Inside the Market’s roundup of some of today’s key analyst actions
Moving the Calgary-based company to “outperform” from “market perform,” he said it has eliminating funding concerns through asset sales and sees it able to “self-fund growth capex spending (equity portion) into the foreseeable future.”
Mr. Satish said "recent underperformance has resulted in ENB trading in-line with C-Corp peers" and has led to "a compelling entry point as ENB has historically traded at a premium to U.S. midstream C-Corp peers."
He raised his target price for its shares by a loonie to $55. The average target on the Street is $54.19, according to Bloomberg data.
In the wake of a third-quarter earnings beat, Raymond James analyst David Quezada raised his rating for Pattern Energy Group Inc. (PEGI-Q, PEGI-T) to “outperform” from “market perform,” seeing “multiple avenues” to support increased cash available for distribution growth.
"Looking forward we believe the market will begin to ascribe value to several opportunities for Pattern that could materialize in the coming 2 years," said Mr. Quezada. "Specifically, we expect CAFD growth via avenues that will not require an equity raise including: the Gulf Wind repowering, further asset recycling, drop downs with available liquidity, dividends from Pattern Development 2.0 and cost reductions. We also like the company’s unique positioning in the attractive Japanese Wind market and the substantial development portfolio at Pattern 2.0."
On Monday before market open, the San Francisco-based company reported EBITDA for the quarter of US$79.5-million, missing Mr. Quezada’s estimate of US$84.2-million but ahead of the expectation on the Street (US$75-million). CAFD for the quarter of US$31.7-million exceeded both estimates (US$29.1-million and US$27.5-million, respectively).
"Importantly, the company remains on pace to meet CAFD guidance of $151-$181-million," said Mr. Quezada. "Relative to 3Q17’s CAFD of $9.5-million the year-over-year improvement came as generation increased 7 per cent year-over-year the addition of Meikle Wind and the Japanese wind assets, an improved wind resource, lower principal repayments on project debt, and lower transmission costs. These positive effects were offset by increased distributions to NCI, reduced distributions from unconsolidated investments and the sale of El Arrayán.
"As outlined on the 3Q18 call, we believe Pattern maintains several avenues of potential CAFD growth which would not require an equity issuance. Notably, PEGI maintains $200-million in “dry powder” which we expect could support accretive drop downs and incremental CAFD of $18- 20-million, while the Gulf Wind repowering could add $5-7-million, and dividends from Pattern Development (beginning 2020) could add a further $15-million/yr. Pattern anticipates further cost savings across its fleet by in-housing turbine maintenance. We believe these initiatives could support a CAFD growth CAGR of 11-15 per cent."
Mr. Quezada raised his target price for Pattern shares to US$22.50 from US$22, exceeding the current consensus of US$22.09.
Premium Brands Holdings Corp. (PBH-T) is poised to enjoy long-term organic growth after a “transformational” 2018 in which it has spent $600-million in acquisitions thus far, said Canaccord Genuity analyst Alexander Diakun upon assuming coverage of the stock.
Pointing to its relative underperformance year-to-date, falling more 18 per cent versus peers, he upgraded the firm’s rating for the specialty food manufacturer and distributor to “buy” from “hold,” emphasizing its “strong” fundamentals.
"In our view, these acquisitions position Premium Brands for industry leading organic growth over the long term," he said. "In particular, we believe the recently acquired Oberto Sausage Company and Ready Seafood will be leaders within the Premium Brands’ portfolio, supporting organic growth in excess of the company’s long-term target of 4-6 per cent over our forecast period.
"Given its investments in multiple regional food manufacturing and distribution businesses, at the consolidated level Premium Brands is highly diversified, which mitigates the impact of commodity price fluctuations while also reducing ots customer concentration risk. As well, Premium Brands’ diverse range of product offerings means that it is less exposed to risks related to changing consumer preference, as the company can capture revenue across multiple distribution channels."
Mr. Diakun maintained a $110 target for Premium Brand shares, which falls beneath the consensus of $127.55.
"While Premium Brands’ blended peer average multiple is 10.9 times their respective 2019 EBITDA estimates, we note that best-in-class value-added food manufacturers and distributors currently trade at approximately 16.0 times and 12.0 times, respectively," he said. "With shares trading at 11.7 times our 2019 EBITDA estimate, we believe Premium Brands represents an attractive buying opportunity, at current levels."
Pointing to “strong investment patterns,” including “robust” user acquisition spending and a 35-per-cent expansion to its headquarters, Citi analyst Peter Christiansen raised his rating for Square Inc. (SQ-N) to “buy” from “neutral.”
