Inside the Market’s roundup of some of today’s key analyst actions
NexGen Energy Ltd.’s (NXE-T) flagship Arrow deposit in Saskatchewan is among the best undeveloped uranium projects in the world, according to RBC Dominion Securities analyst Andrew Wong, point to its “high grade, big resource, strategic potential, and robust economics.”
Seeing share price upside for the Vancouver-based company, Mr. Wong initiated coverage with an “outperform” rating.
“We think the deposit has potential to be developed into a top-tier uranium mine with production volumes comparable to or above today’s largest mines, while realizing operating costs at the lower-end of the cost curve,” he said.
“Arrow differs from other undeveloped uranium assets with a unique combination of high-grade, big resource, while primarily hosted in basement rock under minimal sandstone - these benefits reduce estimated capex, opex, and technical risks. Recent drilling also points to significant resource upside that could support a project life beyond the 15-year mine life envisioned in the PEA.”
Mr. Wong called Arrow a potential “long-term strategic asset,” emphasizing its start-up in the mid-2020s should come during period of increasing uranium supply deficit.
"Although current challenging uranium market conditions make a bid for NexGen a low probability, we believe the potential strategic value of Arrow and continued development set up NexGen as an attractive candidate for an eventual takeover or strategic partnership,” he said.
In the near term, Mr. Wong sees several potential catalysts for the company’s stock over the next 12-24 months, “including the completion of a pre-feasibility study, an increase in the Arrow resource estimate, initial approvals and work on an exploration shaft, and further exploration within the Rook I property.”
The analyst set a price target of $5 for NexGen shares. The average target on the Street is currently $5.40, according to Thomson Reuters Eikon data.
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A recent drop in building materials stocks is due largely to “typical” seasonal commodity weakness, according to Raymond James analyst Daryl Swetlishoff, who continues to expect “positive” supply/demand fundamentals through 2019 despite investor concerns about the U.S. housing market.
“With strong returns on invested capital, high free cash flow, financial flexibility afforded by bullet-proof balance sheets and cycle low valuations we urge investors to take advantage of the recent blow out and add to positions,” he said.
Since West Fraser Timber Co. Ltd. (WFT-T) reported record quarterly results on July 20, its stock has dropped as much as 14 per cent, versus a 0.5-per-cent decline in the TSX. Mr. Swetlishoff attributes that variance to “cycling funds flow from what has been viewed as ‘peak earnings’.”
With his target price now representing 52-per-cent upside, he upgraded West Fraser to “strong buy” from “outperform.” He kept a $122 target, which exceeds the consensus of $106.17.
“We expect this to represent a meaningful opportunity for investors to acquire the stock at a discount, with no change to our fundamental constructive view of lumber markets,” he said.
Mr. Swetlishoff added: “We note that this [post-earnings drop] is in line with benchmark lumber (off 13 per cent) and OSB (off 20 per cent) commodity pricing performance since June. Year-to-date SPF lumber and OSB prices have averaged US$558/mfbm and US$400/msf respectively. At current levels we estimate lumber stocks are discounting 2019 lumber prices of US$430 and Norbord is discounting US$300 OSB pricing. Looked at another way we peg current valuations at an average 2019 EV/EBITDA of 4.0 times or 2019 P/E of 6.5 times. Interfor is set to report results Thursday Aug-2 after market, in which we are expecting $115 mln in EBITDA (in-line with consensus), but as has been the trend this earnings season, results have surprised to the upside, with the stock down 18 per cent quarter-to-date (vs the TSX up 1 per cent), we expect the sell-off to be overdone.”
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In reaction to better-than-anticipated second-quarter financial results, Desjardins Securities analyst Doug Young upgraded his rating for shares of Intact Financial Corp. (IFC-T).
On Tuesday, the Toronto-based company reported operating earnings per share for the quarter of $1.38, exceeding the projections of both Mr. Young ($1.24) and the Street ($1.21). The analyst attributed the result to higher underwriting results, net investment income and distribution income.
