Inside the Market’s roundup of some of today’s key analyst actions
Canaccord Genuity analyst Aravinda Galappatthige expects Shaw Communications Inc. (SJR.B-T) to report “steady” third-quarter EBITDA after the bell on Friday as cost reduction initiatives offset lost revenue.
The analyst is projecting consolidated EBITDA of $582-million for the quarter, up 2.8 per cent year-over-year. He estimates a 4-per-cent decline in cable revenue will be offset by cost-cutting and “strength” in wireless due to lower cost of acquisitions.
“We do note, however, that Q3/19 included a one-time IP related expense item of $15-million,” said Mr. Galappatthige. “Excluding that and the accounting change our EBITDA estimate represents flat growth year-over-year. Our EPS (ops) at $0.29 is in line with consensus of $0.30. In terms of FCF we have $180-million versus $174-million in the prior year. We note, however, that our estimates do not include any possible bad debt provisions relating to COVID-19.”
Though he emphasized Shaw’s wireless subscription adds were “significantly” impacted by COVID-19, Mr. Galappatthige remzins “quite position” on the segment’s outlook.
“As retail locations reopen, we expect that Freedom will be well positioned to take advantage of the pent-up demand and larger free-agent base, especially given the company’s affordable offerings and handset discounts,” he said. “That being said, we expect management will be judicious and focused more on profitability than just driving subscriber adds.”
After “modest” increases to his 2020 and 2021 EBITDA projections, Mr. Galappatthige increased his target by a loonie to $27, keeping a “buy” rating. The average is $27.32.
“We believe investors will be interested in more color around Shaw’s pricing strategy in cable as the company made bold moves during the quarter to realign wireline pricing in the West to what we see in the East,” the analyst said. “The key questions are around the near-term subscriber losses caused by the sharp pricing differential vs the Telco competitor, but also the likelihood of these moves translating to better economics over the longer term. We believe the differentiated competitive dynamics that exist today vs the past (due to the prospect of Shaw wireless in the west) as well as other realities suggest that there is a good probability of the Western provinces moving toward a more disciplined pricing structure over the medium term.”
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In a separate note, Mr. Galappatthige trimmed his target for shares of Cineplex Inc. (CGX-T) in response to its proposed $275-million convertible debenture offering.
However, he said the issuance, announced Tuesday, does provide the company “some breathing room.”
“Based on our revised estimates, which assume a successful take-up of the base $275-million (at $10 strike price), Cineplex’s net debt levels ease back to 2.4 times net debt (excluding converts)/LTM [last 12-month] EBITDA by year-end 2021, well below the revised down covenant for that point in time of 3 times,” he said. “This, in our view, should provide adequate room for Cineplex to navigate the company back to stability by the back-end of fiscal 2021. We note, however, that our F2021 forecasts assume a 15-per-cent decline in box office over 2019. While a moderate variance to this can be managed due to the flexibility on the opex front, a more serious 30-per-cent box office decline (vs 2019) could potentially cause the leverage ratio to rise close to 3x even as of Q4/21.
Mr. Galappatthige cautioned near-term risks for Cineplex remain “meaningful,” however he sees “material longer-term upside.”
“While there is material near-term risk given the marketed nature of the convertible debenture offering, we continue to believe that there is meaningful upside if the financing is successfully negotiated,” the analyst said. “This is based on our view that Cineplex can revert toward $200-million in EBITDAal post F2021, even in the backdrop of some persisting attendance losses, due to flexibility on the cost side and growth in non-theatrical businesses.”
Maintaining a “speculative buy” rating, he lowered his target to $11 from $12. The average on the Street is $14.19.
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CloudMD Software & Services Inc. (DOC-X) is poised to benefit from the rise of telehealth brought on by the COVID-19 pandemic, according to Industrial Alliance Securities analyst Rob Goff.
He initiated coverage of the Vancouver-based company with a “speculative buy” rating.
“We believe the COVID-19 crisis has irreversibly fast-forwarded the development of a vibrant telehealth industry by 3+ years clearing the previously daunting hurdles of regulatory reform and adoption by physicians and patients alike,” said Mr. Goff. “We forecast that telehealth billings will surpass the billion-dollar threshold (still less than 2.5% of the market) within the next five years. We look for the traditional healthcare services model to transition to an integrated in-clinic, online digital model facilitating improved patient care with significantly improved physician availabilities. We look for integrated physical and online capabilities to become the standard for care. Ultimately, the healthy scenario we foresee rests on the ability of telehealth to better serve the needs of patients, physicians, and public policy.”
Mr. Goff sees Amazon.com Inc.‘s (AMZN-Q) moves toward the healthcare market “as endorsement for the sector’s demographic growth prospects, a threat to legacy models, and a catalyst to consolidate the ecosystem towards larger, vertically integrated providers.”
“These considerations support our bullish thesis towards CloudMD’s integrated healthcare platform development. Marquee partnerships with IBM (IBM-N) along with the Jim Pattison Group attest to management’s strength while contributing towards the development of differentiated technology and distribution capabilities,” he added.
