Inside the Market’s roundup of some of today’s key analyst actions
Shares of Dollarama Inc. (DOL-T) are “close to fully valued” at their current level, according to Industrial Alliance Securities analyst Neil Linsdell.
He downgraded his rating for the discount retailer to “hold” from “buy,” citing a 6-per-cent rise in price since his June 1 upgraded.
On Wednesday, the Montreal-based company began trading on a 3-to-1 share split basis, leading Mr. Lindsell to adjust his forecasts.
Prior to the split, his target price for its shares was $163. It now sits at $54.50. The average target on the Street is $55.91, according to Bloomberg data.
“Dollarama remains a market darling with consistent growth, solid and sustainable margins, and good cost controls, while continuing to pursue its share buyback program,” said Mr. Linsdell. “We believe that DOL deserves a premium to the 7-13 times EV/EBITDA range in which the comparables typically trade, but that the current share price and 19.3 times EV/EBITDA FY2 trading multiple already reflects this premium.”
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Macquarie analyst Amy Yong thinks the mobile/digital evolution has set Spotify Technology S.A. (SPOT-N) up for years of growth.
Believing the streaming music company can achieve its 30 to 35-per-cent target margin by 2022 as it balances relationship with labels, Ms. Young initiated coverage with an “outperform” rating and Street-high target price of US$225. The average is US$172.48.
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Possessing “strong” fundamentals, Yangarra Resources Ltd. (YGR-T) should continue to outperform its peers, said Laurentian Bank Securities analyst Todd Kepler, who initiated coverage of the stock with a “buy” rating.
“We believe that as YGR continues to grow production in the concentrated Cardium position and create free cash flow, the stock could realize a market multiple expansion, further enhancing future potential returns,” he said.
Mr. Kepler set a $9 target. The average target on the Street is $7.82.
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Beacon Securities analyst Michael Curran lowered his rating for Dalradian Resources Inc. (DNA-T) in response to its friendly takeover from Orion Mine Finance.
On Wednesday, Dalradian announced it has agreed to an acquisition offer from the New York-based private equity firm, which currently owns a 20.4-per-cent stake, which values the Toronto-based miner at $537-million.
“While the offer represents a material discount to our prior $2.20 per share target price for DNA shares, we believe the offer to represent fair value for DNA shareholders,” said Mr. Curran. “The healthy premium, cash offer, coupled with 30-per-cent lockup we believe will prove difficult for a third party to top. We would also remind shareholders that permitting of the Curraghinalt project is still likely to take another 12-18 months, thus a difficult period for significant re-rating of DNA shares. As a result, we recommend shareholders TENDER to the takeover offer.”
Moving the stock to “tender” from “buy,” Mr. Curran lowered his target to $1.47 from $2.20 to reflect the offer. The average target is currently $2.44.
“We view Dalradian Resources as an attractive play for exploration and development success. Our primary interest relates to the potential we see for the company’s Curraghinalt gold project in Northern Ireland to become a low cost, medium-sized (130Koz/yr) underground gold mine,” he said.
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Verizon Communications Inc. (VZ-N) and Charter Communications (CHTR-Q) “are positioned as long-term leaders in broadband and 5G,” said Goldman Sachs analyst Brett Feldman, who raised his rating for both stocks to “buy” from “neutral.”
““We believe that broad underperformance across the sector has been driven by a few key factors, including concerns about fundamental headwinds, M&A uncertainty and rising interest rates,” said Mr. Feldman. “At a higher level, we believe the pursuit of vertically integrated business models (via levered M&A) by some operators has caused investors to question whether large cap stocks in the telecom and cable sector can outperform while the industry is undergoing such significant transformation.”
The analyst raised his target for Verizon to US$56 from US$51. The average is US$55.77..
His target for Charter rose to US$361 from US$315, versus the consensus of US$383.
“We believe that both operators can drive attractive long-term shareholder returns by sustaining their core focus on connectivity (i.e. building strong pipes),” the analyst said.
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Boralex Inc.’s (BLX-T) $215-million acquisition of interests in five Quebec wind farms “materially increases” its footprint, said Raymond James analyst David Quezada, adding the move, which closed Wednesday, is “reflective of the company’s track record of consistently sourcing accretive transactions.”
In reaction to the deal, Mr. Quezada raised his 2018 and 2019 earnings per share projections to 48 cents and 83 cents, respectively, from 46 cents and $80 cents.
He kept an “outperform” rating and $28.50 target, exceeding the consensus of $26.19.
“In light of the company’s robust growth profile we see excellent value in shares of Boralex at current levels and reiterate it as a top pick among our coverage universe,” he said. “In the same release BLX announced a dividend increased by 5 per cent to 66 cents per share, the second dividend hike in 2018 which equates to a 10-per-cent increase year-to-date.”
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BMO Nesbitt Burns analyst Jenny Ma initiated coverage of five commercial REITs in a research note Thursday.
Based on a proprietary scorecard that emphasized stability, growth, and valuation, Ms. Ma gave “outperform” ratings to:
- Cominar Real Estate Investment Trust (CUF.UN-T) with a $14 target. Consensus is $14.31.
“Cominar’s score is driven primarily by its attractive valuation on a P/NAV basis, its relatively lower AFFO payout ratio, an above-average outlook for SPNOI growth after refocusing operations in its core markets, and its high liquidity,” she said.
- H&R Real Estate Investment Trust (HR-UN-T) with a $24 target. Consensus is $23.97.
“H&R’s score reflects our view that SPNOI and FFO per unit growth should be among the strongest in the group, driven by increasing exposure to U.S. multi-family assets as well as a high-quality office portfolio anchored in Toronto,” she said.
“The REIT is also very attractively valued both on a P/NAV and a P/AFFO basis, has strong financial stability, and is highly liquid.”
Ms. Ma gave “market perform”ratings to the following REITs:
- Artis Real Estate Investment Trust (AX-UN-T) with a $13.50 target. Consensus is $13.88.
“Artis’ score is driven by the expectation of above-average SPNOI growth and FFO per unit growth, a reasonable track record of growth, healthy portfolio balance, and high liquidity,” the analyst said.
- Melcor Real Estate Investment Trust (MR-UN-T) with a $8.50 target. Consensus is $8.63.
“MR.UN’s score reflects a high score for portfolio balance and financial stability, our expectation that its SPNOI growth will come in below the peer average, its average spread between current and historical valuation, an average track record of growth, and its small cap status,” said Ms. Ma.
- PRO Real Estate Investment Trust (PRV-UN-X) with a $2.25 target. Consensus is $2.40.
“PRV.UN’s score reflects a below-average SPNOI growth outlook, higher AFFO payout ratio and leverage relative to peers, its below-average spread between current and historical valuation, and its small-cap status,” she said.
“Partly offsetting these factors is the REIT’s strong FFO per unit growth outlook, driven by the deployment of recently raised funds, and healthy portfolio balance.”
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In other analyst actions:
Goldman Sachs analyst Neil Mehta initiated coverage of MEG Energy Corp. (MEG-T) with a “neutral” rating and $10 target, which is 6 cents below the consensus.
David Leeder