Skip to main content

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

While acknowledging the industry outlook remains “quite challenging,” Raymond James analyst Michael Glen thinks Magna International Inc.’s (MGA-N, MG-T) valuation now appears more “reasonable.”

Accordingly, he raised his rating for its shares to “market perform” from “underperform” on Wednesday.

“While we are making this upgrade, we feel it is extremely important to stress that there remains a significant amount of uncertainty surrounding global auto production through the balance of this year,” said Mr. Glen. “As such, we remain cautious overall, but must at the same time acknowledge the stock currently sits at what we would consider a much more reasonable valuation (i.e. 10 times our revised 2022 estimated EPS which is close to in-line with its long-term historical average).”

Mr. Glen continues to expect difficulties in the auto sector through the remainder of 2022, noting: “Such news flow will stem from the following: 1. Negative production guidance in Europe (and likely North America as well) as OEMs face headwinds related to supply chain constraints and component shortages; 2. The margin impact associated with higher energy prices and difficulty in passing through such costs in the short-term; 3. A continued push out of the chip shortage resolution which at this point appears to be well into 2023; 4. Mounting concerns surrounding raw material availability and inflation for key materials in both ICE and battery-electric vehicles; 5. Escalating concerns regarding how general inflationary pressures negatively impact consumer purchasing power on a highticket and highly discretionary purchase; 6. Escalating concerns surrounding how high gas prices impact mix (i.e. demand shift from larger/more profitable truck/SUV towards smaller less profitable vehicles and passenger cars).”

With that view, he lowered his earnings per share projection for the first quarter to US$1.06 and US$1.23.

“We have not at this time made any incremental adjustments to our forecast through the balance of the year but would anticipate that Magna will make downward revisions to its annual guidance with the 1Q22 reporting,” he said. “Looking at Magna’s balance sheet, leverage remains in a strong position – we calculate a net debt / EBITDA ratio of 0.3 times at 4Q21 (which compares against the much more conservative adjusted debt to EBITDA metric that the company provides at 1.54 times). We would anticipate the company to remain active with its share repurchase program in the current environment.”

Mr. Glen maintained a US$68 target for Magna shares. The average target on the Street is US$93.43, according to Refinitiv data.


Citing valuation concerns following recent “strong” share price performance, National Bank Financial analyst Mike Parkin downgraded SSR Mining Inc. (SSRM-T, SSRM-Q) to “sector perform” from “sector outperform” on Wednesday.

The rating change comes following the Feb. 23 release of its fourth-quarter financial results, updated resources and a 40-per-cent increase to its quarterly dividend (to 7 US cents per share). Concurrently, the Vancouver-based miner published new SK1300 Technical Report Summaries (TRS) for all producing assets to align with U.S. GAAP reporting standards.

“The TRSs showed higher costs than previously expected, especially at Copler and Puna, which drove DCF [discounted cash flow] valuation decreases for these mines,” said Mr. Parkin.

“At Copler, we model the Initial Assessment (IA) case which includes resources, which we believe warrants a bump up in the DCF discount rate from 5 per cent to 6 per cent. For Copler we also now model the oxygen plant leases in our DCF valuation. We have aligned our 2023+ corporate G&A expense to 2022 guidance, and we have factored in the sale of Pitarrilla (assuming a 1Q22 close). As a result of our model updates, we see AISC and capex increasing through 2023, resulting in slightly lower EBITDA and FCF over this same period.”

Those changes led to a 26-per-cent decline in his net asset value per share calculation, leading to the rating adjustment. However, he raised his target price for SSR shares to $30 from $27.50 after increasing target multiple to “align with recent valuation trends.” The average target on the Street is $32.51.

“In our view, SSR remains a quality name to invest in, offering clients stable production, a quality dividend, excellent exploration upside, superior NAV leverage to the gold price and good FCF generation potential,” said Mr. Parkin.


Emphasizing its “strong FCF profile (and clean balance sheet), attractive valuation, and ability to repurchase shares, and the potential upside,” Scotia Capital analyst Michael Doumet thinks shares of Stelco Holdings Inc. (STLC-T) should “perform well” in the current market climate.

“U.S. sheet prices have stopped declining and appear to be on the verge of an upswing,” he said. “Russia and Ukraine are important players in the space: the region is a low-cost steel producer and a sizeable exporter of merchant pig iron and slabs. Reduced steel making will divert trade flows (i.e., exports into North America could be diverted into Europe), and reduced merchant pig iron will raise the cost curve for steel-makers.

