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

Following the close of Rogers Communications Inc.’s (RCI.B-T) acquisition of Shaw Communications Inc. (SJR-B-T), Scotia Capital analyst Maher Yaghi expects “a more challenging period” for the Canadian telecom industry in Canada.

“We expect the combination of increased regulatory risk and change in market structure to likely lead to increased pressure on broadband and wireless prices, respectively,” he said.

In a research report released Monday, Mr. Yaghi said he continues to view Fixed Internet as “the only growth driver in the sector, offsetting the deterioration in legacy phone and TV services.”

“For Q1, we expect FTTH momentum to have continued with telcos (BCE & TELUS) winning 61K subscribers relative to cablecos of 14K,” he said. “We believe telcos will continue to heavily lean on FTTH promotions to gain subscribers throughout the year in response to cablecos’ strengthened bundling capabilities resulting from the Shaw transaction ... The ability to provide customers with wireless and wireline bundled services is imperative for QBR and RCI post the Shaw transaction in terms of subscriber growth and retention. During the quarter, we noticed that cablecos have become more aggressive in attacking telcos subscribers in non-fiber territories, while in fiber territories, cablecos continue remaining disciplined in price to protect the bottom line instead of defending for market share. As a result, we expect ARPU growth to stay flat year-over-year for the quarter. In addition, we expect TV services and legacy phone lines to decline as online content gains popularity and wireless substitution remains steady. Therefore, we estimate total subscriber growth of down 1.2 per cent among cablecos due to a decline in TV service (down 9K) and legacy phone lines (down 60K), partly offset by growth in the Internet (14K). Overall, we expect wireline revenue growth among Canadian cablecos to be negative in Q1F23 due to subscriber loss.”

Given his expectation for a challenging environment, Mr. Yaghi lowered his valuation multiples across the sector, leading him to downgrade BCE Inc. (BCE-T) to a “sector perform” recommendation from “sector outperform” with a target of $64, down from $66 previously and below the $65.40 average on the Street, , according to Refinitiv data.

“BCE will likely face tougher comparables in Q1 in part due to a retroactive adjustment last year that helped the media business,” he said. “However, in addition to media, the combined wireline/wireless segment will likely show weaker margins as the company continues to grapple with inflationary costs, higher marketing spend on FTTH and increased promotional pricing. While the company will stop reporting separate wireline and wireless EBITDA results starting this quarter, we kept our estimates separate for now to show the year-over-year comps. From a reporting perspective, our combined year-over-year wireline/wireless EBITDA growth in the quarter is 1.5 per cent. Overall we expect the company’s consolidated EBITDA to decline by 2 per cent year-over-year in Q1 compared to the 2023 annual guidance growth of 2-5 per cent with improving growth rates in the back half of the year.”

Mr. Yaghi also made these target adjustments:

  • Cogeco Communications Inc. (CCA-T, “sector perform”) to $85.50 from $90. Average: $85.93.
  • Quebecor Inc. (QBR.B-T, “sector perform”) to $37 from $35.50. Average: $36.83.
  • Telus Corp. (T-T, “sector outperform”) to $30.50 from $32. Average: $31.37.

He maintained a “sector outperform” rating and $74.75 target for Rogers Communications shares. The average is $72.13.

“We expect RCI to have again led the market in terms of wireless loading benefiting from its large distribution and tailwinds from immigration trends. Offsetting the strong subscriber growth, wireless ARPU [average revenue per user] likely lagged peers given increased regulatory scrutiny and the company’s roaming offers. In cable, we expect steady subscriber metrics with some pressure on margins as rate increases made in February came later than last year. The media division also faced tougher comps. Overall, however, we expect a healthy 4-per-cent EBITDA growth,” said Mr. Yaghi.


While he warned “patience is required as near-term headwinds persist,” Scotia Capital analyst Ben Isaacson raised both Nutrien Ltd. (NTR-N, NTR-T) and peer CF Industries Holdings Inc. (CF-N) to “sector outperform” from “sector perform” on Monday, calling it “a contrarian upgrade on limited downside.”

“It’s true, both companies are likely to miss the Street’s Q1 EBITDA by approximately 15 per cent, estimates for the full year need to come down, and near-term catalysts remain elusive,” he said. “In fact, we’re not even sure NTR will hit the low end of its ‘23 EBITDA guide. So, to be clear, we’re not bullish, and so won’t attempt to paint an overly optimistic picture. But, the risk/reward balance is definitely starting to shift on several fronts, and we’d rather be a little early on this trade than miss it.

“Key points: Valuations for both NTR and CF are now well below Bear Mid-Cycle Values; The global nitrogen complex sits well below marginal cost; it’s unsustainable; Our energy team argues the entire EU (TTF) gas forward strip has upside; While potash hasn’t bottomed, Asian market activity is picking up pace; Farmer economics remain supportive of crop input demand, particularly for nitrogen; and Investor sentiment is deflated; feedback suggests negatives (Q1 misses, negative revisions) are known and priced in.”

