Inside the Market’s roundup of some of today’s key analyst actions
Strong agricultural fundamentals support a positive outlook for Nutrien Ltd. (NTR-N, NTR-T) in 2021, according to RBC Dominion Securities analyst Andrew Wong, who sees the “most favourable affordability levels for fertilizer in the past 10 years.”
“We expect positive ag fundamentals and stronger potash prices to driver higher EBITDA in 2021,” he said. “Higher U.S. farm profitability should support moderate organic growth in the Retail segment. Potash sales and prices support our view for higher realized prices and sales volumes, but higher nitrogen prices will likely be offset by higher natural gas costs.”
Mr. Wong expects nitrogen prices to recover “moderately” in 2021, pointing to a higher cost curve stemming from rising energy prices. However, he expects potash markets to “remain tight” as demand keeps pace with new capacity additions and inventories “are kept in check.”
He raised his 2021 and 2021 earnings before interest, taxes, depreciation and amortization (EBITDA) estimates for Nutrien to US$4.2-billion and US$4.5-billion, respectively, from US$3.9-billion and US$4.4-billion.
Keeping an “outperform” rating, he hiked his target to US$55 from US$47. The average is US$50.58.
“We think shares have priced in some of this benefit from the recent rally, but continue to see upside with strong downside support due to a solid financial position and steady FCF generation that supports current dividend payments,” he said.
Concurrently, Mr. Wong hiked his target for Mosaic Co. (MOS-N) to US$32 from US$25, reiterating an “outperform” recommendation. The average is US$23.74.
“We think Mosaic has demonstrated strong execution over the past 12-18 months by delivering on continuous cost savings improvements and transformation initiatives at Fertilizantes,” he said. We also view Mosaic as most leveraged to improving fundamentals in phosphate and potash markets, driving significantly higher EBITDA in 2021.”
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In a research note titled So what’s going on with BlackBerry’s stock?, RBC Dominion Securities analyst Paul Treiber attributed a 61-per-cent rally in the Waterloo, Ont.-based tech firm’s shares over the past month to “enthusiasm for ‘value’ stocks, re-valuation of BlackBerry’s potential long-term opportunities, and the willingness to look through near-term auto headwinds.”
Mr. Treiber also believes the jump has nothing to do with heightened expectations for BlackBerry’s (BB-N, BB-T) third-quarter financial results, which are set to be released on Thursday after the bell.
“The rally in BlackBerry’s shares commenced on renewed investor enthusiasm for BlackBerry’s patent portfolio & QNX automotive opportunity,” he said. “These 2 businesses account for estimated $448-million annual revenue (45 per cent of TTM [trailing 12-month] total), but we believe represent the most upside optionality for BlackBerry investors,” he said.
“Looking through near-term auto headwinds. We estimate that BTS/QNX revenue declined 61 per cent year-over-year Q2, as reduced auto production weighed on QNX royalties and as auto manufacturers delayed projects. With management expecting BTS/QNX to recover by mid-2021, we believe investors have shifted to valuing BlackBerry on calendar 2022 estimates, not CY21E.”
For the third quarter, Mr. Treiber is projecting revenue of US$222-million, down 17 per cent from the second quarter and 21 per cent year-over-year but in line with the consensus on the Street (US$224-million). He attributes the decline to a fall in licensing revenue.
His adjusted earnings per share estimate of 1 US cents is narrowly higher than the consensus of a 1-US-cent loss.
“While the stock has re-rated upwards, we believe the quarter would not be an additional catalyst,” he said.
Keeping a “sector perform” rating and seeing it remaining a “show me story”, Mr. Treiber raised his target to US$7.50 from US$5 based on his 2022 forecast. The average is US$6.43.
“The investor debate on BlackBerry stems from the company’s future opportunity compared to its current momentum,” he said. “Licensing appears the healthiest, given previous design win momentum. For other opportunities like ESS and Radar, limited near-term growth reduces long-term visibility. Cylance is early, and Cylance’s lower growth vs. some competitors creates uncertainty.”
