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

Desjardins Securities analyst Benoit Poirier continues to see “significant upside” for TFI International Inc. (TFII-N, TFII-T) as it sees increased benefits from its US$800-million acquisition of UPS Freight.

After the bell on Monday, the Montreal-based transportation and logistics services provider reported second-quarter that exceeded expectations, leading several analysts on the Street, including Mr. Poirier, to raise their target prices for its shares.

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Adjusted EBITDA of US$279-million easily topped both Mr. Poirier’s forecast of US$202-million and consensus projection of US$219-million. Adjusted fully diluted earnings per share of US$1.44 also beat estimates (98 US cents and US$1.00).

“TFII is bullish for the remainder of 2021, noting that robust market conditions should lead to strong financial results. That being said, TFII highlighted that the ongoing integration of UPS Freight would help the company continue to generate strong results even if market conditions were to soften at some point,” said Mr. Poirier.

TFII is now targeting adjusted EPS of US$4.50– $4.60 in 2021, up from US$3.80–4.00 and above the Street’s US$4.01 projection, and free cash flow of US$550–575-million, rising from US$475–525-million and also well above the consensus of US$453-million.

“After only two months under TFII’s ownership, UPS Freight delivered an impressive performance with an adjusted OR of 90.1 per cent, significantly better than management’s 96–97-per-cent target within the first year post-closing,” the analyst said. “That being said, management highlighted that UPS Freight’s results are quite volatile from one quarter to another. More specifically, TFII noted that 2Q results are the strongest for the business, followed by 3Q and 4Q, while 1Q is generally the weakest. Management will be hard at work throughout the remainder of 2021 to improve the cost structure while also ensuring that it focuses on the profitable business (‘freight that fits’). Management is confident that the business will generate a sub-90-per-cent adjusted OR within the next 4–6 quarters. We remain quite conservative and have factored in only a 93-per-cent adjusted OR in 2022 and 90 per cent in 2023 for the division. However, we are confident that the asset could generate an 85-per-cent OR within a few years,, especially considering the strong performance of the Canadian LTL segment (77.9 per cent adjusted OR in 2Q alone) despite the more challenging market conditions in which it operates.”

After raising his financial projections in response to the “robust” results and revised 2021 guidance, Mr. Poirier increased his target for TFI shares to $146 from $124, maintaining a “buy” recommendation. The average target on the Street is $115.41.

Other analysts making target adjustments include:

* BMO Nesbitt Burns’ Fadi Chamoun to US$110 from US$100 with a “market perform” rating.

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“Underlying demand and pricing conditions remain very strong and suggest further upside potential to the EPS guide. Moreover, the quicker pace of integration of recent acquisitions and associated profitability improvement accelerates de-leveraging and opens up an opportunity to restart M&A,” he said.

* Scotia Capital’s Konark Gupta to $150 from $120 with a “sector outperform” rating.

“TFII reported a solid quarter, driven by a strong performance at the recently acquired UPS Freight and pricing tailwinds on capacity tightness. The company also raised EPS and FCF guidance, exceeding our prior expectations, but we still see potential upside in guidance from stronger organic trends and/or future M&A. We have materially improved our EPS outlook (above guidance) and have slightly expanded our EV/EBITDA multiple to 9.0 times (was 8.5 times) to reflect further upside potential to our estimates as TFII continues to execute well on its growth strategy,” said Mr. Gupta.

* Credit Suisse’s Allison Landry to US$122 from US$102 with an “outperform” rating.

“Given the much better than anticipated performance of UPS Freight during the 2 months of ownership in Q2 (with the vast bulk of the improvement in both pricing and cost performance still in front of us); as well as solid/improving fundamentals for the remaining segments (Truckload, P&C and Logistics) – with clear upside potential to both EPS and FCF guide as well as the optionality for incremental accretive tuck-in M&A in the short-term, we like the set-up for the stock going forward,” she said.

* TD Securities’ Tim James to $150 from $140 with a “buy” rating.

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“We believe that TFI’s above-average historical and forecast growth, prudent financial leverage, and track-record of shareholder value creation justify the recent elimination of the valuation gap with its comparable group,” said Mr. James. “In addition, we believe that the current environment of strong pricing and consumer demand for goods over services should be constructive for the sector over the next 6-12 months.”

