Inside the Market’s roundup of some of today’s key analyst actions
Eight Capital analyst Phil Skolnick has upgraded Suncor Energy Inc (SU-T) to a “neutral” rating from a “sell” on the heels of Rich Kruger being tapped as the company’s new president and CEO. He also raised his target price to C$50 from C$43.
Mr. Skolnick believes recent quarterly results, plus the confidence Mr. Kruger’s leadership will bring to the company, means a sell rating is no longer warranted.
“SU has chosen someone with the skill set applicable to SU’s asset base and needs,” the analyst said in a note to clients. “Mr. Kruger brings fully integrated oil sands in-situ mining and downstream expertise.
Current Interim CEO Kris Smith will transition to the CFO position, with current CFO Alister Cowen to retire by the end of the year.
Including his time as President and CEO of Imperial Oil (IMO) from 2013-2019, Mr. Kruger spent 39 years with Exxon before recently retiring.
“We believe investors are likely going to bet on the side of improvements being made given that Mr. Kruger was held in high regard by the investment community during his time at IMO. Of note, IMO’s Kearl oil sands mining project had problems in its early days (albeit not to the same extent as Fort Hills), which became rear view under Mr. Kruger’s leadership. It is also important to note that under his leadership, IMO was an innovator of many of the same technologies being employed by SU, including the use of autonomous haul trucks. Additionally, with respect to safety, Mr. Kruger oversaw years of an impeccable track record. Therefore, we believe he can provide a fresh new perspective on addressing SU’s challenges,” said Mr. Skolnick.
“It is also possible that we also see some agreeable outcomes between SU and IMO, such as, for example, the potential for SU to acquire and/or develop Syncrude’s Lease 29 to help fill its base mine upgrading plant,” he added.
So why not rate Suncor a buy? Mr. Skolnick believes improvement at Suncor will take time.
“The issue isn’t a one-person situation, in our view. While we give SU an A for the CEO pick, we still believe that the company’s issues are about the corporate culture and thus expect a grind to improvement rather than a swift move,” he said.
ATB Capital Markets analyst Patrick O’Rourke also provided a favourable view of Mr. Kruger’s appointment.
“Overall, we believe that the market will view the event positively with the announcement removing the overhang of uncertainty with respect to the role following the departure of former CEO Mark Little in July, 2022. Kruger brings a wealth of experience to Suncor,” Mr. O’Rourke said. He reaffirmed a “sector perform” rating and C$52 price target on the stock.
The average analyst price target on Suncor shares is C$58.06, according to Refinitiv Eikon data.
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Analysts are giving generally positive reviews to Teck Resources Ltd.’s (TECK-B-T) plans for a major restructuring of its business and dual-class share structure, although the Street isn’t unanimous it’s the best course forward for the Canadian resource firm.
Teck intends to spin-off 100 per cent of its steelmaking coal business to shareholders, separating the company’s assets into a carbon intensive business through a new TSX-listed company named Elk Valley Resources, and a non-carbon business to be called Teck Metals Corp.
Under the proposed structure, Teck Metals would continue to receive free cash flow from Elk Valley to fund copper growth and shareholder returns until at least year-end 2028. The company also announced that its long-standing dual class share structure would be collapsed via a new six-year sunset amendment.
Scotia analyst Orest Wowkodaw says overall the plans should be positive for shares and raised his target price to C$70 from C$64 while reaffirming a “sector outperform” rating.
“In our view, the proposed structure is an elegant solution to creating an attractive copper growth focused (and ESG friendly) company via Teck Metals that will continue to benefit from elevated near-term free cash flow. Moreover, the collapse of the dual-class share structure (at minimal dilution) significantly improves corporate governance,” he said in a note.
“Although our updated 8% NAVPS [Net Asset Value Per Share] is largely unchanged, we anticipate the shares to re-rate higher given the immediate transition into a copper dominated miner, a clear pathway to fully exit coal, improved governance, and new long-term takeover optionality,” he added.
RBC analyst Sam Crittenden also viewed Teck’s plans as favourable, raising his price target to C$72 from C$64 while reiterating an “outperform” rating.
“In the near term the new Teck seems similar to the old Teck, but they have provided a clear direction on an eventual met coal exit and unwinding the dual class share structure in 6 years. We continue to see inherent value in the shares as a successful ramp up of the Quebrada Blanca Phase 2 project in Chile remains a key potential catalyst this year, while they still benefit from high met coal prices for the foreseeable future,” Mr. Crittenden said.
But over at Canaccord Genuity, analyst Dalton Baretto wasn’t nearly as impressed by Teck’s plans. He lowered his price target to C$68.50 from C$70.
“We view the updates as a bit of a ‘have your cake and eat it too’ type situation. We were anticipating a clean break between the coal and base metals businesses; however, given the 90% cash sweep from the coal business back to TECK and its partners in that business over the medium term, we fail to see a meaningful difference from a cash flow perspective between the current entity and one with a public market split. We assume TECK is trying the keep the strategy intact, while arbitraging potential trading multiples from a public market perspective,” the Canaccord analyst said in a note.
“We also fail to fully understand the 6-year horizon to retire the dual-class share structure, given the 67% premium being offered and the clear benefits to the business from a governance perspective,” he added.
Teck also announced a $250 million share buyback plan and released its fourth quarter financial results on Tuesday. Mr. Baretto says he views the fourth quarter results as “somewhat irrelevant” given the restructuring and the fact that production results and three-year guidance was previously released.
In other actions, Citigroup raised its price target to C$64 from C$55.
The average analyst price target is C$64.04.
