Inside the Market’s roundup of some of today’s key analyst actions
RBC Dominion Securities analyst Robert Kwan believes TC Energy Corp.’s (TRP-T) “solid” third-quarter results and asset sale strategy support his belief that “sentiment for the stock is poised to bottom out (if it has not already).”
“We positively view TC Energy’s plan to monetize over $5-billion in assets in 2023, which is a larger figure than the $2-4 billion that we previously expected, and we particularly like the company portraying asset recycling as an ongoing strategy,” he said. “Further, we believe the company highlighting multiple benefits from asset sales (i.e., not just a source of funding) is also a positive sign.”
“We liked hearing TC Energy talking about the multitude of benefits from asset monetizations ... We positively view management’s commentary as it relates to the numerous benefits that the company can realize from selling assets (i.e., not just addressing funding needs). Specifically, we see upside from realizing valuation disconnects between public and private market valuations, improving the company’s ESG profile, and increasing the company’s overall growth rate.”
Following better-than-anticipated third-quarter results and a reiteration of its 2022 guidance, Mr. Kwan maintained his full-year earnings per share forecast of $4.31. However, he reduced his 2023 and 2024 estimates to $4.35 and $4.51, respectively, from $4.42 and $4.69 to reflect the impact of $6-billion of asset monetizations.
“There would be upside to our estimates and valuation if TC Energy were to secure new projects to drive value via asset recycling (i.e., sell at 11 times and re-invest at a 7 times build multiple),” he said.
With his lower estimates, Mr. Kwan trimmed his target for TC Energy shares to $75 from $78, keeping an “outperform” recommendation. The average is $66.75.
“Our price target reflects the reduction in our 2024E EPS with no change in our target P/E of 16.5 times, which represents a roughly 15-20-per-cent discount to what we use for premium-valued Canadian regulated utility stocks,” he said. “If the company is successful in monetizing over $5 billion in assets at valuations of 11 times EBITDA or higher, we see the ability for TC Energy to regain broad investor confidence in the ‘utility like’ thesis, which could result in narrowing the gap versus Canadian regulated utility stocks.”
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Following stronger-than-anticipated third-quarter results, RBC Dominion Securities analyst Walter Spracklin upgraded Stella-Jones Inc. (SJ-T) to “outperform” from “sector perform, ” seeing its shares as “undervalued” at current levels.
“SJ shares do not in our view reflect the upside related to infrastructure spending and potential acquisitions, in particular the opportunity to acquire KCS’s railway tie business (if indeed it ends up being sold post the CP-KCS merger),” he said. “Our estimates move higher to account for recent trends, and our target multiple increases to account for the opportunity surrounding the infrastructure bill and M&A (neither of which are included in our estimates). Key is that we do not believe SJ’s valuation, currently one standard deviation below its 5-year range, appropriately reflects the outlook.”
Mr. Spracklin hiked his target to $53 from $42. The average on the Street is $51.
“We are upgrading SJ shares t.. on 1) the expectation management increases 2024 guidance; 2) meaningful upside from the Infrastructure Investments and Jobs Act; and 3) the potential acquisition of the KCS tie business. Key is that despite a robust outlook and end markets less exposed to macro headwinds, the shares trade at 8.5x forward EV/EBITDA or one standard deviation below the trailing 5-year average,” he said.
Elsewhere, others making changes include:
* National Bank’s Maxim Sytchev to $53 from $51 with an “outperform” rating, touting its “strong performance and good outlook.”
“Strong results were echoed by a positive conference call tone whereby management is seeing opportunity across most of its verticals,” Mr. Sytchev said. “Of note, we heard a similarly bullish stance from Koppers (KOP-N, Not Rated), SJ’s competitor, solidifying the company’s outlook. Attractive valuation (8.3 times 2023 estimated EV/EBITDA), predictable FCF generation and almost 10-per-cent NCIB (of free float) should keep the bid under this value name.”
* Desjardins Securities’ Benoit Poirier to $63 from $61 with a “buy” rating.
“We are very pleased with SJ’s 3Q results. The company reported a beat across the board and the outlook for the rest of 2022 and 2023 appears positive, thanks to the continued demand for utility poles and strength of the US dollar. SJ’s solid balance sheet should enable management to unlock shareholder value through continued M&A and/or share buybacks,” said Mr. Poirier.
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While continuing to see Intact Financial Corp. (IFC-T) as a market leader and expecting it generate a mid-teens return on equity going forward, Raymond James analyst Stephen Boland downgraded its shares to “outperform” from “strong buy” following “solid” third-quarter results, projecting a limited return to his target and believing valuation ranges in the sector are unlikely to increase in the near term.
