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

Though its third-quarter 2021 financial results fell largely in line with his “muted” expectations, Canaccord Genuity analyst Matt Bottomley lowered his rating for Canopy Growth Corp. (WEED-T) on Thursday, seeing its valuations running above valuation support.

“The rationale for lowering our recommendation is primarily a function of the significant valuation appreciation WEED has experienced as of late (up more than 3.3 times since Oct/2020 and already up close to 100 per cent year-to-date),” he said. “We believe the recent value appreciation has been more a function of positive macro-headlines coming out of the U.S. (Biden presidency; Democratic control of Senate; commitment to push U.S. cannabis reform at the federal level) that has resulted in a disproportionate amount of capital to flow into a number of leading Canadian LPs (perhaps due to their U.S. listings where many U.S .domiciled operators are still not permitted to trade).

“Although we believe it is possible for Canadian LPs to eventually secure THC exposure in the U.S., we do not foresee full federal cannabis legalization in the US as a near-term prospect and believe Canopy’s value appreciation on the back of positive U.S. sentiment is likely not met with a corresponding fundamental upside (excluding its strategic relationships with Acreage Holdings and TerrAscend Corp).”

Before the bell on Tuesday, Canopy reported total revenues of $152.5-million, up 12.7 per cent quarter-over-quarter and above Mr. Bottomley’s $150.7-million forecast. He attributed the increase to growth in its “other” revenue streams, including larger U.S. distribution for its Storz & Bickel vaporizers and BioSteel product offerings.”

“Canopy highlighted a number of medium-term financial milestones, including: 1) aiming for 40-50-per-cent net revenue CAGR [compound annual growth rate] from FY22 to FY24; (2) positive adj. EBITDA in H2/F22 (and 20-per-cent EBITDA margins for FY24); and (3) positive FCF [free cash flow] (from ops) for FY/F23 and overall FCF for FY/F24,” he said. “Looking ahead to next quarter, the company expects to see continued growth in its Canadian adult-use business from new store openings and its improving ability to fulfill provincial orders.

“However, various COVID-19 restrictions could still pose headwinds to the retail segment of the industry and international exports (i.e., Germany) while inventory balances held with retailers continue to become streamlined. Finally, Canopy also expects strong consumer demand in the U.S. to support growth in many of its ancillary while anticipating consolidated gross margins to reach the high 20%s.”

Moving the stock to “sell” from “hold,” Mr. Bottomley increased his target for Canopy shares to $32 from $25. The average on the Street is $40.71, according to Refinitiv data.

Elsewhere, Benchmark analyst Mike Hickey downgraded Canopy to “hold” from “buy” with a $35 target.

Other analysts making target price adjustments included:

* Desjardins Securities’ John Chu to $55 from $22 with a “hold” rating.

“Canopy provided exceptional clarity on the key drivers of its medium-term sales forecast and how it intends to cut costs,” said Mr. Chu. “While it feels very comfortable with a 40–50-per-cent three-year sales CAGR (to FY24), it also believes its sales outlook may be conservative, especially on the U.S. front. It remains very upbeat on its U.S. prospects, with entry into the U.S. THC market a potential wildcard for late 2021. We maintain our Hold rating given the recent strong rally.”

* CIBC World Markets’ John Zamparo to $64 from $32 with a “neutral” rating.

“Spurred by U.S. election outcomes, recent discussion of legalization by key lawmakers, and increased interest from retail investors, we recognize the potential for current conditions to fuel more near-term exuberance. Valuation has never been the primary driver of performance in this sector, but we view upside from U.S. legalization as already priced into the stock,” said Mr. Zamparo.

* Cowen and Co.’s Vivien Azer to $75 from $38 with an “outperform” rating.

* Alliance Global Partners’ Aaron Grey to $60 from $31 with a “neutral” rating.

* Stifel’s W. Andrew Carter to $21 from $18 with a “sell” rating.


SNC-Lavalin Group Inc.’s (SNC-T) surprise sale of its oil and gas unit and decision to take on more financial charges on contracts is “a potential watershed moment for the company,” according to Scotia Capital’s Mark Neville.

“First, the sale of the O&G business removes the risks associated with completing the remaining work and ongoing restructuring, and removes any future liability associated with the legacy projects,” the analyst said. “Secondly, the incremental provisions and reduction in commercial claims receivables were taken to effectively ‘ringfence’ the risks associated with completing the remaining LSTK backlog as well as future potential litigation matters – with a cash amount (i.e., $230-million, over future years) that, in our opinion, is not overly material and can easily be absorbed.”

Keeping a “sector outperform” rating for SNC shares, Mr. Neville increased his target to $42 from $38.The average on the Street is $32.85.

