Thursday’s analyst upgrades and downgrades: Rating changes for RBC, National Bank

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

Desjardins Securities analyst Doug Young upgraded Royal Bank of Canada (RY-T,RY-N) to “buy” from “hold” after reviewing its latest earnings, which overall came in much stronger than Street expectations. He also raised his price target to $112 (Canadian) dollars from $98.

Royal Bank’s cash earnings per share came in at $2.23, well ahead of Mr. Young’s estimate of $1.83 and the consensus on the Street of $1.85. The bank’s capital markets, insurance, and Canadian Personal and Commercial banking accounted for the beat versus Mr. Young’s forecasts.

He outlined four reasons for the upgrade: A strong coverage ratio for the allowance for credit losses; industry leading common equity tier 1 ratio, which is an important indicator of a bank’s resilience; strong and stable Canadian Personal and Commercial banking franchises; and how it now derives a lower percentage of consolidated revenue from net interest income.

Elsewhere, Credit Suisse raised its target price on Royal bank to $104 (Canadian) from $103. BMO raised its price target to $97 from $93. And Canaccord Genuity raised its target to $104.50 from $95.50.

The median price target for Royal Bank is now $108 (Canadian), up $8 from a month ago, according to Refinitiv Eikon data. There are 13 buy ratings on the stock, two holds and one sell (from Veritas Investment Research).

Scotiabank analyst Meny Grauman reiterated a “sector outperform” rating on Royal Bank and $111 price target. Despite no changes to his price target, he was clearly pleased with the results: “In our view, RY’s Q3 result continues to illustrate why this is stock is widely regarded as the top defensive name in the sector and why it trades at the biggest premium to the group. Despite a challenging revenue environment, punctuated by some significant NIM (net interest margin) pressure in the US, core EPS was down just 1% Y/Y as trading delivered its strongest result since Q1/F09. Although it has been fashionable for the market to dismiss capital markets results, we believe that investors are getting a new appreciation for its counter-cyclical earnings stream.”

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Credit Suisse analyst Mike Rizvanovic upgraded National Bank of Canada (NA-T) to “neutral” from “underperform” following its better-than-expected earnings reported on Wednesday. He now has a price target on the stock of $70 (Canadian), up from $60.

National Bank reported cash earnings per share of $1.66, up 65 per cent from the previous quarter, and flat year over year. That easily surpassed the Street’s consensus forecast of $1.32 and the unchanged EPS from a year ago impressed many on the Street given it was achieved during a pandemic.

Expenses, down 4 per cent from the previous quarter, and a 72 per cent drop in provisions for credit losses from the previous quarter drove the generally better-than-expected results.

National Bank shares rose 4.3 per cent Wednesday after the earnings release.

Mr. Rizvanovic’s upgraded rating is still only equivalent to a hold, and he admitted he was previously too pessimistic on the stock. “We were clearly wrong about the bank’s ability to outperform peers through a challenging environment, a trend that we believe is set to continue through F2021. However, to be clear, we continue to view NA’s elevated valuation as an impediment to relative upside for the stock,” he said.

He cited three reasons for the upgrade:

“1) Consistent execution: NA once again exceeded our expectations by posting another quarter of group-high Y/Y growth in pre-tax, pre-provision earnings. That reduces our concerns about NA’s smaller scale, which has clearly not hindered the bank’s performance.

2) Favorable exposure in the current environment: We believe NA is favorably positioned relative to peers for the medium-term given its higher exposure to both Canada’s highly concentrated P&C Banking sector, where we see fewer headwinds relative to non-domestic exposure, as well as Capital Markets, which we expect will perform well in the midst of the current macroeconomic uncertainty.

3) Strong reserves and falling deferrals: We favor NA’s prudent approach on PCLs since the onset of the pandemic, while we believe the bank’s material sequential decline in deferred loan balances as of Q3 is very favorable from a credit risk perspective over the near-term as deferral programs come to an end.”

Elsewhere, RBC also raised its price target on National Bank of Canada to $73 (Canadian) from $60. Scotiabank raised its target to $77 from $75 while reiterating a “sector outperform” rating. Desjardins Securities raised its price target to $72 from $66 while maintaining a “hold” rating. BMO raised its target to $65 from $60, CIBC hiked its target to $85 from $83, and Canaccord Genuity raised its target to $67 from $63.

