Inside the Market’s roundup of some of today’s key analyst actions
Citing its discounted valuation and upcoming “material delineation program,” RBC Dominion Securities analyst Shailender Randhawa upgraded Tamarack Valley Energy Ltd. (TVE-T) to “outperform” from “sector perform” on Thursday.
The Calgary-based company now has buy-equivalent ratings for all 19 analysts currently covering its stock, according to Bloomberg data.
Mr. Randhawa raised his target for Tamarack Valley shares to $4 from $3.50. The average on the Street is currently $4.31.
Investor concerns about demand for Tesla Inc.'s (TSLA-Q) Model 3 are exaggerated, according to Baird analyst Ben Kallo.
Also seeing "weak" first-quarter deliveries priced into the stock at current levels, Mr. Kallo gave Tesla shares a "Fresh Pick" designation.
"While it is unclear what TSLA may announce today ($35k Model 3 introduction, autonomy update, or something entirely different), we think it could serve as a catalyst to improve sentiment and drive shares higher," he said.
"Regardless, we believe demand concerns are overblown and expect the stock to trade higher into the Q1 delivery release... ”
Mr. Kallo maintained an "outperform" rating and US$465 target, which exceeds the current consensus of US$320.57.
Following Wednesday’s release of lower-than-anticipated first-quarter results that prompted him to say it’s “taking it on the chin,” Desjardins Securities analyst Doug Young expects Laurentian Bank of Canada (LB-T) to face a “bumpy ride” through fiscal 2019.
"The seven-year transformation plan has been a lot bumpier than we had initially expected, and the ride is not over yet," said Mr. Young. "That said, a lot of bad news is priced in."
The bank reported cash earnings per share of 98 cents for the quarter, well below Mr. Young's $1.31 estimate and the $1.29 consensus on the Street, which he attributed to lower non-interest revenues and higher expenses.
In reaction to the release, Mr. Young dropped his 2019 and 2020 cash EPS estimates to $4.35 and $5, respectively, from $5.17 and $5.47.
Keeping a “hold” rating, his target for the bank’s shares dipped by a loonie to $43.The average is $41.56.
Elsewhere, TD Securities analyst Richard Roth downgraded Laurentian to “hold” from “buy” with a $47 target, falling from $51.
Pointing to its “strong” growth prospects and improved relative valuation, Industrial Alliance Securities analyst Brad Sturges raised his rating for StorageVault Canada Inc. (SVI-X) to “buy” from “hold,” feeling the Toronto-based company is “uniquely positioned to benefit from generally improving Canadian self storage property demand fundamentals.”
"We believe SVI’s premium valuation relative to both its estimated NAV [net asset value] and its U.S. self storage REIT/REOC peers somewhat reflects the Company’s robust organic and external growth prospects in the next 12 months, and beyond," the analyst said. "However, SVI’s AFFO [adjusted funds from operations] per share is estimated to achieve a CAGR [compound annual growth rate] of 33 per cent from 2018 to 2020, which compares quite favourably to 4 per cent for U.S. self storage REIT/REOC peers.
"In our estimation, SVI can quickly grow into its market valuation in the next couple of years as a result of its significant internal and external acquisition growth prospects that reflect the Company’s self storage operating expertise, and the potential access to a possible acquisition pipeline as a result of SVI’s strategic sponsor, Access, and due to the highly fragmented nature of the Canadian self storage industry. For 2019, SVI provided SP-NOI [same-property net operating income] growth guidance of 4 per cent to 6 per cent, although we currently anticipate that the Company’s same-property results may continue to trend at the upper end of the growth guidance range."
On Wednesday, Storage reported FFO for the fourth quarter of 2.3 cents per share, unchanged year-over-year. However, its FFO of 8 cents for the full fiscal year was a 2 cents higher than fiscal 2017 (or a 32-per-cent improvement).
“Representing 41 per cent of the Company’s 2018 NOI, SVI generated same-property rental income (SP-NOI) growth of 8.8 per cent year-over-year in 2018, driven by 5.9-per-cent higher rental revenues year-over-year, and a 180 basis point (bp) increase in SP-NOI margin year-over-year that beneftted from the Company’s increased portfolio size and scale. Since Q3/15, SVI has generated average quarterly SP-NOI growth of 12.5 per cent year-over-year, well above its U.S. self storage REIT/REOC peer average of 6.2 per cent year-over-year.”
Believing StorageVault has the potential to increase its NAV per share by up to 25 per cent in the next 12 months, Mr. Sturges increased his target for its stock to $3.25 from $3. The average on the Street is $3.29.
"Its ultra low AFFO payout ratio affords SVI the potential to increase its annualized dividend rate over time, and to internally fund a significant portion of its annual Canadian self storage store acquisition activity," he said.
In reaction to Cogeco Communications Inc.'s (CCA-T) $720-million sale of its cloud services unit to Digital Colony, CIBC World Markets analyst Robert Bek upgraded Cogeco Inc. (CGO-T) to “outperformer” from “neutral.”
“Though we continue to recommend that investors with liquidity constraints should look to play CCA upside directly through ownership of CCA shares first, CGO shares also represent compelling value at current levels and a way for certain investor mandates to benefit from CCA upside," said Mr. Bek.
He raised his target to $89 from $80. The average is $82.50.
