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

For the second day in a row, Scotiabank analyst Konark Gupta has raised his price target on shares of Canadian Pacific Railway Ltd. (CP-T).

Early Wednesday, Mr. Gupta raised his price target to C$116 from C$110 and upgraded his rating on the railway to “sector outperform” in anticipation a U.S. regulator would approve its merger with Kansas City Southern later that day.

That decision came as he predicted. But it was also approved without any major conditions, which has given Mr. Gupta further confidence in the upside potential of CP stock.

“We are again raising our target, to C$122 from C$116, on multiple expansion to 21x (was 20x) while maintaining our estimates,” the analyst said in a note to clients this morning. “We believe a higher multiple is warranted to reflect an increased probability of upside in merger synergies, particularly after STB approved the transaction without any onerous conditions.”

“In fact, the Surface Transportation Board’s observations about CPKC [the combined railway] support our thesis that it will be a highly successful merger with a more efficient single-line service across North America, a lower-cost model, an industry-best safety record, and a low-emission offering.

“The absence of any major concessions also bolsters our view that our US$1.1-billion EBITDA synergy assumption and CP’s US$1.0B target may prove conservative. As we analyzed in our upgrade note, every US$0.5B increase in synergy equates to ~$0.70 upside in post-synergy EPS, all else being equal. We would revisit our synergy model if/when CP provides a formal update, potentially at an investor day. However, we think more investors will soon start discounting potential upside in synergies, given a greater comfort in the approval, driving the stock higher for longer,” the analyst said.

The company has previously suggested an Investor Day could come in June. The average analyst price target is C$116.55, according to Refinitiv Eikon data.


Canaccord Genuity analyst Yuri Lynk has raised his price target on Aecon Group Inc. (ARE-T) to C$14 from C$11, impressed by the US$128.5-million price the company received for the sale of its 49.9% stake in the Bermuda International Airport concessionaire, Skyport.

“We view this transaction favourably as it occurred at a substantially higher valuation than that implied by our model and further enhances financial flexibility. We believe management set a few balls in motion last summer with an eye towards strengthening the balance sheet. As it turned out, at least two of these planned asset sales resulted in very healthy valuations and so management hit the respective bids for Aecon Transportation East (ATE) and 49.9% of Skyport,” Mr. Lynk said in a note to clients.

The sale price implies 100% of Skyport is worth $5.77 per Aecon share, substantially above the consensus estimate of $2.60 and our $3.00 estimate, he noted.

With the sale, Aecon has a very strong balance sheet, the analyst said. “The $176 million in proceeds, combined with the $235 million in cash to be received from the sale of its Ontario road-building business that was announced on March 1, reduces Q4/2022 net debt from $523 million to $112 million,” he said.

But Mr. Lynk still has reservations about the company given that its backlog of work contains $1.1-billion of troubled fixed-pricing contracts that are subject to inflationary cost pressures.

“We expect financial performance, and potentially free cash flow, to continue to be uneven over the foreseeable future. Despite the fact the rest of the business is performing well, we believe investors should stay on the sidelines,” the analyst said. He maintained a “hold” rating.

Elsewhere, ATB Capital Markets raised its price target to C$18 from C$16 and reiterated an “outperform” rating. Stifel GMP raised its target price to C$13.75 from C$11.5; TD Securities raised its target price to C$16 from C$12.5; and IA Capital Markets analyst Naji Baydoun raised his target to C$18 from C$16.

The average analyst target is now C$15.40.

“Combined with the previously announced Ontario roadbuilding business sale, the Bermuda capital recycling initiative is expected to significantly de-risk ARE’s balance sheet and provide the company with enough capital to manage its near-term investment requirements and leverage profile,” commented IA’s Mr. Baydoun. “We continue to see a path forward for a positive relative valuation multiple re-rating in the shares over the near term.”


CIBC analyst Hamir Patel upgraded his rating on Transcontinental Inc. (TCL-A-T) to “outperformer” from “neutral,” citing attractive valuations and signs that cost pressures are starting to ease for Canada’s largest printing company.

He maintained a C$16 price target.

“When we had reduced CIBC’s rating on the name with our assumption of coverage last April, we pointed to demand concerns for the printing business giving us caution on the name (particularly given the potential for input cost inflation passthroughs to accelerate printing end-market consumption declines),” Mr. Patel said in a note to clients. “With consensus EBITDA estimates for 2023 having moderated 10% in recent months, and input costs easing, we believe downside risks are now adequately reflected. We expect sentiment on the name to improve by H2 as ongoing cost reduction initiatives bear fruit and raw material costs for flyers and newsprint in the Printing segment moderate.”

