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

RBC Dominion Securities analyst Geoffrey Kwan maintained a defensive stance toward Canadian diversified financial companies ahead of the start of third-quarter earnings season, believing caution is “prudent in the short-term pending further data to help assess both economic trends and when to shift to best ideas with more offence.”

“In our January 3, 2022 Outlook report, we looked at share price performance over the past 25 years when the market was down more than 10 per cent (8 instances) and the subsequent rally,” he said. “Unsurprisingly, defensive stocks performed the best during downturns (IFC, X, but we think EFN and DFY are also defensive). During market rallies, small caps in our coverage typically outperformed and by sector, specialty finance (EFN, ECN, CHW), mortgages (HCG, EQB) and private equity (ONEX) typically outperformed.”

In a research note released Monday titled Tell me buys, tell me sweet Little Buys. Tell me buys, tell me tell me buys, Mr. Kwan said Element Fleet Management Corp. (EFN-T) remains his “No. 1 high conviction best ideas,” seeing it offering “both significant growth potential even in a recession, high inflation and/or high interest rate environment, but also strong defensive attributes.”

He raised his target for its shares to $26 from $22 with an “outperform” rating. The average on the Street is $19.94.

“Element Fleet [is] a stock we think can do well in a recession, amidst high inflation, high interest rates AND also when the market rallies. Q3/22 set-up appears positive,” he said. “EFN previously messaged originations are likely lower Q/Q (Q2/22 originations unexpectedly strong, Q3 usually seasonally weaker), so investors should not be surprised if this is the case, BUT, this is what makes the Q3/22 set up likely positive: (1) we think 2022 guidance (already increased 2x this year) is too low as H1/22 EPS is already at the high end of guidance; (2) we think 2023 consensus is too low.

“Excluding our forecast, $1.14 consensus is barely above $1.12 run-rate EPS and we think share buybacks alone can add $0.02 to 2023 EPS. Furthermore, these factors should further help 2023 EPS: stronger OEM production; new client wins; cross-selling clients new fleet services; operating leverage; and stronger US$ (U.S. is 65 per cent of EFN’s business, yet EFN reports in C$); and (3) EFN is likely to announce a significant dividend increase (we forecast a more than 30-per-cent dividend increase). EFN’s inaugural investor day is on Nov. 29 in Toronto and we think could also be a positive valuation catalyst. Despite having the highest total return in our coverage this year, we think there is still substantial valuation upside and view the shares as attractively valued at 13x NTM P/E and a 9-per-cent FCF yield.”

Mr. Kwan also raised his target for his Intact Financial Corp. (IFC-T), , his “No. 2 best idea,” to $221 from $219, above the $215.43 average with an “outperform” rating.

His other target increase was for Definity Financial Corp. (DFY-T), which he called one of his “sleeper best ideas for 2022,” to $45 from $43, above the $40.59 average, with an “outperform” rating.

Mr. Kwan reduced his targets for these stocks:

* Brookfield Asset Management Inc. (BAM-N/BAM.A-T, “outperform”) to US$61 from US$66. The average is US$60.17.

* Chesswood Group Ltd. (CHW-T, “sector perform”) to $14 from $15. Average: $18.17.

* CI Financial Corp. (CIX-T, “sector perform”) to $16 from $17. Average: $18.75.

* ECN Capital Corp. (ECN-T, “sector perform”) to $6.50 from $8. Average: $7.78.

* EQB Inc. (EQB-T, “outperform”) to $69 from $74. Average: $78.94.

* Fiera Capital Corp. (FSZ-T, “sector perform”) to $10 from $11. Average: $10.

* IGM Financial Inc. (IGM-T, “sector perform”) to $42 from $44. Average: $42.14.

* Onex Corp. (ONEX-T, “outperform”) to $99 from $102. Average: $97.

* Power Corp. of Canada (POW-T, “sector perform”) to $44 from $45. Average: $39.50.


In his preview of earnings season, CIBC World Markets’ diversified financial analyst Nik Priebe cut his targets for these stocks:

* CI Financial Corp. (CIX-T, “outperformer”) to $19 from $21. Average: $18.75.

* ECN Capital Corp. (ECN-T, “outperformer”) to $7.25 from $8.75. Average: $7.78.

