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

CIBC upgraded Eldorado Gold Corp. (EGO-N; ELD-T) after it reported second-quarter production of 91,800 ounces, which was better than CIBC’s estimate of 77,200 ounces.

Analyst Cosmos Chiu upgraded the stock to “neutral” from “underperformer” and raised his price target to US$7 from US$3, due to the higher than expected production, and “on the back of a better-than-expected ramp up of the Lamaque mine in Val d’Or and steady output from Kisladag.”

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The median price target is US$5.17, according to Zack’s Investment Research

“EGO’s improvements both financially and operationally have allowed its share price to participate in the recent run in the gold price. Although we continue to see risks with some of the operations, including issues at Olympias, we no longer expect near-term catalysts that justify an Underperformer rating,” he said.

“The following factors have changed our thesis on the company: 1) Q/Q production increases; 2) election of the New Democracy Party, viewed to be more pro-business, in Greece on July 7; and 3) refinancing of debt with a new note issuance and a new credit facility. The increase in the gold price has also given the company an opportunity to strengthen its balance sheet, which is no longer a near-term issue in our view,” he said.


As a result of lower price expectations for methanol, CIBC cut its rating and slashed its price target on Methanex Corp. (MEOH-Q) .

“Continued expectations for weakness in olefin pricing (and hence MTO affordability) are forecast to keep methanol prices capped. As a result, we lower our 2019 and 2020 realized methanol price assumptions from US$355/mt [metric ton] and US$375/mt to US$322/mt and US$333/mt, respectively,” said analyst Jacob Bout.

He cut his rating to “neutral” from “outperformer” and reduced his price target to US$53 from US$70. The median price target is US$72.

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“Aside from Q2/19 results, we believe the next potential catalyst for MEOH will be the decision on the ~1.8Mtpa Geismar-3 facility. Investors may prefer see the project delayed (until there is a resolution to the U.S./China trade dispute or an improvement in olefin pricing) in favour of share buybacks. Recall, the cost of this project (~$725/mt) is significantly below the cost of a greenfield project (~$1,100/mt). But should MEOH decide to proceed, the concern is that at methanol prices below $250/t, MEOH will generate negative free cash flow, resulting in a downgrade of debt ratings and inability to pay for the project,” he said.

“We estimate Q2/19 adjusted EBITDA of $181-million, in line with consensus expectations. We estimate MEOH’s realized price to be ~$333/t, assuming a 15 per cent discount rate. Our produced volume estimate of 1.61 million is lower Q/Q and Y/Y.”


Strong same-store sales and the potential for higher margins led CIBC to raise its target price on Alimentation Couche-Tard Inc. (ATD-B-T).

“Though fourth quarter results were clipped by higher operating expenditures, the consumer-driven fundamentals are healthy. Same-store sales (SSS) growth continues to outperform, and gross margin upside remains. We continue to be bullish on benefits from the Circle K rebrand, as well as a greater emphasis on marketing and customer loyalty. Valuation has risen, but ATD offers above-average organic growth and M&A optionality along with quality management and expense discipline,” said analyst Mark Petrie.

He raised his target price to $94 from $87 and kept his “outperformer” rating. The median is $86.50.

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“After years of lagging peers, Couche-Tard has delivered five quarters of leading (or in-line) SSS growth. Tobacco has been a helpful tailwind that ATD has fully leveraged, but efforts on food and beverage buoyed by leaps on marketing and loyalty are paying off. Though tobacco is less certain, we expect these other initiatives to continue to pay dividends for years. Management articulated a target of reaching industry-average food sales penetration by F2023. At first blush this target appears aggressive (requiring close to 20 per cent CAGR [compound annual growth rate]), but speaks to the substantial upside potential,” he said.

Desjardins analyst Keith Howlett cut his rating on the stock to “hold” from “buy” but raised his price target to $87 from $80.

“Our confidence in Couche-Tard’s business model and management remains high, and unaffected by the poor 4Q FY19 financial results. Full-year results were impressive, and the company has numerous growth initiatives underway that will transport it from its status as an outstanding operator to that of a leading global brand within the convenience/fuel segment. We are forecasting minimal internal EPS growth in FY20. The balance sheet will, however, support an acquisition [about] US$4-billion.”


EXFO Inc. (EXFO-Q; EXF-T) reported third-quarter results that were in-line with estimates but gave a fourth-quarter outlook that was lower than expected, leading CIBC to reduce its price target on the communication services provider.

Analyst Todd Coupland trimmed his target to US$4.25 from US$4.50. The median is US$4.88. He kept his “neutral” rating.

