Inside the Market’s roundup of some of today’s key analyst actions
Following its Investor Day event in New York on Tuesday, Industrial Alliance Securities analyst Jeremy Rosenfield sees catalysts in place to drive higher shares of Enbridge Inc. (ENB-T, ENB-N).
“From a high-level perspective, at its 2019 investor day ENB reiterated its strategic focus on self-funded organic growth in core, low-risk regulated/contracted energy infrastructure businesses,” he said. “Over the near term, management emphasized (1) optimizing its base businesses, and (2) executing on its secured growth program, before turning to (3) organically growing the business in the post-2020 timeframe.”
Concurrent with the event, the Calgary-based energy transportation company released its 2020 guidance, which largely fell in-line with Mr. Rosenfield’s expectations, and, as expected, raised its quarterly dividend to 81 cents from 73.8 cents.
“Management was clear that its capital allocation priorities remain toward (1) a strong balance sheet, (2) returns to shareholders, and (3) growth,” said the analyst. “However, there was much discussion about returns to shareholders (dividends vs. buybacks), and we came away from investor day with the sense that ENB would consider buybacks following COD on the U.S. portion of L3R, if the public market does not adequately value ENB at that time. Stay tuned.”
Mr. Rosenfield maintained a “strong buy” rating and $65 target. The average on the Street is $55.56, according to Bloomberg data.
“ENB offers investors (1) stable earnings and cash flows, (2) visible, low-risk organic growth (5-7 per cent per year discounted cash flow per share growth, compound annual growth rate 2019-24), driven by $11-billion of secured investment (2020+), including L3R, (3) upside associated with $5-6-billion per year of longer-term growth initiatives, and (4) attractive income characteristics (6-per-cent yield and long-term DPS growth in line with cash flow growth),” he said. “We believe that the shares have been negatively impacted by legal/regulatory issues that will be sorted out in due course. In the meantime, we believe that the shares remain attractively priced at the current level given the risk/reward profile.”
Meanwhile, Credit Suisse analyst Andrew Kuske kept a “neutral” rating and $55 target.
Mr. Kuske said: “Clear risks exist with ENB’s favourable WCSB liquids pipelines business around approval timelines; however, that business is well positioned for growth and de-risking over the next 6-24 months.”
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A day after the FDA Cardiovascular and Renal Drugs Advisory Committee turned down approval of its Brinavess heart drug, HC Wainwright & Co LLC analyst Ramakanth Swayampakula cut Correvio Pharma Corp. (CORV-T, CORV-Q) to “neutral” from “buy.”
“Taking into account of the negative panel vote and the FDA’s overall negative opinion in the briefing document, we believe Brinavess is unlikely to receive the U.S. approval based on its current NDA data package,” he said. “As a result, we are removing future Brinavess U.S. revenues from our model and lowering our rating of CORV.
"Given limited visibility of the company’s business strategy beyond Brinavess’ regulatory decision, at this time we are not comfortable enough to determine a specific price target.”
The average target on the Street is $3.80.
Meanwhile, Echelon Wealth Partners analyst Douglas Loe cut the stock to “hold” from “buy” with a target of $2.32, down from $7.31.
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Citing continued exploration success at its Kiena Mill Complex in Val d’Or, Que., Industrial Alliance Securities analyst George Topping raised his target price for shares of Wesdome Gold Mines Ltd (WDO-T).
On Tuesday after the bell, the Toronto-based miner announced the latest results from the ongoing underground definition and exploration drilling at its 100-per-cent owned mine.
“Kiena drilling continues to return highly economic widths and grades and remains open,” said Mr. Topping. "We have comfort in increasing the modelled throughput from our 1,500 tons per day (tpd) prior to 1,800 tpd, resulting in a small increase in our target from $9.70 per share to $10.00 per share. Between Kiena and Eagle, Wesdome will be a 200-270,000 ounce producer at sub-US$1,000 AISC, possibly as soon as three years.
“The Eagle mine covers exploration costs and management is advancing Kiena to one of the cheapest, quickest restarts available in the industry. Exploration should outline our estimated 1.2-1.5 million ounces at 10-12 grams pet ton prior to restart, enough to support an annual production rate of 150,000 ounces growing to 200,000 ounces per annum as exploration progresses.”
