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

National Bank Financial analyst Vishal Shreedhar expects “strong” fuel margins to offset rising expenses when Alimentation Couche-Tard Inc. (ATD-T) reports its third-quarter financial results on Aug. 30.

“We examined recent commentary from some of ATD’s peers, suggesting the following trends: (a) Higher prices have led to lower volumes, but most peers have been optimizing margin dollars; (b) Peers have been benefitting from unusual fuel market volatility – elevated margins to continue through the year (though tapering from recent highs); (c) The c-store industry is resilient and has historically grown during recessions; (d) Cost pressure has created M&A opportunities for larger operators; (e) A return to pandemic behaviour – consumers coming more often (though driving less) with smaller baskets,” he said in a research note released Wednesday.

Mr. Shreedhar is projecting quarterly earnings per share of 74 cents, up 3 cents from the same period a year ago and 11 cents higher than the Street’s forecast. He expects merchandising same-store sales growth of 1.5 per cent in the United States and 3.0 per cent in Canada, both above from a year ago (declines of 0.2 per cent and 9.6 per cent, respectively).

“Our forecasts reflect elevated fuel margins in North America, fuel volume growth in Canada/Europe, and share repurchases, partly offset by heightened SG&A growth, higher interest expense, and unfavourable aggregate F/X,” he said.

The analyst is expecting comparable fuel volume growth of 2.0 per cent in Canada and a decline of 4.0 per cent south of the border. However, he’s expecting substantial fuel margin growth in both regions.

“OPIS data suggests U.S. national average fuel margins of about 41.6 cents per gallon during ATD’s Q1/F23 (our estimate reflects 47.6 c/g),” Mr. Shreedhar said. “We highlight that since Q1/F21, ATD’s U.S. fuel margins have outperformed OPIS data by 7.0 c/g (on average); this compares to quarterly outperformance of about 1.7 c/g over the past 5 years (on average). Our understanding is that ATD has benefitted from growing scale, improved logistics, and the Circle-K fuel rebranding. We highlight that beyond the quarter, OPIS fuel margins continued to remain elevated, averaging about 71 c/g for the first 3 weeks of Q2/F23.”

Though he warned elevated fuel prices have “impacted demand” and could weigh on results in the quarters to come, Mr. Shreedhar raised his earnings per share projections for 2023 and 2024 to $2.71 and $2.90, respectively, from $2.46 and $2.86, leading him to increased his target for Couche-Tard shares to $63 from $59 with a “sector perform” recommendation (unchanged). The average target on the Street is $63.44.

“Though we believe that Couche-Tard has solid longer-term growth prospects (network development, merchandising improvement, fuel optimization, capital return to shareholders, and potential acquisitions), limited near-term growth expectations keep us on the sidelines,” he said.

Elsewhere, TD Securities’ Michael Van Aelst raised his target to $67 from $62 with a “buy” rating.


After its second-quarter results fell below the Street’s expectations, National Bank Financial analyst Shane Nagle lowered his recommendation for Trevali Mining Corp. (TV-T) to “underperform” from “sector perform,” citing ongoing operational “challenges” and the heightened need for additional liquidity.

Shares of the Vancouver-based miner plummeted 53.3 per cent on Tuesday following its quarterly release and the suspension of guidance at its Caribou mine in New Brunswick due to “continued operational performance issues due to low productivity rates and equipment and operator availability, from the mining contractor.” Its Perkoa mine in Burkina Faso remains suspended following an April flooding event that resulted in eight fatalities.

For its last quarter, Trevali reported adjusted earnings before interest, taxes, depreciation and amortization of US$9.2-million, missing both Mr. Nagle’s US$11.5-million estimate and the Street’s US$19-million forecast. An adjusted earnings per share loss of 10 US cents was also lowered than anticipated (losses of 8 US cents and 2 US cents, respectively) as rising costs weighed.

“Trevali ended the quarter with US$41.7-million in cash, a working capital deficit of US$41.4-million and US$0.5-million of long-term debt,” the analyst said. “The working capital deficit reflects the current maturity of the US$135-million RCF on September 18, 2022 (US$23-million available at quarter end).

