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

Citi analyst Christian Wetherbee reaffirmed a preference for Canadian railway companies over their U.S. peers as third-quarter earnings season nears.

“We are again lowering our 2023 EPS estimates for the rails heading into 3Q earning season, as we believe the inflationary cost environment is likely to persist next year, with a kicker coming from the union labor deal,” he said. “We also have been underwhelmed by volume improvement in the US, even though it appears that service has improved, and with economic headwinds building we believe base case earnings growth assumptions for the U.S. rails need to be flat to modestly positive (vs. the street’s still HSD growth outlook). Looking across the U.S. and Canada, valuation in the US is more reasonable, but growth expectations are too high. That said, we still see a cleaner story of more volume growth and less cost pressure for the Canadians, as well as less risk to 3Q estimates, thus we remain more constructive on CN and CP, than UP, CSX and NS.”

In a research report released Thursday, Mr. Wetherbee adjusted both his third-quarter and full-year earnings per share estimates for the sector, pointing to lagging volumes and seeing macro headwinds and general wage increases adding “pressure” moving forward.

“Our 3Q estimates on average decrease by 1.0 per cent (largest decrease at NS, down 4.5 per cent and largest increase at CN, up 3.6 per cent),” he said.

“We continue to prefer the Canadian rails (CN then CP) due to the volume benefit from the Canadian grain crop and the KCS tailwind at CP. In terms of the U.S. rails, we prefer UP followed by CSX and NS. We expect the eastern rails to be at more risk given decelerating coal yields in conjunction with a slowing macro. We are decreasing our 2023 estimates by 1.9 per cent on average (led by CSX, down 3.0 per cent). While volume will likely remain pressured by a decelerating economic environment, we believe service can continue to improve into next year which should help offset. Pricing will decelerate, following an expected decline in Truckload rates and we expect operating expenses to remain elevated due to persistent inflation and the new labor contract, which is a 3-per-cent headwind to EPS.”

For Canadian Pacific Railway Ltd. (CP-N, CP-T), he maintained his third-quarter EPS estimate of US$1.02, matching the Street. His 2023 estimate slid by 5 US cents to US$4.40, which is 17 US cents less than the consensus.

Maintaining a “buy” recommendation for its shares, he lowered his target to US$79 from US$81. The average is US$82.26, according to Refinitiv data.

“We rate shares of Canadian Pacific Buy as we are constructive on its continuing meaningful operational improvement, which we expect to drive year-over-year improvements in OR [operating ratio] in 2021-2023. In addition, we expect a volume recovery and the realization of several actionable revenue catalysts to drive strong performance in 2022 and beyond,” he said.

Mr. Wetherbee raised his third-quarter EPS forecast for Canadian National Railway Co. (CNI-N, CNR-T) by 6 US cents to US$2, exceeding the consensus by 1 US cent. His 2023 estimate remains US$7.55, 40 US cents below the Street.

“We expect the company’s currently solid volume ramp-up to stand out relative to the rest of the rails. In addition, we believe CN should perform well on a relative basis, as its guidance seems more achievable post management’s recent reset,” he said.

He kept a “buy” rating and US$128 target for CN shares. The average is US$127.09.

“We are lowering our price targets across the U.S. rails, slightly adjusting our price target downward for CP and maintaining our target for CN,” the analyst said. “Our revisions are due to decreased 2023 earnings expectations amidst a slowing macro and headwinds from inflationary cost pressures (including the new union labor contract). While valuations have moved meaningfully down, the risk of estimate cuts, especially for the US rails, can weigh on shares. While we are slightly more cautious on the group, we think the Canadian rails are better positioned on the basis of more favorable commodity exposure in 4Q/2023 and CP’s potential earnings power from its KCS merger.”


Ahead of third-quarter earnings season, National Bank Financial analyst Adam Shine lowered his financial forecast and target prices for shares of Canada’s three largest telecommunications companies.

For BCE Inc. (BCE-T), he thinks its wireline business is “loading strong,” however he sees its media segment “pressured” as recessionary concerns are likely to drive a decline in television advertising.

He’s forecasting revenue of $6.014-billion, up 3 per cent year-over-year and in line with the consensus of $6.019-billion. His EBITDA estimate of $2.588-billion represents a gain of 1.2 per cent but sits below the Street’s $2.621-billion forecast, while he expects adjusted earnings per share to fall by a penny year-over-year to 81 cents, which is three cents below the consensus.

