Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial analyst Rupert Merer thinks Algonquin Power & Utilities Corp. (AQN-N, AQN-T) now appears to be “attractively” valued after its shares dropped 19.3 per cent on Friday in response to the release of “weak” third-quarter results.
However, he warned of “a number of moving parts and no obvious catalysts in the near-term,” leading him to reaffirm his “cautious” stance on the company.
He was one of several equity analysts to downgrade the Oakville, Ont.-based company’s shares following the underwhelming release, which included a guidance reduction.
Before the bell on Friday, Algonquin reported third-quarter adjusted earnings per share of 11 US cents, missing Mr. Merer’s projection by 7 US cents and the consensus estimate on the Street by 5 cents due largely to lower-than-anticipated generation from its Renewable Energy group and higher interest costs. It now expects full-year EPS in a range of 66-69 US cents from 72-77 US cents previously.
In a research note released shortly after the premarket quarterly release, Mr. Merer cut his recommendation for Algonquin shares to “sector perform” from “outperform, citing growth concerns and suggesting the company’s payout ratio “looks stretched.”
“Weakening outlook bring guidance and targets revision AQN highlighted that the current challenging macroeconomic environment, further exacerbated by rising interest rates (16 per cent of AQN’s debt has variable rate) and persisting inflation, has forced it to re-evaluate its long-term targets and financial expectations (AQN targets rate base CAGR [compound annual growth rate] of 15 per cent and adj. EPS CAGR of 7-9 per cent for 2022-26), starting with its 2022 financial guidance,” he said.
“With results, AQN maintained its current quarterly dividend of US$0.1808/sh. However, on the back of weak earnings and uncertain growth prospects, AQN’s payout ratio should be over 100 per cent this year. With this, the outlook for future dividend increases has declined and dividend cuts could be on the table.”
After reducing his target for Algonquin shares on Friday (to US$13.50 from $14.25), Mr. Merer made a further cut in a Monday report to US$12.50 following an update to his financial forecast. The current average target on the Street is US$14.12.
“We calibrated our model to account for Q3 results, higher interest rates as well as AQN’s revised FY’22 guidance. Our Q4 forecast includes a $50-million gain on sale of some assets in the Renewable Energy group, offset by lower recognition of tax credits, for a $28.9-million increase in EBITDA contribution.,” he said.
He’s now projecting full-year earnings per share for 2022 of 68 US cents, down 10.4 per cent from 75 US cents previously. His 2023 estimate slid 4.3 per cent to 70 US cents from 75 US cents.
Elsewhere, other analysts making recommendation changes include:
* Desjardins Securities’ Brent Stadler to “hold” from “buy” with a US$11.50 target, down from US$14.50 in a research note titled A trip to the woodshed.
“3Q missed, but this was primarily due to low wind speeds and thus was not too bad,” said Mr. Stadler. “We are obviously concerned by AQN’s commentary and have a lot of questions in general, but in particular around permanent financing given it could have US$3.6-billion drawn on its credit facility by January 2023 —this is the primary driver of our 2023 EPS decline. AQN has a lot of work to do to formulate a plan and update its growth targets ahead of its upcoming investor day.”
“An uncertain growth outlook, likely driven by a lack of balance sheet discipline, concerns around upcoming financial results, an elevated payout ratio, and questions on dividend growth and strategy, prevent us from being able to recommend the stock at this time. While the shares will likely be volatile in the coming months, we recommend investors sit on the sidelines or at least exercise caution.”
* BMO Nesbitt Burns’ Ben Pham to “market perform” from “outperform” with a US$11 target, down from US$17.50.
“After dropping almost 20 per cent on Friday following the reduction in 2022 EPS guidance (and signals around an upcoming reset of long-term 7-9-per-cent EPS CAGR), AQN shares are trading at depressed levels that offer attractive value (approximately 12.5 times P/E vs. 17x times utility peers),” said Mr. Pham. “This is despite its diversified mix of essential service utility and renewable power plants. However, there are likely increasing risks of a ‘strategic’ dividend cut and funding needs are still high. Given this balance, we are lowering our rating.”
* RBC Dominion Securities’ Nelson Ng to “sector perform” from “outperform” with a US$12 target, down from US$17.
