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

Desjardins Securities analyst Doug Young expects to see “decent” fourth-quarter financial results from Canadian insurance companies, featuring “less noise than last quarter, along with benefits from higher equity markets and past acquisitions”

In a research report released Thursday, he raised his earnings per share projections across the sector to account for “the positive impact of equity markets (versus lifeco expectations) and the mixed impact of interest rates.” He’s now forecasting core EPS to rise by an average of 11 per cent year-over-year for the quarter. For full-year 2022 and 2023, he’s expecting an 8-per-cent increase.

“For 2022 and 2023, there are several core EPS growth drivers: (1) SLF—contribution from its DentaQuest (DQ) acquisition, momentum in Asia, higher contribution from SLC Management and potential capital deployment (although we have not built any in); (2) MFC—we expect momentum in Asia, growth in wealth management, expense efficiencies and share buybacks to support EPS growth in 2022. MFC could also further reduce its exposure to ‘legacy businesses’ via additional reinsurance transactions, which could be a catalyst; (3) IAG—integrating IAS in the US, organic growth, digital initiatives, potential buybacks and leveraging distribution capabilities domestically; and (4) GWO—inclusion of MassMutual’s and Prudential’s U.S. retirement business, and growth in Europe and Capital Risk Solutions (CRS),” he said.

However, Mr. Young did warn that COVID-19-related headwinds will be present, pointing to “higher deaths in the insured population, higher-than-expected group benefit claims and lower sales in Asia from travel restrictions in certain regions.”

“Looking forward, the macro backdrop remains favourable, with interest rates expected to move higher over the next year although the enthusiasm is somewhat tempered by uncertainty around the pending adoption of IFRS 17 in 2023,” he said. “We hope the lifecos will start providing more details on the impact from IFRS 17 sooner rather than later. We tweaked our estimates ( although we view 2023 estimates as useless in light of pending accounting changes).”

He raised target price for shares of Sun Life Financial Inc. (SLF-T), which remains atop his pecking order, by $1 to $76 with a “buy” rating. The average on the Street is $77.29, according to Refinitiv data.

Mr. Young cut his target for Manulife Financial Corp. (MFC-T), his No. 3 stock, by $1 to $29 with a “buy” rating. The average is $30.62.

His targets for iA Financial Corp. Inc. (IAG-T, No. 2, “buy”) and Great-West Lifeco Inc. (GWO-T, No. 4, “hold”) remain $85 and $40, respectively. The averages are $87.72 and $41.


Seeing the “potential for liftoff,” Echelon Capital analyst Andrew Semple thinks it is “an excellent point” for accumulating shares of U.S. cannabis equities, believing the 2021 underperformance was “undeserved,” “fundamentals remain strong” and touting the “incredible potential remaining” in the industry.

“Last year was difficult for many U.S. cannabis equity investors, an outcome that we find surprising given the strong financial and operational performance of our coverage names,” he said in a research note. “In 2021, the New Cannabis Ventures (’NCV’) American Cannabis Operator Index declined by 33.8 per cent, our tracking group of large/mid-cap US cannabis operators lost 35.7 per cent, while the actively managed AdvisorShares Pure US Cannabis ETF (MSOS-A) declined by 29.9 per cent. Echelon’s U.S. cannabis coverage modestly outperformed, having declined by 27.9 per cent on average (Top Picks in U.S. cannabis even better, but still down 24.4 per cent). We believe the underperformance was largely owed to capital markets considerations, as US cannabis fundamentals have mostly held up to or exceeded expectations.

“We suspect many U.S. cannabis equity investors might feel caught between a rock and a hard place given the tough capital markets conditions this past year. However, we believe the better analogy is that U.S. cannabis investors stand between a rock and a rocket ship, with the potential for stratospheric returns over time. Our price targets on our 10 U.S. cannabis coverage names imply an average upside of 159 per cent over the next 12 months (149 per cent using consensus price targets). However, we believe even these returns could prove to be conservative, especially in the context of U.S. cannabis federal legalization. If we were to change just three variables across our valuation models to reflect potential benefits from federal cannabis reform (taxation, cost of capital, terminal year exit valuation multiple) to more ‘normal’ levels, this could improve the average implied return across our coverage to more than 300 per cent.”