“We’re likely higher on interest costs as driver of EPS differential. 3Q21 Media revs benefited from Federal election and Euro Cup, while 3Q22 Wireline EBITDA expected to be impacted by $22-million in storm costs and inflationary pressures,” he said.

Keeping an “outperform” rating, Mr. Shine cut his BCE target to $68 from $71. The average is $68.33.

Mr. Shine expects Rogers Communications Inc. (RCI.B-T) to see significant losses from the impact of its July 8 outage, estimating a 22-cent impact on its adjusted earnings per share quarter. His EPS estimate is now 83 cents down 19.4 per cent year-over-year (from $1.03) and below the 86-cent consensus on the Street.

That drop overshadows a revenue increase of 1.1 per cent to $3.707-billion, in line with the consensus of $3.727-billion.

“3Q22 includes $150-million in bill credits ($90-million Wireless, $60-million Cable) due to the July 8 outage which elevated RCI’s churn and prompted peer promotions,” said Mr. Shine. “A $525-million outflow will also feature due to the first part of consent fees being paid to extend the SMR date on bonds related to Shaw financing (extra $275-million could be paid in January if deal closes post-2022).”

Seeing “strong” demand in its wireless segment and touting the impact of the Toronto Blue Jays success on its media division, he cut his target to $75 from $77, keeping an “outperform” rating. The average is $74.70.

Similarly, Mr. Shine sees “solid” demand for Telus Corp.’s (T-T) wireless offerings and touted the benefits from increased roaming rates and price strategies

He’s forecasting revenue of $4.681-billion, up 10.1 per cent year-over-year and above the consensus of $4.598-billion. Adjusted earnings per share projected to jump 14.1 per cent to 33 cents, matching the Street’s view.

Predicting a dividend raise of 3.5 per cent, he cut his target to $34 from $36 with an “outperform” rating. The average is $34.10.

“The $2 target reduction was due to removal of 3500 MHz spectrum licences from our NAV/DCF as done for peers. While starting to target LifeWorks synergies ($200M next 3-5 yrs), T expects a step down in capex post-2022 and will begin realizing benefits of copper decommissioning,” he said.


Touting the “tantalizing” potential in the adoption of its payments tool and seeing its NuORDER platform as a “sleeping giant,” iA Capital Markets analyst Neehal Upadhyaya initiated coverage of Lightspeed Commerce Inc. (LSPD-N, LSPD-T) with a “buy” recommendation.

“Payment adoption will singlehandedly be the most important factor in determining LSPD’s growth and profitability over the next few years,” he said. “We posit that with a sufficient increase in payment adoption, Lightspeed will be able to withstand a recessionary environment better than most SaaS companies. Should the Company’s Gross Transaction Value (GTV) fall by a dramatic 25 per cent, retailers who are not forced to close will continue using LSPD’s solution, and with a 5-per-cent increase in adoption rates the Company should be able to weather a significant macro and/or geopolitical storm. In this scenario, LSPD could still generate $266-million in payments revenue, higher than the $264-million transaction- based revenue it achieved in F2022.”

Mr. Upadhyaya thinks NuOrder, a California-based wholesale software provider acquired in July of 2021, can accelerate Lightspeed’s business-to-business market growth, estimating it could unlock $28-million in top-line growth through the implementation of a B2B payments solution, “despite rest of the business remaining stagnant assuming a 10-per-cent payment adoption rate.” He called the market “low hanging fruit.”

Lightspeed launches new platform to ease product ordering amid supply-chain crunches

“We expect LSPD to explore and potentially develop other solutions and products for its merchants through NuORDER, such as trade financing and implementing Faire’s business model of introducing new products to its current B2C customers for a commission that could add material top-line revenue, north of $36-million,” he said. “With the growth levers we expect LSPD to pull, we believe that NuORDER’s standalone valuation could be worth more than $2-billion within a few years, using conservative estimate.”

Emphasizing the strength of its balance sheet and “robust” growth profile, the analyst sees Montreal-based Lightspeed having the potential to become adjusted EBITDA positive in four to six quarters.

“With a steady increase in GTV and LSPD payments adoption, we are expecting year-over-year top-line growth for F2023 and F2024 of 37 per cent and 30 per cent, respectively,” he said. “We are projecting approximately negative 5-per-cent Adj. EBITDA margins in F2023, and a slightly positive Adj. EBITDA margin in F2024, in-line with the Company’s guidance.”

