Inside the Market’s roundup of some of today’s key analyst actions
The sell-off in Virgin Galactic Holdings Inc. (SPCE-N) is overdone, argues Canaccord Genuity analyst Ken Herbert, who maintained a “buy” rating and raised his price target to US48 from US$35.
The stock tumbled Monday as the company filed to sell up to US$500-million in common stock, a day after Virgin Galactic completed its first fully crewed test flight into space with billionaire founder Richard Branson on board. The stock sale would account for up to 4 per cent of Virgin Galactic’s total outstanding shares as of their last close, according to a Reuters calculation.
“While we see a lack of major near-term catalysts, we believe the approximate 15% correction on the $500-million offering news is overdone. We believe the company could have some additional marketing tricks up its sleeve, and as the launch of commercial operations in 2022 approaches, we believe the narrative on the stock will steadily improve,” Mr. Herbert said in a note.
The average analyst price target is US$39.20, according to Refinitiv Eikon data.
Canaccord Genuity analyst Matthew Lee has raised the price targets of the Canadian airline stocks he covers thanks to a brightening outlook for the industry, even as air travel internationally looks to remain challenged for some time.
The earnings season for the group begins with Air Canada on July 23.
“While air traffic data and the results/outlooks from American peers suggest that U.S. domestic travel is recovering strongly, we expect that Canada is experiencing a slower bounce back largely due to tighter restrictions. Nevertheless, we expect to see early signs of a recovery in Q3 and beyond with early booking indicators implying significant pent-up demand for travel, particularly in the leisure space,” Mr. Lee said.
For Air Canada (AC-T), Canaccord Genuity raised its target price to C$28 from C$26; Cargojet Inc. (CJT-T)’s target went to C$230 from C$220; and Chorus Aviation Inc. (CHR-T)’s target increased to C$5.50 from C$5. Mr. Lee rates Air Canada as a “hold,” but Cargojet and Chorus have “buy” recommendations.
“While an overarching recuperation is likely underway, we expect the following general order for air traffic recovery: 1) Cargo (least impacted); 2) Essential; 3) Domestic regional; 4) Broader domestic; 5) Transborder and leisure; 6) International; and 7) Business (most impacted). Given our view on the industry, we expect that CJT and CHR are likely to deliver robust fundamentals in Q2 with AC remaining somewhat more challenged. With that said, we continue to see AC as an attractive source of torque to the rebound in travel and leisure,” Mr. Lee said.
Canaccord Genuity analyst Aravinda Galappatthige has increased his price targets on Canada’s three biggest telecom players ahead of second-quarter earnings results, citing the recent downturn in interest rates which tends to make the sector more attractive to investors contending with lower bond yields. He also cited improving regulatory and competitive conditions.
For BCE Inc. (BCE-T), Canaccord Genuity raised its target price to C$62 from C$59. Rogers Communications Inc. (RCI-B-T) went to C$75 from C$71. And Telus Corp.’s (T-T) target was raised to C$31 from $30.
“Following a slow start in Q1, the Telecom sector produced 11% total returns in Q2, ... mostly due to easing rates. However, on a YTD basis, the sector is still just on par with the S&P/TSX and has under-performed other yield-oriented sectors such as Banks, Pipeline and REITs materially. This tells us that there can be more upside to the sector in H2 as the market more fully grasps and buys into the significance of the improved regulatory picture and the sustainability of the competitive easing. This could also be aided by our expectation of a steeper climb in financial performance off the pandemic lows, with volumes (in wireless) returning, international roaming starting to recover and an easing in overage declines,” Mr. Galappatthige said in a research note.
He rates both Telus and Rogers as buys, but is keeping a “hold” rating on BCE.
“While we are warming up to Bell in light of its strong residential performance, we are holding back until we get a bit more clarity on the direction of interest rates, with the stock having noticeably benefited from a recent pullback in rates. We are thus leading with TELUS and Rogers in terms of our picks in the sector. We like TELUS for its sector-leading wireless results, resilience through the pandemic and growing mix of high-growth assets (TI, Health, Ag-Tech). On the other hand, we see Rogers as the pandemic rebound pick given its high sensitivity to the lockdown conditions. Hence, we see considerable upside as H2 results roll in,” the analyst said.
Stifel analyst Maggie MacDougall downgraded Badger Infrastructure Solutions Ltd. (BDGI-T), a provider of excavating services, to “hold” from “buy” while slicing her price target to C$36.50 from C$48.
The analyst said she remains bullish long term, but believes multiple expansion is limited in the near term.
“Macroeconomic data points to an uneven recovery across Badger’s markets, with a solid recovery in industrial production, but a continued slide in non-residential construction. Badger fully staffed its U.S. operations for a busy spring and summer; thus, we anticipate that Q2 adj. EBITDA margin could be softer than Street expectations,” Ms. MacDougall said.
