Inside the Market’s roundup of some of today’s key analyst actions
“Market volatility affords an entry point” into Stantec Inc. (STN-T), said National Bank Financial analyst Maxim Sytchev.
Accordingly, after a “good” fourth quarter to 2021, 9.1-per-cent increase to its annual dividend and “constructive” outlook, he raised his rating for the Edmonton-based engineering services company to “outperform” from “sector perform.”
“When we were considering our 2022 puts and takes on STN in early January, we did not have enough of an upside to justify a more constructive stance on the shares,” said Mr. Sytchev. “With STN sliding 8 per cent year-to-date (vs. TSX at down 1 per cent), we believe now is an opportune time to own this quality name once again, especially ahead of infrastructure spending ramp-up in the U.S. (recall this geography represented 53 per cent of top line in 2021). Return to organic growth in net revenue for Q4/21 and 6.7-per-cent organic growth in backlog bodes well for future momentum. While we have limited insight into when the geopolitical/interest rate risks subside, we don’t have to be heroes to be buying STN shares at 14.1 times 2023 EV/EBITDA. Lastly, STN’s slightly better than consensus outlook is also supported by peers’ recent constructive 2022/2023 commentary (TTEK - high multiple peer out of the gate with strong number and guide; shares up in an ugly tape).”
After the bell on Wednesday, Stantec reported net revenue for the quarter of $916-million, representing 2-per-cent organic growth but “marginally” below the estimates of both the analyst ($929.9-million) and the Street ($926.5-million). Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $142.1-million topped expectations ($136.3-million and $138.1-million, respectively).
“Management is calling for generally in line to better vs. Street 2022 on financial metrics,” said Mr. Sytchev. “In the U.S., STN is guiding for high-single digit organic growth (Biden infra stimulus to start contributing in H2/22); Canada is expected to see low-single digit organic momentum (off a strong base) with International seeking to generate high-single to low-double digit organic growth.”
After minor tweaks to his forecast in response to the company’s guidance, Mr. Sytchev maintained a target of $80 for Stantec shares. The average on the Street is $79.04.
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Citi’s Paul Lejuez sees Gildan Activewear Inc. (GIL-N, GIL-T) in a “favorable position” to benefit from a reopening economy and “take advantage of its low-cost-provider status to take share.”
He was one of several analysts on the Street to raise their financial projections for the Montreal-based clothing manufacturer following Wednesday’s premarket release of better-than-anticipated fourth-quarter financial result and quarterly dividend increase (to 16.9 US cents from 15.4 US cents), which sent its TSX-listed shares up 3.5 per cent.
For the quarter, sales of US$784.3-million topped the Street’s estimate of US$765-million, driven by higher activewear prices and volumes. Earnings per share of 76 US cents also easily exceeded the consensus projection of 60 US cents.
“GIL reported a strong quarter and, more importantly, revised its operating margin outlook range to 18-20 per cent after previously indicating the long-term rate was likely capped at approximately 18 per cent,” said Mr. Lejuez. “GIL is currently working to internalize Frontier Yarn’s capacity, which will allow the company to operate its Central America facilities near full capacity. Management expects to be able to internalize 90 per cent (vs 65 per cent prior to the acquisition) of its yarn needs by 3Q22. This vertical integration gives GIL a strategic advantage vs its competitors, and despite taking a 2-3-per-cent price increase in 4Q, the company’s price gaps vs competitors have never been wider. Ultimately we believe the company’s 7-10-per-cent sales growth will prove conservative as the marketplace remains constrained and there is still a $150-200-million restocking opportunity for GIL.”
Raising his 2022 earnings per share projection to US$3.15 from US$3 to reflect an improved margin outlook, Mr. Lejuez kept a “buy” recommendation and US$48 target. The average target on the Street is US$49.74.
“GIL is a leader in the ‘imprintable’ activewear market and has developed a solid innerwear (underwear and hosiery) business,” he said. “GIL is a clear leader as the low-cost producer, which enables the company to pivot and win private label business as mass merchants move away from branded products. The company has made several strategic decisions that position them well over the next several years (even beyond F22) to further take market share in the markets they play in. We believe this potential is not yet fully reflected in consensus numbers.”
Elsewhere,
Desjardins Securities’ Chris Li thinks greater confidence in Gildan’s bullish longer-term sales growth outlook should drive multiple expansion.”
“GIL’s strong 4Q and bullish three-year growth outlook reflect strong demand and benefits from Back to Basics initiatives,” said Mr. Li. “Based on the low end of GIL’s three-year sales growth and margin targets, we estimate almost 12-per-cent annual EPS growth in 2023 and 2024, with upside potential.”