“In our view, these conditions favour Stelco (and other blast furnaces), given its pure-play exposure to spot HRC and semi-fixed cost structure. Prior to the war, we assumed HRC prices would temporarily stabilize then continue declining in 2H22 and 2023.”

Mr. Doumet warned that “many unknowns remain – in terms of both supply and demand,” however he updated his price deck with the expectation sheet prices will “remain higher for longer through 2022 (and into 2023).”

“The war is likely to raise the cost curve of steel-makers for some time,” he said. An unwillingness to buy anything from Russia because of a combination of current or potential sanctions is likely to result in a long-lasting, potentially structural, disruption to the supply base. If European sheet prices advance ahead of North American prices (we think they will), the region is likely to attract more imports, potentially diverting imports into North America (where imports satisfy 15 per cent of its consumption). Additionally, North American scrap and pig iron prices have already advanced noticeably; higher scrap prices will raise the cost curve more so for EAFs and advantage Stelco’s margins. In the last couple of weeks, the CME futures curve for North American HRC increased by an average of US$500/nt through 2022 (US$1,485/nt). Naturally, given the heightened uncertainty, our price deck is more conservative (we forecast US$1,105/nt in 2022). Importantly, we believe the supply tightness will lead to stronger shipments (675knt) and margins in 2Q22 and beyond.

“Higher profits will enhance Stelco’s FCF generation and rebuild its net cash position, which it already partially used to repurchase $560 million worth of stock (or 18 per cent of its s/o) at an average price of $35.50/share. In our view, STLC would continue to repurchase shares in the mid- to high-$30/share range.”

With a “sector perform” rating, Mr. Doumet raised his target for Stelco shares to $56 from $48, calling it “cheap before and cheaper now.” That exceeds the $53.36 average.


Russel Metals Inc. (RUS-T) is poised to “benefit meaningfully” from a recent run up in hot rolled coil prices, said Stifel analyst Ian Gillies.

Upon resuming coverage, he called the Mississauga-based company “well run” with a “sound operational strategy.”

“The company just exited what can best be described as an amazing year,” he said. “The 2022 outlook is very healthy and has improved considerably over the prior four weeks due to higher commodity prices. The company should be able to use its significant cash generation profile to execute more M&A.”

Mr. Gillies thinks its 2021 profit may prove to be “a peak,” however he sees Russel’s outlook remaining “well above the trend line.” Noting product prices have tapered, making year-over-year’ comparables “challenging” in 2022, he’s projecting 2022 EBITDA and earnings per share of $475-million and $4.71, well above the average from 2015-2019 of $181-million and $1.48.

“The last month has seen a dramatic 56-per-cent increase in the 2022 HRC strip,” he said. “As a result, our 2022 EBITDA and EPS are 34 per cent/50 per cent above consensus while 2023 EBITDA and EPS are 19 per cent/33 per cent above consensus.”

“Cash deployment will be a catalyst to move the stock higher. We estimate that RUS will exit 2022 and 2023 with cash positions of $353-million and $782-million. This will give the company ample opportunity to do more acquisitions like Boyd Metals. We think the company will continue to expand its presence in the U.S., given it only holds 3-per-cent market share in that country compared to roughly 20 per cent in Canada.”

Mr. Gillies set a “buy” rating and $36 target. The current average on the Street is $39.

“We rate Russel Metals as BUY given its positioning to benefit from elevated HRC and plate prices in North America,” he said. “The company’s Energy Products segment should also see improvements given the recovery being experienced in the North American energy sector. The company’s significant cash position should also allow it to execute an active M&A strategy. Lastly, the company’s current P/Book of 1.2 times is typically an attractive entry point in the context of forward 12-month returns.”


H.C. Wainwright analyst Amit Dayal cut his near-term expectations for Vancouver-based Westport Fuel Systems Inc. (WPRT-Q, WPRT-T), citing geopolitical uncertainty stemming from Russia’s invasion of Ukraine and “increased volatility” in energy prices.

“On the company’s 4Q21 results call, management appeared cautious about setting expectations for the year stemming from macro developments over the last month and understandably refrained from providing any concrete outlook,” said Mr. Dayal. “We believe the company has roughly 10-15 per cent of its aftermarket revenues tied directly to Russia, and there could be variability in ability to execute normal business in surrounding markets. We believe these developments could also impact margins.”

With that view, Mr. Dayal reduced his 2022 and 2023 revenue expectations to $318-million and $369-milliom, respectively, from $361-million and $452-million, previously. His gross margin expectations slid to 11.7 per cent and 20.0 per cent from 16.4 per cent and 22.5 per cent.

