Inside the Market’s roundup of some of today’s key analyst actions
Seeing a “mostly stable to positive” outlook, Industrial Alliance Securities analyst Neil Linsdell raised his rating for The North West Company Inc. (NWC-T) following Wednesday’s release of its third-quarter results.
The Winnipeg-based retailer reported revenue and adjusted earnings per share of $519.5-million and 49 cents, respectively. Both fell short of Mr. Linsdell’s expectations ($524.6-million and 59 cents).
“Near-term sentiment is stable to positive in most of the company’s markets, with government investments in northern Canada, continuing recovery in Alaska, and a mixed environment in the Caribbean with post-hurricane reconstruction offsetting tourism downturns," the analyst said. “However, Western Canada remains challenging for the Giant Tiger business, with discount pricing pressures, but is expected to perform better against weaker year-over-year comps as well as ongoing initiatives.”
Though he emphasized that higher expenses continue to weigh on results, Mr. Linsdell deemed the company’s profitability “generally in line” with his expectations, though he said he remains “cautious" with his margin forecasts.
“Going forward, we continue to see efforts to improve the longer-term health and profitability of the Company and Giant Tiger stores specifically," he said. "With a 12-month return of 13.2 per cent to our new target price (including dividends), and a dividend yield towards the high end of our range, we are returning to a Buy rating.”
His target for the stock rose to $30 from $29. The average on the Street is $30.60, according to Bloomberg data.
“The dividend remains a key investor focus,” he said
“We go back to look at the LTM [last 12-month] dividend to see that the yield has varied mainly between 3.8-4.9 per cent (with a 5-year median of 4.28 per cent), although as the company grows, diversifies, and becomes more stable, we believe that the range will slowly shift downwards, but with the current dividend yield of 4.8 per cent, towards the high end of our range, we would expect some support for the share price; further supporting our upgrade.”
=====
Citing its recent share price “strength,” Industrial Alliance Securities analyst Ryan Walker lowered Wesdome Gold Mines Ltd. (WDO-T) to “hold” from “buy" on Thursday.
“We await further drill results (particularly downplunge of Kiena Deep A Zone), delivery of an updated Kiena resource estimate and PEA (expected in early 2020), and 2020 production guidance from the Eagle River Mine Complex in Wawa, Ont., before further adjusting our valuation,” he said.
His target for Wesdome shares remains $8.75. The average is $9.19.
=====
Seeing “growth inflection ahead” and predicting “a period of increased growth” for its three business units, CIBC World Markets analyst Scott Fromson raised AirBoss of America Corp. (BOS-T) to “outperformer” from “neutral” following recent marketing meetings with its executive team.
“Growth drivers are several,” he said. “First, we see continuation of strong performance at BOS’ burgeoning Defense business, driven by a military spending tailwind and product development. Second, we see the pending AirBoss Defense Group merger transaction as accelerating sales through the creation of a broader and deeper distribution network; this could lead to large contract wins. Third, we see a $10 million-plus capex program at Rubber Solutions translating into EBITDA growth through higher production throughput and sales of higher-margin products. Finally, we see upside from a turnaround at the Anti-vibration business, driven by an aggressive cost-reduction program, investments in manufacturing efficiency and diversification into higher-margin nonautomotive applications.”
He raised his target to $12 from $11, which represents an approximately a 50-per-cent return from the current price. Consensus is currently $11.70.
"In addition, we see up to $4 of share value upside from potential contract wins and modest multiple expansion should BOS produce more consistent results,” said Mr. Fromson.
=====
Though he admits Points International Ltd. (PCOM-Q, PTS-T) “is not the easiest story to understand at first (or second) glance,” Acumen Capital analyst Jim Byrne initiated coverage of the Toronto-based company with a “buy” rating, touting its “history of strong financial performance” and discounted valuation.
“At its core, PTS, using their proprietary LCP [Loyalty Commerce Platform], increases revenue and profitability for their loyalty program partners,” he said. “They do not run the loyalty programs, PTS improves revenues, cost efficiencies, and member engagement for their loyalty partners. PTS generates revenue from transactions, and the buying and selling of points/miles. Their marketing capabilities, using Artificial Intelligence (AI) and machine learning, increase the number of transactions and improves revenue for their partners and themselves.”
Though he pointed out the “vagaries” of its revenue stream, Mr. Byrne said he’s anticipating “strong growth” to the company’s top line in 2020, projecting it exceed $400-million.
“Points has a strong track record in expanding revenues and margins with CAGRs [compound annual growth rates] from 2013-2018 for revenue, gross profit, adjusted EBITDA, and net income of 11 per cent, 10 per cent, 16 per cent, and 17 per cent, respectively. The company has an average ROIC [return on invested capital] of 12 per cent during the same period. This growth has come without any debt and all the while returning cash to shareholders through share buybacks. Over the past five years, Points has repurchased more than 2.4 million shares for roughly US$26.6-million.”
Mr. Byrne set a target of US$19 per share, which falls 50 US cents below the consensus.
“We believe the shares are attractively valued at current levels,” he said. “If we calculate the EV by backing out the company’s payables to loyalty partners, which is the most conservative calculation, the shares trade at 7.0 times 2020 EV/EBITDA. With an estimated growth of 22 per centin 2020 EBITDA over 2019 levels, along with significant free cash flow, we see room for multiple expansion over the near and longer term as the company executes on its growth strategy.”
