Inside the Market’s roundup of some of today’s key analyst actions
RBC Dominion Securities analyst Drew McReynolds thinks sequential improvements are likely “across the board” when BCE Inc. (BCE-T) reports its first-quarter financial results before the bell on Thursday.
“We expect Q1/21 results to reflect decent wireless activity, continued residential wireline momentum and sequential business market improvement, with 2021 guidance reiterated,” he said in a research note released Tuesday.
For the quarter, Mr. McReynolds is projecting revenues of $5.563-billion and earnings before interest, taxes, depreciation and amortization (EBITDA) of $2.369-billion, drops of 1.4 per cent and 2.0 per cent year-over-year, respectively, but in line with the consensus estimates on the Street ($5.587-billion and $2.374-billion). Despite “lingering” pandemic-related headwinds, he sees wireless revenues rising 0.8 per cent year-over-year with EBITDA dipping 1.3 per cent, while wireline results are projecting to slid 2.0 per cent and 1.8 per cent, respectively.
Maintaining a “sector perform” recommendation for BCE shares, Mr. McReynolds raised his target by $1 to $59. The average target on the Street is $60.19, according to Refinitiv data.
“We believe BCE’s competitive position relative to peers could see the greatest gains over the medium-term driven by FTTH expansion and 5G deployment across Canada’s largest integrated wireline-wireless network footprint, and growth in B2B IoT [business-to-business Internet of Things],” he said. “While BCE will not be immune to the lingering impacts of COVID-19, we continue to believe the migration to unlimited plans/EIPs, residential Internet market share gains driven by sustained FTTH investment, a gradual improvement at Bell Media and the realization of additional cost efficiencies that leverage a scale advantage position BCE for continued dividend growth, albeit with an elevated but declining dividend payout ratio beginning in 2022.”
A group of equity analysts on the Street trimmed their target prices for shares of Canadian National Railway Co. (CNR-T) following the release of its first-quarter results after the bell on Monday and amid the uncertainty brought on by the bidding war for Kansas City Southern (KSU-N).
CIBC World Markets’ Kevin Chiang moved his target to $146 from $148, keeping a “neutral” recommendation. The average on the Street is $137.78.
“CN reported Q1 results in line with our expectations, and raised its guidance for 2021 to double-digit percentage EPS growth (up from high-single-digit percentage growth) though we and consensus were there already,” he said. “Not surprisingly, the focus on CN’s earnings call was its bid for KSU. While CN does face a higher regulatory threshold, especially with the STB confirming KSU’s waiver is applicable to the combination of KSU and CP, the company reiterated its confidence in meeting the public interest test. More specifically, CN highlighted that it is willing to work with stakeholders to address any concerns noting there are “no insolvable problems.”
Credit Suisse’s Allison Landry lowered her target to $122 from $125 with an “outperform” rating, emphasizing the decision to halt share buybacks.
“CN’s op results fell short of both our expectations and the consensus in Q1, in large part due to a worse than expected operating ratio (60bps worse than our forecast),” she said. “But fundamentally, the demand backdrop is strengthening, rail pricing is accelerating cyclically (amplified by the company’s yield management strategy), and productivity is improving – all of which are positive for CN’s results going forward. Given that volumes are accelerating, CN should benefit from strong op leverage starting in Q2. However, the improving backdrop and guidance range is unlikely to be a big driver of share performance in the short term – so long as the merger remains front and center.”
Elsewhere, Evercore ISI analyst Jonathan Chappell cut his target by $1 to $123 with an “in line” rating.
Calling it a “storied Canadian space franchise” and expecting several large programs to propel its growth, Canaccord Genuity analyst Doug Taylor initiated coverage of MDA Ltd. (MDA-T) with a “buy” recommendation.
The Brampton, Ont.-based company, formerly known as MacDonald, Dettwiler and Associates, began trading on the TSX on April 7 following the close of its initial public offering.
