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

Seeing an improved risk-reward proposition for investors following a 33-per-cent dip in share price since early July, BMO Nesbitt Burns analyst Ryan Thompson raised his rating for First Majestic Silver Corp. (FR-T) to “outperform” from “market perform.”

Mr. Thompson said the decline, prompted by lower silver prices and weaker-than-expected first-half results, has presented a buying opportunity, pointing to improving fundamentals and the potential for a rise in silver prices.

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“In our view, FR is in a position to begin delivering better margins with the shutdown of the high-cost La Guitarra mine and the integration of the high-margin San Dimas mine,” he said.

His target for the stock is now $9.50, rising from $8.75. The average on the Street is $10.58, according to Bloomberg data.

“With a crowded short position in precious metals, a reversal in silver prices would line up nicely with FR’s improving fundamentals,” said Mr. Thompson.


Hardwoods Distribution Inc. (HDI-T) continues to perform “well” despite the presence of “less favourable” macro data, said Canaccord Genuity analyst Yuri Lynk, noting the North American building materials group has underperformed thus far in 2018.

"To date, the average return for the group has been down 19.9 per cent, compared to the S&P/TSX index which has returned 0.7 per cent," he said. "Hardwoods has only just managed to outperform its peers, declining 14.9 per cent. We attribute the group's underperformance to macro worries that have muddied the outlook for some housing-related companies. However, Hardwoods continues to perform well posting strong H1/2018 organic growth of 7.2 per cent in the U.S. and 3.4 per cent in Canada and EPS growth of 7 per cent year-over-year.

"We believe rising interest rates and uneven North American housing market macro data are to blame for the sell-off in building materials distributors. Federal Reserve officials have increased rates twice already in 2018, to 2.0 per cent from 1.5 per cent at the beginning of the year. Meanwhile, U.S. and Canadian macroeconomic housing indicators continue to underwhelm. Most recently, July U.S. new and existing home sales missed consensus estimates by 3.0 per cent and 1.1 per cent, respectively, and declined slightly month-over-month. Similarly, Canadian residential sales activity in July slid 1.3 per cent year-over-year."

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Though he thinks macroeconomic data outside the housing market, particularly in the commercial and institutional construction, looks "better," Mr. Lynk lowered his forward financial projections for the company, expecting longer-than-anticipated margin normalization. His 2018 EBITDA and earnings per share estimates fell to $59.9-million and $1.65, respectively, from $63.8-million and $1.75. His 2019 estimates dropped to $65.3-million and $1.81 from $68.4-million and $1.95.

Maintaining a "buy" rating for its stock, Mr. Lynk lowered his target to $24 from $26. Consensus is currently $24.08.

"Hardwoods is performing well despite uneven North American housing market data and margin pressure stemming from the U.S. trade case against Chinese hardwood plywood," the analyst said. "However, after reviewing our model, we felt our H2/2018 and 2019 estimates were nevertheless too aggressive and have adjusted accordingly, explaining the reduction in our one-year target price. We stay BUY rated ahead of the return to year-over-year growth in Q3/2018 as comps ease while noting Hardwoods' undemanding valuation and balance sheet optionality."


RBC Dominion Securities analyst Joseph Spak thinks the controversy swirling around Tesla Inc. (TSLA-Q) over the past few weeks “may have taken the bloom off the rose.”

“Late Friday night, Tesla announced they would remain a public company. With a potential bid of $420/share out of the way, we’d like to say the stock will return to trading on fundamentals, but the truth is the stock trades on sentiment,” said Mr. Spak.

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“To us the bears have more ammo on the near-term sentiment move. It has become clear to us that funding was not secured or there was not sufficient interest to take the company private at $420/share. And we think credibility has taken a hit as it has become clear to us the whole go private was not planned or fully thought out. Further, we see potential ramifications from an SEC investigation and shareholder lawsuits.”

With a “sector perform” rating, Mr. Spak’s target for Tesla shares remains US$315. The average on the Street is US$329.22.

“Given the events of the past few weeks, we believe even rational bulls would have to admit that Tesla and CEO Elon Musk have lost some of their luster,” he said. “This is a non-trivial point considering that investor belief in Musk and wanting to invest with him, has to date, arguably been the largest driver of the stock. In our view, Musk’s involvement in the company is critical, but now more than ever a solid #2 - someone with strong operational background that can help Tesla move from ideas to execution - is crucial.”


Sonos Inc. (SONO-Q) is “a sound idea,” according to RBC Dominion Securities analyst Amit Daryani.

“We view Sonos' open platform, exposure to music streaming and strong customer engagement/stickiness positively, and think these drivers should enable it to post double digit growth over the long term with potential for margin expansion,” said Mr. Daryanani.

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In a research note released Monday, he initiated coverage of the Santa Barbara, Calif.-based company with an “outperform” rating.

RBC was one of several banks to come off research restriction on Monday following the end of a quiet period in the wake of the speaker maker’s initial public offering. Sonos’ stock is up 39 per cent since the Aug. 1 IPO.