* National Bank Financial’s Cameron Doerksen to $144 from $137 with an “outperform” rating.

* Stephens’ Jack Atkins to US$124 from US$114 with an “overweight” rating.

* Cowen and Co.’s Jason Seidl to US$112 from US$95 with an “outperform” rating.

* RBC Dominion Securities’ Walter Spracklin to US$126 from US$107 with an “outperform” rating.

* CIBC World Markets’ Kevin Chiang to US$123 from US$106 with an “outperformer” rating.

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* JP Morgan’s Brian Ossenbeck to US$127 from US$100 with an “overweight” rating.

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Ahead of the release of its second-quarter financial results before the bell on Wednesday, Desjardins Securities analyst Chris Li raised his estimates for Loblaw Companies Ltd. (L-T) to reflect his increased confidence in “the sustainability of retail gross margin strength for the remainder of the year.”

“Key drivers include: (1) cycling through pricing investments last year, which has put L in a stronger competitive position; (2) vendor support, including a supplier fee increase; (3) sales recovery of higher-margin products (cosmetics, apparel, etc); and (4) ongoing process and efficiency initiatives (supply chain, shrink, pharmacy distribution and goods not for resale,” he said.

Mr. Li is now projecting full-year earnings per share of $5.13, up from $5.05 and implying a 9-per-cent two-year compound annual growth rate, which is in line with the retailer’s 8-10-per-cent target. For 2022, he’s forecasting 9-per-cent EPS growth (to $5.60 from $5.50).

“There is upside from stronger profitability improvement in food and drug retail. Offsets could come from an increase in competition and slowing food-at-home sales as conditions return to pre-pandemic levels,” he said.

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Maintaining a “hold” rating for Loblaw shares, Mr. Li hiked his target to $85 from $77. The average on the Street is $81.25.

“We believe L’s recent outperformance reflects expectations for strong earnings growth, driven by the economy reopening and easy comps,” he said. “Our $85 target implies 5-per-cent upside. We continue to have a slight preference for parent WN (9-per-cent upside).”

Concurrently, Mr. Li raised his target for George Weston Ltd. (WN-T) in response to his Loblaw adjustment as well as last week’s release of Choice Properties REIT’s (CHP.UN-T) quarterly results.

“We believe there is potential for the NAV discount to narrow to 10 per cent (from 14 per cent) with better visibility from the WF sale and use of proceeds,” he said. WN expects the proceeds to most likely be returned to shareholders through share buybacks. In theory, we estimate there is potential for WN to repurchase 10 per cent of the total shares. While WN indicated that L and CHP.UN are well-funded and there would be no need for incremental capital, we believe WN could reserve some proceeds for future investments. Improvement in sentiment on the REIT sector from reopening would also be a positive.”

His target rose by $10 to $137 with a “buy” rating. The average is $128.29.

“Our positive view on WN is based on: (1) potential for the NAV discount to narrow further to 10 per cent (from 14 per cent), driven by better visibility from the WF sale and use of proceeds; (2) L share price appreciation; and (3) improvement in sentiment on the REIT sector from the economy reopening, supporting upside for CHP.UN,” said Mr. Li.

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Small-cap lenders, like Home Capital Group Inc. (HCG-T), sit “well-positioned” for changes to Canada’s housing market, according to Scotia Capital analyst Phil Hardie.

“Heading into 2020 and prepandemic, the investment thesis surrounding Home Capital was one of rebuilding operating and earnings momentum,” he said in a research report released Tuesday. “With tail risks receding and the operating environment improving, we expect investor focus to shift back towards ROE [return on equity] progression. Recent multiple expansion has likely been driven by reduced tail risks across the sector given a better-than-expected operating environment and outlook towards an improved macro-economic backdrop as vaccination rates have accelerated across the country.

“With HCG having shed its steep valuation discount, we believe the next leg up in valuation is demonstrating continued progress towards its goal of attaining sustainable ROE in the mid-teens. The underlying Operating ROEs over the last three quarters have benefited from reserve releases following the spike that put pressure on earnings in the first half of last year, but even after adjusting for those benefits, it has continued to trend higher. We are expecting ROE in the 12.5 to 13.0-per-cent range over our forecast period but see further upside to our forecast if HCG accelerates its capital right-sizing efforts.”

