Tuesday’s analyst upgrades and downgrades

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

While he thinks its “near-flawless” execution is continuing and has “complete confidence” in its ability to meet its growth ambitions of $2.0-billion in run-rate EBITDA by the end of 2025, Scotia Capital analyst Ben Isaacson thinks it is now time to take his “foot off the gas” on Parkland Corp. (PKI-T).

Accordingly, he lowered his rating for the Calgary-based company to “sector perform” from “sector outperform” on Tuesday, emphasizing the spread between the Street’s price target for its shares and the actual stock price is “the widest we’ve ever seen” and believing “Parkland investors appear to no longer be listening to the Street, certainly not as much as in the past.”

“While Parkland continues to execute near flawlessly on its EBITDA growth targets and strategic objectives, we must acknowledge that investors have become less willing to pay historic multiples for the company’s earnings power and free cash flow generation,” said Mr. Isaacson in a research report. “Following a week of discussions with current, former and prospective Parkland shareholders, the feedback is clear: investor uncertainty is increasing with respect to the sustainability of the business model. Simply put, investors are concerned the transition from ICEs to EVs may not occur on a 1-for-1 basis, at least as it relates to Parkland’s economics. At some point, we have to stop telling the market what we think is right, and start listening to what the market is telling us. Today is that day.”

Mr. Isaacson thinks a “materially” higher dividend may be necessary to appease investors and send the stock higher again.

“Rightly or wrongly, investors want Parkland to take their foot slightly off the EBITDA growth gas, and return significantly more capital to shareholders. Their aggregate view is that if growing EBITDA from $1.25-billion to $2.0-billion doesn’t get the stock going, perhaps a 10-per-cent-plus dividend yield will.,” he said.

“Feedback is that the business model is mature, and while some free cash flow could and should go to growth, the remainder should flow back to shareholders, so they can allocate their capital how they choose.”

Though he reaffirmed his “full confidence in Parkland’s leadership to execute on their growth objectives,” Mr. Isaacson cut his target for its shares to $41 from $50. The average on the Street is $50.08, according to Refinitiv data.

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Citing recent share price appreciation and lower relative returns, RBC Dominion Securities analyst Walter Spracklin lowered his recommendation for Andlauer Healthcare Group Inc. (AND-T) to “sector perform” from “outperform” on Tuesday.

“With the shares now up over 3.4 times since IPO, we think the valuation now reflects the company’s solid fundamentals, its strong management team, and a pickup in M&A activity post-pandemic,” he said in a research report previewing fourth-quarter 2021 earnings season for Canadian trucking and diversified industrial companies.

Despite the downgrade, Mr. Spracklin maintained his earnings before interest, taxes, depreciation and amortization (EBITDA) forecast for the Vaughan, Ont.-based company, which provides delivery services to the healthcare sector, of $30-million, slightly below the $32-million consensus on the Street. He attributed the difference to a lower margin estimate, expecting a decline quarter-over-quarter “due to vaccine shipments slowing and the acquisition of Boyle and Skelton US.

“Key focus into the quarter will be an update on the M&A pipeline and indications with regard to timing of a pickup in activity,” he said. “Our 2022 and 2023 EBITDA estimates remain unchanged at $138-million (cons. $140-million) and $147-million (cons. $152-million), respectively.”

He maintained a $56 target for Andlauer shares. The average target on the Street is $53.33, according to Refinitiv data.

“We downgrade the shares to Sector Perform despite our view that the business is very well managed and the long-term growth drivers are intact,” the analyst said. “We note that our estimates incorporate high-single-digit organic growth as well as steady (to slightly higher) margins, and that our valuation builds in a meaningful pickup in M&A activity. However, our price target implies a return to target of 9 per centand we therefore reduce our rating based on relative returns.”

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Concurrently, Mr. Spracklin thinks Cargojet Inc. (CJT-T) is the “best-positioned” stock heading into earnings season and called it his “top name in transportation.”

“We raise our Q4 EBITDA estimate to $90-million (from $75-million ; cons. $79-million) to reflect the impact ofthe flooding in B.C., which we believe caused shippers to ship through the air while rail and truck networks were shut down out of Vancouver,” he said. “We would view a Q4 beat (along the lines of our updated estimates) as impressive and a key catalyst for the shares.

Though its shares slid 17.7 per cent in the quarter, Mr. Spracklin said his “very positive long-term view on the shares remains intact” and he sees “recent weakness has created a meaningful investment opportunity.”

He kept an “outperform” rating and $295 target for the Mississauga-based company’s shares. The average is $249.