“The stock has significantly outperformed the TSX year-to-date (up 19.4 per cent vs down 8.8 per cent), and at 2.0 times our 2023 estimated BVPS, it remains in-line with its 5-year average,” he said in a note titled Still an Outperformer. “However, we may be heading into an environment where premium growth rates slow due to the industry reporting higher investment yields.”
Shares of the Toronto-based property and casualty insurance company fell 5.2 per cent on Wednesday after it reported “another quarter of material cat [catastrophe] losses.” Net operating income per share came in at $2.70, below both Mr. Boland’s $3.12 estimate and the consensus projection of $2.76.
“IFC did not pre-release its cat losses this quarter which resulted in a wide range of estimates,” the analyst said. “The company reported a combined ratio of 92.6 per cent. Commercial lines across each geography are benefiting from the continued firm/hard markets though there are indications that premium increases are slowing. Personal Auto in Canada reported a higher combined ratio (93.0 per cent vs 85.1 per cent year-over-year) and the UKI Personal lines segment reported a 105.5-per-cent combined ratio.
“Management has commented that markets are expected to remain firm for the next 12 months due to inflation and reinsurance costs. Of concern is the rising combined ratio in Canadian Personal Auto and slowing premium growth (negative this quarter).”
Mr. Boland maintained a $229 target for Intact shares. The average is $220.36.
Elsewhere, others making changes include:
* Scotia’s Phil Hardie to $224 from $221 with a “sector outperform” rating.
“Heading into its Q3/22 earnings release, Intact stock was up almost 25 per cent year-to-date, and traded at 2.55 times P/B,” said Mr. Hardie. “In that context, the bar was set relatively high. Following a string of earnings beats, third-quarter results saw Op. EPS and BVPS fall a bit short of expectations, with investors sending the stock down by mid-single digits. In the face of challenges related to inflation, cat losses, and financial market volatility, we believe the underlying results were relatively solid. Underwriting profitability was in line with expectations, investment income was ahead of forecast, near-term guidance remained unchanged, and the pricing environment’s outlook remains constructive. In our view, there were no significant concerns or challenges to our investment thesis stemming from the results. We think the shortfall in BVPS would justify the stock weakening by 2-3 per cent and would be buyers on any additional softness.”
* Barclays’ John Aiken to $235 from $210 with an “overweight” rating.
“While Intact posted earnings that were a rare miss against consensus expectations, it did manage to maintain a solid combined ratio in a very challenging environment, highlighting its diversification and the progress of its profitability actions,” he said.
* BMO’s Tom MacKinnon to $220 from $230 with an “outperform” rating.
“While an in line quarter may not fare as well as IFC’s 1H/2022 track record of impressive beats, it does underscore the resilience of IFC’s business in the face of elevated weather/CAT losses/inflation. No change to 2023 operating EPS estimate as weaker UK&I top-line (FX related) offset by updated FX for U.S. business and better investment income. Target declines to $220 from $230 reflecting lower BV (AOCI-related), multiple unchanged at 2.6 times Q4/23 BVPS (reflecting 15.6-per-cent 2023E operating ROE). As hard markets continue, IFC remains both a defensive and offensive story,” he said.
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In response to its reduced 2023 guidance and lingering uncertainty about the size and timing of M&A activity, BMO Nesbitt Burns analyst Tom MacKinnon lowered ECN Capital Corp. (ECN-T) to “market perform” from “outperform.”
“Citing an uncertain macro environment, and a more patient approach to M&A, management now clarifies 2023 guidance is no longer the “low end” of $0.36-$0.42 EPS, which included some impact from acquisitions ($0.06-$0.12 per what management now cites) to being 25 per cent lower and now $0.25-$0.30 with no potential M&A lift,” he said. “ECN still expects M&A opportunities to add to 2023, but timing/clarity is uncertain as it takes a more patient approach given the environment.”
That led Mr. MacKinnon cut his 2023 earnings per share estimate to 27 cents from 32 cents, emphasizing: “Macro headwinds remain elevated, namely the impact of higher interest rates/ mortgage costs as it impacts the marginal buyer of manufactured homes, an uncertain outlook for recreational marine/vehicles in a tougher economic environment, and a potentially tougher market to do M&A given volatile interest rates.”
“Management had previously indicated that there were four LOIs in advanced stages and could serve as an EPS bump to offset the lost earnings from the Kessler sale (see our note). However, timing is now expected to occur later in the (uncertain) future, with management believing valuations of targets will fall further; ECN mentions there are three platforms in advanced stages that will add $0.02 to EPS. As a result, the Kessler void remains unfilled,” he said.
Mr. MacKinnon’s target for ECN shares slid to $4 from $6. The average is $5.38.
