Inside the Market’s roundup of some of today’s key analyst actions
Citing the “relentless selling that has been happening in E&P,” Raymond James analyst Kurt Molnar upgraded Enerplus Corp. (ERF-T, ERF-N) following the release of stronger-than-expected third-quarter results.
“Enerplus isn’t just a safe haven for execution and financial strength. Now they are an opportunist into an energy stock market that is effectively broken in the shortterm,” said Mr. Molnar, moving the stock to “strong buy” from “outperform.” “Enerplus is extending their ‘advantage’ by now adding a shrinking share count to the mix.”
On Friday, Calgary-based Enerplus reported quarterly production of 96,861 barrels of oil equivalent per day, exceeding the projections of both Mr. Molnar and the Street (94,783 boe/d and 94,900 boe/d, respectively). Cash flow of $210-million also easily topped estimates ($171-million and $198-million).
“Enerplus has the financial means to make lemonade from the ‘market’s lemons’ by shrinking share count while it is also putting up premier returns on capital, strong growth and reduced debt,” said Mr. Molnar. “Simply a combination we do not see anywhere else.”
“Investors should be very clear in understanding, that while Enerplus’ balance sheet is both enviable and a strategic asset, it is the underlying capital cost base of the growth that Enerplus is delivering that is what truly sets the stock apart in our view. The balance sheet strength, in an industry with little balance sheet strength, merely opens up strategic opportunities for Enerplus and its shareholders.”
Mr. Molnar raised his target price for Enerplus shares to $25.50 from $24.50. The average target on the Street is currently $21.54, according to Bloomberg data.
=====
Following Friday’s announcement of the $175-million sale of its core insurance business to CAA Club Group, Industrial Alliance Securities analyst Dylan Steuart feels the risk-return profile for Echelon Financial Holdings Inc. (EFH-T) at its current valuation level “spells an opportunity for investors.”
Accordingly, he raised his rating for Echelon, which jumped 22.6 per cent on Friday on the news, to “buy” from “hold.”
Mr. Steuart raised his target price to $16.75 from $14. The average is $15.38.
“Positive news flow regarding the lawsuit and/or the liquidation of ICPEI [Insurance Company of Prince Edward Island] are the main near-term catalysts,” he said.
=====
Industrial Alliance Securities analyst Elias Foscolos downgraded his rating for shares of Enerflex Ltd. (EFX-T) to “buy” from “strong buy” in reaction to Friday’s 10.1-per-cent jump in price following the release of its third-quarter financial results.
A day earlier, Enerflex, a Calgary-based supplier of products and services to the global oil and gas production industry, reported revenue of $446-million for the quarter, which met Mr. Foscolos’s expectations ($449-million) while exceeding the expectation on the Street ($426-million). It was an increase of 42 per cent year-over-year, which he attributed largely to a “robust” performance by its engineered systems segment.
Adjusted EBITDA of $65-million topped his projection ($60-million), while the company ended the quarter with a "staggering backlog of $1.065-billion, which is both a record for the company and a 42-per-cent sequential jump.
“EFX’s Q3/18 surge in bookings and backlog provides a positive outlook for the remainder of the year and 2019,” said Mr. Foscolos. “Quarter-end backlog was unprecedentedly high, giving us confidence that solid performance will continue into Q4/18 and 2019. Somewhat tempering our near-term outlook is our view that EFX’s backlog conversion rate will be slightly lower going forward. Our EBITDA outlook is also somewhat moderated by our use of a reduced multiple.”
However, Mr. Foscolos raised his target for Enerflex stock by a loonie to $23, which exceeds the consensus on the Street of $22.63.
Conversely, Scotia Capital analyst Vladislav Vlad raised his rating for Enerflex to “sector outperform” from “sector perform” with a target of $28, up from $25.
=====
AutoCanada Inc.'s (ACQ-T) newly unveiled “Go Forward” plans warrant an upgrade to its stock, according to Canaccord Genuity analyst Derek Dley, pointing to “low hanging fruit earning momentum initiatives.”
“Along with the Q3/18 earnings results, AutoCanada unveiled its Go Forward plan,” said Mr. Dley. “The plan focuses on the back end of the business, with initiatives aimed at increasing the consistency of the company’s results, throughout movements in the new vehicles sold cycle. In particular, we are positive on the company’s plans surrounding sub-prime lending, which we believe will not only lead to more high-margin finance and insurance revenue, but also help generate incremental vehicle sales. Management is targeting 3,000 incremental units sold through this initiative.
“In our view, many of these initiatives are relatively easy to wrap our heads around. While there may be several quarters of implementation, we believe the company should be able to generate significant earnings leverage with the new plan.”
Moving the Edmonton-based company to “buy” from “hold,” Mr. Dley also hiked his target for its stock to $14 from $11. The average is $15.38.
