Inside the Market’s roundup of some of today’s key analyst actions
Industrial Alliance Securities analyst Elias Foscolos lowered his rating for Shawcor Ltd. (SCL-T) on Monday, expecting to see a decline in North American revenue this year due to lower drilling and completions activity.
Also moderating his expectations for international and offshore pipe coating, Mr. Foscolos lowered the Toronto-based oilfield services company to “buy” from “strong buy” in the wake of its fourth-quarter results last Thursday.
“Within SCL’s Pipeline & Pipe Services (PL&PS) segment, we expect North American results in 2020 to be similar to Q4/19 (annualized),” he said. “We are also projecting a modest decline in SCL’s Composite Systems (CS) segment due to lower demand for composite pipe, partially offset by a full year of stable results from ZCL [Composites Inc.].”
“SCL’s backlog, both official and conditional, was flat quarter-over-quarter. The Company has commented that it is seeing increased activity in its Texas, Indonesia, and Norway facilities, with facilities in Scotland, UAE, and Brazil set to start up in Q2/20. Outlook commentary suggests that already-booked work combined with expected near-term sanctions should lead to better results in H2/20. We agree with this thesis based on backlog, but we are projecting a slower ramp up than we had previously, as project sanctions have been slow and the backlog has not increased at the rate we previously projected.”
Ahead of the company’s Investor Day event on March 4, Mr. Foscolos reduced his financial expectations for both 2020 and 2021, feeling compelled to take “a more conservative outlook.”
His target for Shawcor shares slid to $15 from $20. The average on the Street is $13.50.
Raymond James analyst Frederic Bastien said SNC-Lavalin Group Inc.'s (SNC-T) fourth-quarter results passed the “smell test,” seeing them seal a comeback in the second half of 2019.
The Montreal-based firm’s shares jumped on Friday in response to the premarket earnings release.
SNC posted E&C earnings per share of 45 cents after adjusting for provisions to settle the federal charges and the closure of its mid-stream oil and gas operations. That was 2 cents higher than expectations on the Street and 10 cents above Mr. Bastien’s expectations.
“We find it telling that SNC-Lavalin’s stock rose 11 per cent on a day when the broader TSX index gushed another 3 per cent in value,” the analyst said. “The firm capped off a roller coaster year with a better-than-expected quarterly print on Friday, adding evidence that management’s decision to build the future around Atkins and the nuclear operations are paying dividends. We know better not to suggest a story void of twists and turns in the foreseeable future, but with SNC’s legal shackles loosened and LSTK projects no longer hemorrhaging, its shares can clearly be tagged as ‘investable’ again. Although our new target implies a healthy gain of 17 per cent over the next 6-12 months, we see significantly more upside beyond that timeframe if management can further optimize FCF generation and start allocating growth capital to the higher performance parts of its business.”
Maintaining an “outperform” rating, Mr. Bastien increased his target for SNC shares to $38 from $35. The current average among analysts covering the stock is $39.50.
“It is worth noting the positive variance to our EPS estimate stemmed from the two SNC businesses with the closest affinity to Strong Buy-rated Aecon Group,” he said. “The transit-heavy and nuclear segments exceeded our respective EBIT estimates to the tune of $25-million and $7-million, offering as good a read-through on the contractor’s upcoming earnings release as we’ve ever been presented with. EPDM EBIT came in $6-million light due to a more modest year-over-year gain in profitability than expected, while Infrastructure Services and Capital met expectations. Ditto for Resources. Although cost overruns, underperformance and weak activity levels continued to conspire against the segment, its operating loss was limited to $51-million.”
Elsewhere, pointing to recent share price appreciation, Laurentian Bank Securities analyst Mona Nazir lowered SNC to “hold” from “buy” with a $33 target (unchanged).
Ms. Nazir said: “We were pleased with quarterly performance, despite the 7-per-cent EBITDA miss versus our and Street estimates. Specifically items of note are the infrastructure EPC rebound to $23-million in EBIT (from negative $130-million for the first nine months of 2019) alongside the significant sequential deleveraging from 3.4x to 2.1 times. We believe management has made significant progress in cleaning up the story with the resolution of Fed government charges, an exit from fixed price construction projects and closure of Valerus (underperforming O&G facilities). While provided guidance was in line with our conservative estimates and we believe that a valuation gap remains vs. peers, the overhang and uncertainty surrounding LSTK project losses in 2020 (OCF potentially negative) causes us to shift to a Hold.”
With its “large” first-quarter earnings per share miss, Laurentian Bank of Canada (LB-T) hit “bumps alongside the transformation process,” said Canaccord Genuity analyst Scott Chan.
