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

Tourmaline Oil Corp. (TOU-T) is “feeding on acquisitions,” according to Industrial Alliance Securities analyst Michael Charlton.

In a research note released Thursday, he raised his rating for the Calgary-based company to “strong buy” from “buy” following the release of its financial and operating results for its second quarter, which he called “active” despite the firm “being in ‘maintenance mode’.”

“During this time of lower field activity, Tourmaline has instead been quite active cobbling together additional production, reserves, infrastructure and strategic land packages, which we anticipate will be beneficial to Tourmaline and potentially its Royalty spin-out Topaz (Private) in the near future,” the analyst said. “With several new wells to be drilled and come online during the back half of the year, Tourmaline looks to be setting up to carry operational momentum into 2021 given its strong production exit rate forecasts and significant acquisition appetite.”

For the quarter, Tourmaline reported production of 299,369 barrels of oil equivalent per day, up 7 per cent year-over-year and in line with Mr. Charlton’s 299,382 boe/d projection. Cash flow per share of 83 cents exceeded his 70-cent estimate.

“Tourmaline is well-positioned to continue to grow production and FCF [free cash flow] through the continued advancement of its three core assets, leveraging the stable cash flows from its largely de-risked plays in highly active parts of the WCSB,” the analyst said. “We believe Tourmaline has achieved critical mass whereby its properties are capable of generating enough cash flow to continue to more than fund ongoing development (including modest growth) and maintain the Company’s quarterly dividend, all while paying down debt as free cash flows are forecast to continue growing. For investors seeking an actively growing company that pays a sustainable quarterly dividend and is involved in exploration and development in the WCSB, with several high-quality assets, run by management with a track record of success, we believe those investors need look no further.”

Citing Tourmaline’s updated financials as well as its positive outlook for gas and acquisition potential, Mr. Charlton increased his target for its shares to $23 from $20.50. The average on the Street is $20.

Meanwhile, Canaccord Genuity analyst Anthony Petrucci raised his target to $20 from $17 with a “buy” rating (unchanged).

“We believe Tourmaline offers one of the most compelling investment opportunities in the Canadian energy space today,” said Mr. Petrucci. “The company is growing (profitably) within cash flow, while fully funding a healthy dividend, and has FCF remaining to complete ‘tuck-in’ acquisitions. Considering the current headwinds facing the energy space, it is a remarkable achievement, in our view. Add to that a significant potential catalyst with the spinout of Topaz, and a valuation that is actually below many of its peers, we recommend investors considering a meaningful position in TOU.”


A day after its New York-listed shares surged almost 7 per cent and its market capitalization surpassed US$126-billion, a group of equity analysts on the Street continued to praise Shopify Inc. (SHOP-N, SHOP-T), raising their target prices for the Ottawa-based e-commerce firm, which is now firmly Canada’s most valuable company.

Shopify soars as pandemic pushes more businesses to e-commerce

Calling its second-quarter results a “clean beat,” RBC Dominion Securities analyst Mark Mahaney raised his target to US$1,250 from US$1,000 with an “outperform” rating. The current average on the Street is US$704.51.

“When Q2 EPS season is said and done, SHOP is likely to have had among the largest upwards estimates revisions across Tech,” he said. “Why? Because it is fully participating in the COVID-powered Online Retail Structural Acceleration at the same time that DTC Retail is inflecting up and at the same time that SHOP is gaining real traction with a series of new products & solutions – Payments, International, SFN, Shipping, etc.”

“We see two takeaways from Q2 results in particular as supporting that long-term thesis: 1) the record rampup in Take Rate – thanks largely to Payments and other VAS adoption rates rising; and 2) the record rampup in Operating Margins. And we believe both of these takeaways/trends are sustainable for SHOP. Valuation here is at a high premium. But growth rates are too.”

Citi’s Walter Pritchard moved his target to US$1,200 from US$998 with a “neutral” rating.

