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

In the wake of a “rough” week for the TSX, Industrial Alliance Securities analyst Elias Foscolos raised his ratings for a pair of stocks in his Energy Services & Infrastructure coverage universe on Tuesday.

“Reports showed slowing momentum in U.S. job growth in August, following a sharp increase in jobs earlier in the economic re-opening as companies were able to bring back temporarily furloughed workers with the help of fiscal stimulus,” he said. “The Federal Reserve has reportedly stated that in some districts permanent layoffs are increasing amidst still-soft economic activity. The likely implication of all this is that strength in economic recovery so far has been somewhat artificial, driven by fiscal and monetary stimulus, and in the absence of more government assistance, risk to economic recovery is skewed to the downside. WTI closed the week down 7 per cent despite the 9.4-million barrel crude draw reported by the U.S. Energy Information Administration (EIA). Concerns revolved around U.S. refinery utilization as the summer driving season winds down, distillate inventories remain elevated, and demand for jet fuel continues to be anemic.”

Though the TSX slid 3 per cent on the week, Mr. Foscolos noted Midstream, Utility and Fuel Distribution stocks all outperformed, while Pipelines largely fell in line with the broader market.

In a research note released before the bell, he elected to raise his rating for Pembina Pipeline Corp. (PPL-T) to “buy” from “hold” with a $38 target. The average target on the Street is $39.71.

“Since the start of the quarter, comparable Midstream and Pipelines stocks have all returned positive stock performance ranging from 0-16 per cent, while Pembina has lagged posting a negative 3-per-cent return,” he said. “After reviewing our estimates and comparable multiples for PPL we re-affirm our previous $38.00 target. We believe the market has now comprehended that EBITDA growth beyond 2021 appears uncertain due to a large number of deferred capital projects. However, an inexpensive valuation and optionality for upside growth now exist making the stock sufficiently attractive to increase our rating.”

Despite paring his target price for its shares to $46 from $48, he raised his rating for Parkland Corp. (PKI-T) to “strong buy” from “buy,” seeing an “attractive” upside return. The average target is $45.08.

“Parkland’s stock has declined 15 per cent since cresting after reporting strong Q2 results with approximately half of the decline coming in the past week,” the analyst said. “We believe that the tailwind of a slower rebound in gasoline and jet demand coupled with large distillate inventories may be disproportionally weighing on investors’ minds. Our revised ... target price is due to share weakness in U.S. refining stocks resulting in a lower EBITDA multiple for Parkland. However, Parkland is much more than just a refiner as it has a large convenience store footprint. As highlighted by Alimentation Couche-Tard’s results last week, convenience stores have value in a post-COVID-19 world. As a result of the share price weakness, we have elected to increase our rating ... despite the minor reduction in target price.”


Citing “increasing evidence that global methanol fundamentals are firmly (finally) on the mend,” Raymond James analyst Steve Hansen upgraded Methanex Corp. (MEOH-Q, MX-T) to “outperform” from “market perform.”

“In particular, we point to continued momentum across key demand-side indicators, improved supply-side balance, and incrementally higher spot/contract prices,” he said.

Mr. Hansen hiked his target to US$30 from US$21. The average on the Street is US$22.08.


The disruption resulting from the August fire at Suncor Energy Corp.’s (SU-T) Base Plant mine has “proved more significant” than previously anticipated, according to Desjardins Securities analyst Justin Bouchard.

On Monday, the Calgary-based company said production at the facility was restore 165,000 barrels per day of mined bitumen on Aug. 29 with full mining expected to be achieved by the middle of the fourth quarter. However, with that reduced output, Suncor lowered its 2020 production guidance to 680,000-710,000 barrels of oil per day from 740,000-780,000 bbl/d.

Though he said management its “making the best of a bad hand” by accelerating maintenance activities, Mr. Bouchard also trimmed his production projections and cash flow per share forecast for 2021.

Keeping a “buy” rating for Suncor shares, he lowered his target to $29 from $31. The average on the Street is $30.83.


Uranium Royalty Corp.’s (URC-X) portfolio is set to benefit from a near-term price recovery, said Canaccord Genuity analyst Katie Lachapelle.

“URC’s current portfolio consists of 12 royalties (including one royalty option) on non-producing uranium assets,” she said. “Amongst these assets exist partially and fully permitted development projects (Dewey Burdock, Church Rock, Reno Creek, and Roca Honda), and past-producing operations (Langer Heinrich and Lance). These advanced projects, in our view, have the potential to produce royalty cash flows in the next uranium cycle. We believe this cycle could be imminent as demand for nuclear energy is increasing and security of future supply is becoming ever more important in light of ongoing production curtailments, government-driven trade policies, and more recent COVID-19 related supply disruptions.

“We estimate that six of eleven existing royalties in URC’s portfolio will produce cash flows with a near-term recovery in uranium prices. These projects together represent 51 per cent of our asset level NAV. We also note that the majority of URC’s royalties are on projects located in safe jurisdictions (98 per cent in North America). We view this as advantageous, as we expect utilities to re-enter the market looking to negotiate with companies that not only offer responsiveness but also security geographically.”

In a research report released Tuesday, Ms. Lachapelle initiated coverage of the Vancouver-based company with a “speculative buy” rating, seeing “well positioned as an alternative provider of capital” given it’s the only pure-play uranium royalty firm.