“After its sale by Maxar in 2019, MDA has emerged from a year under private ownership with a refreshed backlog and project pipeline that is expected to reignite growth for years to come and fund a substantial reinvestment cycle,” said Mr. Taylor. “Over time, we see these emerging opportunities solidifying MDA’s status as a leading pure play on space technology. Increased investor enthusiasm for investments tied to the ‘new space economy’ has propelled sector valuations to new heights, but we see upside as MDA executes against its forecast for a 30-per-cent organic revenue CAGR [compound annual growth rate] over the next five years.”
Mr. Taylor expects MDA’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to “expand consistently” with revenue. He’s projecting EBITDA of $96.9-million in 2021, increasing to $228.7-million by 2023.
“The company intends to reinvest a significant amount of cash flow into infrastructure, specifically capex related to a new fully owned SARnext earth observation constellation and infrastructure to support the CSC and Telesat programs. These investments should support many years of growth and EBITDA expansion; however, positive FCF conversion, including growth capex, is not expected until 2025,” he noted.”
Seeing it balance sheet in a “strong position to support this reinvestment cycle,” he added: “The $431-million net proceeds from the IPO were used to offset leverage incurred when MDA was taken private. MDA has emerged with a conservative leverage of 0.2 times net debt/ LTM EBITDA, which we expect to tick up modestly as the company invests in its next-generation satellite constellation and facilities supporting its aggressive growth profile. We model a peak of 1.2 times in 2022 before leverage begins to decline again.”
Mr. Taylor set a target of $22 for MDA shares. They closed at $15.17 on Monday.
“Given a 45.0-per-cent potential one-year return based on the current share price, we are initiating with a BUY recommendation,” he said.
Elsewhere, Scotia Capital started MDA with a “sector outperform” rating and $24 target, while BMO Nesbitt Burns’ Thanos Moschopoulos gave it a “market perform” rating and $17 target.
“MDA is primarily an execution story over the next two or three years, in our view, given that it has strong visibility for revenue growth stemming from three large programs,” said Mr. Moschopoulos. “While we view the stock’s valuation as undemanding, several of MDA’s key executives (while very experienced) are relatively new to MDA. This creates some incremental execution risk, in our view; we’d like better comfort on this front prior to taking a more positive view.”
After its first-quarter financial results blew past expectations on the Street, Citi analyst Timm Schneider suggested Kinder Morgan Inc. (KMI-N) is the “unloved midstream sleeper.”
To account for the results and stronger-than-anticipated guidance, he made substantial increases to his 2021 projections, raising his net income, adjusted EBITDA and discounted cash flow estimates to US$2.67-billion, US$7.68-billion and US$5.13-billion, respectively, from US$2.14-billion, US$6.98-billion and US$4.59-billion.
“Last week’s results at KMI set the stage for a potentially eye-opening Q1′21 earnings season (we can’t remember ever being ‘off’ by almost $1-billion),” said Mr. Schneider. “The notable ‘beat and raise’ was driven by a one-time windfall. The offset: Declining expectations within the base business. So while we are raising 2021 estimates on the heels of the beat, we would note the ‘incrementals’ on forward base numbers pointed to lower EBITDA and higher capex. Outperformance vs the broader group year-to-date has coincided with increased investor interest in KMI’s CO2 segment and other potential ‘hidden gem’ assets once (not long ago) considered at risk of being ‘stranded’ (i.e. Ruby). KMI appears largely disliked (link, which makes us want to like it more. We make modest adjustments to multiples within the CO2 and Natural Gas segments to reflect this, though we remain on the sidelines given a lid on total return.”
Keeping a “neutral” recommendation for Kinder Morgan shares, the analyst raised his target to US$17 from US$15.50. The average on the Street is US$17.48.
“We rate KMI a Neutral (2) based on a view that shares appear fairly valued. We believe KMI’s opportunity set around incremental growth projects looks balanced against risks around existing assets near-term. We see fewer large natural gas infrastructure projects materializing over the medium-term,” said Mr. Schneider.
Reiterating his “very constructive” view of Alberta’s power market, Credit Suisse analyst Andrew Kuske upgraded Capital Power Corp. (CPX-T) to “outperform” from “neutral” on Tuesday.