Others making changes include:
* National Bank’s Jaeme Gloyn to $5 from $8.50 with an “outperform” rating.
* CIBC’s Nik Priebe lowered his target to $6 from $7.25 with an “outperformer” rating.
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RBC Dominion Securities analyst Drew McReynolds expects Rogers Communications Inc.’s (RCI.B-T) performance to continue to improve “as the wireless focus now shifts to the growth impacts of a slowing Canadian economy and Quebecor as a potential new national player in 2023.”
Following Wednesday’s release of quarterly results that fell in line with his expectations, Mr. McReynolds reiterated investor focus remains largely on the closing of its deal for Shaw Communications Inc.
What happens next in the Rogers-Shaw hearing in merger court
“At 7.7 times FTM [forward 12-month] EV/ EBITDA, Rogers trades at a discount to large cap telcos (8.5–9.4 times), which we attribute to a variety of factors including execution risk around the Shaw acquisition, higher proforma leverage and the strengthening competitive positions of telco peers,” he said in an note.
“While following the pullback in the shares we remain patient for more attractive entry points, we continue to see the potential for multi-year upside in the shares driven by: (i) a forecast 8-per-cent NAV CAGR [net asset value compound annual growth rate] through 2025E boosted by exposure to a recovery in roaming revenue, improved Rogers Media performance, and should the Shaw $1-billion in integration synergies be fully realized; and (ii) a potential narrowing of the discount to large cap peers as integration execution and the balance sheet are de-risked and with Rogers on a firmer competitive footing to compete with the telcos.”
At the same time as that lingering uncertainty, Mr. McReynolds emphasized that Rogers’ fourth quarter appears to be falling in line with expectations, displaying year-over-year growth across its three business segments.
“For Q4/22, management expects mid-to-high single digit growth in wireless network revenues and EBITDA, low-single digit growth in cable revenues and EBITDA and double-digit revenue growth for media alongside positive EBITDA,” he said. “Bigger picture, we believe the Q4/22 outlook is indicative of Q3/22 outage impacts that were largely contained to the quarter. While competitive intensity within residential Internet is expected to remain elevated keeping in greater check the balancing of growth and profitability, we do expect any choppiness within cable to be largely offset by continuing strength in the wireless market in Q4/22 (and likely 2023) driven by immigration, increased 5G penetration and a further recovery in roaming revenue (with volumes at 80 per cent of pre-COVID levels due to B2B).”
Maintaining a “sector perform” rating for Rogers shares, he raised his target to $69 from $68. The average is $71.97.
Elsewhere, others making changes include:
* BMO’s Tim Casey to $70 from $72 with an “outperform” rating.
“Q3 results were in line across financial and key metrics including a $150-million customer credit from the outage. Wireless metrics were robust with mobile postpaid net adds of +164k. Reported wireless service revenue was 3 per cent (up 9 per cent ex-outage). Cable results reflected more outage impact and competitive conditions. Full-year guidance was reaffirmed. Rogers did not provide any update on the Competition Tribunal which began on Monday, November 7. We continue to believe that the sale of Freedom to Quebecor represents the best solution to satisfy the government’s policy,” said Mr. Casey.
* Scotia Capital’s Maher Yaghi to $71 from $69.50 with a “sector outperform” rating.
“Now that BCE, TELUS and Rogers have reported we can safely say that the wireless market is red-hot, but for how long ?,” he said. “We still see positive drivers in place, so we are not curbing our enthusiasm for now, unless the economy sees a significant contraction. Given Roger’s leadership position in Canada’s largest province and biggest destination for immigrants, RCI is very well positioned to capture a sizable share of new wireless demand. So far, the tedious hours of hearings have not produced any smoking gun against the merger but 4 weeks are still ahead of us. We continue to view RCI’s shares as being attractive and our target does not include any upside from closing the transaction.”
* JP Morgan’s Sebastiano Petti to $74 from $80 with an “overweight” rating.
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Predicting macroeconomic and industry headwinds will linger well into 2023, Canaccord Genuity analyst Aravinda Galappatthige downgraded E Automotive Inc. (EINC-T) to “speculative buy” from “buy” following “mixed” third-quarter results.
“The effects of ongoing supply chain issues coupled with the challenging economic conditions continue to be felt in the auto sector,” he said. “On one hand, used vehicle supply (wholesale) remains light across the industry and on the other, prices continue to ease. The Manheim Used Vehicle Value Index, which measures used vehicle price change, reached a peak in January 2022 of 236.3, and has fallen steadily to 204.5 as of September 2022. Commentary and forecasts from various industry sources (SEMA, Cox Automotive, KAR) suggest that tight inventories and generally lower used car volumes could persist well into 2023.”