Mr. Isaacson said he expects “a slew” of first-quarter earnings miss for fertilizer stocks in the upcoming earnings season with Mosaic Inc. (MOS-N, “sector perform” and US$60 target) being the lone exception following a recent guidance raise.

“While everyone has seen pricing tumble below even the most bearish of expectations for this spring , what’s been more difficult to track is limited demand,” he said. “Simply put, farmer and dealer or distributor engagement has been poor, despite strong farmer economics coupled with affordable crop input prices. And, if poor volume/pricing wasn’t punitive enough for Q1 results, on top of that we have to add higher cash costs for those fertilizer producers running assets at low utilization rates – particularly for Canadian potash production.

“Watch for two investor debates to emerge. First, the narrative from fertilizer producers will almost certainly be ‘whatever was lost in Q1 will be made up in Q2′. ... Second, the Street will now debate how much full-year estimates will need to be reduced by weak spot prices. This debate should impact MOS more than NTR/CF that are somewhat protected by $2/mmbtu Henry Hub.”

Following cuts to his first-quarter EBITDA estimates, Mr. Isaacson lowered his target for Nutrien shares to US$90 from US$95, below the US$95.75 average on the Street. His CF target slid to US$95 from US$100, also beneath the consensus of US$102.12.


National Bank Financial analyst Vishal Shreedhar is expecting a “strong” performance from Loblaw Companies Ltd. (L-T) when it releases its second-quarter financial results on May 3, seeing sustained momentum in its pharmacy division.

“We anticipate solid growth in pharmacy services and ongoing strength in OTC/cosmetics,” he said. “Over time, we expect increasing benefit as pharmacist scope of practice expands. We estimate potential EPS [earnings per share] accretion of $0.16-$0.27 if pharmacy services normalize across Canada (to Alberta levels).

“We note that food store wallet share in Canada has declined below its pre-pandemic 5-year average in recent months. We view this to reflect transient pent-up restaurant demand and an inflation-induced narrower value gap between restaurants and grocery. We expect consumers to increasingly shift spending away from restaurants towards grocers over 2023.”

For the quarter, Mr. Shreedhar is projected earnings per share of $1.56, which is 2 cents above the consensus forecast on the Street. He attributes the 14.5 per cent year-over-year gain (from $1.36) to “positive food retail same-store sales growth (same-store sales growth), ongoing momentum at Shoppers Drug Mart (F/E and Rx), benefits from ongoing efficiency programs, and share repurchases.”

“Data from StatsCan indicates food store inflation moderated slightly to 10.6 per cent (February 2023) from 11.0 per cent-plus between September 2022 and January 2023,” the analyst said. “While levels of inflation remain heightened and difficult to fully pass through, we believe that L’s diversified business model/efficiency initiatives will continue to drive growth. (2) Our review of grocery peer commentary suggests the following themes: (a) Expectations for inflation to decline in H2/23; (b) Consumers remain pressured (trade-down, discount, private label, etc.); and (c) Incrementally higher promotional intensity.”

Maintaining an “outperform” rating for Loblaw shares, Mr. Shreedhar increased his target to $140 from $136 based on an update to his valuation. The average target on the Street is $140.50.

“We continue to maintain a favourable view on Loblaw and recommend it as our preferred grocer supported by several key themes: (1) Benefits from management’s improvement initiatives; (2) Ongoing stable EPS growth, and (3) Favourable trends in discount and drug store (where Loblaw over-indexes),” he said.


Ahead of the ramp-up of second-quarter earnings season for North American energy services providers, ATB Capital Markets analysts Waqar Syed and Tim Monachello reduced this full-year financial expectations after notable reductions to their rig count forecasts on both sides of the border.

“We are lowering our U.S. land rig count assumptions for 2023/2024 by 10 per cent/12 per cent,” they said in a report released Monday. “Our forecast for Canada is lowered by less than 2 per cent. We now project U.S. land rig count to increase by 2 per cent in 2023, while the Canadian rig count is forecast to increase by 6 per cent. We see International to be the fastest growing market in 2023, projecting 11-per-cent year-over-year increase in activity, led by sharp increases in the Middle East rig count. Owing to new rig count assumptions, we are lowering our 2023 EBITDA estimates for SMIDs by between 2-11 per cent, and lower the PT for several companies. Within the large cap service universe, we are only lowering our estimates for HAL [Halliburton Co.], who has high U.S. land exposure.”

The analysts emphasized the sector is “performing poorly” entering earnings season with the PHLX Oil Service Sector Index (OSX) down 4.7 per cent year-to-date.

