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

Saputo Inc.’s (SAP-T) fiscal 2019 is “likely to be a year of laying foundations for future growth,” said Desjardins Securities analyst Keith Howlett in response to its first-quarter financial results.

On Tuesday, Montreal-based Saputo reported adjusted earnings per share of 41 cents, falling 3 cents below Mr. Howlett’s projection and 6 cents below the consensus estimate on the Street. Adjusted earnings before interest, taxes, depreciation and amortization of $307.5-million represented a drop of 13.4 per cent year-over-year.

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“Saputo reported weaker-than-expected operating results in 1Q FY19 due to continued weakness in the dairy ingredients market and elevated logistics, warehousing and freight costs,” the analyst said. “Prices of the highest-value dairy ingredients (eg whey protein concentrates such as WPC-80) plummeted and have remained low. This reduced EBITDA by $33-million. Supply chain costs are elevated due to market conditions (eg weak product demand leading to higher inventory, and new trucking regulations leading to driver shortages and higher costs), and due to internal measures deployed by Saputo during its implementation of ERP [enterprise resource planning] in the U.S.. These measures include back-up inventory stocks to assure prompt fulfillment of customer orders. Our interpretation is that management does not foresee an improvement in current conditions until 4Q.”

In reaction to the results, Mr. Howlett lowered his fiscal 2019 and 2020 EPS estimates to $1.73 and $2, respectively, from $1.85 and $2.04.

“Our view is that investors will have to look through earnings weakness in FY19 and focus on the longer-term destination of Saputo as a global dairy leader,” said Mr. Howlett.

Maintaining a “hold” rating for Saputo shares, he did raise his target price to $45 from $42. The average target on the Street is currently $43.35, according to Bloomberg data.

“Saputo is an established top 10 global dairy processor, with the management, operating platforms, balance sheet and ambition to become much larger,” he said. “The supply and demand conditions of the global dairy market are likely to rebalance over the next 6–9 months, in management’s judgment. In the interim, the current poor market conditions are creating more acquisition opportunities for Saputo. We should be able to obtain a good read of the state of the recently expanded Australian business by the time of the company’s 3Q FY19 report. Saputo is building its business for another 20 years of growth. We would await a lower entry point.”

Meanwhile, CIBC World Markets' Mark Petrie dropped his target to $47 from $50 with an "outperformer" rating (unchanged).

Mr. Petrie said: “Saputo has struggled to deliver earnings growth amidst a difficult commodity environment, and conditions do not appear poised to return to previous heights soon. In that context, it is unlikely results are a positive near-term catalyst, beyond potentially clearing a very low bar. However, we expect further M&A, with the only uncertainty being materiality, and we see International as well-positioned for growth, particularly following the Murray Goulburn acquisition.”


Altus Group Ltd. (AIF-T) beat Canaccord Genuity analyst Yuri Lynk’s above-consensus expectation for its second-quarter financial results.

However, Mr. Lynk lowered his target price for the Toronto-based real estate research firm due largely to a recent drop in the share price for Real Matters Inc. (REAL-T), in which Altus owns an 11.8-per-cent stake.

On Tuesday, Altus reported adjusted EBITDA for the quarter of $23.8-million, down 1.1 per cent year-over-year but in-line with the analyst’s expectation and well ahead of the $21.7-million consensus on the Street. Revenue rose 5 per cent to $134-million and also met Mr. Lynk’s estimate.

The analyst said he continues to like the growth profile for the company’s Altus Analytics segment, which reported better-than-expected EBITDA of $12.9-million. Though the result was a drop of 22 per cent from the previous year, it exceeded Mr. Lynk’s projection by 14 per cent due largely to higher margins.

“In [the second half of 2018], management expects to launch AA's first web application along with a cloud platform enabling further applications - the fruits of the investments mentioned above,” he said. “Growth going forward should be driven by a trend toward larger enterprise transactions, especially in Europe, and growth in new customer sales in Europe and Asia. We see further room for growth via attracting new users and selling new modules to existing AE, ARGUS Developer, and ARGUS EstateMaster customers. Separately, cloud applications are clearly becoming more prominent, and we believe management is debating a conversion of licences to subscriptions in 2019, which is not contemplated in our 2019 estimates.”

