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

OceanaGold Corp.’s (OGC-T) “long-term consistency trumps short-term intensity,” according to Desjardins Securities analyst Raj Ray.

Pointing to an improving growth outlook for its Waihi mine in New Zealand as well as its share price underperformance thus far in 2019, which has seen it fall 11 per cent versus 6-per-cent and 7-per-cent jumps in both the VanEck Vectors Gold Miners ETF (GDX) and VanEck Vectors Junior Gold Miners ETF (GDXJ), respectively, Mr. Ray raised his rating for the Melbourne-based company to “buy” from “hold.”

“Oceana is one of the very few gold mining companies which have delivered on operational guidance for eight consecutive years starting 2011,” he said. “It is currently also the only gold mining company to have delivered positive ROIC [return on invested capital] every year going back to 2011. The key to the consistent operational and financial performance over the years has been a focus on quality assets, in-house technical expertise and strategic investment decisions. Since 2012, while production per share has increased by 10 per cent, Oceana’s EBITDA and earnings have grown by 20 per cent and 190 per cent, respectively.”

“Oceana’s ability to sustain and grow production from current levels (2019 guidance of 500–550,000 ounces) has been an area of focus for both company management and investors recently. Oceana has four producing assets, out of which Haile (U.S.) and Didipio (Philippines) already have visibility on minelife to 2030 and beyond. In addition, over 1Q19, the company’s updates on Waihi + WKP (New Zealand) have shown a clear path to extending minelife to 2030 and beyond. In Oceana’s current portfolio, Macraes (New Zealand) remains the only asset with a shorter minelife (up to 2024) although significant optionality exists at Macraes at higher gold prices.”

Mr. Ray called Waihi “the next big thing,” despite expecting production to decline year-over-year in what he calls a “transition” year.

“The big focus will be on the exploration front where the company had tremendous success in 2018,” he said. “Oceana has increased the Martha underground resource by 108 per cent to 1.0moz and announced a maiden high-grade resource for WKP of 0.6moz. We see potential for a substantial increase in Waihi resources over the next 12–24 months.”

Though he lowered his production and earnings estimates for both 2019 and 2020, Mr. Ray increased his target price for OceanaGold shares to $5.50 from $5.25 after raising his valuation for Waihi in the wake of its resource update. The average target on the Street is $4.88, according to Bloomberg data.


Calling it “too compelling to ignore,” Cowen analyst Gabe Daoud raised his rating for Encana Corp. (ECA-N, ECA-T) to “outperform” from “market perform,” pointing to its “attractive” growth, free cash flow generation and an unwarranted valuation discount to its peers.

The firm also believes the disposition of non-care assets, including its Williston formation in North Dakota, Uinta in Utah and Arkoma in Oklahoma, can potentially be sold accretively to enhance further returns.

His target is US$10, which exceeds the average of US$9.78.


Canaccord Genuity analyst Dalton Baretto raised his rating for Imperial Metals Corp. (III-T) following its US$806-million sale of 70 per cent of its Red Chris mine in B.C. to Newcrest Mining Corp. on the weekend, believing its financial concerns “have been fully addressed.”

“We view this transaction as a very good deal for III,” said Mr. Baretto. “The US$806.5-million price paid for 70 per cent of Red Chris implies a total value of $1.54-billion for the asset; this implied value represents a 24-per-cent premium to our carrying value of $1.24-billion. Our overall NAV for III has increased by 33 per cent, to $4.75 per share (from $3.20 previously).

“NCM is a very strong operator, and we believe that this deal will surface further value from Red Chris, both in the near term as well as in the long term. NCM's financial and operating capabilities now provide a clear line of sight to production from the very large resource at Red Chris.”

Moving Imperial to “buy” from “hold,” Mr. Baretto increased his target to $4 from $1.65. The average is $2.87.

“At the close of this transaction, we forecast the company to be in a net cash position of $240-million, versus the current net debt position of $780-million,” he said. “We note that the bulk of the debt matures on March 15, while the transaction is not expected to close until August 15; the extension mechanisms on the debt are currently unclear to us. Longer term, we believe III should be able to fund its 30-per-cent share of equity contributions to the large underground block cave proposed at Red Chris. Using SEA’s KSM project as a proxy (similar jurisdiction, scale and approach), we note that III’s contribution, assuming a US$5.5-billion capex bill and 65-per-cent project financing, will be $580-million.”


A recent pullback in Apple Inc.’s (AAPL-Q) share price represents an “opportunity” for investors, said Bank of America analyst Wamsi Mohan, who raised his rating for the tech giant to “buy” from “neutral.”

“AAPL stock is down 26 per cent from its peak (S&P down 9 per cent) and up 9 per cent year-to-date (inline with S&P 500 and below the [tech sector’s return] of 13 per cent),” he said. “Our scenario analysis suggests that shares are discounting a “declining hardware” scenario (ex-cash, services), and the debate hinges on the L/T trajectory. In our opinion, weakness in hardware is not entirely structural. Our new PO of $210 is based on assumptions closer to scenario 2 (flat hardware, and somewhat slower than historical growth in Services).”

In justifying his upgrade, Mr. Mohan pointed to several factors, noting: “We upgrade Apple to buy (post our downgrade on Nov 2, 2018), predicated on: (1) stability of supply chain order cuts and large reversal of inventory overhang in iPhones, (2) gross profit dollars reversing from declines to growth in 2H19, which is correlated to the stock price, (3) modest reacceleration in services (China gaming) including upcoming announcements, (4) overshoot of negative estimate revisions particularly in F20/21, (5) growth across healthcare, wearables and increasing services penetration, (6) growing installed base of users that will refresh supporting 200mn iPhone average annual shipments with cyclicality around it, (7) competitive products supporting a higher price umbrella around foldable and 5G phones, (8) highly loyal user base [from] results of our global survey of 151,262 total respondents across U.S., U.K, China, and India), with low churn where demographic changes are in Apple’s favor, (9) strong FCF with potential for M&A, and capital return (support for the stock given the recent selloff and lowered relative weighting), and (10) valuation ex-cash attractive at 10 times.”

