Inside the Market’s roundup of some of today’s key analyst actions
Pointing to enhanced yield stability stemming from its second quarter, Echelon Wealth Partners analyst Douglas Loe raised Extendicare Inc. (EXE-T) to “buy” from “hold.”
"Extendicare reported FQ219 financial data for the June-end quarter that were seasonally strong as we have come to expect from the firm, with AFFO [adjusted funds from operations] comfortably funding quarterly dividend, and with all three of the firm’s core eldercare divisions – long-term care, home healthcare, and retirement residence/assisted living – all generating sequentially strong operating income and margin both in comparison to FQ119 data and to our forecasts," said Mr. Loe.
He said both dividend stability and its payout ratio "remain a flagship element in our investment thesis, with FQ219 again mitigating risk to dividend policy."
"Extendicare’s current dividend yield of 5.6 per cent is certainly consistent with our view, and the view of capital markets in general, that Extendicare’s dividend policy is sustainable and a yield at or near 5 per cent seems reasonable to us based on the firm’s recent track record of generating strong payout ratios even in seasonally strong quarters, usually in FQ1 though interestingly the only financial period during which Extendicare’s quarterly payout ratio exceeded 100 per cent was in FQ415, though without any systemic softness embedded into operations as subsequent quarters showed," he said.
"Since FQ215 and including FQ219 data, Extendicare’s cumulative AFFO of $247.2-million comfortably exceeded cumulative dividend payout of $180.3-million, with an average four-year payout ratio of 72.9 per cent. FQ215 was the first financial period that Revera’s nascently acquired home healthcare operations were integrated into Extendicare’s financial data."
Mr. Loe raised his target to $9 from $8.25. The average is $8.88.
Canadian utilities are “delivering delightful de-risking at a discount,” according to Credit Suisse analyst Andrew Kuske.
In a research note released Monday, he upgraded Canadian Utilities Ltd. (CU-T) to “outperform” from “neutral” with a $44 target, up from $40. The average is $38.75.
He also raised Hydro One Ltd. (H-T) to “outperform” from “neutral” with a $27 target, rising from $24. The current average is $23.71.
“With the recent moves in bond yields, poor equity market performance and, among other things, increased volatility, we tactically re-position two utility stocks trading at discounts while offering a considerable amount of defensive appeal,” the analyst said. “Accordingly, we upgrade Canadian Utilities (CU) and Hydro One (H) both to Outperform from the prior Neutral ratings. Given the environment, largely on the basis of multiple expansion along with a few changes to our financial models, our target prices increase.”
“Our upgrades are largely underpinned by the move in interest rates, however, there are some other factors favouring CU and H, in our view. Those factors, include: (a) the ATCO/Canadian Utilities investor day in September; (b) a likely strategic update by H in the fall; (c) with a skew of CAD cash flows for both CU and H, currency dynamics may drive relative outperformance versus US exposed names; (d) both stocks are trading at abnormally wide discounts to their Canadian peers (largely focused on Emera (EMA) and Fortis (FTS)) – let alone the discount to a broader universe; and, (e) specific nuances of H’s regulatory and legal environment that are positive.”
Following a “mixed” second-quarter earnings season for TSX-listed junior gold producers in his coverage universe, Canaccord Genuity analyst Tom Gallo said his top pick remains Premier Gold Mines Ltd. (PG-T).
"Q2 saw mixed results in the junior producer space, with PG and TMR having soft quarters, Argonaut slightly off the mark and Wesdome massively outperforming on grade," he said in a research note released Monday. "With an average realized gold price of $1,309/oz, companies did not fully benefit from the recent notable rise in the gold price. We point out Premier Gold Mines and Argonaut Gold as the biggest beneficiaries of the recent move upward in gold. Both companies' current operations are higher cost and thus demonstrate more leverage to the gold price."
Mr. Gallo raised his operating net asset value per share projection for Thunder Bay-based Premier Gold, saying he's "encouraged" by recent drilling at San Martin and Margarita at the company’s Mercedes project in northern Mexico.
“More exploration results and South Arturo production are the two major themes and potential key catalysts we see for Premier Gold going forward,” he said. “The recent discoveries at Mercedes along trend of Lupita have been yielding higher than resource grades through initial drilling. The company plans to shift its exploration focus to this region to test the near=term potential of these new targets. In Nevada, production is supposed to be ramping at South Arturo. In our view, Q3 should give us a preview of first processing from the El Nino underground. With its top-tier development pipeline and presence in Nevada, does Premier Gold shift into the takeout cross-hairs of a larger company?”
He kept a “buy” rating and “top pick” designation for Premier Gold shares and raised his target to $5 from $4.50. The average on the Street is $3.69.
Mr. Gallo maintained a “speculative buy” rating and $8.50 target for Tmac Resources Inc. (TMR-T). The average is $8.13.
Corteva Inc. (CTVA-N) was “hit with a confluence of negative factors in 2019, creating downward earnings revisions after it was spun out of DuPont,” according to Citi analyst P.J. Juvekar.
However, feeling 2020 should be "better," Mr. Juvekar raised agricultural chemical and seed company to "buy" from "neutral."