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Though he maintained his forward estimates and “buy” rating for Altus shares, Mr. Lynk lowered his target to $33 from $36. The average is $38.88.


Possessing an “increasingly attractive” valuation, NuVista Energy Ltd. (NVA-T) appears to be “firing on all cylinders,” said Desjardins Securities analyst Chris MacCulloch in the wake of Tuesday’s release of “solid” second-quarter financial results.

On Tuesday, the Calgary-based oil and natural gas company reported cash flow per share for the quarter of 40 cents, easily exceeding the 35-cent expectation of both Mr. MacCulloch and the Street. Production of 36,035 barrels of oil equivalent per day came in at the top end of the company’s guidance (34,500–36,000 boe/d) and topped the consensus estimate of 35,700 boe/d.

“We are reiterating our bullish thesis for NuVista with increased conviction following the release of solid 2Q18 financial results [Tuesday] which handily exceeded Street expectations,” said Mr. MacCulloch. “The stock has significantly lagged its peers in recent months, creating an attractive entry point to add exposure to one of the best-positioned producers within the Montney given its significant condensate exposure, which provides torque to both higher oil prices and structurally bullish Canadian market fundamentals.”

The analyst raised his fiscal 2018 and 2019 CFPS estimates to $1.50 and $1.59, respectively, from $1.45 and $1.54.

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He maintained a “buy” rating and $12.50 target for the stock. The average is currently $12.29.

“We view the 2Q18 financial results positively and anticipate a favourable market reaction for the stock [Wednesday] on the heels of an extended period of underperformance, which has created an attractive entry point for a company with a solid track record of delivering from an operational perspective, as evidenced by the 2Q results,” said Mr. MacCulloch. “To that end, we believe that NVA should be able to continue backfilling into the current valuation, highlighting that it provides the second-highest organic PPS growth profile on the Desjardins E&P coverage list.”

Elsewhere, National Bank Financial analyst Dan Payne upgraded NuVista to “outperform” from “sector perform” and raised his target by a loonie to $12.

Raymond James’ Kurt Molnar raised his Street-high target by a loonie to $14.50 with a “strong buy” rating (unchanged).

Mr. Molnar said: “NuVista reported a healthy beat of all our critical expectations. Admittedly, downtime originally expected in 2Q being deferred contributed modestly, but the corporate numbers were a beat while most recent well news seems even stronger still. So the beat just reported may repeat again in the future if the most recent well data is a sign of what to expect going forward from here.”


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In response to a second-quarter increase in North American box office revenue, driven by “solid” performances by Avengers: Infinity War and Incredibles 2, Raymond James analyst Kenric Tyghe raised his financial estimates for Cineplex Inc. (CGX-T) ahead of the release of its financial results on Friday before market open.

“The strong performances of key films including Avengers: Infinity War, Incredibles 2, Deadpool 2, and Jurassic World: Fallen Kingdom resulted in a 22.2-per-cent increase in the North American box office this quarter (versus 2Q17’s 1.3-per-cent increase),” said Mr. Tyghe. “Our revised estimates broadly reflect the strength of the box office performance (adjusted to reflect the tougher year prior comp in Canada of a 6.3-per-cent increase). Our box office revenue growth estimate is increased from 10.4 per cent to 15.8 per cent for revenues of $197.6-million (versus $188.4-million prior), for total revenues of $419.6-million (versus consensus of $411.0-million).

“We believe that Cineplex’s strong 2Q18 box office growth was primarily attendance driven, with only a very modest mix (average ticket tailwind). We have also modestly increased our EBITDA margin estimates to better reflect the SG&A leverage of the positive box office surprise, and the heightened focus on cost reduction.”

