Inside the Market’s roundup of some of today’s key analyst actions
Possessing a “higher than usual degree of confidence” in the “positive performance and safe operations” of Opsens Inc.’s (OPS-T) first in-man study of its SavvyWire technology, Raymond James analyst Rahul Sarugaser raised his rating for the Quebec City-based company to “strong buy” from “outperform.”
With its fourth-quarter results before the bell on Tuesday, Opsens said it was “extremely pleased” with the 20-patient safety trial for its new guidewire for transcatheter aortic valve replacement (TAVR) and is now targeting commercial launch in 2022.
“While data has not yet been published, we have several reasons to believe that that OPS saw positive data from its 20-patient FIH safety trial: 1. Companies do not apply for marketing clearance if clinical data reveals poor safety; 2. The trial was open label, with OPS’ team present for every single procedure, and there is no follow-up required (i.e. their understanding of endpoint success was immediate); 3. A portion of the clinical trial data, which was all positive, was reported by KOLs at the TCT conference earlier this month,” he said.
Mr. Sarugaser said Opsens stock performance has proven to be “asymmetric” to the TAVR opportunity thus far, and he now projects a “value ramp” in the next 6-9 months.
“At the time of writing, OPS stock was down (10 per cent) versus TSX up 0.07 per cent on its 4Q21 revenue miss, but the market is missing the real story here: in our view, most of OPS’ upside is in the TAVR program, representing an opportunity for our clients to add to positions or open new ones,” the analyst said. “Further, OPS suggested that its applications to the FDA may be approved by end of summer 2022, and perhaps faster by Health Canada (they evaluated OPS’s TAVR program ahead of the trial).”
“So, we believe the next chapter of OPS’s rapid value creation will unfold during the next 6-9 months. And this, of course, is the lead-up to what we believe will be a high-tension M&A market among OPS’ potential acquirers in the TAVR market, which include EW, BSX, MDT, and relative newcomers ABT and SWAV. Even with strong stock performance already this year, we believe OPS is at the very beginning of a steep value ramp.”
He maintained a $6 target for the company’s shares. The current average on the Street is $4.
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Analysts at CIBC World Markets lowered their gold and silver price projections for 2021 and 2022 on Wednesday, leading to a rating revision and a series of target price changes.
The firm’s gold forecast for 2021 fell to US$1,800 ounce from US$1,925 and to US$1,875 for 2022 from US$2,100 “to reflect the softer performance year to date and headwinds from rate hikes, which are expected to emerge in Q3/22.
“Although our forecasts are revised lower, we remain constructive on the gold price and at considerably higher base price levels for the foreseeable future,” he said.
CIBC’s silver forecasts slid to US$25.50 for 2021 (from US$28) and US$26.50 for 2022 (from US$31.
“Silver has historically outperformed gold during the December-February period, and we expect this cycle to be no different,” they said.
That view led analyst Anita Soni to cut Iamgold Corp. (IAG-N, IMG-T) to “underperformer” from “neutral.”
“We are downgrading IAG from Neutral to Underperformer on the back of higher costs in Q3/21, which we expect to continue into 2022, and operational challenges encountered at all of its operations,” she said. “IAG noted that it expects to provide a potential reserve write-down at Rosebel, which, in our opinion, will likely impact 2022 production.”
Her target for Iamgold shares slid to US$3 from US$3.25 and below the US$3.38 average.
Ms. Soni also cut her targets for these stocks:
- B2Gold Corp. (BTG-N/BTO-T, “outperformer”) to US$5.75 from US$6.25. Average: US$6.20.
- Barrick Gold Corp. (GOLD-N/ABX-T, “outperformer”) to US$30 from US$35. Average: US$27.21.
- Centerra Gold Inc. (CG-T, “neutral”) to $11.75 from $9.75. Average: $10.93.
- New Gold Inc. (NGD-N/NGD-T) to US$2.20 from US$2.50. Average: US$1.81.
- Yamana Gold Inc. (AUY-N, YRI-T) to US$6 from US$7. Average: US$6.53.
Ms. Soni raised her targets for Endeavour Gold Corp. (EQX-T) to $11.75 from $11, below the average of $14.73, with a “neutral” average.
CIBC’s Cosmos Chiu made these changes:
- Eldorado Gold Corp. (EGO-N/ELD-T, “outperformer”) to US$16 from US$18. Average: US$14.06.
