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

Industrial Alliance Securities analyst Michael Charlton thinks Tourmaline Oil Corp. (TOU-T) brings a “a decade of growth and experience at IPO pricing.”

He initiated coverage of the Calgary-based exploration and production company's stock on Thursday with a "buy" rating.

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"Several factors, including overall sentiment towards the energy space, have run rampant in the past several years as changes in the political landscape in Canada, both federally and provincially, have provided strong headwinds for the industry," said Mr. Charlton. "Numerous E&Ps are now trading at a discount to historical prices and multiples, providing an attractive entry point. We, however, have to pause and take notice of this particular story as right now might just be the most attractive potential entry into Tourmaline’s stock in recent times."

Mr. Charlton pointed to five reasons why investors "need to take a second look at Tournaline." They are:

- It's trading at its initial public offering price of $21 per share;

- A track record of value creation as well as "substantial" and increasing insider ownership;

- It's free cash flow generation, which is estimated to be $243-million this year and $2.2-billion between 2019 and 2023;

- Condensate to pump up returns, noting 22-per-cent condensate production growth is expected in 2019 and 40 per cent by 2020;

- "Massive" upside potential with only 14 per cent of the company's potential locations currently booked.

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“We believe the current trading price may represent a huge bargain considering all the growth, infrastructure builds, and de-risking of its land base that has occurred in the past decade,” said the analyst.

Mr. Charlton set a target price of $29 per share. The average on the Street is currently $26.46, according to Thomson Reuters Eikon data.

"The Company is well positioned to continue to grow production and FCF through the continued advancement of its three core assets, leveraging the stable cash flows from itslargely de-risked plays in highly active parts of the WCSB," he said. "We believe Tourmaline has achieved critical mass whereby its properties are capable of generating enough cash flow to continue to more-than-fund ongoing development (including modest growth) and maintain the Company’s quarterly dividend, all while paying down debt as free cash flows are forecast to continue growing. For investors seeking an actively growing company that pays a sustainable quarterly dividend and is involved in exploration and development in the WCSB, with several high-quality assets, run by management with a track record of success, we believe those investors need look no further. In our view, Tourmaline offers exactly that — balanced exposure to multiple plays and formations in all stages of development that have the potential for increased liquids weighting and is run by a highly experienced management team. Further sweetening the value proposition offered by the Company is the fact that all of this is available at a discount when compared to historical share prices."


Believing it’s emphasizing the “right priorities at the right time,” Desjardins Securities analyst Maher Yaghi raised his rating for Stars Group Inc. (TSGI-T, TSG-Q) following its analyst day event on Wednesday.

"The main part of the day was spent on the long-term vision for game deployment," he said. "In our view, TSGI management did a good job detailing how the company will leverage its capabilities to launch new services in existing and new geographies in the future. This game play is the result of the company’s historical investment in R&D as well as software acquired over the last few years. ... Management believes that it now has the components to create a global sports and trading platform. This platform will be used to launch, market and service customers in sportsbook, casino, poker and social gaming. We believe these assets are a significant differentiator vs TSGI’s peers and have the potential to create a cycle where customers around the world play and interact with each other more easily, creating a live community. Margins are likely to increase as the company leverages its knowledge base and spreads risk across multiple geographies.

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“The next important focus areas potentially have significant upside if well-executed. Given this integrated platform and the knowledge base built up over the years, management articulated how it plans to become a more prominent player in the U.S. market. Management estimates that its addressable market in the U.S. could be around US$9-billion by 2025. This includes land-based betting and online betting, casino and poker. We believe the most immediate potential for TSGI is focusing on the online sports betting space, as we believe online poker and casino games are likely to take longer to develop. This would still leave a potential market size of US$2.7-billion to target by 2025, up from US$0.9-billion currently ... The U.S. online betting market in the U.S. remains significantly undeveloped, with online betting spend per capita very much lower than in other developed markets like Australia and the UK.”

Mr. Yaghi said the event repeatedly came back to the company's focus on deleveraging, which he said management is making its immediate focus and main priority over the next several years.

"We love this word, especially for a company with a current debt leverage ratio of 5.5 times," he said.

"We believe the company’s high leverage has been the most significant factor in terms of reducing investor appetite to buy the stock and has pressured the shares since the announced acquisition of SBG. The commitment by management toward debt reduction was made crystal clear in the investor day [Wednesday], and we are glad. With a cash conversion ratio of around 40 per cent of EBITDA, we believe if this focus by man."

He added: "So why is this important? Beyond lowering the company’s financial risk, which in our view is currently concerning investors, debt reduction will have a significant positive future impact on EPS. For every US$100-million of repaid debt, EPS is likely to increase by US$0.02. Hence, just over the next 3–4 years, repaying around US$1-billion of debt would increase EPS by US$0.20, the equivalent of a 10-per-cent boost to expected 2019 EPS."

Moving the Toronto-based company’s stock to “buy” from “hold,” Mr. Yaghi maintained a target of $37.50. The average on the Street is $38.56.

