Inside the Market’s roundup of some of today’s key analyst actions
With Rogers Communications Inc.’s (RCI.B-T) proposed $26-billion merger with Shaw Communications Inc. (SJR.B-T) “back in the headlines,” Desjardins Securities analyst Jerome Dubreuil expects “a more news-rich” earnings season in Canadian telecommunications sector.
“The mediation period between the Competition Bureau and RCI in the coming days could lead to more developments on this file,” he predicted. “In terms of the macro environment, we do not expect this to significantly affect the 3Q results of the telecom companies under coverage. However, the volatility in economic indicators (including rising interest rates) will affect companies in different ways, notably in relation to their respective leverage.”
In a research report released Thursday, Mr. Dubreuil called this earnings season “the first true back-to-school period since the beginning of the pandemic” and expects more students to subscribe to a broadband plan or upgrade their wireless devices and plans.
“Moreover, we believe immigration also provided a strong tailwind for subscriber growth in the sector in 3Q,” he added.
However, despite the potential gains from those trends, the analyst expects Rogers’ July network outage to remain “top of mind” for investors.
“While RCI management has stated that the impact of the outage on net market share during the quarter will be negligible, we still believe this event represents a risk for RCI entering the 3Q earnings season,” he said. “We believe the outage is well-reflected in current consensus expectations, but headline profitability growth could look disappointing to some investors. We believe BCE is the main beneficiary of the RCI outage as its fibre footprint now significantly overlaps RCI’s cable operations.”
To reflect higher interest rates, Mr. Dubreuil reduced his target prices for five of the six stocks in the sector. His changes are:
* BCE Inc. (BCE-T, “hold”) to $66 from $68. The average on the Street is $66.70.
“While our revised adjusted EBITDA is in line with consensus (down 1 per cent in recent weeks), we expect decent relative share price performance from BCE this earnings season given our expectation for strong loading in both wireless and wireline,” he said. “We maintain our Hold recommendation given BCE’s less attractive asset mix, but it could perform well if macroeconomic conditions deteriorate further.”
* Cogeco Communications Inc. (CCA-T, “hold”) to $97 from $111. Average: $94.
“CCA has continued to underperform its peers since the beginning of the year, which we believe is in part due to (1) U.S. cable valuations being affected by ambitious FWA goals (announced by T-Mobile and Verizon) and accelerated fibre deployments; and (2) the overhang caused by RCI’s potential sale of its large block of CCA and CGO shares,” he said. “However, we would note that the latter is not as likely to materialize at CCA’s current low share price. Additionally, the lack of clarity and the new hurdle for CCA in the CRTC’s recent MVNO decision do the stock no favours in the short term. We expect CCA to address the CRTC’s recent decision on MVNO on its upcoming conference call.”
* Quebecor Inc. (QBR.B-T, “buy”) to $35 from $37. Average: $33.69.
“While recent news on the RCI/SJR merger have supported the stock, we believe QBR is unlikely to provide much granularity on its Freedom integration strategy and financial objectives until the transaction receives the official greenlight from regulators,” he said. “We continue to believe the uncertainty surrounding the financial targets is currently affecting QBR’s share price; however, it is possible that more details will emerge once the deal closes (or even later), which could maintain pressure on the stock in the near term. We continue to see strong value in the stock in the medium to long term.”
* Rogers Communications Inc. (RCI.B-T, “buy”) to $73 from $79. Average: $73.10.
“Despite management having clearly communicated the expected monetary ramifications stemming from RCI’s outage in July, we believe many investors will still be paying close attention to the numbers and any second-derivative effects on the business,” he said. “Additionally, we expect the RCI/SJR merger to continue garnering significant attention, although we do not expect management to provide incremental information on the transaction when it reports its earnings, unless the mediation period with the Competition Bureau — set for this week — is fruitful.”
* Telus Corp. (T-T, “buy”) to $33 from $34. Average: $33.30.
“For 3Q22, we have left our adjusted EBITDA estimate virtually unchanged as the increase in competition amid back-to-school was offset by the earlier-than-anticipated close of the LWRK acquisition (now added to our forecast),” he said. “For 3Q22, our year-over-year adjusted EBITDA growth forecast stands at 8.6 per cent (with 1-per-cent growth from the LWRK deal), lower than consensus of 9.0 per cent.
