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

Teck Resources Ltd. (TECK.B-T) is “set up for a stronger second half,” according to RBC Dominion Securities’ Sam Crittenden.

In a research report following the miner’s weaker-than-anticipated second-quarter results, the equity analyst said he believes it its poised to benefit from higher met coal prices, while also acknowledging the “continued risks” stemming from the forest fires in British Columbia.

“Met coal prices have risen sharply in recent months as the market has adjusted to the Chinese ban on Australian coal, supply constraints, and continued strength in steel production in China and improvements in other markets,” said Mr. Crittenden. “The FOB Australia price is currently up to US$214.5 per ton and US$318 per ton CFR China which implies a realized spot price for Teck of US$230 per ton which compares to US$144 per ton in Q2 and US$131 per ton in Q1.

“The wildfires in BC remain a near-term risk and Teck has guided to sales of 5.7-6.2Mt vs. 6.2Mt in Q2, and the price is likely to moderate from current elevated levels (our estimate for 2022 is US$150 per ton); however, stronger met coal pricing can certainly help Teck’s FCF in H2/2021 and into next year. We estimate C$1.0-billion of FCF for the coal business in 2022 at US$150 per ton or C$3.0-billion at spot prices.”

Mr. Crittenden also sees Teck poised to “drive better valuation relative to peers over the next two years” if it can execute on copper growth at its Quebrada Blanca Phase 2 (QB2) project.

“Teck continues to manage through COVID risks at QB2 but management is optimistic that the peak interruptions were experienced in Q2 when 300 workers were in quarantine with COVID compared to 3 currently, and overall case levels and hospitalizations are improving in Chile,” he said. “Restrictions around the camp have been relaxed and Teck is currently ramping up to maximum capacity, while development and productivity have been accelerating. The capex estimate was maintained at US$5.2-billion with an additional US$600-million of estimated COVID impacts (up from US$450-500-million at Q1) for a total US$5.8-billion which remains below our estimate of US$6.0-billion.”

Keeping an “outperform” rating for Teck shares, Mr. Crittenden raised his target to $37 from $35. The average target on the Street is $34.25, according to Refintiv data.

“Coal stocks (4 times EBITDA) and development stage copper stories (0.7 times NAVPS) trade at a discount to established copper producers (6 times EBITDA and 1.3 times NAVPS) and we believe as Teck completes QB2 development, they can trade at better multiples,” he said. “Met coal represents 31 per cent of our 2021 EBITDA estimate, falling to 23 per cent by 2024 and Teck is currently trading at 3.7 times our 2022 EBITDA estimate (at $150/t met coal and $3.75 copper), and 0.8 times our NAVPS estimate.”

Other analysts making target changes include:

* Raymond James’ Brian MacArthur to $37 from $35 with an “outperform” rating.

“We believe Teck offers good exposure to coal, copper, and zinc, and is able to convert EBITDA from its Canadian operations efficiently given its large Canadian tax pools. Given Teck’s long life, low jurisdictional risk, diversified asset base, and valuation, we rate the shares Outperform,” he said.

* Scotia Capital’s Orest Wowkodaw to $35 from $36 with a “sector outperform” rating.

“TECK reported slightly weaker than anticipated Q2/21 results and disclosed several relatively minor downward revisions to guidance. On a positive note, QB2 development continues to make solid progress and is now close to 60-per-cent complete. Overall, we view the update as a modest negative for the shares,” said Mr. Wowkodaw.

* Credit Suisse’s Curt Woodworth to $42 from $34 with an “outperform” rating.

“Teck is underappreciated by the market in our view despite having the best top line growth potential into 2023 of virtually any company we cover,” said Mr. Woodworth. “We argue the coking coal market is now finally rebalanced and the unintended consequences of the China ban on Australian coal is actually very bullish for medium term price formation. The cost curve clearing price for coking coal has structurally shifted higher as China has become more dependent on higher cost local or US supply to balance internal needs. This is well reflected in the $315/mt CFR China price, which Teck is taking full advantage of via more volume flow on that basis. At spot coal prices on our 2022 operating assumptions, Teck’s coal assets generate $2.4-billion in FCF, which alone is 17-per-cent FCF yield to equity. Historically, the LV met market has proven to be illiquid in strong market conditions and demonstrate substantial upside potential, as is now underway. When markets finally rebalance, often the next 12-18 months creates outsized ROI.”

