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

Pointing to “strong” agricultural activity and fertilizer prices, RBC Dominion Securities analyst Andrew Wong expects Nutrien Ltd. (NTR-N, NTR-T) to report “solid” third-quarter financial results on Nov. 2, seeing “upside potential as estimates continue to be revised upwards.”

“Potash prices continued to climb on strong demand, lower global operating rates, and low inventories,” he said. “Nitrogen prices also moved up after a brief lull in the summer seasonal slowdown due to strong demand and high global energy prices. We note some operational issues in the nitrogen segment with Geismar impacted by Hurricane Ida and extended planned turnarounds.”

For the quarter, Mr. Wong is projecting adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of US$1.5-billion, just below the consensus forecast of US$1.6-billion.

Looking ahead to 2022, Mr. Wong expects tight market conditions to continue with fertilizer prices remaining elevated ”even if there is some normalization, as high crop prices support strong fertilizer demand, there are less new capacity start-ups, and global inventories are low.”

He increased his 2022 and 2023 EBITDA estimates to US$7.8-billion and US$6.2-billion, respectively, from US$6.5-billion and US$5.6-billion. Both exceed the consensus projections of US$6.4-billion and US$5.7-billion.

“We expect higher volumes in 2022 due to ramp-up of idled potash capacity and less nitrogen turnarounds, and higher realized prices,” the analyst said. “We also expect Retail to continue benefiting from strong ag fundamentals, but note EBITDA may be flat year/year as elevated Crop Nutrient subsegment margins may normalize due to less opportunity to sell into a rising market. We expect relatively strong fertilizer price ranges through 2023 as tight grain markets should support strong fertilizer demand amid less new capacity start-up potential. We acknowledge fertilizer affordability concerns and current high prices are likely unsustainable, but strong crop prices, favourable farm economics and low fertilizer inventories should support elevated fertilizer prices well above historical levels.”

With his higher earnings estimates, Mr. Wong raised his target for Nutrien shares to US$80 from US$73, exceeding the US$76.06 average, with an “outperform” rating.

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While its first-quarter 2022 preliminary revenue result fell below the Street’s expectation, BTIG analyst Mark Palmer thinks Voyager Digital Ltd. (VOYG-T) remains poised to continue its rapid growth in funded accounts and verified users, pointing to “a platform that combines several elements that have made it an attractive option for both retail and institutional crypto traders.”

Despite big gains in the crypto market, shares of the New York-based company, which operates the only fully regulated cryptocurrency-only brokerage in the United States, dropped 8.1 per cent on Wednesday after it revealed a preliminary revenue estimate for the quarter of US$63-million to US$67-million, down from US$109-million in the fourth quarter and well below the consensus estimate of US$102.6-million. However, total funded accounts and verified users on its platform rose year-over-year by 29 per cent and 23 per cent, respectively, to 860,000 and 2.15 million.

“We believe the consensus estimate for VOYG’s 1Q22 revenues was well ahead of the estimated range because it failed to reflect the crypto market volume declines that occurred in July and August that have a direct impact on the company’s transactional volume,” said Mr. Palmer. “The company’s net new deposits of approximately $827-million during 1Q22 were down from the very strong inflows of $1.62-billion seen in the prior quarter, which also reflects reduced market volumes stemming from the dampening of enthusiasm among crypto investors following the price declines that began in May.

“Management noted that VOYG had seen its trading volume rebound since the depressed levels reached in July, which is consistent with a general uptrend in crypto prices. They also noted that the company’s foray into staking was expected to boost its recurring revenues, and they estimated that staking rewards and yield revenue would generate between $40-million and $50-million in revenues during 2Q22.”

Despite the miss, Mr. Palmer thinks Voyager is “well positioned to sustain the growth it has generated during the past several quarters, and that product and geographic expansions such as the acquisition of Coinify should further that effort.”

However, due to lower revenue expectations stemming from the release, Mr. Palmer reduced his target for its shares, which began trading on the TSX in early September, to $31 from $36 with a “buy” rating. The average on the Street is $30.21.

“Inasmuch as Voyager Digital’s share price has declined by more than 65 per cent from its all-time-high achieved in early April, the extent of that retreat is somewhat difficult to fathom given the continued strong growth in verified users and funded accounts on the company’s cryptocurrency platform, especially at a time in its lifecycle when traction on those fronts is paramount,” he said. “That growth in VOYG’s users and accounts represents meaningful progress in the ongoing ‘land grab’ among crypto platforms, a development that is significantly more important to its long-term prospects than near-term swings in trading volume that reflect the volatility of the market on which it is focused, in our view.”

