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

Shopify Inc. (SHOP-T) is “fighting for the little guy and getting paid along the way,” according ATB Capital Markets analyst Martin Toner.

In a research report released Thursday, he initiated coverage of the Ottawa-based e-commerce company with an “outperform” recommendation, seeing a “wide moat” for growth and believing it’s in an “enviable position of being the share gainer in one of the fastest-growing and largest markets on the planet.”

“Shopify’s success is due to its focus on the merchant,” said Mr. Toner. “Tools built to help merchants sell online have become a platform, which is empowering merchants with limited market power to take on the world’s largest companies. We believe Shopify is a company highly focused on finding areas of innovation that benefit merchants and provide economics to Shopify. In addition to gross merchandise volume (GMV) growth we believe there is ample room within the merchants’ profit and loss (P&L) for Shopify and its partners to be compensated for further innovation.”

“Shopify continues to gain share in a large and growing market, through an increasing take rate, growth in the number of merchants, and growth of existing merchants. There are numerous ‘layers of growth’ that we believe compound into a high growth rate that can be sustained for some time.”

Noting it is now one of the largest technology companies in the world by market capitalization despite reaching profitability only recently, Mr. Toner thinks its stock looks attractive based on a trio of factors: “(1) Shopify’s revenue will grow at a high rate for some time. (2) As Shopify grows, it reinvests and builds a moat around its business that competitors cannot compete with. Critical to this thesis is that the nature of the Shopify platform is itself a formidable barrier to entry. (3) The platform will be highly profitable at scale.”

He also feels Shopify remains “widely misunderstood” despite the attention it receives from both its success and large market cap. He suggested the " ecosystem’s rapid pace of innovation.”

“Shopify has only recently become profitable does not pay a dividend and there is no assurance that they will remain profitable in the near future,” said Mr. Toner. “When we consider the returns on their Sales and Marketing spend, thus far and the potential revenue base with continued growth, we think Shopify will be highly profitable in the long run.

“We do not feel that Shopify will be a mature company in 2030. We forecast e-commerce will still be growing faster than overall retail, the DTC trend will continue to thrive and Shopify will continue to innovate and extract economics from its customers in exchange for innovation. Given the growth rate of technologies companies that are twenty-five years old and have similar characteristics to Shopify, like and Adobe, we believe Shopify’s growth will continue, albeit at lower levels than today.”

Mr. Toner called Shopify a “cash moose,” saying: “We believe the total addressable market (TAM) for Shopify’s platform and its ability to dominate the market will lead, like other technology platform companies before it, to high levels of profitability.”

He set a target of $1,810 for Shopify shares. The average on the Street is $1,609.54.


In a separate note, Mr. Toner said Lightspeed POS Inc. (LSPD-T) possesses a “winning combination of hardware and software solutions.”

He also initiated coverage of the Montreal-based company with an “outperform” rating, seeing it as “post COVID-19 beneficiary.”

“Lightspeed POS Inc. is positioned to consolidate a fragmented industry and capture a substantial share of a large market,” said Mr. Toner. “The Company has proven the value of delivering an integrated experience, coveted by merchants for its ease of use and functionality. Lightspeed is one of the software platforms well-positioned to capture value in the payments ecosystem and add additional services in the future.”

“In-store retailers are Lightspeed’s core customer. We expect in-store retail is expected to return to growth in 2021 and keep in mind that Lightspeed’s opportunity is global. More impactful is that as the retail industry emerges from lockdowns in many of Lightspeed’s geographies, we expect the adoption of Lightspeed’s software to reaccelerate. After having initially focused on in-store point-of-sale (POS) systems and offline products, Lightspeed has gradually increased its online product offering and has been focusing on strengthening its e-commerce platform for merchants who are increasingly selling online.”

Seeing it “taking the lead” over its peers, Mr. Toner set a target of $120 per share, exceeding the $76.50 consensus.

“Much like its predecessors in their early years, Lightspeed has been aggressively spending on sales, general, and administrative expenses (SG&A) and research and development (R&D) as it strives to capture market share and invests in an expanding product suite,” he said. “We view Lightspeed’s sales and marketing spending as highly efficient. The Company’s investment has borne fruit over the past three years, as its sales have outpaced it spend, leading to a declining cost base as a percentage of sales. We expect the Company’s sales to continue outpacing its cost base and margins to ultimately grow as a result.”


