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

Despite exceeding his Street-high revenue forecast in the fourth quarter, CES Energy Solutions Corp.’s (CEU-T) stock was downgraded on Wednesday by Industrial Alliance Securities analyst Elias Foscolos, who wants to wait until margins stabilize.

On Tuesday after market close, the Calgary-based company reported revenue for the final quarter of fiscal 2018 of $348-million, exceeding both the consensus expectation on the Street ($325-million) and Mr. Foscolos’s projection ($335-million). The 25-per-cent jump year-over-year was due primarily to growth in its U.S. business as well as contributions from PureChem in Canada.

Adjusted earnings before interest, taxes, depreciation and amortization of $42-million largely fell in line with the estimates of both the Street and Mr. Foscolos ($41-million and $45-million, respectively). However, a gross margin of 23 per cent missed the analyst’s projection of 26 per cent, and resulted in a 2018 margin of 26 per cent, which is 2 per cent lower than the previous year.

“Declining gross margin resulted in modest full-year adjusted. EBITDA growth of 9 per cent relative to revenue growth of 23 per cent,” said Mr. Foscolos. “The Company expects 2019 growth CAPEX to decline below recent levels with most of its planned infrastructure build-out now complete, and expects to generate material free cash flow which will be able to fund the dividend and continued share repurchases. We have adjusted our outlook downward.”

Moving CES shares to “buy” from “strong buy,” Mr. Foscolos lowered his target to $4.50 from $4.75 after decreasing both his rig count and revenue forecasts. The average target on the Street is currently $4.88, according to Bloomberg data.

Elsewhere, Raymond James analyst Andrew Bradford removed CES from the firm’s “Analyst Current Favourites” list, pointing to “the degradation of the Canadian oilfield services outlook.”

Maintaining an “outperform” rating, his target fell to $4.50 from $5.

Mr. Bradford said: “Beyond headline EBITDA, investors will also notice another quarter of sequential revenue growth, but another quarter of sequential margin decline. In a market where good news is glossed-over and bad news is amplified, we expect a step backward in the stock today. For our part, we are lowering our EBITDA forecasts as a function of challenging margins in Canadian production chemistry and a challenging outlook for Canadian oilfield demand past 1Q.”

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Raymond James analyst Kenric Tyghe lowered his financial expectations for Cineplex Inc. (CGX-T), declaring “Captain Marvel proves no match for Black Panther.”

“On the combination of a tough year prior comp (led by Black Panther), compounded by a weak performance from key titles quarter to date, against which not even the strong performance of the biggest title (Captain Marvel) in the quarter was able to make much impact, we are lowering our 1Q19 (and 2019) estimates,” he said. “We are lowering our box office estimates from $175.8-million to $157.1-million, for a decrease of 13.4 per cent (versus a decrease of 3.1 per cent prior), on the quarter to date box office performance (and easier comps through the quarter end). We believe it is worth flagging, that while the 1Q18 comp was led by Black Panther, it was very well supported by strong performances of both Ready Player One and Peter Rabbit, unlike Captain Marvel which essentially stood alone this quarter.

“While quarter to date the North American box office is down 21.1 per cent (per Box Office Mojo), the Canadian box office performance has outperformed the U.S. quarter to date on an easier prior year comp (the U.S performance reflected both a Movie Pass tailwind and the reality that Black Panther resonated materially better in the U.S.). We expect the decline to be largely attendance driven, only partially offset by a modest increase in ticket price.”

Based on those box office changes, Mr. Tyghe’s 2019 revenue estimate for the first quarter fell to $363.3-million from $384.5-million, while his adjusted EBITDA estimate dropped to $50.6-million from $60.9-million. His earnings per share dropped by $1.23 from $1.33.

He maintained an “outperform” rating and $31 target for Cineplex shares. The average on the Street is $32.

“Our target multiple is below both CGX’s 5-year average of 11.8 times and IMAX’s of 12.9 times, reflecting a step change in exhibitor valuations,” the analyst said. “We believe that our target multiple is conservative, given CGX’s increasingly differentiated model and the option value on key strategic initiatives.”

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Goldman Sachs analyst Stephen Grambling raised his rating for Carnival Corp. (CCL-N) to “buy” from “neutral” on Wednesday, seeing its valuation “near trough absolute and relative levels to the S&P 500 and closest peer [Royal Caribbean Cruises] even as management set a more conservative bar for fiscal 209."

