Inside the Market’s roundup of some of today’s key analyst actions
In the wake of the post-market release of its quarterly results on Wednesday, a pair of equity analyst raised their ratings for Canadian Pacific Railway Ltd. (CP-T).
Citing “a promising growth outlook and track record of solid operational execution,” Desjardins Securities’ Benoit Poirier moved the stock to a “buy” recommendation from “hold” previously, seeing CP “well-positioned to benefit from the upcoming volume recovery in 2021.”
“CP painted an optimistic outlook on volume growth for 2021 and introduced double-digit EPS growth guidance (vs consensus of 14 per cent),” he said. “Throughout the pandemic, we have been impressed by the resiliency of CP’s volumes as well as its solid operational execution.”
CP reported adjusted fully diluted earnings per share of $5.06, exceeding both Mr. Poirier’s $4.90 projection and the $5.03 consensus on the Street. Its operating ratio, a key measure of efficiency, was 53.9 per cent, beating both the analyst’s expectation (55.5 per cent) and the consensus (55.2 per cent).
“Management is targeting high-single-digit RTM [revenue ton mile] growth in 2021,” said Mr. Poirier. “CP’s RTMs are up 8.2 per cent so far in 1Q21, well above our initial forecast of 1.1 per cent. As noted in our 4Q20 preview, the level of demand for key commodities such as Canadian and U.S. grain, potash, coal and intermodal (both international and domestic) is encouraging for the year ahead. Management has an optimistic view for 2021, introducing RTM growth guidance in the high single digits (we initially expected 5.1 per cent). Therefore, we have revised our 2021 forecast to 7.2 per cent.”
Mr. Poirier raised his target for CP shares to $486 from $460. The average target on the Street is $479.59, according to Refinitiv data.
“In light of the positive outlook, strong operational performance and potential return of 16 per cent to our target price, we are upgrading to Buy (from Hold) and recommend investors buy the shares,” he said.
Elsewhere, Scotia Capital analyst Konark Gupta upgraded CP to “sector outperform” from “sector perform” with a target of $480, up from $465.
“The stock has meaningfully underperformed over the past few weeks (CP down 12 per cent vs. TSX down 3.4 per cent and S&P 500 down 1.9 per cent since Jan 8) and guidance came in better than expected, defying our concerns regarding FX headwind and downside risk to consensus,” Mr. Gupta said. “This has resulted in a P/E multiple (on our 2021E) compression to 20.4 times from 23.4 times over the same timeframe, which addresses our valuation concern as well.
“Given management tends to under-promise and over-deliver, we believe guidance as well as our estimates and consensus could have upside risk, giving us confidence in our bullish stance. We expect CP to remain the industry leader this year in terms of top-line growth, OR and ROIC. Further, we think the stock could get some support here as CP likely takes advantage of the weakness by front-end loading on buybacks under the renewed program. In addition, CP has potential to significantly raise the dividend this year, given its solid growth outlook and a low payout ratio.”
Other analysts making target price changes included:
* RBC Dominion Securities’ Walter Spracklin to $509 from $506 with an “outperform” rating.
“While Q4 results were bolstered by a significant non-recurring gain, the 2021 volume guidance came in meaningfully better than our expectations, which we expect should drive positive sentiment in the stock,” said Mr. Spracklin. “Despite leading the industry in volume growth for the last three years, mgmt guided to high single digit volume growth in 2021 - well ahead of our prior 2.3 per cent and by our measure, industry leading once again.”
* CIBC World Markets’ Kevin Chiang to $490 from $500 with an “outperformer” rating.
* Credit Suisse’s Allison Landry to US$393 from US$411 with an “outperform” rating.
* TD Securities’ Cherilyn Radbourne to $505 from $500 with a “buy” rating.
* Stephens’ Justin Long to US$365 from US$350 with an “equal-weight” rating
* Evercore’s Jonathan Chappell to US$382 from US$381 with an “outperform” rating.
=====
RBC Dominion Securities analyst Paul Treiber thinks Celestica Inc.’s (CLS-N, CLS-T) “growth profile and business mix are likely to help lift valuation multiples through 2021.”
On Wednesday, the Toronto-based electronics manufacturing services company reported fourth-quarter results that largely fell in line with his expectations.
Revenue fell 7 per cent year-over-year to US$1.39-billion, narrowly lower than Mr. Treiber’s US$1.4-billion estimate and the US$1.41-billion consensus on the Street. Adjusted earnings per share of 26 US cents was a penny ahead of the projection of both the analyst and the Street.
