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

Though it reported “solid” underlying third-quarter financial results, Raymond James analyst Frederic Bastien downgraded Brookfield Renewable Partners L.P. (BEP-N, BEP.UN-T) on Thursday, expressing concern about its “valuation run up.”

“We rank BEP as a preeminent renewables franchise and are confident it will play a critical role in helping the world meet its ambitious decarbonization goals,” he said in a research note. “But when a stock goes up exponentially over a relatively short period, one has to recognize it may have gotten ahead of itself, no matter how hot its end market. That’s how we feel about Brookfield Renewable, which has appreciated an extraordinary 129 per cent since our March 24 upgrade (versus a gain of 41 per cent for the S&P 500). Accordingly, we believe it is prudent to move to the sidelines, lower our rating to Market Perform, and wait for a better risk-reward profile before supporting the units again.”

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On Wednesday, Brookfield Renewable reported third-quarter funds from operations of US$157-million, below both the estimates of Mr. Bastin and the Street ($164-million and $168-million, respectively). However, he noted the variance came as a result of the management fee paid to Brookfield doubling year-over-year.

“On a per unit basis, FFO of $0.38 compared unfavourably to our $0.39 target and the analysts' average forecast of $0.42 (the larger variance to consensus likely had something to do with different unit counts used in the wake of the TERP privatization and the BEPC split),” he added. “Versus our expectations, BEP did better in Solar and worse in Hydro.”

Moving its stock to “market perform” from “outperform,” Mr. Bastien hiked his target to US$56 from US$48. The average on the Street is US$52.55.

Elsewhere, though he sees its valuation as elevated relative to historical levels, RBC Dominion Securities analyst Nelson Ng thinks Brookfield Renewable remains a core holding in the renewable sector, seeing it make “good strides opening up new areas to deploy capital (e.g., Poland and India) and growing its global development pipeline.”

Keeping a “sector perform” rating for Brookfield shares, he hiked his target to US$60 from US$47.

“The increase reflects a higher multiple on existing assets and a higher value for the company’s growth platform given the company’s track record of deploying capital at attractive returns,” said Mr. Ng.


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In the wake of the release of “strong” third-quarter results, ATB Capital Markets analyst Tim Monachello upgraded PHX Energy Services Corp. (PHX-T) to “outperform” from a “sector perform” recommendation on Thursday, seeing its ability to generate free cash as a validation of its “defensive” business model.

After the bell on Wednesday, the Calgary-based company reported adjusted earnings before interest, taxes, depreciation and amortization, after one-time items, of $4.8-million, exceeding both the estimates of both Mr. Monachello and the Street ($3.3-million and $2.6-million, respectively).

“The beat versus our estimate was largely a result of stronger activity and activity mix in PHX’s U.S. operations, where its market share grew to a new high-water mark at roughly 8.5 per cent (ATB calculation), up from 6.6 per cent in Q2/20, and 4.8 per cent on average in 2019,” he said. “In our view, the resiliency of PHX’s U.S. operations through the downcycle is a testament to the quality of its high-performance fleet, and an indication of its strong competitive positioning. Our formal estimates include a normalization in market share as industry activity rebounds through 2022, though this may prove conservative.”

Mr. Monachello estimates PHX generated $2.9-million in free cash flow after adjusting for capital spending differences and the Canadian Emergency Wage Subsidy, which also topped his expectation ($1.7-million),

“More importantly, PHX continues to generate free cash flow even in an historically challenging activity downturn and we believe as activity rebounds its free cash generation should continue to improve,” he said. “Moving forward, we anticipate PHX will likely allocate free cash to share repurchases , fund working capital investment in an upturn scenario, selectively add high-performance equipment to its fleet including large diameter motors, and grow cash balances.”

The analyst raised his target for PHX shares to $2.50 from $2. The average is $1.83.

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“Moving forward, our formal view is that North American activity is likely to chart a path of steady and measured activity gains through 2022,” said Mr. Monachello. “Under this scenario, we believe PHX is well positioned for potential organic high-performance fleet additions. In the event that a recovery is more modest or prolonged than we have forecasted, PHX has shown its ability to generate free cash at historically low activity levels which should allow it to continue to grow its cash position until a recovery takes hold. This strong positioning is paired against attractive valuation metrics.”


After raising his financial expectations for both the fourth quarter and fiscal 2020, Industrial Alliance Securities analyst Elias Foscolos upgraded Pason Systems Inc. (PSI-T), saying he’s “moving off the sidelines on positive trends in drilling activity.”

