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

Ahead of the release of its fourth-quarter results after the bell on Wednesday, Raymond James analyst Aaron Kessler upgraded Facebook Inc. (FB-Q) to “strong buy” from “outperform,” seeing upside for revenue and earnings.

Mr. Kessler said recent checks “point to solid growth” and indicate the social media giant will retain its “social leadership position." He also expects Instagram to be a source of growth.

Also “encouraged” by the company’s ability to find new revenue streams, he raised his target for Facebook shares to US$270 from US$230. The average on the Street is US$242.45, according to Bloomberg data.


Equity analysts on the Street applauded Apple Inc.'s (AAPL-Q) better-than-anticipated first-quarter financial results and guidance.

After the bell on Tuesday, the California-based tech giant exceeded expectations for both sales and profit in the key holiday shopping period, powered by both iPhone sales and increased demand for its AirPods wireless headphones.

It also provided a revenue forecast for the quarter ending in March that topped projections.

Those results send the company’s stock to record highs, and prompted a group of analysts to raise their target prices moving forward. The average target on the Street is currently US$320.74.

Among those makes changes were:

- RBC Dominion Securities’ Robert Muller, who raised his target to US$358 from US$330 with an “outperform” rating.

Mr. Mulller: “With consensus expectations steadily rising heading into the quarter, AAPL more than justified the renewed optimism surrounding its core iPhone business with results well ahead of expectations in its largest (i.e. most important) segment. With strong guidance taking us one quarter closer to the start of a potential super cycle in 5G, we see little reason to alter our positive outlook.”

- Citi’s Jim Suva to US$375 from US$300 with a “buy” rating.

Mr. Suva: “Recall going into the results our research picked up that Apple’s wearables were selling out and even to this date this strong demand continues. What was an additional surprise was the strength of Apple’s iPhone sales, not only in the December results but also the March quarter outlook. Consensus sales and EPS estimates will go materially higher as do our estimates ... We see fiscal year 2020 sales growing 11 per cent and EPS growing 21 per cent. The next catalyst will be March quarter earnings in April when the company will likely increase its capital deployment program ($75-billion for stock repurchase and 10 per cent for dividend increase) as well as a lower cost iPhone SE before a very strong September launch of several 5G iPhone models. Inside this report we provide more details.”

- Credit Suisse’s Matthew Cabral to US$290 from US$275 with a “neutral” rating.

Mr. Cabral: “Apple’s very strong C4Q is clearly a positive, though with the stock up more than 30 per cent over the past 90 days a fair amount of this was likely priced in. Investor attention is already shifting toward the highly-anticipated launch of a 5G iPhone in 2H20; key debates include the impact on the replacement cycle and Apple’s pricing strategy given an expected uptick in BOM costs and early evidence of price elasticity with the successful $50 price cut on the iPhone 11. We estimate 7-per-cent iPhone revenue growth in CY20; however, this reflects more of a slowing in the extension of replacement rates rather than a snap-back to CY17/18 levels given limited initial 5G coverage/capacity and the lack of a 'killer app’ at launch. We remain on the sidelines, awaiting clearer line-of-sight to EPS momentum (particularly Services-led) to justify Apple’s premium valuation.”


Seeing “further evidence” that its “most significant" headwinds are subsiding, Raymond James analyst Steve Hansen raised his rating for Canadian National Railway Co. (CNR-T, CNI-N) to “outperform” from “market perform” in the wake of Tuesday’s release of better-than-anticipated fourth-quarter results.

After the bell on Tuesday, CN reported adjusted earnings per share of $1.25, down 16 per cent year-over-year but “comfortably” ahead of the $1.21 consensus estimate on the Street as well as Mr. Hansen’s $1.18 projection. He attributed the beat to a better-than-expected top line (distance/yield) and operating ratio/cost control.

With the results, the company also released 2020 guidance that largely fell in line with his expectations.

“Management issued 2020 guidance that calls for: 1) ‘low single-digit’ volume growth; 2) ‘mid-single-digit’ adj. EPS growth; and 3) FCF in the range of $3.0-$3.3-billion (vs. $2.0-billion in 2019),” said Mr. Hansen. “With quarter-to-date 1Q20 RTM’s [revenue ton miles] currently pacing at down 5.9 per cent (Week 4), management suggested 1H20 traffic growth will be tempered by lingering headwinds, before accelerating in 2H20 against easier comps. While we broadly concur, we also believe the most significant headwinds (Crude, Grain, Frac Sand, Forestry) are already fading, helping CN post its first positive RTM print in 21 weeks (5 months) earlier this week (up 4.0 per cent)— data consistent with our view that Canadian traffic is on the mend as the ‘Big 3 Headwinds Fade.' We expect this pattern to continue.”

