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

ATB Capital Markets analyst Waqar Syed and Tim Monachello are bearish on U.S.-based energy services companies in the near-term, expecting “weak” second-quarter guidance from land drilling contractors and “sub-optimally positioned” pumpers.

“However, underlying the theme of weak near-term outlook is an improving medium-term outlook for the U.S., given WTI is at $85.00 per barrel, and EIA’s January 2024 oil production data is showing 762 mbbl/d month-over-month declines, meaning that oil-related D&C activity needs to increase in H2/24 and then more meaningfully in 2025,” they said. “As a result, we raise our 2025 U.S. land rig count forecast, and recommend buying quality U.S. companies on any weakness generated by a Q1/24 EBITDA miss or from below-consensus Q2/24 guide.

“Our Q1/24 EBITDA estimates are generally in-line with consensus, but we are slightly below for TCW-T, ESI-T and LBRT-N. We expect below-consensus EBITDA Q2/24e EBITDA guidance for NBR-N, HP-N and PTEN-N, as U.S. rig activity has been running below prior expectations, and further reductions in gas-related drilling are likely.”

In a research report released Monday, the analyst argued recent U.S. drilling and completion activity has been “insufficient” to maintain oil production.

“While cold weather in the Bakken, and GOM field maintenance may have contributed to the decline, the magnitude of the drop and the geographical diversity of the drop indicates that declines in D&C activity in 2023 have started to have an impact on oil production,” the analyst said. “This view is also bolstered by the March 2024 Dallas Fed Survey, where E&P oil production index turned negative for the first time since Q3/20. Although we are slightly trimming our 2024e rig count forecast, we do expect private E&Ps to start picking up some rigs in H2/24, with a more meaningful and broader activity recovery in 2025e, with rig count forecast to grow by 10 per cent year-over-year. Therefore, we recommend buying US leveraged names on any weakness during the earnings season.”

Believing Precision Drilling Corp. (PD-T) has “performed very well,” Mr. Syed thinks his estimates are safe and expects the Calgary-based company to “guide to an improving U.S. market in Q2.” He raised his target for its shares by $1 to $126, keeping an “outperform” recommendation. The average target on the Street is $125.99, according to LSEG data.

“In Canada, we believe that PD-T is best positioned for the earnings season,” he said. “Although the stock has been one of the best performing stocks year-to-date, we do see further upside through the course of the year. The Canadian high-spec drilling rig market remains the strongest asset class in North America and PD-T is the largest owner of this asset class. We believe that although the U.S. drilling market should see weak activity in Q2/24, PD-T’s U.S. rig activity should see q/q improvement as its Rockies based rigs typically see a seasonal rebound in Q2. We believe that the Company’s Q2/24 and 2024 consensus estimates are safe as well, and while seasonally Q1/24 FCF may not be positive, the Company is on track to generate solid FCF in 2024 and pay down $200-million in debt. The stock is trading at 4.4 times 2024 estimates and 3.4 times 2025 EBITDA and is trading at FCF yield of 18 per cent for 2024 and 19 per cent for 2025. "

Conversely, Mr. Syed trimmed his Step Energy Services Ltd. (STEP-T) target to $6.50 from $7, keeping an “outperform” rating. The average is $5.84.

“STEP-T is seeing high spot market pressure in its U.S. pumping business, and as a result, we lower our EBITDA forecast by 8 per cent for 2024 and by 3 per cent for 2025,” he said.

The analysts added: “Considering investor positioning, Q1/24 results and forward guidance versus consensus, FCF generation, valuation and the underlying theme of an improving U.S. medium term outlook, we recommend HAL-N, PUMP-N, PD-T and BKR-N. We believe that consensus estimates for both HAL-N and PUMP-N are safe, and they should generate solid FCF, and their investor positioning is not too bullish. ... BKR-N has underperformed, but should generate solid FCF, and while there is risk around PTEN-N and ESI-T’s Q1/24 results and guide, valuation reflects that and we would be buyers on weakness.”

