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

Touting the possibilities for investors in an increasingly attractive energy market, the Global Energy equity research team at RBC Dominion Securities raised their oil price assumptions on Thursday.

“Institutional investors still appear to be shunning energy but do so at the cost of relative performance in a global energy market that has looked no better in almost a decade,” the firm said in a report titled A Goldilocks Energy Market. “Limited upstream investment and growth—heavily influenced by ESG considerations—and a resolute focus on balance sheet deleveraging have combined to expand upstream-downstream margins with only nascent oilfield cost inflation evident at this juncture. A smorgasbord of inexpensive energy equities is waiting in the wings.”

For 2021, the group raised its Brent and WTI projects by 6 per cent to US$70.52 and US$67.64 per barrel, respectively, from US$66.76 and US$64. Its 2022 assumptions jumped 14 per cent to US$75.08 and US$72.27 from US$66.13 and US$63.38.

“Our updated Brent outlook of $71 in 2021 and $75 in 2022 — in line with RBC Commodity Strategist Mike Tran’s recent update — combined with reset cost structures is driving abundant cash flow and free cash flow generation amongst energy producers,” the analysts said. “This dynamic opens the door to shareholder returns, but also a potential acceleration of ESG enhancements. Positioning-wise, we are somewhat agnostic between upstream/downstream-weighted companies given narrow regional oil differentials and a much improved refined product inventory picture following Texas mayhem earlier this year.”

With those changes, analyst Michael Harvey upgraded a pair of stocks:

* Crescent Point Energy Corp. (CPG-T) to “outperform” from “sector perform” with a $7.50 target, rising from $6.50. The average is $6.28.

“Combined with a very high (27-per-cent) FCF yield and a very low (2.0 times EV/ DACF) valuation at our updated deck plus improving operations, we see favourable risk/reward to CPG shares,” he said.

* Birchcliff Energy Ltd. (BIR-T) to “outperform” from “sector perform” with a $5 target, up from $4. The average is $4.49.

“Birchcliff’s FCF characteristics are amongst the most favourable in the group and operations have been solid; implied return to our $5 price target now justifies an OP rating,” he said. “We remove Speculative Risk qualifier on materially improved liquidity profile, decreasing leverage and robust FCF generation.”

Analyst Greg Pardy made a series of target changes to Canadian Integrated Oil and Senior/Intermediate E&P companies in his coverage universe. They are:

  • Suncor Energy Inc. (SU-T, “outperform”) to $36 from $32. The average target is $34.09.
  • Cenovus Energy Inc. (CVE-T, “outperform”) to $15 from $12. Average: $12.83.
  • Imperial Oil Ltd. (IMO-T, “sector perform”) to $45 from $39. Average: $38.44.
  • Canadian Natural Resources Ltd. (CNQ-T, “outperform”) to $53 from $45. Average: $47.95.
  • Ovintiv Inc. (OVV-N/OVV-T, “sector perform”) to US$36 from US$27. Average: US$31.57.
  • MEG Energy Corp. (MEG-T, “outperform”) to $12 from $9. Average: $8.91.
  • Enerplus Corp. (ERF-T, “outperform”) to $11 from $9. Average: $9.60.
  • Baytex Energy Corp. (BTE-T, “sector perform”) to $2.50 from $2.20. Average: $1.93.
  • Vermilion Energy Inc. (VET-T, “sector perform”) to $12 from $10. Average: $10.63.

The firm also revealed its 18 favourite global energy stocks. TSX-listed companies on the list were: Canadian Natural Resources Ltd. (CNQ-T), Cenovus Energy Inc. (CVE-T), Freehold Royalties Ltd. (FRU-T), Shawcor Ltd. (SCL-T), Tamarack Valley Energy Ltd. (TVE-T), TC Energy Corp. (TRP-T), Tourmaline Oil Corp. (TOU-T) and TransAlta Corp. (TA-T).


With its stock having declined almost 14 per cent since last week’s release of weaker-than-expected results and new global strategic plan, BMO Nesbitt Burns analyst Peter Sklar now sees Saputo Inc. (SAP-T) providing “attractive value.”

Accordingly, he raised his rating to “outperform” from “market perform.”

“We believe the decline is attributable to two primary factors,” said Mr. Sklar. “First, Saputo reported FQ4/21 adjusted EPS of $0.25, substantially below BMO’s estimate of $0.35 and the mean estimate of $0.39. The lower-than-anticipated EPS result was mainly driven by weaker-than-expected performance in the USA sector. On the conference call, management indicated that the recovery in the U.S. foodservice channel was negatively impacted by smaller restaurants that did not reopen, which represented about 10 per cent of the channel. As well, the sector was negatively impacted by COVID-19 induced labour shortages and inflation in freight and distribution costs. Second, we believe investors were underwhelmed by the initiatives unveiled in Saputo’s new global strategic plan as these were largely predictable undertakings that one would expect to be pursued by a world-class company such as Saputo.

