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

Canadian National Railway Co. (CNR-T) is off to a “good start” in 2022, said National Bank Financial analyst Cameron Doerksen after it announced “solid” fourth-quarter financial results, reiterated its 2022 targets, unveiled a “well-qualified” chief executive officer and resolved its dispute with major shareholder TCI Fund Management.

Late Tuesday, CN report revenue of $3.753-billion, up 3 per cent year-over-year and above the forecasts of both Mr. Doerksen ($3.538-billion) and the Street ($3.677-billion). Adjusted earnings per share of $1.71 also topped expectations ($1.44 and $1.53, respectively).

”CN benefited from better pricing (up 5.4 per cent for full year), improved operating performance, and early gains from its cost reduction program with employee count down 1,800 year-over-year and an 11-per-cent year-over-year reduction in purchased services,” the analyst said. “CN also announced a 19-per-cent increase in its dividend and renewed its NCIB as expected.”

“For 2022, CN is guiding to RTM [revenue ton mile] growth in the low single digits, a 57.0-per-cent O/ R [operating ratio], EPS growth of 20 per cent and $4.0 billion in free cash flow, all of which are consistent with management’s targets laid out in the fall. With tough year-over-year grain comps and cold weather to start 2022, RTMs for CN so far in Q1/22 are down 20.8 per cent so volume growth is likely to be more evident in the second half of 2022.”

Concurrently, CN named Tracy Robinson, currently president of a TC Energy division, its new chief executive officer.

“Ms. Robinson looks to be well qualified and well-regarded by the investment community, although we suspect investors may have been looking for a CEO with a more operational-focused background. CN has also settled its dispute with TCI with an agreement to mutually appoint two new Directors prior to CN’s AGM,” said Mr. Doerksen.

With “modest” increases to his financial projections, he raised his target for CN shares to $172 from $170 with a “sector perform” rating. The average target on the Street is $160.43, according to Refinitiv data.

Elsewhere, citing its “4Q21 ‘Beat &Raise’ print that demonstrated surprisingly dramatic progress toward its 2022 plan objectives despite a bevvy of stiff macro headwinds,” Raymond James analyst Steve Hansen upgraded CN to “outperform” from “market perform” with a $180 target, up from $168.

“While newly appointed CEO Tracy Robinson seemingly lacks the PSR pedigree that many expected, she is clearly a seasoned railroader (27 yrs w/ CP Rail) and, by most accounts, a highly accomplished public company executive,” he said. “She also joins at a time that CN is already exhibiting clear operating momentum, which presumably affords her some time to acclimate before making any significant decisions.”

Meanwhile, Citi analyst Christian Wetherbee, who maintained a “buy” recommendation and US$140 target, expects CN shares to come under pressure in the near term.

“Coming off CN’s 4Q conference call there is definitely a contrast between the numbers and the outcome of the CEO search,” he said. “Results and the 2022 guidance were strong and we’d expect consensus estimates to rise. In fact, we think CN is likely to post the best earnings growth of the rails in 2022. That said, investors were not positioned for the hiring of a CEO without much name recognition. We’re not casting judgement on Tracy Robinson’s ability, but the selection falls between the two outcomes many expected …1) a PSR tenured executive with robust and recent rail experience, or 2) an outsider, likely from the technology (or tech related) sector with a focus on innovation. Robinson’s pre-Hunter CP rail experience and recent energy background comes as a surprise and will likely cause investors to reset expectations lower for growth beyond 2022.”

Other analysts making target adjustments include:

* Desjardins Securities’ Benoit Poirier to $172 from $170 with a “hold” rating.

“Overall, we are pleased with the strong performance delivered in 4Q despite the challenging operational environment (ie flooding and harsh winter conditions),” he said. “That said, our discussions with investors over the past two weeks indicated they were looking for an external candidate with strong operational pedigree. We therefore believe some investors might be disappointed by the CEO appointment, as indicated by the stock price reaction in after-market trading (down 5 per cent). We believe the stock will trade sideways until we hear more from Ms Robinson in relation to her strategy and vision for the firm (likely in March 2022).”

