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

Following the release of “weak” third-quarter financial results after the bell on Tuesday, Raymond James analyst Steven Li said he expects 2020 to be another transition year for Sierra Wireless Inc. (SWIR-Q, SW-T).

Accordingly, he lowered his rating for the B.C.-based tech company to “market perform” from “outperform.”

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“SWIR is pivoting towards a stronger business model (more recurring services, higher margin),” he said. “2019 was a substantial investment year for the company which we expected but now it looks like 2020 will also be in transition with revenues flattish at best (as IoT growth is offset by PC-OEM declines and VW delays). Shares inexpensive but with few catalysts near-term, we are moving to sidelines for now.”

Sierra reported sales for the quarter of US$174-million, down 14.5 per cent year-over-year and below the US$191-million consensus estimate on the Street. Internet of Things revenue dropped 2.1 per cent to US$93.4-million, despite the expectation for a “strong” second half of the fiscal year.

With the results, the company lowered its revenue and adjusted EBITDA guidance to US$708-712-million and US$23-million, respectively, from US$755-million and US$35-million.

Mr. Li lowered his target for Sierra shares to US$13 from US$20. The average target on the Street is US$12.20, according to Bloomberg data.


Expressing confidence in its outlook despite a lack of clarity around its fourth quarter, JP Morgan Chase analyst Jamie Baker moved his rating for Air Canada (AC-T) to “overweight” from “neutral.”

Expecting the airline to increase buybacks, Mr. Baker raised his target to $59 from $50. The average is $56.27.

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In the wake of the release of weaker-than-expected third-quarter results that fell short of his Street-low forecast and a reduction to its guidance, Industrial Alliance Securities analyst Elias Foscolos sees “conflicting signals” from Badger Daylighting Ltd. (BAD-T), leading him to “move to the sidelines” and downgrade its stock to “hold” from “buy.”

On Tuesday after the bell, the Calgary-based company, which provides nondestructive hydrovac excavation services, reported revenue revenue for the quarter of $184-million, falling short of the projections of both Mr. Foscolos ($187-million) and the Street ($193-million).

Canadian revenue fell 5 per cent year-over-year to $37-million, meeting the analyst’s projection, while U.S. revenue of $146-million fell short of his estimate of $150-million despite rising 13 per cent form the previous year.

"The year-over-year decline in Canadian revenue will likely not surprise investors, but U.S. revenue was lower than expected due to carryover effects from adverse weather in the previous quarter," said Mr. Foscolos.

Adjusted earnings before interest, taxes, depreciation and amortization of $50-million also missed the expectations of the analyst and the Street ($51-million and $54-million, respectively).

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At the same time, Badger lowered its 2019 EBITDA guidance to $155-$170-million from $170-$190-million. It also introduced its 2020 expectation of $175-195-million.

“BAD’s Q3/19 results came in as we expected, but below consensus,” he said. “Surprisingly, the Company has opted to reduce its 2019 EBITDA guidance range, which will cause forecast resets. Furthermore, BAD’s 2020 EBITDA guidance of $175-195-million is below our previous forecast and consensus, and we view increasing truck builds in the face of decreasing utilization as a conflicting signal.”

After reducing his financial estimates based on the release, Mr. Foscolos reduced his target price for Badger shares to $40 from $43. The average on the Street is $53.06.


Canaccord Genuity analyst Kimberly Hedlin downgraded her rating for shares of Delta 9 Cannabis Inc. (DN-X) to “hold” from “speculative buy” following the announcement of selected third-quarter results, which including a decline in revenue from the previous quarter.

After the bell on Tuesday, the Winnipeg-based company said it expects revenue to be between $6.3-million and $6.9-million, up from $1.25-million during the same three-month period a year ago but well below Ms. Hedlin’s $13.5-million expectation. It reflects a quarter-over-quarter decline of 22-29 per cent relative to second-quarter sales of $8.9-million.

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“Currently, it is unclear whether revenue weakness was isolated to a particular business unit or prevalent across DN’s three operating segments,” the analyst said.

Production volume of 871,516 grams also missed Ms. Hedlin’s projection (900,000). However, she deemed the result, which is a rise of 29 per cent from the second quarter, “decent.”

“While the company did not provide details surrounding its sales performance, it does not appear that wholesale production was the issue, given that volumes showed solid growth and were within 3 per cent of our estimates. As such, we suspect the revenue decline relates to sales flow-through and potentially pricing softness,” she said.

