Inside the Market’s roundup of some of today’s key analyst actions
Citing another “stellar quarter,” Raymond James analyst Bryan Fast upgraded Wajax Corp. (WJX-T) to “outperform” from “market perform” while raising his price target to C$30 from C$26.
Wajax reported third-quarter adjusted EPS of 70 cents, well above the consensus expectation of 58 cents - and that was accomplished without Wajax receiving any wage subsidies for the first time since the program began. Gross profit for the Canadian distributor of industrial components was up 33% from a year ago as revenues increased 18%.
“Several meaningful events have occurred in recent months including the appointment of a new CEO and a more direct and expanded relationship with their largest Original Equipment Manufacturer, Hitachi,” Mr. Fast said in a note to clients. “Hitachi and Deere & Co. announced the end of their partnership (effective Mar-22), which means that Wajax will distribute equipment directly from Hitachi (vs. the third-party joint venture previously). We view this as a net positive, as it better aligns the company with the OEM, quicker and efficient access to equipment and parts supply and more competitive pricing.”
“We expect Wajax to continue down the path of expanding the parts/ERS verticals, benefitting from lower working capital needs and less cyclicality,” he added.
The average analyst price target is C$29.25, according to Refinitiv Eikon data.
Credit Suisse raised its price target on Suncor Energy Inc (SU-T) after making adjustments to its cash flow estimates in the wake of last week’s earnings and plans that were revealed for a higher dividend and more share buybacks.
Its new price target goes to C$42 from C$36 while its rating remains “outperform.” The average analyst target is C$37.
Credit Suisse now expects 2022 cash flow per share of $8.31, up from prior estimates of $7.40. In 2023, it expects cash flow of $8.17 per share, up from prior estimates of $7.68.
Better oil price realizations, higher volumes from the Fort Hills operations, higher refining margins and lower share count thanks to the buybacks were cited for the revisions.
Last week, Suncor announced a 100% hike to its quarterly dividend. The company wants to grow its dividend by 25% until 2025, which puts the annual dividend at $2 a share. With last week’s hike, Suncor’s dividend will already be at $1.68 a share.
Suncor’s board last week also approved an increase to the company’s share repurchase program to approximately 7% of its public float.
“At its analyst day, SU had indicated it would like to lower net debt to $12-$15 billion by year-end 2025. We expect by year-end 2021 the company will be close top end of its guidance. Even with higher dividend and buybacks, we expect more net debt reduction to continue in 2022, as upstream benefits from significantly higher prices, and best-in-class refining continues to generate free cash flow. (buybacks) are driving revisions,” Credit Suisse analysts said.
BMO analyst Raj Ray downgraded Golden Star Resources Ltd (GSC-T) to “market perform” from “outperform” after China’s Chifeng Jilong Gold’s made all-cash offer for the company for US$3.91 a share, or US$470-million. The offer equates to about $4.85 in Canadian dollars, which is now his new price target (up from C$4.50).
The average price target among analysts is C$4.73.
“In our opinion, Chifeng Jilong Gold’s (Chifeng) all-cash offer for Golden Star is fair and reflects a decent premium, although some shareholders that have held the shares for longer hoping for a re-rating might be slightly disappointed,” Mr. Ray said in a note.
“Nevertheless, ‘cash is king’ and shareholders will be happy to deploy it where they deem fit. At this point we do not see potential for any interlopers,” he added.
Truist Securities analyst Neal Dingmann downgraded Exxon Mobil Corp. (XOM-N) to a “sell” rating from a “hold” and cut his price target to US$50 from $66.
He mostly cited valuation concerns, and believes investors may have pushed up shares too much last week in the wake of the company announcing plans for US$10-billion in share repurchases in 2022-2023.
“XOM boosted upcoming shareholder returns, but our forecasts suggest metrics could be less per share than other large operators and we estimate it trades at more than a 10% premium versus its closest peers,” Mr. Dingmann said in a note to clients.
“While XOM is making its energy transition, we do not envision the process making as big of strides as others due to XOM’s relatively late start, recent board changes, and shareholder return demands. So while XOM can continue to benefit from strong commodity prices, we believe there are more attractive alternatives to own,” he said.
The average analyst price target is US$70.64.
Cargojet Inc. (CJT-T) shares on Monday fell 5.5%, despite reporting quarterly earnings that beat expectations. Analysts this morning are generally holding firm on their price targets and ratings, while trying to explain why investors were cool to the results.
Cargojet’s revenue in the third quarter rose 16.8% to $189.5-million, ahead of the Street consensus of $178-million. Adjusted EBITDA of $70.9-million, up 1.6% from a year ago, beat the consensus forecast of $68.8-million.
But the company outlined some challenges to the business in its conference call with analysts.
“Belly capacity in passenger aircraft is expected to constrained for the foreseeable future due to structural changes in the market,” noted Acumen Research’s Nick Corcoran. But, “these structural changes are positive for the long-term demand for air cargo and supportive of CJT’s domestic and international growth plan.”
Meanwhile, labour costs for pilots continue to see upward pressure from pilot fatigue rules and a tight labour market. But these costs were already well telegraphed to the market, Mr. Corcoran pointed out. CJT has also seen pricing pressure for ground handling staff and moved to expand the team and facilities to handle additional growth going forward.
Mr. Corcoran maintained a “buy” rating and C$300 target price. “We believe the strong Q3/21 results were overshadowed by concerns about rising costs related to pilots, ground handling, additional leadership, and other expenses. The company is well positioned to deliver another record fourth quarter with aircraft deliveries through the end of 2024 expected to fuel both domestic and international growth.”
CIBC’s Kevin Chiang, who has an “outperformer” rating and C$245.00 price target on the stock, had a similar reaction. “Our positive thesis on CJT is unchanged. It has a strong revenue pipeline. While it sees some expense pressure, we see a path towards margin expansion looking out over our forecast period,” he said.
Elsewhere, RBC cut its target price modestly to C$295 from C$300.
The average analyst price target is C$249.83.
BMO analyst Deepak Kaushal initiated coverage on Galaxy Digital Holdings Ltd. (GLXY-T) with an “outperform” rating and C$43 price target.
Galaxy is a technology-enabled financial services company bringing institutional-grade capital market services to the blockchain industry.
Mr. Kaushal believes the stock provides more than just bitcoin exposure.
“Galaxy offers unique risk-adjusted exposure to the broader digital asset ecosystem, with diverse private investments across the industry, and an operating business that can generate income growth and return on equity with overall industry growth, irrespective of cryptocurrency price movements,” the analyst said in a note to clients. “We think this is attractive given the sector’s early-stage high risk.”
The average analyst price target is C$28.
In other analyst actions:
* Kirkland Lake Gold Ltd (KL-T): Scotiabank cuts target price to C$52.25 from C$61
* Copperleaf Technologies (CPLF-T): Canaccord Genuity initiates coverage with “buy” rating and price target of C$29.
* Firm Capital Mortgage Investment (FC-T): TD Securities resumes coverage with “buy” rating and C$16.50 price target.
* Alcoa Corp (AA-N): Jefferies raises target price to $60 from $52 and raises rating to “buy” from “hold”
* Bank of America Corp (BAC-N): Baird cuts to “underperform” rating. It thinks the stock has risen too fast and is subject to a 12% pullback.
* Clorox Co (CLX-N): Jefferies raises target price to $170 from $169; JP Morgan cuts target price to $147 from $171 and downgrades rating to “underweight” from “neutral.”
* Microsoft (MSFT-Q): Independent Research raises price target to US$345.00 from US$310.00; rating hold
With files from Reuters
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.