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

CIBC World Markets analyst Paul Holden switched his stance on Canadian banks “from defence to offence” on Thursday.

“Our evolving view on the banking sector is not anchored in the FQ4 outlook, but rather on the prospect that consumer spending and capital investment have been pulled forward based on a Biden victory and availability of a COVID vaccine,” he said. “We are more bullish today on the outlook for loan growth and less concerned about tail risk.”

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In a research report previewing fourth-quarter earnings season for the sector, which is slated to begin in early December, Mr. Holden said he expects similar themes for emerge as the third quarter, pointing to: “ anemic loan growth, NIM compression on excess deposits, lower credit provisions and healthy capital markets results.”

“Overall, our estimates imply that Adjusted EPS will be down 2 per cent on average relative to last quarter,” he said. “We do have earnings increasing for both BNS and TD and that is primarily driven by lower PCLs [provisions for credit losses]/ Similar to Q3, this quarter is another with a high degree of earnings uncertainty and a wide range of analyst estimates.

“We calculate a range in estimates (high to low) of 34 per cent on average. For comparison, Q4/F2019′s range was 6 per cent. Our adjusted EPS estimates are 0.6 per cent below consensus, on average.”

Believing valuation multiples “still have room to run,” Mr. Holden made a series of rating changes on Thursday.

He upgraded Bank of Montreal (BMO-T) to “outperformer” from “neutral” and increased his target for its shares rose to $108 from $95. The average target on the Street is currently $86.05, according to Refinitiv data.

He also raised Toronto-Dominion Bank (TD-T) to “outperformer” from “neutral” with an $80 target, up from $78 and exceeding the $68.11 average.

“Consensus estimates for 2021 look relatively conservative in our view and prone to upward revisions from positive developments either on loan growth or credit provisioning,” he said. “BMO, TD and BNS in particular have estimates that sit well below 2019. We have become more positive on the U.S. outlook and like BMO and TD in particular for the possibility of upward EPS revisions.”

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“The discounted banks have already experienced significant share price appreciation this month. However, we still see a decent valuation gap relative to historical levels. BMO and TD remain attractive on this basis.”

Mr. Holden downgraded National Bank of Canada (NA-T) and Royal Bank of Canada (RY-T) to “neutral” from “outperformer.” His targets remained $85 and $127, respectively, versus the averages of $72.20 and $105.82.

“This is more of a tactical call within our bigger-picture framework, which remains rooted in a lower-for-longer interest rate scenario,” he said.


In response to its rapid share price recovery, Scotia Capital analyst Jeff Fan felt compelled to downgrade Cineplex Inc. (CGX-T) to “sector perform” from “sector outperform” on Thursday.

“CGX shares have more than doubled in just over a month and are up over 50 per cent in the past week alone,” he said. “At the close, the stock is now within 13 per cent of our one-year target price and we believe a Sector Perform rating would be more appropriate.”

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Mr. Fan attributed the increase to recent positive COVID-19 vaccine trial news, which he thinks increases the likelihood of movie theatres re-opening across North America. He also pointed to Cineplex’s six-month convenant extension, announced last Friday, and a better-than-anticipated liquidity position.

“As a reminder, the October pullback was triggered by the delay of expected film releases in October and Q4, index selling, and several analysts’ downgrades,” he said. “The film delays made meeting the Q4/F20 covenants very challenging for CGX. The company successfully negotiated a six-month extension and has done a good job managing cash flow and liquidity.”

He maintained an $11 target for Cineplex shares, which falls 38 cents below the consensus on the Street.

“We believe CGX is managing cash burn well and estimate cash burn will remain $60-million per quarter for Q4 and Q1 before working capital and tax benefits,” said Mr. Fan. “We believe CGX has sufficient liquidity to bridge the next two quarters before the expected return of blockbuster films in April 2021.”


ATB Capital Markets analyst Tim Monachello is now forecasting a “significant” boost in near-term EBITDA for Shawcor Ltd. (SCL-T).

