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

While he viewed its fourth-quarter financial results as “solid,” iA Capital Markets’ Matthew Weekes lowered his recommendation for TC Energy Corp. (TRP-T) on Wednesday, believing its post-earnings call commentary pointed to “much more tempered” growth this year.

He was one of three analysts on the Street to downgrade the Calgary-based company’s shares following the better-than-expected end to the 2021 fiscal year and an increase to its quarterly dividend (90 cents from 87 cents).

TC reported comparable earnings before interest, taxes, depreciation and amortization (EBITDA) of $2.4-billion, up 3 per cent year-over-year and exceeding both Mr. Weekes’s $2.36-billion estimate and the consensus forecast on the Street of $2.38 due largely to the performance of its U.S. natural gas pipelines and its Power and Storage operations. Comparable earnings per share slid 8 per cent to $1.06 but also beat projections ($1.04 and $1.07, respectively).

While the company reiterated its expectation for average annual EBITDA growth of at least 5 per cent through 2026, Mr. Weekes emphasized those gains are “not expected to be linear, with modest EBITDA growth and fairly consistent EPS projected year-over-year in 2022.”

“TRP’s 2022 outlook includes a modest projected increase in comparable EBITDA, driven by growth in the NGTL system and higher earnings in Mexico NG Pipelines,” he said. “U.S. NG Pipelines and Power and Storage are expected to be consistent YoY, while TRP is forecasting a decrease in Liquids Pipelines due to continued weakness in spot Keystone volumes and lower liquids marketing margins. TRP expects comparable EPS to be consistent year-over-year.”

Based on that view, he lowered his EPS projections for 2022 and 2023 to $4.28 and $4.50, respectively, from $4.69 and $5.09.

Also pointing to the stock having “delivered strong returns recently,” Mr. Weekes dropped the stock to “hold” from a “buy” rating, awaiting “more positive momentum in growth.” His target remains $68, which is 8 cents below the average on the Street, according to Refinitiv data.

“The shares continue to offer an attractive dividend yield, largely underpinned by stable, cost-of-service or long-term contracted earnings and cash flows,” he said. “TRP maintains a robust $24-billion backlog of secured, low-risk investments that are expected to deliver an average unlevered after-tax IRR of 8 per cent, and we look forward to further growth sanctioning and developments in TRP’s energy transition strategy.”

Elsewhere, Raymond James analyst Michael Shaw cut his recommendation to “outperform” from “strong buy” with a $67.50 target.

“TC Energy has been the best performing equity in the Canadian pipeline and midstream sector year-to-date and has outperformed the broader Canadian utility group,” said Mr. Shaw. “TRP is up 14 per cent year-to-date versus the TSX up 1.3 per cent and the utility index down 3.7 per cent.

“The move in the equity to $67.16 has pushed TRP’s valuation metrics to more historically normal levels – it is now trading at 12.0 times our 2023 estimated EBITDA and 14.9 times our 2023 EPS versus ranges of 12.1 times to 12.3 times and 14.3 times to 15.6 times respectively between 2018 and 2021. As a result we are lowering our rating to Outperform; but we are not changing our long-term investment thesis on TRP. TC Energy continues to have an industry leading secured capital spending outlook which can drive the targeted 5-per-cent annual EBITDA growth, 3- to 5-per-cent annual dividend growth, and the deleveraging target to 4.75 times by 2026. Combined with its energy transition investment opportunity, anchored by Bruce Power, TC Energy continues to be our preferred large cap pipeline investment.”

Meanwhile, CIBC World Markets analyst Robert Catellier downgraded the stock to “neutral” from “outperformer” with a $69 target.

“Comparable earnings were higher than our estimate, but this was tempered by the expectation that 2022 EPS would be ‘‘consistent” with 2021 due to F/X headwinds. Combined with a declining return to target, we are reducing our rating,” Mr. Catellier said.

BMO Nesbitt Burns’ Ben Pham raised his target to $73 from $70 with an “outperform” rating.

