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

Raymond James analyst Daryl Swetlishoff hiked his 2021 commodity forecasts for forest products on Thursday, pointing to “unseasonably strong” markets and a bullish homebuilding outlook.

In a research noted titled Santa Claus Rally Sparks Earnings Revisions, he declared a lumber “super-cycle is here.”

“Following a record 3Q20 bull-run, building materials prices normalized seasonally,” he said. “However, both lumber and structural panels bottomed last month 80-90 per cent above historic trough levels. Over the past two weeks, despite a seasonally weak time of year, building materials have staged a ‘Santa Claus’ rally with Jan. 2021 lumber futures surging over US$750 per thousand board feet [mfbm] (up 25 per cent). Similarly, both SYP lumber and OSB panels have rallied off of seasonal lows.

“Looking ahead, Raymond James & Associates homebuilding analyst Buck Horne remains very bullish on the 2021 macro setup which bodes well for end use demand . Accordingly, we are upping our 2021 commodity price forecasts to US$500/mfbm for SPF lumber (from US$430), US$500 for SYP lumber (from US$450) and US$350/msf for OSB (from US$300). We highlight that our forecasts are conservative relative to the US$540 SPF 4Q20 lumber trough and current US$700 SPF cash lumber price.”

Mr. Swetlishoff noted share prices for building materials companies continue to rise, however he thinks they continue to discount “very strong” cash flows.

Accordingly, he upgraded Canfor Corp. (CFP-T) and West Fraser Timber Co. Ltd. (WFT-T) to “strong buy” from an “outperform” recommendation, joining Interfor Corp. (IFP-T) at that level.

“[We] encourage investors to add to all building materials producers including Outperform rated Acadian, Conifex and Western Forest. With a strong correlation to GDP, COVID19 has been a headwind to pulp & paper markets. However, we are optimistic we could see pulp markets tighten in 2021 and continue to rate Canfor Pulp and Mercer Outperform,” he said.

“On the heels of record 3Q20 cash flows, the 4Q20 promises to be nearly as strong. What’s more, with lean inventories and producers sold out into the New Year, 1Q21 is shaping up to be exceptional as well. With good visibility on 4Q20 and 1Q21 FCF, we have elected to factor this into our valuation which results in a boost to target prices. We highlight value inherent in the stocks trading at attractive multiples ranging between 3.4 times and 4.8 times 2021 EV/EBITDA. Based on our estimates, net debt levels are evaporating leaving companies such as Interfor with negligible net debt by year-end 2020 with most others hitting this milestone during 2021. We expect use of cash will be the hot topic for 2021 – an enviable issue to have.”

Mr. Swetlishoff made the following target price changes:

  • Canfor Corp. (CFP-T, “strong buy”) to $35 from $26.50. The average on the Street is $24.58.
  • Conifex Timber Inc. (CFF-T, “outperform”) to $2.25 from $1.75. Average: $1.78.
  • Interfor Corp. (IFP-T, “strong buy”) to $35 from $26. Average: $23.67.
  • Western Forest Products Inc. (WEF-T, “outperform”) to $1.50 from $1.40. Average: $1.18.
  • West Fraser Timber Co. Ltd. (WFT-T, “strong buy”) to $115 from $95. Average: $87.67.
  • Canfor Pulp Products Inc. (CFX-T, “outperform”) to $9.50 from $8. Average: $6.20.
  • Domtar Corp. (UFS-N/UFS-T, “market perform”) to US$32 from US$28. Average: US$32.75.


Seeing a valuation gap to its peers and blaming tax-loss selling for the recent performance of its stock, CIBC World Markets analyst Robert Bek upgraded Spin Master Corp. (TOY-T) to “outperformer” from “neutral” on Thursday.

“Recent share weakness is the impetus, as a widening valuation gap versus peers has reached excessive levels, in our opinion,” he said.

“Shares have recovered significantly in the past few months, after closing at $10 in mid-March. However, year-to-date performance still stands at a loss of 27 per cent. We suspect that the recent stock weakness, in the face of improving tone, is likely related to tax loss selling into the year-end. Given no change in fundamental views, we believe this represents a strong entry point for investors.”

Despite the uneven share performance, Mr. Bek sees the fundamentals for the Toronto-based toymaker remaining “solid.”

“We adjusted our estimates following the Q3 earnings release to account for positive developments in supply chain and inventory management,” he said. “The outlook and fundamentals for the company remain solid and supported by strong consumer demand, resilient amidst economic turmoil. We remain positive on the name.

