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

“Tough” decisions are ahead for Bombardier Inc. (BBD.B-T) as it embarks on a critical strategic review, according to Desjardins Securities analyst Benoit Poirier, who suggests its best path forward may involve the divestiture of key divisions.

Following Thursday’s profit warning, Mr. Poirier downgraded his rating for Bombardier shares to “hold” from “buy” as he awaits addition details on the company’s deleveraging efforts.

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"Overall, we are disappointed by [Thursday's] announcement and believe management needs to consider options that will reinforce the balance sheet: (1) potential divestiture of BA or BT, and/or (2) equity financing. Meanwhile, we expect the stock to trade sideways pending more granularity on the 2020 outlook," he said.

Mr. Poirier said the preliminary results were impacted largely by Bombardier’s efforts to resolve “challenging” rail projects as well as the timing of milestone projects and new orders at Bombardier Transportation and “slippage” in the delivery of four Global 7500 aircraft.

“BT’s performance in 4Q will be impacted by a US$350-million charge related to certain projects, translating into a US$650-million FCF [free cash flow] shortfall,” said Mr. Poirier. “Management is also reassessing future participation in ACLP [Airbus Canada Limited Partnership], as the latest indications call for additional cash investments and lower value resulting from a change in the breakeven timeline and a lower expected return. We now assume a value of US$0.5–1.0-billion for BBD’s stake, down from our initial expectation of US$2.1-billion (not reflected in our valuation).”

Mr. Poirier thinks the company should consider the sale of both its Bombardier Transportation and Bombardier Aviation divisions as it aims to solidify its balance sheet during its strategic review.

“Our scenario analysis supports our stance that a divestiture should be considered, as our base case (status quo) demonstrates that net debt to EBITDA will remain too high between 2019 and 2021,” he said.

Based on the quarterly results, Mr. Poirier lowered his free cash flow, revenue and earnings per share projections for 2019 through 2021.

With those reductions, he reduced his target for Bombardier shares to $2.25 from $4. The average on the Street is $2.33, according to Thomson Reuters Eikon data.

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Elsewhere, TD Securities analyst Tim James cut Bombardier to “hold” from “speculative buy” with a $1.70 target, falling from $3.25.


Though Sylogist Ltd.'s (SYZ-X) profitability is “undeniable,” Acumen Capital analyst Jim Byrne said corporate governance issues “put us on [the] sidelines.”

Accordingly, he downgraded the Calgary-based IT service management company to "hold" from "buy."

The move comes following Thursday's release of fourth-quarter financial results that fell short of his expectations.

“We believe investors have grown tired of the ongoing issues associated with executive compensation and corporate governance,” said Mr. Byrne. “Despite the changes to the compensation plan that move margins higher (at the cost of $12-million) we remain concerned given the lack of organic growth and absence of M&A. Profitability is very strong and SYZ shares trade at a discounted valuation, but we believe the corporate governance overhang.”

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Mr. Byrne sliced his target to $11 from $16.50. The average on the Street is xxx.

“We believe the shares will perform in line with the market as the profitability is overshadowed by concerns over management’s compensation and lack of M&A catalysts,” he said.


“As the long-awaited 5G ramp begins to take shape,” Citi analyst Christopher Danely upgraded Qualcomm Inc. (QCOM-Q) to “buy” from “neutral.”

“We expect upside to both revenue and margins for Qualcomm going forward given share gains in 5G, higher ASPs, and increased royalty revenue," he said. "We would note during the last upgrade cycle, Qualcomm revenue increased over 20 per cent and royalty rates stabilized.”

Mr. Danely hiked his 2020, 2021 and 2022 earnings per share projections to US$3.07, US$4.79 and US$5.42, respectively, from US$2.87, US$4.36 and US$5.03.

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That led him to raise his target for Qualcomm shares to US$108 from US$89. The average on the Street is US$98.45.

“We have written about Qualcomm being one of the most exposed stocks to 5G in our coverage universe and we now expect 2020 to be the year where the company experiences accelerating revenue and EPS growth driven by the beginning of the 5G upgrade cycle.,” the analyst said.