Before the bell on Friday, Laurentian reported adjusted EPS of 79 cents, well short of both Mr. Chan’s $1.08 estimate and the consensus on the Street of $1.09.
“The firm missed on virtually every line item (on a consolidated basis) and benefited from a lower tax rate,” said Mr. Chan. "Management provided goalposts for the remainder of the year. In total, LB targets F2020 adj. EPS being flat/5-per-cent down compared to F2019, implying an adjussted EPS range of $4.05-$4.26.
“Once again, we have baked in conservative estimates (based on LB’s F2020 outlook). We highlight ... a new F2020E adj. EPS of $3.87 (down 4 per cent below the bottom end of LB’s range). The bank is running into many bumps alongside its transformation process, and recent macroeconomic concerns (e.g. COVID-19, GDP, rail strikes) likely put even more pressure on LB’s earnings targets. We look for improvement over future quarters and have personal loans growth (including residential mortgages, credit cards) resuming in F2021.”
Maintaining a “sell” rating, Mr. Chan dropped his target to $32 from $35. The average on the Street is $38.91.
Elsewhere, Desjardins Securities’ Doug Young lowered his target to $38 from $44, maintaining a “hold” rating.
“The seven-year transformation plan continues and expense levels could be bumpy,” said Mr. Young. “That said, the bank has cleared a lot of hurdles (labour union dispute and branch transformation) and NIMs could benefit from an improved funding mix.”
Citing a “more competitive backdrop in western Canadian retail fuel margins,” Raymond James analyst Steve Hansen lowered his financial projections for Parkland Fuel Corp. (PKI-T), despite touting its “long-term growth prospects and solid execution track record.”
“Canadian retail fuel margins have been under consistent pressure over the past 18 months, a pattern primarily underpinned by enhanced competition in western Canada, most notably in Alberta,” he said. “With this competitive backdrop carrying through 4Q19 and extending into early 1Q20, we have notably trimmed out Retail segment estimates.”
“While Vancouver refining margins also proved heavy through 4Q19 (against a very difficult comp.), we have seen a notable shift higher through much of 1Q20. As the charts herein illustrate, the Vancouver crack spread enjoyed solid momentum in early 4Q19 (October) benefiting from rising gasoline/diesel prices (healthy demand, US supply outages) vs. a broadly muted crude price backdrop. This dynamic abruptly shifted in early November, however, as gasoline prices rolled lower (U.S. supply improved) while crude values gradually inched higher. More recently, the spread has been very firm through 1Q20, with Vancouver gasoline prices proving incredibly resilient against a weak macroeconomic/crude backdrop (i.e. Covid fears), with Vancouver’s regional strength likely underpinned by Parkland’s 8 week refinery turnaround.”
Mr. Cox lowered his 2020 earnings per share estimate to $1.31 from $1.52 and introduced a 2021 projection of $1.48.
Keeping an “outperform” rating for Parkland shares, he shrunk his target to $48 from $51. The average on the Street is $53.62.
“Notwithstanding these latest revisions, we continue to recommend PKI shares for growth-orientated investors, reiterating our confidence in the firm’s long-term growth prospects (organic & acquisitive) and solid execution track record,” he said. “In this context, we highlight that PKI shares have fallen 9.5 per cent over the past week (vs. the TSX, down 8.8 per cent), dragging its valuation back below its 5-year trading range, thus creating an attractive entry point, in our view.”
Though there were “no big surprises” in its fourth-quarter results, Raymond James analyst Chris Cox felt compelled to lower his financial expectations and target price for shares of Imperial Oil Ltd. (IMO-T).
On Jan. 31, the Calgary-based company reported funds from operations of $1.04, exceeding Mr. Cox’s 87-cent projection as well as the Street’s 96-cent expectation. Its segment-by-segment results also “largely” fell in-line with his projections.
“During the company’s 4Q19 conference call with Analysts, Management noted that the company is unlikely to pursue any acquisitions until there is certainty that the production curtailments in Alberta will be lifted, given the long-term uncertainty these policies create regarding the economics and potential growth opportunities of a potential asset.,” said Mr. Cox. “While we have seen some encouraging developments with respect to progressing significant market egress, Management’s commentary in this respect appeared fairly definitive, and we suspect greater certainty would be needed that curtailments are lifted for good, before M&A becomes a likely use of free cash flow going forward.”
After reducing his cash flow and earnings expectations for 2020 and 2021, Mr. Cox moved his target to $34 from $37, keeping an “underperform” rating. The average is $36.25.
