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

Precious metals equity analysts at National Bank Financial are expecting the majority of the producers in their coverage universe to report production increases during second-quarter earnings season, however they warn rising costs will likely concern investors.

In a research report released Thursday, the firm estimated 63 per cent of companies will see gains versus the first quarter, but 73 per cent will see a rise in costs, citing “a general trend of rising costs for key consumables and lower byproduct credits.”

“Provisional pricing adjustments are expected to weigh on Q2 earnings, especially with almost all base metals down over 20 per cent from March 31st close prices,” the analysts said. “We see the potential to take increased positions in royalty companies, which are currently implying similar FCF yields as producing peers, with no direct impact from inflationary pressures on operating margins. We look for increased input cost impacts on company outlooks, which we expect to be revised with Q2 earnings. A somewhat offsetting tailwind has developed in the form of weaker FX rates (relative to the USD), which could help to reduce such cost impacts.”

The firm revised their metals price and foreign exchange rate assumptions for the remainder of 2022 as well as 2023. That included gold, which it now projects at US$1,843 and US$1,810 per ounce, respectively, falling from US$1,921 and US$1,935.

“Our revised metal price deck proved negative for the cash flow generation outlook and price estimate revisions of our coverage universe given the decreased commodity prices paired with increased input prices observed throughout 2Q22,” they said.

Driven by their price deck changes, the analysts made a series of target price adjustments to stocks.

“Companies with target price changes of 10 per cent or more include: Agnico Eagle (down 23.5 per cent), Aya (down 28.9 per cent), Barrick (down 23.5 per cent), Eldorado (down 21.1 per cent), Equinox (down 39.6 per cent), First Majestic (down 34.7 per cent), IAMGOLD (down 30.8 per cent), Kinross (down 28.8 per cent), New Gold (down 20.0 per cent), Newmont (down 21.7 per cent), OceanaGold (down 12.5 per cent), SSR Mining (down 15.4 per cent), Torex (down 31.8 per cent), etc,” they said.

For senior producers, their changes were:

  • Agnico Eagle Mines Ltd. (AEM-T, “outperform”) to $75 from $98. The average target on the Street is $88.64.
  • Barrick Gold Corp. (ABX-T, “sector perform”) to $26 from $34. Average: $25.99.
  • B2Gold Corp. (BTO-T, “outperform”) to $8 from $8.50. Average: $7.59.
  • Endeavour Mining Corp. (EDV-T, “outperform”) to $40 from $46. Average: $43.13.
  • Kinross Gold Corp. (K-T, “outperform”) to $9.25 from $13. Average: $9.31.
  • Newmont Corp. (NGT-T, “sector perform”) to $90 from $115. Average: $115.

The firm also revealed their “top picks” heading into the quarter. For seniors, they are:

* Endeavour Mining Corp.

Analyst Don DeMarco: “Top pick, supported by elevated FCF, stable production outlook from a diversified portfolio, multiple pipeline opportunities, visibility for resource accretion and discounted valuation.”

* Kinross Gold Corp.

Analyst Mike Parkin: “Kinross trades at a significant discount to senior peers on a P/NAV, EV/EBITDA and FCF Yield basis, which we continue to believe is unwarranted, especially given Kinross’ recent successful exit from Russia, which we view as a favourable outcome and a supporting factor in an expected re-rating of the company’s valuation given the new geopolitical composition of the company’s assets and production profile.”

* Pan American Silver Corp. (PAAS-T, “outperform” and $39 target)

Mr. DeMarco: “Top pick, supported by expected operational improvements driving a production rebound in 2022 and beyond. La Colorada ventilation issues have since been fixed (new primary vent completed, additional shafts completion 2023) and FY22G midpoint for La Colorada production marked a sizable 35-per-cent rebound to 7.0 million ounces of silver (versus FY21A at 5.2 million ounces).”


Desjardins Securities analyst Doug Young thinks the second quarter was “tough” for Canadian insurance companies.

“While the COVID-19-related pressures in the U.S. seem to be easing, restrictions in various regions in Asia are still a headwind, and equity market volatility, along with the rise in interest rates, negatively affected wealth management results,” he said.

