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

First Quantum Minerals Ltd.'s (FM-T) debt load puts it in a “precarious spot,” according to Industrial Alliance Securities analyst George Topping.

“Kansanshi, Sentinel, and Cobre Panama will likely go ahead with minimal stoppages because they both significantly contribute to their respective economies,” he said. “However, we maintain that a company whose debt is 2 times larger than its current market cap will likely be forced into some kind of value destructive transaction, giving away all or at least some of its upside on key assets to pay down debt and help service its US$70-million per month interest bill.”

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In a research note released Wednesday, Mr. Topping lowered his base metal prices for the second quarter and beyond. His copper, zinc and nickel projections for 2020 fell to US$2.45, 90 US cents and US$5.50 per pound, respectively, from US$3.10, US$1 and US$6.50.

"On the demand side, while Asia is back to work, most of the consuming world is still shut," he said. "We think the degree of stimulus will bolster demand but it’ll still be slow to return. On the supply side, about 7 per cent of world supply has been temporarily shuttered in Peru which is partially offsetting demand destruction for now. A prolonged shutdown in Peru and/or one in Chile (27 per cent of world supply), could help copper prices recover sooner rather than later. Port closures in South Africa have disrupted Zambian shipments. Overall, we have reset prices lower this year and next to reflect the demand shock."

With those changes, he dropped his target for First Quantum shares to $13.50 from $14.80, keeping a "hold" rating. The average on the Street is $14.17.

Mr. Topping said he thinks Lundin Mining Corp. (LUN-T) is “relatively best positioned to handle lower metal prices.” However, he trimmed his target to $9.50 from $10 with a “buy” rating (unchanged). The average is $9.04.

"While LUN elected to push its Neves Zinc Expansion for now, no other production or concentrate shipments have been impacted due to COVID-19," he said. "With just US$95-million in net debt, if copper prices recover in H2/20, LUN could put its balance sheet to work to pick up distressed assets through M&A."

Mr. Topping's other changes were:

  • Copper Mountain Mining Corp. (CMMC-T, “buy”) to 85 cents from $1. Average: 89 cents.
  • Regulus Resources Inc. (REG-X, “buy”) to $2.50 from $3.40. Average: $3.20.
  • Tinka Resources Ltd. (TK-X, “buy”) to 35 cents from 50 cents. Average: 83 cents.


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In a separate note, Mr. Topping lowered his target for shares of Hudbay Minerals Inc. (HBM-T) in conjunction with his metal price forecast following the late Monday release of a new mine plan for Lalor mine in Snow Lake, Man., and its resource update.

However, he emphasized Hudbay's "manageable" liquidity situation and a vote of confidence from top shareholders.

“The Company currently has more than $300-million in cash and $985-million in debt with $420-million in undrawn credit capacity (as at year-end 2019),” he said. “The revolver has a trailing 4.5 times net debt/EBITDA covenant but it is largely undrawn. Senior notes, which comprise debt outstanding, are not due until 2023 and 2025. Fitch (Private) gave an overall ‘stable’ outlook on HBM’s debt. Additionally, year-to-date, top shareholders have bought 15 million shares in the market in a major show of support.”

With a "buy" rating, Mr. Topping trimmed his target to $6 from $6.60. The average is currently $4.96.

"We had anticipated the Lalor gold focus from management calls so overall the new plan is a mild positive," the analyst said. "We maintain our Buy recommendation, choosing to look through a possible copper price valley so that we don’t miss the recovery of this undervalued stock."

Elsewhere, RBC Dominion Securities' Sam Crittenden kept a "sector perform" rating and $5 target.

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Mr. Crittenden said: “Hudbay offers leverage to a copper price recovery and we do not believe the shares are reflecting the full value of the assets including the future gold production in Manitoba. We rate the shares Sector Perform due to lower production and FCF in 2020 and 2021 to set up production growth in 2022.”


With uranium and iron ore being his preferred commodities in the near term, CIBC World Markets analyst Oscar Cabrera said Cameco Corp. (CCO-T) and Labrador Iron Ore Royalty Corp. (LIF-T) are his top picks in 2020.

