Inside the Market’s roundup of some of today’s key analyst actions
Canaccord Genuity updated its outlook for the oil and gas industry and changed its rating or target prices on several stocks, including Crew Energy Inc. (CR-T).
“Oil prices fluctuated greatly in the second quarter. We started the quarter around the US$60 WTI mark before retreating to near the $50 level on a U.S.-China trade standoff, and are now ending the quarter back near the $60 level due in part to geopolitical pressure. Closer to home, differentials (light and heavy) remained relatively unchanged despite some positive news on TMX. All this considered, we have left our oil price assumptions in both the near and long term relatively unchanged,” said analyst Anthony Petrucci.
“On the natural gas side, pricing continues to be under pressure, particularly in Alberta, although a recent slide in U.S. pricing shows they are not immune to the ramp in supply. At this time, we are leaving our long-term pricing assumptions unchanged, but have modestly lowered near-term pricing assumptions for both U.S. and Canadian natural gas prices,” he said.
“As multiples continue to contract in the space, we are reducing our target prices for several of our E&P’s [exploration and production] and service companies, with the greatest reductions coming amongst our small/mid-cap E&P natural gas producers, given the drop in our estimates for 2020.”
He downgraded Crew Energy to “speculative buy” from “buy” as he reduced his natural gas price assumptions. “Our cash flow estimates for Crew in 2020 are reduced by about 20 per cent. This has increased the relative debt level and as such the risk profile in the stock, in our view,” he said.
He also cut his target price to $1.75 from $2.50. The median price target is $2, according to Zack’s Investment Research.
CIBC Research cut its price target on Crew to $1 from $1.50 and maintained its “netural” rating.
“At this point we believe the buy thesis on Crew largely hinges on the company’s ability to prove up its earlystage condensate assets at Septimus, which will likely require some kind of M&A transaction to meaningfully accelerate. This outcome is difficult to handicap in the current M&A market, and we believe a cautious outlook remains warranted,” said analyst Dave Popowich.
Canaccord also outlined its price assumptions:
- We are leaving our H2/2019 and long-term price for WTI and Brent oil unchanged at US$60/bbl and US$65/bbl, respectively.
- We are tightening our Ed Light-WTI differential estimate to US$8.00/bbl for the remainder of 2019 (from US$10.00/bbl) and maintaining our 2020 diff of US$8.00/bbl. Our long-term light oil differential remains at US$7.00/bbl.
- We are maintaining our WCS-WTI basis of US$16.87/bbl in 2019 and the long-term diff of US$22.00/bbl in 2020+.
- We have lowered our 2019 NYMEX gas price to US$2.50/mcf (from US$3.00/mcf), while maintained the long-term price of US$3.00/mcf.
- Our AECO gas price forecast for 2019 remains at C$1.64/mcf and we have lowered the 2020 price assumption to C$1.62/mcf (from C$1.75/mcf), with our long-term price unchanged at C$2.00/bbl. Lack of egress continues to hamper realized Canadian natural gas prices, and we see limited relief in the near term.
Here are some other price target changes on oil and gas exploration companies:
- Bonterra Energy (BNE-T): to $8 from $9. The median is $10.
- Bellatrix Exploration (BXE-T): to 75 cents from $3.60. The median is 22 cents.
- Canadian Natural Resources (CNQ-T): to $53 from $50. The median is $48.50.
- Crescent Point Energy (CPG-T): to $7.50 from $8. The median is $8.
- Encana (ECA-N): to US$10 from US$10.50. The median is US$11.
- Kelt Exploration (KEL-T): to $8 from $10. The median is $8.25.
- Leucrotta Exploration (LXE-X): to $1 from $1.25. The median is $2.
- Nuvista Energy (NVA-T): to $4 from $5.50. The median is $8.
- Obsidian Energy (OBE-T): to $1.50 from $2.80. The median is $3.85.
- Peyto Exploration (PEY-T): to $7 from $11. The median is $9.50.
- Painted Pony Exploration (PONY-T): to $1.75 from $2.50. The median is $2.25.
- Razor Energy (RZE-X): to $2.50 from $3.50. The median is $3.25.
- Surge Energy (SGY-T): to $2 from $2.25. The median is $2.25.
- Torc Oil and Gas (TOG-T): to $7.50 from $8. The median is $8.50.
- Tamarack Valley Energy (TVE-T): to $3.50 from $4. The median is $4.50.
- Whitecap Resources (WCP-T): to $7.50 from $8. The median is $8.88.
- Yangarra Resources (YGR-T): to $4 from $5.50. The median is $6.
Beacon Research cut its price target for InPlay Oil Corp. (IPO-T) after the oil and gas company updated recent operational success and detailed the renewal of its $75-million bank line.
