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

Though he remains upbeat on the long-term potential for DIRTT Environmental Solutions Ltd. (DRT-T), Industrial Alliance Securities analyst Neil Linsdell lowered his rating for its stock following a guidance reduction announced Tuesday after the bell, seeing “further manufacturing optimization tempering enthusiasm until DIRTT demonstrates sustained growth and profitability improvements.”

“Management started 2019 with guidance of 5-10-per-cent growth in revenue in 2019,” said Mr. Linsdell. "While below the 10-20-per-cent range that investors had become accustomed to, the guidance was considered to be a sign that the new management team would be cautious in setting expectations and reflective of the fact that the operations were being restructured in order to deliver higher and more sustainable growth in 2020 and beyond. This guidance range was confirmed with Q2 results on July 30, although investors were cautioned that growth would be at the lower end of the range. [Tuesday] night, the Company reduced expectations again such that 2019 revenue will now be comparable to 2018 revenue due to the loss of certain expected projects and the deferral from 2019 to 2020 of other projects.

"We had already been expecting Adj. EBITDA to decline from 2018 to 2019, but management is now confirming that one-time costs, lower gross margin and FX losses, partially offset by IFRS16 benefits, will lead to a decline in Adj. EBITDA into 2019. One-time costs include previously disclosed expenses of $2.6-million in sales & marketing consulting fees, $2.0-million in U.S. listing costs, and other operational consulting costs, most of which ($1.7-million, $1.4-million, and $1.4-million) have already been accounted for in 2019."

Moving the stock to “sell” from “hold,” he dropped his target price to $5.75 from $7.75, which suggests a negative 15-per-cent return. The average target on the Street is $9.46.

“We remain cautious and await the presentation of the Company’s strategic plan and longer-term outlook in November,” he said.

Elsewhere, Raymond James analyst David Quezada lowered DIRTT to “outperform” from “strong buy" with a target of $8.50, down from $10.

Mr. Quezada said: “We believe our thesis is intact and maintain conviction that DIRTT is a disruptive company with a long potential growth runway. However, given the degree of required changes to DIRTT’s go to market strategy we believe a more conservative view of revenue ramp up is appropriate over the next 12-18 months. Accordingly, we are notching our rating down to Outperform.”


Believing its current price is “sufficiently low for us to look past near-term weakness in bookings activity,” TD Securities analyst Aaron MacNeil upgraded Enerflex Ltd. (EFX-T) to “buy” from “hold” on Wednesday.

However, the analyst reduced his target for the stock by a loonie to $18, pointing to a weaker sector outlook as cost of equity rises. The average on the Street is $20.95.

Citing an “unrivaled value opportunity” in the Canadian energy sector, Mr. MacNeil also upgraded Precision Drilling Corp. (PD-T) to “action list buy” from “buy” with a target of $4.50, falling from $5 but ahead of the consensus of $3.73.

Expressing a positive view on its free cash flow yield, Mr. MacNeil also sees chance to build a position in Precision based on its likely removal from S&P/TSX Composite index as part of a Sept. 20 review.


The Alberta government’s extension of its oil production curtailment program was hardly a surprise, according to Citi analyst Prashant Rao.

However, he lowered his estimates for TSX-listed energy stocks in his coverage universe, pointing to the firm’s overall lower price assumptions as well as operational expectations following the second quarter.

"We remain constructive on the current Albertan strategy resolving intermediate-term bottlenecks," said Mr. Rao. "Our view for curtailments ending mid-2020 remains unchanged, but we are modestly reducing the slope of our expected CBR ramp. Our view for resumed production growth in 2H20 remain unchanged."

Mr. Rao lowered his third-quarter funds from operations per share projections by 18 per cent, while his full-year expectations dipped by 8 per cent. However, he estimates a 2-per-cent improvement in fiscal 2020, driven largely by his Cenovus Energy Inc. (CVE-T) estimates.

His earnings per share projections for the third quarter and 2020 fell by 35 per cent and 25 per cent, respectively.

Despite seeing Suncor Energy Inc. (SU-T) as his top pick in the sector, Mr. Rao reduced his target to $55 from $59 with a “buy” rating. The average on the Street is $53.20.

