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

The near-term outlook for Organigram Holdings Inc. (OGI-T) “remains challenged” as revenues “continue to stagnate,” according to Canaccord Genuity analyst Matt Bottomley.

After the Moncton-based company reported weaker-than-anticipated first-quarter financial results on Tuesday before the bell, Mr. Bottomley lowered his rating for its shares to “hold” from a “speculative buy” previously.

“The company continues to navigate a challenging macro environment in Canada while revitalizing its portfolio of product offerings,” he said.

For the quarter, Organigram reported net revenue of $19.3-million, down 5.4 per cent from the previous quarter and below Mr. Bottomley’s $21.2-million projection. Adjusted EBITDA of a loss of $2.7-million also missed his estimate (a $2-million loss).

“We note that the company did see a 11-per-cent quarter-over-quarter bump in its Canadian adult-use sales (vs. flat in the prior period), on the back of continued new product launches, including value segment offerings and its recently introduced premium Edison line of dried bud,” he said. “The overall decline in its top line for the quarter was a function of lower international contribution and LP wholesales, which we would expect to be lumpier in nature compared to its core domestic operations. Nonetheless, we note that OGI’s top line has remained at or below its levels from seven quarters ago, despite end-user retail sales in Canada having increased by 5 times since then.”

Mr. Bottomley also called the company’s near-term look “cautious,” including “missed revenue opportunities expected to bleed into FQ2 (as it continues to better align its staffing and production capabilities), expected suppressed industry demand in FQ2 (from COVID-19 related store closures), and further charges to COGS for under-absorbed production costs.”

With that view, he’s “tapering down” his long-term expectations for the company and lowered his target for its shares to $2 from $2.50. The current average on the Street is $2.67.

Conversely, Raymond James analyst Rahul Sarugaser thinks a turnaround for Organigram is “imminent,” declaring “the bottom is in, and we recommend clients begin building positions.”

He raised his rating for the stock to “outperform” from “market perform.”

“OGI’s market share in the Canadian adult-use cannabis market has been drifting downward during the last several years: from 8.5 per cent in 2019 (avg.), to 5.6 per cent in 2020 (avg.), to 4.2 per cent in 1Q21,” he said. “This quarter, we had anticipated OGI’s market share dropping to 3.4 per cent, but the company beat our adult-use cannabis revenue expectations with $16.8-million in sales: a material bump from the $15-million per quarter plateau it had settled at during the last 3 Qs, and the $13-million per quarter slump it experienced during 4Q19 and 1Q20.

“We read this uptick in demand for OGI-branded products as a positive: an early success yielded from its long-running SKU revitalization exercise, and a testament to the company’s growing brand equity in Canada. (Wholesale sales can be a nice kicker—largely absent this quarter—but adult-use product sales gives us a truer view of consumer demand for OGI’s products and brands.) And, crucially, OGI revealed that it had left opportunity on the table this quarter; OGI was unable to fulfill $4-5-million of provincial purchase orders due to capacity and staffing constraints during 1Q21 alone. While we view stock-outs like this as a near-term negative, we believe these are relatively simple problems for OGI to solve in order to drive its market share higher: increase capacity (currently operating at 40 per cent), staff up (planning to hire 100 employees by 3Q21, 30 focused solely on fulfillment). No more stock-outs. Much-reduced unabsorbed overhead.”

Mr. Sarugaser maintained his $3 target for Organigram shares.


Separately, Canaccord Genuity analyst Derek Dley raised his target prices for a group of U.S. cannabis companies with Canadian stock listings following the recent Democratic wins in the Georgia Senate run-offs, which he thinks will result in “an acceleration of pro-cannabis legislation over the medium term.”

“With the Democrats taking control of both the House of Representatives and now the Senate in the United States, we note investor sentiment surrounding the cannabis industry in the country has continued to improve given the party’s positive view on cannabis,” he said. “We therefore expect an increasing likelihood of key pro-cannabis-related legislation over the medium term, providing strong secular tailwinds for the industry.”

Mr. Dley made the these changes:

* Cresco Labs Inc. (CL-CN, “speculative buy”) to $20.50 from $16. The average on the Street is $16.86.

“Sentiment towards cannabis in Cresco’s core states of operation, namely Illinois and Pennsylvania (where the company also completed two meaningful production/ cultivation facility expansions), also continues to improve,” he said. “Within Illinois, Cresco’s home state where the company operates a market leading ten dispensaries, the state’s medical and adult-use programs have enjoyed significant growth over the course of the year. Combined medical and adult-use sales in the supply-constrained market are now expected to surpass US$1 billion for 2020, following the first year of adult-use legalization.”

