Inside the Market’s roundup of some of today’s key analyst actions
“EXFO reported FQ3 with an EBITDA [earnings before interest, taxes, depreciation and amortization] miss and lowered its F2018 full year EBITDAguidance by 10 per cent to $20-million. While management remains confident on its F2019 EBITDA guidance of $30-million despite the F2018 reduction, we see a higher degree of risk,” said analyst Robert Young.
“We are reiterating our ‘hold’ rating and are reducing our target to US$3.75 (from US$4.50) to reflect reduced estimates and a lower valuation multiple,” he said.
The median price target is US$5.93, according to Zack’s Investment Research.
“We have reduced our EBITDA estimates for F2018 ($18.1-million from $21.9 -million ) and F2019 ($26.6 -million from $30 -million ). We have also reduced our valuation multiple (8 times NTM [next 12 months] EV [enterprise value] /EBITDA from 9 times) to reflect a higher level of risk associated with the complex Astellia integration and larger system deal pushouts on the protocol side. While we are optimistic on strengthened positioning to benefit from 5G, we prefer to remain on the sidelines on this low-liquidity stock until we have more confidence in the Astellia integration and meeting EBITDA targets,” the analyst said.
PI Financial has boosted its target price on Kirkland Lake Gold Ltd. (KL-T) after its second quarter gold production targets were better than expected.
“Kirkland Lake Gold provided its Q2/18 production results realizing a slight beat of 164,685oz of gold production versus our target of 157,000oz,” said analyst Phil Ker.
“The outperformance can be attributed to Macassa yet again exceeding expectations on the heels of solid head grades of 21.5g/t Au resulting in a record quarter at the operation with 60,571oz of gold produced. Head grades at Fosterville climbed 22.6 per cent over Q1/8 to 20.6g/t Au which was above our estimate of 18.5g/t Au. This led to a solid quarter with 77,462oz of gold production which was supported by a record month in June of 31,710oz,” the analyst said.
“Although Kirkland’s two key operations both exceeded our estimates, this was slightly offset with weaker output from Holt and Taylor. Holt realized lighter than targeted throughput rates while Taylor had lighter than forecasted throughput, grade and subsequent recovery levels. In total, Kirkland has now achieved 312,329oz of a gold production in H1/18 which is a record H1 for the company and leaves them on pace to meet their annual guidance of greater than 620,000oz.”
He raised his price target to $24.50 from $22.75 and maintained his “neutral” rating on the stock. The median price target is $28.25, according to Zack’s Investment Research.
“Despite the production beat, we believe considerable capital outlays are required in the coming quarters that changes the FCF [free cash flow] thesis of the company as they embark of installation of Shaft No. 4 at Macassa and significant mine development at Fosterville. With the positive changes to our model and outlook for Macassa in the near term, we are increasing our target from $22.75/sh to $24.50/sh and maintain our neutral rating. Our target is generating using a 1.0 times NAVPS [net asset value per share] multiple and US$1,350/oz gold price and 5 per cent discount rate. Shares of Kirkland Lake remain rated neutral with above average risk.”
Meanwhile, BMO raised its price target on the stock to $32.50 from $28.
After Alimentation Couche-Tard Inc. (ATD.B-T) reported solid fiscal fourth quarter results, RBC Capital Markets updated its estimates for the company.
While analyst Irene Nattel kep her “outperform” rating and $78 price target, she updated her 2019 and 2020 earnings per share estimates.
For the first quarter of 2019 she lowered her diluted EPS to 82 cents from 83 cents. For the second quarter she raised it to 77 cents from 76; for the third quarter she raised it a penny to 83 cents and for the fourth quarter she raised it four cents to 80 cents.
For 2020, first quarter EPS fell to 91 cents from 92; second quarter fell to 87 cents from 88; third quarter EPS fell to 96 cents from 97; and fourth quarter EPS rose to 90 cents from 87.
“Reflecting Q4 results/trends into our model leaves forecasts essentially unchanged. As noted in our analysis of U.S. c-store traffic trends published last Friday, our F19/20 forecasts are relatively conservative, and assume ongoing pressure on industry traffic. Forecasted F18-20 EBITDA CAGR [compound annual growth rate] of 12 per cent, steady state EBITDA growth excluding any potential acquisitions estimated at 6-9 per cent. Target unchanged at $78.”
In other analyst actions, National Bank of Canada raised its target price to $73 from $71; BMO raised its target to $72 from $69; and Desjardins cut its target price to $70 from $74.
“Under the terms of the agreement, Hiku shareholders will receive 0.046 shares of WEED in exchange for each common share of Hiku, representing C$1.91 per share or about $270-million. We believe this is an excellent strategic acquisition for Canopy, bringing in a strong retail and brand company at a reasonable price (3 cent of Canopy’s market cap),” said analyst Neil Maruoka.
“Hiku has four launched adult-use cannabis lifestyle brands including DOJA, Tokyo Smoke, Van der Pop (a leading female-focused cannabis brand), and Maïtri (a leading lifestyle brand in Quebec),” he said.
“With industry-leading global scale, we believe Canopy is positioned to be the dominant player in Canadian cannabis. Following this announced transaction, we have included the additional issued shares in our model and we have increased our forecast peak recreational market share for Canopy from 20 per cent to 23 per cent in 2024. As a result, we are increasing our target price to $34 (from $32) and maintaining our ‘hold’ rating,” he said.
The median target price for the stock is $38.50, according to Zack’s Investment Research.
After Savaria Corp. (SIS-T) announced it was buying Garaventa, a maker of wheelchair lifts and residential elevators for $98-million, Desjardins boosted its price target on the stock.
