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

Canadian Pacific Railway Ltd. (CP-T) reported better-than-expected second quarter results and Desjardins analysts are confident the company will continue to perform.

Analyst Benoit Poirier raised the price target to $330 from $319 and maintained a rating of “hold.” The median analyst estimate is $329.

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“While results were strong and management remains upbeat, CP will be facing tougher comparisons in the second half, suggesting more moderate volume growth. Nevertheless, we remain confident in management’s ability to achieve its double-digit adjusted diluted earnings per share growth target for 2019 (we forecast more than 15 per cent),” Poirier said in a note.

He added that, “CBR carloads grew sequentially by 47 per cent to 25,000 carloads. Management is confident it can reach 30,000 per quarter in the second half of 2019, with further upside assuming a deal between the Alberta government and oil producers is unlocked (decision expected in the fourth quarter).”

“Overall, while we continue to like CP and its growth opportunities in the long term, we believe the stock is fairly valued considering recent signs of global softness and the limited potential return to our current target price.”

Elsewhere, Veritas Investment Research downgraded the stock to a “sell” with an intrinsic value estimate of C$315.

“Achieving the second-half volume growth implied by the company’s full-year guidance could be challenging given the potential for slower economic growth amid uncertainty in the North American (NA) macro environment,” said analyst Dan Fong.

"Based on guidance, we estimate that CP’s 2H-F19 volumes will need to grow by between 5% and 9% over the record second-half volumes of 2H-F18, in order to achieve mid-single digit RTM growth. While we expect CP’s bulk franchise to remain strong, any slowdown in the North American economy is likely to weigh on the company’s ‘merchandise’ shipments, which are largely comprised of inputs and feedstocks used in NA industrial production. Moreover, we note that the company has recently been parking locomotives and reducing associated headcount, which suggests tempered expectations for volume growth.

Although we continue to view CP’s longer-term prospects favourably, the current macro environment is likely to weigh on volume growth in the near-term and make it tougher for the company to exceed market expectations as it has done so many times in the past," Mr. Fong said.

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Industrial Alliance Securities upgraded Computer Modelling Group Ltd. (CMG-T) after the Calgary-based company reported earnings that beat analyst expectations.

Analyst Elias Foscolos upgraded the stock to a “buy” rating from “hold” and maintained its price target of $7.75. The median analyst estimate is $7.38.

Fourth quarter results “beat expectations on higher-than expected prior period and perpetual revenue, which are fairly unpredictable streams. Management noted that there were one-time items which provided a boost to Perpetual sales and are unlikely to occur again going forward. CMG also announced the closing of two commercial CoFlow sales. The increase in the deferred revenue balance was a confidence booster for investors, as it signaled that F2020 should be more or less a flat year,” Foscolos said in a note.

“Our forecast calls for revenue and earnings before interest, tax, depreciation and amortization of $18-million and $8.3-million, respectively, in Q1/F20. The quarter should be sequentially lower. We do not see one-time perpetual sales or prior period annuity revenue boosting results, but a weaker CAD may help a little. We have not included the impact of International Financial Reporting Standards, 16 in our estimates, but we estimate the reclassification of leases will add ~$1.2-million to quarterly EBITDA and ~$55-million to debt.”


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Mackie Research Capital increased its target on Valens Groworks Corp. (VGW-X) on increased extraction capacity and an expanded agreement with Tilray Inc.

Analyst Greg McLeish raised the cannabis processor and product developer’s price target to $8 from $6.75 and maintained a “buy” rating.

In its second quarter results, Valens reported that it increased its annual extraction capacity to 425,000 kilograms of dried cannabis and hemp biomass and plans to boost capacity to more than 1-million kilograms.

“Valens continues to experience significant demand for its services and it is accelerating its growth to ensure that it is able to meet the growing demand of its partners for both extraction and white label product development. Valens also announced that construction has commenced on its recently acquired adjoining facility in Kelowna, British Columbia. This purpose-built facility will significantly increase the company’s footprint and is anticipated to be completed in H1 2020 bringing Valens’ extraction capacity to over 1,000,000 kg per annum. This new facility will also expand Valens’ white label capacity to include capsules, vaporizers, topicals, edibles and concentrates,” McLeish said in a note.

He also noted that Valens expanded the size and scope of its extraction services agreement with Tilray. “Under the initial two-year term of the expanded agreement, Valens will extract on a fee for service basis a minimum annual quantity of 60,000 kg of dried cannabis and hemp biomass, up 300 per cent from the 15,000 kg annual commitment outlined in the original agreement (February 26). In addition, the company may provide contract manufacturing services for tincture bottles and gel caps, with the option to offer contract manufacturing services for other product formats such as vaporizer cartridges and topicals as Health Canada regulations allow.”

“At the end of the second quarter the company had cash and short-term investments of approximately $65.5 mm. This strong financial position will allow the company to increase extraction capacity at its Kelowna facility, to build out the recently acquired adjacent property which will add additional post-processing, product development and white label capacity, and for general corporate purposes.”