Mr. Upadhyaya set a target of US$29 per share. The current average on the Street is US$36.34.

“Due to the superior growth profile of the business, the lucrative payments opportunity and M&A upside, we believe the risk/reward profile is compelling at these levels,” he concluded.


In a separate note, Mr. Upadhyaya initiated coverage of Wishpond Technologies Ltd. (WISH-x) with a “buy” recommendation, calling it a “one-stop-shop” for digital marketing solutions for small and midsize businesses.

“Unlike other fragmented marketing solutions, the Company can provide a centralized platform and analytics for all its solutions, which simplifies usage and provides relevant data, allowing customers to use their marketing budgets more efficiently and effectively,” he said. “SMBs often lack the necessary in-house online marketing capabilities and are increasingly looking at external solutions. However, due to the fragmented market of SaaS online marketing solutions, businesses often employ several different solutions from various vendors, making it difficult to 1) have usable analytics from the separate solutions, 2) integrate the various solutions to seamlessly work with their marketing strategy, and 3) have a cost-effective solution that is simple to use. Enter Wishpond, with a plug-and-play product that helps SMBs focus on operating their businesses, leaving marketing to the experts.”

The analyst touts Vancouver-based Wishpond as recession “resilient” and thinks its M&A strategy adds to “strong” organic growth.

“Customers rely on the Company to help drive sales as evidenced by more than 200 million leads generated and 1.5 million marketing campaigns launched by the Company since its inception. Not only does WISH help drive sales, but it also provides tremendous value as it is cheaper than in-house marketing, agencies and individual fragmented solutions that need multiple subscriptions. With the value the Company’s products, it has quickly attracted a diverse customer base of over 4,000 clientele across multiple industries, resulting in minimal customer concentration. Due to this diverse customer base and the tangible value the Company provides, we believe that even in a recessionary environment, WISH’s business can thrive as customers rely on it to drive sales and prospective customers look for cost-cutting initiatives that lead them to use WISH’s solutions over other costly alternatives.”

“WISH has generated strong annual organic growth of 30-per-cent-plus over the last four years through its highly effective outbound sales and marketing activities which yields $3.40 of revenue for each $1.00 input (LTV/CAC ratio of 3.4). Furthermore, the Company has supplemented its organic growth with its M&A strategy, completing five acquisitions since 2020 enabling it to add a further $7.2-million to its top line.”

Seeing it trading at a “significant” discount to its peer group, Mr. Upadhyaya set a target of $1.50 per share, below the average on the Street of $1.90.

“WISH is trading at just 1.1 times our 2023 revenue estimate, well below its Canadian SaaS comps at 5.4 times, its North American Marketing comps at 4.4 times, and the overall peer group average of 5.2 times,” he said. “Due to this deep discount, the ability to sustain growth through cash flow generated and the M&A upside, we believe that Wishpond is a rarified company on the TSX.V since we expect that it will be Adjusted EBITDA positive and have positive cash flows from operations in 2022. We believe that the risk/reward profile is compelling at these levels.”


Polaris Renewable Energy Inc. (PIF-T) “presents investors with attractive upside potential as it continues to grow its asset base,” according to National Bank Financial analyst Rupert Merer.

He initiated coverage of the Toronto-based company, which is focused on renewable energy projects in Latin America, with an “outperform” rating, seeing it “reducing its single-asset concentration and its exposure to riskier jurisdictions such as Nicaragua, while increasing its exposure to more stable countries like Peru and Panama.”

“PIF currently has six operating assets in geothermal energy, run-of-the-river hydro, and solar power,” said Mr. Merer. “Including its construction pipeline, PIF has a pro-forma capacity of approximately 156 MW across five countries. Over the next 3-5 years, PIF targets to expand its portfolio to more than 350 MW through its organic pipeline and acquisitions. We believe it should see development success from its pipeline in the next year, from projects in the Dominican Republic, Panama and Ecuador. With recent investments, we believe EBITDA should climb from $46 million in 2022 to $59 million in 2023.”

The analyst thinks the company’s move to diversify by both country and asset type should reduce risk.

