Inside the Market’s roundup of some of today’s key analyst actions
Raymond James' Steve Hansen added Canadian Pacific Railway Ltd. (CP-T, CP-N) to the firm’s “Canadian Analyst Current Favourites” list, replacing Bombardier Inc. (BBD.B-T) as a result of seeing more upside through his forecast horizon.
“We are adding SB1-rated Canadian Pacific Railway (CP) to the Analyst Current Favourites list following events that collectively underpin our view that CP is primed to deliver low-cost, sustainable growth through our forecast horizon. More specifically, we expect CP will increasingly capitalize on its best-in-class operating metrics (speed/costs) and unique/excess land position to introduce compelling new service offerings, an approach expected to help CP deliver mid-single digit volume (RTM) growth through 2018-2020. Coupled with CPs famously disciplined cost control, we expect this top line momentum will translate into outsized (double-digit) earnings growth through the same period.”
With a “strong buy” rating, Mr. Hansen has a target price of $340 for CP shares. The average on the Street is currently $312.36, according to Bloomberg data.
He maintained an “outperform” rating for Bombardier shares with a $6 target, which sits 5 cents higher than the consensus.
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Expecting its Las Chispas project in Mexico to emerge as “one of the highest return projects in the space,” RBC Dominion Securities analyst Mark Mihaljevic initiated coverage of SilverCrest Metals Inc. (SIL-X) with an “outperform” rating.
“We believe the key factors that differentiate SilverCrest are the expected high-return (60 per cent plus internal rate of return at spot prices versus 15-20 per cent for other projects in our coverage universe) and strong free cash flow (US$70-million per year over the first 5 years compared to US$95-million in upfront capital and a market cap of US$215-million) potential of the company’s Las Chispas property,” he said. “We expect the project’s economics to benefit from high grades, low capital intensity, and exploration potential. We see upside in SilverCrest’s shares as the company delivers ongoing high-grade resource growth (Q1/19 update expected to show growth to north of 100 Moz AgE) and demonstrates the potential for a high-return project (PEA expected in Q1/19).”
Mr. Mihaljevic sees SilverCrest as a potential takeover target, pointing the fact that Las Chispas is a rare asset that combines potential production profile, mine life, cost structure and sittings in a mining friendly jurisdiction.
“While Las Chispas is at the smaller end of typical acquisition targets (resource and production basis), we believe the operation can become a material cash generator and we still see promising exploration upside to grow the project,” the analyst said. “The company’s attractiveness is further enhanced given the dearth of comparable earlier-stage silver projects and given the project is also located within trucking distance of both Premier’s Mercedes mine and First Majestic’s Santa Elena mine.”
Pointing to his “positive outlook” for the project and that takeover potential, Mr. Mihaljevic set a target price of $5 for SilverCrest shares, which sits 3 cents below the average on the Street.
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After a “strong” third-quarter beat and a 14-per-cent dividend raise, Echelon Wealth Partners analyst Gianluca Tucci raised his rating for TFI International Inc. (TFII-T) to “buy” from “hold.”
On Monday, the Montreal-based transport and logistics company reported revenue for the quarter of $1.288-billion, exceeding both Mr. Tucci’s $1.249-billion projection and the $1.255-billion expectation on the Street. Earnings per share of 96 cents also topped estimates (80 cents and 83 cents, respectively).
“Adjusted EBITDA strength in the quarter came across all divisions, however primarily from its Truckload (TL) division, which experienced very robust margins (20 per cent versus 14 per cent year-over-year – we are very pleased with TL’s performance in the quarter at $521-million (up 7 per cent year-over-year),” said Mr. Tucci.
“While the Company sees favourable conditions in its largest division (TL) entering 2019, it has focused on consolidating operations in P&C, focusing on asset-light business models, and growing its Logistics and Last Mile business. The freight environment in the TL market has drastically improved in 2018, which has led to a marked increase in freight rates and betterment in volumes, with management continuing to focus on improving the network efficiency in the U.S.. We remind investors that TFII’s U.S. TL presence via its US$558-million 2016 acquisition of XPO Logistics TL division makes it a serious player in that market – we are witnessing conditions that are trending towards a more normalised balance and expect the Company to continue to outperform expectations as these results prove.”
With the results, the company raised its 2018 EBITDA target to $665-675-million from $640-million and its adjusted EPS guidance to $3.35-3.43 from $3.21-3.29.
Mr. Tucci increased his target for TFI shares to $55 from $50. The average is $52.35.
Elsewhere, Desjardins Securities' Benoit Poirier raised his target to $53 from $48 with a “buy” rating (unchanged).
He said: “We continue to like the name in light of the recent improvement in market fundamentals across all divisions and the encouraging performance of the U.S. TL division. Management is building a solid foundation for the division in the U.S. and we would not be surprised to see TFII expand its exposure through larger M&A over time. As a result, we see recent share price weakness as a buying opportunity for long-term investors.”
