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

After a record quarter, Canaccord Genuity analyst Derek Dley expects Aritzia Inc. (ATZ-T) to maintain its positive momentum.

He was one of several equity analysts on the Street to raise their targets for the Vancouver-based apparel maker following Wednesday’s release of “significantly” better-than-expected third-quarter results and a raise to its full-year fiscal 2022 guidance.

“In our view, Aritzia has done a great job of navigating a changing retail landscape by offering an aspirational customer experience within its brick-and-mortar locations and an improved e-commerce platform,” said Mr. Dley. “With over 20 consecutive quarters of samestore sales growth prior to the onset of COVID-19, and strong growth this quarter, a robust pipeline of new store openings, a healthy balance sheet to support growth and margin enhancement initiatives, and a well-aligned management team, we believe Aritzia is deserving of a premium valuation.”

Aritzia reported revenue of $350-million and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $73-million. Both results easily topped both Mr. Dley’s estimates ($295-million and $47-million, respectively) and the consensus forecasts on the Street ($296-million and $46-million.

“The 75-per-cent increase in revenue year-over-year was underpinned by strength in both the instore and online channels,” said Mr. Dley. “At Aritzia’s boutiques, revenue increased 95 per cent year-over-year, with comparable sales at the stores increasing by 14 per cent above Q2/F20, indicative of demand that remains above pre-pandemic levels. This occurred despite 50 per cent of Canadian stores being closed for half of the quarter. Growth in the U.S. remained robust, with U.S. sales now representing 42 per cent of consolidated revenue. Similarly, Aritzia delivered e-commerce revenue growth of 49 per cent year-over-year, a notable figure given that the company witnessed year-over-year e-commerce sales growth of 82 per cent in Q2/F21.”

“Aritzia updated its full-year revenue guidance to $1.25-1.30 billion, up from $1.20-1.25 billion last quarter, which represents an increase of 45-50 per cent year-over-year. Ecommerce growth remains robust despite facing COVID-19 led comps from last year, while the company’s brick-and-mortar stores are now back to operating above prepandemic levels.”

After increasing both his 2022 and 2023 financial projections, Mr. Dley raised his target for Artizia shares to $50 from $43, reiterating a “buy” recommendation. The average on the Street is $47.25, according to Refinitiv data.

Other analysts making target adjustments include:

* RBC’s Irene Nattel to $44 from $43 with a “sector perform” rating.

“Very strong FQ2 reinforces our conviction on ATZ, SP rating reflects valuation/relative upside potential,” said Ms. Nattel. “FQ2 results were well above forecast and high-end of consensus, with overall performance now exceeding pre-pandemic trends, reinforcing our views around the strength, sustainability and upside potential of ATZ’s unique business model. Tweaking forecasts upward to reflect much better than expected FQ2 results, H2 revenue expectations that are above forecast, but largely offset by higher SG&A.”

* BMO Nesbitt Burns’ Stephen MacLeod to $49 from $43 with an “outperform” rating.

“Aritzia is well-positioned to drive long-term growth, with ample liquidity, strong omnichannel platform, category expansion opportunities, and a loyal employee and client base,” said Mr. MacLeod.

* CIBC World Markets’ Mark Petrie to $52 from $43 with an “outperformer” rating.

“Aritzia delivered blowout Q2 results driven by robust and well-rounded revenue growth and excellent margin performance. U.S. momentum is accelerating, and though supply chain challenges are present, the company is well-positioned for the holiday period and F23. Accelerating growth supports a premium valuation,” said Mr. Petrie.

* TD Securities’ Meaghen Annett to $53 from $44 with a “buy” rating.


Ahead of the release of its third-quarter results, Scotia Capital analyst George Doumet sees upside in shares of Colliers International Group Inc. (CIGI-Q, CIGI-T) both in the near and longer term.

“CIGI is the most scalable company we cover, and arguably, the most synergistic in its M&A,” he said. “We expect outsized growth for CIGI through our forecast horizon, driven by the rapid recovery underway in office leasing and capital markets activity and by the deployment if its currently underlevered b/s.”

For the quarter, Mr. Doumet is projecting revenue of US$953.3-million, up 35.1 per cent year-over-year and well ahead of the consensus of US$804.5-million. He’s expecting adjusted EBITDA of US$106.8-million, an increase of 11.4 per cent also beating the Street’s forecast of US$101.4-million.

Mr. Doumet noted the Toronto-based company has been able to increase its annual revenue and adjusted EBITDA by 14 per cent and 18 per cent, respectively, since launching its Enterprise 2020 plan in 2015.

“On the heels of the unveiling of another five-year plan (likely as soon as Q3/21 results), we look at where the next sources of growth will likely come from,” he said.

