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

Valuation concerns about Shopify Inc. (SHOP-N, SHOP-T) continue to intensify following Wednesday’s release of disappointing fourth-quarter financial results as revenue growth continues to slow.

A day after its shares dropped 17.1 per cent in Toronto, equity analysts slashed their lofty projections for the e-commerce giant and continue to lower their target prices for its shares. The average target on the Street is now US$1,222.89, down almost 28.8 per cent from the consensus projection on Jan. 17, according to Refinitiv data.

“In a tougher e-commerce environment, Q4 results and initial 2022 outlook disappointed,” said Citi analyst Tyler Radke. “While revenue and GMV [gross merchandise volume] came in above expectations, this was led by lower margin Merchant solutions vs. subscription solutions. The initial 2022 outlook implies a significant ramp in investments against a tougher macro environment and slowing revenue growth prospects in FY22. These investments should help buoy merchant additions, particularly in 2H of the year, but this is against a disappointing 2021 merchant count (5 per cent below Street). Furthermore, the revenue mix shift to Merchant Solutions is expected to weigh on margins. Coupled with a variety of long-term investment areas, without enough topline support, our operating margin estimates move down 300 basis points in FY22.”

Mr. Radke dropped his target for Shopify shares to US$882 from US$978, keeping a “neutral/high risk” recommendation.

“We rate Shopify shares as Neutral/High Risk (2H) because while we appreciate the magnitude of the TAM [total addressable market], an acceleration of secular tailwinds coming into focus, a strong management team, and record of execution, we believe much of this is priced in at the current multiple — which earns a significant premium to the implied multiple of its growth/margin framework and implies a 10-year revenue CAGR [compound annual growth rate] that appears potentially too high,” he said.

Here’s a survey of other analysts making target price changes:

* RBC’s Paul Treiber to US$1,300 from US$1,450 with an “outperform” rating.

“The substantial decline in Shopify’s shares reflects the riskoff environment for software stocks and Shopify’s increasingly greater investments as it scales,” he said. “Shopify is a growth company with a very large TAM. These investments, while pushing out near-term margin expansion, increase the probability of greater success in the long-term.”

* DA Davidson’s Tom Forte to US$1,400 from US$1,450 with a “neutral” rating.

“We see management’s commentary on it’s 3Q21 earnings call as illustrating the benefits of its diversified business model,” he said. “For example, the company is not overdependent on social networks for GMV; therefore, it has not experienced a significant impact from Apple’s privacy-related changes. As reflected by our question on the earnings call, we remain concerned that it may not be able to do enough this holiday period to empower its merchants to overcome supply-chain challenges and logistics inflation. For example, we worry that its Shopify Fulfillment Network efforts is too early in its development to address this year’s challenges.”

* National Bank Financial’s Richard Tse to US$1,500 from US$2,000 with an “outperform” rating.

“Shopify reported an in-line quarter driven by strong GMV growth (up 31 per cent year-over-year) combined with an expanding take rate of 1.902 per cent (up from 1.699 per cent in Q4 2020),” said Mr. se. “So why is the stock being hammered at the time of writing? A lot of its stems from what we’ve highlighted in our recent Year Ahead and Quarterly Preview reports that noted high valuation growth names have become targets in the broad tech correction. At 17 times NTM EV/S [next 12-month enterprise value to sales] pre-results, that meant that expectations were high given SHOP’s relative valuation. The reality is that the above ‘in-line’ results combined with no firm outlook guidance was not enough.”

* Credit Suisse’s Timothy Chiodo to US$850 from US$1,300 with a “neutral” rating.

“We continue to view Shopify as one of the most well-positioned platforms to benefit from what we believe will be one of the most important investment themes within our coverage over the coming decade: the intersection of software and payments and the embedding of monetization - and ecosystem-enhancing financial services,” he said. “Further, we see numerous call options ahead, particularly for Shop Pay moving off platform [Facebook/Instagram, Google, and potentially beyond] and Shop App’s lead-gen potential. However, elevated investment and reduced near-term FCF, paired with an uncertain trajectory beyond 2024 makes it more challenging to value the company, particularly in a rising rate environment.”

* Mizuho’s Siti Panigrahi to US$800 from US$900 with a “neutral” rating.

