Inside the Market’s roundup of some of today’s key analyst actions
Bombardier Inc. (BBD-B-T) is looking “fairly battered,” according to Citi analyst Stephen Trent.
However, he thinks its "good long-term trajectory remains intact."
“As it would be unfair to dismiss the strategic and operational improvements that Bombardier has made over the past four years, it would also be unreasonable to conclude that the transport segment’s recent operational hiccup is purely an early cycle dip,” said Mr. Trent in a research note released late Wednesday. “Taking this argument another step, it now also seems reasonable to value the Canadian plane- and train manufacturer’s shares on a more normalized multiple. For these reasons, Citi’s forward target EV/EBITDA multiple on the shares declines from 9.3 times to 8.75 times – or from an old fair valuation range of 9-10 times to a new range of 8.5-9 times. The latter now represents a 25-per-cent discount to the company’s early cycle peaks.”
He added: “Is Bombardier done with asset sales? Only management could answer that question with certainty. That being said, Bombardier now seems well focused on its business jet and transport segments. Our forecast does not assume any asset sales, beyond what has already been announced, such as the Q400 and CRJ commercial aircraft programs.”
After reducing his financial estimates and forward EV/EBITDA target multiple, Mr. Trent lowered his target price for Bombardier shares to $3.40 to $2.75. The average on the Street is $3.36.
He kept a "buy" rating.
“Forecast adjustments for Buy-rated Bombardier include the incorporation of softer, expected transport segment margins, more conservative working capital cycle assumptions and 2Q results into our model,” the analyst said.
Citing visibility for a “strong” yield and future capital appreciation following Tuesday’s release of in-line second-quarter results, Industrial Alliance Securities analyst Elias Foscolos raised his rating for Superior Plus Corp. (SPB-T) to “strong buy” from “buy.”
After the bell, Superior reported adjusted earnings before interest, taxes, depreciation and amortization of $60-million, narrowly missing the Street’s expectation of $62-million. The company maintained its 2019 EBITDA guidance ($490-$530-million versus Mr. Foscolos’s $514-million estimate) and did not provide an update on the potential sale of its specialty chemicals business.
With the release, the company's stock dropped just over 7 per cent on Wednesday.
"SPB’s share price fell further than its peers," said Mr. Foscolos. "We speculate the street was expecting detailed updates on the potential sale of the Speciality Chemicals (SC) Business. [Wednesday's] price weakness presents an opportunity to enter while capital appreciation and dividend rate remains attractive."
Mr. Foscolos maintained a $15 target price for Superior Plus shares, which exceeds the current consensus of $14.85.
“Superior’s stock has unexpectedly dipped below its peers despite the in line quarterly results,” he said. “While the street was anticipating detailed updates on the potential sale of the Specialty Chemicals business, SPB provided us with a few indicators. The Company continues to optimize its assets while exploring additional tuck-ins and mid-sized acquisition’s in the U.S.. With a potential total return of 30 per cent, we are upgrading.”
Though he warns there’s still a “lengthy to-do list,” CIBC World Markets analyst John Zamparo raised Freshii Inc. (FRII-T) to “neutral” from “underperformer” based on what he sees as an improving outlook.
Shares of the Toronto-based company dropped over 6 per cent on Wednesday after it reported a decline in same restaurant sales growth in the second quarter.
However, Mr. Zamparo is confident upcoming menu changes will help a rebound.
“We believe numerous priorities exist in order to steer Freshii in the right direction. POS integration, mobile app improvement, expedient menu innovation and, above all, greater focus on in-store execution remain critical to recovering same-store sales growth (SSS) and strengthening average unit volumes (AUVs),” he said. “But with key management additions (with relevant experience), easier SSS comparisons in H2, accelerating omni-channel growth and a revamped menu on the way, we believe FRII may have seen its trough.”
Mr. Zamparo raised his target to $2.75 from $2. The average is $2.55.
“We increase our target EV/EBITDA multiple from 5 times to 6 times, still well below franchised peers, and within the realm of distressed restaurant stocks,” he said. “At this point, risks do exist (low gross openings, worrying AUVs, a smaller new store pipeline, rescinded disclosure on certain franchise metrics), but a slowdown in closures and strategic management decisions provide encouragement on attaining progress.”
Elsewhere, Canaccord Genuity analyst Derek Dley raised Freshii to “buy” from “hold” with a $3 target, up from $2.50.
Metro Inc.'s (MRU-T) integration of Jean Coutu Group (PJC) Inc. is “going according to plan,” said Desjardins Securities analyst Keith Howlett.
On Wednesday before the bell, the Montreal-based company reported third-quarter adjusted earnings per share of 90 cents, up from 75 cents during the same period a year ago but 2 cents below Mr. Howlett's expectation.