“These changes result in our eight-year (2022-2030) CAGR [compound annual growth rate] expectations for the company’s revenues to be 14.9 per cent, compared to our earlier nine-year (2021-2030) CAGR expectation of 16.8 per cent,” he said.

“In our opinion, Westport, over the last two years, has been executing through challenging macro conditions that have introduced increased variability in the company’s results. However, we do not believe this lowers the relevance of the company’s offerings as the transportation sector, globally, continues to migrate towards cleaner options. We believe longer-term catalysts associated with expanding adoption of HPDI 2.0 remain in play in all key markets, while the company continues to progress efforts around hydrogen and HPDI 3.0. We believe near-term priority for management includes maintaining a healthy balance sheet. We believe revenue risks associated with the situation in Russia are more commercial than operational, providing for a quicker bounce back when stability returns.”

On the heels of Monday’s release of fourth-quarter 2021 financial results that fell below his expectations, Mr. Dayal cut his target for Westport shares to US$7 from US$12, maintaining a “buy” rating. The average is $5.44.

Elsewhere, Craig Hallum’s Eric Stine cut his target to US$7 from US$12 with a “buy” rating.


With the valuation of Guru Organic Energy Corp. (GURU-T) having “retracted along with the general market correction,” Stifel analyst Martin Landry now sees “an appealing entry point” for investors.

On Tuesday, shares of the Montreal-based energy drink company jumped 5.5 per cent after the premarket release of its first-quarter financial results. Revenues rose 5.5 per cent year-over-year to $7-million, matching Mr. Landry’s expectation and exceeding the consensus estimate on the Street ($6.7-million). An adjusted EBITDA loss of $3-million topped both projections (losses of $6-million and $5.6-million, respectively).

“GURU reported soft Q1/22 revenue growth as its end market was impacted by the Omicron virus combined with inventory depletion by PepsiCo,” said Mr. Landry. With these issues largely behind, revenue growth should re-accelerate in Q2 and Q3 supported by marketing campaigns, new listings and Pepsi’s first official large scale in-store activation in April.”

Mr. Landry did warn that Guru is facing the impact of inflationary pressures in freight, labour, aluminum cans and other input costs. However, he thinks the plan to increase prices in mid May “should offset most of the near-term pressures,” noting similar moves are being made by other energy drinks brands to tackle cost pressures.

“Hence, we see limited impact on demand of GURU’s products as a result the upcoming price increases,” he said.

Mr. Landry kept a “buy” rating for Guru shares, emphasizing its “strong” growth prospects, differentiated product offering and “healthy” balance sheet and “strong” management team.

In response to a “decrease in valuation multiple of peers and overall contraction in valuation of public equities,” he cut his target to $15 from $20. The current average on the Street is $16.75.

“GURU’s shares trade at 5.3 times our fiscal 2023 sales estimates, a premium of 15 per cent to energy drink peers,” he said. “We believe that GURU’s shares should trade at a premium to peers due to its higher growth prospects with sales growth more than twice higher than peers.”

“Our investment thesis remains unchanged on GURU, we believe that the company will be able to replicate the success it has had in Quebec elsewhere in Canada and in California. In Quebec, GURU has a market share of more than 10 per cent and replicating that success in Canada and California suggest a potential for sales to exceed $500 million, a potential increase of 10 times vs our 2023 forecasts.”

Elsewhere, CIBC’s John Zamparo cut his target to $14 from $18 with an “outperformer” rating, while Laurentian Bank Securities’ Nauman Satti reduced his target to $16 from $18.50 with a “buy” rating.

“GURU’s progress has been evident thus far, and the first full quarter with the PepsiCo Beverages Canada (PBC) deal showed strong volume growth, increased distribution points, greater market share, and traction with the latest product launch. The environment for high-growth, high-multiple stocks is still muted, but GURU’s execution has been reassuring. The next test will be its spring and summer campaigns, when it can utilize its balance sheet to build the brand and leverage PBC’s merchandizing and distribution power. We continue to expect a sales CAGR more than 30 per cent through F2023.,” said Mr. Zamparo.

In a separate note, Mr. Landry lowered his target for Flow Beverage Corp. (FLOW-T) to $2.50 from $3 , keeping a “buy” rating, in response to its increased diluted share count after recent financing. The average is $4.67.

“Flow reported Q1/22 results showing strong top line growth of 32 per cent year-over-year driven by branded water sales growth of 38 per cent year-over-year, the fastest growth rate in over a year,” he said. “The company has added more than 1,000 points of sale in 2022 year-to-date and has secured several new listings from large retailers starting this summer. The company reiterated its financial guidance calling for Flow Branded products sales to increase by 45-55 per cent year-over-year in FY2022. This guidance does not include the upcoming launch of vitamin water products, which could provide upside. Price increases expected to be implemented in May of 6-8 per cent should also benefit sales growth. The company’s balance sheet is likely to continue to be in focus with $9 million of borrowings maturing in the next 12 months.”


