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

Given the impact of COVID-19 on its core customers, D.A. Davidson analyst Tom Forte lowered his financial expectations for Shopify Inc. (SHOP-N, SHOP-T) in the wake of last week’s investor update.

Though the Ottawa-based company said its first-quarter sales and adjusted operating income in January and February is “within or ahead” of its guidance provided on Feb. 12, it suspended its financial expectations for 2020 due to " the uncertainty surrounding the duration and magnitude" of the pandemic.

“Similar to our other covered companies where we have adjusted numbers, are current assumptions are the majority of economic weakness will occur in 2Q20 and the first half of 3Q20,” said Mr. Forte. “We a projecting an improving economy in the second half of 3Q20 and 4Q20. Versus our original projections, we forecast improvements in 2021, but, a still challenging environment, when compared to our original forecast.”

Mr. Forte reduced his 2020 EBITDA and revenue projections to a loss of US$166.1-million and $1.858-billion, respectively, from a profit of US$34.9-million and $2.16-billion.

Maintaining a "buy" rating, his target for Shopify shares slid to US$500 from US$675. The average on the Street is US$492.75.

“While cognizant of the challenging environment for Shopify because of the impact, in particular, on small merchants - its core customers - we continue to view it as one of the most attractive long-term open-ended growth stocks we cover,” he said.


Despite thinking it possesses “everything it needs to get through the crisis,” Desjardins Securities analyst Benoit Poirier sees “further turbulence ahead” for CAE Inc. (CAE-T, CAE-N).

While touting the long-term value in its shares, Mr. Poirier thinks the Montreal-based flight simulator manufacturer sees further short-term downside, feeling the Street is not fully taking into account the impact of COVID-19.

After his note was released on Monday morning, CAE announced it has “taken a series of flexible measures to protect its financial position in response to the COVID-19 crisis and mitigate the impact on its employees.”

The measures include the temporarily suspending its common share dividend and share repurchase plan, as well temporarily laying off 2,600 of its 10,500 employees and placing another 900 employees on a reduced work week.

“While the stock has come down significantly since the beginning of the year, we believe Street estimates for FY21–22 are still too high to justify buying the stock,” said Mr. Poirier. “We expect the company to provide an update with 4Q results, which should help to recalibrate Street expectations and create a better entry point.”

The analyst expects the company's Civil segment to be the hardest hit by the pandemic, while its Defence business is likely to prove "more resilient."

See also: Flight-simulator company CAE pivots to ventilator production, plans 10,000 units within three months

“The bulk of our earnings revisions is driven by Civil,” he said. "We expect FFS [full-flight simulators] orders and deliveries to decline while the utilization rate should hit a low of 55 per cent in FY21 (was 64 per cent in FY10), contributing to the revenue decline.

“[Its] balance sheet [is] under pressure but we are confident CAE can weather this crisis. Based on our revised estimates, we expect debt/EBITDA to increase to a peak of 3.2 times at end FY21, which still provides a decent cushion. We expect the dividend to be suspended although it could be reintroduced in 3Q FY21 with better visibility on the outlook.”

Mr. Poirier reduced his revenue and EBITDA expectations for 2020 through 2020. That also led to earnings per share declines to $1.19, 54 cents and 75 cents, respectively, from $1.33, $1.58 and $1.72.

Maintaining a “hold” rating for the stock, his target dropped to $19 from $43. The average on the Street is $28.80.

“CAE is trading at 9.2 times EV/EBITDA based on our FY22 estimate versus 9.7 times for leading U.S. peers — above multiples of 5.0 times in the previous two downturns in 2001 and 2008 although they bounced back toward the 8–9 times range one year later,” he said. “Given the severity of this crisis, we expect valuation multiples to revisit these levels, providing an attractive entry point for investors.”


While reducing his financial expectations for CGI Inc. (GIB.A-T, GIB-N) to reflect the potential impact of COVID-19, Desjardins Securities analyst Maher Yaghi still expects the Montreal-based to display earnings per share growth in fiscal 2020, believing its “strong managed services business and exposure to many strong verticals will offset pressure on consulting services.”

"While these new estimates depend on the extent to which general population confinement will be exercised (we assume another three months of confinement in major industrialized countries), they highlight the strong underpinnings of GIB’s business and its operational effectiveness to deal with unforeseen events," he said. " We expect bookings to be challenged in the upcoming quarters with a book to bill below 1 times. However, we do expect some relief in new bookings from verticals such as state and local governments, cybersecurity and front-end customer-facing transactional websites, in addition to healthcare.

"We also expect consensus estimates to trend lower in the coming weeks."

