Inside the Market’s roundup of some of today’s key analyst actions
However, after a recent discussion with its management, he sees the Calgary-based company as “well positioned (strong balance sheet, downstream business, and low cost structure) relative to its integrated cohorts.”
In a research note released Wednesday, Mr. Bouvier trimmed his projection for 2021 by 3 per cent to 775,000 barrels of oil per day from 800,000.
“Our new estimate is 2 per cent below consensus of 792 mbbl/d, so we think the Street will need to lower its forecasts,” he said. "The biggest driver of our lower 2021 estimate was the E&P division, which we lowered from 110 mbbl/d to 90 mbbl/d (down 18 per cent). Additionally, we have lowered our Fort Hills (100 per cent) 2021 production estimate from 146 mbbl/d to 141 mbbl/d (down 3%) to reflect the curtailment production limit (160 mbbl/d) extending throughout 2021 (previously we assumed it ended at year-end 2020).
With the decline, Mr. Bouvier trimmed his target to $27 from $30. The average on the Street is $28.90, according to Refinitiv data.
He kept a “sector outperform” rating and emphasized Suncor remains his top integrated pick.
“At strip, SU’s 2021 EV/DACF [enterprise value to debt-adjusted cash flow] of 6.5 times is lower than its peer group (CNQ, CVE, HSE, and IMO) average of 7.4 times," he said. "Further, SU has a strong balance sheet with D/CF [debt to cash flow] of 2.8 times versus its peer group average of 4.2 times. At US$50/bbl WTI, SU’s DAFCF Yield of 8.5 per cent is in line with its integrated peers. We recommend SU for its solid balance sheet and low break-even (can cover sustaining capex and dividend at $42/bbl WTI, assuming strip prices for other benchmarks).”
Shopify Inc.'s (SHOP-N, SHOP-T) new product launches put it on a path for significant merchant, gross merchandise volume and revenue growth stemming from the shift to a well-built retail operating system, said. Wedbush analyst Ygal Arounian.
On Wednesday, he raised his rating for the Ottawa-based e-commerce firm to “outperform” from “neutral," noting the COVID-19 pandemic has put strains on supply chains and led to the increasing importance of its Fulfillment Network.
“We continue to see the pull-forward in ecommerce trends as being sustainable over time, driven in large part by ongoing changes to consumer habits," said Mr. Arounian, who added its Point of Sales (POS) system will help it diversify beyond e-commerce and expand its available market.
He hiked his target to US$1,300 from US$998. The average on the Street is US$1,099.72.
The magnitude of the sell-off in Lundin Mining Corp. (LUN-T) shares “appears to be an overreaction to the recent slew of negative news from the company,” said Scotia Capital analyst Orest Wowkodaw, noting an 8.3-per-cent decline in price in the first two trading days of the week has wiped out a “significant” $470-million in market capitalization.
On Tuesday, Lundin announced its Chapada mine in Brazil will return to full processing capacity following a weekend power outage within 60 days, which is sooner than Mr. Wowkodaw’s initial 3-4 month estimate.
He called the update a “positive” for Lundin shares.
“We estimate the total negative FCF impact of the incident at only $50-million,” he said. “Our updated 8% NAVPS declined by a minor 1 per cent.”
Keeping a “sector outperform” rating, he trimmed his target to $8.75 from $9 due to “slightly reduced” estimates. The current consensus is $9.87.
Elsewhere, BMO’s Jackie Przybylowski raised his target to $12.75 from $12.50 with an “outperform” rating.
First Mining Gold Corp.'s (FF-T) Pickle Crow project in northwestern Ontario is exhibiting “various high-grade characteristics,” said H.C. Wainwright & Co. analyst Heiko Ihle in reaction to Tuesday’s release of initial drilling results.
“We highlight a series of intercepts from the current drill program that display potential for high-grade gold mineralization at site,” he said. “Notably, hole AUDD0017 returned 99.35 grams per tonne (gpt) gold over 0.6 metres, which included a sub-interval consisting of 181 grams per ton (gpt) gold over 0.3 metres. Additionally, hole AUDD0013 returned 24.45 gpt gold over 1.7 metres, including 122.0 gpt gold over 0.3 metres. We highlight the spatial context of these holes, which also illustrates the untested potential of a variety of vein extensions throughout the property.”
However, following completing bought deal financing for proceeds of $28.8-million in late August, Mr. Ihle trimmed his target for the Vancouver-based company’s shares to $1.20 from $1.40 with a “buy” rating (unchanged). The average on the Street is $1.22.
