Tuesday’s analyst upgrades and downgrades

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

Following the quarterly earnings release from Charles Schwab Corp. (SCHW-N), CIBC World Markets analyst Paul Holden thinks “this is a good time to be adding” Toronto-Dominion Bank (TD-T).

“The stock has significantly underperformed its Canadian bank peer group year-to-date (down 6.5 per cent vs. up 4.4 per cent,” he said. ”Revised offer terms for FHN and FQ2 results represent potential upside catalysts.”

Accordingly, he raised his recommendation for TD shares to “outperformer” from “neutral” in a research report released Tuesday.

“Schwab reported Q1 results that were better than revised expectations and addressed tail risk concerns,” said Mr. Holden. “The business update showed that the company continued to win new customers and advisors, even in the month of March. Bank deposits were down 11 per cent quarter-over-quarter, resulting in the use of higher cost funding, which is a material headwind for NIM, but we think that was well anticipated. Management addressed concerns over liquidity, regulatory capital and duration risk. With the stock trading higher after the conference call, we think management has adequately addressed tail risks.”

“The current merger agreement with FHN expires May 27. We expect TD and FHN will agree to extend the offer and believe that an extension of six months or longer is possible given regulatory uncertainty. As we previously wrote (link), there are multiple reasons to justify a lower offer price, and we think something around US$22.50 per FHN share is a reasonable expectation. Extending the offer at the original price of US$25 would be disappointing for TD shareholders. A longer closing period and a lower price would help address capital concerns for TD. We estimate that TD builds approximately 30bps of CET1 every quarter and that every 10% reduction in the offer price lifts pro forma CET1 by 30bps. Updated offer terms could come late April/early May.”

Believing U.S. bank results “suggest FQ2 results should be fine” for Canadian firms, he trimmed his target for TD shares to $97 from $100. The average target on the Street is $99.41.

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In a research report titled Healing Process Will Take Time, CIBC World Markets analyst Mark Jarvi downgraded Algonquin Power & Utilities Corp. (AQN-T) to “neutral” from “outperformer” after resuming coverage following Monday’s announcement of the termination of its deal to acquire Kentucky Power.

“Ultimately, we believe the decision to walk away from the Kentucky Power deal makes the most sense given the more challenged financial position of AQN today,” said Mr. Jarvi. “We believe this is a critical step to AQN turning a new page and addressing its funding and balance sheet challenges. However, the path forward to a full recovery will not be easy. The company still needs to shore up its balance sheet through asset sales (albeit less sizable with no Kentucky Power deal to fund). A potential sale of its stake in Atlantica Sustainable Infrastructure (AY) is possible (particularly in light of AY’s ongoing strategic review) and more power asset sales seem logical. But these actions could weigh on the EPS outlook, which is muted through 2024 and into 2025. Finally (and most importantly), investor confidence has been severely eroded and will take time (and stronger execution) to be restored. While we see more upside than downside at current levels, we cannot recommend AQN with any conviction at this time.”

The analyst dropped his target for Algonquin’s U.S.-listed shares to US$10 from US$10. The average is $12.15 (Canadian).

Others making target changes include:

*. iA Capital Markets’ Naji Baydoun to $12 from $11 with a “hold” rating.

“Overall, we view the termination of this acquisition as a net positive for AQN as the additional clarity on the ultimate outcome of the Kentucky transaction removes some uncertainty related to the Company’s outlook,” said Mr. Baydoun. “However, we continue to wait for further strategic developments (e.g., asset sales) that could de-risk the balance sheet and reset AQN back on a path to more sustainable per share growth. We are maintaining our Hold rating and increasing our price target ... due to a higher relative valuation, reflecting additional certainty related to the near-term outlook.”

* Scotia’s Robert Hope to US$9.25 from US$9 with a “sector perform” rating.

* JP Morgan’s Richard Sunderland to $12 from $11 with a “hold” rating.

