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

Finning International Inc. (FTT-T) is “well positioned amidst an improved backdrop,” according to RBC Dominion Securities analyst Sabahat Khan.

In a research report released Tuesday, he initiated coverage of the Vancouver-based Caterpillar equipment dealer with an “outperform” recommendation, seeing the outlook for commodities as “supportive” and its current valuation providing a “favourable” entry point for investors.

“Finning’s results from Western Canada are primarily dependent on the price of WTI, while the company’s results in South America are primarily dependent on the price of copper,” said Mr. Khan. “These two regions combined accounted for 85 per cent of 2019 net revenue. Higher prices for each of these commodities incentivize operators in the respective end-markets to increase capital budgets and activity levels, which results in higher equipment utilization, and ultimately, increased demand for Finning’s products/services. The opposite also holds true, and this has resulted in Finning being fairly cyclical over its history. We would note, however, that management has undertaken steps to reduce the fixed cost base across its regions, and these steps have reduced SG&A as a percentage of net revenue to 19 per cent in 2019 (from the high of approximately 23 per cent over recent years). This reduction in fixed costs is expected to help moderate the cyclicality of Finning’s results and improve its FCF through the cycle. Looking ahead, we expect the favorable outlook for both WTI and copper to provide a supportive operating backdrop, while recent cost reduction initiatives and the ERP roll-out in South America should also drive operating leverage. We note that Finning’s current P/B multiple of 2.2 times is below its 10-year average of 2.5 times, which indicates a favorable entry point, in our view.”

Mr. Khan expects investors to be focused on four factors in the near-term: increased quoting activity in Western Canada stemming from improving oil prices; top-line South American trends with rising copper prices; signs of margin improvement and progress on its $100-million cost reduction program and updates to its digital initiatives.

The analyst set a target price of $33 per share. The average on the Street is $31, according to Refinitiv data.

“Given our outlook for improved commodity prices through 2021-2022, and the steps being undertaken by management to eliminate $100-million of costs, we believe Finning’s shares are likely to trade within this higher range for the foreseeable future,” said Mr. Khan. “Given this outlook, we believe our valuation multiple of 19.5 times is justified, and we see potential for upside if the company is able to deliver better-than-expected revenue growth/margin improvement over our forecast horizon.”


Separately, Mr. Khan also initiated coverage of Toromont Industries Ltd. (TIH-T) with an “outperform” recommendation, calling it “a best-in-class operator that has developed a long track record of delivering solid shareholder returns (peer-leading ROE and ROCE).”

Pointing to its “consistent track record” and expecting to see “strong” earnings growth of 20 per cent in 2021 and 15 per cent in 2022, Mr. Khan said he views the Concord, Ont.-based equipment dealer “as a core holding within Industrials.”

“Toromont has established a track record of delivering strong and consistent results throughout the business cycle (14-year EBIT CAGR [compound annual growth rate] of 9 per cent), in addition to peer-leading returns (long-term ROE of 21 per cent),” said the analyst. “The company’s exposure to relatively stable territories (Central and Eastern Canada, where the economies are more diverse as compared to the resource-driven western provinces) has certainly been beneficial; however, the company’s decentralized operating model, which promotes autonomy and ownership among its front-line employees has also contributed to the consistent performance.

“Looking ahead, we expect Toromont to deliver strong results over our forecast horizon, with revenue growth of 8 per cent year-over-year and 7 per cent year-over-year in 2021 and 2022, respectively, and an EBIT margin of 12.4% by 2022 (vs. 11.2 per cent in 2019). We expect Toromont to benefit from an improving operating backdrop across its territories and from the rental segment/technology investments made in the Quebec-Maritimes region (territories acquired as part of the 2017 Hewitt acquisition) over the recent years. This should translate to EPS growth of 20 per cent year-over-year and 15 per cent year-over-year in 2021 and 2022, respectively. The strong earnings growth, combined with peer-leading return metrics support a premium valuation for Toromont.”

Mr. Khan set a $101 target, exceeding the average on the Street of $94.81.