Mr. Semple thinks federal legalization, which is proceeding slower than anticipated following the 2020 presidential election, is not required to achieve his “bullish” price targets, seeing enough momentum already behind legal cannabis companies and consumer demand to “fuel robust growth for years to come.”

“In addition, states continue to advance their own cannabis reform, creating billions of dollars of annual new market opportunities each year, beyond what we have so far incorporated into our valuation models,” he said.

“There are incredible growth opportunities still ahead for U.S. cannabis, with approximately only one-third of cannabis demand in America having been converted to legal channels so far. We are particularly bullish on limited-license markets, which are states that have capped the number of entities able to operate cannabis establishments. This type of regulatory regime creates high barriers to entry and thus strong economics for licensed cannabis businesses, while also appropriately balancing patient/consumer access to regulated cannabis products. Limited-license markets also tend to have tighter regulatory control for improved product safety, quality assurance, corporate governance, compliance, and taxation collection, leading to an overall healthier and safer cannabis industry for all participants.”

Mr. Semple suggested investors look to his top picks for the first quarter of the year. They are:

  • Ayr Wellness Inc. (AYR.A-CN) with a “buy” rating and $75 target. The average target on the Street is $70.
  • Columbia Care Inc. (CCHW-CN) with a “buy” rating and $14 target. Average: $13.38.
  • Verano Holdings Corp. (VRNO-CN) with a “buy” rating and $40 target. Average: $36.57.

“While we are bullish/aggressive in our outlook, we are disciplined in our selection of coverage names,” Mr. Semple noted. “We find all of our current U.S. coverage to be well managed operators that are fully financed for organic growth, with a focus on attractive limited license state markets. Our selection criteria have resulted in substantial outperformance over time, and believe recent share price declines are a function of near-term transitory factors and timing. Even in a downside scenario where adverse equity market conditions persist, our coverage names are positioned for further gains as they utilize their balance sheet strength, access to capital markets, and internally generated cashflows to drive 1) further consolidation of privately held operators at attractive valuations due to the latter’s relative lack of capital alternatives, and 2) potential share buybacks by year end that take advantage of equity market conditions if they persist. Furthermore, where disappointing performance is associated with delayed movement at the federal level, we are hedged by focusing on names with state specific catalysts, where we see billions of dollars of new market opportunities in the years to come.”


In conjunction with Scotia Capital’s quarterly commodity price update, equity analysts Jason Bouvier and Cameron Bean raised their cash flow per share projections for oil-weighted companies in their coverage universe by an average of 5 per cent for 2022 and 3 per cent for 2023 on Thursday.

Conversely, gas-weighted names saw a decline of 10 per cent in 2022 following by a 2-per-cent increase next year.

“Our Brent and WTI price assumptions are relatively unchanged through 2026 as we maintain our positive bias on the medium-term outlook,” they said. “In the near term, we see global oil supply exceeding demand in H1/22. It is our view that the OPEC plus alliance will need to revisit their current production agreement of increasing supply by 400 mbbl/d a month through 2022. Looking at the Canadian oil market, differentials narrowed in the last half of Q4/21 as new pipeline egress came online. Additional pipeline egress is expected to enter service in H1/23, which will provide several years of runway depending on the pace of production growth.”

“We are revising down our 2022 Henry Hub estimate to US$3.75 per mmBtu [one million British Thermal Units], while maintaining our medium and long-term forecasts. We expect the dynamics of an under-supplied international market to keep US feedgas flows running at or near all-time highs but are concerned about growing production. We made modest changes to our near-term AECO differential forecasts (Q1/22: US$0.60/mmBtu; Q2/22: US$0.85/mmBtu) while keeping our 2H/22 through 2025 estimates unchanged. We remain cautiously optimistic that the tumultuous times on the NGTL system are in the past and expect the AECO differential to approximate the marginal cost of out-of-basin transportation for the next few years – though we continue to caution that NGTL system dynamics are always an adventure.”

With that view, Mr. Bouvier made a trio of rating changes.

He raised Ovintiv Inc. (OVV-N, OVV-T) to “sector outperform” from “sector perform” with a US$46 target, up from US$44. The average on the Street is US$48.67.