Canaccord Genuity analyst Luke Hannan thinks Goodfood Market Corp.’s (FOOD-T) balance sheet can handle the additional expense burdens brought by the accelerated rollout of its micro fulfilment centre network.

The Montreal-based company plans to use its recently closed $30-million convertible debenture financing for the MFC expansion, which includes plans to open 20 locations before the end of the 2022 (versus Mr. Hannan’s estimate of 15).

“As a reminder, Goodfood’s estimated capex per MFC is approximately $750k, implying the company can achieve its goal of having 50+ MFCs by 2025 with less than $40 million in total capex,” he said.

However, in a research note released Wednesday, Mr. Hannan warned: “Quick commerce is notorious for its poor unit economics, a symptom of (1) the slim profit margins inherent in the grocery industry and (2) the additional spend for marketing, first-time trial discounts, and last-mile delivery. Despite this, the company believes the strategy will deliver attractive unit economics at scale, with adjusted EBITDA margins in the range of 10-15 per cent.”

The analyst also said the company’s early results from its on-demand program “have been encouraging, with 110 per cent of revenue from the company’s November 2021 cohort having been retained in December 2021.”

“That said, we remain of the belief that Goodfood must develop a track record of consistent growth and profitability in this business before the stock will be rewarded with a higher multiple,” he said.

Keeping a “hold” rating for Goodfood shares, Mr. Hannan cut his target to $2.25 from $3.75 “to reflect sector-wide multiple compression.” The average is $3.89.


In other analyst actions:

* Raymond James analyst Jeremy McCrea upgraded his recommendation for Cardinal Energy Ltd. (CJ-T) to “outperform” from “market perform” and increased his target for its shares to $7 from $6.50. Elsewhere, Stifel’s Cody Kwong raised his target to $9.25 from $8.50 with a “buy” rating. The average on the Street is $8.25.

“Cardinal’s previous above-average leverage has benefited tremendously from a constructive pricing environment and looking further into 2022, the debt load is set to become nearly negligible,” he said. “Line of sight to a right-sized balance sheet, an improving suite of well inventory and the Company’s low base decline could be a catalyst for institutional investors to take a second look at this name. A key potential catalyst would be the company’s upcoming Clearwater results that lie one section south of Tamarack Valley’s Clearwater Nipisi fairway. With the company trading below its PDP reserve value once again and upside potential in the Clearwater (4 wells coming on this week), we think there is good risk/reward over the next several months.”

* Raymond James’ Rahul Sarugaser downgraded Cardiol Therapeutics Inc. (CRDL-T) to “market perform” from “outperform” with a $4 target, down from $5.

“We recently highlighted our expectation that Cardiol Therapeutic LNCER trial — which saw the first of its 422 patients treated in Apr. 2021 — should reach its conclusion in March-April 2022 ,” he said. “CRDL however recently announced that it ‘expects the LNCER trial to achieve over 50-per-cent patient recruitment by the end of the first half of 2022 and to complete full patient enrollment during the second half of 2022.’ This slower than expected recruitment, combined with its expansion in Brazil and Mexico to include vaccinated patients in order to ‘broaden the population of patients eligible for enrollment into LNCER’, that will in turn likely complicate LANCER’s top-line readout, we view as a net negative.”

* Citi’s P.J. Juvekar trimmed his Ballard Power Systems Inc. (BLDP-Q, BLDP-T) target to US$11 from US$13, while Eight Capital’s Sean Keaney lowered his target to $12 (Canadian) from $18 with a “neutral” rating. The average is US$16.95.

“Our top three takeaways from BLDP’s earnings call include: 1) Management sees 50 per cent year-over-year growth in operating expenses to $140-160-million in 2022 for development of new technology, product innovation and next-gen MEAs, plates, stacks and modules,” said Mr. Juvekar. “Plus, capex will increase to $40-60mm for investment in testing, advanced manufacturing and prototyping capabilities; 2) The order backlog has diversified with 60 per cent from Europe and North America customers, up from 40 per cent at YE20. Excluding WBJV, the number of significant customers is up by 10 to 30; and 3) Management raised its TAM by 2030 to over $250-billion, compared to $130-billion previously, which excludes other adjacent fuel cell (FC) markets including stationary, back-up power, light duty and off-road vehicles.”

