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

A trio of equity analysts on the Street lowered their ratings for Just Energy Group Inc. (JE-T) on Tuesday in response to its forecast of a US$250-million loss from the impact of winter storms sweeping across Texas amid concerns about its liquidity.

RBC’s Nelson Ng dropped the stock to “underperform” from “sector perform” with a $2 target, down from $10. The average target on the Street is $5.50.

“In the absence of regulatory/State intervention to limit the financial impact, we believe Just Energy will need to undergo another balance sheet restructuring,” said Mr. Ng. “We may get additional colour on the situation when the company intends to report quarterly results later this week.”

CIBC World Markets analyst Mark Jarvi moved it to “underperformer” from “neutral” and reduced his target to $1 from $10.

“At this point, we assume existing lenders/shareholders provide the needed support but that comes with a material negative impact on equity value,” said Mr. Jarvi. “After reflecting a spike in net debt and reducing our valuation multiple to reflect elevated uncertainty, our price target moves to $1 (from $10). While legislative intervention might provide some cushion (we don’t assume that happens) and lead to less equity erosion, the losses could be even higher than initially estimated implying further potential downside.”

National Bank Financial’s Endri Leno downgraded the Toronto-based company to “underperform” from “sector perform” without a specified target.


Citing “the company’s torque to improved oil prices and its improving fundamentals, Scotia Capital analyst Jason Bouvier upgraded Crescent Point Energy Corp. (CPG-T) to “sector outperform” from “sector perform.”

“Further, CPG trades at a discount relative to its peers and we consider this to be an attractive entry point,” he added.

Mr. Bouvier maintained a $6 target, exceeding the $4.73 average.

“On strip CPG trades at discounted EV/DACF and DAFCF yield metrics relative to its Canadian and US oil weighted peer groups,” he said. “In 2021 CPG’s EV/ DACF is 3.0 times compared to its Canadian peers at 4.0 times and U.S. peers at 7.4 times. CPG’s 2021 DAFCF (strip) yield is 21 per cent versus Canadian peers at 17% per cent and U.S. peers at 7 per cent. We don’t believe this discounted valuation is justified and expect CPG’s valuation discount to its peers to narrow, with continued operational execution (especially new Duvernay assets, as well as maintaining a low decline rate) and capital discipline (i.e., strong debt repayment).”


Seeing a positive outlook for its stock following Monday’s release of better-than-anticipated fourth-quarter financial results, Raymond James analyst Stephen Boland upgraded Equitable Group Inc. (EQB-T) to a “outperform” recommendation from “market perform.”

After the bell, the Toronto-based mortgage lender reported earnings per share of $4.13, exceeding Mr. Boland’s $3.33 projection. Adjusted EPS of $3.98 fell narrowly from $4.13 in the third quarter.

“The higher than expected earnings was due to $2.8-million of PCLs [provisions for credit losses] that were released as a result of the improved economic outlook and investment gains,” he said. “Adjusted ROE [return on equity] for the quarter was 17.5 per cent with the NIM [net interest margin] gradually improving over the past 3 quarters.

“Management has provided very positive objectives of 12-15-per-cent EPS growth and an ROE of 15-17 per cent for the coming year. Additionally, originations in the alternative segment are expected to continue to rise. We have been cautious on the lenders entering the winter season and the pandemic though that caution is subsiding. Additionally, we are introducing our 2022 estimates and maintain the earnings growth into that year.”

Mr. Boland raised his target for Equitable shares to $140 from $104. The average on the Street is $125.63.

“We apply a 1.15 times (was 1.0 times) multiple to the 2022 estimated book value (was 2021) estimate to arrive at our new target of $140.00,” he said. “The closest comparables (Home Capital, Canadian Western Bank and Laurentian Bank) are all trading close to book value as well. With the growth and high ROE we believe a premium is justified.”

Elsewhere, RBC Dominion Securities analyst Geoffrey Kwan increased his target to $150 from $128, maintaining an “outperform” recommendation, while National Bank Financial’s Jaeme Gloyn raised his target to $160 from $138 with an “outperform” recommendation.


Touting the “emerging ag super cycle,” Desjardins Securities analyst David Newman remains bullish on the prospects on Ag Growth International Inc. (AFN-T), seeing its current share price as enticing and believing it has been “unduly punished” for its bin failure incident last September.

“The significant rally in crop prices, primarily on the back of record demand from China to feed its growing animal herds, is driving strong cash receipts and farm incomes, and has resulted in a spike in farmer confidence,” he said in a research note previewing the March 17 release of its fourth-quarter 2020 results.

