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

After lagging peers for several months, CAE Inc. (CAE-T, CAE-N) shares have finally “caught up,” according to RBC Dominion Securities analyst Steve Arthur, prompting him to “pause” on his rating for its stock and downgrade it to “sector perform” from “outperform” on Wednesday.

“CAE posted impressive FQ3 results, carefully navigating extreme end-market conditions while still positioning for longer-term growth,” he said in a research note. “With the recent share price spike, near-term valuation has caught up (and passed) A&D peers. With elevated uncertainty (COVID/airlines/macro) – risk/reward looks balanced at this stage. In the mid- to longer-term, we continue to like CAE’s market position, technology franchise and growth opportunities.”

Following Tuesday’s release of better-than-anticipated quarterly results, Mr. Arthur emphasized that he sees the Montreal-based flight simulator manufacturer possessing a “strong technology franchise and business model” and likes its "longer-term positioning, growth outlook and share price return potential.

“Our rating change is a reflection of recent price action and near-term valuation, with no change in our view on CAE’s fundamental outlook,” he said. We expect CAE’s competitive lead to widen in the Civil business, guided by unique and advanced technology platforms. We expect further growth in Defence and Healthcare with renewed focus, advanced product offerings and management changes. In our 5-year earnings and share price scenarios, we see CAE shares trading toward the $55 level over the next 4 years for a 15-per-cent implied compounded return. Said another way, we would continue to hold CAE positions, and get more aggressive on any near-term weakness in coming months."

Mr. Arthur raised his target for CAE shares to $30 from $27. The average target is $29, according to Refinitiv data.

“CAE shares were hit hard with the onset of COVID-19, trading in our view at an unwarranted discount to the A&D group through the summer/early fall,” he said. “In recent weeks the shares have been recovering, and then saw a sharp jump Monday (COVID vaccine news) and Tuesday (strong FQ2 results). Now, the shares again trade at a modest premium (11.8 times vs. 11.1 times calendar 2022 estimated EV/EBITDA). We see this as justified, but an aggressive stance on the stock requires either a higher premium, or materially higher earnings outlook. We are reluctant to do either in the near-term - while the vaccine developments are of course encouraging, the industry still faces several challenging quarters ahead and a gradual, multi-year recovery.”

Elsewhere, CIBC’s Kevin Chiang lowered CAE to “neutral” from “outperformer” with a $32 target, up from $26.

Others increasing their targets included:

* Desjardins Securities analyst Benoit Poirier to $32 from $24 with a “hold” rating.

“CAE reported solid 2Q results with strong sequential improvement across all three operating segments, demonstrating the resiliency of its business model,” he said. “Management also reiterated its positive FCF outlook for FY21. Nevertheless, we believe recent positive developments around a potential vaccine are already reflected in the stock price, along with anticipation around the timing of a training recovery.”

* Canaccord Genuity’s Doug Taylor to $32 from $23 with a “hold” rating.

“The print and share price reflect a quicker than anticipated rebound in civil aviation training activity levels and leads us to revise our estimates higher through the remainder of F2021 and F2022,” he said. “We note that March F2022 revenue forecasts now stand just 10 per cent off the prior peak revenue, which is commendable given the civil aviation industry exposure and speaks to the business' resiliency. With that said, there remain uncertainties in the outlook related to the employed pilot population as the airline sector finds its footing in the coming years, and the shares are now trading at 14 times F2022 EBITDA. We therefore believe the valuation is fair given a limited return to our new $32 target.”

* Scotia’s Konark Gupta increased his target to $33 from $30 with a “sector outperform” recommendation

* TD Securities' Tim James to $29 from $22 with a “hold” rating

* BMO Nesbitt Burns' Fadi Chamoun to $32 from $25 with an “outperform” rating


In the wake of “exceptionally strong” third-quarter financial results and touting its “strong” leadership, Industrial Alliance Securities analyst Frédéric Blondeau upgraded BTB Real Estate Investment Trust (BTB.UN-T) to “buy” from “hold.”

On Tuesday, the Montreal-based REIT reported funds from operations per unit for the quarter of 11 cents, exceeding the 8-cent projection of both Mr. Blondeau and the Street. Net operating income also topped expectations.

“As at November 10, management indicated that the REIT was able to collect 100 per cent of contractual rents for the period between May and September, and 98 per cent from March to September,” said the analyst.

