Inside the Market’s roundup of some of today’s key analyst actions
Ahead of the start of second-quarter earnings season for Canadian banks next week, a pair of equity analysts on the Street raised their target prices for stocks in the sector.
In a research report released Tuesday, Canaccord Genuity’s Scott Chan said he made a “significant positive” earnings per share increase of 23 per cent for the sector primarily due to better credit conditions and after boosting his estimates for market-sensitive businesses, particularly Capital markets.
“Overall, we are lifting Group target prices by an average of 3 per cent based on our positive F2022 EPS revisions of 2 per cent,” he said.
“Further, we believe TD (and BMO) are positioned best into FQ2 due to its: (1) largest U.S. exposure (likely to benefit most from credit reserve releases from retail book); (2) sustained peer leading capital position; (3) better NII outlook mostly from higher rates and steeper yield curve (most P&C exposure); and (4) highest fiscal 2022 estimated EPS growth expectation (up 9 per cent vs. Group at 5 per cent). As a result, we raised our TD assigned valuation premium to 3 per cent (from 1 per cent) off our Group P/E target multiple of 11.5 times.”
Mr. Chan now sees the valuation for bank stocks as “compelling” ahead of earnings season.
“With our positive annual EPS revisions, the Group now trades at a P/E (fiscal 2022 estimates) of 11 times which is in line with its historical average,” the analyst said. “With a high likelihood of positive EPS revisions post FQ2 results (trend since late 2020) and record capital positions (expect higher sequentially), we believe Big-6 bank shares have the ability to grind higher near term. Since Q1/F21 reporting, the Group is up 16 per cent (led by NA, BMO, CM) significantly outperforming the TSX Composite at 6 per cent. The expectation of improving excess capital (better now relative to Lifecos) provides significant flexibility for supporting: (1) organic growth (pent-up demand in most areas in 2H/21 and 2022); (2) resumption of dividend growth (NA, BMO, RY, TD best positioned for above-average raises based on our F2022E payout ratio) once OSFI lifts restrictions (likely in Sept/21); (3) share buyback activity (could resume historical pattern of 1-2 per cent) through NCIB which we don’t model yet (similar to dividend growth); and (4) M&A which is the biggest wildcard (TD and BMO positioned best with leading pro-forma CET 1 ratios). That said, US large-cap banks (avg.) we track have share appreciation of 122 per cent over past year (vs. Big-6 banks at 74 per cent) making valuation and accretion potential more difficult for US acquisition potential (i.e. US banks trade at P/E (22E) premium of 14 times).”
He made these target changes:
- Bank of Montreal (BMO-T, “buy”) to $132 from $125. The average on the Street is $122.82.
- Bank of Nova Scotia (BNS-T, “hold”) to $82 from $81. Average: $83.28.
- Canadian Imperial Bank of Commerce (CM-T, “buy”) to $138 from $136. Average: $137.59.
- National Bank of Canada (NA-T, “hold”) to $94.50 from $92. Average: $93.09.
- Royal Bank of Canada (RY-T, “buy”) to $129.50 from $128. Average: $123.71.
- Toronto-Dominion Bank (TD-T, “hold”) to $89.50 from $86.50. Average: $85.92.
Meanwhile, National Bank Financial Gabriel Dechaine made these adjustments:
- Bank of Montreal (BMO-T, “outperform”) to $128 from $121. The average on the Street is $122.82.
- Bank of Nova Scotia (BNS-T, “sector perform”) to $81 from $77. Average: $83.28.
- Canadian Imperial Bank of Commerce (CM-T, “outperform”) to $140 from $130. Average: $137.59.
- Royal Bank of Canada (RY-T, “outperform”) to $130 from $123. Average: $123.71.
- Toronto-Dominion Bank (TD-T, “sector perform”) to $87 from $82. Average: $85.92.
- Canadian Western Bank (CWB-T, “sector perform”) to $37 from $35. Average: $35.77.
- Laurentian Bank of Canada (LB-T, “sector perform”) to $41 from $40. Average: $40.90.
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Seeing its stock’s valuation as “attractive relative to its growth and market opportunity,” BMO Nesbitt Burns analyst Thanos Moschopoulos initiated coverage of Thinkific Labs Inc. (THNC-T) with an “outperform” rating on Tuesday.