The industry trade publication, Pulp & Paper Week, recently reported that while newsprint prices were flat month-over-month in February at US$920/tonne - at rise of 15% from a year ago - some surcharges are beginning to moderate, the analyst noted.

Meanwhile, the stock is looking inexpensive, he said.

“Since the beginning of the year, TCL.A shares have underperformed shares of its closest Canadian packaging peer (Winpak Ltd.) by 12% and lagged the TSX Composite by 19%. TCL.A is currently trading at only 5.3x 2023E EBITDA, a discount to its 5.7x average forward multiple over the past five years. We expect multiple expansion as the packaging business continues to become a greater share of the business, with our forecast seeing Packaging comprising ~55% of EBITDA by 2024 (vs. ~44% in 2019),” Mr. Patel said.

The average analyst price target is C$18.67.


Several analysts cut their price targets on Birchcliff Energy Ltd (BIR-T) after the company reduced its 2023 and 2024 guidance amid deteriorating commodity prices.

ATB Capital Markets cut its target price to C$11.50 from C$12.50; CIBC cut its target price to C$9 from C$10.50; RBC cut its target price to C$12 from C$14; Eight Capital cut its target price to C$12 from C$15; Stifel FirstEnergy cut its target price to C$8 from C$9 and also downgraded its rating to “hold” from “buy”; and TD Securities cut its target price to C$9 from C$11.5.

The average analyst price target is now C$11.50.

Production from some Birchcliff wells has been postponed from the second quarter to the third quarter of this year. “2024 capital and volume guidance were also reduced on lower commodity prices, with the company now expecting to invest $250 million (down by roughly $100 million), driving volumes of 78,500 boe/d (down from 83,000 boe/d),” noted RBC analyst Michael Harvey.

“In our view, these changes make sense given the rapid pullback in pricing, and we would expect to see additional similar changes amongst other producer group as lower pricing becomes a reality,” said Mr. Harvey, who kept an “outperform” rating on the stock.


At least two analysts cut their price targets on True North Commercial REIT (TNT-UN-T) after the office property owner cut its distribution as it announced a fourth-quarter earnings miss.

The real estate investment trust focuses on Class B office properties that are occupied mostly by government and credit-rated tenants.

True North reported a negative adjusted net operating income alongside a 300 basis point drop in year-over-over occupancy - largely because of the downsizing of a GTA tenant - and an adjusted funds from operations payout ratio that remained at an unsustainable level.

True North also announced a two-part approach in an effort to solidify its capital position and create additional unitholder value. Effective with the March distribution payable, the REIT is reducing its current distribution by 50% to $0.297 on an annual basis. Secondly, it is disposing about 134,000 square feet of office space, across two separate buildings, for a combined sale price of about $25-million.

CIBC analyst Dean Wilkinson said these actions “are positive steps toward reducing leverage and ensuring the long-term viability of the REIT’s cash flows.”

He said even with the reduced distribution, the current yield is 6.4%, “a figure more commensurate with the REIT’s peer set.”

Mr. Wilkinson’s price target was cut to C$5 from C$6 as he reiterated a “neutral” rating. Separately, Raymond James cut its target price to C$4 from C$5.5.

The average analyst price target is now C$5.15.


In other analyst actions:

* Airboss of America Corp (BOS-T): CIBC cuts target price to C$16 from C$17

* Greenfirst Forest Products Inc (GFP-T): RBC cuts target price to C$1.75 from C$2

* Inplay Oil Corp (IPO-T): Atb Capital Markets cuts target price to C$5 from C$5.25

* Nexus Industrial REIT (NXR-UN-T): RBC cuts target price to C$11 from C$11.50; Raymond James cuts target price to C$12.5 from C$13

* Propel Holdings Inc (PRL-T): Canaccord Genuity cuts target price to C$12 from C$12.50

* Converge Technology Solutions Corp (CTS-T): Scotiabank cuts target price to C$7 from C$8

* Enbridge Inc (ENB-T): Barclays raises target price to C$54 from C$53

* Intel Corp (INTC-Q) : Susquehanna raises rating to neutral from negative and price target to US$26 from US$23

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