Inside the Market’s roundup of some of today’s key analyst actions
Citi analyst Stephen Trent sees upside in shares of Air Canada (AC-T) moving forward, “baking in both the good news from 3Q earnings/2022′s guide, along with the areas of Citi’s previous estimates that were probably too optimistic.”
However, he said those potential gains do not “seem quite as significant, relative to some of the other Americas Airline names under our coverage.”
“We rate AC at Neutral primarily on uncertain short-/medium-term profitability due to severely depressed passenger volumes stemming from COVID-19 and the related government restrictions on travel from some of its key neighboring nations,” said Mr. Trent. “Valuation looks full, in our view, relative to recent historical trading levels and compared to its large U.S. network carrier peers. Given the higher uncertainty in North American aviation markets, we prefer to have more earnings visibility before getting more aggressive with Air Canada shares.
The airline’s shares rose 3.2 per cent on Friday following the premarket release of its third-quarter financial results, which saw it double its seat sales during a summer that continued to exhibit a rebound in travel.
“Forecast adjustments for Air Canada include the incorporation of (a) stronger 2022/23 estimated unit revenue growth, (b) ex-fuel cost per available seat mile or CASM-x that is roughly in-line with our old forecast (we were too high on 3Q, while our previous 4Q est looked too optimistic), (c) stronger expected fuel efficiency and (d) 3Q’22 results into our model. (Unit revenue is revenue per available seat mile or RASM),” said Mr. Trent in a research note released Monday.
“Separately, it also seems that Citi’s previous 2024 expectations were too optimistic, regarding the interplay between RASM, capacity growth and fuel costs. (Airlines measure capacity in available seat miles or ASMs). As a result of these adjustments, Citi’s 2022 EBITDA margin for Air Canada increases from 8.2 per cent to 10.7 per cent.”
The analyst now sees a full-year 2022 earnings per share loss of $3.83 rising from $3.12. His 2023 estimate increased to a profit of $1.24 from $1.09 previously.
Shifting his valuation reference period to 2024, Mr. Trent raised his target for Air Canada shares to $22 from $20, keeping a “neutral” rating. The average target on the Street is $26.67.
“Citi’s target price for Air Canada increases ... from adjusting the target multiple from 20 times to 5.5 times. “The multiple trim considers (A) 2023 estimated EPS generation that still looks early cycle, relative to the U.S. network majors and (B) to account for an extra year of earnings growth, one year further in the future. The revised 5.5-times target multiple reflects a 21-per-cent discount to the stock’s historical, pre-pandemic average, which seems to reasonably incorporate this forward shift. For what it’s worth, the target price increase of 10 per cent is at least somewhat consistent with the 13-per-cent increase in 2023 estimated EPS.”
Elsewhere, others making adjustments include:
* RBC Dominion Securities’ Walter Spracklin to $21 from $20 with a “sector perform” rating.
“Q3 results demonstrated a successful rebound in the summer travel season,” said Mr. Spracklin. “Demand was strong, yields were up and margins stronger on higher load factors. While we were encouraged by growth of premium leisure and its ability to enhance yields, we remain cautious on the recovery trajectory in business travel and the sustainability of high fares going into a potential recession. All told, while we see AC executing well toward longterm targets, 2023 will prove to be an important test for the company — especially in a recessionary scenario.”
* CIBC World Markets’ Kevin Chiang to $30 from $27 with an “outperformer” rating.
“AC reported solid Q3 results despite broader macro concerns facing the economy.,” said Mr. Chiang. “We would note that the concerns weighing on airlines are twofold: 1) whether air travel demand will ease exiting a strong summer and 2) broader concerns over a recession. AC’s strong Q3 results, along with results from the U.S. peers, highlight that the sector is uniquely positioned this time around even in the face of a broader economic slowdown as airlines benefit from a continued recovery coming out of the depths of the pandemic.”
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Signs of deteriorating macroeconomic conditions are starting to weigh on TFI International Inc. (TFII-N, TFII-T), said RBC Dominion Securities analyst Walter Spracklin.
TSX-listed shares of the Montreal-based transport and logistics company fell 6.1 per cent on Friday following the post-market release of third-quarter financial results a day earlier that the analyst deemed to be “mixed.”