“Shopify posted mixed Q4 results as total revenue beat on a strong holiday season, but GM came in below consensus due to greater Merchant Solution revenue mix and Payments penetration,” he said. “Subscription revenues fell short also, on a negative impact from developer and theme revenue. As e-commerce growth normalizes in 2022, Shopify continues to focus on retail POS and international to position itself for sustainable growth and plans to move on to the build phase of its fulfillment network, which should cause near-term profitability and FCF headwinds, and the absence of specificity in FY22 guidance yields an overhang to SHOP shares.”

* CIBC World Markets’ Todd Coupland to US$850 from US$950 with a “neutral” rating.

“Shopify’s Q4 results came in 3 per cent higher than expectations, with year-over-year revenue growth of 41 per cent (vs. FactSet at 37 per cent). The company also provided a 2022 outlook that is consistent with slowing growth as economies reopen, and includes aggressive spending plans as the company intensifies its international expansion and transitions to the “Build” phase of its Shopify Fulfillment Network (SFN). Our view is investors should continue to wait for a more attractive entry point” said Mr. Coupland.

* TD Securities’ Daniel Chan to US$840 from US$1,500 with a “hold” rating.

“Although we believe that Shopify continues to be in a strong market position and will continue to generate strong growth, we believe its heavy investments ahead of SFN revenue ramping could be a headwind on margins and cash flow. Given the current market dynamics, we believe the stock could remain pressured over this investment period until we get better line of sight on how well SFN is performing and its potential to generate cash flow,” said Mr. Chan.

* Deutsche Bank’s Bhavin Shah to US$900 from US$1,400 with a “hold” rating.

* Canaccord Genuity’s David Hynes to US$800 from US$1,450 with a “hold” rating.

* Piper Sandler’s Brent Bracelin to US$900 from US$1,400 with an “overweight” rating.

* Jefferies’ Samad Samana to US$1,350 from US$1,800 with a “buy” rating.

* Barclays’ Trevor Young to US$900 from US$1,200 with an “equal weight” rating.

* Oppenheimer’s Brian Schwartz to US$960 from US$1,350 with an “outperform” rating.

* Baird’s Colin Sebastian to US$1,000 from US$1,650 with an “outperform” rating.


A pair of equity analysts made target price changes for Canadian bank stocks on Thursday ahead of next week’s start of the sector’s earnings season.

CIBC World Markets analyst Paul Holden said he expects a “tough” quarter for year-over-year comparisons, noting:” We are still waiting for rate hikes, significantly lower capital markets revenue and expense growth due to cost inflation.”

He added: “Overall, we expect operating leverage to come in negative and PTPP growth to be minimal. Also, credit trends may not help earnings as much this quarter as we expect a smaller performing releases this quarter given Omicron and renewed restrictions during the quarter. That said, there are reasons to remain positive on the bank sector including strong loan growth, especially for commercial loans, and expectant tailwind from central bank tightening. Overall, our estimates imply that Adjusted EPS will be down nearly 2 per cent on average for the Big Six relative to last quarter and our estimates are nearly 2 per cent below consensus on average. Our forecasts have PTPP decreasing 1 per cent year-over-year on average. “

Mr. Holden made these changes:

  • Bank of Montreal (BMO-T, “neutral”) to $158 from $145. Average: $159.78.
  • Bank of Nova Scotia (BNS-T, “outperformer”) to $105 from $96. Average: $95.16.
  • Canadian Western Bank (CWB-T, “outperformer”) to $45 from $46. Average: $42.91.
  • Laurentian Bank of Canada (LB-T, “neutral”) to $46 from $45. Average: $46.50.
  • National Bank of Canada (NA-T, “neutral”) to $110 from $108. Average: $105.90.
  • Royal Bank of Canada (RY-T, “neutral”) to $152 from $143. Average: $146.47.

Canaccord’s Scott Chan made these adjustments:

  • Bank of Montreal (BMO-T, “buy”) to $169 from $167. Average: $159.78.
  • Bank of Nova Scotia (BNS-T, “buy”) to $100 from $98. Average: $95.16.
  • Canadian Imperial Bank of Commerce (CM-T, “buy”) to $173 from $172. Average: $167.81.
  • National Bank of Canada (NA-T, Hold”) to $109 from $108. Average: $105.90.
  • Royal Bank of Canada (RY-T, “hold”) to $150 from $148. Average: $146.47.
  • Toronto-Dominion Bank (TD-T, “hold”) to $110.50 from $108. Average: $107.18.