"IFC has underperformed its Canadian financial services peers since we downgraded it in October 2017," said Mr. Young. "While we still have concerns with the Canadian personal auto market and OB [OneBeacon], we believe these are better reflected in the stock today."
Raising his rating to "hold" from "sell," Mr. Young increased his target price for its shares to $102 from $100. The average on the Street is $108.30.
Meanwhile, Raymond James' Brenna Phelan raised her target to $109 from $107 with an "outperform" rating (unchanged).
Ms. Phelan said: “Our focus in the quarter was on Personal Auto, after several quarters of underwriting losses in the segment. We view the 95.6-per-cent reported Combined Ratio favorably and are encouraged both by the 2.8% Y/Y decline in the claims ratio and by evidence of rate increases gaining traction. Unfavorable prior year claims development tempers our enthusiasm for a brighter outlook somewhat.”
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Apple Inc.’s (AAPL-Q) path to a US$1-trillion market cap “remains intact” following the release of its fiscal third-quarter financial results on Tuesday, said RBC Dominion Securities analyst Amit Dayanani.
“AAPL reported a modest June-quarter beat and guided Sept-quarter ahead of expectations,” he said. “Given heightened concerns around large-cap tech and ongoing U.S./China tariff issues, this was a positive print versus expectations. While we expect investors to wait for pricing clarity on next gen iPhones before deciding on AAPL stock, near- term upward bias on the name remains given multiple tailwinds stacking up.”
After market close, Apple reported revenue and earnings per share for the quarter of US$53.3-billion and US$2.34, respectively, exceeding the expectation on the Street of US$52.3-billion and US$2.16. Mr. Daryanani attributed the beat to better-than-expected iPhone revenues as well as a "strong" performance from its Services and Others segments.
Keeping an "outperform" rating for its stock, he raised his target price to US$225 from US$210. The consensus on the Street is now US$208.69.
“We believe AAPL’s current stock price creates an attractive entry point for investors to benefit from its ability to generate revenue and EPS growth in FY18,” he said. “We believe multiple catalysts remain as the company benefits from: 1) iPhone ramps; 2) Mac/iPad refresh cycle; 3) potential iTV launch or other major product lines; and 4) improvements in capital allocation policy. We believe the fundamental reality remains that AAPL’s valuation is materially sub-par to what we anticipate is its long-term revenue and EPS potential.”
Elsewhere, Canaccord Genuity's T. Michael Walkley raised his target to US$220 from US$208 with a "buy" rating (unchange).
Mr. Walkley said: "We believe Apple’s ecosystem approach including an install base of over 1.3 billion devices globally is leading to record services revenue, and we expect the higher-margin services revenue growth to continue outpacing total company growth. We believe Apple is likely to launch three new iPhones in September with possible lower price points, and greater segmentation could lead to year-over-year unit growth in C2019. We believe Apple continues to grow its leading market share of the premium-tier smartphone market with double-digit growth of its installed base and believe the iPhone installed base exceeded 635 million exiting C2017. This impressive installed base should drive strong iPhone replacement sales and earnings, as well as cash flow generation to fund strong long-term capital returns."
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Painted Pony Energy Ltd. (PONY-T) could be one of the biggest beneficiaries of a positive final investment decision (FID) on the Shell-led LNG Canada project, said Desjardins Securities analyst Chris MacCulloch, who also expects it benefit from an improvement in natural gas prices heading into the Fall.
He raised his target price for its shares following Tuesday's release of "solid" second-quarter financial results that "handily" exceeded the expectations of the Street.
The Calgary-based company reported cash flow per share for the quarter of 23 cents, topping the consensus projection of 20 cents and Mr. MacCulloch's 19-cent estimate, with stronger-than-expected volumes as the key driver. He noted thr production beat (60,116 barrels of oil equivalent per day versus the consensus estimate of 58,600 boe/d) came despite a "fairly modest" capex.