The analyst pointed to several variables that has hurt its financial performance thus far this year. They include: over US$500-million in separation costs from DuPont; uncertainty surrounding agricultural trading stemming from the U.S.-China dispute, which also delayed the approval of several productions and a wet spring in the U.S. Midwest.
"Following the company's CFO presentation on 8/15, we see a positive path forward for Corteva going into 2H19 and 2020," he said.
"Going forward: 1) Corteva has several products in the pipeline such as Enlist E3 soybean, which could be on 10 per cent of U.S. soy acres next year; 2) CTVA is seeing strong growth outside the U.S., particularly in LatAm and China; and 3) CTVA has initiated multiple productivity programs as a new company on top of merger-related synergies that are expected to drive EBITDA higher by $230-million in 2020."
After raising his 2020 EBITDA expectation, Mr. Juvekar increased his target to US$34.50 from US$34. The average on the Street is US$32.95.
“Ag is our new theme and we are now recommending all five of the Ag stocks in our coverage as we de-emphasize petchem names,” he said.
Analysts at H.C. Wainwright & Co. think macroeconomic improvements related to precious metals are "increasingly evident" in the market.
That led the firm to raise its long-term gold price assumption to US$1,500 per ounce from US$1,300 and its long-term silver projection to US$17.50 per ounce from US$15.
“Various U.S. treasury yields have dropped to record lows, while a growing number of Government bonds around the globe have ever-increasing negative yields,” the firm said. "Given the ongoing trade and geopolitical tensions with China amid fears of a global slowdown, this trend seems unlikely to change in the short-term. Gold has accordingly stepped into its role as a safe haven asset amid fears of an upcoming recession. This overall economic and political uncertainty has caused gold spot prices to increase by roughly $240 (19 per cent) to about $1,520 per ounce (oz) since the beginning of the year, while silver has increased by approximately $1.70 (11 per cent) to $17.10/oz, over the same period.
“These prices are also in-line with the values firms are likely to receive if they decided to hedge some of their production. We acknowledge the possibility for short- and mid-term price fluctuations, especially as the Federal Reserve weighs the option of increasingly aggressive interest rate cuts before year-end. Additionally,any significant resolution regarding the ongoing trade issues with China could drive precious metal prices lower given lowered perceived market risks. We have applied our revised precious metal price deck to all relevant companies within our coverage universe.”
With the changes, analysts raised their targets for several stocks, including:
First Majestic Silver Corp. (FR-T, “buy”) to $11.50 from $8. Average: $13.70.
“Despite the pending temporary halt of operations at La Parrilla, we continue to be impressed with production improvements at San Dimas, which provided 55 per cent of the firm’s revenue during 2Q19,” said Heiko Ihle. “Lastly, we reiterate our belief that the improving precious metals pricing environment is likely to meaningfully improve the firm’s 3Q19 and 2H19.”
Asanko Gold Inc. (AKG-T, “buy”) to $2.20 from $1.60. Average: $1.73.
Pretium Resources Inc. (PVG-T, “buy”) to $22 from $16.50. Average: $17.19.
MAG Silver Corp. (MAG-T, “buy”) to $18.50 from $16.50. Average: $20.28.
Northern Dynasty Minerals Ltd. (NDM-T, “buy”) to $3 from $2.50. Average: $1.55.
Endeavour Silver Corp. (EDR-T, “buy”) to $4.25 from $3. Average: $3.46.
Even with a “strong” year-to-date share performance that has seen its stock jump by 47 per cent, Adventus Mining Corp. (ADZN-X) is likely to see further appreciation with a “steady” stream of assay results starting in the fourth quarter, said Laurentian Bank Securities analyst Jacques Wortman.
In a research report released Monday, Mr. Wortman initiated coverage of the Toronto-based miner with a "buy" rating.
“Adventus trades at 0.6 times NAV [net asset value], which would be a reasonable multiple if the company only had El Domo and some modest exploration potential,” he said. But in our view, ADZN benefits from significant exploration upside on three (3) fronts – the rest of the Curipamba project area, plus the Santiago and Pijili projects within the Ecuador Exploration Alliance. All three of these projects will start to see exploration program spending in H2/19 and we expect a fairly steady flow of early-stage exploration results (assays, survey results) starting in Q4/19. At El Domo, project advancement continues toward full feasibility study work post the Q2/19 PEA results, with EIA work and project optimization being the focus in H2/19."
The analyst set a target of $1.85. The average is $1.88.
“In our view, Adventus has capitalized well on its ‘first-mover’ advantage in Ecuador, both in terms of striking important strategic relationships in-country and building an attractive portfolio of exploration and development assets,” he said. “In our view, El Domo is an attractive cornerstone asset that carries real value and supports our target price alone. Additionally, other exploration targets on the sizeable Curipamba property and the Santiago and Pijili assets within the Ecuador Exploration Alliance offer additional upside potential. There is always the possibility that additional assets could be added to the alliance, although we expect the partners to focus on the existing portfolio during the next year.”
In other analyst actions:
RBC Dominion Securities raised Boardwalk REIT (BEI-UN-T) to “outperform” from “sector perform” with a target of $51, rising from $49. The average target on the Street is $49.76.