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

Canadian telecommunications companies have reached an “inflection point” in the battle for dominance in the wireless market after a “rough” two-year stretch, according to Canaccord Genuity analyst Aravinda Galappatthige.

“In 2020, total returns in Telecom posted negative 5 per cent (including dividends) while the market cap weighted price declines were 10 per cent in comparison to a gain of 2 per cent for the S&P/TSX. This was the second successive year the sector underperformed the index, and materially so (2019 was over 900 basis points),” he said.

“The underperformance was largely due to a) continued weakness in wireless, with the pandemic adding incremental pressure, leading to greater downward earnings revisions than the Street would have originally expected and b) a shift in investor preferences toward growth-oriented stocks and sectors.”

In a research report released Wednesday previewing 2021 in the sector, Mr. Galappatthige said he thinks “we may be bottoming out as far as incumbent wireless fortunes go” and suggests investors adjust accordingly.

“In our view, the recent pressure on the sector was owing to a combination of factors, namely a) government and regulatory b) the financial J-curve triggered by the introduction of unlimited c) elevated competitive intensity which has driven down pricing (and the value of data), and d) the downturn in roaming and data overage owing to the pandemic,” he said.

“There are tangible signs of an inflection point in all four of these pressure points. For instance, on the regulatory/government side, there are indications that there may be a general change of heart, demonstrated by ISED’s intervention on the TPIA matter and related comments from the Minister that suggests the government is reverting its focus back on the significance of investment. This has implications for the MVNO file. On competitive intensity, there is good initial evidence that the surge in promotional activity during the BTS season is behind us, with all CEOs (incumbent and regional) railing against price irrationality and the subsequent ‘relative’ easing in such activity during Black Friday and Boxing day. We believe that this together with some useful cost reduction opportunities in the space and a likely uptick in investor focus on 5G toward the end of 2021, argues for a tilt back toward wireless.”

Based on that view, Mr. Galappatthige said he’s taken an old, theme-based stock selection approach.

“In our 2018 Playbook, we demonstrated (with data going back to 2007) that a useful approach to picking the potential outperformers in this sector was to start with a thematic angle before layering on stock level considerations,” he said. “One of the basic elements of this approach was classifying the upcoming period (normally 18-24 month periods) as pro-wireless or negative on wireless, which empirically largely explained relative performance. Three years on, we are in a position to further nourish this theory and provide an updated version of the ‘back-test’, which we found continues to hold up well.”

“Our view on wireless together with the aforesaid approach points us in the direction of Rogers followed by TELUS for 2021. In the case of Rogers, history suggests that it is the ‘high beta play’ in wireless. Several other factors - valuation, post-pandemic rebound, lapping overage declines, traction in cost reduction, etc., support our call.”

That led Mr. Galappatthige to upgrade Telus Corp. (T-T) to “buy” from “hold” with a $27 target, up from $24. The average on the Street is $27.30.

“TELUS has adopted a notably differentiated strategy from its Telecom peers by committing resources to its TELUS International and Telehealth divisions; a strategy which is starting to look better and better with the acceleration in growth in digital health and expansion in opportunities for business services,” he said. “More recently TELUS has expedited the push to build out these divisions and diversify its business, mainly through M&A and is signally its intentions of driving forward its 3rd leg of growth in the form of Ag-Tech. From this standpoint, in a Telecom industry whose growth prospects are certainly moderating, TELUS is arguably the stock to own from a longer-term basis. Add to this the relative strength in its wireless performance and disproportionate gains in wireline sub additions share, we have a compelling thesis.”

Conversely, he dropped Quebecor Inc. (QBR.B-T) to “hold” from “buy” with a $36 target (unchanged). The average is $37.95.

“Quebecor has been one of the top performing names in the Telecom sector in recent years as the ramp up of its wireless division has outstripped every expectation – be it in terms of subs, profitability or even FCF,” the analyst said. “With that said, in order to create some balance in our Telecom sector recommendation, we believe it is prudent to move to HOLD (from Buy) on Quebecor Inc. We view this more of tactical adjustment rather than a longer-term repositioning, as we believe there maybe substantial opportunities that could emerge for Quebecor to expand outside the province down the line, particularly if a Shaw-Rogers alliance is considered.