* Fairfax Financial Holdings Ltd. (FFH-T, “outperformer”) to $900 from $1,000. Average: $942.62.

* Fiera Capital Corp. (FSZ-T, “neutral”) to $9 from $10.50. Average: $10.

* Goeasy Ltd. (GSY-T, “outperformer”) to $160 from $180. Average: $201.44.

* Guardian Capital Group Ltd. (GCG-T, “outperformer”) to $38 from $42. Average: $42.

* Onex Corp. (ONEX-T, “neutral”) to $75 from $80. Average: $97.

“First National Financial is scheduled to kick-off the reporting cycle for our diversified group of names on October 25 after market close,” said Mr. Priebe. “We see Q3 being a particularly important quarter for ECN Capital from a corporate development standpoint. The company appears poised to announce a series of small bolt-on acquisitions to backfill the lost earnings contribution from Kessler Group. If completed at attractive multiples, the EPS accretion could be a much-needed positive catalyst. The commercial P&C insurers are also poised to report an important quarter in the context of recent hurricane activity. We see Fairfax Financial being relatively more exposed to major CAT events than Trisura Group.”


Higher interest rates are likely to exert valuation pressure on equities in the Canadian real estate sector, according to National Bank Financial analysts Matt Kornack and Tal Woolley.

“We believe the market is still pricing in some degree of inflation protection offered by hard assets and/or a lower rate environment, based on the relatively low spread offered by current implied cap rates over borrowing costs,” they said.

“We have the highest return estimates for multi-family and industrial asset classes, despite leading outperformance from retail REITs. Retail REITs have benefited from steady operational performance, including improving occupancy and rising leasing spreads. Since retail REITs did not see the valuation extremes of the ‘bed and sheds’ stocks, they have had less of a valuation pullback as rates rose. As we turn to the final part of the year, we believe apartments and industrial REITs face less valuation risk after the downturn to start the year and their overall fundamentals remain highly constructive. Further, rate pressure is the primary risk to this sector.”

Calling rate pressure the “primary risk” in the sector, the analysts made target price changes to 32 of the 37 equities in their coverage universe.

Their current focus ideas are:

Multi-Family: Killam Apartment REIT (KMP.UN-T, “outperform”) with a $20.50 target (unchanged). The average is $21.27.

“Our focus list favours apartment landlords operating in geographies that have most benefited from population growth as well as operating in markets not subject to rent control,” they said. “We like a mix of newer and older vintage properties as the former provides less sensitivity around affordable housing concerns combined with a favourable capex profile, while the latter is still an area where higher rent growth can be achieved on repositioning. On this front, Killam screens well with one of the youngest apartment portfolios in Canada, an active and established development platform, strong fundamentals supported by inter-provincial migration trends and sizable exposure to non-rent controlled markets/newer product. These positive characteristics combined with the highest implied cap rate for our domestic coverage universe support the highest total return to target for a liquid apartment REIT.”

Industrial - Dream Industrial REIT (DIR.UN-T, “outperform”) to $13.50 from $14.25. Average: $15.90.

“We think the market is being overly punitive in its treatment of Dream Industrial. In Canada (60 per cent of exposure), it has expanded and improved the quality of its portfolio with heavy concentration of properties in the GTA and Montreal, where fundamentals are superb and the MTM opportunity is significant,” they said. “In Europe, where the fundamentals are similarly strong, FX seems to have normalized and the REIT’s exposure is naturally hedged. Not to mention the bulk of the leases are CPI-linked, allowing for the capture of hefty inflation. In our view, the 6-plus-per-cent implied cap rate for DIR is overly punitive in light of the imbedded rent growth potential and longer-term stabilized rate environment.”

Seniors Housing/Healthcare: Chartwell Retirement Residences (CSH.UN-T, “outperform”) to $11 from $13. Average: $12.21.

“In general, we continue to like the Seniors Housing space for a few reasons: 1) this is a quasi-residential asset class targeting a growing demographic that is undersupplied in the market; 2) retirement assets are a way to get access to more defensive residential real estate, with only roughly half of monthly resident revenues subject to rent control; and 3) as operating companies, these are businesses that can deliver incremental value as they scale up in size (e.g., purchasing synergies that grow with increased volume), making M&A an attractive way to enhance returns,” they said. “With the sale of its LTC operations pending, CSH is poised to become the sole pure-play vehicle in retirement, and we expect occupancy to improve as we move through the second half of 2022.”

