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

Despite a negative reaction from investors, Stantec Inc. (STN-T, STN-N) appears to be “turning the corner,” said Canaccord Genuity analyst Yuri Lynk.

In the wake of Wednesday’s release of the Edmonton-based professional services company’s second-quarter results, Mr. Lynk upgraded his rating for its shares to “buy” from “hold.”

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“With both organic net revenue growth and EBITDA margin on the rise within the core consulting business, we believe the company is close to turning the corner,” he said. “The Construction segment had another terrible quarter due to ongoing execution issues. However, investors sold the stock down only 1.9 per cent in reaction to this, indicating just how low expectations have fallen for this company. We see good growth going forward and the troubled projects are essentially complete, reducing the risk of another large write-down. The planned sale of this business could serve as a catalyst.”

Stantec reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $94-million, missing Mr. Lynk’s $101-million estimate and the consensus on the Street if $107-million. The result was hurt, according to the analyst, by $24.7-million in revenue and cost reforecasts in its Construction segment.

Mr. Lynk did call the performance of its core Consulting segment “impressive” with organic revenue growth of 4.6 per cent, which he noted was the “highest in several years.” Energy and Resources saw 32.4-per-cent growth and Water was up 4.8 per cent.

“Given the better-than-expected results in Consulting and the increased likelihood Construction-related losses will not extend into 2019, we are increasing our estimates,” he said. “Our 2018/2019 EBITDA estimates go to $390-million/$448-million from $383-million/$435-million. Looking ahead, we see results benefiting from the kick-off of several new water awards, the return to positive organic growth in the Buildings operating unit, and, as mentioned, lower losses in Construction.”

Mr. Lynk also increased the target price for Stantec shares to $37 from $34. The average on the Street is $37.18, according to Bloomberg data.

“We conservatively set our Stantec target with a 10.5 times on 2019 estimated EBITDA less our Q4/2018 net debt estimate of $517-million,” he said. “The successful sale of the Construction segment combined with the growth we are seeing in Consulting could garner Stantec a much higher multiple, in our view.

Elsewhere, Raymond James analyst Ben Cherniavsky maintained an "outperform" rating for Stantec with a $37 target.

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He said: “We continue to rate Stantec Outperform. Our positive bias of this stock has rested on the assumption that, after a couple ‘messy’ years, the company would revert to reporting cleaner, more impressive results in 2018 as some of the recent volatility around the business-both internal (i.e. MWH) and external (i.e. resource markets)-settles down. So far this year, our thesis has been only partially satisfied. While 2Q18 results indicate that the core Consulting business is indeed ‘back on track,’ Stantec’s Construction practice continues to drag on results. For reasons articulated in our June, 4 comment ‘In Pursuit of a Water Tight Opportunity,’ we don’t believe that this should detract from the value of the MWH acquisition, especially with the related Construction segment poised for sale. Assuming a divestiture closes, which we think is likely, Stantec will remove another major source of noise in its results and move one step closer to resuming its ‘steady Eddie’ status. Improved stock performance should follow.”

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Gibson Energy Inc. (GEI-T) continues to “overdeliver,” said Industrial Alliance Securities analyst Elias Foscolos in reaction to the release of “solid” second-quarter financial results on Wednesday after market close.

The Calgary-based midstream oilfield service company reported adjusted EBITDA of $102-million, exceeding Mr. Foscolos’s projection of $92-million. He pointed to strong performances of both its Infrastructure and Wholesale segments during the quarter.

However, Mr. Foscolos said the results were overshadowed by Gibson’s announcement that it has secured additional capital projects worth $200-$250-million, leading to revised capital guidance for 2018 to a range of $250-$300-million from a previous expectation of $165-$205-million.

He said the news provides “strong visibility” into 2020 for the company, leading him to raise his EBITDA and adjusted funds from operations estimates for fiscal 2018 through 2020.

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Keeping a “buy” rating for Gibson shares, Mr. Foscolos raised his target price to $22 from $19.50. The average is $20.

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Mr. Foscolos said Pason Systems Inc. (PSI-T), a Calgary-based provider of data management systems for drilling rigs, outperformed “across the board” with its second-quarter results, which were also released on Wednesday after market close.