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Hexo Corp. (HEXO-T) is “marching towards profitability,” said ATB Capital Markets analyst David Kideckel following Monday’s release of better-than-anticipated first-quarter 2021 financial results.
Pointing to its “strong” liquidity and leading position in beverages, he upgraded the Ottawa-based cannabis company to “sector perform” from “underperform.”
“The company reported its sixth straight quarter of adjusted EBITDA improvement due to a combination of prudent cost management as well as increases in sales, mainly in the beverage category,” said Mr. Kideckel. “HEXO did not report write-downs or impairments, and there was no share dilution.”
For the quarter, Hexo reported net revenue of $29.5-million, exceeding the projections of both Mr. Kideckel and the Street ($27.1-million and $28.7-million, respectively). An adjusted EBITDA loss of $0.4-million also topped expectations (losses of $1.7-million and $2.8-million).
The results led Mr. Kideckel to increase his revenue and gross margins expectations, noting: “We have reduced our discount rate to 15 per cent due to HEXO’s strong liquidity position and our improved visibility over the company’s profitability and management’s ability to execute, factors which in our view lower HEXO’s cost of capital.
He raised his target to $1.20 from 85 cents. The average is $1.14.
Others raising their targets for Hexo shares include:
* Desjardins Securities’ John Chu to $1.35 from $1.10 with a “hold” rating.
“A solid 1Q FY21 with a near breakeven EBITDA gives us greater confidence that HEXO can be EBITDA-positive by 2Q FY21; we have adjusted our forecast accordingly. We also have greater comfort with HEXO’s ability to win market share outside of Québec, with solid momentum building in Alberta, Ontario and BC. We are encouraged by the continued progress in 1Q FY21 and are starting to form a more bullish view of HEXO. However, we maintain our Hold for now as we wait to see how the upcoming quarters unfold,” said Mr. Chu.
* Canaccord Genuity’s Matt Bottomley to $1.25 from $1 with a “hold” recommendation.
“HEXO reported FQ1/21 financial results (ended Oct/2020) that were generally in line with our expectations for the period, but nonetheless highlight what appears to still be a challenged macro environment for many Licensed Producers (LPs) in the space,” said Mr. Bottomley. “Although aggregate retail numbers in Canada remain strong (with a current run-rate of $3-billion-plus), we believe the highly competitive landscape for producers has resulted in an oversupply of infrastructure, inventory (particularly for dried bud) while dispensary locations are still in the process of ramping up to critical mass.”
CIBC World Markets’ John Zamparo raised his target to $1.40 from 90 cents with a “neutral” recommendation.
He said: “HEXO’s recent performance has demonstrated more resilient margins than we had contemplated. This is true both at the COGS line in the face of ongoing price competition and movement towards the value sector, as well as SG&A spending, which has remained disciplined. Revenue growth (Q/Q) slowed to mid-single digits this quarter but should pick up. A significant challenge that HEXO will face is its reliance on Quebec, which has been and will be the slowest to build out a retail store presence. A swoon in the sector leads us to increase our EV/sales multiple to 3.5 times (from 2 times prior).”
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Equity analysts took a positive view of Tamarack Valley Energy Ltd.’s (TVE-T) announcement on Monday of a pair of strategic acquisitions in Alberta’s Clearwater oil play, $47-million equity financing and preliminary 2021 guidance.
“At first pass, we were surprised to see Tamarack issue so many shares at a discount to its most recent closing price prior to announcement of $1.39,” said Industrial Alliance Securities analyst Michael Charlton. “However, looking at the 10 day weighted average price of $1.13, pricing of the equity at $1.15/share seems relatively inline. The transaction metrics looked to have improved with the Gorr sale and we do like that Tamarack is adding a new core area with Clearwater production and upside torque to a rising price environment that can be tapped quickly with short, fast and economical wells. We do believe that the upside potential was worth the splurge, particularly given management looks to pump production from 2,000 barrels of oil equivalent per day (boe/d) to over 4,500 boe/d next year and target 10,000 boe/d in three years, giving Tamarack a nice little toe-hold in this hot play with 107,000 net acres, exponential production growth with increased cash flow in the near term along with future enhanced oil recovery potential.”