The average analyst price target is C$41.36.
Scotiabank analyst Michael Doumet raised his price target on Stelco Holdings Inc. (STLC-T) to C$46 from C$40 while maintaining a “sector outperform” rating.
“While near its 52-week high, STLC is still undervalued, in our view,” Mr. Doumet said in a note. “At this point, based our revised estimates, Stelco will generate free cash flow of $1.2 billion in 2021 and end the year with a net cash position (net of pension and OPEB liabilities) of ~$5/share, assuming no capital deployment.
“At mid-cycle, assuming HRC (Hot-Rolled Coil Steel) of US$650/nt, EBITDA of C$650 million, and an EV/ EBITDA multiple of 5.0x, STLC’s mid-cycle valuation amounts to ~$37/share. Therefore, not only is the market not paying for “higher-for-longer” steel prices, it does not appear to be paying for the excess free cash flow generation in 2021 (and 2022E). For context: even if we assumed a lumber-type price correction to HRC, STLC shares appear undervalued. To close the valuation gap, we anticipate Stelco will deploy >$500 million of capital towards buybacks and special dividends in 2021 (and more so in 2022),” the analyst said.
The average analyst price target is $46.25.
BMO Capital Markets analyst Gerrick L. Johnson upgraded Electronic Arts Inc. (EA-Q) to “outperform” from “market perform” with a revised target price of US$168 from US$150.
“We see the video game industry trending better than many investors had expected coming out of the COVID-19 pandemic,” Mr. Johnson explained in a note. “Lockdowns in international regions, meanwhile, should provide an engagement boost in those markets.”
EA’s Apex Legends, a free-to-play battle royale-hero shooter game, has been performing significantly better than BMO had expected, he added.
“We are pleased to see the company addressing its weakness in mobile with acquisitions. EA shares are also the least expensive in our coverage group,” he said.
The average analyst target is US$164.06.
RBC Capital markets analyst Scott Robertson initiated coverage on Chesswood Group Ltd. (CHW-T) with a “sector perform” rating and C$14 price target.
Chesswood is a Canadian-based company focused on commercial equipment finance for small and medium-sized businesses.
“We think Chesswood has built a stronger and more diversified platform (product and funding) in recent years that should allow the company to pursue multiple avenues of growth. However, trading at 1.6x Price to Book Value vs. its 5-year average of 1.2x (and at a premium to peers), which we think is fair given its Return on Equity potential over the next couple of years, we see the shares as fairly valued,” the analyst said in a note.
The average analyst price target is $14.83.
BSR REIT (HOM-U-T) is an attractive multi-family play in the U.S. Sunbelt, said Scotiabank analyst Himanshu Gupta in initiating coverage on the stock with a “sector perform” rating and one-year price target of US$14.50.
The average price target on the REIT, which is traded in Toronto but priced in U.S. dollars, is $13.45.
The analyst outlined a number of positives about the stock: “BSR’s $1.3 billion portfolio, comprising 7,660 multi-family apartments in the U.S. Sunbelt, is concentrated in three Texas MSAs: Dallas, Houston, and Austin (together, the Texas Triangle). The Texas Triangle’s GDP (by size) is close to all of Canada’s, while its expected population growth in the next five years is double that of Canada. Unlike major Canadian provinces, there is minimal regulatory risk in Texas (e.g., no rent control). BSR has a fully aligned internal management platform, with a 39% equity stake held by management/founders,” the analyst said.
But the unit price of the REIT is up 22 per cent since this past May, versus the Canadian REIT sector’s 9 per cent gain. As such, the REIT’s trading discount to its net asset value has narrowed considerable, the analyst said.
In other analyst actions:
* Bombardier (BBD-B-T): CIBC raises target price to C$1 from C$0.80
* Canadian National Railway Co (CNR-T) : CIBC cuts target price to C$145 from C$146
* Canadian Pacific Railway Ltd (CP-T): CIBC cuts target price to C$105 from C$112
* Centerra Gold Inc (CG-T): Credit Suisse raises target price to C$10 from C$9.50
* Champion Iron Ltd (CIA-T): RBC raises target price to C$8.50 from C$7.50
* Franco-Nevada Corp (FNV-T): JP Morgan cuts to underweight from neutral and raises target price to C$199 from C$197
* Labrador Iron Ore Royalty Corp (LIF-T): RBC raises target price to C$50 from C$42
* Mav Beauty Brands Inc (MAV-T): Acumen Capital cuts target price to C$6 from C$7
* Teck Resources Ltd (TECK-B-T): BMO cuts target price to C$35 from C$39
* Verticalscope Holdings (FORA-T): TD Securities initiates coverage with buy rating and PT of C$34
* Eldorado Gold Corp (EGO-N): Credit Suisse cuts target price to US$10.50 from US$12
* General Motors Co (GM-N): RBC raises target price to US$77 from US$72
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