“Although FQ4/21 results were weaker than expected, the issues highlighted by management are mostly transitory and will pass once COVID-19 subsides. In addition, the company has taken and will continue to take pricing action in the U.S. and Canada to offset inflationary pressures. As well, as COVID-19 abates, global dairy commodity prices should recover to normal levels and provide a tailwind for Saputo’s future results.”

He raised his target for Saputo shares by $1 to $42. The current average on the Street is $42.75.


A day after it dropped 1.7 per cent in response to weaker-than-anticipated first-quarter fiscal 2022 financial results, a group of equity analysts on the Street trimmed their targets for shares of Dollarama Inc. (DOL-T).

Hurt by restrictions brought on by the pandemic, the Montreal-based discount retailer reported revenue of $954-million and earnings before interest, taxes, depreciation and amortization (EBITDA) of $248-million, both below the consensus projections ($965-million and $261-million, respectively.”

“Looking ahead to Q2/F22, the ban on non-essential retail is set to be lifted on June 11 as part of Step 1 of Ontario’s reopening plan,” said Canaccord Genuity’s Derek Dley. “While the ban will allow nonessential retailers like Dollarama to sell their full assortment of goods, compared to only essential goods previously, they will only be able to operate at 15-per-cent capacity. This will continue to drive traffic-related headwinds, in our view. Accordingly, we are forecasting a 2-per-cent year-over-year decline in same-store sales growth for Q2/F22, which assumes that Dollarama will realize a 15-per-cent decline in same-store sales for the front half of the quarter, a period where the ban is in effect.”

Keeping a “buy” rating for Dollarama shares, he cut his target to $53 from $55. The average on the Street is $61.36.

“While we still believe in Dollarama’s long-term growth profile due to its lack of meaningful competition, industry-leading profitability and free cash flow generation, and healthy ROIC, we believe the softer near-term outlook is likely to leave the stock range-bound over the coming quarters,” Mr. Dley said.

Others making adjustments include:

* CIBC World Markets’ Mark Petrie to $59 from $62 with a “neutral” rating.

“Dollarama’s Q1 results reflect noise from continued selling and capacity restrictions, as well as pandemic-influenced consumer behaviour,” said Mr. Petrie. “We see DOL as well-positioned to navigate cost pressures. FX is a material tailwind, but we are hesitant to bank on GM% expansion and continue to believe management is biased toward investing for growth vs. margin harvesting. We roll our valuation to F2023E with modestly lower EPS expectations and a moderated target multiple in line with more normalized growth. We believe downside is limited, but valuation is fair.”

* Scotia Capital’s Patricia Baker to $62 from $64 with a “sector outperform” rating.

* National Bank Financial’s Vishal Shreedhar to $65 from $63 with an “outperform” rating.


RBC Dominion Securities’ Drew McReynolds thinks an “improving printing narrative” could lead to a further re-rating for Transcontinental Inc. (TCL.A-T).

Mr. McReynolds was one of several analysts on the Street to raise their target prices for shares of the Montreal-based company following Wednesday’s release of stronger-than-anticipated second-quarter results.

“The positive surprise in the quarter was printing organic revenue growth of 1.5 per cent versus a decline of 17.8 per cent in Q1/21 and our estimate of a 5.0-per-cent decline, with management reiterating expectations for positive total revenue growth in H2/21 but now F2022 as well (including acquisitions),” he said. “Management sees the potential for ’substantial’ organic revenue growth in H2/21 on easier year-over-year comps and as government restrictions ease and in-store marketing momentum continues (with revenues growing double-digits). Bigger picture, we believe investor fears around a potential “cliff” in printing revenues given long-standing structural headwinds has restricted meaningful multiple expansion in the stock. With management now seeing the potential for sustained growth across half of the printing and media revenue base (versus one third currently), we believe any easing of such fears could be a rerating catalyst for the stock. Furthermore, Q2/21 printing margins (22.5 per cent excluding government subsidies) once again demonstrate management’s ability to deliver greater than 20-per-cent printing EBITDA margins almost irrespective of the revenue trajectory.”

Seeing the potential for further positive earnings surprises and multiple expansion, Mr. McReynolds increased his target to $27, matching the average on the Street, from $26 with an “outperform” rating.

