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

Raymond James’ Steve Hansen added Bombardier Inc. (BBD.B-T) to the firm’s “Canadian Analyst Current Favourites” list, replacing Superior Plus Corp. (SPB-T).

Keeping an “outperform” rating for its stock, Mr. Hansen said: “We are increasing our target price on Bombardier to $6.00 (versus $4.75 prior) and reinstating BBD as our current favorite pick as we continue to see a number of positive catalysts through our forecast horizon, including: 1) improving business jet fundamentals, with strong underlying trends already gathering momentum (fleet utilization up, pre-owned inventories down, global market indices higher); 2) potential order flow at this month’s upcoming Farnborough Air Show (July 16-18); 3) further CRJ/Q400 momentum as the company redirects its efforts (recall two recent orders nearly doubled CRJ backlog); 4) the 2H18 Entry-into-Service (EIS) of the firm’s unrivaled Global 7500 business jet platform; and 5) the potential for management to repurchase the 30-per-cent stake in BT still owned by the Caisse.”

The current average target price for Bombardier shares on the Street is $5.54, according to Bloomberg data.

Mr. Hansen kept an “outperform” rating and $15 target for Superior Plus, which exceeds the consensus of $14.67.


In a research note in which Raymond James raised its commodity price assumptions to fall in-line with forward prices, analyst Chris Cox upgraded his rating for Husky Energy Inc. (HSE-T) to “outperform” from “market perform” with a $26 target, rising from $22. The average on the Street is $21.43.

“We believe Husky offers a compelling combination of visible and robust free cash flow, modest production growth, insulation from regional pricing differentials (most notably, WCS) and leverage to a strong downstream margin environment; our more constructive investment thesis is further supported by an attractive relative valuation, with the shares trading at the lowest multiple among the large cap producers at 3.7 times 2019 EBITDA (versus peers at 5.4 times),” he said.

At the same time, Mr. Cox downgraded MEG Energy Corp. (MEG-T) to “market perform” from “outperform” with a target of $12.50, up from $11. The consensus target is $10.72.

“While MEG boasts peer-leading leverage to rising oil prices, we believe this has largely been reflected in the shares as of late,” he said. “Since the time of our upgrade on April 24, 2018, MEG has been the best performing energy equity in North America and has outperformed the TSX Energy Index by a remarkable 68 per cent over this timeframe; as such, we no longer see sufficient risk/reward to justify an Outperform rating at this juncture.”

The firm also made target price updates for stocks throughout the energy sector.

Changes for senior oil and gas producers were:

Canadian Natural Resources Ltd. (CNQ-T/CNQ-N, “outperform”) to $65 from $59. Consensus: $55.50.

Cenovus Energy Inc. (CVE-T/CVE-N, “market perform”) to $16 from $14. Consensus: $16.51.

Encana Corp. (ECA-N/ECA-T, “strong buy”) to US$18 from US$17. Consensus: US$16.21

Imperial Oil Ltd. (IMO-T/IMO-N, “underperform”) to $45 from $39. Consensus: $43.38.

Suncor Energy Inc. (SU-T/SU-N, “outperform”) to $69 from $61. Consensus: $58.13.

The firm’s WTI price assumption for 2018 is now US$68.17 per barrel, versus US$65.11/bbl previously. For 2019, its assumption is US$65.24/bbl, versus US$60.54/bbl, while its long-term assumption remains US$65/bbl.

Its 2018 Edmonton Par assumption is now $81.26 per barrel, rising from $75.09, while its 2019 assumption is $79.27, up from $69.43. Its long-term Edmonton Par assumption rose to $81.58 from $77.50.


Despite reporting quarterly results on June 27 that fell “well” below his expectations and the projections of the Street, Echelon Wealth Partners analyst Russell Stanley hiked his target price for shares of Canopy Growth Corp. (WEED-T, CGC-N) to reflect the projected contributions of BC Tweed Joint Venture Inc.

On Thursday before market open, Smith Falls, Ont.-based Canopy announced it has closed its previously announced $375-million acquisition of the remaining 33-per-cent stake of BC Tweed, leading Mr. Stanley to raise his financial projections.

“Our estimates are now broadly in line with consensus, and we note that the consensus EBITDA forecast for WEED has declined noticeably over the last three months,” said Mr. Stanley.

Though he expressed concern over its current price, the analyst added that he continues to think Canopy Growth warrants a premium valuation multiple moving forward.

“WEED has quickly built a strong tradition of market leadership in a number of respects. The investment from (and ongoing collaboration with) Constellation Brands (STZ-N) is a major differentiator from other cannabis companies, and while there has been a lot of speculation as to similar investments to be made by big alcohol/tobacco/pharma/consumer packaged goods companies, none of the announcements we have seen thus far are as material as the STZ development has been for WEED,” said Mr. Stanley.

“WEED has also been very successful in locking up supply agreements with provincial buyers in advance of the opening of the recreational market (slated for Oct. 17). While we believe that The Hydropothecary Corp. (HEXO-T, “Speculative Buy” rating, $6.75 target) and Village Farms International (VFF-T, “Speculative Buy”, $15.00 target) offer investors higher levels of revenue visibility relative to their respective planned capacities, we believe that no other cannabis company has announced supply agreements for as much total volume as WEED has.”

While Mr. Stanley maintained a “sell” rating for Canopy Growth “given where the stock is currently trading,” he raised his target to $30 from $22. The average is $38.33.

“In our view, the real question is: how much of a premium is warranted?,” he said. “WEED now trades at an approximate 328-per-cent premium to the peer group average, based on their respective EV/C2019 EBITDA multiples, both of which are based on consensus estimates. We note that the premium given to WEED has been very volatile, ranging from as low as 91 per cent in May 2017 to as high as 405 per cent in early November 2017 (shortly average the original STZ announcement). Even by historical standards, the premium investors now pay for WEED is now well above the 200-per-cent premium averaged during the measurement period (early 2017 forward).”


