Inside the Market’s roundup of some of today’s key analyst actions
RBC Dominion Securities Inc. analyst Drew McReynolds made a modest reduction to his price target in Quebecor Inc., taking it to $30 from $31, on news the company would settle a convertible debt offering by issuing new shares. He maintained an “outperform” rating.
The company has $362.5 million of convertible debt due October 15; to retire the issue, Quebecor will use no cash and instead issue 30.1 million Class B shares. “Although management had explicitly indicated that equity would be issued as part of the settlement, we were not expecting the entire principal amount to be settled in shares,” Mr. McReynolds writes. He says the extra equity helps reduce his target price, which is based on a blend of three multiples, including price-to-earnings ratio.
“While we believe the deep value is out of the stock following a few years of strong share price appreciation,” he writes, the shares remain attractive thanks to the company’s momentum in wireless, strong execution and competitive position, and healthy balance sheet.
Credit Suisse analyst Michael Binetti raised his target price on retailer The TJX Cos. Inc., parent of off-price retailer Winners, to US$108 from US$100 after a “huge” beat of sales expectations. He maintains a “neutral” rating, however, as he waits for more evidence the company can translate sales into robust earnings growth.
TJX’s same-store sales — revenue at locations open at least one year — increased 6 per cent in the second quarter, versus analyst consensus expectations of 2.2 per cent. The company’s main segment, which includes the Marshall’s and TJMaxx chains and is more than 60 per cent of the company’s sales, reported a 7 per cent same-store sales gain, versus 2 per cent in the prior-year quarter. (TJX Canada, about 10 per cent of company sales, reported a SSS figure of 6 per cent, versus 7 per cent in the prior year quarter.)
TJX’ earnings per share were US$1.17, versus analyst consensus of $1.05. Mr. Binetti raised his full-year earnings estimate by 4 US cents, to US$4.94. His boosted target price, however, comes largely from applying a multiple of 13 times the company’s EBITDA, or earnings before interest, taxes, depreciation and amortization, versus 12 previously. Multiples for the off-price retail sector are up by 1.5 times in the last three months, he says, and TJX still trails peers Ross Stores Inc. and Burlington Stores Inc.
Analysts at RBC Dominion Securities Inc., Telsey Advisory Group and SunTrust Banks Inc. also increased their target prices after TJX’ Tuesday earnings report, according to MarketBeat Daily Ratings.
Analyst Tal Wooley of National Bank of Canada upgraded Crombie REIT units to “outperform” from “sector perform” and raised his target price to $15 from $14.50, saying its total return prospects, which he estimates at 20 per cent, are the highest in the group of retail REITs he covers. He sees little downside valuation risk and very little upside priced in.
The upgrade was one of four changes he made in his coverage area. He also tells investors to “make your life less complicated” and buy units in CT REIT. He upgraded the units to “outperform” from “sector perform” and raised his target price to $14.50 from $14, saying its total return prospects, which he estimates at 13 per cent, top the mean predicted return of 8 per cent in retail REIT group.
He also made “a tough downgrade call on a good story,” moving SmartCentres REIT to “sector perform” from “outperform,” leaving his target price unchanged at $32. His estimate of 6 per cent total return for the units is at the lower end of retail REITs, and he says SmartCentres units are already trading close to its long-term averages, with a premium unlikely. Similar views underlie a downgrade on First Capital Realty Inc., which went to “sector perform” from “outperform” and saw a price-target cut to $21 from $22.75.
Analyst Tara Hassan of Raymond James Ltd. downgraded Alio Gold Inc. to “underperform” from “market perform” and slashed her target price from $4.50 to $1, saying the company’s operating challenges, debt and declining gold prices push the company “on to a tightrope.” The shares closed at $1 Tuesday.
The junior miner has a mine and a development project in Mexico and a mine in Nevada. The company has made “the right call,” to reduce mining rates at its Mexican mine, Ms. Hassan believes, but it will reduce cash flow over an unknown period, by an unknown amount. Meanwhile, its Nevada mine has high production costs.
Her target price is based on a blend of net asset value and projected cash flow, both estimates of which she has reduced. Her multiples are lower than Alio’s peers to reflect higher costs and operating challenges, she says.
In other analyst actions:
* Green Thumb Industries : Eight Capital starts with buy rating;price target C$17
* Medmen Enterprises : Eight Capital starts with buy rating; price target C$7
With files from Reuters