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

Calling it a “solid self-help story in uncertain times,” Desjardins Securities analyst Chris Li thinks Empire Company Ltd.’s (EMP.A-T) better-than-anticipated third-quarter financial results show its three-year Project Horizon strategic initiative is “starting to take hold, with more to come.”

“While it’s still early days, this quarter’s strong margin performance has increased our confidence in the earnings potential of Project Horizon. While the shares may be rangebound in the near term following the strong rally and sector rotation, we reiterate our positive long-term view,” he said.

On Wednesday, the Nova Scotia-based retailer reported earnings per share of 66 cents for the quarter, easily exceeding the consensus projection on the Street of 56 cents.

“EMP’s better-than-expected 3Q results were driven by impressive margin growth from Project Horizon (sustainable) and favourable banner mix (transitory),” he said. “Last July, EMP outlined its three-year strategy with a goal of achieving an incremental $500-million of EBITDA by FY23, driving EBITDA margin improvement of 100 basis points and three-year EPS CAGR [compound annual growth rate] of at least 15 per cent. Growth will be achieved through market share gains, and cost and margin discipline.”

“Since EMP is only nine months into its three-year plan, this quarter’s strong margin growth provides a glimpse of its full potential. But as EMP starts to cycle through strong sales and margin growth due to the pandemic, Horizon’s benefits might not be easily observed through the financials in the near term. An important guidepost for us is the gross margin trend. For FY22, we expect margin to be largely stable vs FY21, with the reversal of the favourable banner mix benefit offset by benefits from Horizon.”

Reiterating his “buy” rating for Empire shares, Mr. Li increased his target to $44 from $42. The average target on the Street is $42.50, according to Refinitiv data.

Other analysts raising their targets include:

* CIBC World Markets’ Mark Petrie to $45 from $43 with an “outperformer” rating.

“Empire delivered strong Q3 results highlighting the payoff and progress under way with Project Horizon. The gross margin was exceptional and, even if not sustainable at Q3 levels, adds confidence for future gains. SG&A should also continue higher, but there is still room for earnings growth to lead the sector. We remain cautious about consumer preferences shifting from full-service as the pandemic pressures ease, but we believe EMP has ample levers to maintain top-line momentum,” said Mr. Petrie.

* National Bank Financial’s Vishal Shreedhar to $45 from $43 with an “outperform” rating.

* Scotia Capital’s Patricia Baker to $48 from $45 with a “sector outperform” rating.

* TD Securities’ Michael Aelst to $42 from $39 with a “hold” rating.


It was “an admirable feat” for Tourmaline Oil Corp. (TOU-T) to post “solid” 2020 results, according to iA Capital Markets analyst Michael Charlton.

“Tossing in four accretive corporate acquisitions and record production levels, well that’s why you buy Tourmaline,” he added. “Now that commodity prices are well above 2020 averages, and its US sales diversification, we’d bet January and February were great months with the cold snap driving price spikes across the US. The future looks bright for Tourmaline as it looks to repay all its debt by 2023 and have over $4-biullion of free cash flow to drive increased shareholder value, a nice problem to have these days.”

On Wednesday, the Calgary-based oil and gas exploration and production company reported a record production run rate in the the fourth quarter of 2020 of 336,325 barrels of oil equivalent per day and 310,598 boe/d for the full year. Its current product is now sitting between 405,000 and 410,000 boe/d.

With higher realized prices and four recent accretive acquisitions helping to “pump up” reserves, the company raised its quarterly dividend to 18 cents from 16 cents. It’s the fourth increase since its 2018 inception without any reductions.

“With $900-million annual maintenance capital and current cash flow projections over $2-billion, all we see is FCF and potential upside ahead,” he said.

Maintaining his “strong buy” recommendation for Tourmaline shares, Mr. Charlton hiked his target to $34 from $28. The average on the Street is $29.47.

