Inside the Market’s roundup of some of today’s key analyst actions
BMO analyst Fadi Chamoun raised his price target on Bombardier Inc. (BBD-B-T) to C$1.80 from C$1.35, citing progress in reducing debt and financing costs, as well as positive trends being seen in business aviation.
He upgraded his rating to “outperform” from “outperform (speculative)”.
“Debt reduction and refinancing transactions largely clear the debt maturity runway through 2023 and reduce interest costs by over $200 million on an annualized basis,” Mr. Chamoun said in a research note. “Overall, the interest cost savings are likely to be higher than targeted and realized quicker than originally anticipated, while the overhang from large near-term debt maturities is alleviated.”
Meanwhile, business aviation flight activity in the U.S. is nearly back to pre-pandemic levels and with easing border restrictions going forward, the analyst anticipates the demand momentum will continue to improve both in the U.S. and international markets.
“We expect business aviation to continue to offer wealthy travelers and corporate customers greater safety and accessibility (commercial aviation could take time to restore pre-pandemic travel schedules, particularly on international routes). With the number of available used aircraft at historical low levels, we suspect demand will begin to spill over to the new aircraft market over the coming quarters. This should support higher production rates and more robust pricing,” Mr. Chamoun said.
The average analyst price target is $1.08, according to Refinitiv Eikon data.
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Canaccord Genuity analyst Mark Rothschild upgraded American Hotel Income Properties REIT LP (HOT-UN-T) to “buy” from “hold”, citing a “meaningful” recovery in leisure travel in the U.S. He raised his price target to C$6.50 from C$4.50. RBC also substantially raised its price target on the REIT.
The trust invests in hotel real estate properties and has franchise agreements with international hotel brands including Marriott, Hilton, and IHG.
There has been a meaningful recovery in leisure travel in the U.S. as states have re-opened, with an estimated 43 million Americans took road trips over the July 4th weekend this year, according to AAA. Rebounding travel is supporting both higher occupancy and average daily rates for hotel operators.
According to STR, which tracks the performance of the hospitality sector, during the week ended June 26, 2021, U.S. hotel occupancy rates were on average 69.9%, down only 7.3% from the comparable week in 2019 and up 23.7% from the comparable period in 2020, the analyst noted.
“While fundamentals for the U.S. hotel industry are strengthening overall, and this should lead to a recovery in cash flow, we believe American Hotel Income Properties REIT’s (AHIP) portfolio of limited service hotels should benefit disproportionately. Currently, international business travel has yet to resume, which limits the ability of large coastal hotels that cater to business conferences to recover. Family vacations, which often favor limited service hotels, have resumed, and this should lead to stronger financial performance from AHIP,” Mr. Rothschild said in a note.
“While cash flow from AHIP’s portfolio is recovering, the REIT has received covenant waivers from its lending syndicate until the end of 2021, which provides greater financial flexibility but also restricts the REIT from reinstating the distribution this year. In our view, the REIT will be in a position to reinstate the distribution later this year, although retaining cash flow to reduce leverage is likely to be a consideration for a short period of time,” he added.
AHIP trades at a 33 per cent discount to Mr. Rothschildd’s net asset value estimate compared to, on average, a 13 per cent discount for US peers. “Ultimately, as investors appreciate the recovery in fundamentals, and as leverage is reduced, this discount should disappear,” the analyst said.
Elsewhere, RBC raised its target by US$1.25 to US$4.25 and reiterated a “sector perform, speculative risk” rating, citing several of the same reasons.
The average price target among analysts is C$4.26.
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Raymond James analyst Brad Sturges initiated coverage on Nexus REIT (NXR-UN-T) with a “strong buy” rating and $12 target price, believing the company is well on the way to becoming Canada’s next pure-play industrial real estate investment trust.
Nexus so far this year has made about $302-million in pending and completed industrial facility acquisitions. Industrial properties will help boost the company’s earnings potential, and about 73 per cent of its net operating income now comes from the sector, compared to about 27 per cent from retail and office assets.
Mr. Sturges believes Nexus could be uniquely positioned as a small-cap Cdn REIT to deliver above-average net asset value per unit growth in the next 12 months through the stabilization of its Sports Mall redevelopment project in Richmond BC, the partial completion of its London industrial portfolio expansion plans, and by selling excess land in Montreal.
“Nexus is ‘under the radar’ with many investors, in our opinion, while offering a compelling blend of value and NAV growth prospects,” the analyst said in a note. “We believe Nexus may benefit from potential near-term positive catalysts that include: 1) possible NAV/unit accretion from its ongoing and future value creation initiatives; and, 2) additional transactions announced that further shift its portfolio weighting towards the Canadian industrial facility sector. We believe Nexus is well positioned to experience a re-rating on its Price/Adjusted funds from operations multiple as it gets closer to pure-play Canadian industrial REIT status.”
The average price target among analysts is $10.50.
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Canaccord Genuity analyst Yuri Lynk upgraded Xebec Adsorption Inc (XBC-T) to “buy” from “hold”, citing an order this week for one of its products and a share price that’s been in steep decline.
“Having dropped 50 per cent year-to-date, we believe Xebec shares afford investors a favourable reward-to-risk proposition,” Mr. Lynk said in a note.
