Thursday’s analyst upgrades and downgrades

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

Metro Inc.’s (MRU-T) “solid” second-quarter results reflect its “continuing solid execution” and support its “premium valuation in the current environment,” according to Desjardins Securities analyst Chris Li.

On Wednesday, shares of the grocery retailer rose 0.6 per cent after it reported adjusted earnings per share of 96 cents, exceeding Mr. Li’s estimate by a penny and the Street’s expectation by 3 cents. He attributed the beat to stronger-than-expected gross margin (20.1 per cent), which came in stable versus the same period last year and above his projection of 0.3-per-cent decline.

Metro profit jumps 10.4% as inflation continues to drive food sales up

“MRU reported another solid quarter with adjusted EPS growth of 14 per cent, driven by 7-per-cent sales growth (9-per-cent food inflation, largely stable tonnage, positive traffic in both conventional and discount formats, low-double-digit percentage frontstore sales growth due to OTC products/beauty and solid Rx),” said Mr. Li. “Management expects moderation in inflation as both the number and size of price increase requests from suppliers in recent months are down vs last year.

“The surprise in the quarter was that gross margin was stable vs our forecast of a 30 basis points decline (same as 1Q FY23). Both food and pharma margins were stable. Food margins benefited from strong sales growth and labour productivity gains from supply chain modernization. This offset investments in pricing as promo penetration remains high (slightly above pre-pandemic levels). Productivity and capacity improvements for the fully automated frozen DC in Ontario (opened in early 2022) are exceeding management’s expectations. 95 per cent of frozen products in Ontario are now shipped through the DC vs 70 per cent previously. This results in improved on-shelf availability and more efficient operations. Management expects more benefits as volumes ramp. There will be additional productivity benefits from the opening of the new fresh and frozen DC in Québec later this year. In 1H24, phase 2 (dairy and meat) of the fresh DC in Ontario will become operational. Phase 1 (produce) of the partially automated fresh DC in Ontario was operational in 2021. Investments in DCs will keep capex high at $800-million in FY23 and FY24 before normalizing at $500-million.”

While Mr. Li raised his full-year 2023 and 2024 EPS estimates to $4.26 and $4.58, respectively, from $4.22 and $4.53 after modest revenue increases, he did warn that the second quarter was “likely the peak quarter for earnings growth.” He expects growth to moderate as inflation normalizes in the second half of the year.

“Combined with an above-average valuation (approximately 17 times forward P/E vs 16 times average), we see limited room for further multiple expansion, with share price appreciation largely tracking EPS growth in the high-single-digit percentage range,” he said.

That led him to reaffirm his 12-month target for Metro shares of $77 with a “hold” rating. The average target on the Street is $78.56.

“We believe MRU is well-positioned to achieve solid 10-per-cent EPS growth (same-week) this year despite moderating inflation, but its above-average valuation (17 times forward P/E vs 16 times average) and sector rotation keep us on the sidelines,” said Mr. Li.

Elsewhere, analysts making target changes include:

* BMO Nesbitt Burns’ Peter Sklar to $82 from $78 with a “market perform” rating.

“Metro indicated market share gains continue with grocery tonnage flat to slightly positive given the shift to discount and increased private label penetration,” said Mr. Sklar. “Metro also reported a flat gross margin, with food gross margin investment offset by productivity gains. These productivity gains are a timely offset, as we expect grocery promotional intensity to remain heightened, loyalty marketing costs to ramp up, and the mix of higher-margin front-store sales to decline. Metro should continue to generate solid bottom-line growth with strong execution, above-average operating leverage, and a meaningful share buyback program.”

* CIBC World Markets’ Mark Petrie to $77 from $76 with a “neutral” rating.

“Metro’s strong Q2 results highlight its balanced assets, merchandising skills and operational discipline,” said Mr. Petrie. “These were most observable in the flat food GM% result, driven by DC efficiencies taking hold and after over a year of margin pressure stemming from elevated inflation. This GM% stability arrived a couple of quarters faster than we had anticipated and is the key lever pushing our estimates higher by 2 per cent.”

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Mining analysts at Stifel warn first-quarter production results from gold miners are likely to display the “lightest” production of the year after a “strong finish” to last year, reflecting “mining sequencing, planned mill maintenance, and in some case, seasonality.”

“Given that inflation is still here, we expect cash costs to remain elevated in Q1, further compounded by lower expected quarterly production,” they added. “However, increased gold prices are signaling better margins.”