“We are increasing our target to $22 and reiterating our ‘Buy’ rating on SIS following an agreement to acquire Garaventa, a manufacturer of wheelchair lifts and residential elevators, for $98-million. We and investors were waiting for M&A following the $57.3-million equity offering in May, 2018. We believe this acquisition was worth the wait as it significantly improves Savaria’s competitive positioning on the West Coast, expands the footprint into Europe and strengthens Asian operations – all this at 8 times forward EBITDA [earnings before interest, taxes, depreciation and amortization],” said analyst Frederic Tremblay.
“Garaventa provides a long-awaited expansion of Savaria’s footprint into the West Coast in North America through a new 120,000 square foot manufacturing facility in B.C. as well as additional direct sales offices and dealers in the U.S. and Canada. In addition, it allows entry into the European market where Savaria is expected to continue selling Garaventa’s products and introduce some of its own, such as the Vuelift elevator. Finally, Garaventa should enhance Savaria’s presence in China,” he said.
“Garaventa generated revenue of $108-million and EBITDA of $8.3 -million in 2017. Management anticipates revenue and cost synergies of $2 -million in the first year and an additional $2 -million in the second year post closing. This implies significant compression of the multiple paid from 11.8 times trailing EBITDA to 8.0 times forward EBITDA – both significantly below SIS’s trading multiples.”
“The transaction was funded with cash on hand and available credit. We estimate net debt to forward EBITDA of 1.1 times, which is below the maximum comfort level of about 2 times. Management’s desire to focus on integration of its latest sizeable acquisition leads us to believe that additional M&A in 2018, if any, would most likely be tuck-ins. Following Span in 2017 and Garaventa in 2018, we believe SIS could be ready for another large transaction in 2019,” the analyst said.
“Our target increases by $2 to $22 following an update to our model to take into account the Garaventa acquisition. Our target implies about 16 times estimated 2019 EBITDA.”
The media price target on Savaria is $20.
Wall Street’s starting to embrace the idea that Netflix Inc. (NFLX-Q) will rally to US$500 a share.
Credit Suisse analyst Douglas Mitchelson assumed coverage of the stock on Tuesday with an outperform rating and a price target of US$500, which implies upside of about 20 per cent to the last close. He’s the third analyst out of 45 that sees Netflix breaching the US$500 mark, according to Bloomberg data.
Mitchelson, formerly of UBS, cited a favourable content slate and optimism over net ads. He said he sees the company “enjoying unchallenged leadership and disproportionate scale benefit” in the global streaming Subscription Video on Demand (SVOD) marketplace.
He added that while valuation “certainly looks very expensive on any traditional measure, we believe a number of visible factors suggest the opposite is true and Netflix is actually quite reasonably priced.”
In other Netflix notes:
Stifel reiterated the stock at hold, though lifted its price target to US$406 from US$345 and predicted domestic subs of 85million by 2025, which is near the high end of management’s long-outstanding 60 million -90 million target Loop Capital boosted its target to US$375 from US$330 and reaffirmed its hold rating, calling for a strong quarter but noting shares are “priced to perfection“ Wedbush reiterated its underperform rating and price target US$125 in a preview note that cited domestic sub softness and cash burn concerns NFLX has 26 buys, 16 holds, 3 sells with average price target US$366, according to Bloomberg data, and reports earnings July 16 post-market
The Credit Suisse note was part of a broader assumption of coverage for 14 telecom and media sectors.
Mitchelson said that his most out-of-consensus calls included outperform ratings on Twenty-First Century Fox (M&A bids seen moving higher) and Sirius XM Holdings (no negative catalysts and “powerful” buyback to drive valuation higher); and underperforms on AT&T (challenged growth and returns below cost of capital) and DISH Network (doesn’t expect a sale any time soon).
In other analyst actions:
Husky Energy Inc : Barclays raises to overweight from equal weight
First Quantum Minerals Ltd : Deutsche Bank raises to buy from hold
Imperial Oil Ltd : Barclays raises to equal weight from underweight
Vermilion Energy Inc : Credit Suisse raises to outperform from neutral
Arc Resources Ltd : Credit Suisse raises target price to C$20 from $19
Baytex Energy Corp : Credit Suisse raises target price to C$6 from C$5.50
Canadian Natural Resources Ltd : Barclays raises TP to C$59 from C$55; Credit Suisse raises target to C$65 from C$59.
Cenovus Energy Inc : Credit Suisse raises target price to C$19 from C$17
Crescent Point Energy Corp : Credit Suisse raises target to C$14 from C$13
Enerplus Corp : Credit Suisse raises target price to C$23 from C$20
* First Quantum Minerals Ltd : Deutsche Bank raises target price to C$23 from C$21 and boosts its rating to ‘buy’ from ‘hold’.
Frontera Energy Corp : Eight Capital cuts target price to C$22 from C$30
Husky Energy Inc : Barclays raises target price to C$24 from C$18 and boosts rating to ‘overweight’ from ‘equal weight.’ Credit Suisse raises target price to C$26 from C$23
Imperial Oil Ltd : Barclays raises target price to C$49 from C$40 and raises rating to equal weight from underweight. Credit Suisse raises target price to C$54 from C$47.
Nuvista Energy Ltd : Credit Suisse raises target price to C$13 from C$11.50
Obsidian Energy Ltd : Credit Suisse raises target price to C$1.75 from C$1.50
Savaria Corp : Desjardins raises target price to C$22 from C$20; National Bank of Canada raises target price to C$21 from C$20.
Seven Generations Energy Ltd : Credit Suisse raises target to C$28 from C$27
Suncor Energy Inc : Barclays raises target price to C$68 from C$60; Credit Suisse raises target price to C$65 from C$56
Tourmaline Oil Corp : Credit Suisse raises target price to C$32 from C$29
Vermilion Energy Inc : Credit Suisse raises target price to C$65 from C$52 and raises rating to outperform from neutral.