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Citi analyst Kate McShane said she’s “taking advantage” of the recent weakness in Lowe’s Companies Inc. (LOW-N) shares to buy its turnaround plan, upgrading her rating to “buy” from “neutral.”
“We have been believers in LOW’s turnaround plan given the strength of management and the many process changes taking place to make the company more competitive,” she said. “Recent stock weakness allows us to become more constructive on the name. We think the stock has upside from here based on four key reasons: 1) a robust turnaround plan lead by a strong management team, 2) a still-solid macro backdrop, 3) the near-term hurricane benefit, and 4) valuation.”
“We think part of the stock pullback can be explained by increasing concerns surrounding the macro / housing environment given mixed trends in the Housing Market and Remodeling Market indices, single-family housing starts and home sales, and consumer sentiment. Tariffs have also been top of mind and LOW is a stock that is well owned with a crowding composite reading of 0.74, below only ORLY [O’Reilly Automotive Inc.] and HD [Home Depot Inc.] in our coverage. Longer term, we think investors are concerned that the company will need to spend more money in order to improve its supply chain to compete in fully serving the omni-channel shopper (both DIY and Pro); as HD is spending an incremental $5-billion in these areas from 2018-2020.”
Ms. McShane maintained a US$112 target. The average is US$119.72.
“While the housing market is likely to continue to slow slightly into 2019 given tight housing inventory and affordability issues, we think LOW’s improved execution will result in better SSS trends and accelerating earnings growth,” she said. “Longer term, there exists risk that LOW will spend more to improve its supply chain, though we think they may be able to do so without sacrificing margin by allocating savings and redirecting spend to relevant areas of the business.”
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RBC Dominion Securities analyst Mark Mahaney downgraded his rating for eBay Inc. (EBAY-Q), pointing to “incrementally negative data points from recent PayPal disclosures, PYPL management’s commentary on Q4 as it relates to EBAY, and our view that EBAY’s transition to intermediate payments via the Adyen partnership could be slower than anticipated.”
Mr. Mahaney called PayPal’s disclose of decelerating payment volume for eBay Marketplaces a “material data point” for the company, given it accounts for almost 70 per cent of total payment volume.
“Our Outperform rating on EBAY shares has, in significant part been based on the belief that marketplace improvements would generate ongoing acceleration in EBAY’s GMV. Given the now significant risk to the assumption, we are modestly reducing our estimates and downgrading EBAY to Sector Perform.”
His revenue target for fiscal 2019 fell to US$11.6-billion from US$11.7-billion, while his earnings per share expectation dropped by 3 US cents to US$2.03.
Mr. Mahaney’s target price for eBay shares dipped to US$34 from US$47. The average is $39.61.
“We upgraded EBAY from Sector Perform to Outperform on Feb. 1 on three key points: Acceleration in GMV growth driven by marketplace improvements, accelerated share buybacks, and the value creation implied by eBay’s payments disintermediation,” he said. “After accelerating from approximately 5 per cent ex-FX in 2015 to 6 per cent in 2017, we assumed that eBay’s GMV could accelerate again in 2018 to 7 per cent or more. The Q2 GMV results somewhat challenged that assumption, and the PYPL Q3 and Q4 commentary make that much less likely. Hence the downgrade. At the margin we are also concerned about rising AMZN risk—our survey results and the company’s aggressive infrastructure investments almost certainly suggest that the long-standing Amazon competitive risk is becoming more material.”
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Citing “stable” employment and housing conditions, CIBC World Markets analyst Paul Holden expects Genworth MI Canada Inc. (MIC-T) to report “another strong” quarter of earnings on Oct. 31.
"A dividend increase should be expected this quarter and the company was repurchasing stock in Q3," said Mr. Holden in a research note. "Fundamentals are strong today, but MIC's valuation has shown large swings in the past based on shifting sentiment.
“The broader equity market is starting to discount the possibility that economic conditions have peaked.”
With a “neutral” rating (unchanged), Mr. Holden lowered his target for Genworth shares to $45 from $48.50 to better reflect its historical multiple average. The consensus is $49.
“Multiple expansion seems unlikely at this stage of the cycle,” he said. “We maintain our Neutral rating for now, but are closely watching economic signposts.”
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In other analyst actions:
Eight Capital analyst Ian Macqueen upgraded Seven Generations Energy Ltd. (VII-T) and Whitecap Resources Inc. (WCP-T) to “buy” from “neutral”.
Eight Capital’s Adam Gill downgraded his recommendations on Crescent Point Energy Corp. (CPG-T) and Journey Energy Inc. (JOY-T) to “neutral” from “buy.”
Seaport Global Securities initiated coverage of Norbord Inc. (OSB-T, OSB-N) with a “buy” rating.
Laurentian Bank Securities analyst Ryan Hanley initiated coverage of Superior Gold Inc. (SGI-X) with a “buy” rating and $1.75 target. The average is $2.07.
David Leeder