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

Though he continues to like its investment thesis and advises investors to “look for a retracement to possibly enter the name,” Canaccord Genuity analyst Aravinda Galappatthige downgraded his rating for Thomson Reuters Corp. (TRI-T, TRI-N) in reaction to recent share price appreciation.

“With the stock up 17.4 per cent over the past 6 months and now almost at our new target [of US$52 per share], we are moving our recommendation to a HOLD rating,” said Mr. Galappatthige in a research note reviewing the company’s Investor Day on Tuesday.

The analyst pointing to five “headline areas” stemming from the event, which he felt were “particularly relevant.” They are:

1. The company’s objective of reaching free cash flow of US$2.40 per share by fiscal 2020.

Analyst: “Management’s objective appears to be to recapture the 2016/2017 ‘underlying’ FCF levels of $2.32-$2.43, but now without the contribution from F&R [Financial & Risk]. Against that backdrop, we see the $2.40 number in a very positive light, particularly considering that this would be alongside a much stronger balance sheet vis-à-vis the pre-F&R sale profile. We note that this was notably ahead of the $2.05/sh we had going into the investor day.”

2. The expectation of annual organic revenue growth reaching 3.5-4.5 per cent.

Analyst: “We consider this to be crucial, as this level of revenue growth can translate to potentially high single digit EBITDA growth; particularly given the businesses’ high operating leverage. In our view, high single-digit EBITDA growth can translate to meaningful upward movement in valuation multiples as we have seen with Wolters Kluwer, Factset, etc.”

3. Cost reduction opportunities, including the plan to cut its work force by 12 per cent in the next two years.

4. Valuation upside from its 45-per-cent stake in Refinitiv, previously its financial and risk business which it sold a majority stake in to a group led by the Blackstone private equity firm and the Canada Pension Plan Investment Board.

5. Deployment of a US$2-billion investment fund for strategic acquisitions.

Though he lowered his rating for Thomson Reuters shares to “hold” from “buy,” Mr. Galappatthige raised his target to US$52 from US$50 to reflect his expectations for fiscal 2020. The average target on the Street is currently US$53.56, according to Bloomberg data.

“We continue to use 13 times enterprise value-to-EBITDA to value the stock, generally in line with its comps – RELX and Wolters Kluwer,” he said. “While there is a temptation to start allocating upside from its 45-per-cent holding in Refinitiv, we believe it is far too early to revalue this asset, particularly considering that the transaction only closed in October. We would, however, be closely tracking its progress recognizing the upside to NAV.”

Elsewhere, CIBC World Markets' Robert Bek hiked his target to US$53 from US$51 with a "neutral" rating (unchanged).

Mr. Bek said: “There was much confidence and energy on display at the investor day, where each business unit provided its go-forward strategy with a particular focus on laying out the sources of the next legs of growth. Overall, management believes that the ‘new’ TRI is positioned for accelerating organic rev growth, formalizing a target rate of 3.5-4.5 per cent by 2020, and a 2020 FCF target of $2.40/share. While these targets are relatively consistent with street models going into the event, after spending the day with management, we have greater confidence in TRI’s ability hit these milestones and have adjusted our target multiples to reflect as much.”


A pair of equity analysts raised their ratings for shares of WestJet Airlines Ltd. (WJA-T) on Wednesday in the wake of the company’s investor conference in Toronto.

On Tuesday, the airline said it expects improved earnings per share performance with a compound annual growth rate (CAGR) of greater than 40 per cent from 2018 to 2022 along with annual return on invested capital (ROIC) growth reaching double digits by 2020 and 13 per cent by 2022.

The company expects to expand margins through a “combination of improved revenue performance, a continued focus on cost control and a prudent approach to capacity management.” It pointed to several areas of revenue growth, including “solid” demand and strength in its core WestJet business, the roll-out of branded fares across all routes and increased first bag fees.

Those goals came after a “challenging” 2018 that saw the company incur its second loss in the last 13 years in the second quarter. That was followed by a return to black in the third quarter, but a significant year-over-year drop in performance.

In response to the presentation, AltaCorp Capital analyst Chris Murray upgraded WestJet shares to “sector perform” from “underperform.”

“Overall, we found the tone of the day slightly positive, as management introduced its market forecast for 2019-2022 and provided updates on strategic initiatives, pushing out not unsurprisingly, a number of key financial targets, while committing to responsible growth with a focus on shareholder return, which we believe had been lacking in earlier discussions,” he said.

Mr. Murray raised his target for WestJet shares to $19 from $18.50. The current average target on the Street is $19.20.