The Vancouver-based company, which provides a platform for entrepreneurs and businesses to create and run online courses, began trading on the Toronto Stock Exchange in late April after a $160-million offering led by BMO Capital Markets and CIBC Capital Markets.
“At the risk of oversimplifying, Thinkific is, essentially, a Shopify for creating and selling courses online (time will tell whether it’s the Shopify for this category, as opposed to a Shopify; but we think it has the potential to be the former),” said Mr. Moschopoulos.
“Shopify (SHOP-T; SHOP-N; not rated) has empowered entrepreneurs and SMBs to launch and operate their own e-commerce businesses, without requiring them to have any programming ability and while freeing them from having to sell through a middleman such as Amazon. Similarly, Thinkific allows its customers to deliver and monetize online courses, through an easy-to-use platform that can assist them in finding and retaining an audience, while also allowing them to retain full control of their business, branding and content.”
The analyst thinks it’s possible for Thinkific to sustain a 70-per-cent-plus revenue compound annual growth rate over the next three years, pointing to “its competitive position in a large potential TAM, which makes it one of the fastest-growing publicly-traded SaaS companies.” He also feels the launch of its Payments offering will allow it to “more directly profit from its customers’ success and should further support its strong unit economics.”
“The fact that it’s a smaller company means that there’s a higher level of potential execution risk. However, we believe it has a platform, management team, market position and market opportunity that should position it well to succeed,” he added.
Mr. Moschopoulos set a target of $17 for the company’s shares.
“Our $17 target price is based on 15.5 times calendar 2022 estimated EV/sales — which, in our view, is a multiple that strikes a balance between Thinkific’s smaller size, relative to SaaS comps, and its much stronger expected growth,” he said.
Elsewhere, Canaccord Genuity’s Robert Young initiated coverage with a “buy” rating and $18 target.
“Thinkific’s ARR has been growing sales at an impressive CAGR of 160 per cent since 2015 while generating positive CFO,” said Mr. Young. “The e-learning space was gaining momentum well before the COVID-19 pandemic struck, which has thrown gas on an already growing fire. That said, we do expect revenue growth to moderate post COVID to a more manageable 60 per cent-pplus profile, still in a top tier. Supported by its US $150-million IPO proceeds, Thinkific is investing heavily in its R&D and sales & marketing functions in support of continued growth and expansion of its product offering.”
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After its first-quarter revenue took an “unexpected step back,” Canaccord Genuity analyst John Bereznicki lowered Questor Technology Inc. (QST-X) to “hold” from “buy,” emphasizing its execution in the second half of the year is taking on “greater importance.”
Before the bell on Monday, the Calgary-based environmental cleantech company reported revenue of $1.5-million, down from $2.6-million in the fourth quarter of 2020 and below the analyst’s $2.8-million projection. That led to an EBITDA loss of $0.3-million, which missed Mr. Bereznicki’s estimate of a profit of $0.4-million.
“While we believe Questor faced customer deferrals from both a sales and rental perspective in Q1/21, these deferrals were likely not meaningful enough for the company to have otherwise posted a sequential top-line improvement in the quarter,” he said. “We expect continued sales weakness through Q2/21, which we believe will place greater importance on management execution in 2H21 in the context of improving oilfield fundamentals and growing regulatory scrutiny on methane emissions.”
In order to reflect a slower sales and rental recovery, Mr. Bereznicki lowered his revenue and EBITDA projections through 2022, leading him to trim his target for Questor shares to $2.25 from $3.50. The current average is $2.27.
“While Questor retains a healthy cash position and (in our view) attractive secular growth drivers, we look for a sustained revenue recovery as evidence the company’s strategic growth initiatives are yielding positive results,” he said.
Elsewhere, ATB Capital Markets analyst Tim Monachello cut his target to $2.25 from $2.50 with a “sector perform” rating, pointing to “limited tangible visibility to improved activity levels across QST’s platform.”
