Inside the Market’s roundup of some of today’s key analyst actions
CIBC analysts led by Dennis Fong have raised price targets and earnings estimates for most Canadian oil and gas stocks as part of an outlook for the second quarter earnings season in the energy sector. But two stocks received rating downgrades.
The earnings season for the TSX energy sector begins with Prairiesky Royalty Ltd. on Monday.
“The second quarter showed continued strength in commodities as global inventories reached pre-pandemic levels aided primarily by the recovery of demand, discipline from OPEC+ countries to production quotas and continued focus from producers to maintain rather than grow production levels,” the CIBC analysts said. “While we have seen increases in cash flows from the strength in commodities, partial offsetting factors include impacts from hedging, higher royalties and cash taxes, as well as the impact of turnarounds.
CIBC expects West Texas Intermediate crude oil to average about US$65 both this year and in 2022, which is higher than earlier estimates and accounts for much of the boost to the price targets.
The two stocks receiving rating downgrades were Precision Drilling Corp. (PD-T), which was cut to “neutral” from “outperformer” even as CIBC raised its price target to C$60 from C$50. and Storm Resources Ltd. (STX-T), which was lowered to “neutral” from “outperformer” as its target price went up to C$4.5 from C$4.
“Both stocks have demonstrated meaningful strength over the last six months,” CIBC analysts explained. “For Precision Drilling, we do see the setup for increasing rig activity as favorable across North America, however, we also believe the stock reflects much of this increase at the current time.”
“For Storm Resources ... our 16% return expectation is lower than many of its peers. We continue to see the stock as cheap on 2022 metrics, but we do expect it will be difficult for the stock to meaningfully rally over the near term until further resolution occurs surrounding development with respect to Blueberry River First Nations and the province of British Columbia,” CIBC said.
Among other price target changes CIBC made were:
* Baytex Energy Corp (BTE-T): Target price to C$3 from C$1.75
* Cenovus Energy Inc (CVE-T): Target price to C$20 from C$16
* Canadian Natural Resources (CNQ-T): Target price to C$58 from C$48
* Crescent Point Energy Corp (CPG-T): Target price to C$9 from C$7
* Enerplus Corp (ERF-T): Target price to C$13 from C$10
* Imperial Oil Ltd (IMO-T): Target price to C$48 from C$35
* Kelt Exploration Ltd (KEL-T): Target price to C$5 from C$4
* MEG Energy Corp (MEG-T): Target price to C$14 from C$10
* Ovintiv Inc (OVV-N): Target price to US$40 from US$30. Citigroup also raised its price target to on Ovintiv US$44 from US$43
* Paramount Resources Ltd (POU-T): Target price to C$20 from C$17
* Peyto Exploration & Development Corp (PEY-T): Target to C$8.25 from C$7
* Prairiesky Royalty Ltd (PSK-T): Target price to C$17 from C$15
* Whitecap Resources Inc (WCP-T): Target price to C$9 from C$7.5
* Suncor Energy Inc (SU-T): Target price to C$48 from C$40
* Tourmaline Oil Corp (TOU-T): Target price to C$47.5 from C$40
* Vermilion Energy Inc (VET-T): Target price to C$12.5 from C$10
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Canaccord Genuity upgraded Corvus Gold Inc (KOR-T) to a “buy” from “hold” after the company received an all-cash bid from AngloGold Ashanti, the company’s largest shareholder. Canaccord also raised its price target to C$4 from C$3.50, which is still below the Street average of $4.63.
Canaccord sees the potential for a higher bid to emerge.
The unsolicited bid from AngloGold Ashanti is for all outstanding Corvus shares in exchange for C$4.00 in cash. The bid represents a 23 per cent premium from Corvus closing price prior to the bid announcement.
Corvus and AngloGold Ashanti recently completed a lending agreement whereby Corvus would have access to US$20M in credit to complete predevelopment work on its wholly owned North Bullfrog project, located in southern Nevada.