“TRP shares outperformed on the day (up 0.8 per cent vs. Canadian group roughly flat). We believe the shares held up due to the solid results, dividend increase (in a market still starved for yield), and growing confidence of new growth projects that could add upside to expectations,” said Mr. Pham.


Scotia Capital analyst Michael Doumet thinks the setup for Ag Growth International Inc. (AFN-T) “may be as good has it has been for a while.”

Expecting profit growth to accelerate and seeing a free cash flow inflection point, which he calls a “major catalyst,” he raised his rating to “sector outperform” from “sector perform” on Wednesday, believing it’s “time to decompress.”

“The shares trade at the lowest EV/NTM EBITDA [enterprise value to next-12-month earnings before interest, taxes, depreciation and amortization] multiple in more than a decade,” said Mr. Doumet. “Strong growth prospects and moderating steel prices (30 per cent of COGS in 2020) should boost profits and cash flows into 2022. We think its leverage has peaked. And its margins are likely to improve from its 3Q21 low-point. Further, with one of the bin projects remediated, we see little incremental risk of negative surprises and believe AFN will look to fully resolve the issue in 2022. The wind-down of the bin incident and wind-up of profits should enhance FCF (15-per-cent yield) and ROIC [return on invested capital], accelerating the prospects for delevering and, therefore, aiding the shares to re-rate higher.”

He raised his target for the Winnipeg-based company’s shares to $45 from $39. The current average is $48.11.

“AFN shares lagged those of other ag equipment companies in 2021,” he noted. “Today, at 7.5 times EV/EBITDA on our 2022, AFN shares are trading at their lowest level in over a decade. Last year, higher steel inputs, a cash drag from WC, and the bin incident collectively weighed on margins, cash flows, and its trading multiple. As these headwinds reverse (or are resolved), we expect profits, cash flows, and its multiple to expand. Our valuation multiple of 8.5 times on our 2023 is below AFN’s historical average of 9.0 times and our 2023 is conservatively below consensus – despite that, our target implies significant upside.”


Stifel analyst Alex Terentiew sees a “catalyst rich year ahead” for Teck Resources Ltd. (TECK.B-T), believing a valuation upwards of $64 per share “could be warranted.”

“Strong commodity prices are aligning with ideally timed project development to create an outlook for Teck we think couldn’t get much better,” he said. “Met coal prices remain well above expectations, Fort Hills is expected to finally show its potential, QB2 is in the final stage of completion, San Nicolas may soon get a partner and move forward, and the energy and met coal divisions we believe could be restructured later in 2022, attracting new shareholders. Altogether, the alignment of these events we expect could generate higher cash flows and returns to shareholders, in addition to a higher market valuation as a more base metals focused company takes shape.”

Mr. Terentiew thinks Teck’s base metals business alone could be worth almost as much as the company is valued today.

“Breaking down Teck into base metals, met coal and energy divisions, we estimate that applying peer a valuation to the base metals business alone could warrant a $39 per share valuation, leaving copper growth projects ($4), met coal ($12-17) and energy ($4 per share) as incremental upside, potentially to $64 per share plus share,” he said.

“Coal and oil sands are weighing down Teck’s base metals valuation, in our view. With 50 per cent of its business currently driven by metallurgical coal, it’s understandable why Teck trades more like a premium coal company and at a discount to the copper miners. Once QB2 ramps-up and if Fort Hills is sold or coal is restructured, a shift towards a copper premium is warranted. Even without asset sales, we see copper surpassing met coal as the dominant source of revenue in 2024. Although we expect met coal prices to moderate from today’s lofty levels, should a weakening coal price pull Teck’s share price lower, we would view a pullback as a buying opportunity.”

Ahead of the Feb. 24 release of its fourth-quarter results and 2022 guidance, Mr. Terentiew reiterated Teck as “a top pick for 2022,” raising his target to a Street-high of $57 from $53 with a “buy” rating. The average is $47.71.