Ahead of the Nov. 13 release of its full results, she lowered her target for Delta 9 shares to 60 cents from $1. The average on the Street is $1.80.

“We will be looking for additional colour on anomalies in the quarter, strategic plans and the outlook for the coming months. While we expect timing and inventory issues may have been a factor in the quarter, we believe the company’s preliminary results may also signal broader revenue weakness within the Canadian LP group for Q3/19,” said Ms. Hedlin.


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Raymond James analyst Ben Cherniavsky lowered his rating for Finning International Inc. (FTT-T) to “market perform” from “outperform” on Wednesday, expressing concern about its valuation as its shares “drift higher.”

“Investors who follow our research will know that our favourable view of Finning’s shares over the past few months has been deeply rooted in valuation,” he said. "Beginning with our Aug. 8 upgrade ... we noted that ‘the 2019 P/E multiple for Finning has compressed to just 12 times, [while] other valuation metrics that we track similarly suggest that the market is already discounting many end market headwinds.’ Shortly thereafter we doubled-down on this call, with our Sept. 4 Brief ‘Thoughts on Valuation as Shares Drift Lower.’ Therein, we highlighted how our CABGM model was sending a very strong buy-on-weakness signal as Finning’s shares drifted down to $21.50. This tool, once again, proved to be very reliablewith the stock recovering 19 per cent in the two months since then (vs. 2 per cent for the TSX). Similarly, Finning’s shares are up 11 per cent from the said upgrade that followed the 2Q19 print (vs. 3 per cent for the TSX).

“Not to split hairs over three or four dollars, but in the spirit of remaining disciplined on valuation we are compelled to revisit our thesis at this higher price point, especially as it has come with a deterioration in end market demand and a reduction to our EPS estimates. Finning, after all, remains a trading stock that is still aspiring to become a compounder. While there are reasons to believe that those aspirations may one day be realized, a lack of near-term catalysts, a projected deceleration of growth into 2020, and elevated inventory and debt levels--all combined with a higher P/E multiple--force us to downgrade our rating back to Market Perform.”

The move comes after Tuesday’s release of third-quarter results that fell short of his expectations.

The Vancouver-based Caterpillar dealer reported earnings per share of 46 cents, falling short of the 50-cent expectation from both Mr. Cherniavsky and the Street.

With the result, he lowered his 2019 and 2020 EPS estimates to $1.81 and $1.90, respectively, from $1.88 and $2.

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He also reduced his target for Finning shares to $26.50 from $28. The average on the Street is $27.80.


National Bank Financial estimate Maxim Sytchev is “staying long” on both Finning (FTT-T) and Toromont Industries Ltd. (TIH-T) following the release of their third-quarter financial results, suggesting “perhaps the cycle has more legs to it.”

“News around agreements in principal on trade resolution between the U.S. and China has clearly shifted sentiment on industrial names; Caterpillar Inc. (CAT-N) shares are up almost 9.0 per cent from pre-Q3 levels despite missing consensus estimates and cutting guidance,” he said.

Emphasizing its direct exposure to Latin America, which contributes 30 per cent to its top line, Mr. Sytchev thinks Finning is the "best way" in his coverage universe to play the trade resolution.

“A trade deal should help lift copper prices closer to $3.00-per-pound levels when global growth (and specifically China, the largest consumer of copper) was growing at a much faster rate,” he said. “Sustainable copper pricing at those levels should help investment decisions for the major mining players. Flat growth next year (ex-trade resolution) is not the worst outcome given macro headwinds and lowered expectations; some oil & gas / mining green shoots (ex-trade resolution) give us some level of confidence that we will in fact see some level of top line growth in 2020. Parts momentum in Chile has also stabilized yet the shares sit well below pre-ERP levels (despite the share price jump the shares trade at 12.1 times) and have dislocated from CAT shares in recent quarters.”

Pointing to improved trade sentiment, he raised his target for Finning shares to $29.50 from $28, keeping an “outperform” rating. The average is $27.80.

“We lowered our revenue forecasts for Q4/19E and 2020E slightly on management’s more modest assessment of the current market condition (AB construction remains weak, ON forestry is seeing reduction, Chile and the UK remain hotspots for political uncertainty); management is calling for flat revenue in 2020E, we are modelling 1.1 per cent,” the analyst said. “That being said, post-ERP Finning’s cost base is much lower, and we expect margin improvements in 2020E; hence, adjusted EBITDA margin moves to 11.6 per cent from 11.3 per cent prior.”