Though he warned of first-quarter headwinds after “solid” results to end the last fiscal year, CIBC World Markets analyst Robert Catellier upgraded Keyera Corp. (KEY-T) to “outperformer” from “neutral” based on its valuation.

“Year-over-year contribution margin improvement and signs of increasing producer activity are encouraging, and a capital allocation strategy to increase integration and contracted needs could eventually lead to multiple expansion,” he said.

Mr. Catellier raised his target to $35 from $34, above the $34.19 average.

“If the company is successful in selling less contracted assets at appropriate valuations, it could lead to a lower-risk business model and result in multiple expansion,” he said. “The degree of valuation improvement likely depends on the degree of perceived improvement in cash flow stability, but we believe about a half multiple point is a reasonable estimate. We base this on the median 0.38 EV/EBITDA FY2 multiple point spread from Pembina, it’s closest peer, over the last five years. The 10-year median spread is almost a full point. We caution that these initiatives can take considerable time to fully execute. Lower risk may also allow for higher leverage.

“The company has not identified specific assets it will sell, but we would imagine liquids infrastructure in Fort Saskatchewan is likely too strategic to be sold, whereas smaller marketing-oriented assets could be divested. We view the AEF asset as being integrated as it consumes butane acquired in other parts of the business, and therefore do not expect it to be sold. This means a reasonably material element of marketing cash flow is likely to remain in the business. That said, a more focused and integrated operation may reduce cash flow risk.”

Others making adjustments include: BMO’s Ben Pham to $32 from $31 with a “market perform” rating and National Bank’s Patrick Kenny to $36 from $35 with an “outperform” rating.

“Bottom Line: Q4/21 results highlighted the improved volume outlook (gas processing up 16 per cent year-over-year and liquids up 5 per cent) and record Marketing results,” said Mr. Pham. “However, we believe the market may remain focused on capital cost inflation risk for the KAPS project, leverage temporarily creeping above target this year, and reduced ability for Marketing to outperform expectations (lower iso-octane premiums and rising butane feedstock). As such, we believe positive and negative catalysts are fairly balanced and maintain our Market Perform rating.”


Raymond James analyst Daryl Swetlishoff says he’s “constructive” on Western Forest Products Inc. (WEF-T), citing “its inexpensive valuation, pristine balance sheet, healthy dividend yield and reduced share count all backstopped by continued impressive (and stable) free cash flow generation.”

Accordingly, he raised his rating for the Vancouver-based company to “strong buy” from “outperform” following Wednesday evening’s release of in-line fourth-quarter 2021 financial results, emphasizing its shares are incorrectly lagging peers.

“While severe winter weather conditions on Vancouver Island impacted operations, Western delivered another solid quarter with EBITDA of $49.2-million slightly ahead of consensus,” said Mr. Swetlishoff. “Leveraging its flexible operating platform, the company reduced shipments to the NA and Chinese commodity sector in the quarter while benefiting from record pricing in Japan providing stability to earnings and cash flow diversification. Continued strong lumber market fundamentals supported liquidity of $371-million with net debt coming in at negative $190-million (accounting for remaining non-core asset sales). We also highlight Western’s balanced approach to capital allocation returning material cash to shareholders by buying and canceling approximately 12 per cent of shares outstanding over the past year while maintaining a pristine balance sheet with an estimated $315-million of net cash by year-end 2022.

“Despite this, Western shares have lagged competitors since the B.C. government press release regarding the deferral of old growth logging as some observers have erroneously concluded that potential timber supply impacts disproportionately occur on the B.C. coast and disproportionately impact Western. In fact, independent analysis suggests that the vast majority (88 per cent) occur in the B.C. interior. Further, with a 6+ year head start and several signed formal JV agreements under the belt, we regard WFP as amongst the best positioned to mitigate potential impacts through forming additional partnerships with First Nations. We regard this mistaken analysis as an opportunity as WFP shares exhibit compelling value; applying recent allowable annual cut (AAC) sale comps value WFP’s AAC at roughly 120 per cent of current market cap. This is conservative as it implies the market is ascribing zero value for the company’s BC coast sawmill assets, U.S. PNW operations, cash on the balance sheet and U.S. lumber duties on deposit!”

