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Inside the Market’s roundup of some of today’s key analyst actions

A handful of analysts trimmed their price targets on Air Canada (AC-T) in the wake of Ottawa’s multibillion-dollar financial package for the airline, but many sell-side followers of the stock on Bay Street Tuesday also expressed support for the deal.

The government will allow Air Canada to access up to $5.9-billion through the Large Employer Emergency Financing Facility program, Finance Minister Chrystia Freeland and Transport Minister Omar Alghabra announced. As part of the package, Ottawa is buying $500-million of Air Canada stock, or 21.6 million shares, at just over $23 each and has the right to buy 14 million more. The federal government’s voting interest in the airline is capped at just below 20 per cent.

Air Canada shares closed at $27 on Monday, well above the price the government is paying.

RBC Dominion Securities analyst Walter Spracklin said he views the multibillion-dollar financial package as a “positive” for the airline stock.

“The added debt liquidity comes at attractive terms in early tranches and is tied to modest equity financing,” commented Mr. Spracklin. “While the dilution is not insignificant (we estimate total dilution of 8.7%, which includes 6.5% from shares issued and 2.2% from 50% of the warrants that vest immediately), we see the proposed funding from the government alleviating liquidity concerns and providing an important backstop that should allow AC to place a greater deal of focus on navigating the operational challenges associated with eventual recovery from the pandemic. Additionally, we highlight that a majority of the debt financing comes on very attractive variable rate terms, while the $1.4-billion ticket refund financing fund carries a modest fixed annual interest rate of only 1.211%, which we see helping to lower debt/financing costs longer-term.”

Mr. Spracklin rates Air Canada “outperform” and has a $25 price target on the stock.

BMO analyst Fadi Chamoun, who rates Air Canada “outperform” with a $33 price target, also gave the thumbs up to the liquidity arrangement with Ottawa.

“We believe that the proceeds from the agreement alongside the company’s strong liquidity should be more than sufficient to support the business through to the other side of the pandemic and allow AC to well-position itself for the recovery in air travel, which we expect to be very strong, once safety concerns ease,” Mr. Chamoun said in a note.

Scotiabank analyst Konark Gupta, however, trimmed his price target on the stock to $29 from $31 to reflect both the equity dilution it will entail, as well as the impact on the company’s financials from a potential $1.4-billion in ticket refunds. He continues to rate Air Canada “sector perform.”

“While the package provides AC with a significant rain check for future liquidity needs, including low-cost loans, and support to the Canadian aviation industry, we believe some investors could be negatively surprised by equity dilution (up to 10 per cent) and a repayable loan for refunds. However, AC could also potentially utilize some of the low-cost debt to redeem some expensive debt raised during or prior to the pandemic, saving interest costs,” Mr. Gupta said in a note.

TD Securities analyst Tim James cut his target price on Air Canada to $29 from $31, while reaffirming a “hold” rating. “We believe that Air Canada’s access to this capital will prove to be insurance as opposed to necessary liquidity required to finance operations or capital expenditures in 2021 and beyond,” Mr. James said. “Our target price declines due to the negative impact of greater short-term cash-burn and the impact of the dilution from the share and warrant issue on the price to equity component of our target,” James added.

ATB Capital Markets analyst Chris Murray reiterated a $28 price target and “outperform” rating on Air Canada after reviewing the deal. “Overall, we see the package as fair and manageable, with terms superior to those proposed under the Large-Employer Emergency Financing Fund with a lender with ultimately greater alignment on the well-being of the Company than was likely to be found in a private market transaction, ensuring Air Canada is well-positioned to emerge post-COVID to support a return to travel,” Mr. Murray said.

National Bank of Canada, which rates the stock “sector perform,” cut its price target to $29 from $31.

The average price target is now $28.32, according to Refinitiv Eikon data.


Canaccord Genuity analyst Matt Bottomley downgraded Aphria Inc. (APHA-T) to “hold” from “speculative buy” following the cannabis company’s release of disappointing quarterly results on Monday. He maintained a $17.50 (Canadian) price target.

Aphria reported fiscal third quarter financial results for the period ended Feb 2021 that came in below Street expectations, citing headwinds related to COVID-19 lockdown protocols, especially in Ontario which were in place for a large majority of the quarter.

Product price weakness and the decision of most provincial buyers to lower their overall inventory levels hut the company’s top line compared to the preceding quarter.

“Although we believe the company’s quarter signals a number of red flags likely to impact most operators (as the company still maintained its overall #1 Cdn adult-use market share in the period), we are lowering our recommendation .... now that the company trades at about 97 per cent of the implied deal price with Tilray,” Mr. Bottomley said.

