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

The outlook for CES Energy Solutions Corp. (CEU-T) “remains solid” ahead of the Aug. 12 release of its second-quarter results, according to IA Capital Markets analyst Elias Foscolos.

“We continue to view CEU as being ideally positioned to deliver shareholder value as the recovery in North American oil and gas continues through its mix of production and drilling services, strong and growing market share, and free cash flow generation which we estimate prices its shares at an approximately 13-per-cent FCF yield,” he said.

While drilling activity in Canada continues to exceed his expectations, Mr. Foscolos warned a recovery south of the border hasn’t kept pace, limiting CES’ growth.

“We have seen the recovery rate in U.S. drilling recently slow down, prompting us to modestly lower our near-term U.S. land rig forecasts,” the analyst said. “While we do not expect U.S. rig counts to return to historical levels, we are still forecasting drilling activity to continue improving, which should be supported by fairly robust commodity prices and producer FCF. Compared to the U.S., we are seeing relative strength in Canada, where rig counts have been trending above our prior forecasts. This is in line with our thesis that, after several years of underperformance relative to the previously booming U.S. shale industry, western Canadian producers are positioned for a round of renewed growth driven by (a) robust commodity prices, (b) strong producer FCF as E&Ps have been focused on netback optimization since 2016, (c) incremental pipeline capacity expected over the next couple of years, (d) in the medium-term, expected commissioning of LNG Canada, adding an international export option for natural gas supported by robust Asian demand and pricing, and (e) obstacles set up by the Biden administration to limit oil and gas production in the U.S.”

With raising his Canadian rig forecast, offset largely by a decline to his U.S. projection, Mr. Foscolos increased his revenue and adjusted earnings before interest, taxes, depreciation, amortization, and coronavirus (EBITDAC) for the second quarter, leading him to increase his target for CES shares to $2.80 from $2.60 with a “buy” recommendation (unchanged). The average on the Street is $2.83.


RBC Dominion Securities’ Daniel Perlin expects Lightspeed POS Inc.’s (LSPD-N, LSPD-T) total addressable market to continue grow as it pivots its business.

“Lightspeed has historically focused on providing cloud-based point-of-sales (POS) solutions for small and medium-sized businesses (SMB) merchants, but expanded its scope with the introduction of the Lightspeed Supplier Network, which enables the company to drive increased value for merchants, suppliers, and consumers,” said the analyst in a research note following the recent acquisitions of Ecwid and NuORDER.

“We believe expanding payments acceptance across its end-to-end commerce platform represents a $390-million revenue opportunity, which would almost triple LSPD’s FY21 revenue base, if fully realized.”

Mr. Perlin thinks the pair of acquisitions accelerates the Montreal-based firms shift towards an end-to-end commerce platform by “strengthening the company’s omnichannel and supplier network offerings”

“NuORDER adds more than 100K active retailers to the company’s network, enabling greater economics on the supplier side, while Ecwid adds 130K paying customers, which creates the potential to upsell Lightspeed’s core offerings,” he said. “In addition, the acquisitions expand Lightspeed’s TAM, in particular in payments, of which we estimate Ecwid and NuORDER could each represent $80-million in incremental payments revenue.”

“Lightspeed has followed a focused and targeted approach to building a proprietary knowledge of customers and industries along its 12 core verticals within its retail business as well as the 3 key geographies within its hospitality business. We believe this focus has created a more valuable ecosystem characterized by a unique, defensible market position with strong barriers to entry, as well as strong network effects compared to competitors who tend to follow a more “one-size-fits-all” strategy. As a result, we believe LSPD will be able to drive higher ARPU [average revenue per user] over time, as illustrated by its recent 48-per-cent year-over-year increase to $215 in FQ4/21.”

Mr. Perlin raised his 2022 and 2023 revenue projections to US$489.5-million and US$671.5-million, respectively, from US$450-million and US$600. However, his adjusted earnings per share estimates fell to losses of 37 US cents and 18 US cents from losses of 31 US cents and 11 US cents.

Keeping an “outperform” rating for Lightspeed shares, he raised his target to US$98 from US$95. The current average on the Street is US$93.57.

“We see Lightspeed’s long-term growth trajectory supported by the company: (1) pivoting from a cloud POS platform focused primarily on merchant services to an end-to-end commerce platform across the value chain, (2) leveraging strategic and value-creating M&A with a renewed focus on platform building vs. primarily achieving scale, and (3) deepening its vertical focus to drive network effects and enhance platform value,” said Mr. Perlin. “We believe Lightspeed remains well positioned to serve the SMB retail and hospitality markets, on both the merchant and supplier side, with its tailored solutions designed to address the unique and complex needs in target verticals, as well as scaling with its clients as they evolve from SMBs to large enterprises.”