“The company has adjoining property with AngloGold which, in our view, was the natural acquirer,” Canaccord analyst Tom Gallo said in a research note. “We raise our rating to ... reflect the potential for an interloper or possible higher bid.”
“We note there are several public and private entities active in an area that saw M&A in 2018 with the acquisition of Northern Empire by Coeur Mining. In our view, Corvus’ large mineral endowment and strategic land package complements AngloGold’s relatively small footprint in the camp,” he added.
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Analysts from two major U.S. banks argued Wednesday that the timing is right to load up on Apple Inc (AAPL-Q) shares.
JP Morgan added the stock to its analyst focus list - essentially the bank’s best investment ideas - and raised its target price to US$175 from US$170. And Citi reiterated its “buy” rating and US$170 target price, saying it believes consensus earnings and revenue expectations are too low.
Citi analyst Jim Suva, who opened a “catalyst watch” on Apple, said that the bank’s checks continue to suggest strong end-market demand for the company PCs, smartphones and wearables, such as the Apple Watch. He said there has also been low sequential growth in its Services division.
“We believe consensus estimates are too low (even after accounting for the $3-4bln impact from lower chip availability) during the June quarter, which has affected the iPad roll-out during the quarter. Apple’s shares have underperformed the broader markets YTD. We expect shares will outperform ahead of the new iPhone launch in September,” Mr. Suva said in a note.
“We view Apple’s shares as attractive given the revenue diversification, unique product + service set, strong cash flow generation, potential to enter other large TAMs (EV segment) and shareholder returns,” he said.
The average analyst price target on Apple is US$159.34, according to Refinitiv Eikon data.
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BofA Securities analyst Bryan D. Spillane downgraded packaged foods manufacturer Conagra Brands Inc. (CAG-N) to “neutral” from “buy” while lowering his price target to US$36 from US$44.
The impact of inflation on the company was cited as a key reason.
“We lower our FY22 and FY23 estimates both from $2.62 to $2.42 and $2.56, respectively, which is below CAG’s lowered FY22 guidance of $2.50. In our view, FY22 will be akin to a transition year as CAG takes action to combat inflation while at the same time” deals with difficult comparisons to a year ago during the height of COVID-19 stay-at-home orders, he said.
“Management is prudently managing the situation by maintaining its pressure on the consumer (marketing and new products. However, with the inflation-related earnings gap this year, we see the stock being range bound until the market gets a better sense on sales and earnings growth prospects for FY23,” the analyst said.
Stifel analyst Christopher R. Growe also downgraded the stock, moving to a “hold” rating from a “buy” and cutting his price target to US$35 from $39.
“We recognize the over 5% decline in the stock price (Tuesday); however, we see the shares remaining in a holding pattern as the company executes its pricing initiatives and experiences the lag in pricing in relation to rampant inflation. We believe the negative reaction to Conagra’s updated (lowered) guidance for operating margin and EPS (Tuesday) likely served as a clearing event for the shares, although we continue to see risk to the earnings outlook to the degree pricing continues to lag inflation,” Mr. Growe said.
The average analyst target is $37.63.
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A slew of analysts jacked up their price targets on Pepsico Inc (PEP-Q) following a very well received earnings report this week. But at least one of them is warning the share price may now be getting overheated.
Credit Suisse cut its rating to “neutral” from “outperform” even as it raised its target price to US$157 from $155.
“Pepsi kicked off beverage earnings with remarkable results as the crucible of the pandemic yielded improvement across categories and geographies,” said Credit Suisse analyst Kaumil Gajrawala. “Staples investors capitalized on Pepsi’s consistency, pandemic resilience, and early investments over the last 18 months.”
But Pepsico shares are now up 14 per cent year to date and trade at 24 times earnings versus the five-year average of 22 times, he noted.
Elsewhere, Deutsche Bank raised its target price to $154 from $149; Guggenheim to $171 from $160; Morgan Stanley to $172 from $165; Truist Securities to $160 from $135; Citigroup to $176 from $162; Cowen and Company to $185 from $165; Jefferies to $161 from $156; JP Morgan to $171 from $154; and RBC to $155 from $153.