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In response to a recent pullback in unit prices for real estate investment trusts as well as treasury yields, analysts at National Bank Financial upgraded Dream Office REIT (D.UN-T) and First Capital REIT (FCR.UN-T) to “outperform” recommendations on Tuesday while making a series of target adjustments across their coverage universe ahead of first-quarter earnings season.

“[Funds from operations] revisions (down 0.3 per cent in 2023, down 0.1 per cent in 2024) are relatively modest across the universe, mostly accounting for smaller acquisitions/dispositions, debenture issuance and NCIB activity,” they said. “We have revised targets upward on select names within our Multifamily and Industrial coverage and largely downward revisions on our Office and Diversified coverage. We have made few target price revisions across our Retail, Healthcare & Special Situations coverage.

“We have the highest return estimates for multi-family (29 per cent) and seniors housing/healthcare coverage (22 per cent), as tight markets have persisted for quite some time given limited supply growth. Usually, the dispersion of expected returns within asset classes is relatively tight, but this has shifted in recent quarters, allowing us to upgrade names like Dream and First Capital, with relatively urban-focused portfolios, trading at healthy discounts to NAV.”

For Dream Office, analyst Matt Kornack thinks its portfolio optionality is “hard to ignore at today’s valuation,” raising his rating to “outperform” from “sector perform” previously.

“We are upgrading Dream to Outperform given current attractive pricing with potential catalysts, a stable outlook combined with financial flexibility,” he said. “FY23 is anticipated to be an inflection point on in place occupancy with management guiding to a mid-to-high 80-per-cent figure by year-end (vs. 81 per cent at Q4/22) resulting from lease up at the Bay Street Collection’s street front retail and renovation completions. That said, the earnings benefit will be back end weighted and largely felt in FY24 due to fixturing periods.”

“Dream is in a unique position whereby capital structure (via limited maturities and relatively low leverage) allows for continued share buybacks and sustained distribution levels although both are a function of capital allocation decisions. Dream’s liquidity position is also solid with $164-million in credit facility availability (excl. $100-million accordion) that should improve in Q1 with proceeds from the sale of 720 Bay in part used to repay debt. The REIT also benefits from lending relationships cultivated by Dream, improving access to capital/funding availability.”

His target for Dream Office units declined to $16 from $18.50. The average target on the Street is $18.31

“Significant trading weakness seems overly punitive for D (at a 35-per-cent-plus discount to NAV and an 8-per-cent-plus implied cap rate), particularly in light of the REIT’s $400-million DIR stake and $100-million-plus of density value that could be sold in the near-term and spur momentum in the underlying stock,” Mr. Kornack said. “The result is a high cap rate being applied to the residual office, the bulk of which is downtown Toronto and itself offers future density potential, which we view as undervalued.”

Analyst Tal Woolley expects further upward revisions to funds from operations per unit expectations for First Capital REIT as it executes on its $1-billion disposition plan of lower-yield assets, leading him to raise his recommendation to “outperform” from “sector perform.”

“Considering this with the recent slide in the unit price, we see the current price as an opportunistic entry point,” he said. “As FCR generates disposition proceeds, and with the share price low, we see unit price support as FCR is active on its NCIB. We have raised our FFO/u estimates approximately 3 per cent to account for the recent sales and modestly increased our NAV. Our $18.50 target translates to 14.9 times our 2024E FFO/u estimate (was 15.8 times), equal to a 10-per-cent discount (was 8 per cent) to our revised NAV/u estimate one year out, reflective of FCR’s relative leverage, growth prospects and business/ development risks.”

“While weak REIT trading assisted in FCR’s unit price decline, the magnitude of the pullback following the proxy challenge was surprising. With 1) total return potential over 20 per cent and plan that should generate close to 9-10-per-cent returns (5-per-cent yield + 4-per-cent FFO/u growth) without any valuation changes; 2) the declines in FCR’s debt ratios (now 10.2 times versus 11.2 times last year, with it poised to fall further); and 3) the potential for further upward FFO/u revisions as the disposition program progresses and the leasing environment remaining healthy, we think the current price offers reasonable risk/reward.”

His target remains $18.50, which falls below the $19.28 average.

