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

RBC Dominion Securities analyst Kate Fitzsimons thinks Canada Goose Holdings Inc. (GOOS-T) is likely to be a beneficiary of the work-from-home world as customers seek to spend more time outside as temperatures decline this winter.

“We don’t expect a retrenchment and are encouraged by recent comments out of [Columbia Sportswear Co.] that its business is seeing an earlier pickup in winter category demand,” she said. “We’d also call out recent positive commentary out of Saks Fifth Avenue, which is seeing flat to slightly positive B&M trends in the last 90 days and strong double-digit online growth. This speaks to the resilience of luxury given the customer’s greater insulation from economic uncertainty and benefits of the splurge/feel good factor.”

In a research note released Wednesday, Ms. Fitzsimons attributed a 37-per-cent jump in its U.S.-listed shares over last six weeks to outerwear tailwinds, increased ecommerce exposure and moderating inventories. She also maintained her view that the company’s growth in China is likely to support a top line recovery, "particularly as category seasonality kicks in into cooler weather. "

“We note Tmall [online marketplace] saw 17-per-cent growth in apparel and ‘cross-border e-Commerce Import’ spending up 29 per cent year-over-year from April-June,” he said. “This metric captures overseas tourism spending that is being ‘on-shored.’ With GOOS well positioned on Tmall (called out as one of the top luxury brands on Tmall during Singles Day in the past), we expect the brand is well positioned in the Mainland as we enter cooler weather periods, especially with four more stores in China this year as the brand reaches that Mainland customer closer to home.”

After raising her earnings per share projection for fiscal 2022 to $1.46 from $1.40, Ms. Fitzsimons increased her target for Canada Goose shares to $47 from $43. The average is currently $38.67.

She maintained an “outperform” rating for Canada Goose shares.

“Prior to COVID, the biggest pushback we got on GOOS was valuation in that ‘what are you going to pay for a slowing growth story?,’” she said. "With COVID-related sales and profitability disruptions, GOOS strikes us as a recovery story here, with realistically brand heat and momentum headed into COVID (FY20 was on target to do 20 per cent-plus top line growth). To that end, we see the moves the team is making on China, ecommerce, the Direct channel, and wholesale health as the right strategic moves to allow for a return to a superior top line profile over time.

“Following the more recent move (shares now trading at 29 times FY2 PE), we see some further room on the multiple (our target applies 32 times) particularly as we enter the seasonally important fall and holiday seasons and we enter a period of potential positive revisions with: 1) September quarter numbers talked down; 2) holiday benefits from a Directheavy period (and China being further along), and 3) we lap the March quarter writedown on the Chinese consumer not traveling during COVID. We’d also note from a catalyst perspective normalizing inventories with GOOS targeting inventories down year-over-year after several quarters of an overhang with an outsized future sales to inventory spread.”

Elsewhere, Barclays analyst Adrienne Yih increased her target to US$32 from US$30 with an “overweight” rating.


When AutoCanada Inc. (ACQ-T) releases its third-quarter financial results early next month, Canaccord Genuity analyst Luke Hannan expects to see “continued outperformance” in the Canadian market.

“After a challenging first half of the year due to COVID-19, Desrosiers data indicates that the Canadian new car market inflected back towards positive year-over-year unit sales growth in September, up over 2.4 per cent from September 2019,” he said. “Although sales of all light vehicles were down nearly 4 per cent year-over-year in Q3/20 in the Canadian market, we expect AutoCanada will continue its trend of outperforming the market (as it has for the past six consecutive quarters) with its Q3/20 results. Supporting our belief that the company has continued its impressive track record in the new car market during Q3/20 is management’s commentary during the Q2/20 earnings call that total retail volumes (i.e. both new and used units) were up 19 per cent year-over-year in July. We are forecasting year-over-year same-store new car sales growth for Q3/20 of 5.0 per cent.”

Mr. Hannan also thinks dealership closures for the most of the second-quarter has brought increased consumer demand for service appointments and lease activity, which are higher margin areas of the business versus new and used cars.

“Accordingly, we are forecasting 5.0 per cent year-over-year same-store sales growth within the Parts, Service & Collision Repair (PS&CR) segment and 15.0 per cent year-over-year same-store sales growth in the Finance & Insurance (F&I) segment,” he said. “We are forecasting SG&A (excluding depreciation) as a percentage of gross profit of 76.7 per cent, up 100 basis points year-over-year, but down over 12 percentage points from Q2/20.”

Overall, the analyst is projected EBITDA for the quarter of $37-million, exceeding the $31-million consensus on the Street and “well” above the $32-million result during the same period a year ago. His earnings per share forecast of 43 cents also tops both (33 cents and a 15-cent loss).