“The sector sold off owing to US natural gas price weakness, and macro-economic concerns impacting oil prices, although the recent announcement by key OPEC+ countries that they are cutting oil production by 1.65 mmbbl/d for the May-December 2023 time period, has brought WTI back to the $80/bbl level,” the analysts said. “Nonetheless, with HHUB gas prices around $2.15/mmBtu, gas rig activity is poised to fall, and as such, we reduce our US rig count assumptions for Q2/23 and for subsequent quarters.”

“What Will the Street Be Focused On During the Earnings Season? (1) Results versus consensus are always of interest, and in general our EBITDA estimates are in line with consensus, other than for STEP-T/ESI-T, where our estimates are lower. Potential for a major upward surprise will likely be only forw companies with high international/offshore leverage, like FTI/NOV/BKR/SLB. We see risk of upward surprise in inbound orders for FTI/NOV. (2) Owing primarily to seasonal reasons, we expect FCF to be a cash outflow for many companies, and we believe that consensus is not properly accounting for it (SLB/HAL/PD/FTI). However, we don’t see a significant risk to 2023 FCF. (3) Investors will be focused on the degree of downward pricing pressure in U.S. land drilling and pumping businesses, and the upward pressure in international/offshore prices. Management comments vary on the subject, with HP/PTEN seeing no pressure on super-spec rig rates, while NBR has stated that it is seeing some pressure on the lower end super-spec rigs. In pumping, pricing pressure seems to be confined to the spot market, while dedicated crews and natural gas fueled fleets are not seeing much pricing pressure, putting LBRT, HAL, NEX, PUMP, CFW-T/TCW-T in a better position. However, activity may be flat to down in 2023, and we expect newbuild fleets to be replacement rather than incremental.”

The analysts’ target price adjustments for TSX-listed stocks are:

  • Calfrac Well Services Ltd. (CFW-T, “outperform”) to $11.50 from $12. The average on the Street is $10.50.
  • Ensign Energy Services Inc. (ESI-T, “outperform”) to $8.50 from $9. Average: $5.74.
  • Precision Drilling Corp. (PD-T, “outperform”) to $160 from $174. Average: $142.81.
  • Step Energy Services Ltd. (STEP-T, “outperform”) to $8.50 from $10. Average: $8.93.

“We continue to recommend SLB/FTI/NOV/BKR owing to their leverage to international/offshore/LNG related secular themes, and while we expect negative estimate revisions for the U.S. leveraged stocks, we also believe that North American stocks have priced in these cut,” he said.


Despite seeing its first-quarter production results as “solid” driven by a “very strong” grade, Haywood Securities analyst Kerry Smith downgraded Lundin Gold Inc. (LUG-T) to “hold” from “buy,” citing recent share price appreciation with the Vancouver-based company up 22 per cent year-to-date versus an 16-per-cent gain for the VanEck Gold Miners ETF (GDX-A) and an 11-per-cent rise in the price of gold.

”The Fruta del Norte project ranks as one of the largest and highest-grade gold projects in the world,” he said. “Results continue to exceed our expectations, and for 2023 the Company is expecting production of between 425,000 to 475,000 ounces of gold. As a single asset company in a riskier political jurisdiction, the shares are getting expensive, and we will update our model and target in our Q1 preview and commodity update to be published in April.”

On Thursday, Lundin reported quarterly production of 140,021 ounces, which is a new all-time high for the company and exceeded Mr. Smith’s expectation of 116,454 ounces. He attributed the beat to a higher-than-expected head grade of 12.3 grams per ton (versus his estimate of 9.8 g/t), despite less tonnage milled than expected.

“This was another strong quarter, with production coming in above (20 per cent) our expectations,” he added.

With Lundin reaffirming its full-year guidance for 2023 through 2025, Mr. Smith maintained a $17 target for Lundin shares. The average target is $18.22

“We model US$1.88 in cash flow per share before working capital changes for 2023 and have maintained our multiple of 8.75 times EV/2023 CFPS,” he said. “With gold now trading above US$2,000 per ounce, we are seeing the start of a new rally in bullion and look for the gold price to maintain current levels before we revise our commodity deck and trading multiples.”

“We recommend investors hold positions.”


In a separate report, Mr. Smith lowered his recommendation for Osisko Gold Royalties Ltd. (OR-T) to “hold” from “buy” following last week’s release of weaker-than-anticipated first-quarter production results.

““Q1/23 attributable deliveries of 23,111 gold equivalent ounces (GEOs) came in slightly below our expectation of 25,280 GEOs,” he said. “This is typically a lower production quarter historically for Osisko, with most of the shortfall at Eagle, where Q1 deliveries of 37,619 GEOs were about 2,400 ounces lower than we modelled. The shares have performed well, up 34 per cent year-to-date, versus the GDX up 16 per cent, as the market has started to recognize their growth pipeline.”