- Fortuna Silver Mines Inc. (FVI-T, “neutral”) to $6 from $7.75. Average: $6.50.
- Franco-Nevada Corp. (FNV-T, “outperformer”) to $240 from $230. Average: $202.34.
- Osisko Gold Royalties Ltd. (OR-T, “outperformer”) to $23 from $22.50. Average: $23.18.
- SSR Mining Inc. (SSRM-Q/SSRM-T, “outperformer”) to US$29.75 from US$25.75. Average: US$24.94.
- Triple Flag Precious Metals Corp. (TFPM-T, “neutral”) to $20 from $17. Average: $19.58.
“As challenging macro factors – rising inflation, ongoing COVID-19-related challenges, climate-related challenges and supply chain issues – continue to impact the sector, we believe that companies in our coverage universe that display better cost management, production growth and higher-quality assets will continue to offer an attractive entry point in an elevated gold price environment,” the analysts said. “Over the past year, companies have strengthened their balance sheets and increased capital return to shareholders, and we believe that will continue into 2022. Lastly, the recent M&A action in the sector has sparked renewed interest in the space, as recent deals have been strategic and logical, providing benefits to acquirers and targets. We expect the theme of consolidation to continue into next year..”
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RBC Dominion Securities analyst Darko Mihelic thinks investors will need to see evidence of the benefits of Laurentian Bank of Canada’s (LB-T) strategic review, including improved earnings and return on equity, before a re-rating of its shares can occur.
On Tuesday, the bank announced a fourth-quarter charge of $163-million after tax, and adjusted earnings from the review. It expects annual cost savings of $15-million after tax from the resulting changes.
“LB will be unveiling its new strategic plan at its December 10 investor day and without knowing the details of its plan, and its targets and objectives, we are unsure how much earnings and ROE can improve in the shorter-term,” said Mr. Mihelic. “We did not see any disposals of business units in LB’s announcement [Tuesday] that may suggest massive overhauls and changes. Management also indicated that they do not expect to deliver the AIRB project before 2025. Hence, we believe potential ROE improvement will have to come from revenue growth and cost containment (which may take more time to realize) rather than an improved capital structure.”
With the announcement, Mr. Mihelic cut his fourth-quarter adjusted earnings per share projection by 26 cents to $1.02. His full-year core EPS estimate slid to $4.27 from $4.53, however his 2022 and 2023 core EPS estimates increased due to $4.49 and $4.65, respectively, from $4.14 and $4.30 due to expense savings.
Maintaining an “outperform” rating for Laurentian shares, he cut his target to $49 from $52, exceeding the $46 average.
“LB has performed well as of late and has appreciated 26 per cent year-to-date as of market close on November 23 (versus the median Big Six appreciation of 35 per cent),” he said. “On a P/B basis, LB is currently trading at 0.70 times (compared to the 15-year historical average of 0.98 times and the large Canadian banks median of 1.80 times). On a P/TB basis, LB is trading at 0.80 times (compared to the 15-year historical average of 1.05 times).”
Elsewhere, TD Securities analyst Mario Mendonca trimmed his target to $46 from $47 with a “hold” rating.
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Desjardins Securities analyst John Sclodnick suggests Skeena Resource Ltd. (SKE-T) could be “the next great Canadian takeout.”
In a research note released Wednesday, he initiated coverage of the Vancouver-based company with a “buy” rating, calling its Eskay Creek gold-silver project in British Columbia “a world-class project ... with a substantial production profile and low costs in a desirable jurisdiction” that could draw the attention of larger peers.
“In the upcoming [feasibility study] targeted for late 1Q22, we see potential for the company to extend the 10-year mine life at Eskay Creek while expanding production, and view it as a world-class asset — the type that majors like to acquire,” he said. “It already has an annual production profile to move the needle for any company (352,000 ounce gold equivalent in the Prefeasibility Study), while lowering the cost base (US$548 per ounce AISC in the PFS) and jurisdictional risk profile of any acquirer.
“There has been a recent acquisition run on high-quality assets in Canada, including a number in the Golden Triangle area of BC, the most recent of which was Newcrest’s offer for Pretium. These transactions have created a dearth of acquisition targets in Canada, and we believe Eskay Creek tops the list of desired assets in the country, particularly once it is permitted. The crux of our investment thesis is our belief that Skeena will be acquired, and we highlight the merits of an acquisition and our expectation for the valuation gap to close from current levels to where we believe the management team and board would consider a sale. However , rest assured that the company is not relying on this outcome and it has a strong and experienced management team to see the project through permitting, development and construction, in our view.”