“Growing farmer confidence should lead to an acceleration in spending on equipment, especially AGI’s short-line equipment, or consumables, which must be replaced every 3–7 years depending on usage. The synchronous rally in global agricultural markets is driving an increase in quoting activity across AGI and padding its already strong backlogs. Overall, AGI expects 2021 results to exceed 2020 results in both sales and adjusted EBITDA, which should kick into high gear in 2Q.”

For the fourth quarter, Mr. Newman is projecting earnings before interest, taxes, depreciation and amortization $22-million, meeting management’s guidance and flat year-over-year.

He sees a recovery ahead for the second half of 2021, emphasizing backlogs at a record high “supported by a synchronous rally in global agricultural markets, with a surge in crop prices, and increased quoting activity.”

At the same time, he cautioned that the fallout from the bin failure is likely to linger, noting: “AGI expects to start fabrication and work toward remediation of the 35 bins at two sites in Vancouver over the next few months. The investigation is ongoing, with the subsequent negotiation with multiple parties and policies likely more of a 2022 event (should cover a substantial amount of the $70-million charge). The charge should not hinder AGI’s growth plans, given relatively low maintenance capex needs (1.25–1.50 per cent of revenue), and much of its investment in geographic expansion and automation has been executed over the past few years. AGI expects to turn its attention toward monetizing these investments, including greater integration, and deleveraging the balance sheet (from 5.5 times total debt/EBITDA (including convertible debentures) to a goal of 3–4 times within the next 2–3 years).”

Keeping a “buy” rating, he hiked his target for Ag Growth shares to $50 from $38.50. The average on the Street is $44.14.

“Besides a strong outlook, we anticipate management will enhance its guidance in the coming quarters to provide greater transparency, which should further support our bullish view of the company,” he said.


Calian Group Ltd.’s (CGY-T) acquisition of Dapasoft Inc. “checks many strategic boxes,” according to Benoit Poirier of Desjardins Securities, who sees the deal, worth up to $83-million, “further solidifying its four-piston engine.”

“With the acquisition of Dapasoft, management again delivered on its strong M&A track record by completing its largest transaction to date at an attractive valuation (EV/TTM EBITDA [enterprise value to trailing 12-month earnings before interest, taxes, depreciation and amortization] of 8.5 times vs 14.7 times pre-announcement),” he said. “The transaction is also highly strategic for CGY as it should solidify its four-piston growth engine by expanding the IT segment. The transaction is also aligned with management’s strategic objective of expanding margins.”

“We are quite pleased with the acquisition as it checks many strategic boxes for CGY: (1) unlocks significant cross-selling opportunities with CGY’s IT and Health segments, (2) further diversifies the IT segment with strong exposure to proprietary products, and (3) solidifies CGY’s margin profile.”

Mr. Poirier estimates adjusted earnings per share accretion of 7 per cent in fiscal 2021, increasing to 14 per cent in 2022.

“FY22 will mark the first full year of contribution from the acquisition,” he said. “By then, we estimate that EBITDA margin will have improved to 21.2% (from 20.5% in FY21), yielding pro forma adjusted EPS of $3.84.”

“Management has demonstrated its ability to successfully deploy capital through M&A. When CGY completed its equity offering in February 2020, management planned to deploy the capital over 18+ months through M&A. Since then, it has deployed $77-million of cash to complete six acquisitions in three different segments, beating its target by six months. Management remained true to its disciplined capital allocation strategy by realizing these transactions at a combined EV/TTM EBITDA multiple of 5.5 times (CGY currently trades at 16.5 times).”

After raising his revenue and earnings projections for 2021 and 2022, Mr. Poirier increased his target for Calian shares to $75 from $71, keeping a “buy” rating and reiterated his bullish stance toward the Ottawa-based firm. The average on the Street is $77.64.

“Management’s strong M&A track record gives us confidence that CGY can unlock significant value from this transaction,” he said.

Elsewhere, Canaccord Genuity analyst Doug Taylor raised his target to $77 from $75 with a “buy” recommendation.

“The company has now completed six transactions over the past 12 months, paying an average of 5.5 times EBITDA while diversifying and expanding its customer and geographic footprint,” said Mr. Taylor. “With that said, Calian’s acquisition line has capacity for further M&A should opportunities continue to present themselves. This remains a key catalyst for the shares and a contributing factor to our BUY thesis.”


Hardwoods Distribution Inc. (HDI-T) is poised to capitalize on the strong housing market on both sides of the border, according to Canaccord Genuity analyst Yuri Lynk.