In the report, National Bank analysts also laid out their top “focus ideas” by asset class. They are:

Multi-Family: Minto Apartment REIT (MI.UN-T) with an “outperform” rating and $19 target (unchanged). The average on the Street is $19.23.

Seniors Housing/Healthcare: Chartwell Retirement Residences (CSH.UN-T) with an “outperform” rating and $11 target (unchanged). Average: $11.13.

Industrial: Dream Industrial REIT (DIR.UN-T) with an “outperform” rating and $18 target, up from $17. Average: $16.89.

Office: Allied Properties REIT (AP.UN-T) with an “outperform” rating and $27.25 target, down from $32.25. Average: $35.15.

Retail: First Capital REIT (FCR.UN-T) with an “outperform” rating and $18.50 target (unchanged). Average: $19.28.

Diversified: H&R REIT (HR.UN-T) with an “outperform” rating and $15.25 target (unchanged). Average: $15.75.

Special Situations: Tricon Residential Inc. (TCN-T) with an “outperform” rating and $13 target (unchanged). Average: $12.59.

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Desjardins Securities analyst Benoit Poirier acknowledged the key economic indicators he uses to evaluate Canadian railroad companies have “deteriorated” recently.

However, citing management commentary and discussions with market participants, he thinks industry activity is “likely to normalize from pandemic highs rather than fully collapse.”

“With freight market conditions having deteriorated further in 1Q, the CP‒KCS deal having been finalized and both railroads likely preparing to unveil lengthier plans/goals at their respective investor days this summer (CN on May 2‒3, followed by CP on June 27‒28), we ignore the short-term noise and focus primarily on longer-term value creation opportunities,” he said.

In a research report released Tuesday, Mr. Poirier said the first quarter brought better-than-expected volume results as “mother nature was kinder versus last year.” That led him to raise his revenue ton mile projections for both Canadian National Railway Co. (CNR-T) and Canadian Pacific Kansas City (CP-T).

“We expect pricing to remain strong at both Canadian railroads despite market softness,” he said. “With supply chain bottlenecks beginning to slowly normalize and inflation now off last year’s peak, we have received questions from investors regarding the Canadian rails’ ability to push pricing. The yield boost from increased accessorial charges is now behind us (surcharges for additional storage and services caused by supply chain disruptions in 2022); however, the Canadian rails have consistently been able to offset inflationary pressures by raising prices above rail inflation.”

“FX and fuel prices are both in the Canadian rails’ favour in 1Q, but don’t expect the same boost through the rest of the year. The 2022 surge in fuel prices (weekly retail on-highway diesel) appears to have reached its peak as the average U.S. dollar price per gallon fell 13 per cent quarter-over-quarter to US$4.41 in 1Q23 (from US$5.07 in 4Q22) but remains up 4 per cent year-over-year (from US$4.24 in 1Q22) . Hence, we expect the sequential downtrend to positively affect operating ratios (lower operating costs and higher fuel surcharges due to lag), in addition to a yield tailwind in 1Q given the average price increase on a year-over-year basis.”

Emphasizing “growth opportunities, improved operations and further upside from capital deployment should drive added value,” Mr. Poirier raised his recommendation on CN shares to “buy” from “hold” previously.

“Investor day on May 2‒3 will provide more clarity on capital allocation plans — the stock could be worth $227/share in 2026 if management takes on leverage to increase dividends and buybacks, with an additional$8 per share of upside if CN reaches 55-per-cent OR [operating ratio],” he said. “We look forward to the investor day on May 2–3 as it should provide more clarity on the longer-term growth opportunities, potential for OR improvement and capital allocation. With the completion of what has likely been the largest Class I railroad transaction and management signalling at recent investor conferences that it is analyzing different capital allocation alternatives, we take a deeper look at what an increase in distributions could look like for shareholders.