“In our view, Cresco is well positioned to capitalize on the increasing acceptance of cannabis within its core states, boasts a well-regarded management team, and offers investors a differentiated cannabis opportunity through its focus on both wholesale and retail in highly strategic geographic markets.”

* Curaleaf Holdings Inc. (CURA-CN, “speculative buy”) to $23.50 from $18.50. Average: $19.44.

“Earlier this week, Curaleaf announced the closing of both its previously announced revolving credit facility and subordinated voting share equity raise,” he said. “The revolver is a US$50-million three-year secured facility (with a maturity of January 10, 2024) with an interest rate of 10.25 per cent. The equity raise saw the company issue 19.0 million subordinated voting shares at $16.70 (Canadian) per share, for total gross proceeds of $317-million (or US$250-million). In addition to cash on hand as of its Q3/20 reporting and proceeds from the sale of some of its Maryland assets, we note that Curaleaf now has more than US$400-million of cash on hand. We believe this puts the company in a favourable capital position vs. many of its U.S. peers with the flexibility to better navigate what is an extremely fast-moving industry at the state level that could see as many as five of CURA’s markets legalize/ implement adult-use sales in the next 12 months (AZ, NJ, NY, PA, CT).”

* Trulieve Cannabis Corp. (TRUL-CN, “speculative buy”) to $75 from $60. Average: $55.83.

“We believe Trulieve remains one of the best positioned MSO’s to capitalize on more favourable regulatory headwinds over the course of our forecast period, as well as increasing investor demand for cannabis exposure,” said Mr. Dley.

“With Trulieve currently trading at 10.8 times our 2022 EBITDA estimate and given Trulieve’s dominant and growing position in the attractive Florida market, and exposure to the high growth Pennsylvania and Massachusetts markets, we believe the shares are undervalued at current levels.”


In the wake of a “euphoric” rise, CIBC World Markets’ Mark Jarvi and Robert Catellier think TSX-listed renewable enery stocks are now “largely fully valued even when considering development upside [we now include value for market share capture of the total addressable market (TAM) opportunity].”

With that view, the analysts made a series of rating changes in a research report released Wednesday previewing 2021 in the energy infrastucture sector and no longer have any renewable companies with “outperformer” recommendations.

“Beyond COVID-19 impacts, there was an interesting paradigm in our 2020 Energy Infrastructure coverage whereby ESG considerations and secular growth potential created diverging performance, and interest rate impacts broke most historical relationships,” they said. “Renewable energy stocks were very strong performers, with material multiple expansion on strong investor inflows. Regulated utilities, in general, were lackluster and midstream/pipeline companies were the clear laggards.”

On the renewable space, they added: “While yield and arguably fundamental performance took a back seat in 2020, we believe they will come back into focus over time in coming quarters. That said, it’s quite possible that only when the reopening of the economy is truly evident will company fundamentals return to the forefront and offset ESG funds flows. When that occurs, operating leverage may lead to an outsized improvement in results, growth may be rekindled and dividend growth policies clarified (particularly for midstreamers). The impact of U.S. policy under the new presidential administration varies by subsector, but is also a consideration for 2021, with the most benefit for renewables and some utilities (albeit should be priced-in to some degree.)”

Mr. Jarvi these stocks:

* Northland Power Inc. (NPI-T) to “neutral” from “outperformer” with a $52 target, up from $45. The average on the Street is $47.31.

“Relative to renewable peers, we believe NPI has a differentiated growth pipeline, trades at a lower multiple than most other renewable energy stocks and has some potential catalysts that can allow it to hold its current trading range,” he said. “However, we believe most of the potential upside is now baked into the current share price and shares are trading just below our revised $52 target price. We believe it’s less frothy than some other names (note our Underperformer ratings on BLX, INE and RNW) and therefore investors might be well served to continue to hold (particularly if they believe renewable stocks can push to new highs), but we struggle to tell investors that there is a fundamental case to continue to acquire shares at the current level. And we would be remiss not to acknowledge that NPI has some carbon exposure risk in its gasfired power plants—as much as transition to become a more pure-play renewable name offers potential multiple expansion, that transition is not without some risk. Bottom line is that while we are positive on the company and its outlook, we are less positive on the shares at the current level.”

* Capital Power Corp. (CPX-T) to “neutral” from “outperformer” with a $38 target, up from $37. Average: $36.27.

“After a steady recovery from Q1/20 lows, we now believe there is limited upside to our $38.00 price target,” he said.