=====
Lululemon athletica inc. (LULU-Q) enjoyed “another great quarter" despite a “high” bar," said Citi analyst Paul Lejuez.
“LULU had another standout quarter in the midst of a choppy retail environment with 3Q comps up 17 per cent, well ahead of [the] consensus estimate of 14 per cent,” he said. “But shares are trading down slightly after hours as the 3Q comp bar was likely a bit higher (18-20 per cent), indicating how high expectations were going into the report. And management guided 4Q comps to low double digits, which is slightly lower than how they guided 3Q (up low-teens) and will likely lead to some concerns about slowing momentum. Stepping back, LULU had another outstanding qtr, there is nothing wrong with the business, but as we pointed out in our Oct. 28 downgrade note, the bar is very high, making the risk reward more balanced.”
After the bell on Wednesday, the Vancouver-based apparel maker reported earnings per share of 96 US cents, exceeding the projections of Mr. Lejuez and the Street (92 US cents and 93 US cents, respectively).
With the results, the company raised its full-year 2019 EPS guidance to US$4.75-$4.78 from US$4.63-US$4.70. The average on the Street is US$4.75.
In response, Mr. Lejuez raised his 2019 and 2020 estimates to US$4.79 and US$5.80, respectively, from US$4.70 and US$5.74.
Keeping a “neutral” rating, his target jumped to US$230 from US$205. The average is US$239.93.
" Comp momentum has been among the best in retail and margins have expanded almost 400 basis points since 2015," said Mr. Lejuez. "Product innovation continues to drive strong results in seemingly developed categories such as women’s pants, the men’s business is a big opportunity, and the customer has given LULU license to broaden into new categories. However, we believe the stock is priced to perfection and with the brand expanding into new categories, there is some risk to margins near-term.
=====
After its inaugural Investor Day event on Wednesday, Raymond James analyst Chris Cox thinks “the future is bright” for Keyera Corp. (KEY-T).
“With the stock trading at the lowest multiple on 2020 estimated EBITDA across our coverage universe (1.5 times lower than peers), we believe the risk-reward of the name is particularly compelling and view Keyera as the most attractive opportunity in the Canadian Midstream sector at this juncture,” he said.
Mr. Cox said the event “served to reinforce our confidence in an industry-leading growth profile, the funding strategy to support this growth and put a much greater spotlight on some of the longer-term opportunities that could extend an already robust growth profile. Overlaying all of this was a clear articulation of where competitive advantages exist across the asset base and how those will be used to deliver above-average risk-adjusted returns.”
Though he lowered his earnings and funds from operations projections slightly for 2019 though 2021, Mr. Cox maintained an “outperform” rating and $42 target for Keyera shares. The average on the Street is $40.
Elsewhere, Industrial Alliance Securities’ Elias Foscolos kept a “strong buy” rating and $41 target.
Mr. Foscolos said: “KEY’s inaugural Investor Day in Toronto was well received. Senior management walked through key takeaways for every segment further validating our positive outlook on the stock. By enhancing customer netbacks and increasing the utilization of its facilities, KEY seeks to increase its competitiveness in the GP segment and enhance and extend the value chain of its LI segment. With several unsanctioned capital investment opportunities outlined, KEY’s long-term growth profile is extremely attractive as we will also see quality cash flow contributions from $2.9-billion in projects coming on-stream.”
=====
Pointing to a more "confident tone” following a recent meeting with the company’s management, J.P. Morgan analyst John Ivankoe turned bullish on Starbucks Corp. (SBUX-Q), moving the stock to "overweight from “neutral.”
“We sensed a high degree of confidence that the ‘growth at scale’ agenda is working in the near and medium term, meeting if not exceeding set sales and margin objectives,” he said. “No formal update to model, but we believe U.S. comps are 5 per cent or more and that China results are at least within 1-3-per-cent expectations.”
Mr. Ivankoe looked positively at the company’s efforts to improve efficiency through software, saying the use of technology in an effort to improve all aspects of store operations is "probably the most advanced of all brands we cover.”
His target rose to US$94 from US$90. Consensus is US$93.67.
=====
Teranga Gold Corp.'s (TGZ-T) US$430-million acquisition of the Massawa gold project in Senegal from Barrick Gold Corp. (ABX-T) is “game changing,” said RBC Dominion Securities analyst Wayne Lam.
He believes the acquisition, announced Monday provides a “significant” upgrade in reserve and production for the company and leads to a “much stronger” foundation for its Sabodala complex.
“We believe the acquisition of Massawa is transformational for Teranga in doubling the long-term reserve base at higher grades while extending the mine life, translating into a significant uplift in production and improvement in costs by 2021,” said Mr. Lam.
With an “outperform” rating, he increased his target to $8.50 from $8. The current average is $9.88.
=====
In other analyst actions:
J.P. Morgan analyst Christopher Schott raised the recommendation on Bausch Health Companies Inc. (BHC-N, BHC-T) to “overweight” from “neutral” with a US$38 target, rising from US$32. The average on the Street is US$31.76.
Paradigm Capital analyst David Davidson upgraded Imperial Metals Corp. (III-T) to “buy” from “hold” and increased his target to $4.10 from $3.15. The average is $2.90.
With a file from Bloomberg News
David Leeder