“CN currently has the best credit rating among the publicly traded Class I railroads (A2 rating from Moody’s) and the lowest adjusted net debt to adjusted TTM [trailing 12-month] EBITDA leverage ratio at 1.9 times. Despite its strong balance sheet, CN has only the third highest dividend yield and its five-year average dividend payout ratio comes in at 37.7 per cent, second behind UNP. On average over the last 10 years, 64 per cent of shareholder distributions at CN have been through share repurchases and 36 per cent have been through dividends, excluding 2020 and 2021. For 2023, CN raised its quarterly cash dividend by 8 per cent and introduced a new NCIB which enables the company to purchase up to 32m shares (approximately $4-billion). Looking ahead, given the lack of potential M&A candidates and considering past pressure from some shareholders, we believe management will not want to be perceived as having a ‘lazy’ balance sheet and could potentially announce plans to increase its leverage and distributions at the upcoming investor day, which should please shareholders.”

After introducing his 2025 and 2026 financial projections, Mr. Poirier trimmed his target for CN shares to $178 from $179. The average on the Street is $160.43.

For CP, he lowered his target to $116 from $118, reiterating a “buy” rating. The average is $115.86.

“We remain bullish on CPKC’s synergy opportunities but have pushed our optimal scenario back by one year following the timing around the STB’s decision,” he said. “Following the closing of the voting trust last year, we fully incorporated KCS into our model, but given the STB decision took slightly longer than expected, we have pushed our CPKC synergy estimates to the right; we now forecast $757-million of revenue synergies in 2025 and $1,081-million as part of our newly introduced 2026 numbers ($1,084-million in 2025 previously). In terms of cost synergies, we remain confident in the US$200-million per year target set by management and predict that CPKC will end 2026 at an OR of 56.1 per cent. While many (ourselves included) believe the US$1.0-billion in CP–KCS synergies over three years is conservative, we do not expect any significant short-term changes at the upcoming investor day on June 27‒28; however, we would expect further synergies to be realized beyond year three and expect management to introduce additional longer-term targets, especially given the recent uptick in Mexican reshoring interest.”

Mr. Poirier added: “We like CN and CP over the next three years as both offer interesting shareholder value creation opportunities with limited downside. In our view, CN shares now offer a slightly greater long-term return (up 12.4 per cent vs 10.8-per-cent three-year CAGRs) but CP shares likely have more upside potential given the growth opportunities in Mexico. CEO Keith Creel’s impressive operational track record also reduces the integration risk and gives us confidence in CP’s ability to unlock shareholder value from the KCS acquisition. We would be buyers of both stocks ahead of their respective investor days.”

Elsewhere, BMO’s Fadi Chamoun resumed coverage of CPKC with an “outperform” rating and $130 target.

“We believe the combination of CP and KCS networks significantly expands the addressable freight market for the merged entity and catalyzes a period of strong organic volume growth that we expect will extend well into the coming decade,” he said.

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M&A activity is “stealing the show” heading into earnings season for base metals producers, according to National Bank Financial analysts.

“Alongside Q1 results, we await important updates with respect to Teck’s pending spin out of Elk Valley Resources, we anticipate an update on Lundin’s acquisition of Caserones and more details on possible synergies related to Hudbay’s proposed acquisition of Copper Mountain,” they said. “Given recent volatility in copper prices, and long-term fundamentals remaining favourable, we anticipate consolidation throughout the industry will continue.”

In a report released Tuesday, the firm maintained its 2023 and 2024 copper price assumption, however it lowered its expectations for several other base metal prices, including molybdenum, nickel, steelmaking coal and potash.

“While our Q1 estimates have been revised lower for some companies, our overall estimates for the year remain in line with previous guidance with respect to both production and operating costs,” said analysts Shane Nagle and Rabi Nizami. “For the time being, we don’t anticipate any material changes to company guidance for the year alongside Q1 results.”