Though he lowered his EPS estimates for 2020 and 2021 to $6.29 and $7.10, respectively, from $6.50 and $7.25, Mr. Hansen raised his target for CN shares to $138 from $130. The average on the Street is $126.13.

“While 2020 guidance admittedly carries less operating leverage than expected (pension/tax headwinds), we believe this is offset by enhanced FCF visibility as CN’s outsized capex spending retreats,” he said.

Elsewhere, RBC Dominion Securities analyst Walter Spracklin doesn’t see any new trends stemming from the earnings report and guidance that will push its share price higher in the near term.

In fact, Mr. Spracklin expects estimates on the Street to decline after the railway company’s mid-single digit earnings per share growth guidance fell below consensus projections.

“While this may cause some downward pressure on the shares, we expect it to be limited,” he said.

Though the company’s EPS guidance for 2020 came in short of estimates (a range of $6.03 to $6.15 versus $6.22), Mr. Spracklin chose to maintain his estimating, believing it can achieve a 1-per-cent O/R improvement despite pension and bonus compensation headwinds. He did reduce his 2021 projection to $6.96 from $7.01.

That decline led him to cut his target for CN shares to $122 from $123 with a “sector perform” rating (unchanged).

“While guidance was below street consensus, we believe this does not come as a significant surprise; and that investors may consider a degree of conservatism in these forecasts,” he said. “Conversely, there was also no new information in the quarter to spark an upward re-rating in the shares either.”

Elsewhere, Deutsche Bank analyst Seldon Clarke downgraded CN to “hold” from “buy” with a US$90 target, falling from US$94.


Superior Plus Corp.'s (SPB-T) decision to not move forward with the proposed sale of its Specialty Chemicals unit following a recent strategic review “temporarily sidelines a value-creating catalyst,” according to Raymond James analyst Steve Hansen.

“While disappointing at first blush, we’re not too surprised at this outcome, particularly in light of: 1) the difficult chloralkali backdrop over the past 7 months; 2) the review’s extended timeline (original target: Oct-31-19); and 3) management’s prior willingness to walk when a strategic sales process fails to surface appropriate value. Investors will likely recall, for instance, that management similarly walked from the sale of its construction products distribution (CPD) business back in Oct-14 (failure to attract a sufficient price), only to return in Aug-2016 and sell the business for a $130-million premium to prior offer,” he said. “This track record should not be ignored, in our view, and suggests to us that walking was the right long-term decision. As macro conditions improve, we would similarly expect this strategy to resurface.”

“With the review concluded, SPB management reportedly intends to operate and invest in both businesses going forward, ultimately seeking to: 1) deliver healthy organic growth across both divisions; and 2) pursue a measured pace of retail propane tuckins. Consistent with recent years, we expect this M&A pace will range between $75-100-million per year.”

The decision, announced Tuesday before the bell, prompted Mr. Hansen to lowered his target for Superior Plus shares to $14.50 from $15. The average on the Street is $14.65.

However, maintaining an “outperform” rating, he said he remains constructive on the stock pointing to the firm’s “long-term growth prospects, synergy realization, and attractive valuation/ dividend yield.”

“Despite this set-back, we continue to see solid value in SPB shares, currently trading at just 7.6 times consensus 2020 estimates and offering a very solid 6.1-per-cent dividend yield,” he said.

Elsewhere, National Bank Financial analyst Patrick Kenny cut Superior Plus to “sector perform” from “outperform” with a $13 target, down from $14.

Mr. Kenny also lowered Gibson Energy Inc. (GEI-T) to “sector perform” from “outperform” with a $30 target, up from $29 and above the $28.90 average

He raised AltaGas Ltd. (ALA-T) to “outperform” from “sector perform” with a $25 target, rising from $22. The average is $22.64.


Desjardins Securities analyst Chris Li blames a drop in shares of Metro Inc. (MRU-T) following the release of its quarterly results on Tuesday on investors’ “tonnage concerns.”