“That said, the setup for 2H22 looks interesting as COVID-19 restrictions potentially begin to fade and the lifecos reap the benefits from past acquisitions and higher interest rates. We lowered our 2022/23 estimates across the board, and our 2023 estimates now include the potential impacts from IFRS 17.”

After reducing his headline earnings per share projections to “specifically factor in a negative impact from equity markets and the mixed impact from interest rates,” Mr. Young expects core EPS to decline by an average of 5 per cent for the quarter and 1 per cent for full year before increasing 3 per cent in 2023.

“Several items impacted 2Q22 headline earnings, by our estimate: (1) negative equity markets; (2) higher government bond yields (positive); (3) movements in corporate spreads (positive); (4) shift in swap spreads (mixed); and (5) non-parallel yield curve movements (positive for MFC, negative for SLF),” he said. “First, equity markets declined 11.2 per cent on average across all regions we track, with the most important index for lifecos, the S&P/TSX, decreasing 13.8 per cent. Second, the US 10-year and 30-year Treasury yields increased 67bps and 74bps, respectively; similarly, the Government of Canada 10- and 30-year yields were up 82bps and 75bps, respectively. However, the shift in the yield curve was not parallel, which will skew actual results. Corporate spreads in the US and Canada widened by 28bps and 19bps, respectively (positive), while swap spread movements had a small positive impact.”

“Despite various headwinds, there are several earnings growth drivers for each company for 2022 and 2023, including: (1) SLF— contribution from the DentaQuest (DQ) acquisition, easier U.S. group comps (2H22), potential turnaround in Asia (late 2022) and SLC Management; (2) MFC—potential turnaround in Asia (late 2022) and stock buybacks; (3) IAG—integration of IAS in the US, organic growth, digital initiatives, potential buybacks and the leveraging of distribution capabilities domestically; and (4) GWO— addition of MassMutual’s and Prudential’s U.S. retirement businesses.”

To account for his more bearish view, Mr. Young reduced his target prices for the companies’ stocks. In order of his preference, his changes are:

  1. Sun Life Financial Inc. (SLF-T, “buy”) to $68 from $73. The average on the Street is $69.
  2. IA Financial Corp. Inc. (IAG-T, “buy”) to $76 from $80. Average: $82.11.
  3. Manulife Financial Corp. (MFC-T, “hold”) to $24 from $26. Average: $26.86.
  4. Great-West Lifeco Inc. (GWO-T, “hold”) to $35 from $38. Average: $36.89.

“What’s management’s outlook given the current environment? For 2Q22, we expect: (1) wealth businesses to be pressured; (2) seed losses and lower/negative AFS gains; (3) higher expenses; (4) lower LICAT ratios; and (5) lower book values including AOCI due to rising interest rates, potentially offset by benefits from a weakening Canadian dollar vs US dollar. These headwinds should be partially offset by improved yield enhancement/trading gains due to widening spreads and lower new business strain/higher new business gains due to higher interest rates,” said Mr. Young.


Expecting growth from its portfolio to “accelerate” over the next few quarters as apartment fundamentals improve in Alberta, Canaccord Genuity analyst Christopher Koutsikaloudis raised the firm’s recommendation for Boardwalk Real Estate Investment Trust (BEI.UN-T) to “buy” from “hold” upon assuming coverage.

Following a recent decline in unit price, he thinks it is now “attractively valued,” pointing to the “outlook for accelerating cash flow growth over the next few years.”

“In our view, Boardwalk should benefit over the next several years from strengthening multifamily fundamentals in Alberta and the ability to quickly capture increases in market rental rates as the majority (73 per cent) of its portfolio is not subject to rent control,” he said. “On an annual basis, incentives on leases currently in place within Boardwalk’s portfolio amount to $35 million (13.5 per cent of Q1/22 annualized NOI). However, as vacancy rates in Calgary have tightened, landlords now have a higher degree of pricing power, and the use of incentives is declining rapidly.”

He trimmed Canaccord’s target for Boardwalk shares to $51 from $56. The average is $57.73.


