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

Canaccord Genuity analyst Jed Dorsheimer predicts 2020 will be an electric year as the EV revolution gathers speed.”

“We believe the trend towards electrification will only accelerate in 2020,” he said in a research note released Thursday. "We expect to get a glimpse of this next week when Tesla reports its delivery numbers for Q4, which we anticipate will be above company guidance of 360,000 units for 2019, in comparison to our 368,965 expectation.

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“While bears have feared demand issues as a function of tax credit expiration for Tesla, we suspect a solid Q4 combined with the robust Q3 should put these fears to rest and put to rest this issue as the credit expires. To this end we note the outpaced sales of model 3 EVs compared to luxury compact sales with a greater than 3 to 1 ratio.”

As Tesla Inc. (TSLA-Q) sees the production of its Model 3 vehicles grow in China now that local subsidies have been formalized, Mr. Dorsheimer thinks the company will need to shift more of its focus beyond the United States.

“With deliveries beginning in China at the end of December, this market will be an important driver for the company in 2020,” he said.

“As Tesla has secured funding for China’s Gigafactory and demonstrated increased profitability, we believe investor focus in 2020 will be squarely on the greater EV opportunity.”

Also expecting the introduction of its Model Y vehicle and refreshes to both the Model S and Model X in 2020, Mr. Dorsheimer said he sees “strong” momentum for Tesla heading into the new year.

Accordingly, after introducing a 2021 earnings per share projection of US$19.08, he hiked his target price to US$515 from US$375.

The average on the Street is currently US$301.83, according to Bloomberg data.

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Believing “the weak will likely get weaker” among global automakers in 2020, Evercore ISI said it prefers a more defensive, quality-focused automotive portfolio, expecting original-equipment makers and suppliers to dominate and shares of “prepared” companies outperforming peers that “muddle through.”

With that view, the firm lowered both Ford Motor Co. (F-N) and Renault SA to “underperform” from “in-line,” seeing both them as the industry’s biggest “muddling through” candidates.

Analyst Chris McNally has a US$8 target for Ford shares. The average is US$10.26.


NFI Group Inc. (NFI-T) is a potential private equity target if its share price continues to “languish,” said CIBC World Markets analyst Kevin Chiang, pointing to its market position, “strong” free cash flow generation and “positive trends withing the public transportation space.”

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“As we look out into 2020 we recognize that NFI, which we rate Outperformer, has significantly underperformed expectations,” said Mr. Chiang in a research note. "NFI’s share price has been under pressure over the last couple of years given concerns over a slowing economy, risk of increasing competition, impact of electric buses, and execution issues, especially around the ramp-up of its KMG facility. Since the start of 2018, NFI’s share price is down 50 per cent and its EV-toforward-EBITDA multiple has compressed by over two points.

“That said, we continue to have a long-term favourable outlook for the company as we continue to see it as well-positioned to benefit from the megatrend related to urbanization and the need for more public transportation. As a leader in the North American bus industry, and with its recent acquisition of ADL providing an international growth opportunity, NFI is positioned to benefit from these structural tailwinds.”

Emphasizing its long-term earnings growth potential and private equity’s history of investing in the busing industry, Mr. Chiang thinks the market may be “underappreciating” NFI’s potential.

He maintained an “outperformer" rating and $36.50 price target, which exceeds the current consensus of $33.44.

“In our LBO analysis we assume 1) NFI can hit a large percentage of its longterm earnings growth potential, 2) Demand trends in the North American transit and coach markets reflect replacement demand, 3) NFI maintains its market share in North American heavy-duty transit and coach markets, and 4) a two-year recession in 2020/21, which we have not included in our published estimates,” he said. “Using an 8.5-times exit multiple, 2026 as the exit year (seven-year hold period), exit EBITDA of $433-million and an exit leverage ratio of 2.7 times, our LBO analysis produces an IRR of 20 per cent assuming a takeout value of $40 per share.”


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Though he thinks United Parcel Service Inc. (UPS-N) is executing its e-commerce strategy “relatively well,” Citi analyst Christian Wetherbee lowered his fourth-quarter 2019 and full-year 2020 estimates for the company, noting “the undertaking is massive and expectations are likely too high.”

