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

Lassonde Industries Inc. (LAS.A-T) is a “quality defensive name with near-term tailwinds,” said Desjardins Securities analyst Frederic Tremblay.

In the wake of recent virtual meetings with its executives, he thinks the Rougemont, Que.-based fruit and vegetable juice company is likely to benefit from sustained "strong" demand.

"Management indicated that the North American juice market has continued to deliver above-average sales volume growth so far in 2Q, driven by increased demand in the retail channel amid COVID-19," said the analyst. "Year-over-year growth was in the mid-single digits in April and early indications are that May was also strong. While growth is not as high as the double-digit rates in March, the market continues to outperform the slight decline typically observed in recent years. In addition, we believe that the current high-demand environment is alleviating competitive pressures as all major juice companies are heavily focused on serving their own customer base."

"We had highlighted that Lassonde’s sales mix is heavily skewed toward retail (87 per cent of sales are to the retail channel and 13 per cent to foodservice). We continue to view this as a net positive in the current environment as confinement and work-from-home measures fuel strong demand for large formats of juices and for frozen concentrates. Additionally, given the uncertain economic environment, we believe more consumers could be turning to private-label products. Again, Lassonde looks well-positioned as private label represents approximately 50 per cent of the company’s sales vs about 20 per cent for the industry."

Seeing little impact on its materials supply from the COVID-19 pandemic and with management comfortable with inventory levels, Mr. Tremblay thinks current market conditions and company-specific factors suggest "strong" second-quarter results.

“We believe additional investments, either internal or acquisitive, could be required within the next 3–4 years given the division’s strong historical growth rate (five-year revenue CAGR of over 10 per cent, all organic) and outlook,” he said.

“Acquisitions appear unlikely for the remainder of 2020 as management’s near-term priorities are to operate efficiently in its juice and specialty foods divisions during the turbulent COVID-19 situation, integrate Sun-Rype and maintain a solid financial position.”

Mr. Tremblay raised his 2020 and 2021 earnings per share projections to $10.91 and $11.52, respectively, from $10.59 and $11.18.

That prompted him to increase his target for Lassonde shares to $190 from $180 with a “buy” rating (unchanged). The average on the Street is $170.

“Lassonde’s defensive attributes remain undeniable while the meetings shed more light on near-term demand tailwinds and benefits from recent investments," said Mr. Tremblay. "In addition, valuation remains below the historical average despite recent share price appreciation.”


Separately, Mr. Tremblay sees Goodfood Market Corp. (FOOD-T) “well-positioned” to benefit from the increased popularity of at-home meals and online grocery shopping stemming from the COVID-19 pandemic.

Ahead of the release of its third-quarter financial position, he raised his financial expectations for the Montreal-based company.

Last week, Goodfood announced its active subscriber count jumped 44 per cent year-over-year and 11 per cent quarter-over-quarter to 272,000 in May. That exceeded Mr. Tremblay's projection of 263,400.

“Importantly, we believe COVID-19 is also driving increased demand from existing customers, both in terms of order frequency and order size as more add-on products (eg private-label grocery items) are included in the baskets. We see pluses and minuses for 3Q margins, but overall, we believe that Goodfood can sequentially narrow its adjusted EBITDA loss as the strong top line and reduced marketing spend alleviate the initial pressures on operations (labour and ingredients) caused by the surge in demand,” he said.

Mr. Tremblay is now forecasting revenue for the quarter of $78.9-million from $68.9-million previously, which is a jump of 58 per cent from the same period a year ago. His adjusted EBITDA estimate rose to a loss of $1.2-million from a $3.6-million loss, improving on a $2.9-million deficit a year ago.

“We will look for updates on several items, including: (1) post-3Q demand trends as we approach the typically slower summer season in a unique environment due to COVID-19, (2) capacity additions in the Greater Toronto Area, (3) profitability of the meal kit business after it delivered positive EBITDA for the first time in 2Q, and (4) performance of private-label grocery items and other recent product introductions," said Mr. Tremblay.

Keeping a “buy” rating, he increased his target for Goodfood shares to $5.75 from $5. The average on the Street is currently $5.27.


Raymond James analyst Stephen Boland hiked his target for goeasy Ltd. (GSY-T) shares following the Mississauga-based consumer-finance lender’s virtual annual meeting and the release of May performance results, which he said were “positive” to the outlook for the second quarter.

“Although origination volumes are increasing compared to April they are still well below 2019 figures,” he said. “This is not necessarily a sign of negative performance in our opinion. We believe management continues to focus on protecting the existing loan book and working with the customer base. As a reminder, goeasy has sufficient capital and liquidity to fund operations into late 2021.”

Though goeasy are up 147 per cent since late March, Mr. Boland still thinks there's upside to the stock from current levels.

“Since the end of 1Q20 and the near end of April, it has increased 59 per cent (versus the TSX at 17 per cent and 10 per cent)," the analyst said. "However, the increase is not unique to goeasy in the lending industry. The U.S. comparable group stock prices have increased an average of 47 per cent since the end of April as well.”

Keeping an “outperform” rating for its shares, Mr. Boland moved his target to $64.25 from $56.25 previously. The current average on the Street is $64.85.