“We have revised down estimates as we factor in a worsening macro and industry backdrop ranging from lower conversion rates, continued decline in average used vehicle prices and delayed resolution of supply chain challenges. This coupled with the current interest rate environment causes us to turn even more conservative in our outlook for F2023. Thus, we have made notable cuts to our revenue, but also adjusted our cost base to reflect the reality that management would have to make steeper cost cuts.”
After the bell on Tuesday, the Toronto-based company, which operates digital auction and retailing platforms for automotive wholesale and retail customers, reported revenue for the quarter of $28.2-million, up 45.7 per cent year-over-year and slightly above the analyst’s $26.8-million estimate. An adjusted EBITDA loss of $11.7-million was also narrowly better than anticipated (a loss of $13.9-million) due to lower expenses stemming from the company’s restructuring efforts.
E Automotive also announced it has entered into non-binding, finalized term sheets to acquire multiple U.S. automotive businesses for $85-million in cash consideration.
“Given the underlying uncertainty at the macro and industry level, as well as lower visibility on the balance sheet until we have a better sense of the equity/ debt split, we move our rating to SPEC BUY (from Buy),” said Mr. Galappatthige. “Nonetheless, we recognize the longer-term opportunity as well as the attractive 1.2 times EV/Sales (2023E) valuation.”
His target for the company’s shares slid to $7 from $12. The average is $7.42.
Elsewhere, CIBC’s Todd Coupland cut his target to $7 from $14 with an “outperformer” rating.
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After stronger-than-anticipated second-quarter 2023 earnings “with beats across the board,” Raymond James analyst Rahul Sarugaser now thinks Medexus Pharmaceuticals Inc.’s (MDP-T) revenue growth “implies a stronger trajectory than we or the street have been estimating.”
Though he acknowledged the uncertainty around U.S. Food and Drug Administration clearance of its Treosulfan treatment for stem cell or bone marrow transplant patients as well as heighended expenses for the marketing of its Gleolan brain tumour drug, Mr. Sarugaser raised his recommendation for the Toronto-based company to “outperform” from “market perform.”
“MDP handily beat Raymond James’/Street’s revenue numbers by a material 11 per cent/13 per cent, respectively, driven primarily by near-full recognition of U.S. sales of Gleolan (full-margin branded sales for 2/3 of the quarter), but also stronger sales of Rupall, IXINITY, and Rasuvo (although management indicated growing competition for the latter, as well as Metoject),” he said.
That led him to raise his 2023 and 2024 revenue expectations by 6 per cent to $107.9-million and $115.7-million, noting “the majority of which drops straight to the EBITDA line.”
“To this end, with its escalating EBITDA (FY2023 RJ estimate now $14.1-million [was $8.2-million]), we expect MDP should have improved optionality while managing its convertible debt coming due next year,” Mr. Sarugaser added.
He raised his target Medexus shares to $4 from $2, below the current average of $4.50.
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In the wake of “very strong” third-quarter results, RBC Dominion Securities analyst Geoffrey Kwan said EQB Inc. (EQB-T) “continues to do a good job executing on its growth strategy even despite the weak housing market.”
Shares of the Toronto-based company soared 12.2 per cent on Wednesday after it reported normalized earnings per share of $2.35, exceeding Mr. Kwan’s $2.12 estimate and the consensus forecast on the Street of $2.11.
“The higher-than-forecast result relative to our forecast reflected higher-than-forecast net interest income and non-interest income, partially offset by higher-than-forecast noninterest expenses,” the analyst said.
Maintaining an “outperform” rating, Mr. Kwan raised his target by $1 to $70. The average is $78.38.
“We think EQB has done a good job of executing on its growth strategy (driving loan growth profitably, diversifying funding, and, although it’s not a material part of earnings, diversifying into nonmortgage and consumer banking products/services),” he said. “We also view the recently closed Concentra acquisition as EPS and ROE accretive. Furthermore, we believe EQB offers an attractive combination of: (1) favourable industry conditions; (2) significant capital return; (3) multiple potential catalysts (e.g., updates regarding its transition to AIRB) that could drive EQB’s ROE and its valuation higher over the next couple of years.”
Elsewhere, KBW’s Mike Rizvanovic raised his target to $91 from $89 also with an “outperform” rating.
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Citing “near-term uncertainty as we wait to see operational improvements,” Stifel analyst Alex Terentiew downgraded Copper Mountain Mining Corp. (CMMC-T) to “hold” from “buy” after trimming his 2023 estimates following a “tough” 2022.
“We are reducing our rating on Copper Mountain to HOLD following disappointing Q3 results, a reduced outlook for Q4, 22 and 2023, and the announcement that President and CEO Gil Clausen is preparing for retirement, with a succession plan underway,” he said. “Although we expect 2023 to deliver significant production and cost improvements over 2022, the persistent and unexpected challenges in 2022 have led us to take a more cautious approach to 2023. In addition, with the CEO looking to step down, near-term uncertainty is further heightened, in our view, although we do not see any risk to the long-term growth potential of the company’s Copper Mountain Mine.”
Mr. Terentiew cut his target to $2 from $2.50. The average is $2.93.
Others making changes include:
* CIBC’s Bryce Adams to $2 from $2.35 with a “neutral” rating.
* Scotia’s Orest Wowkodaw to $2.25 from $2.75 with a “sector outperform” rating.
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In other analyst actions:
* Raymond James’ Jeremy McCrea downgraded Cardinal Energy Ltd. (CJ-T) to “market perform” from “outperform” with a $10 target. The average is $10.79.
“The turnaround for Cardinal from a few years ago has been exceptional given the company previously struggled with high debt and limited quality inventory,” he said. “With unhedged production, we now see debt approaching zero by 1Q23 and with the help of a low production decline (approximately 10 per cent), and buoyed by a number of improving well results recently (Clearwater & other oil channel plays), it’s hard not to be excited by the momentum. This should ultimately help with both shareholder friendly items in terms of continual dividend increases and accelerated NCIB programs. That all said, high investor enthusiasm can be hard to match sometimes, as noted with 3Q results and the share price reaction. Although results were in line, much higher opex (and a higher capex inflation induced outlook) have clearly weighed on the stock, especially with lower growth into next year as well. Overall, despite a good dividend yield, and little leverage today, the valuation relative to peers now looks less attractive. As such, we’re moving to Market Perform rating.”
* Pointing to its medium-term outlook, RBC Dominion Securities’ Luke Davis downgraded Pipestone Energy Corp. (PIPE-T) to “sector perform” from “outperform” with a $4.50 target, down from $6 and below the $6.08 average on the Street. Elsewhere: Raymond James’ Jeremy McCrea cut his target to $5 from $6 with an “outperform” rating and BMO’s Mike Murphy trimmed his target to $5.50 from $7 with an “outperform” rating.
“While the company plans to pivot from growth to return of capital, we believe regaining market confidence will require near flawless execution through multiple quarters and believe limited trading liquidity is an ongoing issue that could be exacerbated by the company’s planned substantial issuer bid,” said Mr. Davis.
* Scotia Capital’s Michael Doumet raised his target for Ag Growth International Inc. (AFN-T) to $55 from $53 with a “sector outperform” rating. Others making changes include: Raymond James’ Steve Hansen to $55 from $50 with an “outperform” rating, ATB Capital Markets’ Tim Monachello to $64 from $65.50 with an “outperform” rating and CIBC’s Jacob Bout to $48 from $45 with an “outperformer” rating. The average is $53.10.
“In our view, AFN shares are cheap (15-per-cent discount to historicals),” said Mr. Doumet. “Healthy FCF generation will transfer value from debt to equity (more than $10 per share in FCF through 2023E). The only remaining potential hurdle is assessing the company’s ability to compound growth on top of a very strong 2022 (and 2021). That being said, we came away from the conference call increasingly confident that EBITDA growth will continue into 2023. First, margins have ramped through 2022, up 180 year-to-date, but up 420bp in 3Q. Second, there appears to be increasing momentum (and pent-up demand) in the Farm business in Canada and, to a lesser degree, in the U.S. In its operations in Brazil and India, where the backdrop is strong (and admittedly, more variable), it is gaining significant market share. Not everything has to go right for shares to work well. But, if they do line up, we see material upside.”
* CIBC’s Kevin Chiang lowered his Airboss of America Corp. (BOS-T) target to $17 from $18, topping the $13.88 average, with an “outperformer” rating.
* RBC’s Tom Callaghan cut his American Hotel Income Properties REIT (HOT.U-T, HOT.UN-T) target to US$2.75 from US$3.25 with a “sector perform” rating, while CIBC’s Dean Wilkinson cut his target to US$3 from US$3.35 with a “neutral” rating. The average is $3.94 (Canadian).
* RBC’s Walter Spracklin raised his Andlauer Healthcare Group Inc. (AND-T) target by $1 to $52, below the $56.40 average, with a “sector perform” rating.
“Q3 was a solid quarter for AND, with results coming in above expectations across the board. We expect these trends to continue into Q4, and while we expect top line trends to slow in H1/23 as we now model in a recession, we nevertheless expect AND to hold better than the other transports in our coverage due to the company’s focus on healthcare. Looking ahead, we expect the company to execute on M&A and to benefit from solid end market organic trends; however, we view the market as rewarding AND shares accordingly, and maintain SP on relative return,” said Mr. Spracklin.
* National Bank Financial’s Maxim Sytchev trimmed his ATS Automation Tooling Systems Inc. (ATA-T) target to $53 from $55 with an “outperform” rating. Others making changes include: RBC’s Sabahat Khan to $54 from $55 with an “outperform” rating. The average is $57.33.
“In the past, we had quarters when ATA’s performance was not up to par, depending on program ramp-up, changes in revenue visibility, etc,” said Mr. Sytchev. “Management is proactively rightsizing its headcount to address SG&A growth. As large EV projects gather stride, we should be seeing margin progression again, but unlikely for the next two quarters as these items take some time to work their way through. Bigger question is whether the structural Healthcare, EV, food, nuclear opportunity is different now? We don’t believe so, even though we are compressing our profitability assumption by 100 bps in the short term. We are comfortable to add to ATA’s position at this level as [Wednesday’s] volatility/expectations reset are not impacting our fundamental view of this story, even though we are compressing the target price ... on short-term margin compression.”
* CIBC’s Christopher Thompson lowered his Birchcliff Energy Ltd. (BIR-T) target to $12.75 from $13.50 with a “neutral” rating. The average is $14.46.
* CIBC’s Jacob Bout raised his Bird Construction Inc. (BDT-T) target to $8 from $6.75 with a “neutral” rating. The average is $9.83.
* Canaccord Genuity’s Christopher Koutsikaloudis bumped his Boardwalk REIT (BEI.UN-T) target to $56 from $54, below the $59 average, with a “buy” rating.
* CIBC’s Mark Jarvi cut his target for Boralex Inc. (BLX-T) to $45 from $46, keeping an “outperformer” rating. Other changes include: BMO’s Ben Pham to $53 from $51 with an “outperform” rating, iA Capital Markets’ Naji Baydoun to $46 from $48 with a “buy” rating and Scotia’s Justin Strong $50 from $51 with a “sector outperform” rating. The average is $48.46.
“BLX shares have come under pressure recently on rising bond yields, the noisy Q3/22 results, and what we believe is investor confusion around the level of spot price exposure BLX will have. Net, the pricing/re-contracting upside is still significant and with greater visibility on the level of government intervention, we are now (finally) reflecting this pricing upside in our forward projections (estimates up 5-20 per cent),” said Mr. Pham.
* Canaccord Genuity’s Aravinda Galappatthige reduced his target for Boat Rocker Media Inc. (BRMI-T) to $5.50 from $9, below the $7.25 average, with a “buy” rating.
* ATB Capital Markets’ Chris Murray raised his Boyd Group Services Inc. (BYD-T) target to $255 from $250 with an “outperform” rating. Others making changes include: Raymond James’ Steve Hansen to $240 from $225 with a “strong buy” rating, Jefferies’ Bret Jordan to $235 from $221 with a “buy” rating, CIBC’s Krista Friesen to $205 from $197 with a “neutral” rating and RBC’s Sabahat Khan to $227 from $220 with an “outperform” rating. The average is $218.50.
* RBC’s Jimmy Shan cut his target for CAPREIT (CAR.UN-T) to $58 from $62 with an “outperform” rating. Others making changes include: Echelon Capital’s David Chrystal to $57.50 from $60 with a “buy” rating and CIBC’s Dean Wilkinson to $50 from $54 with a “neutral” rating. The average is $54.51.
“CAPREIT reported NFFO/unit of $0.61, flat year-over-year and slightly below our forecast and consensus mean of $0.62,” said Mr. Chrystal. “The variance vs our forecast was due to slightly lower than expected NOI from the Dutch portfolio (due to F/X) and the Canadian apartment portfolio, and slightly higher than expected financing costs. These were mostly offset by lower than expected G&A and higher other income. Modest organic revenue growth was partly offset by inflationary opex pressure resulting in muted same-property NOI growth. We expect that organic revenue growth will accelerate through 2023 as market rents continue to increase driving rental lifts on turnover higher. Management continues to recycle capital through dispositions of older-generation assets, with proceeds applied to an active unit buy-back program, and the purchase of newer-generation assets.”
* CIBC’s Stephanie Price moved her Converge Technology Solutions Corp. (CTS-T) target to $7 from $8, below the $9.86 average, with a “neutral” rating. Others making changes include: Desjardins Securities’ Jerome Dubreuil to $8 from $10 with a “buy” rating and Canaccord Genuity’s Robert Young to $10.50 from $12 with a “buy” rating.