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After a first half as one of the “strongest performers across the entire North American cable-telecom complex,” Cogeco Communications Inc.’s (CCA-T) stock was downgraded at CIBC on share price appreciation.

Analyst Robert Bek downgraded the stock to “neutral” from “outperformer” and raised his price target to $109 from $103. The median analyst estimate is $98.50.

“Our view remains positive on fundamentals, given solid momentum continuing across both Canadian and U.S. segments. As such, we would revisit our ranking if the shares were to give back on valuation at some point,” Mr. Bek said in a note.

He added that Cogeco’s stock is up about 63 per cent year-to-date. “The rally was initially fueled by the welcomed sale of the troubled PEER 1 assets [Cogeco’s hosting and cloud services], and has been sustained by improving momentum across its cable operations led by a stabilization at the Canadian cable operators (as the company now looks to be fully behind its unruly CRM [customer relationship management software] roll-out) and continued growth out of the U.S.”

“Throughout our 25+ years covering CCA, its valuation has predominately been pegged to that of Rogers. Over the last decade, CCA shares have traded at between a 1.0x and 2.5x EBITDA multiple discount to Rogers, and we have historically seen opportunity in shares at the upper end of this range, and have been more conservative at the lower end. With the discount today down to 1.2x, and closer to 1.0x when adjusting for IFRS 16 differences, we believe multiple upside at CCA is likely capped in the near term.”

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NFI Group Inc. (NFI-T) is “nearing the end of the company’s negative earnings revision cycle,” according to CIBC.

Analyst Kevin Chiang lowered the Winnipeg-based bus manufacturer’s price target to $41 from $45 but maintained its “outperformer” rating. The median analyst estimate is $50.00.

“We have adjusted our estimates to reflect NFI's revised outlook. With the stock down ~10 per cent on the back of its second quarter delivery update, we are back to the drawing board. Our positive thesis on NFI was predicated on the company benefiting from easier comps in H2 [the second half] as it began integrating its recent acquisition of ADL [Alexander Dennis Ltd., a British bus manufacturer] and moved past a number of cost headwinds and supply disruptions. Unfortunately, a number of the issues the company has been facing over the past year will continue to bleed into H2. The question is whether our underlying thesis has been impaired,” Chiang said in a note.

“We recognize that in order for NFI's share price to benefit from a sustained upswing, the company will need to move past this negative earnings revision cycle. While we had hoped this would begin to occur in H2, this now looks to be pushed out ~6 months. We remain optimistic that NFI is on the cusp of an improving earnings trajectory as it moves past the KMG cost headwinds (~$5-million annualized), the production/supply issues that have impacted MCI and ARBOC in recent quarters, and benefits from (hopefully) easier weather comps this coming winter.”

He added that, “the outlook for transit buses remains healthy despite a softer outlook for MCI [motor coaches] and ARBOC [low-floor cutaway and medium-duty buses]. If we look at 2020E EBITDA, starting from a base of ~$330-million in 2019, adding back the cost headwind from the KMG [Fabrication Inc.] ramp-up and production issues, and including the incremental EBITDA contribution from ADL, we build up to a 2020E EBITDA of ~$360-million-$370-million. While there is some uncertainty around delivery rates (we have assumed lower coach deliveries and flat heavy duty bus deliveries), NFI continues to execute on its LEAN manufacturing to generate incremental cost savings, which provide an offset.”

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DBRS Limited raised the trend on the Long-Term Issuer Rating, Long-Term Deposits and Long-Term Senior Debt ratings of Equitable Bank (EQB-T) to “positive” from “stable” and confirmed each rating at BBB. DBRS also changed the trend on the bank’s Subordinated Debt to “positive” from “stable” and confirmed the rating at BBB (low). In addition, DBRS changed the trend on the Long-Term Issuer Rating and the Long-Term Senior Debt of the bank’s parent, Equitable Group Inc.

“The positive trend and ratings confirmation recognize Equitable’s solid and growing franchise, where the Company is canada’s largest mortgage lender in the Alt-A market niche. Equitable has also successfully launched new lending products that complement its mortgage offering in addition to expanding into adjacent verticals through acquisition. Furthermore, the company continues to attract direct deposits through its digital bank, EQ Bank, while enhancing its wholesale funding channels. While the ratings reflect Equitable’s good asset quality and history of low impairments and charge-offs, the ratings also consider an eventual shift in the current credit cycle and the potential for a housing downturn in Canada,” DBRS said in a report.


In other analyst actions:

Veritas downgraded Canadian Pacific Railway to “sell” with a price target of C$315.

Ladenburg Thalmann initiated coverage on Canopy Growth with a “buy” rating and C$50 price target

Ladenburg Thalmann initiated coverage on Acreage Holdings with a “buy” rating and $18 price target.

Desjardins Securities downgraded Wesdome Gold Mines to “hold” with a price target of C$6.

Canaccord Genuity initiated coverage on Westleaf with a “speculative buy” with a price target of C$1.20.

Paradigm Capital upgraded Yamana Gold to “buy” with a price target of C$5.25.

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