“QST continues to observe lethargic demand for its equipment through the early stages of a rebound in North American field activity, which we believe is largely a result of its geographic concentrations in Colorado and North Dakota which remain regional laggards in the upcycle across U.S. basins, and because of customer deferrals to a degree,” said Mr. Monachello. “Looking forward to H2/21, management believes it has line-of-sight to a significant improvement in activity which could see rental fleet utilization (as a percentage) climb into the high-teens or low-twenties in Q4/21. That said, QST has yet to show a material increase in demand from recent government initiatives to curb methane emissions including Regulation 7 in Colorado or Canada’s Emission Reduction Fund, though we believe significant potential for QST remains.”
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Though he thinks it remains too early to take a stance on the Office sector, iA Capital Markets analyst Frédéric Blondeau revised his estimates for Slate Office REIT (SOT.UN-T) on Tuesday, citing “improving momentum.”
“Management recently mentioned being encouraged by the momentum seen across SOT’s portfolio, considering Atlantic Canada as a leading indicator for the rest of the REIT’s Canadian markets,” he said. “Activity is also picking up in Ontario. Chicago is benefitting from the recovery essentially seen at the national level.
“We note that SOT’s operational risk is relatively subdued at this stage. Approximately 60 per cent of the REIT’s income is generated from government and credit rated tenancies with a WALT of 5.3 years. More important, only 2.9 per cent of the GLA remains to be renewed in 2021.
Mr. Blondeau said Slate’s management is expected a rebound in new office leasing demand in the second half of the year, projecting its portfolio occupancy to improve to 90-92 per cent from 83.5 per cent currently.
“Indications are that it remains early in the recovery process for SOT’s Ontario portfolio,” he noted. “That said, management mentioned that leasing activity in the GTA has gained momentum, while pent-up demand is significant. 60K sq. ft.+ of leasing was completed within the REIT’s GTA portfolio in Q1, while management expects activity to pick up on the back of the vaccine roll-out and the start of the return to office for end users. In addition, post-Q1, the REIT has completed an additional 55K sq. ft. of leasing within the GTA, inclusive of a 40K sq. ft. renewal in the west end of Toronto.”
Maintaining a “hold” rating, Mr. Blondeau raised his target for the REIT’s units to $4.60 from $4.25. The average is $4.68.
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Desjardins Securities analyst David Stewart continues to see “plenty of value” in Americas Gold and Silver Corp.’s (USA-T) portfolio.
However, taking a “wait-and-see approach” on its Relief Canyon mine in Nevada, he lowered his rating for its shares to “hold” from “buy.”
“The future of Relief Canyon is uncertain at this point, as a combination of carbonaceous material and higher structural complexity has rendered the current mining phase uneconomic with existing flowsheet infrastructure,” said Mr. Stewart. “To better understand the potential presence of carbon in the remainder of the orebody, the company is undertaking a comprehensive resampling program, the results of which should be available for the 3Q resource and reserves update.”
Accordingly, the analyst called the restart of its Cosalá operations in Mexico following a blockade that began in February of 2020 “well-timed,” seeing the potential a ramp-up to full production by third quarter.
“Since the blockade started early last year, silver, zinc and lead prices are up 60 per cent, 36 per cent and 16 per cent, respectively. This is the difference between US$76-million and US$197-million at those respective spot prices in our current Cosalá DCF model,” said Mr. Stewart.
After removing Relief Canyon from his financial estimates and expecting a resolution to “dominate investor focus,” he cut his target for Americas shares to $2.40 from $5. The average on the Street is $4.23.
Elsewhere, H.C. Wainwright’s Heiko Ihle cut his target to US$4.50 from US$5 with a “buy” recommendation.
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Canaccord Genuity’s Katie Lachapelle calls uranium “a hugely strategic metal whose value in a carbon-constrained world will only increase.”
“With 2020 highlighting supply chain fragility and macro policies providing demand tailwinds, mine restarts and investments in new supply will be required, in our view,” she said.
In a research note released Tuesday, Ms. Lachappelle raised the firm’s long-term uranium price assumption to US$60 per pound (from US$50).
“Government policy support has improved dramatically ...Growth from non-OECD nations has always been the bedrock of our positive demand outlook, and this view has only strengthened following the release of China’s 14th Five-Year Plan, which called for an 40-per-cent expansion in its nuclear fleet to 70GWe by 2025, with an additional 50GWe under construction,” she said. “Adding to this is a more constructive view around North American and European demand in the wake of (1) bipartisan support for nuclear energy in the U.S. for the first time in 48 years, the US rejoining the Paris Agreement, and clear support for nuclear energy in the ‘American Jobs Plan’ and (2) the European Commission announcing that it will potentially include nuclear energy in the European Union’s sustainable financing taxonomy.
