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

After its first-quarter results blew past expectations, RBC Dominion Securities analyst Matt Logan continues to see “good momentum” in FirstService Corp.’s (FSV-Q, FSV-T) business, emphasizing support from “strong home improvement results, growing scale in property restoration, and a gradual re-opening of the economy.”

Before the bell on Tuesday, the Toronto-based property services provider reported revenues of US$711-million, up 12 per cent year-over-year and above the estimates of both Mr. Logan (US$680-million) and the Street (US$674-million). Adjusted EBITDA of US$60-million was a rise of 36 per cent year-over-year and also topped the US$48-million estimate of both the analyst at the Street by 24 per cent, while adjusted earnings per share of 66 US cents represented a 78-per-cent jump and also blew past projections (52 US cents and 45 US cents, respectively).

“Looking ahead, we see organic/acquisition growth of 6 per cent and 6 per cent in 2021 (unchanged) and 6 per cent/7 per cent in 2022 (5 per cent/8 per cent previously),” said Mr. Logan. “In 2021, our organic growth outlook is in line with the 6-per-cent long-term average and comprised of 5 per cent for residential, 7 per cent for restoration (ex-storms), 10 per cent for home improvement, and flat for Century Fire. Our acquisition forecast is below the 11-per-cent average over the past 5Y.

“We see some potential upside from hurricanes and large M&A. In our view, the biggest differences between consensus 2021 EBITDA estimate of $312-million (range: $302–321-million) and our $321-million estimate are likely driven by weather-related restoration revenues and M&A. With regard to the former, our estimates include 17 per cent ($112-million) of restoration revenues from large storms, in line with the long-term average of 15–20 per cent (of which $40–50-million is booked/expected in H1/21). For the latter, our forecast includes normal course tuck-unders, with large deals providing potential upside, given TTM D/EBITDA [trailing 12-month debt to EBITDA] of just 1.3 times (vs. the 3Y/5Y avg. of 2.1 times/1.9 times).”

Though he trimmed his 2021 and 2022 EBITDA projections narrowly following the “strong” results and “conservative” guidance, Mr. Logan hiked his target for FirstService shares to US$190 from US$160, touting its “significant long-term growth prospects.” The average on the Street is US$167.42.

“While storm activity is inherently lumpy (benefiting Q1 results), we think it is prudent to focus on long-term trends and see our 2021 estimates as de-risked post-quarter,” the analyst said. “Big picture, we think FSV’s positive macro backdrop and strong execution are largely reflected in the current share price and maintain our Sector Perform rating.”

Elsewhere, TD Securities analyst Daryl Young cut FirstService to “hold” from “buy” with a US$180 target, up from US$175, while CIBC World Markets’ Scott Fromson lowered it to “neutral” from “outperformer” with a US$180 target, up from US$161.

“We see FSV as a high-quality, well-managed growth vehicle and we like its business model,” said Mr. Fromson. “We believe that FSV’s long-term growth will trend around a healthy 10 per cent, driven by a diverse portfolio of market-leading, essential property-service businesses. We assume a roughly equal split between organic and acquisition revenue-growth sources. FSV has a number of secular and cyclical drivers, while strong cash flow and a solid balance sheet provide a solid foundation for growth.

“Our only quibble is with valuation. We think the stock price – which is trading at both record EV/EBITDA multiple and spread to peers – largely reflects growth prospects over the 12- to 18-month period for our price target. At present, we don’t see sufficient share price upside to merit an Outperformer rating and would look for transitory growth variability to create a better entry point.”

Others making target price adjustments include:

* BMO Nesbitt Burns’ Stephen MacLeod to US$185 from US$168 with a “market perform” rating.

“Looking ahead, Q2 comparables are easy, with last year’s period bearing the brunt of pandemic closures; H2 is more challenging,” Mr. MacLeod said.

“We continue to see a long-term runway for growth across FSV’s businesses, both organically (2021E to “normalize” to mid-single-digit growth) and through acquisition (liquidity is strong, tuck-in pipeline is ‘active’). Given the stock’s strong performance and valuation, we see balanced risk-reward.”

* Scotia Capital’s George Doumet to US$168.50 from US$153 with a “sector perform” rating.


Though he sees Canadian consumer aviation recovering, Canaccord Genuity analyst Matthew Lee thinks Air Canada’s (AC-T) current share price already reflects that optimism.

Accordingly, upon assuming coverage of the industry, he lowered the firm’s rating for the airline to “hold” from “buy.”