Following a 22-per-cent drop in unit price thus far in 2022, Scotia Capital analyst Mario Saric thinks Allied Properties Real Estate Investment Trust (AP.UN-T) “offers compelling value today.”

“Allied was our top pick going into 2022 and while it started off relatively well, it is now 3 per cent behind the sector year-to-date (U.S. Office REITs are down 7 per cent vs. U.S. REITs year-to-date),” he said.

Ahead of its July 27 earnings release, Mr. Saric is projecting funds from operations per unit of 62 cents for the second quarter, up 2.5 per cent quarter-over-quarter and 3.4 per cent year-over-year. It’s also 1 per cent higher than the consensus projection on the Street.

“We think no news = good news,” he said. “Our focus areas: Base case = no major changes to 2022 guidance (low-to-mid per unit/SPNOI growth; 2023E = mid-to-high), target occupancy (Q4/22 estimate = 94 per cent vs. Q1/21 actual of 88 per cent), and IFRS cap rates (Q1/22A = 4.59 per cent vs. our 4.72-per-cent NAV cap). Given the negative market reaction to REIT external growth, we think AP external growth appetite will be monitored.”

“A lot of bad stuff is already in the unit price but macro uncertainty needs to be navigated. Our positive thesis coming into 2022 = return to work (check), gradual progress on development completions (check; expected $82-million of NOI = 26 per cent of 2019A), high-single-digit lease spreads (check), 500bp+ occupancy growth (TBD), and capital recycling surfacing recognition of its UDC portfolio value (TBD). We expected a nice buffer (in time) between return-to-work and recession, which is still our base case, although recession probabilities have increased (a challenge for Office REIT sentiment, in our view).”

Mr. Saric cut his target to $47.25 from $52.50. The average is $47.10.

“Bottom-line, we believe Allied remains a high-quality REIT that is no longer trading like one. We retain high conviction in the value of AP’s urban office portfolio, with urban land values holding up well. That said, AP has lost the 3rd most ‘market share’ in our coverage on P/NAV, which we believe is temporary, as opposed to structural,” he said.


Citi analyst Jon Tower thinks there’s upside potential for Restaurant Brands International Inc. (QSR-N, QSR-T) stemming from the same-store sales results from Tim Hortons in Canada during the second quarter.

However, ahead of the Aug. 4 earnings release, he reiterated operating costs “remain a risk” for its distribution business and “it’s hard to see the stock working without more confidence” in turnaround for its Burger King chain in the United States,

“Should the company offer a longer term outlook that includes capex/marketing co-investments in the BK U.S. business (uncertain), we think this could provide a floor in the shares and offer investors a clearer catalyst path that could help blunt some of the current recessionary fears,” said Mr. Tower.

“Conversations suggest investors are comfortable with (if not want) the trade-off of near-term capex company co-investments if it is viewed as a credible part of the BK turn-around story; however, we also think it would be hard for any turnaround story to break through recession fears.”

For the quarter, the analyst is projecting earnings per share of 78 US cents, up a penny from a year ago and 14 US cents from the first quarter.

“What the data says — (1) BK US footfall shows a relatively stable trend (absolute and vs 2019) in April/May, with a steady deceleration starting in June. Steady share losses versus the broader category and burger peers continued throughout the quarter. (2) Mobility in BK international markets versus 2019 started to flatten out, with little improvement from May through July-TD. (3) Canada industry restaurant sales jumped sharply to kick off the quarter, with industry sales vs 2019 accelerating from 0.5 per cent/6.5 per cent in Jan/Feb to 12.8 per cent in April. (4) Tims Canada app usage continues to ebb and flow with digital oriented promotions causing spikes but generally re-setting the trend higher. Roll up to win drove a spike in 1Q usage, and 2Q settled up 11 per cent from the pre-promo trend,” said Mr. Tower.

He lowered his earnings per share projections for both fiscal 2022 and 2023 to US$3.13 and US$3.57, respectively, from US$3.17 and US$3.67 to account for an incremental 2-3-per-cent headwind from foreign exchange.

Mr. Tower maintained a “neutral” rating and US$58 target, below the US$61.13 average, for Restaurant Brands shares.