“...and we have upgraded our demand forecasts accordingly. The acknowledgement of nuclear’s critical role in providing cost-effective emissions-free baseload power has been slow in coming, but has now gained momentum. This has reduced the risk of accelerated plant closures in OECD nations and continues to drive growth in developing nations. Accordingly, we increase our demand growth to 2.6 per cent per annum to 2035 (2.3 per cent prior), a forecast which excludes any potential positive impact from small modular reactors (more than 300MW), which are garnering increased attention globally.”
With that price deck change, Ms. Lachapelle raised her targets for companies in her coverage universe.
Her changes for TSX-listed stocks were:
- Denison Mines Corp. (DML-T, “speculative buy”) to $2.25 from $2. Average: $1.78.
- Fission Uranium Corp. (FCU-T, “speculative buy”) to 80 cents from 70 cents. Average: 93 cents.
- Nexgen Energy Ltd. (NXE-T, “speculative buy”) to $7 from $6.50. Average: $6.34.
“While we remain bullish on uranium, we recognize the opaque nature of the market and inherent risks in uranium mining and development,” she said. “Accordingly, we prefer companies with a sound balance sheet and positive company-specific catalysts. Our preferred exposures are NXE-TSX, BOE-ASX [Boss Energy Ltd] and YCA-LON [Yellow Cake PLC].”
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In other analyst actions:
* Scotia Capital analyst Paul Steep raised his target for Dye & Durham Ltd. (DND-T) by $1 to $59 with a “sector outperform” rating, while CIBC World Markets’ Stephanie Price increased her target to $47.50 from $47 with a “neutral” recommendation. The average on the Street is $57.50.
“Our view is that the firm’s financial results will continue to be fueled by its organic growth and integration of acquisitions that have been completed during the past year,” said Mr. Steep. “We believe that DND’s existing mix of business and geographic markets offers the potential for further acquisitions given that the legal information and software markets remain fragmented. Our near-term focus for DND’s financial performance remains centered on its integration and onboarding efforts given recent M&A activities.”
* BMO’s Mike Murphy cut his Parex Resources Inc. (PXT-T) target to $30 from $32 with an “outperform” rating. The average is $30.57.
“While the recent escalation of civil unrest in Colombia has created a level of operational uncertainty, shut-ins due to blockades have already started being restored. Assuming a near-term resolution in the country, we expect a relatively minor impact to full year production,” said Mr. Murphy.
* Following its acquisition of Australia’s McKay Drilling PTY LRBC, Dominion Securities analyst Sam Crittenden raised his target for Major Drilling Group International Inc. (MDI-T) to $12 from $9, keeping an “outperform” rating. The average is $10.58.
“The transaction provides Major with exposure to Australia (no current operations) through a specialty drilling contractor with 15 RC rigs and 5 deep-hole diamond rigs. Key in our view is the long-standing relationships (Mckay was founded in 1990) that MDI gains with the acquisition which is expected to close on June 1st. McKay’s operational management team will also remain in place,” he said.
* RBC’s Matt Logan moved his target for Summit Industrial Income Real Estate Investment Trust (SMU.UN-T) to $17.50 from $15.50 with a “sector perform” rating. The average is $16.17.
“Summit Industrial Income REIT’s Q1 results were strong and underscored why its units trade at a premium valuation,” he said. “Supported by one of the strongest macro backdrops in our coverage universe, FFOPU, NAVPU, and SP-NOI growth are tracking well-ahead of peers and the REIT sector more broadly. With good operational momentum, SMU continues to augment its overall franchise value with improving bench strength, a growing focus on development, ESG, and augmented corporate disclosures. Still, with units trading at a well-earned 26 per cent premium-to-NAV, we believe valuation appropriately captures these positive attributes.”
* RBC’s Pammi Bir increased his WPT Industrial Real Estate Investment Trust (WIR.U-T) to US$18.50 from US$16 with an “outperform” rating, while Scotia Capital’s Himanshu Gupta increased his target to US$18 from US$16.50 with a “sector perform” recommendation. The average is US$17.55.