“We believe that the company is now attractively positioned to potentially exceed its target in the absence of a severe collapse in spot gas prices (ie minimal well shut-ins),” the analyst said. “Although PONY is not expected to release formal 2019 guidance until 3Q18 reporting on November 5 (at the earliest), we have reduced our 2019 capex forecast to $130-million (from $150-million) following the stronger-than-expected 2Q production results and additional feedback from the company. Meanwhile, we have also trimmed our opex and G&A cost assumptions in tandem with revised guidance. The net result is a 6-per-cent and 4-per-cent increase to our 2018 and 2019 CFPS estimates, respectively, although we note that the former largely reflects the strong 2Q.”
Keeping a "hold" rating for the stock, his target increased to $3 from $2.75. Consensus is $3.28.
“The stock appears relatively expensive based on strip; however, that could change quickly in a more favourable gas price environment,” said Mr. MacCulloch. “Following our estimate revisions, we now see the stock trading at 7.1 times DACF [debt-adjusted cash flow] (2019) based on current strip prices, a full turn above the Desjardins E&P group average (6.0 times). However, the depressed natural gas price environment is a major contributor to the valuation premium given that most companies in our more oil-weighted coverage universe have benefited from the combination of improving fundamentals and the growing geopolitical risk premium that have buoyed oil netbacks. Furthermore, as previously detailed in our June 4 initiation of coverage report, PONY retains the second-highest exposure to strengthening natural gas prices within the broader Desjardins E&P coverage universe, maximizing its torque to improving gas market fundamentals.”
Elsewhere, Raymond James' Jeremy McCrea bumped his target to $3.50 from $3.25, maintaining a "market perform" rating.
“We are slowly gaining more confidence in Painted Pony’s gas marketing strategy with more and more physical gas contracts in place that has limited the wide differential seen with Station 2/AECO prices,” he said. “The 2Q results again show the importance of these contracts in creating higher realized prices and the steps the company has taken in improving its position to compete under low AECO prices.”
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Following Tuesday’s release of “fundamentally strong” second-quarter results, RBC Dominion Securities analyst Mark Mahaney upgraded Pandora Media Inc. (P-N) to “outperform” from “sector perform.”
“Because under new management, the company has taken a series of steps that are improving P’s fundamentals – rolling out Pandora Premium Access to appeal to Ad-Supported Streamers who want on-demand functionality, introducing a Premium Family Plan – and soon a Student Plan - to broaden the appeal of the subscription business and reduce churn, launching an audio programmatic offering via the recent acquisition of AdsWizz to return ad revenue to growth, negotiating to right-size the minimum guarantees to labels and boost gross margins, increase performance marketing spend to more effectively grow the overall business, etc,” the analyst said. “Some of these are low-hanging fruit. Some are medium-hanging. But valuation (1 times 2019 P/S) suggests skepticism that any/most of these will be picked. Finally, our recent survey work shows a stable and significant leadership position for Pandora in the U.S. Ad- Supported Streaming segment. Though concerns will remain for the long-term (i.e. a declining Listener base) and SPOT remains the much better situated asset, we think the right tactical call here for P is Outperform.”
Mr. Mahaney's target rose to US$10 from US$6. The average target is US$8.56.
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Though she called its second-quarter results “solid” and its stock “attractively valued,” CIBC World Markets analyst Stephanie Price cut her target price for Maxar Technologies Ltd. (MAXR-T), emphasizing its geostationary (GEO) business “remains a drag.”
On Tuesday, Maxar, formerly MacDonald, Dettwiler and Associates, reported revenue for the quarter of $579-million and adjusted earnings per share of $1.22. Both exceeded the expectations on the Street ($557-million and $1.03).
Ms. Price called the company’s Imagery segment “solid” and also noted recent wins for its Low Earth Orbit (LEO) constellation.
However, she said GEO concerns linger, noting: "Industry GEO awards are expected to be roughly flat year over year (approximately 8 awards) and demand is expected to be driven by replacement satellites, with the market moving to low-earth-orbit (LEO) and medium-earth-orbit (MEO) satellites. Maxar has been consolidating its GEO real-estate footprint and is looking at strategic alternatives for the business. "
She maintained an “outperformer” rating for the stock with a target of $82.50, down from $88 to relect GEO weakness. The average target is US$62.97.
David Leeder