“Key topics heading into the print — (1) Macro backdrop and what promotional/other levers the brands have to pull if traffic slows. We believe weak franchisee profitability, largely price-point advertising, and little momentum puts BK US on its heels (and more so if MCD uses value as a lever). (2) Any updates on a potential company co-investment (remodels, POS, etc.) or other spend (e.g., marketing contribution) as part of a BK US turnaround strategy. (3) Have the company’s efforts to drive greater mid-day sales at Tim Hortons materialized and how has the brand utilized its loyalty platform to alter consumer traffic patterns?,” he said.


In a research report previewing quarterly results for energy infrastructure, power and utility companies, CIBC World Markets analyst Robert Catellier downgraded Pembina Pipeline Corp. (PPL-T) to “neutral” from “outperformer” based on a reduced return-to-target based on his new target price of $50 per share, down from $54 and below the average on the Street of $52.93.

He said the move was also based on its “solid YTD [year-to-date] performance (best performer in the Midstreamers).”

Mr. Catellier’s other target changes include:

  • AltaGas Ltd. (ALA-T, “outperformer”) to $32 from $34. The average on the Street is $34.70.
  • Enbridge Inc. (ENB-T, “outperformer”) to $60 from $61. Average: $60.06.
  • Keyera Corp. (KEY-T, “outperformer”) to $36 from $37. Average: $36.46.
  • Superior Plus Corp. (SPB-T, “outperformer”) to $13.25 from $13.50. Average: $13.75.
  • TC Energy Corp. (TRP-T, “outperformer”) to $76 from $77. Average: $71.74.

CIBC’s Mark Jarvi made these target changes:

  • Atco Ltd. (ACO.X-T, “outperformer”) to $54 from $53. Average $49.21.
  • Boralex Inc. (BLX-T, “outperformer”) to $47 from $46. Average: $46.60.
  • Canadian Utilities Ltd. (CU-T, “neutral”) to $41 from $40. Average: $39.22.
  • Innergex Renewable Energy Inc. (INE-T, “outperformer”) to $22 from $21. Average: $21.38.

“For Midstreamers, we have modified estimates to reflect strong commodity prices, generally benefitting those companies with exposure to refining markets,” they said. “However, growing recession concerns are also relevant, which began to pressure trading multiples for the Midstreamers in June. Potential opportunities around energy security, notably LNG, continue to emerge and may generate additional long-term opportunities (ENB and TRP are best exposed to this trend). Resource conditions for the Power names were generally positive, and strong spot prices are a boost .... CPX and BLX could surprise to the upside in Q2. In the Utilities, H should post another strong quarter; we remain positive on ACO.X (good value, solid earnings setup) and expect no material misses (could see positive updates on added growth).”


National Bank Financial analyst Richard Tse and John Shao see “acknowledgement or perhaps acceptance” from the Street toward increasing macro risks in the technology sector, including rising rates, inflation and foreign exchange headwinds.

“The current estimates have priced in a considerable amount of the forward estimates with the implied Nasdaq 100 actually pointing to potential upside vs. consensus numbers under the above base case,” they said in a research note released Thursday. “Having said that, a more severe slowdown under the ‘Bear’ case assumptions does not appear to be fully priced in, and in that case, the analysis would suggest just under 10-per-cent downside in that situation. While that’s still downside from here, if you believe consensus targets on many names, the risk might be missing out on the potential short-term upside.”

The analysts made a series of target price changes to stocks in their coverage universe heading into second-quarter earnings season. They include:

* Converge Technology Solutions Corp. (CTS-T, “outperform”) to $12 from $14. The average on the Street is $11.56.

Mr. Shao: “We’re revising down our FQ2 and FY2022 estimates for Converge as a result of incremental considerations such as the timing of deal closings and a potentially challenging hardware market. While those factors could limit the Company’s organic growth which has historically not been priced in, the main growth driver, M&A remains unaffected and to some extent looks more attractive given the valuation pullback among its M&A targets. We lowered our price target to reflect the estimate revisions but we still like this name for its M&A strategy, the Managed Services optionality, a strong balance sheet and its cash flow profile.”

* Farmers Edge Inc. (FDGE-T, “sector perform”) to $2 from $3. Average: $3.06.

