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

Following the release of “mixed” third-quarter results after the bell on Tuesday, Canaccord Genuity analyst Doug Taylor downgraded his rating for Computer Modelling Group Ltd. (CMG-T), citing its higher share price and “ambiguous" end markets.

The Calgary-based company, which provides reservoir simulation software for the oil and gas industry, reported revenue of $19.3-million, up 1 per cent year-over-year and in-line with the Street’s expectations. Earnings per share of 6 cents fell a penny short of the estimates of both Mr. Taylor and the Street.

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“On the positive side, recurring revenue growth continues to tick higher – we estimate it at 4 per cent for the quarter, looking through one-time events and FX. Industry fundamentals and commentary from bellwethers suggest a steady spending outlook despite the recent pullback in energy commodity prices," he said. “On the other hand, profitability missed expectations slightly, and the company’s outlook continued to include some cautious notes around upcoming renewals due to energy industry consolidation. Combined with a recent rebound on CMG shares, which now trade at 16.8 times EV/NTM consensus EBITDA [enterprise value to next 12-month EBITDA] and 28.8 times P/NTM EPS [price to next 12-month earnings per share], we believe the risk/reward for the outlook is once again balanced. We are therefore taking the opportunity to move to a more neutral stance.”

"Our target is increased slightly ..., representing a more modest 9.1-per-cent all-in return to target including the company’s 4.9-per-cent dividend yield. We look for a better indication on end-market directionality and a clearer picture of sustained higher growth to justify further multiple expansion and better anticipated returns.

Mr. Taylor cautioned that the company’s growth “remains sluggish” and about the potential for “risks around the upcoming renewal season.”

Though he expects industry fundamentals to be steady through the calendar year, he lowered his 2020 EBITDA and EPS projections to $36.2-million and 27 cents, respectively, from $36.7-million and 28 cents. At the same time, his 2021 estimates rose to $39.3-million and 30 cents from $37.5-million and 29 cents.

Moving the stock to “hold” from “buy,” he increased his target to $8.50 from $8.25. The average target on the Street is $8.46.

Our target .... continues to reflect 16 times EV/EBITDA applied to our slightly increased forward estimates, one-year out," he said. "In our view, this premium valuation continues to reflect CMG’s market leading position, strong operating track record and stabilizing end market fundamentals. Given a more modest 9.1-per-cent total return to target, we are moving to a HOLD rating (from Buy).”

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Shares of Beyond Meat Inc. (BYND-Q) may already reflect “nearly all of the potential upside from the gains that McDonald’s distribution might bring," according to Piper Sandler analyst Michael Lavery, who initiated coverage with a “neutral” rating.

Though he projects the deal with McDonald’s could bring a US$100-million annual opportunity in the United States and US$150-million globally, Mr. Lavery said a survey of fast food giant’s operators showed concerns about both price point and consumer reception.

He does, however, expect Beyond Meat’s fourth-quarter 2019 financial results to exceed expectations on the Street and sees future distribution gains as a growth driver.

Mr. Lavery set a US$115 target for its share. The average on the Street is US$94.73.

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Though he sees “encouraging signs starting to emerge” with its maple segment, Desjardins Securities analyst Frederic Tremblay said he’s “staying on the sidelines” with Rogers Sugar Inc. (RSI-T) given its “mixed” outlook.

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“1Q FY20 revenue and adjusted EBITDA were slightly ahead of our expectations as the sugar business remained a reliable performer while maple products showed signs of sequential operational improvement (but down from a year ago),” he said.

On Tuesday after the bell, the Vancouver-based company reported revenue and EBITDA of $209.3-million and $30.2-million, topping Mr. Tremblay’s projections of $205.6-million and $27.3-million.

He called the performance of its sugar business “satisfactory,” while noting Rogers is “finalizing the footprint optimization” for its maple segment.

“Strong volume in the maple segment was fuelled by plant efficiencies and efforts to reduce the order backlog,” he said “Pricing and margins remained under pressure, but management sees the competitive environment stabilizing. We view this development as encouraging and believe it will be instrumental in stabilizing maple margins in the near term. With limited visibility on the future evolution of the competitive environment, we continue to view strong execution of RSI’s footprint optimization as key to the maple segment’s long-term success.”