Citing its “compelling” fundamentals as well as its current valuation, CIBC World Markets analyst Jacob Bout upgraded Aecon Group Inc. (ARE-T) to “outperformer” from “neutral.”

“A lot has changed since ARE announced that it was up for sale, and we are of the view that ARE’s shares should trade higher than preannouncement levels: (1) The company will add over $2-billion to its backlog (or 40-50-per-cent increase), with significant scope for further large projects wins in the near to medium term ($25-$30-billion worth of projects in the pipeline). (2) With recent project wins, we see the shift in sales/backlog mix toward long-term complex transportation, nuclear and pipeline work positively supporting margin expansion for the next several years (ARE targeting 7.5-8.0 per cent). (3) Our discussions reveal that the new CEO search is in full swing; a potential near-term announcement could be a catalyst for the share price. (4) ARE currently trades at a steep valuation discount - 2019 EV/EBITDA multiple of 4.5-5.0 times versus construction peers at 6.5 times,” he said.

Mr. Bout maintained a $20 target, exceeding the consensus of $18.80

At the same time, Mr. Bout downgraded Stantec Inc. (STN-T, STN-N) to “neutral” from “outperformer” with a target price for its shares of $38. The average target among analysts covering the stock is $36.44.

“The near-term focus will continue to be on the potential sale of the construction division for STN,” he said. “We continue to believe that the removal of the construction business would remove earnings surprises, improve the margin profile for the company (i.e., to 13-14 per cent prior to MWH), and would therefore warrant a higher multiple (1-times multiple bump). While we are giving STN the benefit that sale of construction will be completed, there is still execution risk.”


Believing its poised for a margin rebound in the second half of 2018 as high-margin services pick-up along with infrastructure projects , National Bank Financial analyst Greg Colman upgraded Mullen Group Ltd. (MTL-T) to “outperform” from “sector perform” with a $17 target, which is 68 cents higher than the average.

Following its recent “impressive” performance, Mr. Colman downgraded Pason Systems Inc. (PSI-T) to “sector perform” from “outperform.” The Calgary-based company, which provides data management systems for drilling rigs. is up 13 per cent year-to-dae.

He kept a $22 target, which is higher than the consensus of $21.67.


Lucara Diamond Corp. (LUC-T) is a “a diamond mine which delivers shareholder value,” according to Canaccord Genuity analyst Des Kilalea.

In a research note released Thursday, he initiated coverage of the Vancouver-based exploration and mining company, which operates in southern Africa, with a “buy” rating.

“Lucara stands out in the diamond space as being one of the few ‘juniors’ to have brought a new mine into production on time and within budget, with ultimate profit margins exceeding expectations,” said Mr. Kilalea. “While there were headwinds early on, with sales prices in first tenders below management expectations, improving ore quality and frequent recovery of large white stones started generating strong free cash flow which led to an ungeared balance sheet and a history of dividends. The current forecast dividend yield of 5 per cent is unmatched in the diamond sector and we see it as supportive of the share price, though it is not out of line with yields more generally among some of the miners. The other financial metrics also show Lucara to offer value in terms of returns on equity, and price:earnings, particularly when weighed against the significantly stronger balance sheet than the peer group we cover and the lower-risk political environment in which Lucara operates (Botswana).

“The attributes of investment in Lucara include strong cash flow from the Karowe mine, enhanced by the periodic recovery of very large white Type IIa diamonds, as well as a strong balance sheet and the potential life extension of an underground mine starting before 2026. To the extent that the recent Clara sales platform is successful, this would further enhance value. Offsetting these positive influences is, in our view, potential investor caution because Lucara is likely to commit capex to build an underground mine at Karowe, albeit the resource on which a mine is to be established has recently increased in size , and much of the upfront capex will come from tax savings. ”

Calling Lucara’s dividends a “major positive” and believing its balance sheet supports the policy moving forward, Mr. Kilalea set a price target for its shares of $2.45, which he thinks provides “modest upside and the added benefit of a 5-per-cent dividend yield.”

The consensus target on the Street is currently $3.05.

“Catalysts to a higher target price include higher rough prices, we believe, though it is our view that shares in companies about to embark on large capex projects, such as the Karowe underground mine, often see share price headwinds,” he said.


Credit Suisse analyst Andrew Kuske raised his rating for Brookfield Infrastructure Partners LP (BIP-N, BIP.UN-T) in reaction to its a $4.3-billion acquisition of Enbridge Inc.’s (ENB-T, ENB-N) Canadian natural gas gathering and processing business.

“There are clearly a number of significant differences between the ENB and BIP accounting (U.S. GAAP versus IFRS) and, not surprisingly, a lack of financials for this deal,” said Mr. Kuske. “Yet, on some very simple math, we assume a U.S. GAAP number of roughly $450-million of EBITDA. From our perspective, the G&P asset fit was never ‘right’ for ENB and the sale gives BIP the potential to run the business more aggressively (both operationally and with capital).”

Based on the acquisition as well as a recently announced US$1.1-billion deal with AT&T Inc. (T-N) for 31 U.S. datacenters, Mr. Kuske moved Brookfield to “outperform” from “neutral” and raised his target price to US$46 from US$44. The average target is US$45.46.

“BIP has an enviable amount of organic growth from the existing asset base and provides M&A optionality,” he said. “Given the recent deals, we believe the past overhangs (extent of emerging market exposure and deal deployment) start to dissipate and capital deployment comes into focus.”


With files from Bloomberg News

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