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“In general, we believe SCL’s businesses have turned a corner in terms of both demand (outside of pipe coating) given early signs of a cyclical recovery, in terms of cost structure, and in terms of its balance sheet risk,” he said. “Still, despite our expectation for significant near-term improvements in results, we believe H2/21 results continue to carry significant risk. Specifically, we believe SCL’s current backlog of pipe coating projects could be largely processed through H1/21 and would require meaningful near-term awards to backfill H2/21 PPS revenue. Still, we believe SCL will post strong quarterly results over the coming two quarters at a minimum, and improvements in other segments could be timed well to offset potential declines in the PPS [Pipeline and Pipe Services] segment in H1/21.”

In response to its third-quarter results and management commentary, Mr. Monachello hiked his fourth-quarter adjusted EBITDA forecast to $25-million from $19-million, pointing major pipe coating projects in its backlog.

“Longer-term we adjust our estimates slightly lower based on a more conservative view to pipe coating activity which continues to face delays in project awards,” he said. “Given stronger near-term forecasts we no longer forecast SCL to breach its debt covenants over our forecast horizon which improves our view of its balance sheet risk.”

“Overall, we believe the most pervasive risks to 2021 results are regarding 1) the pace of near-term pipe coating project awards needed to backfill H2/21 pipe coating activity; 2) the pace of improvements in North American onshore activity as a key determinant for SCL’s composite pipe and other base business demand; and 3) the pace of a global economic recovery from COVID-19 which could dictate the pace of AI [Automotive and Industrial] segment results.”

Keeping a “sector perform” rating, Mr. Monachello raised his target to $4 from $3.50. The average on the Street is $3.68.

“Since reporting Q3/20 results on Nov. 12, SCL shares are up roughly 26 per cent outperforming the ATB custom energy services index by roughly 1600 basis points,” he said. “We believe SCL’s strong share performance is largely a result of 1) optimism regarding vaccine-related news which has driven strong performance across the sector; and 2) guidance for significantly improved Q4/20 results.”

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“Overall, we believe SCL shares offer investors a high beta exposure to a potential recovery; that said, we believe its strong performance recently along with uncertainty regarding H2/21 pipe coating activity could limit the upside from current levels.”


After “yet another solid quarter” from Metro Inc. (MRU-T), Scotia Capital analyst Patricia Baker expects the retailer to experience “elevated” sales for at least the remainder of 2020, which she expects to drive “solid” operating leverage and be accretive to the bottom line.

On Wednesday, the Montreal-based company reported adjusted EBITDA for the fourth quarter of $403.5-million, up 25.5 per cent year-over-year and above the projections of both Ms. Baker ($394-million) and the Street ($395-million). Sales rose 7.4 per cent to $4.143.6-billion, also ahead of the analyst’s forecast ($4.124-billion).

“Q4 saw the continued impact of the COVID pandemic on operations with very strong food SSS [same-store sales growth] of 10 per cent and COVID-related costs of $27-million,” said Ms. Baker. “Food retail basket inflation of 2.8 per cent indicates strong year-over-year tonnage trends. The company saw good trends in both conventional and discount banners, noting conventional growing at a faster clip but that the gap has narrowed. MRU also pointed to market share gains in Q4. MRU provided sales trends for the first four weeks of Q1, noting that food SSS were up 11 per cent in the period. On the pharmacy side, front-end sales accelerated sequentially 6.0 per cent, while Rx SSS rose 5.3 per cent. However, MRU noted that in the first four weeks of Q1/F21, front-end sales at PJC were down 3.4 per cent as the impact of a strike at its Varennes DC impacted the business. Rx trends, though, remain positive and were up 3.6 per cent.”

Keeping a “sector outperform” rating, Ms. Baker increased her target for Metro shares by a loonie to $67. The average target on the Street is $63.50.