Mr. Li raised his target to $63 from $59 with a “buy” rating.
Others making changes include:
* RBC’s Sabahat Kahn to US$51 from US$48 with an “outperform” rating.
“We believe 2022 results should reflect top-line growth at the high-end of the guidance range, driven by the outlook for strong volume growth and some pricing increases in 2022,” he said. “On the margin front, the non-recurrence of a cotton-related gain recorded in Q1/21 and some inflation headwinds should lead to year-over-year EBIT margin moderation, followed by stronger year-over-year margins through 2023 and 2024. Overall, we forecast meaningful Adjusted EPS growth over the next 3 years (11.0-11.5-per-cent 3-year CAGR), and believe there is potential for upside to these forecasts (we believe 2022 could be much stronger if the current backdrop holds). We will look for additional color on these targets and Gildan’s strategy at the upcoming Investor Day on March 29/22.”
* Scotia’s Patricia Baker to US$52 from US$48 with a “sector outperform” rating.
“We see GIL advantaged in the current market context by its low-cost manufacturing position and its manufacturing footprint. GIL is ideally positioned to benefit from the moves being taken by apparel companies looking to ‘near shore’,” she said. “The challenges of COVID coupled with the Back to Basics strategy see GIL more agile. GIL also moved to a more offensive push in the market taking advantage of the challenged backdrop to drive share.”
* Canaccord’s Luke Hannan to US$52 from US$47 with a “buy” rating.
“Structural improvement in margins as a result of Back to Basics cost savings, vertically integrated manufacturing operations that provide margin resilience despite intentionally lower levels of price increases, and a healthy balance sheet supportive of further return of capital to shareholders underlie our favourable view on the shares,” he said.
* BMO Nesbitt Burns’ Stephen MacLeod to US$51 from US$50 with an “outperform” rating.
“We continue to believe Gildan is well-positioned to leverage its pricing leadership position to aggressively pursue market share gains. Supporting the topline outlook is recovering demand into 2022E+ and incremental manufacturing capacity coming online over the next two years. We see multiple expansion opportunity in the stock,” said Mr. MacLeod.
* National Bank’s Vishal Shreedhar to $65 from $59 with an “outperform” rating.
* CIBC World Markets’ Mark Petrie to US$49 from US$47 with an “outperformer” rating.
* TD Securities’ Brian Morrison to US$51 from US$50 with a “buy” rating.
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Despite its fourth-quarter results falling short of his expectations, Scotia Capital analyst Justin Strong reaffirmed Boralex Inc. (BLX-T) as one of his “top growth stories.”
“Looking forward, we see multiple near-term catalysts for the stock, including: results from upcoming auctions in New York State and France, RFPs in Quebec (supported by an approved transmission line to NYC), storage projects in California and New York, as well as being well positioned to take advantage of opportunities with corporate off-takers,” he said. “Overall, our long-term thesis of material upside from the growth path and development pipeline remains intact.”
Before the bell on Wednesday, the Montreal-based renewable energy company reported adjusted EBITDA of $163-million, missing Mr. Strong’s estimate by 2 per cent ($167-million) and the consensus expectation by 3 per cent ($169-million).
However, after Boralex recently reiterated its growth plans, the analyst emphasized the progress of its development projects.
“During the quarter BLX added projects totalling 137 MW to the ‘Early-stage’ phase of the project pipeline while also commissioning 30 MW of wind and solar projects including its first floating solar project, the first within our coverage universe,” he said.
“ESG profile heightened with significant advancements. BLX has recently made some impressive progress towards its goal to be the CSR leader among its peers.”
Maintaining a “sector outperform” rating, he trimmed his target to $42.75 from $45.25. The current average is $43.56.
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Seeing its share of electric truck orders remaining lower than expected, BMO Nesbitt Burns analyst Jonathan Lamers downgraded Lion Electric Co. (LEV-N, LEV-T) to “market perform” from “outperform” on Thursday.
“Lion is an early-stage business and the valuation is highly sensitive to future electric vehicle sales,” he said. “Actual orders for Lion’s electric trucks have developed more slowly than expected. We completed an in-depth review of North American industry electric truck sector order activity to date, to determine if this is specific to Lion. We estimate Lion’s share of total all-electric medium-and heavy-duty truck orders in North America to date has been approximately 6 per cent, and we reduced our sales volume forecasts to 2025 and target price accordingly.”
