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

After “strong” third-quarter results, ATB Capital Markets analyst Waqar Syed called Trican Well Service Ltd. (TCW-T) “the clear leader in Canadian pressure pumping.”

The Calgary-based company reported earnings before interest, taxes, depreciation and amortization of $31.6-million, exceeding both Mr. Syed’s $28.6-million estimate and the consensus projection on the Street of $28.7-million. Earnings per share of 4 cents also topped forecasts (2 cents and nil, respectively).

“TCW continues to execute on key strategic initiatives, and with Canadian activity primed for a banner Q1/22 (channel checks suggest a rig count potentially hitting the 250 range), we are even more optimistic on the outlook for TCW as the leading Canadian pumper,” said Mr. Syed. “While the current Canadian pumping equipment supply/demand is in relative balance, we think E&Ps will demand more hydraulic horsepower (HHP) in early-2022, and want to emphasize that of the roughly 600k HHP idle capacity in Canada, TCW owns roughly half. One issue to monitor is the ability for pumpers to find labor, but TCW seems optimistic that it can staff an incremental fleet in Q1/22.”

Mr. Syed also called Trican a free cash flow “leader,” projecting $267-million between 2021 and 2023. He sees a lack of debt creating the potential for shareholder friendly capital allocation.

“The Company has already created clear differentiation from peers with equipment (84,000 hydraulic horsepower of announced Tier IV DGB equipment), and management commented that they may be willing to add a third Tier IV DGB fleet if backed by a contract that supports internal return thresholds,” the analyst said. “For 2022, we project FCF of nearly $94-million. The Company already has a NCIB in place, and it bought back 7.1 million shares (roughly 3 per cent of the shares outstanding) at $2.60 per share. In 2022e, it is possible that TCW, explores other ways of returning cash to shareholders, like a small regular dividend that allows income funds to invest in TCW. This could be coupled with special dividends. We think a return of cash to shareholders in the form of dividends will be rewarded.”

Raising his 2021 EBITDA projection by 6.6 per cent, Mr. Syed increased his target for Trican shares to $4 from $3.75 with an “outperform” rating. The average on the Street is $4.16.

“The underlying story for TCW is compelling, but one headwind still facing Canadian pumping is service pricing,” he said. “For Q1/22, channel checks suggest that net price increases of at least 5 per cent is a possibility, with additional increases through the course of the year. Although our estimates only reflect a 5-per-cent increase in net prices, any additional increases would be upside.”

Others making target changes include:

* RBC Dominion Securities’ Keith Mackey to $4.50 from $4.25 with an “outperform” rating.

“Trican reported strong 3Q21 results, with revenue, adj. EBITDA, and EPS ahead of expectations,” said Mr. Mackey. “The stock underperformed CFW, but closed stronger relative to STEP and US pressure pumpers HAL and LBRT. The company saw limited net pricing gains in the quarter and remained vocal about the need for higher pricing to enable the industry to reinvest in its assets. We believe the company is well-positioned to generate FCF through its 20-per-cent EBITDA margins and debt-free capital structure, despite sub-optimal prices. Strong FCF generation continues to allow the company to differentiate its offerings and set market prices for low-emissions equipment.”

* Stifel’s Cole Pereira to $4.40 from $4.15 with a “buy” rating.

“Commentary on TCW’s earnings call continues to support our positive view, with the combination of rising activity into 1Q22 and a tight labour market hampering equipment additions expected to lead to an under-supplied Canadian frac market in 1Q22,” said Mr. Pereira. “The company has already put through some modest pricing increases to offset cost inflation but expects to realize true ‘net pricing’ gains in 1Q22 as the market tightens, and highlighted double-digit year-over-year pricing increases next year as a reasonable benchmark.”

* National Bank Financial’s Dan Payne to $4 from $3.50 with a “sector perform” rating.


Following the premarket release of weaker-than-anticipated third-quarter results on Wednesday, iA Capital Markets analyst Naji Baydoun expressed concern about Capital Power Corp.’s (CPX-T) near-term growth potential, emphasizing the importance of its Dec. 2 Investor Day event.

Shares of the Edmonton-based power producer fell 4.9 per cent after it reported EBITDA of $286-million, missing both Mr. Baydoun’s $301-million estimate and the consensus on the Street of $305-million. Adjusted funds from operations of $1.78 per share also missing projections ($1.94 and $1.90, respectively).

“Although the Company continues to benefit from the strong power pricing environment in Alberta, results were impacted by lower-than-forecast portfolio optimization contributions (due to unfavourable hedging activity),” the analyst said.

