Inside the Market’s roundup of some of today’s key analyst actions
Tesla Inc. (TSLA-Q) is 'a ‘must own’ stock for investors looking for exposure to ESG, sustainability and disruptive technology trends," according to Baird analyst Ben Kallo.
He raised his rating for the electric vehicle market to “outperform” from “neutral” in the wake of the release of its financial results for what Chief Executive Officer Elon Musk called its "best quarter in history.”
“Tesla’s competitive moat over peers is substantial (and growing, enabled buy rapid capital deployment) and we think it is unlikely traditional OEMs [original equipment manufacturers] will be able to effectively compete over time,” said Mr. Kallo.
He also admitted he was “too early” with a January downgrade, due largely to valuation concerns, noting: “Clearly incorrect, we are now upgrading share as we think TSLA has the substantial access and ability to deploy capital, and has multiple ways to drive substantial revenue growth.”
Mr. Kallo raised his target for Tesla shares to US$488 from US$450. The current average target is US$331.76.
Elsewhere, JMP Securities analyst Joseph Osha raised the stock to “outperform” from “market perform.”
RBC Dominion Securities' Joseph Spak kept an “underperform” rating based on valuation, but he hiked his target to US$339 from US$290.
“Tesla impressed on auto gross margins and FCF generation,” he said. “Good thing, because capex cycle starting (21/22 guidance nearly doubled). But, higher capex a) is needed to deliver on growth expectations and b) could be bad news for competitors.”
Oppenheimer’s Colin Rusch raised his target to US$486 from US$451 with an “outperform” rating.
“With TSLA beginning its full self-driving (FSD) rollout and announcing increased capex due to higher levels of in-sourcing, the company is delivering on promises made several years ago on innovating how vehicles are made and driven,” he said. “We believe the focus on process technology and self-learning services has the potential to help the company extend its current cost advantage versus perrs from a hardware perspective while lowering the expense per vehicle mile traveled (VMT). We are encouraged by improving manufacturing margins and factory throughput, which gives us comfort in raising out-year GM estimates and PT.”
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Seeing the COVID-19 pandemic leading to “prolonged” home improvement demand, Laurentian Bank Securities analyst Mona Nazir upgraded Stella-Jones Inc. (SJ-T) to “buy” from “hold.”
“We have been cautious surrounding continued elevated residential demand, however the prolonged pandemic, coupled with SJ’s servicing ability, economies of scale and M&A upside, cause us to increase our rating,” she said.
Ms. Nazir said her view changed following recent market meetings in Montreal with Stella-Jones President and CEO Éric Vachon and CFO Silvana Travaglini, noting she was “positively surprised” by the upgrade on the company’s operations and outlook.
“After SJ posted 31-per-cent residential growth in Q2/20, we were initially cautious as to growth going forward and potential for 2021 contraction," the analyst said. "With global COVID-19 cases peaking at 432,009 on October 17, general sentiment surrounding the disease has shifted in that emergency measures remain in place in some geographies, work from home arrangements continue and alternative spending plans remain on hold (airline travel down 90 per cent year-over-year). Net/net, ‘residential lumber is not expected to fall off a cliff.’ While the company depleted a significant amount of inventory in Q2, they have been able to meet demand by procuring lumber and are serving Home Depot, on a weekly basis. As the end customer is not price sensitive given the scarcity of material, SJ has been able to put through some price increases. 2021 is expected to be a year for capturing greater market share.”
Also seeing M&A “picking up again,” she raised her target to $52 from $44. The current average is $49.25.
“While we erred on the cautious side, following Q2/20 results and outlook, we are revisiting our estimates following positive marketing discussions and greater visibility into H2/20 and 2021," said Ms. Nazir. " In addition to increasing our H2/20 residential estimates we are also increasing our 2021 figures and taking up our valuation multiple to 16.5 times, from 15 times on the back of recent multiple expansion as investors view SJ as a relatively stable ‘safehaven’."
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Citing improved credit trends, Desjardins Securities analyst Gary Ho raised his financial expectations for goeasy Ltd. (GSY-T) ahead of the release of its third-quarter results, which he expects to be “decent.”
“We see ample room for GSY to penetrate the non-prime space (product launches, geographic expansion and new client segments),” he said.
For the quarter, Mr. Ho is projecting earnings per share of $1.64, rising from a previous forecast of $1.51 but 5 cents below the consensus on the Street. He also raised also increased his full-year 2020 and 2021 estimates to $6.79 and $7.96, respectively, from $6.58 and $7.77.
With those changes, he hiked his target for goeasy shares to $81 from $79, keeping a “buy” rating. The average on the Street is $74.
“Our investment thesis is predicated on: (1) GSY has been able to successfully weather the pandemic and remains well-insulated with its loan protection insurance program; (2) management has shifted its focus more toward offence, suggesting growth through organic initiatives and M&A is likely near-term; and (3) with scale, the business could generate a mid-20-per-cent ROE [return on equity],” the analyst said.
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Prior of the start of third-quarter earnings season for U.S. auto parts suppliers, Citi analyst Itay Michaeli remains constructive on the industry.