The duo made these target price changes:

• Capstone Copper Corp. (CS-T, “outperform) to $7.75 from $7.25. Average: $7.78.
• Copper Mountain Mining Corp. (CMMC-T, “tender) to $2.65 from $2.73. Average: $2.72.
• Ero Copper Corp. (ERO-T, “sector perform”) to $25.50 from $24.50. Average: $26.48.
• First Quantum Minerals Ltd. (FM-T, “sector perform”) to $38 from $36. Average: $31.92.
• Foran Mining Corp. (FOM-X, “outperform”) to $4.75 from $3.75. Average: $4.29.
• Hudbay Minerals Inc. (HBM-T, “sector perform”) to $9.25 from $8. Average: $9.53.
• Lundin Mining Corp. (LUN-T, “sector perform”) to $10.50 from $8.75. Average: $10.24.
• Solaris Mining Inc. (SLS-T, “outperform”) to $11.25 from $12.50. Average: $19.68.
• Teck Resources Ltd. (TECK.B-T, “outperform”) to $72.50 from $70. Average: $66.76.

Elsewhere, several other analysts making pre-earnings changes.

* Scotia’s Orest Wowkodaw made these changes:

• Capstone Copper Corp. (CS-T, “sector outperform”) to $8.75 from $9. The average is $7.78.
• First Quantum Minerals Ltd. (FM-T, “sector outperform”) to $41 from $40. Average: $31.92.
• Hudbay Minerals Inc. (HBM-T, “sector outperform”) to $11 from $10. Average: $9.53.

“We anticipate most miners to post weaker Q1/23 financial results as a challenged operating environment is likely to more than offset the benefit of improved commodity prices,” said Mr. Wowkodaw. “Our estimates appear below consensus expectations for most companies. Although we do not anticipate guidance revisions this quarter, risks remain skewed to the downside in our view. While we expect few company-specific catalysts, corporate M&A strategies are likely to be in focus given the recent pick-up in transactions.”

“In our view, CCO-T, ERO-T, IVN-T, and TECK.B-T all appear well positioned heading into the Q1 reporting season. Conversely, CIA-T, CS-T, FM-T, and NEXA-N all appear poorly positioned relative to expectations ... The large and mid-cap miners are currently trading at an average implied Cu price of $4.43/lb (9 per cent above spot), reflecting an industry M&A premium.”

* RBC mining equity analyst Sam Crittenden’s adjustments include:

• Capstone Copper Corp. (CS-T, “outperform”) to $8 from $6. The average is $7.78.
• Filo Mining Corp. (FIL-T, “outperform”) to $24 from $23. Average: $31.73.
• First Quantum Minerals Ltd. (FM-T, “outperform”) to $42 from $32. Average: $31.92.
• Lundin Mining Corp. (LUN-T, “sector perform”) to $11 from $9. Average: $10.24.

“We’re into the bad news is good news part of the cycle and USD weakness in anticipation of slowing Fed rate hikes is supporting commodity prices; however, at some point the resulting slower growth is likely to impact demand,” said Mr. Crittenden. “We see China’s recovery supporting metals demand this year despite potential for a recession elsewhere. Base metals don’t typically fare well through a recession but given continued tight markets with low inventories and ongoing supply disruptions, prices could remain elevated with upside risk if economic conditions remain strong. We are more cautious on the bulk commodities as the outlook for steel demand is lackluster, in our view. Supply disruptions have kept iron ore and met coal elevated but both could fade as supply normalizes. On the other hand, equity valuations for copper miners could be underpinned by a pickup in M&A activity and a positive medium term outlook.”

In selecting his recommended North American equities, he said: “First Quantum can generate strong FCF to fund organic growth. Ivanhoe’s KamoaKakula copper is demonstrating its world-class potential. Capstone can re-rate as they execute on near term growth. Champion Iron has strong growth as phase 2 ramps up.”

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National Bank Financial analysts Travis Wood and Dan Payne expect a “relatively uneventful” earnings season the Canada’s energy sector.