“We remain excited about First Mining advancing its Springpole project amid the recently closed bought deal and silver stream financing that should support the completion of its PFS and the environmental assessment,” he said. We also look forward to additional drill results from Pickle Crow as Auteco appears to continuously intensify its exploration efforts at the site with expectations of publishing an updated resource in early 1H21."
Though its third-quarter results were “solid,” Desjardins Securities analyst John Chu cautioned Heritage Cannabis Holdings Corp. (CANN-CN) now faces “challenging” conditions in its attempt to maintain sales momentum.
“Heritage is poised to seize some cannabis 2.0 market share as it works to differentiate itself from peers by offering its own proprietary products,” he said. “Despite reducing our forecast and the continued soft market conditions, we expect strong sales growth, driven by recent supply agreements and the launch of its own branded products. Execution and market uptake will be key in determining whether it can meet our sales expectations.”
On Tuesday, the Vancouver-based company reported net sales of $2.4-million, exceeding Mr. Chu’s $1.9-million forecast. He calculated an adjusted EBIDA of a $0.2-million loss, which is also better than his projection (a loss of $1.4-million).
“It appears Heritage’s management team has done its job of reducing expenses, and it is shifting its focus to creating sustainable cash flow and revenue by launching new proprietary products and entering into distribution agreements province by province (Purefarma and Pura Vida branded vapes and tinctures became available in Manitoba and B.C. in September),” he said. “Heritage hopes to have its products placed in additional provinces and expand its product offerings in Manitoba and B.C..”
Though the results topped his expectations, Mr. Chu trimmed his forecast to account for a “soft” environment.
“With the company currently in a transition period as it ramps up its own product sales, the likelihood that COVID-19 will continue to negatively impact its near-term revenue outlook and the continued soft demand for extraction services (as indicated by other extraction peers as well), we have taken a more conservative approach with our near-term sales forecast,” he said. “We are still forecasting very strong growth for FY21 and FY22, driven by recently announced supply agreements as well as the company’s own branded products. We reduced our margin assumptions to reflect lower utilization rates and product mix.”
Keeping a “buy” rating with a “speculative” qualifier, Mr. Chu, who is currently the only analyst on the Street covering the stock, lowered his target for Heritage shares slid to 35 cents from 45 cents.
“While market conditions remain soft, we are encouraged by recent contract wins and Heritage’s move to sell its own branded products, which should help insulate sales from recent industry volatility,” he said.
Micron Technology Inc.'s (MU-Q) “solid” fourth-quarter results were overshadowed by weaker-than-anticipated guidance as it deals with the loss of revenue stemming from the U.S. government’s restrictions on Huawei, according to RBC Dominion Securities analyst Mitch Steves.
After the bell on Tuesday, the Idaho-based semiconductor company reported revenue and earnings per share of US$6.056-billion and US$1.08, respectively, beating the consensus forecast on the Street of US$5.89-billion and 98 US cents. However, its guidance for the next quarter of a range of $5-$5.4-billion and 40-54 US cents fell short of projections (US$5.27-billion and 66 US cents).
“Overall, there were numerous moving parts including: 1) Micron stopped shipments to Huawei in September 14 (two weeks into Nov. quarter) and guidance assumes no license is granted nearterm, 2) PC demand is healthy (chromebook as an example), however component shortages - not Micron but broadly - are impacting units, 3) Enterprise continues to be weak across the board which includes/ isn’t limited to O&G, Hospitality, Airlines and Media/Entertainment, 4) Hyperscale/cloud may slow a bit in the next two quarters and ramp in 2HFY21E, and 5) mobile demand is now healthy as supply chain issues caused units to shift a bit as 2020 was down 10 per cent more than expected due to COVID-19 issue,” he said.
Mr. Steves said he continues to see calendar 2021 as a year “where cyclical stocks begin to see improvements,” leading him to maintain a positive view on Micron despite expecting fiscal 2021 to be “mre back half weighted.
Keeping an “outperform” rating for its shares, he trimmed his target to US$57 from US$60. The average is US$62.89.
Elsewhere, Citi analyt Christopher Danely closed a negative catalyst watch on the stock, calling the results “strong.” He kept a “sell” rating and US$35 target.
“We reiterate our Sell rating as the DRAM double dip is ongoing, however, we could become more positive on MU stock if we believe a sustainable upturn could occur – a key point being lower inventory at Micron,” he said.
Quisitive Technology Solutions Inc.'s (QUIS-X) partnership with Microsoft “should not be underestimated,” said Raymond James analyst Stephen Boland following hosting institutional calls with the Toronto-based firm’s management on Tuesday.
