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

After the release of “solid” second-quarter financial results, Desjardins Securities analyst Frederic Tremblay said Goodfood Market Corp.’s (FOOD-T) “near-term volatility shouldn’t mask the opportunities ahead.”

“In 3Q and 4Q, FOOD appears likely to experience transient volatility in demand based on the progress of vaccination, reopenings and seasonality,” he said. “Nonetheless, the positive multi-year outlook for the online grocery market remains intact and FOOD continues to focus on executing a strategy that can enable long-term success, including expanding its product offering, rolling out same-day delivery and investing in technology.”

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Before the bell on Wednesday, the Montreal-based meal kit company reported revenue of $100.7-million and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $0.5-million, exceeding the forecast on the Street of $94.2-million and a loss of $0.2-million.

“Revenue growth of 71 per cent easily outpaced subscriber growth of 30 per cent, a clear example of Goodfood’s success in generating increases in basket sizes and order frequencies through grocery product additions, gradual rollout of same-day delivery and targeted promotions/marketing,” said Mr. Tremblay.

“Members’ appetite for grocery products looks strong. The company sold 1.1 million grocery products in 2Q, more than double the 1Q level. More than 750 products are now available to members (up 36 per cent quarter over quarter) and, at a pace of 20 new products per week, Goodfood looks poised to reach the 1,000-product milestone in just a few months and is on track to reach its target of 4,000 SKUs over time.”

Though the company expressed caution about the next two quarters in its commentary on Wednesday, Mr. Tremblay said he’s looking beyond that turbulence.

“With management mentioning potential volatility of subscriber additions and of demand patterns in 2H FY21 due to warmer weather, vaccination and easing of COVID-related restrictions, we are taking a more prudent stance for the near term,” he said. “However, expectations that the online portion of the Canadian grocery market will rise meaningfully over the coming years are unchanged. We believe that recent and future investments in capacity, technology and products are positioning the company for long-term success. We note that financial flexibility is strong after positive cash flow from operations and an equity offering during 2Q brought cash on hand to $163.0-million.”

However, after trimming his earnings expectations for fiscal 2021 and 2022, he lowered his target for Goodfood shares by $1 to $13. The average on the Street is $13.50.

“Overall, Goodfood is in the early stage of building out its network to support a larger product assortment and faster delivery,” he said. “Investments (eg new fulfillment centres, automation/technology for picking-and-packing items and inventory management) are being made to support what management expects will grow into a business capable of generating multi-billion-dollar sales and reach a long-term adjusted EBITDA margin target of about 10–15 per cent. The path to this margin level likely will not be a straight line, but management has identified the necessary levers, including: gaining scale in grocery to be in a stronger position to negotiate better terms with suppliers, improving the cost per item picked at the fulfilment centres, increasing density of delivery routes and leveraging the SG&A investments.”

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Elsewhere, other analysts lowering their targets include:

* Raymond James’ Michael Glen to $12 from $14 with a “market perform” rating.

“While we acknowledge that FOOD’s valuation has now approached reasonable levels, we continue to believe it is inevitable that COVID related restriction and lockdowns ultimately subside (i.e. given increasing levels of vaccination) and anticipate this will lead to headwinds on the business and subscriber growth (i.e., those factors that drove demand will stand to reverse),” said Mr. Glen. “As such we remain with a Market Perform until we have some explicit clarity on how the COVID dynamic plays out over coming quarter.”

* Acumen Capital’s Jim Byrne to $11.50 from $13, keeping a “buy” rating

“The COVID-19 pandemic has accelerated the adoption of home delivery for meal-kits and online grocery shopping, both of which should continue to drive revenue growth and profitability,” said Mr. Byrne.

* Scotia Capital’s George Doumet to $11.50 from $13 with a “sector outperform” rating.

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“FOOD reported its fourth consecutive profitable quarter (EBITDA) and saw strong top line growth, exceeding $100-million in revenues for the first time in its history. That said, looking ahead to 2H/F21, we expect to see headwinds against sub and ARPU growth, as vaccinations accelerate and as the weather gets warmer,” he said.


Though it exhibited improving demand in the second quarter, Exfo Inc. (EXF-T, EXFO-Q) is “not out of the woods yet,” according to Canaccord Genuity analyst Robert Young.

“EXFO reported results light of expectations on the top and bottom line driven almost entirely by weakness in the SASS [Service Assurance, Systems and Services] business,” he said. “EXFO continues to withhold guidance given an uncertain outlook, but remains bullish on longer-term demand drivers. Bookings were an area of strength with book-to-bill of 1.15 times propelled by catch-up spend in field test, cloud and early 5G deployment impact. RFP trends remained supportive of continued bookings strength, particularly related to 5G standalone network monitoring systems expected in 2021 and 2022.”

