Sunday , January 17 2021

Wednesday's analyst upgrades and downgrades

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

Lululemon Athletica Inc. (LULU-Q) is "brand still on the rise," according to Paul Lejuez, who raised his rating for his stock to "buy" from "hold" believing it was unfairly punished by the Street in recent weeks.

"LULU has shown the power of its brand with high teen comps several quarters in a row," he said. "But this was not about a certain product that led to these results, setting them up for difficult comparisons."

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"LULU continues to post strong comps in developed categories (women's bottoms), and develops loyalty with men, and has the permission of women and men to expand into new categories. They have made the right investments over the past several years to put them in this enviable position today, and they continue to make the right investments to drive cont'd impressive comp / sales results in the future. "

Mr. Lejuez said it was a "tough" earnings season for retailers with investors punishing many companies for lack of flow through on "decent" sales results. He thinks the Vancouver-based athletic apparel retailer has been unfairly included with this group.

"In recent months, fears of a macro slowdown have taken the winning brands down with the rest of the group, seemingly painting all with the same brush," he said. "LULU has been a victim, but it's a story of improving fundamentals and stand- out growth prospects, and now at a much lower price (down 28% off its 9/28 high). We get the macro concerns (and we have significant fears about many stocks in our group if the consumer slows down), but we think this is a brand to own in uncertain times – one with the strongest brand positioning, comp enum, international prospects, margins and ROIC [return on invested capital] in our coverage. "

Mr. Lejuez maintained a target price of US $ 152 for Lululemon shares. The average target on the street is currently US $ 161.77, according to Bloomberg data.

"This is not a macro call but we should note that LULU is not seeing anything from its consumer that would even hint at a slowdown," he said. "But given the uncertainties in the global environment, it is something that we consider as we weigh the risk reward."

The analyst added: "It does not mean that a significant consumer downturn would not have a negative impact on results, but we believe LULU is better positioned to manage through such a period than ever before in company history. the brand strength and loyalty will allow it to weather a tough period better than most. "


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The clinical performance of Neovasc Inc.'s (NVCN-T) coronary sinus stent Reducer adds "optimism" to the company's overall cardiovascular pipeline, said Echelon Wealth Partners analyst Douglas Loe.

Despite "lingering" financial risk facing Richmond, B.C.-based company, Mr. Loe raised his rating for his stock to "speculative buy" from "hold" in the wake of Wednesday's release of 12-year follow-up data on the Reducer in patients with severe angina pectoris, citing recent share price compression.

"The Reducer continues to demonstrate a uniformly positive impact on the mitigating refractory angina symptoms and over the clinically meaningful timeframe: To achieve sustained angina pain relief, it is almost certain that implanted Reducer stents would have been stably deployed in the coronary sinus throughout the study follow -up, but this was confirmed with CT angiography anyway, "said Mr. Loe. "No reductive shifting or migraine or stent-associated blood clotting has been observed, all of which have been shown to be unambiguously positive for chronic refractory angina symptoms as demonstrated not only in this long-term study but in virtually all published clinical angina studies we have reviewed previously, including Neovasc's own 104-patient sham-controlled COSIRA trial published in the New England Journal of Medicine back in Q115. "

Mr. Loe said Reducer's profile in medical literature "while always strong, took a magnum leap forward this year with multiple trials and review articles hitting the presses in 2018."

He maintained a $ 3 target for his stock. The average is now $ 6.11.

"There is no denying that with US $ 14.5-million in cash and US $ 28.5-million in convertible debt on the balance sheet, and with FQ318 operating cash loss of US $ 5.9-million suggesting Tiara / Reducer clinical activities are funded only into FQ219, Neovasc's financial risk is clearly high and getting higher without new capital infusion from partners or capital markets in the near term, "he said. "The 115-patient TIARA-II trial alone is projected to require US $ 15-million in R & D capital to complete, even before considering pivotal Tiara testing for Reducer-I / COSIRA-II."

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Cargojet Inc. (CJT-T) represents "a unique Canadian play on the theme of the increased share of retail wallet being driven online," according to Canaccord Genuity analyst Doug Taylor.

In a research note released Wednesday, it has initiated coverage of the Mississauga-based cargo airline with a "buy" rating.

"The forces driving retail sales through online channels and the requirements for companies to offer shorter delivery timelines to keep pace with Amazon, etc., are producing strong growth in the overnight air cargo market," said Mr. Taylor. "We view Cargojet as one of the few ways to effectively play this theme in Canada. We have an all-organic top-line growth of 7-8 percent in 2019 and 2020."

"Cargojet, as Canada's largest overnight air carrier, is uniquely poised to benefit from global uptick and e-commerce spending. Shipping preferences around the world continue to shift from brick-and-mortar to online, and customer expectations regarding delivery timelines are compressed.This spending has driven volumes higher for a number of Cargojet customers, including Canada Post, Purolator, UPS, DHL and Amazon, who have handled their overnight shipments to Cargojet's domestic overnight network. growth as Canada plays catch-up with more developed e-commerce investments. Domestic parcel volumes for Canada Post

have grown at a 11-percent CAGR [compound annual growth rate] since 2011 and 22 percent over the year. "

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Mr. Taylor sees a "very wide" competitive moat for the company, noting it has developed a "commanding" market share of the Canadian overnight cargo market (nearly 90 percent). He feels several elements work to protect that dominance, including "foreign ownership regulations, high capital cost, long-term customer contracts and its strong reputation / performance history."

The analyst set a target of $ 90 per share, which is below the $ 94.57 consensus.

"We believe the company's prospects and growth profile should preserve its premium valuation," he said.

"Cargojet has seen its appreciation expand in recent years, which we believe reflects increasing appreciation for business growth prospects and competitive positioning, and prospects for better FCF conversion in years ahead after a few years of reinvestment. the $ 90 target price is based on 12 – 13x

EV / EBITDA applied to our forward estimates, one-year out. We believe that the company's current dividend yield of 1.1 percent is comfortably covered by adjusted FCF [free cash flow] and we expect consistent dividend growth in the coming years as the company's FCF profile continues to improve. "


In conjunction with adjustments to their forward commodity price assumptions, Raymond James equity analysts made a number of changes to their ratings for Canadian energy companies.

The company lowered their crude oil price assumptions in line with the move in forward prices, reducing their WTI projection for 2019 to US $ 53.88 per barrel from US $ 71.50 and introducing a 2020 estimate of US $ 54. Their long-term assumption rose to US $ 75 per barrel from US $ 70.

For Mixed Sweet Blend, their 2019 assumption fell to $ 54.44 (Canadian) from $ 79.48 with a 2020 assumption of $ 57.14. Their long-term assumption fell to $ 78.82 from $ 80.50.

"We have made a number of rating changes in conjunction with our commodity update," said analysts Kurt Molnar, Jeremy McCrea and Chris Cox. "The lower near-term and long-term commodity price assumptions have resulted in material reductions to our forecasts for our producers under coverage, resulting in reduced half-cycle well economics along with the expected pace of capitalization."

With these changes, the following companies were downgraded:

Crew Energy Inc. (CR-T) to "market perform" from "outperform" with a $ 1.60 target, down from $ 3. The average is $ 2.54.

Delhi Energy Corp. (DEE-T) to "outperform" from "strong buy" with a target of $ 1, down from $ 1.50. Average: $ 1.10.

Granite Oil Corp. (GXO-T) to "market perform" from "outperform" with a $ 1.50 target, falling from $ 3. Average: $ 1.62.

NuVista Energy Ltd. (NVA-T) to "outperform" from "strong buy" with a $ 6 target, falling from $ 12. Average: $ 9.36.

Seven Generations Energy Ltd. (VII-T) to "outperform" from "strong buy" with a $ 18.50 target, down from $ 27.50. Average: $ 19.63.

At the same time, analysts have raised their ratings for a trio of companies, citing a potential upside in their long-term commodity calls, noting: "Although volatile prices remain volatile, couple weeks ago (that was much lower than the current strip price today). "

The following companies were raised to "strong buy" from "outperform" ratings:

Bonterra Energy Corp. (BNE-T) with a $ 14 target, down from $ 22. Average: $ 12.45.

TORC Oil & Gas Ltd. (TOG-T) with a $ 7.50 target, down from $ 10. Average: $ 9.21.

Tamarack Valley Energy Ltd. (TVE-T) with a $ 5 target, down from $ 6. Average: $ 5.53.


With his 2019 outlook for the US real estate investment trusts and housing companies, Citi analyst Michael Bilerman downgraded and quartet of U.S. stocks, citing "and a more cautious view of housing, driven primarily by heightened macroeconomic concerns, the warm RevPAR expectations and a challenging environment for operating margin.

Mr. Bilerman lowered his rating to "neutral" from "buy" for these four equities:

Marriott International Inc. (MAR-Q) with a target of US $ 177, down from $ 144. The average target on the street is US $ 135.95.

"Despite significant year-to-date underperformance, we believe significant growth will be challenged due to increased macroeconomic growth concerns, uncertainty over recent data breaches, and ongoing concerns regarding the integration of rewards programs," he said.

Hyatt Hotels Corp. (H-N) with a US $ 77 target, down from US $ 95 and below the average of US $ 81.32.

"Our downgrade is based on the substantial completion of the asset sale program, the integration risks to Two Roads acquisition, and the narrowing of the valuation gap between H vs. MAR & HLT, "he said.

Host Hotels & Resorts Inc. (HST-N) with US $ 19.50 target, falling from US $ 24. The average is US $ 21.70.

"We believe a significant expansion in the valuation multiples from current levels is unlikely given a continued portfolio breakdown, a tougher margin of tax cuts in 2018 (17 basis points), and a challenging RevPAR environment," he said.

Federal Realty Investment Trust (FRT-N) with a target of US $ 146 (unchanged). The average is US $ 139.64.

"We're downgrading our absolute rating on FRT to Neutral after outperformance this year and a premium valuation versus peers," he said.

Conversely, Mr. Bilerman upgraded Realty Income Corp. (O-N) to "neutral" from "sell" with a target of US $ 67, rising from US $ 56. The average is US $ 65.

"The valuation remains rich on an absolute basis, but in the current environment (which remains favorable for spread investment) we see that premium valuation as a cost of capital advantage to drive future cash flow growth," said analyst.

At the same time, Mr. Bilerman added Invitation Homes Inc. (INVH-N) to Citi's "Best Ideas Focus List," replacing his 2018 selection of Duke Realty Corp. (DRE).

"INVH is well positioned to drive cash flow through both internal and external growth. We favor the single family rental sector as we view it as providing both defense and growth, "said Mr. Bilerman, who has a "buy" rating and US $ 26 target for the stock (versus the average of US $ 25.37).


Canaccord Genuity analyst Yuri Lynk lowered his target price for shares of Finning International Inc. (FTT-T) in response to its $ 260-million acquisition of 4Refuel, despite seeing "compelling aspects to its business."

On Tuesday, Vancouver-based Finning announced the deal for Toronto-based 4Refuel, the leading mobile on-site refueling company in Canada. "

"Finning paid ~ $ 260 million or 7.8 times 2018 estimated EBITDA, pre-synergies, for the business," said Mr. Lynk. "We have paid the EBIT multiple paid at 11.3 times. These multiples are slightly higher than where Finning is currently trading but are justified, in our view, by the company's highly recurring and resilient revenue base as well as the revenue synergy potential.

"We assume the acquisition closes at the end of January and therefore include only two months in Q1 / 2019. As such, our EBITDA estimates increase to $ 804 million in 2019 and $ 868 million in 2020, from $ 773 million and $ 831 million, respectively. We calculate the acquisition to be 4-percent accretive to EPS in 2019, bringing our estimate to $ 2.30. Meanwhile, our 2020 EPS estimate increases 6 percent to $ 2.50. Recall, next year, Finning should benefit from the roll-out of significant ERP implementation costs in South America and the right-sized operation in Argentina, the start of construction activity on LNG Canada, and product support growth. "

Maintaining and "buy" rating for Finning stock, Mr. Lynk dropped his target to $ 33 from $ 38, which falls below the $ 35.25 consensus.

"Over the last year or so, forward valuation multiples for heavy equipment companies have contracted from 20.0 times to, in the case of Caterpillar, Komatsu, and Toromont, 11.7 times," he said. "Our previous 16.5 times target P / E multiple for Finning looked increasingly rich and we take this opportunity to reduce it to 13.5 times, which we continue to apply to our Q4 / 2019 through Q3 / 2020 EPS estimate. Our new target implies a 36-percent return, including a 3.2 percent dividend yield. "


In other analyst actions:

Macquarie analyst Mike Rizvanovic downgraded Bank of Montreal (BMO-T, BMO-N) to "neutral" from "outperform" with a target of $ 101, falling from $ 111. The average target on the street is $ 108.54.

Mr. Rizvanovic upgraded Royal Bank of Canada (RY-T, RY-N) to "outperform" from "neutral" with a target of $ 104, which falls short of the $ 110.14 consensus.

Barclays analyst James Durran upgraded North West Co. Inc. (NWC-T) to "overweight" from "equal-weight" and bumped his target to $ 34 from $ 31. The average is $ 33.20.

RBC Dominion Securities downgraded Just Energy Group Inc. (JE-T) to "sector perform" from "outperform" with a target of $ 5.50, up from $ 5 but below the consensus of $ 5.78.


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