“We categorize the results as positive due to the beats in revenue, gross margin and adjusted EBITDA, and the 12-per-cent dividend increase,” the analyst said.

Pason reported revenue for the quarter of $68-million, topping Mr. Foscolos’s forecast of $66-million and the consensus on the Street of $65-million, and due largely to performance from its International segment and better-than-anticipated cash gross margin. Adjusted EBITDA of $29-million also beat the $28-million expectation of both the analyst and the Street.

The company also announced a 1-cent increase in its quarterly dividend (to 18 cents per share).

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“This does not come as much of a surprise as management had previously hinted that a dividend increase was possible,” said Mr. Foscolos. “We believe this implies that management has better revenue visibility for the remainder of the year, and is in line with management’s goal of returning value to the shareholder.”

With a “hold” rating (unchanged), he increased his target for Pason shares to $20.50 from $19. The average is $22.50.

Elsewhere, CIBC World Markets analyst Jon Morrison upgraded his rating for the stock to “neutral” from “underperformer” with a target of $23, rising from $20.

Mr. Morrison said: “Should the early momentum around Pason’s new product trials continue to unfold, we believed that there was a potential rate of change story that warranted investors' attention and that could alter our thesis on the stock. And with Q2/18 results showing a continuation of that theme and early uptake on various new Pason products continuing this quarter, as of Aug. 8, we are upgrading the stock.”

National Bank Financial analyst Greg Colman raised Pason to “outperform” from “sector perform” with a target of $23, up a loonie.

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Though WSP Global Inc.’s (WSP-T) quarterly results fell in-line his expectations, Desjardins Securities analyst Benoit Poirier expressed concern over the current valuation of its stock.

“Overall, while WSP’s pristine balance sheet will continue to fuel its growth story, both organically and through accretive M&A such as Louis Berger, we are maintaining a cautious stance in the short term in light of recent share price performance (up 51 per cent from 52-week low) and fair valuation versus its pure-play engineering peers.”

On Wednesday before market open, the Montreal-based professional services firm reported adjusted EBITDA for the quarter of $169-million and net revenue of $1.541-billion, slightly exceeding the projections of both Mr. Poirier ($165-million and $1.517-billion) and the Street ($167-million and $1.504-billion). Adjusted earnings per share of 90 cents met Mr. Poirier’s forecast and beat the consensus by 4 cents.

“Management also reiterated its 2018 guidance, as it expects gradual improvement in EBITDA margin toward its objective of 11.0 per cent (we expect 10.8 per cent),” the analyst said. “Although we believe long-term fundamentals remain intact, we are maintaining our Hold rating in light of the modest potential upside to our target price (5 per cent excluding dividend).”

After raising his EPS projections for 2018 and 2019 to $3.46 and $4.09, respectively, from $3.45 and $4.04, Mr. Poirier increased his target for WSP shares to $76 from $74, which is slightly higher than the consensus of $75.05.

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Goeasy Ltd.’s (GSY-T) “massive” guidance in the wake of “another record” quarter prompted Beacon Securities analyst Doug Cooper to hike his target price for its shares.

On Tuesday, the Mississauga-based consumer-finance lender revenue for the second quarter of $123.3-million, an increase of 26.4 per cent year over year. The result was driven largely by the growth in consumer loans receivable portfolio for its easyfinancial segment, which jumped 121.7 per cent from the previous year (from $38.3-million to $84.8-million).

“As expected, the better-than-expected quarterly results were accompanied by a massive increase in its FY18-FY20 targets coupled with a significant increase in the forecast profitability,” said Mr. Cooper. “For example, FY19 loan book target increased by 26 per cent with op margin increase of 400 basis points. Those two points together would increase FY19 (exit rate) operating profit by $50-million or $2.50/share versus prior guidance.”

“Our analysis indicates that an exit FY19 loan book of $1.2 billion would result in adjusted EPS (FD) of almost $8 per share. Based on a current price of $49.38, the stock is trading at 6 times that run-rate EPS as well as a pro-forma yield of 4 per cent (assuming the company maintains its dividend policy of 30 per cent of trailing earnings).”