Mr. Lamers said the Saint-Jérôme, Que.-based company has announced orders for 292 electric trucks to date, a pace that is slower than he antucipated.
“To determine how this compares to the build-out of electric truck orders for the overall industry, we compiled all the announced orders for all-electric trucks in North America to date,” he said. “We estimate over 4,500 all-electric medium and heavy-duty commercial trucks (Class 4-8) have been ordered to date. As a result, Lion’s announced orders to date represent 6-per-cent share.”
“All-electric adoption for medium- and heavy-duty trucks is expected to be 10 per cent in North America by 2025. Our revised forecasts assume Lion achieves 10-per-cent share of the electric truck market by 2025 or 1-per-cent share of the total truck market (down from approximately 3 per cent) and 5-per-cent share of the school bus market (unchanged).”
Though he continues to see a “long-term upside opportunity,” Mr. Lamers cut his target to US$7 from US$22. The average is US$16.63.
“Lion has continued to progress on plan toward every other milestone important to its future business, including establishing new production facilities, talent recruitment, and introducing new products,” he said. “Once the new assembly facility in Illinois is ramped, Lion targets total capacity for up to 22,500 units per year, well above our forecast. If Lion secures orders to fill the plant sooner than we forecast and supply chain issues are resolved, the equity value could see upside to US$32 or more.”
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After a “mixed” fourth quarter, Canaccord Genuity analyst Robert Young reduced his financial forecast for Thinkific Labs Inc. (THNC-T), expecting a slower recovery back to its substantial pre-pandemic growth profile.
On Wednesday, the Vancouver-based company, which provides platforms for online course providers, reported revenue of $10.8-million, up 49 per cent year-over-year and narrowly higher than both Mr. Young’s $10.6-million estimate and the consensus projection of $10.7-million. An EBITDA loss of $8.7-million fell below the forecast of a loss of $8.1-million from both the analyst and the Street.
“Moreover, the EBITDA loss is higher than the guidance given in November and eclipsed gross profits, which is a difficult profile in the current market that biases profitability,” said Mr. Young. “Management did state that Q1 is a peak for EBITDA loss, and stepping back a bit, Thinkific is a high-growth business with revenue growing 49 per cent year-over-year, an impressive rate. That said, ARR [annual recurring revenue] grew at a slower pace of 43 per cent on the back of slower paid customer conversions, up 32 per cent year-over-year. Management remains focused on a return to pre-pandemic growth levels at 60 per cent plus, but the time to recovery is dependent upon retooling of go-to-market to recapture momentum at the top of funnel. Freemium signups and website visits remain very strong but these are not turning into paying customers, in our view.”
With Thinkific now targeting year-over-year revenue growth between 40-42 per cent in the first quarter, narrowly below the analyst’s 43-per-cent estimate, Mr. Young reduced his estimates, leading him to cut his target to $9 from $16, reiterating a “buy” rating. The average is $15.26.
“Thinkific is retooling its digital marketing strategy to focus on the top of funnel,” he said. “While website visits are at peak levels and freemium signups remain strong, the conversion to paid is lagging management expectations given a lower sense of customer urgency post-pandemic. Thinkific remains confident on the size of the market, albeit crowded, and highlighted a growing opportunity given it sees a shift from niche high-end creators to a broader customer group.”
“Thinkific currently trades at 2.4 times EV/2023 estimated Sales versus e-learning software peers at 3.3 times and ecommerce software peers at 6.2 times. Our 6-times multiple on 2023 is supported by Thinkific’s 54-per-cent-plus estimated forward growth profile, which is 2 times the peer group growth rate even after significant deceleration from torrid growth in 2020.”
Elsewhere, BMO’s Thanos Moschopoulos dropped his target to $7 from $18 with an “outperform” recommendation, while CIBC’s Todd Coupland trimmed his target to $10 from $15 with an “outperformer” rating.
We remain Outperform on THNC but have significantly reduced our estimates and target price following Q4/21 results,” said Mr. Moschopoulos. “While the business continues to demonstrate strong year-over-year growth, Q1/22 revenue and EBITDA guidance were lighter than expected — as THNC isn’t seeing the level of payback that we’d expected on its sales/marketing spend, requiring some changes to its customer acquisition strategy. This creates some incremental risk, in our view; however we view the risk/reward on the stock as attractive, given its current valuation relative to our forecasts for 40-per-cent-plus growth in FY2022 and FY2023.”
