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

BRP Inc. (DOO-T) is “well-positioned to benefit from healthy consumer spending,” said Desjardins Securities analyst Benoit Poirier.

On Wednesday, shares of the Quebec-based recreational vehicle maker jumped 2.5 per cent on the pre-market release of third-quarter results that Mr. Poirier deemed “strong” as well as a further increase to its fiscal 2020 guidance.

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“It continues to enjoy solid retail momentum across all product categories globally, a clear testament to the success of its strategy to introduce innovative products to the market,” the analyst said. “We remain bullish on the name and expect solid value creation as management executes on its new five-year strategic plan (target of 10-per-cent annualized revenue growth and 15-per-cent annualized normalized EPS growth).”

BRP reported revenue for the quarter of $1.644-billion, up 18 per cent year-over-year and ahead of the projections of both Mr. Poirier ($1.502-billion) and the Street ($1.507-billion). Normalized fully diluted earnings per share of $1.51 also topped estimates ($1.24 and $1.31).

With the results, the Ski-Do manufacturer increased the low end of its 2020 EPS guidance to $3.70-$3.80 from $3.65-$3.80.

“The decision was supported by an increase in forecast revenue for all segments, except for marine,” said Mr. Poirier. “Management also noted that favourable FX conditions is expected to generate 1-per-cent revenue growth in FY20 with no impact on normalized EBITDA and EPS as BRP is naturally hedged. BRP also reiterated its capex guidance of $360–370-million as management continues to invest in digital and IT systems and maintain a high R&D envelope. We expect the current retail sales momentum to continue in FY21 and beyond, supported by solid customer demand and potential margin improvement. For FY21, we forecast normalized EPS growth of 15 per cent, which is in line with BRP’s five-year annual normalized EPS growth target of 15 per cent.”

In reaction to the announcement, Mr. Poirier raised his revenue and earnings expectations for both 2020 and 2021. He's now projecting EPS of $3.78 and $4.36, respectively, increasing from $3.71 and $4.

Keeping a “buy” rating, he hiked his target to $75 from $69. The average on the Street is $71.11, according to Bloomberg data.

“Despite its recent price performance, we still see potential upside for the stock at current levels given the robust retail sales growth across all markets globally. We remain confident that BRP’s proven track record of market share gains through innovation will continue to unlock significant value for long-term shareholders.”

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Elsewhere, Canaccord Genuity analyst Derek Dley hiked his target to $80 from $73 with a "buy" rating.

Mr. Dley said: “In our view, BRP is well positioned to capture additional market share in a growing powersports market, as it continues to introduce new products, and extends its reach into complementary product lines. Currently trading at 8.2 times our fiscal 2021 EBITDA estimate, compared to peers at 9.7 times, we believe BRP shares represent an attractive entry point."


Barrick Gold Corp. (ABX-T) is facing “a year of reinvestment” in 2020, according to Canaccord Genuity analyst Carey MacRury, who sees it positioned for a "strong” fourth quarter.

“Barrick expects gold production near the high end of its 2019 guidance range (5.1-5.6 million ounces) with costs near the low end ($650-$700 per ounce cash costs and $870-$920 per ounce AISC),” the analyst said in a research note released Thursday.

“We forecast Q4/19 production of 1.4 million ounces (up 4 per cent quarter-over-quarter) at $680 per ounce cash costs (down 4 per cent quarter-over-quarter) and 2019 production of 5.4 million ounces at $659 per ounce cash costs. In Q4 we expect operational improvements at North Mara, Pueblo Viejo, and Nevada Gold Mines will be offset by the transition of Lagunas Norte to care & maintenance and slightly softer quarters from Loulo-Gounkoto, Kibali, and Porgera.”

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For 2020, Mr. MacRury is now projected attributable gold production of 4.97 million ounces, down from a previous expectation of 5.33 million ounces due largely to the recent sale of a 50-per-cent interest in Kalgoorlie mines in Western Australia to Saracen Mineral Holdings.

Also seeing free cash flow declining to $1.3-billion from $1.4-billion in 2019 due to reinvestments in its business, he lowered his earnings per share estimate for the year to 59 cents from 73 cents.

That led to a decline in his target for Barrick shares by a loonie to $27 with a “buy” rating. The average is currently $26.56.

“Our BUY rating remains predicated on increased confidence in the potential to realize the proposed synergies in Nevada, exploration upside in Nevada, and an improving outlook on the company’s long-term production profile,” he said.


Home Capital Group Inc.'s (HCG-T) Investor Day event reinforced that it “very much has its house in order,” said Raymond James analyst Brenna Phelan.

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She said the theme of the event, which was held Monday in Toronto, was “sustainable risk culture,” which she deciphered as “being compensated for taking the right risks for the right reasons.”