* Scotia’s Konark Gupta to $170 from $168 with a “sector outperform” rating.

“CNR reported a solid quarter despite B.C. floodings and grain weakness as cost execution gained momentum and pricing remained robust,” he said. “Management remains confident about the strategic plan that was revealed in September and maintained all 2022 objectives, suggesting upside risk to consensus. More importantly, the company announced a new CEO, a few board changes and a truce with its activist shareholder, TCI Fund, ending a potentially costly proxy battle. Although some investors may not like the fact that the new CEO is not a high-profile railroad operations executive, unlike Jim Vena (former COO of Union Pacific and CNR; TCI’s CEO nominee) who withdrew from the CEO race last month, we note that she brings 27 years of experience with CP Rail (briefly overlapped with Hunter Harrison) with a proven track record in marketing, operations and finance. We are confident that the board has ensured that she can successfully execute on CNR’s goals and create shareholder value. TCI’s resolution agreement should also give investors some comfort that CNR is heading in the right direction.”

* Susquehanna’s Bascome Majors to US$140 from US$134 with a “neutral” rating.

“While Ms. Robinson doesn’t bring the name recognition and investor comfort level of Jim Vena, that was no longer on the table, and she does bring relevant experience to the role with her last seven-plus years in Canadian energy (TC energy) and 27 years before that at CP,” said Mr. Majors. “While investors should give her time to share her vision from bringing a fresh set of eyes to a CN franchise that has seen an abnormal amount of volatility in recent years, our sense is a lack of brand name with railroad investors and several years away from the industry will drive near-term weakness in CNI shares.”

* CIBC World Markets’ Kevin Chiang to $165 from $173 with a “neutral” rating.

* Morgan Stanley’s Ravi Shanker to $158 from $150 with an “equalweight” rating.

* Cowen and Co.’s Jason Seidl to US$134 from US$127 with a “market perform” rating.


Touting its “cash flow quality” and potential gains from the ongoing transition into cleaner fuels, National Bank Financial analyst Patrick Kenny raised his rating for Superior Plus Corp. (SPB-T) to “outperform” from “sector perform” on Wednesday, seeing it trading an “attractive” multiple.

“Now operating as a pure-play energy distributor following the sale of its commodity-based Specialty Chemicals business in 2021, SPB’s cash flows are 100-per-cent margin-based,” he said. “With $600-million in announced/completed tuck-in acquisitions in 2021 across U.S. markets, we forecast 62 per cent of cash flows will be generated by its U.S. Propane Distribution franchise in 2023, likely surpassing more than 65 per cent by 2026 as SPB strategically expands its U.S. platform through the execution of its $1.9-billion acquisition target through 2026 ($1.3-billion remaining).”

“While the remote proximity of certain customers provides SPB with confidence in the insulation of its operations from some energy transition tail risks, the company is evaluating opportunities related to the distribution of clean fuels, including renewable/biopropane. Specifically, the recently acquired Kamps Propane (Q1/22 expected closing) offers an existing renewable propane platform, providing a prototype for SPB to evaluate and integrate a source of clean propane fuel supply across its California customer base. On the hydrogen front, a recently signed LOI provides SPB with exclusivity for the distribution of green hydrogen produced by Charbone Corporation in Quebec (ISD Q3/22) with no required capital outlay by SPB, and potential opportunities to expand the partnerships hydrogen distribution to U.S. markets longer term.”

Mr. Kenny maintained a $15 target for Superior Plus shares, seeing a 12-month total return opportunity of 27.6 per cent (versus 18.5 per cent for its peers). The average on the Street is $15.92.

He made the rating change in a research report previewing 2022 for pipeline, utility and energy infrastructure companies in his coverage universe.

Examining potential headwinds brought by inflation and tailwinds from a “constructive commodity price backdrop,” Mr. Kenny recommended investors stick with “the comeback kids, namely those small-to-midsize names offering double-digit FCF yields with positive correlation to a strengthening commodity price environment.”