Mr. Galappatthige raised his target for Rogers Communications Inc. (RCI.B-T) to $68 from $62, keeping a “buy” rating. The average is $67.69.

“Whenever wireless has a recovery following a trough or a period of general strength, Rogers outperforms meaningfully,” he said. “On the wireline front, the company is finally pulling down its capex intensity toward 20 per cent and driving higher FCF margins while a relatively disciplined competitive environment (partly helped by re-sellers on back foot) will lead to a generally stable subscriber result.”

He maintained his target for these stocks:

* BCE Inc. (BCE-T, “hold”) at $58. Average: $59.83.

“We had downgraded BCE to a HOLD in mid-2020 due to then concerns around lower FCF, risk of downside on the B2B front owing largely to the pandemic both in terms of SME and Enterprise, downside in Media and some underperformance in wireless,” he said. “However, Q3 reflected a notable improvement in financial results and moderated the risk profile somewhat, in our view. Importantly, the bad debt picture and receivables in general did not deteriorate as some may have feared, and Media is showing signs of a recovery.

“With the stock down 9.5 per cent in 2020, a year where rates fell nearly 100 basis points (US 10-year), there is a strong case to own BCE during 2021. In fact, we believe that investors would be well served to maintain BCE as a core holding throughout 2021.”

* Cogeco Communications Inc. (CCA-T, “buy”) at $119. Average: $120.06.

“In our view, the fallout from the rejected acquisition offer may linger for a while, despite encouraging F2021 guidance,” he said. “We believe there maybe a fair contingent of disappointed institutional and retail investors that may hesitate to increase their positions or even maintain. Against that backdrop, we believe that what would get the stock going again may be developments in the U.S.”

* Shaw Communications Inc. (SJR.B-T, “buy”) at $28.50. Average: $27.33.

“The case to own Shaw going into 2021 is compelling on paper, but there remains some uncertainty around execution,” he said. “Unlike in recent years where the focus was predominantly on the performance of Freedom, we believe that 2021 would be very much around settling its wireline business into a stable position with a good balance of profitability and subscriber growth. Management took the difficult and bold steps to readjust the western pricing structure towards a more economical one by steeply raising prices in late May 2020, but in the process took substantial subscriber losses. Now, much depends on the success of the Shaw Mobile strategy to achieve stronger wireline retention at attractive economics, while also driving wireless growth.”


BMO Nesbitt Burns analyst Devin Dodge thinks the near-term setup for Finning International Inc. (FTT-T) “opens a window of opportunity,” leading him to raise his rating to “outperform” from “market perform” and call it his “preferred idea among the heavy equipment dealers.”

“We believe the near-term setup for FTT is consistent with prior periods of outperformance,” he said. “Improving activity levels in its territories and expectations for a rise in new equipment orders should push revenues and backlog higher, while progress in lowering its cost structure position the company to exceed prior peak earnings on ‘mid-cycle’ demand.

“In addition, we believe FTT’s valuation discount to TIH and CAT should narrow as the demand recovery takes hold.”

Mr. Dodge hiked his target for Finning shares to $32 from $23. The average on the Street is $29.13.

Conversely, he downgraded Toromont Industries Ltd. (TIH-T) to “market perform” from “outperform,” saying he’s “taking a breather following a strong 2020.”

“TIH remains one of the highest-quality names in our coverage, and the demand outlook in its territories continues to be favourable,” he said. “However, we believe TIH’s valuation appears stretched and our estimates capture the earnings growth potential of the business.

“For longer-term investors, TIH may still look attractive, but we believe the near-term upside to the stock is limited.”

His target fell by a loonie to $95, exceeding the consensus of $93.93.


Touting its “laser-focused” acquisition strategy and seeing a number of “attractive” investment drivers, Echelon Capital analyst Stefan Quenneville initiated coverage of Hamilton Thorne Ltd. (HTL-X) with a “buy” rating.

“HTL has demonstrated a strong track record of growth with a five-year revenue CAGR [compound annual growth rate] of 32 per cent and Adjusted EBITDA of 43 per cent, driven by double-digit organic growth supplemented by an active M&A strategy,” he said. “HTL’s historical roots were established by its leadership in laser equipment. However, in recent years, the Company has engaged in a series of M&A transactions that have propelled it to be one of the few vertically integrated players in the industry, providing a broad portfolio of products and services that have diversified its revenue base as well meaningfully broadened its geographic footprint.