“Management has an opportunity at its upcoming Investor Day to reset its strategy,” said Mr. Ng. “We believe Algonquin will need to cut its dividend, reduce its capital program and growth targets, explore additional asset sales, and keep equity needs to a minimum. The shares of AQN could be range-bound until there is more visibility. We are downgrading our rating to Sector Perform (from Outperform) and reducing our price target to $12 (from $17) to reflect the many uncertainties, including a potential dividend cut.”
* TD Securities’ Sean Steuart to “hold” from “buy” with a $10 (Canadian) target, down from $13.
Others analysts making changes include:
* Raymond James’ David Quezada to US$11.50 from US$18 with an “outperform” rating.
“While 3Q22 results certainly reflected some near-term challenges for Algonquin, we note that even after significant reductions to our earnings estimates and target multiple, we continue to see sufficient upside to maintain our Outperform rating. Going forward, we expect the company’s upcoming analyst day, slated for early 2023, will provide clarity on the company’s outlook and continue to see an attractive set of opportunities in front of the company,” he said.
* Scotia’s Robert Hope to US$11 from US$13 with a “sector perform” rating.
“Algonquin’s shares were very weak (down 19 per cent) following its Q3 miss, reduction in 2022 guidance, as well as the talk down of 2023 expectations,” he said.” The level of volatility in Algonquin’s earnings also caught the market by surprise. While the shares have likely overshot to the downside, we expect them to be range bound until additional longer-term clarity is provided at its Investor Day in early 2023. We lower our 2022E EPS estimate into the upper part of the new guidance range, while our 2023/2024 estimates decline 12 per cent/8 per cent largely to reflect a lower renewable contribution and some continued interest rate pressure.”
* Credit Suisse’s Andrew Kuske to US$12 from US$13 with an “outperform” rating.
“With the guidance reduction and call commentary, we reduced elements of the financial outlook and believe a restoration of confidence will be critical. Greater focus will revolve on capital recycling as recently demonstrated, the future organizational growth rate and dividend related metrics – especially ahead of a future investor day in early 2023 (shifted from a normal December timeline,” said Mr. Kuske.
=====
Seeing “a number of headwinds going to 2023,” Raymond James analyst Michael Shaw lowered MEG Energy Corp. (MEG-T) to “market perform” from “outperform” on Monday.
“Top among them is the persistently high differential on heavy sour barrels in both the USGC and Western Canada,” he said “While we agree with MEG’s assessment that the abnormal heavy differentials will not last forever, it is difficult to assess when the U.S. SPR releases or the impact of heavy Russian barrels trying to find a home will end. Our modeling expects WCS differentials to remain above US$20 per barrel until at least the end of 1Q (current diffs are US$29/bbl).
“In addition to wider heavy differentials, MEG’s Christina Lake project will reach royalty payout early next year/late this year, which will meaningful increase the project’s royalty rates. We expect MEG’s effective rate will increase from an average of 6 per cent this year to 18 per cent in 2023. Higher differentials, royalty rates, and sustaining capex will all impact MEG’s conversion of EBITDA to free-cash-flow and ultimately the return of cash to shareholders.”
Despite the rating change, Mr. Shaw said the Calgary-based company “remains one of the best ways to play Western Canadian heavy oil prices.”
“Its long-lived, low decline, and low sustaining capex project make it an attractive investment over the long-term. As a tactical measure, we are lowering our rating to Market Perform to reflect current headwinds and relative valuation,” he said.
The analyst maintained a $22 target. The current average is $23.93.
=====
IA Capital Markets analyst Matthew Weekes expects further growth in Florida to “absorb” Emera Inc.’s (EMA-T) lower investment potential in Nova Scotia moving forward.
At the same time, despite the release of better-than-anticipated third-quarter results, he warned “utilities are facing a challenging operating environment and it could take time for Emera’s leverage profile to improve to more credit sustainable levels.”
On Friday, Emera, the parent company of Nova Scotia Power, reported adjusted earnings per share of 76 cents, up 12 per cent year-over-year and higher than Mr. Weekes’s 73-cent projection and the consensus estimate on the Street of 74 cents. The beat was due largely to performance from its Tampa Electric operation.
Concurrently, the Halifax-based utility announced it was halting capital spending plans for clean energy projects in Nova Scotia due to Nova Scotia government’s imposed rate cap.
