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

Desjardins says investors should wait on the sidelines after SNC-Lavalin Group Inc. (SNC-T) halted bidding on mining projects after issuing a profit warning.

The company “now expects core E&C EPS of $0.20 to $0.35 for 2018 (vs $1.15–$1.30 previously) and $2.00–$2.20 for 2019, well below Street consensus. Bottom line, we recommend investors wait on the sidelines as we await more colour from 4Q18 results,” said analyst Benoit Poirier.

“For 4Q18, management indicated that the loss in Mining & Metallurgy EBIT [earnings before interest and taxes] will be up to -$350-million (we expected -$127-million versus consensus of -$174-million). Following additional negotiations and discussions with the Mining & Metallurgy client, the parties have agreed to settle the dispute through accelerated arbitration. SNC expects significant recoveries in the future, although the timing is unclear. Additionally, management has (1) stopped all bidding on future mining EPC projects, (2) reviewed the Mining & Metallurgy management structure, and (3) deployed COO Ian Edwards to solidify the local project team," he said.

“SNC’s lenders have agreed to temporarily increase its covenant ratio to 4.0 times net of recourse debt to EBITDA [earnings before interest, taxes, depreciation and amortization] (from 3.75 times) and consider the forecast loss on the Mining & Metallurgy project as a non-recurring item (up to a maximum of $310-million). We derive a ratio of 3.5 times at the end of 2018 (assuming the revised guidance and excluding $310-million as a non-recurring item). Management also highlighted that it has no plans to raise equity as it currently has about $1.8-billion of drawings available on its credit facility,” the analyst said.

He kept his “hold” rating on the stock and maintained his $47 price target. The median price target is $58, according to Zack’s Investment Research.

“Bottom line, we are disappointed by this morning’s announcements. We anticipate an operational update on the challenging project, the situation in the Middle East and the 407 divestiture with 4Q18 results (expected on Feb. 22).”


Credit Suisse is raising its estimates on Canada Goose Holdings Inc. (GOOS-T) after the company showed strong fundamentals.

Analyst Michael Binetti raised his fiscal third quarter earnings per share estimate to 83 cents from 76 cents, which is up 43 per cent and higher than the Street’s consensus of 81 cents, “based largely on higher revenues. (now up 37 per cent year over year versus 31 per cent previously, and higher than the Street’s estimate of up 35 per cent)."

The company’s stock fell about 15 per cent from its intra-quarter peak due to tensions between Canadian and Chinese governments, which delayed Canada Goose’s Bejing store opening by about 15 days.

“Our checks detect almost no impact from the delay. In fact, we think China may have contributed as much as plus 15 to 20 percentage points to year over year revenue growth in F3Q19. Said differently, we think GOOS can beat F3Q Street revenue estimates even if ex-China revenues slowed to just plus 17 per cent year over year in F3Q (which is unlikely given recent positive mid/high-20 per cent momentum),” the analyst said in a note.

He kept his “outperform” rating on the stock and his target price of $100. The median is $93.


After Norfolk Southern Corp. (NSC-N) held its investor day, RBC Capital Markets raised its price target on the company.

“Our investment thesis is predicated on the view that NSC will be successful in achieving incremental gains, driven by positive volume, above-inflation pricing and modest operating leverage. While Monday’s Investor Day demonstrated a management motivated to achieve PSR [Precision Scheduled Railroading] implementation, our core assumptions do not factor in the step-function change in margin that would typically be achieved through PSR adoption,” said analyst Walter Spracklin.

“Management provided aggressive revenue targets of 10 per cent three-year CAGR [compound annual growth rate] in the highly service oriented area of Intermodal. At the same time, it guided to a >500bp O/R [operating ratio] reduction through the implementation of Precision Scheduled Railroading (PSR), a process that is typically service disruptive. Both high growth rates and large cost reduction we believe are at odds and represent a key risk factor to NSC.”

“Given our cautious view of achieving PSR while sustaining high levels of service driven growth, our estimates are largely unchanged (adjusting only slightly higher on headcount reduction targeted in 2019). Our target goes to US$180 (from US$175). We believe that the market, however, is pricing in an increasing likelihood of successful PSR implementation. Accordingly, we reiterate our “Sector Perform” rating on the stock.”

The median price target is US$179.

Credit Suisse also raised its price target for the stock to US$195 from $181 based on the company reaching a 60 operating ratio target by 2021, which was better than expected.


Restaurant Brands International Inc. (QSR-N) posted fourth quarter results that were in line with expectations and that has led CIBC Research to reiterate its targets and upgrade some estimates

Analyst Mark Petrie raised his 2019 earnings per share estimate to US$2.85, up from US$2.83 and his 2020 estimate to US$3.12 from US$3.11.

“Most importantly, we see momentum in the key business drivers – Tim’s Canada SSS, Burger King (BK) NRG [system net restaurant growth] – and expect further acceleration in 2019,” he said.