“Commodity prices remained volatile during the quarter in the face of ongoing macro stress (i.e., tightening monetary policy, bank failures, etc.), resulting in downward pressure on benchmarks and E&P equities through the quarter,” they said. “Despite the slower-than-expected start to the year and an expectation for continued macro-driven price volatility, we reiterate our view of a structurally supportive outlook that is further underpinned by business models which are sensitized and positioned to withstand sustained price shocks. As such, we continue to believe the volatility in equity prices provides an opportunistic window to buy quality companies at an attractive value. Some opportunities possess top-tier assets (including depth of inventory) to support organic profitable growth and return of capital initiatives, all the while trading at approximately 3.0-4.0 times EV/DACF [enterprise value to debt-adjusted cash flow and FCF yields in the range of 10-15 per cent. ... Top Picks — CVE, WCP, CPG, ERF, HWX, TVE, TOU.”

In a report released Tuesday, they made several target price adjustments to account for “a dynamic combination of company-specific idiosyncrasies and macro developments.”

For large and mid-cap stocks, notable changes include:

• Advantage Energy Ltd. (AAV-T, “outperform”) to $12 from $15. The average is $12.43.
• ARC Resources Ltd. (ARX-T, “outperform”) to $18.50 from $20. Average: $21.86.
• Birchcliff Energy Ltd. (BIR-T, “outperform”) to $10 from $11. Average: $10.83.
• Crescent Point Energy Corp. (CPG-T, “outperform”) to $18 from $16. Average: $14.86.
• Freehold Royalties Ltd. (FRU-T, “outperform”) to $19 from $20. Average: $19.98.
• Kelt Exploration Ltd. (KEL-T, “outperform”) to $7 from $7.50. Average: $8.
• Meg Energy Corp. (MEG-T, “sector perform”) to $29 from $26. Average: $26.13.
• NuVista Energy Ltd. (NVA-T, “sector perform”) to $14.25 from $16. Average: $15.94.
• Paramount Resources Ltd. (POU-T, “outperform”) to $40 from $37.50. Average: $40.47.
• PrairieSky Royalty Ltd. (PSK-T, “sector perform”) to $23 from $25. Average: $25.32.
• Tourmaline Oil Corp. (TTOU-T, “outperform”) to $80 from $90. Average: $84.14.
• Vermilion Energy Inc. (VET-T, “outperform”) to $26 from $29. Average: $28.58.
• Whitecap Resources Inc. (WCP-T, “outperform”) to $16.50 from $15.50. Average: $14.52.

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Touting its “mature” asset base with optionality in the Clearwater heavy oil resource play in northern Alberta, RBC Dominion Securities analyst Luke Davis initiated coverage of Obsidian Energy Ltd. (OBE-T) with an “outperform” recommendation on Tuesday.

“Obsidian is poised to narrow the current valuation discount, driven by a strategic shift toward Clearwater delineation across its Peace River portfolio,” he said. “The company’s legacy assets provide a stable cash flow base for reinvestment in potentially high-impact targets to which no market value is currently ascribed. While tenured energy investors may recall chronic underperformance under prior leadership, we believe the current management team has earned a blank slate with operating performance likely to continue to shift favourably over time.”

Calling its “strong” balance sheet and tax pools “a key differentiator,” Mr. Davis set a target of $13 per share. The average is $12.10.

“OBE currently trades at a 1.3 times/0.9 times turn discount to oil-weighted peers in 2023/24 (1.5 times/1.2 times discount at strip),” he said. “In our view, this likely reflects the company’s mature mid-tier asset base, relatively small size and trading liquidity, and historical operating performance. That said, we believe this does not appropriately discount Clearwater upside potential, a clean balance sheet, and tax horizon. The current management team has positioned the company to shift into exploration mode, providing medium-term delineation catalysts.”

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In other analyst actions:

* Assuming coverage of Superior Plus Corp. (SPB-T), BMO Nesbitt Burns’ John Gibson raised the firm’s recommendation to “outperform” from “market perform” with a $12.50 target, up from $11.50. The average target is $12.91.

“Our upgrade is based on a combination of SPB’s valuation, strong/safe dividend yield (nearly 7 per cent) and growth potential of recently acquired Certarus,” he said.

