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

While its management “remains cautious on the near-term outlook following “strong” first-quarter results, ATB Capital Markets analyst Chris Murray thinks Canadian National Railway Co. (CNR-T, CNI-N) “maintains a fairly balanced freight mix, including a strong commodities franchise,” which he expects will “support margins and significant free cash flow generation and returns to shareholders despite heightened uncertainty.”

“We remain constructive on the strength of the Company’s tri-coastal network, diversified freight mix, and improved operational performance being demonstrated under new management’s turnaround strategy after CN lost its footing as the industry’s best-in-class operator over the past several year,” he said. “Q1/23 represented a better-than-expected start to the year, with its renewed focus on scheduled railroading reflected in operational and financial performance. We believe the Company’s investor day, scheduled for May 3, 2023, in Chicago, is likely to lay out the strategy for coming years.”

On Monday after the bell, CN reported first-quarter revenue of $4.3-billion, up 16 per cent year-over-year and above both Mr. Murray’s $4.167-billion estimate and the consensus forecast of $4.253-billion drive by volume growth in grains and fertilizers, metals and minerals and coal. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) grew 27 per cent to $2.11-billion, which also topped projections ($1.979-billion and $2.047-billion, respectively).

“Strong price/volume trends in Q1 prompted management to increase full-year EPS guidance to mid-single-digit growth (from low-single-digit), consistent with ATB estimates,” said Mr. Murray. :The operating ratio (OR) came in at 61.5 per cent (ATBe: 62.5 per cent) in a seasonally weak quarter, representing CN’s best Q1 since 2016. The continued OR improvement reinforces CN’s renewed focus on scheduled railroading, positioning the Company to return to top-tier performance over the near term.”

“Management reiterated that they expect a mild recession in 2023, with weakening industrial and intermodal volumes in early Q2/23 reinforcing its outlook. Bulk commodities are expected to remain a source of strength, with management highlighting that spring conditions point to an average North American crop for the 2023/2024 fall harvest.”

The analyst is now looking to CN’s Investor Day event for further details on a partnership it announced with Union Pacific Corp. (UNP-N) and Mexican rail operator GMXT to create Falcon Premium Intermodal service, which it called “best-in-class Mexico-US-Canada service with a seamless rail connection in Chicago.”

“Operating as an all-rail intermodal service, the intent is to move freight on the CN network from UNP’s Chicago hub into Detroit, eastern Canada, and potentially western Canada reducing freight times to Mexico and advancing sustainability initiatives,” said Mr. Murray. “Management noted that the Company envisions the service eventually reaching the equivalent of two trains per direction per day; however, few details were provided, though we expect to receive additional colour at investor day.”

While he made modest reductions to his earnings expectations for 2023 and 2024 based on pricing and foreign exchange estimates, Mr. Murray raised his target for CN shares to $180 from $175, maintaining a “sector perform” recommendation. The average target on the Street is $161.79, according to Refinitiv data.

Other analysts making target changes include:

* Desjardins Securities’ Benoit Poirier to $180 from $178 with a “buy” rating.

“CN reported better-than-expected 1Q23 results, driving a guidance increase,” said Mr. Poirier. “We view the revised guidance as positive, but given it is backward-looking and given CN’s investor day next week (May 2–3; expect three-year targets for EPS and leverage but not OR), we do not expect a share price reaction to the guidance. Additionally, the forceful intermodal partnership announcement by CN is the right response, in our view, given the circumstances and its low risk/high reward profile.”

“We now have added confidence in CEO Tracy Robinson and the management team. We see further upside on OR improvement following COO Ed Harris’s appointment, and CN has more optionality and dry powder at its disposal for increased shareholder returns vs other railroads.”

* Barclays’ Brandon Oglenski to $175 from $170 with an “equal-weight” rating.

“A mild increase in earnings guidance and an announcement of an intermodal marketing partnership with Union Pacific and Ferromex should please investors, but increasingly cautious commentary around end markets leaves uncertainty around 2023 expectations,” said Mr. Oglenski.

* Stifel’s Benjamin Nolan to US$115 from US$116 with a “hold” rating.