“The stock still provides a solid dividend yield and some renewable exposure, but when we consider other factors such as merchant risk, potential for equity to fund gas-fired power asset acquisitions and risk around a revised carbon pricing scheme in Alberta, we don’t see CPX as offering compelling risk-adjusted upside from the current trading levels.”

* TransAlta Renewables Inc. (RNW-T) to “underperformer” from “neutral” with a $20 target, up from $18. Average: $18.83.

“Since announcing a dropdown transaction in late December, shares are up roughly 30 per cent,” said Mr. Jarvi. “In our view, the dropdown was already largely contemplated in most investors’ fundamental valuations (it was in our valuation) and therefore the response to the dropdown is not warranted. It’s quite possible the recent move is also a function of the recent surge in renewable energy stocks. However, RNW is not a pure-play renewable company and doesn’t have an internal growth pipeline that would provide a clear path to grow (and capture of the increasing renewable market opportunity). And as much as we see value in its parent TA, TA itself doesn’t have a deep pipeline to funnel growth down to RNW. As such, we don’t believe RNW should receive the same premium nor offers the same upside growth potential as other renewable IPP companies we cover. Moreover, RNW has historically been viewed as a stable yield alternative — but currently, it offers less dividend yield than several regulated utilities that have more perpetual earnings streams. Overall, RNW should continue to provide steady results backed by a 100-per-cent contracted portfolio that underpins the dividend, but we believe the stock has overshot — as such, our Underperformer rating is simply a call that the stock is overvalued relative.”

Conversely, he raised his rating for TransAlta Corp. (TA-T) to “outperformer” from “neutral” with a $13 target, up from $10 and above the $11.17 average.

“First, we have increased our assumed Alberta power price forecast in the near term and longer term. In the near term, we now forecast $59/MWh for 2021 vs. $ 52/MWh — our assumption more closely aligns with the forward price at $61/MWh, which points to a material year-over-year increase given a higher carbon tax, higher gas input costs and an improved supply-demand outlook,” he said. “Moreover, we’ve reflected the planned move to $170 per tonne carbon pricing longer term that we assume has a positive impact on the EBITDA contribution and valuation of TA’s hydro assets. The second key element to our revised price target is a change in our valuation approach. We now value the deconsolidated [ex-TransAlta Renewables (RNW)] cash flows and then ascribe value to TA’s stake in RNW (with a 10-per-cent holdco discount). While there is higher risk with TA given merchant and carbon pricing risks, we do believe this stock could see further upside in 2021 than the more richly valued renewable IPPs.”

Mr. Jarvi also made these target price changes:

  • Algonquin Power & Utilities Corp. (AQN-N/AQN-T, “outperformer”) to US$18.50 from US$17.50. Average: US$16.32.
  • Boralex Inc. (BLX-T, “neutral”) to $55 from $43. Average: $45.38.
  • Canadian Utilities Corp. (CU-T, “neutral”) to $36 from $37. Average: $35.63.
  • Emera Inc. (EMA-T, “neutral”) to $57 from $58. Average: $61.71.
  • Hydro One Ltd. (H-T, “outperformer”) to $33 from $32. Average: $31.07.
  • Innergex Renewable Energy Inc. (INE-T, “neutral”) to $32 from $26. Average: $27.53.
  • Just Energy Group Inc. (JE-T, “neutral”) to $10 from $10.50. Average: $10.25.
  • Pinnacle Renewable Energy Inc. (PL-T, “outperformer”) to $12 from $10. Average: $10.75.

Mr. Catellier made these changes:

  • AltaGas Ltd. (ALA-T, “outperformer”) to $24 from $22. Average: $21.94.
  • Enbridge Inc. (ENB-T, “outperformer”) to $53 from $47. Average: $51.23.
  • Inter Pipeline Ltd. (IPL-T, “neutral”) to $13.50 from $14. Average: $14.64.
  • Keyera Corp. (KEY-T, “outperformer”) to $29 from $27. Average: $26.89.
  • Pembina Pipeline Corp. (PPL-T, “outperformer”) to $40 from $38. Average: $37.95.
  • TC Energy Corp. (TRP-T, “outperformer”) to $71 from $73. Average: $69.68.


Scotia Capital analyst Meny Grauman made a series of target price changes for Canadian bank stocks in his coverage universe.

His moves included:

  • Bank of Montreal (BMO-T, “sector perform”) to $104 from $106. The average on the Street is $103.35.
  • Canadian Western Bank (CWB-T, “sector perform”) to $34 from $33. Average: $32.75.
  • Laurentian Bank of Canada (LB-T, “sector perform”) to $34 from $33. Average: $32.20.


