Inside the Market’s roundup of some of today’s key analyst actions
After its second fourth-quarter guidance reduction in just over a month, Desjardins Securities analyst Frederic Tremblay downgraded Cascades Inc. (CAS-T), expecting headwinds to persist in the first half of 2022.
Shares of the Kingsey Falls, Que.-based fell 5.4 per cent on Monday after it announced before the bell adjusted earnings before interest, taxes, depreciation and amortization is expected to come in at $62-million for the final quarter of its last fiscal year. That’s a reduction of almost 30 per cent from the $87-million estimate laid out in a downward revision released on Dec. 22.
“The latest update reflects the impact of the Omicron variant in the last two weeks of 4Q, which exacerbated ongoing labour and transportation availability constraints in Containerboard and Tissue, and resulted in further cost inflation as well as unplanned production downtime (causing challenges with product deliveries),” said Mr. Tremblay.
Cutting his fourth-quarter adjusted EBITDA projection to match the company’s expectation from $87-million, the analyst also reduced his full-year 2022 forecast to $481-million from $547-million. His earnings per share estimate is now 86 cents, down from $1.38.
“Management provided limited information on 1Q22 performance other than to indicate its hope that pressures will begin to ease through the quarter based on current trends that the Omicron variant is moderating. Reductions to our 2022 estimates reflect our view that the impact of challenges will likely be greater than we had previously anticipated for 1H22,” said Mr. Tremblay.
Moving his recommendation for Cascades shares to “hold” from “buy,” he also cut his target to $12.50 from $16. The average on the Street is $17.50, according to Refinitiv data.
“We are moving to the sidelines following the recent disappointing updates and our view that supply chain and inflation headwinds will continue to put pressure on results in the near term,” he added. “Improvements in the operating environment, a successful March 2022 containerboard price increase, a normalization of demand patterns in tissue and share repurchases would contribute to us returning to a more constructive stance.”
Elsewhere, Scotia’s Benoit Laprade cut his target to $20 from $21 with a “sector outperform” rating.
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BlackBerry Ltd.’s (BB-N, BB-T) US$600-million sale of its legacy smartphone patents to Catapult IP Innovations Inc. “simplifies the investment thesis” for its shares, said RBC Dominion Securities analyst Paul Treiber, expecting the deal to strengthen its balance sheet while reducing volatility.
“The sale of BlackBerry’s IP portfolio monetizes an asset that contributed to significant variability in BlackBerry’s quarterly earnings and was viewed as non-core by most investors,” he said in a research report released Tuesday. “Without the patent portfolio, BlackBerry’s valuation will be dependent on the performance of its core software and IoT businesses. The upfront $450-million cash from the sale increases BlackBerry’s net cash to $865-million ($1.51/share) from $415-million ($0.73/share). Based on management’s prior commentary, BlackBerry intends to use the proceeds to reinvest into its Cyber Security and IoT businesses.”
Mr. Treiber said the sale price fell below his expectation (approximately US$1-billion), but he thinks it “reflects the market value of the future cashflows of BlackBerry’s patent portfolio.”
Maintaining an “underperform” recommendation, he cut his target for BlackBerry to US$7 from US$7.50. The average is US$7.15.
“We believe that the valuation re-rating in BlackBerry’s shares (5.0 times FTM EV/S [forward 12-month enterprise value to sales], up from 2.5 times last year) is not aligned with the company’s fundamentals,” he said. “We believe continued normalization of investor sentiment on BlackBerry is a potential risk to the shares. We are lowering our price target ... to reflect the lower valuation of BlackBerry’s IP portfolio. Our revised target equates to 3.8 times calendar 2023 estimated EV/S on software (unchanged) and a $600-million value for BlackBerry’s patents (vs. $1-billion previously).
Elsewhere, Scotia Capital analyst Paul Steep trimmed his target to US$6.50 from US$7.50, keeping a “sector underperform” recommendation.
“We see BlackBerry as holding potential in terms of various areas of the business (e.g., security software, QNX) along with having the balance sheet to navigate through the ongoing pandemic. However, we would need to see a material improvement in the firm’s performance within its software businesses to become more constructive on the shares,” said Mr. Steep.
TD Securities’ Daniel Chan cut his target to US$7 from US$8.50 with a “reduce” rating.
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Dexterra Group Inc.’s (DXT-T) “explosive start” to 2022 continued with its $19-million acquisition of the privately owned TRICOM Facility Services group of companies, according to National Bank Financial’s Zachary Evershed.
The Toronto-based company estimates the deal for the contract janitorial and building maintenance services provider, announced after the bell on Monday, will bring in $35-million in annual, post-pandemic revenues.