Retail: RioCan REIT (REI.UN-T, “outperform”) to $23 from $24. Average: $24.47.

“Management remains confident that it is building a portfolio that can function for investors throughout the full cycle of the economy,” they said. “Outlined at its investor day earlier in 2022, REI is looking to deliver 10-12-per-cent total returns, driven by FFO/u growth of 5-7 per cent, driven by SPNOI growth of 3 per cent along with the annual distribution yield. Higher interest costs are a headwind (as they are across our entire coverage universe), but REI has assumed rising interest costs over the course of its financial guidance horizon. Development spending planned over the next five years has largely been tendered and it retains optionality to defer new projects if returns do not pencil in the current environment. Of the traditional Retail REITs, REI carries a lower prospective payout ratio and leverage at the lower end of peers (as measured by debt/EBITDA).”

Office: Allied Properties REIT (AP.UN-T, “outperform”) to $33.75 from $36.50. Average: $40.88.

“In the current office environment, there is a flight to quality by investors and tenants which is supportive of outperformance by Allied,” they said. “Although the REIT will have to contend with a larger roster of tech tenants, for whom the rise in bond yields has been particularly punitive valuation wise (likely forcing them to look more closely at their bottom line). Allied continues to have the best-located assets across the entire Canadian REIT universe and isn’t trading far off the implied land value for its existing portfolio.”

Diversified: H&R REIT (HR.UN-T, “outperform”) to $13.50 from $16.50. Average: $15.75.

“We continue to think H&R’s asset composition will hold up well in the current environment from an operating standpoint as the REIT benefits from the stability of long-term leases in the office and retail segments combined with imbedded growth potential at its apartment and industrial arms,” they said. “That said, the current market dynamics are such that the highly anticipated disposition program will likely be put on ice until private market transaction activity normalizes and there is some certainty on the interest rate/inflation environment. This will delay the transition to a pure-play growth vehicle or may force a course correction should dislocations remain for an extended period. Needless to say, our significant total return to target already incorporates a deep NAV discount.”

Special Situations: Flagship Communities REIT (MHC.U-T, “outperform”) to US$19 from US$21. Average: US$22.07.

“Manufactured housing communities continue to be an asset class that we view favourably for multiple reasons,” they said. “It has been a countercyclical asset class that has posted consistently strong long-term organic NOI growth in the 4-per-cent range. In a tight housing market, we also see demand for cheaper housing alternatives like manufactured homes to remain attractive. MHC still has the potential to deliver double-digit returns on investment capital over time through occupancy and operational improvements in its communities. It also benefits from a long-dated balance sheet funded by long-term mortgages.”


Ahead of the start of third-quarter earnings season for forest product companies later this week, Raymond James analyst Daryl Swetlishoff is “taking an increasingly conservative stance on the sector due to assumed heightened recessionary headwinds in the U.S. housing market.”

In a research report released Monday, he reduced his price assumptions for Western spruce-pine-fir and oriented strand board due, in large part, to the declining fortunes of the U.S. housing industry. That led him to cut his forecast for the both the quarter and the next fiscal year.

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“When combined with higher assumed energy, logging and transportation inflation (partially offset by FX) our 2023 estimates fall by 25 per cent on average prompting us to reduce target prices across the board,” he said.

“Lumber prices continued to fall for the second successive quarter, with earnings forecast to drop a whopping 82 per cent on average relative to 2Q22. Despite recessionary and inflationary headwinds coinciding, we are sitting on either side of consensus estimates as solid average commodity prices (by historic standards) coupled with US$ currency strength are offset by cash cost inflation across the board. West Fraser is first out the gate Wednesday after market, and we are 5 per cent above consensus – a function of the company’s geographic and production diversification. We also forecast a slight Beat for Conifex, while we expect Canfor to be impacted by the company’s higher BC exposure and weaker Euro lumber demand. We also forecast a miss for Western Forest in the face of challenging BC Coast cost dynamics with specialty end use markets impacted by the weakening Japanese Yen performance. On the pulp side, we expect Mercer to record another impressive quarter as the company’s pulp business remains unexposed to fibre-related supply shortages, while Canfor pulp is poised to miss consensus in light of material production disruptions and softening China pulp pricing.”