On Wednesday, the company reported third-quarter revenue of $23-million, down 68 per cent year-over-year but exceeding Mr. Foscolos’s $21-million estimate. An adjusted EBITDA loss of $1-million also topped his expectation (a $3-million deficit).

“PSI noted in its commentary the recent rebound that has been occurring in North American drilling, indicating that the worst is likely behind,” the analyst said. “This is consistent with our prior expectations. In fact, the recovery over the past several weeks has been sharper than we had anticipated as U.S. land rigs jumped by 36 in October.”

“While recent momentum is encouraging, there are numerous macro economic risk factors could put downward pressure on continued recovery including renewed COVID-19-related economic restrictions and likely a less favourable political/regulatory environment under a potential Biden administration. Low oil prices and capital markets sentiment remain barriers to meaningful industry growth as well.”

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Mr. Foscolos raised his target for Pason shares by a loonie to $7. The average on the Street is $7.33.


Canaccord Genuity analyst Yuri Lynk thinks “swift action” by Finning International Inc. (FTT-T) resulted in a “nice” quarter-over-quarter improvement in its results.

On Wednesday, the Vancouver-based Caterpillar dealer reported adjusted earnings per share for the third quarter of 37 cents, up 25 per cent year-over-year and easily exceeding the estimates of both Mr. Lynk (22 cents) and the Street (25 cents).

“Net revenue of $1.4 billion declined 21 per cent year-over-year, in line with our forecast,” he said. “The year-over-year revenue reduction reflects a sharp decline in new equipment sales due to COVID-19 and weak oil prices, particularly in Canada, partially offset by more resilient product support sales. The mix shift toward product support as well as operational efficiencies (especially having the right inventory on hand) drove gross margin 170 basis points higher year-over-year, to 27.0 per cent, versus our 25.6-per-cent estimate. Furthermore, Finning’s $100-million in annualized cost savings plan implemented last quarter lowered SG&A expense by 13 per cent year-over-year, to $289-million.”

Noting management expects higher earnings on “modestly” lower revenues versus a year ago in the fourth quarter and increased profitability in 2021, Mr. Lynk raised his 2020, 2021 and 2022 EPS projections to $1.20, $1.65 and $1.83, respectively, from 98 cents, $1.48 and $1.75.

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Keeping a “buy” rating for Finning shares, he hiked his target to $27 from $25. The average is $24.63.

“Finning is well positioned to deliver 38-per-cent EPS growth in 2021 accompanied by positive FCF with pre-tax ROIC recovering to the mid-teens,” he said. “We like the company’s exposure to (1) the accelerating adoption of autonomy, (2) pent-up demand for higher-margin parts and service driven by an aged mining fleet, and (4) long-term opportunities in infrastructure.”

Meanwhile, other analysts raising their targets included:

* National Bank Financial analyst Maxim Sytchev raised to $26 from $23 with an “outperform” rating.

“Despite [Wednesday’s] diverging share performance (FTT up 14 per cent and CAT down 6 per cent), FTT’s valuation discount vs. CAT remains at an elevated level,” he said. “As both companies are joint at the hip given the OEM/dealer relationship and generally correlated EPS (recovery) directionality, we believe there is impending upside in FTT’s multiple expansion.”

* Scotia Capital’s Michael Doumet increased his target to $27 from $25 with a “sector outperform” recommendation.

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After a third-quarter “mega-beat,” Desjardins Securities analyst David Newman sees Parkland Corp. (PKI-T) shifting “into overdrive with a trunk full of cash.”

On Wednesday, the Calgary-based fuelling company reported EBITDA for the quarter of $338-million, easily exceeding both Mr. Newman’s $279-million estimate and the $276-million consensus projection. He attributed the difference to “robust” fuel margins, “strong” same-store sales growth for its convenience stories, new business and market share wins and a high utilization rate at its Burnaby refinery.

Looking ahead, Mr. Newman sees Parkland possessing “a solid balance sheet to smooth out any bumps on the road to recovery” and sees it “flush” with liquidity of $1.6-billion, which he thinks should “enable it to execute on a pipeline of organic growth and M&A opportunities.”

Hiking his 2020 and 2021 financial expectations, he also increased his target for Parkland shares to $46 from $44 with a “buy” rating. The average is $46.50.

“Stellar 3Q results serve to highlight PKI’s ability to mitigate COVID-19′s demand destruction, gain market share and effectively manage margins through sustainable cost reductions,” he said. “In our view, it is well-positioned to invest in organic growth and M&A given its strong liquidity position and robust cash flow.”

Elsewhere, Raymond James' Steve Hansen increased his target to $50 from $48.50 with a “strong buy” rating.

