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

BMO Nesbitt Burns analyst Andrew Kaip downgraded Kinross Gold Corp. (KGC-N, K-T), saying he’s “stepping aside while Russia risk plays out.”

“We are downgrading shares of KGC to Market Perform, not on fundamentals, but on growing contagion in response to the leveling of sanctions last week against Russian companies, businessmen, and government officials,” said Mr. Kaip. “We expect Russia exposure will weigh on shares of KGC in the near term. That said, if shares of KGC drop below $3.00, we would view it as a strong buy signal.”

Moving the stock to “market perform” from “outperform,” he lowered his target of US$3.50, down from US$4.75. The average is US$5.34.

“We are of the view that shares of KGC are likely to be caught up in the move by U.S.-based investors to limit exposure to Russia irrespective of any links to sanctioned companies or persons,” the analyst said. “The potential for further sanctions is likely to be an overhang, at least in the near term. Given U.S. investors own 10 per cent directly and 60 per cent indirectly of KGC shares (based on reported shareholdings compiled by Bloomberg), we see Russian exposure as a significant impediment to an Outperform thesis for shares of KGC until more clarity evolves.”


Horizon North Logistics Inc.’s (HNL-T) new 2,000-bed contact in the North Montney region of northeast B.C. should be seen as a “unambiguous positive,” according to Raymond James analyst Andrew Bradford, who projects its incremental value at 5-10 cents per share.

However, Mr. Bradford feels “overall value concerns” linger for the Calgary-based resource development service company, leading him to downgrade his rating for Horizon North stock to “underperform” from “market perform.”

“The larger issue for equity holders is the market’s seeming willingness to ‘price-in’ the potential of two highly uncertain factors: (1) the potential for meaningful LNG work on the West Coast and, (2) the performance of HNL’s Modular Services business – the magnitude and timing of both remaining largely unknown,” the analyst said. “The Canadian equity market has a history of pricing resource stocks based on the popular themes of the day, often resulting in higher-than-historically-normal multiples, as is the case for HNL at 9.5 times 2018 estimated EBITDA today. While the market may be appropriately valuing these uncertain factors, we suggest today’s high share price has significantly diminished the potential for additional low-risk upside. More basically, we cannot recommend any company’s shares based on how market themes may vault their price. As we are constrained by fundamental analysis, we are reducing our rating to Underperform.”

On Monday, Horizon North announced its industrial services division has been granted a conditional award for a full turn-key camp facilities and services, which includes the construction of two new accommodations facilities of 575 and 610 beds and the use of its existing Kobes Creek Lodge open camp. The company projects revenue to be $63-million over the period of August 2018 to November 2019.

“We expect most of the margin generation will be realized in 2019,” said Mr. Bradford. “Horizon North will use an existing camp and install two additional camps, both of which will use existing surplus capacity. Horizon North estimates its up-front investment will be $5 to $10-million. Net of this initial investment, the project’s net contribution is unlikely to exceed $10-million by any appreciable margin – about 7 cents per share.”

The analyst raised his target for HNL shares to $1.70 from $1.60. The average is $2.43.


Raymond James analyst Daryl Swetlishoff expects volatility to persist in the Canadian building materials industry, however he is forecasting lumber prices to continues to rise in 2019 “as excess demand conditions persist.”

“Multiple years of heavy capital investment has left Canadian Building Materials producers with record productivity and efficiency,” said Mr. Swetlishoff in a research note released Tuesday. “More recently, lumber prices have hit all-time highs as elements of the SuperCycle thesis have come to pass. This impressive one-two combination is resulting in high returns on capital and free cash flow (FCF) driving net debt levels to approach zero. While companies have earmarked additional strategic capital to bolster existing assets, our models still forecast large excess cash builds affording increasing financial flexibility. We see important valuation implications of this dynamic and have revised our targets upwards accordingly. While commodities and stocks will likely exhibit seasonal volatility, we have conviction that investors will be handsomely rewarded over our investment horizon and encourage adding to positions. While bullish on all building materials manufacturers in our coverage universe, our valuation models suggest Strong Buy-rated Interfor and Norbord currently maintain the greatest return to target.”

Mr. Swetlishoff expressed caution over first-quarter results in the sector, noting “former ‘Bears’ on the Street [are] now aggressively revising estimates upward.” That led him to call the consensus projections “potentially frothy.”