“Management provided an update regarding the recent acquisitions on the core consulting business and the LedgerPay product that was developed by QUIS. This is a new disruptive product in the payment processing industry which provides customer analytics for merchants, all created to operate in a cloud environment,” he said. “We came away from the discussions with a higher understanding about how deep the relationship with Microsoft is in the consulting business and the development of LedgerPay. Management is confident the overall revenue runway should be multiple times higher over the next several years. Overall, the calls were positive, and we believe institutional support should increase over time.”
Mr. Boland kept an “outperform” rating and $1.10 target. The average on the Street is $1.25.
Lake Street Capital analyst Robert Brown said Ballard Power Systems Inc.'s (BLDP-Q, BLDP-T) analyst day increased his confidence that a “meaningful future market penetration rates are achievable,” citing its “leading technology, key strategic relationships with market leaders, and a unique market position.”
“The company highlighted the growing demand in several markets including the European and U.S. transit bus market, the China truck market, and the marine and rail markets,” he said. "Long-term policy supports in these markets have increased substantially over the past 12-18 months and commercialization efforts are ramping nicely. Ballard has a well-developed strategy for each of these markets, including JV’s and partnerships (Weichai and MAHLE) as well as direct relationships, and it should see growth accelerate.
“The company laid out a vision of a long-term opportunity of becoming a $5B+ revenue business generating 20-per-cent EBITDA margins over the next 10 years, which is based on Ballard having a 20-per-cent share of the fuel cell market that reaches 20-per-cent penetration rates in targeted bus, truck, marine, and rail markets. A number of pieces need to fall into place, but recent policy actions in China (a goal of 1 million fuel cell vehicles deployed by 2030), Europe (a 30-per-cent reduction in truck CO2 emissions by 2030), and California (100-per-cent zero emission trucks and busses by 2040) set the stage for rapid growth in the next few years.”
Mr. Brown kept a “buy” rating and US$20 target. The average on the Street is US$20.47.
NuVista Energy Ltd.'s (NVA-T) successful renegotiation of its Minimum Volume Commitments (MVCs) removes “a key overhang” for the stock that has limited new buying interest, said Raymond James analyst Jeremy McCrea.
On Tuesday, Calgary-based NuVista announced a 20-per-cent reduction in near-term commitments, allowing it to maintain annual average production volumes flat at current levels through 2021.
“Although the ‘value’ of the MVC is unchanged, flexibility near-term for NVA, offset by a longer contract, is ultimately a ‘win/win’,” said the analyst. "With unit costs now expected to remain stable and indication that NVA’s partners are pragmatic as well, leverage concerns continue to abate.
“Overall, the announcement should provide a near-term boost in confidence. Not only was the MVC reduced for the next two years by 50 mmcf/d but the company also laid out a 5-year plan with updated well economics. With updated results, Pipestone wells now look to reach payout in under 1-year (US$45/bbl WTI) and under six months at US$50/bbl. With infrastructure in place to supply up to 90 mboe/d (vs. current production at ~50 mboe/d), corporate profitability should swing closer to half-cycle economics (vs. prior years that saw meaningful capital (and debt) directed toward infrastructure build-out). With the 5-year plan (US$50/bbl) showing debt falling to 0.5 times D/CF [debt to cash flow] come 2024 (and production up to 70 mboe/d), we believe these metrics should give NVA’s share price a large boost. Convincing investors today of this scenario is an entirely different challenge. In our view, the company’s acreage is top quartile and should be able to provide this level of growth, so long as commodity prices remain stable.”
Mr. McCrea maintained an “outperform” rating and $1.25 target. The current average target on the Street is $1.22.
Elsewhere, ATB Capital Markets analyst Patrick O’Rourke kept a “sector perform” rating and $1.50 target.
Mr. O’Rourke said: “The Company was successful in conveying a more prudent and sustainable path under current commodity market conditions, while preserving the ability to grow when conditions are more conducive to growth. NVA had recently highlighted during our ATB Feel the Energy Conference that it was having ‘great conversations’ with its midstream partners on the MVCs.”
In other analyst actions:
- Cowen and Company analyst Oliver Chen upgraded Canada Goose Holdings Inc. (GOOS-T) to “outperform” from “market perform” with a $49 target price, rising from $31. The average target on the Street is $36.83.
- CIBC World Markets analyst Mark Jarvi lowered his target for Just Energy Group Inc. (JE-T) to $14 from $16.50 with a “neutral” rating (unchanged). The average is $11.95.
- Benchmark raised its target for Teck Resources Ltd. (TECK-N, TECK.B-T) shares to US$18 from US$14. The average is US$22.81.
- UBS analyst Thomas Wadewitz raised his target for Canadian National Railway Co. (CNR-T) to $150 from $132 and Canadian Pacific Railway Ltd. (CP-T) to $451 from $409. The averages on the Street are $123.91 and $405.31, respectively.
With a file from Reuters