“While there remains some lingering uncertainty from the pandemic, we believe there is a clear path towards doubling adj. EBITDA over the next five years, with the key drivers (in our opinion) being: (i) consolidated organic growth in the low to mid single digits; (ii) margin expansion from all operating segments, but supported by the Americas (even though some substantial gains were made during the pandemic); (iii) a continued solid pace of bolt-on M&A, with a focus on the under-penetrated adjacent services (i.e., debt origination, real estate engineering & design and other real estate-related consulting services); and (iv) the potential for a handful of larger deals including in the Investment Management (IM) area.”

Maintaining an “sector outperform” rating for Colliers shares, Mr. Doumet raised his target to US$165 from US$152. The average is US$149.17.


In their quarterly commodity price update, analysts at Scotia Capital hiked their forecast for natural gas, leading to significant increases to their cash flow estimates and target prices for companies in their coverage universe.

“We materially increased our Henry Hub estimates through 2025+ on robust demand from LNG feedgas and exports to Mexico and flat production driven by producer discipline,” the firm said. “We also increased our AECO differential estimates through Q1/23, while leaving our long-dated forecasts unchanged. We expect the winter differential (i.e., Q4/21 and Q1/22) to widen to more than US$1.30 per metric million British thermal units, on higher Henry Hub pricing and increased seasonal volatility. We anticipate the differential to revert to a tighter range approximating transportation costs following the winter demand season and stabilize as western Canadian demand (e.g., from natural gas-fired power generation) and out-of-basin egress capacity increase.”

With that view, analysts raised their cash flow per share projections for gas-weighted companies by an average of 11 per cent in 2021 and 38 per cent in 2022.

For oil-weighted names, their estimates rose 4 per cent and 11 per cent after the firm kept its Brent and WTI price assumptions “relatively unchanged through 2026″ and maintained a “positive bias on the medium-term outlook.”

“We expect continued volatility on shifting sentiment on Iranian oil production, U.S. shale production, the state of the Chinese economy, and the pandemic’s impact on oil demand. Looking at the Canadian oil market, we expect differentials to widen in Q4/21 with major turnarounds now completed,” he said. “Additional pipeline egress is expected to provide runway for the next several years depending on the pace of production growth.”

Analyst Jason Bouvier upgraded MEG Energy Corp. (MEG-T) to “sector outperform” from “sector perform” with a $13 target, up from $10 and exceeding the $12.28 average on the Street.

“At the current share price MEG offers an attractive DAFCF yield,” he said. “We agree with management’s strategy of allocating all FCF towards debt repayment and see the balance sheet improving very quickly in the robust oil price environment. In addition, MEG represents a pure play on a top quality thermal oil sands project, which makes the company an ideal candidate for a potential acquisition. Lastly, MEG continues to hold significant tax pools, which in the current high oil price environment would offer a potential acquiror incremental benefits by reducing its near-term cash taxes.”

Concurrent with the price deck changes, the firm raised its target prices for shares by an average of 20 per cent.

The biggest changes included:

  • NuVista Energy Ltd. (NVA-T) by 42 per cent to $8.50 from $6 with a “sector perform” rating. The average target is $6.80.
  • Kelt Exploration Ltd. (KEL-T) by 39 per cent to $8 from $5.75 with a “sector outperform” rating. Average: $6.15.
  • Birchcliff Energy Ltd. (BIR-T) by 38 per cent to $11 from $8 with a “sector outperform” rating. Average: $8.57.
  • Baytex Energy Corp. (BTE-T) by 36 per cent to $3.75 from $2.75 with a “sector perform” rating. Average: $3.92.

Scotia’s top picks among large cap oil-weighted stocks are:

  • Canadian Natural Resources Ltd. (CNQ-T) to $60 from $52 with a “sector outperform” rating. Average: $57.20.
  • Cenovus Energy Inc. (CVE-T) to $16.50 from $14 with a “sector outperform” rating. Average: $16.99.

It’s top large-cap pick among Montney/natural gas stock is Tourmaline Oil Corp. (TOU-T) with a $76 target, up from $59 and above the $58.42 average, with a “sector outperform” rating.


Seeing an improved outlook for 2022, RBC Dominion Securities analyst Luke Davis upgraded Pipestone Energy Corp. (PIPE-T) to “outperform” from “sector perform” on Thursday, pointing to its “strong execution, high-quality liquids-weighted Montney acreage with significant room for long-term expansion, and leading FCF profile.”

“In our view, execution has continually improved as the company has delineated its core development block with a considerable improvement in well costs as management has standardized and optimized drilling and completions,” said Mr. Davis. “We see the potential for near-term multiple expansion driven by (1) continued growth into available processing capacity, (2) the recent improvement in trading liquidity (see our recent note here), (3) peer-leading FCF generation, and; (4) the likely implementation of a buyback and/or dividend.”