In a concurrent report concentrating on Canadian stocks, Mr. Monachello made these target changes:

  • Akita Drilling Ltd. (AKT.A-T, “outperform”) to $2.70 from $2.80. The average is $2.80.
  • Cathedral Energy Services Ltd. (CET-T, “outperform”) to $1.50 from $1.30. Average: $1.63.
  • PHX Energy Services Corp. (PHX-T, “outperform”) to $11.75 from $12.25. Average: $10.05.
  • Total Energy Services Inc. (TOT-T, “outperform”) to $16.25 from $17. Average: $35.

“Despite strong year-to-date performance we believe significant upside exists as companies within our coverage continue to trade at the low end or below historical trading ranges, and offer attractive FCF yields (12-per-cent median in 2024, 21-per-cent median in 2025), and continue to deliver robust fundamental performance,” he said. “As such, we believe the most impactful theme to watch in Q1/24 reports will be any indication of activity expectations through H2/24 given recent commodity price strength. Our top picks are companies that combine three key elements: 1) exposure to trends that outpace North American field activity growth rates in 2024; 2) significant and growing FCF generation; and 3) attractive valuations that are significantly below historical and/or peer trading ranges. ... We highlight our top picks including 1) Cathedral Energy Services (CET-T, OP, $1.50 PT); 2) Enerflex (EFX-T, OP, $13.50 PT); and 3) Total Energy Services (TOT-T, OP, $16.25 PT). We adjust our North American rig activity estimates given lower field activity levels in Q1/24 across North America and weak gas prices that we believe are likely to offset modestly increasing crude activity over the near term. While we reduce our U.S. rig activity estimates by 4 per cent in 2024, we increase our 2025 and 2026 estimates by 2 per cent and 3 per cent, respectively, given recent data showing weakness in US crude production alongside surging crude prices over recent weeks. Our revised Canadian activity forecasts are down 5-8 per cent across our forecast horizon and suggest roughly flat year-over-year activity in 2024 and roughly 5 per cent per year growth in 2025 and 2026. We believe there is upside to our H2/24 activity forecasts if the recent strength of crude prices persists.”


National Bank Financial analyst Rupert Merer thinks Exro Technologies Inc. (EXRO-T) has accelerated its growth with the $402-million acquisition of SEA Electric Inc., calling it a “strong” deal and seeing “upside on execution of the sales ramp and further progress on [its] market developments.”

In response to Friday’s announcement of shareholder approval of the deal, which was announced in January, Mr. Merer raised his recommendation for Exro, a Calgary-based clean technology company, to “outperform” from “restricted” previously.

“SEA is a proven EV powertrain technology company focused on commercial vehicles,” he said. “The company has deals with Mack (5 years, up to 5,000 units) and Hino (3 years, up to 3,500 units) which could reach $200-million in revenue in ‘24 and more than $300-million in ‘25. SEA’s patented SEA-Drive technology is 25-35 per cent more efficient than competitors according to independent studies. Exro’s coil driver, when added to the systems, could add more than 5-per-cent incremental efficiency in addition to improved performance, charging and lower costs. The acquisition accelerates EXRO’s path to profitability and positions it as an asset light, endto-end solution for electrifying commercial vehicles. With execution on its coil driver contracts and SEA’s backlog, EXRO could reach breakeven EBITDA and FCF in ‘25.”

“Alongside the acquisition, EXRO raised $30-million (gross) via a bought deal of subscription receipts at $0.95 per share. The capital should support the integration of SEA and the working capital needs for a production ramp. We believe EXRO may need additional capital to support its ramp, which could include balance sheet financing or equity. EXRO targets $20-million of synergy ‘24 and $47-million by ‘25E, with $220-million in revenue for 2024 (NBF $190-million), assuming 1,150 Mack/Hino unit sales and 1,200 EXRO coil driver sales.”

After raising his 2024 and 2025 revenue and earnings projections, Mr. Merer trimmed his target for Exro to $1.60 from $2. The average on the Street is $1.70.