“We continue our overall stock preference for TransAlta as a compelling valuation story with a lot of underlying option value,” he said. “Yet, we upgrade Capital Power to Outperform from Neutral rating and boost that target to $46 from the prior $40. For both CPX and TA, we see favourable power pricing exposure in Alberta with the market’s transition to a competitive dynamic from the prior PPA construct. For a number of reasons, the 30-rolling average price is less relevant than in the past, but does provide a useful reference point, in our view.”
“Alberta’s power market is relatively small versus a number of others in our focus. Yet, the nature of the transition underway is one of the most interesting at a number of levels, including: (a) the incumbents’ overall market share; (b) coal-fired plants (which is already rather rare in Canada to begin with) being phased out on an accelerated basis; (c) a large base of industrials in the petrochemical complex with significant steam requirements; (d) a growing base of renewable generation; (e) the impact of escalating carbon pricing in a fossil skewed market; and (f) the end of a 20-year market construct, that also was an energy transition event, to a more market-oriented framework.”
Mr. Kuske’s new $46 target tops the $39.54 average.
Flagship Communities Real Estate Investment Trust (MHC.U-T) is “providing an answer to housing affordability,” according to Desjardins Securities analyst Kyle Stanley.
In a research report released Tuesday, he initiated coverage of Kentucky-based REIT with a “buy” recommendation, seeing it offering a “unique” opportunity for investors to gain exposure to U.S.-based manufactured home communities (MHCs), which he called a “niche asset class supported by robust fundamentals.”
“Flagship’s portfolio comprises 54 MHCs (8,793 lots) in the midwestern U.S.,” said Mr. Stanley. “The manufactured housing community (MHC) asset class benefits from a robust fundamental picture driven by accelerating demand for affordable housing met with constrained new supply. The resulting imbalance creates a highly stable, defensive cash flow profile with healthy rent growth upside; we believe it can deliver 3.0–4.0-per-cent AMR [average monthly rent] growth through 2022.”
“The REIT’s new access to capital, scalable platform and extensive network should provide a competitive advantage on the acquisition front. With US$45-million of acquisition capacity, we expect it to continue consolidating the highly fragmented MHC market and take advantage of the desirable investment spread dynamic (250–350 basis points spread between cap rates and financing costs).”
Touting its “significant external growth opportunity” and “attractive” relative valuation, Mr. Stanley set a target of US$17.50 per unit, exceeding the US$17.75 average on the Street. It closed Monday at US$15.75.
“At current levels, Flagship provides investors access to defensive cash flows with healthy rent growth upside at a significant discount to U.S. MHC peers,” he said. “Moreover, its favourable yield/payout dynamic (approximately 3.2 per cent/54 per cent), organic growth potential and low capex intensity should lead to 6–7-per-cent compound annual NAV growth through 2022.”
JP Morgan analyst Tyler Langton adjusted his target prices for a group of TSX-listed miners in his coverage universe on Tuesday.
He lowered his targets for these companies:
- Agnico Eagle Mines Ltd. (AEM-T, “neutral”) to $84 from $103. The average on the Street is $86.46.
- Alamos Gold Inc. (AGI-T, “neutral”) to $13 from $14. Average: $15.06.
- B2 Gold Corp. (BTO-T, “neutral”) to $8 from $9. Average: $9.18.
- Barrick Gold Corp. (ABX-T, “overweight”) to $33 from $39. Average: $29.35.
- Franco-Nevada Gold Corp. (FNV-T, “hold”) to $196 from $205. Average: $201.02.
- Kinross Gold Corp. (K-T, “overweight”) to $12 from $14. Average: $15.31.
- Kirkland Lake Gold Ltd. (KL-T, “underweight”) to $49 from $57. Average: $69.20.
- SSR Mining Inc. (SSRM-T, “overweight”) target to $26 from $30. Average: $33.31.
- Wheaton Precious Metals Corp. (WPM-T, “overweight”) to $70 from $75. Average: $75.55.
Mr. Langton raised his target for Pan American Silver Corp. (PAAS-T, “overweight”) target to $52 from $49. The average is $49.15.
Meanwhile, JP Morgan’s Michael Glick trimmed his target for Teck Resources Ltd. (TECK.B-T) to $35 from $36 with an “overweight” recommendation. The average is currently $31.10.
