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

To reflect the “unexpected” strength in oil prices and “extremely disappointing” winter heating season, Desjardins Securities’ Energy Research team recalibrated its commodity deck on Thursday, leading to increased price targets for almost every oil-weighted producer in its coverage universe as well as a series of rating changes.

In a research report released before the bell, analysts Justin Bouchard and Chris MacCulloch said their bullish natural gas thesis has now been pushed “back a few quarters.”

“To call this winter a disappointment for our bullish natural gas thesis would be a major understatement,” they said. “After all, conditions were ripe for a reset in North American prices if storage levels drained in line with our expectations given supply constraints and the strong recovery in US LNG exports. Alas, cold temperatures failed to arrive with the notable exception of a frigid February, particularly in the middle of the continent, which led to the Texas power crisis. The bottom line is that we expected U.S. storage to come under much greater pressure and had anticipated better pricing support in 1Q21. Following the bearish start to 2021, we are cutting our NYMEX natural gas price forecast to US$3.25/mmbtu (from US$4.00/mmbtu). However, despite all the challenges, we continue to believe that the fundamentals for natural gas are compelling looking into the back half of 2021 and into next year; we are maintaining our US$4.00/mmbtu NYMEX price deck in 2022.

Conversely, the pair declared “the crude oil freight train has left the station, well ahead of our schedule.”

“While natural gas prices were a huge disappointment in 1Q21, crude has surprised to the upside,” they said. “Recall that we had previously viewed 2021 as the year for natural gas, with crude oil poised to outperform moving into 2022 — and that is how we recommended investors position their energy holdings. As it turned out, the run-up in crude occurred much quicker than we expected, despite several lingering structural headwinds. That said, OPEC+ appears committed to managing toward higher prices, so long as the US shale oil industry plays nice. As a result, we are increasing our WTI oil price outlook for 2021 and 2022 to US$60/bbl (from US$50/bbl and US$55/bbl, respectively), which results in meaningful upward revisions to estimates, targets and some ratings.”

Among large-cap stocks, Mr. Bouchard upgraded a pair of stocks:

* Cenovus Energy Inc. (CVE-T) to “buy” from “hold” with a $14 target, rising from $8. The average on the Street is $10.42.

“Following the Jan. 4, 2021 closing of its merger with Husky, Cenovus greatly reduced its risk profile, resulting in a company with a more integrated asset base, a stronger balance sheet and a greater ability to support the dividend,” he said. “Of course, numerous challenges remain, not least of which is the integration of the disparate Husky assets, but to be fair, mergers of this magnitude are often quite messy in the short run. The bottom line is that the combined entity is now a much more investible company than were its separate parts, and the recent run-up in crude prices leaves it very well-positioned to reach its targeted debt levels sooner than later, which warrants a Buy recommendation.”

* Imperial Oil Ltd. (IMO-T) to “buy” from “hold” with a $35 target, up from $27. Average: $30.59.

“Imperial has made great strides improving the reliability of its Kearl oil sands mine, with initiatives underway to bring annual production to 280 mbbl/d. The rationalization of the management structure of Syncrude and the recent completion of the bidirectional pipeline with Suncor’s base plant also has the potential to drive near-term funds flow growth,” he said. “Moreover, the company’s pristine balance sheet and favourable access to capital cannot be overlooked. While its historical premium multiple has waned over time, in the context of an improving commodity tape and the cash flow ability of the assets, we believe the stock warrants a Buy recommendation.”

In mid-caps, Mr. MacCulloch made these changes:

* Crescent Point Energy Corp. (CPG-T) to “buy” from “hold” with a $7 target, up from $6. Average: $5.93.

“We are upgrading our rating on Crescent Point ... reflecting our increased US$60/bbl WTI oil price deck, which drove positive revisions to our funds flow estimates,” he said. “The company has considerable momentum after delivering several consecutive strong quarters operationally while executing a highly accretive acquisition through the Kaybob Duvernay transaction with Shell Canada, which is expected to close in early April. Granted, there are still lingering questions on CPG’s ability to translate its successful formula of cost reductions from its traditionally light and medium oil–focused asset base to a liquids-rich play. And it is not lost on investors that the Duvernay has been an albatross for more than a few producers in recent years, burdened by expensive wells and a volatile reservoir that can quickly shift toward drier gas targets. However, we have also seen CPG demonstrate its ability to grind down capital costs in other bigticket plays in recent years, including the North Dakota Bakken and the Uinta basin. More importantly, it will be absorbing a strong technical and field operations team from Shell, all with the strategic objective of harvesting free cash flow from the asset rather than pursuing growth. We believe this is a recipe for success, which warrants a Buy recommendation.”

