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

Citing “increasing evidence that the worst COVID-related headwinds impacting growth are beginning to fade,” Raymond James analyst Steve Hansen raised his rating for Enwave Corp. (ENW-X) in a research note released Tuesday.

On Aug. 28, the Vancouver-based company reported revenue for the second quarter of $6-million, down 40.5 per cent year-over-year and below the projections of both Mr. Hansen and the Street ($7.5-million and $7.4-million, respectively). He attributed the miss due largely to lower-than-anticipated sales for its subsidiary NutraDried Food Co.

However, Mr. Hansen expects a rebound in NutraDried after it suffered through a period of weak retail results due to the pandemic, noting it recently launched a promotional campaign at Costco “designed to accelerate sell-through, work down elevated inventory, and free up associated capital.

“While the 1-month promotion carries a more significant trade discount versus past promotions, we view it as a good opportunity to bolster brand awareness, reduce aging inventory, improve plant fluidity, and bolster cash,” he said.

Mr. Hansen also emphasized Enwave maintains a “robust” balance sheet with $15.6-million in cash and no debt, which he sees providing “significant flexibility to scale as demand recovers.”

Moving its stock to “outperform” from “market perform,” he kept a target of $1.20 per share. The average on the Street is $1.45.


With Premium Brands Holdings Corp. (PBH-T) “back in acquisition mode,” Industrial Alliance Securities analyst Neil Linsdell expects the Vancouver-based company to exhibit “solid” performance for the remainder of the year.

“Despite the uncertainty of how 2020 will continue to unfold, the Company demonstrated significant resilience in Q2, and with steady improvements since April,” he said.

On Monday, the specialty food products company announced the $139-million acquistions of Global Gourmet Foods Inc. and Allseas Fisheries Inc. The deals are expected to be immediately accretive to earnings and free cash flow per share.

“With these transactions, the company is returning to its acquisition plan, as announced with its Q2 results. Management had previously indicated that it had an acquisition pipeline of 66 transactions with combined potential revenue contribution of over $10-billion,” the analyst said. “With recently completed capital raises and available credit capacity ofalmost $690-million (before these transactions), the company had recently confirmed that multiple transactions could close before year-end.”

Mr. Linsdell sees Premium Brands on track to reach its 2023 objectives of $6-billion in revenue and $600-million in adjusted earnings before interest, taxes, depreciation and amortization.

“The company saw the most significant impact from COVID-19 in April. Since then, most operations have seen steady and significant improvement,” he said.

Keeping a “buy” rating for its shares, he raised his target to $110 from $105. The average on the Street is $107.78.


In the wake of the release of quarterly results that blew past expectations on the Street, BTIG analyst Matt VanVliet upgraded Zoom Video Communications Inc. (ZM-Q), expressing “greater conviction in [its] ability to capitalize on both the near- and long-term opportunity ahead.”

After the bell on Monday, the San Jose-based company reported revenue and earnings per share of US$663.5-million and 92 US cents, respectively, easily exceeding the consensus forecast of US$500.5-million and 45 US cents.

It also raised its full-year guidance to revenue to a range of US$2.37-billion to US$2.39-billion and earnings per share of US$2.40 from US$2.47. The Street was projecting US$1.81-billion and US$1.30.

“We are upgrading shares of Zoom to Buy after the company reported another quarter from a different planet, again far outpacing its peers in the UCaaS [unified communications as a service] space in terms of ease of use and global scalability,” said Mr. VanVliet. “The company is setting new limits for how rapidly an enterprise software platform can grow at scale with triple-digit quarter-over-quarter revenue growth and profitable earnings — yes, you read that correctly, 102-per-cent growth quarter-over-quarter. So we are jumping into the deep end after its back-to-back monstrous quarters, as we believe that global widespread adoption is still in the early stages, as the longer-term shift to a hybrid work model will likely drive outsized growth and market share gains over the next several years.”

Seeing continued momentum in customer growth, Mr. VanVlier thinks Zoom’s premium valuation is “well-deserved as the new normal drives broader adoption of video-first platform.”

“Moving forward, we fully expect ever more companies,colleges, K-12 schools, and organizations of all kinds to embrace hybrid, flexible environments, driving significant demand for Zoom as the clear leader in the video-first, UCaaS market,” he said. “Upgrading legacy systems as a major component ofongoing digital transformation initiatives is rising in importance, and our recent checks indicate that Zoom will be a key driver in IT strategies. We are admittedly fashionably late to the party but now believe this high-growth software story is just in the early innings and has several more years of sustained growth ahead. Specific takeaways from the earnings conference call are included within.”

Moving the stock to “buy” from “neutral,” Mr. VanVliet set a target of US$500 for Zoom shares. The average on the Street is US$356.92.

