Thursday’s analyst upgrades and downgrades

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

BofA Securities analyst Timna Tanners upgraded coal and copper producer Teck Resources Ltd. (TECK-B-T) to “buy’ from “neutral”, citing rising prices for metallurgical coal and a better near-term outlook. She raised her price target to C$37 from C$33.

“Our TECK upgrade reflects a view that met coal prices could remain elevated near term, given limited global supply additions and near-term steady demand. While reducing carbon emissions has become a priority especially in Europe and China, hurting longer-term demand prospects for metallurgical coal, we think these transitions will take time. Also, regions such as Latin America and India seem less focused on emissions containment and could continue to support demand, even as dimmer long-term prospects constrain new mine appetite,” Ms. Tanners said.

She’s also expecting that investor interest will pick up for Teck’s Quebrada Blanca phase 2 project in northern Chile, projected to start production in late 2022. The giant copper project has an estimated mine life of at least 28 years. “While further taxes on the Chilean mining sector are a risk, we are cautiously optimistic that its 15-year tax stability agreement, starting once it begins production, would be upheld, as others have in the country,” she added.

The average analyst price target is C$33.40, according to Refinitiv Eikon data.

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Raymond James analyst Michael Glen upgraded Goodfood Market Corp. (FOOD-T) to “outperform” from “market perform”, calling the stock attractively valued, the company well-capitalized, and its future looking bright thanks to a number of growth initiatives. He raised his price target to $12.50 from $12.

Goodfood Wednesday reported fiscal third-quarter results that were generally better than analysts’ forecasts. Revenue of $107.8-million beat Raymond James’ forecast of $101.6-million. Raymond James was expecting adjusted negative EBITDA of $50,000, but the company surpassed this by reporting adjusted positive EBITDA of $1.7-million.

“While the business will see a seasonally soft 4Q (Jun-Aug), we believe this is well understood by investors at this point, and we anticipate a momentum will build through the seasonally strong Sept/Oct timeframe,” Mr. Glen said in a note.

“Additionally, the stock is attractively valued, and trading at a notable discount to its largest direct peer Hello Fresh Group (HFG-XE). Based on our forecast, FOOD stock is trading at 1.4x fiscal 2021 and 1.2x fiscal 2022 sales, vs HFG-XE, which trades closer to 2.6x 2021 and 2.2x 2022 sales,” he said.

Mr. Glen acknowledged the business is seeing some COVID-related pressures, as restrictions and lockdowns - factors that helped drive demand for its services over the past two years - subside. But, “we believe there stands to be a reengagement with the service which will coincide with a more normalized back-to-school / back-to-work situation.”

He added that the company has continued to build out its new unlimited same-day grocery delivery service, “which we anticipate will drive incremental revenue growth and volume over the next few years.”

The average analyst price target is $12.11.

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RBC Capital Markets downgraded D.R. Horton Inc. (DHI-N), the largest homebuilder in the U.S. by volume, to a “sector perform” rating from “outperform,” citing an anticipated slowdown in the sector. The bank lowered its price target to US$101 from US$104. The average analyst target is US$108.31.

RBC analyst Mike Dahl said his bank is growing more cautious on builder stocks near-term and believes that D.R. Horton’s order trends over the next several quarters “will limit further meaningful positive earnings revisions.”

“Net, DHI remains fundamentally well positioned, however we believe a combination of flattish order growth and a slowdown in broader macro housing data limits the potential for significant positive near-term revisions and upside to the stock, in our view, especially given still-elevated investor expectations and DHI being a consensus long,” Mr. Dahl said in a note.

RBC now expects a flat order book for the homebuilder in the third quarter, down from its previous forecast of 16 per cent growth and below the consensus view of 5 per cent growth. Mr. Dahl noted that management recently indicated orders could lag housing starts as it holds off on sales until later in the construction phase and looks to rebuild inventory ahead of its fiscal 2022.

RBC also downgraded TRI Pointe Homes Inc. (TPH-N), going to “underperform” from “sector perform”, but kept its price target on that homebuilder at US$22.

Similar negative trends were cited, including “a notable sequential decrease in the breadth and magnitude of price increases” for new homes. RBC noted that 47 per cent of homebuilding plans raised prices in June, down from 72 per cent in May.

“In our view, TPH has one of the more challenging near-term setups as order paces cool from extremely elevated levels while community count remains under pressure until fiscal year 2022,” Mr. Dahl said in a separate note.