“The long-term bullish outlook for copper, combined with Teck’s copper-focused growth profile and the current exceptional price strength in coking coal, has created an ideal scenario for Teck, and one that we believe the investing market has not yet adequately appreciated,” he said. “Today’s coal driven cash windfall is ideally timed to redeploy funds into the company’s cornerstone copper growth project, QB2, and ultimately support enhanced returns to shareholders and redeployment of additional funds to more copper growth. We expect a start-up of QB2 in 2H 2022 will establish Teck as a significant global copper producer, which in combination with its other growth opportunities, should provide several catalysts to generate incremental value over the coming years. With approximately 70 per cent of NAV derived from Canadian and U.S. assets, Teck also carries a relatively low jurisdictional risk.”


While Neighbourly Pharmacy (NBLY-T) continues to face several headwinds from ongoing labour shortages and decreased doctor-patient clinical interactions, iA Capital Markets analyst Chelsea Stellick thinks its ”successful M&A business strategy will offset these near-term challenges and position the Company to capture market share as health restrictions are eased this calendar year and as the Company’s highly scalable platform expands its network.”

On Tuesday, the Toronto-based operator of community pharmacies reported revenue for the third quarter of $139.2-million, up 27 per cent year-over-year but below Ms. Stellick’s $144.5-million estimate and the consensus forecast of $143-million. Adjusted EBITDA rose 12 per cent to $14.5-million, also below expectations ($16.8-million and $17-million, respectively).

“The Company’s positive top-line readings were materially offset by higher labour costs due to acute temporary labour relief triggered by COVID-19 absenteeism,” the analyst said. “The omicron variant created staffing shortages, which were exacerbated by highly labour-intensive activities such as vaccination services. Although labour shortages bucked the trend of new prescriptions that increased during the summer, NBLY still managed to administer 140K COVID-19 vaccines and 55K influenza vaccines through its network. We anticipate the Company to still experience some ongoing staffing challenges due to omicron, and due to displaced partners and patients from the flooding in B.C. in Q4/F22. Once these headwinds recede and supply chain bottlenecks improve, we expect NBLY to benefit from an increase in doctor-patient interactions in clinics and hospitals leading to more elective procedures and new prescription.”

Maintaining a “hold” rating for Neighbourly shares, Ms. Stellick cut her target to $31 from $36 after minor adjustments to her forecast “to reflect the labour shortages and have brought our multiples closer to NBLY’s peer set to reflect additional COVID-19 related headwinds which will spill over into Q4/F22.” The current average on the Street is $34.25.

Other analysts making changes include:

* National Bank Financial’s Zachary Evershed to $32 from $35 with a “sector perform” rating.

“Following quarterly results that fell short of elevated expectations, we finetune our profitability expectations to account for the ongoing but lessening Omicron headwind and persistently lower-margin profile associated with the new clinical pharmacy portfolio,” said Mr. Evershed. “This sees our target drop to $32 on an unchanged blended methodology: 1) 60-per-cent weighting on 14 times FY2023 estimated EV/ EBITDA (approximately $22), and; 2) 40-per-cent weighting on a nine-year DCF ($47). While there is significant growth potential in this roll-up story, we believe this is reflected in the stock’s premium valuation and therefore reiterate our Sector Perform rating given the tight return to target, awaiting a more attractive entry point.”

* RBC’s Irene Nattel to $39 from $36 with an “outperform” rating.

“Underlying Q3/F22 performance solid, consistent with narrative during and post IPO, and supportive of our constructive view,” said Ms. Nattel. “NBLY’s defensive business model, demographic tailwind and M&A driven business model should deliver EBITDA growth in excess of 30 per cent over our forecast horizon. Headwinds caused by short-term absenteeism related to Omicron and higher operating costs and logistics burden of COVID-19 vaccine administration that moderated FQ3/early FQ4 growth should be transient, in our view current share price weakness a compelling entry point.”