* In response to Tuesday’s announcement of its deal to be acquired by GSK, Evercore’s Josh Schimmer cut Bellus Health Inc. (BLU-Q, BLU-T) to “in-line” from “outperform” with a US$14.75 target, down from US$24. The average on the Street is US$17.98.

* KBW’s Michael Brown downgraded Brookfield Asset Management Ltd. (BAM-N, BAM-T) to “underperform” from “market perform” and lowered his target for its shares to US$34 from US$36. The average is US$35.81.

* In response to Monday’s announcement of the first production of spodumene concentrate at its flagship Grota do Cirilo project in Brazil, Canaccord Genuity’s Katie Lachapelle upgraded Sigma Lithium Corp. (SGML-X) to “buy” from “speculative buy” with a $67 target, up from $65 and exceeding the $58.72 average.

“Sigma achieved production on time, a rare achievement for a lithium development project, in an industry that has been plagued with delays due to a number of factors, including permitting, financing, and technical challenges during commissioning,” she said.

“We expect the company to re-rate over the coming months as it transitions from developer into producer, generating significant free cash flow. We look forward to the first shipment of spodumene concentrate in May, where we will get a ‘first look’ at the realized price received on Sigma’s material. Based on our current forecasts, we model 177kt of SC5.5 production in 2023, resulting in $360-million in free cash flow on our conservative price and operating cost forecasts (excluding potential capex spend on Phase 2+3).”

* Following Monday’s post-market release of its quarterly results, CIBC’s Jamie Kubik cut his PrairieSky Royalty Ltd. (PSK-T) target to $26.50 from $27, keeping an “outperformer” rating, while iA Capital Markets’ Matthew Weekes trimmed his target to $23.50 from $24 with a “buy” recommendation The average is $25.35.

“PSK’s quarterly metrics were below estimates, and while the quarter included certain transitory factors, we are lowering our estimates for the remainder of 2023 and 2024, resulting in our revised $23.50 target price,” said Mr. Weekes. “Meanwhile, strong drilling and leasing momentum continued, supporting our outlook for organic growth in profitable oil volumes without the need for incremental capital. We are maintaining our Buy rating based on (a) constructive fundamentals for Oil & Gas Royalty companies as a lower-risk, highly cash generative alternative for investing in the sector; (b) PSK’s irreplicable asset base with one of the largest independently owned portfolios of fee title lands in Canada, providing exposure to production trends without any capital requirements; (c) constructive volume outlook for liquids supported by continued record leasing activity on a quarterly sequential basis and a 10-per-cent increase in operator wells spud year-over-year; and (d) valuation that remains below the Company’s historical average.”

* Oppenheimer’s Noah Kaye raised his Waste Connections Inc. (WCN-N, WCN-T) target to US$152 from US$148 with an “outperform” rating, while Truist Securities started coverage with a “buy” recommendation and US$160 target. The average is US$158.58.

“Shares have outperformed peers both quarter-to-date and year-to-date, reflecting both favorable estimate revisions and multiple re-rating,” Mr. Kaye said. “Fundamentals appear solid, including: (1) elevated visibility on FY23 price and FY24 restricted price tailwinds; (2) moderating inflation trendlines supporting above-average solid waste margin expansion for FY23-24; and (3) healthy M&A activity targeting a $4-billion TAM [total addressable market] that fits the market model. We believe WCN has the most likely setup among peers for positive revisions in FY23, given its conservative commodities outlook and M&A contribution potential. We are raising our PT modestly in view of our confidence in medium-term financials.”

* Credit Suisse’s Andrew Kuske lowered his target for West Fraser Timber Co. Ltd. (WFG-N, WFG-T) to US$92.50 from US$97, below the US$102.50 average, with an “outperform” rating.

“Forest product stocks are notoriously cyclical and often with rather accentuated moves – in both directions and the ‘perfect timing’ is typically elusive,” said Mr. Kuske. “Rate moves in H2 2023 (potentially declining) along with the current housing price compression bode well for affordability and return to improved prices and solid wood demand.

“We believe West Fraser has an enviable position in both lumber and OSB markets; however, pricing and housing dynamics are not currently overly supportive.”