“As the largest distributor of architectural building products in North America, we believe HDI is well positioned to benefit from the housing sector’s favourable macro drivers in 2021 and beyond,” he said. “M&A represents additional upside as HDI operates in a large and highly fragmented market. Management are proven acquirers and have a strong balance sheet.”

Mr. Lynk expects the Langley, B.C.-based company to report “strong” fourth-quarter financial results on March 11 after the bell.

“Last year was all about reestablishing HDI’s gross margins, which we expect to remain at the upper end of management’s 18-19-per-cent range in Q4/2020. This year should be about the return to organic growth, and we believe we’ll see some of that in Q4/2020.”

His estimates for the quarter are largely in line with the consensus projections on the Street, including revenue of $300-million, EBITDA of $21-million and earnings per share of 38 cents.

“Strength in new-home building and renovation observed throughout 2020 bodes well for HDI in 2021,” he added. “U.S. residential home building and renovation activities have increased sharply, mainly driven by the low interest rate environment, favourable demographic trends, and COVID-19′s effects on housing demand. As noted in past research, HDI’s architectural grade products, such as cabinets, doors, and moldings, are used in later stages of construction, implying a six- to nine-month lag between the project start and the time when these products are needed.”

He raised his 2021 and 2022 projections to $2.15 and $2.38, respectively, from $2.10 and $2.28.

Keeping a “buy” recommendation for Hardwoods shares, Mr. Lynk bumped his target to $33 from $31. The average is $34.10.


Starbucks Inc. (SBUX-Q) is likely to be a big winner as the recovery from pandemic-driven lockdowns progresses, according to Andrew Strelzik of BMO Nesbitt Burns.

He upgraded its shares to “outperform” from “market perform” with a US$120 target, rising from US$102 and exceeding the US$109.42 consensus.

“We view SBUX as a reopening beneficiary with meaningful potential upside to FY21/FY22 consensus, partly driven by comp contributions from sales transfer due to the U.S asset base transformation, accelerating digital momentum, easing competitive dynamics in China, and steeper margin recovery,” Mr. Strelzik said. “Further, SBUX is increasingly attractive in the context of alternatives’ share price appreciation.

“We increase FY2021/FY2022 estimates, and our target implies 20.5-21.0 times EV/EBITDA on FY2022 numbers, which we believe can continue to move higher.”


In other analyst actions:

* Jefferies analyst Christopher LaFemina raised his target for shares of First Quantum Minerals Ltd. (FM-T) to $45 from $35 with a “buy” rating. The average is $28.50.

* HSBC analyst Alexandre Falcao raised his Nutrien Ltd. (NTR-N, NTR-T) target to US$60, matching the current consensus, from US$47 with an “outperform” rating.

* CIBC’s Kevin Chiang lowered his Parkland Corp. (PKI-T) target to $48 from $51 with an “outperformer” rating. The average is $48.62.

“Although PKI’s shares have underperformed since mid-January on concerns about the terminal value risk associated with retail fuel assets, we continue to have a favourable view on the company given the multiple levers it has to pull (both organic and inorganic). There are not too many companies we cover of PKI’s size that are in a position to double their pre-pandemic earnings in a handful of years combined with an undemanding valuation,” said Mr. Chiang.

* TD Securities analyst Arun Lamba raised his target for Solaris Resources Inc. (SLS-T) to $11 from $10 with a “speculative buy” rating. The current average is $9.07.

* Canaccord’s Carey MacRury cut his Agnico Eagle Mines Ltd. (AEM-T) target to $110 from $115 with a “buy” rating. The average is $91.81.

“We continue to see Agnico as a steady gold producer, operating in good mining jurisdictions with a sustainable production profile. Results from the Malartic underground PEA, featuring average annual production of more than 500koz for at least a decade, were announced alongside quarterly earnings, and help cement Malartic as a cornerstone asset through 2039 (and likely beyond),” said Mr. MacRury.

* TD Securities analyst Craig Hutchison raised his target for Nexgen Energy Ltd. (NXE-T) to $7 from $4 with a “speculative buy” rating, while Raymond James’ Brian MacArthur increased his target to $6 from $5.50, maintaining an “outperform” recommendation. The average is $5.91.

“NexGen offers exposure to one of the world’s largest undeveloped uranium deposits located in Saskatchewan. NexGen is well financed in the near-term with $44-million in cash at quarter-end. Given the high quality of the Arrow deposit and current valuation, we maintain our Outperform rating,” said Mr. MacArthur.

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