“Tourmaline is well positioned to continue to grow production and FCF through the continued advancement of its three core assets, leveraging the stable cash flows from its largely de-risked plays in highly active parts of the WCSB,” he said. “We believe Tourmaline has achieved critical mass whereby its properties are capable of generating enough cash flow to continue to more-than-fund ongoing development (including modest growth) and maintain the Company’s quarterly dividend, all while paying down debt as free cash flows are forecast to continue growing. For investors seeking an actively growing company that pays a sustainable quarterly dividend and is involved in exploration and development in the WCSB, with several high-quality assets, run by management with a track record of success, we believe those investors need look no further.”

Other analysts increasing their targets include:

* Raymond James’ Chris Cox to $28 from $27 with an “outperform” rating.

“A solid quarter for Tourmaline, with strong operational momentum carrying into 2021,” said Mr. Cox. “We continue to rank Tourmaline at the top of our pecking order among Canadian producers, owing to a combination of impressive free cash flow, above-average growth, strong balance sheet and a top-tier Management team. For investors with a longer-term time horizon, we believe the 5-year development plan provides unique transparency, with the current pricing environment pointing to cumulative free cash flow of 55 per cent of the current market cap over this timeframe, alongside 20-per-cent production growth. Accordingly, we believe there is still a lot of room for TOU to run.”

* Scotia Capital’s Cameron Bean to $38 from $35 with a “sector outperform” rating.

* TD Securities’ Aaron Bilkoski to $28 from $24 with a “buy” rating.

* RBC Dominion Securities’ Michael Harvey to $33 from $30 with an “outperform” rating.


Though it reported “mixed” fourth-quarter financial results, Canaccord Genuity analyst Robert Young thinks it’s hard to ignore the potential gains ahead from Pollard Banknote Ltd. (PBL-T) coming from iLottery opportunities in North America.

Accordingly, he raised his rating for the Winnipeg-based company’s shares to “buy” from “hold” in the wake of share price depreciation.

After the bell on Wednesday, Pollard reported revenue of $103.7-million, up 3.7 per cent year-over-year but below the estimates of both Mr. Young ($113-million) and the Street ($111.1-million). Gross margins of 22 per cent also missed expectations (23.3 per cent and 23.9 per cent, respectively). However, EBITDA of $20.3-million exceeded Mr. Young’s projection of $18.7-million, due largely to lower-than-expected operating expenses.

“While the top line benefitted from higher ASP on Instants and strong iLottery growth, Charitable and Diamond Game saw weakness from COVID-related shutdowns in Minnesota and Ontario,” he said. “The silver lining was the disclosure on iLottery, which highlighted the strength in Michigan and NPi as combined revenues increased 144 per cent year-over-year. Looking ahead, we expect iLottery to remain a pillar of growth in the long term, although the ramp to iLottery adoption is expected to be gradual given the conservative nature of lottery associations. With the recent decline in share price, we are upgrading.”

Though he trimmed his sales and earnings forecast for 2021 and 2022 , Mr. Young maintained a target of $55 per share. The average on the Street is $47.50.

“Pollard Banknote is no longer cheap, in our view, but we think it’s a predictable and profitable growth story complemented with regular M&A,” he said. “We believe that continued execution on iLottery is a catalyst for further multiple expansion.”

Meanwhile, Raymond James analyst Stephen Boland raised his target to $49 from $41 with an “outperform” rating.


2020 was a “remarkable year” for Stella-Jones Inc. (SJ-T), according to Desjardins Securities analyst Benoit Poirier, pointing to its ability to deliver a 23-per-cent year-over-year EBITDA increase despite the pandemic.

He now sees an “encouraging” outlook for 2021, “with further upside as M&A activities ramp up.”

“Management’s guidance for 2021 demonstrates that SJ expects to deliver solid results as the pandemic subsides. We continue to see significant potential for the story as the shares are re-rated,” said Mr. Poirier.

Before the bell on Wednesday, the Saint-Laurent, Que.-based company reported fourth-quarter results deemed “solid” by the analyst. Earnings before interest, taxes, depreciation and amortization of $70-million, up 19 per cent year-over-year and exceeding the $62-million forecast from both Mr. Poirier and the Street. Earnings per share of 52 cents topped estimates by 10 cents.