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"We view the company’s 8–12-per-cent EBITDA growth target over the next 3–5 years as achievable," he said. "More importantly, management indicated that surplus cash will be directed toward debt repayment to reduce leverage below 3.5 times. Given this focus on debt reduction, as well as TSGI’s significant FCF profile and attractive valuation, we are upgrading our rating."


In the wake of the announcement that it has entered into a definitive agreement to be acquired by Noverco Inc., a pair of equity analysts adjusted their rating for Valener Inc. (VNR-T).

On Wednesday after market close, Montreal-based Valener said Noverco, the controlling partner of Energir LP, will acquire indirectly all issued and outstanding shares for $26 each in cash and all preferred shares for $25.

Believing the offer is in line with his valuation, Industrial Alliance Securities analyst Jeremy Rosenfield moved Valener, a natural gas distributor, to “tender” from “hold.”

"We believe that the proposed all-cash $26.00/share offer for VNR reflects a fair value of the company’s current operations, including near-term growth expectations," he said. "Noverco’s offer would also provide immediate liquidity and value certainty for VNR shareholders, with no financing risk, minimal expected regulatory risk, and minimal expected regulatory lag. We recommend shareholders tender their shares to the proposed offer, and are adjusting our rating and target accordingly."

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Mr. Rosenfield raised his target for Valener shares by a loonie to $26 to reflect the deal. The average is now $24.17.

Meanwhile, Desjardins Securities' Bill Cabel also moved the stock to "tender" from "hold" with a $26 target, up from $22.50.

Mr. Cabel said: “Due to the ownership structure of Energir and solid deal multiple, we recommend that shareholders tender their shares.”


Lululemon Athletica Inc. (LULU-Q) is showing “no signs of fatigue,” said Citi analyst Paul Lejuez in the wake of Wednesday’s release of better-than-anticipated quarterly results.

"Although the company’s holiday release was a positive surprise (they guided comps up mid-single digits to high teens vs consensus at the time of 12 per cent), there was more good news in the 4Q release," he said. "With nearly 2/3 of the quarter finished, the company is guiding 1Q19 and full year comps up low double digits vs consensus of 8 per cent for both periods. It is clear that momentum is continuing in almost every part of the business, even in theoretically more mature areas such as women’s bottoms (which comped 21 per cent; men’s bottoms comped 28 per cent). With no signs of fatigue in the business and an investor event coming up on April. 24 (where mgmt will lay out its 5 year plan), we also don’t believe the stock will show any signs of fatigue."

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With the results and better-than-anticipated guidance, Mr. Lejuez raised his fiscal 2019 and 2020 earnings per share projections to US$4.70 and US$5.77, respectively, from US$4.46 and US$5.43.

Keeping a “buy” rating, his target for Lululemon shares jumped to US$180 from US$152. The average is US$171.07.

Elsewhere, RBC Dominion Securities' Kate Fitzsimons bumped her target to US$180 from US$172, keeping an "outperform" rating.

“LULU’s traffic-led 4Q momentum and above consensus 1Q/2019 outlook suggests that the LULU’s positive revision story isn’t tapped out despite harder 2018 compares,” she said. “Next catalyst is April 24 analyst day, where we expect a raise to long-term targets with our work suggesting a build to $6-billion in revenues and $8 in EPS over time.”


RBC Dominion Securities analyst Kurt Hallead initiated coverage of Civeo Corp. (CVEO-N) with a “sector perform” rating, noting “leading indicators of remote accommodations demand in Canada and Australia suggest a stable fundamental profile over the next 12 months.”

“The primary driver for CVEO has historically been its Canadian remote accommodations business that serves the oil sands market,” he said. “To spur incremental in-situ oil sands activity, the WCS-WTI differential would need to narrow to less than $10/bbl from more than $20/bbl whereas greenfield oil sands projects would require an oil price in excess of $100/bbl.”

"Canadian LNG exports represent the greatest potential driver for demand growth for CVEO’s remote accommodation business. There are more than 15 proposed export terminals and associated pipeline projects."

Calling the Houston-based accommodation services provider a “well-run company with a strong management team,” he set a US$3 target. The average is US$3.67.


Cresco Labs Inc. (CL-CN) is “well positioned” to benefit from progress towards cannabis reform at the federal level south of the border, said Beacon Securities analyst Russell Stanley.

He initiated coverage of the Chicago-based company with a " buy" rating and $22 target, exceeding the consensus of $13.75.

“With its origins in Illinois’ demanding regulatory environment, and demonstrated execution speed (1st to market in Pennsylvania and Ohio), Cresco has built a strong reputation in a short period of time,” said Mr. Stanley. “Including its recently announced (and well-timed) acquisition in Florida, this company now has interests in 11 states with an aggregate population of 151 million people. On a pro forma basis, it has 21 dispensaries open, and is licensed for an aggregate of 51. In our view, the company’s focus on branded products and distribution entrenches it firmly in the most lucrative and defensible points of the cannabis supply chain. Moreover, we believe this approach and well articulated marketing plan make the company a highly compatible acquisition target for major CPG companies.”


In other analyst actions:

Cormark Securities analyst Maggie MacDougall raised Park Lawn Corp. (PLC-T) to “top pick” from “buy” with a target of $32.50, rising from $26.75. The average on the Street is $30.50.

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