He maintained a $40.50 target for Shaw Communications Inc. (SJR.B-T, “buy”). The average is $40.17.
In response to the release of better-than-anticipated quarterly results after the bell on Wednesday, a group of equity analysts on the Street raised their target prices for shares of Canadian Pacific Railway Ltd. (CP-N, CP-T).
Barclays’s Brandon Oglenski noted CP shares continue to have a “meaningful valuation premium” to other railroads, however he thinks its “best-in-class management team” is poised deliver “meaningful synergy upside next year” with the expected approval of its acquisition of Kansas City Southern.
He raised his target to US$81 from US$77, maintaining an “overweight” recommendation.
Others making adjustments include:
* Stifel’s Benjamin Nolan to US$76 from US$75 with a “hold” rating.
“While all eyes are on regulatory approval for the KCS merger (1Q next year) and the synergies possible from that, CP continues to make strong progress growing their franchise at a fast pace than other Class 1s and also keep the operating ratio below 60 per cent,” he said. “CP shares are valued at a significant premium to the peer group, but justifiably given the much better growth rate. Ultimately, we view CP as the rail to own for the next 10 years, but in the short run, given the premium valuation and macro uncertainty, we are looking for a better entry point before recommending buying the shares.”
* Scotia Capital’s Konark Gupta to $102 from $100 with a “sector perform” rating. The average is $110.39.
“Q3 EPS was right in line as revenue beat while OR [operating ratio] missed. More importantly, CP was bullish on Q4 outlook (upside risk to consensus) with solid acceleration in key segments and renewal pricing. Despite macro uncertainties, management is positive on 2023 as bulk commodities and contract wins provide a natural hedge through 1H. It also remains confident about KCS merger approval and synergies, which would drive industry-leading earnings growth over the next three years, if approved. We have slightly raised our 2023 estimates,” said Mr. Gupta.
* Raymond James’ Steve Hansen to $105 from $100 with a “market perform” rating.
“We are increasing our target price .., based upon another quarter of solid operating momentum and our increased confidence in CP’s ability to grow its 2023 traffic base despite an increasingly cloudy macro picture,” said Mr. Hansen. “Notwithstanding these revisions, and our broader admiration for CP’s best-in-class franchise, we reiterate our MP3-rating based upon valuation, with CP shares still trading at an outsized premium vs. its Class 1 peers & the broader market.”
* Stephens’ Justin Long to US$76 from US$73 with an “equal-weight” rating.
“Putting it all together, we felt this print was fairly consistent with expectations. And while we remain positive on the long-term story at CP, we maintain our 12-month Equal-Weight rating at the current valuation,” said Mr. Long.
* Cowen and Co.’s Jason Seidl to US$81 from US$78 with an “outperform” rating.
* Wells Fargo’s Allison Poliniak-Cusic to US$85 from US$82 with an “over-weight rating”
Raymond James analyst David Quezada thinks the outlook for the renewable power industry remains “robust” despite a recent pullback.
“With a combination of elevated power prices across Europe and North America, highly supportive global policy backdrop, and what are generally lengthy pipelines of development projects, we remain constructive on the outlook for the renewable IPPs in our coverage universe,” he said. “At the same time, we note valuations have pulled back to the low end of historical ranges.”
With that view, Mr. Quezada sees a “particularly attractive opportunity” for Innergex Renewable Energy Inc. (INE-T) based on an “under-appreciated growth outlook and discounted valuation,” leading him to raise his recommendation to “strong buy” from “outperform.”
“We feel the market has been slow to ascribe value to the attractive near-term projects in the company’s pipeline including the 332 MW Boswell Springs project in Wyoming and the 200 MW Palomino solar project in Ohio — projects we believe will realize attractive returns approaching 15 per cent thanks to attractive PPA prices arising from a shortage of available renewable projects in the U.S. and robust demand,” he said.
The analyst maintained a $24 target for Innergex shares, exceeding the $21.08 average.
