Inside the Market's roundup of some of today's key analyst actions
Third-quarter results from Cogeco Communications Inc. (CCA-T) were "mostly in-line with expectations," but Desjardins Capital Markets has adjusted its forecasts for the company.
"We tweaked our forward estimates slightly to reflect a slightly better subscriber trend and increased capex guidance for FY18. While we continue to support the company's U.S. cable acquisition strategy, we see the stock as less compelling on a valuation basis at this time," said analyst Maher Yaghi.
"Management continues to expect financial results to grow as a result of increased Internet ARPU [average revenue per user] growth and an incremental improvement in penetration of services in the base. While results were good, it is worth highlighting that U.S. cable margins were below expectations yet again. Management indicated that content costs remain a factor and are likely to exert pressure until at least the end of FY18. For FY18, the company expects mid-single-digit EBITDA [earnings before interest, taxes, depreciation and amortization] growth; however, due to a pickup in capex [capital expenditures], FCF [free cash flow] should be flat versus a year ago. This was somewhat lower than expected as consensus going into the quarter was looking for mid-single-digit growth. The stock reacted positively on July 14. Given the results were mostly in line, we believe the reaction reflected investor optimism in the MetroCast acquisition," Mr. Yaghi said.
He increased his earnings per share estimate for 2017 to $6.13 from $6.01; for 2018 to $6.11 from $5.94; and for 2019 to $6.36 from $6.20.
He kept his "hold" rating and his target price of $87.50. The consensus is $79.46, according to Thomson Reuters.
"While the stock still trades at a discount versus peers, we believe this is warranted given the company's lack of a wireless service. In our view, CCA's high indebtedness will make the buy strategy harder to deploy in the upcoming quarters, leaving few catalysts in the short to medium term. We are supportive of the company's U.S. strategy but believe the Canadian market is not getting any easier for a cable-only provider."
BMO Capital Markets analyst Tim Casey kept his rating on Cogeco at "market perform" but raised his price target to $84 from $82 after the company release "decent" results for its latest quarter.
"Third quarter and year to date results and F2018 guidance (excl. MetroCast) have been slightly better than expected. That said, we continue to expect competitive conditions in the core businesses to tighten. We have a mixed view of the pending MetroCast acquisition, with the potential benefits from greater scale/exposure to the less competitive rural U.S. cable market and the backing from a long-term financial partner in The Caisse offset by the NAV [net asset value] dilution and higher financial leverage."
Boardwalk Real Estate Investment Trust (BEI.UN-T) recently held an investor event and that prompted Desjardins Capital Markets to upgrade the stock.
"We have revisited our thesis following BEI's investor event (hosted July 10–11). While still cautious, our outlook on apartment market fundamentals in Edmonton and Calgary has turned more optimistic, particularly in light of building momentum in total employment in Alberta that has recently emerged. Since January 12, BEI's total return has underperformed the S&P/TSX Capped REIT Index by about 800bps [basis points]," said analyst Michael Markidis.
As a result, he upgraded the stock to "hold" from "sell" and kept his price target at $44. The consensus is $48.02.
"Lifestyle represents BEI's entry into the luxury segment. This repositioning is currently being piloted at four communities (three in Calgary and one in Edmonton). Initial returns may have fallen somewhat short of management's target of 8 per cent. However, profitability should improve as BEI realizes scale economies (reduced cost/suite downtime) and market fundamentals strengthen," Mr. Markidis said.
"Based on our 2019 NOI [net operating income], BEI trades at a 5.1 per cent implied cap rate and 5 per cent premium to our NAV [net asset value]. Our $44 target is based on about 1 times NAV and equates to about 15.5 times our 2019 FFO [funds from operations] estimate," he said.
"We downgraded BEI to Sell on January 12. Since then, the stock has generated a total return of -4 per cent (versus +4 per cent for the S&P/TSX Capped REIT Index). BEI is still trading modestly higher than our $44 target price; however, the total return potential is no longer negative. Accordingly, we are upgrading our rating to hold (from sell previously)," he said.
Raymond James downgraded WSP Global Inc. (WSP-T) after its share price has risen strongly.
However, analyst Frederic Bastien boosted his price target to $58 from $56. The consensus is $54.50.
"While the recent strengthening of the Canadian dollar has no material impact on our 2Q17 EBITDA target of $140-million, it does lower our 2017 and 2018 estimates to the tune of 1 per cent each to $565-million and $652-million, respectively. This modest headwind, combined with the healthy 17 per cent gain WSP has enjoyed since posting strong 4Q16 results on March 1 (versus a pullback of 1 per cent for the TSX), is compelling us to downgrade the stock from 'Strong Buy' to 'Outperform.' It should be noted, however, we remain just as bullish about WSP's organic growth prospects, its ever-growing diversification and its position as designer of choice for complex transportation projects globally (including the Kuala Lumpur to Singapore high-speed rail project and HS2's Phase 2B). For these reasons we are comfortable increasing our target 2018E EV [enterprise value]/EBITDA multiple from 10.5 to 11.0 times. Our decision appears reasonable considering the engineering group and WSP are fetching 11.3 times and 11.0 times, respectively, on current year estimates. This yields a new target price of $58, up from $56 previously," he said.
Healthy gains by the stock of Brookfield Renewable Partners (BEP.UN-T; BEP-N) led Raymond James analyst Frederic Bastien to downgrade the stock to "market perform" from "outperform."
However, he kept his $33 (U.S.) target price "by rolling forward our valuation to 2018." The consensus is $32.79, according to Bloomberg.
"Although we are supportive of management's initiatives and see the partnership buying more high-quality assets for value down the road, stubbornly low power prices continue to present headwinds in the near-term. To better reflect this reality -- and the additional 13 million units that BEP issued via concurrent public and private placements earlier this month -- we have lowered our FFO [funds from operations] per unit expectations for this year and next to $1.85 (U.S.) and $2, respectively, from $1.95 and $2.30 previously. We were able to maintain our $33 target by rolling our valuation forward to 2018 and using a target multiple of 13.5 times that represents a premium to the renewable power group's prevailing average of 12.0 times (which we justify based on BEP's larger capitalization and high-quality long-life asset base), but our recommendation is lowered to 'Market Perform' from 'Outperform.' Our downgrade, we should stress, is also a function of the units' healthy rally in 2Q17 (they were up 11 per cent versus a gain of only 2 per cent for the S&P 500 index)," he said.
Citigroup Inc. (C-N) second quarter earnings per share of $1.26 (U.S.) beat BMO Capital Markets' forecast of $1.21 by 4 per cent and that led analyst James Fotheringham to raised his target price on the stock.
He boosted his target price to $65 from $64 and kept his "outperform" rating. The consensus is $68.19.
"Relative to our forecasts, C's beat was attributable to higher-than-expected non-interest revenues in ICG (from higher investment banking fees and FICC trading revenues) in tandem with lower provisions for credit losses. Relative to C's 2Q17 reported EPS of $1.28, we calculate core EPS of $1.26 after stripping out the impact of a lower-than-normal tax rate, net MSR [mortgage servicing rights] hedging gains, a reserve release, and loan hedging gains, while adding back OTTI [other than temporary impairment] losses," he said.
"We lower our C core EPS estimates by 1 per cent in 2017E (from $5.01 to $4.95), 2 per cent in 2018E (from $6.08 to $5.94), and 4 per cent in 2019E (from $7.24 to $7.05). A higher than previously modeled tax rate more than offsets higher expected revenues (from higher NII [net interest income] and capital markets revenues)."