“HTL now generates 53 per cent of its revenue from its consumables and services segments, which exhibit high customer switching costs and can be considered sticky, recurring type businesses. Over the last five years, revenue contribution from the Company’s consumables and services segments has grown by a CAGR of 89 per cent. This is more than 5 times the Company’s capital equipment sales five-year CAGR growth of 16 per cent. This growth has been largely driven by the acquisitions of Embryotech in 2016 and Gynemed in 2017.”

Mr. Quenneville called the Massachusetts-based company a “rare public IVF industry pure-play in niche industry with high barriers to entry,” noting most of its competitors are private or part of a larger conglomerate. He said that positions it as “one of the few public options for investors to play in this attractive industry.”

The analyst also pointed to the fact that the IVF industry has a 5-10-per-cent secular growth rate and has proven recession resistant.

“The ongoing COVID-19 pandemic initially resulted in the temporary closure of many fertility treatment clinics as they worked to implement safeguards to address COVID risks before reopening,” he said. “With restrictions on fertility treatment clinics now largely lifted, we anticipate a return to baseline demand for fertility treatments and a return to growth for HTL in 2021.”

Mr. Quenneville set a target of $1.80 per share. The current average on the Street is $1.75.

“We see room for EBITDA margin expansion, as the Company is set to roll out its line of culture media consumables in the U.S. in the coming year,” the analyst said. “The recurring nature of revenues from this line of consumables is likely to support sustained margin expansion by driving regular periodic orders from its customers, and the Company’s strategy of acquiring complementary assets in the IVF space is likely to support its efforts to gain a larger wallet-share from IVF clinics and laboratory operators.”


Citing the benefits of higher oil prices and improving methanol fundamentals, Citi analyst P.J. Juvekar raised his rating for Methanex Corp. (MEOH-Q, MX-T) to “buy” from “neutral” on Wednesday.

“Methanol prices will likely improve with higher oil prices and is positive for energy-related demand applications for fuel blending and MTO (45 per cent of overall demand),” he said. “We think methanol prices will continue to improve from the mid-$200 range on average in 2020 to the low $300′s in 2021-2022. Recall, every $10 change in average realized methanol price equates to $60-million EBITDA based on 8.1mmt capacity.”

“The rebound in economic growth will also support the remaining 55 per cent of overall demand tied to GDP for applications including formaldehyde (27 per cent for construction) and acetic acid (8 per cent for paints, coatings, and adhesives). Higher prices should incentivize the restart of MEOH’s idled capacity at Trinidad Titan and Chile plants in addition to resuming construction on Geismar 3 greenfield project (1.8mmt). By the end of 2021, IHS sees another 3.6mmt of merchant methanol demand from two new MTO plants in China.”

Mr. Juvekar hiked his target for Methanex shares to US$55 from US$33. Consensus is US$44.23.

Conversely, Scotia Capital analyst Ben Isaacson cut his rating to “sector perform” from “sector outperform” with a US$42 target.


Agnico Eagle Mines Ltd.’s (AEM-T) deal to acquire TMAC Resources Inc. (TMR-T) bolsters its growth pipeline further, according to Industrial Alliance Securities analyst Puneet Singh.

In a research note released Wednesday, he expects Agnico will want to run the Hope Bay project in Nunavut for a few quarters before re-evaluating TMAC’s expansion plans. He predicts it will eventually aim to build a larger mind than previously anticipated.

“Given the strong gold price environment, and many expansions forecasted across AEM’s portfolio, Hope Bay’s upfront capital costs could end up being funded internally,” said Mr. Singh.

“TMAC was cash-strapped so exploration was an afterthought. We expect Agnico to be much more aggressive drilling out the property (80km stretch of mineralization) in hopes of building out a larger mine. We note, at Meliadine (also in Nunavut) AEM has grown the mineral resource from 5 million ounces to 9.7 million ounces since acquisition in 2010. Hope Bay currently holds 7 million ounces at 7 grams per ton in resources.”

Calling Agnico the “right operator” for the asset, he raised his target for its shares to $142 from $140, keeping a “strong buy” recommendation. The average on the Street is $96.24.

