Inside the Market’s roundup of some of today’s key analyst actions
CIBC downgraded Organigram Holdings Inc. (OGI-T) to an “underperformer” rating - the equivalent of a sell recommendation - from “neutral”, and was among several brokers that slashed price targets on the cannabis company following disappointing quarterly results.
Organigram said Tuesday it had a net loss of $66.4 million (Canadian) in its fiscal second quarter to Feb. 28, wider than the loss of $6.8 million posted in the year-earlier quarter. Revenue fell to $14.6 million from $23.2 million, missing the Street consensus of $19.1 million. Revenue was hurt by missed sales opportunities as a “significant number” of staff had to isolate amid certain employees testing positive for COVID-19.
“In our opinion, it is difficult to foresee OGI returning to positive EBITDA even in fiscal 2022,” commented CIBC analyst John Zamparo. “Ongoing pandemic impacts (restrictions on retail stores and wholesaler de-stocking) will exacerbate declining domestic market share that is occurring at shrinking margins, while higher-margin international sales are temporarily paused.”
Organigram shares soared in March after British American Tobacco announced that its subsidiary will buy a 19.9 per cent stake in the Moncton, N.B.-based cannabis company for $221 million.
While the investment from British American Tobacco looks “exceedingly attractive” and Organigram can now acquire additional brands, “we believe the stock’s valuation (10.5x F2022E sales, not far off best capitalized peers) reflects material improvements in the next few quarters, while we are more cautious. Moreover, consensus estimates assume a 40% revenue CAGR through F23 vs. our 20% forecast.”
Mr. Zamparo lowered his price target to $3.25 from $5.
Elsewhere, Alliance Global Partners cut its price target to $3.75 from $4; ATB Capital Markets went to $3.75 from $4.20; and Haywood Securities cut its target to $3.50 from $4.75.
Canaccord Genuity raised its price target to $3.50 from $2, citing changes it made in its modeling for the company following the British American Tobacco transaction.
The average price target is $3.75, according to Refinitiv Eikon data.
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CIBC is bullish on silver, thanks in part to its use in the solar industry and the growing importance of ESG investing - and has a new suggestion on a stock to play the sector.
Gatos Silver Inc. (GATO-N) is a silver-focused producer that also has potential to expand its reserves through exploration work. CIBC analyst Alex Hunchak initiated coverage on the stock with an “outperformer” rating and US$14 target price.
“Gatos is a true primary silver producer, with its recently commercial Cerro Los Gatos (CLG) mine in Chihuahua, Mexico expected to produce nearly 8 million ounces of silver and nearly 11 million ounces of silver-equivalent in 2021,” Mr. Hunchak commented in a research note. “With top-of-class leverage to the silver price, a NYSE listing, and significant longer-term exploration potential, we see Gatos Silver as a compelling avenue for exposure to the green energy tailwinds expected for the silver commodity in the coming years.”
At current spot silver prices, Gatos currently trades at a price to net asset value of 1.2 times, below the group average of 1.5 times, making for a compelling valuation, he said.
“We see exploration results, delivery of strong operating results against guidance, and an update on CLG’s potential expansion to 3,000 tonnes per day (from 2,500tpd currently) as key potential catalysts to support the stock over the next 12 to 18 months,” he said.
The average analyst price target is US$10.
Mr. Hunchak’s recommendation was made the same day as his CIBC colleague Cosmos Chiu made a case for investment in the silver sector in general.
“The continued focus on renewable energy worldwide, as well as re-engagement and leadership from the U.S., provides a favourable backdrop for future growth in solar power generation globally, with a focus on the largest solar markets of China, the EU, India, and the U.S. We expect this focus on renewables will heighten investor interest in the silver commodity (a key input in solar panels), and in silver producers as a result,” Mr. Chiu said in a separate note. “Historically, silver has tended to outperform gold during bull cycles for precious metals, and we believe this solar narrative could be an important driver in both industrial and investment demand for the metal.”
In addition to Gatos Silver, CIBC’s top picks for silver equities are Wheaton Precious Metals and Pan American Silver.
The bank also initiated coverage on two stocks in the sector: Nomad Royalty Company Ltd. (NSR-T) was given a “neutral” rating and a $1.25 (Canadian) price target. And Mag Silver Corp. (MAG-T) was initiated with a “neutral” rating and $27 (Canadian) price target.