After it released quarterly results that exceeded expectations on Tuesday, several equity analysts raised their target prices for shares of Corus Entertainment Inc. (CJR.B-T).

The Toronto-based media company reported consolidated revenues and EBITDA of $420-million and $179-million, respectively, for the quarter. Both topped the consensus expectations on the Street ($418-million and $163-million).

Changes included:

* Canaccord Genuity’s Aravinda Galappatthige to $6.25 from $5.50 with a “buy” rating.

“The effective management of Corus through the pandemic, continuing improvement in TV ads, and EBITDA trends and the compelling FCF yield at 32 per cent, suggests the stock should continue to improve,” he said. “The thesis would also be aided by continued net debt reduction, which we estimate would ease to 2.7 times by end of 2021 and 2.5 times by the end of F2022 and serve to de-risk the stock even further and open up M&A options down the road.”

* CIBC World Markets’ Robert Bek to $6.25 from $5.50 with an “outperformer”

“Our long-tail FCF thesis remains on track. Corus’ ability to proactively manage costs and execute on recovery were once again on display in Q1/21 results,” said Mr. Bek. “We remain positive on the recovery trajectory in H2/21, with increasing traction in new digital and tech verticals adding to our conviction.”

* RBC Dominion Securities’ Drew McReynolds to $6 from $5 with an “outperform”

* National Bank Financial’s Adam Shine to $6.50 from $5 with an “outperform”

* TD Securities’ Vince Valentini to $9 from $7.50 with an “action list buy”

The average target on the Street is $6.28.


Acumen Capital analyst Jim Byrne thinks VIQ Solutions Inc. (VQS-X) is “revolutionizing the transcription market” with its “industry leading” technology.

In a research report released Wednesday, he initiated coverage of the Mississauga-based company, which provides AI-driven, digital voice and video capture technology and transcription services, with a “buy” recommendation.

“VQS has developed an industry-leading Artificial Intelligence (A.I.) based platform that is revolutionizing the transcription sector,” he said. “The company’s proprietary platform is unique among its peers given the secure, comprehensive end-to-end workflow solution that reduces cost, simplifies access, and increases efficiencies for their customers. The company is targeting the legal, insurance, media, and law enforcement markets across the globe with a total addressable market (TAM) of more than US$8.5-billion. The company currently generates roughly 25 per cent of its revenues from each of the four segments, which helps to diversify its customer base and minimize market concentration.”

“Transcription services have been around for decades but have only recently moved towards the digital age. In the past, transcription was a slow, manual service that lacked security of information and was prone to errors. VQS has developed its proprietary technology to increase accuracy, speed, efficiency, security, and the ability to capture multiple speakers. VQS can offer their clients an end-to-end solution that delivers military grade cybersecurity through cloud infrastructure that will allow their customers to derive significantly higher value from their data. The company has identified several opportunities for cross-selling among its existing client base while pursuing further market share gains to drive organic growth. In addition, VQS has potentially hundreds of acquisition targets in its current geographies, along with potential new locations to launch its business.”

Seeing its shares trading at an attractive valuation, Mr. Byrne set a target of $7.50, exceeding the $5 consensus.

“In our view, VQS offers investors an attractive investment opportunity in the tech sector with a company that is disrupting a traditional business, while offering a superior portfolio of services that generate significantly higher margins and many opportunities for growth,” the analyst said. “While still small at $32-million in current revenue, we believe the recurring nature and long-term contracts should lead to margin expansion as they execute on their business strategy and deliver on their stated goals. The shares trade well below its peer group on an EV/EBITDA and P/Sales basis and offer significant upside from current levels.”


In a research note titled Lumber Super-Cycle Redux, Raymond James analysts Daryl Swetlishoff and Bryan Fast raised their price forecast for lumber, pointing to the firm’s bullish view of the housing market.

“On March 29, 2010 we published the seminal research paper Peak Lumber: A Super-Cycle Looms outlining three fundamental changes in lumber supply/demand,” they said. “Over the subsequent decade, average annual pricing has trended higher; first with novel Asian demand followed by steadily improving U.S. housing markets. B.C. capacity shuts took longer than expected, however, permanent and temporary curtailments helped backstop last year’s dramatic lumber price rally. After a seasonal pause, building materials prices are again testing all-time highs as demand continues to outstrip production. With a fresh (bullish!) housing outlook from the RJ&A Home Building team we are revisiting our lumber Super Cycle thesis and updating our supply/demand model.”