“Due to persistent operational challenges at Caribou and suspension of operations at Perkoa, refinancing this facility remains unlikely under current market conditions in our view. The company also anticipates that it will not be in a position to make a mandatory prepayment of US$7.5-million on the RCF on August 17, 2022.”

Making substantial cuts to his production and financial projections, Mr. Nagle dropped his target for Trevali shares to 25 cents from 55 cents. The average on the Street is 67 cents.

“We incorporated Q2/22 financials and removed Caribou and RP2.0 given the lack of available funding,” he said. “While Rosh Pinah may be of strategic interest to a junior/intermediate company, including the RP.20 expansion values the asset at US$101-million. Given the short mine life at Perkoa and persistent operational challenges at Caribou, we don’t anticipate a material transaction from those assets to provide meaningful liquidity at this time.”

Elsewhere, others making changes include:

* Canaccord Genuity’s Dalton Baretto to 30 cents from 35 cent with a “sell” rating.

“While the financial results for the quarter were actually better than we had forecast, we note a number of negative updates. These include cost and guidance increases at Rosh Pinah, along with a suspension of guidance at Caribou (where C1 costs remain even higher than historically high zinc prices),” said Mr. Baretto. “Our greatest concern, however, is around the company’s liquidity given a pending default on an August 17 debt payment and no clear plan to address a wall of debt maturities on September 18; we note that management has cited a risk to continuing as a ‘going concern.’”

* Raymond James’ Brian MacArthur to 25 cents from 80 cents with a “market perform” rating.

“Given Trevali’s high leverage to the zinc price and exploration optionality, we believe that the company offers investors a large option on zinc, but note the company has higher debt,” he said.


Macro “anxiety” offset a “largely positive” second quarter for Canadian midstream energy companies, according to Canaccord Genuity analyst John Bereznicki.

“All our midstream coverage companies met or exceeded our Q2/22 EBITDA expectations (or previous guidance) amidst strong commodity prices and growing industry production,” he said. As expected, robust demand for refined product bolstered results for KEY and TWM as did generally strong marketing segment contributions. While we expect many of these tailwinds to ease somewhat in 2H22 we nonetheless believe the domestic midstream sector enjoys a constructive operating environment at current strip pricing despite ongoing recessionary fears.”

In a research note released Wednesday, the analyst said midstream equities are “not immune to broad market volatility.”

“Domestic midstream equities rose an average of 23 per cent through early June before subsequently declining 12 per cent (FTM [forward 12-month] consensus EV/EBITDA for the sector is 11 times after peaking at 12 times earlier this year),” he said. “WTI strip nonetheless remains above US$80/bbl through 2023, with strong natural gas prices and a C$ below US$0.80. We believe this is reflected by midstream dividend yields at the lower end of their historic spreads to the Canada 10-year bond. With interest rate expectations and oil prices generally inversely correlated, we believe midstream equities are likely to remain volatile with investors focused on central bank policy decisions.”

Mr. Bereznicki made several estimate revisions, leading to these target price changes:

  • AltaGas Ltd. (ALA-T, “buy”) to $35 from $36. The average on the Street is $34.45.
  • Tidewater Midstream and Infrastructure Ltd. (TWM-T, “buy”) to $1.75 from $2. Average: $1.84.
  • Tidewater Renewables Ltd. (LCFS-T, “speculative buy”) to $21 from $22. Average: $22.10.

“We continue to favour ALA as our relative defensive pick and KEY as our commodity beta pick. In our view, PPL enjoys strong asset optionality, balanced commodity exposure and conservative financial guardrails,” he concluded.

Elsewhere, coming off restriction following its $92.5-million financing, these analysts were among those cutting their targets for Tidewater Midstream and Infrastructure Ltd.:

* RBC’s Robert Kwan to $1.60 from $1.75 with an “outperform” rating.