* Barclays’ Matthew Murphy to $29 from $30 with an “equal weight” rating.


Celestica Inc.’s (CLS-N, CLS-T) “healthy” 2022 outlook stems from its transformation, according to RBC Dominion Securities analyst Paul Treiber, touting its “good confidence and visibility for the next year.”

After the bell on Monday, the Toronto-based electronics manufacturing services company reported revenue of US$1.42-billion, exceeding the Street’s forecast of US$1.38-billion and at the high end of its guidance of US$1.33-$1.43-billion. Adjusted earnings per share of 30 US cents blew past the consensus projection of 24 US cents and guidance (21-27 US cents).

The mid-point of its third-quarter guidance for US$1.40-1.55-billion revenue and 30-36 US cents adjusted EPS also exceeded the consensus projections (US$1.44-billion and 28 US cents).

“Celestica reported solid Q2 above expectations as strong demand and solid execution offset component shortages and production challenges,” said Mr. Treiber. “While component shortages are expected to persist in the near-term, demand is stronger, as the mid-point of Q3 guidance is above consensus. Celestica provided annual guidance for the first time, which suggests high visibility and points to FY22 above consensus.”

Mr. Treiber said growth in the company’s “high-margin, high value-add” Hardware Platform Solutions (HPS) segment remains strong due to cloud hyperscalers.

“Management now anticipates FY21 HPS revenue of more than $1-billion in fiscal 2021, up 16 per cent year-over-year vs. its previous outlook for double-digit growth. Improving growth stems from share gains at and manufactured by Celestica instead of traditional OEMs. Excluding Cisco, we forecast FY21 revenue to increase 7 per cent year-over-year (6 per cent previously).”

Emphasizing its improving business mix, Mr. Treiber raised his revenue and earnings expectations for 2021 and 2022, leading him to increase his target for its share to US$10 from US$9. The average on the Street is US$9.67, according to Refinitiv data.

He kept a “market perform” rating, citing its “historical variability in growth.”

“Celestica is trading at 7 times FTM P/E [forward 12-month price-to-earnings], well below EMS peers at 13 times,” he said. “We believe that Celestica’s discount to peers may narrow over time with improved growth and profitability. Celestica’s solid FCF drives deleveraging (now 0.3 times net debt/ EBITDA) and share purchases, which may further help lift valuation.”

Other analysts making target adjustments include:

* Canaccord Genuity’s Robert Young to US$11 from US$10.50 with a “buy” rating.

“Celestica’s Q2 outperformance and strong guide are evidence that the company’s planned shift toward higher value end markets is playing out,” said Mr. Young. “Management now expects a return to growth in Q4, carrying into 2022 with revenue eclipsing $6-billion, nicely ahead of consensus at $5.8-billion. Strength in lifecycle solutions, which includes the HPS (prev. JDM) business and ATS business, has been a driver of operating margin, which is poised to hit the 4-per-cent mark in Q3 and Q4 with potential for further expansion in 2022. While supply chain constraints and COVID-19 remain headwinds in the near term, we also see opportunity for upside as high-margin A&D, particularly commercial aerospace, and display end markets recover.”

* Scotia Capital’s Paul Steep to US$9.25 from US$9 with a “sector perform” rating.

“We anticipate that the stock will continue to remain volatile, given (1) the effect of reopening of various geographies and a normalization in material availability in the firm’s supply chain; (2) ongoing recovery in semiconductor demand leading to improved results within the capital equipment segment; and (3) new wins in ATS helping to offset pressure related to continued weakness in the Aerospace & Defense segment,” said Mr. Steep.

* TD Securities’ Daniel Chan to US$9.50 from US$9 with a “hold” rating.

* BMO Nesbitt Burns’ Thanos Moschopoulos to US$10 from US$9.50 with a “market perform” rating.


FirstService Corp. (FSV-Q, FSV-T) is “powering past the pandemic,” according to CIBC World Markets’ Scott Fromson.

