Inside the Market’s roundup of some of today’s key analyst actions
Due to concerns about the strength of the Chinese consumer, Citi Research is reducing its target price on Tiffany Inc. (TIF-N).
“With Greater China representing about 15 per cent of TIF’s total sales (and we estimate another 10-15 per cent Chinese tourists shopping outside Greater China), we think it makes sense to be more cautious on F19E given some of the concerns around the Chinese consumer. On one hand, local demand in 3Q in Mainland China actually accelerated vs. 2Q, suggesting the brand is still healthy. However, pressure from Chinese tourism drove a deceleration in other markets. It is worth pointing out that Chinese tourism is likely less of a pressure point in 4Q vs. 3Q (est ~200bps [basis points] comp drag in 4Q vs. estimated 350bps comp drag in 3Q) as demand in 4Q is driven more by local customers (due to holiday) where demand remains strong,” said analyst Paul Lejuez.
He lowered his target price to US$125 from US$140 and cut his fiscal 2019 earnings per share estimate to US$5.18 from US$5.50. But he kept his “buy” rating. The median price target is US$120, according to Zack’s Investment Research.
“Given global macro concerns and pressure from Chinese tourism that likely continues into F19, we believe it makes sense to be more cautious on F19E. However, with a about 30 per cent sell-off in shares since early November and the stock now trading at about 15 times FY19E, we believe significant pessimism around China/macro is priced in. Despite a less certain macro backdrop near term, we remain optimistic longer term. As 3Q18 demonstrated, local demand across most markets was strong and the brand is in the healthiest position in years. We still believe in the long term strength of the brand, strategic direction and the opportunity to expand margins,” he said.
He is still positive on the stock as “(1) The brand is seeing real traction with its turnaround and new mgmt has taken the much needed steps to make the brand more inclusive (i.e., appealing to millennials through diverse marketing and increasing newness), (2) Despite near-term macro concerns, TIF has a big opportunity to continue expanding in China & Europe longer-term; (3) Still significant margin opportunity with F18E EBIT 17.6 per cent vs. low to mid-20 per cent goal; (4) Attractive valuation given the health and sustainability of the brand."
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With its view that Constellation Brands Inc. (STZ-N) “is one of the most attractive stocks in the Staples universe,” Wells Fargo has reiterated its “outperform” rating on the stock.
“We continue to believe STZ is one of the most attractive stocks in the Staples universe in light of scarcity of growth across the group and the dramatic pullback in the stock (-23.1 per cent since October versus -14.2 per cent for the S&P 500) – which we believe is unjustified. We see a favorable risk-reward ahead of STZ’s FQ3 earnings results on 1/9 given how low expectations are, the likelihood that Beer segment growth was robust (reflecting strong Modelo/Corona trends) and potential upside to beer margins. We think a combination of end-of year tax strategies, uncertainty about FY19 EPS guidance and earnings dilution from STZ’s 37-per-cent stake in Canopy Growth (CGC), and investors taking a ‘wait-and-see’ approach to earnings is what has pushed STZ’s CY20 EV/EBITDA [enterprise value to earnings before interest, taxes, depreciation and amortization] multiple to an historic low of 11.6 times, four turns below its three-year historical average. As such, we see FQ3 results as a potential positive catalyst and encourage long-term. investors to accumulate positions in the stock,” said analyst Bonnie Herzog.
She kept her “outperform” rating on the stock and here US$260 price target. The median is US$243.
“We expect STZ’s FQ3 results on 1/9 may surprise to the upside based on strong performance in Nielsen scanner data through December. Also, we see potential upside to our FQ3 beer operating margin estimates of 37.4 per cent from lower than anticipated marketing investments. Therefore, while we expect STZ’s current FY19 EPS guidance of US$9.60-$9.75 will be lowered to reflect interest expense of $0.25-0.30 related to its increased stake in Canopy Growth (CGC), we think some of this could be offset by stronger than expected performance in its core beer business,” she said.
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The ongoing concern over China’s Huawei telecom company could prove a boon to Nokia Corp. (NOK-N), said BMO.
BMO is upgrading Nokia to “outperform” from “market perform” and is also boosting its target price to US$7.50 from US$5. The median is US$6.40.
“The telco spending environment has been improving, and we believe Nokia is well positioned to take advantage of this dynamic in 2019, particularly as 5G begins to take shape,” said analyst Tom Long.
“We also believe the recent Huawei controversy may free up billions in telco capex that NOK can seize upon.”
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In light of a distribution and expected 3-for-1 stock consolidation, CIBC is revising its price target on Kinder Morgan Canada Ltd. (KML-T).
“We are revising our price target to $14.75 (was $16.00) to reflect the impact of the $11.40 per share distribution, with the shares now trading on a post-distribution basis, and the 1-for-3 consolidation effective Jan. 8. We reiterate our ‘Neutral’ rating and see potential for a premium that may materialize in the event of a sale, given the amount of private money looking for infrastructure investments,” said analyst Robert Catellier.
“The timing implications are that the shares should trade lower on Jan. 4 and 7 by approximately the distribution amount to reflect the ex-distribution date, before reflecting the consolidation on Jan. 8. The change to our price target is purely to reflect the mechanics of the distribution and consolidation, with no change to our fundamental view. The company has yet to opine on its evaluation of strategic alternatives for the company. The options being evaluated include, among others, continuing to operate as a standalone company, disposition by sale or a merger with another company. It is our expectation that the company is unlikely to want to continue as a standalone company in this age of corporate simplification, when we estimate KML would represent about 2 per cent of the parent company’s (Kinder Morgan Inc.) EBITDA. A premium upon sale remains possible given the amount of private and tax-advantaged money seeking infrastructure assets, despite current market volatility and recently legislated short-term oil production cuts in Alberta,” he said.
In other analyst actions:
Netflix Inc. rose 4.2 per cent after Goldman Sachs added the streaming provider to its ‘Americas Conviction List’ and said the stock represented one of the best risk/reward models in the internet sector.
Intel Corp. climbed 3 per cent after BofA Merrill Lynch upgraded the stock to “buy” from “neutral” and said the chipmaker was well positioned to outperform its large-cap peers in 2019. It also raised its price target to US$60 from US$52.
RBC downgraded United Technologies to “sector perform” from “outperform” saying that there is limited upside for the stock in the near future.
Altagas Canada Inc : TD Securities cuts to hold from buy
BCE Inc : National Bank of Canada cuts to sector perform from outperform and cuts price target to C$58 from C$60
Canadian National Railway Co : UBS cuts price target to C$107 from C$117
Canadian Pacific Railway Ltd : UBS cuts price target to C$274 from C$329
Capreit : Canaccord Genuity raises price target to C$51 from C$49 and raises to buy from hold
Emera Inc : UBS cuts price target to C$49 from C$51
Fortis Inc : UBS cuts price target to C$50 from C$53
Imperial Oil Ltd : BofA Merrill raises to neutral from underperform
Stingray Group Inc : Desjardins cuts target price to C$9 from C$11
Canada Goose Holdings Inc : TD Securities cuts price target to C$84 from C$93 and raises to buy from hold
Granite REIT : RBC raises to outperform from sector perform
Intact Financial Corp : Morgan Stanley cuts target price to C$114 from C$118
Interrent REIT : RBC cuts to sector perform from outperform and raises price target to C$13.50 from C$13
Lundin Mining Corp : Morgan Stanley resumes coverage with overweight rating and a price target of C$8.70
WPT Industrial REIT : RBC raises to outperform from sector perform
With files from Reuters