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Monday's analyst upgrades and downgrades
Monday's analyst upgrades and downgrades SES.TSX, GSY.TSX, MDF.TSX, NWH.UN.TSX, ECN.TSX, TCW.TSX, HEXO.TSX, ENB.TSX, CEU.TSX, BLMN.NAS, CHUY.NAS, TXRH.NAS, EAT.NYS, DRI.NYS
Inside the Market's roundup of some of today's key analyst actions A pair of equity analysts at Raymond James made changes to their picks for the firm's "Canadian Analyst Current Favourites" list on Monday. Brenna Phelan added goeasy Ltd. (GSY-T) in place of ECN Capital Corp. (ECN-T), seeing more current upside. "We view goeasy as a uniquely high-growth story, catering to an underserved market with significant demand and executing with effective and reliable credit adjudication and underwriting," she said. "We believe strong results to date in designated growth verticals within the $18-billion non-prime, non-auto loan market are supportive of our forecast 38-per-cent loan growth CAGR [compound annual growth rate] through 2020 and we have a high degree of confidence that operating leverage will drive easyfinancial's margin higher since large components of goeasy's cost base remain largely fixed as the loan book per store increases. Finally, current economic forecasts support a benign unemployment picture, and we think goeasy's charge-offs continue to tick down modestly as it diversifies and de-risks its book. We think the market underappreciates goeasy's EPS growth profile and its expanding ROE [return on equity], which we forecast to exceed 25 per cent in 2019 and 2020. Our view is that each quarter reported featuring 20 per cent and accelerating EPS growth will reinforce goeasy's ability to execute, driving the stock higher and ultimately expanding its multiple beyond our current 10 times target." Maintaining an "outperform" rating, Ms. Phelan raised her target price for goeasy shares to $67.50 from $60. The average target on the Street is $62.30, according to Bloomberg data. She also has an "outperform" rating for ECN Capital with a $5 target, versus a $4.82 average. Meanwhile, colleague Andrew Bradford added Secure Energy Services Ltd. (SES-T) in place of Trican Well Service Ltd. (TCW-T). "In a backdrop of regulatory uncertainty, widening pricing differential, and investor apathy towards the oilfield service space, Secure is among a short list of OFS [oilfield services] companies that can produce profitable growth in 2019 even if E&Ps were to remain flat," he said. "For the last six months SES' share price has remained range bound between $7.00 and $8.50. The market is, in our view, implicitly ascribing very little growth to SES in either 2019 or 2020 - consistent with the pessimism on the space as a whole. This is discounting the start-up of SES' Kerrobert Feeder Pipeline in 4Q18, which is expected to produce $20-million in run-rate EBITDA from contracted volumes, and the continued growth in produced volumes across WCSB, unrelated to drill bit activity. We recommend Secure as a core oilfield services holding." With a "strong buy" rating for Secure, Mr. Bradford's target is $14.50. The average is $12.25. He rates Trican an "outperform" with a $4.50 target, versus an average of 9 cents more. "Trican, and the pressure pumping group, is facing difficult headwinds with producers winding-down their 2018 capital programs," said Mr. Bradford. "This is setting the stage for pricing degradation over the near term, which may not fully recover until late in 2019/early 2020." ===== In a separate research note, Mr. Bradford lowered his target price for shares of CES Energy Corp. (CEU-T), though he thinks "this out-of-favor story will find its stride in investors' minds." "WTI crude is above US$70 per barrel, CEU stock is below $4.50 - clearly the market is struggling with a re-rating of the stock and perhaps Canadian-listed energy companies as a whole," he said. "Fair enough; and we wouldn't advocate pricing CEU at the almost 12 times EBITDA multiple it traded at between 2012 and 2014. But we [think] the stock is very arguably worth at least 10 times EBITDA. We believe its U.S. operations, which represent well-over 2/3 of its bottom line, are growing profitably, and we think the 3Q consensus estimate range looks very reasonable ($45-million to $49-million EBITDA)." Mr. Bradford increased his own third-quarter projection to $47-million from $46-million. However, he did lower his earnings per share projections for 2018 and 2019 by a penny each to 20 cents and 29 cents, respectively. He also introduced a 2020 estimate of 38 cents. Maintaining a "strong buy" rating, his target for CES shares fell to $7 from $7.50. The average on the Street