Continuing to “advocate investors opportunistically add to positions,” he raised his target for Western shares to $3.25 from $2.90. The average is $2.70.


Following “another solid quarter of free cash flow generation,” RBC Dominion Securities’ Sam Crittenden thinks First Quantum Minerals Ltd. (FM-T) “remains well positioned as a go-to copper stock with strong FCF potential and organic growth projects.”

The analyst called the miner’s fourth-quarter results, released after the bell on Tuesday, “uneventful” following its Jan. 18 Investor Day event. It maintained its 3-year guidance provided at that time.

“With copper hedges put in place during the Cobre Panama construction largely behind them, FM has more leverage to current strong copper price and can generate significant FCF to de-lever, fund growth project and shareholder returns,” said Mr. Crittenden. “At spot copper, we calculate FCF in 2022 of $2.7B implying a yield of 14.4 per cent, vs. peers at 12.5 per cent. First Quantum has made steady progress reducing leverage with net debt falling to $6.1-billion at Q4/21 after peaking at $7.7-billion in Q4/19. They announced a 10 cents per share annual dividend with the potential for 15 per cent of excess FCF returned to investors – we estimate that this could be an extra 50 cents per share on our 2022 estimates.”

After raising his EBITDA multiple to fall inline with large copper producers in his coverage universe, including Freeport-McMoRan Inc. and Antofagast PLC, and increasing his earnings expectations for 2022, Mr. Crittenden raised his target for First Quantum shares to $43 from $39, keeping an “outperform” rating. The average is $38.16.

“First Quantum provides investors strong exposure to copper (87 per cent of 2022E EBITDA) and potential for attractive returns based on growing copper production (10 per cent from 2021 through 2023) and strong FCF generation (average 13-per-cent FCF yield at RBC estimated commodity prices in 2022),” he said. “Management has a favorable track record of project development and operating expertise.

Others making changes include:

* Canaccord Genuity’s Dalton Baretto to $41 from $38 with a “buy” rating.

* JP Morgan’s Patrick Jones to $35 from $36 with an “overweight” rating


Restaurant Brands International Inc.’s (QSR-N, QSR-T) fourth-quarter results displayed “good sequential trends,” according to Scotia Capital analyst Patricia Baker, who sees the valuation for Tim Hortons parent company as “compelling” and believes execution in fiscal 2022 will “drive shares higher.”

Before the bell on Tuesday, the fast food operator reported adjusted earnings per share of 74 US cents, up 39 per cent year-over-year and exceeding both Ms. Baker’s 68-US-cent forecast and the consensus projection of 70 US cents. Sales rose 13.4 per cent overall with net restaurant growth up 4.5 per cent, which the analyst said displayed “strength across all banners.”

Tim Hortons parent Restaurant Brands mulls further price increases as supply chain and commodity price pressures linger

“Q4 was marked by some encouraging signs at both Tim’s and at BK [Burger King], with the latter narrowing the gap with industry peers in the U.S. RBI opened a total of 600 net new restaurants in Q4 and NRG remains on track to return to pre-pandemic levels and should accelerate in F22,” said Ms. Baker. “COVID-19 continued to impact the business providing labour challenges, which resulted in reduced operating hours and service modes at select restaurants as well as supply chain pressures. Adj EBITDA rose 16.6 per cent to $584-million, modestly above $580-million consensus. International growth remains robust. BK US will remain a show me story but the more focused approach under new leadership we believe holds promise.”

She added: “CEO Jose Cils outlined key objectives for F22 to build on progress evident in 2021 that included improved momentum at Tim’s, a return to better net restaurant growth and early signs of progress at BK evident in the final quarter of F21. The key areas of focus for F22 will be to a) build sales momentum while improving franchisee profitability and unit economics, b) accelerate global unit growth, c) improve restaurant operations, d) utilize technology initiatives to improve the guest experience, and e) execute against the company’s climate strategy.”

Citing concerns about growth beyond North America, Ms. Baker reduced her valuation multiple, resulting in a target for Restaurant Brands shares of US$70, down from US$79. The average is US$70.72.

She kept a “sector outperform” rating.