Mr. Toner also initiated coverage of Real Matters Inc. (REAL-T) with an “outperform” recommendation, expecting 2021 to be “the year of Tier 1 title.”

“In 2021, we believe Real Matters will add several Tier 1 lenders in title, which will fuel growth,” he said. “It takes years to qualify as a tier 1 vendor, in appraisal, after a lengthy qualification process a number of Tier 1 lenders came on board in the same year and REAL rapidly took share with those lenders. We believe adding a number of increasingly large customers will provide a positive catalyst for the Company.”

“The market dynamics underlying REAL’s attractive share gain story are volatile. However, with mortgage rates likely to remain at all-time lows over the next few years, we expect mortgage re-financing to add another dimension of growth for Real Matters. While we expect the ‘refi wave’ to creates a revenue cliff in 2023, it also pressures lenders to adopt new technologies more quickly, which should benefit Real Matters.”

Mr. Toner thinks the Toronto-based company “identifies with at least three secular growth themes: (1) data as an asset; (2) work 2.0; and (3) the gig-economy. We believe these themes will drive growth and represent optionality for Real Matters longer term. In general stocks that benefit from popular secular growth themes tend to get credit for their strategies earlier and are rewarded with higher multiples. We believe Real Matter’s multiple will benefit from the increasing profile of these three themes.”

He set a $29 target for its shares, falling short of the $31.24 average.

“While technology-enabled disruption abounds across large percentages of the economy, the residential real estate market has proven to be sleepy,” the analyst said. “We believe change is coming, and REAL’s technology will make it a winner longer term. In the near-term market share gains likely accelerate with disruption. It is also likely its network management and data capabilities find new problems to solve as this transition plays out. Real Matters is also an attractive takeout candidate in our opinion.”


Though he thinks the tailwinds brought on by return to COVID-19 lockdown restrictions are “compelling,” Raymond James analyst Michael Glen thinks their impact on Goodfood Market Corp. (FOOD-T) are already reflected in its valuation.

Accordingly, he lowered his rating for the Montreal-based company to “market perform” from “outperform.”

“With FOOD stock rallying as more stringent COVID-related lockdown measures are discussed for Quebec and other parts of Canada, investors have seen the multiple expand quite meaningfully,” said Mr. Glen. “Based on our forecast, we have the stock trading at 2.5 times our fiscal 2021 estimated sales and 2.1 times our F2022E sales (year-end Aug). These multiples are now at a slight premium to the global mealkit market leader, HelloFresh Group (HFG-XE).

“While FOOD has historically traded at discount to HFG, a factor driven primarily by HFG’s path tosustainable positive EBITDA, this valuation gap has now effectively been eliminated. From that perspective, while we want to emphasize that we have nothing critical to say regarding FOOD’s overall operating strategy (in fact we are quite constructive on the growth opportunities management is pursuing), we have a tough time justifying a scenario where Goodfood trades at a premium to HFG (i.e. HFG is anticipated to post an EBITDA margin of 10.6 per cent in 2021 vs. FOOD at 2.6 per cent). As such, with the valuation gap narrowing rapidly we are opting to downgrade the stock.”

Mr. Glen thinks the company’s first-quarter financial results, which are set to be released on Jan. 13 in conjunction with its annual general meeting, are unlikely to be a catalyst for the stock.

“The period typically represents FOOD’s seasonally strongest quarter,” the analyst. “While there are several factors influencing the stock right now, most notable being COVID, we are also under the impression that investor expectations are elevated heading into this print. More specifically, with FOOD already providing its 1Q subscriber count figure on Dec. 3 (up 26k net additions), such elevated expectations would appear to be centered on EBITDA/ profitability in the period. Such a view has perhaps been triggered by the recent update from HFG on Dec 10 which indicated a very strong (calendar) 4Q performance and triggered some sizeable upward earnings revisions. We would remain somewhat hesitant to draw the same conclusion with respect to FOOD’s upcoming 1Q given differences in both the scale and geographic diversity of both businesses, while also noting that FOOD has been spending with respect to capacity expansion plus the ongoing Goodfood WOW launch. We would also note that HFG has been claiming market share gains in Canada, which FOOD clearly disputes in our conversations with them, but gives us some concern that HFG may look to become increasingly competitive in Canada.”