“Looking at Exro’s peers in energy technology, inverter manufacturers and EV OEM, the EV/sales multiple for the sectors average 1.4-2.3 times (FY2), but typically the stock-specific multiple is well correlated to revenue growth,” he said. “Exro has higher revenue growth forecasted than for the peer group, and we believe that warrants a multiple closer to the upper range of peers. With strong partnerships, a proven platform and opportunities for further developments, we like the transaction. Our target moves to $1.60/sh (was $2/sh), which is based on an EV/sales multiple of 2 times (was 2.7 times) on 2025E, in line with the peer group. Our target is also supported by a DCF with a 13.7-per-cent discount rate, though with a lack of visibility past 2025E, we are more confident in a near-term multiple approach to valuing the company. With the shares trading at $0.81/sh, we see good upside potential for the stock, and we are moving to Outperform. The company has some execution risk, and some investors may wait to see evidence of the inflection point in both EXRO and Sea to get more excited, especially considering the challenging industry backdrop in the electric vehicle space.”


In a research report released Monday titled Growth for life, RBC Dominion Securities analyst Sabahat Khan assumed coverage of GFL Environmental Inc. (GFL-N, GFL-T) with an “outperform” recommendation, touting the “combination of the company’s industry-leading growth profile, a more meaningful M&A opportunity (relative to the current scale of the base business), and relatively higher leverage vs. peers.”

“Our favorable view of GFL Environmental Inc. reflects: 1) the attractive characteristics of the North American Waste industry, where GFL is the 4th largest player; 2) GFL’s positioning as a leading consolidator and the company’s relatively smaller scale (vs. its 3 larger peers), which makes M&A a more meaningful growth driver for GFL; 3) our outlook for leverage reduction over our forecast horizon; and, 4) potential upside to GFL’s valuation (given its discount to peers) as it executes on the above-noted opportunities,” he added.

Mr. Khan’s sees the North American Solid Waste industry as “very attractive,” pointing to several factors: “1) defensive characteristics as it is an essential service (e.g., volumes only declined 8 per cent in 2009 and 4 per cent in 2020); 2) long-term contracts that drive high revenue visibility; 3) price-led organic growth that closely follows CPI; 4) barriers to entry (e.g., high fixed costs, stringent regulations, etc.); and, 5) regional oligopolies across many markets (in part due to industry consolidation).”

“These industry characteristics drive very strong profitability for the 4 Waste Majors (e.g., GFL generated an Adjusted EBITDA margin of 30 per cent in Solid Waste in 2023), which in turn leads to consistent FCF generation. For more information on the industry,” he added. “Given this setup, we view the Solid Waste market very favorably, and note that GFL (founded in 2007) has quickly scaled to become the 4th largest company in the industry. Looking ahead, we believe the company has ample opportunities to continue growing via M&A and organic initiatives.”

The analyst thinks Vaughan, Ont.-based GFL also has “the longest runway for M&A among the Majors.”

“Although GFL has acquired 267 companies since inception and has grown its revenue at a 32-per-cent CAGR [compound annual growth rate] between 2018-2023, establishing itself as the 4th largest company in the US$91-billion North American Solid Waste industry, GFL is still meaningfully smaller (approximately 5-per-cent market share) than the other Majors (45-per-cent share), according to our estimates,” said Mr. Khan. “We estimate that there are still several thousands of companies operating in the industry, with private companies holding an 18-per-cent market share and other public companies (outside of the Majors) holding a 15-per-cent share (i.e., the industry is still quite fragmented beyond the Majors). As the smallest of the Majors, we believe GFL has the longest runway of needle-moving acquisitions as the industry continues to consolidate. As such, we expect GFL to allocate the largest percentage of its capital to M&A among the 4 Majors over the medium- to long-term.”

Seeing upside potential to GFL’s valuation as its discount to peers closes over time, Mr. Khan raised the firm’s target for its shares to US$46 from US$43. The average is US$44.16.