Mr. Yaghi now expects CGI's EPS for 2020 to be $4.84, down from $5.03, which is also the consensus on the Street. His 2021 estimate slid to $5.36 from $5.68.

“We believe that management is taking early action to protect the bottom line from expected top-line pressure and we still expect positive EPS growth in FY20,” he said.

Maintaining a “buy” rating, Mr. Yaghi reduced his target to $96 from $118. The average on the Street is $108.38.

"With the stock trading at 14 times P/E [price-to-earnings] versus 18 times for peers, we see an interesting entry point for a company with a strong balance sheet and a tested management team which has delivered strong ROIC [return on invested capital] even in difficult economic periods," he said.

“We expect GIB to implement cost-saving initiatives to squeeze out EPS growth in FY20 provided the current shutdown does not last longer than six months. Combined with a very healthy balance sheet to undertake accretive M&A transactions and a relatively attractive valuation compared with large IT service companies, we believe the current share price offers a good entry point.”


Citi analyst Brian Downey lowered his rating for Ovintiv Inc. (OVV-N, OVV-T) to “neutral/high risk” from “buy” after coming off research restriction on Monday.

He also reduced his financial expectations for the Denver-based company, formerly known as Encana Corp., in response to the drop in oil prices.

"In mid-March Ovintiv announced a reduction to their original 2020 guidance in response to falling oil prices," he said. "Notably, OVV did not provide explicit updated capex or production guidance for the full year, but announced they would be dropping 16 rigs by the end of May, and 2Q’20 capex would be $300-million lower than previously planned. Last week, OVV announced a further $200-million reduction to 2Q capex, bringing total quarterly reductions to $500-million. A full guidance update is expected alongside 1Q’20 earnings. Based on the first announced cut and associated rig drops, we had assumed activity will focus in the Permian (3 rigs), Anadarko (2 rigs), and Montney (2 rigs), while we believe the additional $200-million of 2Q capital reductions will be achieved through completion reductions in non-core areas (Eagle Ford, Bakken, and Uinta) along with efficiencies/cost savings from remaining activity. Our 2020 capex assumption adjusts to $1.8-billion, and our total production forecasts is now 549 MBOE/d."

Mr. Downey's earnings per share projections for 2020 and 2021 are now losses of 90 US cents and 92 US cents, respectively.

His target price for Ovintiv shares plummeted to US$3.75 from US$42.50. The average is US$14.25.

“We see OVV having sufficient near-to-medium term liquidity runway ($3.5-billion liquidity including current cash and credit facility availability) as management has now twice cut capital to better balance cash flows in a lower price environment,” he said. “Importantly, OVV’s credit facility has no reserve-based or EBITDA covenants. However, rolling hedges post-2020 along with modest 2021 & 2022 maturities ($600 & 750-million, respectively) incrementally weigh on leverage ratios and liquidity runway in the medium to long term, absent visibility to a commodity price rebound. In a low-to-mid $40s WTI scenario for 2021 we show leverage approaching 3.5-4 times, but see leverage potentially north of 5 times at strip. We resume at Neutral/High Risk and wait for better visibility in an improvement in commodity prices.”


Canaccord Genuity analyst Scott Chan slashed his financial expectations and target price for shares of both CI Financial Corp. (CIX-T) and IGM Financial Inc. (IGM-T) after their March assets under management (AUM) dropped “significantly” in March.

CI Financial saw a 15-per-cent decline from the previous quarter to $112-billion. That led Mr. Chan to drop his 2020 and 2021 earnings per share forecasts by 21 per cent and 25 per cent, respectively, to $2.06 (from $2.61) and $1.97 (from $2.66).

“CI incurred a large institutional redemption at the end of March that led to the variance in net outflows from their March 23 shareholder update,” he said. “We believe CI can potentially reduce its cost base further (some hedge on lower variable comp from revised AUM base), even after rightsizing their legacy asset management business earlier this year. At this point, we think CI has exhausted its 10-per-cent NCIB expiring in June 2021. If they don’t get early NCIB acceptance from the TSX, we would expect CI to pay down debt in the interim (prior to renewal). At Q1/20E, we estimate CI’s pro-forma net debt/EBITDA ratio at more than 2 times limits material M&A opportunities. That said, CI is still expected to close on two US RIAs and private equity partnership with a Global alternative manager (all pre-announced). We suggest the firm’s dividend is safe (yielding 6.4 per cent) with a pro-forma payout ratio of 35 per cent. At this level, we believe CIX shares offer extreme value over the medium term.”

With a "buy" rating, Mr. Chan cut his target to $16 from $29. The average is $20.13.

Meanwhile, IGM saw a 12-per-cent quarter-over-quarter decline in AUM to $143-billion.