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Elsewhere, RBC Dominion Securities analyst Irene Nattel raised her target to $68 from $66 with an “outperform” rating, while CIBC’s Mark Petrie moved his target to $63 from $61, keeping a “neutral” recommendation.

“Metro continues to execute with balance and discipline, leveraging elevated demand to above-average earnings growth,” said Mr. Petrie. “Given the volatility and rapid shifts in consumer behaviour, this is no easy feat, and MRU has earned its position as the premium-valued grocer. The company has taken a measured approach to ramping e-commerce but the opening of a dedicated facility highlights flexibility and responsiveness, even amidst uncertainty. We have made numerous adjustments to our model but with minimal net impact.”


Solaris Resources Inc.’s (SLS-X) Warintza project in Ecuador is a “standout in the copper space,” according to Canaccord Genuity analyst Michael Pettingell.

In a research report released Thursday, he initiated coverage of the Vancouver-based junior exploration company, which is a spin-off of Equinox Gold’s assets that began publicly trading in July, with a “speculative buy” recommendation.

“The Warintza project is an emerging high-grade copper porphyry discovery located in the relatively new and largely underexplored Zamora mineral belt,” Mr. Pettingell said.

“While Warintza remains an early-stage discovery, we note that the project shares many of the key features associated with the more established, +/- billion tonne, copper porphyry deposits within the district. Apart from the temporal relationship (all linked to Late Jurassic magmatism), observed similarities include comparable styles of mineralization, alteration and sulphide abundance. While not definitive, we view these as fundamental indicators for a potentially large undiscovered porphyry system within the Zamora Cu-Au belt.”

The analyst also called Warintza “among one of the few unencumbered, non-technically challenged copper projects that is 100 per cent in the hands of a junior company.”

“Furthermore, relative to its peers, Warintza has gained significant exploration momentum on the back of its sizable drill program and impactful news flow,” he said.

Also touting its “tier one sponsorship” and seeing drilling suggesting “Solaris is on the margins of what may develop into an extensive Cu-Mo porphyry system,” Mr. Pettingell set a $6.50 target for Solaris shares. The average is $9.10.


Nexus Real Estate Investment Trust’s (NXR.UN-X) increasing exposure to industrial assets as well as its “healthy” 8.2-per-cent yield and near-term external growth profile “make it an interesting pick in the diversified sector,” according to Desjardins Securities analyst Kyle Stanley.

On Monday after the bell, the Toronto-based REIT reported third-quarter funds from operations per unit of 5 cents, matching the analyst’s expectations, with rent collections rising to 96.8 per cent from 91.9 per cent in the second quarter.

It also announced the $13.8-million acquisition of a 95,000 square foot industrial asset in Balzac, Alta., and its intent to acquire a 50-per-cent interest in a 500,000 square foot property in Ajax, Ont., for $28.5-million and a 95,000 square foot facility in Moncton for $8-million.

After modest increases to his 2020 and 2021 financial expectations, Mr. Stanley moved his target to $2.10 from $2 with a “buy” rating, matching the average on the Street.


After better-than-anticipated third-quarter results and a $196-million equity issuance, Desjardins Securities’ Michael Markidis thinks Summit Industrial Income REIT’s (SMU.UN-T) financial position “has never been stronger.”

“We see this as an excellent position to be in entering the new year. Faster-than-expected capital deployment is a potential catalyst,” he said.

Mr. Markidis said rental growth is a tailwind for the Brampton, Ont.-based REIT despite COVID-19-related obstacles.

“NRI of $34.8-million was negatively impacted by $0.7-million of COVID-19-related provisions (0.5 cents per unit),” he said. “Despite these extraordinary expenses, same-property NOI increased 4.3 per cent during the quarter (up 3.2 per cent year-to-date). Contractual rent steps and increases on renewals (12 per cent/19 per cent in 2019/20) are the key drivers. We see no reason to believe that rent increases will moderate next year. This should enable SMU to continue posting above-average organic growth, even if it experiences some additional churn from tenant failures.”