“At 6.4 times FTM [forward 12-month] EV/EBITDA, we believe Transcontinental continues to be a cheap way to play the reopening theme given significant operating leverage to renewed year-over-year growth in retail flyer volumes as physical retail traffic recovers,” he said. “Despite near-term resin and FX impacts, we see growing optionality for investors on an upward re-rating of the stock given what is accelerating organic revenue growth momentum within packaging (with the packaging revenue contribution now approaching 60 per cent) and an improving printing narrative with one-third of printing and media revenues growing double-digits. With printing peers trading at 7 times, packaging peers trading at 8-9 times, each 0.5-times increase in multiple equating to $3 per share, management’s longstanding masterclass in execution, F2021E leverage of 1.7 times and $3 per share in FCF, Transcontinental remains one of our top ideas within our coverage.”

Others making changes include:

* BMO Nesbitt Burns’ Tim Casey to $24 from $21 with a “market perform” rating.

“Transcontinental’s Q2 consolidated results were strong given headwinds from rising input costs(resin) and a stronger Canadian dollar. Printing was the surprise of the quarter with 23-per-cent margins(ex. CEWS), reflecting a more efficient operating structure. Packaging was below consensus but should start to see better EBITDA growth if resin prices stabilize,” he said.

* CIBC’s Robert Bek to $26 from $25 with an “outperformer” rating.

* Scotia Capital’s Mark Neville to $25 from $24 with a “sector perform” rating.

* National Bank Financial’s Adam Shine to $28 from $26 with an “outperform” rating.


PHX Energy Services Corp.’s (PHX-T) valuation is now “too inexpensive to ignore,” said BMO Nesbitt Burns analyst John Gibson, who raised his rating to “outperform” from “market perform.”

“PHX has performed very well the past few quarters, driven by its differentiated technology offering,” he said.

“PHX spent the past few years building out a high quality fleet of directional tools and motors, which has now led to record U.S. market share (currently 10 per cent). The company recently increased its 2021 capital program to meet increased demand, as its legacy fleet is expected to reach full capacity by 2H/21. Additionally, PHX recently announced a partnership in the Middle East North Africa (MENA) regions, driven by increasing demand for its tools, which could represent a new growth avenue for the company. While pricing remains competitive in directional drilling, we feel that a continued run in WTI prices could help move the needle as we head into next year.”

Expressing “comfort” with its “solid” customer base, which includes several larger public operators and multi-nationals south of the border, that is likely to provide earnings stability, Mr. Gibson increased his target for PHX shares to $5.50 from $4.25. The average is currently $3.85.

“We think PHX holds many redeeming qualities, including its strong balance sheet, technology focus, and new product build-out,” the analyst said. “Given its differentiated technology offering, improving market share and inexpensive valuation, we feel the shares are deserving of an Outperform rating. Lower liquidity remains our only concern with the company.”


IA Capital Markets analyst Elias Foscolos sees Fortis Inc. (FTS-T) “well-positioned to continue executing its organic growth strategy.”

Following virtual marketing meetings with the St. John’s-based utility on Wednesday, he expects additional projects to be quantified in the next 12 months, including the Lake Erie Connector project.

“FTS continues to deliver robust dividend growth underpinned by highly executable organic growth plan ... FTS is targeting 6-per-cent annual DPS growth through 2025, underpinned by 6-per-cent annual growth in its rate base,” said Mr. Foscolos. “FTS’ 2021-2025 capital plan of just under $20-billion is focused on investments in energy delivery and in support of lowering GHG emissions.”

“With a funding commitment from the Canada Infrastructure Bank (CIB) and all permits in place, the Lake Erie Connector project only needs transmission service agreements to begin construction. As such, we believe there is line of sight for this $1.7-billion project to be rolled into FTS’ five-year growth plan in 2022. Furthermore, we see significant potential for additional Biden-driven infrastructure projects in the U.S..”

Believing new CEO David Hutchens is the “ideal” candidate to succeed Barry Perry, Mr. Foscolos raised his target for its shares by $1 to $60 with a “buy” rating. The average on the Street is $59.50.

“FTS’s stock tends to outperform the TSX in periods of greater volatility,” he said. “As such, we see FTS offering investors an appealing risk-return profile through its robust organic growth profile with “safe-haven” behaviour in volatile markets. Our thesis is rounded out by the Company’s best-in-class ESG performance.”


Calling it a “compelling play on increasing institutional adoption of digital assets,” BTIG analyst Mark Palmer initiated coverage of Galaxy Digital Holdings Ltd. (GLXY-T) with a “buy” recommendation on Thursday.