While Citi’s Paul Lejuez thinks Gildan Activewear Inc. (GIL-N, GIL-T) will report largely in-line third-quarter financial results before the bell on Nov. 3, he thinks investors should expect the Montreal-based clothing manufacturer’s management to “strike a cautious tone” with its commentary.
The equity analyst predicts there will be indications of a slowdown in its point of sales (POS) results and a reluctance from its large screen-print distributor customers to restock depleted inventory levels.
“While management will likely be more cautious, we don’t see any risk that GIL will fall short of their 18-20-per-cent EBIT margin guide,” said Mr. Lejuez. “GIL has been taking prices up which will likely be the main driver of top-line growth, while units will likely be down. GIL is highly leveraged to events (concerts, corporate events, etc.), which have returned, however their printwear customers are taking a conservative approach to how quickly they rebuild inventory (the timing of which impacts GIL). The mass channel has also been conservative with new orders, which could impact both GIL’s activewear biz as well as the underwear/hosiery biz.”
The analyst did lower his third-quarter earnings per share estimate to 81 US cents, a penny higher than the consensus on the Street but down 4 US cents sequentially, from an 89-US-cent forecast previously, pointing to reduction in his sales estimates for both its activewear and underwear segments. His full-year 2022 and 2023 EPS projections slid to US$3.23 and US$3.48, respectively, from US$3.32 and US$3.69.
“Three things that matter most (beyond guidance): (1) New customer opportunities: any new conversations the company is having with companies looking to near-shore their manufacturing; we believe NKE is one potential customer of GIL’s that could do more business with them,” he said. “(2) Timing of capacity coming online: what is the current state of production and expectations for the Bangladesh facility. GIL has an incremental $1-billion in manufacturing capacity coming online over the next 2 years. A weak demand backdrop could delay these facilities, so any assurances from management that the demand is there to press ahead with opening the Bangladesh facility will be important; we also would like to hear if they’ve been able to utilize the $500-million incremental capacity that came online in Honduras this year. (3) Competitive landscape: GIL is the low cost leader in the space, and its price gaps have widened over the past several quarters. It will be important to hear how management views their good to hear about what price gaps, and if competitors are offering more discounts to help narrow those price gaps.”
Maintaining a “buy” recommendation for Gildan shares, Mr. Lejuez cut his Street-high target to US$48 from US$50. The average is US$41.26.
“GIL is a leader in the ‘imprintable’ activewear market and has developed a solid innerwear (underwear and hosiery) business,” he concluded. “GIL is a clear leader as the low-cost producer, which enables the company to pivot and win private label business as mass merchants move away from branded products. The company has made several strategic decisions that position them well over the next several years (even beyond F22) to further take market share in the markets they play in. We believe this potential is not yet fully reflected in consensus numbers.”
While the Canadian energy sector has outperformed the rest of the TSX by “a decent margin” thus far in 2022, ATB Capital Markets analyst Amir Arif sees “further upside ahead for the group given valuations remain attractive, free cash flow yields remain in the double digits, and the industry is showing capex discipline and returning capital to shareholders.”
“We believe that the small/mid-cap space offers some attractive opportunities,” he said.
In a research report released Thursday, he initiated coverage of five small-to-mid cap exploration & production (E&P) companies.
* Cardinal Energy Ltd. (CJ-T) with an “outperform” rating and $10.50 target. The average target on the Street is $10.75.
“We believe that conservative long-term investors will be well suited for and rewarded with an investment in CJ,” said Mr. Arif. “The Company’s corporate decline rates is one of the lowest and its reserve life is one of the longest among its peers, allowing for better sustainability in its production profile. The oil weighting allows for strong netbacks. The combination of the two should allow for excess free cash flow to support the dividend.
“At the same time, with essentially no debt by the end of Q1/23, the Company will be in a position to further increase returns to shareholders. In H2/22 alone, the Company has already purchased 3.7mm shares under its NCIB and initiated and increased its monthly dividend. The Company intends to maintain an underlevered balance sheet relative to the industry, which makes the name well suited for conservative investors.”
* Hemisphere Energy Corp. (HME-X) with an “outperform” rating and $2.25 target. Mr. Arif is the lone analyst currently formally covering the Vancouver-based company.