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Scotia Capital analyst Michael Doumet cut his third-quarter earnings forecast for Ag Growth International Inc. (AFN-T) as “supply chains issues are increasingly being flagged by manufacturers as a source of earnings risk.”

“For AGI, we expect the primary source of (transitory) margin risk to come from higher steel prices (incremental pressure from higher freight and labor costs appear more manageable),” he said. “On the 2Q21 conference call, management expressed confidence that 2021 EBITDA will land toward the high-end of the previously published consensus range (i.e. $168-million to $174-million).

“While achieving EBITDA of $170-million remains in the cards, our forecasts are more conservative (and a touch below consensus). That said, the backdrop remains favorable, the backlog is very healthy, profitability in India/Brazil/Technology are inflecting, and despite the mostly transitory supply chain issues, AFN is set to generate healthy levels of EBITDA.”

Though he expects “a strong margin bounce back” in the fourth quarter, Mr. Doumet also lowered his target for Ag Growth shares to $37 from $40 with a “sector perform” rating. The average on the Street is $45.

“AFN trades at 7.4 times EV/EBITDA on our 2022 estimates, compared to a historical average of 9.2 times,” the analyst said. “While we see value in AFN, especially given its strong EBITDA outlook for 2021E/2022E, our focus remains on its FCF generation and B/S deleveraging – whereby we would view an improvement as a positive catalyst.”

In a separate note, Mr. Doumet reduced his Savaria Corp. (SIS-T) target to $23 from $23.50 with a “sector outperform” rating with a similar industry view. The average is $24.75.

“For SIS, we expect the primary source of (transitory) margin risk to come from higher freight costs; incremental pressure from higher input and labor costs appears more manageable,” he said. “Given the price increases announced to date (and the strong demand), we expect the margin pressure to be largely contained to 3Q21, with a solid bounce back in 4Q21. Importantly, we believe the company will meet its 2021 EBITDA guidance of more than $100-million (and carry strong profit momentum into 2022).

“SIS shares are down 10 per cent in the past 10 days. In our view, the supply chain issues are temporary and manageable for Savaria. We maintain our confidence in the company’s ability to drive growth rates of 8 per cent to 10 per cent (and structurally enhance margins). Taken with strong FCF conversion, declining leverage, and potential multiple expansion, we see a path to share price outperformance.”

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Seeing “strong macro tailwinds leaving valuation in the dust,” Desjardins Securities analyst David Newman thinks Parkland Corp.’s (PKI-T) current share price represents a buying opportunity ahead of the coming release of its third-quarter results and Nov. 16 Investor Day, which he sees near-term catalysts.

In a research note released Thursday, Mr. Newman raised his adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) expectation to $355-million from $339-million, exceeding the consensus on the Street of $340-million. Despite tough comps, he expects “solid” same-store sales growth at its convenience stores of 5 per cent, benefitting from the summer driving season.

“PKI should deliver solid results as the tailwinds from 1H21 continue, including the ramp in travel demand throughout the summer, strong fuel margins and crack spreads, and healthy c-store foot traffic,” he said.

Calling its stock “as cheap as a Kwik-E-Mart day-old donut,” Mr. Newman reiterated his “buy” rating and $50 target, which is 8 cents below the current consensus. Parkland closed at $35.94 on Wednesday.

“We believe the deep discount is unwarranted given (1) the overblown perception of the impact of electric vehicles, with PKI skewed toward remote areas and the Caribbean; (2) the pace of ESG adoption at PKI (gaining ground in co-processing and EV charging); (3) the overhang of COVID-19 on tourism in the Caribbean (strong forward bookings); and (4) the impact of COVID-19 on driving activity (10–15 per cent below pre-pandemic levels),” said Mr. Newman. “We ran multiple scenarios, including a sum-of-the-parts valuation and an analysis of the refinery, which concluded that PKI is too cheap to ignore.”

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For a third time in 2021, Scotia Capital’s Mark Neville cut his financial forecasts for Canadian auto parts manufacturers due to supply chain disruptions, particularly the global semiconductor shortage.

He now expects earnings to remain under pressure through the first half of 2022, however he sees “positive data points on production (not earnings) as the near-term catalyst for the equities.”