“Importantly, both companies have a strong balance sheet and available liquidity to weather the current COVID-19 pandemic, making them the most defensive names in our coverage universe,” he said.

Mr. Cabrera raised his rating for Cameco to “outperformer” from “neutral” with a $14 target, up from $12, pointing to his higher uranium price forecast. The average on the Street is $13.66.

“Our uranium price forecast was alone in having an increasing three-year-profile in our commodity price update given tighter fundamentals,” he said. “Stable demand and increasing closures in primary low-cost supply could set the commodity up for higher-than-expected price appreciation if utilities decide to build long-term contract books in order to secure (diversify) stable/low-cost production. As a result, we also increased our P/E, EV/EBITDA and P/NAV target multiples 20 per cent to 24.0 times, 12.0 times and 1.4 times, respectively. These multiples were observed during 2010 with increased demand expectations from China, before the Fukushima-Daiichi accident in Japan (March 2011).”

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At the same time, he lowered his target for Labrador Iron Ore to $27 from $29 with an “outperformer” rating (unchanged). The average is $27.36.

“Our revised price target was driven by a lowering of our P/NAV target multiple from 0.9 times to 0.8 times in order to reflect greater uncertainty about the viability of the company’s cash distributions to shareholders in an extended economic downturn,” the analyst said. “We note that iron ore (Fe) supply continues to be subject to structural constraints that have kept prices above the marginal cost of production despite demand concerns for the commodity (i.e., above $85/tonne Fe vs. marginal cost of $70/tonne). While we expect these constraints to ease over the next three years, we don’t believe a price decline would be as volatile as that in base metals. As such, LIF could continue to receive dividends from Iron Ore Company of Canada (IOC), and increase distributions on top of its $1.00 per share base dividend (i.e., $4.00 per share in 2019).”

In a research note released Wednesday before the bell, Mr. Cabrera downgraded a trio of stocks. They are:

  • Turquoise Hill Resources Ltd. (TRQ-T ) to “neutral” from “outperformer” with a 70-cent target, down from $1.60 and below the $1.67 average.
  • Hudbay Minerals Inc. (HBM-T) to “neutral” from “outperformer” with a $3 target, down from $6.50. The average is $4.96.
  • Capstone Mining Corp. (CS-T) to “neutral” from “outperformer” with a 45-cent target, down from $1.70. The average is $1.10.


RBC Dominion Securities analyst Kate Fitzsimons thinks shares of Canada Goose Holdings Inc. (GOOS-T, GOOS-N) remains positioned for outperformance over the long term, pointing to the company’s “strong brand, pricing integrity, diverse regional and channel mix, self-directed supply chain, and strong balance sheet in this time of uncertainty.”

However, with fiscal 2021 “poised to be a sub-algo year,” Ms. Fitzsimons reduced her target for Canada Goose shares, but noted the potential for a recovery from this year’s “more depressed base” in both sales and margins in fiscal 2022.

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“With GOOS shares down 40 per cent year-to-date, GOOS shares have been pressured as revision activity turned negative first with COVID-related Chinese consumer withdrawal and now with NA and European store closures (closed since March 17),” she said. "With reads that China is slowly reopening, we see that as a positive, on top of GOOS’s estimated 30-per-cent ecommerce exposure.

"GOOS remains one of our most controversial names, as investors had previously questioned the sustainability of the 20 per cent-plus top line run ('How many $1000 coats can they sell?') and retail margins in the mid-50s. While FY21 is going to see sales and channel margin impacts, those pushbacks are increasingly becoming moot as the story shifts to long-term recovery once we are on the other side."

With the firm's data science team, Ms. Fitzsimons analyzed the luxury apparel maker's website to track average pricing, stockouts and stock-keeping unit (SKU) trends.

“We also updated our pricing survey on Canada Goose and are encouraged GOOS is maintaining pricing integrity and not promoting, unlike peers,” she said. "Average price at $814 is in-line with historical averages, SKU counts are down seasonally, and we see stockouts at 37 per cent. While search interest trends are down year-over-year, they are sequentially improving and recall that GOOS makes the majority of its sales and profits in the fall/holiday quarters.