In justifying his rating, Mr. Goff said CloudMD has built an integrated healthcare platform on a modest capital outlay that brings “patient showcase capabilities and a significant competitive advantage in its low-cost B2B and B2C distribution capabilities.”
He set a target of $1.40 per share. The average is $1.43.
“We believe the current enterprise value at $86.1-million significantly undervalues the economic potential within CloudMD’s portfolio and strategy,” he said.
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Ahead of the release of its second-quarter results on Friday before the bell, Raymond James analyst Michael Glen lowered his estimates for MTY Food Group Inc. (MTY-T) to “more fairly reflect performance through an incredibly difficult period.”
His same-store sales growth projection slid to a decline of 65 per cent from a 50-per-cent drop previously. His international SSSG estimate slid to negative 50 per cent from negative 30 per cent.
"These are extremely difficult figures to forecast given the unique circumstances during the 2Q and it is difficult to gauge how much investors will even focus on the 2Q SSSG numbers," siad Mr. Glen. "That said, we would note that given market commentary surrounding the performance of the U.S. pizza segment during COVID (i.e., Domino's Pizza indicated U.S. SSSG was up 14 per cent from Mar 23-May 17, Papa John's indicating 28-per-cent North America SSSG in Apr-Jun), we suspect investors will be very focused on the performance of Papa Murphy's (note that Papa Murphy's will not be included in MTY's consolidated 2Q SSSG given timing associated with the transaction)."
Based on those changes, he lowered his EBITDA forecast to $9.2-million from $16.6-million.
"Again, we would stress that this figure will be very difficult to forecast in period with a number of moving parts, which includes any implications surrounding the timing of franchisee royalty payments, previously indicated royalty deferrals in place, or any obligations arising with landlords," said Mr. Glen.
"The single most important area of focus for us for 2Q will be the free cash generation (MTY guided FCF of negative $10-million for 2Q) and any updated free-cash outlook (MTY previously discussed a neutral free-cash generation during 3Q). This is particularly important given the balance sheet and where the company's financial covenants sit."
Mr. Glen maintained a “market perform” rating and $26 target. The average on the Street is $27.33.
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H.C. Wainwright & Co. analyst Heiko Ihle sees a number of catalysts supporting stronger uranium prices, leading him to raise his target price for shares of Fission Uranium Corp. (FCU-T).
“While uranium spot prices have traded mostly around $25 per pound since early 2016, valuations ultimately picked up in early March 2020,” he said. “By April, uranium spot values first exceeded $30/lb and spot prices since then have remained around $33/lb. We believe two key catalysts have supported these higher prices in recent months. In particular, the spread of COVID-19 has caused several top producers to curtail production, while a recent Section 232 investigation has led to the creation of the Nuclear Fuel Working Group that recently recommended the creation of a $1.5-billion Nuclear Supply of domestically produced uranium. While Fission’s Patterson Lake South (PLS) project is located in Canada,we nonetheless believe that Fission could potentially benefit from the United States seeking sources of uranium in geopolitically safe jurisdictions outside of Russia and Kazakhstan.”
Keeping a “buy” rating, Mr. Ihle moved his target to 40 cents from 30 cents. The average is $1.15.
“Looking ahead, we expect the company to complete a share consolidation, in addition to listing the firm on a major exchange, which could open the company up to a wider demographic of investors,” he said.
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Seeing limited upside and viewing its shares as fairly valued, Citi analyst Jill Shea lowered American Express Co. (AXP-N) to “neutral” from “buy.”
"We appreciate the resilience of the business model, but expect top line headwinds," she said. "Pre-COVID-19, AXP was amongst the best-performing stocks in our universe helped by both strong TBV growth and strength in the relative valuation multiple in light of accelerating revenue growth. In the aftermath of COVID-19, AXP shares have also held up well with greater resilience in the model and lower credit risk. While difficult to time, we expect card stock performance to be driven by positive stock valuation re-rating and against this backdrop, we see less relative upside with AXP trading with the lowest cost of equity of the card names."
Ms. Shea trimmed her target to US$105 from US$110. The average on the Street is US$104.91.
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In other analyst actions:
* CIBC World Markets analyst Bryce Adams initiated coverage of Teranga Gold Corp. (TGZ-T) with an “outperformer” rating and $18 target. The average target is $14.90.
“In our view, current trading levels offer an attractive entry point ahead of the Sabodala-Massawa Complex PFS, expected in Q3/20,” he said. “We believe that successful Sabodala- Massawa integration and steady-state production at Wahgnion are key for a valuation re-rate in the near term.”
* Morgan Stanley raised Canadian Natural Resources Ltd. (CNQ-T) to “overweight” from “equal-weight” with a $32 target, up from $24. The average on the Street is $29.90.
* The firm cut Imperial Oil Ltd. (IMO-T) to “equal-weight” from “overweight” with a $25 target, rising from $22 and above the $22.72 average.
David Leeder