“EMA unveiled its 2023-2025 capital planof $8.4-billion (assumes 1.3 CAD/USD FX rate), with no change to spending over the 2022-2024 timeframe as higher projected investment in Florida is offsetting lower investment in Nova Scotia,” said the analyst. “Approximately 75% of EMA’s capital plan is now based in Florida, which the Company expects to result in a more favourable return profile and balance sheet over time due to higher regulated ROEs and allowed equity. EMA maintained its 7-8-per-cent rate base CAGR forecast and 4-5-per-cent annual dividend growth guidance, with no change to the funding plan.”
“EMA’s Q3/22 earnings were modestly ahead of estimates, as favourable rate structure, investment, and customer growth in Florida continue to drive strong growth in core utilities, with Emera Energy providing a boost as well. We are increasing our target price as we expect a higher exchange rate and growth outlook for the Florida utilities to offset headwinds in Atlantic Canada. EMA expects its leverage ratio to decline over time as it catches up on fuel cost recovery and invests a greater proportion of its capital in Florida.”
Maintaining a “hold” rating for Emera shares, Mr. Weekes raised his target to $60 from $59. The average on the Street is $59.32.
Others making changes include:
* RBC’s Maurice Choy to $68 from $72 with an “outperform” rating.
“We believe the in line Q3/22 results, new 2023-2025 plan, and management’s commentary/strategy helped alleviate some market concerns relating to government, regulatory and financial risks,” said Mr. Choy. “Whilst certain investors may opt to wait until these risks dissipate, we see the stock’s relative valuation discount as attractive to patient investors (who should be rewarded when the sentiment reverses) and to those who see the silver lining in all this, including how the deficiency in Nova Scotia (sub-15 per cent of Emera’s pre-corporate earnings) only serves to enhance the superiority (and premium valuation) of favourable jurisdictions like Florida (over 60 per cent of pre-corporate earnings).”
* CIBC’s Mark Jarvi to $54 from $55 with a “neutral” rating.
“The updated three-year capex plan strikes a reasonable balance of added investment in regions of higher growth while also limiting investment in regions with greater policy uncertainty. Notably, EMA paired backed investment in Nova Scotia given the recent government legislation that limits the ability to recover higher spending. While there’s some added financial strain from delayed cost recoveries, we believe EMA can manage through,” said Mr. Jarvi.
=====
Stifel analyst Martin Landry is expecting a “strong” performance from Alimentation Couche-Tard Inc. (ATD-T) when it reports its second-quarter fiscal 2023 financial results on Nov. 22.
“ATD has met or exceeded consensus estimates in 12 of the last 13 quarters, an impressive performance,” he said. “Given our above consensus view for Q2FY23 we expect this trend will continue.”
For the quarter, Mr. Landry is projecting earnings per share of 88 cents, up 36 per cent year-over-year and 9 cents higher than the consensus estimate driven by higher gasoline margins expectations.
“The company’s gasoline margins have outperformed industry peers, and we believe this outperformance continues driven by ongoing supply chain optimization across the network,” he said. “Industry peers have reported good merchandise same-store-sales growth, and we see upside to our estimate for the U.S. region.”
He’s forecasting merchandise same-store sales growth of 3 per cent in the United States, pointing to inflation and “a somewhat easy comparable period year-over-year.”
“Our Q2FY23 SSS assumptions result in a three-year stack of 9 per cent, lower than the 11-per-cent average over the last 2 years and a conservative assumption, in our view,” he added. “We also note the recent comments from Performance Food Group (PFGC-N), owner of CoreMark and a distributor to the convenience retail industry. The company pointed to inflation within the convenience sector being into the double-digit range during the quarter, an acceleration from previous quarters and a dynamic, which could boost ATD’s SSS in Q2FY23.”
Touting its reasonable valuation and “ample flexibility” to make acquisitions or return capital to shareholders, Mr. Landry hiked his target for Couche-Tard shares to $70 from $65, maintaining a “buy” rating. The average on the Street is $69.52.
=====
Ahead of the approaching fourth-quarter earnings season for Canadian banks, Barclays analyst John Aiken made a series of target price adjustments.
“Ongoing BoC rate tightening cycle should boost margins and CMRev could surprise to the upside. However, credit will likely weaken (but still remain fairly benign) while a kitchen sink Q4 could bring lumpier NIX. At the end of the day, strong capital and solid dividend yields provides some downside protection,” he said.