"Metro reported a largely in-line 3Q FY19, posting 20-per-cent EPS growth driven by the acquisition of PJC," he said. "The acquisition date has now been cycled and EPS growth will slow. The integration is on plan and delivering significant cost synergies. Cost synergies will flow through to FY20 and 1H FY21. Revenue synergies have not been quantified, but should grow over time (Pro Doc, private label, loyalty, etc). Management is proven.
"The shares are a safe haven but appear fully valued."
With the results, Mr. Howlett maintained his fiscal 2019 EPS projection of $2.85 and raised his 2020 estimate to $3.15 from $3.12.
Maintaining a “hold” rating for Metro shares, he increased his target to $54 from $51. The average is $53.45.
“After 60 weeks of ownership of PJC, Metro has generated run-rate synergies of $61-million,” he said. “The target for cost synergies is $75-million annually, achieved over three years; revenue synergies will be in addition to that amount. While healthcare reform is likely to be nonending, in the near term retail pharmacy is posting positive script count growth, higher average value per script and solid front-end sales growth. This is a positive backdrop to the integration process. The core grocery business is generating solid same-store sales growth. Management has a long track record of performance. The good news appears to us to be priced in.”
Elsewhere, CIBC World Markets analyst Mark Petrie hiked his target to $54 from $49, maintaining a "neutral" rating.
Mr. Petrie said: “Metro reported in-line Q3 results with healthy top-line growth and synergy capture offset by higher SG&A. The company continues to execute well in a healthy environment and its 20-per-cent EPS growth, albeit below our forecast owing to higher interest and taxes, reflects ongoing discipline. Our valuation moves up on account of the value placed by the market on stability.”
In a separate note, Mr. Howlett said Leon’s Furniture Ltd. (LNF-T) management is delivering earnings growth in a “challenging” retail environment.
On Wednesday, the Toronto-based retailer reported adjusted earnings per share for the second quarter of 30 cents, exceeding the consensus expectation on the Street by 6 cents, driven largely by an improved gross margin and lower expenses.
“Management is executing well in a challenging retail environment, driving sales, improving gross margin, lowering SGA expense rate and delivering higher EPS,” he said. “Our view is that by this time next year, management will need some help from a stronger economy and more robust consumer demand in order to continue to drive EPS growth. We remain cautious on the one-year outlook for housing values, housing turnover, employment and disposable income. Based on current earnings momentum and underlying real estate value, our rating remains Buy.”
Mr. Howlett increased his target by a loonie to $21. The average on the Street is $18.
Canada Goose Holdings Inc. (GOOS-N, GOOS-T) continues “pulling on all levers to support growth initiatives that should drive profitability and margin expansion in upcoming quarters,” said D.A. Davidson analyst John Morris.
Though investors took an unfavourable view of the luxury apparel maker's quarterly results and outlook on Wednesday, sending its stock down 7.5 per cent in New York, Mr. Morris said the release reaffirmed his investment thesis of "GOOS evolving into a multi-season company." He affirmed the firm's stance as "buyers on the name."
“GOOS reported notable results across all regions with strengthened year-over-year top-line growth of 59.1 per cent as the wholesale channel lead with a 68.8-per-cent year-over-year increase in 1Q20,” he said." Gross margin came in at 57.5 per cent, driven by mix, with a higher proportion of wholesale revenue, and within the channel, a greater share of international distributor revenue due to earlier shipments. Total revenue of $71.1-million was well-above our $53.2-million estimate and the Street’s $54.4-million forecast. An important takeaway for us had been the company’s success in building-out lightweight categories as non-parka revenue nearly doubled, rising to account for one-third of total DTC revenue. This demonstrates GOOS’s success in diversifying their assortment into the shoulder seasons and also confirms reads from our Davidson Data mining Dashboards ... which showed how the company has been working to expand and deepen their assortment offering across men’s and women’s, resulting in strong sell-throughs/partial sell-outs. GOOS’s growing SKU count confirms both our data mining reads and key investment thesis that GOOS is evolving into a multi-season company. Furthermore, inventory grew 52.9 per cent over last year, a little below sales growth of 59.1 per cent in 1Q, ameliorating previous investor concerns that inventory was growing too fast ahead of sales growth. We view GOOS’s healthy inventory position key in management’s planned ramp up to meet growing demand, especially for the upcoming peak-selling seasons."
Keeping his “buy” rating for the stock, Mr. Morris increased his target to US$48 from US$42. The average on the Street is US$56.86.
“We continue to view GOOS as well-positioned given the company’s growth initiatives, global expansion opportunities, and continued investments in IT and infrastructure to support flexibility and scalability opportunities,” he said.
Meanwhile, Credit Suisse analyst Michael Binetti trimmed his target to $72 (Canadian) from $76 with an “outperform” rating.