Mr. Hardie sees Home Capital’s capital position remaining “strong,” estimating it possesses $490-million (or $9.65 per share) in excess capital above its operating target and feeling it is not properly reflected in its share price.

“As OSFI’s restrictions on capital deployment are likely poised to be lifted at some point this year, we are anticipating share buybacks to resume for Home Capital in Q4/21, in addition to the reinstatement of a regular dividend,” he said. “Since the suspension of its dividend in May 2017, HCG’s new management team has shown a preference for share buybacks over the dividend reinstatement. The team cited that it was more prudent to repurchase shares below what it perceived to be the stock’s intrinsic value in order to maximize shareholder value. That said, with the stock having a solid rally and now trading above book value, we believe a dividend reinstatement is likely in the next twelve months, with our assumption of the reinstatement starting in Q4/21.

“We are anticipating a 26-cent distribution to kick-off the reinstatement, which would be in line with the last amount paid out. We estimate the dividend reinstatement would imply an adjusted payout ratio of 26%, in line with the last payment. We also see the potential for another large Substantial Issuer Bid (SIB) as a mechanism to accelerate excess capital deployment, particularly if management views the stock as trading below its intrinsic value. The ultimate path to ‘right-sizing’ capital is likely to include a mix of share buybacks, an SIB, regular dividends, or even potentially special dividends. Investors are likely to be focused on the velocity of excess capital deployment as a signal of management’s commitment to return excess capital to shareholders and boost profitability. An accelerated pace is likely to be rewarded in the stock’s valuation, while a more drawn-out process that risks the perception that management is happy to hold a perpetual ‘rainy day cushion’ is likely to see a more muted impact on the stock, in our view.”

Keeping a “sector perform” rating, Mr. Hardie raised his target for Home Capital shares to $47 from $44, . The average is $44.29.

Concurrently, Mr. Hardie cut his First National Financial Corp. (FN-T) by $1 to $51 with a “sector perform” recommendation based on “slightly” lower estimates for 2022. The average is $53.20.

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After a “strong” earnings beat and “supportive directional guidance,” Scotia Capital analyst Konark Gupta sees Mullen Group Ltd. (MTL-T) “pivoting to harvest mode.”

“MTL is in a sweet spot of consumer strength, economic recovery, energy market rebound, and significant inorganic growth, which could result in strong growth heading into 2022 vs. 2019,” he said. “The company’s ability to generate solid FCF (low double-digit yield), along with a reasonable balance sheet, should also support ongoing buybacks and rebound in the monthly dividend to pre-pandemic levels potentially within 6-9 months (current yield is already attractive at 3.7 per cent). The stock also checks the attractive valuation box, trading at 7 times EV/EBITDA on our 2022 estimates vs. TFII, U.S. LTL and U.S. 3PL peers at 9 times (on our 2022E), 9 times, and 10 times, respectively.”

During last week’s post-earnings conference call, Mullen management said the company is now generating almost $1.6-billion in annualized revenue, closing in on its long-term goal of $2-billion in revenue well ahead of schedule.

“This compares to $1.28-billion revenue in 2019,” said Mr. Gupta. “Recall, MTL raised 2021 revenue guidance to $1.3-billion to $1.4-billion in April and had guided $200-million to $220-million EBITDA in December 2020.

“We believe revenue could potentially exceed $1.7-billion in 2022 (up 34 per cent vs. 2019) with a relatively steady 15-16-per-cent EBITDA margin (ex-CEWS), driven by economic recovery on reopening, rebound in oil and gas industry spending, and continued strength in consumer spending. Deferral in some higher-margin pipeline activity from this year should also contribute incrementally in 2022. The company also highlighted that four of the five acquisitions closed in Q2 (Bandstra, Tri-Point, APPS, and QuadExpress) are expected to generate over $400M in annualized revenue going forward, up from $355M in the trailing 12 months (prior to closing). We would take advantage of stock’s attractive valuation to enjoy the harvesting phase over the next 12 months.”

Maintaining a “sector outperform” rating for Mullen shares, Mr. Gupta increased his target by $1 to $16. The average is $15.59.