Aphria is expected its deal to merge with Tilray Inc. to close sometime in the current quarter. Aphria’s shareholders are set to vote on the transaction on Wednesday, and Tilray’s will vote on Friday. Because the merger is share-for-share, the two stocks have traded in tandem of late and Tilray’s shares dropped 13 per cent Monday while Aphria lost 14 per cent.

In total, Aphria reported a $361-million net loss last quarter, bringing its loss for the first nine months of fiscal 2021 to $487-million. After adjusting for non-cash costs last quarter, which included a large loss on its convertible debentures, Aphria reported a $47.9-million adjusted loss.

The average price target is $18.45.


CIBC analyst Hamir Patel downgraded Acadian Timber Corp. (ADN-T) to “underperformer” from “neutral,” citing underwhelming softwood sawlog pricing appreciation in New Brunswick despite robust lumber markets. He has a price target of $17 on the stock.

“Log prices in New Brunswick have been sluggish due to the provincial government’s perplexing decision to leave royalty rates on crown timber unchanged for the past six years. While Acadian has attractive ESG attributes and is well positioned to pursue growth opportunities, we do not expect much activity from the company until a new CEO is in place (which may not happen until closer to the expiry of the transitional management team’s role in September 2021),” he commented.

The average analyst price target on Acadian Timber is $18.10.

But Mr. Patel raised price targets on several other forest products stocks as he bumped up his assumptions for lumber and oriented strand board pricing through 2022. He cautioned, however, that he expects prices to moderate next year as record profitability incentivizes more capacity to come onstream.

He raised price targets on Canfor (from C$35 to C$41), Canfor Pulp (from C$10 to C$11), CanWel (from C$9.50 to C$10.50), Conifex (from C$2.50 to C$3.00), Domtar (from $37 to $41), Hardwoods (from C$38 to C$39), Interfor (from C$37 to C$50), Mercer (from $17 to $19), Resolute (from $11 to $14), Stella-Jones (from C$57 to C$60), West Fraser (from C$120 to C$135) and Western FP (from C$1.90 to C$2.50). He lowered his price target on Cascades (from C$19 to C$18) given reduced earnings estimates.

He further commented: “Our top pick is West Fraser. Our other Outperformer wood products names include Interfor, Canfor, Resolute and Western FP. We also remain constructive on Stella-Jones and Hardwoods, two names with attractive M&A pipelines and exposure to residential construction. We also believe SJ is an underappreciated beneficiary from significant pole demand over the next decade associated with the electrification of mobility. On the paper and packaging side, we continue to favour Mercer given its pulp pricing leverage and growing lumber business.”


Canaccord Genuity analyst Dalton Baretto doubled his price target on Filo Mining Corp. (FIL-X) following positive additional assay results announced Monday from its Filo del Sol precious metals project in South America.

Eight holes have now been completed, with another five underway. Results from the first three holes were announced on March 31.

“We remain impressed with the scale and extent of the mineralization at Filo del Sol, and we are highly encouraged by the emerging precious metals story,” Mr. Baretto said in a note. “The silver-rich mineralization continues to improve the ultimate economics of the deposit, while the new shallow gold oxide discovery lends itself to some interesting strategic options going forward. We remind investors that above this porphyry already sits an attractive copper oxide project.”

He raised his price target to $5 from $2.50, “given the increasing scale, improving precious metals content, current market sentiment, and the stock’s trading multiples.” He maintained a “speculative buy” rating.

The average analyst price target is $5.04.


Credit Suisse analyst Jamie Cook raised his 12-month price target on Caterpillar Inc. (CAT-N) as he jacked up earnings estimates for the next three years in response to booming demand for heavy equipment.

His price target is now US$250, and he continues to rate the stock “outperform.” The average analyst price target is $222.36.

For Caterpillar, a global manufacturer of construction and mining equipment and a company often seen as an economic bellwether, it’s boom times across much of the globe.

For the North America dealers demand is booming with budgets forecast to be up in the 15-20% range constrained by equipment availability tied to supplier and labor shortages. This compares to previous forecasts of flat to up 10%. Demand has improved each month with March at record levels. Lead times on equipment are out 6-8 months already and equipment shortages most pronounced in North America. Demand for housing is strong and broad based, in particular renovation work.  Infrastructure projects are also gaining strength as shelved projects have restarted coupled with new project activity increasing. Non-residential trends remain mixed. Demand for rental equipment is robust again constrained by lack of equipment. Dealer inventory is too low. Used equipment pricing continues to improve up in the mid-single-digit range. Demand for mining equipment is also improving up in the 10-15% range. Services and parts remains strong and continues to gain momentum. Customers remain optimistic with a project pipeline that now extends at least one year coupled with enthusiasm associated with a potential infrastructure bill. Shifting overseas, demand in Asia also continues to be strong with Indonesia expected up in the 25% range and China still very strong although expected to moderate in the back half of the year,” Mr. Cook said in a note.

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