“Recently, the extension of a partnership with Warner Bros to produce toys from Harry Potter and Fantastic Beasts is incremental to our positive view on Spin Master’s developed brands and robust pipe of intellectual properties. We also see the recent success of The Queen’s Gambit and reinvigorated interest towards chess and board games as positive to the toy industry, as noted in recent press reports. As a reminder, the long-awaited Paw Patrol movie is expected in August 2021, and should further help strengthen that key brand.”

Seeing its valuation as “attractive,” he maintained a $35 target. The current average on the Street is $32.05.

“The FY21 EV/EBITDA gap versus segment leader Hasbro is close to its historically widest point,” said Mr. Bek. “It is excessive, in our view, and does not reflect the improving fundamentals of Spin Master, supply chain improvements, and Hatchimals’ unwind completion to-date, all variables that weighed on shares in the past year, but should now argue for improving valuations versus Hasbro.”

“We continue to view Spin Master as an attractive investment, and see this as a strong entry point for investors. As COVID revenue pressures continue to reverse, and pre-FY19 margin levels are again in sight, the story is well-positioned to recover further ground lost over the last year. From current levels, this is an attractive opportunity.”


The Street applauded Dollarama Inc.’s (DOL-T) better-than-expected third-quarter results and dividend raise on Thursday with a group of equity analysts raising their target prices for the Montreal-based discount retailer’s shares.

Before the bell on Wednesday, it reported revenue of $1.064-billion, up 12.3 per cent year-over-year and exceeding the consensus estimate of $995-million. Earnings per share of 52 cents also topped the Street’s projection (44 cents, which was in line with last year’s result).

The company also increased its quarterly dividend to 4.7 cents per share from 4.4 cents.

“Despite the potential of more disruptions in Q4, Dollarama has confirmed its ability to manage a difficult environment and to remain relevant to its shoppers,” said Industrial Alliance Securities analyst Neil Linsdell. “DOL should be a core retail holding. We remain cautiously optimistic in the short- term and even more so in the long-term.”

Mr. Linsdell raised his target for Dollarama shares to $59 from $56, maintaining a “buy” rating. The current average on the Street is $57.85, according to Refinitiv data.

“Seasonal/Halloween sales were a positive surprise in Q3 and bode well for the all-important holiday shopping over the next few weeks as Q4 is typically the seasonally strongest quarter,” he said.

Other analysts raising their targets included:

* Desjardins Securities’ Chris Li to $61 from $55 with a “hold” rating.

“Since there are many moving parts, we take a closer look at the sales and margin drivers for next year. Following the recent strong share price performance, expectations have been raised and we prefer to wait for a more attractive entry point to build a position,” said Mr. Li.

* Canaccord Genuity’s Derek Dley to $54 from $50 with a “hold” rating.

“While we still believe in Dollarama’s long-term growth profile – a result of its lack of meaningful competition, industry-leading profitability and free cash flow generation, and healthy ROIC – we believe the shares are fully priced at current levels,” said Mr. Dley.

* Scotia Capital’s Patricia Baker to $62 from $54 with a “sector outperform” rating.

* CIBC’s Mark Petrie to $58 from $55 with a “neutral” rating.

“The outlook for modest price inflation has likely improved though we see this as cost-driven as opposed to a market opportunity, and so do not expect it to lead to a re-acceleration of earnings growth. DOL fits today’s market and consumer dynamics well, but we believe this is largely reflected in the current valuation.,” said Mr. Petrie.

* TD Securities’ Brian Morrison to $66 from $60 with a “buy” rating.

* National Bank Financial’s Vishal Shreehar to $61 from $57 with an “outperform” rating.

* BMO Nesbitt Burns’ Peter Sklar to $59 from $52 with a “market perform” rating.


The quarterly earnings report from Roots Corp. (ROOT-T) also drew a positive response from the equity analysts covering the Toronto-based clothing retailer.

On Wednesday, it reported sales of $72.9-million, down 15.5 per cent year-over-year but in line with the consensus forecast of $73.1-million and benefitting from a 40-per-cent jump in e-commerce sales. Adjusted EBITDA, excluding rent abatements and benefits from the Canada Emergency Wage Subsidy, came in at $11.3-million, exceeding the Street’s $9.5-million expectation.