“We see this transaction as a mutually beneficial fit,” said Mr. Evershed. “We believe TRICOM is scaling up rapidly, and the addition of DXT’s back office structure and scale procurement benefits will ease any growing pains. We are also excited by the obvious revenue synergies available to DXT by introducing other IFM [Integrated Facilities Management] offerings to TRICOM’s customers, up until now being serviced by a primarily pure play janitorial service provider.”
“We suspect that this acquisition represents a toe hold south of the border, and expect additional M&A activity in the U.S. as DXT continues to deploy capital in IFM.”
After raising his revenue and earnings estimates for 2022 and 2023, Mr. Evershed increased his target for Dexterra shares to $14.50 from $14 with an “outperform” rating. The average on the Street is $11.65.
“We reiterate our Outperform rating as DXT is well-positioned to accelerate out of the pandemic, both organically with exposure to recovering end markets and via M&A given its healthy balance sheet,” he said.
Elsewhere, Scotia Capital’s Michael Doumet raised his target to $11 from $10.75 with a “sector outperform” rating.
“At this point, we view Dexterra as an early-stage roll-up/compounder. And, as it executes, we believe the shares will further benefit from a positive re-rate,” said Mr. Doumet
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Bombardier Inc. (BBD.B-T) is “poised to regain altitude,” according to Citi analyst Stephen Trent, who sees the Montreal-based company on a “positive trajectory” after years of restructuring.
“As elevated oil prices potentially prompt business jet users to opt for more efficient aircraft, a dearth of commercial airline premium capacity could continue leading higher-end passenger flow towards business jets,” he said in a research note. “Although the latter consumers might not buy their own jets, they could still end up on such flights via fractional ownership arrangements, air taxi services and the like.”
“In addition to a more stable balance sheet, Bombardier’s strong positioning in the large cabin/ultra-long-range business jet segment should support its near- and medium-term demand outlook, in light of elevated oil prices and limited, post-pandemic premium capacity in the commercial airline sector, respectively.”
In a research note, Mr. Trent made adjustments to his financial forecast for Bombardier, including “slightly lower” expected jet deliveries but “stronger” services revenue.
“Some of these adjustments are pretty basic – and result, for example, from a second look at our forecasts for smaller jet deliveries, amortization expense and the like,” he said. “Although these adjustments result in generally higher EPS estimates for the Canadian business jet manufacturer, Cit’s target price for Bombardier remains unchanged at $2.10 per b-share, as modestly higher, expected EBITDA gets tempered by more modest, medium-term cash flow/leverage expectations.”
Keeping a “buy” recommendation, his $2 target remains below the $2.32 average on the Street.
“On the back of successive, significant corporate re-shufflings and production adjustments, the company’s business model is more simplified,” he said. “Although aerospace EBITDA generation is still recovering and the debt load remains high, the company’s efforts to boost its operational metrics and de-risk the balance sheet are trending stronger than we had anticipated.”
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Following the filing of its preliminary S-1 and prospectus with U.S. and Canadian regulators for the initial public offering of its eye-care business, RBC Dominion Securities analyst Douglas Miehm reaffirmed his “constructive outlook” toward Bausch Health Companies Inc. (BHC-N, BHC-T), seeing “value unlocking” underway.
“The S1 filing on 13-Jan was supposed to be a positive event for BHC as its strategy of surfacing value was initiated,” he said. “However, the shares have declined 8.1 per cent since then (vs. a 3.1-per-cent decline for S&P500 and 4.8-per-cent drop for SPDR S&P Biotech ETF).”
“Interestingly, we believe many would have expected BHC outperformance versus markets given its strategic objective to split the company was finally underway after an 18-mth period. Unfortunately, the timing of its implementation could hardly have been worse, in our view. Having said this, with the recent weakness in the shares, the expected return to our $34 per share target price allows us to retain our constructive outlook.”
Keeping an “outperform” rating for Bausch, Mr. Miehm cut his target to US$34 from US$40. The average on the Street is US$35.90.
“We have updated our BHC outlook to reflect several factors, some of which have changed materially over the last three months including a) revision in timing of the potential B+L and Solta Medical IPOs, b) B+L S1 disclosures which suggest a higher allocation of corporate R&D/SG&A to B+L than previously disclosed, c) impact of Omicron and our revised outlook based on the disclosures provided in S-1, d) market volatility resulting in price weakness in comps,” he said.
“We note that B+L’s preliminary prospectus highlights several options at BHC’s disposal with regard to its treatment of the remaining stake of B+L including selling a portion of its equity interest in B+L to third parties. This may introduce risk for BHC shareholders looking to maximize B+L value but may also provide language to allow for further issuance should the IPO fall short of 19.9-per-cent sold. Of note, we value B +L at $28.64 (17.5 times 2022 EBITDA), above the current BHC share price, suggesting an investor receives RemainCo for ‘free’ when investing in BHC but could also indicate the market believes the B+L IPO may be delayed/does not generate needed proceeds.”