While he sees the outlook for Cargojet Inc. (CJT-T) remaining “positive,” National Bank Financial analyst Cameron Doerksen thinks its relative valuation is “not overly compelling” and warns of potential headwinds to multiple expansion beginning to emerge.

He expects the Mississauga-based company to report “solid” fourth-quarter 2021 results on March 7, projecting core revenue growth to rise 11 per cent year-over-year. His earnings before interest, taxes, depreciation and amortization forecast of $87.5-million, up from $81.9-million a year ago, tops the Street’s estimate of $80-million.

However, Mr. Doerksen said the company’s valuation remains his “main pushback,” prompting him to reiterate his “sector perform” rating.

“On 2022 consensus estimates, Cargojet shares are trading at 11.4 times EV/ EBITDA, which is below the peak valuation of 13.0 times the stock traded at in 2020, but above the 9.2 times forward EV/EBITDA the stock has traded at on average since mid-2015,” he said. “CJT shares are also trading at or above the package & courier bellwethers UPS and FedEx, which trade at 11.5 times and 6.7 times EV/EBITDA on current-year estimates, respectively. Investors have not typically valued Cargojet on P/E, but we believe it is a relevant metric. On 2022 consensus forecasts, CJT is trading at 29.6 times P/E, which is a big premium to UPS at 17.0 times current year and higher than the P/E ratios for the Canadian rails, which are at 22-23 times P/E currently.

“CJT’s dominant market position, e-commerce tailwinds, and solid margins support a valuation premium to air cargo peers, but we see some emerging headwinds to multiple expansion. These include the potential for new competition in the domestic market in several years, more competitive capacity in the ACMI and international charter markets, peaking international cargo rates, and slowing e-commerce growth.”

After minor revisions to his financial forecast, Mr. Doerksen raised his target for Cargojet shares to $203 from $201. The average is $247.92.

“We expect a strong Q4 and also still see solid multiyear growth ahead for Cargojet as the company benefits from e-commerce growth and emerging new revenue opportunities with ACMI contracts and international charter demand,” he said. “However, in the context of what we see as emerging headwinds to multiple expansion, we see the current share price as close to fair value.”


Stifel analyst Cole Pereira sees “significant upside potential” for Precision Drilling Corp. (PD-T) even with recent outperformance.”

Following a virtual meeting with Precision president and chief executive officer Kevin Neveu, Mr. Pereira said he expects recent increases in drilling activity and margins to continue.

“PD remains uniquely positioned as its leverage profile drives significant equity upside, which we view as being de-risked by its focus on debt reduction (targeting $400-million over the next four years) and maturity profile (no maturities until 2025),” the analyst said.

He noted activity and day-rates continue to rise in the United States and the company’s Canadian operations remain “strong.”

“Precision’s Canadian business continues to perform well with WCSB Montney-calibre rigs largely fully utilized, and its Clearwater position continues to be a differentiator given the efficiencies from that rig class,” he said. “PD currently has 52-per-cent market share in the Clearwater running 12 out of 23 rigs total. We estimate that the Clearwater was responsible for 9 per cent of Canadian drilling activity in 2021, up from 3 per cent in 2018. We expect this increasing trend to continue given the superior economics in the play, which should benefit PD’s broader market share accordingly.”

“PD highlighted that it believes it could be in a position to add a number of rigs each quarter in the U.S. in 2022, which could fully exhaust its idle super spec rig capacity by EOY. This along with the recent gains in the land rig count to 619 likely suggests that our total U.S. rig count forecast of 640 in 2022E and 690 in 2023 could see further upside. Moreover, commentary from Precision’s peers also suggests the potential for upside to our margin forecasts as well.”

Keeping a “buy” rating for Precision share, Mr. Pereira raised his target to $80 from $75. The average is $78.06.