“Commodity prices are up strong; however, lower shipments and higher costs are offsets leading to our flat to lower sequential estimates,” he said. “While we highlight this issue, we consider it too early to trade and we will review our models prior to the upcoming earnings season.

  • Canfor Corp. (CFP-T, "outperform") to $40 from $36. The average is $32.75.
  • Conifex Timber Inc. (CFF-T "outperform") to $9 from $7. The average is $7.88.
  • Interfor Corp. (IFP-T, "strong buy") to $34.50 from $31. The average is $28.92.
  • Norbord Inc. (OSB-T/OSB-N, "strong buy") to $66 from $65. The average is $51.34.
  • West Fraser Timber Co. Ltd. (WFT-T, "outperform) to $120 from $97. The average is $95.
  • Western Forest Products Inc. (WEF-T, "strong buy") to $3.40 from $3.35. The average is $3.22.
  • Canfor Pulp Products Inc. (CFX-T, "outperform") to $19 from $17.50. The average is $17.90.
  • Mercer International Inc. (MERC-Q, MERC.U-T, "outperform") to US$16 from US$15.50. The average is $17.17.


The outlook for Canadian alternative mortgage lenders remains uncertain due to an evolving regulatory landscape and softening housing market, according to BMO Nesbitt Burns analyst Nik Priebe, who initiated coverage of a trio of companies.

“The alternative lenders continue to navigate a challenging and lower-growth environment,” he said in a research report released Tuesday. “Headwinds have emerged on several fronts, including new regulatory changes, a slowdown of housing market activity and an increase in competitive pressure. Although the more acute issues stemming from the Home Capital crisis have largely abated, the friction caused by a more restrictive regulatory environment may constrain asset growth. In the context of a challenging and competitive landscape, we prefer lenders displaying a comparatively favourable growth outlook, efficient cost structure and attractive valuation.”

Mr. Priebe gave Home Capital Group Inc. (HCG-T) a “market perform” rating and $15.50 target, which is below the average among analysts covering the stock of $18.55.

“Following the liquidity crisis in Q2/17, the outlook appears more stable for Home Capital,” he said. “Deposit gathering capabilities have been restored, the liquidity position has stabilized and the backstop credit facility has been repaid in full. Investor focus has now shifted to the asset side of the balance sheet, as the company attempts to regain lost market share and scale up its lending activities. Despite the improved outlook, many risks remain including: i) a timely ramp up of the underwriting team to restore originations sufficiently to avoid further balance sheet contraction; ii) poor earnings visibility and limited guidance; iii) possible NIM compression as a cost of market share gains; iv) significant exposure to the Toronto housing market, and; v) a higher rate of portfolio attrition in the traditional single family book.”

Mr. Priebe pegged First National Financial Corp. (FN-T) with a “market perform” rating and $26 target, which is a dollar below the consensus.

“First National offers an attractive business model with defensive characteristics and relatively limited exposure to credit losses,” he said. “In our view, however, MUA growth will likely be constrained for the foreseeable future. Against the backdrop of a more restrictive regulatory environment, our forecasts imply MUA growth in the low single digits. The combination of new mortgage insurance rules, B-20 impact, higher interest rates and other regulatory measures designed to slow the pace of housing market activity is expected to provide meaningful headwinds for volume growth.”

Mr. Priebe also gave Equitable Group Inc. (EQB-T) an “outperform” rating and $65 target. The average is $71.22.

“Equitable has established a strong track record of earnings and asset growth, supported by strong credit performance,” the analyst said. “While we acknowledge that the company has been indirectly impacted by the Home Capital crisis, we note that the issues associated with the crisis have largely abated. In Q3/17 – only one quarter after the crisis – Equitable delivered record volumes from its core lending book and has grown deposit principal at 5 per cent quarterly.”

He added: “Overall, we view Equitable Group as best positioned to withstand regulatory headwinds owing to a lower rate of attrition in its core single-family portfolio and an industry-leading efficiency ratio. Valuation appears attractive, and the company is guided by a high quality management team with a well-established track record.”


Allegiant Gold Ltd. (AUAU-X) shares are an “attractive” investment, said Beacon Securities analyst Michael Curran, citing its “exploration success, with a quality exploration team (with extensive experience and gold discoveries) working in a low political risk jurisdiction.”

He initiated coverage of the Vancouver-based company, which was recently spun out from Columbus Gold Corp. (CGT-T), with a “speculative buy” rating.