“We continue to screen our top picks using a multi-pronged approach for 1) Double-digit free cash flow (AFFO) yield; 2) improving balance sheets; 3) attractive per-share growth; and 4) strong catalyst potential,” he said. Our catalyst potential for 2022 largely relates to executing secured growth programs along with regulatory support for energy transition plans coming into focus, supporting renewed funds flow. Overall, we recommend overweighting high-quality, double-digit FCF yields poised for continued valuation upside. Our top picks for 2022 include ALA, CPX, KEY and SES.”

He made these target price changes:

  • Atco Ltd. (ACO.X-T, “sector perform”) to $45 from $46. The average target is $47.57.
  • AltaGas Ltd. (ALA-T, “outperform”) to $31 from $29. Average: $30.77.
  • Brookfield Infrastructure Partners LP (BIP.UN-T, “outperform”) to US$67 from US$65. Average: US$67.60.
  • Capital Power Corp. (CPX-T, “outperform”) to $47 from $46. Average: $45.46.
  • Canadian Utilities Ltd. (CU-T, “sector perform”) to $36 from $37. Average: $37.84.
  • Enbridge Inc. (ENB-T, “outperform”) to $56 from $54. Average: $55.27.
  • Gibson Energy Inc. (GEI-T, “sector perform”) to $25 from $24. Average: $24.97.
  • Keyera Corp. (KEY-T, “outperform”) to $35 from $36. Average: $34.13.
  • Pembina Pipeline Corp. (PPL-T, “sector perform”) to $42 from $41. Average: $44.03.
  • Secure Energy Services Inc. (SES-T, “outperform”) to $8 from $6.50. Average: $7.69.


Citi analyst William Katz said he’s “moving to the tactical sidelines” on Brookfield Asset Management Inc. (BAM-N, BAM-A-T), lowering his rating to “neutral” from “buy” ahead of the Feb. 10 release of its fourth-quarter financial results.

“Following a comprehensive model rebuild; SOTP [sum-of-the-parts] valuation assumption reassessment; the sector’s sharp adverse revaluation that seemingly unlocks deeper value appeal elsewhere; and considering Citi’s house macroeconomic framework around the specter of higher real rates, we lower our investment rating,” he said.

“In our model rebuild, we shift to partial segment accounting (versus prior vehicle centric AUM roll-forwards); migrate from Funds From Operations (FFO) to Distributable Earnings (DE), which is consistent to peers; and refine a number of SOTP component assumptions, also aligning more closely to updated valuation regression work and more consistent treatment to key peers around Comparable FRE calculation and B/S discount methodology. Our move also is consistent with our selective stance on the Group though we also appreciate how fluid and powerful recent market action has shifted certain risk/rewards. As we step back and look across the Group, we see more attractive relative appeal, the latter inclusive of more favorable U.S. index inclusion optionality.”

Mr. Katz said the model change does not “materially alter” Brookfield’s underlying earnings power, but it should help investors compare it to competitors.

“BAM is a high-quality operator of Real Assets, with a growing third party Asset Management business, but we believe the current valuation appropriately reflects this as it trades ahead of key peers with better underlying growth trends,” he said.

After reducing his funds from operations per share assumptions through 2023, Mr. Katz cut his target for Brookfield’s U.S.-listed shares to US$61 from US$68.50.

“While the stock has dipped 11 per cent year-to-date, it has weathered the early YTD market downdraft better than peers, creating more favorable appeal elsewhere, the latter inclusive of superior index inclusion optionality, in our view,” he said.


After its 2022 guidance called for production estimates that fell short of the Street’s expectation, Desjardins Securities analyst John Sclodnick downgraded Equinox Gold Corp. (EQX-T) to “hold” from “buy,” seeing the “downside risk outweighs near-term upside.”

“We see potential for further downside based on both a P/NAV and EV/EBITDA valuation basis,” he said. “We expect that investors may discount the expected growth embedded in the NAV given the history of delayed growth, while the above-average risk to its cash flows does not warrant the current EBITDA premium, in our view.”