“Prior to the pandemic, Air Canada was exceptionally positioned with enviable growth, increasingly favourable Canadian industry dynamics, an updated fleet, and financial flexibility,” he said. “While COVID-19 largely stymied the company’s plans, we still believe that Air Canada is one of the best-positioned airlines in North America for a reopening, especially given the work done to improve its cost structure. With that said, we believe that valuations have largely caught up with historical averages, which may underestimate the length of a COVID shutdown and associated cash burn. This is especially relevant for Canada where restrictions have been more arduous than in the U.S. and domestic travel accounts for a smaller percentage of travel. While we very much like the Air Canada story and long-term position, we transfer coverage with a HOLD rating.”

Mr. Lee trimmed his target for Air Canada shares to $26 from $28, falling short of the $28.38 average on the Street.

Conversely, he thinks the recent sell-off in Cargojet Inc. (CJT-T) shares offers an opportunity for investors, prompting him to raise his rating to “buy” from “hold” with a $220 target, up from $210 but below the $259 average.

“We appreciate Cargojet’s resilient business, contract stability, and position to capture the burgeoning Canadian ecommerce industry, which has seen a rapid uptake due to COVID-19,” he said. “In our view, the country will likely not regress in terms of ecommerce usage and, based on the experiences of our G8 peers, still has a way to go before reaching saturation. Cargojet has pulled back significantly from its $245 high reached in November, largely due to broader market rotation and a lower outlook for ad-hoc charter services. We believe this represents an attractive entry point, with shares trading at approximately 14 times EV/EBITDA, which is largely in line with their two-year historical average. Our $220 target (up from $200) is driven by 15.5 times EV/NTM+1 EBITDA, which we believe is a reasonable premium to the company’s historical average given (1) continued ecommerce tailwinds; (2) the opportunity for further international expansion; and (3) our view that the company’s moat is likely too large to overcome for smaller players.”

Mr. Lee trimmed his target for Exchange Income Corp. (EIF-T, “buy”) by $1 to $43 (versus a $44.39) and maintained a “buy” rating and $5 target (versus $5.44) for Chorus Aviation Inc. (CHR-T).


Badger Daylighting Ltd. (BAD-T) is “positioning for growth” with its new operating model, said iA Capital Markets analyst Elias Foscolos following Tuesday’s virtual Investor Day event that focused on its operational and legal reorganization and its rebranding.

The Calgary-based hydrovac services company revealed a plan to change its name to Badger Infrastructure Solutions Ltd., a move Mr. Foscolos thinks “better conveys the role of the business in servicing North America’s critical infrastructure.”

“BAD reiterated the growth potential of 7-9 times it sees in the U.S., which is estimated based on historical demand trends in its mature Canadian markets,” he said. “BAD highlighted its new functionally focused operating model, which is enabled by shared corporate services and the Common Business Platform and is expected to enhance operating leverage and scalability in the business.”

Mr. Foscolos also emphasized the company’s ongoing reorganization is likely to result in both increased efficiency and tax benefits, noting: “These changes are expected to be completed by Q4/21, resulting in annual cash tax savings of $6-7-million on one-time costs of $2-3-million. One example is how BAD intends to leverage a new internal leasing and transportation structure to more easily move trucks across operating jurisdictions with minimal regulatory and taxation friction.”

The analyst is currently projecting first-quarter EBITDA, scheduled to be released on May 4, of $20-million, which sits below the $23-million consensus on the Street. He’s expected regular seasonal weakness “compounded by headwinds from extreme weather in the US, FX headwinds, and a delayed economic recovery in Canada.”

However, Mr. Foscolos raised his target for Badger shares by $1 to $40 after updating his valuation, maintaining a “hold” recommendation. The average target on the Street is $42.78.

Badger closed at $40.65 on Tuesday.

“While we do believe that BAD will be able to improve profitability through internal business improvements while the long-term U.S. growth thesis plays out, we continue to view the stock as fully valued in the context of still-recovering demand and quarter-to-quarter uncertainty,” he said.


Entering first-quarter earnings season for Canadian power and energy infrastucture companies, Raymond James analyst David Quezada and Frederic Bastien sees a group of well-known regulated utilities settling into a “fairly valued range.”

“With stocks up 12-14 per cent from late February lows (vs. the TSX up 6 per cent), some of the larger regulated utilities we cover (FTS, EMA, and H) have settled to modestly above the midpoint of historical trading ranges each at roughly 20 times 2022 P/E,” they said. “Recall, our constructive stance in recent months had been predicated on valuations at below these respective midpoints, which we felt implied an overly pessimistic view on rates. However, with rates having moved higher and valuations improving simultaneously, we now believe each of these utilities are fairly valued given the outlook.”

Accordingly, though he says there’s “much to like,” Mr. Quezada downgraded a trio stocks to “market perform” recommendations from “outperform” based on valuation:

  • Emera Inc. (EMA-T) with a $61 target, down from $63. The average target on the Street is $58.93.
  • Fortis Inc. (FTS-T) with a $58 target (unchanged). Average: $59.
  • Hydro One Ltd. (H-T) with a $32 target (unchanged). Average: $31.07.