Despite trimming his 2021 and 2022 earnings and revenue projections, Mr. Glen raised his target for Goodfood shares to $14 from $12.50. The average on the Street is $12.13.


RBC Dominion Securities analyst Joseph Spak admits his previous opinion on Tesla Inc. (TSLA-Q) was “completely wrong.”

In a research report released before the bell, he raised his rating for the electric vehicle marker to “sector perform” from “underperform” after reevaluating its place in the industry, growth opportunity and access to capital.

“Our biggest miss was how TSLA can take advantage of its stock price to raise capital inexpensively and fund capacity outlays and growth,” said Mr. Spak. “To wit, TSLA raised $10-billion in ATM share offerings towards the end of 2020 ($5-billion each). The second offering was less-than 1-per-cane dilutive. This shows how easily TSLA can fund future growth whereas traditional OEMs need to generate significant cash from existing operations to fund their transition to electrification. Moreover, we’d argue that TSLA can use its stock price to fund acquisitions. Even a relatively large deal would be insignificant to TSLA’s market cap (e.g., a $25-billion acquisition would be less-than 4-per-cent share count dilutive). To sum it up, the higher stock price is somewhat self-fulfilling to TSLA’s growth potential. TSLA’s current valuation is just too large to ignore in this construct.”

Mr. Spak is now forecasting 2025 deliveries of 1.7 million, up from 1.3 million previously and representing a 28-per-cent, five-year unit compound annual growth rate.

“Our higher unit forecast is driven by 2 main factors: 1) TSLA’s capacity additions, already planned and unannounced, that can be funded by inexpensive capital; and 2) reassessing our TSLA BEV share assumption in line with our higher global BEV [battery electric vehicle] forecast,” he said. “We estimate that in 2020 TSLA had about 25-per-cent market share of global BEVs. Our new TSLA delivery forecast has that increasing to 27 per cent in 2021 (as Model Y and more global capacity comes online) before declining to 16 per cent in 2025 which we believe is a reasonable level given the increasing supply of BEVs from various manufacturers balanced by our view that TSLA is likely to “undercut” the competition given a (for now) cost advantage.”

With increases to his revenue forecasts, Mr. Spak raised his 2020, 2021 and 2022 earnings per share projections to US$2.97, US$6.22 and US$8.26, respectively, from US$2.68, US$5.35 and $5.95.

He also hiked his target price for Tesla shares to US$700 from US$339. The average on the Street is US$450.87.

“We still can’t justify an Outperform, but 1) amid the push for EVs (Europe, China and increasingly U.S. with the Biden administration); 2) with likely some greater stability given now a S&P500 constituent; and 3) no clear negative catalyst, we can’t justify an Underperform,” he said. “On the flip side, the valuation is high and we believe many institutional investors have already placed their TSLA positions and may increasingly look to place new capital in other electrification plays.”


Seeing “solid near- and long-term organic tailwinds,” Echelon Capital analyst Stefan Quenneville initiated coverage of Protech Home Medical Corp. (PTQ-X) with a “buy” rating and naming it to the firm’s “Top Pick Portfolio” for the first quarter of 2021.

“The U.S. durable medical equipment market is expected to grow by 6 per cent primarily due to the demographics of an ageing population,” he said. “The at-home care segment of the DME market further benefits by providing cost savings to payors (such as insurance companies and Medicare) and convenience to patients. Finally, the COVID-19 outbreak is a near-term driver of both an increasing need for ventilation equipment and a substantial accelerant of the shift to at-home care.”

Mr. Quenneville said the Cincinnati-based company has built a “significant” regional platform and sees “ample” opportunity for further consolidation.

“Over the past six years, the Company has grown to $100-million in revenue primarily via acquisitions,” he said. “There are over 6,000 DME suppliers in the US, with the vast majority being very small players. This provides PTQ with ample targets that fit its M&A playbook of businesses with $5-20M in sales and EBITDA margins of 10-20 per cent that it can purchase at attractive and accretive multiples (5-7 times trailing EBITDA). Management has a consistent track record of quickly driving synergies and improving margins to its 20-per-cent corporate level, resulting in post-integration prices closer to 2-4 times EBITDA. PTQ is able to pay attractive prices as it rarely competes with the much larger national players for deals of this size.”