Mr. Davis said he continues expect the Calgary-based company to initiated a share buyback in 2023, however he now sees the potential for that plan to be pushed up.

“Management has previously noted a view that the company’s shares remain fundamentally undervalued,” he said. “Given the strong free cash profile we expect in 2022 and beyond, we have modeled the initiation of a 10-per-cent buyback beginning in 2023, though we would not be surprised to see an announcement much sooner. At the current share price, we estimate that amounts to roughly $75-80 million, though this would vary based on prevailing market conditions. The company may also elect to layer in a dividend and is likely to allocate incremental capital to infrastructure in order to support longer-term expansion, in our view.”

With its balance sheet in “great shape” and expecting its valuation discount to “narrow over time,” Mr. Davis increased his target for Pipestone shares to $4 from $2.50. The average target on the Street is $3.58.

“At our updated outlook, PIPE shares trade at 1.9 times/2.2 times 2022/23 estimated EV/DACF [enterprise value to debt-adjusted cash flow] vs peers at 3.0 times/2.5 times,” he said. “We believe the discount should narrow and currently reflects a higher risk profile given earlierstage of development (though we think this haslargely been addressed), lack of trading liquidity which may improve near-term, and comparative size.”


In response to Tuesday’s release of “positive” Preliminary Economic Assessment (PEA) results for its South-West Arkansas (SWA) Lithium Project, Stifel analyst Anoop Prihar upgraded Standard Lithium Ltd. (SLI-X) to “buy” from “hold,” seeing it as a sign of its “ability to exploit the significant resource potential in the Smackover Formation.”

“Based on a long term lithium hydroxide price of US$15,000 per ton and a 9-per-cent discount rate, we estimate the value of the SWA project at $9.65 per share,” he said. “We now value the LANXESS project at $4.50 per share, which is derived based on our current long term LCE price assumption of US$13,500 per ton and a revised project timeline.”

Mr. Prihar hiked his target to $12.40 from $4.30. The current average is $9.41.


Desjardins Securities analyst John Sclodnick has increasing expectations for Prime Mining Corp.’s (PRYM-X) Los Reyes gold and silver project in Sinaloa, Mexico.

Previously viewing it as “primarily a heap leach operation with a resource based on historical drilling,” he now thinks drilling at the mine has “quickly shown that this would be developed as an open pit mill operation.

“Drilling completed by Prime has returned higher-grade results than historically — too high to be heap leached, in our view,” said Mr. Sclodnick. “In addition, a significantly higher silver grade has been reported in the drilling by Prime, with silver making up 40 per cent of the value of the more recent drilling. The weighted average gold-equivalent grade from Prime drilling of 3.64 grams per ton gold equivalent is 128 per cent higher than the 1.60 g/t Aueq from historical drilling.”

Now seeing a “growing high-margin project,” the analyst hiked his target for the Vancouver-based company to $7 from $3.90, exceeding the $5.70 average on the Street.

“We expect the company to continue to drive value through the drill bit, extending known mineralization, and to continue its track record of discoveries,” he said.


Scotia Capital analyst Mark Neville sees Canadian Engineering and Construction companies “as being largely insulated” from the issues brought on global supply chain disruptions and the inflationary pressures for logistics and raw materials.

“All three companies (i.e., SNCL Services, Stantec, and WSP) had very consistent performance (revenue and margin) through the pandemic, with the businesses now returning to growth,” he said in an earnings preview note. “Moving forward, we see all as likely beneficiaries of potential infrastructure stimulus (notably in the U.S.), and enablers of the decarbonization efforts and sustainable infrastructure investments of private companies and governments around the world. M&A will also likely be additive to growth and equity values, with WSP and STN actively doing deals, while SNC is still likely a year or so away.”

Mr. Neville raised his WSP Global Inc. (WSP-T) target to $175 from $150, exceeding the $168.50 average, with a “sector perform” rating.

He also increased his Stantec Inc. (STN-T) target to $72 from $66 with a “sector outperform” rating. The average is $66.71.

Mr. Neville maintained a $50 target, exceeding the $42.62 average, and a “sector outperform” recommendation for SNC-Lavalin Group Inc. (SNC-T).

“In terms of valuation, SNC is an outlier” he said. “Specifically, we estimate SNCL Services trades at 7.2 times EV/EBITDA on our 2022E estimates vs. WSP at 14.8 times and STN at 13.3 times ... While we acknowledge SNC’s lack of FCF generation (and, in our opinion, the reason for the massive discount), this has been due to the Oil & Gas business (that has been sold) and other LTSK projects (with backlog now reduced to $1.4-billion). As such, while unproven, we see a clear path to a much-improved, consistent, and low risk FCF profile and, therefore, higher trading multiple. For context, every 1-times turn on the SNCL Services multiple equates to approximately $4 per share of equity value.”