With that decline, Mr. Chan lowered his EPS projections for 2020 and 2022 by 22 per cent and 25 per cent, respectively, to $2.70 (from $3.45) and $2.73 (from $3.64).

“Overall, IGM delivered slightly positive Q1 net sales of $0.3-billion mainly driven by Mackenzie (MFK), with slight outflows from Investors Group (IG) and Investment Planning Counsel (IPC),” the analyst said. “Similar to CI, IGM’s net flow traction was tracking positively in January and February. With heightened volatility, the company had more than $0.5-billion in net redemptions in March with slightly negative contributions from each business segment. IGM has balance sheet flexibility including 4-per-cent ownership of GWO shares (equates to $0.8-billion) that helps support their credit ratings. In 2019, we estimate IGM’s net debt/EBITDA ratio was 1.4 times with a pro-forma leverage ratio of less-than 2.0 times. In this low rate environment, IGM dividend yields attractively at less-than 10 per cent. Based on our Q1 mark, we suggest that our revised EPS and FCF estimates can cover its current dividend. Recall, the firm had recently discussed perhaps raising their dividend for the first time in several years. That said, we should see capital constraints on IGM’s recent initiatives (e.g. NCIB, increasing ownership in strategic affiliates).”

Keeping a “hold” rating, he cut his target to $24 from $38. The average is $32.63.


Raymond James analyst Brian MacArthur raised his financial projections for Labrador Iron Ore Royalty Corp. (LIF-T) in response to its shift in focus to meet the demand for iron ore concentrate.

On April 2, LIORC announced it was advised that Iron Ore Company of Canada of the adjustment.

“The COVID-19 pandemic situation has caused a slowdown in demand for pellets in various markets and industries across Europe and North America so IOC is temporarily halting production of two pellet machines,” said Mr. MacArthur. “This also allows IOC to sell additional iron ore concentrate where demand currently remains strong. IOC is in a unique position to be able to adjust its supply of product to align with changing market conditions.”

In response to the change, Mr. MacArthur raised his 2020 earnings per share projection to $2.03 from $1.85.

With an "outperform" rating (unchanged), Mr. MacArthur increased his target to $24.50 from $24. The average is $25.71.

“We believe Labrador Iron Ore Royalty Corporation offers investors good exposure to premium iron ore through its interest in and royalties on Iron Ore Company of Canada (IOC),” the analyst said. “Directly and through its wholly-owned subsidiary, Hollinger-Hanna Limited, LIF owns a 15.1-per-cent equity interest in IOC and receives a 7-per-cent gross overriding royalty on all iron ore produced from leased lands, sold and shipped by IOC and a 10-cents per tonne commission on sales of iron ore by IOC. Given LIF’s exposure to premium iron ore (which we believe should trade at a premium given structural changes in the iron ore market), low jurisdictional risk and attractive dividend yield, we rate the shares Outperform. We also note additional value might be created if the royalty cash flows and other cash flows were split into separate companies in a tax-efficient manner given royalty companies historically trade at a higher multiple given their lower risk.”


Kelowna, B.C.-based Fission Uranium Corp. (FCU-T) has “low-cost production potential during uncertain times,” said H.C. Wainwright analyst Heiko Ihle.

"We highlight the potential for Fission's Patterson Lake South (PLS) project to become a North American low-cost producer as the firm's underground-only prefeasibility study reports an average unit operating cost of only US$7.18 per pound of uranium," said Mr. Ihle in a research note released Monday.

“The study anticipates highly competitive margins even in a low-price environment. Although uranium spot prices remain depressed, we nonetheless note continued imbalance and fragility of the global supply chain. We further anticipate an increase of global nuclear reactor construction as few uranium projects enter production over the next several years. In short, we expect a combination of growing demand and trailing supply from uranium producers in geopolitically safe climates over the next several years to yield higher prices. We further highlight the decreasing impact of supply from uranium stockpiles across the globe.”

Maintaining a “buy” rating for Fission shares, he lowered his target to 30 cents from $1.40 after reducing his long-term uranium price forecast. The average on the Street is $1.70.


In other analyst actions:

* Cormark Securities analyst Richard Gray lowered Agnico Eagle Mines Ltd. (AEM-T) to “market perform” from “buy” with a $70 target, falling from $75. The average on the Street is $83.49.

Mr. Gray also downgraded the following stocks:

  • First Majestic Silver Corp. (FR-T) to “market perform” from “buy” with an $11 target, down from $16.50. Average: $12.51.
  • Torex Gold Resources Inc. (TXG-T) to “market perform” from “buy” with a $17 target, dropping from $26. Average: $24.41.

* Cormark’s Jeff Fenwick raised Element Fleet Management Corp. (EFN-T) to “buy” from “market perform”


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