“We expect PD to be a material beneficiary of the improvement in oil & gas drilling activity as commodity prices continue to recover from COVID-19,” he said. “We believe the company has an attractive operational footprint in the Montney and United States, both of which we expect to be focal points for North American OFS activity. Furthermore, the stock has an attractive FCF profile and no maturities for the next three years. With the company guiding to $400-million of additional debt reduction by 2025, this should facilitate a meaningful transfer of Precision’s enterprise value to the equity holder from the debt holder.”


Stifel analyst Maggie MacDougall thinks there is a “high risk” that Boyd Group Services Inc.’s (BYD-T) profitability remains below pre-COVID levels into 2023, calling 2022 “the year that margin matters the most.”

“It may be awhile before meaningful price increases come,” she said. “Following record profits in 2020, which evaporated alongside the steep rise in used car prices, the P&C insurers are in the tricky position of requiring double-digit price increases to offset current margin pressure resulting from inflation in auto asset prices. It is a slow process requiring regulator approval in 50 U.S. states, and likely only to give collision repairers gradual and modest margin reprieve in H2/22.

“Why might initial price increases be only modest? We believe initial price increases will be just enough to prevent the 60 per cent of the collision repair service providers that are Mom and Pops operating on razor thin margins from going bankrupt. This is because there is some speculation that used car prices will come down at some point, which we do not see as a foregone conclusion, but nonetheless is a factor. Additionally ... a close eye needs to be paid to medical costs, because inflation here will impact pricing available for the collision industry. Last, higher prices alone will not help with current record backlog in collision and labor shortages, because the simple fact is that the U.S. is at full employment and skilled technicians are therefore very hard to find.”

Ms. MacDougall thinks margin pressure for the Winnipeg-based company’s “could last for a while,” leading her to lower his estimates. She’s now projecting 2022 adjusted EBITDA of US$256.7-million, down 17 per cent from her previous US$309.3-million estimate and below the US$299.1-million consensus. Her earnings per share estimate fell 37 per cent to US$2.23 (from US$3.53).

“So what to do with the stock here? Our Q4/21 adj. EBITDA estimate of $53.9-million is in line with consensus for $54.9-million, so expectations for margin pressure in near-term results are already in the stock,” she said. “However, given the gap between our numbers and the street in 2022/23, we do not believe that consensus has yet made the leap that margin pressure will take time to resolve. A string of earnings misses tied to overly exuberant profitability expectations and the ROE reset may hurt BYD’s multiple, which is currently at its longterm average on consensus forecasts that look high to us. The one risk to taking an overly bearish view is that Boyd has US$600-million in liquidity on its revolving credit facility (including the US$275-million accordion) and is an active consolidator in the $40-billion collision repair market which remains highly fragmented. The margin pressure in the industry could help Boyd push more deals across the line this year.”

Maintaining a “hold” rating, Ms. MacDougall cut her target to $200 from $230. The current average on the Street is $241.77.

“We acknowledge that the 30-per-cent sell off from the October peak looks a tempting entry point given the growth profile of this company. However, without clarity on pricing timing and magnitude we prefer to stay on the sidelines for now,” she said.


In other analyst actions:

* With its year-end reserves “backing up” strong Montney well results, Raymond James analyst Jeremy McCrea upgraded Spartan Delta Corp. (SDE-T) to “outperform” from “market perform” with a $10 target, rising from $8.25. The average is $11.74.

“When we downgraded Spartan last summer, our concerns were: 1) High leverage to acquire Velvet, 2) High cashflow declines, and 3) Variable and inconsistent Montney well results,” he said. “Fast-forward seven months and how things have changed. Not only have commodity prices greatly improved the balance sheet but our concerns on Montney well performance is quickly subsiding given recent results from wells drilled late last year. This operational success is further backed up by the strong reserve report where F&D figures were a low $4.04 per barrel of oil equivalent. Overall, when combined with a very large Montney footprint and a valuation at only 1.4 times EV/PDP, we are upgrading our rating.”