* Enerplus Corp. (ERF-T) to “hold” from “buy” with an $8.50 target, up from $6. Average: $8.10.

“We are downgrading our rating on Enerplus ... given the limited potential return to our revised price target following an extended period of relative outperformance,” he said. “Granted, the company has done a good job executing operationally and with respect to the Bruin acquisition, which we viewed favourably despite the temporary increase in leverage metrics. The transaction was highly accretive to free cash flow while offering operational synergies given the proximity of the acquired lands to the company’s existing assets at Fort Berthold. We would also be remiss if we did not highlight that management demonstrated great discipline through years of patiently sitting on its hands while countless opportunities undoubtedly came knocking at its door. However, we question whether the stock can continue outperforming in a bullish commodity price tape amid continued uncertainty on the future of the Dakota Access Pipeline (DAPL).”

Expecting the midstream sector to “lag,” Mr. Bouchard lowered Keyera Corp. (KEY-T) and Gibson Energy Inc. (GEI-T) to “hold” from “buy” recommendations.

His Keyera target remains $28, which is 22 cents below the consensus. His unchanged $23 target for Gibson also sits below the Street ($24.18)

“Despite the dramatic recovery in oil prices, we do not expect a meaningful pick-up in activity levels from the E&P sector, particularly in the oil sands,” the analyst said. “The focus — at least for the time being — is on fortifying balance sheets and accelerating shareholder returns, all with an eye toward improving relative ESG positioning. Given our downbeat view of constrained growth in the basin, we are moving our recommendations on KEY and GEI to Hold.”


Ahead of the release of its fourth-quarter 2020 financial results on March 30, RBC Dominion Securities analyst Kate Fitzsimons sees an “attractive” entry point for Lululemon Athletica Inc. (LULU-Q) at its current levels.

Shares of the Vancouver-based apparel maker are down almost 11 per cent thus far in 2021, compared to a 38-per-cent gain in SPDR S&P Retail ETF (XRT-A).

“With category tailwinds continuing, brand health strong, and digital resonating per traffic data, we see LULU’s momentum as strong headed into 2021, particularly lapping first-half 50-per-cent store revenue declines last year,” the analyst said. “We remain buyers given confidence in growth levers multiyear including ecommerce, international, men’s, and MIRROR as LULU leverages its sweet spot between customer loyalty and innovation.”

Ms. Fitzsimons reiterated her fourth-quarter outlook, seeing revenue rising 19 per cent year-over-year to US$1.66-billion and earnings per share of US$2.51. However, she increased her sales and earnings estimates for the first-quarter of 2021 as well as full-year 2021 and 2022.

“Our store revenue assumption embeds some conservatism on the volume recovery, especially considering closures and restrictions in Canada and Europe here in 1Q but note some opportunity with the step-down versus 4Q store volumes,” she said. “On digital, analyzing NA web traffic data, we saw strong traffic gains in 4Q at up 63 per cent year-over-year, with 1Q to date running up 44 per cent. Momentum in March (up 52 per cent to date) is encouraging as we face more challenging digital compares in the next few quarters.”

Ms. Fitzsimons maintained an “outperform” rating and US$435 target for Lululemon shares, pointing to a “scarcity of growth premium, attractive category fundamentals, global market share opportunities, and strong balance sheet.” The average target on the Street is US$403, according to Refinitiv data.

“On the call, our focuses will be on: 1) any views on 1Q or 2021 sales and EPS outlook; 2) commentary on quarter-to-date trends now in March; 3) digital momentum versus up 93 per cent in 3Q; 4) regional performance especially and momentum in Asia, but also noting potential impacts from European and Canadian closures; 5) MIRROR performance at year-end 2020 and views for 2021, including plans for rollout to ‘hundreds of stores’; and 6) margin puts and takes into 2021 lapping COVID-related disruption in stores and 2H-weighted marketing investments,” she said.