Mr. Swetlishoff made a pair of rating changes:

* Western Forest Products Inc. (WEF-T) to “outperform” from “strong buy” with a $1.85 target, down from $3.25 and below the $2.21 average.

* West Fraser Timber Co. Ltd. (WFG-T) to “outperform” from “strong buy” with a $150 target, down from $190. The average on the Street is $148.28.

His target changes are:

* Canfor Corp. (CFP-T, “strong buy”) to $35 from $55. Average: $37.17.

* Canfor Pulp Products Inc. (CFX-T, “outperform”) to $6.50 from $7.50. Average: $6.90.

* Conifex Timber Inc. (CFF-T, “outperform”) to $2.30 from $3.25. Average: $2.33.

* Interfor Corp. (IFP-T, “strong buy”) to $46 from $60. Average: $42.17.

* Mercer International Inc. (MERC-Q, “outperform”) to US$22 from US$24. Average: US$18.90.

“Now for the good news. Despite assuming an outlook consistent with a housing and economic recession our estimates still suggest very attractive valuations 2.5 times 2023 EV/EBITDA with an average 65-per-cent upside to target,” said Mr. Swetlishoff. “While building materials end users are currently very cautious – unwilling to buy beyond immediate needs, we expect this (esp. when coupled with potential logistical challenges) could support a typical seasonal commodity rally. Aside valuation and the seasonal trade we also point out that cash lumber prices are holding 10 per cent below our estimate of 4Q22 BC variable costs and note that we regard expanded curtailment potential as a catalyst. Earnings season kicks off this week and our estimates suggest potential for some beats and misses; we would take advantage of potential volatility to add to positions.”


Though he sees its dividend as sustainable, Canaccord Genuity analyst Aravinda Galappatthige sees a “challenging” year ahead for Corus Entertainment Inc. (CJR.B-T).

Following Friday’s release of weaker-than-anticipated fourth-quarter results, which sent its shares down 3.6 per cent, he lowered his recommendation for the Toronto-based media company to “speculative buy” from “buy,” citing “uncertainty around macro conditions and thereby ad trends in the near term.”

For the quarter, Corus reported consolidated revenues came of $339.6-million, down 6 per cent year-over-year and below both the analyst’s $342.6-million estimate and the consensus forecast of $344-million as televisions ads slid 14 per cent. Consolidated adjusted EBITDA dropped 45 per cent to $56.2-million, fell below projections ($81.6-million and $71-million, respectively), which he attributed to “sharply higher opex (led by programming costs), particularly in TV.”

“With TV OPEX rising 15 per cent on double-digit programming inflation in F2022 alongside sharply weakening ad sales, much of the focus going into F2023 is around costs,” said Mr. Galappatthige. “While one recognizes the challenges around programming given the still $30-million-plus CPE catch-up spend outstanding (which will be distributed through F23/24) and the lack of flexibility around U.S. programming due to long term arrangements involved, we believe the onus is on management to revisit its G&A spend and various initiatives (e.g., promoting digital platforms) in light of the ad pressure and risk of meaningful recessionary conditions. For clarity, management guided to modest growth in programming costs in F2023, a reality which we suspect would not change even in the backdrop of sustained weakness in ads. At this point, with no specific indication of G&A cuts, we are forecasting only a modest (4 per cent) decline in TV G&A (i.e., non-programming costs).”

Mr. Galappatthige said management’s indication that first-quarter ad trends, which are “seasonally significant,” are improving “somewhat encouraging in light of the fact that Q1/23 faces a challenging comp where ad levels actually returned to pre-pandemic levels (in Q1/22).”

“With that said, visibility remains low and there is notable uncertainty on this front further exacerbated by the Netflix’s launch of ad supported offerings starting this quarter,” he added.

Cutting his expectations for the next fiscal year, Mr. Galappatthige cut his target to $2.75 from $4.25. The average is $3.56.