“The downward pressure on TFII shares [Friday] is not overly surprising given: 1) the indications of volume softness owing to demand conditions; and 2) this is the first in-line / mixed quarter after many quarters of resounding beats,” said Mr. Spracklin. “That said, we remain constructive on TFII given 1) the self-help opportunities in continued margin enhancement; and 2) the company’s attractive balance sheet which allows it to be opportunistic with acquisitions, buyback stock, or both. Further, we have built in a mild recession into our estimates; and still see value in the shares today.”
TFI reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter of US$348-million, ahead of Mr. Spracklin’s US$346-million estimate but below the consensus forecast of $364-million. Adjusted earnings per share of US$2.01 was narrowly better than anticipated (US$1.96 and US$1.98, respectively).
“Overall, there were some positives and minuses in the quarter; but at the end of a string of significant beats, [Thursday] night’s inline/slightly-below result is weighing on the stock,” he said.
“Shipment volumes in US LTL [less-than-truckload] were down 17 per cent, partly as a result of internal shedding of business (good) and partly due to market environment (bad). Pricing was up 6.5 per cent, but a good part of that was the culling of lower revenue business; suggesting the core pricing market was not as strong as the number suggests. We believe the weakness in LTL was the main reason for the negative reaction on the shares ... as it is and has been an important driver of upside to TFII in prior quarters.”
While TFI reiterating its full-year 2022 guidance, Mr. Spracklin expressed concern about 2023, prompting him to trim his estimates.
“Management is noting some weakness as we go into Q4 (off a very strong June); however the company likely had buffer built into its 2022 EPS guide, which was what allowed them to maintain the guide.” he said. “That said, the underlying conservatism that was in that number as of Q2 has likely been erased, and our prior above-guidance EPS (previously $8.10) comes down closer to the $8 guide (we go to $8.05) and we expect consensus (previously at $8.09) to follow suit. As it relates to 2023; management pointed to uncertainty and signs of softness, which caused management to defer questions around 2023. Furthermore, we are not likely to get 2023 guide at Investor Day; where management will focus more on long-term growth and margin.”
“Consistent with our revisions for other transport companies, we are now building into our estimates a modest recession in H1/23. While we believe TFII has several ‘self-help’ drivers available, which provide a degree of offset (which we have accounted for in our new estimates). Accordingly, our EPS goes to $8.05 (from $8.10) in 2022, (guidance $8.00); to $7.50 (from $7.90) in 2023; and to $8.40 (from $8.69) in 2024.”
With those changes, Mr. Spracklin lowered his target for TFI shares to US$109 from US$113 with an “outperform” rating. The average on the Street is US$118.57.
Elsewhere, other analysts making target adjustments include:
* Desjardins Securities’ Benoit Poirier to $172 from $174 with a “buy” rating.
“We see the negative market reaction to TFII’s results as a buying opportunity,” he said. “The stock is a compelling proposition at current levels, with investors not paying for potential upside. We also look forward to hearing more about the outlook for 2023 at the investor day in New York on November 10. TFII remains our preferred transportation stock for 2022.”
“We continue to see significant upside potential at TFII as it successfully executes on the optimization of TForce Freight while keeping its M&A strategy active”
* National Bank’s Cameron Doerksen to $145 from $150 with an “outperform” rating.
“Given the challenging macroeconomic backdrop and the weaker than expected performance at the company’s LTL segment in Q3, we expect the stock may be under some pressure in the near term,” said Mr. Doerksen. “However, we remain positive on the stock longer term. We lowered our forecast for 2023 to reflect our expectation that LTL margin improvement will take longer than originally expected.”
* Scotia Capital’s Konark Gupta to $158 from $160 with a “sector outperform” rating.
“Although LTL missed, due partly to macro weakness, we were pleased with overall results as the other three segments, particularly TL, beat our expectations,” said Mr. Gupta. “We maintain our Sector Outperform rating while trimming our target to C$158 (was $160) on slight 2023-24 EPS reduction. We encourage investors to take advantage of stock’s weakness ahead of potential catalysts. Management still expects a lot of margin improvement in U.S. LTL through 2024, driven by the right tools and productivity optimization. With very low leverage ratio of and solid double-digit FCF yield, TFII intends to be aggressive on buybacks and M&A in the meantime. At the debut investor day on November 10, it plans to showcase the deep bench and share strategic initiatives to create value, while potentially providing long-term guidance.”