Though he sees Ag Growth International Inc. (AFN-T) “sowing the seeds for better conditions in 2020,” Desjardins Securities analyst David Newman lowered his financial expectations for the Winnipeg-based company in response its fourth-quarter update, guidance revisions and announcement of the acquisition of Affinity Management Ltd.

"Based on management’s update provided after market close (Jan. 16), AFN faced several headwinds in 4Q19, notably: (1) unfavourable weather conditions which adversely impacted the U.S. grain storage systems business; (2) deferrals of sales and earnings related to several Commercial projects in Canada and offshore (postponed into 1Q20); and (3) a C$2.7-million impact on 4Q19 EBITDA resulting from the subscription accounting implications of AGI SureTrack and AFN’s increased investment in the platform," the analyst said. "In addition, the company revised its estimate for rework charges on specific projects to $8.5–10.0-million (from $7.0-million)."

Mr. Newman lowered his 2019 adjusted EBITDA estimate to $143-million from $147-million. His adjusted free cash flow per share projections for 2019 and 2020 slipped to $2.98 and $5.20, respectively, from $3.12 and $5.21.

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"We have reduced our 4Q estimates but recognize next year’s forecast is more important at this juncture," he said. "The outlook and our forecast remain relatively intact and could even potentially benefit from several key drivers: (1) potential for a strong recovery in planted acreage for corn and other crops in the U.S., coupled with better weather and growing conditions, which should boost demand for portable grain-handling equipment and grain-storage systems, supported by a potential recovery in crop prices and farmer optimism as the U.S.–China trade dispute is slowly resolved; (2) improved results from Brazil due to production efficiencies and market share gains; (3) greater conversion and monetization of AGI’s backlogs in the North American and international markets, with improved confidence that projects can proceed as the US–China trade conflict eases; (4) the rollover of steel prices in 2019; and (5) the contribution from recent acquisitions (Milltec, IntelliFarms, Improtech, Farmobile and Affinity (disclosed on Jan. 16, 2020))"

Mr. Newman maintained a “buy” rating and $57.50 target for Ag Growth shares. The average on the Street is $57.93.


Pipestone Energy Corp.'s (PIPE-X) “strong” finish to 2019 supports a “compelling” 2020 outlook, according to Raymond James analyst Chris Cox.

“While still relatively early in the development, initial results continue to support the lofty expectations for the Pipestone lands, as evident by the company’s strong finish to the year, beating exit rate guidance by nearly 20 per cent,” he said in a research note released Friday. “With the transition of the company from an appraisal story to a development one, we see investor perceptions to the story improving materially. This will be further supported by the initial 2020 outlook, with Management pointing to robust growth of nearly 20 per cent exit-to-exit, while maintaining a strong balance sheet.”

Seeing “material” upside to the Calgary-based company’s shares, he maintained an “outperform” rating and $2.50 target, which falls below the consensus of $2.72.

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In other analyst actions:

* RBC Dominion Securities analyst Wayne Lam cut Roxgold Inc. (ROXG-T) to “sector perform” from “outperform” with a $1.30 target, down from $1.65. The average is $1.52.

* Deutsche Bank initiated coverage of Waste Connections Inc. (WCN-N, WCN-T) with a “buy” rating and US$106 target. The average is currently US$103.35.

* Paradigm Capital analyst Kevin Krishnaratne initiated coverage of Martello Technologies Group Inc. (MTLO-X) with a “buy” rating and 70-cent target. The average target for shares of the Kanata, Ont.-based company is 53 cents.

“We view MTLO as an attractive way for investors to gain exposure to the high-growth Unified Communications & SDWAN markets, with further optionality for M&A into adjacent areas including AIOps and ITSecurity,” he said."

“We view Martello as a financially strong, primarily software-based technology company, posting underlying subscription revenue growth of 30 per cent year-over-year in its foundational Mitel analytics business, generating recurring revenue of 90 per cent, exhibiting monthly customer churn below 2 per cent, commanding best-in-class gross margins in the mid-90-per-cent range, and having significant upside in its model given our view that penetraton within its TAM is only in the low single digits.”

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