“Alongside the Q3/20 results, CPX (1) reaffirmed its revised 2021 financial guidance, and (2) noted that based on year-to-date results and the outlook for Q4/21, the Company expects to be at the midpoint and modestly above the midpoint of its 2021 guidance ranges for EBITDA and AFFO, respectively (in line with our expectations).”

After Capital Power suspended its dividend reinvestment plan due to higher cash flows and having secured its equity financing for the year, Mr. Baydoun is now focused on the need for updates to its growth strategy and initiatives, including the Genesee Carbon Conversion Centre (GC3) project and carbon capture, utilization and storage (CCUS) opportunities.

“After $1.5-billion of new growth announcements in 2020, CPX has yet to announce new projects in 2021 (vs. $500-million per year capital commitment to new growth),” he said. “Given its current healthy credit metrics (AFFO/net debt approximately 20 per cent), CPX retains excess balance sheet capacity to finance new growth while maintaining its investment grade credit ratings. However, management noted that M&A activity has slowed down, and that project development is likely to be the key driver of new investment opportunities (CPX has completed $2.7-billion of M&A and at least one acquisition/year between 2017-2020).

“We believe that the challenge ahead will be sourcing a material amount of development opportunities at attractive risk-adjusted returns from CPX’s development pipeline; importantly, a potential slowdown of new renewables power initiatives could have negative implications for CPX’s diversification, growth, and relative valuation.”

Becoming “more conservative” with his financial estimates, Mr. Baydoun cut his target for Capital Power shares by $1 to $45, reaffirming a “hold” recommendation. The average on the Street is $45.62.

“CPX offers investors (1) a mix of contracted and merchant cash flows, (2) long-term leverage to the Alberta power market, (3) some growth (low single-digit FCF/share growth through 2025), (4) an attractive income profile (approximately 5-per-cent yield, 5 per cent per year dividend growth in 2022, with an 45-55-per-cent payout), and (5) a discounted relative valuation versus IPP peers,” he said.


Desjardins Securities analyst David Newman said he’s “in search of strong vitals” amid “weakness” in the digital healthcare sector.

“3Q21 was a challenging quarter for the digital healthcare sector in general, with valuations retreating on the back of: (1) a shift toward commodity-linked stocks post-COVID-19, eg energy and materials; (2) the more controlled pandemic situation, with investors losing some interest in healthcare IT; (3) the threat of rising interest rates, which could weigh on growth stocks such as tech and healthcare tech; and (4) the gradual shift from telehealth back to in-person visits, which is more relevant for D2C healthcare players such as WELL (although continually diversifying into other areas, eg healthcare tech, diagnostic services, specialty care, women’s health and mental health),” he said in a research report.

Believing supply chain disruptions and labour shortages are unlikely to meaningfully impact the sector, Mr. Newman took an optimistic view of the months ahead.

“We believe that coming out of the pandemic, investors should look for healthcare names that possess the following characteristics: (1) resilient demand with strong visibility into revenue (ie SaaS-driven, recurring, contracted and more skewed toward B2B vs D2C, eg CRRX, CARE, LSPK and THNK); (2) a skew toward those markets exhibiting secular growth such as mental health and wellness, eg CARE, LSPK and GTMS; (3) the ability to execute, including expanding margins on already-profitable EBITDA or a clear path to profitability; and (4) proven organic growth and M&A strategies,” he said.

Ahead of the Nov. 9 release of its quarterly results, Mr. Newman called Toronto-based CareRx Corp. (CRRX-T) his top pick in the sector, however he trimmed his target for its shares to $9.50 from $10 with a “Buy–Average Risk” recommendation. The average target on the Street is $8.72.

“We would highlight CRRX as an emerging quality compounder in the institutional pharmacy sector, with multiple near-term catalysts such as (1) reaching the 100,000-bed milestone at some point in 2022; (2) achieving at least $5-million in run-rate synergies from MPGL site consolidation by 3Q22; (3) building mega-sites with high-volume medical packaging technology in select regions; (4) organic growth initiatives such as VirtualCare partnership with THNK, Pharmacy at Your Door and Karie device; and (5) reaching EBITDA margin of 12–13 per cent by the end of 2022,” the analyst said. “CRRX is trading at 8.0 times EV/2022 EBITDA vs peers at 12.9 times, which we believe represents an opportune entry point.”

Mr. Newman increased his target for WELL Health Technologies Corp. (WELL-T) to $11 from $10.50 with a “Buy–Above-average Risk” recommendation. The average is $11.85.


Allied Properties Real Estate Investment Trust (AP.UN-T) is “performing well” ahead of a full-scale return-to-the office, said CIBC World Markets analyst Scott Fromson.