* BMO’s Fadi Chamoun to US$100 from US$105 with a “market perform” rating.
“TFII is a higher quality business today than in the past,” he said. “That said, it is not immune to macro headwinds and its core U.S. LTL operations are proving less agile on the costs front. We have lowered our forecasts and look towards the November 10 investor day for greater clarity on F2023 and medium-term targets and strategic objectives.”
* CIBC’s Kevin Chiang to US$115 from US$127 with an “outperformer” rating.
* JP Morgan’s Brian Ossenbeck to US$112 from US$120 with an “overweight” rating.
* Cowen and Co.’s Jason Seidl to US$123 from US$120 with an “outperform” rating.
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Expecting it to deliver above-average growth cash flow per share through 2023 and seeing it “well-positioned to maintain an aggressive pace of share buybacks via SIBs throughout 2023, which should drive additional share price appreciation,” BMO Nesbitt Burns analyst Randy Ollenberger raised his investment rating for Imperial Oil Ltd. (IMO-T) to “outperform” from “market perform” following “impressive” third-quarter results.
“Imperial Oil reported financial results that exceeded expectations on the back of solid performances at both its upstream and downstream segments,” he said. “Shareholder returns were top of mind this quarter, with the company completing its NCIB program in October, announcing another substantial issuer bid, and raising its dividend by 29 per cent.”
Imperial reported cash flow and earnings per share for the quarter of $4.06 and $2.89, respectively, exceeding the estimates of both the analyst ($3.61 and $2.83) and the Street ($3.50 and $2.70).
Saying it was a “good day to be a shareholder,” he said: “Imperial accelerated its buybacks throughout the third quarter, repurchasing $1.5-billion worth of shares. The company also repurchased another $434-million worth in October, effectively completing its NCIB program. It is important to note that Imperial will not be able to repurchase any shares through an NCIB until it can be renewed in late June 2023. The company announced its intentions to initiate an SIB, which will allow it to repurchase up to $1.5-billion in Q4/22. Lastly, Imperial has raised its quarterly dividend from $0.34/share to $0.44.”
“We believe that Imperial could be effectively debt free by mid-2023 while still generating prodigious amounts of free cash flow. This positions the company to maintain an aggressive pace of buyback programs with additional SIBs likely in 2023. We believe this could support additional share price upside.”
With increases to his 2022 and 2023 financial forecasts, Mr. Ollenberger raised his target for Imperial shares to $85 from $70. The average is $75.41.
“Imperial has one of the strongest financial positions in our coverage universe and has significantly improved its operational performance. Imperial also has low sustaining requirements and an improving free cash flow profile. Due to these factors, the company is well-positioned to aggressively repurchase shares (further SIBs likely in 2023), which could support additional share price upside,” he concluded.
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A series of equity analysts on the Street cut their targets for shares of AltaGas Ltd. (ALA-T) following Friday’s third-quarter earnings release, which brought a 2.5-per-cent share price decline.
Those making changes include:
* Scotia Capital’s Robert Hope to $30 from $31 with a “sector outperform” rating. The average is $32.20.
“AltaGas’s Q3/22 EPS was a penny ahead of our estimate, though Global Export margins were well below our expectations,” said Mr. Hope. “We move down our margin assumption, which is a 1-2-per-cent headwind to our 2023/2024 EPS estimates and reduces our target price by $1 to $30. That said, the core reasons we like AltaGas are unchanged and include: 1) strong utility growth, 2) significant de-levering in 2023, 3) low capital, high return Midstream growth opportunities, and 4) attractive valuation.”=
* BMO Nesbitt Burns’ Ben Pham to $36 from $37 with an “outperform” rating.
“While third-quarter results fell short, key here is that management remains confident delivering to 2022 guidance, particularly noting that inflationary pressures on LPG logistics costs have eased, while USD F/X translation is emerging as a modest tailwind,” said Mr. Pham. “Also, Utility had a record quarter with 2022 Utility rate base growth expected in the high single digits. Combined with the 48-per-cent potential total return to our new $36 target price (vs. $37) and attractive valuation (approximately 28-per-cent P/E discount), we are maintaining our Outperform rating and would continue accumulating.”