In a research report on energy infrastructure companies, CIBC World Markets analyst Mark Jarvi made a series of target price adjustments to TSX-listed stocks in his coverage universe on Wednesday.

His changes include:

  • Atco Ltd. (ACO.X-T, “outperformer”) to $49 from $48. The average on the Street is $46.
  • Canadian Utilities Ltd. (CU-T, “neutral”) to $37 from $36. Average: $36.08.
  • Capital Power Corp. (CPX-T, “neutral”) to $42 from $41. Average: $42.23.
  • Emera Inc. (EMA-T, “neutral”) to $59 from $58. Average: $59.82.
  • TransAlta Corp. (TA-T, “outperformer”) to $14.50 from $13.50. Average: $14.15.
  • TransAlta Renewables Inc. (RNW-T, “neutral”) to $21 from $20. Average: $19.96.


Credit Suisse analyst Allison Landry does not expect a volatile reaction from investors to the second-quarter results from Canadian National Railway Co. (CNI-N, CNR-T).

After the bell on Tuesday, CN reported results that fell narrowly lower than the Street’s expectations.

“CN’s Q2 EBIT fell short of both our expectations and the consensus (by 9 per cent and 6 per cent, respectively), with the O.R. [operating ratio] deteriorating by 120 basis points year-over-year and incremental margins of just 29 per cent y/y on a 12-per-cent y/y increase in revenue,” she said. “To this end, the company pointed to headwinds from a negative fuel lag, FX and higher incentive comp (noting that ex all of these items, contribution margins were closer to 60 per cent). While all of this is fair, when we consider that we are in the strongest freight environment in recent memory, as well as the fact that CN is inking core pricing increases north of 4 per cent and also driving productivity gains, we still would have expected to see a bit more operating leverage at this point in the cyclical recovery. With that being said, Q2 operating results are unlikely to be a big driver of share performance in the short term – given that investor focus is on the deal with KSU and not fundamentals.”

Despite trimming her full-year earnings per share projection to US$5.83 from US$5.90, Ms. Landry emphasized the fundamentals for CN appear “solid” for the second half of 2021.

“Demand is expected to remain robust across the board in 2H, and the co remains focused on its yield management strategy (pricing likely to accelerate further),” she said. “In light of these factors, CN reiterated its ’21 guide for double-digit EPS growth and FCF of $3.0-$3.3-billion (implying 75-80-per-cent FCF conversion). However, the company refrained from providing any guidance with respect to margin improvement. When pressed about the OR deterioration (and consequently the growing gap vs its peers), CN reminded us that it is not focused on having the lowest O.R., but instead, generating higher op profit dollars with solid ROIC as a means to generate value for shareholders. And while the above mentioned cost headwinds crimped Q2 profit dollars, EBIT was in fact lower than in the same periods in 2017, 2018 and 2019. The company largely dismissed this, and instead tried to redirect investor attention to achieving what it believes to be substantial and compelling long-term benefits that will arise from the merger.”

Keeping an “outperform” rating, Ms. Landry trimmed her target for CN shares to US$112 from US$121. The average on the Street is currently $149.70, according to Refinitiv data.

Others making target adjustments include:

* National Bank Financial’s Cameron Doerksen to $139 from $140 with a “sector perform” rating.

* Cowen and Co.’s Jason Seidl to US$110 from US$114 with a “market perform” rating.


After its second-quarter production update fell below the Street’s estimates, several equity analysts trimmed their targets for Fortuna Silver Mines Inc. (FVI-T).

“The ramp-up at Lindero continues to struggle, given COVID-19 challenges across Argentina,” said Canaccord Genuity’s Dalton Baretto. “The company notes that 18 per cent of the workforce has been infected over Q2, resulting in severe personnel restrictions and 16 days of intermittent voluntary downtime. In addition, travel restrictions have created ongoing challenges with access to skilled personnel and foreign vendor support. As a result, mining rates and grades were 20 per cent and 10 per cent below plan, respectively.

“Production guidance for Lindero has been reduced by 50koz, to 90-110koz, while AISC guidance has been increased to $1,010-1,190/oz from $730-960/oz. San Jose and Caylloma both performed in line with our expectations, and guidance for these assets has been reiterated. Production guidance for the newly-acquired Yaramoko is in line with our forecast, but AISC guidance is higher than we anticipated.”

Mr. Baretto cut his target to $6 from $6.50, maintaining a “hold” rating. The average is $8.27.

Others making changes include:

* BMO Nesbitt Burns’ Ryan Thompson to $9.75 from $11.25 with an “outperform” rating.

* Laurentian Bank analyst Jacques Wortman to $6.50 from $8.50 with a “hold” rating

* National Bank Financial’s Don DeMarco to $7.75 from $9.25 with a “sector perform” rating.