In a research note previewing the fall season for agriculture, fertilizer and chemical companies, CIBC World Markets analysts Jacob Bout made a series of target price adjustments.

“Fertilizer and chemical prices have continued to surge, driven by supply-side curtailments, solid demand fundamentals/recovery and higher input cost inflation. As such, we have increased our forward estimates and price targets for NTR, MOS, MEOH and CHE.UN (adjusting for recent divestment),” he said. “But concerns around cost inflation/affordability are rising and we are starting to see some signs of potential demand destruction. Our top picks are NTR and CHE.UN.”

His changes included:

  • Nutrien Ltd. (NTR-N, NTR-T) to US$80 from US$77 with an “outperformer” rating. The average is US$75.88.
  • Methanex Corp. (MEOH-Q, MX-T) to US$55 from US$39 with a “neutral” rating. Average: US$51.15.
  • Chemtrade Logistics Income Fund (CHE.UN-T) to $10 from $8.50 with an “outperformer” rating. Average: $8.93.


In other analyst actions:

* Raymond James analyst Michael Shaw trimmed his target for Keyera Corp. (KEY-T) to $33 from $33.50 with an “outperform” rating. The average is $34.68.

“Our 3Q estimated adj. EBITDA for Keyera is $229-million, very slightly behind the $232-million consensus estimate,” he said. “We expect the deviation from the consensus is largely the product of sales timing in the marketing segment related to Alberta EnviroFuels (AEF). EBITDA from KEY’s Liquids Infrastructure and G&P segments should be largely flat quarter-over-quarter.

“Focus for investors will likely be on the progress of the KAPS pipeline and any change in producer willingness to commit to contracts amid higher commodity prices and volumes. Our expectation is for only modest update on KAPS, with producers likely waiting for the project to progress before committing to more volumes.”

* Scotia Capital analyst Paul Steep cut his Real Matters Inc. (REAL-T) target to $14 from $17, reiterating a “sector perform” rating. The current average is $18.56.

“We remain cautious on Real Matters shares given the impact of repositioning the firm’s U.S. title business and cyclicality in the U.S. mortgage refinancing market,” said Mr. Steep. “We would opt to take a cautious approach to the stock in watching for stabilization of the firm’s Title operations and up-take by new Tier 1 & 2 clients in this segment. Factors we are monitoring in revisiting our view on the shares include the ramp-up of volumes in U.S. Title, given the new Tier 1 client launch earlier in 2021 and additional new client wins.”

* CIBC World Markets analyst Kevin Chiang increased his Waste Connections Inc. (WCN-N, WCN-T) target to US$140 from US$136, keeping an “outperformer” rating. The average is US$140.83.

* CIBC’s Dean Wilkinson raised his Tricon Residential Inc. (TCN-T) target to $18.50 from $17, keeping an “outperformer” rating. The average is $17.29.

“Tricon has completed its recently announced IPO in the United States, which was accompanied by the listing of its common shares on the NYSE and a concurrent private placement of common shares to Blackstone REIT. We view the offering in an incrementally positive light, given 1) the U.S. listing opens up a wider investor base (a net positive, all things equal); 2) with units trading near NAV parity, we believe that it makes financial sense to raise equity at current prices to pay down debt (units have historically traded within a wide range of discounts to NAV); and 3) Blackstone’s participation in the deal (essentially maintaining its ownership) speaks to this core investor’s continued conviction in the outlook for TCN shares,” he said.

* Mr. Wilkinson bumped up his Granite REIT (GRT.UN-T) target to $105 from $92 with an “outperformer” recommendation. The average is $98.20.

* CIBC’s John Zamparo raised his MTY Food Group Inc. (MTY-T) target to $84 from $74, keeping an “outperformer” rating. The average is US$72.69.

* CIBC’s Cosmos Chiu cut his Fortuna Silver Mines Inc. (FVI-T) target to $8 from $9 with a “neutral” rating. The average is $6.99.

* CIBC’s Stephanie Price cut her target for Dye & Durham Ltd. (DND-T) to $44 from $50.50 with a “neutral” rating. The average is $53.

“On a fundamental basis, DND appears to be trading at a significant discount to software consolidator peers. However, we view a discount to peers as warranted given the conclusion of the strategic review, corporate governance concerns arising from option grants to CEO Matthew Proud and the ongoing U.K. competitive review of the TM Group acquisition,” said Ms. Price.

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