Reducing his estimates to account for lower production, increased costs and higher capital expenditures, he cut his target to $10.75 from $12.50. The average is $12.88.

“Over the past year, the stock has averaged a 25-per-cent discount to peers on P/NAV, and we see risk that it could revisit that level,” said Mr. Sclodnick.

Others reducing their targets include:

* BMO’s Ryan Thompson to $11.50 from $14.50 with an “outperform” rating.

* Canaccord Genuity’s Dalton Baretto to $10 from $10.50 with a “buy” rating.

* Scotia Capital’s Ovais Habib to $11.50 from $11.75 with a “sector outperform” rating.

* TD Securities’ Arun Lamba to $12.50 from $14 with a “buy” rating.

* CIBC’s Anita Soni to $10 from $11.75 with a “neutral” rating.


Calling it a “cash flow compounder” with a “track record of disciplined capital raising and allocation,” Desjardins Securities analyst Kyle Stanley initiated coverage of Canadian Net Real Estate Investment Trust (NET.UN-X) with a “buy” recommendation on Wednesday.

“NET has delivered sector-leading 15-per-cent compound annual FFO [funds from operations] growth since 2017; moreover, it has raised its annual distribution at a 13.6-per-cent CAGR [compound annual growth rate] over the same time period. In our view, NET is well-positioned to continue consolidating net-lease assets across Quebec, Ontario and Nova Scotia, which should translate into a healthy three-year FFO/unit CAGR of 12 per cent.”

“Net-lease REITs with a robust track record have historically been awarded a premium cost of capital; over a series of seven offerings since 2017, NET has raised $83-million of equity capital — in each case at a premium to BVPU. It has leveraged this advantage to prudently allocate capital and earn a compelling spread on new investments. In addition, despite rapidly accelerating its external growth in recent years, its leverage profile has remained relatively stable.”

Mr. Stanley said the Pointe-Claire, Que.-based REIT’s portfolio of predominantly service-oriented retail assets in secondary and tertiary markets features a “long-duration lease profile and robust tenant covenant.” He noted almost 62 per cent of the net operating income derived from portfolio comes from investment-grade-rate tenants, which he emphasized “creates a highly stable cash flow profile.”

He set a target of $9.25 per share. The current average is $9.10.

“We believe NET offers investors a robust earnings and distribution growth profile at a compelling relative valuation—particularly in the context of the stability and defensive nature of its income profile, capital-efficient portfolio and favourable yield/payout dynamic (4.3 per cent/53 per cent),” the analyst noted.


Magna Gold Corp. (MGR-X) sits in a strong position to generate “significant” value from the “ramped-up and revitalized” San Francisco mine in Sonora, Mexico, according to Desjardins Securities analyst John Sclodnick.

With its “turnaround complete,” he initiated coverage of the Toronto-based miner with a “buy” rating.

“After having acquired San Francisco in May 2020, the company ramped it up to full-scale production rates at the end of June 2021,” he said. “This was evidenced by reported 3Q21 gold production of 19.1k ounces, a 63-per-cent increase in production from 2Q21, reflecting a run rate of nearly 80koz per year. We view the San Francisco operation and current mine plan as derisked; there is upside to our numbers, with management contemplating an expansion if the upcoming reserve update supports it.”

Mr. Sclodnick thinks the cash flow now generated by San Francisco can be reinvested in expanding operations at the mine or “at any of the company’s two attractive gold projects or four attractive silver projects, all located in what we believe are the two best mining states in Mexico.”

Seeing it on track to achieve its guidance and touting the “competitive advantage” brought by its experienced management team, he set a target of $1.30 for its shares. The average is $1.70.

“Magna is a relatively new gold story, albeit with a well-known and understood asset that is under the stewardship of what we see as the optimal management team which has already completed a turnaround,” he said. “Now, as the message gets out to the market on the new story and turnaround, we expect the shares to re-rate to trade more in line with peers on an EV/EBITDA basis. We believe the shares will soon look inexpensive on an NAV basis once we have numbers around Margarita.”