* RBC’s Robert Kwan to $30 from $34 with an “outperform” rating.
“We see compelling value in the stock given the attractive relative valuation and the ability to credibly grow its annual dividend in the mid-to-high single-digit range, something that has become a rarity for Canadian utilities and midstreamers,” said Mr. Kwan. “However, with the messy quarter that management indicated was impacted by several short-term factors, we see the potential for investors to take a wait-and-see approach until the release of Q4/22 results. Nevertheless, we believe management has earned the benefit of the doubt given AltaGas’ historical performance versus guidance and numerous transactions to reduce risk and enhance shareholder value.”
* Canaccord Genuity’s John Bereznicki to $31 from $32 with a “buy” rating.
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Desjardins Securities analyst Jerome Dubreuil raised his recommendation for Cogeco Communications Inc. (CCA-T) on Monday, believing the market is poised to begin valuing the company on its fiscal 2024 results, when he expects “accelerated capex investments to start contributing materially to profitability.”
“While significant uncertainty on Canadian mobile continues, we believe management will show discipline on mobile investments and we currently assume no top-line contribution from mobile in our forecasts,” he said.
Following the release of largely in-line fourth-quarter 2022 financial results last Thursday, Mr. Dubreuil moved Montreal-based Cogeco to “buy” from “hold.”
“Our upgrade to Buy could be early given CRTC/MVNO uncertainty (risk is more investments with uncertain returns) and still-stabilizing competition in the U.S.,” he said. “However, we believe the downside is limited since the stock trades at a historically large discount (at least 10 years) to the average of its peers based on EV/NTM [next 12-month] EBITDA, and it generates an 11-per-cent FCF yield, or 14 per cent with normalized capex. Importantly, we believe the market may soon start basing the company’s valuation on FY2, which could make CCA look cheaper since we believe the company will start reaping the financial benefits of recent large capex investments during this period.”
After raising his full-year 2023 earnings per share forecast to $9.42 from $9.27 due largely to improving pricing and the benefits of foreign exchange, Mr. Dubreuil increased his target for Cogeco Communications shares to $103 from $97. The average is $91.70.
“While competition in the U.S. and lack of a wireless offering warrant a lower valuation for CCA, we note that the current valuation multiple vs peers is at a historical low, thereby limiting downside in our view,” he said. “We believe the strong margins the company generates is a testament to its strong operational capabilities.”
“CCA has a management team of solid operators, as evidenced by the company’s industry-leading margins. We believe CCA’s strong FCF generation enables it to redistribute significant capital to shareholders while operating a stable business, an attractive feature in this uncertain economic environment.”
Conversely, Scotia Capital’s Maher Yaghi downgraded Cogeco to “sector perform” from “sector outperform” with a $92.50 target, falling from $102.
“Financial results were in line with expectations in the quarter,” said Mr. Yaghi. “Our coverage of the U.S. telecom sector gives us reasons to be cautious about prospects in 2023 for Cogeco. The competitive dynamic is forcing US cable companies such as Comcast to be more aggressive in encroaching on other smaller cable operators to compensate for weak market dynamics and increased FWA competition. In Canada, BCE is pushing hard its FTTH build and 2023 is likely to see a significant coverage increase within CCA’s footprint. While CCA’s stock is not expensive, we expect growth prospects to be muted in FY23 and see little potential for M&A in the U.S. to boost growth.”
Other analysts making target adjustments include:
* BMO’s Tim Casey to $85 from $100 with a “market perform” rating.
“Q4 financials were in line, while subs were below expectations due to higher customer disconnections during the Breezeline transition,” he said. “CCA continues to expect (government subsidized) footprint expansion initiatives to yield PSU growth in F23 followed by EBITDA and FCF growth in F24. We expect Cogeco will pursue a capital-light wireless strategy (in footprint, retention focused) in Canada pending final review of MVNO terms and conditions and negotiations with carriers.”
* National Bank’s Adam Shine to $96 from $100 with a “sector perform” rating.
“CCA expects better RGU results this year, but added profit growth from the footprint expansion will only come post-f2023,” said Mr. Shine.
* Canaccord Genuity’s Aravinda Galappatthige to $72 from $70 with a “hold” rating.
