Inside the Market’s roundup of some of today’s key analyst actions
Citi Research raised its target price for Williams-Sonoma Inc. (WSM-N) after the company beat earnings estimates in the second quarter.
Analyst Geoffrey Small kept his “neutral” rating on the stock but raised his target price to US$70 from US$59. The median is US$60, according to Zack’s Investment Research.
“We are updating our model for WSM to reflect the company’s 2Q result, updated guidance and management commentary. Our 2019 and 2020 EPS estimates are each up on the 2Q beat, while our target price is now US$70 (up from US$59) based on the estimate revisions and our upwardly-revised target multiple (which reflects the better top-line outlook and lower risk of cost-based margin pressure),” he said.
Williams-Sonoma reported second quarter EPS of 87 cents US, better than estimates of 83 cents.
“We have a neutral rating on WSM. We like the company’s portfolio of established brands, well-developed e-commerce operations, internally-managed supply chain, and international opportunities. However, with SSS [same-store sales] growth likely to slow sequentially in the coming quarters and given the uncertainty over the long-term trajectory of EBIT [earnings before interest and taxes] margins, we think risk and reward are balanced at current levels,” he said.
“Our $70 target price on WSM is based on 14 times our FY2 EPS estimate. This target multiple is roughly in line with the stock’s longer-term average P/E (14 times, ranging from 10 times to 16 times), which we feel is appropriate as we expect the factors that have pressured sales and EBIT growth over the past few years to persist across 2019 and 2020,” he said.
RBC Capital Markets kept its “sector perform” rating but raised its price target to US$67 from US$61.
“We raise our 2019/2020 EPS estimates to US$4.73/US$4.85 from US$4.65/US$4.80 and introduce 2021E of US$5.05. Our price target increases to US$67 from US$61, as we roll forward our model and raise our target multiple by one turn (to 14 times) given better sales trends.”
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Beacon Research cut its price target on Green Thumb Industries Inc. (GTII-CN) even though the company reported strong quarterly results.
Analyst Russell Stanley kept his “buy” rating but cut his price target to $24 from $44. The median price target is $25.21, according to Bloomberg.
“We are reducing our 12-month target to $24 per share, based on estimate revisions and an updated valuation approach. Last night after the close, Green Thumb reported revenue/EBITDA [earnings before interest, taxes, depreciation and amortization] of $45-million/$5-million, beating our forecast of $43-million/$3-million, which was high versus consensus of $39-million/$1-million. Revenue more than tripled year over year, and improved 60 per cent over Q1/19 levels of $28-million. The retail segment featured same-store sales growth of 50 per cent on a year over year basis, and 27 per cent over Q1/19 levels. Moreover, gross margin improved sequentially from 47 per cent to 52 per cent, which management attributed almost entirely to wholesale margin improvement. The EBITDA beat is particularly noteworthy, given that our estimate was on the high end. While we commend Green Thumb for its Q2/19 performance, we have adjusted our forecast/valuation approach for the current cannabis market, driving the target change,” the analyst said.
“We have reduced our revenue forecasts for certain markets (Florida, New York and Massachusetts) to better reflect the company’s buildout plans, local market conditions and regulatory realities. We believe the company is prudently focusing its capital allocation on markets that offer the best returns, such as Illinois and Pennsylvania, while limiting near-term emphasis on more capital-intensive markets like Florida and Ohio. We have also introduced estimates for F2021, given our view that investors are increasingly looking beyond 2020 (in part by necessity, as several cannabis bellwethers are not expected to be EBITDA positive until C2021). We now value Green Thumb using the same 15 times EV [enterprise value]/2021E EBITDA multiple we use for other multistate operators. Applying that multiple to our F2021 EBITDA estimate of $253-million justifies a $24 per share target price,” he said.
“At current levels, GTII trades at approximately 7 times our 2021E EBITDA forecast, representing a 9 per cent discount to the 8 times average at which the broad peer group trades, and a 14 per cent premium to the 6 times average at which other U.S.-operating cannabis companies trade. Potential catalysts include the Q3/19 results, additional buildout progress, and additional M&A and/or license wins. During the remainder of F2019, we expect GTII to add 2-4 dispensaries in Pennsylvania, 3-4 dispensaries in Illinois (in anticipation of the opening of adult-use), and open its first of three dispensaries in New Jersey.”
