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

Emerging from first-quarter earnings season, Credit Suisse analyst Mike Rizvanovic has “a more optimistic outlook” for Canadian banks.

“While the material drop-off in loan loss provisions grabbed the headlines, the strong sequential rebound in PTPP earnings was driven by numerous factors that included: 1) continued strength in the Capital Markets business with upbeat guidance on the near-term outlook; 2) solid growth in Wealth Management; and 3) a notable improvement in other fee-based revenue, which surprised to the upside despite renewed lockdowns in Canada during the quarter,” he said in a research note released on Wednesday.

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“We don’t believe that credit risk can be completely dismissed and we do expect to see some volatility in the PCL line in the coming quarters as it is difficult to ascertain at this point in time how well consumers and businesses (SMEs in particular) will fare once government support programs are unwound. Having said that, reserve levels for the group appear solid based on what we know today, with potential recoveries providing a meaningful offset to the inevitable credit migration that lies ahead. Our base case on credit ‘normalization’ is for aggregate loss ratios to revert to the mid-30 bps range through F2022.”

Citing its relative valuation as well as “strong” expense discipline and improvements in mortgage lending, Mr. Rizvanovic upgraded Canadian Imperial Bank of Commerce (CM-T) to “neutral” from an “underperform” recommendation on Wednesday.

“While we don’t expect CM to see any meaningful revaluation vs. peers to the upside, we also believe that the downside risk is limited as the bank currently trades in line with its historical discount of 10 per cent, which we view as appropriate and roughly the discount we use to calculate our target price,” he said.

“CM’s ability to control costs has been a strong positive in the face of recent challenges to top-line growth as the bank’s operating expenses at the consolidated level were held flat over the past 12-month period, and were 1 per cent lower if we exclude the Capital Markets segment (a group-low on the latter metric).”

His target for CIBC shares rose to $123 from $118, falling short of the $129.46 average on the Street.

The analyst also made these other target price adjustments:

  • Bank of Montreal (BMO-T) to $113 from $108 with an “outperform” rating. Average: $113.70.
  • Bank of Nova Scotia (BNS-T) to $75 from $71 with an “underperform” rating. Average: $78.13.
  • Canadian Western Bank (CWB-T) to $37 from $36 with an “outperform” rating. Average: $35.08.
  • National Bank of Canada (NA-T) to $87 from $85 with an “outperform” rating. Average: $85.36.
  • Royal Bank of Canada (RY-T) to $118 from $115 with an “outperform” rating. Average: $120.21.
  • Toronto-Dominion Bank (TD-T) to $77 from $76 with an “underperform” rating. Average: $80.81.

“While we have not made any further revisions to our EPS estimates, we are moving our price targets higher across the board as we now apply an average target multiple of 10.8 times for the large banks,” said Mr. Rizvanovic. “That is roughly in line with the group’s historical average, which we believe is justified by a more stable earnings outlook on an improving economy and the likelihood of lower loan losses than we had previously anticipated through our forecast period.”

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“We believe valuation is more compelling today than it was before the quarter as the group now trades at a suppressed average PE multiple of 10.2 times on F2022 EPS (based on FactSet consensus) as share prices (up 4 per centsince before the quarter) have not kept pace with upward revisions to F2022 consensus EPS estimates (up 8 per cent since before the quarter).”


Seeing it “well positioned for growth” after quarterly results blew past the Street’s expectations, RBC Dominion Securities analyst Sabahat Khan raised Spin Master Corp. (TOY-T) to “outperform” from “sector perform.”

“Q4 results and the 2021 guidance reflected significant progress made by the company over the course of 2020 towards addressing the supply chain challenges and driving progress across a number of growing verticals (third-party license portfolio and its Digital platform),” said Mr. Khan. “Spin Master shares are up significantly following Q4 results; however, we are upgrading the shares ... as we see further upside from current levels given: 1) the potential for further moderation in the valuation gap between Spin Master and its peers (Spin Master trades at 9.8 times 2021 estimated EBITDA vs. HAS at 14.9 times and MAT at 12.6 times); 2) the potential for better-than-expected margin improvement through 2021 (our 2021 Adj. EBITDA margin forecast is 16.7 per cent); 3) non-recurrence of supply chain issues which impacted 2019 and 2020 results, which should allow management to direct their time/attention towards activities that drive sales/earnings growth; and 4) the company’s clean balance sheet, which provides significant optionality.