In response to Wednesday’s quarterly earnings release that largely met expectations, several equity analysts raised their target prices for shares of Boyd Group Services Inc. (BYD-T), including:

* National Bank Financial analyst Zachary Evershed to $265 from $260 with an “outperform” rating. The average is $251.50.

* CIBC’s Matt Bank increased his target to $250 from $239 with an “outperformer” rating.

* TD Securities’ Daryl Young to $260 from $250 with a “buy” rating.

* BMO Nesbitt Burns’ Jonathan Lamers to $254 from $250 with an “outperform” rating.


Citi analyst Christian Wetherbee sees Norfolk Southern Corp. (NSC-N) as “the next good-to-great rail story.”

“Norfolk Southern has arguably already been a good rail story, given its stock price outperformance, but we think there could be another $100 per share of upside remaining as the company executes on its PSR [precision scheduled railroading] and growth opportunities,” he said. “Sell side expectations remain too low and we think fundamentals are accelerating near-term. In addition, based on our detailed benchmarking analysis there remains a multi-year catch up opportunity for NS to close the OR [operating ratio] gap with CSX and drive towards 57 per cent and a $16-plus earnings number in 2023. Collectively, NS appears to best couple earnings potential and relatively manageable expectations to drive the most upside in rails.”

Based on its revenue potential and opportunities brought on by PSR, Mr. Wetherbee said its 2023 earnings supporting upside in its share price to US$360 over 18-24 months. It closed at US$264.31 on Wednesday.

“We believe NS nicely balances both strong revenue growth (supported by intermodal and merchandise volume and pricing) and still sizeable operating ratio improvement potential to create value, particularly as investors continue to discount the company’s ability to close the gap with CSX,” he said.

“Supported by an updated rail operating metric benchmarking analysis, we believe NS can close the OR gap with CSX back to pre-PSR levels, which can drive 760 basis points of improvement from 2020 levels to 57 per cent by 2023. The opportunity is aided by core pricing gains and operating leverage on volume growth, but there is still more than $400-million of opex opportunity from improving its metrics in Labor, Fuel and other expense categories, and this comes as a net gain vs a $200-million-plus multi-year headwind from rising fuel prices.”

Seeing “accelerating” fundamentals and M&A as catalysts, Mr. Wetherbee hiked his target for Norfolk Southern shares to US$305 from US$290 after increasing his financial expectations through 2023, keeping a “buy” recommendation. The average target on the Street is US$262.77.

“Norfolk continues to improve its cost profile, and we see the potential for significant OR improvement in 2021 and beyond driven by the successful implementation of PSR principles and strong incremental margins,” he said. “Although Norfolk’s 2021 incremental margin estimate appears elevated on the surface, its OR continues to be the highest among the publicly traded Class 1 rails and we believe there’s substantial cost takeout potential that would naturally lead to significantly higher incremental margins. Furthermore, consensus OR for 2021 is too high in our view and likely underappreciates cost-takeout potential, and we note that management has remained confident in its ability to achieve a 60 per cent run-rate OR during 2021. However, despite the potential for multiple years of elevated earnings growth driven by margin expansion, Norfolk trades at a relatively low multiple based on our 2021 and 2022 EPS estimates. Collectively, we believe Norfolk appears very well positioned for growth relative to the other rails.”

“We think investors can get rewarded in 2021 as better than expected volume growth pulls forward OR gains ahead of sell side and buyside expectations.”


Canaccord Genuity’s Tom Gallo initiated coverage of a pair of TSX Venture Exchange-listed mining companies focused on Newfoundland.

He said Maritime Resources Corp. (MAE-X) is “racing toward high-margin production” at its Hammerdown project.

Touting a variety of factors, including its top-tier location, valuation, exploration upside, strong support and capable management, the analyst initiated coverage of the Vancouver-based company with a “speculative buy” recommendation.

“Maritime is focused in the province of Newfoundland and Labrador (on the island of Newfoundland), which we believe to be a top-class mining jurisdiction with a supportive permitting system and low sovereign risk; we see evidence of this in our Top Pick, Marathon Gold Corp (MOZ-T), which is advancing toward production (permits expected this year),” said Mr. Gallo. “That company’s approach to systematic exploration has led to one of Canada’s most coveted development assets, in our view. Maritime Resources is an approximately $50-million market cap development company currently advancing its Hammerdown project toward production. The company has outlined a low-capital, high-margin, high-grade open pit run by an experienced management.”