Concurrently, the company released a stronger-than-expected outlook for 2021. EBITDA is projected to fall between $385– 410-million, topping the Street’s $377-million.

“Management anticipates a $50-milliom reduction in sales related to the recent strengthening of the loonie,” said Mr. Poirier. “Excluding this impact, the guidance implies mid- to high-single-digit growth for utility poles and residential lumber, as well as stable sales for the railway tie segment.”

“Management appears to be active with M&A discussions, offering potential upside for 2021. Management expects to be active with its M&A strategy in 2021, noting that discussions with potential targets have continued to progress since 3Q. While SJ remains a disciplined acquirer (typically below 7 times EV/EBITDA—a key driver of value creation), management noted that valuation paid is not a hurdle to ongoing discussions. In the past, SJ noted that it could still acquire approximately US$300-million of revenue in the long term (mostly in utility poles, although some opportunities exit in railway ties). For the right transaction, management would be ready to leverage its balance sheet to 3.0 times, representing up to $435-million of liquidity to deploy toward M&A (excluding EBITDA of acquired companies). This level of balance sheet flexibility would be sufficient to execute on the current M&A pipeline.”

Believing its current valuation does not properly reflect Stella Jones’ “resiliency amid the pandemic and market share leadership in segments with robust industry fundamentals,” Mr. Poirier raised his target for its shares to $61 from $55 and reiterated a “ buy” rating after increasing his financial expectations for the next two years. The average target on the Street is $53.06.

“SJ’s businesses are supported by robust fundamentals despite the pandemic and its balance sheet should enable management to continue to create shareholder value through share buybacks and M&A,” he said. “Management’s guidance for 2021 demonstrates that SJ expects to deliver solid results as the pandemic subsides. The stock is currently trading at an EV/FY2 EBITDA multiple of 10.8 times, below its five-year average of 11.6 times as well as average multiples for Class l railroads (13.4 times) and utility (16.5 times) peers. Interestingly, we note that SJ has traded on average at a 0.9-times premium vs Class l railroads over the last five years. We thus continue to see significant potential for the story as the shares are re-rated. That SJ has been very active with its NCIB program since 3Q is testament to the attractiveness of its share price, in our view.”

Other analysts adjusting their targets include:

* Laurentian Bank Securities’ Mona Nazir to $56.50 from $52 with a “buy” rating.

“SJ posted another quarter of record performance, with revenue and EBITDA beating estimates by more than 16 per cent,” said Ms. Nazir. “The 2021 guidance range mid-point was 5 per cent ahead of our prior estimates and is driven by both company specific initiatives and market share growth alongside a continuation of some macro tailwinds (residential demand and pole replacement). We also view positively the Board’s 20-per-cent dividend increase ($0.72 on an annualized basis; 1.4-per-cent yield) and NCIB plan. With a strong market position, continued industry leading performance, and a healthy M&A pipeline we believe that upside continues to exist for SJ.”

* CIBC World Markets’ Hamir Patel to $57 from $53 with an “outperformer” rating.

* TD Securities’ Michael Tupholme to $59 from $56 with a “buy” rating.

* RBC Dominion Securities’ Walter Spracklin to $55 from $53 with an “outperform” rating.

* National Bank Financial’s Maxim Sytchev to $51.50 from $47.50 with a “sector perform” rating.


Despite finishing 2020 with “good” results, Raymond James analyst Frederic Bastien lowered his rating for Bird Construction Inc. (BDT-T) to “outperform” from “strong buy” after it “cautioned that the pandemic’s second wave will effect a slow start to 2021.”

“A big part of our downgrade is also valuation driven, with BDT producing a total return of 85 per cent since we went ‘all in’ on the stock in our March 12, 2020 Comment ... (for context the TSX composite gained 49 per cent over that same period),” said Mr. Bastien. “We still believe — largely based on the significant strides management has taken to derisk the business, diversify the work program and strengthen the balance sheet —that Bird will continue to create shareholder value through 2022. At this juncture, however, the contractor no longer merits our Analyst Current Favourite status.”

Seeing early 2021 pandemic-related lockdowns “hitting home,” the analyst cut his target to $12 from $12.50. The average is $10.71.