“While the Company continues to face a number of challenges, we were left with the impression the management is appreciating some of the issues, inherited or otherwise that it faces and appears to be taking a more prudent approach to growth,” he said. “At the same time, it looks to bring initiatives in place via lean and digitization, which may offset cost pressures, improve customer engagement and deliver top-line growth. We still see the Company as facing a number of key challenges in 2019, including with labour, however believe it likely that we are seeing some recovery in earnings. With the change in our estimates based on the revised management outlook, bringing our return to target to a neutral level, we are upgrading.”

Macquarie’s Konark Gupta upgraded the stock to “neutral” from “underperform” and hiked his target to $19 from $15.

Meanwhile, CIBC World Markets' Kevin Chiang bumped his target to $20 from $16 after raising his 2019 and 2020 earnings per share projections by more than 20 per cebt to reflect lower fuel costs. He kept an "underperformer" rating.

Mr. Chiang said: “WJA laid out a credible plan on how it will look to expand revenue, but this will require a cumulative capex of $3.2-billion from 2019 to 2021. Given airline equities are naturally higher beta, pursuing an elevated capex plan at this stage of the economic cycle is likely to create heightened volatility in its share price given the concerns this places on the balance sheet and ROIC trajectory.”


Bank of Montreal (BMO-T, BMO-N) received a trio of downgrades from equity analysts in response to Tuesday’s release of better-than-anticipated fourth-quarter results.

BMO shares dropped 3.85 per cent as investors worried about the sustainability of growth in its U.S. operations.

Eight Capital analyst Stephen Theriault lowered the stock to “neutral” from “buy” with a target of $117, falling from $124. The average on the Street is $110.43.

Cormark Securities’ Meny Grauman moved it to “market perform” from “buy” with a $109 target, down from $115.

Late Tuesday, TD Securities’ Mario Mendonca dropped BMO to “hold” from “buy” with a $110 target, down from $120.


Despite an “ugly” environment, GMP analyst Ian Gillies upgraded Trican Well Service Ltd. (TCW-T), noting the firm has “washed out” its 2019 estimates.

Noting its balance sheet is in “significantly” better shape in comparison to the downturn of 2015-16, Mr. Gillies moved Trican to “buy” from “hold,” keeping a $2 target. The average target is $2.34.

“[A] similar investment situation to 2015/2016 is presenting itself in that TCW’s profitability forecasts will recover in due course, and the stock will rerate higher,” he said.


Beacon Securities analyst Ahmad Shaath initiated coverage of Xebec Adsorption Inc. (XBC-X), a Montreal-based provider of gas purification and filtration solutions for the natural gas, field gas, biogas, nitrogen, oxygen, helium and hydrogen markets, with a “buy” rating.

“Reflecting modest growth to XBC’s current backlog (record $71-million) we estimate the company is on track to register 3-year CAGR (fiscal 2017-2020) revenues/EBITDA/EPS of 51 per cent/61 per cent/290 per cent,” he said. “Against current valuation of 7.8 times fiscal 2019 estimated EBITDA (vs peers’ 10-13 times), which doesn’t reflect the growth potential not captured by our estimates from new orders in Italy, France and the U.S., we believe XBC shares are an excellent risk/reward value for a stock with such tremendous growth potential. We believe XBC shares are poised for multiple rerating as it starts delivering on its record backlog and grow its revenue base, which should help it land larger orders.”

Mr. Shaath, currently the only analyst covering the stock, set a target price of $1.70 for Xebec shares.


Industrial Alliance Securities analyst Jeremy Rosenfield raised his target price for shares of Algonquin Power & Utilities Corp. (AQN-T, AQN-N) following Tuesday’s investor day event in Toronto.

The Oakville, Ont.-based company updated its five-year growth plan, which includes capital spending of US$7.5-billion through 2023. It also reaffirmed its earnings per share compound annual growth rate target of 10 per cent during that period.

With the event, it also announced the $331-million acquisition of the New Brunswick gas distribution utility from Enbridge Inc.

Keeping a “strong buy” rating for its stock, Mr. Rosenfield hiked his target by a loonie to $17, exceeding the consensus of $15.41.

“In our view, AQN remains the most well-balanced investment option in the sector, supported by the Company’s (1) diversified business model (regulated utilities & nonregulated power), (2) strong near-term organic growth (8-10-per-cent EPS and FFO/share growth, and 13-per-cent-plus FCF/share growth through 2023), (3) attractive dividend growth (10 per cent per year through 2021), (4) international investment opportunities (via the AAGES joint venture and equity stake in AY), and (5) upside from potential additional growth initiatives, including M&A that is not included in our base-case forecast,” he said.


In other analyst actions:

Eight Capital analyst Graeme Kreindler downgraded Aphria Inc. (APHA-T) to “neutral” from “buy” with a $7 target, dropping from $22. The average is $19.92.

With files from Bloomberg News

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