“We continue to recommend Tidewater Midstream’s shares as an inexpensive way for risk tolerant investors to participate in a combination of midstream and refining growth,” said Mr. Kwan. “Although the recent equity issue is dilutive to our valuation per share (i.e., the driver behind the reduction in our price target to $1.60 from $1.75), we also see the merits of cleaning up the balance sheet and addressing the refinancing outlook.”

* Acumen Capital’s Trevor Reynolds to $1.90 from $2 with a “buy” rating.

* CIBC’s Robert Catellier to $1.75 from $2.05 with an “outperformer” rating.


WSP Global Inc.’s (WSP-T) $975-million acquisition of British environmental consulting firm RPS Group Plc is “a good strategic fit” and a significant step forward in [its] journey to becoming a leading global ESG-focused engineering consulting player,” according to National Bank Financial’s Maxim Sytchev.

He was one of several equity analysts on the Street to raise their targets for shares of the Montreal-based engineering giant after coming off research restriction with the close of the deal and associated $800-million equity financing.

“WSP is using the industry M&A lull to its advantage. It has done something similar in the past: legacy WSP in 2012 (Europe coming unglued), PB in 2014 (concerns about US) and Golder during COVID,” said Mr. Sytchev. “While some might call this a ‘buy-the-dip’ mentality, we have to be mindful that public infrastructure spending has only gotten more robust while energy transition will now provide tangible growth for decades. As a result, the M&A strategy has always been backstopped by strong fundamentals. Some M&A was instantly margin-accretive (Golder) while PB was an iconic asset but needed to get its margins up (it did, over time). Again, we believe the Co has been adept in dealing with various circumstances on each underlying asset. We continue to view WSP as a diversified engineering juggernaut with now leading Environment credentials (32 per cent of top line) that support Co’s Tier 1 transit and Buildings practice.”

In a research note titled The strong getting stronger, Mr. Sytchev raised his target for WSP shares to $188 from $182, reaffirming an “outperform” rating. The average is $180.31.

Other analysts making changes include:

* Raymond James’ Frederic Bastien to $195 from $185 with an “outperform” rating.

“WSPP took another big step towards becoming the world’s leading engineering consultancy” he said. “Last week, the Montreal-based company agreed to acquire RPS Group in a deal that will augment its water and energy transition activities, and give it a stranglehold on the UK and Australian markets. Did we mention RPS is also expected to be immediately accretive to shareholders?”

* Desjardins Securities’ Benoit Poirier to $187 from $184 with a “buy” rating.

“With more than 120 acquisitions since its IPO in 2006, WSP has a robust M&A track record, and we remain confident in its ability to unlock shareholder value in the long term,” he said.

* Stifel’s Ian Gillies to $175 from $172 with a “buy” rating.

“All the items that we appreciate in an engineering and consulting business are recognizable in WSP’s $965-million acquisition of RPS,” said Mr. Gillies. “These traits include FCF generation, the potential for healthy organic growth, synergies and improving leverage of the acquiree’s employee base. WSP continues to execute efficiently on its well telegraphed growth strategy. The entry point for WSP shares is not inexpensive at 21.8 times 2023 estimated P/E, but the company can grow earnings at 15-20 per cent per annum, and already appears close to hitting its 2022-2024 growth targets. This remains a high quality large cap with a strong management team.”

* BMO’s Devin Dodge to $180 from $178 with an “outperform” rating.

“Demand is strengthening, there is upside to margins from productivity and efficiency gains, and there are opportunities to lower occupancy costs over the intermediate term,” said Mr. Dodge. “M&A has been very active and the three pending deals are expected to be significantly accretive to EPS as revenue and cost synergies are captured over the next 24 months. On valuation, the P/E multiple premium vs. peers is approximately 0.5 turns below its four-year average, but we estimate the gap would be 2 turns once contributions from M&A are fully reflected in forward estimates.”

* CIBC’s Jacob Bout to $181 from $175 with an “outperformer” rating.

* TD Securities’ Michael Tupholme to $190 from $185 with a “buy” rating.