“We expect investor focus over the near-term to be on: 1) demand trends in Ontario and Quebec as we (hopefully) move beyond the impact of the pandemic through 2021; 2) margin trends over the course of 2021 as operations/costs begin to normalize (particularly in H2); 3) progress on the remaining Hewitt integration and realization of synergies/savings; and, 4) any updates on capital allocation priorities as leverage continues to decrease,” he said.


In response to higher crude prices and faster-than-anticipated rig count growth in both Canada and the United States, Raymond James analyst Andrew Bradford increased his financial estimates for both the Contract Drilling and Completions companies in his coverage universe on Tuesday.

“Completions EBITDA tends to cycle with more amplitude than for drillers whose equipment tends to benefit from much greater contract coverage,” he said in a research note. “The median upward revision for the Completions group was 55 per cent vs 19 per cent for contract drillers.

“Similarly, our EBITDA estimates are above consensus across the board, but our Completions estimates are more substantially above consensus than for the Contract Drillers. The median difference between our estimates and the consensus is 60 per cent for Completions companies and 12 per cent for the Contract Drillers.”

With those increases, Mr. Bradford upgraded six of the seven companies in his coverage universe.

Three of those changes were by two levels:

* Precision Drilling Corp. (PD-T) to “strong buy” from “market perform” with a $40 target, up from $20. The average on the Street is $29.66.

“In PD’s case, the stock has somewhat lagged the group while it has concurrently gained market share. In addition, we find a multiple discount to its nearest peer where one hadn’t previously existed,” he said.

* Calfrac Well Services (CFW-T) to “outperform” from “underperform” with a $5.65 target from $4. Average: $14.57.

* Trican Well Service Ltd. (TCW-T) to ”strong buy” from “market perform” with a $2.30 target from $1.20. Average: $1.65.

“For TCW, the consensus doesn’t reflect the degree of fracturing demand expansion we expect in Canada (the highest rig count growth region in North America since 3Q), nor does it reflect its redoubled emphasis on cost efficiency,” he said.

He added: “We conclude that Precision Drilling and Trican Well Service represent the best buying opportunities within these two groups - both rated Strong Buy.”

Mr. Bradford also upgraded:

* Essential Energy Services Ltd. (ESN-T) to “outperform” from “market perform” with a 50-cent target, up from 25 cents. Average: 28 cents.

* STEP Energy Services Ltd. (STEP-T) to “outperform” from “market perform” with a $1.75 target from 45 cents. Average: 66 cents.

“Micro caps ESN and STEP also screen as highly attractive buys in this environment, though trading liquidity is a likely constraint for some investors,” he said.

* Ensign Energy Services Inc. (ESI-T) to “outperform” from “market perform” with a $1.25 target from 45 cents. Average: 89 cents.

He maintained an “underperform” rating and 10-cent target for Western Energy Services Corp. (WRG-T). The average is 18 cents.

“Given recent stock performances, we perceive valuation risk in WRG and to a lesser degree ESI,” he said.


Calling it a “show me story,” Citi analyst Stephen Trent reinstated coverage of Bombardier Inc. (BBD.B-T) with a “neutral” rating on Tuesday.

“On the back of the simplification of Bombardier’s operational profile over the past year, the market might now seek indications on how a relatively new executive team rebuilds cash flow generation and reduces the company’s debt load,” he said. “The transport division’s sale should reduce Bombardier’s net debt by US$4-billion, but it should also trim EBITDA generation.”

“The good news is that Bombardier is already a leading business jet manufacturer — it is just one of two OEMs competing in the coveted ultra-long-range segment. On the other hand, the biz jet market does not look easy, with pre-pandemic demand unlikely to return before the end of 2022.”

Mr. Trent set a 57-cent target, down from $2.10 previously but above the 48-cent consensus.


Desjardins Securities analyst Frederic Tremblay expects Goodfood Market Corp. (FOOD-T) to release “solid” first-quarter results on Wednesday and anticipates further gains to come as COVID-19-related restrictions accelerate its growth and move it to profitability

For the quarter, he’s forecasting year-over-year revenue growth of 53.5 per cent and subscriber gains of 33 per cent “as well as positive trends in order frequency and order size driven by regular introductions of new products/services.” He said his adjusted EBITDA estimate of nil, up from a $3.7-million loss a year ago, reflects growth initiatives as well as the impact of marketing campaigns and new hires.