“With no other sell side coverage and a relatively small market cap of approximately $150-million, we believe that HME is an undiscovered gem and underappreciated by the marketplace,” he said. “Additionally, with a shift to enhanced oil recovery at its largest pool, Atlee Buffalo G, and the initiation of EOR on the nearby F pool, we believe that HME has dramatically changed in its sustainability, free cash flow outlook, and risk profile over the past 15 months since initiating its polymer flood. With a recent quarterly dividend being initiated, production still inclining at its G pool in response to polymer flood, surfactant injection starting at the nearby F pool, high netbacks, and a long reserve life, we believe that HME is undervalued based on its sustainability of cash flows and proved reserves alone, with additional upside from potential improvement in recovery factors, acceleration of existing reserves, and/or the application of its EOR learnings to other opportunities in the area.”
* International Petroleum Corp. (IPCO-T) with an “outperform” rating and $17.50 target. The average is $19.83.
“In our view, this name offers one of the best risk/reward opportunities in our coverage universe,” said Mr. Arif. “With a 2023 estimated strip EV/DACF [enterprise value to debt-adjusted cash flow] multiple of 2.4 times, 14-per-cent 2023 estimated FCF yield, and an aggressive buyback in place, the downside risk is fairly low, in our view. As Canadian assets become a greater portion of the corporate mix, as organic production growth firms up, and as its resource life is better understood, we see room for the discount to the group to narrow.”
* Kiwetinohk Energy Corp. (KEC-T) with an “outperform” rating and $26 target. The average is $24.
“We believe that KEC is one of the few stocks that has the potential to double in the coming two years without any move in the underlying commodity,” said Mr. Arif. “The growth trajectory that we see ahead for the name has production increasing from 16.8 mboe/d at Q2/22 to 39 mboe/d by YE24. This expected growth trajectory can be funded with the current balance sheet, modest incremental expansions to its currently underutilized processing facilities, and existing takeaway egress, and it should consume less than 15 per cent of KEC’s drilling inventory in the process. This growth trajectory would occur with unit costs decreasing given the existing underutilized processing facilities. Based on our 2024 production estimate of 35 mboe/d, KEC is trading at 1.7x 2024e EV/DACF, a valuation too attractive to ignore for investors who are comfortable with the production growth trajectory from Q2/22 levels of 16.8 mboe/d. In our view, KEC has the financing, egress, processing, and drilling inventory in place to deliver this growth.
“Additionally, we believe that the power generation assets provide additional upside not in the stock, with a potential meaningful catalyst on that front set for the coming 3-6 months.”
* Surge Energy Inc. (SGY-T) with an “outperform” rating and $15 target. The average $16.64.
“We believe that SGY’s monthly dividend is well covered from both a coverage and duration perspective,” said Mr. Arif. “We expect cash flow after maintenance capex to cover the dividend down to US$61 WTI, providing a good coverage ratio. Additionally, with 13 years of identified drilling inventory to hold production flat and additional upside from waterfloods, the visibility on the duration of the dividend is well over a decade. With a focus on modest production growth, Surge should also generate free cash flow after dividends, which further adds equity value through debt reductions initially and through potential dividend increases, special dividends, share buybacks, or accretive acquisitions down the road. "
Mr Arif concluded: ““For growth investors, we would focus on KEC, where we see one of the highest one- and two-year potential returns in our expanded coverage. IPCO offers an attractive risk/reward opportunity given its balance sheet, aggressive buybacks, and low decline rate/long resource life Canadian assets. For dividend investors, CJ and SGY both initiated meaningful monthly dividends earlier this year, and we see room for additional dividend increases in 2023. Finally, for small-cap investors, HME offers a unique and timely opportunity, where we see production increasing over the coming 1-2 years even as spending is reduced.”
National Bank Financial analyst Michael Robertson thinks recent results from its peers point to a record third quarter for CES Energy Solutions Corp. (CEU-T).
“[Tuesday] evening, CES peer ChampionX Corp. (CHX-Q, Not Rated) reported better than expected Q3/22 results with Chemical Technologies revenue increasing 17 per cent quarter-over-quarter and segment EBITDA margins expanding approximately 180 basis points sequentially, driven by an increase in pricing and sales volumes,” he said.