Currently trading at “a well-deserved” premium that he expects will increase, Mr. Sclodnick set a target of $23.50 per share, exceeding the $22.94 average on the Street.
“Our $23.50 target price is based on a 1.0-times NAV multiple while the stock trades at 0.57-times NAV vs developer peers at 0.56 times,” he said. “Ultimately, we believe the company will be acquired at a premium to NAV. If it were acquired at the average price paid per ounce of recent comparable transactions, it would imply 55-per-cent upside to the closing price on November 19. If it were acquired at the same price per ounce as the Pretium offer, it would imply 136-per-cent upside, and if it were acquired at the same NAV multiple as Pretium, it would imply 133-per-cent upside.”
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With its “transformative and accretive” $490-million acquisition of EACOM Timber Corp., Interfor Corp. (IFP-T) has continued to “rapidly” expanded its operating platform, according to Raymond James analyst Daryl Swetlishoff.
Shares of the Burnaby, B.C.-based company rose 2.8 per cent on Tuesday following the premarket announcement of a deal with an affiliate of U.S. private equity firm Kelso & Co. for EACOM, which including 5 sawmills in Ontario and 2 in Quebec with a total annual production capacity of 985 million board feet.
“When taking over for lumber CEO icon Duncan Davies in Jan 2020, Interfor CEO Ian Fillinger quietly set an aggressive ‘5 in 5′ target meaning increasing capacity to 5 billion board feet in 5 years,” the analyst said. “Well, with [Tuesday’s] announcement added to deals completed earlier this year Interfor has accretively grown capacity by a stunning 1.9 billion bf representing 62-per-cent growth this year alone! We are supportive of the strategy; deploying ‘windfall’ FCF from sky-high lumber prices to diversify away from the high-cost BC region to permanently increase earnings power going forward. Aside from impressive growth, Interfor has also directly rewarded investors by declaring a special $2 per share special dividend and buying back 10 per cent of the float (the NCIB has recently been renewed, and we expect further action). All while maintaining a rock solid balance sheet.”
Mr. Swetlishoff said investors have “largely overlooked” both Interfor and the larger building materials sector, noting with shares are trading on average of just 8 times 2021 and 3.1 times 2022 EV/EBITDA projections.
“Since troughing this fall, cash and future lumber prices have been on the move reflecting strong retail demand, BC market & flood related curtailments, and the impending doubling of the average U.S. lumber export duties,” he said. “While we urge the B.C. government to reconsider the reckless policy, if unchanged we expect the recent announcement to defer harvesting of a further 2.6 million hectares of old growth leading to a potential reduction of 1.5-3.0 billion bf (or up to 4.5 per cent of North American production) to support above trend Spruce-Pine-Fir (SPF) pricing for years. With declining B.C. production, we expect low relative East of Rockies (EoR) logs costs to lead to ESPF capacity increasing in value, which underscores the wisdom of Interfor moving East.
“We regard the Eacom assets as well-invested and well-managed under CEO Kevin Edgson and at just US$400 per thousand board feet (and 1 times LTM EBITDA), we see the purchase price as attractive especially relative to recent US South M&A (US$868) and greenfield (US$750) comps.”
Keeping a “strong buy” rating, Mr. Swetlishoff hiked his target for Interfor shares to $60 from $57. The average is $43.67.
Elsewhere, Scotia Capital’s Benoit Laprade increased his target to $44 from $42 with a “sector outperform” rating, while TD Securities’ Sean Steuart bumped up his target to $43 from $42 with a “buy” rating.
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Following “strong” third-quarter results, Credit Suisse analyst Fahad Tariq thinks Hudbay Minerals Inc. (HBM-T) has reached a key free cash flow “inflection point,” expecting noticeable increases beginning in the fourth quarter with higher production and lower Manitoba capex.
“We continue to prefer Hudbay over Lundin Mining on organic growth and valuation,” said Mr. Tariq, raising his full-year earnings per share projection to 35 cents from 20 cents.