“On supply chain, GOOS is the most vertically integrated in our coverage, with in-house production in the low-50s last year and eight labor-intensive manufacturing facilities now shuttered for parka production. This capability means that GOOS can clamp down and ultimately switch on manufacturing faster vs. others relying on third-party vendors.”

In response to the recently COVID-19 slowdown, the analyst lowered her fiscal 2021 revenue and earnings per share projections to $867.1-million and 82 cents, respectively, from $1.081-billion and $1.54. However, she maintained her 2022 estimates of $985.9-million and $1.02.

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“Given the seasonality of the model, we expect the nature of the model does buffer GOOS more against the pandemic given that the majority of its sales and earnings are earned in the fall and holiday quarters,” she said. “Recall GOOS is a highly concentrated 2Q/3Q weighted sales and profits story given its category exposure, with 80 per cent of the annual sales fall in fiscal 2Q/3Q (fall/holiday quarters), with well over 100 per cent of the annual profits generated in those quarters. With the pandemic impacting certainly calendar Q1 and Q2 results in the near-term, the fact that GOOS’s make or break periods are further out buys the model some time as we await the flattening of the curve.”

Keeping an “outperform” rating, Ms. Fitzsimons lowered her target to $35 from $50. The average on the Street is $41.63.


With the Keystone XL pipeline set to “substantially” expand its export capacity, Industrial Alliance Securities analyst Elias Foscolos raised his target price for shares of TC Energy Corp. (TRP-T, TRP-N).

He assumed coverage of the Calgary-based company on Wednesday, a day after it announced plans to proceed with the contentious project upon receiving a cash injection and loan guarantees from the Alberta government.

“The estimated go-forward capital cost is US$8-billion, and TRP has taken measures to de-risk the project,” he said. “The project is underpinned by 20-year take-or-pay contracts on 690,000 barrels per day of throughput, 115,000 bbls/d of which is attributable to current contracts on the existing system which will be renewed and switched over to the new facilities. Construction also includes a provision for 50 per cent of cost overruns to be reflected in pipeline tolls. The Government of Alberta will be putting up US$1.1-billion of equity, which should cover construction costs through 2020, while TRP will provide the remainder through US$2.7-billion of equity and US$4.2-billion in credit guaranteed by the Alberta government. Once the pipeline is put into service, TRP expects to acquire the Alberta government’s interest and refinance the project’s credit facility through debt markets. TRP intends to finance its US$2.7-billion equity portion with a combination of cash flow, DRIP common equity, and hybrid securities, and the Company is also planning on filing a $1-billion equity shelf prospectus for added flexibility.”

Maintaining the firm's "buy" rating, Mr. Foscolos set a $70 target, up from $65 previously. The average is $68.30.

“Our short-term forecast is essentially unchanged with the exception that we are expecting the divestiture of $2.9-billion of power assets in mid-April,” he said.

At the same time, Mr. Foscolos also assumed coverage of Enbridge Inc. (ENB-T, ENB-N) and kept a “strong buy” rating and $55 target. The average is $53.14.

“In our view, the ongoing legal/regulatory issues that negatively impacted ENB are in the past,” he said. “Forward movement on the L3R project should provide investors with increased comfort, leading to a positive catalyst for equity valuation.

“ENB offers investors (a) stable earnings and cash flows, (b) visible, low-risk organic growth (5-7 per cent/year DCF/share growth, CAGR 2019-24), driven by $11-billion of secured investment (2020+), including L3R, (c) upside associated with $5-6-billion per year of longer-term growth initiatives, and (4) attractive income characteristics (8-per-cent yield and long-term DPS growth in line with cash flow growth).”


Park Lawn Corp. (PLC-T) “appears bottomed out,” said Canaccord Genuity analyst Raveel Afzaal in response to the release of weaker-than-anticipated fourth-quarter 2019 results, which he said “put a damper on an otherwise very strong year.”