Analyst Kirk Wilson reduced his target price to $1.95 from $2.15 but kept his “buy” rating. The median price target is $2.15.
“The two 1.5-mile Cardium ERH wells at Willesden Green that were brought on-stream in March have outperformed the company’s type curve,” he said.
“These two wells, which were completed using closing sliding sleeve technology that limits sand flow back, are in the top industry producers drilled in Q1/19. As such, IPO’s Q2/19 average production was over 5,100 boe/d compared to our previous estimate of 5,050 boe/d. This is even more impressive considering there was significant 3rd party facility downtime in the quarter,” he said.
The target price “equates to a 2020E EV [enterprise value]/DACF [debt-adjusted cash flow] multiple of 3.5 times and a 2019E flowing barrel metric of $32,000/boe/d, to reflect lower valuation multiples across the board for O&G companies.”
BMO raised its price target on Mandalay Resources Corp. (MND-T) after the company did a 1-for-10 stock split that took effect on July 2.
BMO analyst Brian Quast boosted his price target to $4 from 40 cents and kept his “outperform” rating on the natural resource company. The median price target is $1.10.
Mandalay produces gold, silver and antimony with operations in Australia, Chile, Canada and Sweden. Its assets consist of the Costerfield gold and antimony mine in Australia, the Cerro Bayo silver and gold mine in Chile, the Bjorkdal gold mine in Sweden, as well as other exploration projects in Chile and Canada.
RBC initiated coverage of Chewy Inc. (CHWY-N), an online pet supplies retailer in the U.S.
Analyst Mark Mahaney rated the company “sector perform” with a US$37 price target. The median is US$30.
“Chewy addresses a large and attractive opportunity with a compelling value proposition for pet owners. We believe Chewy can sustain premium growth and drive margin expansion as it benefits from secular tailwinds toward purchasing pet supplies online. Our rating largely reflects our belief that current valuation (up 56 per cent since its IPO [last month]) is reasonably balanced between risk and reward,” he said.
“Chewy has developed a differentiated model that offers the convenience and selection of an e-commerce platform and the customer-centric focus of a pet specialty store (aka the “WOW” experience). All in, we believe applying this unique model to this addressable market alongside many future growth drivers should enable Chewy to sustain robust growth and expand margins as it gains leverage across COGS [cost of goods sold] and OpEx [operating expenditures] lines (from vendor and freight cost improvements, further adoption of private label/healthcare products, and overall scale),” the analyst said.
The “$37 price target is based on 2.5 times EV [enterprise value]/Sales on our 2020E Revenue estimate of US$5.8-billion. As context, we estimate a three-yr Revenue CAGR [compound annual growth rate] of 26 per cent. Our DCF [discounted cash flow] also supports our US$37 price target, driven by a 16 per cent 10-year Revenue CAGR, a terminal 10 per cent EBITDA [earnings before interest, taxes, depreciation and amortization] Margin, a 10 per cent WACC [weighted average cost of capital], and a 5 per cent long-term growth rate. We believe industry comps also support our target multiple,” he said.
Electra Meccanica Vehicles Corp. (SOLO-Q), the maker of a tiny three-wheeled electric car, saw its shares surge nearly 19 per cent in trading Tuesday as another Wall Street analyst added to bullish commentary.
In a note to clients, Roth Capital Markets said the carmaker aims to tap the market for short-distance commuters with its flagship SOLO vehicle.
Analyst Craig Irwin initiated coverage of the microcap stock with a “buy” rating and US$7.50 price target. The median is US$6, according to Zack’s Investment Research.
Mr. Irwin’s target is the highest among analysts tracked by Bloomberg, the wire service said, and more than three times the last closing price.
Shares of the Vancouver-based company rose as much as 32 per cent on Tuesday, their biggest gain since March 20. So far this year, the stock is up nearly 180 per cent.
“Mass-production of the SOLO is slated to begin later this year, and we believe the company’s 962 SOLO deposits and 23,340 pre-orders as of April 20 suggest a healthy demand outlook,” Irwin wrote. “We believe the market Electra Meccanica is looking to serve is larger than many might appreciate, as more expensive comparable vehicles often achieve substantial volumes.”
As well, Mr. Irwin expects the introduction of its $50,000 Tofino two-seater electric roadster in 2021 will have strong mass market appeal and likely will be a major driver of profitability.
Other analyst actions:
Genworth MI Canada Inc: RBC raises rating to “outperform” from “sector perform”
Source Energy Services Ltd: Canaccord Genuity cuts rating to “hold” from “speculative buy”
Teck Resources Ltd: J.P. Morgan cuts target price to $50 from $55