“This principle was spoken to in detail by each executive presenter, and the CEO highlighted that sustainable risk culture is a component of every HCG employee’s performance review and compensation,” said Mr. Phelan. "Technology will be leveraged to improve Home’s offering to mortgage brokers, to improve its CRM for sales and underwriting, including originations, to maximize efficiencies and revenues to HCG at a given level of sustainable, acceptable risk

“Sustainable risk culture in underwriting is exemplified by Home’s Feb-2018 creation a ‘Special Ops’ underwriting team - a group of highly seasoned underwriters to whom higher-risk deals - large principal amounts, deals with AML flags, foreign connections, multiple property owners - are directed. This team is currently processing 20-30 per cent of originations. Non-conforming deals from a credit perspective are adjudicated by the independent enterprise risk management department. We take commentary from the 3Q19 call on a move into lower Beacon scores in the context of compensation (yield) for higher credit risk, while keeping risk sustainable relative to the comprehensive credit adjudication model.”

Maintaining a “sector perform” rating for Home Capital shares, Ms. Phelan hiked her target to $37 from $34 “to reflect a greater understanding of how management’s approach to risk and its key underwriting processes are put into practice today.” The average on the Street is $36.72.

“With stable unemployment, no signs of interest rate hikes that could derail current mortgage debt servicing levels, solid credit performance and several quarters of clear proof that HCG’s niche market of new Canadians, self-employed individuals and those with bruised credit supports a growth rate well above that of the broader mortgage market, the macro is certainly brighter,” she said. “At the company-specific level, we think that Monday’s investor day provided tangible examples that Home is focused on a sustainable risk culture, on leveraging technology to even better capitalize on the growth opportunities in its key markets and on providing good returns to its shareholders. In this context, we have revised our estimates to reflect a modest utilization of an NCIB through 2020 of 1.5 million shares (3 per cent of s/o after SIB in 1Q20). This leaves Home with a still-conservative CET1 ratio of 16.7 per cent in 4Q20 in our model."


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Displaying “growth, resilience and value,” Colliers International Group Inc. (CIGI-Q, CIGI-T) now presents an “attractive” investment opportunity, said CIBC World Markets analyst Sumayya Syed, pointing to its “asset-light, strong free cash flow generation model and high alignment with 40-per-cent insider ownership.”

In a research report released late Wednesday, she initiated coverage of the Toronto-based global commercial real estate services company with an “outperformer” rating.

“Colliers has a strong growth track record in the commercial real estate services industry and a long runway to scale its operations,” she said. “We believe institutional demand for real estate and the increasing propensity of corporations to outsource real estate services are key secular shifts underpinning long-term growth.”

In justifying her rating, Ms. Syed pointed to a trio of factors:

  • “Solid” organic growth through acquisitions, noting: “Colliers has consistently delivered strong organic growth, averaging 9 per cent in the last five years. At the same time, the company has an active history of consolidation, and acquisitions have contributed to two-thirds of revenue growth. Acquisitions are organically funded from free cash flow (FCF) and ROIC [return on invested capital] has averaged 15 per cent. The company has grown revenue at a CAGR [compound annual growth rate] of 17 per cent and adjusted EBITDA at a CAGR of 24 per cent over the last five years. Prudent capital allocation and the consolidation opportunity in a highly fragmented $240 billion market suggest significant M&A potential for Colliers. We expect mid-single-digit organic growth, and forecast modest 3-per-cent growth from acquisitions in 2020 vs. the 9-per-cent historical average, leaving plenty of room for upside if the company maintains its typical acquisition activity level.”
  • A diversified revenue mix that provides resilience.
  • An “attractive” relative valuation.

Ms. Syed set a target of US$80 for Colliers shares. The current average target on the Street is US$80.80.

“Despite sharing the same underlying fundamentals as real estate landlords, and having a majority of cash flows that are contractual and recurring (akin to rent payments), Colliers is trading at a 10-times EBITDA multiple discount to the S&P Real Estate Index vs. 8.5-9 times historically,” she said. "Similarly, Colliers and peers have traded at a premium to the S&P500, but are trading at a 2-times EBITDA multiple discount, even as the businesses have become more resilient. Taking an alternative approach to a sum-of-the-parts valuation and utilizing EBITDA multiples from industries with similar characteristics (i.e., residential property management and insurers), we arrive at a 12.8-times EBITDA multiple vs. the current 9.3-times EBITDA valuation, highlighting the large discount for a diversified, steady growth business with high recurring revenues.”

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After resetting his ratings for TSX-listed oilfield service companies on Thursday based on improved technicals across the sector, Scotia Capital Vladislav Vlad upgraded a trio of stocks.

He moved Precision Drilling Corp. (PD-T) to “sector perform” from “sector underperform” with a $1.50 target, which falls below the $2.73 consensus.

The analyst also upgraded Ensign Energy Services Inc. (ESI-T) to “sector perform” from “sector underperform" with a $2.50 target. The average is $4.23.

Mr. Vlad said those moves are more “tactful in nature” as the rig count will continue to fall in the “broadest sense from overall rising efficiencies.”

At the same time, the analyst said he’s more “neutral” on Shawcor Ltd. (SCL-T) over the long term given its strong balance sheet and diversified offerings.