“We will also focus on management’s comments on recent demand trends, the planned opening of a new fulfillment centre in the Greater Toronto Area in summer 2021, grocery SKU additions and next steps in the roll-out of same-day delivery,” said Mr. Tremblay.

Citing ongoing pandemic-driven lockdown restrictions, he raised his 2021 and 2022 EBITDA projections to $6.3-million and $15.7-million, respectively, from $6.1-million and $15.4-million.

“We believe that the escalation of COVID-19 cases and more stringent measures being implemented in certain parts of Canada in recent weeks (eg lockdown and curfew in Quebec) bode well for Goodfood, given the positive implications on food consumption at home and on the ‘stickiness’ of consumer purchasing habits,” he said. “As a result, we are slightly increasing our estimates for 2Q FY21 and beyond.”

Keeping a “buy” rating for its shares, Mr. Tremblay hiked his target to $15 from $11.50. The average on the Street is $12.81.

“Overall, despite FOOD’s share price appreciation in recent weeks and months, we believe upside remains,” he said.


In a research report previewing fourth-quarter financial results and looking ahead to 2021 catalysts for North American base metals companies, RBC Dominion Securities analyst Sam Crittenden said copper remains a tailwind.

“We remain positive on copper in 2021 as low inventories and recovering global demand are supportive of higher prices,” he said. “The equities are well positioned and we forecast a 10-per-cent FCF yield on average which we believe justifies higher multiples.”

Mr. Crittenden raised his 2021 copper price estimate to $3.50 per pound from $3.25and increased EBITDA multiples by 1 times.

That led to increase to the target prices for stocks in his coverage universe by an average of 15 per cent.

His changes included:

* Capstone Mining Corp. (CS-T, “sector perform”) to $3.75 from $2.50. The average on the Street is $2.76.

“We expect a solid quarter from Capstone with increased sales (carried over from Q3) and strong silver prices should keep C1 costs low,” he said.

* First Quantum Minerals Ltd. (FM-T, “outperform”) to $31 from $23. Average: $23.68.

“After a stellar Q3, First Quantum’s Q4 could be more muted given a 7-day maintenance shutdown at Cobre Panama in Q4 and potential for higher costs. We do not anticipate any significant changes with the 3 year guidance update and while costs have been trending below plan so far at CP, we expect management to maintain conservative guidance for now,” he said.

* Hudbay Minerals Inc. (HBM-T, “sector perform”) to $12 from $10. Average: $9.98

“Hudbay’s Q4 results are expected to be impacted by the downtime at 777 offset by continued progress on the gold plant at New Britannia,” he said.

* Ivanhoe Mines Ltd. (IVN-T, “outperform”) to $9 from $7. Average: $7.93.

* Labrador Iron Ore Royalty Corp. (LIF-T, “outperform”) to $40 from $39. Average: $35.86.

“We expect a neutral reaction to LIF’s Q3 earnings which we expect to increase quarter-over-quarter, primarily driven by a stronger iron ore prices,” he said.

* Lundin Mining Corp. (LUN-T, “sector perform”) to $13 from $11. Average: $12.04.

“Lundin’s results could be neutral with 3-year guidance released in November and Q4 expected to be weak due to the strike at Candelaria and motor damage at Chapada,” he said.

* Turquoise Hill Resources Ltd. (TRQ-N, TRQ-T, “sector perform”) to US$16 from US$12.50. Average: $18.71 (Canadian)

* Teck Resources Ltd. (TECK.B-T, “outperform”) to $33 from $27. Average: $25.46.

“We expect a neutral reaction to Teck’s results as they reaffirmed Q4 coal sales guidance in mid November and provided direction on 2021 production and costs with Q3 results. Progress updates at Neptune and QB2 should (hopefully) check the box and not provide any surprises,” he said.

On the sector, Mr. Crittenden said: “First Quantum remains our preferred copper producer as Cobre Panama resumes the ramp up to becoming a world class mine. Teck could benefit from rising met coal prices into year end. Ivanhoe is now less than 6 months away from first production Kamoa-Kakula. Labrador Iron Ore and Champion Iron stand to benefit from the elevated Iron Ore price.”