Mr. Tse: “We see downside risk to Farmers Edge’s FQ2 results care of persistent inflationary pressures on key agricultural inputs such as synthetic fertilizers and fuel to operate heavy machinery. On that, the National Corn Growers Association predicts that its members will spend 80 per cent more in 2022 on synthetic fertilizers than they did in 2021, with a recent study estimating that on average, this will represent US$128k in added costs per farm. It’s those cost pressures that have the Farm Capital Investment Index at all-time lows, meaning the potential appetite for deploying new technology could be depressed.”

* Mdf Commerce Inc. (MDF-T, “sector perform”) to $2 from $3. Average: $3.80.

Mr. Shao: “While we like the plan laid out by Management, whether the Company can successfully execute its plan while concurrently expanding its margin profile on a consistent basis will require some meaningful execution. On that, we think the multiple operating businesses dilutes potential valuation upside.”

* Nuvei Corp. (NVEI-Q/NVEI-T, “outperform”) to US$100 from US$130. Average: US$78.

Mr. Tse: “We’re expecting essentially in-line results from Nuvei in FQ2. Since going public in September 2020, the Company has consistently met or exceeded expectations (generally the latter). That said, we see some incremental risk in the short term from FX, moderating e-Commerce growth and a deteriorating sentiment around crypto – as such, we’d be cautious going into the quarter.”

* Q4 Inc. (QFOR-T, “outperform”) to $8 from $10. Average: $9.35.

Mr. Tse: ”We’re expecting essentially in-line results from Q4 in FQ2. A notable growth driver for Q4 is IPO deal flow as it presents greenfield opportunities to onboard new customers at a low cost given its partnership with NYSE. On that, IPO deal flow was soft in calendar Q2 (down 82 per cent year-over-year; up 17 per cent quarter-over-quarter; as a result, the absence of that growth driver could moderate Q4′s growth rate. That said, we see that offset by cross-/up-selling additional solutions to existing customers, as seen last quarter when 70 per cent of ARR growth came from expansions, with 65 per cent of ARR now attached to clients using 2+ products.”

* Thinkific Labs Inc. (THNC-T, “outperform”) to $5 from $6. Average: $6.96.

Mr. Tse: “We expect essentially in-line results for Thinkific in FQ2, although we see potential for Adj. EBITDA coming in towards the lower end of the guidance range provided by Management for the following reasons: (1) increased pricing (impact lower-mid end of customer base) may lead to higher churn; and (2) economic indicators are showing signs of lower discretionary spending (lower new customer adds), both of which lead to lower operating leverage. That said, the Company is currently trading at a negative enterprise value.”

The analysts highlighted Kinaxis Inc. (KXS-T, “outperform” and $250 target) and Lightspeed Commerce Inc. (LSPD-T, “outperform” and US$65) having upside potential from the quarterly results.

Conversely, they named five companies with downside risk: E Automotive Inc. (EINC-T, “outperform” and $17), Farmers Edge Inc. (FDGE-T, “sector perform” and $2), MDF Commerce Inc. (MDF-T, “sector perform” and $2), Real Matters Inc. (REAL-T, “sector perform” and $6) and Shopify Inc. (SHOP-T, “outperform” and US$75).


Touting its management “dream team,” National Bank Financial analyst Don DeMarco initiated coverage of Aris Gold Corp. (ARIS-T) with a “sector perform” rating.

“Aris Gold’s team features a Who’s Who in mining, including some of the most influential businesspeople in Canada with a depth of experience, accolades, industry contacts and corporate development strategies to match,” he said. “Aris Gold’s stated vision is to become a globally relevant mining company by employing a buy-and-build strategy while advancing development of its current portfolio.”

“The producing Marmato mine features Reserves of 2 million ounces gold (March 2020). The Marmato Lower mine is undergoing a major expansion and modernization with mine-wide processing to increase to 5,500 tpd (from current 1,200 tpd) with production averaging 175k oz/year over a 13-year mine life. Soto Norte is one of the largest FS-stage projects in the world with high-grade reserves of 5 million ounced (January 2021), district-scale potential, low operating costs and visibility for production over 450k oz/year.”