Mr. Young said the “headwind impact” of the COVID-19 pandemic on Quebec City-based tech firm’s Test and Measurement (T&M) business “began to lift” in its seasonally weakest quarter with revenue rising 37 per cent year-over-year to US$51.3-million, slightly ahead of our US$51M estimate.

“Bookings were an area of strength with book-to-bill of 1.15 times (up from 0.97 times last quarter) propelled by catch-up spend in field test, cloud and early 5G deployment impact,” he said. “RFP [requests for proposals] trends improved quarter-over-quarter and remained supportive of continued bookings strength. EXFO highlighted being explored in lab trials as part of a large NA Tier-1 5G standalone deployment, which may move forward later in the year. On the whole, SASS bookings were exceptional at 1.44 times and a high-water mark in Q2, although this has been a bumpy line item. This provides some confidence that the weakness in SASS revenue will correct. T&M book-to-bill of 1.05 times was also strong.”

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However, pointing to lower SASS revenue in FQ2, Mr. Young lowered his 2021 revenue and EBITDA projections to US$288.2-million and US$24-million from US$293.2-million and US$26.4-million, though he expects a second half rebound “given the strong bookings momentum.”

Keeping a “hold” recommendation, he raised his target for Exfo shares to US$4 from US$3.75. The average is US$4.60.

“Although we see opportunity with improved SASS and 5G bookings trends, we are cautious on current weak EBITDA margins and recent margin compression and lack of guidance, which hinders visibility,” the analyst said.

Elsewhere, National Bank Financial analyst Richard Tse increased his target to US$4.50 from US$3.50 with a “sector perform” rating, while BMO Nesbitt Burns’ Thanos Moschopoulos raised his target to US$5 from US$4 with a “market perform” recommendation.


Raymond James analyst Rahul Sarugaser said Opsens Inc.’s (OPS-T) contract with Vizient Inc. is a catalyst he’s been waiting for.

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On Wednesday, the Quebec City-based cardiology-focused medical device maker announced an Innovative Technology contract with the largest medical group purchasing organization in the U.S.. The agreement provides access to its OptoWire III device for the diagnosis and treatment of coronary disease.

“We have been waiting for GPO contracts like these to drive OptoWire’s U.S. market share capture, and OPS has delivered,” said Mr. Sarugaser. “We believe signing a contract with Vizient, in particular, should be major accelerant in the adoption of OPS’s core OptoWire technology, which already drives 60 per cent of OPS’s revenue (FY20) and has been used to treat 100,000 patients globally. Revenue impact from the Vizient contract we expect to begin during 4Q21 and ramp steadily thereafter.”

Based on the deal, he raised his revenue estimates for 2021, 2022 and 2023 to $37.1-million, $46.3-million and $56.7-million, respectively, from $36.3-million $43.8-million and $52.2-million.

Keeping an “outperform” rating for Opsens shares, he also increased his target to $2.75 from $2.50. The average is $2.63.


Pointing to “the recent evolution of market conditions,” Desjardins Securities analyst Frederic Tremblay trimmed his financial expectations for Cascades Inc. (CAS-T) after an operational update on Tuesday that highlighted higher-than-anticipated headwinds.

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The Kingsey Falls, Que.-based paper and packaging company indicated raw material cost inflation in fibre prices in March was higher than previously expected. It also warned of pressures on retail tissue volume, weather-related production losses and an increase in transportation costs across its business segments, particularly south of the border.

“Cost inflation (eg OCC and freight) and a less favourable environment in tissue were among the factors underpinning our cautious stance on CAS,” said Mr. Tremblay. “In our view, the operational update suggests that the magnitude of these headwinds is currently more significant than we had anticipated. Ahead of the release of 1Q results on May 6, we are lowering our 1Q21 adjusted EBITDA forecast to $146-milion (was $164m). We believe that the some of the impact will also be felt beyond 1Q21 and, therefore, we are reducing our 2021 and 2022 forecasts.”

With his 2021 and 2022 earnings per share estimates sliding to $2.02 and $2.05, respectively, from $2.20 and $2.25 previously, he cut his target for Cascades shares to $18 from $19, reiterating a “hold” recommendation. The average on the Street is $19.36.


Seeing “prolonged tightness in used equipment supply and several lower year-over-year ‘big’ auction events,” Raymond James analyst Bryan Fast reduced his estimates for Ritchie Bros. Auctioneers Inc. (RBA-N, RBA-T).