“This is particularly true in British Columbia, where the second wave of the pandemic has forced public health officials to tighten the screws and limit the number of employees on large project sites — including LNG Canada,” said Mr. Bastien. “Bird is also experiencing delays in project tenders and awards from clients, which is shifting portions of its work program into the back half of the year and into 2022. Accordingly, we have lowered our expectations for the business shorter term.”

Elsewhere, National Bank Financial analyst Maxim Sytchev cut his target to $10.50 from $11 with an “outperform” rating, while ATB Capital Markets’ Chris Murray raised his target to $11 from $10.50 also with an “outperform” recommendation.

“Overall, we view the quarter as broadly in-line, with leverage falling further to 0.7 times and healthy backlog growth demonstrating the resilience of demand for the Firm’s offerings,” said Mr. Murray. “Although the Company faces some near-term COVID-related challenges, we believe the Company is very well positioned with record backlogs and an essentially unlevered balance sheet to drive organic and inorganic growth in 2021 and 2022.”


In the wake of softer-than-anticipated fourth-quarter results and guidance, Canaccord Genuity analyst Derek Dley thinks the early part of 2021 “looks challenging” for The Green Organic Dutchman Holdings Ltd. (TGOD-T), leading him to downgrade its stock to “sell” from “hold.”

“While Q4/20 did demonstrate some improvement on the top line, mainly on the launch of retail sales in Canada, we believe the company’s outlook for the early part to of 2021 came in lower than many investors’ expectations,” he said. TGOD commented that recent incremental stay-at-home orders, coupled with a surplus of cannabis on the market, are likely to reduce both demand and selling prices for the company’s product. Furthermore, the recent announcement that TGOD is looking to divest its Valleyfield facility points, in our view, to the weakening demand environment for TGOD’s organic cannabis products going forward. This, combined with a relatively tight cash position, leads us to believe the shares are overvalued at current levels.”

Mr. Dley cut his target for the Mississauga-based company’s shares to 20 cents from 25 cents. The average is 22 cents.


Raymond James analyst Jeremy McCrea upgraded Surge Energy Inc. (SGY-T) in response to last week’s announcement of asset sales for total proceeds of $106-million, seeing the transactions “quickly” improving its leverage profile.

“Early in 2020, Surge was quick to suspend all major capex and its dividend with a focus on balance sheet preservation,” he said. “Since then, the company has made meaningful strides in holding unit costs stable and with very little new activity, able to reduce declines to 19 per cent now. Then in November the Company announced credit agreements providing around $90-million of liquidity and allowed the Company to resume spending again. Late last week, Surge announced an asset sale including 2.7 mboe/d of production for proceeds of $106-million. Proceeds will be used for debt reduction meaning the leverage profile improves significantly (we believe debt levels have been the biggest overhang for the stock). SGY is planning to spend $39-million in 1H21 to add 3.2 mboe/d, more than replacing the production which was sold.”

Citing “the combination of reduced debt, spending resuming, and strengthening oil prices,” Mr. McCrea moved the stock to “market perform” from “underperform” with a 75-cent target, up from 25 cents. The average on the Street is 82 cents.

“There still remains risk with the higher leverage but plenty of torque if commodity prices can hold,” he added.


With the release of better-than-anticipated fourth-quarter results, a group of equity analysts raised their targets for shares of Nuvei Corp. (NVEI-T)

They include:

* CIBC World Markets’ Todd Coupland to $105 from $90 with an “outperformer” rating. The average is $66.48.

“Nuvei’s Q4 is reflective of rising online payment adoption as consumers across the globe continue to shift their transactions online. E-commerce transactions increased as a proportion of volume in Q4 to 80 per cent vs 70 per cent reported at the time of Nuvei’s IPO. Nuvei also benefited from new customers and upselling of its payment processing services. When combined, these trends are powerful, providing increased visibility and confidence in our outlook,” said Mr. Coupland.

* Cowen and Co.’s George Mihalos to $100 from $80 with an “outperform” rating.