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Scotiabank analyst Robert Hope downgraded Gibson Energy Inc. (GEI-T) to “sector perform,” citing valuation concerns. The rating change was part of an otherwise bullish review of the midstream energy sector in which it raised price targets on several stocks.

“We continue to view Gibson as a well run infrastructure company with a visible growth profile and strong balance sheet,” Mr. Hope said. “Looking forward, potential positive catalysts for the shares could include: 1) stronger energy environment improving marketing returns, 2) additional tankage announcements, and 3) expansion of its diluent recovery unit. We believe that the first two points have largely been priced into the shares at recent levels.”

He thinks Gibson could be a takeover candidate at some point, but not in the next year. He maintained a $25 price target. The average analyst target is $25.04.

His price targets went up for Enbridge Inc. (ENB-T) (to C$55 from C$54); Keyera Corp. (KEY-T) (to C$37 from C$32); and Tidewater Midstream and Infrastructure Ltd (TWM-T) (to C$1.75 from C$1.25).

“Given the expectation of lower growth for the group (relative to a few years ago), in addition to more stringent ESG considerations, we doubt the pipeline and midstream group gets back to valuation levels seen in the middle part of the last decade. However, getting valuations back towards their 5-year or 10-year average seems very reasonable to us. Driving this multiple expansion would be further clarity on the growth outlook for the sector in part driven by improved egress, renewed drilling activity in the basin, LNG Canada inching closer to completion, and further strengthening of the group’s balance sheet. In addition, we note that recently announced consolidation in the space highlights that quality assets are still desired. We increase our target multiples for most names in the group to reflect this expectation, which implies additional upside for the group,” Mr. Hope said in note.

“Keyera remains our favourite midstream name. We believe that Enbridge’s valuation will continue to improve as Line 3 construction progresses. AltaGas remains our favourite utility, though this is in part due to its midstream exposure,” he added.

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Citigroup analyst J.B. Lowe raised his price target on Precision Drilling Corp. (PD-T) to C$55 from C$36 while reiterating a “neutral/high risk” rating.

The change in his price target reflected an increase to his 2021 and 2022 EBITA forecasts because of expectations of better margins during the recovery.

The move was part of an overall review of the North America oil services sector, in which it articulated a preference for exploration and production stocks in the energy sector over oil service stocks.

Oil Service stock performance has been solid so far this year, with the Oil Services Vaneck ETF up 33%, but that has lagged XOP, the S&P Oil & Gas Exploration & Production ETF, which is up 54%). “This primarily reflects a belief (and underlies our E&P over OFS preference) that oil price inflation will benefit E&P shareholders more than OFS revenues,” Citigroup analysts said.

“The key question now is, will this continue? We believe so as the 2022 free cash flow yield gap between large cap E&P and OFS of about 500 basis points still seems too large. Moreover, given underlying cost inflation, we don’t foresee OFS delivering sufficient positive revisions during 2H to alter this view.”

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Canaccord Genuity initiated coverage on Dentalcorp Holdings Ltd. (DNTL-T) with a “buy” rating and C$19 price target.

“Having spent the last decade consolidating the fragmented Canadian dental industry, DNTL has emerged as the largest network of dental practices in the country with over 400 locations covering about 75% of the population. It has designed a repeatable acquisition playbook that has proven to be successful, alongside building a robust and recurring revenue base that is expected to start generating free cash flow this year. In May 2021, DNTL completed its IPO and is now sufficiently de-levered and re-capitalized to fund several years of accretive M&A growth,” commented analyst Tania Gonsalves.

The average analyst target is C$18.38.

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Truist Securities raised its price target on NVIDIA Corp. (NVDA-Q) to US$910 (from US$768) and reiterated a “buy” rating.

“Thesis remains: NVDA is the leader in parallel compute for AI that affords the company structural growth, deserving a premium,” said analyst William Stein.

He said proprietary checks of component buyers and sellers suggest the 2022 datacenter end market will continue to grow rapidly.

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In other analyst actions:

Aritzia Inc. (ATZ-T): Canaccord Genuity raises target price to C$41 from C$36 ) and maintains a “buy” rating “in advance of what we believe will be another strong quarter and Q2/F22 guide from Aritzia.”

Lundin Mining Corp. (LUN-T): Barclays raises rating to “equal weight” from “underweight” and maintained a C$10 price target.

Oceanagold Corp. (OGC-T): Barclays cuts to “equal weight” from “overweight” and maintained a C$2.50 price target.

Southern Copper Corp. (SCCO-N): Barclays cuts target price to US$55 from US$57 and raises rating to “equal weight” from “underweight.”

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