“While we had hoped that the situation would have shown some improvement by now, it is becoming increasing clear that these issues/challenges will persist (perhaps well) into 2022,” he said. “Accordingly, we have also materially lowered our 2022E, with a more meaningful volume recovery starting in 2H/22. We sit well below consensus over the near term but expect estimates to move lower and believe lower earnings have been largely reflected in the equity values.

“We have moved our valuation base to our 2023E, which reflects more ‘normalized’ production volumes, but have lowered our valuation multiples by 0.5 times to reflect the limited visibility on the timing/shape of the recovery – and the fact it’s effectively been pushed out a year. We continue to see significant value in the auto names, with volume improvements/production restarts likely acting as the catalyst to move the equities (potentially significantly) higher. However, trying to ‘call the bottom’ on supply chain issues is extremely difficult.”

With his reductions, Mr. Neville also cut his target prices for equities in his coverage universe, include:

  • ABC Technologies Holdings Inc. (ABCT-T, “sector outperform”) to $12 from $14. The average on the Street is $10.83.
  • Linamar Corp. (LNR-T, “sector outperform”) to $95 from $100. Average: $97.20.
  • Magna International Inc. (MGA-N/MG-T, “sector outperform”) to US$105 from US$115. Average: US$105.47.
  • Martinrea International Inc. (MRE-T, “sector perform”) to $17.50 from $19. Average: $17.89.

“We believe the equities could move meaningfully higher as supply constraints abate and production/sales ramp back up,” he said.

“While difficult to see the positives with production (and, in turn, sales) volumes being so severely constrained, its important to keep in mind that (i.) industry sales were extremely strong prior to the semiconductor shortage (i.e., April SAAR was more than 18 million units and March more than 17.5 million) and (ii.) inventory levels are now at/near historic lows, which will require a significant rebuild of the supply chain (likely two million+ units). In our view, it will take quite some time to build an incremental two million+ units when demand is already high. Also, importantly, B/S’s and liquidity positions are strong across the group, which should allow the companies to navigate this period of lower production volumes without too much stress (like 2020).”

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Heading into third-quarter earnings season, Scotia Capital analyst Konark Gupta sees greater upside potential for Canadian Pacific Railway Ltd. (CP-T) than Canadian National Railway Co. (CNR-T).

“Market expectations have come down due to weaker traffic trends in agriculture (low grain supply), autos (semiconductor shortage) and intermodal (supply chain issues),” he said in a research note. “While volumes are improving gradually and capacity tightness is aiding pricing, we believe Class 1s are likely to be cautious in the near term.

“We are modestly tweaking our CNR estimates, having recently revised our model, and are reducing our CP estimates.”

Mr. Gupta expects CN to report adjusted earnings per share of $1.40, up 1 per cent year-over-year. His CP estimate is 93 cents, a 13-per-cent rise. However, both sit below consensus expectations.

“We continue to see some risk to CNR’s EPS guidance for this year and now expect CP to cut traffic guidance (EPS guidance looks achievable),” he said. “Despite nearterm headwinds, we continue to like both Canadian rails for upcoming catalysts, driven by their strategic actions, including CNR’s renewed focus on margin (plus potential activism) and CP’s pending KSU acquisition.”

Mr. Gupta trimmed his target for CP shares to $105 from $110. The average on the Street is $103.75.

He maintained a $160 target for CN, which exceeds the $154.42 average.

He kept “sector outperform” recommendations for both stocks.

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In other analyst actions:

* Raymond James analyst Jeremy McCrea raised his target for PrairieSky Royalty Ltd. (PSK-T) to $19 from $17.75, keeping an “outperform” rating. The average is $17.33.

“We believe PrairieSky is one of the strongest business platforms in the basin, between its unique royalty assets, top profitability, and essentially no debt,” said Mr. McCrea. “The business hasn’t changed but as investors flocked to names with more torque, PSK’s share price has lagged. This is despite an unhedged production profile, third-party capital ramping back up, and two new emerging plays that look to be able to transform PSK’s business over the next decade.”

* Desjardins Securities analyst John Sclodnick raised his Integra Resources Corp. (ITR-X) target to $7.25 from $6.76 with a “buy” rating. The average is $7.48.

“In our view, while the increased capex could be a near-term headwind in this inflation-obsessed market, ultimately the higher production profile should be more attractive to a potential acquirer,” he said.

“We are maintaining our Buy rating, with two major catalysts expected in 4Q. The company expects to release the DeLamar pre-feasibility study in mid-November, which will be based on an updated resource update. We believe that the potential inclusion of some of the higher-grade veins below the current Florida Mountain pit shell could improve economics beyond what we currently model.”