Elsewhere, Credit Suisse analyst Fahad Tariq raised his target for Hudbay Minerals to $11 from $10 with an “outperform” rating and Lundin Mining to $11 from $9 with a “neutral” recommendation.

Canaccord Genuity’s Dalton Baretto cut his target for Turquoise Hill Resources to $16.50 from $18.50 with a “hold” rating.


A day after it reaffirmed its 2020 guidance and introduced its 2021 financial targets, including a year-over-year adjusted EBITDA increase of 50 per cent alongside its Investor Day event, a group of analysts raised their targets for NFI Group Inc. (NFI-T) on Tuesday.

TD Securities’ Daryl Young upgraded the stock to “buy” from “hold” with a $35 target, rising from $26.

Other changes included:

* CIBC World Markets’ Kevin Chiang to $34 from $28 with an “outperformer” rating

“NFI hosted an investor day highlighting that it is well-positioned for the transition to ZEB (zero-emission buses) given its diverse product line, leading market position, manufacturing experience, and product support capabilities,” he said. “Despite the impact of COVID-19 on public transit agencies, there remains strong political support for electric buses. We view the shift to ZEB as helping support the replacement cycle for transit buses, and combined with NFI’s internal initiatives, providing improved clarity on NFI’s long-term earnings trajectory.”

* National Bank Financial’s Cameron Doerksen to $33 from $24 with an “outperform” rating

* Scotia Capital’s Mark Neville to $34 from $23 with a “sector outperform” rating

The current average target on the Street is $28.29.


Vancouver-based Standard Lithium Ltd. (SLL-X) is “unlocking a large unconventional resource” through its “innovative” proprietary technology, according to Canaccord Genuity analyst Katie Lachappelle.

“Standard Lithium is advancing a portfolio of projects in the United States,” she said. “The company’s flagship Lanxess Project is a contemplated joint venture with LANXESS AG (LXS-ETR), a German specialty chemicals company, to produce battery-quality lithium carbonate from the tail brine of LANXESS’ existing bromine operations in south Arkansas.

“In our view, SLL is well positioned to unlock one of the largest unconventional lithium brine resources in the United States via proprietary technology and a strong strategic partnership. By leveraging existing infrastructure, SLL is fast-tracking production to meet increasing domestic demand and a looming market deficit.”

She initiated coverage of the stock with a “speculative buy” recommendation and $3.50 target, exceeding the $2.52 consensus.

“From a relative valuation perspective, Standard Lithium trades at a slight premium to lithium developer peers under coverage (0.95 times NAV vs. peers at 0.82 times),” she said. “We believe this is warranted given the project’s level of advancement, low jurisdictional risk, and upcoming catalysts.”


“Cyclical Energy Services stocks are back on the menu for 2021,” said ATB Capital Markets analyst Tim Monachello, who is “positioning for a recovery phase.”

“We believe market fundamentals strongly suggest 2021 will drive cyclical improvements in field activity across North America, and this year could be the beginning of a moderate multi-year activity upcycle,” he said in a research report. “While risks remain regarding the pace of recovery, we believe upside in activity now meaningfully outweighs downside risk. In this environment we now favour energy services stocks with increased beta exposure, and production levered companies with less conservative balance sheets (although we continue to focus heavily on free cash generation).”

“North American energy services companies are likely to be among the most beta exposed over the coming years to a recovery in global energy markets. That said, we believe Canada and the Permian basin are likely to emerge as regions where activity could become more concentrated, and where markets could tighten most rapidly.”

Mr. Monachello increased his target prices for stocks in his coverage universe from between 17-50 per cent in order to “gain visibility to 2021 activity levels and toward a cyclical recovery.”

He called Exterran Corp. (EXTN-N) his “top value idea.” He has an “outperform” rating and US$13.50 target, up from US$11 and above the US$10.50 target.

Tervita Corp. (TEV-T) is his “top Canada weighted idea.” He has an “outperform” recommendation and $6.50 target, rising from $5. The average is $4.17.

“Tervita is a pure-play Canadian energy waste and environmental services business,” said Mr. Monachello. “As such, we believe its 2021 results could benefit from upside to Canadian drilling and completions waste volumes. In addition, TEV is likely to be a primary beneficiary of increasing landfill and environmental services activity from government abandonment and reclamation stimulus which will be largely incremental in 2021 and 2022 compared to 2020.”

