Inside the Market’s roundup of some of today’s key analyst actions
The Street met Tesla Inc.’s (TSLA-Q) settlement with the U.S. Securities and Exchange Commission with a positive reaction on Monday.
On Friday, the SEC announced it was fining chief executive Elon Musk US$20-million and forced him to step down as chairman to settle charges he committed securities fraud in tweets saying he was considering taking the electric-car maker private. Tesla was also fined US$20-million
The deal is likely to be “a positive” for its shares, according to Canaccord Genuity analyst Jed Dorsheimer, predicting an improvement in corporate governance and investor focus moving squarely to the electric-auto maker’s operations.
“We believe Elon Musk and Tesla’s settlement with the SEC is a positive development for Tesla – by installing a new chairman and two independent directors, a major risk for investors will be addressed (corporate governance and an independent BoD),” said Mr. Dorsheimer. “While this change addresses our concerns around governance, we believe it’s still too soon to become more constructive, given what we see are some near-term operational and capital challenges.
“We view production expectations may remain too high given the many recent distractions. A reset, which we believe may be Q3, might allow a more constructive stance in the shares. However, at the moment and prior to knowledge of the new Chairman and two directors, we are prudently remaining on the sidelines.”
Mr. Dorsheimer maintained a “hold” rating for Tesla shares and a target price of US$316, which exceeds the current average target on the Street of US$290.38, according to Bloomberg data.
RBC Dominion Securities’ Joseph Spak (“sector perform,” US$315 target) called the settlement a “positive outcome” for both Mr. Musk and Tesla as well as its shareholders.
“For shareholders, especially those that are involved because of Musk (which we believe are not insignificant), that he remains CEO is also a positive,” said Mr. Spak. “But more broadly, and to put it bluntly, Tesla’s maturity compared to other public companies of its market capitalization has been below average. We believe the splitting of the CEO and Chairman role, as well as the addition of two more independent directors (though we are curious and will be watching to see who is named), are a positive direction towards improving corporate governance. We are hopeful that a true check on Elon will emerge and there will be greater accountability for statements/claims/targets. A more stable company with sounder governance could also aid with the recruitment of additional (or retainment of) senior talent.
“With the drama from #Tesla420 now drawing to a close, we’d expect the stock to recover some of the losses incurred last week. The focus will now likely shift back to fundamentals where we think Tesla still needs to prove itself. The immediate attention will likely be on 3Q18 deliveries, earnings and FCF.”
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Canaccord Genuity analyst Yuri Lynk sees recent weakness in CanWel Building Materials Group Ltd. (CWX-T) stock as a buying opportunity.
“Company insiders appear to agree, with several senior officers buying stock in the open market of late,” he said. “We believe CanWel’s stock is down in sympathy with recent lumber price weakness, which has, in fairness, caused us to lower our H2/2018 and 2019 financial forecasts. Additionally, we calculate CanWel’s September 17 high-yield note offering as being 2 cents dilutive to our prior estimates. Nevertheless, we continue to see the dividend payout ratio falling to 90 per cent next year as capex normalizes following the completion of the lumber pressure treating plant in Junction City, Oregon.”
With benchmark lumber prices declined by an average of 22 per cent from the previous quarter, Mr. Lynk lowered his third-quarter EBITDA projection of CanWel to $20-million from $26-million with his full-year estimate falling to $74.2-million from $83.9-million. His 2019 expectation also fell to $80.8-million from $85.6-million.
His 2018 and 2019 earnings per share estimates now sit at 43 cents and 47 cents, respectively, from 52 cents and 54 cents.
“Our model assumes lumber prices remain around current levels and the Junction City, Oregon lumber pressure treating plant, which is currently under construction, starts up by year-end,” he said.
Maintaining a “buy” rating for CanWel shares, Mr. Lynk lowered his target to $6.50 from $7.50. The average on the Street is $7.43.
"The stock price performance of companies in the building materials sector has been disappointing thus far in 2018,” he said. “To date, the average return for the group has been (24.7 per cent), compared to the S&P/TSX index and the S&P 500 index, which have returned 0.0 per cent and 9.0 per cent, respectively. We believe higher interest rates and mixed U.S. housing data are largely to blame for the group’s underperformance thus far in 2018. Returning (17.8 per cent) year-to-date (including the generous dividend), CanWel shares have managed to slightly outperform the peer group. More recently, however, CanWel has seen pressure from rapidly declining spruce-pine-fur (SPF) lumber prices, which not all companies in the comp group have exposure to.”