“The improvements made by Canadian National in the past year have been significant, and while the pace of change will be hard to match, we do expect continued progress,” said Mr. Nolan. “However, CN expects volumes to be negatively impacted near-term by a mild recession and likely some margin deterioration. In the medium term, we do expect modest volume and earnings growth, but with shares trading at a premium to every Class 1, but their Canadian competitor, we believe the growth is already fully priced in.”

* Credit Suisse’s Ariel Rosa to US$133 from US$126 with a “neutral” rating.

“The company has been reinvigorated, with strong execution which appears well received by investors as CN’s valuation continues to stretch near the upper-end of its historical trading range of 16-21 times forward-year earnings,” he said. “In conjunction with its earnings release, CN announced a new partnership between Union Pacific and Grupo Mexico (Ferromex) to provide intermodal service between Canada, the US, and Mexico. Given repeated concerns that the newly formed CP-KC would take share from others, we see this move as continued evidence that the rails intend to counter this risk, which we believe should limit volume loss.”

* Stephens’ Justin Long to US$124 from US$122 with an “equal-weight” rating.

“While the quarter benefited from milder-than-anticipated winter weather and a positive fuel lag, the operational / service performance was strong and pricing remains above rail inflation despite macro headwinds. In addition, the company announced a new Canada/U.S./Mexico intermodal service (called Falcon Premium) with UNP and GMXT. Looking ahead, CNI raised its 2023 guidance for adj. EPS growth of mid-single digits (from low-single digits) and this is in line with the Street estimate of up 5 per cent year-over-year. Bottom line, while CNI reported solid 1Q23 results, we believe the outlook for the remainder of the year was essentially unchanged,” said Mr. Long.

* JP Morgan’s Brian Ossenbeck to $171 from $169 with a “neutral” rating.

* Evercore ISI’s Jonathan Chappell to US$129 from US$123 with an “in line” rating.


National Bank Financial analyst Dan Payne expects Pason Systems Inc.’s (PSI-T) first-quarter results to “reflect the strength of returns of its highly entrenched & high-margin operations.”

While he also acknowledged the earnings release will “potentially showing mild contraction sequentially as a reflection of its previously noted caution towards activity through the first half of the year (but quite honestly, nothing of any concern for one of the more robust business’ in the group),” he raised his recommendation for the Calgary-based company to “outperform” from “sector perform” previously.

Mr. Payne is forecasting top-line revenue growth of 1 per cent quarter-over-quarter to $96-million with associated EBITDA sliding 2 per cent to $48-million, which he said reflects “a mild check-back in margins towards 50 per cent (from 52 per cent prior Q) while remaining best in class & top-tier.”

“As we transit break-up in Canada and prevailing risk to the gas rig fleet in the U.S., we will look for color on visibility for its expected resumption of operating strength through H2/23, which again, as a function of one of the highest quality earnings profiles in the group, paired with operating leverage & low maintenance capital requirements, should result in material free cash flow conversion in support of continued return of capital (4-per-cent cash yield) and option-value through its pristine balance sheet ($214-million positive working capital outstanding at YE22),” said Mr. Payne.

He maintained a target of $20 per share. The current average is $18.

“The stock’s multiple has contracted considerably, and for the first time in recent memory, it arguably trades at a relative discount to the broader OFS comps (and less than a less than 1.0 times premium to our OFS coverage, ... while we ultimately believe that its complexion warrants a lower yield-based valuation (and restoration of a broader premium), the recognition and result of which should positively translate to shareholder value over the long-term,” he concluded.



Despite lowering his near-term forecast, due largely to seasonality, ahead of the the release of its first-quarter results on May 9, National Bank Financial analyst Cameron Doerksen reaffirmed his “positive outlook” for Exchange Income Corp. (EIF-T) after an “active” M&A start to the year.

“We have incorporated the recently announced Hansen Industries acquisition into our model as of the beginning of Q2 and, while the BVGlazing deal has not yet closed, we are confident the transaction will close by the end of Q2, so we have also incorporated it into our estimates,” he said.

“EIC has announced two acquisitions so far in 2023 for a total purchase price of $138 million, adding an estimated $28 million in EBITDA (approximately 5 times EV/EBITDA acquisition multiple). BVGlazing complements the company’s Quest Windows business bringing new customers, additional manufacturing capability and new geographic markets. Hansen Industries is a small tuck-in that fits with EIC’s Overlanders metal fabrication business. At the end of Q4/22, EIC had $1.0-billion in total liquidity, so the company is well positioned to execute additional deals this year.”

