Inside the Market’s roundup of some of today’s key analyst actions
Just over two weeks after raising his rating for its stock in reaction to “positive” first-quarter results, Industrial Alliance Securities analyst Elias Foscolos reversed course and downgraded Badger Daylighting Ltd. (BAD-T) to “buy” from “strong buy.”
“Following our prior upgrade in target price and recommendation [on May 14] post release of the Q1/18 results, BAD’s stock saw a bump of 11 per cent,” he said. “However, there are no material changes to our 2018 and 2019 outlook and projections.”
On May 10, Badger, a Calgary-based provider of hydrovac, hydro-excavation, potholing and vacuum truck services, reported quarterly revenue of $121-million, meeting Mr. Foscolos’s estimate. Adjusted EBITDA of $24-million missed his expectation by $1-million.
“Overall economic growth and an oil and gas recovery have led to more company optimism going forward,” the analyst said. “With the negative sentiments behind the company and the stock correction, business is proceeding as usual.”
Mr. Foscolos maintained a target price for Badger shares of $34.50, which exceeds the current average target on the Street of $32.54, according to Bloomberg data.
“Prior to the Q1/18 earnings release, negative sentiment surrounded BAD,” he said. “With the short-sellers quieting down and the conclusion of the ASC investigation, optimism is developing around the stock. This is important to us because in the absence of pricing increases, more hydrovacs equal more revenue.”
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The investing thesis for Cenovus Energy Inc. (CVE-T, CVE-N) has improved on a structural shift in the price of oil, the divestiture of legacy assets and a change in strategic direction, said National Bank Financial analyst Travis Wood.
He raised his rating for the Calgary-based company to “outperform” from “sector perform” and raised his target to $17 from $12. The average target is $16.21.
“The struggle was real . . . but now it’s time to put some torque on your fork!” said Mr. Wood.
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Though he continues to like its macro drivers and tailwinds as well as its competitive position, Laurentian Bank Securities analyst Nick Agostino downgraded Descartes Systems Group Inc. (DSGX-Q, DSG-T) following the release of its first-quarter 2019 financial results.
“The stock’s recent appreciation causes us to take a pause on valuation. We look for a pullback to re-evaluate our position,” said Mr. Agostino, moving the Waterloo, Ont.-based tech company to “hold” from “buy.”
On Wednesday, Descartes reported revenue for the quarter of US$67-million, a rise of 23 per cent year over year and exceeding both the estimates of both Mr. Agostino and the Street. Adjusted EBITDA of US$22.1-million fell in line with the analyst’s estimate (US$22-million), while adjusted earnings per share of 9 U.S. cents missed his projection by 2 U.S. cents.
“DSG continues to see demand growth as the ‘Amazon effect’ which has proliferated across consumer eCommerce has spilled into the B2B market, with supply chains increasingly demanding the same delivery visibility and immediacy consumers have come to expect,” said Mr. Agostino. “This aligns with our initiation thesis, as does MacroPoint, which dominated the conference call discussion. DSG aims to double MacroPoint’s sales over 3 years and bring margins to consolidated levels, with SAP and Oracle partnerships benefitting revenue and integration. In addition to omnichannel growth, DSG is benefitting from regulatory market dynamics, as demand for real-time trade and tariff data increases.”
Mr. Agostino increased his target for the stock to US$32.50 from US$31.50. The average is US$33.29.
Meanwhile, Canaccord Genuitu’s David Hynes moved his target to US$35 from US$34 with a “buy” rating.
Mr. Hynes said: “We continue to like DSGX for a number of reasons: the firm is operating at the center of several key trends in logistics management, there’s no doubt that the firm has recently acquired into faster growth segments of the space, and this business is one of the most consistent we track in terms of communicating a logical strategy and delivering against EBITDA goals. While it’s hard to precisely triangulate around organic growth, this notion of a gradually accelerating core, compounded by steady delivery against the M&A model, gives us confidence that Descartes should be able to keep up with the execution we have come to expect. Specifically, that means 15-per-cent-plus annual EBITDA growth, mid-30-per-cent EBITDA margins, and nearly 90-per-cent operating cash conversion on this profit. While DSGX shares aren’t cheap, confidence in this financial profile makes us think the stock can sustain a modest premium, such that we’re sticking with our BUY. Our price target suggests there’s enough upside that the stock is fine at current levels, but to build a full position, we’d wait for at least a bit of a pullback.”