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National Bank Financial analyst Vishal Shreedhar expects to see “robust” sales from Premium Brands Holdings Corp. (PBH-T) when it reports its third-quarter financial results before the bell on Thursday, but he predicts investor focus will be largely on the impact of inflation moving forward.
“Last quarter, management tapered its guidance, citing a higher probability of EBITDA coming in at the lower end of its 2022 guidance range ($510-million to $530-million; NBF is $508-million), to reflect: the reduced likelihood of moderating raw material costs in H2, reduced sales of higher-margin branded protein products, and higher than anticipated freight inflation,” he said. “We expect trends to improve slightly in H2/22; however, our understanding is that commodity price inflation for PBH’s specific mix could still be a hindrance.”
Mr. Shreedhar is projecting earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter of $143-million, up from $123-million a year ago but $4-million below the Street. His forecast includes a rise of revenue to $1.584-billion from $1.342-billion, in line with the consensus expectation.
“We forecast Q3/22 EBITDA of $143-million versus consensus at $147-million; last year was $123-million. Our projection of approximately 16-per-cent year-over-year EBITDA growth reflects pricing initiatives and contribution from acquisitions, partly offset by a higher SG&A rate,” he said.
With the impact of inflation, the analyst is also warning of “mixed signals on consumer demand normalization.”
“While macroeconomic indicators suggest pressure on the outlook, management (PBH) and peer commentary suggest more mixed trends.” he said. “Specifically, PBH suggested that foodservice demand rebounded strongly within Q2 and is expected to stay strong; we look for a resumption of SF organic growth in Q3.
“In addition, Hormel Foods indicated recently that it saw a strong consumer that was willing to spend, and a strong broad-based foodservice business. Similarly, Conagra noted that there was simply more demand regardless of price. We contrast these comments to more recent media reports indicating consumer financial stress and value-seeking behaviour.”
Emphasizing 74 per cent of the Vancouver-based company’s debt is exposed to floating interest rates, Mr. Shreedhar sees potential pressure on earnings moving forward. That led him to cut his 2023 earnings per share projection to $6.01 from $6.67.
With that adjustment, he reduced his target for Premium Brands shares to $125 from $134, keeping an “outperform” rating. The average on the Street is $131.30.
“The lower price target reflects slightly lower estimates, higher interest expense (increased net debt forecasts), and a lower valuation multiple (to reflect increasing macroeconomic risk),” he said. “Over the medium term, we believe that Premium Brand’s outlook will be supported by recovering organic growth and pending EBITDA margin expansion (to 9.2 per cent in 2023 from 8.6 per cent in 2022); in addition, we believe that valuation is attractive. PBH currently trades at 10.8 times our NTM [next 12-month] EBITDA compared to the five-year average of 14.3 times.”
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Scotia Capital analyst Phil Hardie thinks the operating environment for the Canadian asset & wealth management sector has become “increasingly challenging through 2022 with heightened market volatility and a range of lingering uncertainties.”
However, heading into third-quarter earnings season, he thinks valuations “remain discounted.”
“A difficult market backdrop and an uncertain economic outlook have likely eroded retail investor confidence and negatively impacted retail flows,” said Mr. Hardie in a note. “Industry-wide outflows of long-term assets (ex-money markets) improved sequentially in Q3, but net redemptions accelerated in September following some improvements earlier in the quarter.
“Despite the near-term pain of this environment, the opportunity for wealth managers is to demonstrate the value of sound advice to clients through a complex environment. The difficult backdrop also likely offers asset managers the chance to successfully demonstrate the value of active management strategies and tailored solutions over basic passive approaches.”
He made a series of target price adjustments on Monday:
- AGF Management Ltd. (AGF.B-T, “sector perform”) to $8.50 from $7.50. The average on the Street is $7.71.
- CI Financial Corp. (CIX-T, “sector perform”) to $17 from $18. Average: $18.09.
- Fiera Capital Corp. (FSZ-T, “sector perform”) to $11 from $10. Average: $10.
- Guardian Capital Group Ltd. (GCG.A-T, “sector outperform”) to $40 from $42. Average: $42.