“With legacy risks now (hopefully) in the rear-view, we believe the market can now turn its focus to the potential upside, which we believe to be significant,” he said.

Other analysts making changes included:

* RBC Dominion Securities’ Sabahat Khan to $33 from $32 with an “outperform” rating.

* TD Securities’ Michael Tupholme to $33 from $31 with a “buy” rating.

* ATB Capital Markets’ Chris Murray to $38 from $41 with an “outperform” rating.


After successfully accomplishing its five-year plans to double its size between 2015-2020 despite obstacles brought on by the COVID-19 pandemic, RBC Dominion Securities analyst Matt Logan thinks Toronto-based FirstService Corp. (FSV-Q, FSV-T) has the potential for similar growth moving forward.

“Q4 results were well ahead of our estimates driven by weather-related restoration activity and increased home resale activity,” he said. “This capped a resilient year in 2020 with organic growth of 4 per cent (0 per cent ex-weather), total revenue growth of 15 per cent, and 40 basis points of margin expansion supporting adj. EBITDA growth of 21 per cent. Notably, FSV achieved its 5-year plan with revenue, adj. EBITDA, and adj. EPS CAGRs [earnings per share compound annual growth rates] of 17 per cent, 22 per cent, and 24 per cent between 2015–20.”

“In our view, this illustrates: 1) the resiliency of FSV’s business model; 2) Management’s focus on organic growth, with a 5-year CAGR of 6 per cent; and, 3) the Company’s ability to successfully integrate acquisitions.”

Moving forward, Mr. Logan’s forecast for the real estate services provider through 2025 doesn’t call for another doubling in size, though he said “it’s close,” suggest the pursuit of large acquisitions could help accomplish that feat.

“If leverage returns to Management’s ‘comfort zone’ of 2.0–2.5 times, we think this could support additional acquisitions of $300–500-million in the short-term—and up to $1.3-billion over the next five-years. This is over-and-above our base case acquisition forecast of $125–175-million annually in 2021–22E and would lift our 5Y revenue CAGR to the 15 per cent-plus needed to double revenue by 2025.

“In the short-term, results could fall short of our forecast if vaccine distribution is delayed or storm activity is below the long-term average. In our view, this is mitigated by potential for elevated acquisition activity. However, with guidance for little change in D/EBITDA in the near-term, timing could be a factor. Net/net, we don’t see the key inputs in our five-year DCF as overly taxing (i.e., 12-per-cent EBITDA CAGR, 19 times multiple, 8-per-cent WACC), but flag elevated trading multiples for FSV (and its peers).”

Keeping a “sector perform” rating for FirstService shares, Mr. Logan hiked his target to US$160 from US$135. The average is US$156.67.

Elsewhere, Raymond James analyst Frederic Bastien increased his target to US$160 from US$155 with an “outperform” rating.

“FirstService’s two operating segments demonstrated thoughout 2020 they can vigorously cut costs in the face of economic disruption and still seize on emerging revenue opportunities,” said Mr. Bastien. “In 2H20, these came courtesy of a record-setting storm season and a red-hot housing market. Given its unwavering promise of service excellence and record liquidity levels, we can comfortably say FSV will exit the pandemic in a strengthened competitive position.”

Scotia’s George Doumet hiked his target to US$153 from US$128, maintaining a “sector perform” rating, while BMO Nesbitt Burns’ Stephen MacLeod moved his target to $168 from $147 with a “market perform” rating.

“We believe the stage is set for above average organic growth in 2021 (but muted margin expansion), driven by continued gains in the restoration business, the easing of COVID-19 restrictions and the strong likelihood of accelerated bolt-on M&A activity. That said, we see limited upside in the context of current valuation (23.5 times EV/EBITDA on our 2021E),” said Mr. Doumet.


TMX Group Ltd. (X-T) “solid” end to 2020 “continued to demonstrate the benefits of the platform’s resilience and ability to prosper across a range of market conditions,” said Scotia Capital analyst Phil Hardie.

“While the vast majority of the publicly traded Canadian Financial Services companies experienced earnings pressures through 2020, TMX delivered double-digit earnings growth and was likely a net beneficiary of market volatility,” he said. “This aligned well with our thesis on TMX and is likely to support the stock’s re-rate, resulting in a narrowing of the valuation discount relative to its peer group.

“The continued shift in investor perception of TMX as a more resilient and defensive play within Canadian Financials has also likely contributed to the stock being more rangebound in the second half of 2020 and lagging through the value rotation and vaccine recovery trade over the last few months. The stock handily outperformed the S&P/ TSX Financials Index in 2020, and while it risks taking a near-term breather, we remain positive on TMX given its resilience and high-quality attributes. We believe the key driver for the stock over the next 12-24 months will be continuing to demonstrate EPS growth through a combination of top-line expansion and operating leverage.”