He touted a series of upcoming catalysts, noting: “At Copper World, Hudbay continues to expect a maiden resource estimate before 2021-end, followed by a PEA in H1/22. We understand management considers Copper World an ‘alternative or add-on’ to Rosemont. At Rosemont, an appeal decision is still expected before year-end.”
Mr. Tariq raised his target for Hudbay shares by $1 to $12.50, maintaining an “outperform” rating. The average is $12.93.
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Chevron Corp. (CVX-N) is “in a position to benefit from a strong commodity cycle over the coming years, according to RBC Dominion Securities analyst Biraj Borkhataria, who thinks its business plans “suggest much more stability in its portfolio than peers.”
Believing that certainty warrants a premium valuation, he raised his rating for the U.S. energy giant to “outperform” from “sector perform,” seeing a “highly supportive” macro backdrop.
The upgrade was concurrent with a research report from the firm, titled Calling all Generalists, that reaffirmed a positive view of the sector.
“Our Oil strategist Mike Tran has consistently highlighted that we are likely in the early days of a ‘strong cycle’ for oil, supported by reduced investment levels, declining inventories, an orderly OPEC+ return of barrels and an economic re-bound leaving demand above pre-COVID-19 levels in 2022,” said Mr. Borkhataria. “While Chevron has been seen as a ‘safe haven’ investment in energy, largely due to its strong balance sheet and flexibility on investments, it actually has one of the highest exposures to oil among the integrateds – which should leave it with an improving free cash flow profile going forwards.”
“Chevron’s low-teens free cash flow yield relative to its market cap in 2022 screens well above its historical average but is below a number of global peers. That said, on a FCF/EV basis, particularly when accounting for instruments such as hybrids for peers, Chevron’s yield screens competitively versus peers. In addition, incremental CFFO provides greater potential upside than most peers given its high liquids/LNG weighting and lower overall tax rate.”
After raising his earnings expectations higher for both 2021 and 2022, the analyst raised his target for Chevron shares to US$145 from US$130. The average is US$128.65.
“The US majors are likely to remain under pressure from investors to address emissions concerns; however, as yet, neither appears to be constrained by limitations on Scope 3 emissions, which sets them apart from European peers,” said Mr. Borkhataria. “One of the challenges with the majors’ investment cases, particularly in Europe, is that as we look out 5-10 years, there is less certainty on the cash flow mix than there was previously, which may give investors less confidence on dividend sustainability. Chevron’s carbon intensity targets at the portfolio level suggest a business mix in 2030 similar to that today, which, coupled with declining Scope 1 & 2 intensity, adds to business certainty and could help sustain the premium rating.”
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In other analyst actions:
* Canaccord Genuity analyst Carey MacRury cut his Altius Minerals Corp. (ALS-T) target to $20 from $21 with a “buy” rating. The average on the Street is $20.46.
Mr. MacRury also lowered his Elemental Royalties Corp. (ELE-X) target to $2 from $2.25, below the $2.40 average, with a “buy” rating.
“Overall Q3/21 was another largely solid quarter for the royalty/streaming companies, albeit moderately below a record Q2,” he said in a research note. “On our estimates, most of the royalty companies posted in-line or better results, including record quarterly revenue from Royal Gold and Elemental Royalties. The quarter also saw Royal Gold bump its dividend 17 per cent, its 21st consecutive year of increases, and Sandstorm announce an inaugural dividend. For full-year 2021, we forecast record GEOs for every royalty company in our coverage universe.”
* Canaccord Genuity’s Kevin Mackenzie raised his target for Artemis Gold Inc. (ARTG-X) to $14.50 from $13.50, keeping a “speculative buy” rating. The average is $13.11.
“Artemis continues to be one of our top picks among covered late-stage precious metals developers; this is underscored by the project’s Tier 1 jurisdiction, developer-leading production profile/robust economics (2021 FS: 339,000oz/yr over 22 years at US$672/oz AISC), and the company’s proven management team,” he said.
* RBC Dominion Securities analyst Nelson Ng lowered his target for Evergen Infrastructure Corp. (EVGN-X) by $1 to $7, keeping an “outperform” rating. The average is $9.75.
“The focus remains on the execution of the $45-million RNG expansion projects at Fraser Valley Biogas and Net Zero Waste Abbotsford, with construction set to begin next spring (completion in early 2023),” he said. “We are reiterating our Outperform, Speculative Risk rating as we continue to see significant value creation when the projects are completed. However, we have reduced our price target ... reflecting less value we attributed to developments beyond the two near-term projects due to limited visibility.”