After increasing his 2020 and 2021 earnings projections, Mr. Hannan hiked his target for AutoCanada shares to $22 from $18, keeping a “buy” rating. The average target is $20.18.

“We believe the realignment of AutoCanada’s business following the implementation of the Go Forward Plan to focus on developing the higher-margin and economically resilient operating segments will reward investors with stable earnings growth going forward,” he said. “Further, we believe AutoCanada’s introduction of a digital used car retailing strategy in Canada offers investors potential trading multiple upside.”


Citi’s Adam Spielman expects Philip Morris International Inc. (PM-N) to soon raise its volume targets for their increasingly popular smoke-free offerings, also known as Reduced Risk Products (RRPs).

Seeing that imply “an acceleration in its transformation and reinforcing expectations that organic sales growth will remain considerably above 5 per cent, probably about 6-7 per cent,” the equity analyst upgraded the company to “buy” from “neutral” and made it his preferred name in U.S. tobacco.

“PM’s current 3-year target for Reduced Risk Products is for 90-100 billion sticks in 2021. We expect a new multi-year target will be announced next year, perhaps for 150-200 billion sticks equivalent for 2024,” he said. " We are bullish because PM has consistently said that it hopes to sell more than 250 bln sticks in 2025

“This ‘aspiration’ has been published in ESG reports. It isn’t in consensus or in the price (as far as we can tell) but PM says it wants to be judged on it. We expect a burst of innovation in the next few quarters to help. (PM is due to launch Veev, its equivalent of Juul, at scale in Europe in 4Q20. We also expect that PM will upgrade iQos, introducing induction heating. Two further major technologies (Teeps and Steem) are being tested, implying full scale launches during 2021-22.).”

Mr. Spielman is now projecting Philip Morris to sell 175 billion sticks of RRPs by 2024, driving organic sales growth of 6-7 per cent and earnings per share growth of 11-12 per cent annually.

Also expecting the company to exceed its “conservative” third-quarter guidance when it reports on Oct. 16, he raised his target for its shares to US$100 from US$82. The average target is US$88.38.

“Most investors attribute the falls in tobacco to ESG-related flows; they worry that as ESG becomes bigger, the flows will get worse,” he said. “However we think the central issue has been the increase in the equity market’s duration. (This explains why tech has done so well and tobacco so badly.) This means we think the prime driver of tobacco’s underperformance has been a type of rotation, which will rotate back sooner or later, not a one-way move into ESG funds. Unless PM derates further, the EPS growth we expect (plus the dividend yield) should result in nice returns. If it rerates, which is certainly possible, the returns could be exceptional.”


Ahead of the release of its third-quarter results on Oct. 15 after the bell, ATB Capital Markets analyst David Kideckel reduced his financial expectations for The Valens Co. Inc. (VLNS-T) due to weakness in its extraction business.

“We believe that the Company’s revenue outlook will be impacted by lower revenue from their tolling (extraction) segment due to excess inventory levels in the Canadian cannabis market (possibly to be worsened by the oncoming ‘croptober') and the constricted liquidity position of Canadian LPs,” he said. “In this instance, given the lumpiness of the tolling segment and Valens’ strategy to prioritize product sales (mainly custom manufacturing and white-label), we have further reduced our long-term estimates for the tolling segment.”

Mr. Kideckel emphasized the long-term outlook for the Kelowna-based company is highly dependent on product sales.

“Our bull thesis is driven by Valens' ability to sign product sales agreements with CPG companies, as well as its differentiated manufacturing capabilities, including its five different types of extraction, some of which carry higher margin potential (e.g. Hydrocarbon),” he said. “As the Canadian cannabis industry transitions to more cannabis derivative products, we believe Valens' capabilities to manufacture a wide range of differentiated products will lend it a top spot among Canadian extractors. In Q3/FY20, Valens manufactured 56 white label and custom manufacturing product SKUs, a 56-per-cent increase from 36 SKUs in Q2/FY20, including a diverse set of formats such as vapes, oral sprays, beverages, and concentrates.”

The analyst trimmed his adjusted EBITDA projection for the quarter to $0.2-million from $0.4-million.Keeping an “outperform” rating, he lowered his target to $5.30 from $6.50. The average on the Street is $4.90.

“Valens continues to move towards CPG customers and custom manufacturing (16 contracts to date), and we believe that this pivot will enable Valens to resume its visibility on overall profitability,” he said.


Though it continues near-term headwinds stemming from the COVID-19 pandemic, Canaccord Genuity analyst Derek Dley expects Maple Leaf Foods Inc. (MFI-T) to see year-over-year margin growth when it reports third-quarter results on Oct. 27.