“Overall, AEM adds another expanding, underexplored, safe jurisdiction asset to a portfolio that already features many expanding mines (production to grow from 1.7 million ounces in 2020 to more than 2.0 million ounces in 2021),” said Mr. Singh. “We expect Hope Bay to be a later term growth asset (we model 2024) for the Company, but could be prioritized ahead of other long-term assets such as Hammond Reef, etc. The market reaction to the deal was muted [Tuesday]. Further details on AEM’s plans for Hope Bay will be provided with its Q4/20 earnings release in February, which should increase market clarity.”

Meanwhile, TD Securities analyst Steven Green lowered TMAC Resources Inc. to “tender” from “hold” with a $2.20 target, up from $1.25. The average is $2.24.


Scotia Capital analyst Benoit Laprade made a series of target price changes for TSX-listed forestry stocks in his coverage universe on Wednesday.

His changes included:

  • Western Forest Products Inc. (WEF-T, “sector perform”) to $1.50 from $1.25. The average is $1.41.
  • Interfor Corp. (IFP-T, “sector outperform”) to $34 from $25. Average: $29.50.
  • Canfor Corp. (CFP-T, ”sector outperform”) to $27 from $24. Average: $29.
  • Pinnacle Renewable Energy Inc. (PL-T, “sector outperform”) to $11 from $9. Average: $10.55.

Elsewhere, TD Securities analyst Sean Steuart upgraded Western Forest Products Inc. to “buy” from “hold” with a $1.65 target, up from $1.05.


Canaccord Genuity analyst Derek Dley thinks Aritzia Inc.’s (ATZ-T) return to full-price selling in the third quarter is likely to result in “healthy” merchandise margins when it releases its financial results after markets close on Jan. 13.

“Aritzia had 93 of 97 boutiques reopened to begin Q3/F21, with the remainder opened within two weeks of the beginning of the quarter,” he said. “The company noted that it witnessed continuous improvements in boutique productivity for the first six weeks of Q3/F21. That said, shutdowns in Aritzia’s key markets during Q3/F21 impacted boutique traffic throughout the latter half of the quarter, although we expect a significant portion of the traffic decline to be offset by an uptick in Aritzia’s ecommerce offering. We are forecasting comparable sales growth year-over-year of negative 4.0 per cent.

“Importantly, Aritzia’s promotional efforts earlier in the pandemic have resulted in a clean inventory position to begin the Fall 2020 season, implying a return to a normalized promotional calendar and by extension, merchandise margins that are roughly in line with last year. Having said that, we expect gross margins to remain impacted by deleveraging over the near term. Accordingly, we are forecasting gross margins of 39.0 per cent, a year-over-year contraction of 360 basis points but up sequentially from Q2/F21′s 35.2 per cent.”

For the quarter, Mr. Dley is forecasting revenue of $266-million, exceeding the Street’s projection of $260-million and essentially flat-year-over-year. His EBITDA estimate of $45-million fell in line with the consensus.

Reiterating a “buy” rating, the analyst raised his target for Aritzia shares to $30 from $26 “to reflect sectorwide multiple expansion.” The average on the Street is $28.06.

“In our view, Aritzia has done a great job of navigating a changing retail landscape by offering an aspirational customer experience within its brick-and-mortar locations and an improved e-commerce platform,” he said. “With over 20 consecutive quarters of samestore sales growth prior to the onset of COVID-19, a robust pipeline of new store openings, healthy balance sheet to support growth and margin enhancement initiatives, and a well aligned management team, we believe Aritzia is deserving of a premium valuation.”


Equity analysts on the Street made a series of target price changes to TSX-listed information technology stocks on Wednesday.

In a research note previewing 2021, CIBC World Markets’ Stephanie Price said: “Software and services stocks had a strong 2020, with our coverage up an average of 60 per cent as investors gravitated towards stocks that were able to execute on elevated demand through the pandemic. With a vaccine rollout underway, our top picks for 2021 are Kinaxis (pandemic tailwinds leading to accelerated supply chain digitization) and Morneau Shepell (benefiting from the post-COVID re-opening).”