“GFL is trading at 11.6 times our 2024 EBITDA vs. an average of 15.9 times for the other Majors,” he said. “We see potential for this discount to close over time as GFL delivers on its organic/inorganic initiatives and as the company reduces its leverage over the near-term (GFL was upgraded last week from B+ to BB- by S&P). Our US$46 PT is based on 13.0 times our 2025 EBITDA.”


In a separate report, Mr. Khan also assumed coverage of Waste Connections Inc. (WCN-N, WCN-T) with an “outperform” recommendation, calling it a “best-in-class” operator and emphasizing it has “established a track record of delivering peer-leading metrics across most KPIs and has been a prudent allocator of capital (M&A + return of capital).”

“Over its history, Waste Connections has operated with a unique philosophy and strategy predicated on market selection, strategic asset positioning, and local execution,” he said. “Management has successfully executed against this strategy over the company’s history, and today the company outperforms its peer group on virtually all key metrics (e.g., price-led organic growth, margin profile and FCF conversion being the most notable, in our view). Additionally, our channel checks have highlighted that Waste Connections’ culture, philosophy, and decentralized operations are selling points for employees (and potential acquisition targets). Given the importance of labor retention in the Waste industry (due to the safety/cost impacts), we view the company’s culture/operating philosophy as tangible drivers of its results and premium valuation.”

Calling it a “solid” acquirer, Mr. Khan thinks the Texas-based company possesses a “further consolidation runway.”

“Waste Connections has completed 750+ acquisitions over the past 25+ years, and the company has allocated 43 per cent of its capital to M&A over the past decade,” he added. “Looking ahead, management estimates there is $4-$5-billion of acquirable revenue in the North American Waste market that meets the company’s criteria for attractive/strategic M&A. For perspective, management targets acquisition IRRs above the company’s WACC and typically generates low-double-digits-percentage IRRs on M&A. On a run-rate basis, the company aims to acquire $150-$200-million of revenue annually. We note, however, that the company has acquired in excess of this run-rate target over the recent years, and the pipeline for 2024 appears to be quite active.”

Seeing it capitalizing on opportunities to growth through its renewable natural gas projects, expecting “the return profile of these investments will be attractive,” Mr. Khan raised the firm’s target for Waste Connections shares to US$196 from US$182. The average is US$185.15.


Expecting its earnings to inflect in 2024, RBC Dominion Securities analyst Tom Callaghan assumed coverage of Gildan Activewear Inc. (GIL-N, GIL-T) with an “outperform” recommendation on Monday, believing “its position as a low-cost, and vertically integrated manufacturer of apparel provides a sustainable advantage that helps drive attractive levels of free cash flow which should continue to support ongoing return of capital.”

“Gildan’s announced 2024 guidance reflects flat to low-single digit revenue growth along with Adjusted EBIT Margins slightly above its targeted annual range of 18-20 per cent. “On balance, this outlook is predicated upon generally stable pricing along with improving POS trends relative to 2023. Gross margins should benefit from more normalized cotton input costs (following peak costs in early 2023), which factors into our estimated 20.8-per-cent Adjusted EBIT margin. All said, we peg Adjusted EPS growth at 15 per cent in 2024, and 9 per cent in 2025.”

Mr. Callaghan also thinks its “strong” free cash flow generation and balance sheet is “supportive of continued return on capital.”

“With capital spending in the range of 5 per cent of sales, we believe Gildan is well positioned to continue to generate strong free cash flow,” he said. “Not to be overlooked, at 1.5 times Net Debt/EBITDA the balance sheet is in good shape and well within the company’s 1.0–2.0 times target range. We estimate FCF of $463 million in 2024 (up materially from $340 million in 2023), and forecast share repurchases of circa $350 million (5 per cent of outstanding). Since 2017, Gildan has reduced its share count by 22 per cent, while its dividend per share has grown at a 12-per-cent CAGR [compound annual growth rate].”