Echelon Wealth Partners maintained its “buy” rating on the stock and its $24 price target.
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Desjardins is positive on National Bank of Canada (NA-T) after it reported third quarter results but it lowered some estimates.
Analyst Doug Young kept his “hold” rating on the stock and his $64 price target. The median is $64.
The bank’s “cash EPS was above our estimate and consensus. The gain on the sale of a portion of its Fiera Capital stake was offset by several items, which netted out to a zero impact. We lowered our estimates but are maintaining our $64 target price and Hold rating,” he said.
“Cash EPS was $1.66 vs our $1.62 estimate and consensus of $1.59. On a segmented basis vs our estimates, P&C banking, capital markets and USSF&I beat, while wealth management and corporate missed. The capital markets beat added $0.02,” he said.
“Our $64 target price equates to 1.5–1.6 times our estimated 3Q FY20 BVPS [book value per share],” he said.
“It is a tough environment for capital markets, a key part of NA’s story. The focus will be on expenses and whether NA can meet its target of driving positive operating leverage,” the analyst said.
He raised his 2019 cash EPS estimate to $6.28 from $6.25 but cut his 2020 cash EPS estimate to $6.60 from $6.70. The analyst cut his reported EPS 2019 estimate to $6.28 from $6.44 and his 2020 estimate to $6.60 from $6.70.
BMO kept its “market perform” rating on the stock and its $66 price target.
“Operating EPS of $1.66 (including [about] $0.03 of favourable insurance adjustments) exceeded our/consensus expectations of $1.57/$1.59. The beat to us was primarily in Personal & Commercial (better risk-adjusted margins and operating leverage) and Wealth Management (higher fee-based revenue),” said analyst Sohrab Movahedi.
CIBC kept its “neutral” rating and its $67 price target.
“It was a solid quarter all around from this bank, with continued solid progression in personal and commercial banking, a power surge in trading revenues, a quiet provision line and CET1 accretion from some corporate actions that closed during the period (that also created an unusually high, albeit offsetting, number of adjusting items this quarter). A good result that exceeded our above-consensus estimate and helped mitigate some of the downward estimate pressure that we have seen on all our bank estimates this quarter,” said analyst Robert Sedran.
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BMO cut its price target on Obsidian Energy Ltd. (OBE-T) after the failure to sell its Peace River asset.
Analyst Ray Kwan kept his “underperform” rating and lowered his price target to $1.25 from $1.50. The median is $1.92.
“Although the announcement doesn’t come as a complete surprise, the unsuccessful PROP [property] disposition has negative implications for the balance sheet,” he said.
“In the current market, we think it will be extremely difficult to transact on an alternate arrangement or other asset sales.”
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CIBC resumed coverage of Morguard Corp. (MRC-T) after closed its $103-million equity offering.
Analyst Dean Wilkinson rated the stock “outperformer” and a price target of $210. The median price target is $205, according to Bloomberg.
“We are resuming coverage of Morguard Corp. following the closing of Morguard North American Residential REIT’s [MRG] $103-million equity offering (through which Morguard Corp. purchased $25-million of units, bringing its effective interest in the REIT to about 45 per cent from about 47 per cent). To this end, we would simply opine that the raise was particularly well timed, as the offering price represented a [about] 10 per cent discount to our $22 MRG NAV [net asset value], and units have not traded at such a narrow discount to NAV over the past five years (the NAV discount has ranged between 15 per cent and 35 per cent over this time period). The REIT intends to use the proceeds to fund acquisitions, repay debt, and other general business purposes,” he said.
“Morguard Corp. reported funds from operations (FFO) of $5.52/share in Q2/19 vs. $6.39/share a year ago and our $5.24/share estimate. With MRC reporting an operationally in-line quarter, we maintain our $210 price target and Outperformer rating,” he said.
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