Mr. Binetti said: “We have some new concerns about the margin outlook from here. But the key focus for the stock is growing into a big brand opportunity — & F1Q trends still suggest GOOS is well positioned for another year of raising revenue targets through the year. We think GM mix pressure should diminish enough to support positive revisions to Consensus EBIT/EPS. Outperform.”
Pointing to the “continuation of strong market rent growth prospects, combined with limited near-term new supply in many Canadian multifamily rental markets,” Industrial Alliance Securities analyst Brad Sturges said Canadian Apartment Properties Real Estate Investment Trust (CAR.UN-T) is well-positioned to deliver above-average organic growth in 2019.
"While the REIT may experience higher insurance costs and property taxes year-over-year, CAPREIT is anticipated to generate above-average 2019 same-property average monthly rent growth year-over-year," said Mr. Sturges.
On Tuesday, the Toronto-based REIT reported normalized fully diluted funds from operations of 54 cents per unit, up a penny fro the same period year ago. Same-property net operating income was up 4.2 per cent year-over-year, due to a 5.1-per-cent improvement in same-property revenue.
“REIT’s acquisition strategy has recently pivoted away from purchasing Canadian apartment properties that offer value creation opportunities to higher-quality, newly constructed Canadian apartment buildings, Canadian manufactured home communities (MHC), and Dutch multifamily assets,” said Mr. Sturges. “Such properties generally incur lower annual repairs and maintenance (R&M) costs, and thus generate higher NOI margins. In 2019 year-to-date (YTD), CAPREIT completed capital investments totalling $581-million that included Canadian MHCs (49 per cent of 2019 YTD activity), Dutch multifamily portfolios (27 per cent of 2019 YTD activity), and the purchase of new build Canadian apartment properties (23 per cent of 2019 YTD investments).”
Keeping a “buy” rating, Mr. Sturges increased his target to $56 from $53. The average is $53.65.
Elsewhere, National Bank Financial analyst Matt Kornack raised his rating for the REIT to “outperform” from “sector perform” with a $57 target, rising from $52.
Canaccord Genuity's Mark Rothschild increased his target to $53 from $52.50 with a "buy" rating (unchanged).
Mr. Rothschild said: “CAP REIT’s portfolio is well positioned to benefit from record rental apartment fundamentals across Canada, particularly in the GTA and Vancouver. With low vacancies in these major markets, we expect strong internal growth to continue to drive cash flow and NAV higher.”
Pointing to a “tempered” buildup, Beacon Securities analyst Russell Stanley cut his financial estimates and target price for shares of Acreage Holdings Inc. (ACRG.U-CN).
On Tuesday after the bell, the New York-based company reported pro forma second-quarter revenue and EBITDA of US$37-million and a loss of US$12-million, respectively, which fell short of Mr. Stanley's projections of US$39-million and a US$8-million loss.
"More importantly, management indicated it is tempering the pace of its buildout in order to incorporate technology/processes/IP that are now available to it from Canopy Growth (WEED-T)," he said. "On this basis, we have reduced our F2019 and F2020 forecast for revenue and EBITDA. We continue to value ACRG using a 30 times EV/2020E EBITDA multiple, and will revisit rolling forward to F2021 upon the release of the full financial statements later this month.
He added: “The company had previously indicated it would target an exit range of 50-60 retail locations. We note that the company currently has 26 locations in operation, with 6 more completed and awaiting regulatory approval to open, positioning it close to the lower end of its revised guidance. The company now plans to open its cultivation/manufacturing facility in Florida in early 2020, and given state regulations requiring vertical integration, we would not expect dispensary openings before then (though we understand seven are under construction). We also understand that the Nevada acquisition (Deep Roots) is now expected to close in Q4/19. While it was originally expected to close in Q2/19, we understand the delay is due primarily to a 2nd request for information from the U.S. Department of Justice under HSR antitrust regulations. This is noteworthy, as this is the smallest acquisition (purchase price $120-million) that we specifically know of (so far) for which a 2nd request has been received. Given the transaction represents Acreage’s entry into Nevada, we believe there is little cause for antitrust concern, and that the probability of closing remains very high.”
With a “buy” rating (unchanged), he dropped his target to US$27 from US$40. The average is US$29.
In other analyst actions:
Despite its second-quarter results meeting expectations, Echelon Wealth Partners analyst Frederic Blondeau lowered Sienna Senior Living Inc. (SIA-T) to “hold” from “buy” based on its current valuation. Mr. Blondeau maintained a $19.50 target, which falls below the $21.10 average.
Stephens initiated coverage of Finning International Inc. (FTT-T) with an “equal-weight” rating and $25 target. The average on the Street is $28.11.