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

Canadian insurance companies are likely to see the benefits from the rebound in equity markets when first-quarter earnings season kicks off on Wednesday with Manulife Financial Corp. (MFC-T), according to Canaccord Genuity analyst Scott Chan.

He's projecting Manulife to report a 6-per-cent jump in core earnings growth year-over-year, exceeding his 6-per-cent average projection for the entire sector.

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"After disappointing Canadian Lifeco stock returns in 2018, year-to-date share price performance have significantly rebounded," he said. "Current valuations still remain compelling trading at 9.7 times our NTM P/E [next 12-month price-to-earnings] implying a 13-per-cent discount to its historical average. Due to rebound in equity markets, we are lifting our P/E target multiples by 0.5x (1 times at Sun Life Financial due to U.S. asset manager valuation expansion) and our core EPS is higher across the group, mainly from marking AUM [assets under management] gains."

Prior to the release of its quarterly results on Thursday, Mr. Chan downgraded his rating for Great-West Lifeco Inc. (GWO-T) to “hold” from “buy,” pointing to a total return expectation of less than 10 per cent.

"GWO was one of our top 'Value picks entering 2019," he said. "With a stock gain of 21-per-cent year-to-date and its higher relative valuation and below average 19/20 core EPS growth of 4 per cent/4 per cent, we prefer to sit on the sidelines now. We believe GWO’s recent SIB at a price of $33.50 or less helped contribute to YTD gains representing 6 per cent of total outstanding shares (Power Financial taking large portion at $33 per share). With GWO’s allotment, we estimate the firm still sits on substantial excess capital (less-than $4-billion) to support M&A. At current levels, we believe the risk of transacting on a U.S. manager has increased based on significant multiple expansion. From U.S. managers we track, the Group trades at a P/E (2020 estimate) of 13.3 times (vs. 9.3 for Cdn. large cap managers), potentially making a transaction less accretive or the likelihood of an acquisition being pushed out further. Although the historical track record of Life insurance acquisitions has been favorable, Putnam for asset management has been a disappointment. As a result, we prefer to take a 'wait and see' approach on M&A."

Mr. Chan raised his target for Great-West stock by a loonie to $35. The average on the Street is $34.20, according to Bloomberg data.

He also increased his target for the following stocks:

Manulife Financial Corp. (MFC-T, “buy”) to $31 from $30. Average: $28.20.

iA Financial Corp. (IAG-T, “buy”) to $63 from $61. Average: $61.

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Sun Life Financial Inc. (SLF-T, “hold”) to $55 from $52. Average: $55.23.


RBC Dominion Securities analyst Ross MacMillan expects Shopify Inc. (SHOP-N, SHOP-T) to deliver upside to first-quarter estimates when its financial results are released Tuesday.

Focusing on its gross merchandise volume (GMV) growth and non-plus monthly recurring revenue (MRR) trends, Mr. MacMillan is projecting revenue of US$309.9-million, in line with the consensus on the Street of US$310-million. He's also expecting operating income and non-GAAP earnings per share losses of US$13-million and 10 US cents, respectively, versus the consensus of a US$13-million loss and 5 US cents.

Mr. MacMillan said: "Other intra quarter developments: i) Traffic trends suggest positive share data but mixed overall traffic data. International growth continues although we have not picked up material acceleration in any particular geography; ii) Instagram commerce launched in closed beta in March. This could be viewed as an incremental marketplace that competes for gross payment volume over time, although we remain believers in the platform/channel strategy that Shopify pursues.; iii) In mid-March, Mailchimp’s partnership with Shopify came to an end with parties citing disagreements over privacy, opt-out preferences, and terms in the partner program agreements. While we are surprised that both parties could not come to a mutual resolution, there are numerous other third-party integrations that allow the two services to continue to be linked."

He maintained an "outperform" rating and US$230 target, which exceeds the consensus of US$199.33.

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"We remain optimistic that international and product functionality expansion can sustain strong fundamentals in the business," said Mr. MacMillan.

Elsewhere, KeyBanc analyst Josh Beck initiated coverage with an "overweight" rating and a US$250 price target.


Lundin Mining Corp. (LUN-T) had a “good start to the year” and now sits “well-positioned” to meet its 2019 guidance, said Haywood Securities analyst Pierre Vaillancourt.

On April 24, the Toronto-based miner reported earnings and cash flow per share for the first-quarter of 7 cents and 19 cents, respectively, meeting the analyst's forecast of 6 cents and 18 cents.

The results came nine days after it announced it has agreed to buy Yamana Gold Inc.’s Chapada mine in Brazil in a deal that could eventually top US$1-billion.

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"Overall, we believe the acquisition of Chapada is a good deal for Lundin, making productive use of its cash to diversify the asset portfolio," said Mr. Vaillancourt. "We believe that over time, LUN can add value to Chapada and expand the operation in the same way it has for Candelaria since making the acquisition of that asset."