"We have increased our EPS estimates following the announcement of the company’s Go Forward plan, which includes an initiative to target sub-prime consumers, which we believe should materially increase used car volumes going forward,” he said. “Furthermore, we have increased our target multiple given the increased clarity into AutoCanada’s near-to-mid term cost-saving and growth initiatives. With the shares trading at 7.8 times our 2019 EPS estimate, we believe AutoCanada shares are attractively valued and are comfortable upgrading our rating.”
Elsewhere, Cormark Securities analyst Maggie Macdougall upgraded AutoCanada to “speculative buy” from “market perform” and raised her target to $13 from $10.75.
GMP’s Stephen Harris moved the stock to “buy” from “reduce.”
=====
Raymond James' David Quezada removed a pair of stocks from the firm’s “Canadian Analyst Current Favourites list” on Monday, citing “the challenging rising rate environment.”
Mr. Quezada took off Boralex Inc. (BLX-T). He currently has a “strong buy” rating and $25 target for its shares. The average on the Street is $23.72.
He also removed Innergex Renewable Energy Inc. (INE-T), which he has given an “outperform” rating and $20 target, exceeding the average of $15.78.
=====
In a separate note, Mr. Dley downgraded Recipe Unlimited Corp. (RECP-T) to “hold” from “buy” after the release of softer-than-expected quarterly results, pointing to higher overhead costs related to its acquisition of The Keg.
On Thursday, the Vaughan, Ont.-based company, formerly Cara Operations Ltd., reported same restaurant sales growth of 1.8 per cent for the quarter, topping Mr. Dley’s 1.7-per-cent projection. EBITDA of $52-million missed his expectation by $9-million, due partially to $5-million in overhead costs related to The Keg.
“While we continue to like Recipe’s long-term organic growth profile, in light of the higher-than-expected overhead costs related to the acquisition of The Keg and the correspondingly lower near-term EBITDA growth profile we believe shares are appropriately valued, at current levels,” said Mr. Dley.
He dropped his target to $31 from $34. The average is $32.19.
=====
Bombardier Inc. (BBD.B-T) currently sits in “an oversold situation,” according to Citi analyst Stephen Trent, who predicts “turbulence [is] on the way back up.”
“We had expected more robust operational cash flow this year, owing to improved transport division performance and to reduced tailwinds associated with the CSeries program spinoff,” he said. “We were mistaken. However, in spite of the market’s legitimate concerns on cash flow and product breadth, along with this week’s significant share price volatility, Buy-rated Bombardier is not a broken company. The benefits of monetizing smaller, older product lines and contemplating the future of other programs mean that investors will have a simpler company, with less leverage and high earnings/cash flow growth. Nevertheless, it would be disingenuous of us to conclude that Bombardier’s operational landscape hasn’t changed.”
In a research note released Monday, Mr. Trent lowered his financial expectations for 2019, resulting in a reduction to his target price for Bombardier shares to $3.70 from $6. The average on the Street is $4.73.
“Bombardier’s normalized, medium-term operational cash flows now look less robust in absolute terms, versus what we had anticipated just one week ago,” he said. “For these reasons, using a more normalized target multiple now also seems justifiable.”
Mr. Trent maintained a “buy” rating.
=====
In other analyst actions:
Barclays analyst Paul Cheng upgraded Imperial Oil Ltd. (IMO-T) to “overweight” from “equal-weight” with a $54 target, rising from $52 and above the consensus of $47.23.
Accountability Research analyst Jim Marrone upgraded Thomson Reuters Corp. (TRI-T) to “hold” from “sell” with a target of $60, rising from $50. The average is $63.78.
BMO Nesbitt Burns analyst Nikolaus Priebe upgraded TMX Group Ltd. (X-T) to “outperform” from “market perform” and raised his target to $95 from $90. The average is $96.80.
RBC Dominion Securities analyst Drew McReynolds downgraded Trilogy International Partners Inc. (TRL-T) to “sector perform” from “outperform” with a target of $3, falling from $7. The average is $4.45.
Cormark Securities reinstated coverage of CES Energy Solutions Corp. (CEU-T) with a “buy” recommendation and $6.50 target. The average is $6.44.
Cormark’s Maggie Macdougall upgraded K-Bro Linen Inc. (KBL-T) to “buy” from “market perform" and raised her target to $41 from $38. The average is $43.93.
National Bank Financial analyst Leon Aghazarian upgraded IPL Plastics Inc. (IPLP-T) to “outperform” from “sector perform.” He lowered his target to $13 from $13.50. The average is $15.25.
Cormark’s Garett Ursu downgraded Chinook Energy Inc. (CKE-T) to “market perform” from “buy” with a 25-cent target, down from 35 cents. The average is 24 cents.
National Bank Financial analyst Greg Colman downgraded AGT Food & Ingredients Inc. (AGT-T) to “sector perform” from “outperform.”
David Leeder