Skip to main content

A Royal Bank of Canada (RBC) sign is seen in downtown Toronto, March 3, 2011.Mark Blinch/Reuters

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

Royal Bank of Canada (RY-T, RY-N) is exhibiting "strong momentum after a high quality beat," said Canaccord Genuity analyst Scott Chan.

"The majority of its segments (except for Insurance) delivered solid earnings growth," he said.

On Friday, the bank reported adjusted core earnings per share of $2.05, exceeding $1.99 estimate of both Mr. Chan and the Street. After factoring in a trio of items, including a U.S. tax reform write-down, he pegged the result an even more impressive $2.14.

"Adjusted total revenue was up 9 per cent year-over-year contributing to positive operating leverage of 3.3 per cent," he said. "This is well ahead of RY's fiscal 2018 target of 1-2 per cent, and management appeared confident in exceeding their annual target. Friday, 56 per cent of CM's 12-per-cent EPS surprise related to lower credit. RY's total provisions of $334-million was in line with consensus. Management stated new IFRS 9 implementation would not materially change their former provision guidance under IAS 39. RY maintained their fiscal 2018 PCL target between 25-30 bps (vs. our revised 27 bps forecast). That said, IFRS 9 will create quarterly volatility on non-impaired loans (i.e. stage 2 bucket)."

Mr. Chan raised his fiscal 2018 and 2019 EPS estimates to $8.26 and $8.79, respectively, from $8.13 and $8.59 "due to slightly lower PCLs, and incorporating share buybacks of 30 million shares through its NCIB."

With a "hold" rating (unchanged), Mr. Chan raised his target for Royal Bank shares to $109 from $107. The average on the Street is $111.27.

Elsewhere, BMO Nesbitt Burns analyst Sohrab Movahedi raised his target to $106 from $104 with a "market perform" rating.

=====

Raymond James' Kurt Molnar added Enerplus Corp. (ERF-T) to the firm's "Canadian Analyst Current Favourites" list, replacing Delphi Energy Corp. (DEE-T).

"Enerplus' year-end results for 2017 were outstanding," he said. "Their implied go-forward returns on invested capital are outstanding, their balance sheet literally may be the strongest in the Canadian sector and they have minimal exposure to the pipeline dysfunction that negatively impacts many of their peers. Add to this that Enerplus is a large cap that still trades at a discount to its U.S. Bakken peers and this drives the swap in our ACF recommendation."

Mr. Molnar has an "outperform" rating and $19 target for Enerplus shares. The average target on the Street is $17.82.

He rates Delphi a "strong buy" with a target price of $1.80, which exceeds the consensus among analysts covering the stock of $1.58.

"We have had no change in our view or estimates for Delphi," said Mr. Molnar. "We see their project as superior, the gas marketing and hedging as perhaps being the best in the industry and their un-risked inventory continuing to grow and condensate leverage continuing to grow. This all also makes Delphi a takeover speculation in our view. But with all that said, Delphi is also a small cap in a sector that struggles to attract new capital these days."

Meanwhile, Canaccord Genuity analyst Dennis Fong expects Enerplus' share price outperformance to continue following better-than-anticipated fourth-quarter financial results.

On Friday, the Calgary-based energy company reported adjusted cash flow per share of 62 cents, which exceeded Mr. Fong's 52-cent projection and sat at the upper end of guidance. Previously released quarterly production of 88,590 barrels of oil equivalent per day (53-per-cent liquids) also fell in-line with expectations.

Based on the results and the expectation of the disposition of additional high-opex, non-core assets, Mr. Fong raised his 2018 and 2019 CFPS projections to $2.53 and $3.08, respectively, from $2.49 and $2.57.

"In a scenario where there is continued strength in the commodity price, we expect the company will prioritize the expansion of its resource potential (through acquisitions) and share buybacks over accelerating growth, further paying down debt or increasing the dividend (in the near term)," he said.

Maintaining a "buy" rating for Enerplus shares, Mr. Fong raised his target to $17 from $16.50.

"Notwithstanding the share price outperformance as compared to its peers, we continue to believe the current valuation represents an attractive entry point into a company with a significant liquids growth profile, a clean balance sheet, strengthening margins and natural gas optionality with its exposure to the Marcellus," the analyst said.

Elsewhere, calling the year-end results "impressive," Raymond James analyst Kurt Molnar raised his target to $19 from $18.25, keeping an "outperform" rating.

"The disciplined execution accompanying an impressive growth focus, along with an industry leading balance sheet, all combine to keep this one of our favored names for 2018 (which also has minimal exposure to Canada's pipelines dysfunction)," said Mr. Molnar.

RBC Dominion Securities analyst Greg Pardy hiked his target to $16 from $13 with an "outperform" rating (unchanged).