“With the stock having sold off 58 per cent in calendar 2022 and now trading at a 50-per-cent FCF yield (and a 12-per-cent dividend yield), we believe we are at a crucial point in CJR.b’s trajectory,” he said. “We believe that even ‘on par’ with expectations returns from here on, can stabilize and potentially rebound the stock. However, the key is whether there is further downside to TV ad expectations, which in turn depends on the severity of the economic downturn and to a lesser extent the impact of Netflix’s advent into the ad market.”

Elsewhere, others making changes include:

* RBC’s Drew McReynolds to $3.50 from $4 with a “sector perform” rating.

“Despite the more challenging macro/advertising environment, we continue to be impressed by management’s execution on multiple strategic and tactical initiatives including digital, content and ad tech. Until macro/advertising visibility improves, our focus is on F2023/F2024 Television EBITDA given the general fixed nature of programming costs. Factoring in lower television margins, our price target decreases,” he said.

* BMO Nesbitt Burns’ Tim Casey to $2.50 from $4.50 with a “market perform” rating.

“Q4 financial results were below consensus. Although Corus warned in September of a soft summer advertising market, EBITDA and EPS were below consensus as revenue loss as well as strategic and regulatory spending obligation compressed margins. The outlook going forward is uncertain given macro environment uncertainty and limited visibility for advertising trends through the balance of F2023. We believe the FCF profile, although reduced, can still support the dividend,” said Mr. Casey.

* Scotia Capital’s Maher Yaghi to $3.40 from $4 with a “sector perform” rating.


Macroeconomic concerns continue to weigh on Canadian airline and aerospace companies despite a recent “recovery” in traffic, said RBC Dominion Securities analyst Walter Spracklin in a quarterly earnings preview

“Canadian Airlines & Aerospace share prices were mixed during the quarter, with BBD, AC, and EIF outperforming the index, while CHR and CAE underperformed,” he said. “BBD shares did best (up 32.6 per cent), reflecting FCF improvements and accelerated deleveraging under a supportive biz jet market backdrop. AC closed the quarter in positive territory, after airport summer disruptions subsided without materially affecting forward guidance, and EIF ended down slightly. On the other hand, CHR saw its stock price decline in an environment of heightened uncertainty and deep discounting of valuation. CAE also traded lower (down 31.9 per cent) after lowering its F23 operating income guidance as supply chain issues meaningfully affected its Defense segment.”

Mr. Spracklin raised his forecast for both Air Canada (AC-T, “sector perform”) and Bombardier Inc. (BBD.B-T, “outperform”), leading to increased targets for both companies’ shares.

For Air Canada, his target rose to $20 from $18. The average is $26.27.

“We are increasing our Q3/22 estimate to $738-million from $668-million (cons. at $821-million), as we expect the company has continued to pass on higher pricing to travelers during the peak summer travel season,” he said. “We continue to use 2024 as our valuation year as we estimate a full industry recovery by that point. When applying our 2024 EBITDA to our unchanged 5 times target multiple, we arrive at our $20 price target.”

His Bombardier target jumped to $49 from $41, exceeding the $51.15 average.

“We are maintaining our Q3/22 estimate of $228-million, which is above consensus of $209-million, maintaining our view of the robust demand environment,” the analyst said. “We have raised our 2023 EBITDA estimate on the back of reaffirmed production guidance of 15-20 per cent and further industry affirmation of an outsized year for manufacturers. Our Q3 estimate reflects 28 total deliveries of which 20 are large jet deliveries. We continue to use 2025 as our valuation year and when applying our 2025 EBITDA estimate to our unchanged 5-times target multiple, we arrive at our $49 price target.”

Conversely, Mr. Spracklin cut his targets for these stock:

* CAE Inc. (CAE-T, “outperform”) to $33 from $37. Average: $33.08.

* Chorus Aviation Inc. (CHR-T, “outperform”) to $4 from $4.50. Average: $4.78.

* Exchange Income Corp. (EIF-T, “outperform”) to $61 from $66. Average: $60.27.