Mr. Aiken’s changes were:
- Bank of Montreal (BMO-T, “overweight”) to $153 from $151. The average on the Street is $148.29.
- Canadian Western Bank (CWB-T, “overweight”) to $29 from $31. Average: $33.14.
- Laurentian Bank of Canada (LB-T, “equal-weight”) to $37 from $40. Average: $42.15.
- Royal Bank of Canada (RY-T, “overweight”) to $140 from $137. Average: $137.26.
- Toronto-Dominion Bank (TD-T, “overweight”) to $100 from $101. Average: $99.14.
=====
Pointing to its performance in the United States, National Bank Financial analyst Maxim Sytchev thinks investors should “continue gravitating” toward Stantec Inc. (STN-T) “especially when all the verticals now appear to fire on all cylinders.”
“Most consulting peers posted good numbers (organic growth, backlog, etc.), so it’s not a big surprise that STN had a solid print,” he said.
After the bell on Thursday, the Edmonton-based firm reported largely in-line third-quarter results, including year-over-year revenue growth of 24 per cent. Adjusted earnings per share of 86 cents matched the consensus estimate on the Street.
“Climate change, infrastructure maintenance, and re-shoring of manufacturing set up a long runway,” said Mr. Sytchev. “Expectations were high for Stantec, and the company delivered by capitalizing on their exposure to these secular trends. Continued high levels of Water vertical activity in the UK (AMP 8 spending is expected to be greater than AMP 7) and work with semiconductor producers (in the US and, starting in 2023, in Europe as well) are expected to continue in the short-medium term given their defensive nature and political prominence. STN hired a record number of employees in the quarter and expects this to continue, signaling strong confidence in end-market demand.
“The quality (and quantity) of the backlog remains strong. STN is not seeing any concerns with the record backlog in the form of deferrals or cancellations. More significantly, the private sector remains highly resilient as well, bolstering our confidence in the degree of revenue visibility in uncertain times. In the U.S. there is structural support in the form of the CHIPS and Science, Inflation Reduction, and Infrastructure Investment and Jobs initiatives. STN expects further additions to its project backlog as a result of these programs through next year.
Mr. Sytchev emphasized the potential gains from the federal infrastructure spending program south of the border are “not even in the numbers, with management expecting Q2-Q3/23E seeing more meaningful contribution.
“STN appears to have the right exposure in verticals that matter and are growing. Given stronger than peers’ organic momentum, we also feel comfortable to up the EV/EBITDA multiple to 14.5 times (from 14.0) on 2023 estimates,” he added.
That led him to raise his target for Stantec shares to $74 from $70, keeping an “outperform” recommendation. The average is $75.27.
Elsewhere, others making changes include:
* Desjardins’ Benoit Poirier to $76 from $75 with a “buy” rating.
“STN reported robust 3Q results and reiterated its EPS outlook for 2022, supported by the acquisition of Cardno’s assets in North America and Asia-Pacific, as well as the strong slate of organic growth opportunities from the green transition and stimulus funding in the U.S. STN has the highest exposure to the U.S. in our E&C coverage,” Mr. Poirier said.
“Reiterating our bullish stance. We are pleased with the continued momentum building in the U.S., particularly in relation to the successful integration of Cardno.”
* BMO’s Devin Dodge to $76 from $75 with an “outperform” rating.
“We believe there is an attractive setup for STN. The increase in the backlog has been impressive YTD and is expected to grow further in 2023. Margins have room to expand while the M&A pipeline remains active. On valuation, the multiple discount vs. peers has widened out while its FCF yield looks compelling compared to other high-quality Canadian industrial peers. STN remains one of our preferred ideas within our coverage,” said Mr. Dodge.
* CIBC’s Jacob Bout to $70 from $74 with an “outperformer” rating.
“STN reported Q3/22 results that showed strong organic revenue and backlog growth (backlog is at record levels providing good visibility into 2023). Given the US$1T Infrastructure Plan roll-out (50 per cent of STN’s revenue mix tied to the U.S.), and continued public/private investments into energy transition, water, healthcare and logistics, we expect a strong 2023. We raise our estimates to reflect higher organic net revenue growth and slightly higher margins,” said Mr. Bout.