The median price target is now $72, up from $60 a month ago. There are four buy ratings on the stock, seven holds, and one sell (also from Veritas Investment Research).

Scotiabank analyst Meny Grauman commented, “What a difference a quarter makes. In Q2, the market wanted to see big provisions, the bigger the better, but in Q3 the perspective has shifted. Despite continued worries about the path of the recovery and the impact from expiring deferrals, the market is willing to give the banks that provisioned big in Q2 a pass this time around. This is certainly true for NA, which posted a very large beat mostly due to credit and still managed to outperform by a healthy margin on earnings day.”

Desjardins Securities analyst Doug Young, meanwhile, in explaining why he kept his rating as a hold, said: “We like NA’s defensive position, being overweight Quebec and secured lending. That said, this appears to be priced in.”

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Raymond James analyst David Novak downgraded Biosyent Inc. (RX-X) to “market perform” from “outperform” after the company reported quarterly results slightly below his estimates during a period in which its shares skyrocketed. He maintained a $6 price target, which is a little below the Street median of $6.50.

Biosyent is a specialty pharmaceutical company engaged in developing pharmaceutical and health-care products.

Its second quarter net revenue of $4.8 million was down 7.5 per cent from a year ago and was below Mr. Novak’s estimate of $5.8 million but above consensus of $4.3 million. EBITDA for the quarter was $1.0 million, up 23.5 per cent year over year. The analyst was expecting $1.6 million.

“While we remain bullish on BioSyent’s future growth prospects, we believe the company is likely to continue to experience COVID-19-related impacts, particularly in its export markets,” Mr. Novak said in a note. “Furthermore, we believe near-term operating margins are likely to be impacted by promotional activities around Combogesic and Tibella. While we note that the stock has returned 91% since our rating upgrade in March (see our vs. the 37% generated by the S&P/TSX Venture Health Care Index over the same period, we believe that shares are now likely to trade range-bound until the company begins to benefit from sales acceleration related to new product launches or FeraMAX family line extensions.”

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BMO analyst Stephen MacLeod raised his price target on Altus Group Ltd. (AIF-T), a provider of advisory services and software to the real estate industry, following investor meetings with company executives.

“Management provided an upbeat tone around future prospects, reiterating Altus’s industry-leading position and robust opportunities for growth,” Mr. MacLeod said in a note. “While COVID-19 has impacted one-time, non-recurring revenue, market volatility and a focus on cost reduction and visibility has increased demand across all businesses.”

He maintained an “outperform” rating and raised his target price to $53, which is $3 higher than the median target on the Street.

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Raymond James analyst Steven Seedhouse upgraded VBI Vaccines Inc. (VBIV-Q) to “strong buy” from “outperform” after the company announced data this week from three preclinical mouse studies for its coronavirus program.

The company has selected two vaccine candidates, with the potential to be one-dose vaccines, to take into a human clinical study, expected to begin around year-end 2020, subject to regulatory approval.

Mr. Seedhouse speculated that the company could have one of the best prospects for a COVID-19 vaccine.

He raised his price target to $9 from $8. The median price target is $7.50.

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In other analyst actions:

Artemis Gold (ARTG-X): National Bank of Canada raises to “outperform” from “sector perform” and raised its target to $7 from $5.25.

Onesoft Solutions Inc. (OSS-X): Cormark Securities cuts target to $0.50 from $0.70 and downgrades rating to “market perform” from “buy”.

Canfor Corp. (CFP-T): BMO raises target price to $29 from $19.

West Fraser Timber Co Ltd. (WFT-T): BMO raises target price to $82 from $73.

Dick’s Sporting Goods Inc. (DKS-N): Morgan Stanley raises to “overweight” from “equal-weight” and hikes price target to US$65 from $40. Oppenheimer cuts to “perform” from “outperform” but raises price target to $56 from $52

Apache Corp. (APA-Q): Evercore ISI raises target price to $21 from $17 and upgrades rating to “outperform” from “in line.”

Vireo Health International Inc. (VREO-CN): Eight Capital raises to “buy” from “neutral” and raises target to $1.50 from $1.

With files from Reuters