Elsewhere, Citi analyst Walter Pritchard hiked his target to US$377 from US$217, keeping a “neutral” rating.

Mr. Pritchard said: “Similarly to the Q1 print, the trajectory of demand here is ’great’ and but it remains hard to calibrate just ’how great.’ While it is extremely hard to gauge where COVID demand will peak, it looks to us like even aggressive sales and marketing investments will not be able to stave off growth deceleration after incremental demand peaks. We expect management may try to get out ahead of the FY22 trends at mid-Oct analyst day. Beyond this, we believe the key will be execution on Zoom Phone and new avenues of monetization.”


RBC Dominion Securities analyst Joseph Spak said he struggles to explain the steep jump in Tesla Inc. (TSLA-Q) shares ahead of the recent stock split, which he noted “academically doesn’t change the value of Tesla equity but could help fuel retail investor interest.”

“We still view Tesla as Fundamentally overvalued and having to grow into its valuation. We aren’t dismissive of the clear advantages Tesla has including being ‘ahead’ of the competition, inexpensive access to capital, ability to attract talent, and an incredible brand,” he said. “And we recognize that narrative, momentum, and other factors can impact stock price. But, we still believe that ultimately a company’s value is related to the PV of future FCF.”

On Monday, Tesla jumped over 12.5 per cent after the 5-for-1 split, which prompted Mr. Spak to update his valuation methodology.

Contra Guys: Tesla is soaring, but how long will it last?

“Tesla has become one of the most important stocks in U.S. markets and is as of this writing, the 9th largest company by market cap,” he said. ?We sense that the sheer size of Tesla has many PMs adding to positions just

to keep pace. We recognize we underestimated a critical valuation point: seemingly insatiable investor demand for alternative/clean vehicles. This manifests in a very low cost of capital for Tesla which can help fund growth and allow for a higher multiple. We also believe that the market has been willing to show more patience and look further out for companies such as Tesla. As such, we are revising our valuation methodology to look out to multiples on 2025 (from 2021).”

Keeping an “underperform” rating for Tesla shares, he raised is target to US$290 from US$170. The average is currently US$277.55.

“Tesla as a company has undeniably changed the auto industry in terms of pushing vehicles towards electrification, vehicle architecture/compute and the importance of software in vehicles,” said Mr. Spak. “Tesla has also established a compelling and desired brand, enhanced by the halo of Elon Musk as its leader. This point should not be taken lightly by traditional automakers. The consumer perception of Tesla being a superior vehicle could lead to share gains and higher margins (via premium pricing) even if traditional OEMs are (eventually) able to offer a functionally similar vehicle to what a Model 3/Y is today. This could lead to continued reinvestment that keeps Tesla steps ahead of the competition. Of course the flip side is that with many more Teslas in operation, the company’s quality and service, which we believe to be below average, must improve else risking the brand – especially with more competition coming.”


Whitecap Resources Inc. (WCP-T) followed through on its acquisition strategy with the $155-million purchase of NAL Resources Ltd., said Raymond James analyst Jeremy McCrea.

“We believe one of the greatest strengths of Whitecap is its technical team and that throughout its operating regions, the company consistently shows some of the best well economics among its neighboring peers,” he said. “It is likely a key reason why it was successful in the proposed take-over of NAL Resources with their confidence on their ability to improve costs and capital efficiencies within a larger organization. Overall, the energy business is quickly changing and size and scope matter more than ever, especially when the need requires the ability to access outside debt and equity capital.

“Overall, with various acquisition metrics accretive (and relatively low), investors should find comfort with the acquisition. Not only does the deal provide size, but also a 25% reduction in leverage metrics and increased coverage with its dividend. With plenty of inventory to pursue; there is increasingly lots to like with Whitecap going forward.”

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Keeping an “outperform” rating for Whitecap shares, he increased his target to $4 from $3.50. The current consensus target is $3.36.

Meanwhile, Haywood Securities analyst Christopher Jones increased his target to $4 from $3.25, keeping a “buy” rating.

Mr. Jones said: “Management has been prominent in its desire to remain as a consolidator and we have a high opinion of the acquisition as it fits nicely into the existing asset portfolio add adds scale in an environment that remains biased towards larger, well-capitalized entities. With acquisition metrics coming in well below current trading multiples, the deal is accretive from a 2021 cash flow, production, and reserves perspective, and ultimately positions Whitecap to restore a higher distribution to shareholders sooner than what would be the case without the acquisition. These factors, along with our higher 2021E CFPS estimate, we are increasing our target price.”


Apple Inc.’s (AAPL-Q) “strong ecosystem drives sustained EPS growth,” said Canaccord Genuity’s T. Michael Walkley.