“Roots experienced a sequential improvement in foot traffic in Q3, and also benefited from year-over-year improvement in conversion rates and average basket size,” said RBC Dominion Securities’ Sabahat Khan. “However, as a result of the recent provincial restrictions (in Manitoba and Toronto & Peel regions in Ontario), Roots has shifted store operations to curbside pick-up and e-commerce fulfillment at 23 corporate-owned stores and two popup locations (as of November 12 in Manitoba and November 23 in Toronto & Peel regions). These restrictions are expected to be in place for at least four weeks.

“Although we expect some impact on Q4 sales following the recent restrictions, the ... strength in e-commerce (combined with curbside pickup) should help mitigate the potential impact.”

Moving forward, Mr. Khan said he’s “keeping an eye” on Roots’ inventory position, noting: “Inventory as of the end of Q3/20 was down 11 per cent year-over-year; however, this reflected timing delays that shifted inventory receipts to Q4. Without the delays, Roots’ inventory position would have been up 5 per cent to 10 per cent year-over-year. Management noted that they are comfortable with the current inventory balance, and that some products can be returned to store shelves in the relevant seasons over the coming quarters. Given that the product offering can be leveraged in future quarters, we are not concerned about the company having to undertake significant promotional activity during Q4 to reduce its inventory position.”

Keeping a “sector perform” rating, Mr. Khan raised his target to $2 from $1.50. The average is $2.36.

Others making target price changes included:

* Scotia’s Patricia Baker to $3 from $2 with a “sector perform” rating.

* CIBC’s Matt Bank to $3 from $1.75 with a “neutral” rating.

“While 2020 has been a volatile year, Roots appears to be moving in the right direction after a difficult 2019,” said Mr. Bank. “Omni-channel and fulfillment operations have gone from a messy ramp-up to a company strength, while there has been some stability in management, with the addition of an impressive Chief Product Officer this summer being a key hire. Roots is also finding a base of solid brand strength, which it can build on through an evolving product, ecommerce, and promotional strategy. While progress is being made, the overall track record is strained, significant uncertainty remains, and visibility is limited. Our rating stays Neutral, though we do see upside over time for patient investors.”

* Canaccord Genuity’s Matthew Lee to $2.25 from $1.25 with a “hold” rating.

* BMO Nesbitt Burns’ Stephen MacLeod to $2.75 from $1.75 with a “market perform” rating.

* National Bank Financial’s Vishal Shreehar to $3 from $1.75 with a “sector perform” rating.


Desjardins Securities analyst Chris MacCulloch thinks the likelihood for an offer to compete with Whitecap Resources Inc.’s (WCP-T) all-stock acquisition of TORC Oil & Gas Ltd. (TOG-T) is low, citing “the friendly nature of the deal and the significant asset overlap between the companies.”

“We also believe the transaction was a shareholder-friendly ending for TOG by providing it with exposure to a largerscale entity offering operational synergies and an attractive dividend payout,” he said.

Accordingly, Mr. MacCulloch moved his rating for TORC to “tender” from “buy” and said “there’s no room for entrenchment in the trench warfare for investor mindshare.”

“The two companies have significant asset overlap, which will be enhanced by the upcoming closing of the NAL Resources acquisition by WCP in early January. Consequently, they should be natural partners in creating a more scalable investment vehicle in the Canadian conventional light oil space. From our perspective, by combining with another strong company on shareholder-friendly terms, WCP has now clearly pulled away from the pack as one of the few ‘must own’ stocks in the Canadian E&P landscape outside of the large caps, which should inevitably benefit TOG shareholders. In our view, by setting personal ambitions aside and fulfilling their fiduciary duty, the TOG board and management team led by example and have played a key role in executing a shareholder-friendly transaction. We can only hope that others will eventually follow suit, as this sector desperately needs to bulk up to create leaner, meaner companies to compete for investor mindshare.”

Mr. MacCulloch moved his target for TORC shares to $3.15 from $2.75 to reflect the exchange ratio laid out in the deal. The average is $2.79.

Concurrently, he raised his target for Whitecap shares to $5.50 from $3.75 with a “buy” recommendation, seeing it “bulking up to create a Canadian conventional light oil champion.” The average is $4.53.

“Through the combination with another strong light oil producer with a comparable corporate decline rate, operating netback and balance sheet, WCP has solidified its position as one of the few ‘must own’ stocks in the Canadian E&P landscape outside of the large caps, in our view,” he said. “The asset overlap between the two companies is compelling and should drive real operational synergies, particularly when combined with the upcoming closing of the NAL Resources acquisition on January 4.