“With most auto stocks trading at 2021-22 consensus price-to-earnings that are 40-70 per cent below industrial peers (on global LVP that’s still forecasted to be 10-16 per cent below peak), getting through this downturn in much different fashion than 2008-09 could justify a meaningful re-rating, particularly for companies exposed to compelling end-markets (Pickup Trucks) and accelerating secular trends (ADAS/AV, EV, data),” he said. “We also see a case for a structurally higher U.S. SAAR [seasonally adjusted annual rate] (18 million).”
Mr. Michaeli raised his earnings expectations for several companies in his coverage universe, including Magna International Inc. (MGA-N, MG-T).
For the third quarter, he’s now projecting earnings per share for Magna to US$1.40 from 99 US cents previously, citing “Q3 production, an improved demand outlook and other updated modeling inputs.” His full-year expectation increased to US$2.45 from US$2.03.
Calling it one of his top picks among suppliers, Mr. Michaeli raised his target for Magna shares to US$65 from US$60 with an “outperform” rating (unchanged). The average is US$60.33.
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Mullen Group Ltd. (MTL-T) is “adapting to a pandemic economy,” said Canaccord Genuity analyst John Bereznicki.
On Wednesday after the bell, the Okotoks, Alberta-based trucking and logistics services provider reported third-quarter revenue of $290.9-million, down 11 per cent year-over-year but exceeding the analyst’s estimate by 8 per cent. EBITDA of $65.2-million also topped his expectation ($54.9-million) due largely to benefits from the Canada Emergency Wage Subsidy.
“In our view, Mullen’s Q3/20 EBITDA beat was nonetheless driven primarily by its Specialized & Industrial Services (SIS) segment, which realized $6.3-million in CEWS while experiencing solid large-diameter pipeline and civil construction activity in the quarter,” said Mr. Bereznicki.
“We believe Mullen has adroitly navigated the current downturn, with Q3/20 EBITDA (net of CEWS) essentially in line with prior year (pre pandemic) levels. With shares of Mullen also trading at pre-COVID levels we remain on the sidelines, particularly with much of Western Canada still struggling through a severe oil price downturn.”
Keeping a “hold” rating, he raised his target to $10.50 from $10. The average is $11.02.
Elsewhere, National Bank Financial’s Michael Robertson raised his target to $11.75 from $11 with an “outperform” rating, while TD Securities' Aaron MacNeil moved his target to $14 from $13 with a “buy” recommendation.
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Desjardins Securities analyst David Newman expects Premium Brands Holdings Corp. (PBH-T) to deliver “strong” third-quarter results.
“We are looking for 3Q EBITDA of $87-million (vs consensus of $81-million) given a strong recovery across most channels (sandwich in QSRs, including Starbucks; meat snacks, premium and dry cured meats, and seafood in retail) and various initiatives gaining momentum, especially in retail, as well as previous acquisitions and more benign commodity costs (retail protein and seafood),” he said.
In a research report released Thursday, Mr. Newman also examined an Oct. 5 Globe and Mail report that said Premium Brands is a leading contender to acquire Clearwater Seafoods Inc. (CLR-T), suggesting it doesn’t fit “the typical profile” of a Premium Brands deal but emphasized “there are clearly some strategic benefits.”
“While a large potential deal ($1-billion), there are many ways to skin a fish, with PBH likely more interested in CLR’s processing and logistics operations vs harvesting (21 vessels), largely to lower its ongoing capex requirements and commodity-related volatility,” the analyst said. “Instead, we believe PBH could potentially partner with others, eg First Nations, for the harvesting assets. CLR could enable PBH to swim further upstream, leverage its growing distribution network, exceed its five-year seafood target ($1-billion in sales), enhance margins and drive synergies. Depending on the debt/equity split, the acquisition could be accretive by 7–17 per cent, and 7–10 points higher with synergies, by our estimate.”
After raising his 2020 and 2021 adjusted earnings per share projections to $2.85 and $3.97, respectively, from $2.72 and $3.79, Mr. Newman hiked his target for Premium Brands shares to $118 from $108, keeping a “buy” rating. The average on the Street is $109.11.
“Our Buy rating on PBH is premised on its ongoing resilience, as showcased during the pandemic, the recharged momentum of its recently launched programs, a cornucopia of growth opportunities across various channels, the benefit from recent and potential acquisitions, and a more benign commodity environment,” he said.
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CIBC World Markets analyst Todd Coupland raised his financial expectations for Shopify Inc. (SHOP-N/SHOP-T) ahead of its Oct. 19 release, seeing a “good” quarter for the Ottawa-based firm.
“It was a strong quarter for e-commerce, including for Shopify and its merchants,” he said. “During the summer, the COVID-19 pandemic continued to pull-forward online purchasing that positively impacted Shopify and the over one million merchants on its platform. We recommend that investors hold Shopify into this quarterly report.”