His adjusted EBITDA estimate is now $63.6-million, exceeding the consensus of $61.3-million. He noted it represents a 4.71-per-cent increase in margin to 15.2 per cent, adding: “We expect solid operating leverage in key segments (and cost controls) to support the increase in EBITDA margins.”

Mr. Tyghe’s earnings per share projection rose by 4 cents to 28 cents, or 3 cents above the Street’s expectation.

He maintained an “outperform” rating and $39 target price for Cineplex shares. The average is $36.17.

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“We believe that our target multiple is conservative, given CGX’s increasingly differentiated model, and the option value on key strategic initiatives,” he said.


The path to de-leveraging and growth for Bausch Health Companies Inc. (BHC-N, BHC-T) “continues to become clearer,” according to RBC Dominion Securities analyst Douglas Miehm.

Bausch, formerly known as Valeant Pharmaceuticals International Inc., reported better-than-anticipated second-quarter results on Tuesday.

Revenues for the quarter if US$2.13-billion topped Mr. Miehm’s projection of US$2.11-billion and the Street’s expectation of US$2.06-billion. Adjusted EBITDA of US$868-million also topped estimates (US$836-million and US$809-million, respectively).

“We view the quarter in a positive light for BHC,” the analyst said. “We believe the company is entering a phase in which the base business and new launches are offsetting LOE concerns that have lingered since last year.”

With the results, Mr. Miehm raised his 2018 and 2019 EBITDA estimates to US$3.40-billion and US$3.46-billion, respectively, from US$3.35-billion and US$3.39-billion.

Keeping a “sector perform” rating, he bumped his target to US$26 from US$25. The average is US$23.49..


CIBC World Markets analyst Robert Catellier lowered his rating for Enbridge Income Fund Holdings Inc. (ENF-T) to “neutral” from “outperformer” upon resuming coverage of following the $1.05-billion cash sale of a 49-per-cent interest in its wind and solar renewable power generation assets to the Canada Pension Plan Investment Board.

The downgrade comes as a special committee of independent directors reviews a proposal from Enbridge Inc. (ENB-T) to acquire all of the outstanding common shares of the company not currently owned by Enbridge.

“Given the simplification offer is neutral to our Enbridge estimates, we see only limited incentive to increase the offer in light of the share price appreciation and the remaining uncertainty with respect to recent FERC [Federal Energy Regulatory Commission] actions,” said Mr. Catellier. “To the extent FERC's actions mitigate the negative cash flow consequences to EEP's Lakehead system, they increase its share of the International Joint Toll on the Mainline, at the expense of ENF's share. The IJT doesn't change, just the allocation among the subsidiaries.

“The favourable L3R decision certainly helps the ENF outlook, but it has also led to an increase in the ENB share price and a corresponding increase in value to ENF holders based on the fixed exchange ratio.”

Mr. Catellier’s target for the stock is $33, exceeding the average of $32.54.

“At this point, the shares are most appropriate for those looking at merger arb opportunities or willing to accept ENB shares as part of the exchange offer,” he said.


In other analyst actions:

Scotia Capital analyst Vladislav Vlad raised his rating for Ensign Energy Services Inc. (ESI-T) to “sector perform” from “sector underperform” with a $7.50 target, up from $7 and 32 cents higher than the consensus.

GMP’s Ian Gillies upgraded Ensign to “hold” from “reduce” without a specified target.

Scotia Capital analyst Trevor Turnbull downgraded New Gold Inc. (NGD-N, NGD-T) to “sector perform” from “sector outperform” with a US$2 target, down from US$2.50. The average is US$1.78.

Canaccord Genuity analyst John Bereznicki upgraded Trinidad Drilling Ltd. (TDG-T) to “buy” from “hold” with a target price of $2, falling from $2.10. The average is $2.64.

Tudor Pickering & Co analyst Matthew Murphy downgraded MEG Energy Corp. (MEG-T) to “hold” from “buy.”

Independent Research GmbH analyst Sven Diermeier upgraded Tesla Inc. (TSLA-Q) to “hold” from “sell” with a target of US$420, rising from US$288. The average is US$325.22.

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