Mr. Doerksen also thinks Exchange Income’s organic growth remains “solid,” expecting it to reach its 2023 EBITDA guidance of $510-540-million, excluding incremental M&A, which is up from $456-million in 2022.

“We believe there is good visibility on this growth supported by the full-year impact from the Northern Mat acquisition in mid-2022 (where activity levels are still strong), incremental improvement in Legacy Airline activity, new aerial surveillance work (Netherlands Coast Guard contract started late Q3/22) and improving production at the company’s Quest Windows subsidiary,” the analyst said. “EIC also has some new contract potential, notably in the medevac area where the company has bids out in both Manitoba and B.C. Any wins would be additive to our forecast.”

His first-quarter revenue and adjusted earnings per share fell to $473-million and 0 cents, respectively, from $500-million and 40 cents due largely to its Northern Mat business “where activity levels and margins are materially lower in Q1 than the rest of the year.” However, his full-year projections rose to $2.37-billion and $3.76 from $2.258-billion and $3.73.

Believing its valuation “remains attractive,” Mr. Doerksen raised his target for the Winnipeg-based company’s shares to $67 from $65, reiterating an “outperform” recommendation. The average on the Street is $63.45.


Ahead of first-quarter earnings season for Canadian diversified financial firms, RBC Dominion Securities analyst Geoffrey Kwan named Element Fleet Management Corp. (EFN-T) is “No. 1 high-conviction best idea”, believing “it offers both significant growth potential even in a recession, high inflation and/or high interest rate environment, but also strong defensive attributes.”

“We think recent share price weakness is unwarranted and view it as an attractive buying opportunity,” he said. “EFN trades at just 13.0 times NTM P/E [next 12-month price-to-earnings] (11.7 times 2024 estimates) and 9.0-per-cent NTM FCF [free cash flow] yield (10.4 per cent 2024) when we think EFN should trade at a high-teens P/E multiple. We think 2023 EPS guidance is conservative; EFN said it will give an update with Q1/23 results which logically suggests 2023 guidance is likely being increased. Fundamentals remain very strong as EFN continues to win new customers and cross-sell existing customers new fleet services. Even if we have a recession, we think originations should increase significantly in 2023 and even more so in 2024 as OEM production normalizes.”

Mr. Kwan maintained an “outperform” recommendation and $27 target for Element Fleet shares. The average on the Street is $23.33.

Concurrently, he made these target adjustments:

* Brookfield Asset Management Ltd. (BAM-N/BAM-T, “outperform”) to US$43 from US$40. Average: US$36.18.

Mr. Kwan: “#2 best idea: Brookfield Asset Management Limited (BAM). Trading at 22.5 times NTM Fee Related Earnings (FRE), while we believe further FRE multiple expansion is likely, we think significant valuation upside is likely to be driven by FRE growth, not just fundraising (BAM is likely to be active again in 2023) but also deploying capital as many strategies generate fee revenues only when capital is deployed. Furthermore, we think BAM is likely to benefit from its simpler structure; attractive 4 -per-cent dividend yield; debt-free balance sheet and 100-per-cent asset-light with zero principal investments.”

* Brookfield Corp. (BN-N/BN-T, “outperform”) to US$50 from US$51. Average: US$48.35.

Mr. Kwan: “#3 best idea (and contrarian): Brookfield Corp. (BN). BN’s shares trade at a 32-per-cent discount to NAV, wider than we’ve seen in over 10 years. While investor concern regarding Real Estate is understandable, BN’s share price implies not just zero value for its Real Estate investments, but also an additional 24-per-cent discount to its non-Real Estate private investments (e.g., Insurance).”

* Chesswood Group Ltd. (CHW-T, “sector perform”) to $11 from $12. Average: $14.25.

* EQB Inc. (EQB-T, “outperform”) to $87 from $85. Average: $83.28.

* Intact Financial Corp. (IFC-T, “outperform”) to $232 from $228. Average: $221.

* Sprott Inc. (SII-T, “sector perform”) to $58 from $55. Average: $51.33.

* TMX Group Ltd. (X-T, “outperform”) to $170 from $168. Average: $150.86.

Elsewhere, TD Securities’ Graham Ryding raised his target for EQB to $85 from $83, keeping a “buy” recommendation.