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H.C. Wainwright’s Andrew Fein thinks competitive dynamics continue to break in Laval-based Bellus Health Inc.’s (BLU-Q, BLU-T) favour, according to H.C. Wainwright analyst Andrew Fein, who sees a “high-likelihood” for the expansion of its BLU-5937 treatment for chronic coughs.
“With the recent discontinuation of Bayer’s elipixant coupled with Shionogi’s sivopixant failing in Phase 2b, a clearer head-to-head battle between gefapixant and BLU-5937 is slated in the future — and one we believe Bellus can win based on tolerability alone,” he said. “Despite the recent CRL for Merck’s (MRK, not rated) gefapixant, we continue to believe the program will gain U.S. approval, although we see a high likelihood of the FDA requiring the company to perform a secondary Phase 3 study, ultimately adding less than one year. to development timelines. Further, the main takeaway from the extended timelines remains that gefapixant may not be able to entrench itself in the market as deeply as it could if approved in 2022.”
Reiterating a “buy” rating for shares of the the Laval-based company, he raised his target to US$16 from US$14.
“Based on the exiting of Bayer’s elipixant coupled with Merck’s gefapixant receiving a CRL, we believe these events could give BLU-5937 increased market share,” he added. “As such, to better account for the recent competitive dynamics, we are increasing our peak penetration in high cough count patients from 20 per cent to 32 per cent.”
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In other analyst actions:
* After the release of “strong but not unexpected” quarterly results early Thursday, BMO Nesbitt Burns analyst Jackie Przybylowski raised her Teck Resources Ltd. (TECK.B-T) target to $54 from $52, keeping an “outperform” rating. The average is $48.33.
“Teck’s quarterly financial results beat expectations and record quarterly adjusted EBITDA,” she said. “The cash flows have supported a substantial increase to shareholder returns; beyond what we had envisioned when we highlighted Teck’s capital returns in our Q4 preview note. We expect the stock will be up today because this dividend signals Teck’s confidence in the strength of its balance sheet as it completes its investment in the QB2 project later this year. We maintain Teck as Outperform and our ‘best of BMO’ base metals pick.”
* Piper Sandler analyst David Amsellem cut his Bausch Health Companies Inc. (BHC-N, BHC-T) target to US$27 from US$31 with a “neutral” rating, while Truist Securities’ Gregory Fraser reduced his target to US$36 from US$38 with a “buy” rating. The current average is US$35.30.
* Berenberg’s Brian McNamara cut his Canada Goose Holdings Inc. (GOOS-N, GOOS-T) target to US$43, below the US$46.83 average, from US$60 with a “buy” rating.
* After a fourth-quarter beat, Raymond James’ Steve Hansen raised his Chemtrade Logistics Income Fund (CHE.UN-T) target to $12 from $11, maintaining an “outperform” rating. The average is $9.25.
“We continue to recommend shares of Chemtrade Logistics based upon our constructive view of the macroeconomic and company-specific outlook, a view underpinned by: 1) strong increases in key underlying indicators/commodities; 2) recent divestitures designed to reduce leverage; and 3) clear strides toward improving its ultra-pure acid business,” he said.
* Canaccord Genuity’s Christopher Koutsikaloudis raised his Dream Unlimited Corp. (DRM-T) target to $56 from $46 with a “buy” rating, while CIBC’s Dean Wilkinson increased his target to $52 from $37 with an “outperformer” rating. The average is $51.
“Dream Unlimited Corp. reported standalone earnings per share (EPS) of $1.38 in Q4/21, up from $0.16 in the prior-year quarter and above our estimate of $0.38,” said Mr. Koutsikaloudis. “The solid growth reflected higher profits from the company’s Western Canada land development business and fair value gains.
“More importantly, for the first time in the company’s history, management of Dream disclosed its estimate of the company’s NAV, which includes significant value not currently reflected in its book value of equity or share price. While based on a number of assumptions, management values Dream’s equity at more than $2.5 billion ($60.22 per share). This compares to the company’s share price of $44.25 and equity book value of $33.97 per share.”
* In response to the acquisition of three large drilling contracts with senior producers thus far in 2022, Cormark Securities’ Nicolas Dion increased his target for shares of GeoDrill Ltd. (GEO-T) to $3.50 from $3 with a “buy” rating. The average on the Street is $3.64.s
“Geodrill offers a unique way to gain exposure to the gold price, without the geological and technical risk of mining,” he said. “The stock trades at more than 3 times 2023 EBITDA, well below its peers in the Americas and Australia which is not justified by the business fundamentals. We do note a common pushback, however, is that trading volumes are light due in part to the low float.”