Mr. Gallo set a target of 30 cents per share, matching the current consensus.

“In our view, Maritime presents a very good value opportunity,” he said. “Not only is the project as modelled very robust, but the company has numerous near-project exploration targets which we believe will add to the mine life. We see the company’s advantage as the infrastructure owned and management’s experience in developing mining projects. CEO Garret Macdonald is formerly of JDS (a mining engineering services franchise) and has worked on designing, developing and operating projects around the world.”

Separately, he initiated coverage of New Found Gold Corp. (NFG-X), which owns the Queensway project, west of Gander, with a “hold” rating and $4.75 target.

“Another project located in the province of Newfoundland and Labrador (on the island of Newfoundland), the company is exploring for gold on one of the largest land packages controlled in the district,” he said. “This discovery story offers investors exposure to a large-scale drill program targeting substantial near-surface, very high-grade material.”

“New Found Gold’s HOLD rating and $4.75 target reflects a very successful first nine months of trading, as the shares currently sit at an all-time high after commencing trading in August 2020 at $1.30 per share. The company has done an excellent job targeting and hitting near-surface high-grade zones of mineralization. It will be up to the 200,000m drill program to crystalize this value in the form of a resource base. Our 2.1M conceptual + 0.08Moz historic resource offers a base line from which the company can grow. We believe this base case could grow through the drill bit and note that the high-margin potential of such high grades at surface offers NFG an advantage in a potential future operation scenario.”


A group of equity analysts on the Street raised their target prices for units of Automotive Properties Real Estate Investment Trust (APR.UN-T) following the release of in-line fourth-quarter results on Wednesday.

They include:

* Canaccord Genuity analyst Mark Rothschild to $11.50 from $10.75 with a “hold” rating. The current average is $11.91.

“While we expect APR’s portfolio to deliver stable operating and financial performance going forward, we believe this is largely reflected in the current unit price. Combined with a 7.1-per-cent distribution yield, our updated target price translates to an 8.9-per-cent total return over the next twelve months,” said Mr. Rothschild.

* Raymond James’ Brad Sturges to $12.50 from $11.75 with an “outperform” rating.

“We believe that APR is underappreciated for its cash flow resiliency during the pandemic, with APR being in somewhat of an exclusive group of smaller capitalization Canadian commercial REITs that have successfully maintained its pre-pandemic distribution yield,” he said. “Furthermore, we believe APR remains in a solid financial position to execute on any acquisition opportunities, as they arise. APR is expected to generate improving AFFO/unit growth in 2021 and 2022, driven by contractual rent growth, a positive rent spread for its Vaughan lease renewal, and accretive acquisition activity. A recovery in M&A consolidation activity within the Canadian dealership property sector, and improving AFFO/unit growth may act as positive catalysts for APR.”

* Scotia Capital’s Himanshu Gupta to $12 from $11.50 with a “sector outperform” rating.

* CIBC World Markets’ Dean Wilkinson to $12.50 from $11 with an “outperformer” rating.

* TD Securities’ Jonathan Kelcher to $12.50 from $12 with a “buy” rating.

* BMO Nesbitt Burns’ Joanne Chen to $12 from $11.75 with an “outperform” rating.


Titan Mining Corp.’s (TI-T) long-awaited updated mine plan for Empire State Mines in upstate New York represents “a strategically important first step” in its transformation following three years of “struggles,” said Canaccord Genuity analyst Dalton Baretto, who moved his rating for the Vancouver-based miner to “hold” from “under review.”

" In our view, this mine plan: Resets expectations to a more conservative level; sets the stage for a recapitalization of the company in a period of elevated zinc prices and low treatment charges; allows management to pivot its focus to the true value in the district – the exploration potential,” he said.

“Our general thesis on TI and ESM remains unchanged: the exploration potential of the district coupled with a strong exploration team, significant latent processing capacity, a supportive local government and a well-capitalized majority shareholder should result in emerging value over the next few years.”

Mr. Baretto set a target of 65 cents per share.


Following the release of in-line quarterly results, ATB Capital Markets analyst David Kideckel reiterated his constructive view on Willow Biosciences Inc. (WLLW-T), seeing biosynthesis set to “transform” the pharmaceutical and CPG industries.