“Gold averaged $1,898 per ounce in Q1, the highest average price of the last four quarters (and up 9 per cent quarter-over-quarter). We saw the yellow metal take on its safe haven character towards the end of the quarter as the markets processed the fallout from the Silicon Valley Bank and Signature Bank in the U.S.. Over in Europe, it was Credit Suisse, which together put front and center questions on the global banking system. Gold climbed its way up well above $2,000 per ounce and in March, physically backed gold ETFs also saw net inflows (a change in trend) plus gold comex net long positions picked up. Looking ahead, we see mixed signals as the market is pricing in additional Fed rate hikes through 2023 (the probability of 25bp rate hike in May is at more than 80 per cent), while economists at major banks continue to forecast a possible U.S. recession in the latter half of the year. China’s economic rebound post-covid delivered 4.5-per-cent GDP growth year-over-year in 1Q, a positive surprise that boosted the industrial demand for silver. With growing supply fears, the metal rose more than 20 per cent over the quarter.”

In a research report released Thursday titled Spring brings in a new season for gold and gold equities, the analysts said gold equities “played catch up” in March, underperforming “the underlying metal, and overall now showing some nice share returns year-to-date.”

“Gold equities have rallied and valuation multiples have moved up - particularly for the senior / intermediate producers and the royalty/ streamingcos,” they said. “Gold equities outperforming the underlying metal, and overall now showing some nice share year-to-date returns. YTD, GDX up almost 19 per cent; whereas gold is up nearly 10 per cent. Individual stocks that have higher torque to metal price increases have seen strong moves - we highlight our recent comment on NAV sensitivities. Based on five-year regression (R2 = 0.77), the GDX is trading at 7.8-per-cent discount to the best-fit value implied at spot or pricing in a slightly lower gold price of $1,900 per ounce.”

Based on valuation concerns, analyst Ingrid Rico downgraded Eldorado Gold Corp. (ELD-T) to “hold” from “buy” with a $16.50 target, up from $16. The average on the Street is $11.54.

Other target adjustments in their coverage universe include:

• Agnico Eagle Mines Ltd. (AEM-T, “buy”) to $91 from $89. The average target on the Street is $80.95.
• Barrick Gold Corp. (ABX-T, “buy”) to $30 from $29. Average: $22.77.
• Iamgold Corp. (IMG-T, “buy”) to $3.50 from $3.25. Average: $3.98.
• Dundee Precious Metals Inc. (DPM-T, “buy”) to $12.25 from $11.50. Average: $12.39.
• Franco-Nevada Corp. (FNV-T, “hold”) to $222 from $204. Average: $215.44.
• Osisko Gold Royalties Ltd. (OR-T, “buy”) to $27 from $21. Average: $24.38.
• Wheaton Precious Metals Corp. (WPM-T, “buy”) to $75 from $66. Average: $73.55.

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Equity analysts at Eight Capital see the price of gold “exhibiting increased sensitivity to both geopolitical and systematic risks, including a higher gold-implied inflation rate.”

In a research report released Thursday, the Toronto-based firm hiked its 2023 gold price forecast to US$1,900 per ounce from US$1,800 previously and its 2024 projection to US$2,000 from US$1,900. It attributes the change to a higher risk premium in its model “driven by increased geopolitical uncertainty and a greater risk of systematic factors.”

With that change, analysts Ralph Profiti, Puneet Singh and Felix Shafigullin raised their target prices for shares of senior and intermediate gold equities by an average of 6 per cent and streaming and royalty equities by 12 per cent.

“Senior gold equities currently trade at a 7-per-cent premium to the intermediates vs. the historical average of 20 per cent, and at a 35-per-cent discount to streaming & royalty equities vs. the historical average discount of 24 per cent, representing compelling relative value,” the analyst said.

Their target changes are:

• Agnico Eagle Mines Ltd. (AEM-T, “buy”) to $95 from $90. The average target on the Street is $80.95.
• Barrick Gold Corp. (ABX-T, “buy”) to $34 from $33. Average: $22.77.
• B2Gold Corp. (BTO-T, “buy”) to $7.50 from $7. Average: $7.11.
• Capstone Copper Corp. (CS-T, “buy”) to $9 from $8.60. Average: $7.75.
• First Quantum Minerals Ltd. (FM-T, “buy”) to $38 from $34. Average: $32.02.
• Franco-Nevada Corp. (FNV-T, “buy”) to $250 from $235. Average: $215.44.
• Freeport-McMoRan Inc. (FCX-N, “buy”) to US$56 from US$50. Average: US$46.03.
• Hudbay Minerals Inc. (HBM-T, “buy”) to $11.50 from $11. Average: $9.61.
• Kinross Gold Corp. (K-T, “buy”) to $9.50 from $9. Average: $7.83.
• K92 Mining Inc. (KNT-T, “buy”) to $14 from $13. Average: $11.55.
• Lundin Mining Corp. (LUN-T, “neutral”) to $11.50 from $11. Average: $10.33.
• Newmont Corp. (NEM-N/NGT-T, “neutral”) to US$63 from US$60. Average: US$57.92.
• Osisko Gold Royalties Ltd. (OR-T, “buy”) to $30 from $24.50. Average: $24.38.
• Royal Gold Inc. (RGLD-Q, “neutral”) to US$152 from US$150. Average: US$145.38.
• Teck Resources Ltd. (TECK.B-T, “buy”) to $75 from $70. Average: $67.21.
• Wheaton Precious Metals Corp. (WPM-T, “buy”) to $80 from $75. Average: $73.55.

The analyst said: “TOP SECTOR PICKS: AbraSilver Resource, Agnico Eagle Mines, Aya Gold & Silver, Cameco Corp, Foran Mining, Franco Nevada, Freeport McMoRan, GoGold Resources, Hudbay Minerals, K92 Mining, Lion One Metals, New Pacific Metals, NexGen Energy, Osisko Development, Osisko Gold Royalties, Rupert Resources, Solaris Resources, Teck Resources, Wheaton Precious Metals.”

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Ahead of first-quarter earnings season, Paradigm Capital analyst Adam Gill thinks there’s more interest in Canadian junior oil producers than he’s “seen in a while.”

“Valuation is driving the renewed interest in the space,” he said. “Thus, there could be some room for these stocks to see a nice run, given there is limited credit in the space for US$80/Bbl WTI persisting. Based on the strip price forecast, we see the broader junior oil group trading at a 2.7 times 2024 estimated EV/DACF [enterprise value to debt-adjusted cash flow] yield with a 14-per-cent median FCF yield. That said, if we run US$80/Bbl flat in 2024, the valuation drops to 2.2 times with the FCF yield moving up to 17 per cent. That said, to get back to valuations on strip it would imply 25-per-cent share price upside for the group on average. If oil continues to hold and confidence in the price improves, this area could see a nice run-up.”

Mr. Gill said his focus will be on how gas producers adjust their development programs to recent price weakness, believing that will be “key to becoming more constructive on the price environment.”

“While it seems that gas prices have bottomed out, we still want to see more done on E&P capital reductions before becoming bullish on the space,” he added. “The storage overhang is substantial and there is demand risk given recession concerns. Also, valuations for the gas E&Ps are still elevated in our view, so we believe the market is looking through the current low prices.”

“The most consistent theme while marketing was if it was time to long gas names. That said, we are not quite there given: 1) There is a lot of excess storage today and even with solid summer demand it is hard to see us in a deficit into winter 2023/2024, and this becomes more challenging if we see some recession pressure on electrical generation and industrial demand. Thus, there is likely limited upward pressure to the 2024 strip; and 2) The gas names have been looking through much of the near-term weakness with a ramp-up in valuations and depression of FCF yields versus the oils which have been stable.”

Mr. Gill said there are two names in sector that are “solid investment opportunities” currently. They are:

* ARC Resources Ltd. (ARX-T) with a “buy” rating and $23 target. The average target is $22.44.

“With the B.C. government and Blueberry River First Nations reaching an agreement on the approach to land, water and resource stewardship, we are looking for larger development projects to start to move in the province,” he said. “That said, the market has been waiting for ARC to move forward with the first development phase at the liquids-rich Attachie Montney play, and we believe sanctioning the project will start driving some recognition of the potential. The project is expected to take $700-million to bring on-stream 40 MBoe/d of new volumes (25 MBbl/d of C5+/NGLs and 90 MMcf/d of gas). Based on current strip prices, we see this project reducing ARX’s EV/DACF valuation to 2.6 times in 2025 from 3.6 times in 2024. Thus, the share price would need to appreciate to $23.50 to return to a 3.6 times valuation, which would imply an annualized 19-per-cent return over the next two years from the current $16.61 level (before the 3.6-per-cent annual dividend yield).”

* Advantage Energy Ltd. (AAV-T) with a “buy” rating and $11.85 target. The average is $12.43.