Volatility is weighing on multiples for Canadian asset managers heading into fourth-quarter reporting season, according to Barclays analyst John Aiken, who also emphasized the impact of the recent market selloff on assets under managers and earnings.

“Industry-wide sales were strong but December data showing signs of weakness: Preliminary data for the fourth quarter indicates that industry-wide mutual fund sales remained strong; however, sales moderated significantly towards the end of the year as market volatility weighed in investor sentiment,” he said. “Industry-wide net sales as a percentage of opening balance AUM was 70 basis points for the fourth quarter, still strong, but lower than the 101.6 bps during the same period last year. This was largely driven by fixed income fund redemptions in December, while overall flows were still positive for December they were 88 per cent lower than last year. The robust sales environment and higher savings rates should bode well for the asset managers as they head into the RSP sales season; however, the recent market volatility could weigh further on investor sentiment and dampen flows.

“Recent market volatility weighs on valuations. Despite equity markets ending the year significantly higher and the continued robust industry sales levels in 2021, the market sell-off in January has weighed on the S&P TSX by 4 per cent and the S&P 500 by 9 per cent so far this month, significantly dampening the outlook for the asset managers and leading to broad multiple retracement for the group.”

With that view, Mr. Aiken made a series of target changes:

* CI Financial Corp. (CIX-T, “overweight”) to $29 from $34. The average is $33.44.

“We see continued volatility in the near term in both equity and fixed income markets but see significant value in CI as it continues to trade below the group average despite its growing and meaningful exposure to the highly attractive U.S. RIA market,” he said. “CIX remains well positioned for growth and undervalued: While industry sales and demand for investment products has increased, retail fees and margins remain under pressure. In our view, CI remains well positioned as it maintains peer leading efficiency, has built a solid U.S. wealth management platform through acquisition, and its valuation does not reflect the growth or profitability of its newly minted U.S. segment. In our view, the recent pullback in valuation provides longterm investors with an attractive entry point. Furthermore, CI has had three consecutive quarters of positive flows in its domestic retail business and, while our positive view is based on growth in CI’s wealth management business, we believe sustained positive flows in CI’s domestic retail business provides another dimension for upside for its valuation.”

* AGF Management Ltd. (AGF.B-T, “equalweight”) to $7.50 from $9. Average: $8.96.

* Fiera Capital Corp. (FSZ-T, “equalweight”) to $10 from $11. Average: $11.64.

* IGM Financial Inc. (IGM-T, “underweight”) to $43 from $48. Average: $56.13.


In other analyst actions:

* After Tuesday’s release of its first-quarter 2022 results, National Bank Financial analyst Vishal Shreedhar raised his Metro Inc. (MRU-T) target by $1 to $72 with a “sector perform” rating. Others making changes include: Scotia’s Patricia Baker to $74 from $73 with a “sector outperform” rating and ATB Capital Markets’ Kenric Tyghe to $69 from $68 with a “sector perform” rating. The average is $69.70.

“We consider the results to be slightly positive given solid execution amid a volatile backdrop. Relative to National Bank Financial estimates, the slight EPS beat largely stemmed from higher sales and gross margin; sssg [same-store sales growth] for food was largely in line, while pharmacy sssg was ahead,” Mr. Shreedhar said.

* Citing “unexpected resource risk,” RBC Dominion Securities analyst Michael Siperco downgraded Gatos Silver Inc. (GATO-N, GATO-T) to “underperform” from “outperform” and slashed his target to US$4 from US$17. The average on the Street is US$11.60.

“The disclosure that the 2020 resource model could be overestimated by 30-50 per cent and should no longer be relied upon is a significant negative event, and puts our estimates and valuation in question,” he said.. Until there is more disclosure and detail provided (perhaps in 2H22), it is difficult to have confidence in CLG or the outlook.”

* RBC’s Sam Crittenden raised his Turquoise Hill Resources Ltd. (TRQ-T) target to $25 from $21 with a “sector perform” rating, while BMO’S Jackie Przybylowski bumped up her target to $11.50 from $10.50 with an “underperform” rating. The average is $24.07.