* Berenberg analyst Richard Hatch upgraded Lucara Diamond Corp. (LUC-T) to “buy” from “hold” with a $1 target, up from 90 cents and above the 94-cent average.

* Mr. Hatch cut his Wheaton Precious Metals Corp. (WPM-N, WPM-T) to US$50 from US$52, keeping a “buy” recommendation, while BMO Nesbitt Burns’ Jackie Przybylowski cut her target to US$52 from US$53 with an “outperform” rating. The average is US$58.77.

“An outage at the Salobo mine (owned by Vale) is expected to persist for three weeks, and is expected to reduce production. We are updating our Wheaton Precious Metals estimates to reflect the outage, as Salobo is a material asset to Wheaton,” said Ms. Przybylowski.

* JP Morgan analyst Richard Sunderland trimmed his target for Fortis Inc. (FTS-T) by $1 to $59 with a “neutral” rating. The average is $59.03.

* RBC Dominion Securities analyst Sabahat Khan hiked his MTY Food Group Inc. (MTY-T) target to $62 from $52 with a “sector perform” rating. The average is $68.25.

“For Q3, we expect MTY Food Group Inc. to report Adjusted EBITDA of $45.4-million (up 4.7 per cent year-over-year; consensus: $42.1-million),” said Mr. Khan. “We expect results to reflect continued progress in the U.S. & International segment and improved trends in the Canada segment (which initially lagged the U.S. & International segment as the company started to move beyond the impact of the pandemic).”

* RBC’s Walter Spracklin bumped up his target for Westshore Terminals Investment Corp. (WTE-T) to $43 from $41 with an “outperform” rating. The average is $25.80.

“We reiterate ahead of Q3 that WTE remains our #1 name in our coverage,” he said. “We note that our call on WTE is high conviction and outright contrarian, reflecting our differentiated view on the competitive landscape and the long-term opportunity surrounding potash. Our target price of $43 is double that of current consensus targets, and implies a return to target of up 77 per cent. Our EBITDA estimates for 2023 are a full 70 per cent above consensus, further reflecting our contrarian view. We reiterate WTE as a top idea; and we would be buyers of the shares at current levels.”

* Canaccord Genuity analyst Anthony Petrucci hiked his Topaz Energy Corp. (TPZ-T) target by $1 to $24, reiterating a “buy” rating. The average is $21.31.

“We believe Topaz is a compelling way to gain exposure to increases in natural gas prices, while its infrastructure assets provide enhanced stability relative to other royalty options. TPZ offers a healthy yield, and its strategic relationship with Tourmaline (along with several work commitments in the Clearwater) suggests organic growth for the company,” said Mr. Petrucci.

* TD Securities analyst Vince Valentini cut his target for Quebecor Inc. (QBR.B-T) to $37 from $38 with a “buy” recommendation. The average is $38.29.

“We suspect that the overall competitive and M&A landscape in Canada is impacting the market environment in Quebec (national incumbents have more promotional dollars to allocate to Quebec because of less intensity being incurred elsewhere, and/or QBR trying to prove to policy makers that it is a desirable 4th wireless carrier),” he said. “One could argue that this is a temporary phenomenon, but that could still mean 3-4 quarters of headwind to financial results. We also expect national wireless expansion uncertainty to overhang the stock for another several months, which could keep QBR.B shares both range bound and arguably undervalued. We maintain our BUY rating because we think investors will realize over 12 months that too much capex/spectrum/acquisition risk is being priced into the stock.”

* Goldman Sachs analyst Jack O’Brien cut his Lundin Mining Corp. (LUN-T) target to $15.30 from $17 with a “buy” rating. The average is $13.10.

* Echelon Capital Markets analyst Michael Mueller initiated coverage of Next Hydrogen Solutions Inc. (NXH-X) with a “speculative buy” rating and $10.50 target. The average is $12.

“Next Hydrogen has over 13 years of IP development with 38 patents awarded globally on its innovative cell design offering significantly better operational performance, production rates, and costs compared to notable competitors,” he said. “An experienced team is a necessary component in an early-stage industry – Next has a combined 60+ years’ experience designing hydrogen systems. With momentum growing in support of hydrogen as a low-carbon energy source (and a storage vehicle for renewable electricity generation), Next Hydrogen has set itself to capture this potentially significant market (management estimates that the TAM for hydrogen could potentially reach US$80-billion by 2030).”

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