Based on the sales result and an average LME gold price of US$1,892 per ounce, Mr. Smith trimmed his cash flow per share projection for the first quarter by a penny to 23 cents, which is now in line with the consensus on the Street.

Ahead of the May 23 quarterly release, he maintained a target of $23 for Osisko shares. The average is $23.42.

“Osisko has outlined its plan to grow by 3-5 per cent in the next 5 years, and the shares continue to trade at a NAV discount to peers,” the analyst concluded.

Elsewhere, Eight Capital’s Ralph Profiti raised his target to $28 from $24.50 with a “buy” rating.

“We reiterate our BUY rating on OR as our preferred value-play in the streaming and royalty space, and we expect the shares to continue to positively re-rate and reward investors as mgmt. executes on: (1) growing the asset base with accretive deals (more than 5-per-cent IRR); (2) achieving peer-leading GEO production growth; (3) continuation of wind-down equity exposure to Osisko Development (ODV-T, BUY, TP $20); and (4) bringing the exploration &development portfolio, which currently accounts for 32 per cent of our NAV, into production along with other optionality assets,” he said.


Stifel analyst Ian Gillies thinks “momentum has faded” for steel stocks after several “weak” economic reports last week.

“Over the past month, the SLF (VanEck Steel ETF) is down 7.9 per cent compared to the S&P 500 500 which is up 4.8 per cent,” he said. “This will negatively impact investor participation in the space as steel prices have likely stagnated at this point or are biased downward. We still think there is value to be had in the space, but the path to share price appreciation is more complicated than it was just a month ago. Algoma continues to be our best idea of the three steel stocks in our coverage universe given the mix of value based characteristics and continued operational improvements.”

Mr. Gillies made these target changes:

  • Algoma Steel Group Inc. (ASTL-T, “buy”) to $16 from $17.50. Average: $14.10.
  • Russel Metals Inc. (RUS-T, “buy”) to $42 from $43. Average: $40.17.
  • Stelco Holdings Inc. (STLC-T, “hold”) to $47 from $54. Average: $55.07.


In other analyst actions:

* Scotia Capital’s Cameron Bean upgraded Kelt Exploration Ltd. (KEL-T) to “sector outperform” from “sector perform” with an $8.50 target, up from $7.50 previously and above the $8 average on the Street.

“We believe the premium multiple is warranted due to the company’s position as a potential vendor of premium Montney assets in a market where inventory-focused transactions are ramping,” he said. “The recent CPG / SDE transaction provides a strong precedent for valuing KEL’s Wembley Montney asset at nearly $800-million (approximately 86 per cent of the current EV), while the aggregate valuation metrics from $5-billion of recent Montney transactions suggest $8.50 per share is a reasonable market value for the company’s full asset portfolio.”

* Stifel’s Justin Keywood lowered Toronto-based Greenbrook TMS Inc. (GBNH-Q) to “speculative buy” from “buy” with a $1.50 target, down from $8 and below the US$6 average.

“We view GTMS as offering important mental health services with few other ways to gain exposure to new novel therapies. However, the company has struggled to reach profitability, leading to a recently announced restructuring to close down 50 centers (27 per cent of the network). The remaining 133 centers would imply sales of US$80-million with still a goal to reach profitability at US$100-million. The balance sheet was already stretched, leading to a recent US$6.25-million private placement, US$2-million in new loans and the conversion of accounts payable to a promissory note. The 2022 financials are delayed as well and give us pause. We ultimately hold the view that GTMS can navigate the current cash crunch, but we factor in risking risks, leading to a speculative rating.”

* RBC’s Douglas Miehm cut his Opsens Inc. (OPS-T) target to $3.50 from $4, maintaining an “outperform” rating. The average is $3.54.

“OpSens will report FQ2/23 (Feb-qtr) results on 13-Apr,” he said. “We estimate revenues of $10.2-million (flat quarter-over-quarter; up 26 per cent year-over-year) for FQ2. We believe the focus will remain on the SavvyWire launch and expected ramp-up in U.S. and Canada. Recently, the company signed its first GPO agreement for SavvyWire in the U.S., which should aid the U.S. ramp-up of SavvyWire over time. We will also look for commentary/evidence related to commercial synergies between OptoWire and SavvyWire since both the wires utilize the same OptoMonitor device.”

* TD Securities’ Steven Green raised his Prime Mining Corp. (PRYM-X) target to $4 from $3.75 with a “speculative buy” rating. The average is $5.15.

* JP Morgan’s Sebastiano Petti hiked his Rogers Communications Inc. (RCI.B-T) target to $90 from $74 with an “overweight” rating. The average is $72.13.

Follow David Leeder on Twitter: @daveleederOpens in a new window

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