Following in-line second-quarter results, Desjardins Securities analyst Kyle Stanley sees Automotive Properties Real Estate Investment Trust (APR.UN-T) “idling in advance of a potential pick-up in transaction activity.”

“With $150-million of acquisition capacity, APR is well-positioned to take advantage of any pick-up in auto dealership consolidation, in our view,” he said.

After the bell on Monday, the Toronto-based REIT reported funds from operations per unit of 24 cents, matching Mr. Stanley’s estimate and penny below the consensus forecast on the Street.

“Although no new transactions were announced during the quarter, APR has been active in 2022 to date, acquiring $65-million of assets, compared with $41-million and $15-million of transaction volume in 2020 and 2021, respectively,” he said. “Fuelled by pandemic-induced low interest rates, cap rates for auto dealerships contracted through 2021 (APR realized 40bps of cap rate compression by year-end to 6.3 per cent), which weighed on investment spreads and limited deal flow. In a higher interest rate environment, APR’s ability to provide an alternative source of long-term capital to support dealership consolidation is attractive. Call commentary suggests investment spreads have begun to normalize, and management expects to see external growth opportunities in the next 12–24 months at cap rates in the historical target range of 6.25–7.25 per cent.”

Touting its “healthy leverage profile,” the analyst expects Automotive Properties to “be active on the external growth front,” estimating it has almost $1500-million of acquisition capacity.

Reiterating a “hold” recommendation for the REIT’s units, he trimmed his target to $13.75 from $14.50 after modest cuts to his financial expectations through 2023. The average on the Street is $14.08.

Elsewhere, TD Securities’ Jonathan Kelcher downgraded the stock to “hold” from “buy” with a $14.50 target.

Others making adjustments include:

* RBC’s Jimmy Shan to $12.75 from $12.50 with a “sector perform” rating.

“Automotive Properties REIT reported a largely inline quarter. Leverage term increased in the quarter while variable rate exposure was reduced to less than 10 per cent,” he said. “No new acquisitions were announced, although APR’s transaction guidance is for more deals to occur in seasonally more active Q4. We estimate APR’s WACC at 6 per cent, which implies that APR’s historical acquisition cap rates of 6.25-7.25 per cent should allow it to show AFFO accretion.”

* Raymond James’ Brad Sturges to $14.75 from $15.25 with an “outperform” rating.

“APR’s lower financial leverage metrics reduces the REIT’s sensitivity to rising interest rates, and while providing the REIT with ample balance sheet capacity to pursue potential external acquisition growth prospects should further transaction opportunities arise,” said Mr. Sturges. “Given the REIT’s very defensive investment profile, APR is one only a very small group of Canadian REITs in our coverage universe that is trading essentially at or above its respective NAV estimate.”


Citing “soft” industry demand following weaker-than-anticipated second-quarter results and uncertainty related to its breach of covenants, Acumen Capital’s Nick Corcoran downgraded Big Rock Brewery Inc. (BR-T) to “hold” from “buy.”

“BR was in breach of the fixed charge coverage ratio for Q2/22,” he said. “The disclosure also indicated that the Company does not have sufficient cash flows to cover forecasted expenses for 2022 and under the existing terms of the lending agreements Management is forecasting further breaches of the covenants within the next 12 months.”

“While the lender has been supportive of the business to-date, we believe there is the potential for a liquidity event if Management is not able to stabilize the business. The next review is on or before August 29, 2022.”

Currently the lone analyst covering the Calgary-based company, his target for its shares slid to $3.50 from $6.


BMO Nesbitt Burns analyst Jackie Przybylowski made a series of target price adjustments to mining stocks in her coverage in a second-quarter earnings review released Wednesday.

“We wrote in our Q1/22 earnings recap ‘that wasn’t so bad, yet’ because mining companies under our coverage had, at that time, not provided meaningfully negative commentary around cost inflation,” she said. “This changed in the Q2/22 earnings season — we have seen changes to 2022 operating cost guidance across our coverage. Our hope (and base-case expectation) is that this guidance re-set represents a slowing, or (very modest) reversal, to the cost creep trend and that disappointment in Q2 will set up companies for more positive catalysts in H2/22. Our top picks continue to be Teck Resources and Agnico Eagle.”