“We upgrade CCL shares to Buy from Neutral given: 1) accelerating net unit growth from 2.5 per cent over the past five years to 5 per cent over the next three years should propel fundamentals; 2) Europe concerns appear overblown as even negative 3-per-cent net yields in the region would only drive a 1-per-cent difference in global net yield on our estimates, or 5-per-cent impact to EPS; and 3) CCL has set guidance well-below the 5-year average net yields providing a lower hurdle for beats and raises throughout 2019. In addition, valuation is compelling at 11.4 times NTM [next 12-month] EPS (vs. 5-year average of 16X), near trough absolute and relative levels to the S&P 500 and closest peer RCL even as management set a more conservative bar for FY19 ... If near-term trends are better than feared and beats ensue with ramping capacity growth, we expect an upward re-rating.”

Mr. Grambling increased his target price for Carnival shares to US$65 from US$63. The average on the Street is US$65.65.

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The pricing pressures faced by Surge Energy Inc. (SGY-T) in the fourth quarter are now in the “rear view mirror,” according to Canaccord Genuity analyst Anthony Petrucci, who trimmed his target for its stock following Tuesday’s release of lower-than-anticipated financial results.

After market close, Calgary-based Surge reported production for the quarter of 21,047 barrels of oil equivalent per day, missing the expectations of both Mr. Petrucci (22,437 boe/d) and the Street (21,300 boe/d). Cash flow per share of 2 cents also fell short of projections (5 cents and 4 cents, respectively).

“Through organic drilling and acquisitions, SGY grew materially through 2018, increasing production by 21 per cent (12 per cent per share) and reserves by 29 per cent (down 3 per cent per share),” the analyst said. "Like most oil producers, SGY suffered from the wide Canadian oil differentials in Q4. As differentials have tightened in 2019, our forecasts suggest that at futures strip pricing, SGY will have enough cash flow to fund its capital program and its dividend, which on the current share price offers an attractive yield of 7.3 per cent.

“FD&A figures were up year over year, as the company’s acquisitions through the year skewed the costs of adding reserves. Looking at the three-year average, FD&A costs came in at $12.77 on a 2P basis, which would suggest a recycle ratio of nearly 2.0 times on the company's current netback at prevailing pricing.”

With a “buy” rating, Mr. Petrucci lowered his target to $2.25 from $2.75, citing his “expectation that under the current commodity price environment, the exploitation of the booked reserves may come at a reduced pace, as the company looks to maintain its balance sheet strength.” The average target is currently $2.11.

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In the wake of the US$806.5-million sale of a 70-per-cent stake in its flagship Red Chris mine to Newcrest Mining (NCM), CIBC World Markets analyst Oscar Cabrera raised his rating for Imperial Metals Corp. (III-T) to “neutral” from “underperformer.”

“Once concluded, the transaction should eliminate III’s liquidity issues; however, it transferred most of RC’s mineral resource upside potential to NCM shareholders,” he said. “In addition, we see limited upside in III’s cash flow generation from its Mount Polley (care and maintenance) and Huckleberry (restarting in 2020) mines over the next two years. Importantly, the transaction is to close in Q3/19, requiring III to postpone payment to creditors until then ($718-million in debt maturities in Q1/19).”

Mr. Cabrera raised his target to $3.50 from 60 cents. The average target on the Street is $3.20.

“III shares re-rated after liquidity concerns were lifted with the RC transaction announcement,” he said. “In our view, the EV/EBITDA and P/NAV gaps should close with improved execution at RC and improvements/additions to the deposit mine plan, respectively.”

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Pieridae Energy Ltd. (PEA-X) “is poised to be the first LNG company to market in Canada, and chances are you’ve never heard of them," said Haywood Securities analyst Darrell Bishop, who initiated coverage with a “buy” rating.

“Pieridae has flown stealth-mode below the radar to advance its project focused on taking stranded gas from Western Canada east to Nova Scotia for export to premium priced European markets," he added.

He set a $4 target for the Calgary-based company.

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In other analyst actions:

Desjardins Securities analyst Josh Wolfson upgraded Barrick Gold Corp. (ABX-T, ABX-N) to “buy” from “hold” with a $22 target, which exceeds the consensus on the Street of $18.90.

GMP analyst Martin Landry upgraded Aurora Cannabis Inc. (ACB-T) to “buy” from “hold” and raised his target to $15 from $9.50. The consensus is $12.39.

With a file from Bloomberg News

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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 28/03/24 0:47pm EDT.

SymbolName% changeLast
SGY-T
Surge Energy Inc
+1.05%7.7
CEU-T
Ces Energy Solutions Corp
+0.86%4.71
CGX-T
Cineplex Inc
+0.41%7.4
ABX-T
Barrick Gold Corp
+2.23%22.48
CCL-N
Carnival Corp
-3.61%16.57
III-T
Imperial Metals Corp
0%2.15
ACB-T
Aurora Cannabis Inc
+3.26%6.65

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