Revenue for the quarter rose 36.2 per cent year-over-year to $68.9-million, but fell short of the projections of both Mr. Afzaal and the Street ($71.7-million and $70-million, respectively). Adjusted EBITDA of $13.4-million represented an 18.8-per-cent increase but also missed expectations ($16.1-million and $16.3-million).

“The company’s assets offer essential services, and hence remain open,” the analyst said. "For now, management has not seen volume decline but selling prices for funeral services has declined by 7 per cent in recent weeks. Management is shifting its marketing focus toward the online channel and, overall, we expect a lower advertising spend in 2020. Further, we expect cost structure optimization especially through reduction in part-time employees. Finally, PLC expects to slow down the pace of acquisitions.

"Our estimates remain fluid at this time due to COVID-19. That said, we have reduced our organic growth assumption to negative 10 per cent for both Q2 and Q3. We expect the cemetery business (70 per cent pre-need) to be less impacted and the bulk of the impact to be on the funeral homes business. This is partially offset by lower sales."

Maintaining a "buy" rating, Mr. Afzaal cut his target for Park Lawn shares to $24 from $33.50. The average on the Street is $27.20.

“PLC has historically traded at over a 13 times EV/EBITDA multiple versus the peer group average of 10 times due to a relatively under-levered B/S and higher growth prospects,” he said. "Further, PLC was guiding to $100-million in EBITDA by 2022. Up until a few weeks ago, we expected it to easily exceed this target. To factor in lower growth prospects in the current environment and weak Q4/19 results, we have reduced our 2022 EBITDA forecast to $92-million (from $100-million) and valuation multiple to 11.0 times (from 13.0 times). This results in our TP declining.

“We believe the current share price offers good long-term value but recommend investors gradually build a position as impact of COVID-19 becomes more clear.”


Calling it a “force” in the U.S. discount retail space, Citi analyst Paul Lejuez raised the firm’s rating for Dollar Tree Inc. (DLTR-Q) to “buy” from “neutral” upon assuming coverage of the stock.

"Despite the retail environment getting extremely disrupted in recent weeks, COVID-19 may be providing its Family Dollar (FD) chain (where consumables comprise 77 per cent of its mix) with a unique opportunity to drive increased traffic (and we believe they are capitalizing on the opportunity as customers are seeking stores selling essentials)," he said. "By keeping their doors open during the crisis (Dollar Tree (DT) as well), it gives them more shots on goal to impress customers (new and existing) with the changes they have made within each box, which we believe can drive repeat visits on the other side of the crises."

Mr. Lejeuez now expects comparable same-store growth for the first quarter to be “much stronger” than originally anticipated given the closure of potential competitors. However, he is projecting earnings per share of 69 US cents, below the company’s guidance of US$1-US$1.09 and the consensus of US$1.07 (both of which came before the COVID-19 crisis).

“Even though we expect sales to come in above original estimates, the composition of sales (More consumables) will pressure gross margin, and SG&A is running higher than originally planned,” said Mr. Lejuez.

He set a target of US$103, exceeding the current consensus of US$90.45.

“Prior to COVID-19, Dollar Tree was a more consistent performer, while Family Dollar was struggling to drive traffic to stores despite investing heavily behind remodels and in-store initiatives,” he said. “Perhaps this is because it takes some time for word to get out about the positive changes that have taken place within the store. Whether or not FD can execute its turnaround is the key to the story (and the stock).”

At the same time, Mr. Lejuez assumed coverage of Dollar General Corp. (DG-N) with a “buy” rating (unchanged) and a US$190 target, rising from US$184 and above the US$171.22 consensus.

“Bottom line, DG has proven to have a consistent model through good times and bad, and it seems that all of their initiatives are working, which should lead to continued market share gains,” he said. “Their high percentage of consumables should help them perform well in the near term, while their square footage growth and value proposition should drive mid-to-high single digit topline and double digit EPS growth over the next several years.”


Cormark Securities analyst David Ocampo raised his target for shares of AirBoss Of America Corp. (BOS-T) in response to its contract with the U.S. Federal Emergency Management Agency (FEMA).