Before the bell on Tuesday, the Toronto-based property services provider reported adjusted earnings before interest, taxes, depreciation and amortization of US$89.9-million, exceeding both Mr. Fromson’s US$84.8-million estimate and the US$82.9-million consensus. The beat was driven by strong revenues of US$832-million, which also topped expectations (US$729-million and US$745-million, respectively). Adjusted earnings per share of US$1.21 beat the analyst’s Street-high US$1.11 estimate and US$1.03 consensus.

“The drivers behind FSV’s Q2/21 beat provide clear signs of pandemic recovery as life returns to something approaching normality in the company’s markets,” said Mr. Fromson. “The reopening of multi-residential building amenities, the unleashing of pent-up home improvement demand and (unfortunately recurring) weather-related restoration work all contributed to a 25-per-cent year-over-year organic revenue growth (of a total 34-per-cent rate). While growth was clearly elevated (easy comps, reopening trade), we believe it does reflect the robustness of FSV’s diverse portfolio of market-leading, essential property service businesses. We are nudging up our estimates, which could prove conservative as leverage of 1.2 times and strong liquidity support acquisition growth..”

Seeing both its FirstService Residential and FirstService Brand segments performing “well” through the early reopening of the economy, Mr. Fromson sees “good growth ahead,” but he warned that rising costs may provide a headwind

“We expect continued strong growth (albeit at a slowing pace) for the remainder of our two-year forecast period,” he said. “We look for revenue growth of approximately 18 per cent for fiscal 2021 (composed of 13 per cent organic and 5 per cent from acquisitions) and 8 per cent for 2022 (5 per cent and 3 per cent). Our adjusted EBITDA growth estimates are 17 per cent for FY/21 and 11 per cent for FY/22. Operating cost pressures (notably labour) will weigh on adjusted EBITDA margins; we reduce our margin estimates from 10.7 per cent to 10.1 per cent for FY/21 and from 10.6 to 10.5 for FY/22.”

Maintaining a “neutral” rating as he sees its stock as “near full valuation,” Mr. Fromson raised his target for FirstService shares to US$190 from US$180. The current average on the Street is US$184.

“FSV has a market-leading position in several essential property services and strong recurring revenues, which bodes well for stable organic growth,” said Mr. Fromson. “The company’s revenue mix is defensive and largely non-cyclical, positioning FSV relatively well during a downturn. We continue to expect FSV to add to its markets and service lines and see potential growth from M&A.”

Others making target tweaks include:

*RBC Dominion Securities’ Matt Logan to US$200 from US$190 with a “sector perform” rating.

“FirstService Corp. continues to see strong momentum across its service lines — spanning residential property management, property restoration, home improvement, and fire protection,” said Mr. Logan. “While lumpy storm-related revenues have remained a tailwind in Q2/21, our estimates reflect normalized levels on a full-year basis in 2021–22. More importantly, we see the combination of robust organic growth and tuck-under acquisitions supporting mid- to high-teens revenue and EBITDA growth in 2021 and mid-teens growth in 2022.”

* Raymond James’ Frederic Bastien to US$185 from US$175 with a “market perform” rating.

“We are big fans of FSV, which has demonstrated since the onset of the COVID-19 pandemic it can swiftly adjust to economic disruption and still seize on emerging opportunities. In 2Q21, these came courtesy of healthy home resale activity, reopening seasonal amenities, strong home improvement spending and continued restoration work from Texas’ deep freeze. But with FirstService’s premium to its closest peers now larger than it’s ever been, at almost 10 multiple points on a forward EV/EBITDA basis, we feel that its envious leadership position in North America’s big and fragmented market for residential property services is getting full recognition from the Street. For this reason, we are maintaining our Market Perform on the stock,” he said.

* BMO Nesbitt Burns’ Stephen MacLeod to US$193 from US$185 with a “market perform” rating.


In a separate research note, Mr. Fromson said Allied Properties Real Estate Investment Trust (AP.UN-T) is “well positioned for the hybrid work world” after the release of “solid” quarterly results and an encouraging outlook.