“CEO Michael Novogratz and his team are building at GLXY a merchant bank, prime brokerage and advisory platform that, aided by its recognizable brand and strong industry relationships, appears poised to realize its potential as the ‘Goldman Sachs of cryptocurrency banking,’ he said. “We believe the company’s pending acquisition of cryptocurrency-custody specialist BitGo (Private) announced last month – a deal that would be the largest ever in the crypto industry at $1.2-billion in cash and stock – would provide it with a key piece of infrastructure needed for it to become a potent, one-stop crypto shop for institutional investors.”

Pointing to its “breadth” of offerings and “healthy level” of profitability, Mr. Palmer said he views the New York-based company as “unique” and touted the “optionality afforded by its platform and its ability to take advantage of new opportunities as they arise in the fast-evolving digital assets space.”

Ahead of the potential listing of its shares on a U.S. exchange during the second half of the year, he set a target of $31 for Galaxy Digital. The average is $40.


In other analyst actions:

* Canaccord Genuity analyst Tania Gonsalves initiated coverage of Small Pharma Inc. (DMT-X) with a “speculative buy” rating and $1 target.

“Small Pharma is developing psychedelic compounds DMT (SPL026) and deuterated DMT (SPL028) for the treatment of major depressive disorder (MDD), among other mental health conditions,” she said. “Like other psychedelic drugs, data suggest DMT is safe and efficacious, but what makes it a potentially superior pharmaceutical candidate is its short duration, which could lead to better reimbursement outcomes. Small Pharma initiated a Phase I trial of SPL026 in Q1/21. It expects to start the Phase IIa trial in Q3/21 and advance SPL028 into the clinic next year. We look forward to the first clinical readout for SPL026 before year-end.”

* After stronger-than-expected first-quarter results, RBC’s Sabahat Khan raised his North West Company Inc. (NWC-T) target to $38 from $36 with a “sector perform” rating. The average is $38.40.

“Overall, Q1 results have continued to benefit from the current backdrop, which is leading to more ‘in-market’ shopping,” he said. “Results were favorable, although down year-over-year given the strong comp period in 2020. Government income support initiatives, as well as the ongoing vaccine roll-out and gradual emergence from restrictions, have contributed to driving results ahead of expectations.”

* CIBC World Markets analyst Cosmos Chiu raised his target for Nomad Royalty Company Ltd. (NSR-T) by $1 to $13.50 with a “neutral” rating upon assuming coverage of the stock. The average is $17.85.

* In response to its ESG Stakeholder update, CIBC’s Jacob Bout also increased his Nutrien Ltd. (NTR-N, NTR-T) target to US$72 from US$66 with an “outperformer” rating. The average is US$67.69.

“Our main takeaway is that we see tangible long-term benefits for the Retail platform (increased digital adoption, organic growth and margin expansion),” he said. “We are also using this opportunity to raise our 2021/2022 forward estimates to reflect higher potash volumes and pricing, given brine inflow issues at MOS’s Esterhazy mine, potential Belarus sanctions and high crop pricing driving higher global potash demand (NTR increased H2/21 potash production guidance by 500kt earlier this week).”

* National Bank Financial analyst Maxim Sytchev hiked his Toromont Industries Ltd. (TIH-T) target to $125 from $108 with an “outperform” rating. The average is $114.56.

* Following the release of an updated mineral resource estimate on its Tres Quebradas Project in Catamarca, Argentina, Stifel analyst Anoop Prihar raised his Neo Lithium Corp. (NLC-X) target to $4.10 from $3.90 with a “buy” rating, while Canaccord Genuity’s Katie Lachapelle increased her target to $5 from $4.20. The average is $4.64.

* In response to its acquisition of Australia’s DGI Trading Pty Ltd, Raymond James analyst Bryan Fast increases his target for North American Construction Group Ltd. (NOA-T) by $1 to $20 with an “outperform” rating, while TD Securities’ Aaron MacNeil raised his target to $18 from $17 with a “hold” recommendation. The average is $20.40.

“Earlier this year, we upgraded North American Construction Group (NACG) to Outperform from Market Perform ... after the company weathered the depths of the pandemic and emerged well positioned to take advantage of an improving macro backdrop,” Mr. Fast said. “Yesterday’s acquisition reflects NACG’s continued focus on vertical integration and efficient capital allocation. With the goal of being the best contractor in the market, NACG is in good shape to capitalize on $3-billion in potential projects that the company has sight of. We expect project decisions in coming months, representing important catalysts as the company continues down the path of diversifying end markets (targeting 50 per cent of 2022 EBIT from non oil sands markets).”

* Raymond James analyst Brad Sturges bumped up his Granite Real Estate Investment Trust (GRT.UN-T) target to $91 from $90 with an “outperform” rating. The average is $88.15.

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