Mr. Pardy said: "The consistency of Enerplus Corporation's operating and financial performance, its best in class balance sheet and capable management team are all supportive of further relative multiple expansion in our eyes. These tailwinds are reinforced by a self-funded 2018 capital program + dividend under our US$54 WTI outlook—and its signal that it is contemplating increased distributions in the form of a share buyback."

=====

According to Raymond James analyst Ben Cherniavksy, Toromont Industries Ltd. (TIH-T) didn't disappoint with its fourth-quarter financial results, which provided the Street with the first look at the impact of its "transformative" acquisition of the Hewitt Group of companies.

On Thursday after market close, Vaughan, Ont.-based Toromont reported earnings per share of 73 cents, exceeding Mr. Cherniavsky's 62-cent expectation and the Street's 66-cent projection. Revenue of $823-million was a jump of 67 per cent year over year.

"While all segments of the company's business performed well, the strong revenue contribution from Hewitt definitely stood out," the analyst said. "These are VERY early days, but the acquisition appears to be off to a good start. Meanwhile, Toromont's core markets in both the Equipment Group (EG) and CIMCO are performing well. We believe this sets the stage for accelerated earnings growth over the next couple years with particularly promising upside related to the integration of Hewitt."

He added: "Toromont reiterated its familiar 'cautiously optimistic' outlook citing robust infrastructure spending, a larger installed base of equipment, and increased activity in the mining sector as favourable tailwinds (they also singled out 'cryptocurrencies' as a driver of higher power rental revenues!). A strong EG backlog, which stood at $199-million (excluding $128-million for Toromont QM), 35 per cent above 4Q16, provides good near-term visibility towards this growth. CIMCO, which remains an important growth driver, reported a similarly robust 35-per-cent increase in its year-end backlog."

With an "outperform" rating, Mr. Cherniavsky hiked his target to $67 from $63. The average is $62.50.

"The transformative nature of the Hewitt acquisition and the extended integration efforts involved compels us to embrace a longer-term perspective on Toromont's valuation," he said. "To derive our target price we apply a price-to-earnings multiple of 20 times (the upper end of the stocks historical range) to our new 2019 EPS estimate of $3.35."

=====

Ahead of the release of its fourth-quarter financial results on Wednesday, Canaccord Genuity analyst Neil Maruoka raised his target price for shares of Valeant Pharmaceuticals International Inc. (VRX-T, VRX-N).

Mr. Mauroka is projection revenue for the quarter of US$2.22-billion and adjusted EBITDA of US$865-billion, versus the consensus estimates of US$2.17-billion and US$872-million, respectively.

"While the company has continued to drive steady growth from core franchises, we will look for durable growth from Xifaxan, SILIQ, and Vyzulta going forward," he said. "Prescription trends for SILIQ have shown stronger momentum lately, but we note this product launch is unlikely to have a meaningful impact on the quarter or the year. Looking ahead, we have modestly tempered our estimates for 2018 to reflect the threat of generic competition; however, this is more than offset in our valuation by reduced leverage as Valeant has repaid $2-billion of debt over the past few months."

Though he raised his 2017 earnings per share projection slightly to US$3.75 from US$3.70, Mr. Maruoka lowered his expectation for fiscal 2018 by 15 US cents to US$3.78.

"With the potential for the loss of exclusivity (LOE) for several products in 2018, we have taken a more conservative view for next year," he said. "After modelling in higher product erosion due to generic competition, our 2018 top-line estimate falls from $8.67-billion to $8.43-billion, representing a 4.1-per-cent year-over-year decrease. However, we expect that growth will be driven in subsequent years by SILIQ, Vyzulta, and Xifaxan.

"We have also modestly increased our expense estimates for next year, resulting in a decline in our adjusted EBITDA estimate from $3.60-billion (41.5-per-cent EBITDA margin) to $3.46-billion (41.1-per-cent EBITDA margin). We will await new guidance for 2018 before we make additional updates to our forecasts."

Keeping a "hold" rating for Valeant shares, he raised his target to US$18 from US$16. The average is US$17.11.

"Valeant currently trades at 8.9 times enterprise value-to-adjusted EBITDA based on our 2018 forecast, compared to peers at 9.2 times," said Mr. Maruoka. "Our revised target represents an 8.8-times multiple. Given Valeant's elevated leverage, lower growth, and higher risk profile, we believe that a discount to the specialty pharma peer group is warranted."

=====

Despite fourth-quarter financial results that fell short of his expectations, Laurentian Bank Securities analyst Ryan Hanley upgraded Argonaut Gold Inc. (AR-T) to "buy" from "hold," citing recent share price depreciation.