While taking a “favourable view” of the Montreal-based clothing manufacturer, he did acknowledge near-term volatility could come from its ongoing leadership dispute.

Browning West seeks court order to prevent Gildan sale before vote on new directors

“In our view, Gildan’s recently disclosed ‘non-binding expression of interest’ to acquire the company, and ongoing uncertainty with respect to the company’s leadership (CEO) could drive some near-term share price volatility,” the analyst said. “Gildan’s board has formed a Special Committee of independent directors to examine the merits of the proposal + any other alternatives (including the status quo). We see a number of qualities interested parties may find attractive including GIL’s competitive positioning within the North American wholesale imprintables market + a low-cost vertically integrated manufacturing footprint, strong FCF profile, and high returns on capital. Leadership wise, the company’s Annual and Special meeting is scheduled for May 28. Irrespective of the outcomes, we believe that operational execution and delivery of financial targets (guidance) are important pieces to maintaining investor confidence in the interim.”

However, seeing a “supportive” valuation, Mr. Callaghan reaffirmed the firm’s target of US$41 per share. The average is US$41.28.


Touting its “impressive track record of production per-share growth, aided by improvements in well productivity and significant buyback activity,” BMO Nesbitt Burns analyst Tariq Saad reinstated coverage of Advantage Energy Ltd. (AAV-T) with an “outperform” recommendation on Monday.

”We believe that future production growth is well-supported by the decades of drilling inventory, coupled with existing unutilized facility capacity,” he said. We expect AAV to be better suited than most natural gas producers to navigate lower gas prices due its top-tier well performance, robust marketing/diversification program, clean balance sheet and lower cost structure.”

Mr. Saad has a $13 target for Advantage shares. The average on the Street is $12.79.

He also reinstated coverage of Athabasca Oil Corp. (ATH-T) with an “outperform” rating and target price of $6.50, exceeding the $6.03 average.

“Athabasca has been a true turnaround story and is now one the few Canadian producers returning 100 per cent of its free cash flow to shareholders,” the analyst said.

“We believe the shares will continue to outperform as the company progresses with its buyback program and continues to sustainably grow volumes. Additionally, we expect Athabasca’s long-life low-decline asset base to negate the need for any reserve replacement, which drives modest sustaining requirements.”


In other analyst actions:

* In a first-quarter earnings preview for the gold and precious metals sector, Scotia’s Eric Winmill raised his New Gold Inc. (NGD-N, NGD-T) target to US$2 from US$1.65 with a “sector perform” rating and Fortuna Silver Mines Inc. (FSM-N, FVI-T) to US$4.75 from US$4 also with a “sector perform” rating. Analyst Ovais Habib cut his targets for i-80 Gold Corp. (IAU-T) to $3.50 from $4 and Skeena Resources Ltd. (SKE-T) to $14 from $15 with a “sector outpeform” rating for both. The averages are US$1.72, US$4.44, $4.71 and $15.46, respectively.

* Bernstein’s Bob Brackett raised his Barrick Gold Corp. (ABX-T) target to $31 from $29, exceeding the $28.75 average, with an “outperform” rating.

* Jefferies’ Stephanie Moore initiated coverage of Canadian National Railway Co. (CNI-N, CNR-T) with a “hold” rating and US$130 target and Canadian Pacific Kansas City Ltd. (CP-N, CP-T) with a “buy” rating and US$105 target. The averages are US$134.92 and US$88.91, respectively.

Elsewhere, BMO’s Fadi Chamoun raised his CP target to $133 (Canadian) from $125 with an “outperform” rating.

“We believe that the combination of CP Rail and Kansas City Southern networks significantly expands the addressable freight market for the merged entity and catalyzes a period of strong organic volume growth that we expect will extend well into the coming decade,” said Mr. Chamoun.

* Mr. Chamoun also raised his TFI International Inc. (TFII-T, TFII-N) target to US$145 from US$140 with a “market perform” recommendation. The average is US$165.27.

