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

Maxar Technologies Ltd. (MAXR-N, MAXR-T) has ended 2019 “with a bang,” said Raymond James analyst Steve Li following Monday’s announcement that it has entered into a definitive agreement to sell MacDonald, Dettwiler and Associates Inc. to a group led by Northern Private Capital for $1-billion.

“It’s been quite a ride for team MAXR in 2019 as it started the year with the loss of its WV-4 satellite. But with a new CEO steadying the ship, first driving [subsidiary] SSL to break-even, then gradually rebuilding the pipeline and winning some high profile contracts along the way (Lunar Gateway), MAXR has gradually turned the corner,” said Mr. Li.

"Team MAXR also delivered on two substantial cash flow positive events: a sale lease-back completed a few weeks ago and [Monday] morning announced the sale of its MDA assets for US$765-million. The substantial de-levering that’s coming should release most of the pressure that the balance sheet was putting on the equity."

Shares of Colorado-based Maxar jumped nearly 15 per cent in the wake of the announcement of the deal for Canada’s largest developer and manufacturer of space technology.

However, despite seeing “substantial de-levering to come” and calling Maxar a “cash flow story beyond 2019,” Mr. Li downgraded his rating for its stock to “market perform” from “outperform" as they creep closer to his Street-high target price of US$20. The average target is currently US$14.29, according to Bloomberg data.

“We continue to see a stronger MAXR adding to its momentum in 2020 and a significant positive swing in cash flow generation especially as Legion launches (2021),” the analyst said. “With the focus finally reverting to MAXR operations and the growth to come from the launch of Legion, we are taking a breather and moving to [market perform] for now to do a deeper dive.”


Citing its “strong positioning in the burgeoning renewable natural gas (RNG) industry,” Raymond James analyst David Quezada initiated coverage of Blainville, Que.-based Xebec Adsorption Inc. (XBC-X) with a “strong buy” rating.

“With superior biogas upgrading and hydrogen purification equipment, we believe XBC can benefit from several meaningful growth opportunities; the most significant of which will be the emerging Renewable Natural Gas (RNG) sector,” said Mr. Quezada in a research report released Tuesday.

“We highlight the keys to our bullish thesis on Xebec include: 1) A compelling proprietary technology with meaningful advantages vs. other RNG adsorption methods; 2) validation from large orders and success penetrating numerous markets globally; 3) strong positioning at what may be the forefront of an industry poised for exceptional growth; 4) momentum in the form of government mandated requirements for renewable gas standards; and 5) a recent inflection point in earnings and EBITDA with a growing backlog and brisk quote activity.”

Mr. Quezada thinks Xebec’s order backlog hints at “continued” strong growth, noting its “impressive” top-line growth from $9.6-million in 2016 to $48-49-million in 2019.

“Further, 2020 guidance of $80-$90-million implies a 3 year revenue CAGR [compound annual growth rate] of 71 per cent,” he said. “Considering the strong order and quote activity Xebec has reported, we have conviction the company can continue strong revenue growth into 2021. Meanwhile, we see EBITDA margins expanding from 13 per cent in 2019 to 14 per cent in 2021 as the company benefits from operating leverage, supporting our $16.9-million EBITDA forecast.”

“Driven by the need to keep pace with electrical utilities on decarbonization, gas utilities have increased lobbying efforts aimed at encouraging governments to subsidize the use of renewable fuels. This has resulted in governments announcing RNG or low carbon content targets of 10-20 per cent by 2030 in some regions — compared to minimal current penetration. In Canada specifically, there is a 5-per-cent renewable gas target by 2025 — representing a 250 times potential increase in volumes with a potential increase to 10 per cent being contemplated. Importantly, Xebec can capitalize on this opportunity both via equipment sales and eventual participation in what could be a large scale RNG infrastructure build-out in Canada. We also see China’s growing demand for renewable hydrogen (fuel cell vehicles) as presenting a meaningful longer term opportunity for Xebec’s hydrogen purification systems.”

Mr. Quezada set a target price of $3.20 for Xebec shares, matching the current high on the Street. The consensus target among analysts covering the stock is $2.88.

“As gas utilities look to make up ground vs. electric utility peers in moving to renewable sources and government incentives are increasingly supportive of renewable fuels we expect this industry is poised for sustained growth. With its superior proprietary technology, Xebec has made impressive strides,” he said.


Raymond James analyst Brian MacArthur lowered his fourth-quarter projections for Teck Resources Ltd. (TECK-B-T, TECK-N) to realized commodity prices, volumes and provisional pricing.

He now expects earnings per share of 37 cents for the quarter, down from 53 cents. That reduction pushed his full-year estimate down to $2.82 from $2.99.

Concurrently, his 2020 EPS estimate slid to $2.51 from $2.56.

Mr. MacArthur maintained an “outperform” rating and $33 target for Teck shares. The average on the Street is $31.92.

“We believe Teck offers good exposure to coal, copper, and zinc, and is able to convert EBITDA from its Canadian operations efficiently given its large Canadian tax pools," he said. "Given Teck’s long life, low jurisdictional risk, diversified asset base, and expected strong cash flow, we rate the shares Outperform.”


Credit Suisse analyst Stephen Ju raised his financial expectations for Activision Blizzard Inc. (ATVI-Q) for 2020 and beyond in response to a delay to the release of its Warcraft IIII: Reforged game.

“As we had originally modeled the impact from this game for 4Q19, we have moved its contribution into early 2020," he said. "We have also increased our estimates for Call of Duty: Modern Warfare from 21 million units for 4Q19 to 22 million units – our twelve-month units following release remain at 23 million for the game as we continue to maintain our conservative estimates and assume that the better-than-expected 4Q19 performance has pulled in unit sales from 2020.”

“Otherwise we have also made the following adjustments to our model for 2021 and beyond: 1) moved the anticipated release date for Overwatch Mobile from 2021 to 2022 and added a localized Chinese market release for the same time frame; 2) increased full game download mix as a percentage of total sales for all console releases to reach 50 per cent over the next five years; 3) increased long-term Call of Duty units from a range of 20-22 million units to 23 million (12-month total); 4) eliminated from our model anticipated contributions for Call of Duty downloadable content – our current estimates do not as of yet anticipate more meaningful contribution from battlepasses.”

Mr. Ju is now projecting 2020 earnings per share of US$2.39, rising from US$2.28.

With that change, he increased his target for Activision shares to US$69 from US$67. The average on the Street is US$61.09.

“We maintain our Outperform rating on the following thesis points: 1) ability to produce and maintain high quality franchise content, 2) management execution consistency, 3) strong positioning in the long-term sector transition from CPG to online as well as to mobile,” he said.


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