“We believe 3Q commentary (Wednesday – After-Market) on the overall health of the ecosystem, strong visibility into F19, and progress on the CFO search will be positive towards restoring momentum in the stock – alleviating growth-investor fears for a sharper deceleration in 2019,” said Mr. Christiansen.
He increased his target for the stock to US$90 from US$67. The average is US$84.96.
"We looked at 10-year growth periods for several large tech, payments, and SMB [Server Message Block] focused firms – all category leaders in their own right," said Mr. Christiansen. "We think SQ is a category leader in the democratization of ERP-like software tools for SMB and potentially a player in developing banking tools for the next generation consumer. With conservative assumptions, our new 'Market Expectations Value Model' indicates a 20-25-per-cent CAGR [compound annual growth rate], levels in line with other category leaders, and 2-3 points of annual EBITDA margin expansion supports an equity value range of $81 to $110 per share."
Investor concerns about the impact of the state of Bombardier Inc.'s (BBD.B-T) balance sheet and the high-yield bond market on its stock price is “exaggerated,” according to Desjardins Securities analyst Benoit Poirier.
"The market for high yield has deteriorated over the last few weeks," said Mr. Poirier in a research note previewing third-quarter financial results, which are scheduled for a Nov. 8 release. "However, the impact on BBD’s stock price seems exaggerated vs the bond spread. The market appears to be concerned about BBD’s ability to renew its debt, although the next maturity is March 2020, which gives management 15 months to evaluate its options while still retaining financial flexibility."
“Management has been clear that it intends to buy back CDPQ’s stake, a high priority among its cash-deployment opportunities. Cash inflows of US$1,350-million since November 2017 (additional debt, equity financing and divestiture of Downsview) give us confidence in BBD’s ability to realize the transaction in early 2019 ... We note that management is currently focused on protecting the balance sheet and creating shareholder value.”
Mr. Poirier expects to see "strong" year-over-year improvements in Bombardier's quarterly results, and hopes to see updates to the bizjet market, particularly for the Global 7500, and overall liquidity.
"Since its 52-week high of C$5.50 on July 23, the stock is down more than 40 per cent (S&P/TSX was down 8 per cent over the same period) despite the progress it has made on the operational front," he said. "Our analysis suggests that these concerns are overstated and we see a compelling buying opportunity for the stock at current levels."
Though he lowered his revenue projections slightly for fiscal 2018 and 2019, Mr. Poirier maintained a "buy" rating and $6 target for its shares. The average is $5.83.
"We continue to like the story and see the recent share price weakness as an attractive buying opportunity," he said.
“Now is the time to seize opportunity to unlock value” in General Motors Co. (GM-N), said Citi analyst Itay Michaeli in a third-quarter earnings review released late Monday.
“Since the 2010 IPO, we can’t recall a single quarter in which GM’s unique fundamental position showed through better than in Q3,” he said. “In theory, a quarter like this should make it much harder to dismiss GM’s numbers as merely being on account of a strong Global SAAR (many suppliers & auto-exposed industrials cut #s), or low rates/oil/commodities—all of which were in fact headwinds. We say in theory because in order to appreciate GM’s Q3 and the broader investment story, one has to first fully understand both why it’s happening and why it’s sustainable, in our view. In recent months we’ve written about concrete steps we feel GM can take (slides here) to help investors see & understand this crucial why piece, because the story beneath is far bigger, and one that could potentially unlock billions in value, completely change the GM stock narrative and allow for far greater appreciation of GM’s AV lead & unique turnaround prospects.”
Maintaining a “buy” rating, Mr. Michaeli raised his target for GM shares to US$60 from US$57. The average is US$44.85.
“GM fits well within our auto stock selection framework and bullish sector view, which is anchored by our sector ‘re-birth’ theme and positive outlook for global demand,” he said. “Unlike the auto supplier stocks, OEM investing requires forming conviction on that specific OEM’s ability to outperform by way of profitable market share gains and superior regional exposure. We believe GM offers both at a low valuation. In particular, the North America product cycle and brand revitalization stories appear underappreciated based on our proprietary survey work, recent dealer checks and detailed product cycle analysis. Combined with favorable industry dynamics (SAAR recovery, renewed price discipline, transition to global platforms) and GM’s #1 presence in emerging markets, GM may be the most compelling auto turnaround stories in our universe.”
In other analyst actions:
Scotia Capital analyst Vladislav Vlad upgraded Ensign Energy Services Inc. (ESI-T) to “sector perform” from “sector underperform” with a $7.50 target (unchanged). The average target is currently $6.75.
Eight Capital analyst Ian Macqueen upgraded Crew Energy Inc. (CR-T) to “buy” from “neutral” with a target of $2.50. The average is $2.91.