There’s a disconnect between Capital Power Corp.'s (CPX-T) current valuation and market expectations, said Industrial Alliance Securities analyst Naji Baydoun, who sees a “compelling” buying opportunity.

He thinks the Edmonton-based power generation company now sits “well-positioned” in the Alberta market and sees its near-term contract growth plans on track.

“CPX’s Alberta merchant fleet remains well hedged in 2020, and the company expects to increase its hedged position going into 2021, which would further reduce volatility in the overall portfolio,” he said. Furthermore, we expect Alberta power prices to gradually recover into H2/20, with more normalized levels in 2021, which should support CPX’s Alberta portfolio.

“CPX’s near-term contracted growth projects include the company’s (1) Genesee coal-to-gas (CTG) conversions, and (2) several wind project developments; these initiatives are expected to support mid-single-digit near-term AFFO/share and FCF/share growth. Furthermore, we expect CPX’s ongoing re-contracting initiatives to remove any contracting uncertainty related to the Decatur and Island Generation assets, once completed.”

Mr. Baydoun also thinks its longer-term growth strategy, based on a commitment to deploy $500-million in capital per year, supporting an “overall healthy outlook.” He also suggest accretive M&A moves could add further diversification and growth.

He maintained a “strong buy” rating and $35 target for Capital Power shares. The average is $33.30.

“CPX’s shares continue to trade at a relative valuation discount to its Canadian independent power producer (IPP) peers (FY2E EV/EBITDA of 8 times, which represents an 3-4 times discount to peers),” said Mr. Baydoun. “While we acknowledge that CPX’s shares are likely to trade at a discount to peers in the near term (given lower renewable energy exposure and merchant power price risk), we believe that the current relative valuation discount is unwarranted given (1) CPX’s continued execution on its diversified growth strategy, and (2) improving Alberta market fundamentals. We estimate that CPX’s current share price reflects market expectations for much lower than previously expected Alberta power prices over the near term. In our view, it is more likely that the Alberta power market begins to modestly recover in H2/20, and potentially reaches more normalized levels in 2021. We would expect CPX’s shares to close some of the relative valuation gap with peers over time, as the company continues to successfully execute on its diversified growth strategy and as market expectations for the Alberta power market continue to improve.”


With its $332-million acquisition of eight U.S. income-producing properties, Granite Real Estate Investment Trust (GRT.UN-T) “once again outperforms on strategy execution,” said Industrial Alliance Securities analyst Frederic Blondeau.

“On June 2, the REIT closed on a $289-million equity bought deal. Taking into account the offering, the REIT was then benefiting from a liquidity position of a total of $960-million,” he said. "Pro forma the equity offering, the $500-million green bond offering, which closed on June 4, and this present acquisition, GRT’s liquidity position is currently $1.1-billion.

“In parallel, operations remain strong. As a reminder, according to management, as at May 26 the REIT was able to collect 98 per cent of rents due for the month of May (vs. 95 per cent of rents due for the month of May, as at May 13). In addition, the REIT collected 99 per cent of rents due for the month of April. Lastly, no rent deferrals or rent abatements have been granted to date by the REIT.”

Maintaining a "buy" rating for Granite units, Mr. Blondeau raised his target to $79 from $75. The average on the Street is $74.11.

“Although this might prove to be conservative given management comments, for modeling purposes we do not expect the REIT to announce new acquisitions during the remainder of 2020, and we expect the REIT to acquire $800-million in property in 2021,” he added.


In other analyst actions:

* National Bank Financial analyst Maxim Sytchev lowered Ritchie Bros. Auctioneers Inc. (RBA-N, RBA-T) to “underperform” from “sector perform” with a US$37 target. The average is $45.75.

* Scotia Capital analyst Himanshu Gupta raised Chartwell Retirement Residences (CSH.UN-T) to “sector outperform” from “sector perform” with a $12.50 target. The average is $11.43.

* In the wake of the announcement of the sale of its Blackwater project to Artemis Gold Inc., Raymond James analyst Farooq Hamed raised his target for New Gold Inc. (NGD-A, NGD-T) to US$1.50 from US$1.25 with a “market perform” rating. The average is US$1.18.

“Despite the sale valuation being in-line, we view the transaction as a positive for NGD as we do not believe the value for Blackwater was being completely reflected in NGD’s share price,” he said. “Further, with there still being something of a debt overhang on NGD, we expect the injection of $190-million (Canadian) over the next 15-18 months should reduce some of that discount.”

* Canaccord Genuity analyst Kimberly Hedlin trimmed her target for Flower One Holdings Inc. (FONE-CN) shares to $1.50 from $1.60 with a “speculative buy” rating. The average on the Street is $2.70..

“We continue to view Flower One as a leader in the Nevada market and believe the current capital-constrained environment should support the company’s strategy of providing input materials and production services to leading brands and retailers," she said. "While sales in H1/20 will likely be impacted negatively by COVID-19, we expect growth to accelerate in the back half of 2020. In our view, a key potential catalyst for Flower One remains a sale-leaseback transaction, which could provide a major boost to the company’s balance sheet while accelerating growth opportunities beyond Nevada.”

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