After raising his 2019 earnings expectations, Mr. Vaillancourt increased his target for Lundin shares to $10 from $9 to reflect "upside from the pending acquisition of Chapada as well as the optimizations at existing operations, which are nearing completion." The average on the Street is $9.06.

He maintained a "buy" rating.


Raymond James analyst Brenna Phelan is expecting a “strong start” to 2019 for goeasy Ltd. (GSY-T).

Ahead of the May 7 release of the Mississauga-based alternative financial company’s first-quarter results before the bell and an Investor Day event to follow hours later, Ms. Phelan said she’s projecting earnings per share for the first quarter of $1.19, which is 3 cents higher than the consensus.

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"We are modeling 6-per-cent sequential loan growth (47 per cent year-over-year) which we reduced from 9 per cent previously to better reflect guidance on the last conference call that 2019 loan growth should be more back-end weighted," she said. "Note that this implies $50-million of net loan growth, below 2018's average of $77-million per quarter. Lower sequential loan growth comes with a lower associated IFRS 9 up-front position and is therefore a modest tailwind to our quarterly EPS estimate."

"We have updated our model to reflect share repurchases of 315k shares at an average price of $41.97 in 1Q19. Our previously published estimates had reflected year-to-date repurchases of 120k shares. The incremental 200k shares decreases our share count by 1.5 per cent through 2020."

Maintaining an "outperform" rating for goeasy shares, she raised her target to $60 from $58. The average is $61.83.

“We view goeasy as a uniquely high-growth story, catering to an underserved market with significant demand and little competition, and executing with effective and reliable credit adjudication and underwriting,” she said. “After an uncharacteristically disappointing 3Q18 result, and against the backdrop of general late-cycle credit fears, the stock sold off meaningfully in 4Q18. GSY responded with repurchasing $400k shares in that quarter, and then delivering a very strong 4Q18 in March 2019. We continue to think that management has its arms around the credit issue in Quebec, and look for 1Q19 results to also be strong across key metrics. Our 2020 EPS forecast comes up to reflect the lower share count resulting from YTD share repurchases, our target moves up to $60.00 and our rating stays Outperform.”


Canaccord Genuity analyst Doug Taylor is expecting “messy” first-quarter results for both Air Canada (AC-T) and WestJet Airlines Ltd. (WJA-T).

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“The focus for airline stocks heading into first quarter reporting is the projected impact that the ongoing B737 MAX groundings will have on the near-term financial performance,” said Mr. Taylor in a research note released Monday. “We expect Q1 results themselves will see a small impact given the timing, late in the quarter. Q2 will likely see a full quarter impact but the larger concern is if the aircraft are grounded through the all-important summer schedule. At this time, we have adjusted our forecasts assuming the grounding extends to August 31, factoring in other recent developments like higher fuel price assumptions.

“Shares of Air Canada and WestJet have held in relatively well, in our view, considering they are two of the most exposed to the B737 MAX among North American airlines. While we believe Q1 reporting and the ongoing B737 MAX headlines could lead to some near-term turbulence for both stocks, we continue to view BUY-rated Air Canada as a top fundamental idea for the medium term – AC will report May 6. WestJet remains HOLD rated on a relative basis considering increasing ULCC competition and labour uncertainty – WJA reports May 7.”

Mr. Taylor maintained a “buy” rating and $45 target for Air Canada shares. The average on the Street is $41.50.

He kept a “hold” rating and $23 target for WestJet shares, which exceeds the consensus of $20.56.


Aecon Group Inc.’s (ARE-T) “execution and growth continue to impress,” according to Canaccord Genuity analyst Yuri Lynk following the April 25 release of better-than-anticipated first-quarter results.

“With its construction business trading at 4.8 times 2019 estimated EBITDA versus the group at 5.8 times, we see an opportunity for Aecon to more than close this gap,” he said. “After all, Aecon boasts the best organic backlog growth amongst its North American peers, which translated into exciting FCF per share growth (trailing 12 month, excluding working capital) of 51 per cent year-over-year in Q1/2019. Additionally, Aecon sports $293-million of net cash on its balance sheet (pro forma future installments due on the contract mining asset sale) and a growing concession portfolio, the value of which we continue to contend is underappreciated by investors.”

Maintaining a “buy” rating for Aecon shares, he raised his target by a loonie to $26. The average on the Street is $23.32.

Elsewhere, Desjardins Securities’ Benoit Poirier increased his target to $23 from $22 with a “buy” rating.

Mr. Poirier said: “ARE reported better-than-expected results, supported by the construction and concessions divisions. ARE also reiterated its positive outlook for 2019, as its record backlog, robust pipeline of opportunities (C$30b+ of projects) and ongoing concessions projects should lead to an improved margin — a key driver of value creation”


In other analyst actions:

Macquarie analyst Peter Lam upgraded Detour Gold Corp. (DGC-T) to “outperform” from “neutral” with a $14 target. The average on the Street is $16.05.

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