Inside the Market’s roundup of some of today’s key analyst actions
Several analysts raised their price targets on Laurentian Bank (LB-T) but they came with some words of caution.
The Quebec-focused bank reported adjusted earnings per share of C$1.25, well surpassing the average Street estimate of $1.08, but this was mostly due to abnormally low provisions for credit losses and elevated capital markets revenue - both of which some analysts expect to decline back to more normal levels in coming quarters.
“We continue to have concerns about where LB’s earnings power will ultimately land in a post-COVID, more digitally-focused banking landscape as management looks to stem its underperforming loan book, while also trying to catch up with peers on its lagging technological capabilities,” said Credit Suisse analyst Mike Rizvanovic in a note to clients.
Mr. Rizvanovic raised his price target to C$44 from C$42 but reiterated an “underperform” rating.
He noted that Laurentian Bank continues to materially underperform in residential mortgages, with balances down about 1 per cent from the previous quarter, whereas peers reported about a 3 per cent increase on average. “We expect further near-term weakness for LB relative to peers with management not anticipating a meaningful turnaround for another 18 to 24 months,” he said.
He also believes the company’s technology needs an update. “We believe that LB’s lack of mobile banking capabilities could present challenges around client retention in a post-COVID world that continues to gravitate to digital delivery channels,” he said.
Elsewhere on the Street, CIBC raised its price target to C$45 from C$43, while RBC increased its target price to C$52 from C$51. However, Cormark Securities cut its target price to C$46 from C$47.
The average analyst price target is now C$46.70, according to Refinitiv Eikon data.
RBC analyst Darko Mihelic noted Laurentian is due to provide some high-level guidance next quarter on its ongoing strategic review. For now, he’s taking a more bullish view on the stock: “We continue to view valuation as attractive as our earnings model is not aggressive and we also suggest its excess capital position is significant,” he said. As such, the company has flexibility to conduct stock buybacks. He maintained an “outperform” rating.
RBC analyst Luke Davis upgraded Parex Resources Inc. (PXT-T) to “outperform” from “sector perform” after having an indepth discussion with company executives.
“In our minds, PXT has laid out a solid path to derisk the long-term production profile while continuing to evaluate exploration prospects,” Mr. Davis said. His upgrade reflected both a recent pullback in the stock, as well as “what we view as a constructive update with the new CEO.”
The analyst has a C$28 price target on the stock.
Imad Mohsen joined Parex as president and CEO in February 2021, leading to questions around the strategic direction of the company and what types of changes could be ahead.
“At a high level, management indicated an invigorated enthusiasm with the company’s position in Colombia and the depth of the opportunity set, which was backstopped by the recent bump in growth capital,” Mr. Davis said.
He believes the company’s free cash generation should underpin its long-term sustainability. “We see the company generating free cash below US$40/bbl Brent, even after accounting for a 10% reduction to our base production volume estimate, which we believe underpins the resiliency and sustainability of the model,” he said.
Meanwhile, he believes the company will take a conservative approach to managing cash on its balance sheet given the volatility in its business. “Based on our current estimates, we see the company exiting 2021 with approximately $350 million in net cash on the balance sheet. Management plans to keep the balance in the $300-350 million range near-term while continuing to return cash to shareholders via a roughly 10% annual buyback and the recently implemented dividend.”
The average price target among analysts is C$32.93.
Desjardins Securities analyst Benoit Poirier is encouraging investors to buy shares of BRP Inc. (DOO-T) this morning after it reported impressive second-quarter results across the board.
Revenue of C$1.904 billion was up 54 per cent from a year earlier and beat consensus of C$1.718 billion. Fully diluted earnings per share of C$2.89 far surpassed the consensus of $1.37. All of its business segments reported strong growth.
BRP revised its guidance for the fiscal year 2022 upwards once again, targeting normalized EPS of C$8.25–9.75, up from C$7.75–8.50. Consensus on that metric had been $8.33 million.
“Overall, we are extremely pleased with BRP’s performance in 2Q, which demonstrated once again management’s ability to deliver solid results despite ongoing supply chain issues. Commentary on FY23 should also reassure investors that FY22 results do not represent peak earnings. We encourage investors to buy the shares this morning,” Mr. Poirier said in a note released prior to the company’s 9 am ET conference call Thursday.
He has a “buy” rating on the stock and a C$131 price target. The average price target among analysts is C$116.93.
CIBC analyst Scott Fromson initiated coverage on Slate Office REIT (SOT-UN-T) with a “neutral” rating and C$5.75 price target. Despite a diversified property of portfolios across Canada, he’s concerned with sluggish property trends in Atlantic Canada.
“Slate Office REIT’s portfolio of properties has demonstrated stability during the COVID-19 pandemic and we forecast a moderate rental rate increase for 2022,” Mr. Fromson said in a note to clients. “However, given the muted outlook for its Atlantic Canada properties and the significance of that region to its portfolio, combined with elevated leverage and discount valuation, we are cautious on the outlook in the near term.”