Though he lowered his 2020 and 2021 EPS projections (to 37 cents and 39 cents, respectively, from 42 cents and 45 cents), Mr. Tremblay raised his target for Rogers shares to $5 from $4.75 with a “hold” rating (unchanged). The average is $4.75.

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Credit Suisse analyst Andrew Kuske sees a “potentially powerful pricing pivot" emerging for Norbord Inc. (OSB-T, OSB-N).

“Following Norbord Inc.’s (NBD) Q4 2019 results last week, we took a deeper dive into the pricing and EBITDA margin sensitivity,” said Mr. Kuske in a research note released Wednesday. "Very simply, Oriented Strand Board (OSB) momentum is positive and some structural issues look favourable into the spring building season. Yet, timing issues for OSB pricing expectations and the reality are usually difficult to ‘get right.’

“Last week’s results missed expectations, but were largely shrugged off given expectations consistently declining into the quarter. With North Central OSB pricing at US$255 per thousand board feet (Msf) on the most recent print, we considered the impact of posted prices, realized prices and EBITDA margins with a clear breakpoint at US$250/Msf. Above that level, average NBD EBITDA margins are 25 per cent over the last 64 quarters. Below that level, average NBD EBITDA margins are 9 per cent over the same time period.”

However, Mr. Kuske reiterated that a critical issuing facing Norbord remains the impact industry curtailments, noting: “We continue to believe industry capacity rationalization should translate into improved pricing in a gradual fashion that is likely balanced by growing housing starts. A clear tone of market discipline seems to be in place which is reminiscent of some past cycles with gradual capacity additions when necessary. Therefore, the market environment looks to be rather conducive for margin expansion.”

Maintaining a “neutral” rating for its stock, Mr. Kuske raised his target to $45 from $42, which remains below the $46.45 consensus.

“Norbord has favourable leverage to a U.S. housing recovery from the commodity exposure that also benefits from being multi-regional. We await improved OSB pricing to become more constructive on the stock,” he said.

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A growing industry-wide dried cannabis inventory is likely to weigh on the third-quarter results for Canopy Growth Corp. (WEED-T), according to Canaccord Genuity analyst Matt Bottomley.

The Smiths Falls, Ont.-based company is scheduled to release its results on Friday after the bell.

“Given continued industry-wide headwinds in a period that will still not include Cannabis 2.0 sales, what looks to be a significant spike in dried cannabis inventory sitting in supply channels, and a lack of retail stores throughout Canada, we expect Canopy’s FQ3 print to be choppy on the whole,” said Mr. Bottomley in a research note released Wednesday. “However, on a net basis, we are expecting the company to print a sequentially higher top line given the magnitude of write-offs for sales returns booked in the prior Q while anticipating a directional improvement in its Adj. EBITDA loss for the period.”

He added: “We continue to witness a widening gap between Canadian sales throughput (given limited retail stores to date) compared to the volume of dried cannabis currently sitting in supply channels. Per data published by the Government of Canada, supply continues to outweigh demand at an accelerated pace. Although increased biomass is needed to facilitate growth of new product forms under Cannabis 2.0, we believe the surge of industry-wide dried bud towards the end of 2019 could result in significant near-term pricing pressure for all LPs (including Canopy) - with most LPs already reporting adult use pricing that has come down 25 per cent since the implementation of recreational sales in Canada.”

Mr. Bottomley maintained a “hold” rating and $25 target for Canopy shares. The average on the Street is $29.95.

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In other analyst actions:

Seeing it likely to benefit from the flow of funds resulting from risk-off sentiment in the Canadian banks, as well as a “relatively defensive operating model," Eight Capital analyst Steven Theriault initiated coverage of Intact Financial Corp. (IFC-T) with a “buy” rating and $167 target. The average on the Street is $156.85.

Stifel Canada analyst Michael Dunn cut PrairieSky Royalty Ltd. (PSK-T) to “hold” from “buy” with a $15.50 target, down from $17.50, which is the current consensus.

With a file from Bloomberg News

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