With their price deck changes, the analyst raised their target prices for several stocks, including:

  • Canfor Corp. (CFP-T, “strong buy”) to $37.50 from $35. The average on the Street is $30.33.
  • Conifex Timber Inc. (CFF-T, “outperform”) to $2.50 from $2.25. Average: $2.25.
  • Interfor Corp. (IFP-T, “strong buy”) to $37.50 from $35. Average: $30.83.
  • Western Forest Products Inc. (WEF-T, “outperform”) to $1.75 from $1.50. Average: $1.53.
  • West Fraser Timber Co. Ltd. (WFT-T, “strong buy”) to $125 from $115. Average: $99.40
  • Mercer International Inc. (MERC-Q, “outperform”) to US$12.50 from US$11. Average: US$11.60.


In response to its acquisition of a 50-per-cent working interest in a petroleum licence for a 2.2 million-acre area in northwest Botswana, Haywood Securities analyst raised Renaissance Oil Corp. (ROE-X) to “buy” from “hold,” calling the resource potential “significant.”

“This RECO option provides the Company with attractive near-term drilling catalysts via the coattails of RECO’s current three well exploration program through H1/21 that has the potential to derisk a material resource,” he said. “In the end, we believe this option addresses what we viewed as a drawback of the ROE story, which was a lack of near-term drilling catalyst.”

He raised his target to 25 cents from 20 cents. The average is 10 cents.


In other analyst actions:

* Deutsche Bank analyst Chris Terry downgraded Teck Resources Ltd. (TECK-N/TECK.B-T) to “hold” from “buy” with a US$20 target, up from US$17. The average is $26.26 (Canadian).

* Mr. Terry also lowered Pan American Silver Corp. (PAAS-Q/PAAS-T) to “hold” from “buy”

* TD Securities analyst Brian Morrison raised its target for Canadian Tire Corporation Ltd. (CTC.A-T) to $210 from $185 with a “buy” rating. The average is $171.82.

* TD Securities’ Daniel Chan increased his target for EXFO Inc. (EXF-T) to $4 from $3.50 with a “hold” rating, while BMO Nesbitt Burns’ Thanos Moschopoulos raised his target to $4 from $3.75 with a “market perform” recommendation. The average is $3.63.

* Cormark Securities analyst Garett Ursu raised STEP Energy Services Ltd. (STEP-T) to “buy” from “market perform”

* Evercore ISI analyst David Motemaden raised its target for Sun Life Financial Inc. (SLF-T) to $72 from $63 with an “outperform” rating. The average is $62.43.

* Mr. Motemaden also raised his target for Manulife Financial Corp. (MFC-T) to $24.50 from $19.50, keeping an “in line” recommendation. The average is $24.23.

* Cantor Fitzgerald analyst Mike Kozak upgraded Energy Fuels Inc. (EFR-T) to “buy” from “hold” with a $6 target (unchanged).

“After this recent sell-off, Energy Fuels’ valuation is back at 1.2 times NAVPS [net asset value per share], a level that we regard as far more attractive from the standpoint of new potential institutional buyers,” he said.

* TD Securities initiated coverage of MindBeacon Holdings Inc. (MBCN-T) with a “buy” rating and $14 target.

* TD Securities also initiated coverage of Wecommerce Holdings Ltd. (WE-X) with a “hold” rating and $22 target.

* National Bank Financial analyst Michael Parkin raised his target for Kirkland Lake Gold Ltd. (KL-T) by a loonie to $70 with an “outperform” recommendation. The average is $77.54.

* Deutsche Bank initiated coverage of Lundin Mining Corp. (LUN-T) with a “buy” recommendation and $14.50 target, exceeding the $12.04 average.

* Deutsche Bank’s hiked his target for First Quantum Minerals Ltd. (FM-T) to $31 from $16.50 with an “outperform” rating. The average is $23.68.

* KBW increased its target for Nuvei Corp. (NVEI-T) to $61 from $57 with an “outperform” rating. The average is $55.87.

* National Bank’s Rupert Merer increased his target for 5N Plus Inc. (VNP-T) to $4 from $2.90 with an “outperform” rating. The average is currently $3.75.

* Mr. Merer raised his target for Nanoxplore Inc. (GRA-X) to $4.50 from $3.50 with an “outperform” recommendation. The average is $5.42.

* Desjardins Securities analyst David Stewart raised his target for Orla Mining Ltd. (OLA-T) to $8.25 from $8.10 with a “buy” rating. The average is $8.

“On the back of Orla’s recently released feasibility study update for its Camino Rojo oxides project, we have updated our model to reconcile more closely with the study and have increased our target as a result. With lower opex and sustaining capital than we previously modelled and the additional upside potential from ore in the Fresnillo layback area, our NAVPS has increased slightly,” he said.

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