“Allegiant controls the entire portfolio of Nevada properties accumulated by Columbus Gold (via Cordex) over the past decade or so,” said Mr. Curran. “We feel several of these properties have above average potential for new gold deposit discoveries. Over the past several years, this U.S. portfolio, which took a backseat to the primary exploration efforts of Columbus Gold in French Guiana, can now get the attention they deserve as a separately-listed exploreco.

“We find Allegiant to be in the enviable position of having several properties that are drill-ready. Two drills are currently active at the Eastside project, with the goals of both increasing gold resources and reducing the strip ratio in the proposed open pit. Allegiant also plans to drill several additional properties in the portfolio during the next 12 months.”

Mr. Curran set a 90-cent target for Allegiant shares. He’s the lone analyst currently covering the stock, according to Thomson Reuters Eikon.


Nvidia Corp.’s (NVDA-Q) strength in the gaming sector is likely to offset a drop in cryptocurrency-related revenue, said Morgan Stanley analyst Joseph Moore.

Seeing long-term opportunity stemming from “progress in data center inference,” Mr. Moore upgraded the U.S. chip maker to “overweight” from equal-weight” with the expectation that 2019 fiscal results will exceed expectations.

“It’s increasingly clear that all roads lead back to NVIDIA as the most direct beneficiary of trends in machine learning,” said Mr. Moore.

The analyst maintained a target of US$258, which is above the US$250.75 consensus.

“We now believe that developments in hardware and software have positioned NVIDIA to capture a higher portion of Inference, key to the long term growth rate,” he said. “Strength in gaming titles, and a new NVIDIA product cycle, should drive growth while minimizing the negative impact of cryptocurrency mining economics moving to zero.”


Netflix Inc. (NFLX-Q) remains in the early stages of its penetration of a “large and growing” addressable market, said Morgan Stanley analyst Benjamin Swinburne, who raised his growth outlook for the company.

“At 120 million global subscribers today, we believe Netflix is still in the early stages of global adoption,” he said. “This view is supported by a) the large TAM [total addressable market] (600 million-plus broadband homes globally excluding China and growing), b) the history of successfully scaling in a wide variety of markets (from Brazil to Belgium), and c) the virtuous cycle of scale leading to a deeper competitive moat. While there remains a big opportunity in many of Netflix’s older markets, as evidenced by continued strong growth in the U.S., Asia is perhaps the largest untapped opportunity and likely its most challenging one to capture. However, the recipe for success is clear - tap into the global demand for high production value content ($14.7-billion in net content value on b/s at YE17), develop compelling local fare (like Germany’s Dark, Spain’s Money Heist), and leverage distribution partners to help drive adoption (e.g. Telefonica in Brazil, Vodafone in Australia, and potentially Jio in India).”

“Heading into 2018, we were above consensus for the 1Q guidance as we expected typically seasonal patterns to reemerge in ’18 after a less typical ’17. That same thought process leaves us a touch below consensus for the seasonally softer 2Q quarter. This view that 2Q is below 1Q may prove conservative if 2Q includes both 13 Reasons Why S2 and Orange is the New Black S6, neither of which have been dated.”

With an “overweight” rating (unchanged), Mr. Swinburne hiked his target for Netflix shares to US$350 from US$275. The average on the Street is currently US$291.10.


In reaction to a “sharp” share price jump on the view its deal US$62.5-million acquisition by Bayer AG will be approved, BMO Nesbitt Burns analyst Joel Jackson downgraded Monsanto Co. (MON-N) to “matket perform” from “outperform.”

“With the share price now close to Bayer’s takeout price, there is not sufficient spread remaining to justify the risk/reward for an Outperform rating in our view,” he said. “If the deal were somehow not to materialize (which we deem unlikely), downside support continues to seem $110 per share (18 times 2018/2019 estimated EPS plus $2-billion break fee).”

Mr. Jackson’s target remains US$128, which is slightly above the consensus of US$126.40.


In other analyst actions:

TD Securities’ Linda Ezergailis downgraded Kinder Morgan Canada Ltd. (KML-T) to “hold” from “buy” with a target of $17.50, falling from $24. The average on the Street is currently $19.28, according to Thomson Reuters data.

CIBC cut the stock to “neutral” from “outperformer.”

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 16/05/24 2:14pm EDT.

SymbolName% changeLast
Canfor Corp
Conifex Timber Inc
Interfor Corp
Kinross Gold Corp
Kinross Gold Corp
Kinder Morgan
Netflix Inc

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