On Wednesday, the Toronto-based REIT reported funds from operations of 62.4 cents, exceeding the 60-cent estimate of both Mr. Fromson and the Street. Occupancy fell 1 per cent from the previous quarter to 90.6 per cent, missing the analyst’s 91.8-per-cent forecast, but in-place rents rose 4.3 per cent year-over-year, topping his 3.7 per cent projection.

“Allied reported a Q3/21 beat, featuring healthy year-over-year growth in SPNOI (up 6.3 per cent) and strong FFO/unit growth (up 10.1 per cent),” said Mr. Fromson. “Allied continues to move forward in adding and upgrading flexible, well-located and thoughtfully designed workspaces, putting the REIT in a strong position to help its tenants attract workers back to their desks.”

“Two indicators support our belief that a return to office is happening, albeit in a hybrid fashion. As of October 22, 81 per cent of the users in Allied’s portfolio, occupying 73 per cent of GLA, have officially reopened their offices and have begun bringing employees back. Further, management noted in its conference call that it saw a meaningful quarter-over-quarter parking revenue increase in Q3/21.”

Believing valuation upside remains, Mr. Fromson reaffirmed Allied as “top pick in the Canadian office asset class,” raising his target for Allied units to $53 from $50 with an “outperformer” rating. The average is $50.83.

“Allied’s year-to-date performance continues to lag that of the XRE (up 15.4 per cent vs. 28.1 per cent),” he said. “While much of the gap is due to delays in the reopening trade, the beat likely puts a bit of wind back into Allied’s sails; getting over the fully leased finish line at The Well will help further, as will a rebound in occupancy levels. Allied has financial flexibility with 32.9-per-cent debt/GBV (31.0 per cent in Q2/21), supported by $297.7-million of liquidity; the two green bond issues totalling $1.1-billion have lowered Allied’s weighted-average interest rate by 66 bps to 2.94 per cent since year-end 2020.”

Others making target adjustments include:

* RBC’s Pammi Bir to $52 from $51 with an “outperform” rating.

“Post AP’s Q3/21 results that were broadly in line with our call, we see plenty of reasons to remain constructive. Supported by its high quality assets, return to work ramping up, and further strides in economic activity, we expect organic growth to clip along at a healthy pace as occupancy regains traction. As well, a sizeable pipeline of developments teed up for completion should provide some extra juice to growth. While sentiment on office may take time to rebuild, we see an attractive discounted valuation and drivers to shrink the gap,” said Mr. Bir.

* National Bank Financial analyst Matt Kornack to $52 from $50 with an “outperform” rating.


Tamarack Valley Energy Ltd. (TVE-T) new framework for capital allocation is likely to overshadow stronger-than-anticipated third-quarter results, according to Raymond James analyst Jeremy McCrea, who thinks the new strategy will make it “an attractive total-return story to a broader base of investors going forward for many years.”

“TVE has initiated a base monthly dividend immediately (2.8-per-cent yield) with plans to return 50 per cnet of FCF each year via additional special dividends or buybacks longer-term,” he said. “Recall when we’ve seen other E&Ps announce inaugural dividends, the share price has generally had a strong reaction. This cascading event may also push TVE’s market-cap into consideration for the TSX Composite Index this quarter — leading to further upside. Overall, we continue to view Tamarack as one of the more exciting mid-cap stories in our coverage, with a balanced emphasis on cash returns and highly profitable growth projects in some top plays in Canada.”

Keeping a “strong buy” recommendation, Mr. McCrea raised his target to $5.75 from $5.50. The average target on the Street is $4.93.

Elsewhere, Stifel’s Cody Kwong increased his target to $5.75 from $4.75 with a “buy” rating.

“Stealing the spotlight from 3Q21 results that were ahead of expectations and an increase to 2021 guidance, was the initiation of a dividend to its business AND the formalization of an accelerated return of capital framework once key debt reduction targets are met,” said Mr. Kwong. “We anticipate the culmination of all three of these events will have the stock moving higher not only from the positive moves to our estimates, but also from deserving multiple differentiation versus its peers as well as the introduction of new shareholders via the dividend and/or the potential index inclusion in the next review period (end of November).”


Burnaby, B.C.-based Xenon Pharmaceuticals Inc. (XENE-Q) is “shining brightly in epilepsy treatment,” according to RBC Dominion Securities analyst Brian Abrahams.

Believing recent clinical data for its lead XEN1101 treatment, which is used in the treatment of adult focal epilepsy, “looks strong” and “substantially” de-risks its future prospects, he initiated coverage with an “outperform” rating on Thursday.

