Inside the Market’s roundup of some of today’s key analyst actions
While Netflix Inc. (NFLX-Q) earnings came in about US$20-million below forecasts and foreign exchange came in about US$75-million worse than forecasts, Citi Research analyst Mark May is still positive on the company’s prospects for this year as it boosted its international subscriber growth.
He kept his “buy” rating on the stock and raised his target price to US$420 from US$400. The median price target is US$415, according to Zack’s Investment Research.
“Domestic subscriber additions (1.5 million) were in-line, while International subscriber additions (7.3 million) were meaningfully above. Earnings were roughly as expected. While 1Q19 total revenue guidance is US$50-million to US$100-million below, it appears to largely be FX driven. And while 1Q19 domestic subscriber net additions guidance (1.6 million) is slightly below forecasts (1.6-1.8 million), it’s likely driven by management conservatism given the recent price increase. We note that not only is 1Q19 Int’l sub net add guidance (7.3 million) well above forecasts (5.6-6.3 million), the domestic guidance may prove conservative given the strong free trial growth in 4Q18 (+37 per cent/+558k seq. in U.S. vs. 36 per cent/513k in 4Q17). Management also reiterated its commitment to 300bps [basis points] operating income margin expansion in 2019, and that FCF [free cash flow] burn will peak this year. Notably, management’s guidance implies it could exit CY19 with about 14.5 per cent operating margin, which we believe means that previous consensus forecasts for a 14.5 per cent operating margin for CY20 will prove too conservative. With global penetration of only 23 per cent (incl. <15 per cent outside the U.S.), meaningful pricing power, and (content) expense leverage, we forecast nearly US$42-billion in revenue and $18 in GAAP EPS in five years (representing a 46 per cent EPS CAGR [earnings per share compound annual growth rate]). We believe this supports a 12-month new target price of US$420 and, as a result, we maintain our ‘buy’ rating,” he said.
Meanwhile, Canaccord Genuity also kept its “buy” rating on the stock but boosted its price target to US$415 from US$400.
“While the stock has rebounded sharply, it is still about 15 per cent below highs reached last summer, but now in the context of a steadily improving business,” said analyst Michael Graham.
UBS kept its “buy” rating on Netflix and raised its target price to US$420 from US$410.
**
With the expectations of weaker iPhone sales in the next quarter, Canaccord Genuity analyst T. Michael Walkley is keeping his “buy” target on Apple Inc. (AAPL-Q) and his US$190 target price, but is lowering his sales estimates.
“With our survey work indicating declining sell through share and disappointing overall sales due in part to soft smartphone demand combined with relatively high inventory levels, we are lowering our iPhone estimates. While we believed the lower-priced iPhone XR would generate strong sell through trends, our surveys indicate muted demand versus our expectations. Feedback for lackluster initial sales included its inferior quality perception given its aluminum construction versus the XS and XS Max, lack of HD screen, and viable lower-cost alternatives in the older iPhone X and 8 models. We have reduced our C’19/C’20 iPhone unit sales estimates from 180 million/194 million units to 177 million/191 million units.”
The median price target is $197.50, according to Zack’s Investment Research.
**
Tech and licensing company Sylogist Ltd. (SYZ-X) reported fourth quarter results that were below the expectations of Acumen Capital analyst Brian Pow, but he is still positive on the company after it completed several acquisitions.
“Revenue of $9.1-million(up 13 per cent year over year), compared to our estimate of $9.4-million and consensus of $9.2-million. Excluding the impact of the purchase accounting adjustments, revenue of $9.6-million (up 19 per cent Y/Y) was above our estimate,” he said.
“Subscription revenue was $5.7-million (up 9 per cent Y/Y) driven by K12 and Sunpac revenue offset by lower defense and safety and payroll maintenance software revenue (onetime adjustments). Professional service revenue was $2.6-million (up 14 per cent Y/Y) from new engagements for NGO and K-12 education,” he said.
“Diluted EPS of $0.20, compared to our estimate of $0.12 (consensus not reported). Excluding the bargain purchase gain on K12 Enterprise and Sunpac Systems, EPS was $0.09. The company exited the year with cash of $31.4-million,” he noted.
He maintained his “buy” rating on the stock but trimmed his price target to $16 from $17. The median price target is $18.
