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

Northland Capital analyst Mike Grondahl said he "loves" Tilray Inc. (TLRY-Q), but thinks the recent spike in the B.C.-based cannabis producer's stock has made the risk/reward “far more balanced at this time."

A day after Tilray jumped 17 per cent on the Nasdaq, he downgraded his rating to "market perform" from "outperform" despite believing the company will "play a huge role in the growing worldwide cannabis market."

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His target for its shares remains US$60, which exceeds the average on the Street of US$49.33.


Calling it a "Canadian success story" that remains a "solid" retail operator, Industrial Alliance Securities analyst Neil Linsdell upgraded his rating for Dollarama Inc. (DOL-T) to "buy" from "hold" ahead of the release of its second-quarter 2019 financial results on Sept. 13 before market open.

"Dollarama remains a market darling with consistent growth, solid and sustainable margins, and good costs controles, while continuing to pursue its share buyback program," said the analyst. "We believe that DOL deserves a premium to the 7-13 times EV/EBITDA range in which the comparables typically trade."

Mr. Linsdell is projecting revenue for the quarter, which ended July 29, of $898.1-million, an increase of 10.5 per cent year-over-year and slighly ahead of the consensus of 9.7-per-cent growth. He expects comparable same store sales growth of 5.0 per cent, versus 6.1 per cent a year ago and lower than the consensus of 5.2 per cent.

His EBITDA estimate is $228.1-million, or a 25.4-per-cent margin, versus $209.2-million and 25.7 per cent a year ago and the consensus of $227.3-million and 25.5 per cent. He expects earnings per share of 43 cents, up from 38 cents and a penny below the consensus.

"The company has become a stock market darling with record high valuation multiples," he said. "Dollarama's ability to provide customers value at low price points is subject to a number of factors, including merchandise costs, F/X fluctuations, tariffs on imported goods, labour costs, rent, fuel/transportation costs, and inflation. There remains significant market potential for dollar stores in Canada (Industrial Alliance estimate of almost 3,000 stores), supporting management's outlook of 1,700 locations by calendar 2027. Strong acceptance of items at the $3.50 and $4.00 price points also suggests substantial opportunities to manage price and therefore margins, while increasing basket size and revenue growth."

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Mr. Linsdell maintained a price target of $54.50 for Dollarama shares. The average target on the Street is currently $56.32, according to Thomson Reuters Eikon data.


"Taking advantage" of weakness in emerging markets, National Bank Financial analyst Maxim Sytchev raised his rating for WSP Global Inc. (WSP-T) to "outperform" from "sector perform."

"As trade fears erode investor confidence and the Argentina / Turkey crises continue to compel investors to flee from emerging markets, WSP shares have declined almost 11 per cent from their intrayear high of close to $76 while the TSX has declined 1.1 per cent over the same time frame," said Mr. Sytchev. "What has happened to WSP in the interim? Very strong organic growth in Q2/18, coupled with an improving margin profile. Fundamentally, company’s operational momentum has actually accelerated while on the spending front; the Infrastructure Bank in Canada has finally committed its first dollars and general infra spending levels remain strong globally. Unveiling of WSP’s 2019- 2021 strategic plan will also likely show consistency in company’s strategy: focus on margin improvement, geographic platform optimization and M&A (ergo, business as usual)."

Though he called the "pain" stemming from the recent downturn in Argentina and Turkey "palpable," Mr. Sytchev thinks the "noise" surrounding emerging market concerns brings investors the opportunity to "pick up quality" with WSP.

"When the market is telling you something, we have to listen," he said. "Is WSP an orthodox value name on multiples basis? No, but since 2016 company’s EV/EBITDA multiple has expanded to over 11 times as execution (peer multiple expansion has been even more pronounced), consistent M&A and margin progression have shifted the sentiment on the name. We therefore bump the EV/EBITDA multiple to 11 times (from 10 times) prior for our fundamental valuation piece while the M&A-driven $77.00 per share remains intact."

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"It is generally challenging to find compounding business models and we believe WSP fits that profile. Balance sheet-fueled M&A over the past three years has also altered the accretion math for WSP. We believe the company can continue adding strategic M&A pieces as the historical (in terms of absolute numbers) pace. With Tetra Tech Inc. (TTEK-Q) and Stantec Inc. (STN-T) respectively trading at 15.1 times and 10.0 times NTM [next 12-month] EBITDA, there is scope for WSP shares to rebound into the year-end."

He raised his target price for WSP shares to $74 from $71, which sits just below the average on the Street of $75.55.


Canadian banks are "chugging along," said Desjardins Securities analyst Doug Young in a research note reviewing third-quarter earnings season.

"Overall, it was a good quarter for the Big 6 banks, in our view," he said. "Cash EPS increased 11 per cent year-over-year on average versus our 7-per-cent estimate (consensus was 9 per cent). There has been a lot of focus on Canadian banking, and the results were good: earnings increased 8 per cent year-over-year on average, which compares with our 5-per-cent estimate and consensus of 7 per cent. Otherwise, U.S. and international operations performed well (excluding unusual noise), credit trends remain benign, non-interest expense ratios were lower than anticipated, CET1 ratios are at comfortable levels, and as expected Royal Bank, Scotiabank, CIBC and Canadian Western Bank all increased dividends (RY and BNS by a penny more than we expected). CWB and Laurentian Bank missed expectations."

After a review of his valuation regression model, Mr. Young raised his target price for Bank of Montreal (BMO-T) to $110 from $106, keeping a "hold" rating. The average target for BMO on the Street is $116.23.

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He maintained his ratings and targets for the other bank. They are currently:

Canadian Imperial Bank of Commerce (CM-T, "buy") at $135. Average: $132.80.

Toronto-Dominion Bank (TD-T, "buy") at $87. Average: $85.93.

Bank of Nova Scotia (BNS-T, "buy") at $88. Average: $86.96.

Royal Bank of Canada (RY-T, "buy") at $111. Average: $112.71.

Canadian Western Bank (CWB-T, "hold") at $40. Average: $39.08.

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National Bank of Canada (NA-T, "hold") at $66. Average: $69.06.

Laurentian Bank of Canada (LB-T, "hold") at $47. Average: $47.80.

"On average, the Big 6 Canadian banks are trading slightly below their 20-year historical average P/4QF EPS multiples," said Mr. Young. "In our view, there are some tailwinds for the Canadian banks with rising Bank of Canada rates, benefits from US tax reform and the banks’ demonstrated ability to manage a number of issues over the past few years. However, there are a number of uncertainties — NAFTA and tariff negotiations, highly indebted Canadian consumers and declining loan growth (eg slower mortgage growth), and we are arguably in the late stages of the credit cycle. That said, relative to other investment alternatives in Canada, bank valuations appear reasonable."


Citing "positive" results from its quarterly U.S. and annual U.K. internet user survey as well a "sharp spike" in interest in India, RBC Dominion Securities analyst Mark Mahaney hiked his target price for shares of Netflix Inc. (NFLX-Q).

Mr. Mahaney said his recent U.S. survey of 1,776 people pointed these key findings: an increase in penetration year-over-year; "consistently strong" customer satisfaction trends; churn remaining at record low levels and a belief content continues to improve.

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"We believe these U.S. results largely confirm NFLX’s strong Value prop and competitive position," the analyst said.

In his seventh annual survey of U.K. users, which involved 1,521 people, he found "record high" penetration levels as well as improving customer satisfaction and low churn.

"These were clearly positive results for Netflix and highlight that the company is succeeding in what is a very important market," said Mr. Mahaney.

He believes India can prove to be the source of "millions" of new subscriptions over the next several years, however he cautioned Netflix "has a lot of work to do."

"During its Q2 EPS call, Netflix management went out of its way to talk positively about progress in India," said Mr. Mahaney. "Industry data shows that India ranks as the #10th largest market in terms of fixed broadband subs (18 million). Our review of local Indian news sources suggests that Netflix’s original Indian series Sacred Games has become highly popular in India. Our review of Google Trends data shows a sharp spike in Netflix interest within India over the past several months. But two 3rd party sources indicate that Netflix appears to be a distant #4 player in the India OTT market."

Keeping an "outperform" rating for Netflix shares, his target jumped to US$440 from US$360, citing a higher valuation model for its three segments (U.S. and international streaming as well as U.S. DVDs). The average is US$379.15.


In response to a recent "sharp" pullback in cobalt equities in his coverage universe, Canaccord Genuity analyst Eric Zaunscherb moved his valuation model to spot pricing rather than a long-term deck, resulting in a reduction in target prices.

"An overall risk-off equity market, cooled sentiments related to the battery materials theme, and concerns about shifts to battery formulations reducing cobalt exposure have damped enthusiasm and valuations," he said. "Cobalt 27 (KBLT-X) is off 51 per cent since the beginning of the year, while eCobalt Solutions (ECS-T) is down 60 per cent.

"We remain constructive on the cobalt market. Recent H1/18 electric vehicle sales figures for China and Europe provide confirmation that EV sales penetration is growing strongly. We forecast EV sales penetration of 14 per cent globally by 2025, including global EV sales of 1.9 million units in 2018."

His target for Cobalt 27 Capital Corp. (KBLT-X) fell to $15.50 from $22.50. The average is $16.09.

Mr. Zaunscherb's target for Ecobalt Solutions Inc. (ECS-T) is now 90 cents, down from $1.80. The average is $1.88.

He maintained a "speculative buy" rating for both.


Credit Suisse analyst Anita Soni reinstated coverage of Kinross Gold Corp. (KGC-N, K-T) with a "neutral" rating following a research restriction.

"We rate KGC Neutral though we retain a constructive bias due to the company's above-average leverage to the gold price. We would need to see a sustained gold price recovery to become more positive on KGC," she said. "In the current price dynamic, we expect the Company to look to preserve cash and hold back on growth capex (e.g. Tasiast expansion."

Her target is US$4, which is 68 U.S. cents less than the consensus.


CIBC World Markets analyst Bryce Adams said he expects a near-term re-rating of Equinox Gold Corp. (EQX-X) as it evolves from developer to multi-asset producer.

He initiated coverage of the stock with an "outperformer" rating.

"Equinox was formed from a three-way merger in December 2017 when Trek Mining, Newcastle Gold, and Anfield Gold announced a business arrangement," he said. "The combined entity benefits from multiple mining assets, a stronger balance sheet, and a proven management team. We expect the shares to re-rate as management realizes its vision for the company."

"Equinox Gold’s mission is to rapidly become the next intermediate gold producer with annual production of between 500koz and 1.0Moz. The company is expected to maintain its gold focus as it develops its two current projects [Aurizona and Castle Mountain], with further growth likely via acquisition of near-to-producing or already-in-production assets."

Mr. Adams set a target of $1.30, which sits below the average of $2.13.

In a separate report, Mr. Adams initiated coverage of Osisko Mining Inc. (OSK-T) with an "outperformer" rating and $2.50 target. The average on the Street is $4.28.

"At spot prices, Osisko trades at 0.8x our P/NPV5% estimate, in line with its developer peers, but we foresee upside to our current basecase valuation," he said. "The combination of a proven management team, moderate risk, and significant resource upside potential offers compelling investor appeal. Lastly, we view Osisko as a potential takeout target given Windfall's high-quality merits."


In other analyst actions:

Canaccord Genuity analyst Raveel Afzaal initiated coverage of Spark Power Corp. (SPG-T), formerly known as Canaccord Genuity Acquisition Corp., with a "buy" rating and $4.25 target.

Mr. Afzaal said: "Even though the company operates in markets which on average are growing at the rate of GDP, we believe it is well positioned to grow organically well above this rate, as suggested by its historical growth. This belief reflects 1) that SPG is growing from a small base; 2) a track record of expanding geographically with customers; 3) significant crossselling opportunities between divisions, and 4) increasing demand from customers for on-site power generation projects to lower energy usage during peak hours."

Eight Capital moved its rating for Nevsun Resources Inc. (NSU-T) to "tender" from "buy" with a $6 target, rising from $5.75. The average is $5.53.

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