Ms. Price made these alterations:

  • Docebo Inc. (DCBO-T, “outperformer”) to $98 from $69. The average is $79.38.
  • Colliers International Group Inc. (CIGI-T, “outperformer”) to $102 from $85. Average: $114.59.
  • CGI Inc. (GIB.A-T, “neutral”) to $105.50 from $91.50. Average: $100.37.
  • Altus Group Ltd. (AIF-T, “neutral”) to $52.50 from $47.50. Average: $57.17.
  • Maxar Technologies Inc. (MAXR-N, MAXR-T, “neutral”) to US$38 from US$29.50. Average: US$26.50.
  • Ceridian HCM Holding Inc. (CDAY-N, CDAY-T, “neutral”) to US$109 from US$95. Average: US$98.27.

TD Securities’ Daniel Chan made these changes:

  • Sierra Wireless Inc. (SWIR-Q, SWIR-T, “hold”) to US$15 from US$13. Average: US$14.50.
  • Docebo Inc. to $100 from $77 with a “buy” rating.

After coming off restriction following their recent U.S. listing, Scotia Capital’s Paul Steep resumed coverage of Docebo with a “sector perform” rating and $78 target, up from $58.

Canaccord Genuity’s Robert Young raised his target for Docebo shares to US$70 from $70 (Canadian), keeping a “buy” rating.

The company has recently completed a U.S. listing of shares under the DCBO ticker, issuing 3.45M shares and raising gross proceeds of $166-million,” he said. “The transaction strengthens Docebo’s balance sheet and adds flexibility for growth initiatives while broadening investor access. We remain positive and confident in the company’s growth outlook. Docebo has exceeded expectations with 50-per-cent-plus ARR growth and better-than-expected results in each of the five quarters reported since its October 2019.”


In other analyst actions:

* National Bank Financial analyst Rupert Merer raised Northland Power Inc. (NPI-T) to “outperform” from “sector perform” with a $50 target, up from $45 and exceeding the $46.29 consensus.

* BoA Securities analyst Asit Sen lowered TC Energy Corp. (TRP-T) to “neutral” from “buy”

* Morgan Stanley analyst Jeff Goldstein increased his target for Waste Connections Inc. (WCN-N, WCN-T) to US$120 from US$119, exceeding the US$116.69 consensus. He maintained an “overweight” recommendation.

* TD Securities analyst Craig Hutchison raised his target for Endeavour Silver Corp. (EDR-T) to $8 from $6 with a “hold” recommendation. The average is $6.46.

* Scotia’s Michael Doumet raised his target for Stelco Holdings Inc. (STLC-T) to $30 from $22 with a “sector outperform” rating. The average is $22.40.

* JP Morgan analyst Chris Turnure cut his target for Emera Inc. (EMA-T) to $56 from $58 with a “neutral” rating. The average is $61.79.

* National Bank Financial analyst Ryan Li raised his target for Goodfood Market Corp. (FOOD-T) to $12.75 from $11 with an “outperform” recommendation. The average is currently $11.94.

* Canaccord Genuity’s Katie Lachapelle raised the firm’s target for Lithium Americas Corp. (LAC-T) to $20 from $11.50 with a “speculative buy” rating after assuming coverage of the stock. The average is $14.73.

* Ms. Lachapelle also increased the firm’s target Neo Lithium Corp. (NLC-X) target to $3.40 from $2.75 with a “speculative buy” rating. The average is $2.71.

* RBC Dominion Securities analyst Geoffrey Kwan increased his target for Fiera Capital Corp. (FSZ-T) to $14 from $13 with an “outperform” rating. The average is $12.69.

* Cormark Securities analyst Jesse Pytlak raised his target for Calian Group Ltd. (CGY-T) to $72 from $70 with a “buy” rating. The average is $74.

* TD Securities analyst Greg Barnes increased his target for Ivanhoe Mines Ltd. (IVN-T) by a loonie to $9, reaffirming a “buy” rating. The current average is $7.64.

* Haywood Securities analyst Colin Healey bumped his target IsoEnergy Ltd. (ISO-X) to $3 from $2 with a “buy” rating.

“following the close of the recent flow-through financing we are increasing our target on ISO energy ahead of its highly anticipated winter drill program on its flagship Larocque East property which is host to the rapidly growing Hurricane uranium deposit,” he said.

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