* National Bank Financial’s Richard Tse to $100 from $85 with an “outperform” rating.

* Scotia Capital’s Paul Steep to $97 from $83 with a “sector outperform” rating.


An improving natural gas outlook suggests the “tide is turning” for Pine Cliff Energy Ltd. (PNE-T), according to Canaccord Genuity analyst Anthony Petrucci.

Expecting cash flow to improve in 2021, he raised his rating for its shares to “speculative buy” from “hold.”

“With $8-million of cashflow in Q4/20, PNE reported its highest level of quarterly cash flow in more than three years, on the back of improved natural gas pricing in the quarter,” said Mr. Petrucci. “With Q1/21 pricing also showing relative strength, we believe it could be another strong quarter for the company. Despite the abysmal gas prices in Canada over the last three years, PNE has managed to keep its asset base largely intact, with current production levels only modestly below 2017 levels. In our view, this is a testament to the company’s ultra low decline rate, which we estimate at less than 10 per cent.

“With natural gas production in both Canada and the U.S. leveling off/declining over the last year, and demand for the commodity continuing to grow (particularly U.S. LNG) despite headwinds to the broader economy, the supply/demand dynamics for natural gas in North America have improved immensely over the last 12 months. PNE is the most levered name to natural gas pricing in our coverage universe, and we expect the stock to perform well should natural gas pricing continue to strengthen.”

Mr. Petrucci increased his target to 50 cents from 30 cents, exceeding the 44-cent average.


In other analyst actions:

* Cowen and Co. analyst Andrew Charles downgraded Restaurant Brands International Inc. (QSR-N, QSR-T) to “market perform” from “outperform” with a US$65 target, up from US$63. The current average on the Street is US$66.92.

* Desjardins Securities analyst Gary Ho raised his target for Alaris Equity Partners Income Fund (AD.UN-T) by $1 to $29 with a “buy” rating, while Scotia Capital’s Phil Hardie increased his target to $19 from $18.50 with a “sector perform” recommendation. The average is $19.13.

“AD has a diverse portfolio. We are encouraged by the strong capital deployment year-to-date and turnaround at PFGF and Kimco. With potential PFGF distribution increases in 2H21, the payout ratio could drop further to the low-60-per-cent range. FED and Kimco redemptions may also result in a windfall for AD. The units remain attractively valued,” said Mr. Ho.

* Desjardins Securities’ Kyle Stanley raised his BSR Real Estate Investment Trust (HOM.U-T) target to US$13 from US$12.50 with a “buy” rating, while Raymond James’ Brad Sturges bumped up his target to US$13 from US$12.75 with an “outperform” recommendation and iA Capital Markets’ Frédéric Blondeau moved his target to US$12.50 from US$1 with a “buy” rating. The average is US$12.39.

“Barring any further ‘tactical’ moves, BSR’s market rotation program has substantially finished,” said Mr. Sturges. “BSR’s portfolio is now strategically weighted towards the Texas markets of Dallas, Houston, and Austin (80 per cent of BSR’s NOI), which are expected to experience continued above-average job and population growth going forward. A re-acceleration of BSR’s SP-AMR growth year-over-year and further execution on the acquisition front may support improving AFFO/unit growth prospects for the REIT as 2021 progresses, which may also act as near-term positive catalysts for BSR’s unit price.”

* CIBC World Markets analyst Robert Bek increased his Spin Master Corp. (TOY-T) target to $44 from $40, keeping an “outperformer” rating. The average is $41.45.

“Following the Investor Day on March 9, we have not revised our estimates for FY21 or FY22, as the positive thesis remains unchanged. However, we continue focus on the valuation gap against Hasbro at ~3x, which drives our price target change. We continue to view Spin Master shares as an excellent investment, backed by solid fundamentals and at a price level that is still attractive relative to opportunities in 2021 and beyond,” said Mr. Bek.

* Raymond James analyst Jeremy McCrea raised his target for Headwater Exploration Inc. (HWX-T) to $4.50 from $4 with an “outperform” rating. The average is .