“Post strong Q1 results, our constructive view on WIR is intact,” said Mr. Bir. “While not to be dismissive of elevated new supply in the pipeline, we see good support for organic growth to accelerate, underpinned by rising demand from ecommerce related distribution and logistics users, retail tenants, and businesses building supply chain resilience via larger inventories. The benefits of WIR’s private capital management platform are also becoming increasingly visible, and ultimately afford a significant competitive advantage.”
* Mr. Gupta increased his Sienna Senior Living Inc. (SIA-T) target to $16.50 from $15, topping the $15.35 average, with a “sector perform” rating, while BMO’s Joanne Chen bumped up her target to $16 from $14.25 with a “sector perform” recommendation.
“Notwithstanding ongoing occupancy pressures and further expense headwinds, we believe the worst could likely be behind us. The pickup in the pace of vaccinations and ongoing government assistance has been encouraging for the industry,” said Ms. Chen.
* Scotia’s Mario Saric raised his target for Tricon Residential Inc. (TCN-T) to $15.25 from $15 with a “sector outperform” rating. The average is $15.11.
“Valuation looks good, Growth looks better. We remain buyers,” he said.
* Mr. Saric hiked his Northwest Healthcare Properties REIT (NWH.UN-T) target to $14.50 from $14 with a “sector outperform” rating. The average is currently $13.71.
* In response to “big” first-quarter 2021 sales and earnings per share “upside surprises,” D.A. Davidson analyst Linda Bolton Weiser hiked her Spin Master Corp. (TOY-T) target to $42 from $37, maintaining a “neutral” rating. The average is $49.18.
“We think TOY is about fairly valued, and are maintaining our NEUTRAL,” she said.
* After “lighter-than-expected” first-quarter results and “modest” downward revisions to his forecast, Raymond James analyst Steve Hansen trimmed his Farmers Edge Inc. (FDGE-T) by $1 to $14 with a “market perform” rating. The average is $18.75.
“Despite this shortfall, we were quite encouraged by the firm’s recent acreage momentum and new agronomy partnership. We will continue to monitor,” he said.
* CIBC’s Kevin Chiang raised his AirBoss of America Corp. (BOS-T) target to $49 from $47 with an “outperformer” rating. The average is $48.60.
“We walked away from our marketing with BOS with a reaffirmed view that it is a catalyst-rich story with an underappreciated pipeline of opportunities,” said Mr. Chiang. “As ADG secures additional contracts, ARS benefits from increasing revenue contribution from color/specialty compounds, and AEP expands its non-auto revenue exposure, this creates a tailwind for its equity value.”
* CIBC’s Hamir Patel increased his Hardwoods Distribution Inc. (HDI-T) target to $44 from $39, keeping an “outperformer” rating. The average is $44.40.
“HDI’s re-established import supply lines, as well as the growing door category (now 16% of sales), appear to be supporting higher margins. At the same time, we believe HDI (#1 hardwoods distributor) is well positioned to pursue accretive acquisitions in the fragmented nonstructural architectural building products distribution industry,” said Mr. Patel.
* TD Securities analyst Sam Damiani raised his H&R Real Estate Investment Trust (HR.UN-T) target by $1 to $17.50 with a “buy” rating. The average is $16.86.
* National Bank Financial analyst Cameron Doerksen raised his BRP Inc. (DOO-T) target to $125 from $123, exceeding the $113.92 average, with an “outperform” rating.
* National Bank’s Tal Woolley increased his American Hotel Income Properties REIT LP (HOT.UN-T) to $4.75 from $4.25 with a “sector perform” rating. The average is $3.59.
* Following a Monday presentation on its Filo del Sol project, National Bank’s Shane Nagle hiked his Filo Mining Corp. (FIL-X) target to $12.75 from $6, reiterating an “outperform” rating, while BMO Nesbitt Burns’ Rene Cartier raised his target to $11 from $4.50 also with an “outperform” rating and Canaccord Genuity’s Dalton Baretto increased his target to $13 from $5 with a “speculative buy” recommendation. The average is $10.
“In our view, continued exploration success to further define the sulphide potential will support an already attractive valuation. The Filo del Sol project proximity advantages itself for the introduction of a strategic partner, project synergies, or potential M&A.,” said Mr. Cartier.
David Leeder