Keeping a “buy” rating, Mr. Charlton raised his target to $2.25 from $2.
“Tamarack is well-positioned to continue to grow organically with over 9 years of potential drilling locations that at current prices look to pay out in less than 1.5 years,” he said. “The Company’s significant liquids weighting with a focus to add high-quality oil assets and production hedges coupled with positive cash flow, ensures it will be able to fund all of its near-term capital programs at its core Viking and Cardium prospective properties. Management has a history of exceeding guidance while preserving its strong balance sheet through strategic decisions that have become a standard of operations and shareholder value creation that we believe will continue with further optimization and acquisition potential.”
Others making changes included:
* Raymond James’ Jeremy McCrea to $1.75 from $1.35 with an “outperform” rating.
“With TVE dedicating half its capex program to the area next year now, a new royalty deal in place to help with the debt burden (now at 1.5 times D/EBITDA), profitability improving and a valuation among the lowest in the Canadian E&P space, there’s likely plenty of upside,” he said.
* ATB Capital Markets’ Patrick O’Rourke to $1.75 from $1.50 with an “outperform” rating.
* National Bank’s Patrick Kenny to $2 from $1.50 with an “outperform” rating.
* RBC Dominion Securities’ Luke Davis to $1.50 from $1 with an “outperform” rating.
* Canaccord Genuity’s Anthony Petrucci to $1.75 from $1.20 with a “speculative buy” rating.
* BMO’s Ray Kwan to $1.25 from $1 with a “market perform” rating
* TD Securities’ Dustin Besaw to $18.50 from $18 with a “buy” rating
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Algonquin Power & Utilities Corp.’s (AQN-T, AQN-N) US$9.4-billion five-year capital plan “supports a robust growth profile,” said Industrial Alliance Securities analyst Naji Baydoun following Monday’s Investor Day event.
“AQN introduced a new five-year US$9.4-billion capital plan (2021-25), with the majority of investments still expected within the Company’s regulated utilities franchises (US$6.3-billion), supplemented by investments within the non-regulated renewable power business (US$3.1-billion),” he said. “The current capital investment plan is expected to add more than 2GW of renewable energy capacity by 2025, and drive rate base to US$8.3-billion by 2025 (or 11-per-cent annualized growth compared to 2020 rate base of US$4.9-billion). Furthermore, we note that (1) additional M&A opportunities not already included in the 2021-25 plan, or (2) further greenfield project development success could represent a long- term kicker to growth.”
Mr. Baydoun thinks the company’s 2021 and long-term financial guidance fell in line with his expectations and continue to point to high single-digit earnings per share growth.
“AQN also introduced long-term dividend guidance of 80-90-per-cent payout on adjusted EPS,” he said. “This new long-term payout target aligns with our forecasts, and we continue to expect sustained dividend growth over time, albeit at a more moderate pace than in the past to allow for the payout ratio to decline over time.”
Keeping a “buy” rating for Algonquin shares, he raised his target by a loonie to $22. The average is $21.95.
“AQN offers investors a well-balanced mix of growth and income, with (1) a diversified business model (regulated utilities & non-regulated power), (2) robust medium- term growth (8-10 per cent-plus per year EPS and FCF/share growth through 2025), (3) attractive dividend profile (4-per-cent yield, 10 per cent per year growth through 2021, and 80-90-per-cent long-term Adj. EPS payout target), and (4) upside from additional growth initiatives (including M&A; not included in our estimates/valuation),” said Mr. Baydoun.
Elsewhere, Raymond James’ David Quezada sees Algonquin “locked and loaded for another five years” and raised his target to US$19 from US$18.50 with a “strong buy” rating.