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Acumen Capital analyst Trevor Reynolds said he came away from a marketing trip with Black Diamond Group Ltd. (BDI-T) last week more encouraged about the prospects for the workforce accomodation provider.
“Following an extended period where management’s focus was debt reduction and repositioning assets, BDI appears to be well situated in an improving market,” said Mr. Reynolds. “The company will now look to deploy $20-million of cash flow towards growth in the Modular Space Solutions division which has been strong of late. In addition, management has successfully completed proof of concept on LodgeLink and are actively scaling the business along with developing an improved platform.”
Mr. Reynolds said the company is expecting LNG Canada to announce a positive final investment decision (FID) in the coming weeks, which is expected to lead to a quick ramp-up in activity, including a previously announced $42-million contract.
That led the analyst to raised his fiscal 2018 and 2019 financial expectations. He’s now projecting earnings per share of a 13-cent loss, an improvement of 2 cents, while his 2019 estimate is a 4-cent profit, jumping from 12-cent loss.
Reiterating a “buy” rating for its shares, Mr. Reynolds raised his target to $4.75 from $4.20, which sits above the average of $4.22.
“We view BDI as well positioned with all indications pointing to increased activity levels moving forward,” he said. “With a more flexible balance sheet, we expect a higher proportion of capital to be directed to growth on a go forward basis. We have increased our estimates on the back of discussions with management and increased confidence on LNG Canada moving forward.”
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Anticipating the loss of market share and lower-than-anticipated earnings in the next year, Barclays analyst Blayne Curtis downgraded Intel Corp. (INTC-Q) to “underweight” from “equalweight” on Monday.
“Intel faces a costly battle ahead to retain share as competitive threat from AMD heats up, along with near-term slowing of end markets,” said Mr. Curtis.
“The market is already giving AMD credit for significant share gains, but Intel is not going to let that share go without a fight with pricing the only real lever to pull.”
Lowering his fiscal 2019 earnings per share projection to US$4.21 from US$4.30, Mr. Curtis dropped his target price to a Street-low US$38 from US$53. The average is currently US$55.50.
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Despite lowering his target price for shares of Osisko Mining Inc. (OSK-T) following the closing of a $76.4-million financing, Desjardins Securities analyst Raj Ray said he’s maintaining his positive outlook on the company, seeing several upcoming catalysts that will continue its recent momentum.
“We see strong momentum in the shares with positive infill drilling results to date, the Triple 8 discovery, improved financial flexibility and the strategic investment by Kirkland Lake,” he said.
“Since the announcement of the maiden resource and the preliminary economic assessment (PEA) results earlier this year, the company’s focus has been on definition and expansion drilling of the Windfall deposit. As we highlight in this note, infill drilling to date has been positive. In addition, discovery of the Triple 8 zone has created new excitement in what could be the feeder zone for the Windfall mineralization. Over the next 3–6 months, we see a strong pipeline of catalysts, including a resource update (Lynx) and bulk sample results (Zone 27) in 4Q18, a full resource update and feasibility study results in early 2019, and ongoing exploration and updates from the Triple 8 zone.”
With a “buy” rating (unchanged), he lowered his target price to $4 from $4.50 based on equity dilution. The average is currently $4.05.
“After a lacklustre 1H18, Osisko’s shares seem well positioned for 2H given the company’s new strategic backing, strengthened balance sheet and potential catalysts over the next 3–6 months,” he said.
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Believing its earnings expectations are “too optimistic,” Oppenheimer analyst Brian Bittner downgraded Chipotle Mexican Grill Inc. (CMG-N) to “underperform” from “perform.”
“We respect management’s marketing, digital and new product strategies, but don’t view them as transformative enough,” he said.
Mr. Bittner set a target of US$400, which falls below the average of US$471.56.
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In other analyst actions:
TD Securities analyst Menno Hulshof downgraded Husky Energy Inc. (HSE-T) to “hold” from “buy” with a $26 target, exceeding the average on the Street of $23.35.
Macquarie analyst Brian Bagnell upgraded MEG Energy Corp. (MEG-T) to “outperform” from “neutral” with a $12.50 target, jumping from $8. The average is $11.73.
With files from Reuters and Bloomberg News
David Leeder