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Credit Suisse analyst Andrew M. Kuske initiated coverage on Algonquin Power & Utilities Corp. (AQN-N) with a “neutral” rating and US$17.50 target price.
“In our view, AQN’s growth rates and opportunity set are impressive; however, the stock appears to currently reflect most of that reality at this time,” Mr. Kuske concluded.
He noted that Algonquin has a “hybrid” position in the market, with its activities split towards its utilities business and its renewables segment.
“AQN faces positive prospects across both these business groups that are driven by some company-specific dynamics along with an overarching theme of renewable power generation growth,” he said.
The average price target on the Street is US$17.45.
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Canaccord Genuity analyst Yuri Lynk downgraded Badger Daylighting Ltd. (BAD-T) to “hold” from “buy”, calling the stock’s valuation “extremely rich” and vulnerable to a pullback from potentially weaker-than-expected first quarter results. He maintained a Canadian $43 one-year target price.
Despite recommending investors move to the sidelines, he remains positive on the company’s long-term fundamentals. “We continue to view the growing importance of safe digging as a secular trend, which should benefit Badger, the leader in safe, non-destructive hydrovac excavation. We also believe the underpenetration of hydrovac in North America affords Badger the opportunity to increase its fleet by 7x to 9x over time.”
Badger is expected to release first quarter results in the first week of May.
“To reflect a potentially slow start to 2021, we are reducing our Q1/2021 EBITDA estimate to $19 million from $23 million, which is also the FactSet consensus. By way of comparison, Badger generated $18 million of EBITDA in Q1/2020. Badger’s quarterly performance is challenging to predict at the best of times but especially so now with activity still uneven given the pandemic. To further complicate things, the first quarter is seasonally weak from a revenue perspective but it is also the quarter when Badger must recruit, onboard, and train operators for the construction season so it has a truck ready when a customer calls. Therefore, labour costs could be higher than expected in the quarter least suited to absorb them from a revenue perspective,” he said.
The average price target among analysts is $42.78.
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Roth Capital Partners initiated coverage on Ideanomics Inc. (IDEX-Q) with a “buy” rating and US$7 price target, recommending the stock as a way for investors to tap the emerging growth opportunities in electric vehicles and fintech.
The company, through its eMobility Group, aims to provide a complete portfolio of products and services for commercial electric vehicles, including vehicles, batteries, charging equipment, and related energy sales. They will be packaged with EV-specific financial services, including vehicle and battery financing.
Its separate Ideanomics Capital business includes five companies with different fintech expertise, all with the goal of innovating solutions for broader financial market sectors that are seeing rapid evolution.
Analyst Craig Irwin noted there has already been visible success at two of its business - Tree Technologies and WAVE - and that likely points to rising momentum across the group.
Tree Technologies has received an initial 10,000 unit purchase order out of Indonesia for the company’s Treeletrik electric motor bikes. And inductive charging solutions provider WAVE has deployed about 60 charging units to date, ranging from 50 kW to 250 kW.
Mr. Irwin said the entrepreneur founders of the company “seem to benefit from collaborative resources and technology,” which should help accelerate development of the business.
Roth Capital is the only firm covering the stock, according to Eikon data.
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In other analyst actions:
Coinbase Global Inc. (COIN-Q): Moffett Nathanson starts with “buy” rating and US$600 price target.
JetBlue Airways Corp. (JBLU-Q): JP Morgan raises to “overweight” from “underweight” and raises price target to US$25 from $15.
Southwest Airlines Co. (LUV-N): JP Morgan raises price target to US$66 from $44 and upgrades rating to “neutral” from “underweight.”
Spirit Airlines Inc. (SAVE-N): JP Morgan raises price target to US$54 from $31 and upgrades rating to “overweight” from “underweight.”
Delta Air Lines Inc. (DAL-N): JP Morgan raises price target to US$63 from $49.
United Airlines Holdings Inc. (UAL-Q): JP Morgan raises price target to US$58 from $43.
BBTV Holdings Inc. (BBTV-T): PI Financial initiates coverage with “buy” rating and $20 target price.
First Quantum Minerals Ltd. (FM-T): Goldman Sachs raises target price to $40 from $30.
Teck Resources Ltd. (TECK-B-T): Goldman Sachs raises target price to $28 from $25.
Hire Technologies Inc. (HIRE-X): Eight Capital initiates coverage with “buy” rating and $0.75 price target.
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Darcy Keith