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

RBC Dominion Securities analyst Josh Wolfson sees “clear benefits” for shareholders from Agnico Eagle Mines Ltd.’s (AEM-N, AEM-T) proposed merger Kirkland Lake Gold Ltd. (KL-N, KL-T), pointing to improvement in asset quality, balance sheet positioning and the acquisition of “near-term catalysts with meaningful upside.”

“We view the new AEM as a lot like the old AEM, with the company continuing to emphasize Canadian assets and ESG, while now also benefiting from lower costs, an improved balance sheet, and upcoming milestones,” he said.

Accordingly, Mr. Wolfson raised his rating for Agnico to “outperform” from “sector perform” in a research note released Wednesday.

“Although the transaction is contrary to AEM’s historical outlined strategy of avoiding major industry consolidation, we see asset integration risks as low and AEM’s bending of the rules as reasonable with parallels to its 2014 larger acquisition of the Malartic JV, which we believe has ultimately proven to be successful,” the analyst said. “Pro-forma, we expect AEM will maintain its positioning as a go-to investment for those seeking an uncomplicated strategy, a diversified asset base with low geopolitical risk, and an emphasis upon ESG, while it is now also better-positioned versus its comparable peers due to an improved risk profile and calculated deal accretion (4 per cent to NAVPS and CFPS). Both AEM and KL are on track to deliver solid operating progress in 2H which could represent a milestone in gaining investor appreciation. In particular, we highlight upside in 3Q from guided Detour Lake throughput and grade upside, plus management-indicated Fosterville grade upside.”

How Kirkland Lake morphed from gold sector rump into Agnico Eagle’s prized asset

Mr. Wolfson thinks Kirkland Lake shareholders are likely to see the benefit of Agnico’s track record and pro form diversification. Though he thinks the share ratio of the deal, which sees Kirkland shareholders receiving 0.7935 of an Agnico common share, is a “reasonable” concern, he views the likelihood of a competing bid being low.

“In our view, the complete rationale and timing of the transaction for KL is unclear, where upcoming opportunities at KL’s asset base have only begun to be outlined more clearly less-than 1 month prior to the transaction announcement,” he said. “Interim operating improvements in 2H may reinforce the attractiveness of the pro-forma entity, but also KL’s merits standalone. As a result, we believe the AEM-KL exchange ratio could be a reasonable point of contention for KL shareholders, and note the risk of modest changes do not meaningfully affect our AEM calculated accretion. In our view, competing bids are challenged by the $450-million break free, AEM’s standalone premium valuation that improves its relative capacity to bid, and the AEM+KL combination offering the highest-synergy potential as well as an aligned strategy .

Though he raised his earnings and cash flow expectations through 2023, Mr. Wolfson cut his target for Agnico shares to US$63 from US$68. The average target on the Street is US$76.99.

He reiterated an “outperform” rating for Kirkland with a US$50 target, exceeding the US$45.50 average.


In response to recent share price depreciation, TD Securities analyst Vince Valentini raised his rating for Thomson Reuters Corp. (TRI-T, TRI-N) to “buy” from “hold.”

“TRI shares are down 8 per cent since we downgraded to Hold on September 3,” he said. “Our downgrade was solely based on the valuation of TRI and tech-sector comps being a bit too high for our comfort level, and we said that we would consider going back to a BUY rating below $145.00. So with the stock having dipped below $140.00, we are following through with an upgrade.

“There are no changes to our Q3/21 or annual forecasts, and we continue to expect both continued solid execution by the company and good odds of an increase in 2023 guidance targets, concurrent with Q4/21 results in February.”

Mr. Valentini maintained his target of $160 per share. The current average on the Street is $134.08.


Heading into third-quarter earnings season, Citi analysts Scott Gruber and J.B. Lowe reaffirmed their bullish stance on North American oilfield services provider, seeing a recent spike commodity prices ensuring “healthy” growth rates into next year.

“In turn, this raises the prospect for incremental pricing in the U.S. and better margin performance abroad on both operating leverage as well as increased demand for premium products and digital applications,” they said in a research note. “On 3q specifically, estimates look fair as input cost and supply chain issues continue to weigh on margins. However, we expect any pause/pullback in stock performance for the group will likely be bought given the prospect for positive revisions into 2022 forecasts.”