“On valuation, Advantage is a standout trading at 3.0 times 2024 estimated EV/DACF with a 13-per-cent FCF yield versus the broader peer group (both covered and uncovered Canadian gas-focused E&Ps) at 4.5 times with a 10-per-cent median FCF yield,” he said. “This valuation is not adjusted for any value for Entropy, and while the Entropy story has slowed down a bit as the company continues to work on moving projects forward and trying to gain more opportunities in the U.S., we do not believe a zero value is the right call. With that, we believe if you are going to long gas, Advantage is a great way to gain torque to the commodity without paying up on valuation.”

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CIBC World Markets’ paper and forest products analyst Hamir Patel made a series of target price changes on Thursday ahead of earnings season in the sector.

“Heading into Q1 reporting, we are making further downward revisions to our wood products estimates given underwhelming commodity pricing year-to-date,” said Mr. Patel. “While we believe sell-side consensus estimates on the LumberCos are still overly optimistic for 2023/24 (we are approximately 40 per cent/15 per cent below the Street on IFP/CFP/WFG), we expect the market to look past weak H1/23 performance given still-strong balance sheets, signs of housing demand stabilizing (supported by builder incentives), and indications that upcoming supply reductions in BC will likely weigh on supply. While the sector is somewhat lacking in near-term catalysts, valuation looks quite attractive (mid-cycle EV/EBITDA multiples two to three turns lower than historical averages and 60%+ discounts to replacement) and there seems little risk that commodity prices can go much lower (SPF lumber already sitting $100/mfbm- $125/mfbm below breakeven costs for BC Interior producers while OSB prices are at or barely above breakeven across North America).”

His adjustments include:

• Canfor Pulp Products Inc. (CFX-T, “neutral”) to $3.50 from $4.25. The average is $4.50.
• Conifex Timber Inc. (CFF-T, “underperformer”) to $1.25 from $1.50. Average: $1.68.
• Doman Building Materials Group Ltd. (DBM-T, “neutral”) to $7 from $7.25. Average: $7.42.
• Interfor Corp. (IFP-T, “outperformer”) to $30 from $31. Average: $34.17.
• Mercer International Inc. (MERC-Q, “neutral”) to US$11 from US$12. Average: US$13.
• Transcontinental Inc. (TCL.A-T, “outperformer”) to $17 from $16. Average: $18.83.
• West Fraser Timber Co Ltd. (WFG-T, “outperformer”) to $126 from $129. Average: $104.63.

“Within the LumberCos, our pecking order is: 1) Canfor (cheapest valuation with greatest potential of being acquired); 2) West Fraser (low-cost producer with best track record); and 3) Interfor (pure-play producer, albeit with the least robust balance sheet of the three). We remain on the sidelines on smallercap lumber producers with operations focused in British Columbia (Western FP and Conifex),” the analyst concluded.

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Wedbush analyst Dan Ives remains “very bullish” on the Tesla Inc. (TSLA-Q), however he warns its “margin compression and price cut narrative must be carefully managed over the coming quarters as it now emerges as a clear overhang on the stock.”

He was one of several equity analysts on the Street to reduced their forecast and price targets for the electric vehicle manufacturer following the late Wednesday release of its quarterly results that exhibited weaker-than-anticipated margins. The Austin, Texas-based company reported total gross margin of 19.3 per cent, fell short of market expectation of 22.4 per cent.

“Lets call it like it is: Tesla delivered mixed results with solid demand metrics but the elephant in the room is softer margins that will weigh on shares this morning,” said Mr. Ives. “Auto GM ex credits came in at 19 per cent vs. the Street at 20.7 per cent and down massively from the year ago as Musk & Co. cut prices to further stimulate consumer demand in a shaky macro amidst rising EV competition globally in this EV arms race, With no rose colored glasses: margins are now a delicate issue that are keeping Tesla investors up at night.

“The near-term margin pain for long-term demand/volume gain is a strategy the Street is mostly on board with, however dipping below the magical 20-per-cent threshold is a concern. While the bearish 16 per cent-18 per cent GM number did not happen and Auto GM was better than worst case fears, Tesla is perfectly comfortable going below 20-per-cent with Street questions about the trajectory going forward. The FSD driving the margin story going forward is not a narrative many are huge fans of and we believe Tesla now walks a tight rope between margin pressure vs. driving stronger Model Y/3 demand globally. The 1.8 million delivery guidance remains hittable/beatable and Musk reiterated the annual goal on the conference call which is a clear positive in a shaky macro.”