“We believe this is particularly true in a depressed uranium price environment (as experienced over the past decade) where developers are strapped for cash and struggle to advance their projects,” she said. “In our view, depressed prices have allowed URC to negotiate royalties at attractive terms; we estimate an average IRR of 34 per cent on the royalties acquired to date. Given ongoing uncertainty in the uranium market (and a lack of equity deals) we continue to view royalty and streaming transactions as a competitive source of capital for uranium developers. We note that URC continues to evaluate new opportunities; accretive transactions provide upside potential to our current valuation. We expect future transactions to be funded through share issuances, as done historically, with current cash ($12-million) funding G&A expenses.”

Also emphasizing its “experienced management team with the foresight to invest countercyclically to the commodity cycle,” Ms. Lachapelle, currently the lone analyst on the Street covering the stock, set a target price of $1.60 per share.


Deutsche Bank analyst Bryan Kraft thinks Walt Disney Co. (DIS-N) is succeeding in the “land grab phase” of the shift to direct-to-consumer offerings.

The entertainment giant saw a significant spike in downloads of its Disney+ streaming service on the weekend with the highly-anticipated release of its live-action remake of Mulan, according to Yahoo!.

Seeing Disney in a strong position to become a leader in the streaming industry and expecting it to drive “significant opportunities to monetize a large subscriber base in a more meaningful way,” Mr. Kraft upgraded his rating for its shares to “buy” from “hold” with a target of US$164, up from US$128 and exceeding the US$134.91 consensus.


Though he warns that “the road is bumpy” as its seven-year transformation “continues to unfold,” Desjardins Securities analyst Doug Young raised his financial projections and target price for shares of Laurentian Bank of Canada (LB-T) following the release of better-than-anticipated third-quarter results.

On Friday, the bank reported cash earnings per share of $1.02, exceeding both the projections of both Mr. Young and the Street (50 cents and 46 cents, respectively).

“After several quarters of disappointing results, this was a nice reprieve,” he said. “Pre-tax, pre-provision earnings were $64.7-million, above our $51.9-million estimate, driven by strong capital markets revenue and lower NIX.”

The results led Mr. Young to raised his cash EPS forecast for 2020 and 2021 to $2.65 and $3, respectively, from $1.88 and $2.60.

Keeping a “hold” rating, he increased his target to $31 from $27. The average is $29.40.

Elsewhere, Scotia Capital analyst Meny Grauman raised his target to $28 from $24 with a “sector underperform” rating.

“Although it may seem strange to label a quarter featuring a 237-per-cent core EPS beat a ‘mixed’ quarter, we certainly stick by that interpretation even as we revise our forward estimates materially higher, and take our price target up,” said Mr. Grauman. “For all the positives this quarter, and there were many, the reality is that the outlook for Laurentian Bank remains highly uncertain both as a result of COVID and as a result of bank’s ongoing multi-year transformation plan. The combination of both of these factors is likely to continue to negatively impact revenues, expense management, and by extension core earnings through F2021. At the same time credit risk remains elevated as well.

“We adjust our forward numbers to reflect the beat to our forecast and a better outlook for margins and expenses. However, we continue to be conservative on credit as well as on loan growth. Our price target climbs ... but despite this higher price target we continue to believe that a significant discount to book value remains appropriate given the higher level of risk these shares carry.”


Seeing it in the “early stages of improving profitability,” Citi analyst Paul Lejuez initiated coverage of Travelcenters of America Inc. (TA-Q) with a “buy” rating on Tuesday.

The Ohio-based company is the largest publicly traded full-service truck stop and travel centre operator in the United States.

“TA had a rough run from 2015-2019,” he said. “During that period, we believe management focus on the core travel stop business was diverted, as the company invested in the convenience store business (it bought 170 stand-alone convenience stores in 2015) and in 2016 invested in the stand-alone restaurant business. In perhaps a sign that it viewed the convenience store business as non-core, it divested the business in December 2018.

“A significant change came in December 2019, when TA brought in new CEO Jonathan Pertchik and simultaneously announced the retirement of 22-year company veteran Andrew Rebholz, who had been in the CEO role since 2018 (and prior to that had been CFO from 2007-17).”

The analyst thinks Mr. Pertchick’s experience as an executive for companies run by private equity, including Starwood Capital and TPG, will bring a focus on expenses and returns on capital, seeing signs of improved performance already.

“We expect TA’s expansion will be primarily accomplished through franchising. This is a very low capital-intensive form of expansion, and should help drive higher profitability and ROIC,” he said. “Management is also very focused on improving the higher margin non-fuel sales businesses, including investing in truck service and retail/restaurant services to help further differentiate the centers, drive top-line growth and improve margins.”

Expecting EBITDA to double over the next five years, Mr. Lejuez set a target of US$29 for Travelcenters shares. The average is US$32.


In other analyst actions:

* Following “very strong” second-quarter results, Paradigm Capital analyst Corey Hammill raised his target for shares of Waterloo Brewing Ltd. (WBR-T) to $5.50 from $5, keeping a “buy” rating. The average on the Street is $6.

“We see significant positive momentum for Waterloo through year-end, driven by strong beer consumption trends, continued market share gains for core brands, and a significant lift in its co-pack business. Longer-term, we believe FY21 is a transformational year as the company continues to fill capacity and delivers sustainable margin expansion. Waterloo continues to report superior industry growth y/y, which has proven to be sustainable — we don’t believe investors are pricing this into shares. We estimate the current trajectory is likely to boost EBITDA to $25-million-plus in the near term, up from $11.6-million last year.”

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