With that view, Mr. Lowe increased his target for Precision Drilling Corp. (PD-T) to $55 from $42, reiterating a “neutral/high risk” recommendation. The average on the Street is $60.35.

“We forecast weak cash flow generation in 2020/2021, which should prevent the stock from seeing much upside; however, the company’s sizable super-spec rig fleet should drive base-level demand which should provide protection to the downside,” said Mr. Lowe.

Mr. Gruber’s changes were:

  • Helmerich & Payne Inc. (HP-N, “neutral”) to US$30 from US$29. The average is US$31.13.
  • Patterson-UTI Energy Inc. (PTEN-Q, “neutral/high risk”) to US$10 from US$8. . Average: US$9.88.

“HP believes operators will have a strong push late this year to set positions for 2022,” they said. “As such, the company has added 30 rigs of their 50-70 rigs expected by year-end 2021. Spot rates still remain in the ‘high teens’, but some $20-plus k/d prints have made their way through. Nonetheless, margin headwinds still remain given continued reactivation costs. For PTEN, the company believes its rig count can reach 100 rigs in the first quarter of 2022 (v. 83 in Sept.), and although margin headwinds will persist, the company expects margins to grind higher. On the pumping side, a 10th spread came out in late September and an 11th spread is expected late 4q, however pricing gains remain muted.”


A series of analysts on the Street raised their target prices for shares of Whitecap Resources Inc. (WCP-T) following the Tuesday evening announcement of the sale of a 5-per-cent gross overriding royalty interest on its Weyburn Unit to Topaz Energy Corp. (TPZ-T) for $188-million in cash.

“Overall, we view the event as positive with the transaction accretive to both our near term view (2022 estimated EV/DACF improves to 3.7 times from our prior estimate of 3.8 times) as well as our long term view (our PDP + Risked Upside NAV intrinsic value estimate increases to $11.72 per share from $11.46 per share prior) – further, the cash proceeds accelerate WCP reaching its nominal debt target, and now in our view, improves its positioning for actionable return of capital to shareholder activities,” said ATB Capital Markets’ Patrick O’Rourke.

He raised his target for Whitecap shares to $10.75 from $10.50 with an “outperform” rating. The average on the Street is $9.58.

Others making adjustments include:

* BMO Nesbitt Burns’ Ray Kwan to $10 from $9 with an “outperform” rating.

“We view the Weyburn GORR sale as being positive for Whitecap, helping to accelerate its return of capital initiatives/deleveraging goals,” he said.

“Going forward, we suspect Whitecap will be aggressive from a buyback/dividend increase perspective.”

* RBC’s Luke Davis to $9 from $8.50 with an “outperform” rating.

“We believe this maps to a multiple of 8-10 times at current strip prices, providing incremental liquidity to increase shareholder returns, fund potential M&A, and/or new energy initiatives. We would highlight that the company was on track with prior debt targets and is set to generate material free cash through the next year, which may lead to some push back given soft messaging on use of proceeds,” said Mr. Davis

* CIBC World Markets’ Dennis Fong to $9.25 from $9 with an “outperformer” rating.

“We believe the proceeds will be used to accelerate repayment of net debt while also looking to increase returns to shareholders. We view this transaction as positive for the company as Whitecap is now able to hit its $1.0-billion net debt target and can opportunistically repurchase incremental shares with a portion of generated free cash flow through the remainder of the year,” said Mr. Fong.

* National Bank’s Travis Wood to $12 from $11 with an “outperform” rating.

Meanwhile CIBC World Markets’ Jamie Kubik raised his target for Topaz Energy to $21 from $20, topping the $20.98 average, with an “outperformer” rating.

“We see the Weyburn transaction adding a high-quality, low-decline, oil-weighted asset into the Topaz portfolio, which should provide a stable cash flow wedge for multiple years into the future. We also see this asset offering environmentally friendly barrels from the largest anthropogenic CCUS project in the world, and being attached to a well-capitalized operator in Whitecap. Combined with the complementary royalty assets ($50-million), acquisition metrics compute to 7.7-times EBITDA on recent pricing, which offers nice accretion to our pre-deal trading metrics on strip at 11.2 times 2022 estimated EV/DACF,” he said.


