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

Sun Life Financial Inc. (SLF-T) sits “well positioned for a tough outlook,” according to RBC Dominion Securities analyst Darko Mihelic.

In the wake of Tuesday’s release of “solid” first-quarter financial results, he raised his rating for its stock to “outperform” from “sector perform.”

“In our view SLF has a solid capital position, low leverage and a solid ROE [return on equity],” said Mr. Mihelic. “Notwithstanding potential credit costs on the horizon, we are of the view that SLF is well-positioned to outperform peers in 2021.”

For the quarter, the Toronto-based company underlying earnings per share of $1.31, exceeding both Mr. Mihelic’s estimate of $1.11 and the consensus on the Street of $1.12. Reported EPS of $0.67 also easy pushed past his 29-cent estimate and the 43-cent consensus.

“Underlying earnings for all primary business segments came in better than our forecasts, with overall earnings better than our forecast driven by SLF Asset Management and SLF U.S.,” the analyst said.

Assuming higher credit-related losses moving forward, Mr. Mihelic trimmed his 2020 and 2021 underlying EPS projections to $4.71 and $5.22, respectively, from $4.96 and $5.72.

“Our assumptions are far bigger than recent experience and consequently we view our earnings estimates as conservative,” he said.

With those reductions, Mr. Mihelic lowered his target for Sun Life shares to $61 from $63. The average is $54.43.

“In our view SLF has a solid capital position, relatively low leverage and a strong ROE vs. peers,” he said. “We believe Q1/20 results were all-around solid and while we do expect some negative credit-related impacts over our forecast period, we think SLF is relatively well-positioned for 2021 compared to peers. We are forecasting SLF to generate underlying EPS growth of 10.8 per cent in 2021 and an underlying ROE of 12.7 per cent. In our view the company is likely less susceptible to ROE degradation vs. peers given its business mix.”


Ahead of the release of its first-quarter financial results after the bell on Thursday, Industrial Alliance Securities analyst Elias Foscolos downgraded Badger Daylighting Ltd. (BAD-T) based on share price appreciation, after its stock jumped 39 per cent since his prior upgrade.

The move came after he lowered his 2020 truck builds projections as well as his revenue per truck and margins estimates for the next two years based on depressed spending and an overall decline in GDP in both Canada and the United States.

"We are forecasting lower utilization from the fleet, which will ultimately be reflected in RPT and margins," said Mr. Foscolos. "Mass economic shutdowns should also result in a delayed and less active construction season in both Canada and the U.S., and generally less non-critical excavation in various end markets. Western Canadian hydrovac will be hit particularly hard by depressed spending in oil & gas, but also cashsqueezed municipalities and states. BAD should benefit from an FX tailwind."

“BAD has stated that it will be curtailing hydrovac production. The Company’s previous official guidance for 2020 (prior to being withdrawn) was for truck builds of 200-230 with 50-70 retirements (155 net builds). We expect the Company to announce 2020 net builds of 0-60 trucks, which will result in lower near-term fleet growth. We now forecast 2021 revenue to essentially mirror 2019. The Company’s long-term strategic targets remain intact (double U.S. business 3-5 years, 15-per-cent EBITDA CAGR 3-5 years). Integration of the common business platform and associated realization of cost reductions assist our 2021 estimates.”

Mr. Foscolos said he still likes Badger's balance sheet, projecting $300-million in liquidity between cash and undrawn credit.

His target for Badger shares remains $30. The average on the Street is $32.25.


Though Brookfield Renewable Partners L.P.'s (BEP.UN-T, BEP-N) first-quarter financial results came close to matching his expectations, Industrial Alliance Securities analyst Naji Baydoun downgraded its stock to “buy” from “strong buy” based on outperformance since mid-March and seeing limited upside.

Before the bell on Wednesday, Brookfield reported adjusted earnings before interest, taxes, depreciation and amortization of US$391-million, exceeding the consensus projection (US$390-million) but narrowly below Mr. Baydoun’s estimate (US$403-million). Funds from operations per share of 70 US cents met the Street’s forecast but fell 6 US cents below the analyst’s expectation, which he attributed to weak output from the European wind segment as well a foreign exchange currency woes.

Mr. Baydoun noted the company’s organic growth projects remain on track and sees its takeover of TerraForm Power Inc. (TERP-Q) continuing to be its key driver moving forward.

"We continue to forecast (1) high singl edigit average annual FFO/share growth through 2024 (within BEP’s 6-11-per-cent average annual FFO/share growth target), and (2) dividend growth closer to the lower end of the Company’s 5-9 per cent per year dividend growth target, as we expect the payout ratio to decline over time," he said.

Mr. Baydoun raised his target for Brookfield to US$50 from US$44. The average on the Street is currently US$51.

“We continue to like BEP’s (1) high-quality global renewable power platform (19GW), (2) high degree of contracted cash flows (65-90 per cent-plus through 2024), (3) long-term organic and M&A-based growth strategy (1.4GW under development, and more than 13GW of prospects), and (4) attractive income characteristics (5-per-cent yield and a 5-9 per cent per year dividend growth target),” he said. “We continue to see BEP as a premium brand in the sector, supported by premium value hydro assets. We are increasing our price target to reflect higher accretion estimates from the TERP takeover, and 20 times fiscal 2021 estimated price-to-free cash flow (up from 18 times previously, reflecting BEP’s premium brand in the sector).”


Seeing “plenty of optimism” coming out of Real Matters Inc.'s (REAL-T) earnings call following the release of record results, Canaccord Genuity analyst Robert Young continues to see the Markham, Ont.-based tech firm as a “top pick.”

"Real Matters continues to outpace market growth driven by new customer wins and wallet share gains in its U.S. operations," he said. "While Appraisal is now at scale, we see growing evidence that Title can eventually become the larger business as planned. Market growth has been driven by refinance volumes which Real Matters reports is at a higher level than in any week of 2019 through the end of FQ2 with March accounting for 40 per cent of the quarterly Net revenue. This volume has remained strong through April suggesting FQ3 strength. While lender underwriting capacity remains a bottleneck for near-term growth, we see it stretching out demand over a longer period.

"At the other side of the pandemic, Real Matters will have achieved greater scale with a stronger balance sheet with capital to execute on M&A and internal growth priorities."

Remaining confident in the " multi-year refinance opportunity in front of Real Matters," Mr. Young increased his 2020 and 2021 revenue and earnings projections for the company, pointing to a "sizeable" rise in his expectations for its Title segment.

“We remain cautious on the forecast accuracy through fiscal 2021 and beyond, given the direct relationship with the cyclical mortgage market and interest rates,” he said. “We remain confident that Real Matters’ solution will continue to gain share, which may limit the impact of future interest rate hikes and/or mortgage market pullbacks.”

Maintaining a “buy” rating for its shares, Mr. Young hiked his target to $25 from $17. The average on the Street is $20.71.


A day after Shopify Inc. (SHOP-T) passed Royal Bank of Canada (RY-T) to become the largest publicly traded Canadian company, Mackie Research Capital analyst Nikhil Thadani warned investors “nerves of steel” are needed.

"We would remain extra mindful of any market risk in a still turbulent environment," he said in a research note.

On Wednesday, the Ottawa-based retail software company jumped 6.9 per cent following the release of better-than-anticipated quarterly results. That pushed its market capitalization to $121.2-billion, exceeding RBC at $120.5-billion.

"Trading at 29 times 2021 Sales (20 times post Q4 results in February), even as guidance remains suspended, the stock is not cheap and could rapidly retrace on any perceived execution miss or market risk/COVID driven consumer behaviour changes," said Mr. Thadani. "For now, the trend towards eCommerce seems accelerated (interestingly, May 1 marked PayPal’s highest volume transaction day in its history). SHOP gave some excellent COVID-19 related data in the Q1 results press release, highlighting the company’s merchant first philosophy. SHOP is accelerating the pace of product innovation, which could enhance competitive positioning in a post COVID world.

"While recent SoftBank issues have effectively debunked the capital-as-a-competitive advantage thesis (especially when combined with weak business models), SHOP’s balance sheet with $2.5-billion cash (no debt) and current valuation provides the company a very effective lever to continue to enhance shareholder value. We have previously suggested SHOP’s valuation also reduces the company’s cost of capital, for either M&A or equity issuance -- we would be surprised if either of these levers are not utilized in near/medium term."

Keeping a "buy" rating for the stock, the analyst raised his target for Shopify shares to $800 to $600 based on 32 times calendar 2021 sales projections. The average on the Street is $672.20.

“As of Q1 results through April, the company appears to benefiting from COVID-19 related tailwinds, which could turn to headwinds if virus/lockdown driven economic pressures intensify,” he said. “To this end, 2020 guidance was suspended in early April and it is unknown when it will be introduced, which could result in wider dispersion of expectations and consequently impact the company’s stock. For now our 2021 revenue expectation of $2.895-billion is relatively unchanged and implies 35-per-cent year-over-year growth. We expect near term recurring revenue growth to be minimal (90 day free trials on standard plan signups). Merchant Solutions, which could be impacted by consumer behavior (fickle in light of COVID-19) will therefore be more important in driving near term revenue performance and could amplify any deviation from expectations in light of suspended guidance.”

Credit Suisse analyst Brad Zelnick raised his target to US$700 from US$595 with a "neutral" rating.

Mr. Zelnick said: “Shopify reported 1Q results ahead of expectations and provided commentary that suggests an acceleration in the secular migration toward e-commerce. While management did not provide an outlook given the potential effects a recession can have on consumer spending, it remains clear that the current environment is catalyzing adoption within previously unpenetrated e-commerce categories and changing merchant/consumer behavior. Commentary on SFN remains positive long-term though will be dilutive near-term and remains a 2021 story. We continue to believe SFN will (1) enable merchants to compete with the likes of Amazon without increasing working capital; and (2) increase GMV and overall take rates.”


Raymond James analyst Chris Cox reaffirmed Tourmaline Oil Corp. (TOU-T) as his “Best Pick” in the Canadian E&P sector following the release first-quarter results that he saw as “a strong start to the year.”

“Tourmaline has been a noticeable outperformer year-to-date - the second best performing E&P across our coverage universe and besting the TSX Energy Index by 40 per cent,” he said. "Accordingly, the primary concern raised by investors at this juncture is whether this is a ‘crowded trade.’ While we remain constructive on the outlook for gas prices into year-end, continued outperformance is likely to be driven by stock-specific factors.

"Namely, we see TOU as one of the only North American E&Ps capable of delivering FCF [free cash flow] and modest production growth in 2020, with an even stronger outlook into 2021. We also see a potential liquidity event for Topaz in 2H20 as a key catalyst, amplifying the organic upside to the story by allowing TOU to be aggressive with M&A at the bottom of the cycle, without impairing the balance sheet or relying on equity."

Maintaining an “outperform” rating, he increased his target to $17 from $15. The average is $18.42.

“With the stock trading at 3.7 times 2021 estimated debt-adjusted cash flow (DACF) at strip pricing, we believe there remains a lot of room for the stock to run,” said Mr. Cox.


In other analyst actions:

* Scotia Capital analyst Trevor Turnbull raised Torex Gold Resources Inc. (TXG-T) to “sector outperform” from “sector perform” with a $32 target, rising from $29. The average is $25.64.

“Clearly, Q2/20 will be impacted by the temporary suspension, but in 2H/20 we are expecting materially lower total cash costs and higher production relative to the first quarter,” said Mr. Turnbull. "The company reported some free cash flow generation in Q1/20 despite large one time tax payments relating to 2019. In 2H/20, we forecast free cash flow of $67 million.

“We feel Torex represents compelling valuation at 0.79 times our net asset valuation (NAV5%) versus 1.16 times for the peer group. In our opinion, the sell off in the company’s shares was unwarranted following the noisy foreign exchange related Q1 financial results.”

* Cormark Securities analyst Garett Ursu cut Surge Energy Inc. (SGY-T) to “market perform” from “buy” with a 40-cent target, down from 50 cents. The average is 45 cents.

* Haywood Securities analyst Darrell Bishop upgraded Pine Cliff Energy Ltd. (PNE-T) to “buy” from “hold” with a 25-cent target, rising from 15 cents and above the 16-cent consensus.

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