“We have the sector on our radar, but given the current environment and an uncertain outlook, we remain on the sidelines for now, except for Guardian, which we view as the least sensitive to AUM fluctuations,” said Mr. Hardie. “Our top beta plays in a broad market recovery scenario include CI Financial and AGF. CI likely offers significant upside potential in a blue-sky market rebound scenario, with a number of potential catalysts on the horizon including the IPO of its U.S. wealth management platform. That said, given its ongoing transformation, CI also likely has a set of unique risks, and presents the biggest downside risk across our asset managers. We continue to believe that IGM offers the most defensive attributes of the group, but likely yields less upside potential relative to the group given our current outlook.
“We continue to believe Guardian’s discount is too steep to ignore, and it remains our top small-cap value play.”
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Ahead of Wednesday’s release of its third-quarter results, Raymond James analyst Steve Hansen cut his forecast for Nutrien Ltd. (NTR-N, NTR-T) based on a “broad deterioration” in global fertilizer markets.
“[It’s] a pattern largely underpinned by sidelined international buyers, incremental supply, and self-reinforcing feedback loops—irrespective of still attractive crop fundamentals,” he said. “In potash, specifically, international buyers have become strikingly emboldened by six months of persistent price declines, electing to leverage time and defer purchases as long as possible. Given this backdrop, and the associated influence on key spot benchmarks, we now expect Chinese & Indian benchmark contracts to settle flat-to-lower in the coming months, an outcome likely not fully contemplated by the Street.”
For the quarter, Mr. Hansen is now projecting earnings per share of US$4.02, down from US$4.57. His fourth-quarter and full-year estimates slid to US$3.80 and US$16.37, respectively, from US$4.57 and US$17.
“We have trimmed our 2H22 and 2023 estimates to account for the aforementioned macro/pricing backdrop. With the company scheduled to release its 3Q22 results on Nov-2-22 (after-market, call next morning), we will be looking for additional color/clarity on the company’s potash price outlook & associated expansion plans,” he said.
Maintaining an “outperform” recommendation for Nutrien shares, Mr. Hansen’s target dropped to US$110 from US$125. The average is US$111.05.
“Notwithstanding these short-term dynamics, we reiterate our OP2 rating based upon our constructive view of the current Ag cycle and Nutrien’s robust free cash flow profile and heavily discounted valuation,” he concluded.
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In other analyst actions:
* National Bank Financial’s Patrick Kenny raised his Atco Ltd. (ACO-X-T) target by $1 to $41 with a “sector perform” rating. The average is $49.40.
“ATCO reported Q3/22 adj. EPS of $0.76, above our $0.62 estimate (Street: $0.62), reflecting strong Utilities segment performance, reinforced by higher Structures & Logistics global space rentals as well as Energy Infrastructure macro tailwinds,” he said.
* Mr. Kenny also raised his Canadian Utilities Ltd. (CU-T) target to $34 from $33 after inflation-driven better-than-expected third-quarter results, keeping a “sector perform” rating. The average is $37.69.
“Overall, with the efficiencies realized in the quarter and expected to be carried forward as well as the modest accretion from the $730-million Suncor renewable portfolio acquisition, our target taps up $1 to $34,” he said. “Based on a total return opportunity of 0.0 per cent, combined with a dividend yield spread to the current GCAN 10-year rate of 1.7 per cent versus its five-year average of 2.1 per cent (implying 5-per-cent capital downside), we reiterate our SP rating.”
* TD Securities’ Daryl Young raised his Boyd Group Services Inc. (BYD-T) target to $230 from $225, keeping a “buy” rating. The average on the Street is $213.50.
* CIBC’s Mark Jarvi raised his Fortis Inc. (FTS-T) target by $1 to $55 with a “neutral” rating. The average is $56.86.
* RBC’s Paul Quinn trimmed his target for Vancouver-based Mercer International Inc. (MERC-Q) to US$17 from US$18, maintaining an “outperform” rating. The average is US$18.30.
“Mercer reported Q322 EBITDA of $141-million, which was slightly ahead of our forecast of $139-million and consensus of $134-million,” he said. “While European energy concerns add some noise to the story, we expect pulp prices to remain at attractive levels over the medium term, and think integration of the company’s German footprint plus a growing CLT business represent interesting potential upside.”
* CIBC’s Stephanie Price cut her Open Text Corp. (OTEX-Q, OTEX-T) target to US$35 from US$44, below the US$46 average, with a “neutral” rating.