* Scotia’s Adam Buckham lowered his Dentalcorp Holdings Ltd. (DNTL-T) target to $15 from $16 with a “sector outperform” rating. Other changes include: BMO’s Stephen MacLeod to $13 from $17 with an “outperform” rating, Canaccord Genuity’s Tania Armstrong-Whitworth to $15.50 from $18 with a “buy” rating, Desjardins Securities’ Gary Ho to $14.50 from $15.50 with a “buy” rating, CIBC’s Scott Fletcher to $13.50 from $16.50 with an “outperformer” rating and RBC’s Doug Miehm to $15 from $18 with an “outperform” rating. The average is $14.86.
“We continue to like DNTL in this volatile macro backdrop,” said Mr. Buckham. “As we highlighted in our recent launch, we see DNTL as not only a solid double-digit compounder but a name that is protected from potential economic turbulence on the horizon. This comes from the essential nature of services along with industry pricing which offsets inflationary pressure (although there is a lag). We agree that leverage/interest rates represent a potential headwind when the top of this hiking cycle remains uncertain; however, to us, this is at least partially offset by expected reductions in the average multiple paid, the recent fixing of 50 per cent of DNTL’s debt, and the potential to drive stronger operating leverage in the near-term. While we reduce our target price by $1 to reflect a slightly lowered near-term outlook (3-per-cent decline in 2023 estimated EBITDA), our thesis on the name remains unchanged.”
* Scotia’s Michael Doumet cut his Dexterra Group Inc. (DXT-T) target to $7 from $8 with a “sector outperform” rating. The average is $8.64.
* Canaccord Genuity’s Yuri Lynk cut his Street-low Hardwoods Distribution Inc. (HDI-T) target to $31 from $37 with a “buy” rating. The average is $50.75.
* Canaccord Genuity’s Scott Chan cut his IA Financial Corp. Inc. (IAG-T) target to $80 from $82, maintaining a “buy” rating. Others making changes include: BMO’s Tom MacKinnon to $84 from $88 with an “outperform” rating, RBC’s Darko Mihelic to $89 from $88 with an “outperform” rating and TD Securities’ Mario Mendonca to $80 from $81 with a “buy” rating. The average is $82.22.
“IAG’s results were slightly better than we expected, though a little noisy,” said Mr. Mihelic. “Noise aside, we found decent results in most segments though IAG continued to experience challenges with U.S. Dealer Services sales this quarter. We believe results in this segment can be sustained going forward and we expect (as we do for all lifecos) that at some point, markets will stop declining and AUM resumes an upward trajectory. We find the stock as very undervalued relative to long term fundamentals and continue to rate the stock Outperform.”
* ATB Capital Markets’ Nate Heywood lowered his Keyera Corp. (KEY-T) target to $35 from $36 with an “outperform” rating. Other changes include: BMO’s Ben Pham to $33.50 from $34 with a “market perform” rating, Raymond James’ Michael Shaw to $32 from $35.50 with a “strong buy” rating, D Securities’ Linda Ezergailis to $36 from $38 with a “buy” rating, National Bank’s Patrick Kenny to $34 from $35 with an “outperform” rating, RBC’s Robert Kwan to $36 from $37 with an “outperform” rating and CIBC’s Robert Catellier to $33 from $34 with an “outperformer” rating. The average is $34.42.
“While we acknowledge the negative sentiment associated with yet another cost overrun for KAPS, the reality is that the most recent cost overrun amounts to less than $0.50/share in value with no funding concerns given Keyera’s liquidity and strong leverage metrics. Cutting through the short-term KAPS noise, Keyera’s underlying business is performing well and Keyera is highly levered to our favoured midstream sector theme being future WCSB volume growth. While we acknowledge the stock may be range bound until KAPS is complete in Q1/23, we believe patient investors will be rewarded when the dust settles,” said Mr. Kwan.
* CIBC’s Dean Wilkinson trimmed his Killam Apartment REIT (KMP.UN-T) target to $20 from $22 with an “outperformer” rating. The average is $20.88.
* Scotia’s Mark Neville increased his target for Linamar Corp. (LNR-T) to $80 from $75 with a “sector outperform” rating. Other changes include: BMO’s Peter Sklar to $65 from $62 with a “market perform” rating and CIBC’s Krista Friesen to $75 from $72. The average is $75.60.
“Notwithstanding the strong Q3/22 result, and strong guidance for 2023, we point out that auto parts stocks generally underperform the market during periods of Fed tightening as this is clearly an interestsensitive sector in terms of consumer demand for vehicles; and we believe the Fed’s behavior largely accounts for the sector’s substantial year-to-date price decline and underperformance. While this decline has arguably taken Linamar’s stock to relatively low levels of valuation, we believe that there is a good likelihood of further tight monetary policy for the remainder of this year and potentially into 2023, and we believe investors will be reluctant to bid up the price of auto parts stocks in the middle of a Fed tightening cycle. We recommend that investors should curtail their weightings in Canadian auto parts stocks until such time there is evidence that the Fed is about to reverse policy and adopt a more accommodative monetary stance,” said Mr. Sklar.