* RBC’s Sabahat Khan cut his High Liner Foods Inc. (HLF-T) target by $1 to $15 with an “outperform” rating, while Scotia’s George Doumet lowered his target to $14 from $15.50 with a “sector perform” recommendation. The average is $18.
“Q4 proved to be more challenging in terms of managing supply chain challenges/higher seafood input costs than anticipated,” said Mr. Doumet. “Volumes were down and adj. EBITDA margins compressed 160 basis points driven by higher supply chain costs and input cost inflation. HLF expects supply chain challenges to continue through the 1H/22, but to grow adj. EBITDA in 2022 nonetheless (significantly aided by pricing actions).
“In the context of ongoing supply chain challenges, exasperated by quickly rising commodity cost inflation, we will need to gain comfort around margin stability and volume recovery over the NTM. Stock remains inexpensive trading at 6.9 times EV/EBITDA 22E but will likely remain range-bound, in our opinion.”
* Scotia’s Tanya Jakusconek cut her Iamgold Corp. (IAG-N, IMG-T) target to US$2.50 from US$2.75, below the US$3.05 average, with a “sector perform” rating.
* Raymond James’ David Quezada reduced his Innergex Renewable Energy Inc. (INE-T) target to $24, remaining above the $21.72 average, from $26.75 with an “outperform” rating.
“While INE faced a challenging year in 2021 due primarily to storm Yuri, we believe the company also delivered strong progress on organic growth and M&A while showing more momentum on the strategic partnership with Hydro Quebec. We also take a constructive view of the recent Aela wind acquisition in Chile on strong FCF accretion, abundantly reasonable valuation, and diversification benefits,” said Mr. Quezada.
* National Bank Financial’s Zachary Evershed raised his KP Tissue Inc. (KPT-T) target to $11, remaining below the $11.33 average, from $10.50.
* Scotia’s Ovais Habib bumped up his K92 Mining Inc. (KNT-T) target to $9 from $8.75, keeping with a “sector outperform” rating. The average is $11.42.
* CIBC’s Anita Soni reduced his New Gold Inc. (NGD-N, NGD-T) target to US$1.70 from US$2.20 with a “neutral” rating. The average is US$1.94.
* Scotia’s Orest Wowkodaw trimmed his Taseko Mines Ltd. (TKO-T) target to $2.75 from $3 with a “sector perform” recommendation. The average is $3.17.
“TKO reported weaker-than-anticipated Q4/21 results,” he said. “More important, maiden 2022 Cu production guidance was below our expectations. Required permits to develop the Florence in-situ Cu project in Arizona remain outstanding. Overall, given our lower estimates, we view the update as a modest negative for the shares.
“Although TKO has very high Cu leverage, we rate the shares Sector Perform based on valuation, elevated debt leverage, and growth uncertainty.”
* Scotia’s Eric Winmill lowered his Trilogy Metals Inc. (TMQ-T) target by $1 to $2.50, below the $2.92 average, with a “sector perform” rating, while BMO’s Rene Cartier reduced his target to $1.75 from $3 with an “outperform” rating and and Raymond James’ Brian MacArthur cut his target to $3 from $3.75 with an “outperform” rating.
* Scotia’s Trevor Turnbull raised his target for shares of Torex Gold Resources Inc. (TXG-T) to $24 from $23 with a “sector outperform” rating. The average is $24.33.
* Raymond James’ Michael Glen trimmed his 5N Plus Inc. (VNP-T) target to $4 from $4.50, keeping an “outperform” rating. The average is $4.15.
“Our constructive view on 5N Plus has been premised on actions being taken by the company to transition the business towards higher value-add / margin accretive end markets, while at the same time de-emphasizing business lines that are more commoditized in nature,” he said. “With the reporting of the 4Q results (which were ahead of our expectations on both revenue and EBITDA due to an outsized performance from AZUR during its seasonally strongest period), we saw a continuation of this strategy unfolding, with management highlighting a number of growth priorities centered around advanced material technology. Specific emphasis was made with regard to capabilities and R&D added with the AZUR Space acquisition, the ongoing development of wide band-gap semiconductor materials (gallium nitride focus), the company’s partnership with Samsung and the outlook within the medical imaging vertical, and optimization efforts being made with respect to the onshoring of tellurium production for renewable energy customers. That said, while the longer-term strategy unfolds, the business is seeing some headwinds from higher freight and consumable costs (indicated at $1.5-million headwind during both 3Q/4Q), which we are hopeful will start to mitigate during 2022.”
David Leeder