"Given a view for lower oil prices and some widening on Canadian heavy differentials ahead, SU’s structural defensiveness due to high integration and relatively low capex remain attractive," he said. "Even at our moderated commodity and refining margin forecasts, current share price now reflects a 10-per-cent-plus FCF yield, 6.0 times EV/DACF for 2020/2021, and 1.3 times P/B for 13 per cent trailing 12-month ROE, while dividend yield is 5 per cent and annualized buyback looks to be 4 per cent of market cap. Balance sheet remains unstressed at 1.1 times EBITDA leverage (33-per-cent net debt to cap) even in the 2H20 trough for our oil price assumptions."

Mr. Rao also reduced his target price for shares of Husky Energy Inc. (HSE-T) to $9.50 from $14 with a “neutral” rating. The average on the Street is $14.10.

Mr. Rao said the change "more appropriately discounts elevated execution risks and project delays, in addition to our lowered commodity price assumptions."

“Ultimately, our updated valuation puts a greater discount on both the pace of longer-term CF growth as well as terminal value in our DCF,” he said. “Current market share price levels appear to be applying a similar discount.”

He maintained a “buy” rating and $13 target (versus a $14.80 average) for Cenovus.

Mr. Rao also kept a “neutral” rating and $36 target for Imperial Oil Ltd. (IMO-T). The average on the Street is $39.10.


Calian Group Ltd. (CGY-T) is “adding growth and M&A upside to an attractive dividend yield,” said Canaccord Genuity analyst Doug Taylor.

Believing the Ottawa-based company is “leveraging a core foundation as a concentrated play on Canadian government services outsourcing into a more diversified technology story,” Mr. Taylor initiated coverage of the stock on Wednesday with a “buy” rating.

“Calian’s roots are in outsourced services for the Canadian government, which represents a significant portion of its revenue (approximately 68 per cent),” he said. "While highly concentrated, our tours of Calian’s operations reinforced our view that Calian’s infrastructure and expertise supporting these contracts would be difficult for competitors to replicate. Calian’s status as one of the few Canadian-based solution providers also makes it an attractive way to play the trend of growing Canadian budgets. We note several recent positive contract announcements with various agencies of the Canadian government providing strong visibility.

“The portfolio includes some assets with underappreciated growth prospects. In addition to its business with the Canadian government, Calian has several business lines which are poised to benefit from strong industry trends.”

Emphasizing its growth strategy is focused on both organic expansion and M&A as well as possessing “disciplined” capital allocation and an under-levered balance sheet, Mr. Taylor set a target of $40, which exceeds the consensus on the Street of $39..

“The combination of a better organic growth profile, accretive M&A optionality, a 3.2-per-cent dividend yield and an inexpensive valuation (9.1 times next 12-month consensus EBITDA) produce an attractive return profile, in our opinion,” the analyst said.

“In recent years, Calian has seen its valuation expand, which we attribute to better recognition as a capital allocator and overall organic growth. While liquidity remains low, we believe that there is still room for multiples appreciation based on where peers trade (CGY 9.1 times EV/NTM consensus EBITDA vs. peers 11.8 times).”


Osisko Gold Royalties Ltd.'s (OR-T, OR-N) agreement with Mantos Copper S.A. to enhance its existing Silver Purchase Agreement for 100 per cent of the silver produced from the Mantos Blancos copper mine in Chile provides “additional upside" as silver prices starting to move higher, according to Haywood Securities analyst Kerry Smith.

Following Tuesday’s announcement, Mr. Smith raised his net asset value assumption for the mining royalty and streaming company, leading him to increase his target for Osisko shares to $19.50 from $17. The average on the Street is $17.73.

Recommending investors accumulate shares at current levels, he maintained a “buy” rating.

Raymond James analyst Brian MacArthur raised his target to $18 from $17.50, keeping an “outperform” rating.

Mr. MacArthur said: “We believe OR offers investors a high-margin business with growth, a flexible balance sheet, as well as a diversified portfolio of exploration companies with low jurisdictional risk.”


Pointing to a “stronger conviction that the company’s restructuring efforts and investments in core games like Call of Duty and World of Warcraft will generate an improvement in financial performance,” BMO Nesbitt Burns analyst Gerrick Johnson raised his rating for Activision Blizzard Inc. (ATVI-Q) to “outperform” from “market perform."

His target for the stock jumped to US$60 from US$43. The average on the Street is US$54.48.

“We also think that, as investors get more comfortable with the turnaround story and as new catalysts develop, ATVI’s valuation multiple will expand,” said Mr. Johnson.


In other analyst actions:

Roth Capital Partners analyst Scott Fortune initiated coverage of Columbia Care Inc. (CCHW-NE) with a “buy” rating and $10.50 target. The average is $15.17.

With files from Bloomberg News

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