Mr. Pritchard said: “Though we cannot observe the exact uptick in merchant count & GMV/merchant etc. driving Q2, the magnitude of the GMV/MS [gross merchandise volume and merchandise solutions] revenue upside ($10-billion/$200-million, respectively) implies a very significant ramp in capacity. Forward extrapolation of Q2′s uptick gives us confidence that revenue acceleration will continue well through FY'20, and we raise estimates significantly higher though wait for better macro/continuation of these trends in 2H. Our PT moves to $1,200; this is derived from our updated regression and out-year growth/margin estimates, implying an EV of 28.5 times our fiscal 2025 revenue forecast, which we discount to one year from today.”

DA Davidson's Tom Forte increased his target to US$1,000 from US$650 with a "neutral" rating.

Mr. Forte said: “We still see Shopify as the antidote to the four horsemen of big tech (Amazon, Apple, Facebook, and Google), whose CEO’s testified on Wednesday before a House Judiciary Committee on antitrust concerns. Shopify is enabling the little guy (and girl) to compete against the big boys (and girls) in retail,including e-commerce.”

Canaccord Genuity’s David Hynes moved his target to US$1,000 from US$700 with a “hold” rating.

Mr. Hynes said: “Shopify was pricing in a pretty epic beat, and boy, did the firm deliver. GMV exploded higher by 119 per cent to $30.1-billion, almost 50-per-cent higher than the firm’s Q4/19 holiday quarter. In addition, new stores created on the platform increased by 71 per cent sequentially and much of this growth is yet to be reflected in ARR due to the timing of the firm’s extended free trial window, with conversion of these trial merchants expected to continue through the end of August. Either way, what was strikingly clear from this report is that commerce has shifted online in a major way, a trend that may normalize but is unlikely to reverse, and Shopify is clearly the leader in the space. Continued share gains, market growth, and category expansion set this firm up for several more years of compelling growth, and with scale (as we saw this quarter) should come margin improvement. This is going to be a fun one to watch.”


After its second-quarter financial results beat the Street, RBC Dominion Securities analyst Robert Kwan thinks the strength of Enbridge Inc.‘s (ENB-T, ENB-N) business has been evident through the first half of 2020 and “sets the company apart from many North American peers.”

"With a number of North American midstream companies reducing guidance or directionally guiding lower, some for a second time in 2020, we believe Enbridge's ability to provide guidance before COVID-19, re-affirm it when it reported Q1/20 results, provide detailed guidance on how Q2/20 could shake out, and then report better-than-expected Q2/20 results demonstrates the resiliency and stability of Enbridge's business," he said.

Mr. Kwan said the better-than-anticipated results "provide a buffer to help Enbridge achieve its 2020 DCF/share guidance that was provided in December 2019 (i.e., before the impact of COVID-19)." He also the Calgary-based company has "enhanced its credibility given Q2/20 results versus its previously-disclosed detailed guidance on the impact of COVID-19."

“During Q2/20, Enbridge sanctioned roughly $1-billion of new projects including $0.3-billion in Gas Distribution and Storage over four different projects with $0.7-billion earmarked for the Fecamp offshore wind joint venture in France,” the analyst said. “In total, Enbridge expects to deliver a 5-7-per-cent DCF/share CAGR through 2022 via its $11-billion of secured growth projects that it anticipates will generate roughly $2.5-billion of incremental EBITDA (about 4-5-per-cent DCF/share CAGR), on top of base optimizations adding another 1-2 per cent to the DCF/share CAGR.”

Though he sees its shares as "attractively valued," Mr. Kwan trimmed his target to $58 from $61, maintaining an "outperform" rating. The average on the Street is $51.59.

“Enbridge’s shares recovered from their lows reached in March but are trading below mid-May levels,” he said. “As such, the current forward P/E is only back to the trough valuations that occurred in 2008 and 2018. Given that we expect Mainline volumes to recover and that Enbridge will, at a minimum, protect its downside on the Mainline as part of whatever framework follows CTS, we view the current share price as an attractive entry point. This is particularly true for long-term focused investors who can look through pipeline project headlines and oil market volatility while collecting an attractive dividend yield of approximately 7.5 per cent in the process.”


As Cobre Panama resumes its “successful” ramp-up following a three-month, COVID-19-related shutdown, RBC Dominion Securities analyst Sam Crittenden thinks First Quantum Minerals Ltd. (FM-T) shares can re-rate as the mine “hits its stride into 2021.”