On Thursday, Argonaut, based in Revo, Nev., reported earnings per share of 3 cents and cash flow per share of 7 cents, both lower than Mr. Hanley's projections (5 cents and 10 cents, respectively). The miss was due largely to lower-than-anticipated gold sales of 31,025 ounces.

"Although AR finished the year with $14-million in cash and $8-million in long-term debt, we expect the company to generate $27-million in free cash flow this year from its growing production profile," he said. "Additionally, both production and cash flow should continue to grow through 2019 driven by increased throughput at San Agustin and higher grades at La Colorada.

"After factoring in Q4/17 results, our net asset value per share remains largely unchanged at $2.89 (up from $2.84). Given the recent share price decline, we are upgrading AR."

His target for Argonaut shares is $3, which sits below the $4.21 consensus.

"The next significant catalyst in the pipeline will be the release of technical reports/mine plans for the El Castillo complex, which will incorporate the recently acquired claims, as well as for La Colorada," said Mr. Hanley. "The updated technical reports remain on track for Q1/18 and may result in mine life extensions which would in turn drive an increase in our underlying NAV/sh.

"Additional catalysts over the year, aside from those related to operating milestones as noted above, should include drill results from San Agustin, where 15,000m of drilling will largely be focused on an area to the northwest where there is potential to upgrade existing inferred resources. At Magino, we continue to expect EA approval later this year, while at the recently acquired Cerro del Gallo project, a small capital budget will cover metallurgical test work and the evaluation of exploration targets."

=====

Pinnacle Renewable Holdings Inc. (PL-T) is exhibiting momentum in a growth industry, said BMO Nesbitt Burns Jonathan Lamers.

He initiated coverage of the Vancouver-based manufacturer and distributor of industrial wood pellets with a "market perform" rating.

"The stock has appreciated 18 per cent from its discounted IPO price and now appears fairly valued," said Mr. Lamers. "Positively, investors stand to benefit from expected earnings growth as the two new plants are commissioned and the 4.5-per-cent dividend, and Pinnacle appears well positioned to secure new contracts, which could provide further upside. We are cautious toward the potential for construction and commissioning risks and for maintenance capex increases as certain major equipment at older facilities reaches normal replacement age."

He set a $15 target for its stock.

Elsewhere, CIBC World Markets' Mark Jarvi also gave it a $15 target with an "outperformer" rating.

Mr. Jarvi said: "Pinnacle has a strong operating track record and is well positioned as a low-cost supplier in the growing industrial wood pellet market. We see a clear path to growth through two plants under construction, opportunity for further growth (organic and/or M&A) and strong revenue/cash flow visibility ($3.1-billion contracted backlog) that underpins a $0.60 dividend (greater-than 50-per-cent payout ratio in 2018). In our view, Pinnacle is a unique investment opportunity providing a strong total return value proposition. "

RBC Dominion Securities initiated coverage of  with an "outperform" rating and $17 target.

=====

Credit Suisse analyst Seth Sigman initiated coverage of a trio of U.S. retail companies, including Walmart Inc. (WMT-N), on Monday.

He gave Walmart a "neutral" rating and target price of US$102, which is below the average on the Street of US$104.49.

"Our rating balances a positive view on WMT's evolving competitive position, with lower near-term growth as investments accelerate, and the stock's premium valuation," the analyst said. "Our work shows how investments in price and online, and initiatives around assortment and service, have positioned WMT to lead growth online in certain categories, drive stronger market share gains, widen its customer reach, and increase its importance to vendors. That said, we see a balanced risk/reward at this valuation, until relative sales and online growth reaccelerate, and visibility into operating profit dollar growth improves - two key drivers of this stock historically."

Mr. Sigman pegged Target Corp. (TGT-N) an "outperform" with a US$86 target. The average is US$75.84.

"TGT's aggressive strategic changes in 2017 position it as a survivor and set it up for stronger near-term comps - the key driver of this stock historically," he said. "Our work highlights benefits from a strengthening U.S. consumer, upside potential from company-specific initiatives, and select market share gains. We also expect a return to EBITDA growth in 2018 as the company laps higher catch-up investments in 2017, supported by our deep dive on TGT's margins.

He gave Hudson Ltd. (HUD-N) an "outperform" rating and US$22 target.

"HUD offers a unique combination of healthy industry travel trends, above-average store growth, strong pricing power, and growing margins," said Mr. Sigman. "Barriers to entry are high, and online risk is minimal. Valuation is attractive to other growth retailers at 10 times 2018 EBITDA and 9 times 2019, with an outlook for high-single-digit revenue growth, 9-per-cent EBITDA growth, and mid-teens or better EPS growth. We see upside to the stock through both EPS and multiple expansion."

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe