Inside the Market’s roundup of some of today’s key analyst actions
Canaccord Genuity analysts have upgraded Precision Drilling Corp. (PD-T) to “buy” from “hold” as part of a review of second-quarter performance of oilfield services stocks, believing that Precision’s recent share price pullback provides an attractive entry point.
However, Precision - and all other oilfield services stocks that Canaccord covers - saw their price targets cut.
In Precision’s case, Canaccord now has a 12-month price target of C$50, down from $54.
The second quarter saw year-over-year activity gains for the oilfield services companies for the first time since the pandemic arrived, the Canaccord analysts led by John Bereznicki commented. But activity is still down from pre-pandemic levels, and recently, fears over the Delta variant and its impact on oil market demand have undermined second quarter share price momentum.
Mixed messaging from the oilfield services (OFS) companies reflected this current uncertainty, the analyst noted. “OFS management commentary was largely constructive in Q2/21, although there were notable differences in messaging that we believe speak to energy sector uncertainty,” he said in a note. “While many expect the international OFS market to lead the global recovery in 2H21, views on North American activity and pricing were more mixed. Most management teams expect a continued recovery in North American drilling activity in 2H21, although some believe the pace of this recovery could slow as operators exhaust their budgets later this year (at least one large player believes private operators could generate positive US activity upside later this year). Many management teams also expect a tightening North American market to drive at least modest real OFS pricing gains later this year, although two large domestic players believe a labour shortage could drive inflationary pressures as the OFS sector seeks to reactivate idle capacity.”
The average price target on Precision shares is C$55.96 , according to Refinitiv data.
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Canaccord Genuity initiated coverage on Great Bear Royalties Corp. (GBRR-X) with a “speculative buy” rating and C$5 price target.
Great Bear Royalties was created in January 2020 as a spinout from Great Bear Resources (GBR). The company’s sole royalty asset is a 2 per cent net smelter return (NSR) royalty on GBR’s 100%-owned Dixie gold project in the prolific Red Lake mining camp in northern Ontario, which has seen greater than 30 million ounces in historical gold production. The company commenced trading in April 2021 on the TSX Venture.
Canaccord analyst Carey MacRury says Great Bear Royalties provides investors with exposure to a potential Tier 1 gold discovery in a top mining jurisdiction with one of the largest exploration programs underway in Canada.
“A total of 283,000 metres has been drilled into the project since 2017 and with about $90 million in cash on hand, Great Bear Resources is well positioned to advance the project and is fully financed through 2022. In our view, the market has increasingly been pricing in a significant emerging discovery, with GBR’s share price up ~29x in the past three years to a market cap of ~C$800 million,” Mr. MacRury said in a note.
Great Bear Resources has an 175,000 metre, $45 million drill program underway in 2021 in advance of an initial resource estimate expected in Q1 2022, to be followed by a preliminary economic assessment (PEA), he noted.
“We see potential for GBRR to re-rate higher on the upcoming initial resource in Q1/22, followed by a PEA that should bolster investor confidence in the potential of the asset as project timelines, parameters, and economics advance. GBRR is trading at 1.1x net asset value, versus the royalty average of 1.3x and range of 0.7-2.4x,” the analyst said.
The average price target among analysts is $5.77.
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Desjardins Securities analyst Gary Ho raised his price target on Dominion Lending Centres Inc. (DLCG-X) to C$6 (from $5.75) while maintaining a “buy” rating after the mortgage company Monday reported quarterly results well above consensus expectations.
Funded mortgage volume doubled versus a year ago while EBITDA margin remained strong at 60 per cent, resulting in record core EBITDA of C$11.5 million, the analyst noted.
Going forward, success in reflagging new brokers should offset softness in second half 2021 housing activity, he said.
Elsewhere, Cormark Securities raised its price target on Dominion Lending Centres to C$6.75 from C$6.
The average target among analysts is $6.75.
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Raymond James analyst Ric Prentiss downgraded Landmark Infrastructure Partners LP (LMRK-Q) to “market perform” from “outperform,” commenting that shares now appear to be fairly valued following the agreement for LMRK to be acquired for $16.50/unit in cash by its sponsor Landmark Dividend (LD).
“Importantly, both the Conflicts Committee and the full Board of Directors of the GP determined this transaction is in the best interests of the Partnership. The deal is subject to majority unitholder approval (among other customary closing conditions), is fully financed and diligence, and expected to close this year,” Mr. Prentiss noted.
The increased offer by LD is above the original $13.00/unit proposal made on June 2.
“Given the size of the new offer, the underlying partnership agreement, as well as other conditions, we do not believe LD will engage with any other parties or offers to buy LMRK or any of its assets,” the analyst said.
Raymond James no longer has a price target on the stock. It previously had a target of US$16. The average analyst target is US$14.50
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Several analysts initiated coverage on fresh produce company Dole plc (DOLE-N) on Tuesday, with most setting 12-month price targets well above the current trading price.
But not all called the stock a buy.
Dole started trading in New York at the end of July, opening below its initial public offering price of $16. The company recently completed a merger with Total Produce. Brokers that took part in the offering are now free to issue research on the stock.
Davy Research initiated coverage with an “outperform” rating and US$21.5 price target. Deutsche Bank started with a “buy” rating and US$19 price target. Stephens assigned it an “overweight” rating and US$19 price target. And calling it a “produce category leader with compelling risk/reward,” Goldman Sachs was among the most bullish on the Street, initiating coverage with a “buy” rating and US$26 price target.
BMO, however, took a more cautious stance, starting coverage with a “market perform” rating and US$19 price target.
“We believe that DOLE, which appears reasonably priced, should generate above-average growth over the long-term and will continue to consolidate the highly fragmented global fruit and vegetable industry,” commented BMO analyst Kenneth B. Zaslow in a note to clients. “Though we do not expect any material risk to the fiscal second quarter of 2021, we remain on the sidelines in large part as our visibility on fiscal second half of 2021 and the fiscal first half of 2022 performance remains somewhat limited given the pricing outlook and inflationary environment.”
Bank of America assigned Dole an “underweight” rating. “Overall, we see limited upside to shares as we believe industry volatility, low margins and an asset-intensive profile will outweigh the potential scale and synergies created by the business combination,” the U.S. bank said. It has a US$15 price target.
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Darcy Keith