“While the impact of COVID-19 on RBI has slowed growth, we do not expect COVID to derail the company’s longer-term strategic push to 40,000 restaurants globally or impede its critical undertaking in Canada to return Tim Hortons to its core,” said Ms. Baker. “In fact, prior to the COVID outbreak, Tims appeared to be showing improved trends, and the company had taken important steps on that path. We also note that the QSR space should be well-positioned within the restaurant industry as we emerge from the lockdowns and restrictions into what will inevitably be a much-slowed economic backdrop.”

Elsewhere, Truist Securities analyst Jake Bartlett cut his target to US$73 from US$76 with a “buy” rating.


After “strong” fourth-quarter results and an “impressive” initial outlook for 2022, Desjardins Securities analyst Michael Markidis sees Dream Industrial Real Estate Investment Trust (DIR.UN-T) poised to deliver mid- to high-single-digit funds from operations and net asset value per unit growth on an annualized basis over the next 24 months.

“Organic growth is accelerating,” he said. “Same-property NOI [net operating income] growth (constant-currency) accelerated throughout 2021; the 7.6-per-cent print registered in 4Q21 represents the highest level achieved since DIR was established in 2012. By segment, growth in Canada (up 8.0 per cent) was driven by (1) higher rents and occupancy gains in Ontario (17.0 per cent), and (2) rent growth in Québec (5.2 per cent); western Canada was essentially flat (0.1 per cent).

“Same-property NOI growth in Europe (3.9 per cent) has accelerated for three consecutive quarters since being added to the same-property pool in 2Q21. This positive momentum is expected to continue through 2022. Guidance communicated during the conference call called for same-property NOI growth (from all segments) of at least 7 per cent in 2022. Rent growth should be the primary driver. In addition to strong leasing spreads on new leases, renewals and relocations (up 21 per cent in Canada and 11 per cent in Europe in 2021), the average contractual rent growth embedded in the Canadian portfolio is 2.4 per cent, and approximately 90 per cent of leases in the European portfolio are indexed to CPI (an additional 8 per cent have contractual rent growth of 2 per cent).”

Mr. Markidis thinks Dream’s “robust” outlook is predicated on both positive lifts on new leases and renewals as well as contractual steps embedded within existing leases.

“Development program continues to ramp,” he added. “The active pipeline includes five intensifications and one new development spanning 849,000 square feet of incremental GLA. The aggregate total cost is pegged at $137-million ($161 per square foot) and return expectations call for a blended unlevered yield of 6.6 per cent. Completions are staggered from 1H22–1H23.”

Keeping a “buy” rating, the analyst bumped his target for Dream units to $19.50 from $19. The average is $19.52.

Elsewhere, National Bank’s Matt Kornack increased his target to $19.25 from $19 with an “outperform” rating.

“Q4 results came in ahead of estimates and management’s internal forecast. NOI beat expectations slightly, though acquisition timing was a consideration and the bulk of the beat came from lower than forecasted interest expense,” he said. “The REIT was successful securing low interest rates owing to its European exposure, which aided earnings and leverage metrics. Going forward, this relationship persists, but we are returning to an environment more consistent with pre-pandemic levels (still well below the equivalent term financing in North America). The outlook remains for elevated performance in light of CPI-linked rent adjustments in Europe and improving MTM spreads. On the latter, The Canadian portfolio registered an almost twofold increase since Q4 2020. We have taken our NAV, FFO and target price slightly higher on the back of these results and see the current implied trading value and multiple as attractive given expected growth levels.”


In other analyst actions:

* Raymond James analyst Michael Shaw downgraded TC Energy Corp. (TRP-T) to “outperform” from “strong buy” with a $67.50 target, below the $68.03 average. Elsewhere, National Bank’s Patrick Kenny bumped up his target to $66 from $65 with a “sector perform” rating.

* Barclays’ Matthew Murphy cut his Kinross Gold Corp. (KGC-N, K-T) target to US$7 from US$8, below the US$8.86 average, with an “overweight” rating, while BMO’s Jackie Przybylowski trimmed her target to US$11 from US$11.50 with an “outperform” rating.

