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

Sentiment is improving among Canadian oilfield services companies, however “uncertainty remains,” according to Canaccord Genuity analyst John Bereznicki.

“As expected, Q4/18 domestic oilfield results reflected a freefall in global oil prices and a dramatic widening of domestic oil price differentials,” said Mr. Bereznicki in a research note released Wednesday. "Generally speaking those most tied to domestic drilling and completion activity experienced the brunt of this turmoil in Q4/18, while those with relatively greater exposure to international markets (or production related activity) enjoyed relatively more resilient fourth quarter fundamentals.

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“While the commodity backdrop has improved materially in 2019, many domestic operators remain reluctant to spend through the first quarter. The active WCSB rig count is down 33 per cent year-over-year thus far in 2019, with budget constraints dictating the cadence of the current break-up, in our view. With Canadian light oil and condensate now trading at $70 per barrel, we believe there is basis for growing optimism that WCSB oilfield activity should strengthen in 2H19 (notwithstanding recent industry disappointment with the Line 3 Replacement delay.”

Mr. Bereznicki pointed to a several “exogenous” factors that may impact investor sentiment over the next 12-18 months, including both the Canadian federal election and Alberta’s provincial election, ongoing TMX expansion proceedings, Coastal GasLink challenges and the impact of Bill-C69.

“Looking into 2020, investors must also keep an eye on: i) ongoing Keystone XL developments, ii) the timing of Line 3 Replacement, and iii) a potential pivot in U.S. energy policy following the presidential election,” he said. “In our view, one could paint a scenario in which investor sentiment either improves or deteriorates materially over the coming months, with a wide range of outcomes in between.”

Mr. Bereznicki upgraded his rating for Ensign Energy Services Inc. (ESI-T) to “buy” from “hold,” pointing to “rapid synergy realization from the company’s recent Trinidad acquisition along with more buoyant activity expectations.”

He raised his target for its stock to $7.25 from $5.75. The average on the Street is now $6.94, according to Bloomberg data.

“We also have increasing conviction the company’s cash dividend is sustainable through our forecast horizon,” the analyst said.

Mr. Bereznicki raised his target for the following:

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Calfrac Well Services Ltd. (CFW-T, “hold”) to $3.75 from $3.25. Average: $5.41.

Mullen Group Ltd. (MTL-T, “hold”) to $13.75 from $13.50. Average: $14.48.

Precision Drilling Corp. (PD-T, “buy”) to $4.25 from $4. Average: $4.60.

Trican Well Service Ltd. (TCW-T, “hold”) to $1.60 from $1.50. Average: $2.05.

Gibson Energy Inc. (GEI-T, “buy”) to $26 from $23. Average: $24.54.

He lowered his target price for the following stocks:

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CES Energy Solutions Corp. (CEU-T, “buy”) to $4.25 from $4.75. Average: $4.98.

Essential Energy Services Ltd. (ESN-T, “hold”) to 35 cents from 40 cents. Average: 55 cents.

McCoy Global Inc. (MCB-T, “hold”) to $1.10 from $1.25. Average: $1.40.

Source Energy Services Ltd. (SHLE-T, “buy”) to $2.25 from $2.75. Average: $1.80.

Western Energy Services Corp. (WRG-T, “hold”) to 40 cents from 50 cents. Average: 58 cents.

“There was a stark contrast between domestic and U.S. profitability for several of the oilfield service providers in our coverage universe in 2018,” said Mr. Bereznicki. "Oilfield capacity continues to leave the WCSB in search of better returns, and we expect this to continue until structural domestic challenges improve. Given the importance of the winter drilling season to WCSB service providers, we believe weak Q4/18 and Q1/19 fundamentals could accelerate the pace of private oilfield business failures and set the stage for further consolidation by well positioned players like Mullen and Total.

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“We view international presence as a hedge on domestic headwinds and favour Precision Drilling, CES Energy Solutions and Total Energy Services. For those seeking WCSB exposure, we are biased to Secure and Tervita given their production focus.”

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Billing it “the little gold producer you never heard of,” Beacon Securities analyst Michael Curran initiated coverage of Anaconda Mining Inc. (ANX-T) with a “buy” rating.

“Anaconda has been generating positive cash flow for 9 years from its Point Rousse project in Newfoundland, mining 15-20,000 ounces of gold per annum from open pit mining,” he said.