“CAE is trading at the mid to lower end of its historical range driven by positive long-term trends in its Civil and Defense end markets, offset by recent supply chain headwinds affecting its near-term outlook,” said Mr. Spracklin. “On the other hand, AC, BBD, CHR, and EIF are toward the bottom of their historical valuation ranges. We flag EIF as attractively valued in our view, with valuation not reflecting our expectation for low 20-per-cent EBITDA CAGR 2021 to 2024. We also highlight Bombardier as a top value opportunity and see the shares attractively valued as the company continues to execute on debt reduction and services expansion. We remain cautious on AC as the carrier works through operational headwinds and realizes a meaningful return to business travel. We see CHR as attractive on relative returns with leasing providing a new growth avenue.”


RBC Dominion Securities analyst Chris Dendrinos thinks Westport Fuel Systems Inc. (WPRT-Q, WPRT-T) has “a compelling technology that offers a cost-effective way to reduce emissions for heavy-duty trucks, a historically challenging segment to decarbonize.”

However, believing near-term macroeconomic conditions will continue to weigh on the Vancouver-based company and “limit near-term visibility,” he initiated coverage with a “sector perform” recommendation on Monday.

“Westport’s high pressure direct injection (HPDI) system enables an ICE engine to operate on alternative gaseous fuels such as natural gas and hydrogen,” he said. “In the case of hydrogen, emissions are nearzero and performance can be better than a traditional diesel engine. BEVs/ FCEVs offer a zero emissions solution and performance characteristics that make them an ideal solution for the vast majority of HD commercial vehicle needs. However, there are areas of the market such as high-load long-haul and off-road where for various performance reasons an ICE vehicle remains the optimal solution near-term and could potentially compete longer-term. In these situations we think Westport’s hydrogen HPDI system offers the right combination of performance and cost to help accelerate adoption and expand access to hydrogen in the near-term. We think the tech can be cost competitive with FCEVs long-term. For now, we believe tightening emissions policy is a tailwind, but the direction of regulatory emissions policy will be an important factor in longer-term competitiveness.”

The analyst said Westport’s business has been hurt by the Russia/Ukraine conflict, inflation, and unfavorable fuel price differentials, “which is negatively affecting demand for its products and profit margins.”

“Long-term profitability requires more scale and additional OEM partners,” he added. “ We believe the stock price reflects the impact of this dynamic. However, given the lack of near-term visibility for improving commodity price differentials we believe a Sector Perform rating is warranted at this time. We believe improving commodity price dynamics is a catalyst that would make us more positive on our outlook in the future.”

Mr. Dendrinos set a US$2.50 target for Westport shares. The average is US$4.17.

“WPRT is currently trading at 0.3 times enterprise value to NTM [next 12-month sales which is at the low end of its three-year historical range,” he said. “We believe this reflects current macroeconomic conditions, headwinds from volatile commodity prices, inflation, and uncertainty around the outlook for near-term profitability. We believe there is upside near-term with an improving macro environment and financial performance, and long-term from the promising opportunity with hydrogen HPDI.”


JP Morgan’s Jeremy Tonet lowered his targets for a group of Canadian energy and utility companies on Monday.

They include:

* AltaGas Ltd. (ALA-T, “overweight”) to $30 from $35. The average is $33.17.

* Enbridge Inc. (ENB-T, “overweight”) to $62 from $64. Average: $59.40.

* Gibson Energy Inc. (GEI-T, “neutral”) to $27 from $28. Average: $25.61.

* Pembina Pipeline Corp. (PPL-T, “neutral”) to $51 from $54. Average: $51.

* TC Energy Corp. (TRP-T, “neutral”) to $68 from $70. Average: $67.65.


In other analyst actions:

* “Cautious” ahead of the release of its third-quarter results on Wednesday, Canaccord Genuity’s Yuri Lynk cut his Aecon Group Inc. (ARE-T) by $1 to $10 with a “hold” rating. The average is $13.96.

“Aecon’s Concessions Segment appears poised for growth over the next several years as the Eglinton LRT (2023), the Finch West LRT (2023), and Gordie Howe Bridge (2025) concessions come online while traffic continues its post-pandemic recovery at the 100-per-cent owned Bermuda Airport. However, in the near term, Aecon faces lump-sum turnkey (LSTK) headwinds with four large projects struggling, which could continue to weigh on the free cash flow (FCF) generation. Due to this, we anticipate uneven financial performance over the next several quarters that could undermine investors’ confidence in the Aecon investment case,” he said.