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Calling it a “differentiated cannabis investment leveraging proven business model,” Canaccord Genuity analyst Bobby Burleson initiated coverage of Clever Leaves Holdings Inc. (CLVR-Q) with a “buy” recommendation on Tuesday.

The New York-based multi-national cannabis company operates several subsidiaries, including Clever Leaves International Inc., out of British Columbia.

“We believe the company is uniquely positioned as a low-cost producer of flower and extracts through its Colombian EU GMP-certified cultivation and extraction facility, particularly following Colombia’s recent decree lifting restrictions on flower exports,” said Mr. Burleson. “CLVR’s NASDAQ listing further differentiates the company by attracting institutional investor capital and allowing access to debt at more conventional costs. We believe the company’s listing on a major U.S. exchange combined with lowest-cost EU GMP production warrant a valuation premium.”

Touting the advantages of its multi-national operator model, which he said “stands out in crowded public field,” Mr. Burleson, currently the lone analyst covering the stock, set a target of US$13 per share.

“We believe CLVR should be valued at a premium to peers given its global export positioning, based on substantial cost advantages and EU GMP certification gained through its Colombian operations,” he said. “When looking at the peer group, the company trades at a modest 7-per-cent premium. Further, given the global cannabis ambitions of several well capitalized players, we also view CLVR as a potential take-out candidate.”

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Analysts at BMO Nesbitt Burns raised their base metal price projections for the second half of 2021 while lowering their estimates for precious metals, leading to a series of target changes to stocks in their coverage universe.

In a research report released Tuesday, the firm increased their estimates for nickel, aluminium, zinc and lead by 7-8 per cent. Its biggest change was for hard coking coal, raising its forecast by 14 per cent with expectation higher prices will persist as “supply availability remains constrained within the Chinese value chain.”

Conversely, BMO trimmed its 2021 and 2022 silver price forecast by 1 per cent and its 2022 gold estimate by 3 per cent.

“With global industrial production growth rates now having peaked, across industrial metals the focus across base metals and bulk commodities is now shifting towards duration of prices being maintained at current elevated levels,” BMO said. “Demand momentum is starting to wane, which is the dominant factor behind expected declines from spot prices by year-end. However, across supply chains a combination of pandemic-related issues and logistical constraints means that replenishing inventories at end users is set to take longer. For precious metals, a faster pace of central bank rate hikes does raise some medium-term concerns; however, traditional demand looks robust. Across almost all commodities under our coverage, producer margins over the coming couple of years

are among the highest at any point in history.”

Notable target adjustments among base metals producers include:

  • Teck Resources Ltd. (TECK.B-T, “market perform”) to $38 from $35. Average: $33.80.
  • First Quantum Minerals Ltd. (FM-T, “market perform”) to $30 from $29. Average: $34.51.
  • Ero Copper Corp. (ERO-T, “outperform”) to $32 from $31. Average: $29.86.

“Collectively, with the Base and Bulks coverage we continue to have a preference for the North American steel producers, global diversified miners, and select iron ore and copper-exposed names. Our global top picks are unchanged from our Q3 update and thus remain (alphabetically): Anglo American, Constellium, Copper Mountain, Freeport McMoRan, Ivanhoe Mines, Lundin Mining, and Stelco,” they said.

For precious metals companies, their changes include:

  • Maverix Metals Inc. (MMX-N, “outperform”) to US$6.25 from US$6.50. Average: US$6.50.
  • Metalla Royalty & Streaming Ltd. (MTA-X, “market perform”) to $14 from $15. Average: $14.45.
  • First Majestic Silver Corp. (FR-T, “market perform”) to $14.50 from $15. Average: $21.59.
  • Endeavour Silver Corp. (EDR-T, “market perform”) to $6 from $6.25. Average: $7.57.
  • Silvercorp Metals Inc. (SVM-T, “market perform” to $7.25 from $7.75. Average: $9.40.
  • SilverCrest Metals Inc. (SIL-T, “outperform”) to $14.25 from $14.50. Average: $15.28.

“Collectively, our top picks are (alphabetically): Agnico Eagle, Endeavour Mining, Kirkland Lake SSR Mining, and Wesdome Gold Mines,” the firm said.