Scotia Capital analyst Meny Grauman expects Equitable Group Inc. (EQB-T) to report a “solid” second quarter for loan growth, margins and credit.

However, he warned higher expenses may “temper these positives” as it takes advantage of a strong operating environment to invest in its future.

“We all know that nothing in this world is certain except for death and taxes,” Mr. Grauman said. “To that we may want to add Canadian real estate, which has consistently defied the sceptics. While the most recent U.S. bank earnings season highlighted tough capital market comps and a slower-than-expected recovery in loan volumes, the outlook for the Canadian residential real estate market remains solid. In our view this clearly plays into Equitable’s strengths and should fuel another solid quarter even as expenses tick higher due to increased investment in future growth.

“Overall we forecast Q2 EPS of $3.79, which is only 1 per cent below consensus at $3.83. Credit will continue to be a tailwind, but underlying results should remain impressive in their own right with PTPP earnings up 19 per cent year-over-year helped by a stable NIM quarter-over-year and loan growth of 8 per cent year-over-year.”

Ahead of its July 28 earnings release, the analyst trimmed his target by $1 to $156 with a “sector perform” recommendation. The average is $166.38.


In the wake of the release of in-line second-quarter results and dividend increase, Stifel analyst Robert Fitzmartyn raised his rating for PrairieSky Royalty Ltd. (PSK-T) to “buy” from a “hold” recommendation, citing an implied return of more than 20 per cent to his target for its shares.

“We are reiterating our 12-month target price of $17.25 per share equivalent to a FCF Yield of 5.8 per cent, or 16.9 times 2022 estimated EV/DACF, rationalizing slight multiple expansion (0.5 times) on heightened resource leverage to the Clearwater and faster cash returns to shareholders on a higher cash dividend that leaves room for near/medium term future growth with a pathway to positive working capital exiting 2022,” he said.

His target of $17.25 exceeds the current consensus of $16.93.

“PrairieSky Royalty is a low risk, high margin entity providing significant leverage to crude oil price recovery. Benefits of the royalty income stream are numerous. The royalty business is known for its high conversion of revenues to FCF distribution through the price cycle. There are no capital requirements, no asset retirement obligations or liabilities, zero Level I or Level II carbon emissions, and an asset based on fee title is held in perpetuity. We expect the stock to continue to trade at a relative premium to comparable E&P businesses, though identify its valuation at an attractive level. Within the context of COVID vaccination related demand recovery, characterized as ultimately retaining high certainty though lacking timing clarity in the near/medium term, the optionality inherent to PrairieSky’s business, in contrast with a varying complexion of low-risk attributes, is a terrific combination or reward vs. risk in the current market dynamic,” Mr. Fitzmartyn added.

Elsewhere, Raymond James analyst Jeremy McCrea bumped up his target to $17.75 from $17.50 with an “outperform” rating.

“PrairieSky stands as a testament to the value of running a low leverage business amid the commodity price volatility,” he said. “PSK’s strong financial position continues to allow it to be opportunistic in the consolidation of top-tier assets, this time adding another high quality swath of Marten Hills acreage to its growing Clearwater portfolio. Strong financial results year-to-date in combination with a ramp up of activity on its lands has allowed the company to accelerate shareholder returns while executing its M&A strategy as quarterly results came with a 38-per-cent bump to the quarterly dividend. While the acquisition tilts the company’s capital allocation back towards debt reduction over the next 18 months, we continue to highlight PSK’s low-risk business model as one that is poised to continue to create value for shareholders through a thoughtful combination of cash returns and value-added M&A.”


Pointing to its “excellent” executional track record, infrastructure spending tailwinds and growing revenue and earnings generation “skewed towards recurring businesses,” Laurentian Bank Securities analyst Troy Sun said Aecon Group Inc. (ARE-T) is one of his favourite names in the Canadian engineering and construction space.

“Construction industry news flow over the past 36 months had not been positive (we highlight, however many of the negative “surprises” stemmed from project oversight issues, whereas ARE’s execution track record has been very robust),” said Mr. Sun in a research note ahead of the July 22 release of its quarterly results.

“That being said, ‘not the time for austerity’ is a consistent messaging we have repeated heard, from various levels of governments, throughout the pandemic. Recent provincial and federal budget plans further led us to believe policymakers will remain committed to infrastructure spending to spur / sustain economic growth (the latest provincial budgets impute over $200-billion in long-term demand for infrastructure across Canada that is right in Aecon’s wheelhouse). We also highlight that the company already sits on a healthy backlog of $5.9-billion (as of Q1/21), underpinning robust near-term visibility.”