However, following the release of in-line fourth-quarter financial results, he warned tougher times could be ahead.

“Heading into 2021, the biggest near-term challenge for the stock is that it faces tough year-over-year comparables on the back of solid earnings growth and stock performance in 2020,” said Mr. Hardie. “We expect low-single-digit EPS growth through 2021E, with momentum strengthening to double-digits in 2022E. From a capital markets perspective, 2021 appears to be off to a relatively strong start, although there is a degree of uncertainty as to how sustainable some of the strength is likely to be. Key areas where we think there could be upside surprise to our forecast include: cash equity trading, equity financing, and derivatives. Sustainability of retail participants in equity trading across the TSX and, in particular, the Venture exchange or elevated volatility could drive upside to our outlook for cash equity trading revenues. Buoyant market conditions and a healthy investor risk appetite could contribute to a stronger-than-anticipated rebound in equity financing and listing fees. Finally, upside on the derivatives side could come from strong contribution from extended trading hours in Asia or a stronger-than-expected rebound in interest rate derivative.”

Keeping a “sector outperform” recommendation, he raised his target by a loonie to $149. The average is $145.14.

Elsewhere, TD Securities’ Graham Ryding increased his target to $145 from $140 with a “hold” rating, while Deutsche Bank’s Brian Bedell bumped up his target to $144 from $141 with a “buy” rating.


JP Morgan analyst Tyler Langton initiated coverage of a group of TSX-listed mining companies on Wednesday.

They include:

  • SSR Mining Inc. (SSRM-T) with an “overweight” rating and $31 target. The average on the Street is $36.47.
  • Kinross Gold Corp. (K-T) with an “overweight” rating and $14 target. Average: $16.88.
  • Pan American Silver Corp. (PAAS-T) with an “overweight” rating and $49 target. Average: $54.
  • Barrick Gold Corp. (ABX-T) with a “neutral” rating and $42 target. Average: $41.
  • B2Gold Corp. (BTO-T) with a “neutral” rating and $9 target. Average: $10.70.
  • Alamos Gold Inc. (AGI-T) with a “neutral” rating and $14 target. Average: $16.17.
  • Agnico Eagle Mines Ltd. (AEM-T) with a “neutral” rating and $114 target. Average: $109.48.
  • Kirkland Lake Gold Ltd. (KL-T) with an “underweight” rating and $57 target. Average: $74.18.


Computer Modelling Group Ltd.’s (CMG-T) “mixed” third-quarter results, including “weaker” top-line figures, reflect the current “challenging” environment, according to Echelon Capital Markets analyst Amr Ezzat

On Tuesday before the bell, the Calgary-based software company that produces reservoir simulation software for the oil and gas industry reported sales of $16-million for the quarter, narrowly missing the projections of both Mr. Ezzat ($16.4-million) and the consensus on the Street ($16.6-million). However, EBITDA of $9.5-million exceeded expectations ($6.4-million and $7.9-million, respectively) due largely to the benefits of the Canadian Emergency Wage Subsidy.

“Details continue to suggest a challenging environment with Annuity & Maintenance (‘A&M’) licenses (recurring revenues) down 18 per cent year-over-year and anemic deferred revenues growth,” he said.

“While we remain fans of CMG, we see no significant catalysts in sight to drive stock performance. We expect the stock to be range bound with our 12-month target price ... implying no upside from current levels. We believe a higher return profile is possible beyond our target price should oil prices remain constructive for a sustained period of time.”

Keeping a “hold” rating, Mr. Ezzat raised his target to $6.25 from $5. The average is $6.34.

“With virtually 100-per-cent oil & gas clientele, the main upside/downside risk to our target price and rating is crude oil pricing,” he said.

Meanwhile, Canaccord Genuity analyst Doug Taylor raised his target to $6 from $5 with a “hold” rating.

“While cost cutting and CEWS benefits produced an EBITDA beat, the decline in recurring revenue was steeper than we had expected (down 19 per cent year-over-year in Q3),” he said. “Shares have risen alongside oil prices in recent weeks, and we observe an uptick in activity levels and sentiment within the energy industry. However, we would like to see better evidence that this is translating into stabilization of the recurring revenue base.”

* Scotia’s Paul Steep moved his target to $6.50 from $5 with a “sector perform” rating.

“We continue to see CMG as a strong software firm given the mission-critical nature of its solutions, with potential share price upside as it begins to actively sell CoFlow and enter an adjacent software market. Key factors we are watching for in revisiting our thesis on CMG include: traction in achieving go-to-market success with CoFlow; and evidence of ongoing improvements of the firm’s annuity/maintenance base related to a stabilization in commodity prices,” said Mr. Steep.