At the same time, Mr. Sytchev said it’s “hard to justify the need for exposure at this point” to ABC Technologies Holdings Inc. (ABCT-T), maintaining a “sector perform” rating and $5 target, which falls below the $5.30 average.
“Management is optimizing divisional structures, shutting down Poland facility and pushing for terms renegotiating with clients on a number of previously signed programs, due to the impact of inflation not subsiding as rapidly as the company had hoped for,” he said. “While these are all the right moves, the recovery scenario amid uncertain macro backdrop will be lower vs. prior expectations, creating additional margin pressure; that being said, in the medium-term management still sees mid-teens EBITDA margins (as do we, so the normalizing thesis is already anchored in our prospective numbers). While results are getting less bad, we do not see a compelling reason to be long ABCT shares at the moment.”
=====
In other analyst actions:
* Scotia Capital’s Himanshu Gupta upgraded Choice Properties REIT (CHP.UN-T) to “sector outperform” from “sector perform” and raised his target to $16 from $15, while National Bank’s Tal Woolley raised his target to $14.50 from $13.50 with a “sector perform” rating. The average is $15.
* Societe Generale’s Derric Marcon cut CGI Inc. (GIB.A-T) to “hold” from “buy” with a $126 target. The average is $128.77.
* Northcoast Research’s John Healy raised Ritchie Bros Auctioneers Inc. (RBA-N, RBA-T) to “buy” from “neutral” with a US$65 target, exceeding the US$56.28 average.
* Raymond James’ Brad Sturges cut his Automotive Properties REIT (APR.UN-T) target by $1 to $13.75 with an “outperform” rating. The average is $13.70.
“We view APR as well positioned, both for offensive acquisition opportunities if they should arise, and defensively given its long duration cash flows that feature stable, contractual annual growth year-over-year, strong balance sheet metrics, and below-average NAV/unit sensitivity to any future increases in average going-in commercial property cap rates. However, we have adjusted our FFO/unit and AFFO/unit estimates to reflect changes in the timing and pace of future acquisitions,” he said.
* Mr. Sturges also reduced his targets for BSR REIT (HOM.U-T) to US$20.75 from US$24 with a “strong buy” rating, Canadian Apartment Properties REIT (CAR.UN-T) to $56 from $59.50 also with a “strong buy” rating and Granite REIT (GRT.UN-T) to $93 from $98 with an “outperform” rating. The averages are US$20.19, $54.15 and $92.38, respectively.
* Barclays’ David Strauss raised his Bombardier Inc. (BBD.B-T) target to $45 from $30 with an “underweight” recommendation. The average is $55.70.
* Canaccord Genuity’s Matthew Lee lowered his Bragg Gaming Group Inc. (BRAG-T) target to $12.50, remaining above the $12.39 average on the Street, from $15 with a “speculative buy” rating.
* CIBC’s Hamir Patel cut his CCL Industries Inc. (CCL.B-T) target by $1 to $72 with an “outperformer” rating. The average is $76.20.
“We continue to believe CCL’s diversified platform and end-market exposure should support steady top-line growth over the cycle,” said Mr. Patel. “We are projecting organic growth of 1.9 per cent in 2023 (vs. price-fueled 7.0-per-cent comps in 2022), with further annual gains in 2024 of 2.5 per cent. With leverage of only 1.5 times, the company is well-positioned to be opportunistic on the M&A front over the coming year should privatemarket valuations moderate.”
* RBC’s Keith Mackey raised his CES Energy Solutions Corp. (CEU-T) target to $4 from $3.50, below the $4.29 average with an “outperform” rating.
“CES’s 3Q22 results were broadly in-line with our expectations. Given sharp revenue growth, CES should generate negative FCF in 2022 before turning positive in 2023 as growth moderates and margins improve. We also see debt repayment as a consideration to its overall capital allocation strategy. We increase our 2022/23 EBITDAC estimates by 5/3 per cent,” said Mr. Mackey.
* RBC’s Pammi Bir cut his Chartwell Retirement Residences (CSH.UN-T) target to $12 from $13.50 with an “outperform” rating. The average is $11.42.