Xebec provides gas purification, generation and filtration solutions for the natural gas, field gas, biogas/renewable natural gas, helium, and hydrogen industries.
The company this week announced an initial order for 18 of its BGX Biostream units. The systems are for a leading US RNG dairy farm project developer and the associated revenue could be as much as $35 million. The signed agreement has the potential for additional orders and represents the largest unit order Xebec has received to date for its Biostream units, according to Mr. Lynk.
The order “validates this containerized system, which Xebec has been developing for two years,” said Mr. Lynk. “On the hydrogen side, Xebec continues to secure attractive gas-as-a-service on-site generation system wins in the industrial segment. If it can continue to parlay its technology into hydrogen refueling stations ... we see good valuation upside potential.”
The analyst is also encouraged by Xebec’s strong balance sheet. At the end of the first quarter, it had net cash of $42 million.
Canaccord Genuity’s Mr. Lynk raised his target price to C$6 from C$4.50. Elsewhere, TD Securities cut its price target to C$6 from C$7.5 but Raymond James raised its target to $6 from $5.50.
TD analyst Aaron MacNeil explained his more cautious take: “We believe that Xebec remains in ‘show-me’ territory with institutional investors and that the financial performance of its core Cleantech Systems segment will be the primary driver of near-term share price performance. In this context, we view today’s announcement as MIXED, balancing both a very robust order with continued conservatism on margin expectations,” he said in a note.
The average analyst price target is $5.45.
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Credit Suisse raised its price target on Stelco Holdings Inc (STLC-T) to C$44 from C$38, and reiterated an “outperform” rating, as part of an extensive review of the steel industry published Wednesday.
Analyst Curt Woodworth expects the Canadian producer to announce “substantial” special dividends starting next year as the company fully benefits from the improvement in steel prices.
“Stelco has strong leverage to the current cycle, given about 90 per cent of volumes on a spot sold basis and with majority exposure to HRC,” he said. HRC is the hot-rolled steel contract that’s traded in New York.
“We see cash costs today $475-500/st but moving toward the $425/st range once scrap normalizes, placing Stelco as among the lowest cost integrated producer in North America. Stelco will sustain a significant cost advantage vs. peers, especially in a higher scrap price environment which we see continuing in the medium term.
“Despite volatile steel markets, since 2017 Stelco has still paid out C$350mm in dividends and starting in 2022, Stelco will pivot to more maintenance capex levels which coupled with the strong free cash flow windfall projected in 2021, should allow for substantial special dividends to be paid out starting 2022,” he added.
“We also believe it’s important to note that CEO Alan Kestenbaum did not sell any shares in the recent secondary offering,” he said.
The average price target among analysts for Stelco is $43.63. All nine analysts who follow the stock rate it as a buy.
More broadly, for the North American steel industry in general, Credit Suisse sees good times ahead.
“Make no mistake about it, steel demand is booming in the U.S. with only some pockets of weakness evident in commercial construction and automotive from the chip shortage. What was once viewed as a more transitory supply-driven cycle has now transitioned to a more durable demand-led cycle, which is very broad based in terms of drivers, with renewable energy an underappreciated part of the story in our view,” Mr. Woodworth and his team said in the research report.
“Steel demand has sharply accelerated over the past quarter, and thus despite increased domestic & foreign supply, steel prices continue to move up with spot deals as high as $2000/st. Given upcoming mill outages, a sizeable demand increase from automotive in 2H-21, broad based need to restock, and limited import arbitrage, the U.S. market is set to remain tight till at least early 2022,” Credit Suisse said.
It added, “Unlike previous demand led cycles, we don’t see sharply higher imports and swing integrated supply as “crashing the party” anytime soon. Many structural factors are supporting low imports given weaker USD, sharply higher ocean freight, regional tightness, credit / insurance limits, and higher landed discounts required given the high price level.”
Credit Suisse raised price targets on other steel stocks in its coverage, including on Nucor Corp. (NUE-N), with a target now of US$115 (up from $95)
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In other analyst actions:
* Ayr Wellness Inc (AYR-A-CN) Jefferies starts with “buy” rating; C$80 target price
* Cresco Labs Inc (CL-CN): Jefferies starts with “buy” rating; C$36 target price
* Curaleaf Holdings Inc (CURA-CN): Jefferies starts with “buy” rating; C$32 target price
* Green Thumb Industries Inc (GTII-CN): Jefferies starts with “buy” rating; C$70 target price
* Smartcentres REIT (SRU-UN-T): Scotiabank reinitiates coverage with “sector perform” rating and C$30.50 target price
* Terrascend Corp (TER-CN): Jefferies starts with “buy” rating; C$17 target price
* Trulieve Cannabis Corp (TRUL-CN): Jefferies starts with “buy” rating; C$62 target price
* Beyond Meat Inc (BYND-Q): CFRA cuts to “hold” from “buy” and raises target price by US$15 to US$155
* Freeport-Mcmoran Inc (FCX-N): Citigroup raises price target to $44 from $36
* Alkaline Water Company Inc (WTER-Q): Canaccord Genuity cuts target to $0.90 from $1.25 and downgrades rating to “sell” from “hold”
* Boston Beer Company Inc (SAM-N): Credit Suisse raises target price to $1,490 from $1,304 and upgrades rating to “outperform” from “neutral”
With a file from Reuters
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Darcy Keith