The analyst thinks the Calgary-based company’s revenue and EBITDA generation mix “remains largely unappreciated,” pointing to “assets that are predictable and require less demanding working capital and CAPEX tend to command a much higher (vs. construction) multiple. Scaling the recurring part of the portfolio could lead to potentially compounding stock returns via multiple expansion.”

Assuming coverage of the stock, he set a “buy” rating and $22 target, seeing an attractive entry point based on its current valuation. The current average target is $22.27.

“We do not have a crystal ball to pinpoint the exact timing of a full-scale reopening (or whether the much-feared Delta Variant could push us into another round of social restrictions),” said Mr. Sun. “That being said, congestion on the 401 and busy airports during holiday weekends are good indicators that normalcy could be near. Aecon’s core construction business demonstrated incredible strength and resiliency even during the worst of times during COVID. The outlook remains intact, and execution under Jean-Louis Servranckx’s stewardship has been excellent. Now, we just need air traffic to come back for Bermuda.”


Calling it “the new beast of cannabis,” ATB Capital Markets analyst David Kideckel raised his rating for Sundial Growers Inc. (SNDL-Q) after coming off research restriction following the the closing of the acquisition of Inner Spirit Holdings.

He called the company’s entrance into the Canadian retail space a “visionary paradigm shift.”

“Sundial is now a vertically integrated cannabis company with cultivation, manufacturing, and retail operations, in addition to an investment platform,” he said. “In our view, the Company is a very different business from a year ago, and the rise of a new Sundial could present an attractive opportunity for investors.”

Moving the Calgary-based company to “sector perform” from “underperform,” Mr. Kideckel raised his target for its shares to 80 US cents from 50 US cents. The current average is 68 US cents.

“With the acquisition of ISH, Sundial gains exposure to retail through corporate-owned and franchise stores,” the analyst added. “In addition to the attractive growth profile of the retail segment itself — we view a long runway for growth through new stores and consolidation—we believe that Sundial can leverage its retail channels to gather data on consumer preferences and expand distribution of its own products. Sundial is now a vertically integrated cannabis company with cultivation, manufacturing, and retail operations, in addition to an investment platform.”


In other analyst actions:

* In a second-quarter earnings preview, RBC Dominion Securities analyst Alexander Jackson increased his target for Stelco Holdings Inc. (STLC-T) to $54 from $46, exceeding the $49 average. He maintained an “outperform” recommendation.

“We expect a record quarter for earnings driven by steady volumes and elevated steel prices,” he said. We revised our model marking-to-market for increased steel prices which increased our earnings estimates and price target. ... We continue to like Stelco for its strong leverage to steel via its highly fixed, low cost operations and we expect the company to generate robust free cash flow and earnings at current spot and forecast steel prices,” said Mr. Jackson.

* RBC’s Sabahat Khan raised his Spin Master Corp. (TOY-T) target to $56 from $53 with an “outperform” recommendation. The average is $49.91.

“We believe the company is well positioned for growth through H2 2021, and we expect meaningful top-line and earnings growth, driven in part by the Paw Patrol movie release,” said Mr. Khan.

* CIBC World Markets analyst Hamir Patel raised his Cascades Inc. (CAS-T) target to $20 from $17, keeping an “outperformer” rating. The average is currently $19.57.

* CIBC’s Jacob Bout cut his Westshore Terminals Investment Corp. (WTE-T) target by $1 to $19 with a “neutral” rating. The average is $20.90.

“We are tweaking our Q3/21 (and 2021) estimates lower to account for the potential negative impact of the BC wildfires on volumes received,” he said. “We continue to expect significantly lower volumes in 2022 (TECK management expects Neptune to ramp up in H2/21). Further, the rejection of permits for the Grassy Mountain Coal project [we now assume a 25-per-cent probability in our discounted cash flow (DCF) vs. approximately 50 per cent previously] adds to long-term coal volume uncertainty, but note that the decision is being appealed,” said Mr. Bout.

* JP Morgan analyst Arun Jayaram raised his Vermilion Energy Inc. (VET-T) target by $1 to $10 with an “underweight” rating. The average on the Street is $12.17.

* National Bank Financial analyst Vishal Shreehar increased his Premium Brands Holdings Corp. (PBH-T) target to $136 from $134, keeping an “outperform” rating. The average is $129.

* TD Securities analyst Tim James raised his TFI International Inc. (TFII-T) target to $140 from $135, topping the $111.07 average, with a “buy” rating.

* Mr. James also increased his target for Andlauer Healthcare Group Inc. (AND-T) to $44 from $43 with a “hold” recommendation. The average is $43.75.

* TD’s Brian Morrison lowered his Linamar Corp. (LNR-T) target to $98 from $105, reiterating a “buy” rating. The average is $95.40.

Editor’s note: An earlier version of this article incorrectly identified analyst Troy Sun of Laurentian Bank Securities. It has been updated.


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