Maintaining an “outperform” recommendation for Tesla shares, he cut his target to US$215 from US$225 to reflect “further near-term margin softness the next few quarters.” The average on the Street is US$191.64.

Other analysts making changes include:

* RBC’s Tom Narayan to US$212 from US$217 with an “outperform” rating.

“Near-term Tesla is willing to trade gross margin for higher volume,” he said. “Long-term we believe this is the right strategy and leverages their cost leadership position and preserves the potential lifetime value of new customers. However, this does not come without pain as we now believe margins will get worse before they get better. We continue to see TSLA as an OEM best positioned to control their BEV destiny.”

* Canaccord Genuity’s George Gianarikas to US$257 from US$275 with a “buy” rating.

“Weakening demand for autos is impacting Tesla. After several price reductions during (and after) 1Q23, Tesla management managed to deliver healthy unit deliveries but did not deliver its promised 20-per-cent auto gross margins (excluding leases and regulatory credits),” said Mr. Gianarikas. “Facing a volatile macroeconomic backdrop and weakening demand, Tesla continues to prioritize units over near-term profits. The company is driving its razor/razorblade strategy, intentionally seeding the market with forward upgradable, high-margin-potential vehicles. Of note, Tesla’s energy storage business showed accelerating growth this quarter, a positive indicator for companies like Fluence.”

* Citi’s Itay Michaeli to US$175 from US$192 with a “neutral” rating.

“The Q1 margin miss confirms that price cuts weren’t offset to the extent previously expected,” said Mr. Michaeli. “This, along with recent Q2 price cuts, could dampen near-term sentiment since margins will likely come to be viewed as more vulnerable with Tesla fully committed to 2023 volume targets amid a softer macro backdrop. We expect the stock to pull back. In our view, an entry point requires more conviction on NT demand, since some of the softness could be related to company specific factors/exposures. We lower estimates/target and remain Neutral. Interestingly, Tesla’s rationale for pursuing price cuts rested on lifetime vehicle revenue, a view that’s fully aligned with our own industry thesis around AVs being the biggest value unlock of this race. Still, for this to anchor the Tesla investment thesis, we’d need to see more evidence of FSD progress given Tesla’s unique approach vs. industry.”

* TD Cowen’s Jeffrey Osborne to US$150 from US$170 with a “market perform” rating.

* Mizuho’s Vijay Rakesh to US$230 from US$250 with a “buy” rating.

* JP Morgan’s Ryan Brinkman to US$115 from US$120 with an “underweight” rating.

* Wells Fargo’s Colin Langan to US$170 from US$190 with an “equal-weight” rating.

* BoA’s John Murphy to US$225 from US$220 with a “neutral” rating.

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In other analyst actions:

* In a first-quarter earnings preview for the energy sector, Barclays’ Anthony Linton upgraded Enerplus Corp. (ERF-T) to “overweight” from “equalweight” with a $30 target, up from $28. The average is $24.04.

Mr. Linton also made these target changes: Gibson Energy Inc. (GEI-T, “underweight”) to $24 from $25; Parex Resources Inc. (PXT-T, “overweight”) to $34 from $29; Pembina Pipeline Corp. (PPL-T, “equalweight”) to $49 from $52 and Tourmaline Oil Corp. (TOU-T, “overweight”) to $75 from $85. The averages are $25.21, $34.07, $52.07 and $82.71, respectively.

* Seeing it “building opportunity in a premier mining district,” Echelon Partners’ Gabriel Gonzalez initiated coverage of Vancouver-based Guanajuato Silver Company Ltd. (GSVR-X) with a “speculative buy” recommendation and 85-cent target. The average is $1.08.

“Guanajuato Silver was established with the goal of consolidating fragmented and overbuilt operations in Mexico’s eponymous premier historic mining district, and is rapidly turning into a 6.0Moz/yearsilver equivalent (“AgEq”) producer,” he said. “With an experienced team that includes many of the same people that built First Majestic Silver (FR-T), GSVR is executing on opportunities overlooked by past operators to expand the lives of the operations it has acquired and establish itself as the district’s leading producer.”

* Reviewing fourth-quarter 2022 earnings season for cannabis multi-state operators (MSOs), Eight Capital’s Ty Collin reduced his targets for CareRX Corp. (CRRX-T, “buy”) to $4.50 from $7 and Organigram Holdings Inc. (OGI-T, “neutral”) to $1 from $1.70. The averages on the Street are $5.03 and $1.65, respectively.