“On a pro-forma basis, 80 per cent of PIF’s EBITDA is generated from its geothermal asset in Nicaragua,” said Mr. Merer. “With this, it has some single-asset concentration risk, as well as some country risk, given the authoritarian rule in Nicaragua. However, as PIF diversifies its portfolio across technologies (i.e., geothermal, hydro and solar) and in other Latin American countries (i.e., Panama, Dominican Republic, Peru and Ecuador), its risk level should fall.

“Thus, we view PIF as a vehicle that can provide investors with a unique exposure to the Latin American renewables market, which is one of the fastest growing renewables sectors. Since 2020, PIF’s stock price return of 32 per cent is higher than the average IPP stock at 18 per cent. Still, as with other renewable power infrastructure companies, PIF could see increased competition, face headwinds from rising bond yields, and is exposed to production risk from the underlying assets and the price of power received.”

Touting its experienced management team and “solid” balance sheet and cash flow, Mr. Merer set a $21 target for Polaris Renewable shares. The average on the Street is $28.92.


Seeing “intensified” macro headwinds, Scotia Capital analyst Mark Neville reduced his financial projections and target prices for Canadian auto parts suppliers on Thursday.

“In our opinion, the challenge with being overly precise with forward estimates is the number of moving parts: i.e., (i.) a likely recession in 2023 (= lower volumes), (ii.) the potential that a recession relaxes supply chain constraints, allowing for the restocking of industry inventory levels (= offset to lower volumes), (iii.) higher energy prices in Europe (= headwind to margin), (iv.) the easing of other inflationary cost pressures, including commodities (= tailwind to margin), (v.) commercial recoveries from OEMs (= tailwind to margin), etc.,” said Mr. Neville.

“That said, in our opinion, a recession would likely carry the day. As such, we have materially lowered our 2023 estimates and sit (even further) below consensus (i.e., in the range of 20 per cent to 25 per cent in 2023). While significant, in our opinion, buy-side earnings expectations are already below sell-side estimates. We have also taken our target prices down for the group but left our ratings unchanged. Given the level of macro uncertainty we would prefer to be overweight our other sectors under coverage (i.e., Waste, Engineering & Consulting, and Packaging), to autos.”

His changes are:

* ABC Technologies Holdings Inc. (ABCT-T, “sector perform”) to $5.50 from $6. The average on the Street is $5.38.

* Linamar Corp. (LNR-T, “sector outperform”) to $75 from $85. Average: $78.

* Magna International Inc. (MGA-N/MG-T, “sector outperform”) to US$65 from US$85. Average: US$76.44.

* Martinrea International Inc. (MRE-T, “sector perform”) to $12.50 from $14. Average: $14.33.


National Bank Financial analyst Don DeMarco moved Aris Mining Corp. (ARIS-T) to an “outperform” recommendation after coming off restriction following the close of the merger Aris Gold Corp. and GCM Mining Corp.

The firm’s previous rating for Aris Gold shares, which were de-listed at market close on Tuesday, was “sector perform.”

“Previously, we have highlighted re-rate paths for Aris Gold beyond organic growth and e.g., through a transaction,” said Mr. DeMarco. “Our upgraded Outperform rating is rooted in the expedited re-rate path unlocked by the deal, leading to a solid production growth profile with expanded and diversified asset portfolio, the elevated 78-per-cent return to target, a discounted P/NAV of 0.41 times, and multiple synergies including improved index positioning from a higher market cap and increased leverage with the Colombian government.”

Calling the growth trajectory of the four assets held by the newly formed company as “among the best in our gold coverage universe,” he set a target of $5.75 per share.

“We assign a target multiple of 0.75 times to our NAVPS estimate (was 1.00 times) and a ‘Speculative’ risk rating, recognizing inflationary development headwinds and that Toroparu project is at a PEA stage plus Soto Norte permitting is pending,” said Mr. DeMarco. “These items are partially mitigated, however, as four assets provide development flexibility; we’ve applied buffers to capex estimates and goodwill with the Colombian government may be on an uptick.”

Elsewhere, Stifel’s Ian Parkinson reiterated a “buy” rating with an $8 target, down from $8.50.

“The new company, which has been rebranded as Aris Mining Corporation, will become the largest gold-producer in Colombia, and through its substantial development projects has runway to triple its annual production as early as 2024. We are positive on this transaction that marries GCM’s cash-flow generation with Aris’ growth-project spending. The new Aris currently trades at a substantial discount to its peers, and we believe a re-rate in the shares is likely as the market recognizes the increased asset base and growth pipeline,” he said.