* With the release of its quarterly results before the bell on Tuesday, CIBC World Markets’ Mark Petrie bumped up his target for shares of Restaurant Brands International Inc. (QSR-N, QSR-T) to US$69 from US$68 with an “outperformer” rating. Others making changes include: Barclays’ Jeffery Bernstein to US$74 from US$72 with an “overweight” rating and Stephens’ James Rutherford to US$65 from US$62 with an “equal-weight” rating. The average is US$69.54.

“The rebound at Tim’s (TH) continues and Burger King (BK) showed promise with same-store sales (SSS) ahead of expectations,” said Mr. Petrie. “We believe RBI is wellpositioned with regard to Canada’s re-opening, and BK’s turnaround will take time, but is credible. There is no shortage of challenges for 2022, but owning the franchisor in inflationary times is preferable. Importantly, the outlook for acceleration in net restaurant growth (NRG) remains strong. Other than the inclusion of Firehouse Subs (FHS), our estimates are little changed.”

* Following Tuesday’s announcement of its US$92.5-million acquisition of Wellbeats, a U.S.-based SaaS physical wellbeing platform, Stifel analyst Justin Keywood raised his target for LifeSpeak Inc. (LSPK-T) to $13 from $11.50 with a “buy” rating, while RBC’s Paul Treiber trimmed his target by $1 to $11 with an “outperform” recommendation. The average is $12.

“We view Wellbeats as a solid transaction that bolts onto LifeSpeak’s primarily mental health platform well with significant cross-sale opportunities. We modeled in Wellbeats, assuming the transaction closes, along with expectations for continued organic growth traction and leading to $100-million in sales for 2023 with 40-per-cent EBITDA margins,” Mr. Keywood said.

* Scotia Capital analyst Meny Grauman raised his Equitable Group Inc. (EQB-T) target to $95 from $94, keeping an “sector outperform” rating, after resuming coverage following its $230-million equity financing, which will help fund its acquisition of Concentra Bank. Elsewhere, viewing Equitable shares as “attractive,” RBC’s Geoffrey Kwan hiked his target to $96 from $88, reiterating an “outperform” recommendation, while National Bank’s Jaeme Gloyn maintained an “outperform” rating and $95 target and TD’s Graham Ryding kept a “buy” recommendation and $99 target. The current average target is $89.75

“Recall that we upgraded the shares from SP to SO on Feb. 4 on the back of an unjustified pull-back in the shares and a strong outlook for growth,” said Mr. Grauman. “Although M&A did not figure prominently in our thesis at the time, we did highlight a significant amount of excess capital as a key positive. We view this deal as only accelerating the bank’s growth profile. The financial impact of this deal is very positive given the fact that EQB raised equity at 1.27 times book to buy a bank at 1.08 times book, but it also makes sense strategically, especially the boost to non-interest income. The shares are up 3.4 per cent since the deal was announced and have outperformed the peer group by 340 basis points.”

* CIBC’s Scott Fromson cut his FirstService Corp. (FSV-Q, FSV-T) target to US$175 from US$205 with a “neutral” rating, while BMO Nesbitt Burns’ Stephen MacLeod cut his target to US$175 from US$193 with a “market perform” recommendation.. The average is US$182.50.

“FirstService reported in-line Q4/21 results, with top-line growth partially offset by wage inflation. Q1/22E outlook is for flat EBITDA; 2022E outlook is for 10-per-cent-plus top-line growth, flat margins,” said Mr. MacLeod. “The stock is down 23 per cent year-to-date from overstretched valuations. While this may lead to some near-term upside for the stock (buyers may step in post-Q4), we view the correction as reasonable (18.0 times NFY EV/EBITDA, down from 26.0 times in late 2021) as valuation is lining up more appropriately with FirstService’s fundamental outlook.”

* Jefferies analyst Christopher LaFemina raised his First Quantum Minerals Ltd (FM-T) target to $50 from $45 with a “buy” rating. The average is $37.57.

* Scotia Capital analyst Benoit Laprade raised his target for West Fraser Timber Co. Ltd. (WFG-T) to $147 from $143 with a “sector outperform” rating. The average is $154.83.

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