Inside the Market’s roundup of some of today’s key analyst actions
After CIBC did an “in-store price survey” at Dollarama Inc. (DOL-T), Walmart and Dollar Tree, it noted that prices rose slightly at its peers but not at Dollarama, and it increased its target on the company.
“Our most recent price checks show limited changes on pricing; Walmart has returned to modest inflation, though we have found limited evidence of DOL following suit. Our DOL estimates are unchanged, though it does appear as though inflation in 2019 is more likely than a few months ago, and the risk of more severe deflation and margin compression is significantly reduced. This informs a higher multiple,” said analyst Mark Petrie. “We will review all estimates and valuation again when Dollarama reports [its latest results on] June 13.”
He boosted his price target to $44 from $37 and kept his “neutral” rating. The median price target is $43.50, according to Zack’s Investment Research.
“We continue to believe the competitive environment is challenging. Walmart remains highly focused on driving traffic, and we take particular note of two recent developments in their new Urban Supercentre, which features two firsts - a dedicated “Party Zone” boutique, and a shop-in-shop Miniso. Prices may edge up over time, but we do not believe Walmart is being any less aggressive,” he said.
“Our estimates are unchanged, though we have increased our target multiple to 24 times (applying our 2 times PEG to 12 per cent growth expected in F2021). The Q4 results and F2020 guidance clearly de-risked this year, though we have been more cautious than the market in looking ahead to re-accelerated growth,” he said.
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Altacorp Research boosted its target price for Bellatrix Exploration Ltd. (BXE-T) after the company completed a recapitalization transaction and implemented a 12 to 1 share consolidation.
The recapitalization "reduces total debt by approximately $110-million and dilutes existing shareholders to approximately 16.5 per cent of shares post-recapitalization, said analyst Thomas Matthews.
He raised his target price to $2.50 from 20 cents and kept his “underperform” rating. The median price target is 22 cents.
“A 12 to 1 share consolidation prior to the implementation of the recapitalization transaction will take place resulting in 6,742,244 common shares issued and outstanding. Together with the new common shares issued with the recapitalization transaction, the company will have a total of approximately 40,863,008 issued and outstanding common shares which are expected to commence trading on the TSX on June 7, 2019,” he said.
“Our price target is based on 0.55 times PDP NAV [proved developed producing net asset value] and Risked Undrilled Upside of $4.45/sh (ACC price deck discounted at 10 per cent) with the upward adjustment in target price resulting from the 12:1 share consolidation. Our PDP multiple reflects the high cost of debt, credit risk and the lack of liquidity/interest in the junior gas-weighted E&P universe,” he said.
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Canaccord Genuity is resuming coverage of Kirkland Lake Gold Ltd. (KL-T) saying it “has been one of the best-performing mining stocks over the trailing 18 months.”
The stock is up about 200 per cent “and thus is trading at the top end of the valuation range relative to covered large cap peers, with a P/NAV [price to net asset value] multiple of 1.34 times (vs. peers at 0.84 times) and 2020 EV/EBITDA [enterprise value to earnings before interest, taxes, depreciation and amortization] of 8.5 times (vs. 5.8 times),” said analyst Tom Gallo.
He started with a “buy” rating and a target price of $60. The median is $53.
“The high valuation is justified, in our view, for several reasons. First, the company mines very high-grade ore and has some of the highest margins in the industry. With over 1 million oz of production slated for the next three years, KL will generate a large amount of cash (CGe US$515-million in 2019, US$636-million in 2020 and US$752-million in 2021). Further, the company has considerable exploration upside potential beyond its reserve base, with an additional 1-million oz from Fosterville at reserve grades adding C$200-million – $700-million to our NAV. Macassa’s South Mine Complex is also relatively under-explored and, in our view, offers the chance to considerably extend mine life. Finally, Kirkland Lake has a very solid capital structure, with ~210M shares outstanding and no meaningful debt; we believe KL is positioned to make accretive acquisitions should it so choose,” he said.
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Canaccord Genuity initiated coverage of H2O Innovation (HEO-X) as it “is the only company on TSX providing pure play exposure to the water treatment sector.”
Analyst Raveel Afzaal rated the company a “buy” with a price target of $1.60. The median price target is $2.
“HEO sells water treatment equipment, high-margin specialty products and offers O&M to municipal and industrial customers through its three divisions. The company is well supported by insiders who own 50 per cent and include Investissement Quebec, CDPQ and BDC,” he said.
“We estimate after-market part and chemical sales coupled with O&M [operations and maintenance] contracts under long-term and sticky contracts generate recurring revenues and gross profit of ~75 per cent and 80 per cent, respectively. Further, HEO drives ~12-15 per cent of its revenues from cross-selling opportunities between its three divisions which we believe should grow over time as its O&M business (commenced in 2016) further expands,” he said.
“HEO is a pure play on water treatment with high recurring revenues and a sales backlog of ~$150-million, low capex requirements and exposure to long-term macro growth drivers. Further, comparable Ovivo (also Quebec based similar to HEO) with ~30 per cent in estimated recurring revenues was taken private at an EV/EBITDA multiple of 11.0 times in 2016. Assuming a 13.5 times take-out multiple for HEO (given larger recurring revenue component) implies a take-out price of $1.90 per share,” the analyst said.
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Canaccord Genuity raised its target price on MongoDB (MDB-Q) as the database and enterprise software company is growing strongly and has solid momentum.
“An open-ended TAM [total addressable market] that is growing at least 30 per cent combined with a strong product and excellent sales motion spells one thing: increasing economies of scale, and competitively, that means that arithmetic market share gaps become exponential. It is not a secret that software valuations are bumping up, if not surpassing, decade-long records, and yes, that makes us nervous. However, for the super-speeder portion of a portfolio, which might be 10-20 per cent of the total, MDB is a worthy consideration,” said analyst Richard Davis.
He kept his “buy” rating on the stock and raised his target price to US$160 from US$125. The median price target is US$135.
“Like a lot of companies these days, if you believed the guidance and consensus, MDB would be too highly valued to support a BUY. However, while upsides are obviously not guaranteed, given Mongo’s technology, market position and a conservative CFO, we suggest upsides are more probable than not,” the analyst said.
“On an upside, or blue sky, scenario we can make the case that MDB could have a growth + FCF [free cash flow] margin sum of nearly 50 per cent in five-years from now – that equates to roughly US$2-billion in revenue (+33 per cent growth at that time) and 16 per cent FCF margins in C2024. Today, a G+M margin sum of 50 per cent in the next-gen infrastructure and tools space gets you an out year EV/R multiple of nearly 12 times. If we haircut this by 25 per cent and assume that MDB could fetch something like 9 times forward revenue for those metrics in four years from now, that gets us slightly better than a US$240 stock, which is a roughly 13 per cent IRR [internal rate of return] from today. For now, these seem like reasonable assumptions, which is why we continue to believe the correct rating for MDB is BUY.”
In other analyst actions:
Precision Drilling Corp: Citigroup cuts price target to C$3.50 from C$4.50
Advanced Micro Devices Inc rose 4.2 per cent after Morgan Stanley upgraded the chipmaker’s stock to “equal-weight” from “underweight”, citing near-term positive catalysts.
Goodyear Tire & Rubber Co climbed 3.2 per cent after Longbow Research raised its rating on the tire-maker’s stock to “neutral” from “underperform”, saying impact of Mexico tariffs will be modest on the company for now.