The analyst now expects third-quarter revenue of US$652-million, up 67 per cent year-over-year and his previous estimate of US$609-million. His earnings per share projection rose to 38 US cents from 18 US cents. Both forecasts fall short of the consensus on the Street (US$655-million and 49 US cents, respectively).
“Our raised revenue forecast reflects growth over the summer,” he said. “Our EPS estimate is lower than [the consensus] due to lower gross margins and higher opex relating to investments in [Shopify Fulfillment Network].”
Maintaining a “neutral” rating for Shopify shares, Mr. Coupland hiked his target to US$1,175 from US$1,160. The current average is US$1,113.68.
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Goldman Sachs analyst Heath Terry continues to see Peloton Interactive Inc. (PTON-Q) as compelling over the long-term.
However, in a research note released Thursday, he expressed concern over the its current valuation, noting its share price has jumped 458 per cent since being added to the firm’s “Americas Buy List” in October of 2019, and sees also potential obstacles stemming from increased shipping delays at the Port of Los Angeles.
“These issues highlight the degree to which Peloton’s fulfillment operation has been pushed due to the continuously high levels of demand the company has seen since the beginning of the pandemic,” he said.
Mr. Terry downgraded his rating for Peloton to “neutral” from “buy” with a US$140 target, up from US$138 and above the US$120.54 average.
“While we continue to believe in the long term opportunity at Peloton and expect that the current pandemic will continue to both accelerate and steepen the adoption curve for the company’s leading connected fitness products, with recent outperformance the stock has essentially reached our prior price target of $138 ahead of our expected timeline, suggesting much of the near term opportunity is priced in,” the analyst said.
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Scotia Capital analyst Michael Doumet sees “reasons to be constructive” on TSX-listed heavy equipment deals ahead of earnings season.
“Not unlike Q2, we expect the trend of month-to-month improvements to repeat in Q3,” he said. “Unlike Q2, however, earnings should be much better. For the most part, we envision a ‘swoosh’ shaped recovery, with investors positively surprised by Q3 exit rates, and dealer earnings approximating pre-COVID levels by sometime in mid- to late 2021. The more diversified economies of Central and Eastern Canada are providing a healthier backdrop as infrastructure and non-residential construction activity appears to have rebounded relatively quickly following the economic lockdowns. Certain economic restrictions related to the second wave pose a risk, although not nearly to the extent of the first. In the West the recovery is lagging. Oil sands production recovered more slowly than expected through Q3 and we believe regional construction activity will remain soft for a few quarters (cost actions will be in focus). For Finning, Chile appears to be an area of upside risk (particularly in 2021), but in the near term, focus remains on the outcome of the country’s constitutional vote.”
He hiked his target for shares of Toromont Industries Ltd. (TIH-T, “sector perform”) to $85 from $73. The current average is $80.21.
Mr. Doumet also raised his target for Wajax Corp. (WJX-T, “sector perform”) to $15 from $14, topping the $13.75 average.
He maintained his “sector outperform” rating and $25 target for Finning International Inc. (FTT-T). The average is $22.94.
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In other analyst actions:
* TD Securities analyst Daryl Young initiated coverage of Colliers International Group Inc. (CIGI-Q, CIGI-T) with a “buy” rating and US$80 target. The average is US$77.67.
* Scotia’s George Doumet increased his target for FirstService Corp. (FSV-Q, FSV-T) to US$125 from US$108. The average is US$125.17.
“We are raising our 2H/20 estimates to account for a stronger- than-expected storm season and are now looking for Q3/20 revenues of $726-million, Adj. EBITDA of $81.2-million and EPS of $1.04. This compares to current consensus of $688-million, $78.1-million and $0.89, respectively. We would expect this higher restoration activity (coupled with strong momentum in homespending) to lead to FSV coming in modestly ahead of their 2020 goalposts of: (i) consolidated revenues marginally exceeding 2019 levels and (ii) EBITDA margins to be largely in line with the prior year," said Mr. Doumet.
* CIBC’s Mark Petrie raised his Canadian Tire Corporation Ltd. (CTC.A-T, “outperformer”) target to $162 from $141. The average is $145.20.
“We are increasing our Q3 EPS forecast to $3.94 (from $3.50), driven by continued retail momentum at the main CTR banner, further boosted by dealer restocking following a conservative Q2," he said. "We view the spend-on-thehome trend as ongoing, and expect revenues to exceed retail sales in the coming periods, driving growth despite a difficult economic backdrop.”
* National Bank Financial analyst Rupert Merer increased his target for Lithium Americans Corp. (LAC-N, LAC-T) to US$12.50 from US$10. The average is US$10.33.
* Jefferies analyst Owen Bennett lowered his target for Aphria Inc. (APHA-T, “buy”) to $9.42 from $10. The average is $9.08.
* RBC Dominion Securities analyst Steve Arthur raised his Neo Performance Materials Inc. (NEO-T, “sector perform”) target to $13 from $11, exceeding the $11.42 consensus.
* Fundamental Research analyst Sid Rajeev initiated coverage of Tartisan Nickel Corp. (TN-CN) with a “buy” rating and fair value of 57 cents.
David Leeder