Keeping a “buy” rating, he increased his target to $10 from $9.70. The average on the Street is $9.11.
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Mainstreet Equity Corp. (MEQ-T) is “finishing 2019 on a strong note,” said AltaCorp Capital analyst Chris Murray.
On Tuesday, the Calgary-based company reported fourth-quarter results that exceeded his expectations. Revenue and funds from operations per share of $36.6-million and $1.29, respectively, topped his estimates of $35.9-million and $1.29.
“We view the release positively, with the Company continuing to report strong results and with the favourable transaction metrics of Starlight Investments ’ (Private, not rated) recent acquisition of Continuum Residential Real Estate Investment Trust (Private, NR) informing our thinking on the Company’s value," said Mr. Murray.
With an “outperform” rating, he raised his target for Mainstreet shares to $90 from $70. The average on the Street is now $81.
“With what appears to be a stabilizing Alberta market coupled with the ability to grow through acquisition, we continue to be positively biased in our outlook for Mainstreet,” he said. "We believe recent share price performance is reflective of our position, with price to book multiples retracing higher and the gap between the Company and its peers slowly closing, noting that price to funds from operations (FFO) multiples are also showing signs of a recovery. While we expect that price to book will structurally remain below 1.0 times for the property classes that MEQ owns, we believe an improving environment and falling capitalization (cap) rates are likely to see average multiples increase, in-line with experience prior to the recent Alberta downturn and above the long-run average of 0.66 times. “Despite the fact that the Company’s portfolio remains anchored in Western Canada, we see room for cap rate improvement, particularly in Surrey B.C. given the potential for new transit corridors and in Edmonton near the Ice District redevelopment.”
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Barclays analyst Matthew Murphy made a quartet of rating changes to Canadian mining companies on Wednesday.
He upgraded Barrick Gold Corp. (GOLD-N, ABX-T) to “overweight” from “equal- eight” with a US$20 target, rising from US$18. The average on the Street.
He also raised Agnico Eagle Mines Ltd. (AEM-N, AEM-T) to “overweight” from “equal-weight” with a US$70 target, rising from US$53 and exceeding the average of US$69.40.
Mr. Murphy lowered Lundin Mining Corp. (LUN-T) to “equal-weight” from “overweight” with a $7 target, down from $8 and below the average is $8.91.
He downgraded First Quantum Minerals Ltd. (FM-T) to “equal-weight” from “overweight” with a $14 target, falling from $17. The average is $15.61.
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Cenovus Energy Inc. (CVE-T, CVE-N) is “making all the right moves on capital discipline and deleveraging,” said Desjardins Securities analyst Justin Bouchard following Monday’s release of its 2020 budget.
“Sentiment could meaningfully improve on CVE over 2020, particularly as it advances on the deleveraging front," he said. "At the strip, we estimate $1.4-billion in FCF [free cash flow] to pay down debt, after deducting capex ($1.4-billion) and dividends ($0.3-billion). We see CVE reaching its $5.0-billion net debt target by year-end 2020.”
Though he narrowly lowered his 2020 cash flow per share projection (to $2.55 from $2.57), Mr. Bouchard maintained a “hold” rating and $14 target. The average on the Street is $15.08.
Elsewhere, RBC Dominion Securities analyst Greg Pardy kept an “outperform” rating and $15 target.
Mr. Pardy said: “Cenovus’ 2020 outlook reinforces our confidence in its ability to generate free cash flow and further deleverage its balance sheet. The company should move towards unconstrained production rates in 2020 anchored by 100,000 bbl/d of crude-by-rail capacity and Alberta’s special production allowances.”
“Cenovus is trading at a debt-adjusted cash flow multiple of 4.8 times (vs. our Canadian integrated peer group average at 5.4 times) in 2019, and 5.6 times (vs. peers at 5.5 times) in 2020. In our minds, Cenovus should trade at a moderate discount vs. peers given its higher relative balance sheet leverage.”
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In other analyst actions:
Tudor Pickering analyst Matthew Murphy upgraded Canadian Natural Resources Ltd. (CNQ-T, CNQ-N) to “buy” from “hold” with a target of $46, rising from $39. The average on the Street is $44.15.
David Leeder