* Stifel’s Ian Gillies trimmed his target for Doman Building Materials Group Inc. (DBM-T) to $6.25, below the $6.42 average, from $7 with a “hold” rating.

* BMO’s Robin Fiedler initiated coverage of Euro Manganese Inc. (EMN-X) with a “market perform” rating and 30-cent target.

“EMN is developing a European battery-grade manganese project for 2027,” he said. “With limited scale and optionality outside China for battery-grade manganese supply, there is a strategic case that EMN’s project is needed. However, there is no shortage of manganese resource availability and Chinese battery-grade refining capacity has proven quick to expand. Therefore, our above-market realized price assumptions required for sufficient project economics may prove fundamentally optimistic. Also, EMN needs key permits and an offtake to backstop $1-billion project financing. A re-rating would require positive outcomes on several key checkpoints.”

* BMO’s Devin Dodge cut his targets for GFL Environmental Inc. (GFL-N/GFL-T, “outperform”) to US$31 from US$36 and Waste Connections Inc. (WCN-N/WCN-T, “outperform”) to US$145 from US$151. The averages on the Street are US$42.67 and US$152.08, respectively.

“WCN has risen to the top of our environmental services pecking order,” said Mr. Dodge. “We expect WCN to be the biggest beneficiary of CPI-based pricing resets in the coming quarters that will underpin industry-leading rate improvement in 2023. M&A activity is elevated and WCN can easily self-fund these deals without straining the balance sheet. Meanwhile, its valuation premium vs. its peers has moderated below its 5-year average.

“We continue to believe that GFL offers the most long-term upside potential in the sector but a near-term catalyst is becoming less apparent. Financial leverage remains the key investor concern, and we expect pro forma Net Debt-to-EBITDA to edge higher in Q3/22. Outside improved overall investor sentiment, we believe GFL adopting a firm commitment to a deleveraging path, and demonstrating progress towards that goal, represents the biggest potential positive for the shares over the next 6-12 months.”

* Looking for Gildan Activewear Inc.’s (GIL-N, GIL-T) top line to “hold steady amid [a] challenging operating backdrop,” Canaccord Genuity’s Luke Hannan trimmed his target for its shares to US$42 from US$42.50 with a “buy” rating ahead of its Nov. 3 third-quarter earnings release. The average is US$41.26.

“We believe the combination of stronger margins as a result of Back to Basics cost savings, GIL’s low-cost manufacturing footprint, a healthy FCF generation profile and an attractive valuation creates a favourable risk/reward profile for GIL shares,” he said.

* After its “surprising” third-quarter earnings update last week, which fell below his expectations, Canaccord Genuity’s Derek Dley cut his Parkland Corp. (PKI-T) target to $36 from $46, keeping a “buy” rating ahead of the Nov. 2 release of its full results. The average target on the Street is $42.57.

“We forecast $325-million of EBITDA for Q3/22, in line with management’s guidance following its surprising business update last week,” he said. “We think the quarter will now be a relative non-event, with the focus moving toward how the company can rectify its risk management processes going forward and drive incremental margin capture at its Burnaby refinery in the near term.”

“We continue to believe Parkland represents an attractive near- and long-term investment, given its healthy free cash flow yield, ample consolidation opportunities, history of generating material synergies from acquisitions, and attractive asset base, which we think is unique in the North American market.”

* “Expecting resilience despite macro concerns,” Mr. Hannan also cut his Spin Master Corp. (TOY-T) target to $62 from $67 with a “buy” rating prior to its Nov. 2 earnings release. The average is $62.10.

“Given (1) Spin Master’s ability to create coveted toy brands and verticals, (2) higher contributions from the margin-accretive Digital Games segment, and (3) the potential for the company to undertake accretive acquisitions with the net cash on its balance sheet, we believe the shares are undervalued at current levels,” said Mr. Hannan.

* Bloom Burton’s David Martin reduced his Zymeworks Inc. (ZYME-N) target to US$18.50 from US$24, remaining above the US$16.56 average on the Street, with a “buy” rating.


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