* RBC’s Paul Treiber raised his Magnet Forensics Inc. (MAGT-T) target to $38 from $35 with an “outperform” rating. Other changes include: BMO’s Thanos Moschopoulos to $34 from $32 with an “outperform” rating, Canaccord Genuity’s Doug Taylor to $42 from $40 with a “buy” rating and CIBC’s Stephanie Price to $33 from $27 with an “outperformer” rating. The average is $40.71.
“Despite the macro environment, Magnet is seeing strong and accelerating momentum. The company reported a solid beat and raise. ARR growth increased to 50 per cent year-over-year Q3 from 49 per cent Q2. Demand stems from the private sector as Magnet continues to gain traction as a key cybersecurity tool, while public sector remains robust as governments are making investments in digital forensics,” said Mr. Treiber.
* RBC’s Greg Pardy raised his MEG Energy Corp. (MEG-T) target to $23 from $22 with an “outperform” rating, while Desjardins Securities’ Chris MacCulloch bumped his target to $22 from $20 with a “hold” rating. The average is $23.64.
“The company continues delivering on its strategy of right-sizing the balance sheet after achieving its US$1.2-billion corporate net debt target during the quarter,” said Mr. MacCulloch. “As a result, the spotlight now shifts to shareholder returns, with the company formally increasing the FCF allocation to its share buyback program to 50 per cent (from 25 per cent).”
* CIBC’s Dean Wilkinson lowered his Minto Apartment REIT (MI.UN-T) target to $20 from $22, below the $20.46 average, with an “outperformer” rating, while Raymond James’ Brad Sturges cut his target to $19 from $19.50 with a “strong buy” rating.
* Stifel’s Cody Kwong raised his NuVista Energy Ltd. (NVA-T) target to $16.50 from $14.75 with a “buy” rating. Others making changes include: BMO’s Mike Murphy to $18 from $14 with a “market perform” rating, ATB Capital Markets’ Patrick O’Rourke to $14.75 from $15 with a “sector perform” rating and RBC’s Michael Harvey to $16 from $15 with a “sector perform” rating. The average is $17.02.
* CIBC’s Cosmos Chiu raised his Osisko Gold Royalties Ltd. (OR-T) target to $23 from $21 with an “outperformer” rating. The average is $22.04.
* Canaccord Genuity’s Robert Young lowered his Pollard Banknote Ltd. (PBL-T) target to $18.50 from $22 with a “hold” rating. The average is $28.38.
* RBC’s Geoffrey Kwan cut his Power Corp. of Canada (POW-T) target to $39 from $44 with a “sector perform” rating. The average is $37.13.
“While it would be nice to have POW announce a new material development creating value for shareholders every quarter, that’s not practical,” said Mr. Kwan. “As we wait for the next major announcement, POW continues to take other steps to further simplify the structure and surface value (e.g., fundraising for multiple strategies to help grow its 3rd party alternatives asset management business). In terms of valuation, the shares trade at a 20-per-cent discount to NAV, in line with its 1-year average and narrower than the 5-year average of 27 per cent. Owing to the recent price target reduction at GWO, we reduce our price target ... but maintain our Sector Perform rating. Although we rate the shares Sector Perform over the next 12 months, we think investors with a longer-term investment horizon may find the shares attractive, driven by underlying NAV growth (we forecast mid-teen NAV growth); a still significant 20-per-cent discount to NAV; an attractive 6.2-per-cent dividend yield; and potential catalysts (e.g., simplifying the structure transactions).”
* CIBC’s Scott Fletcher reduced his Stingray Group Inc. (RAY.A-T) target to $6.50 from $8, below the $7 average, with an “outperformer” rating, while BMO’s Tim Casey cut his target to $6.50 from $8.50 with an “outperform” rating.
* CIBC’s Bryce Adams moved his target for Torex Gold Resources Inc. (TXG-T) to $16.50 from $20 with a “neutral” rating. The average is $19.67.
* Canaccord Genuity’s Christopher Koutsikaloudis cut his target for Tricon Residential Inc. (TCN-N, TCN-T) to US$12.50 from US$15.50 with a “buy” rating, while BMO’s Stephen MacLeod lowered his target to $14 (Canadian) from $17 with an “outperform” rating. The average is US$12.61.
* RBC’s Drew McReynolds lowered his Verticalscope Holdings Inc. (FORA-T) target to $17 from $24, below the $19.28 average, with an “outperform” rating.
David Leeder