“Turquoise Hill achieved a key milestone in the development of Oyu Tolgoi by reaching a new agreement with Mongolia which allows the block cave to commence imminently and outlines a path to deliver first sustainable production by H1/2023 from the world-class deposit,” he said.

* Canaccord Genuity analyst Robert Young cut his target for Haivision Systems Inc. (HAI-T) to $11 from $1, maintaining a “buy” rating. The average is $11.75.

“Haivision reported strong trends in Broadcast, House of Worship (HoW) and Enterprise offset by weaker government spend,” he said. “F22 guidance was mixed with revenue in line but modestly weaker EBITDA given planned investment. The FQ4 results fell short of our estimates on revenue, flat year-over-year on an organic basis, and EBITDA, with OpEx offsetting better-than-expected gross margin. As foreshadowed in FQ3, FX (5-per-cent headwind) and US government spend were the primary culprits. EBITDA margin of 6.5 per cent in FQ4 was the lowest since Q1/20 due to OpEx growth given the addition of CineMassive and higher S&M spend. Looking forward, management is bullish on enterprise demand and international ISR demand, particularly when going to market with CineMassive, which logged a joint ISR win. We believe M&A will continue to be a catalyst backed by a robust balance sheet.”

* Susquehanna analyst Biju Perincheril initiated coverage of Ballard Power Systems Inc. (BLDP-Q, BLDP-T) with a “neutral” rating and US$10 target. The average is US$20.71.

“Our Neutral rating largely reflects the stock’s current valuation (2025 EV/Sales multiple of 5.2 times) along with our cautious of the hydrogen markets,” the analyst said. “Additionally, BLDP has is more heavily dependent on the development of hydrogen adoption in mobility applications.”

* CIBC World Markets analyst Mark Jarvi cut his TransAlta Renewables Inc. (RNW-T) target to $19.50, remaining above the $18.92 average, from $20. He kept a “neutral” rating.

* Mr. Jarvi also lowered his Capital Power Corp. (CPX-T) target by $1 to $43. The average is $45.46.

* CIBC’s Nik Priebe lowered his TMX Group Ltd. (X-T) target to $140 from $145. The average is $152.14 with a “neutral” rating.

* Mr. Priebe raised his Guardian Capital Group Ltd. (GCG-T) target to $49 from $47, which is the current average, with an “outperformer” rating.

* He also increased his target for ECN Capital Corp. (ECN-T) to $6.75 from $6 with an “outperformer” rating, while he reduced his CI Financial Corp. (CIX-T) target to $32 from $37 also with an “outperformer” recommendation. The averages are $6 and $33.44, respectively.

* CIBC’s Kevin Chiang reduced his target for Lion Electric Co. (LEV-N, LEV-T) to US$16, below the US$17.31 average, from US$20 with an “outperformer” rating.

* BTIG analyst Mark Palmer lowered his Lightspeed Commerce Inc. (LSPD-N, LSPD-T) target to US$60 from US$112 with a “buy” rating. The average is US$74.36.

* Mr. Palmer also trimmed his Mogo Inc. (MOGO-Q, MOGO-T) target to US$9 from US$19 with a “buy” rating. The average is US$10.50.

* Jefferies analyst Randy Konick cut his Lululemon Athletica Inc. (LULU-Q) target to US$340 from US$420, below the US$438.93 average, with a “hold” rating.

* Morgan Stanley analyst Ioannis Masvoulas cut his First Quantum Minerals Ltd. (FM-T) target to $36 from $37 with an “overweight” rating. The average is $36.57.

* JP Morgan analyst Ryan Brinkman lowered his ABC Technologies Holdings Inc. (ABCT-T) target to $9, matching the consensus, from $11 with an “overweight” rating, while TD Securities’ Brian Morrison cut his target to $7.50 from $9 with a “hold” rating.

* Mr. Brinkman also cut his Magna International Inc. (MGA-N, MG-T) target to US$106 from US$110 with an “overweight” rating. The average is US$98.

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