Maintaining a “buy” rating for its stock, Mr. Cooper increased his target to $70 from $60. The average is $58.50.

“Goeasy is proving itself to be one of the best internal growth stories in Canada and its growth is accelerating,” he said. “With a 20-per-cent-plus and growing RoE [return on equity], strong free cash flow, growing dividend and ample growth opportunities, we continue to believe the shares represent exceptional value. In a report earlier this year, we indicated we believed that goeasy was ready to take its place amongst other Canadian high growth companies such as Dollarama (DOL–T) that experienced significant multiple expansion once its operating profit surpassed $100 million. GSY will cross that threshold in FY18 and, in fact, has surpassed that on an LQA basis. Even without a significant multiple expansion, the growth in earnings should propel the shares significantly higher – a well-deserved multiple expansion would be icing on the cake.”

Meanwhile, Raymond James analyst Brenna Phelan raised her target to $60 from $51 with an "outperform" rating (unchanged).

Ms. Phelan said: “We view goeasy as a high-growth story, catering to an underserved market with significant demand and fragmented competition, underpinned by effective and reliable credit adjudication and underwriting.”

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Indiva Ltd. (NDVA-X) is “positioned for growth” in both the medical and recreational marijuana markets, according to Mackie Research analyst Greg McLeish.

In a research report released Thursday, he initiated coverage of the Ottawa-company producer, which began trading on the TSX Venture Exchange in late December of 2017, with a “buy” rating.

“Indiva’s approach to cannabis cultivation is to bring tog-based ether modern agriculture technologies, genetic materials and tested growing practices to produce high quality dried cannabis product,” said Mr. McLeish. “The company plans to market their in-house cannabis as a premium medical or ‘craft’ recreational product which management believes will be most appealing to its customers. High-quality buds can command a price premium of approximately 150 per cent ($15.00 per gram versus $6.00 per gram) and this is the market Indiva is looking to target. The company is currently capable of producing 400 kg – 500 kg/year of cannabis; however, once its indoor facility in London is completed it will increase cultivation capacity to approximately 2,500 kg – 3,000 kg/year. Product that is not sold as premium dried flower will be extracted and incorporated into Indiva’s own line of cannabis oils and other higher-margin products.”

Expecting Indiva to receive its sales license in the third quarter of this fiscal year, he emphasized the company’s target of higher-margin branded products, edibles and concentrates.

“We forecast that the Canadian market will follow some of the trends seen in American states where recreational cannabis is legal,” said Mr. McLeish. “In these markets, pre-rolled products and products derived from cannabis oils have become a large and growing market segment. Indiva aims to capitalize on this trend by offering these high-margin products in Canada. The company is currently incorporating state-of-the-art extraction – and possibly pre-roll – machines into its capital expansion plans. The extraction equipment in consideration is capable of processing 20,000g of dried cannabis per day; equivalent to approximately 1 million grams of pure THC or CBD oil per year.”

Believing it possesses a “strong” financial position that will allow it to pursue strategic acquisitions and address capital needs, Mr. McLeish set a target price of $1.50 for Indiva shares. He’s the lone analyst currently covering the stock, according to Bloomberg.

“We view Indiva as an emerging player in the cannabis industry,” he said.

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In other analyst actions:

Expressing increased confidence in the economic viability of its Tijirit Project in Mauritania, Beacon Securities analyst Michael Curran raised his rating for Algold Resources Ltd. (ALG-X) to “buy” from “speculative buy” with a target of $2, falling from $6.50 based on a valuation change but in-line with the consensus on the Street.

National Bank Financial analyst Matt Kornack downgraded Summit Industrial Income REIT (SMU.UN-T) to “sector perform” from “outperform” with a $9 target, which is 9 cents under the average on the Street.

GMP analyst Ian Gillies downgraded Trinidad Drilling Ltd. (TDG-T) to “hold” from “buy” and lowered his target to $2 from $2.50. The average is $2.50.

TD Securities analyst Aaron Bilkoski downgraded Bonterra Energy Corp. (BNE-T) to “hold” from “buy” and raised his target to $19.50 from $19. The average is $20.74

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