“The company now boasts one of the highest DAFCF [debt-adjusted free cash flow] yields in our coverage universe (and versus its U.S. peer group),” he said. “In addition, OVV has made meaningful strides in increasing its sustainability. Decline rates and cost structure are lower and debt repayment remains a priority. We believe as the company continues to improve its balance sheet, legacy costs continue to roll off its cost structure and shareholder returns are enhanced the stock will outperform its peer group.”

He downgraded Crescent Point Energy Corp. (CPG-T) to “sector perform” from “sector outperform” with an $8.50 target, up from $7.50 but below the $9.73 average.

“We are largely downgrading on the strong share price performance,” the analyst said. “The stock has outperformed many companies in our universe over the past 3 and 6 months and now its valuation is more in line with an SP-rated company. We continue to like the company’s recent Duvernay acquisition and believe it will continue to bear fruit for the company.

Mr. Bouvier also lowered Enerplus Corp. (ERF-T) to “sector perform” from “sector outperform” with a $16 target, up from $15 and above the $15.67 average.

“We are largely downgrading on the strong share price performance,” he said. “The stock has outperformed many companies in our universe over the past 3 and 6 months and now its valuation is more in line with an SP-rated company. We continue to like the company’s recent transactions as they enhanced both current FCF as well as strengthened the company’s overall inventory.”

Among large-cap stocks, their other target changes were:

  • Canadian Natural Resources Ltd. (CNQ-T, “sector outperform”) to $64 from $60. Average: $65.70.
  • Cenovus Energy Inc. (CVE-T, “sector outperform”) to $20 from $19. Average: $20.52.
  • Imperial Oil Ltd. (IMO-T, “sector outperform”) to $56 from $52. Average: $50.05.
  • Suncor Energy Inc. (SU-T, “sector outperform”) to $38 from $37. Average: $41.13.
  • Tourmaline Oil Corp. (TOU-T, “sector outperform”) to $77 from $76. Average: $62.16.


CIBC World Markets equity analysts think energy demand will rebound quicker than supply in 2022.

”We have gone from a glut in oil and energy to a growing narrative of energy scarcity, owing to a combination of underinvestment and capital discipline, and a faster-than-expected demand recovery from the pandemic,” the firm said in a research report released Thursday. “Despite the emergence of the Omicron variant, we remain cautiously optimistic on commodity prices and fundamentals in the space. Energy companies have endured a gruelling and volatile past seven years, but enter 2022 carrying a potent investment thesis. Clean balance sheets, renewed capital discipline, and cheap valuations provide potential for demonstrating strong cash returns to shareholders. ... We highlight our top ideas in ARX, CVE, TOU, and TVE.”

Analyst Jamie Kubik downgraded Advantage Energy Ltd. (AAV-T) to “neutral” from “outperformer” with a $9 target, which falls 10 cents below the consensus on the Street.

“The stock carries a healthy premium versus its peer group, which we see as being warranted given the company’s exposure to carbon capture through its Entropy vehicle; however, our price target of $9.00 drives a 20-per-cent return at the current juncture, which ranks below some of Advantage’s peers presently. As a result, we have downgraded Advantage,” he said.

Conversely, Mr. Kubik raised Nuvista Energy Ltd. (NVA-T) to “outperformer” from “neutral” with a $10 target, up from $7.50 and topping the consensus of $9.53.

“The company’s timeline towards return of capital to shareholders is nearing, its growth potential is intriguing, and its valuation remains below peers. We also believe the liquids potential of the Pipestone development could carry upside to cash flow estimates in the coming 12 to 24 months,” he said.

Analyst Chris Thompson lowered Birchcliff Energy Ltd. (BIR-T) to “neutral” from “underperformer” with an $8.50 target, down from $9 and below the $9.57 average.

“We have downgraded Birchcliff ... as the company’s timeline towards return of capital to shareholders lags peers. Additionally, we expect 2022 could be challenging, with major turnarounds at both the Gordondale and Pouce Coupe gas plants impacting production levels,” he said.