Ms. Przybylowski’s changes were:

  • Agnico Eagle Mines Ltd. (AEM-N/AEM-T, “outperform”) to US$68 from US$72. Average: US$68.51.
  • Franco-Nevada Corp. (FNV-T, “outperform”) to $220 from $226. Average: $211.52.
  • First Quantum Minerals Ltd. (FM-T, “market perform”) to $30 from $35. Average: $32.69.
  • Hudbay Minerals Inc. (HBM-T, “outperform”) to $10 from $12.50. Average: $9.73.
  • Kinross Gold Corp. (KGC-N/K-T, “outperform”) to US$5.50 from US$6. Average: US$5.81.
  • Newmont Corp. (NEM-N/NGT-T, “outperform”) to US$74 from US$79. Average: US$64.53.
  • Osisko Gold Royalties Ltd. (OR-T, “market perform”) to $19 from $18.50. Average: $21.09.
  • Teck Resources Ltd. (TECK.B-T, “outperform”) to $50 from $55. Average: $51.98.


In other analyst actions:

* BMO Nesbitt Burns analyst Rene Cartier upgraded Sandstorm Gold Inc. (SAND-N, SSL-T) to “outperform” from “market perform” with a US$9 target, down from US$9.50 and below the US$9.65 average.

“Following a period of research restriction owing to Sandstorm’s portfolio acquisition from BaseCore and the acquisition of Nomad Royalty, we are resuming coverage and upgrading SAND to Outperform with a $9.00 target price,” he said. “In our view, Sandstorm has significantly increased its scale, enhanced its diversification, and added a number of long-life assets to the portfolio. Underpinned by strong share liquidity, we see Sandstorm as the go-to name amongst middle-market royalty/streaming companies.”

* Raymond James’ Brad Sturges cut his target for Canadian Apartment Properties REIT (CAR.UN-T) to $61 from $66, above the $58.23 average, with a “strong buy” rating.

“Canadian MFR leasing demand could further strengthen as greater foreign immigration levels and a return of international students studying in Canada with reduced travel restrictions and based on the Canadian Federal Government’s emphasis on achieving its heightened annual immigration targets over the next few years. We believe CAPREIT’s discount valuation remains compelling, particularly in light of the REIT’s improving underlying Canadian MFR property fundamentals,” he said.

* TD Securities’ Sam Damiani raised his Firm Capital Mortgage Investment Corp. (FC-T) target to $14.50 from $14, keeping a “buy” rating. The average is $14.17.

* Canaccord Genuity’s Matt Bottomley cut his target for Goodness Growth Holdings Inc. (GDNS-CN, “speculative buy”) to $3 from $3.50 and Verano Holdings Corp. (VRNO-CN, “buy”) to $20 from $23. The averages on the Street are $3.75 and $25.87, respectively.

* Following “mixed” quarterly results, Echelon Capital’s Andrew Semple also cut his Verano Holdings Corp. (VRNO-CN) target to $30 from $35 with a “buy” recommendation and reiterating its “Top Pick” designation. The average target on the Street is $25.87.

“Our price target trim reflects ongoing tough capital market conditions for U.S. cannabis equity, as well as our revised estimates which account for Verano’s new higher SG&A levels, and reduced wholesale estimates as a result of moderated capital investments,” he said. “Our estimates may prove to be conservative for H222 if momentum in New Jersey persists (which most signs indicate it will), and if Verano’s realized SG&A savings are larger than anticipated.

* CIBC’s Mohamed Sidibe lowered his Maverix Metals Inc. (MMX-T) target to $8.50 from $9.50, above the $7.50 average, with an “outperformer” rating.

* Mr. Sidibe also reduced his Victoria Gold Corp. (VGCX-T) target to $18 from $18.50 with a “neutral” rating. The average is $19.06.

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