“Oilfield service peer Q3 results have thus far reinforced our positive outlook for CEU, supporting expectations for continued top-line expansion and margin improvement in Q3 (implying quarterly highs in both revenue and adj. EBITDA after a record-breaking Q2).”
With that view, Mr. Robertson raised his third-quarter EBITDA for CES by 9 per cent to $70-million, exceeding the consensus estimate on the Street by 3 per cent ($68-million), ahead of the Nov. 10 earnings release. He also increased his full-year 2022 and 2023 revenue and earnings expectations.
“We update our rig count expectations to align with the most recent forecasts from our colleagues in Calgary and with peer results reinforcing our confidence in a supportive pricing and margin backdrop, our revenue and EBITDA forecasts climb modestly higher,” he said. “We continue to see meaningful potential upside to our 2023 EBITDA estimate dependent on margin trajectory in the coming quarters (with peers expecting further expansion) and the duration of the favourable backdrop.”
Seeing “deep value” in CES shares, Mr. Robertson bumped up his target by 15 cents to $3.85, keeping an “outperform” rating and predicting a “wave of free cash flow (and leverage reduction) on the horizon. The average on the Street is $4.35.
“With the growth rate of industry activity levels appearing to moderate, we expect CEU to generate significant free cash flow in the coming quarters driven in part by working capital monetization (given CEU’s counter-cyclical balance sheet and the rapid expansion in North American rig counts and production levels from the trough levels reached during the pandemic),” he said. “Our forecasts point to net debt/TTM [trailing 12-month] EBITDA below 2.0 times exiting 2022 (a material improvement vs. 2.5 times exiting the second quarter) driven by EBITDA growth as well as the application of free cash flow to the balance sheet.”
In a third-quarter earnings preview titled Sometimes the best offence is a good defence, Desjardins Securities analyst Doug Young said he expects market conditions for Canadian property and casualty (P&C) insurance companies to “remain favourable for the most part.”
“Both IFC and DFY are more defensive stocks that have outperformed the banks/lifecos so far in 2022, a trend which we believe should continue in a tough macro environment,” he said. “Also, market conditions remain favourable for most of their respective businesses, and both companies are well-positioned to grow organically and inorganically in our view. Inflation remains the biggest potential headwind, specifically around how cost pressures are impacting personal auto results.”
Keeping “buy” ratings for both companies, Mr. Young raised his Definity Financial Corp. (DFY-T) target to $42 from $39 and Intact Financial Corp. (IFC-T) target to $220 from $210. The averages on the Street are $41.14 and $216.21, respectively.
After its third-quarter operating results fell below expectations on the Street, TD Securities analyst Greg Barnes downgraded First Quantum Minerals Ltd. (FM-T) to “hold” from “buy” and dropped his target by $1 to $30. The average is $29.23.
Other analysts making target adjustment include:
* National Bank Financial’s Shane Nagle to $30 from $32 with an “outperform” rating.
“We reiterate our Outperform rating as recent clarity on the long-term tax/ royalty structure in Zambia and agreement in principle on Law 9 in Panama provide more confidence in our near-term organic growth projections,” said Mr. Nagle. “The company’s recent efforts to reduce debt put the balance sheet in a strong position to weather a prolonged period of weak copper prices while continuing to deliver organic growth via the Cobre Panama mill expansion, Enterprise and Kansanshi S3 projects.”
* Scotia Capital’s Orest Wowkodaw to $30 from $33 with a “sector outperform” rating.
“FM reported lower-than-anticipated Q3/22 results driven by a markedly weaker performance at Kansanshi. FM made several negative operating guidance revisions for 2022 and warned that the lower levels of output at Kansanshi were expected to continue in 2023-2024. Given our lower estimates, we view the update as negative for the shares,” said Mr. Wowkodaw.
“We rate FM shares Sector Outperform based on the company’s strong growth profile, high Cu leverage, takeover optionality, and attractive valuation.”
* Credit Suisse’s Curt Woodworth to $31 from $33 with a “neutral” rating.