“Given CGO’s underlying ownership of CCA shares, and more limited share count, CGO has even more leverage to not only the market gains in CCA shares, but also CCA target revisions as our CGO valuation relies on both," said Mr. Bek. "Indeed, our updated CGO NAV suggests a price target of $89 for CGO shares, representing significant upside from current levels (even after factoring in liquidity constraints) and arguing for an Outperformer rating.”
Laurentian Bank Securities analyst Elizabeth Johnston continues to see upside for Sleep Country Canada Holdings Inc. (ZZZ-T) in the wake of “weak” fourth-quarter results.
Before market open on Wednesday, the retailer reported revenue for the period of $160.1-million, up 4.3 per cent year-over-year but below Ms. Johnston's $166.5-million projection. Same-store sales growth declined 2.7 per cent from the previous year, which Ms. Johnston attributed to traffic declines. Adjusted earnings per share of 40 cents also fell beneath the analyst's estimate (42 cents).
"We believe that there is compelling upside at these levels, in spite of the reduction in our forecast," she said. "Furthermore, we have reviewed an upside and a downside scenario, highlighting key inputs to our forecast, which we believe demonstrates the limited downside. In the downside scenario, we calculate a $19.75 target based on continued negative same-store sales growth (SSSG_ in 2019, no store openings (which we view as very conservative), along with 15-per-cent EBITDA margin (which was the level in 2015, post-IPO). In our upside scenario, we calculate a $44.00 target price based on 2.5-per-cent SSSG in 2019 and 5 per cent in 2020 (we believe reasonable compared to the four year average of 8 per cent), 15 new store openings (compared to four-year average of 13), and EBITDA margin of 17 per cent (in line with the reported margin for 2018)."
Maintaining a “buy” rating for the stock, Ms. Johnston lowered her target price to $32 from $36. The average on the Street is $26.33.
“The decrease in our target price is a result of reductions to our overall forecast and reducing our multiple, partially offset by rolling forward our valuation period to 2020,” the analyst said. “Given the uncertainty surrounding the SSSG figure, we have reduced our valuation multiple to reflect this along with our reduced forecast. We continue to have comfort with other parameters including new store openings, gross margin, and SG&A costs. Furthermore, the company indicates that they are continuing to gain share, and that other key metrics within the business have shown improvement.”
Elsewhere, Raymond James' Kenric Tyghe dropped his target for Sleep Country shares to $30 from $32 with an "outperform" rating (unchanged).
Mr. Tyghe said: “While we are mindful of the macro risks, we are however struggling to reconcile the miss with the magnitude of the sell-off (Sleep Country traded down 6.7 per cent on the session vs. the TSX, which was essentially flat), given (i) an already depressed valuation,(ii) cautious but less negative macro indicators, and (iii) that share gains in year accelerated (more than in prior years, despite very tough comps), for mattress market share in excess of 30 per cent. Further, in the context of macro concerns, we believe its important to remember that a mattress sale is deferred, not lost, and as such, on the assumption that rate hike and housing fears moderate, mattress sales could rebound more than imputed by any improvement in consumer confidence through 2019. We remain buyers of Sleep Country.”
Seeing it “well-positioned” in a “fragmented HR consulting and outsourcing space,” CIBC World Markets analyst Stephanie Price initiated coverage of People Corp. (PEO-X) with an “outperformer” rating.
“People Corp., which offers HR services, including benefits administration and consulting, has a successful track record, growing at a 32-per-cent four-year CAGR [compound annual growth rate] through a combination of acquisitions and organic growth," she said. "We believe People’s management team has the experience, expertise and track record to continue to execute successfully on its multiple growth levers. We foresee upside from the continued consolidation of the market.”
Ms. Price set a 9.25 target. The average is now $9.55.
In other analyst actions:
In the wake of better-than-anticipated quarterly results, BMO Nesbitt Burns analyst Peter Sklar upgraded Jamieson Wellness Inc. (JWEL-T) to “outperform” from “market perform” with a target of $24. The average is 80 cents higher.
“As a result of the recent deterioration in the stock price, and the positive outlook for 2019, we are upgrading the stock,” said Mr. Sklar.
BMO’s Michael Mazar upgraded PHX Energy Services Corp. (PHX-T) to “market perform” from “underperform” with a target of $3.50, rising from $3. The average is $4.
Mr. Mazar said: “On the back of the quarter, we are upgrading PHX shares to Market Perform, given 1) the company’s balance sheet improvements as PHX holds virtually no net debt now; 2) roughly three-quarters of its revenue is generated outside of the WCSB; and 3) an attractive growth platform driven by differentiated, proprietary technology.”
National Bank Financial analyst Patrick Kenny downgraded TransAlta Corp. (TA-T) to “sector perform” from “outperform.” Mr. Kenny raised his target by a loonie to $9, which exceeds the current average on the Street by 62 cents.
GMP analyst Ian Parkinson upgraded Copper Mountain Mining Corp. (CMMC-T) to “buy” from “speculative buy,” maintaining a $1.75 target, which is a penny below the consensus.
Cormark Securities analyst Jesse Pytlak downgraded MedMen Enterprises Inc. (MMEN-CN) to “market perform” from “speculative buy” with a $7.50 target (unchanged). The average is $9.08.
Echelon Wealth Partners analyst Frederic Blondeau upgraded Canadian Apartment Properties REIT (CAR-UN-T) to “buy” from “hold” with a target of $52, rising from $47.50. The average is $51.14.