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

Valuing “predictability” and expecting little movement in interest rates, National Bank Financial analyst Maxim Sytchev raised his rating for WSP Global Inc. (WSP-T) on Wednesday.

“All-in, in low $70’s, we don’t believe that investors have to be heroes to buy the shares at these levels,” said Mr. Sytchev, moving the Montreal-based professional services company to “outperform” from “sector perform.”

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Before the bell on Tuesday, WSP reported revenue for the first quarter of $1.66-billion, falling in line with the projections of both Mr. Sytchev and the Street ($1.68-billion and $1.69-billion, respectively). Adjusted EBITDA and earnings per share of $153.1-million and 66 cents also largely met his expectations ($154.7-million and 66 cents).

“We stepped off the gas on WSP ahead of the quarter as relative performance / multiple expansion argument was getting tenuous,” said the analyst. “Looking however at what’s available for a long-term long-only investor in Canada in the industrial space (mid- to large-cap), there is generally a paucity of ideas. Names that are struggling somewhat (such as Stantec), trading at the same multiple as WSP do not make a huge amount of sense to us.”

He pointed to three factors that prompted his upgrade:

- A “strong” performance outside North America. Though he called results in the U.S. and Canada “sluggish,” Mr. Sytchev said he views the “current lull as a temporary break.”

- “The perverse positive side effect from all the trade rhetoric (which does not have much impact on WSP’s actual business given company’s very limited commodity exposure) is the Fed staying put when it comes to interest rate hikes.”

- Though the company is in the first year of a three-year strategic plan, he expects a “sizable” transaction sooner than later. He said: “We are of the view that with the U.S .peers’ pivot towards government support services and cyber (Jacobs, KBR, just publicly-listed Parsons – all unrated; while direct peers are not in a position to undertake anything of size), we believe WSP is in a privileged position now to negotiate a more favourable M&A outcome. Company’s track record of intelligently allocating capital across multiple time-frames and geographies (in addition to its unique shareholder base) must also be worth something.”

Mr. Sytchev raised his target for WSP shares to $79 from $75. The average target on the Street is currently $79.23, according to Bloomberg data.

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Elsewhere, AltaCorp Capital analyst Chris Murray raised WSP to “outperform” from “sector perform” with a $86 target, rising from $71.

“After incorporating, the new IFRS standard into the Company’s earnings and capital structure, we are increasing our 12-month price target to $86.00 from $71.00, previously and with step in our total forecast return to 22.9 per cent, revising our rating to Outperform from Sector Perform,” said Mr. Murray.


In the wake of better-than-anticipated first-quarter results, Industrial Alliance Securities analyst Elias Foscolos raised his rating for Badger Daylighting Ltd. (BAD-T) to “hold” from “buy.”

“Badger delivered an above-expectation quarter for Q1/19, reporting adjusted EBITDA of $33-million, which was 10 per cent above our Street-high forecast,” he said. “Revenue growth in the U.S. combined with labour efficiencies and improved gross margin led to the beat. Previous guidance for 2019 has been maintained at $170-190-million Adj. EBITDA, which we believe is conservative. Commentary on the call suggests that Q2/19 will have some negative impact from wet weather, but demand looks promising heading into H2/19.”

On Monday after market close, the Calgary-based provider of non-destructive excavating services beat the Street by reporting revenue for the quarter of $147-million, driven largely by growth south of the border as Canadian contributions remained flat.

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”Back in 2016, Badger established the corporate objective of doubling its U.S. business in three to five years,” said Mr. Foscolos. “Over 2017 and 2018, the US business grew 75 per cent, and according to our projections, the Company is on pace to achieve this objective in 2019. Cash gross margins is where the Company materially beat our estimate, which led to the 10-per-cent beat in Adj. EBITDA. BAD continues to place emphasis on internal cost efficiency, and is targeting adjusted EBITDA margins in the 28-29-per-cent range. Multi-currency revenue per truck (‘RPT’) was 4 per cent above our estimate due to modest rate increases and improved utilization. Net hydrovac builds were lower than we anticipated, with BAD netting 20 builds after retirements and ending the quarter with 1,241 trucks in the fleet.”

Based on the results as well as IFRS 16 changes and increased margin assumptions, Mr. Foscolos raised his 2019 and 2020 revenue outlook for Badger.

His target for its shares moved to $45 from $41, which falls below the average target of $51.

Elsewhere, Canaccord Genuity’s Yuri Lynk hiked his target to $53 from $47 with a “buy” rating.

Mr. Lynk said: “Badger’s Q1/2019 financial results validated our view that hydrovac excavation is gaining wider acceptance in the U.S. marketplace. Badger is at the forefront of this mega-trend, enjoying 31-per-cent organic growth in the U.S. last year after posting 35-per-cent organic growth in 2017. On a micro level, management is successfully driving EPS growth while proving, along with the Board, to be excellent stewards of capital: In the last year Badger has self-financed 9-per-cent TTM [trailing 12-month] fleet growth, repurchased 3.3 per cent of outstanding shares at an average price 30% below current levels, and increased the dividend 6 per cent.”