On Tuesday, the Newmarket, Ont.-based company announced the deal, expected to be worth US$96.4-million, to manufacture 100,000 Powered Air Purifying Respirators (PAPRs), 600,000 filters, and related accessories.

"We view the contract with FEMA as game-changing because it nearly doubles BOS’ pro forma 2019 defence sales," he said. "It is our understanding that other government agencies are contemplating orders for several of BOS’ products, including isopods, shelters, PAPRs, and rubber gloves & boots. We increased our forecast to account for the FEMA order and the likelihood of replacement orders, partially offset by lower revenue in Rubber Solutions."

With a “buy” rating (unchanged), he hiked his target to $17.75 from $12.75. The average is $12.44.

“Our updated forecast excludes potential orders from other government agencies for BOS’ defence products. With a looming bed shortage for older citizens, particularly in areas like New York, we believe a shelter order is likely,” said Mr. Ocampo. “Shelters are also in high demand because it allows hospitals to separate traditional emergency room patients from those related to COVID-19. In our view, a shelter order could be similar in size to the FEMA order.”

Elsewhere, TD Securities' Tim James raised his target to $15 from $11, keeping a "buy" rating.

Mr. James said: “We believe that AirBoss’ strong balance sheet and attractive debt maturity profile (no material debt maturing until 2023), position it well to navigate this challenging environment. We believe that its defence segment provides earnings stability given its large backlog, and significant growth potential due in part to COVID-19.”


In other analyst actions:

Industrial Alliance Securities’ Elias Foscolos lowered Tervita Corp. (TEV-T) to “speculative buy” from “buy,” citing “elevated balance sheet risk," with a $5.50 target, down from $8.50 and below the $6.85 average”

“TEV’s business update is in line with what we are generally seeing amongst industry peers, and not unexpected,” he said. “We project positive free cash flow in 2020, but we see the Company cutting it pretty close on its debt covenant, and we have to consider the approaching maturity of the senior notes in 2021. We’ve made several model changes that ultimately result in a 14-per-cent reduction to our 2020 Adj. EBITDA.”

TD Securities analyst Greg Barnes upgraded Barrick Gold Corp. (GOLD-N, ABX-T) to “action list buy” from “hold” and raised his target to US$28 from US$22. The average on the Street is US$21.63.

TD’s Steven Green raised Centerra Gold Inc. (CG-T) to “buy” from “hold” with a $14 target, up from $12.50 and exceeding the current average of $12.86.

TD’s Sam Damiani downgraded Crombie Real Estate Investment Trust (CRR.UN-T) to “hold” from “buy” and reduced his target to $13 from $17.50. The average is $16.31.

Mr. Damiani cut SmartCentres Real Estate Investment Trust (SRU.UN-T) to “hold” from “buy” with a $24 target, falling from $34. The average is $30.94.

TD’s Cherilyn Radbourne raised Finning International Inc. (FTT-T) to “action list buy” from “buy” with a $24 target, down from $27. The average is $22.78.

Ms. Radbourne also upgraded Ritchie Bros Auctioneers Inc. (RBA-N, RBA-T) to “hold” from “reduce” with a US$36 target, up from US$32. The average is US$39.69.

TD’s Derek Lessard raised Pizza Pizza Royalty Corp. (PZA-T) to “buy” from “hold” with a $9 target, sliding from $10.50, which is the current consensus.

TD’s Brian Morrison raised Sleep Country Canada Holdings Inc. (ZZZ-T) to “buy” from “hold" with a $5 target, down from $6. The average is $17.67.

TD’s Daniel Chan reduced BlackBerry Ltd. (BB-N, BB-T) to “hold” form “buy” with a US$5 target, down from US$8. The average is US$6.08.

BMO Nesbitt Burns raised Alacer Gold Corp. (ASR-T) to “outperform” from “market perform”

PI Financial analyst Jason Zandberg cut Cronos Group Inc. (CRON-T) to “neutral” from “buy” with a $9 target, down from $17. The average is $10.27.

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