Mr. Khan hiked his target for the Toronto-based company’s shares to $44 from $34. The average on the Street is $39.27.

Other analysts making target changes included:

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* Canaccord Genuity’s Derek Dley to $40 from $30 with a “hold” rating.

“We have increased our target multiple to reflect an increasing mix of high-growth and high-margin digital sales. While we continue to be impressed with Spin Master’s ability to create coveted toy brands and verticals, we believe the deceleration of some key franchises for Spin Master remains a challenge in the near term,” said Mr. Dley.

* CIBC World Markets’ Robert Bek to $40 from $33 with an “outperformer” rating.

* Scotia Capital’s George Doumet to $39 from $31 with a “sector perform” rating.

* Jefferies’ Stephanie Wissink to $40 from $35 with a “buy” rating.

* DA Davidson’s Linda Bolton Weiser to $37 from $30 with a “neutral” rating.

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* TD Securities’ Brian Morrison to $32 from $28 with a “buy” rating.

* National Bank Financial’s Adam Shine to $42 from $36.50 with an “outperform” rating.


In the wake of the closing of a $33.1-million bought deal financing, Canaccord Genuity analyst Robert Young responded to recent share price appreciation for Pollard Banknote Ltd. (PBL-T) by lowering his rating to “hold” from “buy.”

“Since the announcement of the financing, shares have advanced significantly by 40 per cent on the back of new retail demand, largely on the back of emerging iLottery expectations,” he said. “While we have increased our forecast and pushed our valuation multiple higher to reflect a strong lottery macro and opportunities in iLottery, we believe this is currently baked into the stock and provides limited room for upside.”

Mr. Young said the recent announcements of “strong” iLottery performance south of the border and a new contract in Denmark through its Next Generation Lotteries subsidiary reaffirm “the strength in iLottery adoption and justifies Pollard’s push into digital lottery solutions.”

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“As an investment, we believe Pollard provides dual benefit - a recession-resistant business with high barriers to entry and a growing digital/iLottery business that is poised to see higher adoption by lotteries worldwide,” he said. “Pollard Banknote is no longer cheap, in our view, but it’s a predictable and profitable growth story complemented with regular M&A. We believe that continued execution on iLottery is a catalyst for further multiple expansion, but we would look for a pullback to be more aggressive. In our view, the current valuation multiple reflects the growth prospects from iLottery, and we would like to see tangible momentum in iLottery RFP’s in order to stretch the valuation further.”

The analyst hiked his target for the Winnipeg-based company’s shares to $55 target from $40, exceeding the $39.25 average.

Elsewhere, Acumen Capital analyst Jim Byrne hiked his target to $60 from $42 with a “buy” rating.

“The share price has rallied in the past few weeks, along with its lottery and gaming peers,” said Mr. Byrne. “Our revised target price is based on av EV/EBITDA multiple of 18 times our 2022 EBITDA estimate. While not inexpensive at these levels, we view PBL as unique in the lottery business given its steady growth, secure long-term base business (scratch, charitable) along with a growing presence in the high-growth, high-margin iLottery sector. Given the early-stage penetration of iLottery in the U.S. we continue to view PBL as an excellent investment for this technology play.”


George Weston Ltd. (WN-T) ended 2020 “on a strong note with more to come,” said Chris Li after Tuesday’s release of stronger-than-anticipated fourth-quarter results.

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“Despite near-term sales challenges due to COVID-19, profitability and cash flow are expected to improve, supported by the transformation program and market share gains in high-growth segments,” he said. “All of WN’s business units should benefit from the economy reopening.”

Mr. Li emphasized Loblaw (L-T), which also reported better-than-expected results on Feb. 25, remains the company’s “biggest value driver” with earnings per share growth expected to reach low double digits in 2021.