Mr. Daryanani said Sonos has the opportunity to increase its market share despite the presence of high-profile competition, including Apple Inc., Inc. and Alphabet Inc., emphasizing a difference in their goals and positioning.

“While tech giants’ speakers are trying to maximize penetration through low cost and ubiquitous audio aimed at sacrificing on sound quality, Sonos is a speaker company first and prioritizes audio quality over everything else,” he said. “Further, tech giants’ speakers aim at locking people into an ecosystem and in some sense might restrict content options for customers, while Sonos aims to maximize content availability by being platform neutral. While Sonos’ products probably won’t beat tech giants in the mass market, we think they are well positioned for premium consumers who want to maximize content availability and prioritize audio quality.”

He added: “Sonos sits at a unique intersection of proliferation of streaming music services (growing 24-per-cent CAGR to 293 million subscribers by 2021E), rapid adoption of voice assistants (unit shipment CAGR at 35 per cent through 2022E) and Wi-Fi technology that’s changing not only how users listen to music but how they use the internet. Sonos appears well positioned to benefit from these trends. Other revenue growth drivers include – a) geographic expansion, b) financing/bundling options, c) new product categories, and d) increasing cadence of new launches.”

Mr. Daryanani set a target price of US$25 for Sonos shares. The current average on the Street is US$22.83.

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Other firms initiating coverage included:

Goldman with a “buy” rating and US$25 target.

Jefferies with a “hold” rating and US$23 target.

Raymond James with an “outperform” rating and US$24 target.

Stifel with a “hold” rating and US$20 target.

Morgan Stanley with an “equal-weight” rating and US$20 target.

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CIBC World Markets analyst Stephanie Price raised her target price for shares of Kinaxis Inc. (KXS-T) following recent meetings with chief executive officer John Sicard and chief financial officer Richard Monkman.

“Coming out of these discussions, we believe growth at the company is poised to accelerate, driven by the halo effect of recent contract wins (Toyota, BASF, etc.), the partner sales channel ramping up and the benefits of recent investments (new data centres, European sales for hiring, etc.),” she said.

Ms. Price kept an “outperformer” rating, hiking her target to $107 from $101. Consensus is $102.31.

“With a solid balance sheet ($175-million net cash), a strengthened executive team [hired Jay Muelhoefer as chief marketing officer (previously from Intralinks), hired Paul Carreiro as its chief revenue officer (previously held senior roles at SAP and Infor) and promoted Megan Paterson to the role of chief human resources officer] and board (appointed Kelly Thomas, formerly of JDA Software, and Pamela Passman, formerly of Microsoft), as well as a strong market opportunity, we see Kinaxis as well positioned to accelerate growth from here,” she said. “We are forecasting 27-per-cent subscription growth in 2019, above the company’s historic average of 25 per cent.”


Believing the steel market’s cycle peak is “now behind us” with a seasonal drop in prices and capacity restarts south of the border, Morgan Stanley analyst Piyush Sood gave United States Steel Corp. (X-N) a double downgrade to “underweight” from “overweight,” expressing a preference for both AK Steel Holdings Corp. (AKS-N) and Steel Dynamics Inc. (STLD-Q).

Though he sees U.S. Steel’s operations showing improvement from 2021 on, Mr. Sood thinks the market is unlikely to react to growth so far away.

His target for the stock fell to US$30 from US$44. The average on the Street is US$41.73.

At the same time, Mr. Sood upgraded AK Steel to “overweight” from “equal-weight,” citing the prospects for free cash flow generation. His target fell to US$5.50 from US$6, versus the US$5.23 consensus.

He also raised Steel Dynamics to “overweight” from “equal-weight,” calling it a defensive play. His target jumped to US$52 from US$50. The average is US$53.64.


In reaction to weaker-than-expected second-quarter results and reduced guidance for fiscal 2019, Canaccord Genuity’s Camilo Lyon lowered his rating for Hibbett Sports Inc. (HIBB-Q) to “hold” from “buy.”

“While we acknowledge the progress the company is making in terms of product mix in branded apparel and footwear, the deterioration in accessories, team sports and licensed businesses coupled with the higher SG&A expense profile is creating a more subdued earnings profile with less upside potential,” said Mr. Lyon. “With this backdrop, HIBB has become a “show me” stock and will likely not get multiple expansion until it proves it can create consistency in its results. As such, we are stepping to the sidelines and reducing our rating.”

His target for the Alabama-based sporting goods retailer fell to US$21 from US$31. The average on the Street is US$21.09.


BMO Nesbitt Burns analyst Andrew Mikitchook initiated coverage of Orla Mining Ltd. (OLA-X) with an “outperform” rating and $2 target. The average is $2.50.

“Orla’s two developments represent attractive start-up opportunities with a good balance of scale, manageable capex, and jurisdiction, and a management team with a track record of value creation,” he said..

“We expect development and exploration revaluation catalysts for Orla over the short and medium terms.”


In other analyst actions:

Citi resumed coverage of Brookfield Infrastructure Partners LP (BIP-N, BIP-UN-T) with a “neutral” rating and US$43 target. The average on the Street is US$45.55.


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