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In response to a 31-per-cent drop in 2019 (versus a 17-per-cent rise in the Nasdaq), BMO Nesbitt Burns analyst Tamy Chen upgraded Tilray Inc. (TLRY-Q) to “market perform” from “underperform,” despite expressing caution over its production and regulatory approvals both in Europe and the United States.

Ms. Chen lowered her 2019 and 2020 estimates for the marijuana producer due to a "more gradual ramp of industry production and value-added products in Canada.”

Her target for Tilray shares is now US$50 per share, falling from US$70 and below the US$78.67 consensus.


Wheaton Precious Metals Corp. (WPM-T) is “back, bigger and better” following the removal of a significant overhang with the settlement of its Canadian Revenue Agency tax dispute, according to Industrial Alliance Securities analyst George Topping.

“Wheaton has re-emerged as one of the leading gold-silver equities for generalist investors with the largest GEO portfolio comprising the lower risk streaming model, which limits exposure to capital, operating, and other costs faced by traditional miners,” said Mr. Topping, who initiated coverage of the stock with a “buy” rating in a research report released Wednesday.

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“While GEOs will remain flat in 2019, an average of 6-per-cent year-over-year growth will be seen in 2020/21 led by streams on the Peñasquito and Voisey Bay mines. Acquiring additional accretive streams such as Stillwater and Voisey Bay last year, particularly precious metals focused, would boost the stock further.”

Mr. Topping called Wheaton a “true precious metals play,” noting it offers high exposure with 94 per cent of project net asset value (NAV) tied to gold, silver, and palladium/.

“The portfolio is spread across 19 operating mines and 9 developments projects concentrated in the lower geo-political risk Americas and Europe,” he said. “A significant 40 per cent of NAV is tied to streaming assets operated by Vale including the Brazilian Salobo (top asset), and the Canadian Voisey Bay (top growth asset), and a collection of Sudbury mines. Revenue will continue to be predominately generated by precious metals (iAS 2023 estimate: 95 per cent PM), even with the addition of a cobalt stream starting in 2021.”

Comparing Wheaton to rival Franco-Nevada Corp. (FNV-T), Mr. Topping said: “Comparing the two larger royalty/streaming players, Wheaton has a larger GEO portfolio that will continue to grow larger than Franco in the coming years. However, the two companies produced near identical operating cash flow in 2018, and going forward Franco will produce more cash with less GEOs in its portfolio. The reason behind this is Franco’s roughly 20 per cent weighting in O&G assets, and a mix of royalties (no ongoing transfer payment) and streams (as opposed to Wheaton’s exclusively stream-based portfolio) allowing it to match Wheaton in terms of revenue and outpace Wheaton in terms of EBITDA going forward.”

Believing Wheaton is “still discounted, but not for long,” Mr. Topping set a $35 target for the stock. The average is currently $37.61.

“With the CRA tax cloud overhang removed, Wheaton has undergone a re-rating with the stock rising 24 per cent since the settlement announcement,” he said. “However, the stock is still undervalued and there is still plenty of upside. While GEOs will remain essentially flat this year, the portfolio will grow by 8 per cent year-over-year in 2020 and 3 per cent in 2021 led by the fully ramped up pyrite leach expansion at Peñasquito and the underground Voisey Bay stream coming into the fold (2021). Wheaton currently trades at a 17 times price-to-cash flow multiple on our average 2019-23 CFPS which is a seven-point discount to our valuation multiple of 24 times. Management made two large acquisitions last year including a $500-million deal on a gold/palladium stream at the Stillwater mine and a $390-million deal on a cobalt stream at the Voisey Bay mine. Adding large accretive streams like these this year, in the precious metals category in particular, would boost the stock further.”

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Though “some turbulence has recently returned to the share price,” Citi analyst Stephen Trent thinks there’s “no good reason to question” Bombardier Inc.’s (BBD-B-T) operational turnaround story.

“As the market also seems to be ignoring the global transport segment’s consolidation potential, investors should be taking a second look at the shares, especially as they remain relatively underappreciated,” said Mr. Trent in a research note released late Tuesday.

The analyst made slight adjustments to his earnings expectations to account for “slightly lower, expected transportation segment throughput, some margin recovery from intra-segment sales mix improvements, higher net interest expense and 1Q’19 results.

“As Citi’s estimates had not previously considered the US$532-million disposition of the company’s training business in 1Q’19, working this leverage reduction into a higher fair value seems a little unfair,” he said. “For this reason, and considering 2019 estimated EBITDA remaining virtually unchanged, we reduce the forward EV/EBITDA target multiple from 9.9 times to 9.3 times, now at the lower end of our 9 times to 10-times fair value range on the shares.”

Mr. Trent maintained a “buy” rating and $3.40 target. The average on the Street is $3.85.

“On the back of what has been a busy investment cycle, Canadian plane- and train manufacturer Bombardier should be settling down to focus on selling Global 7500s, pursuing transport contracts outside of the EU and generating a higher ROI off of its aerospace services business,” he said.


BSR Real Estate Investment Trust (HOM-U-T) is only starting to receive market recognition for the results of its first year as a publicly traded company, said Industrial Alliance Securities analyst Brad Sturges.