“Based on our discussion with management, we believe there is some upside to our $4.61 estimate (vs consensus of $4.66),” he said. “In management’s view, its 10–15-per-cent EPS growth target implies a two-year CAGR [compound annual growth rate] of 6–8 per cent (2019–21E). This includes 2–3-per-cent earnings dilution from online growth that would have been spread out over two years under normal market conditions. In this context, management believes its 10–15-per-cent EPS growth target for this year is reasonable.”

Mr. Li thinks Choice Properties REIT (CHP.UN-T), which represents 32 per cent of Weston’s net asset value, could benefit from improving REIT sentiment as pandemic-related lockdowns ease, and though he thinks its Weston Foods segment has a difficult near-term outlook., he said it appears “solid over the longer term.”

“Management believes the stock is undervalued,” he said. “WN is taking advantage of its solid financial position (GWL Corporate generated FCF of $811-million in 2020 and cash of $1-billion) for share repurchases. Based on our previous discussions, management believes a fair holdco discount would be 10–12 per cent.”

Keeping a “buy” rating, Mr. Li raised his target for George Weston shares to $112 from $110. The average is $115.33.

Elsewhere, Scotia Capital analyst Patricia Baker lowered her target to $115 from $117 with a “sector outperform” recommendation.


Though he continues to “admire [its] accelerating machine order prospects,” Raymond James analyst Steve Hansen lowered Enwave Corp. (ENW-X) to “market perform” from an “outperform” recommendation, citing “renewed uncertainty associated with the company’s near-term NutraDried prospects.”

On Monday, the Vancouver-based company reported first-quarter financial results that Mr. Hansen deemed “light.” Revenue fell 12.5 per cent year-over-year to $7.5-million, missing both the Mr. Hansen’s $8-million projection and the consensus estimate on the Street of $8.2-million.

While he said its EnWave Canada results continued to “gain steam,” the analyst expressed concern about the performance of its NutraDried segment.

“NutraDried revenue increased 19.8 per cent year-over-year to $4.9-million (vs. Raymond James estimate: $4.5 -million), largely owing to higher sales associated with previously discussed aggressive promotional programs,” he said. “As a result, gross margin declined 2,900 basis points year-over-year to 15.0 per cent, largely owing to the aggressive promo spend and higher cheese prices. Looking forward, despite sustained efforts to grow its branded product distribution, unpredictable Costco rotations have created an air pocket of demand that will take time to fill. In this context, management is pursuing new white-label customers aimed at bolstering plant utilization, with some initial signs of success (1 customer landed). Aggressive expense control is also being pursued with the goal of returning the division to positive EBITDA. We have lowered our forecasts accordingly.”

Mr. Hansen trimmed his target for Enwave shares to $1.85 from $2.15. The current average is $1.76.


Though he believes the gold sector “remains unloved” Credit Suisse’s Fahad Tariq trimmed his target prices for a group of TSX-listed mining stocks in a research report wrapping up earnings season on Wednesday.

“Q4 extended the trend of fundamental earnings and cash flow beats (for the most part) for gold producers in our coverage, with margins mostly intact and little evidence of cost inflation,” he said. “Management teams remain disciplined on capital allocation (with a few exceptions of higher than expected medium-term capex), and are still prioritizing returning more capital to shareholders. Yet despite the strong fundamental backdrop, gold equities have continued to rerate lower, beyond what would be implied by the lower gold price. Anecdotally, in discussions with investors, it appears the sector is being overlooked due to concerns on the gold price outlook (investors are still trying to determine gold price direction, with rising inflation expectations but also rising yields), and also because other metals such as copper and lithium are getting the most attention as part of the green energy transition trade.”