Mr. DeMarco set a target of $2.35 per share. The average is $4.25.

“Our rating considers opportunities for NAV growth and valuation upside tempered by inflationary headwinds and longer-dated FCF. The path to an Outperform, in our view, requires (i) advancing Marmato on-time, on-budget, (ii) progressing on Soto Norte permitting and/or (iii) making progress on stated goals to grow the company,” he added.


In other analyst actions:

* RBC Dominion Securities’ Sabahat Khan lowered his Aecon Group Inc. (ARE-T) target to $16 from $18 with a “sector perform” rating. The average is $17.83.

“Given the importance of the Bermuda L.F. Wade International Airport concession to Aecon’s earnings (20 per cent of annualized EBITDA as of year-end 2019, which provides context of its pre-pandemic contribution), we collaborated with RBC Elements to track departures from the Bermuda airport and also leveraged IATA data to form a holistic view of “usage levels” for this concession,” he said. “Overall, departures from the Bermuda airport and international air travel improved year-over-year in Q2 2022.”

* Scotia Capital’s Ovais Habib cut his target for First Majestic Silver Corp. (AG-N, FR-T) to US$12 from US$12.25 with a “sector perform” rating, while National Bank Financial’s Don DeMarco reduced his target to $11.75 from $18 also with a “sector perform” recommendation. The average is $16.19.

“We view the results as mixed for First Majestic shares. While Q2/22 production was below our expectations, FR is expecting a stronger 2H/22 particularly at Jerritt Canyon as new mines come online,” said Mr. Habib.

* BTIG analyst Camilo Lyon lowered his Lululemon Athletica Inc. (LULU-Q) target to US$402 from US$420, keeping a “buy” rating. The average is US$382.82.

“We are reducing our sales/EPS estimates across our consumer coverage on the expectation that the recent deceleration in demand will likely continue into the back half of this year as consumers become more spend conscious,” he said. “We continue to view strong brands as best-positioned to capture long-term market share as consumers become more discerning. With that in mind and with multiples that look to have overshot to the downside, we like stocks that have a significant margin tailwind from supply chain (and/or GSP renewals/China tariff reversals.”

* IA Capital Markets’ Matthew Weekes cut his target for Pulse Seismic Inc. (PSD-T) by 10 cents to $2.60 with a “hold” rating. He’s currently the lone analyst covering the Calgary-based company.

“PSD’s Q2/22 results were below our estimates due to a lack of Transactional sales and slightly higher-than-expected costs,” he said. “However, Traditional sales were above our forecast, and we continue to view industry fundamentals as constructive for overall seismic demand. Our revised forecasts reflect these factors as we build in a more conservative level of Transactional sales, which is partially offset by increasing our Traditional sales forecasts. The changes result in our revised $2.60 target price .... PSD maintains low costs and, despite the lack of Transactional sales, was able to use free cash flow to fund the dividend, repurchase shares, and maintain a net cash balance.”

* CIBC World Markets’ John Zamparo trimmed his Spin Master Corp. (TOY-T) target by $1 to $62, keeping an “outperformer” rating. The average is $63.50.

“Our price target ... is now based solely on 2023, and now apply an 8 times EBITDA multiple (previously 9 times) to reflect investors’ reluctance to own discretionary names, though that stance has moderated recently. We view TOY as one of the highest-quality discretionary stocks in our coverage universe,” he said.

* BMO Nesbitt Burns’ Stephen MacLeod lowered his target for shares of Sleep Country Canada Holdings Inc. (ZZZ-T) to $35 from $37 with an “outperform” rating. The average is $37.43.

“We increase our Q2/22 estimates to reflect the positive impact from price increases; we lower H2/22 to reflect tougher comps and macro headwinds that could weigh on near-term demand,” he said. “Our 2022 and 2023 estimates remain unchanged. We believe Sleep Country is well-positioned to weather macro headwinds, and we continue to see a multi-year opportunity for market share gains for everything ‘sleep.’ The stock is down 24 per cent year-to-date on broader market weakness, and we see attractive risk-reward (5.0 times 2023 estimated EV/EBITDA, 14-per-cent FCF yield).”

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