“We regard AQN as a top pick in our coverage universe on a combination of reasonable valuation, sector leading EPS growth and attractive renewable power expansion,” he said. “At 19.3 times 2022 P/E, we see valuation upside on low interest rates and the potential for in-flows from sustainability focused investors to push the stock to the high end of its historical range.”
CIBC World Markets’ Mark Jarvi moved his target to US$17.50 from US$17, maintaining an “outperformer” rating.
Mr. Jarvi said: “While the leadership of Algonquin (AQN) turned over in 2020, the core strategy and pursuit of measured growth has not. This year’s investor day and accompanying business update brought with it new renewable asset investments, tweaks to funding plans, measures to limit near-term taxes (likely mixed views on this issue), and revised messaging around governors of future dividend increases. The main messages (including 2021 EPS Adj. guidance) were consistent with our expectations. AQN still has a multipronged growth platform focused primarily in North America around is utility and renewable businesses that provide the foundation for an expected 8-10-per-cent 5-year CAGR in EPS.”
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Monday’s announcement that People Corp. (PEO-X) will be acquired by the Goldman Sachs Merchant Banking Division for $1.13-billion in cash “does not come as a huge surprise,” said Desjardins Securities analyst Gary Ho, who viewed the Winnipeg-based group benefits provider as a likely takeover candidate over the medium term.
“We also ascribe a low probability to a competing bid given PEO ran a strategic review process,” said Mr. Ho, who moved his rating to “tender” from “buy.”
Mr. Ho said he views the deal as “positive,” noting: “(1) The takeout price represents a 36-per-cent premium vs Friday’s close. When we upgraded the stock last week, we viewed PEO as a takeout candidate (although the transaction came sooner than we had expected). (2) We put a low probability on a competing bid given PEO ran a strategic review process with bidders ranging from strategic firms to financial sponsors (we note that PEO will be acquired through one of Goldman’s investment funds). If a new bidder surfaces, it will likely need to further invest in talent and technology for PEO’s next stage of growth. (3) We view the offer price as fair.”
He raised his target for People shares to $15.22 from $13 to match the purchase price. The average is $14.86.
“As a result of the transaction, we recommend investors Tender their shares,” he said.
Elsewhere, Canaccord Genuity analyst Scott Chan lowered People to “hold” from “buy” with a target of $15.22, down from $12.75.
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Credit Suisse analyst Fahad Tariq adjusted his target prices for a group of Canadian gold stocks on Tuesday.
His changes included:
- Agnico Eagle Mines Ltd. (AEM-N/AEM-T, “outperform”) to US$90 from US$105. The average on the Street is US$95.26.
- Alamos Gold Inc. (AGI-N/AGI-T, “neutral”) to US$10.25 from US$10.75. Average: US$12.40.
- Barrick Gold Corp. (GOLD-N/ABX-T, “outperform”) to US$30 from US$34. Average: US$33.41.
- Centerra Gold Inc. (CG-T, “neutral”) to $16 from $17. Average: $19.43.
- Eldorado Gold Corp. (EGO-N/ELD-T, “underperform”) to US$13 from US$12.50. Average: US$20.43.
- Franco-Nevada Corp. (FNV-N/FNV-T, “neutral”) to US$145 from US$150. Average: US$150.
- Iamgold Corp. (IAG-N/IMG-T, “neutral”) to US$4.25 from US$4.75. Average: US$5.19.
- Kinross Gold Corp. (KGC-N/K-T, “neutral”) to US$9 from US$10.75. Average: US$12.64.
- Kirkland Lake Gold Corp. (KL-N/KL-T, “neutral”) to US$48 from US$59. Average: US$57.
- New Gold Inc. (NGD-N/NGD-T, “neutral”) to US$2.20 from US$2. Average: US$2.27.
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Acquisitions and several growth initiatives are helping CareRx Corp. (CRRX-T) “consolidate its leading market position,” according to Industrial Alliance Securities analyst Chelsea Stellick.