Following the release of “solid” fourth-quarter results, Raymond James analyst David Quezada said Boralex Inc.'s (BLX-T) recent weakness provides investors with an enticing opportunity to add to their positions.
“It may feel like the distant past but as recently as a week ago, BLX was among the renewable power producers riding a wave of positive ESG sentiment to new highs,” he said. “While the stock has been swept up in market volatility, we feel strongly that fundamentals will reassert themselves and see ESG fund flows continuing to support valuations. With ongoing development in French wind and New York solar, we see the company’s growth trajectory as on track (or potentially ahead of schedule) and believe our thesis is intact. Thus, we see the recent 10 per cent pullback in the stock over the past five trading sessions as an opportunity to add to positions. We continue to regard BLX as among the most attractively valued IPPs at 11.5 times 2020 estimated EV/EBITDA - a notable discount to renewable peers at an average of 12.5 times.”
Shares of Quebec-based renewable energy company dropped over 6 per cent on Friday with the premarket release of its quarterly results, despite the fact they exceeded expectations.
Adjusted EBITDA of $165-million beat both Mr. Quezada’s $143-million estimate and the $146-million consensus projection.
“Relative to our estimates, the beat was a function of better than expected wind generation in France which improved 17 per cent year-over-year and was 15 per cent above the long term average,” the analyst said."Meanwhile, BLX’s Canadian wind assets posted generation in line with expected levels, while the company’s hydro segment came in 5 per cent above expectations. As a result, BLX’s combined generation improved 17 per cent year-over-year to 1,677 GWh while combined adj. EBITDA improved 36 per cent year-over-year reflecting better generation from existing assets, the addition of commissioned assets (the Buckingham re-powering) and $6-million in land sales. Despite weakness in the stock [Friday], we believe these were strong results."
With an “outperform” rating (unchanged), Mr. Quezada raised his target for Boralex shares to $32 from $30. The average is $31.06.
“With solid progress on development in French wind and U.S. solar we see potential for BLX to meet 2023 targets for cash flow and capacity early,” he said. “We also highlight our view of BLX as among the most attractively valued names.”
Meanwhile, Industrial Alliance Securities’ Naji Baydoun hiked his target to $29 from $27 with a “buy” rating.
Mr. Baydoun said: “We continue to like BLX’s strong growth story, including its (1) highly contracted renewable power portfolio (2GW net in operation, 13-year weighted average contract term), (2) healthy FCF/share growth (5-7 per cent per year, CAGR 2019-24), driven by capacity additions in Canada and Europe, (3) potential upside associated with the Company’s large development pipeline (more than 2GW of prospects in wind and solar), and (4) potential for long-term dividend growth (2.5-per-cent yield, 40-60-per-cent FCF payout target). BLX continues to execute on its organic growth strategy, and has taken several steps in 2019 to optimize its portfolio, which should set up the Company for a successful 2020 and beyond; furthermore, we believe that the Company’s expanding development pipeline (2.7GW vs. 2.5GW at 2019 Investor Day) provides potential upside to longerterm growth. Therefore, we believe that the shares warrant a higher valuation.”
J.P. Morgan’s Jeffrey Zekauskas moved the stock to “overweight" from “neutral” with a US$44 target, rising from US$42.
Bernstein’s Jonas Oxgaard moved the Saskatoon-based fertilizer producer to “outperform” from “market perform” with a US$52 target, falling from US$53.
The average target on the Street is currently US$54.27.
In other analyst actions:
Expressing concern about its disappointing quarterly results and seeing operating leverage and expense trends remaining a challenge until at least the second half of the year, Eight Capital analyst Stephen Theriault cut Toronto-Dominion Bank (TD-T) to “neutral” from “buy” and lowered his target to $75 from $81. The average on the Street is $78.20.
Desjardins Securities analyst Bill Cabel raised TransAlta Renewables Inc. (RNW-T) to “buy” from “hold” with a $16.50 target, which exceeds the consensus by 12 cents.
Canaccord Genuity analyst Carey Macrury upgraded Agnico Eagle Mines Ltd. (AEM-T) to “buy” from “hold” with a target of $82, falling 28 cents below the consensus.
Mackie Research Capital Corp. analyst Andre Uddin lowered Medexus Pharmaceuticals Inc. (MDP-X) to “speculative buy” from “buy” with an $8.70 target, down from $10.50. The average is $6.55.
Alliance Global Partners analyst Aaron Grey initiated coverage of Hexo Corp. (HEXO-T) with a “buy” rating and $3.50 target. The average is $2.31.
Haywood Securities Inc. initiated coverage of Generation Mining Ltd. (GENM-CN) with a “buy” rating and $1 target.