“None of the recent changes at Tim’s Canada required a massive repositioning, but the decisions have been meaningful, and have generally begun to pay off. This covers multiple facets of the business, though marketing, menu and franchisee relations are the most important in our view. The launch of loyalty later this year will likely be another positive step, and we expect a program incentivizing trial of non-core menu items and off-peak traffic. NRG continues to be encouraging, particularly at Popeyes (PLK), which grew +6.1 per cent in the U.S. and +11 per cent internationally, both accelerations from 2017. And we believe BK’s NRG does not receive appropriate attention. A +6.1 per cent increase globally in 2018 (including +9.7 per cent internationally) is double that of its biggest competitor," he said.

“We highlight the relative attractiveness of RBI’s free cash flow yield, which at 5.0 per cent for 2019E and 5.4 per cent for 2020E is ~100 bps higher than the franchised restaurant peer average, despite higher expected unit growth, an under-levered balance sheet and higher EBITDA margins compared to the group’s average," he said.

He kept an outperformer rating on the stock and his US$71 price target. The median is US$69.


Recent meetings with BlackBerry Ltd. (BB-N) executives have kept CIBC positive on the company and its prospects.

“CIBC hosted BlackBerry’s VP Finance Christopher Lee on a non-deal roadshow (NDR) through Canada last week. We left the meetings encouraged by Blackberry’s confidence in its ability to return to growth in F2020. We expect growth of 27 per cent in F2020, driven by Cylance and growth in QNX through new design wins. The Street (FactSet) expects about 24 per cent growth in F2020,” said analyst Todd Coupland.

“Post our NDR, we continue to believe that BlackBerry’s shares should be bought, as, in our view, they represent excellent risk/reward. Our price target is US$14 and we rate the shares Outperformer. The next potential catalyst will be BlackBerry’s Investor Day on April 23, when the company will provide its outlook for F2020.”

The median price target is US$9.

“During our meetings, much investor focus was on Cylance, the end-point cybersecurity market, and how Cylance will be leveraged into BlackBerry’s Spark platform. The deal is expected to close in late February or early March. We expect $217MM in Cylance sales for F2020E,” he said.

“Management’s three growth vectors are: securing vehicles with QNX, securing devices for the Enterprise of Things (EoT), and managing and securing the end-points with its new platform, Spark. Cylance will operate as a standalone business securing desktop PCs and add to Blackberry’s EoT and Spark platforms over time. The goal is for Cylance to integrate with the Blackberry mobile offering within the next year.”


Aurora Cannabis Inc. (ACB-T) reported results that were in line with estimates and that has led Canaccord Genuity to update its estimates for the company.

“Aurora reported FQ2/19 results (ended Dec 31) that were in line with our estimates and represented a strong initial showing in its first full quarter of Canadian recreational sales. Aurora reported net revenue of $54.2-million, which was at the high end of its guided range of $50-million to $55-million and exactly in line with our forecasts for the quarter. The 82.6 per cent quarter over quarter growth in revenue was largely attributed to about $21.6-million of recreational sales, which management believes represented about 20 per cent of all volumes sold through recreational channels for the period. Based on our forecasts, this places the company with the second highest rec market share in the industry right out of the gate, which we believe demonstrates strong execution by the company as many producers experienced logistical supply chain challenges in fulfilling initial recreational orders. For the quarter, cash operating expenses of $68.2-million remained relatively flat quarter over quarter and were also in line with our forecasts. As a net result, Aurora reported an Adjusted EBITDA loss of $39.8-million; however, with Canadian recreational sales now fully underway and Aurora Sky complete, management reiterated its guidance of becoming EBITDA positive in FQ4/19,” analyst Matt Bottomley said.

He reduced his 2019 revenue estimate to $357-million, down from $383-million but increased his 2020 estimate to $780-million, from $752-million. His adjusted earnings per share estimate for 2019 decreased to a loss of 12 cents from a profit of 17 cents, and he cut his 2020 estimate to a profit of 17 cents from 18 cents.

He kept his “speculative buy" rating and his price target of $13. The median is $10.25.


In other analyst actions:

Altagas Ltd : Cormark Securities raises to buy from market perform and cuts target price to C$20 from C$24

Canadian National Railway Co : Morgan Stanley raises price target to C$117

Constellation Software Inc : BMO raises target price to C$1,140 from C$950 and raises to outperform from market perform; RBC raises price target to C$1,250 from C$1,150

First Quantum Minerals Ltd : Goldman Sachs cuts to neutral from buy

Hamilton Thorne Ltd : Acumen Capital starts with buy and a C$1.30 target price

Inter Pipeline Ltd : Cormark Securities cuts target price to C$27 from C$30

Keyera Corp : Cormark Securities cuts target price to C$40 from C$45

Obsidian Energy Ltd : BMO cuts target price to C$0.50 from C$0.70

Obsidian Energy Ltd : CIBC cuts target price to C$1 from C$1.1

Prairiesky Royalty Ltd : Eight Capital cuts target price to C$17.50 from C$17.75; TD Securities raises target price to C$27 from C$24; National Bank of Canada cuts to sectorperform from outperform

Premium Brands Holdings Corp : Desjardins cuts to hold from buy

Superior Plus Corp : Cormark Securities cuts target price to C$15 from C$16

Tidewater Midstream and Infrastructure : Cormark Securities cuts TP to C$2

Valener Inc : RBC raises price target to C$22 from C$21

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