Mr. Mohan raised his target for Apple shares to US$210 from US$180. The average on the Street is US$177.50.


Pointing to a faster-than-expected acceptance of its “stories” format and a renewed focus on messaging, Nomura Instinet analyst Mark Kelley raised his rating for Facebook Inc. (FB-Q) to “buy” from “neutral.”

“We based our downgrade of FB shares to Neutral last year on our view that the transition to Stories would take more time than bulls expected,” he said. “However, as we heard at industry events earlier this year and in our own conversations, the transition appears to be occurring more quickly than we expected, lessening our concern,”

“We viewed the addition of an “open Facebook” icon inside Instagram late last year as a red flag, signaling that core FB engagement trends were worsening. But 4Q18 results showed a slight improvement in the DAU/MAU ratio in the U.S. (77 per cent from a dip to 76 per cent in 3Q18), indicating that engagement is intact. Additionally, management suggested it will soon begin to disclose platform-wide MAU figures, which should be better indicators of the underlying trends of the greater business. Mark Zuckerberg’s recent blog post also suggested that engagement could improve as the company looks to focus on encrypted and ephemeral messaging across properties, in addition to the current core functionality.”

After raising his EBITDA estimates for 2019 and 2020, Mr. Kelley’s target for Facebook shares jumped to US$215 from US$172. The average is currently US$195.56.


In reaction to its acquisition of a final necessary permit for its Rosemont project in Arizona, Credit Suisse analyst Mark Llanes upgraded Hudbay Minerals Inc. (HBM-T) to “outperform” from “neutral.”

“While the decision to issue the permit by the US Army Corps may face litigation challenges, we are confident that the Company will continue with the development of the project,” he said.

“While we are our cautious with the increased execution risk at HBM given that the Lalor and Rosemont developments will overlap, we highlight that these projects are located in low-risk jurisdictions with sufficient infrastructure already in place. However, given the high capital requirements and associated risk, HBM may explore additional financing opportunities, perhaps with its streaming partner, Wheaton Precious Metals, or even giving up a larger stake to a JV partner (HBM currently owns 80% of the project).”

Mr. Llanes raised his target to $10.50 from $9. The average on the Street is $10.57.

“HBM has performed well throughout 2018 by better operations at both Peru (recoveries) and Manitoba (costs), and improved economics at Lalor Gold (refurbishment of New Britannia mill), but we believe that the receipt of the final permit to proceed with Rosemont development is the key catalyst for a re-rating,” he said. “As a result, we upgrade HBM.”


Expecting demand for lumber to improve “seasonally” with spring construction activity and placing upward pressure on prices, BMO Nesbitt Burns analyst Mark Wilde thinks “the current backdrop offers an interesting entry point into the lumber stocks.”

Accordingly, after “waiting patiently on the sidelines for over a year," he raised his rating for five stocks in the sector to “outperform” from “market perform.”

“We think financial valuations are attractive,” he said. “The CN lumber stocks are trading between 4.4-6.2-times our mid-cycle EBITDA estimate. The two US timber REITs are trading at 23-28 per cent below our prudent NAV estimate and sport a 4.5-5.5-per-cent dividend yield.”

He upgraded the following stocks:

Canfor Corp. (CFP-T) with a $20 target, which sits below the average on the Street of $21.92.

West Fraser Timber Co. Ltd. (WFT-T) with a $78 target, up from $68 but below the average of $79.67.

Interfor Corp. (IFP-T) with a $18 target. The average is $21.

“Interfor is our top pick among the CN producers," he said.

“Valuation is very inexpensive (5.1 times our 2019 estimated EBITDA and 4.4 times our ‘mid-cycle’ EBITDA) and offers an attractive entry point.”

Weyerhaeuser Co. (WY-N) with a US$32 target. Average: US$29.73.

“While there are ‘cyclical’ uncertainties around U.S. housing, WY is trading well below our prudent $34/share estimate of net asset value (NAV) and offers an attractive entry point,” he said.

Potlatch Corp. (PCH-Q) with a US$44 target. Average: US$43.80.


Believing its current valuation is elevated based on her financial expectations and pointing to a slower ramp-up in production than its peers, BMO Nesbitt Burns’ Tamy Chen downgraded Cronos Group Inc. (CRON-T) to “underperform” from “market perform.”


In other analyst actions:

CIBC World Markets analyst Scott Reid downgraded Yangarra Resources Ltd. (YGR-T) to “neutral” from “outperformer” with a target of $4.25, down from $4.50. The average is $6.11.

Production appears to be tracking well below consensus estimates and guidance thus far,” said Mr. Reid. “After nearly doubling production in 2018, declines are understandably elevated right now, and we need to gain a better understanding of where the dust settles before recommending YGR stock. With the stock trading in line with peers on strip pricing at 4.1 times 2020 estimated EV/DACF ... we are moving our rating to Neutral.”

AltaCorp Capital analyst Tim Monachello upgraded Akita Drilling Ltd. (AKT-A-T) to “outperform” from “sector perform” with a target of $5.50, up from $4.50 and above the $5.25 average.

Accountability Research analyst Harriet Li upgraded Labrador Iron Ore Royalty Corp. (LIF-T) to “hold” from “sell” with a target of $30 (from $23). The average is $31.25.

Roth Capital Partners initiated coverage of Standard Lithium Ltd. (SLL-X) with a “buy” rating and $2.20. The average is $2.50.

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