“With OTEX’s share price down almost 25 per cent since the company announced the Micro Focus acquisition, we believe there is an argument to be made that there is deep value in OTEX,” she said. “While there are concerns about capital allocation and structural revenue declines at Micro Focus, there is a fundamental base of recurring revenue in the business, driven by long-term customer support contracts and cloud subscriptions. Our discounted cash flow (DCF) valuation, based solely on the combined company’s recurring revenue, suggests that $27 could be considered a floor for the stock. However, we see several near-term overhangs on the stock, including tax loss selling and Micro Focus’ upcoming earnings release. With few near-term catalysts, we retain our Neutral rating.”
* CIBC World Markets’ Jamie Kubik raised his Precision Drilling Corp. (PD-T) to $125 from $115 with a “neutral” rating. The average is $137.97.
“While we are optimistic on activity and margin growth for the business, we do expect the stock will likely gravitate towards the low end of its historical valuation range as industry activity rates plateau following a period of rapid growth and thus maintain a Neutral stance on the shares. We expect management will look to direct free cash flow towards the balance sheet in the coming 12-18 months, with potential for increasing shareholder returns once debt targets are achieved,” he said.
* Calling it an “underappreciated story,” Scotia Capital’s Mario Saric trimmed his RioCan REIT (REI.UN-T) target by 25 cents to $26.25 with a “sector outperform” rating. The average is $24.40.
“We think REI is a bit more defensive than some do (7-year WALT = highest in peers set ex. CCRR and CRT), we’re confident the large imminent development completions = AFFOPU growth, it looks discounted vs. peers, while management seems intently focused on value creation,” he said.
* Scotia Capital’s George Doumet cut his target for Spin Master Corp. (TOY-T) target to $56 from $58, below the $61.90 average, with a “sector perform” rating.
“We have kept our annual numbers largely unchanged, but have adjusted our seasonality and pull-forward assumptions impacting our Q3 & Q4 estimates,” said Mr. Doumet. “All in all, TOY continues to do a notable job in managing supply chain, inflation, and labor pressures. While the company’s current valuation is (very) compelling in our view, the demand picture for next year remains hazy (after such a strong year) and we continue to expect a higher level of promo/marketing spend.”
* Lowering his hot-rolled coil price forecast and cost assumptions to “reflect the company managing through a challenging demand period,” Stifel’s Ian Gillies reduced his Street-low Stelco Holdings Inc. (STLC-T) target to $32.50 from $37 with a “hold” rating, while Scotia’s Michael Doumet cut his target to $41.50 from $44 with a “sector perform” rating. The average is $46.03.
“Stelco concluded its most recent SIB which resulted in 13.4 per cent of the outstanding share count being repurchased,” Mr. Gillies said. “With 3Q22 results, we are expecting further updates on capital allocation initiatives. From an operating standpoint, our 2023E EBITDA declines 13 per cent due to an HRC strip that continues to depict weakness (down 5 per cent since our last update on 10/21/2022).”
“The stock is trading at 3.6 times 2023 estimated EV/EBITDA compared to the BOF peer group at 3.4 times. We remain on the sidelines until we have a better sense of when our STLC estimates will bottom.”
* RBC’s Jimmy Shan cut his Storagevault Canada Inc. (SVI-T) target to $8.50 from $9 with an “outperform” rating, while Raymond James’ Brad Sturges lowered his target to $7.50 from $8 with an “outperform” rating. The average is $7.64.
“StorageVault Canada Inc. reported an in-line quarter,” said Mr. Shan. “Pace of growth is decelerating as expected but SP NOI growth remains healthy and is tracking low-double digit for 2022. We expect slower housing market activity and in general lower consumer confidence next year to have some impact on growth, offset by the positive impact of continued population growth from immigration. For 2023, we are modelling 6-per-cent SP NOI growth. We expect more acquisitions next year although buying back its stock or even its debentures look equally interesting.”
* Stifel’s Cody Kwong bumped his Tamarack Valley Energy Ltd. (TVE-T) target to $6.25 from $6 with a “buy” rating. The average is $7.35.
* TD Securities’ Steven Green lowered his Yamana Gold Inc. (AUY-N, YRI-T) target to US$6, below the US$6.26 average, from US$7 with a “buy” rating, while National Bank’s Mike Parkin cut his target to $6.75 from $6.90 with a “tender” rating.
David Leeder