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According to Canaccord Genuity analyst Scott Chan, the main bright spot in Bank of Montreal’s (BMO-T, BMO-N) quarterly financial report was the performance of its U.S. segment, which “significantly” exceeded the expectations of the Street.
“We are getting increasingly more positive on BMO stock due to our better outlook in the U.S. market,” said Mr. Chan. “Year-to-date, BMO’s U.S. segment accounts for 27 per cent of total net income (adjusted) with total P&C making up 78 per cent (balance resides in Wealth & Capital markets). For Q2/F18, BMO’s U.S. P&C segment (in US$) reported adjusted NI growth of 50 per cent year over year. Excluding unusually low provisions, earnings growth looked more like greater-than 30 per cent. A large focus has been on operational improvement, with the U.S. efficiency ratio improving 600 basis points from six quarters ago to 58 per cent with further gains expected. As part of the restructuring charge, BMO is targeting $185-million in cost savings over the next year (front-end weighted) with greater-than 25 per cent likely coming from the U.S. Similar to peers, commercial loan growth is solid, up 10 per cent year over year for BMO while representing 19 times (fiscal 18 estimates based on consensus) versus current U.S. Midwest peers at 15.2 times.”
Overall, Mr. Chan called the bank’s earnings per share beat “low quality due to credit provisions, tax, and insurance (improvement in insurance claims / changes in policyholder liabilities).”
After raising his full-year adjusted EPS projection to $8.56 from $8.44, Mr. Chan increased his target price for BMO shares to $109 from $106. The average on the Street is $110.07.
“We maintain our HOLD rating and increase our target price … mainly from 1-per-cent positive revision towards our fiscal 2018 estimate (i.e. targeted cost savings) and increasing our price-to-earnings premium to 3 per cent versus the group average (from 2 per cent) suggesting now mid-single digit EPS growth for BMO in F18/F19 (slightly below peers),” he said.
Elsewhere, National Bank Financial analyst Gabriel Dechaine upgraded BMO to “outperform” from “sector perform” with a target of $108, up from $106.
RBC Dominion Securities’ Darko Mihelic increased his target to $120 from $117 with a “sector perform” rating.
Mr. Mihelic said: “We view Q2 results positively - EPS was above our forecast, U.S. P&C results were solid, credit was good and capital remained strong (with a larger dividend increase than we expected).”
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Seeing “storm clouds on the horizon,” Morgan Stanley analyst Joseph Moore downgraded Micron Technology Inc. (MU-Q) to “equalweight” from “overweight” based on the chip maker’s current valuation following a 40-per-cent jump in share price over the last three weeks.
“After being bullish on memory for the last two years, we are moving to a neutral stance. DRAM [dynamic random-access memory] remains strong but looks priced in as MU is very close to our price target,” said Mr. Moore. “We would rather err on the side of caution in an environment where we can see storm clouds on the horizon.”
Believing “any erosion in fundamentals will be punished,” Mr. Moore maintained a US$65 target for Micron shares, which sits below the consensus among analysts covering the stock of US$77.18.
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In other analyst actions:
BMO Nesbitt Burns analyst Ryan Thompson initiated coverage of Silvercorp Metals Inc. (SVM-T) with an “outperform” rating and target of $4.75. The average on the Street is $4.84.
“ We see the potential for multiple expansion if Silvercorp can continue to build on the strong operational track record it has demonstrated over the past c ouple of years,” said Mr. Thompson.
National Bank Financial analyst Rupert Merer upgraded Nemaska Lithium Inc. (NMX-T) to “outperform” from “sector perform” with a $1.90 target. The average is $2.50.
Cormark Securities Inc. analyst Maggie Macdougall downgraded Imaflex Inc. (IFX-X) to “market perform” from “speculative buy” with a $1 target, down from $1.65. The average is $1.50.
Tudor Pickering & Co initiated coverage of MEG Energy Corp. (MEG-T) with a “buy” rating.
Accountability Research Corp analyst Harriet Li upgraded AutoCanada Inc. (ACQ-T) to “buy” from “hold” with a $25 target, which is 39 cents below the consensus.
Acumen Capital analyst Trevor Reynolds downgraded Marquee Energy Ltd. (MQX-X) to “hold” from “speculative buy” with a target of 8 cents, which is a penny higher than the consensus.
National Bank Financial analyst John Sclodnick initiated coverage of Bluestone Resources Inc. (BSR-X) with an “outperform” rating with a $2.50 target. The average is $2.82.
With files from Bloomberg News
David Leeder