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

Canadian Pacific Railway Ltd.'s (CP-T, CP-N) “difficult” first quarter is in the “rear view,” according to Raymond James analyst Steve Hansen.

"We continue to recommend CP shares based on our positive view of the carrier’s: 1) outsized growth prospects; 2) solid operating momentum; and, 3) robust earnings growth," he said.

On Tuesday after market close, CP reported adjusted earnings per share for the quarter of $2.70, up 3 per cent year-over-year but below the projections of both Mr. Hansen ($3.00) and the Street ($2.85). He said the bulk of the miss can be attributed to higher-than-anticipated purchased (casualty) costs associated with "acute winter weather and significant derailment/network disruption in February."

"While disappointing, it would be a mistake, in our view, to formulate one's thesis and/or fair value opinion of CP based upon its weak 1Q19," he said. "Put simply, we view the quarter as highly anomalous and 100-per-cent rear-view looking, with operating/network momentum already surging in tandem with spring's arrival. By management's own account, traffic demand remains robust, with CP on pace to post record GTMs/RTMs in April (quarter-to-date: up 5.9 per cent year-over-year), all while achieving an 8-per-cent increase in train speed. With pricing/yield still healthy, quarter-to-date revenue is reportedly tracking at an increase of 15 per cent year-over-year - well beyond our prior estimate. Given this backdrop and the strong OR guidance already cited, it is no surprise that management reaffirmed its 2019 guidance that calls for: 1) mid-singledigit RTM growth; and, 2) double-digit adj. EPS growth."

Mr. Hansen raised his 2019 and 2020 full-year EPS projections to $16.70 and $18.60, respectively, from $16.43 and $18.50.

He maintained a "strong buy" rating and $340 target for the stock. The average on the Street is $315.52, according to Bloomberg data.

Elsewhere, RBC Dominion Securities analyst Walter Spracklin moved his target to $337 from $334 with an "outperform" rating.

Mr. Spracklin said: “As expected, Q1 exhibited significant weather-related operating challenges, leading to lower than expected results. However, management’s guidance for the remainder of 2019 entirely offsets the tough Q1. The implied speed and magnitude of the recovery is quite impressive and in our view reflective of CP’s powerful operating model. We are maintaining our estimates and reiterate CP as our preferred name in the railroad sector today.”

Credit Suisse’s Allison Landry raised her target to US$254 from US$236 with an “outperform” rating.

Ms. Landry said: “While the Q1 results fell short, the market expected as much – the harsh winter and the unusual number (and severity) of derailments was well telegraphed, with consensus numbers lowered by 14 per cent in the last two months. And even though full year estimates were downwardly revised only 3 per cent over the same time frame, we think that the volume snapback and quick service recovery in the recent few weeks did come as a bit of a positive surprise to investors. This is a testament to a fluid and well run network, and when considering what appears to be a solid and broad based demand backdrop alongside new biz wins (and some help from delayed Q1 shipments), the stage is set for strong operating leverage going forward. We think that the consensus may creep higher as a result, and when considering that CP is the cheapest rail on a P/E basis and has underperformed its peers by 7 per cent year-to-date, this creates a favorable set up for the stock.”


Pointing to its “proven” management team, “strong” production profile and low-cost operations relative to its peers, Canaccord Genuity analyst Carey MacRury resumed coverage of B2Gold Corp. (BTO-T) with a “buy” rating.

"Since 2007 (and prior with Bema Gold), management has demonstrated a successful track record in acquiring and building mines," he said. "From no operating mines in 2007, BTO now has 5 producing mines with consolidated gold production approaching 1 million ounces."

Mr. MacRury said the company’s impressive production profile is anchored by its Fekola Mine in southwest Mali.

"Since starting production at Fekola in late 2017, the mine has exceeded expectations with throughput exceeding 6 million tons per annum (Mtpa), vs. the original design of 4Mtpa (and later increased to 5Mtpa)," the analyst said. "The company recently announced expansion plans to increase capacity to 7.5 Mtpa by 2020 that should see production from the mine exceed 500,000 ounces and extending the mine life through 2030. We forecast BTO consolidated gold production of 950,000 ounces in 2019, up from 630,000 ounces in 2017 largely driven by the ramp-up at Fekola and we expect BTO to be able to sustain 900-950,000 ounces of production from existing operations through 2025.

"On our estimates, BTO is the lowest cost senior producer – we forecast an average AISC [all-in sustaining costs] ($880 per ounce) over 2019-2021 versus its senior peers at $1,000/oz, leading to above-average FCF generation. With over $200 million in FCF in 2019/2020, we estimate BTO could be net cash positive by 2021."

Mr. MacRury maintained a $5 target for B2Gold shares, which falls 17 cents below the average.

"Over the past 10 years, BTO shares have significantly outperformed gold and its mining peers, with a share price CAGR of 16.7 per cent, outpacing the 4.4-per-cent increase in the gold price and negative 5.1% CAGR for the S&P/TSX Gold Index," he said.