“We are increasing our target price ... based upon Parkland Fuel’s solid 3Q20 print and our broader constructive view of the firm’s improving macro fundamentals, evolving retail strategy (including a compelling new loyalty program), and long-term growth opportunities (both organic & acquisitive),” said Mr. Hansen.

ATB Capital Markets' Nate Heywood moved his target to $46 from $44 with an “outperform” rating.


Ahead of the Nov. 10 release of its third-quarter financial results, Canaccord Genuity analyst Derek Dley continued to reduce his projections for Great Canadian Gaming Corp. (GC-T) as pandemic-related casino closures continue to weigh on its earnings.

“GC’s asset base across Canada remained closed for virtually all of Q3/20, with the exception of the company’s 11 Ontario properties that reopened on September 28,” he said. "Accordingly, we expect the only revenue recognized by GC in Q3/20 will be the service provider fees paid to the company from the OLG, which amounts to $36-million per quarter. This is significantly less than the $63-million the company generated in Q2/20 largely due to $24-million associated with a permitted capital expenditure reimbursement received in that quarter, a payment which we note occurs only in the second quarter of each fiscal year.

“Further, we expect that GC’s cost profile will remain largely unchanged from Q2/20, where the company recorded $12-million in human resources and expenses and $20-million in property, marketing and administration costs in a period where GC’s asset base was closed for the entire quarter. That said, the company finished Q2/20 with $1.6-billion in total liquidity, leaving it well positioned to withstand closures across its network for the foreseeable future, in our view.”

Mr. Dley is now forecasting revenue for the quarter of $36-million, below the consensus on the Street of $43-million and dropping from $341-million during the same period a year ago. He’s also projecting an EBITDA loss of $0.4-million, versus the consensus of an $8-million profit.

Keeping a “buy” rating for its shares, he trimmed his target to $27 from $32. The average is $31.25.

“Despite near-term COVID-19 headwinds, we believe Great Canadian can drive incremental EBITDA out of the Ontario bundles through its robust development plans and historically attractive return on capital. ,” the analyst said. “Meanwhile, the company boasts a collection of well-positioned, highly profitable casino properties, which are likely to demonstrate stable revenue and EBITDA growth that can be accelerated through renovation and expansion initiatives over the course of our forecast period.”


A series of equity analysts raised their target prices for shares of IA Financial Corp. (IAG-T) in reaction to the release of better-than-anticipated quarterly results on Wednesday.

Those making changes included:

* Desjardins Securities' Doug Young to $57 from $55 with a “buy” rating. The average is $60.

“We like IAG’s outlook and we believe its valuation fully reflects various concerns, including a lower relative LICAT ratio vs peers and integration risk with [IAS Parent Holdings Inc.],,” he said.

* Canaccord Genuity’s Scott Chan to $59 from $56 with a “buy” rating.

“We increased our 2021 EPS forecast by 3 per cent (e.g. from expected profit), but there are still more questions on the acquisition of IAS,” he said.

* National Bank’s Gabriel Dechaine to $60 from $54 with an “outperform” rating

* Scotia Capital’s Meny Grauman to $66 from $64 with a “sector outperform” recommendation.


Tourmaline Oil Corp. (TOU-T) is “delivering on all fronts,” said Canaccord Genuity analyst Anthony Petrucci following Wednesday’s release of better-than-expected third-quarter results, a dividend increase and the announcement of the acquisition of two rival gas producers for $526-million.

“TOU posted a solid Q3, with cash flow ahead of analyst expectations,” he said. "Of greater significance, however, were the sizable acquisitions announced by the company, that together included 76,000 barrels of oil equivalent per day of production (25 per cent of TOU’s Q3 production level). On the back of the acquisitions, the Q3 cash flow beat, and the guidance provided for next year, our CFPS estimates increase by 19 per cent in 2021.

“TOU purchased Jupiter Resources Inc. and Modern Resources Inc. for a total cost of $770-million, suggesting a purchase price of $10,100/boe. In turn, TOU sold a GORR on the purchased properties to Topaz for $130-million at 10 times cash flow, lowering the ultimate purchase price further.”

Tourmaline also announced a 17-per-cent dividend increase to 14 cents per quarter (or 56 cents annually), which Mr. Petrucci said suggests a yield on its current share price of 3.3 per cent.

Keeping a “buy” rating for its shares, he raised his target to $24 from $21. Consensus is $25.92.

“We believe TOU remains undervalued at these levels, particularly considering its increasing production profile (23 per cent per share in 2021), the free cash flow generation, and the healthy dividend,” said Mr. Petrucci. “In addition, we believe the company is likely to remain active in the acquisition market, potentially further enhancing value.”