Positive catalysts are on the horizon for Alaris Equity Partners Income Trust (AD.UN-T), according to Desjardins Securities analyst Gary Ho, pointing to an “overall positive fair value write-up” and increases to his Kimco redemption value estimate.
Ahead of the release of its first-quarter results on May 6, Mr. Ho is projecting EBITDA of $28.6-million for the Calgary-based company, exceeding the consensus on the Street of $28.4-million.
“With 85 per cent of its portfolio investments being U.S.-based and the rebound in economic activity, this should bode well for the underlying portfolio businesses, leading to positive FV increases,” he said. “We believe AD’s BV [book value] is conservatively valued and offers upside on an economic recovery (AD has delivered three consecutive quarterly FV write-ups).”
Though he made narrow negative estimate revisions to his projections for the next two years, Mr. Ho raised his target for Alaris shares to $20.50 from $20, which exceeds the consensus by 6 cents. He kept a “buy” recommendation.
“AD has a diverse portfolio. We are encouraged by the strong capital deployment year-to-date and turnaround at PFGF and Kimco,” he said. “With potential PFGF distribution increases in 2H21, the payout ratio could drop further to the low-60-per-cent range. FED and Kimco redemptions may also result in a windfall for AD. The units remain attractively valued, trading at 1.0 times P/BV, with a 7.6-per-cent distribution yield.”
Canaccord Genuity analyst Robert Young thinks WeCommerce Holdings Ltd. (WE-X) will continue to thrive amid the rising tailwinds brought on by the acceleration of ecommerce during the pandemic.
“WeCommerce is a consolidator of software and services businesses operating in the Shopify ecosystem,” he said. “The company has made seven acquisitions so far for a total consideration of $150-million, and its subsidiaries generate revenue through the sale of apps, themes and agency services related to online sales on Shopify. With ecommerce witnessing significant acceleration since the onset of COVID-19, Shopify has witnessed a massive influx of merchants and orders through its system, which we believe is poised to continue in the medium term. We believe WeCommerce is well positioned to benefit from these tailwinds by driving higher volume through its offerings and executing attractive M&A deals to increase market share.”
However, Mr. Young thinks WeCommerce now trades in line with large ecommerce SaaS peers “despite its limited track record, smaller size and risk of equity dilution, which limits room for multiple expansion, in our view.”
That led him to initiate coverage of the Vancouver-based company with a “hold” recommendation as well as a $20 target, below the $26 consensus.
After BMO Nesbitt Burns raised its 2021 price estimates for a group of metals, equity analysts at the firm responded with a series of target price adjustments.
“With raw material markets tight, and the ex-China restock continuing for longer than expected, we have pushed industrial metals expectations higher for 2021 as a whole,” BMO said. “While demand may have done as much as it can for the shorter-term cycle, supply bottlenecks both in raw materials and in freight continue to support a strong premium to industry cost curves at the present time. Meanwhile, positive medium-term global growth dynamics continue to boost financial market interest in commodities as a whole. This month we focus on the situation in the copper and iron ore markets, both of which are trading close to record highs in nominal terms.
“We have raised our 2021 full-year price estimates for a number of key commodities, including iron ore (+17%), aluminium (+6%), copper (+5%), and palladium (+4%), mainly on increased supply risks. However, we do still have the majority of industrial commodities trending lower into H2 as policy normalization in China, coupled with high prices themselves, leads to a pause in the aggressive buying seen over much of the past year. Meanwhile, with geopolitical risk rising, we see precious metals holding up much better into H2 as macro asset allocation headwinds ease.”
Among their changes, the analysts’ biggest target increases were:
- Capstone Mining Corp. (CS-T, “outperform” up 29 per cent to $5.50 from $4.25. Average: $5.22.
- Hudbay Minerals Inc. (HBM-T, “outperform”) by 17 per cent to $14 from $12. Average: $12.69.
- Vale SA (VALE-N, “outperform”) by 14 per cent to US$25 to US$22. Average: $22.62.
Their biggest declines were:
- Galiano Gold Inc. (GAU-T, “market perform”) by 11 per cent to $1.60 from $1.80. Average: $2.63.