“We continue to like the long-term growth story with clear path to 1mtpa copper production but also see weaker pricing / rising costs as a near-term headwind which combined with potential execution risks associated with Kansanshi expansion keeps us Neutral,” he said.
* Canaccord Genuity’s Dalton Baretto to $31 from $35 with a “buy” rating.
In other analyst actions:
* RBC’s Paul Quinn lowered his Acadian Timber Corp. (ADN-T) target by $1 to $16, maintaining a “sector perform” rating. The average target on the Street is $17.60.
“Acadian Timber reported Q322 results that were below RBC and consensus expectations as harvest operations struggled on limited contractor availability,” said Mr. Quinn. “While Acadian management noted that it continues to work with contractors to increase deliveries to customers for the reminder of the year and into the winter harvest season, we continue to see better opportunities in our sector, particularly with the near-term overhangs of a slowing economy and housing activity.”
* CIBC World Markets’ Cosmos Chiu raised his target for Alamos Gold Inc. (AGI-T) to $15 from $13, exceeding the $13.44 average on the Street, with an “outperformer” rating.
* Raymond James’ Craig Stanley downgraded Bear Creek Mining Corp. (BCM-X) to “market perform” from “outperform” with a 75-cent target, falling from $1.50. The average is $2.23.
* CIBC’s Scott Fletcher cut his Corus Entertainment Inc. (CJR.B-T) target to $3.25, which is a penny higher than the average on the Street, from $3.75 with a “neutral” rating.
“FQ4 results highlighted the impact of slowing TV ad spending on Corus’ top and bottom lines,” said Mr. Fletcher. “Given our expectation that advertising markets will remain weak for the majority of F2023 and the fixed nature of a large portion of Corus’ programming expenses, we expect margins to contract further even as Corus looks to manage expenses. Management continues to strike a positive tone on its digital StackTV business, and expects subscriber counts to return to growth in the first half of F2023 as new content is added to the platform.”
* National Bank’s Travis Wood trimmed his Crescent Point Energy Corp. (CPG-T) target to $17 from $18 with an “outperform” rating. The average is $14.92.
* BMO’s Tom MacKinnon moved his Element Fleet Management Corp. (EFN-T) target to $20 from $19 with an “outperform” rating ahead of its Nov. 9 earnings release. The average is $20.06.
“We expect an in-line Q3/22 (albeit EFN has surpassed estimates last two prints), with 10-per-cent dividend raise (given track record/target this could be higher), and significant raise (10-15 per cent) to the top end of stale guidance,” he said. “With a scalable platform and continued robust client demand, we see continued EPS/FCF per share acceleration. Outsized order backlog that remains $1.7-billion above average levels on robust client demand/ongoing OEM production delays continues to provide tailwind, as does FX and inflation.”
Mr. Mackinnon cut his CI Financial Corp. (CIX-T) target to $19 from $21 with an “outperform” rating. The average is $18.50.
“In light of increased uncertainty in markets which brings not only negative operating leverage but also increased net debt-to-EBITDA leverage, we lower TP ... CI remains a compelling valuation ‘show-me’ story, with catalysts that include a continued rebound in flows, lower leverage, and better markets,” he said.
* Scotia Capital’s Phil Hardie lowered his First National Financial Corp. (FN-T) target to $35 from $37, maintaining a “sector perform” recommendation, while BMO’s Étienne Ricard cut his target to $33 from $36 with a “market perform” rating. The average is $36.
“Despite First National’s strong market position and resilience, third-quarter results fell well below expectations likely reflecting the impact of slowing housing market and a very competitive environment with lenders fighting for a shrinking number of new mortgage loans,” said Mr. Hardie.
“These trends are likely to continue through the remainder of the year and into early 2023. For the remainder of 2022, management expects lower residential originations as the year’s series of rate hikes continues to reduce housing affordability and dampen the housing market. Management also expects a slowdown in commercial originations as the market continues to digest changing property valuations given the new underlying financing environment. As such, the team expects a solid Q4/22, but weaker commitments into 2023. That said, we believe the Board signalled its confidence in the mid-term outlook with a 2.1-per-cent dividend increase.”
* Scotia’s George Doumet raised his FirstService Corp. (FSV-Q, FSV-T) target to US$137.50 from US$135, below the US$141 average, with a “sector outperform” rating.