* CIBC’s Todd Coupland dropped his Copperleaf Technologies Inc. (CPLF-T) target to $5 from $9 with a “neutral” rating, while RBC’s Maxim Matushansky cut his target to $8 from $10 with an “outperform” rating. The average is $6.57.
“Q3 revenue was below consensus due to client resource constraints and a tight labour market, offset by a growing pipeline, expansion in new geographies and verticals, rapid start solutions that shorten sales cycles, and zero customer churn. Copperleaf is focusing on improving profitability while sales cycles are lengthening and deals are being pushed (but not cancelled or lost) into FY23,” said Mr. Matushansky.
* CIBC’s John Zamparo raised his Diversified Royalty Corp. (DIV-T) target to $3.25 from $3.15, below the $3.79 average, with a “neutral” rating.
“DIV reported Q3 results above expectations on adjusted revenue, adjusted EBITDA and distributable cash per share,” he said. “Mr. Lube continues to be the portfolio’s star performer and drove most of the Q3 beat, but AIR MILES and Mr. Mikes outperformed as well. DIV shares have performed admirably over the past six months (up 19 per cent TSR); valuation at 18 times 2023 estimated EPS looks fair to us, though there is potentially room for upside.”
* Canaccord Genuity’s Robert Young lowered his target for Dye & Durham Ltd. (DND-T) to $28 from $30 with a “buy” rating. The average is $27.50.
* National Bank’s Don DeMarco raised his Endeavour Mining PLC (EDV-T) target to $36 from $35.75, keeping an “outperform” rating. The average is $38.63.
* RBC’s Walter Spracklin reduced his Exchange Income Corp. (EIF-T) target to $59 from $61, below the $60.91 average, with an “outperform” rating.
* Scotia’s Phil Hardie increased his target for Goeasy Ltd. (GSY-T) to $164 from $162, keeping a “sector perform” rating, while BMO’s Étienne Ricard cut his target to $192 from $234 with an “outperform” rating. The average is $198.44.
“The stability of goeasy’s credit losses in a deteriorating economic environment is noteworthy, with management dynamically adjusting underwriting and scaling its secured loan portfolio. GSY remains one of our best total return ideas, underpinned by almost 20-per-cent earnings CAGR potential & 22-per-cent-plus ROE valued at 9 times earnings,” said Mr. Ricard. “We reiterate our Outperform rating albeit adjust our target price lower to reflect the higher interest rate environment and resulting impact on cost of equity.”
* RBC’s Maurice Choy raised his Hydro One Ltd. (H-T) target to $38 from $37 with a “sector perform” rating. Others making changes include: National Bank’s Patrick Kenny to $32 from $31 with a “sector perform” rating and CIBC’s Mark Jarvi to $36 from $35 with an “outperformer” rating. The average is $35.61.
“With our estimate and consensus being consistent with the upgraded directional guidance for 2022 EPS (which is supported by the good Q3/22 results), we look forward to the many updates that may come between now and the Q4/22 results release day (likely in February), including: (1) a new CEO; (2) a confirmation/revision of Hydro One’s strategy; (3) the conclusion of the JRAP proceeding; (4) the release of the 2023+ guidance; and (5) management’s rate base growth outlook beyond the JRAP,” said Mr. Choy. “Whilst fairly valued in our view, we see Hydro One’s shares as a solid option for investors seeking defensive exposure.”
* National Bank’s Matt Kornack lowered his Inovalis REIT (INO.UN-T) target to $4, below the $4.56 average, from $5 with a “sector perform” rating.
* RBC’s Jimmy Shan cut his InterRent REIT (IIP.UN-T) target to $16.50 from $18 with an “outperform” rating, while BMO’s Jenny Ma cut his target to $14.50 from $15 with an “outperform” recommendation. The average is $14.81.
“InterRent REIT’s NOI performance was strong at 12.4 per cent (11 per cent year-to-date), with revenue growth outpacing expense,” he said. “With Montreal lagging but recovering, a strategy of holding rents during the downturn and its continuous value-add activities, IIP’s earnings have some momentum near term, offset partly by interest expense headwinds. Longer term, we see upside through its sizeable MTM rent potential of 30 per cent.”
* National Bank’s Mike Parkin lowered his Kinross Gold Corp. (K-T) target to $8.25 from $9.25, maintaining an “outperform” rating. The average is $7.94.