“As is routine, Ritchie Bros. press releases ‘big’ events which typically are above the $40-million GTV threshold,” he said. “During 1Q21, there were eight such auctions for $575-million of disclosed GTV, this compared to $520-million of disclosed GTV for the same period last year. Despite the year-over-year increase in these numbers, we note Ritchie has grouped smaller events into larger regional events (three regional events were press released). If we exclude these regional events, counting solely the auctions that have year-over-year comps available, we see an 8-per-cent decline in GTV across five events (Houston, Orlando, Edmonton, Toronto and Fort Worth). Although this analysis doesn’t tell the complete story, as Ritchie Bros. online auction and marketplaces account for a greater weighting of overall GTV, directionally we think it paints a picture.”

Mr. Fast emphasized that the longer-term opportunity for the Burnaby, B.C.-based company remains “significant” as it takes aim at the US$300-billion used heavy equipment global market.

“We expect Ritchie. Bros to flush out their strategy in a post pandemic world (what will live auction days look like?) and maintain a focus on their multi-channel platform. Despite this, we expect that much of the near-term upside is implied in the current valuation,” he said.

After lowering his 2021 and 2022 earnings per share estimates to US$1.90 and US$2.10, respectively, from US$1.95 and US$2.15, he trimmed his target for its shares to US$59 from US$60 with an unchanged “market perform” recommendation. The average on the Street is currently US$60.83.


Possessing a “growing development pipeline and best-in-class unit economics,” there’s “substantial” long-term growth ahead for Wingstop Inc. (WING-Q), says RBC Dominion Securities analyst Christopher Carril.

However, feeling its valuation is “already flying high,” he initiated coverage of the Dallas-based restaurant operator, which features over 1,500 locations in 10 countries, with a “sector perform” rating.

“Prior to 2020, WING already represented one of the most compelling growth stories across restaurants, featuring an asset-light model (98 per cent franchised) and best-in-class unit economics supporting long-term double-digit unit growth. And while the overall restaurant industry faced significant headwinds last year, WING saw its system-wide sales growth accelerate to nearly 30 per cent, supported by domestic same-store sales of more than 21 per cent and global unit growth of 11 per cent. However, we believe strong fundamental performance and growth potential are already embedded in current valuation, with WING trading at a substantial premium to highly franchised restaurant peers (46 times 2022 estimated EBITDA, vs. peers 16 times; 2.9 times 2022 estimated PEG, vs. peers 1.6 times). We continue to see elevated growth (RBC estimated average EPS growth 23 per cent from 2021-2025).”

As it moves toward its goal of over 6,000 locations globally, Mr. Carill sees “strong, sustainable” restaurant growth with domestic U.S. performance remaining a primary driver in both the near and medium term.

“Given the continued strong momentum for overall fast food chicken (up 9 per cent year-over-year in 2020), we expect further investment — and growing competition — in the category,” he said. “WING hasfirmly established its place as the leading fast casual chicken wing brand, however, we have observed at least nine new wing-focused virtual brands emerge this past year. We have yet to see a discernible impact on WING’s sales (1Q21 preannounced domestic comps were up 20.7 per cent), but we are keeping a close eye on evolving competitive dynamics. Furthermore, increased demand for wings has in-part driven wing commodity prices substantially higher, and while WING has a strategy in place to mitigate this (e.g. partnership with supplier PFG; “Whole Bird” strategy), we will also be closely watching for potential P&L impact from cost inflation.

He set a target of US$140 per share. The average on the Street is US$159.82.


In other analyst actions:

* Seeing quarter-on-quarter improvement in earnings as upstream benefits from higher oil prices, while downstream and chemicals from higher margins JP Morgan’s Phil Gresh raised his Imperial Oil Ltd. (IMO-T) target to $39 from $37 with a “neutral” rating. The average is $31.12.

* JP Morgan analyst Brian Ossenbeck raised his target for Canadian Pacific Railway Ltd. (CP-T) to $517 from $495, maintaining an “overweight” rating. The average on the Street is $522.60.

* Mr. Ossenbeck cut his Canadian National Railway Co. (CNR-T) target to $138, which is 61 cents below the consensus, from $145 with a “neutral” recommendation.

* He also increased his TFI International Inc. (TFII-T) target to US$90 from US$76 with an “overweight” rating. The current average is $100.45.

* BMO Nesbitt Burns analyst Stephen MacLeod raised his North West Company Inc. (NWC-T) target to $40 from $38, maintaining a “market perform” rating, while CIBC’s Mark Petrie bumped his target to $38 from $37 with a “neutral” recommendation. The average is $37.20.

“North West continues to achieve record results, benefitting from boosted in-market shopping and government programs, supported by a strong and integrated supply chain,” said Mr. Petrie. “We expect 2021 to remain boosted by pandemic-driven consumer behaviours, moderating through the year but still continuing into 2022. Nonetheless, we expect the company to seize new opportunities and leverage earnings to achieve 2019-2022 CAGRs above normal expectations. We do not expect any disruption from the CEO transition.”

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