Saying its “merging and emerging as Canada’s top institutional pharmacy,” she initiated coverage of the Toronto-based provider of specialty pharmacy services to seniors with a “buy” recommendation.
“CareRx Corp. (formerly Centric Health Corp.) recently completed a major acquisition of Remedy’sRx Specialty Pharmacy, bringing the beds serviced to 50,000, representing 12 per cent of the national market share,” said Ms. Stellick. “We believe CRRX will continue to execute on additional accretive acquisitions to consolidate market leadership and improve scale. The Company is targeting 100-per-cent growth in beds serviced in three years, which will be achievable through a combination of acquisitions, segment growth, and organic market share capture.”
“The Company expects many contract expirations across the long-term care pharmacy industry in 2021, providing the newly expanded and strengthened CareRx with a golden opportunity to win new contracts for beds previously serviced by competitors. If this market share capture takes place in existing geographies, the marginal cost will be low. Therefore, upcoming competitive bidding processes will provide a chance to unlock near-term operational leverage and revenue upside.”
Ms. Stellick sees CareRX possessing “best in class” medication management technologies and an “industry-leading” team of clinical pharmacists, and she emphasized it “provides custom, individualized medication packets through Canada’s largest fulfillment network of automated high- volume production and verification of multi-dose compliance packaging.”
She set a $7 target, which falls 40 cents below the consensus..
“As a leading specialty pharmaceutical company in a highly fragmented market, we believe several factors will contribute to profitability growth in the coming years, including successful executions on its roll-up strategy and the realization of appropriate synergies,” the analyst said.
Elsewhere, Leede Jones Gable analyst Douglas Loe initiated coverage with a “buy” rating and $6.50 target.
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In a separate note, Ms. Stellick raised her target for ImmunoPrecise Antibodies Ltd. (IPA-X) to $16 from $12.90, keeping a “buy” recommendation.
“[Monday] before market open, IPA announced that it has selected a lead vaccine candidate for preclinical evaluation in collaboration with LiteVax BV,” she said. “Given [Monday’s] news, we have taken the opportunity to revise our model. We have updated our revenue projections for F2021 and F2022 in IPA’s CRO business based on increased visibility for partnerships and new contracts. As well, we have revised our P/B multiple based on the additional value we see as a result of the potential uplisting which can bring greater visibility and market support for the stock. Finally, we have also rolled our valuation forward to F2022.”
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Exro Technologies Inc. (EXRO-X) is “an emerging leader” in powertrain technology for electric vehicles, according to Raymond James analyst Michael Glen.
In a research report released Tuesday, he initiated coverage of Vancouver-based company with an “outperform” rating.
“The company’s specific focus is on the inverter or power electronics in an electric vehicle/electric mobility architecture, and their patented technology (which they call the Coil Driver) which offers a number of important advantages versus conventional electric vehicle architectures,” he said.
“While the technology is still undergoing a phase of testing and demonstration, management has successfully hit a number of key milestones over the past year through their establishment of eight strategic partnerships and engineering validation on the 100V Coil Driver for the electric car. We fully anticipate further developments through 2021, as Exro collects data from in-field deployments.”
Mr. Glen pointed to three factors driving his conviction toward Exro: the view its coil driver technology provides the customer “a superior and more efficient system at a lower overall cost;” the presence of CEO Sue Ozdemir, who “brings an extensive (effectively, a lifetime) of global electric motor executive management and leadership to the operation;” and a first-mover advantage from the coil driver.
“We acknowledge that valuing a stock like Exro is challenging and there are a number of higherrisk characteristics to take into consideration,” he said. “The company has a unique technology that offers a number of advantages to its customers, and we see them positioned in a segment of the market that is about to see a massive amount of growth. Additionally, with the recent closing of the $42-million equity financing (12.9 million shares at $3.25), we see the company as extremely well-capitalized in terms of funding its future growth.”
Mr. Glen set a $7 target, exceeding the $4.85 consensus.