* National Bank’s Ryan Li cut his target for Lassonde Industries Inc. (LAS.A-T) to $135, above the $130 average, from $138 with an “outperform” rating, while Desjardins Securities’ Frederic Trremblay lowered his target to $125 from $140 with a “hold” rating.
“While we were pleased with continued top-line momentum in 3Q (heavily supported by pricing actions), our enthusiasm remains tempered by margin weakness caused by inflation and chronic underperformance from the U.S. business,” said Mr. Li. “With beverage retail prices unlikely to soar forever, we believe patience will be required as Lassonde’s margin recovery will rely heavily on its multi-year Project Eagle in the U.S.. Near-term challenges and execution risk keep us on the sidelines despite LAS.A’s low valuation multiple.”
* RBC’s Tom Callaghan cut his Melcor Developments Ltd. (MRD-T) target to $13, which is the current average, from $15 with a “sector perform” rating.
“In our view, Melcor Developments (MRD) continues to successfully manage through an increasingly challenging operating environment beset by rising interest rates, inflation, and fears over slowing economic activity. While pressure appears to be most acute within the company’s U.S. Community Development operations, the good news is that activity levels, and demand remain robust in Alberta,” he said.
* RBC’s Jimmy Shan lowered his target for Minto Apartment REIT (MI.UN-T) to $21.50 from $23.50, above the $19.88 average, with an “outperform” rating. Other changes include: Desjardins’ Kyle Stanley to $21.50 from $23 with a “buy” rating and BMO’s Jenny Ma to $20 from $21 with an “outperform” rating.
* Raymond James’ Frederic Bastien dropped his Neo Performance Materials Inc. (NEO-T) target to $17 from $23 with an “outperform” rating. Others making changes include: Scotia’s Mark Neville to $16 from $21 with a “sector outperform” rating, Canaccord Genuity’s Yuri Lynk to $15 from $18 with a “buy” rating, Stifel’s Ian Gillies to $15 from $17 with a “buy” rating and Cormark’s David Ocampo to $17 from $25 with a “buy” rating. The average target is $19.50.
“A 40-per-cent correction in prices for key magnetic rare earths, more pandemic-related disruptions in China, and a weakening macro backdrop conspired against NEO in 3Q22,” said Mr. Bastien. “These factors drove a big quarterly miss and an equally big drop in the stock price, completely outweighing recent developments that will accelerate NEO’s Magnets-to-Mine vertical integration strategy. For proof, consider that the firm is progressing with three potential upstream partnerships (Yangibana and Koppamurra in Australia, and Sarfartoq in Greenland), and gaining financial and strategic support for a sintered rare earth magnet manufacturing plant in Estonia. Although they will get lost in the geopolitical noise for as long as the Russia-Ukraine war rages on, these efforts strengthen our conviction on the stock. Another consideration supporting our Outperform rating is NEO’s depressed share price, which leaves it vulnerable to a takeover. With Hastings Technology seeing sufficient value to buy a 22-per-cent stake at $15 per share three months ago, there’s gotta be other strategics kicking around the idea at $9 per share.”
* RBC’s Geoffrey Kwan increased his target for Onex Corp. (ONEX-T) to $103 from $99 with an “outperform” rating. Others making changes include: CIBC’s Nik Priebe to $80 from $75 with a “neutral” rating. The average is $96.80.
“Founder/Chairman/CEO Gerry Schwartz’s pending move to Chairman with President Bobby Le Blanc becoming the new CEO was unsurprising and we view it as a non-event for the share price,” said Mr. Kwan. “While it sounds like Mr. Schwartz will still remain involved with the business (at the very least as Chairman), it nevertheless marks the end to a successful tenure as CEO (hence our report title tribute with the classic Mel Brooks’ line from the 1980s cult movie Spaceballs). Bigger picture, the shares trade at a substantial 43-per-cent discount to NAV (41-per-cent discount to Hard NAV which assumes zero value for the Asset/Wealth Manager and carried interest), yet investment performance remains positive and there are potential catalyst(s) (e.g., monetizations). While the slower pace of fundraising for OP6 is not ideal and likely delays the timing on visibility to achieving Onex’s US$110-$130-million run-rate FRE by the end of 2026, we think the current share price likely reflects little to no value for the Asset/Wealth Manager and carried interest.”