For the quarter, Mr. Dley is forecasting EBITDA of $94-million and earnings per share of 20 cents. Both fall short of the consensus expectations on the Street ($98-million and 24 cents).

“We are forecasting healthy growth at the [Meat Protein Group], with revenue up 6 per cent year-over-year to $1.010-billion, driven by continued strength in the company’s sustainable meats platform in the U.S. and Canada, which generates higher margins than the company’s legacy business,” he said. "However, while sales into China roughly doubled year-over-year during Q2/20, caution around COVID-19 limited exports into China during Q3/20, which has tempered our previous revenue and margin growth assumptions somewhat.

“Importantly, Maple Leaf commented on its Q2/20 earnings call that initiatives related to COVID-19, such as increased sanitization procedures, and reduction in staff in its processing facilities at any given time, are likely to add a total of $25-million in incremental costs over the back half of 2020. Furthermore, we believe the company faced some incremental inefficiencies related to labour shortages due to the heightened anxiety around COVID-19. As a reminder, COVID-19 related initiatives led to a $19-million increase in costs during Q2/20.”

In a research report released Wednesday, Mr. Dley trimmed his earnings and revenue projections for both 2020 and 2021, however, he maintained a “buy” rating and $42 target for Maple Leaf shares. The average is currently $35.56.

“In our view, Maple Leaf continues to offer long-term investors an attractive growth profile at an inexpensive valuation, given the company’s leading market share, strong balance sheet, and high-quality brand portfolio,” he said.


Vancouver-based CubicFarm Systems Corp. (CUB-X) entered an “attractive niche market” with the sale of its automated, controlled-environment system to Agragene Inc., a U.S. ag-tech company, according to Raymond James analyst Steve Hansen.

“According to the press release, Agragene intends to use the growing machine to rear its proprietary insect lines in a highly-controlled indoor environment. While this single unit deal is admittedly small from a financial perspective, we believe it carries broader positive implication,” he said.

“This sale represents an exciting new market vertical for Cubic’s fresh produce system, significantly bolstering the product’s total addressable market (TAM). While the scale of the broader insect-rearing (alternative protein) opportunity is still relatively small/niche vs. the company’s key target market (i.e. fresh produce), we still regard it as highly attractive given the compelling long-term fundamentals underpinning robust growth (animal/fish feed substitution). To this end, we highlight the tsunami of capital flowing into the alternative protein sector over the past 2-3 years, including bellwether companies such as Ynsect, Enterra Feed, AgriProtein, Enviroflight, Protix, and Entomo Farms (among others).”

Though he said the initial order was small, Mr. Hansen sees the potential for additional upside over time, as Agragene hinted at expanding its insent factory with “multiple” new machines.

Mr. Hansen, currently the lone analyst on the Street covering the stock, kept a “strong buy” rating for CubicFarm shares without a specified target.

“We believe Cubic is poised to demonstrate robust revenue growth throughout our forecast horizon based upon its proprietary technology portfolio, unique business model, strong/growing backlog, and rapidly accelerating sales momentum,” he said.


Pointing to “a number of near-term catalysts, including potential for a maiden dividend,” BMO Nesbitt Burns analyst Alexander Pearce initiated coverage of Champion Iron Ltd. (CIA-T) with an “outperform” rating and $4 target, exceeding the $3.81 consensus.

“Champion is a Canadian iron ore miner that delivered a low cost restart of the high-grade Bloom Lake mine in 2018,” he said.

“Its near-term potential for 90-per-cent production growth and solid margins drive attractive trading multiples, such as 0.8 times P/NPV and 2.2/4.1 times FY21/22 EV/EBITDA. Further, its high grade 66-per-cent iron product offsets much of its natural cost disadvantage as steel mills look to improve environmental controls.”


In other analyst actions:

  • Scotia Capital analyst Jeff Fan cut his target for Cineplex Inc. (CGX-T, “sector outperform”) to $11, matching the current average on the Street, from $14.
  • National Bank Financial’s Cameron Doerksen increased his target for TFI International Inc. (TFII-T, “outperform”) to $68 from $66. The average is $65.58.
  • TD Securities analyst Cherilyn Radbourne raised her target for Methanex Corp. (MEOH-Q/MX-T, “neutral”) to US$29 from US$21, exceeding the US$27.71 average.
  • TD’s Brian Morrison hiked his target for Canadian Tire Corporation Ltd. (CTC.A-T, “action list buy”) to $165 from $150. The average is $138.
  • PI Financial initiated coverage of Red White & Bloom Brands Inc. (RWB-CN) with a “buy” rating and $2.50 target.

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