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“The high end of the sales guidance was about 4.5 per cent below Street estimates. Despite the consistent double-digit EBITDA [earnings before interest, taxes, depreciation and amortization] margins, we expect EXFO’s shares to trade down on the lower outlook. We were encouraged by EXFO’s commentary on network densification for 5G. EXFO’s test and measurement product family is starting to benefit as the small cells are being connected with fiber. EXFO should benefit in 2020 through its SASS business (service assurance, fibre monitoring and server ontology), and its network monitoring phase is set for mid to late 2020 for commercial deployments of 5G networks,” he said.

Canaccord Genuity analyst Robert Young kept his “hold” rating on the stock and his price target of US$4.

“While EXFO posted strong FQ3 results with a beat on adjusted EBITDA, we would frame the quarter as a disappointment curtailing some of the positive trends seen in H1/F19. Management reiterated confidence in exceeding its $24-million adjusted EBITDA goalpost for the full year and remains bullish on 5G and data centre opportunities. On the other hand, EXFO warned of headwinds in the higher margin SASS segment. These headwinds are likely to persist through to the latter part of F2020. The first impact felt is a weaker-than-expected guide for FQ4 and a pause in recent bookings strength. With the likelihood of a pause through the back half of C2019,” he said.


The potential sale of Superior Plus Corp.'s (SPB-T) specialty chemicals business, which operates under the trade name ERCO Worldwide, could be a bonus for the company and led CIBC to raise its price target on the stock.

Analyst Jacob Bout raised his target to $16 from $14.50 and kept his “outperformer” rating. The median is $14.50.

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“If the ERCO sale goes ahead, we believe SPB could be worth $15 to $18 per share. We like SPB given the stability of its Energy Distribution platform (about 70 per cent -75 per cent of consolidated EBITDA) during times of economic uncertainty and optionality for a multiple re-rate with an ERCO sale,” he said.

“Post a potential sale, we think SPB’s multiple will re-rate higher. Ex-IFRS 16, SPB is trading at 8.1 times forward 2020E EV/EBITDA. We believe a multiple of 9.0 times-9.5 times would be warranted given SPB would become a pure-play energy distribution propane company (without the lower-growth and higher capital-intensive chemicals business), could pay down debt, and could accelerate its U.S. propane roll-up strategy,” the analyst said.


BMO initiated coverage on Barkerville Gold Mines Ltd. (BGM-X) with an “outperform speculative” rating and a price target of 80 cents. The median is $1.05.

The rating reflects “an expected revaluation as the company delivers development milestones on its 100 per cent-owned Cariboo Gold project,” said analyst Andrew Mikitchook.

“In our opinion, the market will be watching for positive fast-tracked milestones in 2019 and 2020 toward initial production of 180,000oz/year,” he said. "We expect the upcoming PEA and Feasibility to represent milestones that progress the project closer to a development decision and financing arrangements in 2020 that should represent more substantial revaluation catalysts.

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CannTrust Holdings Inc. (TRST-T) stock continued to decline Thursday after The Globe and Mail reported allegationsby a former CannTrust employee that the company hid thousands of cannabis plants behind temporary walls in order to stage misleading photographs of an unlicensed growing room that were sent to Health Canada, and a ninth analyst downgraded the stock.

Analysts have downgraded the stock as a result of a regulatory breach that meant the company had to stop selling marijuana grown in the unlicensed room prior to them getting licensed.

The stock has lost about 40 per cent since Monday.

Canaccord Genuity analyst Derek Dley cut his rating on the stock to “hold” from “speculative buy” and he slashed his price target to $5 from $12. The average price target is $9.60.

“Clearly, the major concern among investors at this point is whether Health Canada will look to make an example out of CannTrust and potentially pull the company’s production license,” Mr. Dley wrote in a note. “While we had originally viewed this as highly unlikely, we are now acknowledging this could be within the realm of possibility.”

Potentially, the company could face a fine and be required to destroy 5,200 kilograms of cannabis grown in the unlicensed rooms.

“Prior to Monday’s news of a compliance breach, CannTrust had been viewed as one of the highest-quality companies in the space,” he said. “The credibility of CannTrust has now been put into question.”


In other analyst actions:

BMO downgraded Continental Resources to “market perform” from “outperform” with a price target of US$45.

BMO downgraded PDC Energy to “market perform” from “outperform” with a price target of US$38.

BMO downgraded Cimarex Energy to “market perform” from “outperform” with a price target of US$67.

BMO reduced its price target on Mandalay Resources to $3 and kept its “outperform” rating.

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