He also emphasized the company’s organic growth potential in lower risk jurisdictions for mining, noting: “The company hopes to add a second mining operation, Goldboro in Nova Scotia, which could take company production levels to 60-75,000 ounces per year. Medium-term, the company has a stated target of growing gold production to the 100,000 ounces-per-year level.”

Mr. Curran set a target price of 90 cents per share, which falls below the average on the Street of $1.40.

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“We consider ANX shares to be undervaluing the potential addition of the Goldboro project to mining operations in the next few years,” he said.

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PLUS Products Inc. (PLUS-CN) is a “premier cannabis brand play, winning in California and poised for expansion,” said Canaccord Genuity analyst Bobby Burleson.

He initiated coverage of the San Mateo, Cal.-based company with a "speculative buy" rating on Wednesday.

“Through its popular line of gummies, PLUS has attained leading share of the legal edibles market in California (10 per cent in the second half of 2018), arguably the world’s most competitive,” the analyst said. "We believe PLUS will be able to leverage this leadership into continued strong growth for existing SKUs and gains in additional edibles categories, where the company is poised to convert shelf space, brand awareness, and operational excellence into penetration of baked goods and mints. We also expect initial state expansion into additional geographies is imminent, prioritizing states with legal recreational sales.

“We expect FL, NY, MA, MI and NV to be the most likely near-term state expansion targets, with Canada a focus internationally. California alone should represent a roughly $1-billion edibles opportunity by 2022. While expansion markets conservatively increase that TAM [total addressable market] 3 times, we note there is nothing yet reflected for sales beyond CA in our model, somewhat de-risking our estimates considering imminent state expansion appears likely. Near term, demand for PLUS’s gummies within CA could strengthen, fueled in part by a crackdown on unlicensed dispensaries when coupled with continuing share gains for the edibles category. We are also encouraged by progress on PLUS’s product and market expansion plans.”

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Mr. Burleson, who is the lone analyst on the Street currently covering the stock, set a target of $8 per share.

“Currently the stock is trading at an EV/Rev multiple of 2.7 times our 2020 estimate and 16.6 times on EV/EBITDA, which compares with the peer group at 3.0 times and 9.7 times, respectively,” he said. “We believe a premium to prevailing EV/EBITDA multiples is justified, considering a scarcity of pure brand plays, PLUS’s dominant market share in edibles, potential upside from geographical expansion and our near-term revenue and margin assumptions, which we believe could prove conservative. Given the various risks associated with execution, regulation and other factors ... we believe a SPECULATIVE BUY rating is appropriate at this time.”

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Despite missing the Street’s expectations with its fourth-quarter financial results on Tuesday, Cipher Pharmaceuticals Inc. (CPH-T) was upgraded to “buy” from “accumulate” by Bloom Burton Securities analyst Prasath Pandurangan, who pointed to its “attractive valuation.”

“While the stock has been trending down, there are multiple upcoming milestones that could lead to a re-rating, and we believe that current price is a favorable entry point for long-term investors,” said Mr. Pandurangan.

He maintained a $5 target for shares of the Mississauga-based company. The average is currently $4.13.

Elsewhere, TD Securities’ Lennox Gibbs cut the stock to “hold” from “buy” with a target of $2, falling from $4.25.

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Believing the market has “fundamentally mispriced the equity,” Credit Suisse analyst Curt Woodworth initiated coverage of Peabody Energy Corp. (BTU-N), a St. Louis-based coal miner, with an “outperform” rating.

“The shares have significantly de-rated post events at N. Goonyella and have sold off in fairly tight correlation with the recent move lower in Newcastle thermal,” he said. “With seaborne thermal prices near bottom, spot coking coal moving back up, and BTU likely to provide positive updates on the N. Goonyella transition to 10 North, we believe risk/reward today is highly compelling.”

He set a target of US$42, exceeding the current consensus of US$40.67.

“We expect BTU to repurchase $500-million in stock in 2019 owing to its strong FCF [free cash flow] profile ($1.0-billion in total next two years) and shareholder friendly management team,” said Mr. Woodworth. “BTU has a strong growth profile in seaborne thermal with tier 1 assets as well as tier 1 thermal assets in the US. The mix upgrade in the metallurgical portfolio with Shoal Creek is highly accretive. The market seems to view BTU as a highly cyclical, peak of cycle pure play coking coal equity trading at 4.0 times 2019.”

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In other analyst actions:

Mizuho Securities analyst Jeremy Scott downgraded Restaurant Brands International Inc. (QSR-N, QSR-T) to “neutral” from “buy” with a target of US$68, falling from US$69 and below the consensus of US$69.37.

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