While she thinks Dentalcorp Holdings Ltd.’s (DNTL-T) base business has been “impacted by transitory crosswinds,” Canaccord Genuity analyst Tania Gonsalves emphasized its “outlook remains robust.”

After meeting with the Toronto-based company’s management ahead of the release of its third-quarter results, Ms. Gonsalves trimmed her financial expectations for Canada’s largest national chain of dental practices, pointing to two factors.

  1. Increased travel during the summer between July and September, which came at the “expense of certain non-essential dental services that were postponed until the fall.”
  2. Lingering COVID-19 restrictions. She said “Based on in the rise in delta variant cases through Q3, COVID-19 restrictions actually tightened Q/Q in certain parts of the country. For instance, instead of turning over patients within a few minutes, DNTL has had to continue waiting ~15-20 minutes after wiping down equipment before seating a new patient. This has reduced daily capacity, especially for hygiene services wherein 10-15 per cent of revenue has been impacted. Hygiene is a core part of DNTL’s offering, making up 30-35 per cent of total revenue. COVID-19 restrictions have also resulted in certain labour inefficiencies and higher usage of PPE versus Q2.”

Based on those headwinds, which Ms. Gonsalves emphasized are short term, she cut her same practice sales growth forecast for the quarter to a 5-per-cent increase year-over-year from a 14-per-cent projection previously.

“We believe this to be conservative since growth is calculated off Q3/20, which was already materially impacted by COVID-19 measures,” she said.

That led her to cut her third-quarter revenue estimate to $251.5-million from $274.1-million and increased her projection of cost of revenue and employee benefits expense as a percent of sales based on management’s commentary. With those changes, her adjusted EBITDA forecast slid to $43.4-million from $50.8-million.

However, keeping a “buy” rating for Dentalcorp shares, which went public on May 21, Ms. Gonsalves raised her target $20 from $19. The average is $19.81.

“Given the still robust M&A pipeline (perhaps even more so than previously expected) and Canadians’ high dental IQ, our conviction in DNTL’s growth potential beyond 2021 remains intact. Approaching the end of the year, we’re opting to roll onto our 2023 adjusted EBITDA estimates to value the stock,” she said.


Stifel analyst Vincent Anderson hiked his 2022 financial expectations for North American fertilizer producers on Wednesday in response to a recent surge in commodity prices.

“We are raising our Fertilizer Price deck in line with 3Q21 market data and market commentary,” he said in a note. “We are raising our 2022 nitrogen prices in response to significant feedstock increases and related capacity outages in Europe, as well as uncertainty regarding Chinese export availability. Phosphate demand has picked up recently, particularly in India, with future phosphate exports from China also uncertain due to new SOE regulations. For both Nitrogen and Phosphates, we anticipate prices should begin to normalize in 1H22 but may stay elevated vs. 2019/20 levels. Potash prices also continue to increase, driven by strong demand in Brazil and improving demand in Southeast Asia. Elevated fertilizer prices are likely to put a significant dent in affordability for 2022, as improved weather in South America likely to prevent much upside in crop prices. We de-risk valuations somewhat and introduce preliminary 2023 estimates reflecting a more normalized price environment.”

For Saskatoon-based Nutrien Ltd. (NTR-N, NTR-T), Mr. Anderson is now projecting third-quarter earnings per share of US$1.20, up from US$1.17. His full-year 2021 and 2022 EPS estimates rose to US$4.95 and US$6.46, respectively, from US$4.90 and US$5.42.

Those moves prompted him to increase his target for Nutrien shares to US$79 from US$77 with a “buy” rating, reaffirming his “positive bias” toward its potash and retail exposure. The average target on the Street is US$75.63.

“We favor Nutrien for its high-quality and balanced exposure to fertilizer markets, given the firm’s significant assets in potash and nitrogen, as well as its defensive position in crop product retail,” he said. “Nutrien is also unique in its strong pipeline of accretive ‘‘tuck-in” retail acquisitions, as well as potential for larger scale M&A transactions in Brazil. Additionally, execution on merger synergies, as well as redeploying capital from recent significant divestments, should be key share price drivers.”

Elsewhere, BoA analyst Steve Byrne raised his target to US$83 from US$82 with a “buy” rating.