“One of the key developments that we will continue to monitor through 2021 is the potential establishment of a commercial/strategic relationship with a larger global OEM/Tier 1 supplier for the rollout and use of Exro’s Coil Driver in their platform,” he said. “This would represent a substantial catalyst for the stock, and we believe that management is actively engaged in such discussions to varying degrees across a range of light-vehicle and medium/heavy-duty mobility applications. Additionally, we also believe that the recent disclosure regarding success in the testing of the 100V Coil Driver was a key milestone in pushing some of these conversations forward.”
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In other analyst actions:
* BMO Nesbitt Burns analyst Ben Pham lowered Pembina Pipeline Corp. (PPL-T) to “market perform” from “outperform” with a $34 target, down from $36, while Raymond James’ Chris Cox increased his target to $35 from $34 with a “market perform” recommendation. The average is $37.68.
“While we believe the 7.5-per-cent dividend yield is sustainable (65-per-cent cash payout) and the balance sheet remains in good shape, PPL’s 2021 guidance and business update highlights that growth is moderating (we model 2-per-cent EBITDA CAGR through 2022) and the upside optionality we flagged in our July 7, 2020, comment is not as robust as we expected and/or is on a longer timeline,” he said.
* BMO’s John Gibson initiated coverage of North American Construction Group Ltd. (NOA-T) with an “outperform” recommendation and $17 target, exceeding the $14.50 consensus.
“NOA offers a unique package of relative stability through its core oil sands construction operations which exhibit high barriers to entry and are largely backstopped by contracts, as well as growth potential through its diversification into metals/mining construction,” he said.
* TD Securities analyst Tim James raised his target for Transat AT Inc. (TRZ-T) to $7.50 from $4.50, while Desjardins Securities’ Benoit Poirier increased his target to $6 from $5 with a “tender” rating. The average is $6.25.
“We believe investors should primarily focus on the proposed transaction with AC,” said Mr. Poirier. “AC was well aware of TRZ’s challenges when it revised the purchase agreement on October 10, in our view. We believe TRZ’s challenges as a standalone company could encourage regulators to approve the transaction if the appropriate commitments are implemented. TRZ trades at a significant discount of 23 per cent to AC’s share offer (0.2862 share of AC per TRZ share), a reflection of the closing risk.”
* Canaccord’s Carey MacRury raised his target for Wheaton Precious Metals Corp. (WPM-T) to $84 from $83 with a “buy” rating. The average is $84.75.
* Haywood Securities analyst Christopher Jones raised his target for shares of Headwater Exploration Inc. (HWX-T) to $3 from $2.50 with a “buy” rating, while Desjardins Securities’ Chris MacCulloch increased his target to $3 from $2.25 also with a “buy” recommendation. The current average is $2.56.
“We would brand HWX’s 2021 guidance as coming in line with expectations, following up on preliminary guidance released after the Company’s major transaction into the Clearwater play at Marten Hills in late November,” said Mr. Jones. “The next 12 will be a defining period for the Company as it sets down a path of targeting 20-30-per-cent debt-adjusted production growth towards achieving scale and size after which the play is forecasted to generate sustainable, low-cost free-cash flow commencing in 2023.”
* Raymond James analyst Rahul Sarugaser initiated coverage of Protech Home Medical Corp. (PTQ-X) with an “outperform” rating and $2 target. The average on the Street is $2.60.
“In the $50-billion (growing at 5-per-cent CAGR), highly fragmented U.S. DME [durable medical equipment] market (more than 6,000 operators), PTQ focuses on securing strategic locations based on geography, new patient volume, and service mix, and on consolidating distribution channels to realize operating efficiencies,” he said. “These drive PTQ’s capacity to generate positive cash flow and operating profits, and PTQ’s continuous, technology-empowered improvement of operations serves to ensure the maintenance of healthy gross margins in the midst of rapid growth.”
* TD Securities initiated coverage of Topaz Energy Corp. (TPZ-T) with a “buy” rating and $17 target. The average is $17.63.
David Leeder