- IAMGOLD Inc. (IMG-T, “market perform”) by 6 per cent to $3.75 from $4. Average: $5.71.
- Wheaton Precious Metals Corp. (WPM-N/WPM-T, “outperform”) by 5 per cent to $55 from $58. Average: $59.60.
“We have not made any ratings changes,” the firm said. “Collectively, with the Base and Bulks coverage we continue to have a preference for copper-exposed names with a more defensive bias, albeit there are exceptions (meaningful volume growth/other company-specific positive catalysts). As a result, our Top Picks are (alphabetically): Anglo American, Constellium, Copper Mountain, Freeport McMoRan, Ivanhoe Mines, and Stelco, with the new addition of Champion Iron.”
In other analyst actions:
* After a series of investor meetings last week, Desjardins Securities analyst Michael Markidis raised his target for WPT Industrial Real Estate Investment Trust (WIR.U-T, WIR.UN-T) to US$18.50 from US$16.50, maintaining a “buy” rating. The average target is currently US$16.73.
“The overall tone was positive. Efforts to build out deal-sourcing capabilities are bearing fruit and leasing activity is strong. Private capital partnerships are providing funding optionality and reducing WIR’s cost of capital,” he said.
* Raymond James analyst David Quezada initiated coverage of Altius Renewable Royalties Corp. (ARR-T) with an “outperform” rating and $13.75 target, exceeding the $13.63 average.
“Our constructive stance reflects several factors including: 1) a first mover advantage in the renewable royalty market; 2) key early relationships with large renewable originators; 3) a strong, experienced management team; 4) the robust expected pace of renewable development in the U.S.; and 5) $195-million in available capital to be deployed with a compelling risk/reward proposition and significant potential upside,” he said.
* TD Securities analyst Craig Hutchison cut Copper Mountain Mining Corp. (CMMC-T) to “hold” from “buy” with a $4.75 target, up from $4.50. Scotia’s Orest Wowkodaw raised his target to $4.50 from $4 with a “sector outperform” rating, while National Bank’s Shane Nagle bumped up his target to $4.75 from $4.50 with an “outperform” recommendation. The average is $4.15.
* Credit Suisse analyst Fahad Tariq increased his targets for Lundin Mining Corp. (LUN-T, “neutral”) to $13 from $12 and Hudbay Minerals Inc. (HBM-T, “outperform”) to $13 from $12.50. The averages on the Street are $15.59 and $12.69, respectively.
* TD Securities analyst Graham Ryding raised his target for Home Capital Group Inc. (HCG-T) to $39 from $38 with a “buy” rating, while Scotia Capital’s Phil Hardie increased his target to $38 from $37 with a “sector perform” recommendation. The average is currently $38.43.
* Mr. Ryding also hiked his target for First National Financial Corp. (FN-T) to $49 from $48 with a “hold” rating, while Mr. Hardie moved his to $51 from $50 with a “sector perform” rating. The average is $50.20.
* Mr. Ryding also bumped up his targets for Atrium Mortgage Investment Corp. (AI-T, “hold”) to $14.50 from $14 and Timbercreek Financial Corp. (TF-T, “hold”) to $9.50 from $9.. The averages are $13.77 and $9.33, respectively.
* National Bank Financial analyst John Shao initiated coverage of Tecsys Inc. (TCS-T) with an “outperform” rating and $55 target, falling short of the $61.67 average.
* National Bank’s Matt Kornack resumed coverage of Dream Industrial REIT (DIR.UN-T) with an “outperform” rating and target of $15 per unit, exceeding the $14.63 average.
* RBC’s Walter Spracklin cut his Air Canada (AC-T) target to $24 from $25, maintaining an “outperform” rating. The average target on the Street is $28.38.
* Mr. Spracklin lowered his target for Exchange Income Corp. (EIF-T) to $41 from $42 with an “outperform” rating, while Scotia’s Konark Gupta raised his target to $41 from $39 with a “sector perform” recommendation. The current average is $44.11.
* TD Securities analyst Mario Mendonca raised his target for Trisura Group Ltd. (TSU-T) to $140 from $135, keeping a “buy” rating. The average is $137.38.
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