Elsewhere, National Bank Financial’s Dan Payne raised his target to $32.50 from $30, while BMO Nesbitt Burns' Randy Ollenberger moved his target to $25 from $21 with an “outperform” recommendation. ATB Capital Markets' Patrick O’Rourke hiked his target to $25 from $22 with an “outperform” rating.

Raymond James' Chris Cox increased his target to $25 from $23 with an “outperform” rating.

Mr. Cox said: “A very strong quarter for TOU, though it takes a considerable back seat to the concurrent acquisitions of Jupiter and Modern Resources and related GORR drop-down to Topaz. The transactions are immediately accretive on virtually all relevant metrics, though the more significant upside will be realized in 2022+ as the Company ramps-up production on the acquired lands and fully captures what could be some significant synergies (particularly on D&C costs). The transactions also provide a significant proof of concept for TOU in regards to the recent Topaz IPO and the potential for Tourmaline to benefit from further attractive M&A opportunities in the sector today.”


In other analyst actions:

* Canaccord Genuity analyst Kevin MacKenzie raised Great Bear Resources Ltd. (GBR-X) to “speculative buy” from “hold” with a $23 target, up from $17.25. The current average is $22.25.

* Scotia Capital analyst Phil Hardie increased his target for Intact Financial Corp. (IFC-T) shares to $166 from $161 with a “sector outperform” rating, while Desjardins Securities' Doug Young moved his target to $155 from $146 with a “hold” rating. CIBC World Markets' Paul Holden moved his target to $160 from $155 with a “neutral” rating. The average is $161.85.

“Our biggest hang-ups are Canadian personal auto and valuation (2.7 times BV ex AOCI),” said Mr. Young. “That said, IFC has a high-quality management team, low correlation to equity markets and successful acquisition track record.”

* Scotia’s Mr. Hardie also raised his target for Equitable Group Inc. (EQB-T) to $107 from $94 with a “sector perform” rating, while Raymond James' Stephen Boland hiked his target to $104 from $89.75 with a “market perform” rating. The average is $106.14.

“Market conditions are improving gradually though management remains cautious on the outlook for housing,” said Mr. Boland. “4Q20 growth is expected to be modest. Overall, on the conference call, management seemed cautiously optimistic regarding the remainder of the year but the focus seems to be

turning to 2021. We look to potential higher earnings growth returns which could push the market valuation to a premium to book value. Maintain Market Perform rating. As a reminder we are heading into the slower housing selling season.”

* Desjardins Securities analyst Gary Ho increased his target for goeasy Ltd. (GSY-T) to $89 from $81, keeping a “buy” rating, while BMO Nesbitt Burns' Etienne Ricard raised his target to $82 from $71 with an “outperform” recommendation. The average is $82.43..

“GSY reported impressive 3Q results. 4Q guidance also met or exceeded our expectations, and the launch of its securitized funding facility should lower its cost of capital. Several growth initiatives underway should complement loan book growth looking out (including its direct-to-consumer auto loan,” said Mr. Ho.

* Cormark Securities analyst David Ocampo increased his target for Cargojet Inc. (CJT-T, “market perform”) to $255 from $200. The average is $261.85.

* Raymond James analyst Andrew Bradford increased his target for STEP Energy Services Ltd. (STEP-T) to 45 cents from 40 cents with a “market perform” rating. The average is currently 55 cents.

“STEP showed the impact of operating leverage in the Canadian fracturing market in 3Q. STEP posted eye-popping headline EBITDA margins of 38 per cent in its Canadian segment during the quarter. After adjusting for CEWS, corporate costs, and expensed fluid ends, margins were still 23 per cent - matching margins that STEP would expect to see at 3 to 4 times the revenue in prior years. The high margins at historically low levels of activity and revenue underscores the potential for Canadian completions companies to generate healthy levels of EBITDA in a slow oilfield.”

* Haywood Securities analyst Christopher Jones initiated coverage of ReconAfrica Ltd. (RECO-X) with a “buy” rating and $2.50 target.

“ReconAfrica is set and funded to de-risk a potentially material resource play onshore Namibia and Botswana with 1,348 mmbbls/58.1 Tcf best estimate prospective recoverable resource (gross),” he said. “We recommend accumulating a position ahead of drilling/evaluation news flow in H1/21 aimed at proving up the presence of a working hydrocarbon system, which if confirmed, should provide abundant opportunities for further exploration and appraisal drilling. On a successful discovery, attractive fiscal terms should help to facilitate development of the basin, thereby increasing the chance commercialization and shareholder value.”

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