“Management mentioned that the main rent collection challenge remains within the fashion retail segment, which represents only a small fraction of the tenancy base. More specifically, BTB’s retail portfolio consists of strip malls occupied by necessity-based tenants. Meanwhile, generally speaking, BTB’s office and retail properties have been less affected by the pandemic.”

With his rating change, Mr. Blondeau maintained a target price of $4 per unit. The average on the Street is $3.28.

“We do not expect BTB to make new acquisitions in 2020, and expect the REIT to acquire $50-million in property in 2021,” he added.


Citing an “attractive risk-weighted return potential” with apartment values “holding strong,” RBC Dominion Securities analyst Neil Downey upgraded Canadian Apartment Properties Real Estate Investment Trust (CAR.UN-T) to “outperform” from “sector perform” on Wednesday.

“We believe the business is well-positioned, via its predominately mid-tier portfolio, to navigate 6-12 months of more trying operating conditions, ahead of what we expect will be stronger fundamentals heading into 2022,” he said.

Mr. Downey increased his target to $59 from $57. The average is $56.36.

Elsewhere, CIBC’s Dean Wilkinson lowered his target to $52 from $54 with a “neutral” rating, while Raymond James' Brad Sturges increased his target to $58.75 from $55.50 with an “outperform” recommendation.


With his outlook turning from "near-term operating headwinds towards a more normalized environment in 2022, RBC Dominion Securities analyst Matt Logan raised InterRent REIT (IIP.UN-T) to “outperform” from “sector perform” after in-line third-quarter results.

“While the next 12 months will likely remain difficult, we: 1) find pockets of optimism in IIP’s Q3 results; 2) see increasing private market values; and, 3) hold a high degree of confidence in Management’s ability to navigate near-term challenges and create significant value over the medium- to long-term,” he said.

Mr. Logan maintained a $17 target, exceeding the current consensus of $16.04.

“Looking beyond the next 12 months, we see increasing immigration targets as supportive for IIP, and the multi-res sector, over the next 3 years,” he said.

Elsewhere, Scotia Capital’s Mario Saric cut his target to $16.50 from $16.75 with a “sector outperform” recommendation.

“We think vaccine development is particularly helpful for IIP given its recent above-avg. occupancy erosion from a slowdown in international immigration/students (Montreal in particular) and its decision to hold rent as much as possible,” said Mr. Saric. “As a result, we see strong re-growth resurfacing in 2021 and continuing in 2022, important for IIP’s higher trading multiple.”


Though Pfizer Inc.'s announcement about the results from its COVID-19 vaccine trials may eventually prove to be good news for Air Canada (AC-T), Citi analyst Stephen Trent warns international travel is “not out of the woods yet” and thinks the “market might be getting ahead of itself.”

“Monday’s vaccine announcement does not mean that the pandemic is over, nor does it mean that inoculation rates on the other side of international routes would be the same as they are for North America,” he said. “For example, potential supply chain challenges could include keeping vaccine doses properly refrigerated, while distributing them in tropical countries.”

Following the airline’s better-than-anticipated third-quarter results, Mr. Trent applauded its “very decent” liquidity and cost controls, however he noted its fourth-quarter capacity deployment lags U.S. peers.

“Air Canada ended 3Q with close to $8-billion in unrestricted liquidity, versus expected 4Q cash burn of just $12-million to $14-million per day,” he said. "Assuming that the Canadian flag carrier can maintain this daily rate, this equates to almost 21 months of cash burn longevity. Moreover, the quarter’s cost controls were solid, including better fuel efficiencies.

“Against the above, positive backdrop, discussions continue regarding a potential aid package from Canada’s federal government. This occurs as Air Canada plans to deploy just 25 per cent of its pre-pandemic capacity in the fourth quarter. This compares with capacity of 55 per cent for the U.S. majors and 75 per cent for Buy-rated Spirit Airlines, among other Americas-based discount carriers. Therefore, even though Air Canada’s capacity deployment remains low, relative to its North American peers, Citi generously maintains a ca. 7-8 times forward P/E fair valuation range that is in line with our stated range on Buy-rated Delta.”

Keeping a “neutral” rating, Mr. Trent raised his target for Air Canada shares to $21 from $17. The average on the Street is $23.25.

“We rate AC at Neutral primarily on uncertain short-medium term profitability due to severely depressed passenger volumes stemming from COVID-19 and the related government restrictions on travel from some of its key neighboring nations,” he said. “Valuation looks full, in our view, relative to recent historical trading levels and compared to its large U.S. network carrier peers. Given the higher uncertainty in North American aviation markets, we prefer to have more earnings visibility before getting more aggressive with Air Canada shares.”