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Calling it an “emerging leader in [the] European psychedelics space,” H.C. Wainwright analyst Patrick Trucchio initiated coverage of Awakn Life Sciences Corp. (AWKN-NE, AWKNF-OTC US) with a “buy” recommendation.
He thinks the Toronto-based company’s 3,4-Methylenedioxymethamphetamine (MDMA)-assisted therapies have “blockbuster potential” in the treatment of alcohol use disorder (AUD) in Europe.
“In 2H22, Awakn could begin a Phase 2b trial with MDMA and Phase 3 trial with ketamine, both in alcohol use disorder (AUD), and announce progress on the early stage pipeline and clinics build out,” Mr. Trucchio said. “In addition, Phase 3 data is expected on MDMA in post-traumatic stress disorder (PTSD) late in 2022 or early 2023, which we believe could provide a positive read through to Awakn’s program in AUD. Thus, we find AWKNF shares attractive at current levels.”
Also believing its clinics ”could over time dominate the European market for psychedelic-assisted psychotherapy,” he set a target of US$10 per share.
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In other analyst actions:
* Though he sees upside heading into fourth-quarter earnings season, Barclays analyst Trevor Young cut his target for shares of Shopify Inc. (SHOP-N, SHOP-T) to US$1,200 from US$1,800 with an “equalweight” rating. The current average is US$1,523.39.
“Late in the quarter we heard concerns from the buy side on softer credit card data following the strong lead into BF/CM,” he said. “We have heard some conflicting messages on CC data subsequently, but it still points to a modest 4Q GMV beat. Recent speculation that SHOP is shuttering SFN appears misplaced; we think SHOP is bringing fulfillment ops in-house, and perhaps re-setting strategy on SFN broadly. With the stock having come in quite a bit recently and muted expectations for 1Q growth on a 15 pt more difficult GMV compare, we like the setup for SHOP into 4Q earnings.”
* In response to Zymeworks Inc. (ZYME-N, ZYME-T) closing its US$115-million financing on Monday, Bloom Burton analyst David Martin cut his target for its shares to US$39 from US$50, keeping a “buy” rating, while Raymond James’ David Novak reduced his target to US$27 from US$50 with an “outperform” recommendation. The current average is US$44.
“With approximately $250-million on the balance sheet prior to the financing, we had expected the company would wait until mid-year following the reporting of results for Zanidatamab + chemo trials in 1L breast and GEA cancers as well as in late line breasts (+Ibrance and Fulvestrant),” said Mr. Martin.
“Current macro factors (inflation, Ukraine conflict) likely prompted the early trigger pull. Regardless, the raise at the all-time low price for ZYME stock substantially dilutes our valuation of the company (to $39.00 from our previous target of $50.00) – we had previously forecast a raise of $200-million at $35.00 per share in 2H-2022, following what we had anticipated would be positive clinical results in the above-mentioned clinical trials.”
* After the close of its $117-million equity raise, National Bank Financial analyst Tal Woolley resumed coverage of Crombie Real Estate Investment Trust (CRR.UN-T) with an “outperform” rating and $20 target. The average on the Street is $19.56.
* National Bank’s Richard Tse initiated coverage of Coveo Solutions Inc. (CVO-T) with an “outperform” rating and $18 target. The average is $18.78.
* Following its $285-million deal for Mid-Am Building Supply, CIBC World Markets analyst Hamir Patel raised his Hardwoods Distribution Inc. (HDI-T) target to $61 from $60, below the $68.80 average, with an “outperformer” rating.
“The transaction will increase HDI’s exposure to housing-end markets to 80 per cent of sales (from the current 70-per-cent level), positioning the company well to benefit from the multi-year period of elevated NA housing activity we are forecasting,” he said. “At the same time, the company continues to reduce its exposure to commodity-type products, with the mix of hardwood lumber/plywood sales declining to approximately 29 per cent with the inclusion of Mid-Am (vs. 33 per cent in Q4/21, 55 per cent in 2020 and 80 per cent in 2004).”
* CIBC’s Jamie Kubik increased his target for Tamarack Valley Energy Ltd. (TVE-T) to $6 from $5.50 with an “outperformer” rating, while Stifel’s Cody Kwong raised his target to $6.50 from $6.25 with a “buy” recommendation. The average is $5.94.