* Evercore ISI’s Stephen Richardson increased his Canadian Natural Resources Ltd. (CNQ-T) target to $115 from $105 with an “in line” rating. The average is $103.02.

* RBC’s Michael Siperco raised his G Mining Ventures Corp. (GMIN-T) target to $3.50 from $2 with an “outperform” recommendation. The average is $2.63.

“Ahead of first production from TZ [Tocantinzinho] in Brazil (2Q24) we are adding our 3-year average sFCF forecasts to our price target calculation, driving an increase to $3.50 from $2.00 (with significant further upside potential at spot gold vs. the RBC price deck) while removing the Speculative Risk qualifier from our Outperform rating,” he said. “TZ is on time / on budget, fully funded and set to deliver FCF at spot as soon as 3Q24. Further upside could come from exploration success and growth via acquisition, a core part of GMIN’s strategy beyond TZ.”

* BMO’s Tom MacKinnon raised his Manulife Financial Corp. (MFC-T) target to $40 from $35 with an “outperform” rating. The average is $34.98.

“MFC’s Asia business (#3 in pan-Asia) continues to outpace top Asian peers (AIA/ PRU[UK]) on important KPIs, especially for 2023, where IFRS17 applies,” he said. “With Asia representing 37 per cent of MFC’s 2023 core earnings, and expected, per MFC, to be 50 per cent by 2027, this cannot be ignored. SOTP [sum-of-the-parts] approach, valuing MFC’s Asia business at conservative 11 times (vs. 11.6 times average for AIA/PRU[UK]), and 9 times for rest of MFC, implies $40 TP. While estimates are unchanged, TP increases accordingly.”

* Raymond James’ Farooq Hamed bumped his OceanaGold Corp. (OGC-T) target to $4.50 from $4 with an “outperform” rating. The average is $4.11.

“We recently had the opportunity to visit OGC’s Haile mine which has begun a transformation from an open pit mine to an open pit and underground operation with production from the underground starting in 4Q23. Our takeaways from the visit were that the underground operation appears to be off to a good start with development and access 6 months ahead of production and with production to date reconciling positively versus expectations. At the surface operations, we noted a significant improvement in site de-watering with no water visible in the current operating pit and a well laid out site with a clear pit sequencing and development plan.

“Overall, we came away with the view that the early stages of the transformation at Haile are progressing well giving us increased confidence that the mine is on track to meet its targets. With the underground operation now two quarters into a 10-year operating plan, we believe Haile is on the cusp of improved production and cash flows moving forward.”

* Jefferies’ Owen Bennett moved his Street-high Terrascend Corp. (TSND-T) target to $6.60 from $6.10 with a “buy” rating. The average is $3.92.

* Barclays’ Benjamin Budish raised his TMX Group Ltd. (X-T) target to $38 from $35 with an “equalweight” rating. The average is $36.88.

“Equities Trading ADV rose 15 per cent month-over-month and but declined 5 per cent year-over-year, and assuming a constant take rate, Q1 equity and FI trading revenues could beat Consensus. Derivatives ADV fell 1 per cent m/m, and was down 7 per cent y/y. New IPOs, transactions billed at the max rate, and total financing dollars fell,” he said.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 29/05/24 3:59pm EDT.

SymbolName% changeLast
Advantage Oil & Gas Ltd
Athabasca Oil Corp
Barrick Gold Corp
Canadian National Railway Co.
Canadian Natural Resources Ltd.
Canadian Pacific Kansas City Ltd
Cathedral Energy Services Ltd
Fortuna Silver Mines Inc
Exro Technologies Inc
G Mining Ventures Corp
Gildan Activewear Inc
Gfl Environmental Inc
I-80 Gold Corp
Manulife Fin
New Gold Inc
Oceanagold Corp
Phx Energy Services Corp
Precision Drilling Corp
Skeena Resources Ltd
Step Energy Services Ltd
Terrascend Corp
Tfi International Inc
TMX Group Ltd
Total Energy Services Inc
Waste Connections Inc

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