“We attribute [Tuesday’s] share price weakness (down 3.4 PER CENT vs a 0.3-per-cent rise in the S&P/TSX) largely to high expectations given MRU’s impressive track record of delivering consistent same-store food tonnage growth of 1.3 per cent in the past six quarters,” he said.

“Flat tonnage in 1Q FY20 (vs 1-per-cent estimate) was a departure from the recent trend; the solid year-ago comp was 1.4 per cent. Importantly, the company did not see any notable uptick in competitive intensity or an acceleration in trade down to discount. However, we believe the discount market in Ontario remains highly promotional with new leadership at Walmart, Empire’s FreshCo 2.0 and Loblaw focused on improving tonnage. As expected, food inflation slowed sequentially from 2.8 per cent in 4Q FY19 to 2.0 per cent in 1Q FY20 as the company cycled through high year-ago produce inflation. Maintaining inflation in the 1.5–2.0-per-cent range is key to achieving operating expense leverage.”

Based on the results and the expectation of “slightly lower” food same-store sales growth acceleration, Mr. Li lowered his EPS estimates for 2020 and 2021 by 1 per cent to $3.08 and $3.34, respectively, from $3.12 and $3.37.

With a “hold” rating, his target for Metro shares dipped to $57 from $59. The average is $55.91.

“We believe MRU’s consistent execution, shareholder-friendly capital allocation strategy and higher ROIC [return on invested capital] support its premium valuation,” he said. “However, to the extent that part of the premium is also due to its recent superior same-store tonnage growth, its premium valuation could be at risk if performance reverses. With only high-single-digit upside and ongoing industry headwinds, we would wait for a more attractive entry point (approximately $50).”


Laurentian Bank Securities analyst Nick Agostino thinks the growth expectations for WELL Health Technologies Corp. (WELL-T) are “not fully reflected” in its current valuation.

In a research report released Wednesday, he initiated coverage of the Vancouver-based medical services provider with a “buy” rating.

“Despite a higher growth profile,WELL only trades at 4.0 times [next-12-month enterprise value to sales] vs. high-growth MedicalTechnology companies at more than 5.7 times,” he said.

Touting its potential to build both organically in a still fragmented and growing market, through continued M&A and establishing shared services, he set a $2.50 target for its shares. The average is $2.19.


Seeing multiple expansion for its pure consulting peers, National Bank Financial analyst Maxim Sytchev expects Stantec Inc. (STN-T) to follow suit.

“We have seen price-to-earnings multiples expansion on the part of the broader market ('blame’ QE) while organic growth acceleration and percolations of fiscally-friendly topics are telling investors that ‘lower rates for longer’ is beneficial to our coverage universe,” he said in a research note. "Challenged performance of integrated E&C and construction-focused entities have also honed investors’ attention on pure consulting business models; hence why TTEK is now trading at 25.2 times P/E on next year’s earnings (with Sweco at an even more egregious 27.8 times).

“We therefore believe Stantec multiples should expand over time. 1) In times when STN organic momentum kept pace with that of WSP (Q3/19), its trading multiple would generally converge as was the case between 2012 and 2014; 2) Negative estimate revisions appear to be behind us; 3) The company sports a more balanced model; only infrastructure now represents a greater than 25-per-cent proportion of total revenue, but this is one of the verticals we remain bullish on.”

With an “outperform” rating, Mr. Sytchev raised his target for Stantec shares to $45 from $40. The average is $41.59.

“Stantec was buying back shares in the open market at $36.75 in December 2019,” he said. “We believe investors are also embracing the company’s strategy around capital allocation which can be summarized as bite-size deals helped with NCIB (see our in-depth notes on the subject Here and Here). Shares are undervalued vs. direct peers (16.5 times P/E on 2020 estimates vs. 20.0 times plus; the new management team appears to present a steady hand. Thematically, the company also screens well on ESG parameters. All-in, we are comfortable pumping up the EV/EBITDA multiple that we apply to 2021 estimated forecasts to 11.0 times (from previous 10.0 times.”


In other analyst actions:

Stifel Canada analyst Anoop Prihar cut Chemtrade Logistics Income Fund (CHE-UN-T) to “hold” from “buy” with a $9.80 target, falling from $11. The average on the Street is $11.53.

Eight Capital initiated coverage of Wallbridge Mining Co. (WM-T) with a “buy” rating and $1.05 target, which exceeds the consensus by 3 cents.

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