“Common trends and discussion include most gold producers replacing depleted reserves in 2020 (reserves did not generally grow year-over-year in part due to COVID-19 related exploration delays), little evidence of operating cost inflation (with many producers having hedged 2021 energy costs, and long-term contracts in place, but some regional capex pressures, e.g., Australia), a continued focus on returning more capital to shareholders (the following companies announced dividend increases: Newmont, Barrick - special dividend, Alamos Gold, and Lundin Mining), improving balance sheets with overall minimal net debt, and limited operational impact from COVID-19 (most companies citing minimal $10-20 per ounce impact from direct COVID costs).”

His changes included:

  • Agnico Eagle Mines Ltd. (AEM-N/AEM-T, “outperform”) to US$76 from US$88. Average: US$87.90.
  • Alamos Gold Inc. (AGI-N/AGI-T, “neutral”) to US$8.50 from US$9.75. Average: US$11.44.
  • Barrick Gold Corp. (GOLD-N/ABX-T, “outperform”) to US$25 from US$29. Average: $31.69.
  • Centerra Gold Inc. (CG-T, “neutral”) to $14 from $15.50. Average: $19.22.
  • Endeavour Mining Corp. (EDV-T, “outperform”) to $36 from $42. Average: $47.89.
  • Franco-Nevada Corp. (FNV-N/FNV-T, “neutral”) to US$125 from US$140. Average: US$153.05.
  • Hudbay Minerals Inc. (HBM-T, “outperform”) to $12 from $11. Average: $11.67.
  • Iamgold Corp. (IAG-N/IMG-T, “neutral”) to US$3.50 from US$4. Average: US$4.76.
  • Kinross Gold Corp. (KGC-N/K-T, “neutral”) to US$7.50 from US$8.50. Average: US$11.97.
  • Kirkland Lake Gold Ltd. (KL-N/KL-T, “neutral”) to US$37 from US$46. Average: US$48.
  • New Gold Inc. (NGD-N/NGD-T, “neutral”) to US$1.90 from US$2.20. Average: US$2.25.
  • Wheaton Precious Metals Corp. (WPM-T, “neutral”) to $52 from $62. Average: $79.58.
  • Yamana Gold Inc. (AUY-N/YRI-T, “outperform”) to US$6.25 from US$7. Average: US$7.31.


Scotia Capital analyst Benoit Laprade adjusted his target prices for a group of TSX-listed lumber and paper stocks in his coverage universe.

His changes included:

  • Cascades Inc. (CAS-T, “sector perform”) to $19.50 from $19. Average: $20.
  • Interfor Corp. (IFP-T, “sector outperform”) to $37 from $36. Average: $36.33.
  • Stella-Jones Inc. (SJ-T, “sector perform”) to $54 from $53. Average: $53.06.
  • Western Forest Products Inc. (WEF-T, “sector perform”) to $2.25 from $2. Average: $2.
  • West Fraser Timber Co Ltd. (WFG-T, “sector outperform”) to $106 from $103. Average: $104.19.


Following the release of in-line third-quarter 2021 results, Canaccord Genuity analyst Tania Gonsalves sees a recent dip in shares of Medexus Pharmaceuticals Inc. (MDP-X) as a buying opportunity, leading her to raise her rating to “buy” from “hold”

After the bell on Monday, the Montreal-based company reported revenue of $31.5-million, narrowly below Ms. Gonsalves’s $32.9-million projection but in line the consensus of $31.6-million. Adjusted EBITDA of $5.1-million exceeded the estimates of both the analyst ($4.9-million) and the Street ($4.4-million).

“Last month, MDP in-licensed the U.S. rights to treosulfan, a drug we estimate could hit $242.0-million in peak sales,” said Ms. Gonsalves. “Despite the work that comes with launching a drug such as this, for instance building out a brand new sales team, MDP continues to deepen its pipeline of high-quality in-licensing opportunities. It is prioritizing those that provide the best potential to leverage the existing North American commercial infrastructure. In January, MDP also submitted an application to list on the NASDAQ in order to broaden its potential investor base. This makes sense considering 3/4 of sales come from the U.S. today, a number which will materially increase if and when MDP launches treosulfan in the U.S..”

She maintained a $9.50 target for Medexus shares. The current average is $12.50.

“We believe there is value here ahead of treosulfan’s August 2021 PDUFA date,” she added.