Concurrently, following a “solid” quarter, he also hiked his target for Toromont to $79 from $71 with an “outperform” rating. The average on the Street is $72.96.

“Toromont is one of the few industrial names that is 'predictable’ against an uncertain macro backdrop,” said Mr Sytchev. "35-per-cent top-line exposure to a buoyant QC market provides visibility for growth; and recall the exposure came via one of the best capital allocation decisions – Hewitt acquisition.

"Heading into the quarter, TIH shares were quietly gaining momentum; recent news flow on U.S. / China ceasefire is adding fuel to the fire. Now that elections in Canada are done and dusted, we expect infra spend to gradually pick up (particularly in ON where we have seen a temporary lull this year). The 6.7-per-cent consensus revenue growth is not fully accounting for ON rebound which in our view is just an eventuality. In addition, mining remains a free option as we have heard from both CAT and TIH that the industry is in the early stage of a multi-year recovery.

“[We] note that shares are now trading in the same range as was the case in early 2016 (before the Hewitt transaction). However, today’s Toromont is a much bigger entity, has a more seasonally balanced platform and is more geographically diverse. Revenue visibility is favourable (Product Support is very sticky despite New Equipment headwinds) and rental penetration is still in its infancy (versus the overall market size).”


Despite releasing weaker-than-anticipated quarterly results, Desjardins Securities analyst Gary Ho thinks “ample growth opportunities lie ahead" for goeasy Ltd. (GSY-T).

On Tuesday, the Mississauga-based alternative financial company reported earnings per share for the third quarter of $1.28, below both Mr. Ho’s $1.37 estimate and the $1.41 consensus expectation on the Street. Operating income of $42.6-million also fell short of projections ($42.8-million and $43.4-million, respectively).

“While 3Q results missed expectations, management’s justification for the higher bad debt expense was well-explained, in our view, and eased our concern,” said Mr. Ho. “We are encouraged by the POS opportunity and progress on the Quebec expansion. With its amended credit facility, GSY has financial flexibility for growth out to 1Q21.”

Mr. Ho lowered his EPS estimate for 2019 to $5.06 from $5.23, however his 2020 projection rose to $6.77 from $6.61.

Keeping a “buy” rating, his target for goeasy shares jumped to $72 from $67, which $75.43.

“Our investment thesis is predicated on: (1) management executing on targets given its track record of meeting/exceeding past targets; 2021 guidance sees the loan book at $1.5–1.7-billion; (2) with the exit of two incumbents, the non-prime consumer lending market is underserved (particularly in Quebec); (3) with scale, the business could generate 26 per cent or more ROE; and (4) we expect double-digit dividend growth in the next few years,” the analyst said.


In the wake of a “tough” quarter, Scotia Capital analyst Gavin Wylie lowered his rating for Gran Tierra Energy Inc. (GTE-T) to “sector perform” from “sector outperform.”

On Tuesday, the Calgary-based company, which focus on Colombia, reported production of 32,918 barrels of oil equivalent per day, down 7 per cent from the previous quarter and below both the consensus estimate (34,158 boe/d) and Mr. Wylie’s projection (35,475 boe/d).

He pointed to lower production and higher interest costs as the primary contributors a cash flow per share miss (16 cents versus Mr. Wylie’s 20-cent estimate).

“Our base 2020 outlook would suggest a much lower FCF level versus Gran Tierra’s guidance that leaves us more cautious into next year,” said Mr. Wylie. “We also see additional funds flow headwinds in the coming months, with the threat of TSX Composite Index deletion and year-end tax loss selling acting as additional negative near-term catalyst.”

His target for the stock slid to $2.25 from $3.50. The average on the Street is $3.30.


In other analyst actions:

TD Securities analyst Timothy James raised Maxar Technologies Inc. (MAXR-N, MAXR-T) to “speculative buy” from “hold” with a US$15 target, up from US$9.50. The average on the Street is US$11.06.

MKM Partners analyst William Kirk upgraded Curaleaf Holdings Inc. (CURA-CN) to “neutral” from “sell” and increased his target by a loonie to $6. The average is currently $16.54.

National Bank Financial analyst Greg Colman cut Black Diamond Group Ltd. (BDI-T) to “sector perform” from “outperform” with a $2.25 target, dipping from $2.60 and below the $2.78 average.

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