Suggesting its larger and lucrative footprint has made it “a needle-moving target for any of the handful of national players that have revenues in the US$600-million-2-billion range,” he set a target of $2.30 per share. The average is $2.56.


Though they think the demand for oil will remain uncertain in 2021, Canaccord Genuity analysts Anthony Petrucci and John Bereznicki raised their price assumptions on Thursday, leading to a group of rating changes and target price increases for energy exploration and production stocks in their coverage universe.

“We believe further COVID-19 lockdowns will continue to create consumption headwinds in the near term, while the recent onset of vaccination programs provides hope for more normalized demand later this year and into 2022,” they said. “On the supply side, there has been a material decline in U.S. shale production, with production down 1.5MM bbl/d since January 2020.

“More recently, WTI surged to the US$50 per barrel level for the first time in 10 months following the surprise decision by Saudi Arabia to cut 1MM bbl/d of production in February. In our view, this oil price momentum and concurrent (broad-based) rally in energy equities is all the more notable given the policy uncertainties associated with a new U.S. presidential administration and the Georgia senate runoff.”

The analysts are now projecting a WTI price of US$50 per barrel through both 2021 as well as the long term, up from US$42.50 and US$45 previously. That change led to a 41-per-cent increase in their cash flow assumptions for the year.

With those changes, they upgraded four stocks:

* Crescent Point Energy Corp. (CPG-T) to “buy” from “hold” with a $4.50 target, up from $2.75. The average on the Street is $3.09.

Mr. Petrucci: “We believe CPG represents a compelling way to play a rebound in oil prices, particularly given the impact increased cash flow assumptions have on relative debt levels, and the financial discipline shown by management.”

* Seven Generations Ltd. (VII-T) to “buy” from “hold” with a $8 target, up from $5.50. Average: $7.38.

Mr. Petrucci: “As the ‘Condensate King’ in Canada, rising oil prices have a sizeable impact on VII’s business outlook. The improved price not only impacts immediate revenues, but also provides support for future demand, as oil sands production requiring diluent stabilizes.”

* Surge Energy Inc. (SGY-T) to “speculative buy” from “hold” with a 50-cent target, up from 30 cents. Average: 36 cents.

Mr. Petrucci: “Despite the recent run in oil prices, SGY has yet to see a material increase in share price and should be in line for a rerating, in our view. SGY benefits from significant oil in place, lower decline assets, and a highly economic play in the Sparky.”

* Yangarra Resources Ltd. (YGR-T) to “speculative buy” from “hold” with a $1.25 target, up from 60 cents. Average: 89 cents.

Mr. Petrucci: “With its low cost structure, YGR managed to maintain relatively healthy margins through most of 2020. With a rebound in pricing, we believe YGR will have the funds available to maintain/grow its production base.”


Echelon Capital Markets analyst Andrew Semple thinks the Democratic party taking control of the U.S. Senate accelerates the prospect of federal cannabis reform, supporting valuations for U.S. operators.

In a research note released late Wednesday, he said the victories in the Georgia run-off elections prompted him to update his valuation parameters for companies in his coverage universe.

“Across our U.S. cannabis coverage models, we previously used a discount rate of 15 per cent, reflecting the high cost of debt and equity capital for these businesses largely attributable to the current status of federal cannabis regulations. We firmly believe the U.S. cannabis industry will eventually move towards a normalized WACC of 4–6 per cent (in the context of current market conditions) seen in more traditional CPG companies if/when full federal legalization occurs. This has significant implications for long-term valuations across the sector.

“At this time, we are moving our discount rate to 12 per cent for most of our U.S. coverage names due to our view that federal cannabis reform will be accelerated and greater clarity on the regulatory path forward with Democratic control of the U.S. Senate. In particular, we look for the near-term passage of the SAFE Banking Act (federal cannabis banking reform) in 2021. We also believe it is likely that progress will be made on the MORE Act (federal cannabis decriminalization, among other important provisions) towards the latter half of 2021 or possibly later if COVID-19 requires additional attention from lawmakers.”