In other analyst actions:

* Saying it is “well-positioned for the current inflationary environment (likely to persist for some time, in our view),” TD Securities’ Menno Hulshof raised his recommendation for Canadian Natural Resources Ltd. (CNQ-T) to “action list buy” from “buy” with an $89 target, down from $92 and below the $95.85 average.

“We are upgrading CNQ to ACTION LIST BUY, given what we consider unwarranted recent share-price underperformance, a differentiated outlook into 2023+, and an evolving shareholder-capital-return framework (where significant insider ownership should continue to drive strong shareholder alignment),” he said.

“Relative oilprice torque does not explain this underperformance, nor does negative newsflow (it has been a fairly clean year operationally). This points to a potential catch-up trade on a high-quality name, in our view.”

* Scotia Capital’s Phil Hardie raised his target for shares of AGF Management Ltd. (AGF.B-T) to $7.50 from $7 with a “sector perform” rating. The average is $7.57.

“Investors reacted positively to AGF’s third-quarter results, which delivered a number of positive surprises that included: 1) better-than-expected earnings; 2) stronger-than-anticipated mutual fund flow performance; and 3) a $40-million SIB,” said Mr. Hardie.

“The results demonstrated AGF’s solid operating momentum, highlighted by generating positive mutual fund flows, despite a challenging operating environment characterized by elevated market volatility and industry-wide outflows. The company also continued to demonstrate solid cost control, a critical factor in what could be a soft top-line environment given recent weakness across financial markets.”

* Scotia Capital’s Orest Wowkodaw raised his Copper Mountain Mining Corp. (CMMC-T) target to $3 from $2.50 with a “sector outperform” rating. The average is $3.18.

“CMMC released updated reserves, an expansion plan, and a new mine plan at its flagship CuMtn Cu-Au mine in B.C.. Overall, given both our improved near-term estimates and higher 8%NAVPS estimate, we view the update as positive for the shares,” he said.

* Despite better-than-expected fourth-quarter results, Canaccord Genuity’s Yuri Lynk reduced his target for H2O Innovation Inc. (HEO-X) to $2.75 from $3.25 with a “buy” rating. The average is $3.49.

“The company delivered record quarterly organic growth of 31.7 per cent year-over-year as the pace of water investments accelerates due to the prevailing focus on environmental, social, and governance (ESG) best practices, increased funding in the U.S. via the Infrastructure Investment & Jobs Act, and growing water scarcity,” he said. “However, this growth requires higher levels of working capital, especially to mitigate supply chain issues, which is pressuring the balance sheet somewhat. Additionally, the company is seeing margin pressure in the form of higher labour and input prices such that we now forecast a F2023 EBITDA margin of 10.2 per cent, below management’s 11.0-per-cent to 11.5-per-cent target. All told, HEO remains poised for revenue growth, but bottom-line growth looks set to slow after a 23-per-cent year-over-year increase in Adj. EPS in F2022 on flat margins.”

* Following its $96.4-million acquisition of the remaining 30.45-per-cent minority interest in its wind portfolio of 16 properties in France, Scotia Capital’s Justin Strong raised his Innergex Renewable Energy Inc. (INE-T) target to $21.50 from $21 with a “sector perform” rating. The average is $22.42.

“Strategically, this transaction falls in-line with that laid out at the company’s recent investor day and adds exposure to the attractive French power market,” he said. “Secondly, we think INE negotiated a solid deal, picking up the remaining interest in the assets at a cheap multiple of 9 times EV/EBITDA (by our rough math).”

* Desjardins Securities’ John Sclodnick cut his Integra Resources Corp. (ITR-X) target to $2 from $3.25, keeping a “buy” rating. The average is $3.49.

“We have revised our model for Integra’s DeLamar project in southwestern Idaho to now be based on a heap-leach-only mine plan rather than the combined heap leach and mill mine plan outlined in the company’s February 2022 PFS,” he said. “Our target price decreases ... primarily due to increased share dilution, but we have significantly more confidence in our updated model and believe that the heap-leach-only scenario is a more deliverable project for the company.”

* Following the release of its 2023 capital budget, Stifel’s Cody Kwong cut his Whitecap Resources Inc. (WCP-T) target to $13.50 from $14.75, below the $15.23 average, with a “buy” rating.

Follow David Leeder on Twitter: @daveleederOpens in a new window

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