening supply heading into the Q2/22 turnaround season,” they said.

After the firm raised its commodity price deck forecasts, including increases for WTI of 17 per cent in 2022 and 23 per cent in 2023, the analysts hiked their cash flow per share projections for oil-weighted names by 21 per cent and 38 per cent and for gas-weighted names by 13 per cent and 27 per cent.

That led them to hike target prices for stocks in the sector.

For large-cap companies, their changes were:

  • ARC Resources Ltd. (ARX-T, “sector outperform”) to $27 from $26. Average: $21.39.
  • Canadian Natural Resources Ltd. (CNQ-T, “sector outperform”) to $88 from $80. Average: $84.62.
  • Cenovus Energy Inc. (CVE-T, “sector outperform”) to $25 from $24. Average: $24.82.
  • Imperial Oil Ltd. (IMO-T, “sector outperform”) to $72 from $68. Average: $62.21.
  • Ovintiv Inc. (OVV-N/OVV-T, “sector outperform”) to US$60 from US$56. Average: US$61.80.
  • Suncor Energy Inc. (SU-T, “sector outperform”) to $46 from $45. Average: $46.86.
  • Tourmaline Oil Corp. (TOU-T, “sector outperform”) to $98 from $87. Average: $71.08.


In other analyst actions:

* To reflect the impact of Russia’s war in Ukraine, Scotia Capital’s Konark Gupta trimmed his CAE Inc. (CAE-T) target to $43 from $44, keeping a “sector outperform” rating. The average is $38.90.

“Consistent with history, we expect FQ4 to be seasonally stronger, driven by bizjet training given a solid bizjet market activity,” he said. “Commercial training should also improve as airlines are recovering from Omicron and preparing for the peak season (training leads capacity). FQ4 will also be aided by CAE’s new accretive acquisition (closed on March 1) and likely further rebound in the Defence segment. Although the stock is up 5 per cent year-to-date, it has pulled back 20 per cent from the recent high of $42 and is underperforming defence majors since the Russia/Ukraine conflict. We believe investors are concerned about equity valuations on macro risks (see our Portfolio Strategy team’s poll) and about aviation recovery amidst Russia/Ukraine war, fuel headwinds and a new COVID-19 wave. Investor confidence is also low in CAE’s legacy defence business. Despite some risks, we maintain our SO rating given airlines are growing more optimistic about recovery, global defence spending is accelerating, and CAE has just completed the cost initiative.”

* Canaccord Genuity’s Edward Nash lowered his target for Oakville, Ont.-based Cardiol Therapeutics Inc. (CRDL-Q, CRDL-T) to $7 from $8, maintaining a “buy” rating. The average is $8.12.

* Following its in-line second-quarter results, Desjardins Securities’ Jerome Dubreuil bumped up his Cogeco Communications Inc. (CCA-T) target by $1 to $117, keeping a “hold” rating, while BMO’s Tim Casey raised his target to $130 from $127 with a “market perform” rating. The average target on the Street is $127.60.

“While the reduced capex guidance will boost FY22 FCF and give management near-term options (like potentially accelerating buybacks), this decision suggests that attractive U.S. projects are currently more difficult to complete within the previously expected budget, which could affect medium-term growth expectations,” Mr. Dubreuil said.

“CCA has a management team of solid operators, as evidenced by the company’s industry-leading margins. However, we believe its lack of a wireless network could increasingly affect its existing operations as competitors improve their networks.”

* After institutional investor meetings and a tour of its London portfolio, Desjardins Securities’ Kyle Stanley raised his Nexus Industrial REIT (NXR.UN-T) target to $15.25 from $14.50 with a “buy” rating. The average is $14.86.

“Execution on NXR’s deep acquisition pipeline, its enhanced focus on the development/intensification program and improving organic growth profile should drive further multiple re-rating toward industrial peers (NXR trades at 14.5 times estimated 2023 FFO vs peers at 20.7 times), in our view,” he said.

* In response to “mixed” first-quarter results, ATB Capital Markets’ Frederico Gomes lowered his target for Valens Company Inc. (VLNS-T) to $6 from $9.50 with an “outperform” rating. Others making changes include: Stifel’s Andrew Partheniou to $4.50 from $5.25 with a “buy” rating and Canaccord Genuity’s Shaan Mir to $6.75 from $7 with a “speculative buy” recommendation. The average is $7.44.

“Valens’ stock is down 50 per cent year-to-date and trading near its 52-week low,” said Mr. Gomes. “We concede the stock performance has been underwhelming relative to our previously published expectations, driven by a dilutive equity raise, revenue growth delays, and high cash burn. Yet, despite lowering our estimates, the risk-reward ratio remains attractive given Valens’ depressed valuation. We highlight (1) consistent market share gains that support B2C sales growth, (2) an implied upside of 290 per cent from our DCF-based valuation, despite FY2023 sales and adj. EBITDA estimates 29 per cent and 77 per cent below guidance, and (3) a 52-per-cent discount to peers, based on FY2022 estimated EV/Sales multiples. We believe that progress in cost-cutting and reaching adj. EBITDA profitability in Q4/FY22e (ahead of ATBe) would serve as a catalyst for a significant re-rating of the stock.”

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