“Q1/23 will be the first full quarter of Concentra included,” he said. “Expenses are expected to be up quarter-over-quarter, and NIM slightly down q/q. Housing activity remained soft in Q1/23 which suggests personal mortgage originations and loan growth will likely be muted. We expect credit trends to show some normalization in 2023 (albeit current employment trends are solid). Our target price has moved up slightly .. due to rolling forward our valuation by one quarter.”

“Management has been executing well on NIM expansion in a rising interest rate environment. Loan growth has been solid, but is expected to moderate in line with guidance. Credit trends are expected to deteriorate somewhat, but the outlook for employment suggests arrears/credit provisioning should be manageable. The digital EQ Bank is a valuable and differentiating asset, in our view.”


After “strong” start to 2023, analysts at Canaccord Genuity remain bullish on gold and gold equities “with the Fed tightening cycle nearing its end and inflation rates falling.”

“At the same time, banking issues continue to simmer with banks sitting on more than $600 billion in unrealized losses on securities and deposits continuing to fall (down $979 billion as of last week),” said Dalton Baretto, Carey MacRury and Michael Fairbairn. “That said, there is a considerable gap between the Fed’s and the market’s expectations on the future path of interest rates. If the Fed decides to take or sustain a hawkish path, we see potential near-term downside for gold and more of a hard landing scenario. We expect a hard landing scenario to result a full 180 move from the Fed and ultimately with upside for gold. The recent FOMC minutes indicated that the Fed staff now project a mild recession starting later this year and noted that ‘historical recessions related to financial market problems tend to be more severe and persistent than average recessions.’ Gold can sell off in a broader risk-off environment as seen in March 2020 and October/November 2008, but such moves tend to be short-lived, and we note gold is usually one of the earliest asset classes to respond to a shift to monetary easing.”

With gold up 22 per cent since September lows and gold equities higher by an average of 48 per cent during that period, Canaccord said 31 of the 40 producers and royalty companies in its coverage universe have outperformed the gold price with more than half by 20 per cent or more.

After further increases to its commodity price deck, including a new long-term gold price (US$2,262 per ounce from US$2,048), the analysts made further target price increases to stocks.

By asset class, their top picks are:

Streaming and royalty companies

* Wheaton Precious Metals Corp. (WPM-T, “buy”) with a $78 target, up from $75. The average on the Street is $74.11.

Analysts: “Our top senior pick in the royalty and streaming space is Wheaton Precious Metals based on its solid growth profile (we forecast 32-per-cent growth from 2022 to 2025 and set to surpass Franco-Nevada in GEO production by 2025), fortress balance sheet (approximately $0.7 billion cash, no debt, $2 billion available on credit facility at the end of 2022), and exposure to silver (we estimate 39 per cent of total revenue from 2023- 2027), which we believe could outperform in the near- to mid-term.”

* Osisko Gold Royalties Ltd. (OR-T, “buy”) with a $27.50 target, up from $25.50. Average: $25.23.

Analysts: “Our top pick among the intermediates in the royalty and streaming space is Osisko Gold Royalties, which we believe provides a compelling combination of growth, value, balance sheet strength, and upcoming potential catalysts. The company achieved annual records for GEO production, revenue, and operating margin in 2022, and we forecast GEOs growing 7 per cent to 96 koz in 2023 and 29 per cent by 2027; we note that several potential catalysts could provide further upside to the production profile.”

Senior producers

* Agnico Eagle Mines Ltd. (AEM-T, “buy”) with a $99 target, up from $84. Average: $69.45.

Analysts: “Agnico Eagle is one of our top picks among the senior gold producers for investors looking for large-cap gold exposure with relatively low geopolitical risk. The company has a track record of consistent operating performance, a solid balance sheet, and a history of growing profitable production in lower-risk jurisdictions, all of which we believe have been strengthened with the Kirkland Lake Gold merger last year. We expect future growth will come from resource expansion and utilization of excess mill capacity at Malartic, finalizing expansion plans at Detour, a potential Hope Bay reboot, and the San Nicolas JV. In our view, Agnico’s shares are attractive at current prices.”

* Endeavour Mining PLC (EDV-T, “buy”) with a $52 target, up from $45. Average: $44.01.