“Given the potential organic catalysts (payroll and K12 education opportunities) we believe the outlook remains attractive as we expect to see a step change in operating performance. We picked up coverage on SYZ late last year and recently picked the Company as a Dark Horse candidate for 2019,” he said.
**
BMO Research resumed coverage of Husky Energy Inc. (HSE-T) after the company’s failed bid for MEG Energy Corp. (MEG-T).
In light of the failed bid, BMO downgraded Husky to “market perform” with a target price of $19.
“While on restriction, we revised our commodity price outlook and the company announced 2019 guidance that was impacted by Alberta’s production cuts as well as announced that it is marketing its Prince George refinery and extensive retail network,” said analyst Randy Ollenberger.
“We are lowering our investment opinion to Market Perform to reflect the changes to our estimates as well as relative performance,” he said.
**
BMO Research’s view of Iamgold Corp. (IAG-N) (IMG-T) has turned negative and it downgraded its rating and cuts its target price. Its shares are down more than 15 per cent after “the company reported disappointing 2019 production guidance.”
“More concerning is the read-through on the $170-million gold forward sale that looks to signal Cote development on the horizon. We think the company is heading in that direction, which has made us re-evaluate our recommendation thesis for Iamgold,” said analyst Andrew Kaip.
"Given the elevated risk profile of greenfield development, we are downgrading shares of IAG to Market Perform and lowering our target price to US$3.75 from US$6.
**
Canaccord Genuity is initiating coverage on 3 Sixty Risk Solutions Ltd. (SAFE-CN), which “provides seed-to-sale security solutions for the burgeoning cannabis industry.”
Analyst Doug Taylor rated the company a “speculative buy” with a target price of 85 cents.
“The recent combination of 3 Sixty Secure Corp. and Total Cannabis Security Solutions married a leading consultant in cannabis security with a provider of guard and secure transport services. The resulting entity has seen, and is expected to continue to see, substantial growth as licensed producers grapple with the practical and regulatory requirements of securing and transporting large amounts of cannabis. The company’s operating and financial track record is limited at this point – this informs our speculative rating – but we see the opportunity for attractive shareholder returns as 3 Sixty’s growth trajectory is confirmed,” he said.
“3 Sixty combines privileged customer relationships (through its consulting business), customized vehicles, and a one-stop shop approach to cannabis security (vs. traditional security and logistics vendors). The company has already established relationships with most top Canadian players (Canopy, OCS, Tilray, Aphria). We model 3 Sixty revenue expanding from ~$1.2-million/ month at December 2018 to $5-million-plus per month by the end of 2019. We see this high level of growth as driven by the rapid on-boarding of new customers – the number of secure transport and guarding customers is up 65 per cent since August – and by the rapid increase in industry production in Canada, which we expect to double in 2019.”
**
In other analyst actions:
UBS upgraded Chevron to “buy” as a “sector sell-off reveals value and resilient operating and financial model should limit downside.” Its target price is US$135.
Calfrac Well Services Ltd : Raymond James raises to strong buy from outperform
Cobalt 27 Capital Corp : BMO cuts price target to C$12 from C$15
First Quantum Minerals Ltd : Goldman Sachs cuts price target to C$15.5 from C$17
Fortuna Silver Mines Inc : CIBC cuts target price to C$7.50 from C$8.50
Husky Energy Inc : BMO cuts price target to C$19 from C$23 and cuts to market perform from outperform. GMP raises target price to C$18 from C$16; RBC cuts price target to C$19 from C$20
IAMGOLD Corp : National Bank of Canada cuts price target to C$6.75 from C$8.00
Lundin Mining Corp : Goldman Sachs cuts price target to C$7.50 from C$7.75
Mav Beauty Brands Inc : CIBC cuts target price to C$14 from C$17
MEG Energy Corp : CIBC cuts target price to C$6.50 from C$8.30; GMP cuts target price to C$6 from C$9.05 and revises rating to hold from tender; RBC cuts price target to C$7.50 from C$8.15 and raises to outperform from sector perform.
Peyto Exploration & Development : GMP cuts target price to C$8.75 from C$10.50; CIBC cuts target price to C$10 from C$12.
Step Energy Services Ltd : Raymond James raises to strong buy from outperform
Trevali Mining Corp : BMO cuts price target to $0.65 from $0.80. RBC cuts price target to C$0.60 from C$1 and cuts to sector perform from outperform.