“BSR has executed on all strategic fronts, including consistently generating quarterly operating results above its IPO forecasts,” said Mr. Sturges in a research note reviewing the Arkansas-based REIT’s better-than-expected quarterly results.

“We believe that investors are only starting to recognize BSR for its operating achievements to date. BSR’s valuation relative to its underlying multifamily real estate value and to its Canadian-listed and US multifamily REIT/REOC peers continues to provide a compelling investment opportunity at current levels.”

Maintaining a “strong buy” rating, Mr. Sturges raised his target to US$11.50 from US$10.50. The average is US$11.47.

“Our Strong Buy rating for BSR mainly reflects expectations for relatively stable cash flow generation with moderate growth prospects over time due to its ownership focus of Class B US multifamily communities, its attractive exposure to growing US Sunbelt property markets, BSR’s fully internalized asset and property management trust structure with a significant retained interest by insiders, its relative discount valuation, and the potential for future distribution increases over time,” he said. “These investment considerations are partly offset by investment risks that include high geographic concentration, foreign currency exposure, and low unit liquidity risks.”

Meanwhile, Desjardins Securities analyst Kyle Stanley thinks BSR brings “growth at a very reasonable price.”

“1Q19 results were consistent with expectations,” he said. “We expect some near-term FFO [funds from operations] dilution on the back of the post-quarter asset dispositions; however, we encourage investors to focus on the REIT’s ongoing portfolio high-grading exercise, healthy organic growth profile and discounted valuation.”

With a “buy” rating, Mr. Stanley increased his target by 50 US cents to US$12.


Canaccord Genuity analyst Scott Chan is expecting slower earnings per share growth for Canadian banks in the second quarter, projecting the group to average 4-per-cent year-over-year growth.

“We have made modest adjustments heading in the quarter with a net neutral impact to FQ2 EPS,” he said. “At the high end, we forecast above-average growth at BMO and TD and below-average growth at BNS and CM. Strong U.S. Mega bank Q1/19 reporting should be supportive of BMO and TD. We expect FQ2 loan growth, NIM, and PCL ratio to be constructive.”

“For FQ2, we are slightly above Street expectations for CM (3 per cent), BMO (2 per cent), and TD (2 per cent) and below consensus on BNS, RY, CWB, and LB (all by down 1 per cent). YTD, we note that annual EPS (F19E / F20E) consensus expectations have declined. Similar to last quarter, we could see further downside revisions that reflect a tougher macro environment (e.g. U.S.-China trade).”

In a research note previewing the quarter, Mr. Chan lowered his target price for shares of several banks:

Bank of Montreal (BMO-T, “buy”) to $111 from $113. Average: $107.44.

Bank of Nova Scotia (BNS-T, “hold”) to $74 from $76. Average: $79.

Canadian Imperial Bank of Commerce (CM-T, “buy”) to $121 from $125. Average: $123.64.

Laurentian Bank of Canada (LB-T, “sell”) to $34 from $35. Average: $41.44.

National Bank of Canada (NA-T, “hold”) to $65 from $67. Average: $66.

Royal Bank of Canada (RY-T, “hold”) to $105 from $108. Average: $109.26.

Toronto-Dominion Bank (TD-T, “buy”) to $82 from $84. Average: $81.38.

“Since Q1/F19 bank reporting (Mar. 7), Canadian bank stock performance has been mixed with average gains of 0.5 per cent (relatively in line with the TSX Composite),” he said. “Year-to-date, Canadian banks have rebounded from Q4/18 levels increasing on average 11.8 per cent, slightly below the TSX of 13.1 per cent. BMO shares have led returning 17.6 per cent (our top pick at start of year), while BNS stock has trailed with a return of 5.8 per cent.

“Currently, the Big-6 banks trade at 9.8 times our NTM [next 12-month] EPS, below its historical average of 11.1 times. Over the past decade, Bank group NTM P/E (avg.) have generally ranged between 7-13 times. At this part of the market cycle, we are relatively cautious on Bank shares heading into the quarter and point to the Group trading at P/E (NTM) of 9 times during Q4/18 global equity market declines.”


In other analyst actions:

Cormark Securities analyst Jesse Pytlak upgraded CannTrust Holdings Inc. (TRST-T) to “buy” from “market perform” with a $10 target, falling from $11 and below the consensus of $13.34.

Bloom Burton & Co analyst David Martin raised CannTrust to “buy” from “accumulate” with an $11 target (unchanged).

“With TRST stock declining 25 per cent since we downgraded it to ACCUMULATE on March 29, we are once again upgrading the name," said Mr. Martin.

JPMorgan analyst Jamie Baker downgraded WestJet Airlines Ltd. (WJA-T) to “underweight” from “neutral” with a $31 target, rising from $20. The average on the Street is $28.21.

TD Securities analyst Brian Morrison downgraded Aimia Inc. (AIM-T) to “hold” from “speculative buy” with a $5 target. The average is $4.85.

Cormark’s Kyle McPhee upgraded Clearwater Seafoods Inc. (CLR-T) to “buy” from “market perform” with a target of $6.25, rising from $6. The average is $7.06.


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