The Calgary-based company is focused on its proprietary biosynthesis process for the production of cannabinoid compounds, expecting commercialization in the first half of 2021. Mr. Kideckel calls it “the most efficient and cost-conscious method for the large-scale and lower-cost production of rare cannabinoids.”

“We estimate that the size of the biosynthetic cannabinoid market could reach US$5-billion by 2025 and US$45-billion by 2035,” he said. “In the early years, we expect that CPG products will drive most of the demand for biosynthetic cannabinoids due to a less rigid regulatory outlook. In the long term, we believe that cannabinoid-derived pharmaceuticals will account for most of the market, as clinical trials progress and new pharmaceuticals are approved by regulatory authorities

“Based on our market size estimates, we imply a sector valuation for the biosynthetic cannabinoid market of over US$20-billion. We believe that biosynthetic cannabinoid companies that are able to create robust partnerships with pharmaceutical and CPG companies will gain a meaningful share of that market and will have material upside. As such, we expect the enterprise value (EV) of a company that gains a 5-per-cent share of the biosynthetic cannabinoids market to be above US$1-billion, much higher than the valuation of companies in the sector.”

Mr. Kideckel thinks commercial partnerships between biosynthetic companies, like Willow, and larger pharmaceutical and CPG companies will “serve as a key catalyst for a re-rating of the sector.”

However, he did caution that the market is “entirely new, thus presenting a high degree of uncertainty in terms of potential demand and pricing.”

“Moreover, based on our channel checks, biosynthetic THC, which Willow intends to commercialize from 2022e onwards, may not be the suitable and leading cannabinoid to target for beverages vs. plant-based THC,” he said. “We have updated our model to reflect Willow’s revised pipeline of cannabinoids and our long-term expectations for the entire sector (here). We maintain our constructive view on Willow and the biosynthetic market at large, driven by its scientific progress to date and the large potential addressable market for biosynthetic cannabinoids overall.”

Keeping a “speculative buy” recommendation for Willow shares, Mr. Kideckel, currently the lone analyst on the Street covering the stock, trimmed his target to $2.25 from $2.75, expecting a decline in cannabinoid prices stemming from increased competition.


In other analyst actions:

* PI Financial analyst Justin Stevens upgraded Metalla Royalty and Streaming Ltd. (MTA-X) to “buy” from “neutral” with a $13 target, up from $11. The average is $13.75.

“We view the recently announced acquisitions of royalties on the Tocantinzinho and CentroGold projects positively, giving Metalla exposure to two advanced development projects which could provide meaningful cash flow once developed,” he said.

* Ahead of the release of its second-quarter results on April 9, Canaccord Genuity analyst Aravinda Galappatthige raised his Corus Entertainment Inc. (CJR.B-T) target to $7 from $6.25, keeping a “buy” rating. The average is $6.73.

“The headline from our perspective going into the quarter is around sustained improvement in ad trend as the impact from COVID-19 continues,” he said.

* Following its acquisition of R3D Conseil, Desjardins Securities’ Kevin Krishnaratne raised his target for Alithya Group Inc. (ALYA-T) shares to $3.75 from $3.25 with a “hold” rating. The average is $3.43.

“While we view the deal for R3D as positive, we look forward to seeing how trends unfold over the next few quarters, and we also await confirmation of consistent top-line organic growth trends before getting more constructive on the shares” he said.

* Leede Jones Gable analyst Douglas Low initiated coverage of Cardiol Therapeutics Inc. (CRDL-T) with a “speculative buy” recommendation and $12.50 target, exceeding the $5.28 average.

“The firm already has manufacturing and commercial alliances in place for its ultrapure cannabidiol formulation Cortalex, which was launched last quarter through Shoppers Drug Mart/Loblaw’s Medical Cannabis by Shoppers portal and which is produced through manufacturing & supply alliances with ON-based Dalton Pharma Services and with DE-based Purisys (the cannabinoid production division of pharmaceutical ingredients manufacturer Noramco), and which should generate top-line growth through that channel while cannabidiol-focused clinical activities transpire in the background,” he said.

* CIBC World Markets analyst Mark Petrie raised his George Weston Ltd. (WN-T) target to $131 from $122, maintaining an “outperformer” rating. The average is $120.33.

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