He noted the REIT is trading at a discount valuation relative to the overall REIT sector. “The depressed valuation partly reflects underperformance in Atlantic Canada as declining regional occupancy, currently 74%, is dragged down by Newfoundland’s 55% and New Brunswick’s 63%. While there is growing lease momentum in Ontario, we believe occupancy issues present a challenge to FFO growth and asset valuations should the REIT look to recycle capital by selling properties. Further, the REIT has relatively high leverage at 58% debt-to-GBV (vs. a peer average of 43% and a range from 31% to 58%), as well as high-cost equity (7.4% current yield). These factors could hamper Slate Office’s strategy to grow by acquisition,” he added.
The average price target among analysts is C$5.63.
CIBC’s Mr. Fromson also initiated coverage on Dream Office REIT (D-UN-T), and sees greater upside for that REIT, assigning an “outperformer” rating and C$26.50 price target.
“We believe the REIT is a good way to gain exposure to the operational recovery of the Canadian office space, which is still in its early stages, and see a continuing disconnect between the REIT’s favourable investment characteristics and current valuation levels,” he said in a note.
“We see the REIT’s FFO [funds from operations] growth opportunities as threefold: 1) Near-term lease-up opportunities in downtown Toronto “boutique” properties that have been renovated and recapitalized; 2) Redevelopment projects that will add to longer-term unit value as the REIT meets milestones; and, 3) FFO growth leveraging the solid balance sheet and/or asset sales,” he said.
Mr. Fromson has little doubt that office workers will soon be busily occupying downtown Toronto, which Dream Office REIT has considerable exposure to. “We believe the return is a matter of when, not if,” he said.
He noted the company’s properties are well suited for a wide range of tenants: “traditional” Class A office towers attract professional services firms, while mid-rise, historic “‘boutique” buildings appeal to creative-class companies.
The average price target among analysts is C$24.94.
Several analysts have raised their price targets on Alimentation Couche-Tard Inc. (ATD-B-T) in the wake of the company’s latest earnings. CIBC raised its price target to C$59 from C$54; Scotiabank raised its price target to C$61 from C$59; and TD Securities raised its target to C$58 from C$54.
The company’s first-quarter results were generally modestly better than expectations, although this was mostly tied to robust U.S. fuel margins. Same-store sales growth was mixed.
CIBC analyst Mark Petrie, who reiterated his “outperformer” rating, summed up his views by saying the company is “fuelled up for growth.”
“Q1 results carry significant noise and did little to change our thesis for Couche-Tard. Organic initiatives are bearing fruit, and we see a good runway for both top- and bottom-line growth. We view valuation as fair, with strong cash flow and an under-leveraged balance sheet supporting future value creation. We have increased our U.S. fuel margin assumption based both on favourable industry conditions as well as Couche-Tard’s proprietary work,” Mr. Petrie said in a note.
The average target among analysts is now C$57.33.
Major Drilling Group International Inc. (MDI-T) remains an “extremely cheap stock” even as it sees a swift recovery in margins and revenues, said Beacon Research Ahmad Shaath, who raised his price target Thursday.
The company reported fiscal first quarter 2022 revenue of $151 million, ahead of consensus $136 million and up 69% from a year earlier.
“MDI continued to report its best figures since the previous cycle, with revenue growth continuing to accelerate, and positive surprise in EBITDA where margins are recovering ahead of expectations,” Mr. Shaath said in a note. “New contract wins, renegotiated contracts at higher prices, utilization improvement, improvement in COVID-related restrictions in South America and Asia, and continued conservatism by Bay-Street regarding estimates all point to strong performance in share price ahead in our view. At 7.8x estimated fiscal 2022 EBITDA, MDI shares are exceptional value.”
He raised his price target to $15 from $13 and reaffirmed a “buy” rating.
Several analysts raised their price targets on Advantage Energy Ltd. (AAV-T).
CIBC raised its price target to C$7 from C$6; Raymond James to C$7 from C$6.5; and TD Securities to C$6.50 from C$5.50
In other analyst actions:
Canadian National Railway Co (CNR-T): Bernstein raised its price target to C$168 from C$159
Canadian Pacific Railway Ltd (CP-T): Bernstein cut its price target to C$99 from C$105
First Quantum Minerals Ltd (FM-T): Jefferies cuts price target to C$42 from C$50
Foran Mining Corp (FOM-X): BMO initiates coverage with outperform rating; PT C$2.75
Nevada Copper Corp (NCU-T) RBC cuts price target to C$0.25 from C$0.50 and Scotiabank cuts price target to C$0.15 from C$0.25.
Softchoice Corp (Ca) (SFTC-T): National Bank of Canada starts with C$40 target price and a “sector perform” rating.
Tantalus Systems Holding (GRID-T): PI Financial starts with “neutral” rating and price target of C$2.65
Starbucks Corp (SBUX-Q): Deutsche Bank starts with “hold” rating; price target $127
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