“Following successive quarters of strong operating results for CJT, investors remain cautious around the long-term supply situation for air cargo when passenger aircraft return and therefore the capacity risk associated with CJT’s recent purchase of 10 aircraft,” he said. “New data suggest, however, that this risk is overblown, and that a systemic shift in the global supply chain for dedicated (i.e., not belly capacity) air freight is emerging. Reflecting this shift, we view it as likely that CJT’s new aircraft will be contracted out prior even to their delivery, which we expect to drive double-digit EBITDA growth out to 2025. In addition, eCommerce trends remain solid, which we expect to drive strong Q4 results as well as long-term growth in each of CJT’s business units (i.e., domestic overnight, ACMI, and Charter). Turing to valuation, we note that the shares are trading in line with trucking companies despite very different industry competitive dynamics, and we therefore see a meaningful opportunity in the shares at current prices.”

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After a “disappointing” 2021 for gold equities, analysts at Canaccord Genuity say they are “near-term cautious and long-term bullish.”

“We are near-term cautious on gold as economies continue to reopen unevenly (now with Omicron risks) and anticipated volatility around tightening expectations with each economic data point hit or miss,” the firm said in a research report released Tuesday. “In our view, macro uncertainty is higher than usual with Omicron risks (or other potential variants), the path of growth, inflation and markets amid withdrawal of monetary and fiscal stimulus and global geopolitical risks percolating (e.g. Russia/Ukraine and China/Taiwan). We suspect we will get greater clarity on the path of inflation and the economy in 2022 as we move through ‘peak recovery’ providing a better sense of the direction of monetary policy and gold. Fast forward 6-12 months, tapering should be concluded, and the tightening cycle arguably could be underway or even close to being over.

“As we’ve noted before, much of the weakness in gold prices tends to happen in the positioning for Fed policy, not on the actual announcements themselves as evidenced during the 2013 taper tantrum and the rate hike cycle that kicked off in December 2015; gold bottomed effectively around the time of each announcement, and we suspect we could see the same outcome play out here. Longer term, however, regardless of tapering and potential rate hikes, given structural deflationary pressures (record debt levels, demographics and globalization) that have largely been in place for more than a decade following the global financial crisis, we believe there is little room for the Fed to ultimately maneuver (the Fed’s last tightening cycle ended at 2 per cent), and we expect real rates to stay lower for longer, which we see as supportive of gold prices.”

The firm expects the precious metals sector to continue to generate “strong” margins and free cash flow at current prices. They’re projecting an aggregate production increase of 2-3 per cent in 2022 with underlying costs rising 3-5 per cent.

Seeing valuations as “inexpensive,” they made a series of rating and price target changes to stocks in their coverage universe after slightly increases to their gold and silver price decks.

Citing its 30-per-cent implied return to our revised target, near-term growth profile and free cash flow yield, analyst Dalton Baretto raised Fortuna Silver Inc. (FVI-T) to “buy” from “hold”

“FVI was the worst performing stock among the precious metal producers in 2021; the shares declined by 53 per cent versus the peer group average decline of 19 per cent,” he said. “Two seminal events were the primary drivers behind the underperformance: A head-scratching foray into West Africa via the acquisition of ROXG at a large premium (that was subsequently arbitraged out ahead of the deal closing) ... FVI has since lost its “silver premium multiple” and the denial of the application to extend the environmental permits at San Jose, and the knock-on implications to the company’s liquidity. This has since been resolved.

“In addition, the company struggled with its operations for most of the year.”

His target for Fortuna shares rose to $6 from $5.50. The average target on the Street is $6.21.

“We expect a brighter outlook for FVI in 2022, especially given how low the bar was set in 2021. We look forward to Lindero finally hitting its stride as the asset learns to work through the COVID restrictions, and a full year of production from Yaramoko. Construction at Seguela should progress substantially through the year, providing the company with line of sight to its next leg of growth in 2023.”

Citing valuation concerns as well as “the lack of meaningful near-term growth, FCF or catalysts, and the heightened probability of an acquisition,” Mr. Baretto lowered Alamos Gold Inc. (AGI-T)

“We expect more of the same in 2022,” he said. “We continue to believe that AGI’s share price movements will be hostage to the gold price, given a lack of meaningful catalysts, limited free cash flow, relatively modest shareholder return program and limited near-term growth. That said, AGI remains a quality option for pure-play gold exposure, given reasonable production scale at decent margins in safe jurisdictions. We believe a potential merger or acquisition is a non-trivial probability in 2022.”

His target for Alamos fell to $10 from $12. The average is $13.44.