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Citi analyst Alexander Hacking has upgraded aluminum giant Alcoa Corp. (AA-N) to a “buy”, believing the metal will be the next commodity to benefit from China’s economic reopening. His price target went up US$10 to US$65 a share.
Citi’s research team is predicting aluminum will trade at US$2,700 per tonne in the near term, with the potential for prices reaching as high as US$3,000. Spot prices are currently near US$2,450.
“We acknowledge AA’s limited FCF but expect the stock to outperform as the default North America exposure to aluminum. Our long-term view remains positive, with aluminum one of our favoured exposures in metals,” Mr. Hacking said in a note.
“Citi views aluminum as the next leg of the China reopening trade (following iron ore and copper). Aluminum has relatively light positioning, tends to arrive late to bull market parties, is relatively lightly positioned, and has a myriad of idiosyncratic upside risks as well as being exposed to macroeconomic- (including major credit easing and higher oil prices) and El Niño-related supply-side risks. The rolling smelter cuts from southwestern China due to power availability restrict supply response to margins,” the analyst said.
Unlike stocks that produce copper and coal, Mr. Hacking believes that Alcoa is still relatively out of favour with investors. Meanwhile, the company has a strong balance sheet. Both those factors, he thinks, will work in the stock’s favour.
The average analyst price target is US$55.64.
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CIBC Capital Markets analyst Anita Soni lowered her price target on Agnico Eagle Mines Ltd. (AEM-N, AEM-T) in response to the precious metals company’s weaker-than-expected production and cost guidance released last week. Her price target went to US$69 from US$73 but her “outperformer” rating was retained.
Ms. Soni said her net asset value for the company has dropped from $43.41/share to $39.70/sh and her estimated 2023 cash flow per share decreased from $4.96 to $4.85 as a result of the revisions to her production and cost estimates.
However, she pointed out that AEM noted several areas for upside, including the optimization of ore sources in the Abitibi Gold Belt at the company’s sites in Ontario and Quebec, as well as lifting of restrictions on noise at Fosterville and throughput at Kittila.
“Positive catalysts are currently not included in our model. As such, we see the stock as de-risked for 2023 from an operational standpoint. With shares off 6% since the company reported (compared to 5% revision to our target), we believe negative revisions are priced in,” the analyst said.
Agnico Eagle remains CIBC’s top pick in the sector, and Ms. Soni also expects some inflation relief this year, which will work in the stock’s favour.
“Despite the inflationary pressures AEM is now starting to experience, it remains one of the lower-cost senior gold producers and, as such, we expect it will be able to maintain and reduce costs earlier than peers (less leverage from low grades). Although it has not been included in guidance, AEM noted it could start to see cost pressures ease in H2/23, particularly if the current restrictions in place at Kittila and Fosterville are lifted,” she said.
The average price target is US$63.20.
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At least 10 analysts slashed their price targets on Home Depot Inc. (HD-N) after the retailer Tuesday warned of slowing demand for home improvement goods this year amid inflationary pressures.
The No. 1 U.S. home improvement chain forecast annual profit below Street expectations as it increases spending on wages by US$1 billion to tackle labor shortages while struggling with higher costs.
The average price target is now US$327.75, down from US$341.94 a month ago, according to Refinitiv Eikon data.
Among analysts dropping their price targets: Barclays cuts target price to $310 from $323; Bernstein cuts target price to $333 from $337; Citigroup cuts price target to $332 from $340; Cowen and Company cuts target price to $360 from $379; Credit Suisse cuts target price to $320 from $335; D.A. Davidson cuts target price to $306 from $334; Jefferies cuts target price to $355 from $377; Telsey Advisory Group cuts target price to $340 from $360; Truist Securities cuts target price to $352 from $382; Wedbush raises target price to $300 from $280.
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In other analyst actions:
* Air Canada (AC-T): Raymond James cuts target price to C$23 from C$25
* Barrick Gold Corp (ABX-T): National Bank of Canada cuts target price to C$28 from C$29
* Capstone Copper Corp (CS-T): TD Securities raises target price to C$7.5 from C$7
* Curaleaf Holdings Inc (CURA-CN): Alliance Global Partners cuts PT to C$11 from C$12
* Dream Unlimited Corp (DRM-T): TD Securities raises target price to C$43 from C$38
* Green Impact Partners Inc (GIP-X): National Bank of Canada raises PT to C$15 from C$12; Cormark Securities raises PT to C$14 from C$10; Haywood Securities raises PT to C$25 from C$13
* Killam Apartment REIT (KMP-UN-T): BMO raises target price to C$20 from C$19.5
* Triple Flag Precious Metals Corp (TFPM-T): BofA Global Research cuts price objective to C$22 from C$22.25
* Wheaton Precious Metals Corp (WPM-T): Canaccord Genuity cuts PT to C$67 from C$70
* AMC Networks Inc (AMCX-Q): Cowen and Company raises target price to $27 from $22; Wells Fargo raises target price to $15 from $10
* Constellation Energy Corp (CEG-Q) Credit Suisse cuts target price to $83 from $91 and cuts to “neutral” from “outperform”
* Devon Energy Corp (DVN-N): Piper Sandler cuts target price to $89 from $96; Raymond James cuts target price to $67 from $80
* Molson Coors Beverage Co (TAP-N): Citigroup raises price target to $56 from $55; Credit Suisse raises target price to $49 from $46; JP Morgan raises target price to $51 from $46
* Walmart (WMT-N): D.A. Davidson raises target price to $179 from $173; JP Morgan cuts target price to $150 from $155; RBC cuts target price to $160 from $163; Telsey Advisory Group cuts target price to $160 from $165; Truist Securities raises target price to $146 from $145
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Darcy Keith