Also seeing a reduced balance sheet risk through recent hedges and stronger copper prices, he reaffirmed the Canadian company as a preferred name in the sector following better-than-anticipated quarterly results.

“Cobre Panama can resume its trajectory to become a world class mine,” he said. “On the conference call, management noted they don’t see any reason to change 2021 guidance and the mine can resume the successful ramp up which was forced to shutdown for 3 months due to COVID-19. We estimate copper production growing to 424kt in 2023 (from 193kt in 2020) with cash costs of $1.03/lb which would be a top 10 producer globally and in the 35th percentile of the cost curve. This supports our view that FM could be an attractive takeover candidate.”

Mr. Crittenden maintained an "outperform" rating and increased his target to $14 from $12. The average is currently $14.76.

Elsewhere, Raymond James analyst Farooq Hamed bumped up his target to $16 from $14.50 with a "market perform" rating (unchanged).

Mr. Hamed said: " Given the recent volatility in copper prices, ongoing uncertainty related to Covid-19 and investor focus on FM's debt covenants, we continue to view the hedging program as an important risk mitigation measure until the balance sheet sees meaningful improvement with upside coming from the production ramp-up of Cobre Panama. With Cobre Panama expected to resume normal operating levels by mid-August and stronger commodity prices, we expect FM to generate improving FCF in 2H20."


CGI Inc. (GIB.A-T) has displayed “few scares from the recent turbulence,” said Desjardins Securities analyst Maher Yaghi, who sees its valuation compared to its peers remaining “attractive.”

“GIB reported results which exceeded expectations as the impact from the pandemic on its operations was not as severe as expected,” he said. “GIB’s shares reacted strongly to the news (up 7 per cent on the day), in part due to the earnings and also to the strong day for technology stocks overall. We continue to believe that GIB’s valuation — which has declined on a relative basis vs peers recently — provides an attractive entry point as the results indicate that GIB’s operations are faring well in the current context.”

Before the bell on Wednesday, the Montreal-based firm reported revenue and adjusted EBIT of $3.05-billion and $448-million, respectively, exceeded the consensus projections on the Street of $2.98-billion and $427-million.

“Even though GIB has not made many acquisitions lately, M&A remains an important part of the story,” the analyst said. “Management is on the lookout and currently has 20 discussions ongoing with potential targets. The number and size of companies in the acquisition pipeline have recently increased. We believe the low leverage of 1.4 times, integration experience and previous acquisition price discipline make this avenue very attractive for investors.”

After raising his earnings expectations for fiscal 2020 and 2021, Mr. Yaghi increased his target for CGI shares to $108 from $100, keeping a “buy” rating. The average is currently $99.32.

“We expect GIB to implement cost-saving initiatives to maintain positive EPS growth in FY20, provided the current shutdown does not last longer than six months,” he said. “Combined with a robust 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 still offers a good entry point.”


Expressing increased confidence on the possibility for a rebound in its margins following quarterly results that exceeded the Street’s projections, Canaccord Genuity analyst Robert Young raised his rating for Celestica Inc. (CLS-N, CLS-T).

“Celestica delivered a better-than-expected Q2 despite COVID-19 uncertainty, and while the company withheld guidance, the suggestion that Q3 is in line with Q2 is also ahead of expectations,” he said. “Celestica suggested that supply chain headwinds are relenting and utilization is improving as operations stabilize. While challenging markets persist in commercial aerospace and industrial components of the higher margin ATS segment, and the global pandemic creates less-than-perfect visibility, we have greater confidence in a sustained return to the target operating margin range of 3.75-4.5%. This is predicated on strong growth from the JDM elements of the CCS business, which are benefiting from service provider and ‘hyperscale’ data centre interest, strengthening semicap equipment dynamics, and the roll-off of lower margin revenue from disengagements, including Cisco, winding through the model in F21. "

After raising his financial expectations, Mr. Young moved the stock to “buy” from “hold” with a US$10 target, up from US$6.50. The average on the Street is US$7.56.

“Despite the recent run-up from the depths of March, shares are still down 16 per cent from the 52-week high with valuation at the low end of the historical range, it is our view that risk/reward is unbalanced to the upside,” he said.

Elsewhere, Citi analyst Jim Suva cautioned Celestica will “have a large gap to fill” in 2021 following its disengagement with top customer Cisco Systems Inc.

Keeping a “sell” rating for Celestica shares, he hiked his target to US$7.50 from US$5.

“We believe consensus for 2021 is miscalculating expectations as Cisco (CSCO) is disengaging from Celestica,” he said. “We note Consensus is currently modeling a less than 2-per-cent drop in sales or $97-million decline and a 20-per-cent EPS [earnings per share] gain for 2021 which we believe is too optimistic. We believe Cisco is approximately a $500-million customer so even with some growth in 2021 from other customers we believe the year over year sales and EPS growth rates are miscalculated by consensus. Accordingly, we maintain our Sell rating, and we look to see if consensus expectations for the year over year decline become more appropriately aligned to consider becoming more positive.”

Stifel analyst Matthew Sheerin raised his target to US$8 from US$6, keeping a “hold” rating.

Mr. Sheerin said: “For Q3, CLS is again guiding flattish sequential top-line and bottom-line results, which bakes in continued weakness in commercial aerospace and industrials, where management is planning further restructuring actions to rightsize the ATS segment. Celestica also expects its Cisco disengagement (10 per cent of F2Q20 sales) to be ‘largely complete’ by CY20-end. These moves should further expand margins as CLS moves into FY21, although we expect forward top-line results to be muted. Nonetheless, we raise our estimates amid better-than-expected demand trends and solid execution.”

RBC Dominion Securities' Paul Treiber moved his target to US$8.50 from US$7.50 with a "sector perform" rating (unchanged).

Mr. Treiber said: “Despite double digit declines in A&D and industrials due to COVID, Celestica saw a return to revenue growth Q2, due to double digit growth in JDM (e.g. hyperscalers) and capital equipment. With likely sustained hyperscaler demand, continued ramp in capital equipment, and the drop off of low-margin Cisco revenue, we believe visibility has improved to Celestica achieving positive EPS growth.”


Following better-than-anticipated second-quarter results, Raymond James analyst Ben Cherniavsky raised his rating for Rocky Mountain Dealerships Inc. (RME-T), feeling its been sufficiently punished by investors.

"One year ago, when Rocky Mountain reported its worst 2Q print since going public in 2007, we didn't believe things could get much worse for this beleaguered dealership," he said. "Yet, as the year progressed, that is exactly what happened as headwind upon headwind continued to mount: first came the China Canola trade embargo, then it was the poor weather, followed by the protester-driven rail blockades and finally the COVID-19 pandemic. By the time we got to 1Q20 results, virtually all was lost--including over $3-million of earnings in that quarter alone. While this provides a good lesson in the folly of trying to time bottoms, the fact that [Wednesday's] 2Q20 results (finally!) showed some improvement compels us to reconsider our position on this stock."

For the quarter, the Calgary-based company reported revenue of $214-million, exceeded Mr. Cherniavky’s $178-million, which he attributed to growth in its Used Unit segment. Earnings per share of 15 cents blew past his projection of a 4-cent loss.

That strength led him to raise his rating to "outperform" from "market perform" with a $6.50 target. The average on the Street is currently $5.83.

“With the share price down 48 per cent (versus down 2 per cent for the TSX) over the past 12 months and 41 per cent (vs. down 2 per cent for the TSX) since our Oct-31-19 downgrade, we believe the market has appropriately taken its pound of flesh from shareholders,” he said. “For context, the price-to-tangible book value is now just 0.5 times. Meanwhile, costs continue to be rationalized, inventories are steadily declining, and deleveraging is underway. The Jun-16-20 dividend cut also removes a risk-factor that had been lingering over this stock. Finally, there are early signs that the ag industry may be finding new religion with respect to the trade-in practices that have created such a glut of used equipment in the market. For all of these reasons, we believe the risk-reward profile on Rocky’s shares is sufficiently attractive to upgrade our rating.”


Desjardins Securities analyst Frederic Tremblay moved IPL Plastics Inc. (IPLP-T) to “tender” from “buy” in response to Wednesday’s announcement that it has agreed to be acquired for $10 per share in cash by Packaging Limited Purchaser Inc., an entity controlled by funds managed by Chicago-based private equity firm Madison Dearborn Partners LLC.

“In our opinion, the agreement with MDP is a good outcome given (1) a fair price; and (2) the deep discount to peers at which IPLP was persistently trading previously, which we believe was unlikely to rapidly disappear in the current environment (COVID-19 situation and IPLP’s low liquidity),” said Mr. Tremblay.

He raised his target to the purchase price of $10 from $7.50 previously. The average on the Street is $9.50.


Calling it an “M&M machine with a large runway for growth,” Paradigm Capital analyst Daniel Rosenberg initiated coverage of Well Health Technologies Corp. (WELL-T) with a “buy” rating.

“We believe WELL is in the early innings of establishing itself as a technology leader in the digital healthcare sector,” he said. “For investors it is an M&A compounder which can drive value within the massive healthcare market that is ripe for digital transformation. WELL owns 20 primary healthcare medical clinics, is Canada’s third-largest EMR (electronic medical record) provider, and operates a national telehealth service. The company invested in a number of other technology assets. Since early 2018, WELL has completed 15 transactions, including 12 acquisitions and three equity investments driving rapid growth from revenue of zero in 2017 to a current revenue rate of $44-million. Leadership has shown an exceptional capabiilty to execute disciplined accretive M&A and to acquire valuable technology that can scale. Secular changes accelerated by the pandemic are strong tailwinds supporting WELL’s strategy to leverage technology and drive efficiencies in healthcare, in turn improving patient outcomes and generating shareholder value.”

Mr. Rosenberg set a target of $4.10, which exceeds the $3.63 consensus.


Citi analyst Paul Lejuez made a pair of rating changes to U.S. retail stocks in his coverage universe.

Seeing the “success and opportunity” for its Aerie brand as “too significant to overlook,” he upgraded American Eagle Outfitters Inc. (AEO-N) to “buy” from “neutral” with a US$14 target, up from US$12 and above the US$12.59 average.

“Aerie has been and we believe will continue to be a share winner in the intimates/loungewear category,” he said. “Their performance over the past several years has stood out in retail, and we believe with Victoria’s Secret closing 250 stores, Aerie is poised to accelerate its market share gains. And Aerie is showing signs of becoming more of a lifestyle brand with its entry into athletic/athleisure. We acknowledge that AE will likely have a tough BTS season given the uncertainty around going back to in-person teaching (with many schools already committed to virtual). However, we believe this concern is well understood and reflected in the multiple with shares trading at 3.0 times our fiscal 2021 estimated EBITDA.”

Conversely, Mr. Lejuez lowered L Brands Inc. (LB-N) in response to a 35.4-per-cent jump in its share price on Wednesday following the release of better-than-anticipated quarterly results, driven by a 10-per-cent rise in sales at Bath & Body Works.

“Following this stock surge, there are 3 reasons for our downgrade: (1) We believe near term strength at BBW is driven by pent up demand and is being incorrectly extrapolated by the market into future periods, (2) COVID-19 does not improve BBW’s long term earnings power, and (3) A shift toward Ecom is not good for BBW margins,” he said.

He moved the Ohio-based parent company of Victoria’s Secret to “sell” from “neutral” with a US$17 target, up from US$15. The average target is US$20.24.


In other analyst actions:

* Scotia Capital analyst Tanya Jakusconek raised Agnico Eagle Mines Ltd. (AEM-N, AEM-T) to “sector outperform” from “sector perform” with a US$72 target, up from US$65. The average on the Street is US$73.23.

* National Bank Financial analyst Don DeMarco raised Golden Star Resources Ltd. (GSC-T) to “outperform” from “sector perform” with an $8 target, up from $5.75 and topping the $6.64 average.

* CIBC World Markets analyst Paul Holden said Intact Financial Corp.‘s (IFC-T) “solid” quarterly results support a premium valuation, prompting him to increase his target for its shares to $155 from $140 with a “neutral” rating (unchanged). The average on the Street is $157.14.

“Intact reported an all-around solid quarter that re-affirms the defensive and quality characteristics of the business,” he said.

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