With those changes, he raised his target prices for stocks in his coverage universe, including:

  • Ayr Strategies Inc. (AYR.A-CN, “buy”) to $58 from $53. The average on the Street is $44.25.
  • Columbia Care Inc. (CCHW-CN, “speculative buy”) to $13 from $11.50. Average: $9.89.
  • Cresco Labs Inc. (CL-CN, “buy”) to $16 from $14.50. Average: $16.49.
  • Green Thumb Industries Inc. (GTII-CN, “buy”) to $38 from $34. Average: $37.36.
  • TerrAscend Corp. (TER-CN, “speculative buy”) to $16 from $14.50. Average: $13.46.
  • Trulieve Cannabis Corp. (TRUL-CN, “buy”) to $52 from $43. Average: $53.75.


A group of equity analysts raised their targets for shares of GDI Integrated Facility Services Inc. (GDI-T) in response to the acquisition of The BPAC Group Inc. by Ainsworth Inc., its U.S. Technical Services subsidiary.

Industrial Alliance Securities’ Neil Linsdell increased his target to $51 from $48 with a “buy” rating. The average on the Street is $50.11.

“Given the expectation of increased demand for cleaning services for the foreseeable future and GDI’s dominant position and solid performance, we continue to like the GDI story,” he said.

Desjardins Securities’ Frederic Tremblay bumped his target to $49.50 from $48, reiterating a “buy” rating.

“We have been pleased with GDI’s execution in Technical Services in Canada since it entered the space in 2015 and we view BP as a solid first step to replicating this success in the U.S.,” said Mr. Tremblay. “Furthermore, the balance sheet remains in good shape and, along with free cash flow, supports the continued execution of GDI’s profitable growth strategy.”

Elsewhere, National Bank’s Zachary Evershed hiked his target to $52 from $46, keeping an “outperform” rating.


In other analyst actions:

* Stephens analyst James Rutherford upgraded Restaurant Brands International Inc. (QSR-T) to “overweight” from “equal-weight” with a US$73 target, rising from US$55. The average on the Street is US$64.24.

* National Bank Financial analyst Adam Shine raised his target for Telus Corp. (T-T) to $28 from $27, reiterating an “outperform” rating, while TD Securities’ Vince Valentini increaed his target by a loonie to $30 with a “buy” recommendation. The average on the Street is $27.07.

* TD Securities analyst Michael Tupholme raised his target for Wajax Corp. (WJX-T) to $20 from $17.50 with a “buy” recommendation. The average is $18.

* TD’s Craig Hutchison increased his target for MAG Silver Corp. (MAG-T) to $30 from $27 with a “hold” rating. The average is $27.76.

* TD’s Juan Jarrah raised his target for Crescent Point Energy Corp. (CPG-T) to $4.25 from $3.50, keeping a “buy” rating. The average is $3.09.

* Mr. Jarrah also increased his target for Spartan Delta Corp. (SDE-X) to $6 from $5, exceeding the $5.36 average. He kept a “buy” rating. The average

* He trimmed his target for Birchcliff Energy Ltd. (BIR-T) to $2.50 from $2.75 with a “buy” rating. The average is $2.91.

* TD’s Menno Hulshoff increased his target for Cenovus Energy Inc. (CVE-T) to $10.50 from $7 with a “buy” recommendation. The average is currently $8.13.

* National Bank Financial analyst Don DeMarco initiated coverage of Pretium Resources Inc. (PVG-T) with a “sector perform” rating and $19 target. The average is $19.30.

* Mr. DeMarco raised his target for TMAC Resources Inc. (TMR-T) to $2.20 from $1.75 with a “sector perform” rating. The average is $2.31.

* Bank of America Merrill Lynch analyst Gary Bisbee trimmed its target for Thomson Reuters Corp. (TRI-T, TRI-N) to $124 from $126 with a “buy” rating. The average is $110.

* PI Financial analyst Devin Schilling increased his target for Greenlane Renewables Inc. (GRN-X) to $2.45 from $1.60 with a “buy” rating. The average is $2.05.

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