Mr. Baretto also cut New Gold Inc. (NGD-T) to “hold” from “buy” with a $2.25 target, down from $2.85 and below the $2.47 average.

“The operating challenges of 2021 have clearly brought back the ghosts of operating issues past and lowered the market’s perception of the quality of these assets,” the analyst said. “As such, a primary goal for management in 2022 will be to deliver a series of strong operating results that leverage the full capability of the mines. A secondary (but no less important) goal will be to better define the longer-term future of the business – New Afton continues to tread water from a FCF perspective as the bulk of the operating cash flow gets reinvested in development, while Rainy River faces existential questions past the cessation of mining from the open pit in early 2025. As such, we believe there is a high probability of M&A activity in 2022, and we believe management are likely sellers rather than buyers.”

The firm made these target changes for senior producers:

• Newmont Corp. (NEM-N/NGT-T, “buy”) to US$65 from US$62. Average: US$65.77.
• Barrick Gold Corp. (ABX-T, “buy”) to $32 from $31. Average: $33.75.
• Agnico Eagle Mines Ltd. (AEM-T, “buy”) to $90 from $88. Average: $94.48.
• Kirkland Lake Gold Ltd. (KL-T, “buy”) from $71 from $70. Average: $65.41.
• Kinross Gold Corp. (K-T, “buy”) from $11.50 from $11. Average: $12.44.
• Endeavour Mining PLC (EDV-T, “buy”) from $45 from $42. Average: $43.73.
• Pan American Silver Corp. (PAAS-Q/PAAS-T, “buy”) from US$28 from US$32. Average: US$33.51.

“While we are bullish on gold in 2022, given the overall macro volatility and risks inherent in mining, we generally prefer companies with sound financial and operational outlooks with positive company-specific catalysts and relatively attractive valuations,” they said. “Our top picks are Agnico Eagle and Endeavour Mining among the senior producers; SSR Mining among the intermediate/junior producers, and Osisko Gold Royalties among the royalty and streaming companies.”

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Following a recent selloff, Laurentian Bank Securities analyst Nauman Satti raised Guru Organic Energy Corp. (GURU-T) to “buy” from “hold,” expecting to see 35-per-cent year-over-year revenue growth when it reports its fourth-quarter 2021 financial results.

“Guru’s expansion outside of the Quebec market remains on track and is expected to be accelerated through the PepsiCo distribution partnership,” he said. “The company has undertaken advertising initiatives to build its brand outside of Quebec, including an aggressive digital marketing strategy. The company’s stock price has declined by 34 per cent from its 52- week high of $22.95 per share. We attribute this decline to: 1) overall selling pressure on SPACs, 2) potential gross margin contraction from the PepsiCo deal, 3) industry-wide cost pressures, and 3) loss of investors’ confidence from insiders’ stock sale. However, we believe the stock correction now offers an attractive entry point as long-term revenue growth potential remains intact.”

Mr. Satti maintained a $19 target for Guru shares. The average is $21.88.

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With shares of Sabina Gold & Silver Corp. (SBB-T) trading at “worst-case levels” in anticipation of a resolution to funding negotiations for the Goose Mine in its 100-per-cent-owned Back River Gold District in Nunavut, iA Capital Markets analyst George Topping sees an “opportunity” for investors.

In a research note released Tuesday, he said any agreement will “no doubt be expensive but so is doing nothing.”

“Funding a US$650-700-million (iA estimate) capex in the public market would be excessively dilutive to existing shareholders,” he said. “As per management’s press release in December, the alternative financing plan should be nearing completion. The cost analysis of this route will need to wait for the agreement details ... We expect an off- market gold stream and a loan – probably convertible. We note Osisko Mining (OSK-T, “Buy” rating, Target $5.00) recently announced a private placement of $154-million in a convertible senior unsecured debenture with Northern Star Resources Ltd. (NST-A, Not Rated) and an exclusive commitment to negotiate a 50:50 JV. The four-year convertible debentures carry an interest rate of 4.75-per-cent pa with a conversion price premium of 25 per cent.”

Mr. Topping said the mine is “one of the few independently owned, shovel-ready gold deposits left in a consolidating market” and a funding agreement will removed a significant overhang and act as a catalyst for its share price.

“While an Osisko type JV deal (if indeed it is consummated) would be best, securing non-public funding looks more likely,” he said. “Greater funding may attract potential acquirers/partners. The Company has all of the important permits secured, an updated BFS in place, and a strong balance sheet ($42-million in cash).”