“We believe the Clearwater formation is quickly becoming one of the top economic plays in Canada,” he said. “Unfortunately, we believe it has remained off investor radar screens given few public companies in the region. With Headwater Exploration Inc.’s recent acquisition (and upcoming well results), we suspect more information will bring new attention to the area. When combined with Headwater’s expected significant free cash flow with 20-30-per-cent annualized debt adjusted FFO per share growth for the next few years, all while using no debt, and management’s track record of execution, there are few companies that match this potential today, in our view. Over the next few years, we believe Headwater will likely become a ‘new favorite’ name with institutional investors.”

* CIBC’s Kevin Chiang raised his Linamar Corp. (LNR-T) target to $92 from $83 with an “outperformer” rating, while Scotia Capital’s Mark Neville increased his target to $95 from $90 with a “sector outperform” recommendation. TD Securities’ Brian Morrison hiked his target to $105 from $84 with a “buy” rating. The average is $79.40.

* Canaccord Genuity analyst Yuri Lynk increased his target for AirBoss of America Corp. (BOS-T) to $29 from $27 with a “buy” rating, while CIBC’s Scott Fromson raised his target to $30 from $28 with an “outperformer” recommendation. The current average is $26.35.

* Canacord Genuity’s Scott Chan raised his IA Financial Corp. (IAG-T) target to $75 from $68 with a “buy” rating, while National Bank Financial’s Gabriel Dechaine moved his target to $76 from $70 with an “outperform” rating. The current average is $70.78.

* RBC Dominion Securities analyst Keith Mackey increased his Shawcor Ltd. (SCL-T) by a loonie to $8.50, keeping an “outperform” rating. The average is $5.57.

* RBC’s Luke Davis increased his Pipestone Energy Corp. (PIPE-T) target to $2.25 from $1.75 with a “sector perform” rating, while Raymond James analyst Chris Cox raised his target to $2 from $1.25 with an “outperform” recommendation The average is $2.10.

“With the Company previously providing an operational update for the quarter alongside its reserve update in February, the focus of the release was on the decision by Management to accelerate capital within the confines of the previous 3-year plan, allowing the Company to hit production levels in-line with the Company’s available infrastructure and processing capacity by 2023,” said Mr. Cox. “While the decision to increase spending stands in contrast to the consensus mantra within the sector today, we note that Pipestone was already a unique growth story in the sector, and one in which the core investment proposition of the story rested on out-sized free cash flow after the Company completes its growth phase. In this respect, the accelerated capital should provide some modest improvement in timing of this inflection point.”

* JP Morgan analyst Richard Sunderland cut his target for Fortis Inc. (FTS-T) to $53 from $54 with a “neutral” rating. The average is $58.46.

* Scotia Capital analyst Konark Gupta lowered his CAE Inc. (CAE-T) target to $44 from $45, keeping a “sector outperform” rating. The average is $42.

* National Bank Financial analyst Jaeme Gloyn increased his target for Morneau Shepell Inc. (MSI-T) to $38 from $36 with a “sector outperform” recommendation. The average is $36.20.

* iA Capital Markets analyst Michael Charlton increased his target for shares of Birchcliff Energy Ltd. (BIR-T) to $4.50 from $4.25 with a “buy” rating. The average is $3.89.

“Birchcliff announced 2020 audited results and reserve highlights, largely in line with the previously announced unaudited figures. The real meat and potatoes here is that the Company is reiterating its guidance on production and capital expenditures, with the exception of one thing, cash flow. To us this says all is going according to plan, with better-than-anticipated results,” said Mr. Charlton.

* TD Securities analyst Aaron MacNeil cut his Ballard Power Systems Inc. (BLDP-Q, BLDP-T) target to US$30 from US$40 with a “speculative buy” rating. The average is US$33.68.

* Calling it a “growing fish in a big pond,” PI Financial analyst Jason Zandberg initiated coverage of Lowell Farms Inc. (LOWL-CN) with a “buy” rating and $4 target.

“We believe there is strong upside potential in LOWL shares given our bullish outlook on the California cannabis market, Lowell’s strongbranded product portfolio and its large (and growing) cultivation infrastructure,” he said.

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