“Kinross’ earning release introduces a number of topics that we expect will be discussed on the management conference call including risks to its Russia operations, change to Round Mountain production plans, expected actions at the Dixie project, and progress towards fire recovery and towards 24ktpd expansion at Tasiast. We continue to rate Kinross Outperform as it continues to progress these (and other) activities towards potentially positive catalysts in 2022,” said Ms. Przybylowski.

* Calling its fourth-quarter earnings per share miss “high quality,” National Bank Financial Gabriel Dechaine raised his target for iA Financial Corporation Inc. (IAG-T) to $89 from $87 with an “outperform” rating in order to “reflect higher expected profit growth and flat full-year new business strain,” while BMO’s Tom MacKinnon raised his target to $94 from $92 with an “outperform” rating. The average is $90.94.

* Seeing its acquisition of Concentra Bank as “a big step forward,” Cormark Securities analyst Jeff Fenwick hiked his Equitable Group Inc. (EQB-T) target to $105 from $95, reaffirming a “buy” recommendation. The average is $96.50.

“Equitable Group has weathered the Covid crisis exceptionally well and has continued down the path to becoming a true digital ‘challenger bank,’” he said. “The combination of a strong capital position, a more diversified funding base, and a growing product set positions EQB to continue to produce strong earnings growth and ROE. To this profile, the acquisition of Concentra Bank provides meaningful scale and diversification while accelerating the strategic growth plans of the firm.”

* JP Morgan’s Michael Glick raised his target for Barrick Gold Corp. (GOLD-N, ABX-T) to US$23 from US$20, remaining below the US$26.42 average, with a “hold” rating. Others making changes include: TD Securities’ Greg Barnes to US$28 from US$27 with an “action list buy” recommendation and Barclays’ Matthew Murphy to US$26 from US$27 with an “overweight” rating.

* TD’s Daryl Young cut his FirstService Corp. (FSV-Q, FSV-T) target to US$170 from US$200 with a “hold” rating. The average is US$182.50.

* Canaccord Genuity’s Luke Hannan cut his Freshlocal Solutions Inc. (LOCL-T) target to 60 cents from 85 cents, keeping a “hold” rating, while Desjardins’ Chris Li reduced his target to $2 from $3.25 with a “buy” recommendation. The average is $2.03.

“1Q was impacted by COVID-19-related supply chain/capacity challenges and the BC floods,” said Mr. Li. “Management expects the e-grocery business to be CF positive in 3Q. If successful, there should be upside to the stock as we believe it currently reflects the likelihood of financial distress. Failure to do so will result in further downside. After reducing our estimates and applying lower valuation multiples to our sum of the parts, reflecting near-term uncertainty, we are cutting our target.”

* RBC Dominion Securities’ Jimmy Shan cut his H&R REIT (HR.UN-T) target to $14.25, below the $15.50 average, from $19 with a “sector perform” rating.

“With the sale of The Bow, spin-off of Primaris, an active multi-res development program and further sale to come, H&R is advancing its strategy to be focused on multi-residential and industrial,” he said. “This renewed focus could lead to a re-rating of the stock although there is still ‘wood to chop.’ Our estimates & target reflect the PMZ spin-off.”

* Mr. Shan increased his target for Morguard North American Residential Real Estate Investment Trust (MRG.UN-T) to $23 from $22, above the $20.80 average, with an “outperform” rating.

“MorguardNorth American Residential REIT reported Q4 results a tad shy of our estimate (owing to higher operating cost),” he said. “However, results continue to show sequential improvement, especially in Canada. Our positive outlook is unchanged given our view that the GTA assets are at an inflection point, its U.S. assets continue to be strong, and valuation is attractive.”

* TD Securities analyst Sam Damiani raised his target for SmartCentres Real Estate Investment Trust (SRU.UN-T) to $33 from $32, remaining below the $33.44 average, with a “hold” rating, while BMO’s Jenny Ma also raised his target by $1 to $33 with a “market perform” rating.

“SmartCentres REIT reported a headline beat driven by one-time items, and in-line core results. With operations stabilizing, investors should return their attention to the value creation opportunities from the extensive development pipeline. During Q4/21, SmartCentres recorded a substantial fair value gain in the development portfolio. There is embedded value in the portfolio, and we expect the achievement of development milestones and additional disclosures to further reveal that growth over time. Our investment thesis remains intact,” said Ms. Ma.

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