“After layering in the acquisition and preliminary 2021 guidance of 99,000–101,000 boe/d [barrels of oil equivalent per day] based on a $280–300-million capital program, we see a modest 3-per-cent increase in our 2021 CFPS estimate,” he said. “However, the improvement to pro forma 2021 free cash flow metrics is considerably more impressive at 35 per cent, expanding to $340-million (from $250-million) based on current strip prices, which supports the enhanced dividend payout. Furthermore, we believe that management has set conservative targets with respect to production and operational synergies stemming from both the NAL and TORC transactions.”

Elsewhere, CIBC analyst David Popowich raised his target for Whitecap to $6 from $3.50 with an “outperformer” rating.

“In our opinion, this merger is about as straightforward as they come,” said Mr. Popowich. “We believe Whitecap shareholders will be pleased with a deal that is very consistent with the company’s historical playbook, while providing increased scale and free cash flow visibility. Given the strong overlap between the assets and operating philosophies of the two companies, we believe TORC shareholders should also be supportive for at least the medium term. Today’s announcement will be an interesting test of investor appetite for the mergerof-equals streak that is rippling through the industry; in our view, Whitecap and TORC provide as sound an argument as any for this type of transaction, and we believe the pro forma entity should eventually garner an expanded multiple.”

CIBC’s Jamie Kubik increased his target for TORC to $3.42 from $2.25, maintaining an “outperformer” rating.


Scotia Capital analyst Jeff Fan made a series target price adjustments on Thursday, including:

Telus Corp. (T-T, “sector outperform”) to $32 from $27.50. The average is $26.47.

Shaw Communications Inc. (SJR.B-T, “sector outperform”) to $28.50 from $29.50. Average: $27.42.

Rogers Communications Inc. (RCI.B-T, “sector outperform”) to $71 from $62. Average: $66.38.

Cogeco Communications Inc. (CCA-T, “sector outperform”) to $129 from $124. Average: $119.50.


Freehold Royalties Ltd. (FRU-T) continued to improve its near-term growth profile with the US$58-million acquisition of a multi-basin U.S. royalty package that spans 12 basins in 8 states, said Industrial Alliance Securities’ Michael Charlton.

Following Wednesday’s announcement of the acquisition and corresponding equity financing, the analyst thinks Freehold remains “‘ahead of the bit’ poised to profit from a potential uptick in U.S. drilling activity.”

“Freehold reports the acquired assets attracted 1.2 per cent of U.S. drilling activity (onshore) in the last five years; now with five rigs presently drilling and 31 gross wells spud on the acquired lands between April and September 2020, these lands are seeing activity levels similar to Freehold’s entire Canadian portfolio, highlighting just how near-term growth and cash flow may be from this acquisition,” he said. “With over 2,400 development locations identified and 70 per cent of the new portfolio yielding economic returns for producers at $40/bbl WTI, and 90 per cent generating returns at $45/bbl WTI, we believe activity levels will remain relatively more robust than other basins. We like the transaction as it adds an additional 100+ payors, land, locations and increased upside potential with additional exposure to active basins in the US; with the potential for a dividend increase as Freehold typically targets 60-80-per-cent payout and 2021 looks to be only 38 per cent at the time of writing with the current strip price forecast.”

Keeping a “buy” rating, Mr. Charlton raised his target to $7.50 from $6. The average is $7.02.

“The Company looks to be well-positioned to continue delivering dividends to its shareholders through the continued leasing and development of its royalty holdings across the WCSB with increasing interests in the U.S.,” he said. “For investors seeking income in a company that pays a sustainable monthly dividend while waiting for a broader recovery in investor sentiment towards the Canadian E&P space, we believe those investors need look no further. In our view, Freehold offers exactly that — balanced exposure to multiple plays and formations in all stages of development.”

Other analysts raising their targets included:

* Raymond James analyst Jeremy McCrea to $6.50 from $6 with an “outperform” rating.

“We continue to see signs of increasing activity through the fourth quarter (conversations with other management teams as well as increasing well licensing activity),” said Mr. McCrea. “When combined with higher commodity prices, there are increasing reasons to believe Freehold should do well heading into next year with the addition of the U.S. asset package. We believe this will allow FRU to grow its FFO/sh quicker than what was modeled by investors and the Street. With the expected free cash flow profile in 2021, we would not be surprised to see the dividend increase through the year.”

* RBC Dominion Securities analyst Luke Davis to $7 from $6 with an “outperform” rating.

* CIBC’s Jamie Kubik to $7 from $6.50 with an “outperformer” recommendation.