In a separate note, Mr. MacRury also resumed coverage of Detour Gold Corp. (DGC-T) with a “buy” rating, citing its “long mine life, low geopolitical risk, improving mine plan, valuation, and potential as a takeout candidate.”

“On the back of the board and management restructuring, prompted by activist shareholder Paulson & Co, we believe there is a possibility that new management will run a process to potentially sell the company although we think this is unlikely in the near term,” he said. "We believe that high costs and limited cash flow are likely to deter a near-term takeout given generally negative investor sentiment towards acquisitions (particularly if dilutive to free cash flow).

"However, in an improving gold price environment, we believe Detour could be attractive to a large North American or Australian producer as the cost profile improves or if operating improvements can be made. In our view, there is a scarcity value for a long-life assets in safe jurisdictions and particularly for one with an improving cost profile. We also believe given its size, for smaller large-cap/mid producers, we believe that Detour could be taken out by one or more partners, similar to the Agnico-Yamana 50/50 acquisition of the Malartic mine in 2014. We believe that a large-cap producer trading at the higher-end of the valuation range could pay up a premium of up to 30 per cent, and while may be dilutive to near term cash flow metrics, would be accretive to NAV."

His target for Detour shares is $16.50, versus the consensus of $16.05.


RBC Dominion Securities analyst Sabahat Khan is expecting few surprises when Gildan Activewear Inc. (GIL-N, GIL-T) releases its first-quarter financial results on May 1.

Though he expects an in-line quarter, he raised his target for the stock after nudging higher his earnings projections for the 2019 and 2020 fiscal years.

"We expect investor focus at Q1 reporting to be on: 1) a potential update to 2019 sales and Adjusted EPS guidance; 2) any updates on the private label initiative, including any new wins that may contribute to 2019 results; 3) the outlook for pricing in the printwear channel as cotton prices trended higher in Q1; and, 4) the outlook for further share repurchases given a relatively moderated level of buyback activity in Q1/19 versus prior comparable periods," he said.

Mr. Khan is projecting earnings per share of the quarter of 15 US cents, meeting the Street. His sales forecast of US$587-million falls narrowly below the consensus forecast of US$600-million.

Those estimates represent year-over-year declines of 56.6 per cent and 9.3 per cent, respectively.

"We expect lower YoY sales, a lower YoY EBIT margin (a drop of 646 basis points YoY; a drop of 280 bps YoY excluding the $21.5-million impairment charge related to the wind-down of a wholesale distributor), and a lower YoY share count to drive our Adjusted Diluted EPS of $0.15, vs. $0.34 last year," he said.

Mr. Khan's 2019 and 2020 EPS estimates increased to US$1.96 and US$2.17, respectively, from US$1.93 and US$2.13.

He kept a "sector perform" rating with a US$34 target, up from US$33. The average on the Street is US$35.60.

"Our $34 price target is based on 15.5 times our 2020 estimated EPS forecast of $2.17," he said. "Our valuation multiple reflects our view that Gildan is increasingly a 'mature' company, with a greater proportion of the total return to investors coming in the form of return of capital versus growth in the underlying operations."


After a “solid” quarter alongside the release of “industry-leading” 2020 guidance, Canaccord Genuity analyst Matt Bottomley thinks a premium multiple is justified for Harvest Health & Recreation Inc. (HARV-CN).

“We would be buyers of HARV at current levels,” he said, calling the Vancouver-based company “one of the leading operators in the space.”

“Harvest announced Q4/18 results that came in a bit ahead of our forecasts on both revenue and adj. EBITDA; however (more importantly), the company also provided pro forma revenue and adj. EBITDA guidance for Q1/19, FY2019 and FY2020, that were all well in excess of our current forecasts (with the high end of FY2020 revenue guidance pegged at US$1-billion),” said Mr. Bottomley. “We believe the bullish sentiment from management telegraphs that the company’s recent acquisitions are likely tracking well in their respective markets with significant contribution from California and Illinois expected to hit the books (pro forma) next quarter.”

Maintaining a “speculative buy” rating for Harvest Health shares, he raised his target to $19 from $17. The average on the Street is currently $20.50.

“Although Harvest now has the greatest number of retail licenses and the second highest revenue run-rate in the industry, we note that HARV currently trades at 14.5 times our revised calendar 2020 EV/EBITDA, still a slight discount to its MSO peer group at 15.0 times,” he said.


In other analyst actions:

RBC Dominion Securities analyst Geoffrey Kwan raised Element Fleet Management Corp. (EFN-T) to “top pick” from “outperform” with a $10 target, rising from $9.50. The average on the Street is $9.81.

RBC’s Neil Downey upgraded First Capital Realty Inc. (FCR-T) to “top pick” from “outperform” with a $25 target, up from $24. The average is $23.93.

Goldman Sachs analyst David Tamberrino initiated coverage of BRP Inc. (DOO-T) with a “neutral” rating and $47 target, which falls short of the $54.60 consensus.


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