“While Celestica did not provide explicit FY21 guidance, it gave directional commentary that suggests improved growth, margins and business mix 2H/FY21,” said Mr. Treiber. “Specifically, ATS [Advanced Technology Solutions] revenue is expected to accelerate from guided mid-single digit decline Q1 to up 10 per cent year-over-year FY21. ATS margins are guided to increase from 3.9 per cent Q4 to 5-6 per cent 2H/FY21. Additionally, HPS [Hardware Platform Solutions] (previously called JDM) is expected to grow high-single digits, while ex-Cisco CCS is expected flat in 2021.
“Excluding the dis-engagement with Cisco, our outlook calls for FY21 estimated revenue to increase 5 per cent year-over-year year-over-year We forecast Celestica’s high quality ATS + HPS mix to reach 59 per cent of total revenue FY21, up from 51 per cent FY20.”
After narrowly raising his EPS projections for 2021 and 2022, Mr. Treiber increased his target for Celestica shares to US$9 from US$7.50 with an “outperform” rating. The average on the Street is US$8.78.
“Celestica has been trading near tangible book value ($7.60/share Q4) for most of 2020,” he said. “Valuation is currently 8 times FTM P/E [forward 12-month price-to-earnings], below peers at 14 times and near the mid-point of Celestica’s 5-year historical range of 5-12 times. We believe the return to positive growth by Q4/FY21, along with improved margins and the higher quality mix of revenue may help narrow Celestica’s discount to peers.”
Other analysts making target price adjustments included:
* Citi’s Jim Suva to US$8 from US$6.50 with a “sell” rating.
“We view recent demand trend favorable particularly with the JDM upside. However, our experience shows disengagement and program exit with top customers typically cause topline deleverage and stock turbulence for several quarters,” said Mr. Suva.
* Scotia Capital’s Paul Steep to US$9 from US$8.50 with a “sector perform” rating.
* BMO Nesbitt Burns’ Thanos Moschopoulos to US$9 from US$8.50 with a “market perform” rating.
* TD Securities’ Daniel Chan to US$9 from US$8 with a “hold” rating.
* CIBC World Markets’ Todd Coupland to US$10 from US$7 with a “neutral” rating.
=====
After its fourth-quarter results, released before the bell on Wednesday, exceeded the Street’s expectations, a group of analyst tweaked their target prices for shares of CGI Inc. (GIB.A-T).
They include:
* RBC Dominion Securities’ Paul Treiber to $115 from $110 with an “outperform” rating. The average is $106.03.
“CGI appears on track to meet its target for positive organic growth starting in June, in light of strong Q1 bookings and sequentially improved organic growth,” said Mr. Treiber. “Structurally higher profitability, improved FCF conversion, and an unlevered balance sheet suggest CGI is positioned for increased capital deployment through either acquisitions or share buybacks in 2021.
* Raymond James’ Steven Li to $110 from $106 with an “outperform” rating.
“Solid start to the fiscal year with strong margins, EPS and CFO,” said Mr. Li. “Organic growth is lagging behind at negative 4 per cent during F1Q21 but expected to continue to improve in F2Q before likely turning positive in F3Q.
* Scotia’s Paul Steep to $106 from $102 with a “sector outperform” rating.
“Our expectation is that CGI will continue to manage through a volatile demand environment as its clients shift priorities between near-term and longer-term IT projects,” he said. “CGI’s comments regarding a recovery in demand in F2021 are consistent with our expectations and commentary from the firm’s peers with an expectation that a recovery will gradually build throughout the year. Our target price increases ... based on updates to our estimates and rolling forward our valuation period with no change to the valuation multiple applied.”
* National Bank’s Richard Tse increased his target to $120 from $115 with an “outperform” rating.
* TD Securities’ Daniel Chan to $120 from $110 with a “buy” rating.
* Canaccord Genuity’s Robert Young to $112 from $105 with a “buy” rating.
=====
Desjardins Securities analyst Gary Ho called AGF Management Ltd.’s (AGF.B-T) fourth-quarter results as “solid” with “strong retail momentum a positive surprise.”
On Wednesday, the Toronto-based firm reported adjusted earnings per share of 19 cents, easily exceeding both Mr. Ho’s 15-cent estimate and the 13-cent consensus projection on the Street.
“We were pleased by the robust retail mutual fund flows so far in 1Q ($132-million), which should drive valuation higher, in our view,” he said. “With $1.34 per share in cash, $2.17 per share in seed capital and the DSC catalyst on the horizon, we views the shares as attractively valued given improving fundamentals.
“AGF remains our top asset manager pick.”
After raising his earnings expectations through 2022, Mr. Ho increased his target for AGF shares by a loonie to $9, keeping a “buy” rating. The average is $7.50.