* Ahead of Friday’s earnings release, CIBC’s Mark Petrie cut his BRP Inc. (DOO-T) target to $114 from $135, maintaining an “outperformer” rating. The average is currently $132.29.

“The quarter ran from November to January. We’ve updated our upside and downside scenarios and lowered our target P/E multiple to 11 times (from 13 times, one standard deviation below the five-year average) to take a more cautious approach to valuation amid a less certain consumer outlook,” he said.

* Following the completion of the creation of Brookfield Business Corp. (BBUC-T, BBUC-N), National Bank Financial’s Jaeme Gloyn cut his target for Brookfield Business Partners L.P (BBU-N, BBU.UN-T) to US$39 from US$68 with an “outperform” recommendation. The average is US$56.38.

“The creation of BBUC achieves two main objectives: (i) potential to expand the investor base as some investors are prevented from purchasing LP units; and (ii) open doors to broader index inclusion,” he said.

“BBU’s diversified portfolio of companies across sectors/geographies continues to deliver solid results, recovering nicely from pandemic impacts. In addition, we hold a favourable view of BBU’s recent flurry of acquisition activity (SG Lottery, DexKo and Modulaire), including the eventual launch into the technology sector. We anticipate BBU’s ongoing successful execution/integration will drive the shares higher.”

* CIBC’s Anita Soni raised her target for Centerra Gold Inc. (CG-T) to $14, topping the $12.78 average, from $11.25 with a “neutral” rating.

* TD Securities’ Michael Van Aelst increased his George Weston Ltd. (WN-T) target to $185 from $175 with a “buy” rating. The average is $169.14.

“We are increasing our WN target price ... to reflect the increase in Loblaw’s valuation multiple and target price we made [Tuesday],” he said. “Our WN earnings estimates rise slightly following Loblaw’s deal to acquire Lifemark.”

* In reaction to “solid” fourth-quarter results, Canaccord Genuity’s Michael Fairbairn raised his Karora Resources Inc. (KRR-T) target to $6.75 from $6 with a “buy” rating. The average is $6.64.

“We continue to view Karora favourably and believe it offers investors a combination of inexpensive organic growth, substantial (and asymmetric) optionality, significant FCF generation, and risk-reducing characteristics,” he said.

* Seeing its “organic growth drivers, together with a best-in-class, catalyst-rich M&A script, delivering immense shareholder value for many years to come,” Echelon Partners analyst Rob Goff initiated coverage of Playmaker Capital Inc. (PMKR-X), a Toronto-based digital sports media company, with a “speculative buy” rating and $1.20 target. The average is $1.18.

“We are resolutely bullish on Playmaker’s outlook and trajectory, while we are most impressed with the Company’s Tier 1 management and Board, as measured by their track record of success and the abundance of early strategic wins across Playmaker’s first several quarters,” he said. “The strength of their vision and stewardship is clearly demonstrated by the swift assembly of Playmaker’s foundational platform of fans across North and South America, where the Company’s authentic sports content has attracted 85 million-plus/210 million-plus unique monthly users (UMUs)/user sessions and more than 103 million social media followers – a highly coveted audience that is delivered to blue-chip brands and online sports betting (OSB) operators via advertising.”

* Stifel’s Cole McGill resumed coverage of Standard Lithium Ltd. (SLI-X) with a “buy” rating and $13 target, exceeding the $11.31 average.

“SLI has developed a proprietary method to extract lithium from the southern-U.S. Smackover Formation, the same formation that has sourced American conventional energy needs since the 1920s,” he said. “Brines in the Smackover are currently worked by LANXESS AG for bromine production, and SLI’s unique approach extracts lithium from the tail brine of a currently producing LANXESS facility. SLI’s process is expected to have a fraction of the cycle time and significantly higher recoveries versus conventional brine pond operations, meaning increased operational flexibility. With an infrastructure head start and fewer types of traditional resource project risk, we think SLI can benefit from the recent American policy push towards domestic sourcing of critical minerals.”

Report an editorial error

Report a technical issue

Editorial code of conduct

Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 12/06/24 2:02pm EDT.

SymbolName% changeLast
Ballard Power Systems Inc
Brp Inc
Brookfield Business Corporation
Brookfield Business Partners LP
Cardinal Energy Ltd
Cardiol Therapeutics Inc
Centerra Gold Inc
George Weston Limited
Flow Beverage Corp
Goodfood Market Corp
Guru Organic Energy Corp
Karora Resources Inc
Magna International Inc
Russel Metals
Standard Lithium Ltd
Stelco Holdings Inc
Westport Fuel Systems Inc

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe