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

Seeing “good risk-reward characteristics at this level,” Canaccord Genuity analyst Scott Chan upgraded his rating for Canadian Western Bank (CWB-T) on Wednesday.

He made the change concurrently with a reduction in his earnings per share projections for 2020 and 2021 for both CWB and Laurentian Bank of Canada (LB-T) due to the impact of COVID-19.

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His 2020 EPS estimate for CWB slid 18 per cent to $2.67 from $3.26, while his 2021 projection fell 22 per cent to $2.70 from $3.48.

For Laurentian, his estimates fell by 22 per cent and 24 per cent, respectively, to $3.01 and $3.37 (from $3.87 and $4.41).

"Our revised estimates generally reflect: (1) slower loan growth (particularly in F2020); (2) NIM [net interest margin] contraction this fiscal year mainly based on BOC rate cuts and margin stability in F2021; (3) higher PCL ratio peaking at FYE and gradually improving next year; and (4) lowered Other income (LB has more exposure to capital market related items which is primary reason for larger downside EPS revisions)," said Mr. Chan.

“Both regional banks are trading at trough P/B [price-to-book] (fwd.) multiples (0.6 times) providing near-term share support. However, we favor CWB over LB due to their higher prospective fiscal 2021 ROE [return on equity] of 8.7 per cent (LB: 5.4 per cent). Further, CWB’s ROE trajectory should materially improve medium term on adoption of AIRB methodology. Recently, management noted to us that AIRB conversion (from Standardized approach) is still on track for next FY while working on its final submission proposal. On conversion, we estimate CWB’s CET 1 ratio should track closer to the Big-6 bank (average) and would offer significant excess capital (e.g. support organic growth, NCIB, M&A).”

Though he moved CWB to “buy” from “hold,” Mr. Chan lowered his target price for its shares to $22 from $33. The average on the Street is $26.91, according to Thomson Reuters Eikon data.

“We are comfortable raising CWB to a BUY rating under current market conditions impacted by COVID-19 due to: (1) implied total return target of 22 per cent; (2) CWB is worst performing bank stock year-to-date (partially from high correlation to WTI oil and 32-per-cent exposure to Alberta region; (3) strong underwriting track record benefiting from their secured lending, disciplined underwriting and proactive loan measures; (4) ROE trajectory should materially improve on adoption of AIRB; (5) our COVID-19 scenario analysis (see link relating to Big-6) suggests that CWB can maintain its dividend with a pro-forma payout ratio of 89 per cent (current yield of 6 per cent); and (6) trading near trough at P/B (NTM) multiple of 0.6 times,” he said.

For Laurentian, he reduced his target to $23 from $32, keeping a “sell” rating. The average is $32.80.

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RBC Dominion Securities analyst Mark Dwelle lowered his estimates for Fairfax Financial Holdings Inc. (FFH-U-T, FFH-T) to reflect “adverse macroeconomic conditions in Q2 and Q3 principally with impacts to investment results and affiliate income as well as upon premiums and underwriting results.”

"Fairfax is likely to be one of the P&C companies hardest hit by recent financial market weakness and weak macroeconomic conditions resulting from COVID-19," he said. "The company’s equity portfolio will face sizeable adverse marks and while the high quality bond portfolio will provide some offset we are forecasting a net $2-billion of realized and unrealized losses in Q1/20. The company’s affiliate holdings include a number of retail, hospitality and travel operations which are also likely to suffer sizable operational losses as long as social distancing policies remain in place."

Mr. Dwelle reduced his 2020 net earnings per share estimate to a loss of US$49 from a profit of US$48.19 to reflect an unrealized loss of US$71 per share. His 2021 expectation slid to a gain of US$49.57 from US$51.94.

“On an operating basis, which we think is a better way of evaluating results given market volatility, we expect 2020 operating EPS of $10.64 (previously $33.75) with $12 of the decline resulting from reduced affiliate results, $7 from lower investment income and the remainder from margin and volume impacts within the P&C business,” he said.

“In making our adjustments, we have taken the broad macro assumption that financial markets and business activity will follow a 'U’ shaped pattern with business conditions significantly depressed in 2Q and 3Q 2020 before rebounding somewhat in 4Q20 and trending back to normal in 2021.”

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Keeping an “outperform” rating, Mr. Dwelle’s target for FFH shares slid to US$450 from US$600.

“With shares trading at about 70 per cent of anticipated Q1/20 book value we believe value oriented investors should find an attractive opportunity though it could take somewhat longer to play out than other areas within the P&C sector,” he said.


It’s Walmart Inc.'s (WMT-N) “time to shine,” according to Citi analyst Paul Lejuez.

In a research note released Wednesday, he assumed coverage of the U.S. retail giant with a "buy" rating.

"When we think about what has been working in general within the U.S. retail landscape (and what will likely continue to work), we would characterize it as online, off-mall, convenience and value," said Mr. Lejuez. "WMT checks all four boxes. And in the current COVID-19 crisis, WMT is in a favorable position. It is a largely consumables-based business (grocery is 55 per cent of sales) and is value-priced. Because the company is there to serve customers through this period, we believe it will result in more customer loyalty with existing customers and help WMT gain new customers that might not have shopped WMT before."

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Mr. Lejuez called Walmart "a winner in retail," emphasizing its U.S. earnings have "turned a corner" after years of investment.

In justifying his rating, he also pointed to its dominant share in grocery, which leads to consistent traffic, its ability to expand into other services (including financial and healthcare) and the belief the COVID-19 crisis "gives them a chance to increase loyalty (they are there for existing and new customers in their time of need)."

Mr. Lejuez raised the firm’s target for Walmart shares to US$140 from US$137. The average on the Street is US$129.16.

“We believe the stock is undervalued today,” he said.


With the completion of its special distribution of Brookfield Infrastructure Corporation (BIPC) shares, Industrial Alliance analyst Naji Baydoun lowered his target for Brookfield Infrastructure Partners L.P. (BIP.UN-T, BIP-N) on Wednesday.

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On March 31, BIP finished the distribution of BIPC shares to existing BIP unitholders. For every nine shares of BIP owned, one BIPC share was given.

"The creation of BIPC is intended to attract incremental capital by providing investors access to the Brookfield Infrastructure investment through a corporation structure (compared to BIP’s partnership structure)," the analyst said.

Mr. Baydoun also warned that near-term pressures are likely to weigh on results, but emphasized "the long-term outlook remains strong."

"We are adjusting our financial estimates to reflect (1) the special distribution of BIPC shares, (2) the removal of expected contributions from the Cincinnati Bell assets (CBBN, Not Rated; the previously announced merger agreement with CBB has now been terminated), (3) the depreciation of the Brazilian Real (down 30 per cent year-to-date versus the USD), and (4) the expected near-term impacts of the COVID-19 spread on overall economic activity," he said.

"Despite the revised expectations for more moderate financial performance in 2020, the longterm outlook for BIP remains strong. We continue to expect the Company to be able to deliver 12-15-per-cent average annual total shareholder returns over the long term, through a combination of (1) high single-digit FFO/share growth within its 6-9 per cent per year target, and (2) average annual dividend growth of 5-9 per cent per year within a 60-70-per-cent target FFO payout range."

Maintaining a "strong buy" rating, his target slid to US$45 from US$50. The average is US$54.51.

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“BIP continues to represent a diversified play on the broader infrastructure investment theme,” he said.


Harvest Health and Recreation Inc.'s (HARV-CN) fourth-quarter results, released Tuesday after the bell, were “weaker and nosier” than anticipated, according to Alta Corp Capital analyst Kenric Tyghe.

"While we had hoped to see a more granular outlook (even if only for Q1/20), we are mindful of both the challenges and risks of providing guidance in the context of the current macro uncertainty and consumer confidence," he said. "We are encouraged by management’s commentary that they hope to provide sufficient visibility and full year guidance with their Q1/20e results in May 2020."

Keeping an "outperform" rating, Mr. Tyghe trimmed his target to $4 from $6. The current consensus is $4.98.

“While we are mindful that sentiment toward Harvest will likely remain challenged in the near term, particularly given the lack of guidance until the Q1/20 results release, we believe that the Company’s portfolio is particularly well positioned in key states and that the narrow focus on these states will dramatically improve execution efficacy,” the analyst said.


Citing the current state of the zinc market and delays to its Pine Point project in the Northwest Territories stemming from COVID-19, Haywood Securities analyst Pierre Vaillancourt lowered Osisko Metals Inc. (OM-X) to “hold” from “buy.”

"We are encouraged by the progress at site and remain positive on the project, but in the current environment, investors require a long term outlook," he said.

Mr. Vaillancourt reduced his target to 60 cents from 90 cents. The current average is $1.

“With mining company valuations at all-time lows, we believe the stock has strong potential to recover with the metals, as global economies eventually recover from COVID-19 related shocks,” he said.


As its sales shift further into retail from food services industry due to the spread of COVID-19, Credit Suisse analyst Robert Moskow lowered his financial expectations for Beyond Meat Inc. (BYND-Q).

“We expect a net negative to estimates from the shift in sales out of Foodservice (51 per cent of sales) and into Retail (49 per cent)," he said. :We are assuming a 50-per-cent decline in the Foodservice channel for Beyond from March through September. Our channel checks indicate that stay-at-home mandates for COVID-19 have caused a 30-35-per-cent sales decline at QSRs and as much as 70 per cent in casual dining. In Retail, we are assuming a 28-per-cent increase beyond our prior growth estimates for the year (now 86 per cent from 58 per cent). According to our tracking data, Beyond’s Retail sales accelerated dramatically in March, including over 500-per-cent growth in the week ending March 21. However, we think a significant portion came from short-term pantry-loading that will unwind in April and we expect Beyond to experience significantly higher costs from shifting inventory out of the foodservice channel. A small local grocery chain in our neighborhood, for example, ran out of Beyond because its distributor prioritized its inventory for higher volume grocery chains.”

Mr. Moskow dropped his 2020 sales, EBITDA and earnings per share projections to US$468-million, US$38-million and 37 US cents, respectively, from US$515-million, US$44-million and 46 US cents.

His 2021 estimates slid to US$655-million, US$69-million and 85 US cents, respectively, from US$772-million, US$110-million, and US$1.52).

Keeping a “neutral” rating, Mr. Moskow lowered his target for Beyond Meat shares to US$90 from US$118. The average on the Street is US$81.59.


In other analyst actions:

JPMorgan analyst Jeremy Tonet upgraded Enbridge Inc. (ENB-N, ENB-T) to “overweight” from “neutral” with a target of US$56, down from US$57. The average is US$53.44.

TD Securities analyst Cherilyn Radbourne raised Brookfield Asset Management Inc. (BAM-N, BAM-A-T) to “action list buy” from “buy” with a US$44 target, down from US$51. The average on the Street is US$43.31.

TD’s Daniel Chan lowered EXFO Inc. (EXF-T) to “hold” from “speculative buy” with a $3 target, down from $3.25 The average on the Street is $3.38.

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