“We believe it’s difficult to assume a significant step up in Domestic incremental margins in 4Q from 3Q (as consensus does), as the peak season was challenging from a timing and weather standpoint,” he said. “We don’t think UPS’s network cracked under the pressure, but steadily lower on time performance suggests there were likely incremental costs incurred during the holiday rush.”

“We have tracked UPS’s on-time performance through the holiday season using our proprietary Parcel Tracker and while the results are not stellar, it appears that the network did not fail. Nevertheless, the strain of the shorter calendar and challenging weather in multiple regions across the U.S. is likely to have added costs.”

Based on that view, he trimmed his fourth-quarter earnings per share estimate to US$2.04 from US$2.07, which falls 7 US cents below the current consensus on the Street.

“Our biggest concern with the consensus outlook is the 30-per-cent implied Domestic incremental margins,” said Mr. Wetherbee. “That represents a step up from 3Q, which benefitted from an extra operating day year-over-year, and seems unreasonable in the context of a challenging peak. Our new estimate still implies 15-per-cent incrementals, which is quite good in the context of the peak season, therefore holds some downside risk.”

Pointing to potential pension-related headwinds, the analyst cut his 2020 EPS projection to US$7.95 from US$8.10.

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Despite those changes, he maintained a “neutral” rating and US$125 target for UPS shares. The average is currently US$124.88.

“We remain tactically cautious on the stock into 4Q results, but see growth in 2020 and believe as shares retreat from November highs there is potential value building, particularly around $110,” said Mr. Wetherbee.


Seeing its stock as fairly valued" and believing the launch of its nonalcoholic steatohepatitis (NASH) drug to treat liver disease as “appropriately priced in,” Citi analyst Joel Beatty lowered New York-based Intercept Pharmaceuticals Inc. (ICPT-Q) to “neutral” from “buy” with a target of US$140, up from US$85. The average on the Street is US$157.

Our TP increase ... reflects added conviction in the NASH opportunity and the discontinuation of Seladelpar in PBC (from competitor CBAY) which we had viewed as a real threat to the PBC market share,” said Mr. Beatty. “NASH approval (Adcom: Apr. 22, 2020; 90-per-cent probability) is likely ICPT’s next major catalyst. Upside however could be modest (10-15-per-cent upside | 80-per-cent downside if rejected) as approval seems likely and many investors owning into the approval may not want to own into a relatively uncertain NASH launch.”


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Seeing a difficult year ahead for Upwork Inc. (UPWK-Q) after its third-quarter results highlighted a “weakened" growth outlook, Citi analyst Hao Yan downgraded the California-based global freelancing platform to “neutral” from “buy."

“Overall, we believe FY20 will be a challenging year for the stock as the company navigates through various business transition challenges, while the need to restore investor confidence in its growth potential is never more urgent,” he said. "We are less constructive about the 12-month outlook of the stock and believe the stock is fairly valued at the current price due to limited FY20/21 revenue upside potential.

“As we look into 2020 and revisit our forward estimates and valuation analysis, we are downgrading UPWK to Neutral/High Risk because of (1) sector re-rating; (2) decelerating GSV [gross service volume] growth; (3) business transition challenge; (4) recent CEO departure; and (5) regulation overhang.”

Mr. Yan’s target slid to US$12 from US$23. The average on the Street is US$18.33.


In a research note on the outlook for U.S. banks in the 2020, Baird analyst David George said it’s “getting weird out there."

"With sentiment more bullish and valuations higher despite the later-cycle risks, we believe investors should avoid chasing stocks,” said Mr. George, who suggests trimming exposure "to the extent the market melt-up continues.”

He cut Wells Fargo & Co. (WFC-N) to “underperform” from “neutral,” citing that “more cautious industry view.” His target remains US$50, which falls short of the US$51.42 consensus.

Mr. George said he likes new chief executive officer Charlie Scharf, but his team “may initially lower expectations and provide an extended timetable for improving operating leverage.”


In other analyst actions:

Clarus Securities analyst Noel Atkinson raised HLS Therapeutics Inc. (HLS-T) to “buy” from “speculative buy” with a $29 target, rising from $22.50. The average on the Street is $28.63.

With files from Bloomberg News

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