He raised its stock to “sector perform” from “sector underperform” with an unchanged $14 target. The average on the Street is $16.22.


A day after the release of its third-quarter financial results, a pair of equity analysts adjusted their ratings for Leucrotta Exploration Inc. (LXE-X) in opposite directions on Thursday.

RBC Dominion Securities analyst Luke Davis moved the Calgary-based energy company to “sector perform” from “outperform” with a 70-cent target, down from 80 cents. The average on the Street is $1.05.

Conversely, GMP analyst Robert Fitzmartyn moved the stock to “buy” from “hold” with a 75-cent target, up from 70 cents.

Meanwwhile, CIBC World Markets analyst Jamie Kubik maintained a “neutral” rating with a 65-cent target, down from 80 cents.

Mr. Kubik said: “Given Leucrotta’s quarter was effectively in line with expectations, and the update was relatively light in terms of incremental data points, we do not see this print as being thesis changing. We continue to like the unique Montney oil and liquids exposure that LXE offers for an entity of its size, along with a sizeable runway of future inventory. And, in the right environment, the business remains a likely acquisition candidate for a larger entity. The potential for LXE to be a takeout candidate, however, has always been a core part of the story, and our thesis on the stock is that outside of this event occurring the shares remain expensive. Although the premium on the shares (trading at 6.9 times 2020 estimated EV/DACF [enterprise value to debt-adjusted cash flow] on strip versus peers at 3.8 times) has decreased to a more reasonable level versus peers, aside from an M&A event occurring, we continue to see better upside in some of LXE’s peers.”


Though he thinks Flower One Holdings Inc. (FONE-CN) is “well positioned for continued growth," Industrial Alliance Securities analyst Nav Malik lowered his target price for shares of the Toronto-based cannabis company to reflect a “shift” in valuations for the troubled sector.

On Tuesday after the bell, Flower One reported third-quarter results that Mr. Malik feels exhibited “strong” early revenue growth. It posted revenue for the quarter of $2.5-million, up from $0.6-million during the same period a year ago.

“Sales from the NLV [North Las Vegas] Greenhouse began in August 2019 and represented 72 per cent of Q3/19 revenue,” he said. "Flower One’s revenue has been rising at a compound weekly growth rate of 15 per cent since sales began at the flagship greenhouse. Gross profit totalled $0.6-million in Q3/19 (25-per-cent gross margin), compared with a loss of $0.2-million in Q2/19.

“[The company is] positioned for continued growth in Nevada now that the NLV Greenhouse is fully canopied, and the production facility has been competed. The NLV Greenhouse has completed 15 harvests to date and is performing well, achieving industry-leading yields of 192 grams per square foot with low cash costs of $0.44 per harvested gram. In addition, during Q3/19, Flower One completed and commissioned its 55,000 square foot production and processing facility.”

Though he expects sales to ramp up through the fourth quarter and into 2020 with the introduction of additional brands in its key Nevada market, Mr. Malik reduced his target for its stock to $3.50 from $4.50, keeping a “buy” rating. The average on the Street is $3.63.

“Flower One remains well positioned to become the dominant supplier in Nevada as it continues to execute on its brand partnership and wholesale distribution strategy,” he said.

Elsewhere, Accountability Research analyst Greg McLeish lowered his target to $4 from $6.50 with a “buy” rating (unchanged).

Mr. McLeish said: “Flower One has launched sales of five brand partners through its flagship greenhouse in Nevada and it is on track to launch two additional brands in late 2019. Together these brand launches, along with a number of additional launches in early 2020, will serve as a significant growth catalyst for the company.”


In the wake of weaker-than-anticipated third-quarter results, Canaccord Genuity analyst Matt Bottomley made substantial reductions to his financial expectations for Vireo Health International Inc. (VREO-CN), a Vancouver-based medical marijuana company

“Vireo reported Q3/19 financial results that were below our expectations on a rather muted top-line as the company continues to rein in capex and retail openings in order to maintain financial flexibility, as access to capital remains tight sector-wide,” he said.

Believing its balance sheet is “likely in need of a tune-up,” he dropped earnings per share projections for 2020 and 2021 to 3 cents and 13 cents, respectively, from 18 cents and 36 cents.

His target for Vireo shares dipped to $5. matching the current consensus, from $9 with a “speculative buy” rating.

“With the pace of expansion slowing and the company seemingly standing pat on new store opening over the next few quarters, we have made substantial downward revisions to our near-term estimates to include contributions only from its existing asset base," said Mr. Bottomley. "We have also increased our discount rates by 200 basis points to account for additional risk surrounding Vireo’s ability to secure longer-term market share.”


In other analyst actions:

* TD Securities analyst Paul Bilenki reinstated coverage of Transcontinental Inc. (TCL-A-T) with a “buy” rating and $23 target. The average on the Street is $20.81.

* Accountability Research analyst Harshit Gupta raised Hydro One Ltd. (H-T) to “hold” from “sell” with a $23 target, which falls short of the $24.43 consensus.

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