Several equity analysts on the Street raised their target prices for shares of Pinnacle Renewable Energy Inc. (PL-T) in response to better-than-anticipated third-quarter results.

On Monday after the bell, the Vancouver-based company reported adjusted earnings before interest, taxes, depreciation and amortization of $26-million, exceeding the $19-million consensus estimate.

“PL reported its best quarterly performance, with stellar improvements in production, operations and margins,” said Desjardins Securities' David Newman.

He said the beat was “driven by: (1) strong momentum in the lumber industry (ample sawmill residual supply at lower cost); (2) record production and profitability; (3) performance gains at Williams Lake and Entwistle; and (4) $2.6-million in insurance benefits, offset by modest logistics issues at CN Rail and the Fibreco terminal ($0.6-million impact).”

After raising his 2020 and 2021 financial expectations for Pinnacle, Mr. Newman increased his target by a loonie to $11. The average on the Street is $10.10.

“With strong pellet demand, improved fibre supply conditions, operational improvements and its investments in diversified capacity, PL’s streak of higher-margin growth should continue, with the stock poised for a re-rating,” he said.

Others making changes included:

* ATB Capital Markets' Nate Heywood to $9.50 from $8 with an “outperform” rating.

“The Company reported strong results relative to our expectations and the street consensus, posting another quarter of record pellet production,” he said. “Despite negative impacts related to rail disruptions and downtime at a third-party export terminal, the Company benefitted from warmer weather, lower fibre costs and returns from capital investments. Our long-term outlook has improved given increased confidence in operational efficiency and improving margins provided by economies of scale.”

* CIBC’s Mark Jarvi to $10 from $8 with an “outperformer” rating

* National Bank’s Rupert Merer to $12.50 from $10 with an “outperform” rating

* TD Securities' Kasia Trazaski to $11 from $9.50 with a “buy” rating

* BMO Nesbitt Burns' Jonathan Lamers to $9 from $7 with an “outperform” rating


Canaccord Genuity analyst Robert Young thinks legal-software company Dye & Durham Ltd. (DND-T) is “waking the talk” and sees a “robust” M&A pipeline after better-than-anticipated first-quarter results.

“Dye & Durham’s strong FQ1 performance is testament to the fact that management is executing as stated during the IPO,” he said.

On Tuesday before the bell, the Vancouver-based company reported revenue of $21.9-million, up 29 per cent year-over-year and 54 per cent quarter-over-quarter, and EBITDA of $12.5-million. Both exceeded the expectations of both Mr. Young ($20.7-million and $12.4-million) and the Street ($20.7-million and $12-million).

“With the exception of COVID-impacted legal services, the business is performing well on all fronts,” the analyst said. "Synergies from the Stanley David Group acquisition appear to be the reason behind the outperformance with some contribution from the bolstered UK performance, which was beyond our expectations. The PIE acquisition closed on Sept 22 and had a nominal impact on FQ1. Looking ahead to FQ2, the topline is expected to fall within the range of $27-$29-million, benefiting from a full quarter of PIE contribution, with EBITDA margins consistent with recent performance at 50-60 per cent. The margin guidance is notable given the consolidation of PIE in Q2, which has a lower margin profile.

“Dye & Durham continues to be optimistic about the ability to grow through M&A. In fact, the company highlighted identifying, acquiring, integrating and operating businesses at the intersection of information services and workflow as their core business. The M&A pipeline continues to grow as DND continues to grow its M&A team to handle the higher volume and ‘increased velocity’ of potential deals.”

After raising his financial projections in reaction to the company’s “strong topline guide for Q2,” Mr. Young increased his target for Dye & Durham shares to $30 from $28, keeping a “buy” rating. The average is $27.67.

“We believe that Dye & Durham’s valuation will benefit from its ability to 1) quickly expose acquisitions to its large customer base in Canada and growing customer base in the UK, 2) apply expertise in automating and consolidating back-end systems, 3) take advantage of the market’s tendency to ascribe higher valuations to larger companies and 4) target local, niche legal software and services providers where it has limited competition,” the analyst said.


In other analyst actions:

* Expecting increased competitiveness in the Canadian market to challenge their ability to offer a profitable template while contending with liquidity issues, Stifel analyst W. Andrew Carter cut Aurora Cannabis Inc. (ACB-T) and Tilray Inc. (TLRY-Q) to “sell” from “hold.”