He also thinks development will become an income drivers going forward, adding: “There is a lot of capital chasing high-quality industrial properties, particularly those with strong-credit tenants and significant lease term. During the conference call, SMU referenced a recent marketed opportunity in Montréal. The process attracted 10 bidders and the property is expected to transact at a sub-4-per-cent cap rate and north of $200 per square foot. Intense competition for assets and low market availability make development that much more important, in our view. Construction is expected to start on four new buildings and one expansion totalling 734,000sf at SMU’s interest.”

Keeping a “buy” recommendation, Mr. Markidis increased his target to $14.25 from $14. The average is $14.06.


In other analyst actions:

* Scotia Capital analyst Mario Saric raised his target for H&R REIT (HR.UN-T) to $14.75 from $13 with a “sector perform” rating. The average target on the Street is $15.39.

“H&R has lagged during the COVID-crisis although we think its recent bounce from the trough can expand as we think the value trade can continue to outperform in the near-term on vaccine momentum,” said Mr. Saric. “We think H&R has avg. NTM NAVPU [next 12-month net asset value per unit] growth potential (4 per cent) but trades at more than double the sector avg. discount to NAV (20 per cent vs. 8 per cent). We feel comfortable building positions in the low-to-mid-$13.00 range.”

* Mr. Saric reduced his target for Minto Apartment REIT (MI.UN-T) to $22 from $22.50, keeping a “sector perform” rating. The average is $23.22.

“We think MI’s higher AFFO [adjusted funds from operations] trading multiple, lower international immigration, and tough furnished suite results may challenge unit price out-performance, but we think 2021 (particularly post-Q1) could see MI recover lost ground on improved per unit growth and broader market shift back to the growth trade (from value),” he said. “We think MI offers a good combo of growth and value but we see slightly better near-term value and slightly better growth potential in select apartment peers.”

* After “another monstrous beat from America’s largest cannabis CPG company,” Echelon Capital Markets analyst Andrew Semple hiked his target for Cresco Labs Inc. (CL-CN) to $14.50 from $10.50 with a “buy” rating, while Eight Capital analyst Graeme Kreindler raised his target to $19.50 from $13. ATB Capital Markets’ Kenric Tyghe raised his target to $14 from $12.50 with an “outperform” rating. The average is $14.57.

“Cresco Labs reported blowout Q320 results that surged past our estimates and consensus with sales up 63 per cent quarter-over-quarter (!!) and EBITDA nearly tripling (up 182 per cent quarter-over-quarter),” said Mr. Semple. “This is the third consecutive quarter with sequential growth exceeding 40 per cent, and we note that growth accelerated in the third quarter. The principal contributors continue to be the core markets of Illinois, Pennsylvania, and California. Cresco’s developing markets also have a bright outlook for the quarters ahead as new production comes online. In addition, there is the potential to see progress towards adult-use legalization in Cresco’s markets such as Pennsylvania and New York in 2021.”

* RBC’s Steve Arthur cut his target for BRP Inc. (DOO-T) to $75 from $78 with a “sector perform” rating. The average is $80.42.

* RBC’s Andrew Wong reduced his target for Ag Growth International Inc. (AFN-T) to $40 from $45, keeping an “outperform” recommendation. The average is $39.07.

* National Bank Financial analyst Tal Woolley raised his target for Extendicare Inc. (EXE-T) to $7 from $6 with a “sector perform” rating. The average is $7.13.

* Canaccord Genuity’s John Bereznicki trimmed his target for Pembina Pipeline Corp. (PPL-T) to $40 from $42 with a “buy” rating. The average is $38.05.

* Eight Capital’s Kevin Krishnaratne trimmed his target for Martello Technolgies Group Inc. (MTLO-X) to 40 cents from 60 cents, which is below the 57-cent average.

* Industrial Alliance Securities’ Frédéric Blondeau raised his target for Plaza Retail REIT (PLZ-UN-T) to $4 from $3.20 with a “hold” rating. The average is $3.79.

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