A group of equity analysts on the Street raised their target prices for units of CT REIT (CRT.UN-T) in response to Tuesday’s release of in-line fourth-quarter financial results.

In a research note titled Can’t keep a good man down, Desjardins Securities Michael Markidis said the REIT’s income profile has been “virtually unscathed” during the COVID-19 pandemic due, in large part, to its strong relationship with Canadian Tire Corporation Ltd. (CTC.A-T).

“Rent collection is head and shoulders above that of the retail peer group. On the back of our review of 4Q20 results, our 2021–22 FFO outlook and spot NAV modestly improve,” said Mr. Markidis.

Keeping a “hold” recommendation, he increased his target by a loonie to $15.50, which remains below the $16.50 average.

Others making changes included:

* RBC’s Pammi Bir to $16 from $15.50 with an “outperform” rating.

* CIBC’s Dean Wilkinson to $16 from $15 with a “neutral” rating.

“CT REIT offers investors a blend of lower unit depreciation risk and higher distribution sustainability, resulting in lower relative reward versus peers,” said Mr. Wilkinson.

* BMO Nesbitt Burns’ Jenny Ma to $17 from $16.25 with an “outperform” rating.

* TD Securities’ Sam Damiani to $17 from $16.50 with a “buy” recommendation.


ATB Capital Markets analyst William Lacey initiated coverage of MEG Energy Corp. (MEG-T) with a “sector perform” recommendation, calling its steam-assisted gravity drainage facility in Christina Lake, Alta. a “world-class oil asset” and “one of the best of its kind.”

“MEG is the only pureplay SAGD producer of scale in North America, which should be of interest to those with a constructive outlook on oil pricing and who can get comfortable with the Company’s underlying financial structure,” he said.

However, Mr. Lacey expressed caution following a “challenging” 2020 for MEG, noting: “With oil prices feeling the effects of COVID-19, the Company’s main focus was to cut back anywhere it could. The team has done an admirable job, reducing costs from a trailing 12-month average of $14.32 per barrel to the current level of $7.38/bbl, and when surplus power sales are factored in, the cost level is $5.86/bbl. That said, we do not see some of these cost cuts as sustainable, as costs such as G&A were subsidized through the Canadian Emergency Wage Subsidy (CEWS). We believe some of these costs will increase somewhat going forward, but the team should take credit for the drastic cost-saving efforts that have been made over the last 12 months.”

“In this current environment, we do not foresee an expansionary outlook for MEG. Instead, we believe management’s focal points will be optimizing the facility at Christina Lake, free cash flow generation, de-levering of the balance sheet, and the continued examination of new cost-saving and carbon-reducing technologies.”

The analyst set a target price of $6.75 for MEG shares. The current average is $5.61.


In other analyst actions:

* RBC Dominion Securities analyst Irene Nattel increased his target for shares of Canadian Tire Corporation Ltd. (CTC.A-T) to $198 from $175 with an “outperform” rating. The average on the Street is $175.82.

* Credit Suisse analyst Allison Landry raised her target for TFI International Inc. (TFII-N, TFII-T) to US$89 from US$82 with an “outperform” rating, while National Bank’s Cameron Doerksen taised his target to $110 from $103 also with an “outperform” recommendation. TD Securities’ Tim James to $115 from $110 with a “buy” rating, exceeding the consensus of $99.78.

“TFI posted a Q4 beat, helped by strength in its P&C and Logistics segments,” said Ms. Landry. “Looking ahead, we think the company is set up well for growth. The recently announced acquisition of UPS Freight establishes the company as a major participant the U.S. LTL market, and the company plans to continue pursuing smaller, tuck in acquisitions. Beyond the inorganic growth opportunities, TFI plans to improve profitability by streamlining its U.S. TL business and leaning into its high growth P&C and Logistics segments – which have been benefitting from the surge in eCommerce shipments. In other words, TFI has leverage to high growth areas within transportation, and it’s constantly evaluating ways to capture more opportunities and streamline the business, supporting strong earnings growth over the next few years.”

* Scotia Capital analyst Konark Gupta raised his target for Bombardier Inc. (BBD.B-T) to 55 cents from 43 cents with a “sector perform” rating. The average is 51 cents.

* TD Securities analyst Mario Mendonca increased his target for Intact Financial Corp. (IFC-T) to $175 from $170 with a “buy” rating. The average on the Street is $174.36.

* TD’s Daniel Chan raised his target for Absolute Software Corp. (ABST-T) to $17 from $16 with a “hold” recommendation, while BMO Nesbitt Burns’ Thanos Moschopoulos increased his target to $21 from $18 with a “market perform” rating. The average is $17.46.

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