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

Twitter Inc.’s (TWTR-N) first-quarter results have drawn rave reviews from the Street.

The social media company’s shares fell over 2 per cent on Wednesday after the release of results that exceeded estimates for revenue, profit and users.

Since the announcement prior to market open, several equity analysts have raised their ratings for its stock.

Macquarie analyst Benjamin Schachter upgraded Twitter to “outperform” from “neutral,” believing its guidance, which include the expectation for slowing revenue growth and rising costs, will prove to be conservative. He noted usage and advertising trends “remain strong.”

Mr. Schachter also thinks product improvements may lead to usage and monetization.

Seeing “solid” long-term opportunities, he raised his target for Twitter shares to US$36 from US$34, which exceeds the consensus on the Street of US$30.50, according to Bloomberg data.

Elsewhere, Atlantic Equities analyst James Cordwell upgraded the stock to “neutral” from “underweight” with a target of US$29, jumping from US$14.50.

UBS upgraded the stock to “buy” from “neutral” with a target of US$36, rising from US$32.

Raymond James’ Aaron Kessler bumped it to “market perform” from “underperform” and Huber Research Partners’ Craig Huber moved it to “overweight” from “underweight”.

Neither specified a target price.

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Chipotle Mexican Grill Inc.’s (CMG-N) fundamentals have finally bottomed, according to Canaccord Genuity analyst Lynne Collier, who sees a path to improved same-store sales growth and margins under its new leadership group.

In the wake of Wednesday’s release of better-than-expected first-quarter financial results, Ms. Collier raised her rating for the company’s stock to “buy” from “hold.”

“Over the next couple of months, we expect management to provide greater detail on numerous top-line initiatives, including restaurant re-images, daypart expansion, menu innovation, consumer access (digital, drive-throughs, etc.) and marketing upgrades,” she said. “While shares are poised to move higher today (up 10 per cent AH), we still see material upside over the next 12-24 months as we believe that we are in the early innings of a turnaround.”

The U.S. fast food giant reported earnings per share for the quarter of US$2.13, exceeding Ms. Collier’s projection of US$1.64 and the Street’s expectation of US$1.59. Comps rose 2.2 per cent, versus the consensus estimate of 1.3 per cent.

“Compared to our model, CMG’s restaurant-level margin of 19.5 per cent was 309 basis points above our estimate and 180 basis points above last year,” she said. “The improvement was driven by lower commodity and other operating costs, offset somewhat by higher labor.”

“Management had previously guided to 17.5-18.5-per-cent margins for 2018. Based on CMG’s Q1 performance and management’s comments, we believe these estimates are conservative and potentially beatable.”

Though she lowered her full-year EPS projection to US$8.44 from US$8.94 to account for higher depreciation and taxes, Ms. Collier raised her target for Chipotle shares to US$425 from US$300.

The average on the Street now sits at US$363.75, up from US$318 just one week ago.

Elsewhere, Cowen analyst Andrew Charles raised Chipotle to “market perform” from “undeperform” with a target of US$350, rising from US$275.

BTIG LLC analyst Peter Saleh moved it to “buy” from “neutral” and set a target of US$460.

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Though he raised his target for shares of FirstService Corp. (FSV-Q, FSV-T) following “solid” first-quarter results, Raymond James analyst Frederic Bastien said he’s concerned about the stock’s current “lofty” valuation.

“We would look for a greater margin of safety before reviewing our thesis on the stock,” he said.

On Wednesday, the Toronto-based property services provider reported adjusted EBITDA for the quarter of US$25-million, exceeding Mr. Bastien’s expectation by US$1-million as well as the consensus among analysts covering the stock by US$3-million. It was a jump of 26 per cent year over year.

“The positive variance to our forecast stemmed from FirstService Residential (FSR) which, despite lapping increasingly tougher comps, outperformed margin expectations for a second quarter in a row,” said Mr. Bastien. “The property management division not only squeezed further operating efficiencies during 1Q18, but also benefitted from the contribution of recent acquisitions with non-seasonal cash flow profiles (including that of Zalco in the greater Washington DC area). Below the EBITDA line stock-based comp, depreciation, amortization and interest expenses were all higher than projected—bringing adjusted EPS in-line with our 25-cent target.”

Mr. Bastien lowered his EPS projections for both 2018 and 2019 to US$2.65 and US$3.05, respectively, from US$2.70 and US$3.10.

He kept a “market perform” rating for FirstService shares, raising his target to US$72 from US$69. The average is US$74.

“We expect management to add more ancillary services to FSR’s offering, see through FSB’s multi-year company-owned strategy, and further build its fire protection business,” he said. “From where we sit, there are still plenty of opportunities to fill PDR holes. Specifically, FirstService can do one or all of the following: (i) plant a franchisee in a targeted region; (ii) buy underachieving franchisees in existing markets, and (iii) purchase other independent service providers across jurisdictions. None of this is game changing, granted, but that’s what we’ve come to expect from this best-in-class management over the years.”