His other changes were:

  • Enerflex Ltd. (EFX-T, “outperform”) to $10.50 from $9. Average: $9.36.
  • AKITA Drilling Ltd. (AKT.A-T, “sector perform”) to 75 cents from 50 cents. Average: 45 cents.
  • CES Energy Solutions Corp. (CEU-T, “outperform”) to $2.25 from $1.60. Average: $1.68.
  • PHX Energy Services Corp. (PHX-T, “outperform”) to $4 from $2.75. Average: $2.45.
  • Questor Technology Inc. (QST-X, “sector perform”) to $3 from $2. Average: $2.04.
  • Shawcor Ltd. (SCL-T, “sector perform”) to $5 from $4.25. Average: $4.96.
  • High Arctic Energy Services Inc. (HWO-T, “sector perform”) to $1.75 from $1.35. Average: $1.35.
  • Total Energy Services Inc. (TOT-T, “outperform”) to $5.50 from $3.75. Average: $4.15.


In other analyst actions:

* Scotia Capital analyst Michael Doumet downgraded Ritchie Bros. Auctioneers Inc. (RBA-N, RBA-T) to “sector perform” from “sector outperform” with a US$70 target, falling from US$80. The average on the Street is US$75.36.

* TD Securities analyst Craig Hutchison raised his target for Taseko Mines Ltd. (TKO-T) to $2 from $1.90, keeping a “buy” rating. The average is $1.79.

* Scotia Capital analyst Himanshu Gupta raised his Slate Grocery REIT (SGR.UN-T) target to $9 from $8.50 with a “sector perform” rating. The average is $8.68.

* Credit Suisse analyst Christopher Parkinson hiked his target for Nutrien Ltd. (NTR-N, NTR-T) to US$51 from US$41 with a “neutral” rating, while CIBC World Markets’ Jacob Bout raised his target to US$65 from US$62, keeping an “outperformer” rating. The average on the Street is US$51.63.

“The outlook for NTR has improved over the past several months – farm income levels and crop prices are at multi-year highs while fertilizer affordability levels remain low. We continue to expect a step-up in 2021 earnings/free cash flow driven by a stronger potash pricing/volume outlook and Retail organic growth/margin expansion. We expect a strong H1/21 for nitrogen, followed by moderating prices in the back half of the year. Other catalysts include NTR potentially reinstating its normal course issuer bid (NCIB) program/raising its dividend in a few quarters,” said Mr. Bout.

* Mr. Bout increased his target for Ag Growth International Inc. (AFN-T) to $42 from $38 with an “outperformer” recommendation. The average is $38.50.

“AFN has massively underperformed ag. equipment peers (DE trading at an all-time high), in part due to the bin collapse incident. We expect an update on the issue later in Q1/21, but do believe the market has been overly punitive. Note that insurance will cover a large chunk of the potential liability in the case AFN is found liable. We have trimmed our 2021 estimates to reflect a slow Q1/21 and higher steel costs, but expect strong organic growth driven by the International segment and, to a lesser extent, the U.S. business (we expect Canadian growth to be relatively muted),” he said.

* Citi analyst Scott Gruber raised his target for Precision Drilling Corp. (PD-T) to $30 from $28 with a “neutral” rating. The average is $29.66.

* Raymond James analyst Brad Sturges increase his InterRent REIT (IIP.UN-T) target to $16.50 from $15.50, maintaining an “outperform” rating. The average is $16.23.

* BMO Nesbitt Burns analyst Andrew Mikitchook moved his Equinox Gold Corp. (EQX-T) target to $22.50 from $22 with an “outperform” rating. The average is $21.90.

* National Bank Financial analyst Shane Nagle upgraded Filo Mining Corp. (FIL-X) to “outperform” from “sector perform” with a $3.50 target, which exceeds the $3.32 consensus.

* Tudor Pickering Holt analyst Jordan McNiven raised Birchcliff Energy Ltd. (BIR-T) with a $2 target and Advantage Oil & Gas Ltd. (AAV-T) to “buy” from “hold” with a $2.50 target. The average targets are $2.91 and $3.40, respectively.

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