“We believe strong ph.II data for lead drug ‘1101 in adult focal epilepsy and numerous properties that resonated well with our KOL consultants suggest a high likelihood of ph.III translatability, ultimate approval, and commercial success – with earlier pipeline programs potentially providing additional out-year drivers,” said Mr. Abrahams.

“While recent share upside now better reflects some of these prospects and there are fewer major near-term clinical catalysts, we still see potential for further appreciation as the value of its portfolio becomes increasingly recognized.”

He set a target of US$43 per share. The current average is US$45.50.


In other analyst actions:

* Calling the third-quarter a “point of inflection, TD Securities analyst Menno Hulshof raised his Suncor Energy Inc. (SU-T) target to $40 from $39 with a “buy” rating. The average is $36.08.

“The clear positive this quarter was an acceleration of SU’s shareholder return commitments — we believe this will be a recurring theme across our coverage,” he said. “This, combined with rapid balance sheet deleveraging (now expects to hit the high-end of its 2025 target range by year-end), should wake the market up to the resilience of its business model at strip prices. We continue to see potential for a catch-up trade, given material underperformance since March 2020.”

* Following its third-quarter results, Canaccord Genuity analyst Dalton Baretto trimmed his target for First Quantum Minerals Ltd. (FM-T) to $35 from $36 with a “buy” rating. The average on the Street is $33.09.

“We continue to like the company for its leverage to copper, growth profile, operating prowess and improving balance sheet,” he said. That said, we are lowering our target price ... based on our revised estimates.”

* After “strong” third-quarter results and a “positive” fourth-quarter outlook, Raymond James analyst Brian MacArthur raised his Teck Resources Ltd. (TECK.B-T) to $45 from $42, while Barclays analyst Matthew Murphy cut his target to $34 from $36 with an “equal weight” rating. The average is $40.69.

“We believe Teck offers good exposure to coal, copper, and zinc, and is able to convert EBITDA from its Canadian operations efficiently given its large Canadian tax pools. Given Teck’s long life, low jurisdictional risk, diversified asset base, and valuation, we rate the shares Outperform,” said Mr. MacArthur.

* Expecting its $57.5-million convertible debenture financing to be “employed in short order to further its stated strategy of consolidating within the Intelligent Transportation Systems market,” Canaccord Genuity analyst Doug Taylor raised his target for shares of Quarterhill Inc. (QTRH-T) to $3.25 from $3 with a “speculative buy” rating. The current average is $3.75.

“This brings total available cash on hand to more than $100-million and sets up further M&A as a primary near-term catalyst for the stock as management works to further diversify Quarterhill away from the profitable but lumpy patent assertion business,” he said. “Beyond incorporating the new convertible notes, our near-term estimates are unchanged and do not include unannounced M&A ... We maintain a SPECULATIVE BUY rating which reflects our view that further upside remains though quarterly financial performance is still subject to WiLAN’s substantial (albeit shrinking) weighting in the profit mix.”

* Seeing recent contract wins supporting its “strong” 2022 guidance, Raymond James analyst Bryan Fast raised his target for North American Construction Group Ltd. (NOA-T) to $26.50 from $24, exceeding the $24.90 average, with an “outperform” rating.

“North American Construction Group (NACG) delivered solid results, overcoming continued headwinds from COVID-19,” he said. “With a line of sight on 2022, NACG provided an outlook for next year that supports our positive view of the name. With a focus on efficient capital allocation and the goal of being the best contractor in the market, we view NACG in good shape to capitalize on $2.9-billion in potential projects that the company has sight of. Recently, the company announced several key contract wins/extensions pushing the backlog (along with the stock) to new highs. We expect further such announcements to represent meaningful catalysts as the company continues down the path of diversifying end markets (targeting 50 per cent of 2022 EBIT from non oil sands markets).

“Longer term, we expect NACG to benefit from an improved macro backdrop, increasing fleet utilization, clear focus on cost control, and implications of FCF generation and deleveraging.”

* Ahead of the Nov.1 release of its third-quarter results, TD Securities analyst Michael Tupholme raised his target for Nutrien Ltd. (NTR-N, NTR-T) shares to US$83 from US$76 with a “buy” recommendation. The average is US$77.31.

“We remain encouraged by strong agriculture fundamentals and continued upward momentum in fertilizer prices, which we see as supportive of NTR’s outlook and share price,” he said.

* Following a “weak” quarter, CIBC World Markets analyst Cosmos Chiu cut his target by Alamos Gold Inc. (AGI-T) by $1 to $14.50 with an “outperformer” rating. The average is $13.74.

* Jefferies analyst Maury Raycroft raised his Aurinia Pharmaceuticals Inc. (AUPH-Q, AUP-T) target to US$35 from US$34, exceeding the US$30 target, with an “outperform” rating.

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