is $7.69. ===== Enbridge Inc. (ENB-T) is "moving quickly" on its strategic goals, according to Citi analyst Mirek Zak, who assumed coverage of the stock with a "neutral" rating. Mr. Zak: "ENB has been moving quickly through its strategic goals for 2018-2020: 1) selling assets to move closer towards a pure regulated pipeline/utility business model, 2) having agreements to sell its Canadian G&P, U.S. Midstream, and a portion of its renewable power assets for $7.5-billion in order to help reduce debt, 3) progressing on various projects including getting PUC approval for the Line 3 replacement project, and 4) on track to simplify its corporate structure by year-end. ENB has maintained its guidance of $12.5-billion and DCF/Share at $4.15-$4.45 for 2018, as well as its 10-per-cent dividend growth expectations through 2020. Furthermore, ENB expects the buy-in of its sponsored vehicles to result in a step-up in asset valuations, resulting in its expectation of being a non-cash taxpayer for an additional 2-3 years beyond 2020. These milestones will better position ENB to improve its balance sheet, reduce its overall cost of capital to fund its project backlog, and stabilize its dividend growth to all investors. That said, some execution risk remains around certain large projects as well as closing on its simplification transactions." He set a $47 target for the stock, rising from the firm's previous target of $44. The average is $55.01. "We view ENB's simplification transactions positively, as a step towards a more streamlined investor-friendly structure with a more efficient balance sheet and stable growth profile," said Mr. Zak. "ENB will benefit from 1) the elimination of public company costs related to the sponsored entities, 2) an increase in annual cash flow retention by $240-million, and 3) helping mitigate risk around potential FERC policy changes in the future. However, we estimate ENB had to increase its original offers by a total of $1.9-billion in order to get it done. These buy-in transactions must still be approved by shareholder votes later this year." ===== Calling it a "leading global healthcare real estate owner with a growing asset management platform," CIBC World Markets analyst Chris Couprie initiated coverage of NorthWest Healthcare Properties Real Estate Investment Trust (NWH.UN-T) with a "neutral" rating. "We like NWH for its exposure to the secular healthcare trends of an aging population and rising healthcare expenditures," said Mr. Couprie. "The leasing profile for NWH provides for relatively long duration cash flow, with a reasonably high degree of inflation protection as over 70 per cent of leases are tied to indexation. Being internally managed with strong alignment (CEO owns 17 per cent on a fully diluted basis) is a positive. "NWH's asset management platform differentiates it from most other Canadian REITs and the REIT's strategic 10-per-cent stake in Healthscope could provide access to an acquisition pipeline. Coupled with the recently announced sovereign wealth fund JV, the ANZ asset management platform is in the early stages of growth. The Canadian segment should be steady, and Brazil should be stable on a local currency basis owing to the more than 20-year weighted-average lease term to high-quality tenants. Europe could grow as a proportion of assets as NWH expands into new property types and enters new regions." Mr. Couprie set a price target of $11.75 for units of the Toronto-based REIT, which is a dime less than the consensus. "While we believe FFO [funds from operations] growth in 2019 should outpace the Canadian REIT universe, forecast risk is elevated owing to unhedged foreign exchange rate exposure," he said. "The REIT carries higher-than-average leverage which contributes to NAV sensitivity. We believe that current valuation is fair in the context of our NAV expectations 12 months out." ===== Citing the possibility for a U.S. exchange listing in the near future as well as "continued progress," Echelon Wealth Partners analyst Russell Stanley raised his target price for HEXO Corp. (HEXO-T). "HEXO Corp. has announced a number of positive developments over the past month that cumulatively strengthen its position in the upcoming recreational market, and/or offer new catalyst opportunities," said Mr. Stanley. Noting the Quebec-based company is on pace to quadruple its production capacity in only three months, Mr. Stanley added: "The Company "¦ announced that, through a joint venture, it will acquire an interest in a 2.0 million square foot facility in Belleville, Ont., its first facility outside of Quebec. This will be developed to allow for manufacturing of