“Allied reported sound Q2/21 results, featuring healthy year-over-year growth in SPNOI (up 6.4 per cent) and FFO/unit (up 8.1 per cent on a small beat),” he said. “As the Canadian vaccination program continues to progress admirably, we expect return-to-office to accelerate in conjunction with return-to-school. In the ‘new normal’ world of hybrid work arrangements, we believe Allied’s flexible, well-located and thoughtfully designed workspaces put the REIT in a leading position to attract workers back to their desks (the softer part of a ‘carrot and stick’ strategy).”

Late Monday, the Toronto-based REIT reported quarterly funds from operations of 60 cents per unit, topping Mr. Fromson’s forecast by 1 cent and the consensus projection by 2 cents. Occupancy of 91.1 per cent fell below his 91.6-per-cent estimate.

“Occupancy increases now appear more likely to occur through H2/21-H1/22,” said the analyst. “Of note, the REIT has seen touring activity pick up significantly since March. Allied renewed or replaced 60 per cent of maturing leases at an average increase of 14.2 per cent (up 14.7 per cent ex-Calgary); average in-place rents were up 4.3 per cent year-over-year across the portfolio. Urban data centres continued to lease up (at both 250 and 151 Front St. W.), with portfolio occupancy now 95.2 per cent (up 140 basis points quarter-over-quarter). Reported IFRS NAV of $49.07 was up 1.1p per cent year-over-year. Management’s internal forecast remains at low- to mid-single digit growth in SPNOI, FFO/unit and AFFO.”

Maintaining an “outperformer” rating, Mr. Fromson bumped up his target by $1 to $50. The average is $49.06.

Elsewhere, these analysts made target changes:

* Canaccord Genuity’s Mark Rothschild to $50 from $47 with a “buy” rating.

“While there remains uncertainty surrounding the outlook for office properties, in particular in downtown markets, we are seeing some positive signs as many companies return to the office,” he said. “However, it also appears that many companies are offering more flexible terms to employees, and this is leading to some companies requiring less office space. Having said that, transaction activity has picked up, and values have appeared to stabilize at levels achieved pre-COVID. Allied’s units have generated a total return of 22.2-per-cent year-to-date, and currently trade at an implied cap rate of 4.8 per cent, or a 2-per-cent discount to our NAV per unit estimate of $43.34.”

* BMO Nesbitt Burns’ Jenny Ma to $48 from $44.50 with an “outperform” rating.


With its balance sheet “rapidly healing” with rising commodity prices, Desjardins Securities analyst Chris MacCulloch sees Vermilion Energy Inc. (VET-T) “well-positioned to resume its dividend payout moving into 2022, ideally on the back of a strategic transaction”

Assuming coverage of the Calgary-based company in a research report released Wednesday, he said he expects it to regain its premium multiple over the long term due to its “unique asset and commodity price diversification.”

“In its heyday, Vermilion was viewed as one of the premier dividend-paying Canadian energy companies after constructing an extensive portfolio of international assets, providing unparalleled commodity price diversification,” said Mr. MacCulloch. “Investors came to rely on the company as one of the few safe harbours in a stormy Canadian energy landscape given its ability to retain a lucrative dividend throughout several commodity price downturns, rewarding it with a premium multiple in the process. However, the ground was slowly shifting under Vermilion’s feet following a series of strategic missteps, including its decision to protect an unsustainable dividend payout. Then COVID-19 reared its ugly head and the world was forever changed, with the commodity price crash forcing a strategic shift back to its corporate roots and a temporary suspension of the dividend.

“Fast-forward to the present, we see Vermilion slowly regaining its ‘Eye of the Tiger’ through prudent balance sheet management in the face of rising commodity prices, which has now put it on track to meet its D/CF target of 1.5 times by next year. As a result, we expect the company to resume its dividend at some point in 2022, ideally on the back of a strategic acquisition, which could help accelerate the balance sheet clean-up. However, we also expect a more modest dividend payout, as a humbler Vermilion rises from the ashes of last year’s price collapse with a renewed focus on financial sustainability as one of its core principles, along with operational excellence and retaining its leadership position as a Canadian ESG champion.”

The analyst has a “buy” rating and $13 target for Vermilion shares. The average is $12.23.