* BMO Nesbitt Burns’ Ray Kwan to $6 from $5.50 with an “outperform” rating.


In other analyst actions:

* Industrial Alliance Securities analyst Elias Foscolos downgraded Mullen Group Ltd. (MTL-T) to “buy” from “strong buy” with a $14 target, up from $13.50. The average is $11.60.

“MTL’s 2021 business update included guidance that is in line with our previous forecasts, as well as a dividend increase, which brings MTL’s dividend within 20-per-cent of the annualized pre-COVID payment,” he said. “Overall, we believe the update reinforces our outlook and signals confidence from the Company. Our forecasts for 2021 are essentially unchanged and are close to the top end of guidance. We are confident that MTL will continue to deliver solid results and will pursue acquisitive growth, but we are downgrading our rating to a Buy (previously Strong Buy) based on stock price appreciation. We continue to see valuation upside relative to logistics peers, however we note that recent positive momentum in the stock has narrowed the gap despite our increased.”

Elsewhere, Scotia Capital analyst Konark Gupta raised his target to $13 from $12 with a “sector outperform” rating, while BMO Nesbitt Burns’ John Gibson increased his target by a loonie to $13 with an “outperform” rating.

* National Bank Financial analyst Zachary Evershed lowered Intertape Polymer Group Inc. (ITP-T) to “sector perform” from “outperform” with a $27.50 target, up from $22.50. The average is $27.81.

* Desjardins Securities analyst Frederic Tremblay raised his target for H2O Innovation Inc. (HEO-X) to $3 from $2.50 with a “buy” rating. The average is $2.61.

“HEO’s first ever three-year strategic plan outlined key revenue and profitability growth drivers which support management’s ambitions of generating revenue of $175–250-million at an adjusted EBITDA margin of more than 11 per cent,” he said. “Based on our analysis, successful execution of the strategic plan should lead to significant shareholder value creation.”

* RBC’s Paul Treiber increased his target for Evertz Technologies Ltd. (ET-T) to $15 from $13 with a “sector perform” rating, while Canaccord Genuity’s Robert Young moved his target to $15.50 from $13.50 with a “buy” rating. BMO Nesbitt Burns’ Thanos Moschopoulos raised his target to $16.50 from $15 with an “outperform” recommendation. The average is $15.50.

“While we remain cautious for Q3 given some uncertainty in the broadcast space, we are encouraged by Evertz’s pristine balance sheet and dividend reinstatement decision,” said Mr. Young.

* Scotia’s Trevor Turnbull cut his target for Alamos Gold Inc. (AGI-N, AGI-T) to US$12 from US$12.50 with a “sector perform” rating The average is $15.84.

* TD Securities analyst Meno Hulshoff hiked his target for Canadian Natural Resources Ltd. (CNQ-T) to $34 from $26, keeping a “buy” rating. The average is $32.79.

* TD’s Tim James increased his target for Bombardier Inc. (BBD.B-T) to 55 cents from 35 cents with a “hold” recommendation. The average is 47 cents.

* Canaccord Genuity analyst Yuri Lynk raised his target for Hardwoods Distribution Inc. (HDI-T) to $31 from $30 with a “buy” rating, while Acumen Capital’s Nick Corcoran increased his target to $35 from $32 also with a “buy” recommendation. The average is $34.12.

“We continue to see a large and fragmented market for architectural building products in North America and HDI as the primary consolidator,” said Mr. Lynk. “Combine this M&A upside potential with a track record of generating good organic growth and increasing margins and HDI is well positioned to continue to outperform, in our view.”

* Morgan Stanley analyst Fraser Jamieson hiked its target for First Quantum Minerals Ltd. (FM-T) to $22.50 from $18 with an “overweight/attractive” recommendation. The average is $20.42.

* Morgan Stanley’s Patrick Jones raised his target for Lundin Mining Corp. (LUN-T) to $12.80 from $10.80 with an “overweight” rating. The average is $11.15.

* Berenberg analyst Richard Hatch reduced his target for Wheaton Precious Metals Corp. (WPM-T, WPM-N) to US$50 from US$56 with a “market perform” rating. The average is US$60.12.

* JP Morgan’s Phil Gresh raised his target for Suncor Energy Corp. (SU-T) to $26 from $19 with a “neutral” rating. The current average is $26.96.

* Mr. Gresh also increased his target for Imperial Oil Ltd. (IMO-T) to $28 from $23 with a “neutral” rating. The average is $22.83.

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