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In other analyst actions:

* After raising his financial projections following “solid” second-quarter results, TD Securities analyst Craig Hutchison upgraded Copper Mountain Mining Corp. (CMMC-T) to “buy” from “hold” with a $4.75 target, below the $5.04 average.

“Copper Mountain continues to benefit from near-record copper prices, which have allowed the company to significantly de-lever its balance sheet over the last 12 months,” he said. “This will provide the company with the opportunity to make investments in growth projects, including both Eva and the planned expansion of the CMM to 65ktpd by 2023. Both projects have the potential to double the company’s current copper production profile.”

* Scotia Capital analyst Phil Hardie raised his Power Corporation of Canada (POW-T) target to $47 from $45, exceeding the $42.63 average, with a “sector perform” rating.

POW is up a solid 34 per cent year-to-date, outperforming the S&P/TSX Financial Index at 20 per cent, driven by not only solid performance across its publicly traded subsidiaries but also by the value crystallization of a number of its private holdings and by the narrowing of its NAV discount,” said Mr. Hardie. “We continue to see upside given the potential for NAV accretion and further tightening of the NAV discount, and view POW as attractive for investors with a mid-to longerterm investment horizon. We believe that valuation remains attractive as our estimated current NAV discount of 24.2 per cent remains historically wide.”

* CIBC World Markets analyst Mark Petrie cut his Saputo Inc. (SAP-T) target to $43 from $45, reiterating an “outperformer” rating. The average on the Street is $42.11.

“We are updating our Q1 estimates to reflect less favourable dairy markets. Specifically, we expect negative market factors in the U.S. and weaker international markets to weigh on results, and our EPS estimate is revised to $0.26 from $0.34. We have also updated our F2022 and F2023 estimates for FX and commodity prices. Despite this, we believe the selloff in the stock following Q4 earnings is overdone and see attractive upside as volume headwinds abate and commodity supply/demand balances,” said Mr. Petrie.

* CIBC’s Robert Catellier lowered his Pembina Pipeline Corp. (PPL-T) target to $45 from $47, which continues to exceed the $40.94 average, with an “outperformer” recommendation.

“We believe Pembina would have been better off with the IPL merger closing, however, we still see growth opportunities moving forward. Industry tailwinds have shown signs of increasing momentum in 2021,” said Mr. Catellier.

* Mr. Catellier also reduced his Inter Pipeline Ltd. (IPL-T) target by $1 to $20.50 with a “neutral” rating. The average is $19.47.

“We expect IPL will be able to conclude a merger agreement with Brookfield,” he said.

* CIBC’s John Zamparo cut his target for Canopy Growth Corp. (WEED-T) to $30 from $36 with a “neutral” rating. The average is $32.47.

“We have reduced our revenue and EBITDA forecasts for Canopy’s FQ1, as well as F2022 and F2023. Like most of the sector, we believe Canopy was impacted by store operating restrictions in the quarter (lasting longer than we had originally forecast), and WEED is disproportionately impacted because of its substantial retail presence. We also believe, either this quarter or next, the company will defer its expectation of positive EBITDA—currently at some point in F2022—to early F2023,” he said.

* Guggenheim analyst Gregory Francfort initiated coverage of Restaurant Brands International Inc. (QSR-N, QSR-T) with a “neutral” rating and US$67 target. The average is US$71.62.

* Eight Capital analyst initiated coverage of Kelt Exploration Ltd. (KEL-T) with a “buy” recommendation and $6.50 target, exceeding the $4.76 average.

* JP Morgan analyst John Royall raised his Alimentation Couche-Tard Inc. (ATD.B-T) target to $54 from $51, keeping an “overweight” rating. The average is $54.93.

* TD Securities analyst Daryl Young raised his target for Westshore Terminals Investment Corp. (WTE-T) to $22 from $19, maintaining a “hold” recommendation. The average is $25.60.

* Cormark Securities analyst Jeff Fenwick increased his Boyd Group Services Inc. (BYD-T) target to $265 from $240 with a “buy” rating. The average is $252.77.

* Eight Capital initiated coverage of CareRx Corp. (CRRX-T) with a “buy” rating and $10 target, topping the $8.96 average.

* Stifel analyst Cole McGill raised his Arizona Metals Corp. (AMC-X) target to $7 from $5.50 with a “buy” rating. The average is $7.17.

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