Touting its “constructive setup,” Canaccord Genuity’s Luke Hannan expects Autocanada Inc. (ACQ-T) to record the strongest second quarter in its operating history.

“Pervasive global semiconductor shortages have caused automotive OEMs to drastically reduce their production forecasts for 2021 and, in the case of Ford, stating that normal vehicle availability will not resume until 2022,” the analyst said. “Coupled with renewed demand for personal vehicles coming out of the pandemic, the current environment has led to fewer vehicles on dealers’ lots, reducing carrying costs and leading to margin expansion on a per unit basis for both new and used vehicles. We believe the confluence of these trends leaves AutoCanada well positioned to deliver record results.”

Mr. Hannan is projecting EBITDA for the quarter of $49-million, slightly below the consensus estimate of $52-million and easily topping last year’s $22-million. He’s forecasting adjusted earnings per share of 62 cents , also lower than the consensus of 80 cents.

“Importantly, lower OEM production forecasts indicate these dynamics will hold for the balance of the year and into 2022, in our view, suggesting multiple quarters of strong performance are in the cards for AutoCanada moving forward,” he added d. “AutoNation (AN-N) management validated this notion by stating it expects the current environment of demand exceeding supply to continue into 2022. While AutoNation operates solely in the US, we expect the same trends to play out in the Canadian market, which is supportive of (1) higher margins for both new and used vehicles and (2) demand tailwinds for the higher margin Parts, Service & Collision Repair (PS&CR) and Finance & Insurance (F&I) segments, both of which are favourable for AutoCanada.

“That said, we believe these favourable industry dynamics have made it unlikely that the independent dealers that make up AutoCanada’s pipeline of potential acquisitions (representing more than $150-million in estimated transaction value) will be willing to sell at multiples agreeable to AutoCanada management. With $250-million in available liquidity and net debt/EBITDA of 0.7 times as of the end of Q1/21 (3.0 times on a post-IFRS 16 basis), we will be curious to hear on the call whether management’s views regarding near-term capital allocation have changed.

Reaffirming a “buy” rating, Mr. Hannan raised his target to $60 from $58, The average is $54.31.

“We believe the realignment of AutoCanada’s business following the implementation of the Go Forward Plan to focus on developing the higher-margin and economically resilient operating segments will reward investors with long-term stable earnings growth going forward. Further, we see potential for AutoCanada’s earnings to outperform relative to our estimates over the coming quarters as the company enjoys favourable industry dynamics that we anticipate lasting until 2022,” he said.


In a research report previewing earnings season for Canadian power and energy infrastructure companies, Raymond James analyst David Quezada and Frederic Bastien made a series of target price adjustments.

“As we often suggest during the power and utility earnings season, we do not expect any material share price reaction to earnings misses or beats, which we expect will be largely weather related,” they said. “That said, two companies in our coverage, Capital Power (CPX) and Altagas (ALA), have spot power price/commodity exposure that could result in strong earnings, and we note our estimates for CPX are ahead of prevailing estimates. Meanwhile, we expect the central conference call topics will surround inflation, the US infrastructure and budget proposals, and the respective capital opportunities among the IPPs and utilities.”

The analysts’ changes were:

  • Atlantica Sustaintable Infrastructure PLC (AY-Q, “outperform”) to US$47 from US$50. Average: US$43.17.
  • Boralex Inc. (BLX-T, “outperform”) to $56 from $60. Average: $48.91.
  • Innergex Renewable Energy Inc. (INE-T, “outperform” to $26.75 from $28. Average: $24.35.
  • Northland Power Inc. (NPI-T, “outperform”) to $55 from $57. Average: $49.87.


In other analyst actions:

* In response to “solid” results in a “financially transformational” second quarter, Stifel analyst Ian Parkinson upgraded Copper Mountain Mining Corp. (CMMC-T) to “buy” from “hold” with a $5.75 target, up from $4 and above the $5.20 average.

* After assuming coverage, CIBC World Markets analyst Sumayya Syed raised the firm’s H&R Real Estate Investment Trust (HR.UN-T) target to $19 from $17 with an “outperformer” recommendation. The average on the Street is $17.86.