In a research note released Tuesday, the analyst raised his target price for the tech giant’s stock after introducing his calendar 2022 financial projections.

“Despite challenging global economic conditions due to COVID-19, Apple is demonstrating the strength of its products and ecosystem as evidenced by its strong Q3/F20 results with a return to year-over-year growth for iPhones and strong doubledigit growth for Macs and iPads due to the increased remote working and learning,” said Mr. Walkley. “We anticipate continued double-digit growth for all hardware products except iPhones during Q4/F20 and this is due to new iPhones slightly delayed and facing a difficult growth comparable. Starting in Q1/F21, we believe Apple is well-positioned to benefit from the 5G upgrade cycle and anticipate strong iPhone growth to contribute to overall strong growth trends as 5G smartphones ramp and Apple continues to grow its installed base and higher-margins services revenue. With the 5G upgrade cycle driving iPhone sales, other hardware categories growing double digits, and continued business mix shift towards high-margin services, we reiterate our BUY rating.”

Expecting a “strong” 5G upgrade cycle to drive iPhone unit growth from 183 million units in 2020 to 243 million in 2022, Mr. Walkley said Apple is “outperforming its competitors across all hardware categories and the strong ecosystem is leading to a very loyal customer base buying more hardware products and using more services.”

He’s now projecting 2022 EPS of US$4.68, rising from US$3.24 in 2020 and US$4.09 in 2021.

Reiterating his “buy” rating, he set a new target of US$145 per share. The average on the Street is US$113.75.


A series of equity analysts initiated coverage of IBEX Ltd. (IBEX-Q), a D.C.-based customer management company, after coming off research restriction following its early August initial public offering.

Calling it a “growth leader riding CX wave,” RBC Dominion Securities analyst Seth Weber gave IBEX an “outperform” rating and US$23 target.

“We view IBEX as an attractive GARP holding, with strong/above industry top line trends, expanding margins, and steep valuation discount to the peer group. With a 10-per-cent revenue CAGR [compound annual growth rate], 100-per-cent retention of top 25 clients since 2018, and high-profile new economy wins, we see runway to continue revenue/EBITDA outgrowth relative to peers,” he said.

“IBEX saw non-voice revenue 55-per-cent CAGR 2016-2019 and nonvoice/digital up to 30-per-cent total revenue. We view revenue outperformance as evidence that IBEX’s solutions/services are differentiated, including a portfolio of proprietary technology toolsets and third party integrations driving value-added insights and quantifiable benefits to customers. With evidence of sustained high single-digit/low double-digit organic revenue growth and continued EBITDA margin expansion, we expect shares to rise/valuation gap to close.”

Citi analyst Ashwin Shrivaikar gave it a “buy/high risk rating and US$22 target price.

“IBEX’s IPO priced at $19/share, below the $20-$22 range, and over the past two weeks, the stock has settled in the $16-$17 range,” said Mr. Shrivaikar. “We attribute the IPO and stock performance to a relative lack of investor interest – partly, we believe, due to its limited float and small-cap nature, partly concerns about the impact of bankruptcy proceedings at it largest client, and partly the limited number of public comps, which made valuation a difficult conversation. Having said that, we think that IBEX has the ability to deliver upper-single-digit top-line growth and solid 20-per-cent-plus EPS growth given margin improvement potential. We also look for near-term upside to expectations. With this in mind, the post-IPO stock action creates an opportunity that small-cap investors should be able to benefit from in the next few quarters. So we would buy IBEX at these levels.”


In other analyst actions:

* Oppenheimer analyst Leland Gershell downgraded Laval, Que.-based Acasti Pharma Inc. (ACST-Q, ACST-X) to “perform” from “outperform” after it announced its a Late-stage trial of its drug candidate, CaPre, to treat hypertriglyceridemia failed to meet its main goal.

* Credit Suisse analyst Manav Gupta initiated coverage of Renewable Energy Group Inc. (REGI-Q) with an “outperform” rating and US$51 target, which exceeds the US$49.40 consensus.

“While REGI does produce up to 20-per-cent renewable diesel by volume, it is primarily a biodiesel producer. We expect both biodiesel and renewable diesel to take market share from petroleum diesel,” he said. “While renewable diesel could witness exponential growth, biodiesel’s growth should be more modest as most states/countries put an upper limit (20 per cent) on blending biodiesel into petroleum diesel. While renewable diesel bulls would stick with VLO, there are number of good reasons to like REGI, the US’s biggest biodiesel producer that also produces renewable diesel. REGI’s feedstock flexibility and experience in the business qualify it a potential JV partner or acquisition candidate, in our view.”

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