“We foresee a few near- or medium-term positive catalysts: (1) Use of proceeds to redeploy into organic growth, seed new private alt strategies and share buybacks; (2) growth in fees/earnings from its alt platform; (3) execution on SG&A cost reduction to improve EBITDA and EBITDA margins; (4) change in investor narrative; and (5) the shares offer a 5-per-cent dividend yield,” he said.
Other analysts making target changes include:
* CIBC World Markets analyst Nik Priebe to $7 from $6.75 with a “neutral” rating
* RBC Dominion Securities’ Geoffrey Kwan raised his target to $7.50 from $6.50 with a “sector perform” recommendation.
* BMO Nesbitt Burns’ Tom MacKinnon to $7 from $6 with a “market perform” rating.
* Scotia Capital’s Phil Hardie to $7.50 from $6.50 with a “sector perform” rating.
“We are encouraged by several data points that suggest that recent positive operational momentum should carry into the new year, which includes 1) continued improvement on the mutual fund net sales front; 2) 2021 SG&A guidance set at $180M, slightly below our expectations, 3) increased earnings contribution from the private alternatives, and 4) stable investment performance,” said Mr. Hardie.
=====
Industrial Alliance Securities analyst George Topping sees Osino Resources Corp. (OSI-X) “on the fast track” to production or a takeout by a large gold producer.
He initiated coverage of the Vancouver-based company with a “buy” recommendation, emphasizing the potential of its fully owned Twin Hills project within the Karibib fault in Namibia.
“Two majors producing mines are operating along the fault: B2 Gold’s (BTO-T) Otjikoto project and QKR Namibia’s (Private) Navachab project. B2 Gold is an $7-billion listed miner while QKR is a private equity company that acquired the Navachab mine from AngloGold (ANGJ-J) for US$110-million. Namibia is a stable country, has local mining expertise, and offers rapid permitting (averages 7 days for a mining claim license to 6 months for an actual mining license).”
Mr. Topping added: “The region, in keeping with the industry, needs consolidation. Osino will either be a consolidator or be consolidated with outcomes dependent upon exploration success from here. Management’s history points towards the latter with one company sold and one merged.”
He set a target price of $2.60 per share, falling short of average on the Street by 10 cents.
“The share price will be driven higher by exploration success and rapid progress towards a bankable feasibility study with an initial resource estimate by the end of Q1/21 and production by 2024/25,” he said. “The current management team has the expertise and experience in the given geography to run this project.”
=====
CIBC World Markets analyst Jamie Kubik made a series of target price changes to stocks his coverage universe on Thursday. They include:
- Advantage Oil & Gas Ltd. (AAV-T, “neutral”) to $2.25 from $2.50. Average: $3.40.
- Bonterra Energy Corp. (BNE-T, “outperformer”) to $2.50 from $1.50. Average: $1.69.
- Freehold Royalties Ltd. (FRU-T, “outperformer”) to $8.50 from $8. Average: $7.50.
- Paramount Resources Ltd. (POU-T, “neutral”) to $6.50 from $5. Average: $5.57.
Meanwhile, CIBC’s Robert Catellier trimmed his target for Gibson Energy Inc. (GEI-T) to $23 from $24 with a “neutral” rating, citing “ongoing weak marketing conditions.” The average is $24.59.
David Popowich increased his Peyto Exploration & Development Corp. (PEY-T) target to $4 from $3.50 with a “neutral” rating. The average is $3.96.
He also raised his target Yangarra Resources Ltd. (YGR-T) to 80 cents from 75 cents with a “neutral” recommendation. The average is 95 cents.
=====
In other analyst actions:
* Scotia’s Mario Saric raised his target for Tricon Residential Inc. (TCN-T) to $14 from $12.50 with a “sector outperform” rating, while RBC Dominion Securities’ Matt Logan raised his target to $14 from $13.50 with an “outperform” recommendation. The average is $14.08.
* TD Securities initiated coverage of Wesdome Gold Mines Ltd. (WDO-T) with a “buy” rating and $13.50 target. The average is $15.77.
* National Bank Financial analyst Vishal Shreedhar cut his target for Canadian Tire Corporation Ltd. (CTC.A-T) to $189 from $190 with an “outperform” rating. The average is $173.73.
* National Bank’s Dan Payne raised his Headwater Exploration Inc. (HWX-T) target to $4 from $3.50 with an “outperform” rating. The average is $3.45.
* National Bank’s Rupert Merer hiked his target for shares of GFL Environmental Inc. (GFL-T) to $40 from $34, keeping an “outperform” rating. The current average is $35.45.
* Scotia Capital analyst Mark Neville raised his target for Stella-Jones Inc. (SJ-T) to $53 from $50 with a “sector perform” rating. The average is $52.94.