* Desjardins Securities analyst Chris Li increased his George Weston Ltd. (WN-T) target to $158 from $141, keeping a “buy” recommendation.
“With the divestiture of Weston Foods set to close before the end of 1Q22 with estimated net proceeds of approximately $1.4-billion, investor focus is on the use of proceeds, which management confirmed will be for share repurchases over time, with no change to the current holdco structure,” he said. “On a relative basis, we have a slight preference for WN. We believe there is potential for the holdco discount to narrow to 10 per cent (from 14 per cent) under the new structure with only L and CHP.UN, and WN’s strong FCF.”
* After its Investor Day event, Scotia Capital analyst Phil Hardie cut his Home Capital Group Inc. (HCG-T) target to $50 from $51, keeping a “sector perform” rating. The average is $54.14.
“We made modest downward revisions to our estimates, reflecting a bit steeper trajectory in our forecast in relation to the expected normalization of NIMs. This reflects an expectation that deposit costs continue to rise from pandemic lows quicker than mortgage pricing. This is partially offset by a revision to our share count assumptions as we update the $300-million SIB using the mid-point of the published auction range,” he said.
* RBC’s Sam Crittenden cut his Lundin Mining Corp. (LUN-T) target to $12 from $13 with a “sector perform” rating. Others making changes include: TD Securities’ Greg Barnes to $12.50 from $13 with a “buy” rating; Stifel’s Ian Parkinson to $13.25 from $14.50 with a “hold” rating and JP Morgan’s Patrick Jones to $11.50 from $12.20 with an “overweight” rating. The average is $12.18.
“We believe updated 3-yr guidance is achievable and the focus is now on delivering operational improvements at Candelaria, although this could take some time,” said Mr. Crittenden. “We reiterate our Sector Perform rating and lower our price target to $12 from $13, as, while the updated guidance had a modest impact on our EBITDA and NAVPS estimates, we also added higher capex and opex in future years, which took our NAVPS estimate down by 5 per cent in total.”
* CIBC’s Alison Carson raised her Nomad Royalty Company Ltd. (NSR-T) to $12 from $11 with a “neutral” rating, while Canaccord Genuity’s Carey MacRury lowered his target to $17 from $17.50 with a “buy” rating. The average is $16.73.
* Canaccord Genuity’s Matthew Bottomley lowered his target for Organigram Holdings Inc. (OGI-T) target to $3 from $3.50 with a “hold” rating. Others making changes include: Alliance Global Partners’ Aaron Grey to $3 from $3.75 with a “neutral” rating; Stifel’s Andrew Partheniou to $2.75 from $3.75 with a “hold” rating and ATB Capital Markets’ Frederico Gomes to $2.65 from $4.25 with a “sector perform” rating. The average is $3.46.
“Following the quarter, we have made modest upward revisions to near-term revenue estimates; however, given the company’s outlook of not reaching positive adj. EBITDA until FQ4/22, we have pushed out our profitability timing for the company by six months while adding a 100bp premium to our valuation for macro-level headwinds. As a net result, we are lowering our PT,” said Mr. Bottomley.
* National Bank Financial analyst Zachary Evershed raised his Uni-Select Inc. (UNS-T) target to $27.50 from $25.50, keeping an “outperform” rating. The average is $27.92.
* Canaccord Genuity’s Robert Young reduced his WeCommerce Holdings (WE-X) target to $18 from $20, which is the current consensus, with a “buy” rating.
“WeCommerce reported a modest miss on our Q3 revenue and EBITDA estimates primarily due to a shortfall in agency services revenue that was impacted by two canceled projects from a single client, which are likely to be pushed into 2022,” he said. “Themes was impacted by new Shopify rules coming into force, which permit themes to be sold either on or off the Shopify site. Recently-acquired Archetype Themes outperformed our expectations while Stamped continued its impressive growth trajectory in the quarter. Consistent with the quarterly disclosure, we have recalibrated Archetype revenue lower to a $2.8-3-million quarterly run rate, which leads to lower Q4 and 2022 revenue estimates. We believe WeCommerce’s EBITDA margin will be in the low 30-per-cent range in the near-term with free cash expected to be reinvested in the company’s growth engine. We reiterate our BUY rating and, given the lower 2022 top-line estimates, have reduced our target.”
David Leeder