“FSV shares are down 33 per cent from 2021 highs – but we think the shares have found their footing,” said Mr. Doumet. “Roughly 95 per cent of the shares price decline came from the normalization of FSV’s trading multiple. At its peak, FSV’s premium multiple (vs. its peer group) was stretched to 10 times EV/EBITDA; it has now normalized to pre-pandemic levels. While not cheap (never has been), FSV maintains an underlevered balance sheet and has several avenues (restoration, Residential, fire protective, etc.) where it can deploy capital highly accretively.”
* In response to weaker-than-anticipated quarterly results, due largely to lower production volume and elevated costs, National Bank’s Shane Nagle lowered his target for Lundin Mining Corp. (LUN-T) to $8.25 from $8.50 with a “sector perform” rating, while Scotia’s Orest Wowkodaw moved his target to $8 from $8.50 with a “sector perform” rating. The average is $9.35.
“LUN reported relatively mixed Q3/22 results,” said Mr. Wowkodaw. “Although there were no official changes to 2022 guidance, Zn output appears at risk and costs at several assets are trending higher. An updated technical report for the company’s 100-per-cent-owned Josemaria Cu-Au-Ag project in Argentina has been pushed back to H2/23 (vs. Q4/22 previously). Taking a slower approach to developing Josemaria in the current inflationary environment is a prudent strategy in our view. Overall, we view the update as largely mixed for the shares.
“We rate LUN shares SP. Despite an attractive valuation and our bullish view on Cu, we anticipate Chilean fiscal uncertainty along with the development of the Josemaria project to overhang the shares.”
* TD Securities’ Jonathan Kelcher raised his Morguard North American Residential Real Estate Investment Trust (MRG.UN-T) target to $22, exceeding the $21.50 average, from 21 with a “buy” rating, while RBC’s Jimmy Shan lowered his target to $23 from $25 with an “outperform” rating.
“Morguard North American Residential REIT reported FFO/unit of $0.37 vs. RBC/cons. of $0.31/$0.32,” said Mr. Shan. “The better result was driven primarily by material occupancy gains in its CDN assets and continued double-digit rent growth from the U.S. portfolio. Despite moving our cap rate up slightly, our NAV estimate is unchanged at $33. Our slightly lower target reflects our view that the REIT sector will likely trade at an above-average discount in the near term. The strong result was met with market apathy – MRG, at implied cap of 7 per cent, remains mispriced.”
* Assuming coverage of Park Lawn Corp. (PLC-T), CIBC World Markets’ John Zamparo downgraded its shares to “neutral” from “outperformer” and cut the firm’s target to a Street-low of $25 from $36. The average is $36.94.
“We believe a pull-forward of demand will make organic earnings growth difficult to achieve, while the attractiveness of the roll-up strategy has ebbed recently,” he said. “Furthermore, though subjective, we expect pre-need services to be deferred in a recessionary environment. Compelling valuation could make these risks tolerable, but at a 6.8-per-cent FCF yield on 2023E, we believe investors should await demonstration of resilience against recession, as well as a return to organic sales and EBITDA growth.”
* Canaccord Genuity’s Scott Chan trimmed his target for Propel Holdings Inc. (PRL-T) to $11.25 from $11.75 with a “buy” rating. The average is $13.69.
“Propel Holdings is expected to report their Q3/22 results on November 10, 2022, with our forecasts reflecting solid originations, albeit with higher provisions for credit losses (PCLs),” he said. “Our overall estimates continue to be conservative relative to company guidance as we see near-term macro-related headwinds (particularly on credit), such as inflation, rising interest rates, geopolitical tensions, and increased recession expectations. Furthermore, PRL’s short-term APRs could be impacted more as consumers continue to move up the credit spectrum, albeit with potentially better credit results (i.e., lower risk consumers, higher retention rate).”
* National Bank’s Matt Kornack resumed coverage of Slate Office REIT (SOT.UN-T) with a “sector perform” rating and $4.40 target, while TD’s Jonathan Kelcher resumed coverage with a “neutral” rating and $4.75 target. The current average is $4.91.