The average analyst target is now US$164.27.
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Raymond James analyst David Quezada raised his price target on Altagas Ltd. (ALA-T) to C$32 from C$24.50 and maintained an “outperform” rating.
Shares in Altagas are up 41 per cent so far this year and already blew past the analyst’s prior price target.
“Buoyed by rising volumes and a supportive commodity backdrop in ALA’s midstream business along with strong rate base growth and rising Return on Equities on the utility side, we believe the outlook remains attractive for each of ALA’s core segments. At the same time, we expect the eventual monetization of the 10% stake in the Mountain Valley Pipeline to drive further deleveraging and eventually believe a split of the company’s two primary segments could unlock shareholder value,” Mr. Quezada said.
The average analyst target is $27.13.
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Desjardins Securities analyst John Chu initiated coverage on IM Cannabis Corp. (IMCC-CN) with a “buy–above-average risk” rating and C$10.50 target.
“On the back of an aggressive and accretive acquisition strategy, IMC has quickly established itself as a global player with operations in fast-growing markets such as Israel and Canada and with partners that give it access to the potentially large medical market opportunity in Europe,” Mr. Chu said. “IMC has good sales visibility out to 2023 and a clear path to positive EBITDA in 2021.”
The average analyst target is $10.33.
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Barclays analyst Moses Sutton initiated coverage on Anaergia Inc. (ANRG-T) with an “overweight” rating and C$24 price target. Scotiabank also initiated coverage with a “sector outperform” rating and C$16.50 price target, and TD was the most bullish of the lot, with a “speculative buy” rating and C$40 price target.
Anaergia is a waste-to-energy business, inputting mixed waste streams through a proprietary separation process, then feeding the organics into an anaerobic digester, which outputs renewable natural gas or electricity.
“In our view, this feedstock pathway has incredibly attractive long-term tailwinds, including growing regulations that aim to reduce emissions, as well as increasingly stringent regulations that aim to divert waste from landfills. Additionally, the company’s primary focus is on municipal waste streams that results in a business model well-suited for large-scale projects, in our opinion. Notably, Anaergia recently completed the construction of the largest diverted organics RNG facility in North America,” commented TD analyst Aaron MacNeil.
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In other analysts actions Wednesday:
* Canadian Pacific Railway Ltd (CP-T): CIBC cuts target price to C$105 from C$112
* Nextpoint Financial Inc (NPF-UN-T): Canaccord Genuity initiates coverage with buy rating and $15.50 price target.
* Nuvista Energy Ltd (NVA-T): CIBC raises target price to C$5 from C$3.25
* Organigram Holdings Inc (OGI-T): ATB Capital Markets raises PT to C$4.25 from C$3.75 and CIBC raises target price to C$4 from C$3.75
* Savaria Corp (SIS-T): National Bank of Canada raises target price to C$24 from C$20.50
* Wesdome Gold Mines Ltd (WDO-T): National Bank of Canada raises price target to C$14.50 from C$14
* Alphabet Inc (GOOG-Q): Cowen and Company raises target price to $2,900 from $2,700
* Goldman Sachs (GS-N): BMO raises target price to US$435 from US$415. Credit Suisse raises target price to $425 from $400. Evercore ISI raises target price to $415 from $410. KBW raises target price to $405 from $391. Piper Sandler raises target price to $435 from $420
* JP Morgan (JPM-N): BMO raises target price to US$141 from US$136. Credit Suisse raises target price to $177 from $170. KBW raises target price to $172 from $167. Piper Sandler raises target price to $184 from $182
* Methanex Corp (MEOH-Q): CIBC cuts target price to US$39 from US$42
* Nokia Oyj (NOK-N): JP Morgan raises target price to US$7.80 from $4.30 and raises to overweight from neutral
* Whole Earth Brands (FREE-Q): Canaccord Genuity initiates coverage with buy rating; US$20 price target
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Darcy Keith