H&R’s persistently wide NAV discount indicates that to-date initiatives to simplify the REIT have been under-appreciated by investors,” she said. “More significant simplification through the creation of a pure-play standalone entity could help shrink the holdco discount. A separate U.S. multi-family entity could offer a compelling investment opportunity, and we believe this segment is significantly undervalued amongst the REIT’s many platforms.

“In addition to the potential for valuation improvement from streamlining the business, we continue to like H&R’s tilt towards long-term leases to investment-grade tenants and low leverage versus peers.”

* With the release of in-line quarterly results, IA Capital Markets analyst Frédéric Blondeau raised his target for Morguard North American Residential REIT (MRG.UN-T) to $18.50 from $16.50, which is below the $19.50 average, with a “hold” recommendation, but warned he continues to see “limited potential catalysts.”

* Touting its “industry leading” product porfolio and seeing an enticing valuation, Acumen Capital analyst Jim Byrne initiated coverage of Vecima Networks Inc. (VCM-T) with a “buy” rating and $20 target.

“In our view, VCM offers investors an attractive investment opportunity in the broadband telecommunications and content delivery sectors,” he said. “The company is well positioned for organic growth given the underlying market fundamentals, and we believe strategic acquisitions could act as positive catalysts over the next few years as they look to expand their product portfolio and/or its geographic presence. The shares trade at 18.8 times 2022 EV/EBITDA and the current dividend yield is 1.4 per cent. The shares are tightly held with management and insiders owning 61 per cent of the outstanding shares today, primarily by the founder Surinder Kumar.”

* Scotia Capital analyst Michael Doumet bumped up his target for Russel Metals Inc. (RUS-T) to $34 from $32, keeping a “sector perform” rating. The average is $35.04.

“For Russel, higher steel prices (and inventory gains) can reliably produce higher earnings,” he said. “That will play out in 2Q21. HRC and plate prices are at an all-time high advancing 23 per cent and 32 per cent, respectively, through the quarter. While the percentage increase was below that of 1Q21 (i.e. 47 per cent and 57 per cent), the dollar appreciation was similar. To us – holding all else constant – that will translate into higher revenues, lower margins, and similar operating profit in 2Q21 versus 1Q21. While ahead of consensus for 2Q21 (we forecast EBIT of $117 million versus $103 million), we believe gross margin compression from steel price normalization and the flow through of higher cost inventories (in 2H21) remains an overhang. Further, while a higher trading multiple is justified to us, given the cleaner, less-cyclical, higher-return nature of the business, we believe RUS shares are fairly valued.”

* JP Morgan analyst Phil Gresh cut his Suncor Energy Inc. (SU-T) target to $32 from $34 with a “neutral” rating. The average target on the Street is $36.34.

* RBC Dominion Securities analyst Irene Nattel raised her Neighbourly Pharmacy Inc. (NBLY-T) target to $32 from $28, topping the $29.92 average, with a “sector perform” rating.

“Maintaining sector-leading earnings growth forecasts, underpinned by a long tail of consolidation opportunities, favourable demographic trends, & ongoing expansion of pharmacy services. With fiscal 2022-25 estimated EBITDA CAGR 22-per-cent predicated on relatively conservative M&A assumptions, in our view, there is a strong argument for sustained valuation, and potentially upward revision to consensus forecasts,” she said.

* TD Securities analyst Mario Mendonca hiked his Trisura Group Ltd. (TSU-T) target to $53 from $45 with a “buy” rating. The average is $46.88.

* National Bank Financial analyst Zachary Evershed raised his Cascades Inc. (CAS-T) target to $21 from $20.50 with an “outperform” rating. The average is $20.07.

* National Bank’s Adam Shine bumped up his Spin Master Corp. (TOY-T) target to $56 from $53, exceeding the $50.18 average. He reiterated an “outperform” rating.

* Mr. Shine also raised his Stingray Group Inc. (RAY.A-T) target to $10 from $9 with an “outperform” rating, The average is $9.

* BMO Nesbitt Burns analyst John Gibson increased his target for Trican Well Service Ltd. (TCW-T) to $3.50 from $3.25, keeping an “outperform” rating. The average is $3.26.

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