advanced cannabis products, including cosmetics, vapes, non-alcoholic beverages and other edibles. The Company also recently announced a 3-year contract to manage a warehouse and distribution centre for online cannabis sales in Quebec. We view this agreement as further cementing HEXO's pole positioning in Quebec by further ingraining it into the supply chain there, which we view positively. HEXO also recently indicated it is continuing work on potential M&A opportunities, as well as a potential listing on a U.S. exchange, which should broaden investor awareness." Maintaining a "speculative buy" rating, Mr. Stanley moved his target to $10 from $7.25. The average is $8.89. "We believe HEXO's large scale production capacity, and extremely high relative sales visibility (80 per cent of its current production capacity is committed for the next year) warrant a premium multiple relative to the broad peer group, we conceded that multiples have spiked recently, so we are using a discount to current multiples to reflect the risk of peer group multiple compression," he said. ===== Seeing the potential for expanding its portion of the server market. RBC Dominion Securities analyst Mitch Steves initiated coverage of Advanced Micro Devices Inc. (AMD-Q) with an "outperform" rating and US$40 target. The average is US$25.02. Mr. Steves said: "AMD's has had volatile results within the server market and we note that each product launch has resulted in materially different results from a revenue and stock price perspective. When the AMD K8 was released, the stock moved significantly as the product was superior to Intel's competing line at the time. Since then multiple new releases have come out with 2006 being the most successful in recent memory with AMD taking 20%+ market share (product competitive with Intel). Finally, AMD Bulldozer was not competitive with Intel and AMD saw their market share fade entirely ... until today. With the new Zen architecture and EPYC launch we think the most recent product is competitive and note that the second generation should surpass Intel from a performance vs. cost basis. This gives us belief in the AMD product cycle and potential to gain market share." ===== BMO Nesbitt Burns analyst Andrew Strelzik shifted to a more "cautious" view of the U.S. casual dining industry in a research note on Monday, expecting a deceleration in same-store sales and traffic trends beginning in the fourth quarter due to a "likely widening food-at-home/food-away-from-home price gap." Mr. Strelzik shifted Bloomin Brands Inc. (BLMN-Q) to "market perform" from "outperform" with a US$21 target, falling from US$28. The average is US$22.56. "That said, more limited multiple expansion relative to peers limits downside and keeps us at Market Perform," the analyst said. He moved four companies from "market perform" to "underperform." They are: Chuy's Holdings Inc. (CHUY-Q) with a US$23 target, falling from US$28. The average is US$29.29. "CHUY's comps show a solid relationship with commodity prices and its tightening correlation with industry trends creates additional concern about its comp outlook," said Mr. Strelzik. "As a result, we see risk to CHUY's earnings and 3 times EBITDA multiple expansion." Darden Restaurants Inc. (DRI-N) with a US$96 target, down from US$105. The average is US$124.36. "Though Olive Garden trends have a more limited historical relationship with commodity prices, LongHorn trends are more at risk and we view DRI's 3-4 times EBITDA multiple expansion over the last 12 months to be unsustainable amid softer industry environment," he said. Brinker International (EAT-N) with a US$40 target, down from US$43 and below the average of US$46.27. "Although we believe Chili's sustained momentum in FY1Q19, the strong relationship between Chili's comps and commodity prices suggests a slowdown emerges beyond that," the analyst said. "As such, we see guidance risk and EAT's 3-times EBITDA multiple expansion likely is unsustainable." Texas Roadhouse Inc. (TXRH-Q) with a US$58 target, falling from US$62. The average is US$66.33. "TXRH comp trends have among the strongest historical relationships with changes in commodity prices, margin challenges likely will become more pronounced, and we view TXRH's 4-times EBITDA multiple expansion over last 12 months to be unsustainable amid a softer industry environment," he said. ===== In other analyst actions: Acumen Capital analyst Brian Pow upgraded Mediagrif Interactive Technologies Inc. (MDF-T) to "buy" from "speculative buy" with a $17 target. The average is $13.50. Mon, 24 Sep 2018 14:58:22 +0000 |
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