* In response to the 120-per-cent increase in its monthly dividend, Desjardins Securities’ raised his target for Peyto Exploration & Development Corp. (PEY-T) to $19, above the $18.28 average, from $18.50 with a “buy” rating.
“The market was clearly receptive to the announcement based on the stock price reaction when it significantly outperformed its Canadian natural gas–weighted peers,” he said. “More importantly, the outlook is bright as debt levels moderate and the hedge book continues rolling off moving into 2023, which should enable the company to better capitalize on elevated natural gas prices.”
“Following the increase, the stock provides the most lucrative base dividend yield in the Desjardins E&P coverage universe at a cool 9.0 per cent, even following the stock’s meteoric rise last week. However, it is important to highlight that the company takes a unique approach to dividend policy, effectively treating the base dividend as a pseudo variable-rate payout based on future earnings expectations. Longstanding PEY observers will also note that the company typically updates its dividend payout once per year, in conjunction with forward-year capital spending plans in November.”
* Canaccord Genuity’s Christopher Koutsikaloudis raised his Plaza Retail REIT (PLZ.UN-T) target to $4.50 from $4 with a “hold” rating. The average is $4.71.
* National Bank’s Vishal Shreedhar raised his target for Saputo Inc. (SAP-T) to $41 from $39, which is the current average, with an “outperform” rating.
* CIBC’s Mohamed Sidibe cut his Skeena Resources Ltd. (SKE-T) target to $17 from $17.50 with an “outperformer” rating. The average is $15.69,
* TD Securities’ Daryl Young cut his Superior Plus Corp. (SPB-T) target to $14 from $15.50 with a “buy” rating. The average is $12.67.
* Credit Suisse’s Kevin McVeigh raised his Street-high target for Thomson Reuters Corp. (TRI-N, TRI-T) to US$138 from US$135. The average is US$116.90.
* National Bank’s Don DeMarco bumped his Torex Gold Resources Inc. (TXG-T) target to $15.50 from $15 with a “sector perform” rating. The average is $19.67.
* RBC’s Brad Heffern cut his target for Tricon Residential Inc. (TCN-N, TCN-T) to US$11 from US$12, below the US$12.50 average, with an “outperform” rating.
“TCN’s 3Q22 results were in line with our expectations, while underlying 4Q22 guidance looks slightly better than we had expected,” said Mr. Heffern. “Very low opex prints are complicated by increased capitalization of expenses, and overall cost to maintain is definitely seeing inflationary pressures, but at least TCN did not see the property tax surprises of AMH/INVH. The acquisition program is slowing significantly as TCN waits for either a better cost of capital or lower home prices, and a corresponding reduction in fee income is largely responsible for our 7-per-cent reduction in 2023 core FFO/sh.”
* Desjardins Securities’ Chris MacCulloch cut his Vermilion Energy Inc. (VET-T) target to $38 from $42 with a “buy” rating. The average is $40.14.
“As we are oft reminded, there are no free lunches in life,” he said. “Last week’s announcement by VET that it expects to pay a combined $700-million of ‘solidarity contribution’ to EU member states in fiscal 2022–23 sticker-shocked the market. The good news is that VET will only be meaningfully exposed to windfall taxes in three jurisdictions (Netherlands, Ireland and Germany), corresponding to its continental natural gas production. The bad news is that the financial impact was much greater than the market had anticipated (ourselves included), which contributed to negative estimate revisions and our $4.00/share target price cut. The temporary cessation of share buybacks added insult to injury, although we are still modelling their resumption in 2Q23, albeit with less cash flow to fund repurchases.
“Returning to our opening statement, there is no question that VET has been a tremendous beneficiary of the abrupt shift in European natural gas markets, resulting in corporate profitability beyond anyone’s wildest dreams, which expedited balance sheet deleveraging and capital returns. Assuming the three aforementioned member states stick close to EU minimum guidelines, VET will still effectively receive two-thirds of the bounty. On that note, we should receive additional colour when VET provides 2023 guidance in early January after each EU member submits its framework to Brussels by year-end. Meanwhile, we believe the initial windfall tax guidance of $700-million (or $4.30/share) has been conservatively set for a potential downward revision. We also believe it has been largely priced into the stock after unwinding $2.35/share of equity value last Thursday (November 10).”
David Leeder