Mr. Carter thinks excitement around potential U.S. federal reform has driven broad undifferentiated enthusiasm, and both producers have meaningfully outperformed

His target for Aurora shares rose to $6.50 from $3.60, versus a $10.45 average. His target for Tilray slid to US$4.75 from US$6, versus US$8.41.

* CIBC World Markets analyst Cosmos Chiu raised Osisko Royalties Ltd. (OR-T) to “outperformer” from “neutral” with a target of $21, rising from $19.75. The average on the Street is $21.62.

* Mizuho cut Northland Power Inc. (NPI-T) to “market perform” from “outperform” with a $44 target, rising from $39. The average is $43.58.

* Scotia Capital’s Ben Isaacson raised his target for Methanex Corp. (MEOH-Q, MX-T) to US$42 from $36 with a “sector outperform” rating. The average is US$29.69.

“Recall methanol pricing is usually demand-driven and therefore set by downstream economics (i.e., affordability), and not marginal cost economics like we’ve seen since COVID,” said Mr. Isaacson. “While fuel blending, MTBE, biodiesel, and other energy applications now look better, perhaps the big winner for methanol will be MTO. Rising oil will pull naphtha along for the ride, and with it, raise the marginal cost of olefins production. This will give a much-needed margin injection to non-integrated MTO producers near-term, as well as integrated producers, where MTO represents about one-quarter of methanol demand.”

* Scotia’s Himanshu Gupta raised his target for Chartwell Retirement Residences (CSH.UN-T) to $13.25 from $12.50 with a “sector outperform” rating. The average is $12.32.

“We think as vaccine is distributed and as confidence is restored in senior housing, CSH could potentially trade closer to $15 in the medium-term,” he said.

* CIBC’s John Zamparo increased his target for Canopy Growth Corp. (WEED-T) to $32 from $25 with a “neutral” rating. The average is $25.53.

* RBC’s Sabahat Khan raised his target for Sleep Country Canada Holdings Inc. (ZZZ-T) to $24 from $20 with a “sector perform” rating, while CIBC’s Matt Bank raised his target to $27 from $21 with a “neutral” recommendation. Scotia’s Patricia Baker hiked her target to $32.50 from $27 with a “sector outperform” rating. The average is $29.07.

* Scotia’s Mark Neville hiked his target for Linamar Corp. (LNR-T) to $65 from $55 with a “sector outperform”, while RBC’s raised his target to $60 from $52 with a “sector perform” recommendation. CIBC’s Kevin Chiang raised his target to $56 from $47, keeping a “neutral” rating. The average is $56.50.

* CIBC’s Matt Bank raised his target for Leon’s Furniture Ltd. (LNF-T) to $21.50 from $17 with a “neutral” rating. The average is $19.25.

* RBC’s James Bell raised his target for Endeavour Mining Corp. (EDV-T) to $50 from $47 with an “outperform” rating. The current average is $48.92.

* Canaccord Genuity analyst Matt Bottomley increased his target for shares of Harvest Health & Recreation Inc. (HARV-CN) to $6 from $5 with a “speculative buy” rating. The average is $3.78.

* Deutsche Bank raised its target for TMX Group Ltd. (X-T) to $162 from $150. The average is $145.43.

* Raymond James' Jeremy McCrea raised his target for Freehold Royalties Ltd. (FRU-T) to $6 from $5.50, keeping an “outperform” recommendation, while Canaccord Genuity’s Anthony Petrucci moved his target to $6.50 from $5.50 with a “buy” rating. The average is $6.12.

“Freehold announced a 33-per-cent dividend increase to $0.02 per month starting in January (implying a 5.7-per-cent dividend yield),” Mr. McCrea said. “This comes after the dividend was cut by 71 per cent in April to focus on balance sheet strength. The company is citing pricing stability and strength in operations as drivers of the increase. We also continue to see signs of increasing activity through the fall (conversations with other management teams as well as increasing well licensing activity). Combined with limited shut-in production and higher commodity prices, there are increasing reasons to believe Freehold should do well heading into next year. With the dividend increase, leverage levels low and financing options limited for many 3rd party operators, we also think there are likely many counter-cyclical opportunities that will allow FRU to grow its FFO/sh quicker than what currently is modeled by investors and the Street.”

With a file from Reuters

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