“A busy year of acquisition activity helped Tamarack Valley deliver another year of solid reserve growth, which was augmented by compelling organic F&D characteristics offered by its two most economic plays, the Clearwater and Charlie Lake,” said Mr. Kwong. “While we believe the 2021 year-end reserves performance generally overlaid expectations, we did find the operational and financial performance in 4Q21 to be a positive surprise versus SNCFE and consensus expectations.”
* Berenberg analyst Phillip Leytes cut his Docebo Inc. (DCBO-Q, DCBO-T) target to US$72 from US$83, reaffirming a “buy” recommendation, while Canaccord Genuity’s Robert Young trimmed his target to US$80 from US$95 also with a “buy” rating. The average is US$90.70.
“We recently hosted Docebo management in a series of virtual marketing meetings,” said Mr. Young. “We remain confident in our positive view and see more opportunity than risk for Docebo in the near term despite ongoing pressure on software names, particularly those with negative free cash flow. Docebo continues to see no change in the demand environment and a high level of interest from prospective customers and partners looking for new tools to effectively train employees, partners and customers online. We continue to have confidence in Docebo’s ability to win medium/large enterprise mandates, still a relatively new customer cohort with low penetration and strong reference customers.”
* Mr. Young cut his WeCommerce Holdings Ltd. (WE-X) target to $16.50 from $18 with a “buy” rating. The average is $19.25.
“We recently hosted WeCommerce management in a series of virtual marketing meetings,” he said. “We remain confident in our positive view after an update with recently promoted CEO Alex Persson and new CFO David Charron. Management stated there was no meaningful change in strategy and that former CEO Chris Sparling, now chairman, was still highly engaged in the business, particularly the M&A funnel. WeCommerce is looking for strong, cash flowing, captive customer and growth businesses at attractive valuations, which makes WeCommerce shares attractive against ongoing pressure on software names particularly those with negative free cash flow.”
* With the release of its 2021 production and cost results, Canaccord Genuity’s Dalton Baretto reduced his SSR Mining Inc. (SSRM-T, SSRM-Q) target by $1 to $27 with a “buy” rating. The average is $31.45.
“A solid end to the year, with higher production than we had anticipated from Copler and Seabee,” he said. “Consolidated AISC for 2021 was also lower than we had forecast, although we believe this is partially due to deferred capital into 2022. 2022 guidance appears modestly weaker than our estimates, with lower production and higher costs; capex guidance, however, is below our forecast. Production guidance for 2023 - 2024 is in line with our estimates on average, but we note that we are at the high end of the 2023 guidance range and at the low end for 2024.”
* Scotia Capital analyst Konark Gupta reduced his TFI International Inc. (TFII-T) target to $150 from $155, exceeding the $131.93 average, with a “sector outperform” rating. Mr. Gupta also cut his Mullen Group Ltd. (MTL-T) target to $15.50 from $16.50 with a “sector outperform” rating. The average is $14.91.
“We continue to like Canadian trucks, MTL and TFII, which are down 15 per cent and 17 per cent since Q3 results, respectively,” he said. “Investors are again growing concerned about the cycle, like last year, although a leading industry indicator remains solid and pricing is firming up toward another double-digit growth amidst strong demand, inflation, tight driver/fleet supply, and vaccine mandates. While cycle could turn at some point, we are not overly concerned at this time given MTL and TFII are likely to grow significantly this year and faster than U.S. peers, driven by recent M&A, synergies and organic tailwinds. Both are also well-positioned to create shareholder value through buybacks and more M&A as driver shortage, inflation and vaccine mandates hurt weaker carriers. Market reaction to recent U.S. trucking earnings suggests that Q4 may not be a major catalyst (particularly for MTL), so we would opportunistically take advantage of current or potential weakness.”
* TD Securities analyst Michael Van Aelst raised his Alimentation Couche-Tard Inc. (ATD-T) target to $60, above the $58.01 average, from $58 with a “buy” rating.
“We view the current 15.4 times/16.6 times TD/consensus NTM EPS [next 12-month earnings per share — slightly below its longterm average of 17 times — as fair, particularly considering that major acquisitions may not come to fruition in the immediate future,” he said. “We were already 9 per cent above consensus for F2023E before this announcement and there is upside to our outlook should fuel margins remain at current levels or ATD uses its substantial war chest (more than $9-billion debt capacity following the NICB) for accretive acquisitions.”
* BMO Nesbitt Burns analyst Michael Murphy bumped up his Frontera Energy Corp. (FEC-T) target to $12 from $9 with a “market perform” rating.
“The Kawa-1 well offshore Guyana has reached TD and encountered 54m (177ft) of hydrocarbon bearing reservoir across multiple intervals. While it’s too early to determine commerciality, we are encouraged by the initial indications and look forward to additional data points in the near term along with a second well on the Corentyne Block in H2/22,” he said.
David Leeder