Seeing its shares trading at a “heavy” discount, he maintained a “buy” rating and $3.25 target. The average on the Street is $3.49.

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Raymond James increased its 2022 oil price assumptions while introducing its 2023 estimates on Tuesday.

The firm’s WTI assumption for this year rose to US$75.43 per barrel from US$73.31 with a projection of US$68.75 for next year.

With those updates, equity analyst made a series of target price adjustments for stocks in their coverage universe.

For senior oil and gas producers, their changes were:

• Canadian Natural Resources Ltd. (CNQ-T, “outperform”) to $70 from $63. The average on the Street is $65.87.
• Cenovus Energy Inc. (CVE-T, “outperform”) to $22 from $19. Average: $20.71.
• Imperial Oil Ltd. (IMO-T, “market perform”) to $55 from $47. Average: $50.90.
• Ovintiv Inc. (OVV-N/OVV-T, “market perform”) to US$52 from US$46. Average: US$48.93.
• Suncor Energy Inc. (SU-T, “outperform”) to $46 from $43. Average: $41.30.

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In response to management’s concerns over the economic viability of its 100-per-cent-owned Platosa mine in Mexico beyond the second half of this year, PI Financial analyst Phil Ker downgraded Excellon Resources Inc. (EXN-T) to “neutral” from “buy,” seeing “uncertainty ahead.”

“Targeted ore stopes at Platosa are becoming more vertically orientated resulting in higher water table draw down rates and increased power consumption making effective mining of the deposits more challenging and costly,” he said. “We had been modeling Platosa with a 6 year mine life attributing to 17 per cent of our calculated NAV for EXN. With uncertainty moving forward at Platosa combined with inadequate capital to advance its pipeline projects, we see increased execution risk and the potential for corporate and asset restructuring.”

Mr. Ker cut his target for shares of the Toronto-based company to $1.30 from $5. The average is currently $3.70.

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In other analyst actions:

* After Monday’s announcement of a 2-cent increase to its quarterly dividend to 20 cents per share and a special dividend of $1.25 per share, Stifel analyst Robert Fitzmartyn hiked his target for Tourmaline Oil Corp. (TOU-T) to $69 from $66.25 with a “buy” rating. The average is $63.07.

“Tourmaline announces a base dividend increase and special dividend that remains conservative relative to FCF generation though does not preclude the fact that it could repurchase its shares for cancellation on the market,” he said. “We affirm significant FCF generation in our forecast for the remainder of the 2022 and believe there will be further tangible returns to shareholders through 2022.”

* In response to Monday’s financial update, including fourth-quarter sales that topped the Street’s forecast, Scotia Capital analyst Michael Doumet cut his target for shares of AutoCanada Inc. (ACQ-T) to $45 from $47 with a “sector outperform” rating. The average is $60.09.

“ACQ shares appear to have found their footing, trading at 7.3 times EV/EBITDA (or 7.4 times) on our 2022 estimate (2023), which we do not view as overly demanding,” he said.

* BMO Nesbitt Burns analyst Jackie Przybylowski cut her target for Turquoise Hill Resources Ltd. (TRQ-T) to $10.50 from $13 with an “outperform” rating. The average on the Street is $18.86.

* BMO’s Andrew Strelzik lowered his Sunopta Inc. (STKL-Q, SOY-T) target to US$11 from US$13, reiterating an “outpeform” rating. The average is US$16.20.

* BMO’s Brian Quast lowered his target for Alamos Gold Inc. (AGI-T) to $11 from $14 with an “outperform” rating. The average is $13.44.

* BMO’s Andrew Mikitchook raised his Victoria Gold Corp. (VGCX-T) target to $23, exceeding the $21.30 average, from $21 with an “outperform” rating.

* National Bank Financial analyst Vishal Shreedhar raised his Gildan Activewear Inc. (GIL-T) target to $59 from $58, exceeding the $46.59 average, with an “outperform” rating.

* Ahead of Tuesday’s inaugural Capital Markets Day, Scotia Capital analyst Orest Wowkodaw bumped up his First Quantum Minerals Ltd. (FM-T) target to $44 from $43 with a “sector perform” rating, while BMO’s Jackie Przybylowski trimmed her target by $1 to $32 with a “market perform” recommendation. The average is $35.46.. The average is $35.46.

* KBW analyst Rob Lee raised his CI Financial Corp. (CIX-T) target by $1 to $36 with an “outperform” rating. The average is $34.33.

* CIBC World Markets analyst Bryce Adams cut his Largo Inc. (LGO-T) target to $18 from $21.50, maintaining an “outperformer” rating. The average is $21.60.