Analysts: “A top pick in the senior gold producers is Endeavour Mining which, in our view, ticks all the boxes: fully funded growth profile, coupled with strong execution, a strong balance sheet and capital return program, and inexpensive valuation. The company also has a deep project and exploration pipeline with a track record of growing resources and resources.”

* Kinross Gold Corp. (K-T, “buy”) with a $10 target, up from $8.25. Average: $8.09.

Analysts: “Our top senior gold pick for investors looks for torque to gold is Kinross. We see a relatively steady 2 Moz production profile, near-term completion of its La Coipa and Tasiast expansion projects, an improved geopolitical risk profile following its exit from Russia last year, and a potential emerging Tier 1 asset at Great Bear (potential to contribute 450-500 koz gold annually by 2028 in a Tier 1 jurisdiction). The company also recently put in place an enhanced capital return program whereby it expects to allocate 75 per cent of FCF after interest and dividends to share repurchases.”

* SSR Mining Inc. (SSRM-T, “buy”) with a $26 target, up from $25.50. Average: $20.90.

Analysts: “SSRM is our top defensive pick in the mid-cap precious metals producer space. We continue to like SSRM for its scale, exposure to both gold and silver, emerging value at each of the assets, strong balance sheet and capital return program, and capable management team. Looking out into the rest of 2023, we see ongoing operating improvements at all the assets, resulting in solid cash flow generation (particularly in H2), along with exploration programs that should continue to surface value through the drill bit. We also believe that the company’s strong balance sheet, reasonable cost structure, lack of major capital programs, FCF yield, and lower relative valuation positions SSRM as a defensive play in the event of a meaningful downturn in precious metal pricing.”

Intermediate producers

* New Gold Inc. (NGD-T, “buy”) with a $2.75 target, up from $2. Average: $1.95.

Analysts: “NGD is our top offensive pick for leverage to a rising gold price ... We believe NGD has hit an inflection point after two years of operating struggles – we see increasing significant and ongoing increases in production at least through 2027, driven by the Rainy River underground and the B and C Zones at New Afton, with commensurate material declines in AISC. Given the growth profile as well as the currently elevated cost structure, we believe NGD has having significant leverage to gold prices, and we note that the balance sheet remains sound. We do not believe this pending growth profile is fully priced in; NGD continues to trade at significant discounts to peers on both near-term and long-term metrics. Finally, with M&A in the precious metal producer space heating up, we view NGD as an attractive target for larger producers looking to add production in highquality jurisdictions at reasonable prices.”

Junior producers

* Orezone Gold Corp. (ORE-T, “buy”) with a $3.75 target, up from $3. Average: $2.42.

Analysts: “ORE is our top pick among the junior precious metal producers. Over the past year, ORE has advanced Bomboré into commercial production on time and on budget. We believe ORE’s management is well positioned to continue successfully executing as production ramps up and Orezone shifts its focus to its next stage of growth, which will be outlined in the upcoming sulphide expansion FS and resource/reserve update (expected by Q3/23). In the near term, management has guided to 2023 production of 150koz+ at sub-$1,100/oz AISC supported by plant throughput of 5.6-5.8Mt, well above nameplate capacity of 5.2Mt. We view this as a strong start for the company, which only declared commercial production a few months ago. Longer term, we envision ORE pursuing a larger “Phase II” sulphide expansion than laid out in the 2019 FS, maintaining its 5.2Mtpa+ oxide throughput while also constructing an additional 4Mtpa sulphide plant that comes online in H2/25.”

Elsewhere, believing demand will continue to support gold prices, iA Capital Markets analyst Ronald Stewart made these target changes:

  • Osisko Gold Royalties Ltd. (OR-T, “strong buy”) to $27.50 from $25. The average is $25.23.
  • Lundin Gold Inc. (LUG-T, “buy”) to $19.25 from $19. Average: $19.25.
  • O3 Mining Inc. (OIII-X, “buy”) to $4.30 from $4.29. Average: $3.91.
  • Reunion Gold Corp. (RGD-X) to 80 cents from 70 cents. Average: 80 cent.

“In our view, the safest way to play the gold space is through royalty & streamers, followed by seniors as well as low-cost, mid-tier producers, and last but not least by high-quality developers & explorers (riskiest of all). Our preferred names in the gold space include OR (for the royalty space), LUG (for producers), and RGD, OSK, RUP, and OSI (for developers),” said Mr. Stewart.