The firm also made these target adjustments:

  • Arc Resources Ltd. (ARX-T, “outperformer”) to $18 from $16. Average: $18.22.
  • Baytex Energy Corp. (BTE-T, “neutral”) to $5 from $4.25. Average: $4.90.
  • Canadian Natural Resources Ltd. (CNQ-T, “outperformer”) to $67 from $62. Average: $65.70.
  • Cenovus Energy Inc. (CVE-T, “outperformer”) to $25 from $24. Average: $20.52.
  • Crescent Point Energy Corp. (CPG-T, “outperformer”) to $10 from $9.75. Average: $9.73.
  • Enerplus Corp. (ERF-T, “outperformer”) to $17 from $16. Average: $15.67.
  • Freehold Royalties Ltd. (FRU-T, “outperformer”) to $17 from $16. Average: $15.93.
  • Kelt Exploration Ltd. (KEL-T, “outperformer”) to $7 from $6.50. Average: $6.74.
  • Peyto Exploration & Development Corp. (PEY-T, “neutral”) to $13.50 from $13. Average: $13.36.
  • Secure Energy Services Inc. (SES-T, “outperformer”) to $7.50 from $7. Average: $7.60.
  • Tamarack Valley Energy Ltd. (TVE-T, “outperformer”) to $5.50 from $5. Average: $5.40.
  • Vermilion Energy Inc. (VET-T, “neutral”) to $19 from $15. Average: $18.72.
  • Whitecap Resources Inc. (WCP-T, “outperformer”) to $11 from $10.50. Average: $11.13.


Following Wednesday’s release of better-than-anticipated quarterly results, several equity analysts on the Street raised their targets for Aritzia Inc. (ATZ-T).

The Vancouver-based retailer reported revenue of $453-million, up 63 per cent year-over-year as contributions from the U.S. soared 115 per cent and now represents 44 per cent of its total. The Street has expected $374-million.

Adjusted earnings before interest, taxes, depreciation and amortization of $109-million also blew past expectations ($76-million).

With the results, the company increased its fourth-quarter and full-year guidance for 2022. It now expects revenue of $375-400 million for the next quarter, well ahead of the consensus forecast of $352-million.

Canaccord Genuity analyst Derek Dley called the quarter “exceptional” and sees further growth ahead.

“The company commented that momentum has continued into the first half of Q4/F22; however, January has been impacted by a reduction in end-of-season inventory, offset by strength in the US and strong anticipated demand for the spring collection,” he said. “We note over the past three quarters Aritzia has exceeded the midpoint of its revenue guidance range by 6 per cent, 19 per cent, and 23 per cent, respectively. Furthermore, the company anticipates a similar 170 basis points increase in gross margin percentage as compared to pre-pandemic Q4/F20 levels as was witnessed in Q3/F22, with SG&A dollars expected to increase by $45-million as compared to Q4/F20.”

“Looking ahead, we believe store growth could accelerate and will be focused on the US. We believe Aritzia continues to have ample room to grow within the region, as evidenced by the 115-per-cent year-over-year growth in the U.S. this quarter. Over time we believe Aritzia can easily support over 100 stores in the U.S., up from 40 by the end of F2022.”

Reiterating a “buy” recommendation for Aritzia shares, Mr. Dley hiked his target to $70 from $57. The average is $61.

“Given the robust acceleration of revenue growth expected from Aritzia as stores re-open, we are comfortable assigning a premium multiple,” he said. “Our increased multiple, which represents a premium to the peer group, is reflective of our enhanced growth expectations from Aritzia as it continues to expand its ecommerce and retail platforms into the lucrative U.S. market.

“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. 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.”

Others making changes include:

* BMO Nesbitt Burns’ Stephen MacLeod to $65 from $49 with an “outperform” rating.

“Q3/22 was a quarter of positives, highlighted by an earnings beat (despite supply chain headwinds) and a guidance raise (bucking the trend of some U.S. retail competitors),” said Mr. MacLeod. “The U.S. was a key growth driver (up 115 per cent); this market presents significant growth. We believe Aritzia is well-positioned to capitalize on this opportunity, with ample liquidity to build on its established infrastructure to support growth, strong omnichannel platform, category expansion opportunities, and a loyal employee and client base. The release of Aritzia’s multi-year strategy could be an upcoming catalyst.”

* RBC’s Irene Nattel to $60 from $52 with an “outperform” rating.

“ATZ continues to gain momentum, notably in the U.S., driving extremely strong performance in FQ3,” she said. “FQ3 results 50 per cent above forecast/ consensus, up 110 per cent year-over-year, well exceeding pre-pandemic levels, and reinforcing our conviction around ATZ’s ability to drive sector-leading growth and performance. SP rating reflects valuation/relative upside potential. Raising forecasts to reflect much better than expected FQ3 results, better than expected Q4 gross margins.”