“We maintain our core views outlined at the start of 2023, namely that industry fundamentals will remain challenged this year due to oversupply, and that the most likely near-term sector catalyst involves the Biden administration’s review of how Cannabis is scheduled under the Controlled Substances Act (CSA),” said Mr. Collin. “We reiterate GTII (BUY; C$25) as our top MSO pick due to its standout balance sheet strength and cash flow generation, along with a diverse footprint that offers broad exposure to industry catalysts.”

* In first-quarter earnings previews, Raymond James’ Farooq Hamed raised his target for Agnico Eagle Mines Ltd. (AEM-N/AEM-T, “outperform”) to US$66 from US$65 and New Gold Inc. (NGD-N/NGD-T, “market perform”) to US$1.50 from US$1. He trimmed his target for First Quantum Minerals Ltd. (FM-T, “outperform”) to $34 from $35. The averages on the Street are US$64.63, US$1.27 and $32.02, respectively.

* In a report titled Staying Positive On A High-quality Business, CIBC World Markets raised his target for Thomson Reuters Corp. (TRI-N, TRI-T) shares to US$140 from US$126, keeping an “outperformer” rating. The average is US$124.76.

“TRI shares have had an excellent start to 2023, up 14 per cent vs. TSX returns of 6 per cent and the S&P 500 at 8 per cent,” he said..”We are increasing our price target .. as we increase our target multiple on the ‘Big 3′ segments to 22.5 times, a 1.5 tims premium to the current peer average given expectation of sector outperformance. While our price target reflects only an 8-per-cent return to target, we continue to recommend TRI as an Outperformer. With the state of the macro environment remaining uncertain, we view TRI as a resilient, highquality name that is well suited for an uncertain environment. We have confidence in 2023 earnings estimates given TRI’s strong recurring revenue base, sticky product, and end markets that are likely to see growth even in the event of broader economic contraction. Further, TRI is trading in line with its EV/EBITDA multiple prior to the announcement of the Change Program, while the Change Program has helped double organic growth from 3 per cent to 6 per cent and driven 600 bps of Big 3 EBITDA margin expansion post Refinitiv. Given the stability of the business and the proximity to historical valuation levels despite an improved operational profile, we do not see significant downside from the perspective of multiple contraction or negative earnings revisions.”

* CIBC’s Stephanie Price reduced her target for Altus Group Ltd. (AIF-T) to $62 from $68 with a “neutral” rating and increased her Constellation Software Inc. (CSU-T) target to $3,000 from $2,450 with an “outperformer” rating . The averages on the Street is $71.33 and $2,854.31, respectively.

* Scotia’s Mario Saric cut his Allied Properties REIT (AP.UN-T) target to $35 from $39.50 with a “sector outperform” rating. The average is $35.15.

* Canaccord Genuity’s Carey MacRury raised his Altius Minerals Corp. (ALS-T) target to $27 from $26.50, above the $25.56 average, with a “buy” rating.

* Bernstein’s Bob Brackett cut his target for Barrick Gold Corp. (ABX-T) by $1 to $26 with a “marketperform” rating. The average is $29.

* Ahead of the April 26 release of its first-quarter results, Canaccord Genuity’s Yuri Lynk increased his North American Construction Group Ltd. (NOA-T) target to $28 from $26 with a “buy” rating. The average is $26.80.

“Despite the 37-per-cent year-to-date run in the stock, we continue to like its risk/reward proposition,” he said. “NACG has delivered an adjusted EPS 5-year CAGR of 65 per cent, grown FCF at a 26-per-cent CAGR over the same period, and taken pre-tax ROIC from 7 per cent in 2017 to 17 per cent in 2022. The business has fundamentally changed from an oil sands capex-driven cyclical story to a diversified business with 50 per cent of EBIT generated outside the oil sands, which itself is now tied to long-term service contracts, providing good visibility and allowing for better fleet management. NACG’s unique in-house maintenance program has allowed it to remain highly competitive on pricing without sacrificing margin and represents a wide competitive moat. Lastly, the company affords increasing balance sheet optionality with leverage of just 1.4 times net-debt-to-EBITDA (2022).”

* Scotia’s Michael Doumet lowered his Stelco Holdings Inc. (STLC-T) target to $54 from $57 with a “sector perform” rating. The average is $53.82.

“We see value in STLC, but as a spot player, we believe moderating steel prices will weigh on sentiment and keep the shares range bound in the near term,” he said.

* Jefferies’ Christopher LaFemina raised his Teck Resources Ltd. (TECK.B-T) to $80 from $70 with a “buy” rating. The average is $67.21.