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European Commercial REIT (ERE.UN-X) possesses a “superior growth profile capitalizing on a niche European strategy,” according to Echelon Wealth Partners analyst Frederic Blondeau.

He initiated coverage of the Toronto-based unincorporated, open-ended REIT, which owns 2 properties in Germany and one in Belgium, with a “buy” rating.

“In our view, management’s strategy of targeting non-prime core properties should translate in accretive portfolio growth at going-in yield spreads of 400 basis points or more, which compares relatively favourably with conditions currently prevailing in Canada for property markets of the same quality,” said Mr. Blondeau. “In Canada, yield spreads for the same quality assets are in the order of 300bps or less, enticing some investors to consider diversifying in the US. With portfolio metrics including a 7-year WALT [weighted average lease expiry], comparable to the average debt financing term, with only 15 per cent of rent renewing in the short-term, rent is essentially locked-in. Meanwhile financing conditions are favourable and the balance sheet is improving. Even being conservative in regards to external growth, we feel like investors can rely on a rather predictable distribution while benefiting from an entry point at attractive valuation levels.

Mr. Blondeau set a target of $4 per unit. He’s currently the only analyst covering the stock, according to Bloomberg.

“We support management’s view that in the long term, targeting non-prime core properties should provide unitholders with an enhanced risk-return portfolio profile and superior yield spreads,” he said.

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Though Methanex Corp.’s (MEOH-Q, MX-T) first-quarter results largely fell in line with his expectations, RBC Dominion Securities analyst Nelson Ng raised his target for its shares based on a higher methanol forecast.

“Methanol prices have been volatile over the last couple years as a result of changing supply/demand dynamics, primarily due to feedstock shortages and new facility construction delays,” he said. “IHS forecasts that three methanol facilities will come on-line in China this year (2.2 million MTPA) and that one facility, Natgasoline, will come on-line in the U.S. (1.8 million MTPA). On the demand side, IHS forecasts that one MTO facility will be commissioned in 2018, which compares to management’s expectation of three MTO facilities. Methanex just posted its North America non-discounted reference price for May, flat from April’s price ($496/MT), which is generally in line with what we observed in the U.S. spot market over the last month (as reported by IHS). In the next week, we expect that Methanex will post its Asia Pacific contract price for May and that it could be modestly higher compared to April’s price ($460/MT). For reference, IHS reported a 5-per-cent increase in the Asia Pacific spot methanol price in the last month.”

On Wednesday after market close, Vancouver-based Methanex reported quarterly adjusted EBITDA of US$306-million, which narrowly missed Mr. Ng’s estimate of US$318-million and the consensus of US$327-million. He attributed the missed to “slightly” lower sales of produced methanol and a “marginally” lower realized methanol price.

Adjusted earnings per share of US$2.03 topped his expectation by 2 U.S. cents.

“Management reiterated that the $55 million Chile IV restart is on schedule to be completed in Q3/18. With respect to the potential Geismar 3 development, the company has secured land adjacent to the existing Geismar 1 and 2 facilities to potentially develop a facility that would have an annual methanol production capacity of 1.8 million tonnes. Management prefers to bring a strategic partner into the Geismar 3 development and doesn’t anticipate incurring significant capital on the project over the next 15–18 months.”

After increasing his earnings estimates for 2018 and 2019 based on the expectation for higher methanol prices, Mr. Ng hiked his target to US$70 from US$67. The average is US$66.31.

He kept a “sector perform” rating.

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In other analyst actions:

CIBC World Markets analyst Jacob Bout upgraded Stantec Inc. (STN-T) to “sector outperform” from “neutral.”

Macquarie analyst Tom Hems downgraded PrairieSky Royalty Ltd. (PSK-T) to “neutral” from “outperform” and lowered his target to $33 from $35. The average is $32.26.

National Bank Financial analyst Greg Colman downgraded Mullen Group Ltd. (MTL-T) to “sector perform” from “outperform.”

Société Générale analyst Neetika Gupta upgraded Boeing Co. (BA-N) to “buy” from “hold” with a target of US$402, up from US$373. The average on the Street is US$393.96.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 11:36am EDT.

SymbolName% changeLast
MTL-T
Mullen Group Ltd
-0.14%14.53
FSV-T
Firstservice Corp
-0.32%225.28
FSV-Q
Firstsrvce Sub VT Sh
-0.13%166.44
CMG-N
Chipotle Mexican Grill
+0.1%2926.5
MEOH-Q
Methanex Cp
-0.84%44.63
MX-T
Methanex Corp
-0.8%60.61
BA-N
Boeing Company
+0.26%192.44
STN-T
Stantec Inc
-0.82%112.8
PSK-T
Prairiesky Royalty Ltd
+1.58%26.42

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