“That leaves self-described ‘grow-tility’ Brookfield Infrastructure as the vehicle to own within this sub-group, in our view,” he said. “With the recent stakes in Reliance Jio and Cheniere Energy Partners now contributing to results, growth accelerating across all GDP-sensitive businesses, and management advancing its proposed acquisition of Inter Pipeline, there are many tailwinds pushing our Best Pick for 2021 higher. We maintain Outperform ratings on AQN and ALA, in light of the prior’s recent underperformance (likely influenced by its renewable power segment) and the latter’s attractive set of potential catalysts and supportive commodity backdrop.”

Mr. Quezada also made these target adjustments:

  • Boralex Inc. (BLX-T, “outperform”) to $60 from $65. Average: $53.
  • Capital Power Corp. (CPX-T, “outperform”) to $44 from $42. Average: $40
  • Innergex Renewable Energy Inc. (INE-T, “outperform”) to $28 from $32. Average: $27.50.

“Boralex and Innergex have underperformed so far this year; something we attribute, at least in part, to moves in the clean energy indices and related selling pressure,” he said. “While this volatility is unfortunate, we take solace in what are generally very stable fundamentals for these companies. Of course, we certainly acknowledge that rising bond rates have also played a role in this weakness, but we maintain our view that unless bond rates continue to move materially higher, valuations appear to largely reflect this backdrop. In fact, each of INE and BLX have moved toward the midpoint of their respective trading ranges. At the end of the day, these are businesses with stable performance, strong growth outlook and a historically supportive political environment. While talk of ESG fund flows has subsided of late, we continue to expect this trend will re-assert itself, supporting valuations. Accordingly, we believe recent weakness in each case represents an opportunity to add to positions.”

Meanwhile, Mr. Bastien trimmed his target for Brookfield Renewable Partners LP (BEP-N, BEP.UN-T, “market perform”) to US$44 from US$47. The average is US$44.46.


Scotia Capital analyst Benoit Laprade raised his target prices for these forest and wood product stocks in his coverage universe:

  • Canfor Corp. (CFP-T, “sector outperform”) to $40 from $37. The average on the Street is $39.83.
  • Interfor Corp. (IFP-T, “sector outperform”) to $46 from $40. Average: $42.50.
  • Western Forest Products Inc. (WEF-T, “sector perform”) to $2.50 from $2.25. Average: $2.47.
  • West Fraser Timber Co. Ltd. (WFG-T, “sector outperform”) to $125 from $120. Average: $118.21.


In response to its friendly $1.1-billion takeover offer from Fortuna Silver Mines Inc. (FVI-T), Canaccord Genuity analyst Carey MacRury lowered Roxgold Inc. (ROXG-T) to “hold” from a “buy” recommendation, seeing few obstacles to approval.

On Monday, Vancouver-based Fortuna announced it intends to pay 0.283 of its shares, and 0.1 cent in cash, for each Roxgold share, a 41-per-cent premium to Roxgold’s closing price on Friday.

“While there are benefits to a larger, diversified company, we believe that some ROXG investors are likely to be disappointed that the announced 42-per-cent premium dropped to 14 per cent based on [Monday’s] closing share prices,” said Mr. MacRury. “That said, we expect the transaction to be approved. ROXG is the best performing stock in our coverage universe year-to-date, up 37 per cent.”

“Notwithstanding the level of recent consolidation in West Africa, we think a competing bid is possible but unlikely given: 1) the $40-million break fee, 2) the potential implied premium valuation that would be required to top Fortuna’s offer relative to Roxgold’s West African peers, and 3) no obvious regional synergy opportunities around ROXG’s assets.”

The analyst cut his target for Roxgold shares to $2.40 from $2.75 to reflect the offer. The average on the Street is currently $2.61.

Concurrently, Canaccord’s Dalton Baretto cut his target for Fortuna shares to $8.25 from $9, which sits below the $10.68 average, with a “hold” rating.

“We view this transaction as an opportunistic bid by FVI to acquire a suite of assets that meets its primary investment criteria: precious metals focused, strong margins and exploration potential. While we see no obvious synergies and the jurisdiction is new, FVI is attempting to mitigate this risk by retaining ROXG’s entire operating team,” said Mr. Baretto.

We are not surprised by the timing of the bid, given that Lindero is largely complete, the $30 million ruling at San Jose is getting more likely to be maintained, and political risk in Latin America is rising. In addition, we are not surprised by the all-share bid given that FVI was trading at 1.89 times NAV on Friday (vs. ROXG at 0.58 times) and the company’s balance sheet was stretched following the construction of Lindero. We note that the 40-per-cent premium to the 20-day VWAP implied at the announcement of the transaction has declined to 16% following the 18-per-cent decline in FVI’s share price over the course of trading on Monday.”