After meeting with Exro Technologies Inc.’s (EXRO-X) management and investors to discuss a Seeking Alpha report that accused the Vancouver-based company of exaggerating partnerships and brought forward leadership concerns, Raymond James analyst Michael Glen said his opinion on its technology, management team and outlook “have not been impacted in any way, shape, or form.”

Accordingly, he raised his rating for its shares to “strong buy” from “outperform.”

“This report had a significant impact on Exro’s stoc kprice (down 45 per cent) and our call addressed the allegations head on,” said Mr. Glen. “Attending the call were Sue Ozdemir, CEO, Mark Godsy, Executive Chairman, and John Meekinson, CFO. Exro also released an Integrity Statement which emphasizes the company ‘will not take this report lightly’ and will be providing a more detailed release ‘in the next 48 hours’ against the claims made. We anticipate this release will also include comments/feedback from customers/partners.”

“What we found most glaring in the report was what was omitted. The author failed to mention very specific aspects that are critically important to our favourable view.”

Mr. Glen maintained a $9 target for Exro shares. The average is $6.23.

“We acknowledge that valuing a stock like Exro is challenging,” he said. “The company has a unique technology that offers a number of advantages to its customers, and we see them positioned in a segment of the market about to see massive growth. We have a significant amount of conviction in the stock and we believe the accusations in the Seeking Alpha report do not accurately describe the company, technology, management team and outlook for business. We use a target multiple of 20 times our 2024/2025 estimated revenue, which we recognize is aggressive but is characteristic of the massive growth potential of the company. All-in-all, we still see several positive catalysts over the coming year, and therefore we are upgrading.”


In other analyst actions:

* RBC Dominion Securities Matt Logan raised his Boardwalk Real Estate Investment Trust (BEI.UN-T) to $43 from $38 with an “outperform” rating. The average on the Street is $42.95.

* Scotia Capital analyst Konark Gupta raised his CAE Inc. (CAE-T) target to $45 from $39 with a “sector outperform” rating, while CIBC World Markets’ Kevin Chiang moved his target to $42 from $36 with a “neutral” recommendation. The average is $41.

* Mr. Gupta also increased his target for Chorus Aviation Inc. (CHR-T) to $4.75 from $4 with a “sector perform” rating. The average is $5.13.

* Scotia’s Michael Doumet increased his Wajax Corp. (WJX-T) target by a loonie to $26, maintaining a “sector outperform” rating, while TD Securities’ Michael Tupholme increased his target to $24 from $20 with a “buy” recommendation.. The current average is $20.50.

* Evercore ISI analyst David Motemaden increased his Sun Life Financial Inc. (SLF-T) target to $73 from $72 with an “outperform” rating. The average is $68.77.

* Mr. Motemaden bumped up his Manulife Financial Corp. (MFC-T) target to $25 from $24.50 with an “in line” recommendation. The average is $27.46.

* TD Securities analyst Derek Lessard raised his Pizza Pizza Royalty Corp. (PZA-T) target to $12 from $10.50 with a “buy” rating.

* TD’s Graham Ryding raised his First National Financial Corp. (FN-T) target to $48 from $46, maintaining a “hold” rating. The average is $46.20.

* TD’s Aaron Bilkoski increased his target price for Nuvista Energy Ltd. (NVA-T) to $2.50 from $2 and exceeding the $2.25 average with a “hold” rating, while Raymond James’ Jeremy McCrea bumped his target to $3 from $2.50 with an “outperform” recommendation.

“With plenty of positive operations, it may seem like investors have noticed given the share price,” he said.. That said, we believe NVA is still off the radar screens from many investors ....We still think there remains plenty of upside yet in the stock,” said Mr. McCrea.

* Cowen and Co. analyst Joshua Jennings raised his target for Mississauga-based Profound Medical Corp. (PROF-Q, PRN-T) to US$28 from US$22 with an “outperform” rating, while Jefferies’ Raj Denhoy cut his target to US$30 from US$38 with a “buy” rating. The current average is US$26.05.

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