Canaccord Genuity analyst Mark Rothschild thinks a “difficult operating environment” for Canadian office real estate investment trusts is “likely to persist for an extended period of time.”

“Office REITs have underperformed so far in 2023 as vacancy rates have risen and two of the smaller office REITs have reduced distributions materially,” he said.

“After returning negative 23.1 per cent in 2022, office REITs have returned negative 25.1 per cent year-to-date in 2023, compared to returns of 5.4 per cent for the S&P/TSX Capped REIT Index and 7.7 per cent for the S&P/TSX Composite Index. While all office REITs have posted negative returns as office fundamentals remain weak, REITs that have reduced distributions, True North and Slate Office, have meaningfully underperformed peers.”

With office vacancy in Canada reaching its highest level in more than 30 years, Mr. Rothschild cut his net asset value estimates by an average of 12 per cent, pointing to his view that “the difficult operating environment and the significant rise in long-term interest rates will ultimately have a more material impact on cap rates and office property values.”

That led him to reduce his target prices for the three REITs in his coverage universe:

  • Allied Properties Real Estate Investment Trust (AP.UN-T, “buy”) to $30 from $35.50. The average on the Street is $33.34.
  • Dream Office Real Estate Investment Trust (D.UN-T, “buy”) to $16 from $18. Average: $17.78.
  • True North Commercial Real Estate Investment Trust (TNT.UN-T, “hold”) to $3.50 from $5. Average: $4.25.

“Despite the lack of catalysts that would drive a meaningful strengthening in fundamentals or office REIT unit prices in the near term, we believe current valuations should prove attractive for patient investors,” he said. “Canadian office REITs currently trade at, on average, 8.9 times 2024 estimated AFFO [adjusted funds from operations], compared to a two-year forward AFFO multiple of 11.8 times at the end of 2022 and, on average, 14.0 times two-year forward AFFO since 2016: Allied Properties currently trades at 11.2 times 2024 estimated AFFO, well below the average two-year forward multiple of 19.6x over the past seven years.; Dream Office trades at 12.5 times 2024 estimated AFFO, compared to the average two-year forward multiple of 16.6 times over the past seven years and True North Commercial trades at 6.3 times 2024 estimated AFFO, compared to the average two-year forward multiple of 10.6 times over the past seven years.”


Desjardins Securities analyst Gary Ho reduced his 2023 and 2024 earnings expectations for Chemtrade Logistics Income Fund (CHE.UN-T) to reflect new caustic soda pricing data, but he’s otherwise expecting few surprises from its first-quarter financial report on May 10.

“We believe the pricing patterns in recent months were somewhat built into CHE’s guidance—ie soft 1Q and recovering thereafter (hence, we do not anticipate significant guidance changes),” said Mr. Ho. “The price is now approximately at cash cost and is expected to increase. The Northeast Asia index was US$390 per dry metric ton in the most recent week, 9 per cent above its 2023 trough of US$358/dmt but still 28 per cent below the beginning of 2023. By our math, if prices stay at these levels, CHE will essentially meet its US$465/dmt guidance.”

“Chlorine (price gains in 1Q) and HCl (strong rig counts) remain robust. CHE continues to benefit from high selling prices for sodium chlorate (annual contracts). Water margins should remain healthy (recouping high raw material costs last year).”

Citing caustic soda “weakness,” he cut his 2023 EBITDA projection to $384-million from $390-million, remaining narrowly above the midpoint of its $360-400-million guidance. His 2024 estimate slid to $380-million from $385-million previously.

To reflect “a slight contraction in peer multiples recently,” Mr. Ho trimmed his target for Chemtrade shares by $1 to $12.50 with a “buy” recommendation. The average is $11.25.

“Our positive view is based on: (1) multiple chemicals in CHE’s portfolio having relatively recession-resistant attributes; (2) tremendous ultra-pure and hydrogen opportunities; and (3) consistent execution and a repaired balance sheet should restore investor confidence and warrant a valuation re-rate,” he said.


With a “deleveraging path becoming very clear,” BMO Nesbitt Burns analyst John Gibson upgraded Source Energy Services Ltd. (SHLE-T) on Tuesday to “outperform” from “market perform” ahead of its quaterly release.