Elsewhere, CIBC’s Cosmos Chiu cut his Fortuna Silver Mines target to $9.50 from $11.25, keeping a “neutral” recommendation.


Canaccord Genuity analyst Scott Chan expects Canadian lifecos to see “solid” earnings per share growth of 30 per cent year-over-year when the sector’s first-quarter earnings season begins on May 5, “benefiting from significant impact at the start of pandemic.”

“Similar to Banks, we believe Lifecos are back on track to achieve their medium-term targets,” he said. " Heading into the quarter, we made minor changes (e.g., positive global equity markets, negative FX impact) that were relatively net neutral to our Q1 and annual forecasts. We did roll forward our valuation one quarter that resulted in increasing our target prices (average) by 4 per cent.

“In Q1, Lifeco shares significantly outperformed, benefiting from higher yields and a steeper yield curve. Currently, Lifeco shares trade attractively with a P/E (NTM) of 8.9 times (12-per-cent discount to 5-year average) with solid excess capital towards flexibility for deployment.”

Mr. Chan made the following target price changes:

  • iA Financial Corporation Inc. (IAG-T, “buy”) to $77.50 from $75. The average on the Street is $74.22.
  • Manulife Financial Corp. (MFC-T, “buy”) to $29.50 from $28.50. Average: $28.39.
  • Sun Life Financial Inc. (SLF-T, “buy”) to $72 from $69. Average: $69.77.


In other analyst actions:

* RBC Dominion Securities analyst Geoffrey Kwan raised his target for First National Financial Corp. (FN-T) to $53 from $50 with an “outperform” rating, while National Bank Financial’s Jaeme Gloyn increased his target to $55 from $53 with a “sector perform” recommendation. The average target is $51.

“Although Q1/21 results were below our forecast, we were overly optimistic, given normalized EPS was still up 22 per cent year-over-year with originations up 16 per cent year-over-year (residential originations were up 58 per cent year-over-year),” said Mr. Kwan. “We think FN appeals to small cap investors as it shows investors an attractive blend of exposure to continued strong housing/ mortgage market activity, defensive attributes, and a 4.4-per-cent dividend yield. Our slightly higher financial forecasts see our target increase.”

* Raymond James analyst Andrew Bradford suspended coverage of Western Energy Services Corp. (WRG-T). He previously had an “underperform” rating and 40-cent target for its shares.

“Based on our macro industry projections, we believe it is doubtful Western will be able to generate free cash flow such that it can reduce its $240-million total debt obligation before its largest facility is due, 21-months from now,” he said. “Given the ownership structure of Western’s debt and equity, we think it is reasonable to expect a restructuring of some manner before that point.

“As we cannot know the terms of any potential restructuring, we have elected to suspend our evaluation of Western’s equity until we have some visibility to free cash generation to the benefit of shareholders. We appreciate the quality of Western’s assets and management’s commitment to managing costs to the fullest extent possible.”

* Haywood Securities analyst Kerry Smith initiated coverage of Cerrado Gold Inc. (CERT-X) with a “buy” rating and $2.25 target.

“With one producing asset and a very strong development project in its portfolio Cerrado could move from junior to intermediate producer status in the next few years,” he said.

“Cerrado is relatively unknown in the market and as a result is trading at a discount to peers, presenting a great investment opportunity.”

* CIBC’s Kevin Chiang raised his target for Exchange Income Corp. (EIF-T) to $42 from $39.50 with a “neutral” rating upon assuming coverage. The current average is $44.39.

“EIF’s earnings and cash flow stream exhibited a greater level of resiliency versus its pure-play peers, reflecting the benefits of its diversification strategy,” he said. “For income-oriented investors, we continue to see the company place a high priority on maintaining/growing its dividend. That said, with EIF’s valuation and earning expectations now back to prepandemic levels, we see more upside torque in other transportation names we cover, especially those with aviation exposure.”

* Jefferies analyst Christopher LaFemina raised his First Quantum Minerals Ltd. (FM-T) target to $47 from $45, exceeding the $31.71 average, with a “buy” rating.

* Piper Sandler analyst Ian Macpherson raised his Precision Drilling Corp. (PDS-N, PD-T) target to US$33 from US$26 with a “neutral” rating. The average is US$38.86.

* TD Securities analyst Brian Morrison increased his Spin Master Corp. (TOY-T) target to $50 from $45, reiterating a “buy” rating. The average on the Street is $42.73.

* TD’s Craig Hutchison raised his target for Capstone Mining Corp. (CS-T) to $6.50 from $6 with a “buy” rating. The average is $5.35.

* Scotia Capital analyst Justin Strong trimmed his target for Boralex Inc. (BLX-T) to $55 from $59 with a “sector outperform” rating. The average is $53.

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