Inside the Market’s roundup of some of today’s key analyst actions
Scotiabank analyst Konark Gupta thinks investors should take advantage of the recent pullback in CAE Inc. (CAE-T) and buy shares now.
The stock has pulled back about 10 per cent since fiscal first quarter results, underperforming the TSX and S&P 500 by about 10 points and the U.S. Global Jets exchange-traded fud by about 8 points.
“We believe profit-taking and renewed COVID-19 concerns (delta variant) are among key drivers behind this weakness. Although a rebound in COVID-19 cases in major regions (e.g., the U.S.) is a valid concern, we think the market may be missing CAE’s end-market diversity, which not only provides downside protection but it is also enhanced with the recent acquisition of L3Harris’s military training business (L3HMT),” Mr. Gupta said in a note.
“In addition, the higher-margin bizjet end-market remains robust. As such, we recommend taking advantage of stock’s pullback and attractive valuation relative to history (before CAE reports stronger second half results (December and March quarters) and/or deploys more capital (organic or inorganic) for upside risk to consensus,” he added
Scotiabank, which considers CAE as a top pick within its coverage of the transportation and aerospace industries, reiterated a “sector outperform” rating and C$46 price target.
The average price target among analysts is C$42.78, according to Refinitiv Eikon data.
Bombardier Inc. (BBD-B-T) is likely to soon make a return to the S&P/TSX Composite Index, according to analysts at ATB Capital Markets.
“After delivering strong first half 2021 results, we see Bombardier being added as the stock has moved above the $1.00 mark and was removed in the June 2020 rebalance, lapping the full one-year exclusion condition. We see the name as under-owned by investors and view its addition as a positive catalyst,” ATB said in a note to clients.
S&P is expected to announce any new additions or deletions from the Composite on Sept. 10, with changes expected following market close on Sept. 17. The key criteria for addition to the index include a float-adjusted market capitalization of greater than 0.04 per cent of the float weighted market capitalization of the index after allowing for an addition’s inclusion. It must also have have adequate liquidity as measured by float turnover over the prior year of greater than 0.5x, ATB noted.
For the September rebalance, the measurement period to determine changes is based on volume-weighted trading over the 10 trading days between August 9 and August 20.
A decision to add or remove a stock from the index can have a meaningful impact on its share price, as fund managers and index-tracking ETFs who track an index need to hold shares in the companies.
Canadian stocks added to the composite, which has about 230 to 240 members, depending on the quarter, can see a price bump before and even after inclusion.
ATB Capital Markets has a C$2 price target and “outperform” rating on Bombardier stock.
The average target among analysts is C$1.72.
Raymond James analyst Jeremy McCrea believes a special dividend payment will result from an announcement Monday night that Tourmaline Oil Corp. (TOU-T) is selling 7 million shares of Topaz Energy Corp. (TPZ-T) for $108.15 million, or $15.45 a share, under a bought deal.
Tourmaline’s ownership in Topaz Energy will fall from 45.17% to 39.73% upon closing.
“We see two key positives coming from the transaction,” Mr. McCrea said in a note to clients. “Firstly, the proceeds from the sale opens the door for TOU to consider the acceleration of shareholder returns where we believe a special dividend is now likely under consideration. Furthermore, the sell down of TOU’s TPZ holdings will improve trading liquidity for TPZ which should have long-term benefits for the valuation of TPZ.”
Given strengthening in Tourmaline’s balance sheet, Mr. McCrea suggests the dividend could come before the end of this year.
“Using the Company’s July 5-year plan update and keeping in mind that gas futures continue to strength as we progress through 2H21, we see the special dividend triangulating to between $250-$450 mln, or an implied special dividend yield of 2.3-4.1% ($0.77-$1.38/sh); This would be on top of the regular dividend yield of 2.0%,” the analyst said.
Mr. McCrea rates Tourmaline as a “strong buy” with a price target of $44.50. The average target among analysts is $47.30.
Several analysts have cut their price targets on Zoom Video Communications Inc (ZM-Q) following the release Monday night of its second-quarter results.
The results themselves were solid, but the company provided guidance calling for flat revenue in the fiscal third and fourth quarters. That sent shares tumbling more than 10 per cent in Monday’s post market trading.
The company reported revenue of US$1.021 billion, up 54 per cent year over year, and above consensus of $991.2 million. Non-GAAP EPS of $1.36 was ahead of consensus of $1.16.
But that didn’t stop analysts from fretting about where results go from here, and several lowered their expectations on the stock price.
Among them, BTIG cut its target price to US$460 from US$495; Deutsche Bank cut its price target to $350 from $375; Mizuho cut its target to $350 from $400; Piper Sandler cut its target price to $369 from $464; and Stifel cut its target price to $350 from $450.
Some analysts urged patience, suggesting the company is set for strong performance in later quarters.
“Management’s guidance, which looks conservative to us, assumes headwinds from SMBs/consumers post-pandemic. It may take a few quarters for the headwinds to abate and for Zoom to return to its true underlying growth rate,” RBC analyst Rishi Jaluria said in a note.
RBC maintained a US$450 price target and “outperform” rating.
“While we expect healthy debate around the quarter and the outlook, our take is Zoom’s expansion into a broader platform (accelerated by the pending acquisition of Five9) should see growth re-accelerate exiting the difficult COVID compares. We would use the pullback as a buying opportunity,” the analyst said.
The average analyst target is now US$393.50, which is down from $415.25 one month ago, according to Refinitiv Eikon data.
Stifel analyst Cody Kwong is reaffirming Enerplus Corp. (ERF-T) as one of his firm’s best ideas in the Intermediate Exploration and Production energy space following an asset sale this week.
Enerplus announced the sale of non-core assets in Montana and North Dakota for US$115-million.
“The associated 3,000 barrels of oil equivalent per day were sold at very attractive metrics for the company, while also accelerating its debt reduction goal which is now expected to be achieved in 1Q22,” Mr. Kwong said in a note to clients.
“This is yet another example of the Company heightening focus on its core and high return Bakken assets in North Dakota, this time not by acquisition, but by shedding higher cost peripheral assets that do not compete for capital. The cash infusion brings Enerplus a quarter closer to amplified return of capital for shareholders, a meaningful event in what we believe is a step change in valuation for the stock.”
Mr. Kwong, who has a “buy” rating on the stock, increased his target price to $13.75. That’s well above the average Street target of $11.50.
Among other stocks seeing rating and/or target price changes:
* Brookfield Infrastructure Partners LP (BIP-N): Citigroup raises price target to US$57 from US$54
* Textron Inc (TXT-N): Cowen and Company raises target price to $95 from $75 and raises to outperform from market perform
* Occidental Petroleum Corp (OXY-N): Citigroup initiates coverage with buy rating and US$35 target price.
* Virgin Galactic Holdings Inc (SPCE-N): Jefferies initiates with buy rating and US$33 price target.
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