“We believe the outlook for SHLE is very constructive as WCSB activity levels remain strong, which should allow for significant deleveraging this year,” he said.

“Canadian rig and completion crew activity was very robust in Q1/23, while work has carried over into Q2 as well. Anecdotally, we have also been hearing demand for proppant is strong and effectively sold out in some cases. Given SHLE’s strong infrastructure network, we expect sales volumes should remain healthy, while recently renewed contracts (which represent a significant portion of SHLE’s volumes) bode well for margin improvement.”

Increasing his financial forecast, Mr. Gibson also bumped his target for Source shares to $5 from $3.50, remaining below the $7 average.

“SHLE stock has performed very well this year (up more than 100 per cent year-to-date),” he said. “While we had warmed to the story in recent months, uncertainty over 2H/23 activity levels remained concerning. That said, we now view the company’s path towards balance sheet improvement as being much more clear.”

He also made these target adjustments:

  • Enerflex Ltd. (EFX-T, “outperform”) to $12 from $13. Average: $14.18.
  • North American Construction Group Ltd. (NOA-T, “outperform”) to $30 from $25. Average: $26.80.
  • Shawcor Ltd. (SCL-T, “market perform”) to $14 from $13. Average: $15.91.
  • Step Energy Services Ltd. (STEP-T, “outperform”) to $5 from $6. Average: $7.71.

“Ahead of Q1/23 reporting, we are updating estimates and target prices for our Canadian Energy Services coverage group,” he said. “While North American activity levels remain solid, they did moderate somewhat in the US during the quarter. Commodity price weakness early in Q1 was the main driver of U.S. weakness, although the recent OPEC+ news (and corresponding lift in WTI prices) should help stabilize activity levels in H2/23. Canadian activity levels were very strong to start 2023, while visibility is improving into next year as incremental LNG-related drilling/completions activity ramps. As such, we feel investors should be positioning in the Canadian market.”

“Our top picks reflect our preference for Canadian exposure and now include North American Construction Group, Precision Drilling, Secure Energy Services, and Trican.”


In other analyst actions:

* Calling it a “top-tier operator,” Scotia Capital analyst Eric Winmill resumed coverage of Torex Gold Resources Inc. (TXG-T) with a “sector perform” recommendation and $23 target. The average is $24.67.

“We see Torex as an excellent operator with a clearly-articulated growth strategy,” he said. “The company has been generating strong margins and cash flow in recent quarters to fund development at Media Luna; as production ramps up there in 2025 with an increased focus on copper production, we see an opportunity for TXG shares to re-rate higher and as exploration and project potential is further showcased (currently not included in our valuation) that could boost production in 2027 and beyond.”

* Raymond James’ Michael Freeman initiated coverage of Well Health Technologies Corp. (WELL-T) with an “outperform” recommendation and $8.50 target. The average is $7.96.

“In our view, WELL has become the center of gravity in Canada’s primary healthcare and digital health ecosystem, and is a rapidly ascendant power in U.S. hybrid care, growing by way of disciplined, accretive M&A — approximately 50 acquisitions executed since inception — and strong organic growth, posting 19 per cent year-over-year in FY22,” he said. “And, while WELL’s U.S. presence is a newer part of its story, it’s no less important: WELL drove nearly 60 per cent of its FY22 total Rev. from its U.S. businesses in primary, specialty, and virtual care (up 100 per cent year-over-year).

“WELL leverages its large, growing footprint of physical clinics, combined with its increasingly broad and interconnected suite of digital tools to empower healthcare practitioners and patients, looking to improve health outcomes and yield efficiencies in overstressed healthcare markets often fraught with long wait-times and outdated tech. WELL’s two broad operating categories — omni-channel patient services (‘bricks and clicks’) and virtual services (‘clicks only’)—are core to the company’s hybrid approach to healthcare, enabling WELL to leverage cross-platform operational and technological synergies, and situating the company nicely to take advantage of structural and capital markets-oriented tailwinds.”

* CIBC’s Nik Priebe raised his target for ECN Capital Corp. (ECN-T) to $3.50 from $2.75, keeping a “neutral” rating. The average on the Street is $4.17.

* Mr. Priebe lowered his Fiera Capital Corp. (FSZ-T) target to $8, below the $9.19 average, from $9 with a “neutral” rating.

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