Scotia Capital’s Jeff Fan raised his financial expectations for Wildbrain Ltd. (WILD-T) following analyst day event on Tuesday, seeing management’s multi-year guidance reflecting confidence in its content production slate, including multiple projects in place for both Apple and Netflix.

“In September, management provided annual guidance for the first time since the new team started in September 2019, and the analyst day provided fiscal 2024 multi-year revenue and EBITDA CAGR [compound annual growth rate[ estimates of 12-17-per-cent revenue and 15-20-per-cent EBITDA,” he said. “During the event, management stated that these are ’base’ estimates, with potential upside from consumer products and Spark.”

“During the presentation, management highlighted that the timeline from announcing a new show to reaping the financial benefit can be anywhere from 12 to 18 months, and existing projects for Apple TV and Netflix announced in F2021 are scheduled for F2022 and F2023. For example, the Sonic the Hedgehog show for Netflix will drive results in F2023.”

Mr. Fan thinks WildBrain, formerly known as DHX Media Ltd, sits in a strong position to license its brands for merchandise and toys once they gain in popularity.

“We think management did a good job walking investors through the roadmap for brand launches using Strawberry Shortcake as an example, which was relaunched in recent weeks,” he said. “First, WildBrain has launched Strawberry Shortcake video games and short-form content on YouTube. In the coming months, Strawberry Shortcake will be featured in a new animated television series, and finally a toy and merchandise launch will follow in late 2022. We currently estimate 10-per-cent multi-year revenue growth for consumer products, which has potential upside as various brands are launched in the coming years.”

Also seeing “significant” potential upside if its sold its library to a streaming company, Mr. Fan increased his target to $4.30 from $3.60, exceeding the $3.70 average, with a “sector perform” rating.

Elsewhere, RBC Dominion Securities analyst Drew McReynolds bumped up his target to $4 from $3 also with a “sector perform” rating.

“We believe the company has fully turned the corner on a period plagued by execution challenges, a sooner-than-expected shift in content demand, and a levered balance sheet following major content investment and M&A. We continue to have confidence in execution under the new management team and see potential upside in the shares in an accelerated growth phase as the company’s 360-degree strategy takes firmer hold beginning in F2022. While our rating balances an improved growth outlook with still high leverage (forecast mid-4-times by the end of F2022), we continue to be impressed by the operational progress to date,” said Mr. McReynolds.


In other analyst actions:

* In response to its $58-million acquisition of Fire Sky Energy Inc., Stifel analyst Robert Fitzmartyn raised his target for Surge Energy Inc. (SGY-T) to $7.75 from $7.50 with a “buy” recommendation. The average on the Street is $9.39.

“Surge is deleveraging via acquisition and has issued a sizable chunk of equity, which could infer a potential liquidity overhang though lock-up agreements could mitigate a portion of this in the near term. The company remains a leveraged bet on crude oil price strength as a 0.5 times EV/DACF [enterprise value to debt-adjusted cash flow] uplift would imply an increase of $1.25 per share to the equity,” he said.

* Stifel’s Ian Gillies bumped up his target for shares of Neo Performance Materials Inc. (NEO-T) to $28 from $26.50, keeping a “buy” rating. The average is $27.50.

“We believe Neo is a low-risk way to play the EV adoption trend given a strong existing business, and growing presence in the EV sector,” he said. “We estimate the company could add $7.6-9.7-million of EBITDA tied to EVs by 2025E by the way of sales for its Magnequench powders. In the interim, we believe the near-term outlook remains strong despite broader macro concerns related to China and supply chain risk.”

* RBC’s Walter Spracklin cut his Stella-Jones Inc. (SJ-T) target to a Street-low of $43 from $46, falling below the $54.56 average. He kept a “sector perform” rating.

* TD Securities analyst Tim James increased his target for GFL Environmental Inc. (GFL-T) by $1 to $54 with a “buy” rating. The average is $44.68.

* National Bank Financial analyst Cameron Doerksen raised his Bombardier Inc. (BBD.B-T) target to $2.50 from $1.90, keeping an “outperform” rating. The average is $1.93.

“We are comfortable increasing our valuation multiple given the strength in the business jet market that we expect can be sustained, as well as the improving balance sheet risk profile for Bombardier,” he said.

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