* TD Securities’ Meaghen Annett to $68 from $57 with a “buy” rating.

“We view the Q3/F22 release and outlook positively. The continued momentum in the business, in our view, supports meaningful upward financial revisions,” she said.

* CIBC’s Mark Petrie to $64 from $52 with an “outperformer” rating.


In other analyst actions:

* Ahead of the Jan. 18 release of its first-quarter financial results, Scotia Capital analyst George Doumet cut his Goodfood Market Corp. (FOOD-T) target to $4 from $6.50, keeping a “sector perform” rating. The average is $6.31.

“We see FOOD as a beneficiary of the re-introduction of pandemic-related restrictions in Ontario and Quebec,” he said. “However, expectations are that the benefits will likely be short-lived. Furthermore, we see the pressure points on food and labor costs, and supply chain inefficiencies persisting in the coming quarters. We continue to monitor the execution on the grocery strategy, and while results to date are encouraging, we remain on the sidelines until we have better visibility on the sustainability of these trends.”

* BMO Nesbitt Burns analyst Étienne Ricard raised his Goeasy Ltd. (GSY-T) target to $228 from $226 with an “outperform” rating. The average is $233.38.

“In 2021, goeasy shareholders were rewarded with an 88-per-cent total return in a year summarized by the on-strategy acquisition of LendCare, channel expansion, product diversification, credit resiliency and a declining cost of debt,” he said. “Looking into 2022, those themes remain topical, providing visibility into continued 20-per-cent earnings growth. We recommend accumulating GSY on the pullback given unchanged growth fundamentals.”

* Barclays analyst Adrienne Yih cut her Lululemon Athletica Inc. (LULU-Q) target to US$461 from US$515 with an “overweight” recommendation. The average is US$446.61.

“Softening Holiday and preliminary Q4 sales results increase our caution for a potentially slower start to 2022, with macro factors such as the surge in omicron cases and lapping stimulus. Additionally, we view the lack of promotions and clearance items as likely to weigh on January sales and traffic,” she said.

* Deutsche Bank analyst Brian Bedell cut his Brookfield Asset Management Inc. (BAM-N, BAM.A-T) target to US$59 from US$62, below the US$68.04 average, with a “hold” recommendation.

* Mr. Bedell cut his target for TMX Group Ltd. (X-T) to $145 from $152, keeping a “buy” rating. The average is $153.14.

* RBC Dominion Securities analyst Greg Pardy raised his target for Vermilion Energy Inc. (VET-T) to $20 from $17 with a “sector perform” rating. The average on the Street is $18.72.

“In our minds, 2022 could be a pivotal year for Vermilion in terms of resetting its balance sheet and pivoting back to a shareholder return model under its new skipper Dion Hatcher. Vermilion’s lower decline rate of 22 per cent and exposure to European gas offer distinct advantages, but we’d like to see the company consolidate/simplify its portfolio and chip away at its sustaining capital requirements,” he said. “We are maintaining a Sector Perform recommendation on Vermilion but boosting our one-year target price by $3 to $20 per share on the back of increased confidence in the company’s outlook.”

* CIBC World Markets analyst Mark Petrie raised his George Weston Ltd. (WN-T) target to $175, exceeding the Street’s average of $158, from $153 with an “outperformer” rating.

* CIBC’s Anita Soni cut her target for Iamgold Corp. (IAG-N, IMG-T) to US$2.75 from US$3, reiterating an “underperformer” recommendation, while Raymond James’ Farooq Hamed cut his target to US$3 from US$3.25 with a “market perform” rating. The average is currently US$3.32.

* CIBC’s Jacob Bout increased his Toromont Industries Ltd. (TIH-T) target to $118 from $113 with a “neutral” rating. The average is $121.72.

* Mr. Bout also raised his target for Westshore Terminals Investment Corp. (WTE-T) to $30, matching the average on the Street, from $28 with a “neutral” rating.

* Berenberg analyst Adrien Tamagno raised his Nutrien Ltd. (NTR-N, NTR-T) target to US$83, above the US$81.10 average, from US$80 with a “buy” rating.

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