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

Methanex Corp.'s (MEOH-Q, MX-T) decision to move forward with its Geismar 3 Methanol Project in Louisiana “should not be a surprise and is likely the right decision from a long-term perspective,” said RBC Dominion Securities analyst Nelson Ng.

However, he thinks the market “may prefer to wait until there is more economic visibility,” leading him to lower his target price for the Vancouver-based company’s stock after reducing his 2020 forecast and pointing to “weak” economic sentiment.

“Based on our conversations with shareholders, we believe there was a preference to defer the decision (perhaps by 6–12 months) until there was more visibility in the market,” said Mr. Ng.

Pointing to the IHS’s updated methanol price forecast, Mr. Ng moved his 2019 and 2020 adjusted EBITDA estimates to US$755-million and US$858-million (from US$744 million and $933-million), respectively.

Keeping a “sector perform” rating, his target for Methanex shares dipped to US$65 from US$70. The average on the Street is US$53.33, according to Bloomberg data.

“Due to the weak near-term (2019) outlook and 3-year construction period, we believe the market will not place material value on Methanex’s Geismar 3 development,” he said. “In our view, the risk-adjusted implied total return to our price target supports our Sector Perform rating for the shares.”

Elsewhere, CIBC World Markets analyst Jacob Bout lowered his target to US$46 from US$53 with a “neutral” rating, pointing to higher net debt assumptions and a “slightly” lower-than-expected methanol price assumption.

Mr. Bout said: “G3 is lower cost than a standalone greenfield (cost of ~$750/t vs. typical new greenfield at ~$1,000+/t) and makes sense at realized methanol prices above $300/t. However, if methanol prices dip below $300/t for a sustained period, MEOH will likely need to stop its NCIB program, and at $250/t or below (i.e., pricing in 2016), the company will generate negative FCF (before incremental G3 capex), and would require additional sources of capital.”

Raymond James analyst Steve Hansen maintained an “outperform” rating and US$62 target.

Mr. Hansen said: “While the economics of this project appear compelling on a standalone basis, this commitment to build is obviously a bold decision at a time when methanol prices are scraping multi-year lows amidst global trade uncertainty. As such, while we suspect this decision will irk some shareholders, we respect the decision in the context that Methanex appears amply resourced to fund the project (across multiple price scenarios), all while keeping leverage prudent and maintaining a modest buyback program in place.”

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Though it possesses competitive advantages and opportunities to grow, Nexa Resources R.A. (NEXA-N, NEXA-T) is “struggling to find an audience,” according to RBC Dominion Securities analyst Sam Crittenden.

He initiated coverage of the Brazilian mining company, which made its TSX listing debut in November of 2017, with a “sector perform” rating.

“Nexa provides investors with strong exposure to zinc – we forecast an average of 64 per cent of mining revenue from zinc over the next three years and a growing production profile,” he said. "The balance of the mining revenue comes primarily from copper (20 per cent), precious metals (10 per cent), and lead (6 per cent). Compared to North American peers, we believe Nexa offers the strongest pure zinc exposure with the exception of Trevali Mining (87-per-cent mining revenue from zinc over next three years).

“Nexa shares have tracked the zinc price since the IPO in October 2017 and we would expect that to continue given the high zinc exposure.”

Though he said Nexa runs a low cost, integrated zinc business with “room to grow and enjoys competitive advantages in South America,” Mr. Crittenden said his neutral-equivalent rating stems from negative investor sentiment toward zinc, low trading liquidity and its shares trading in line with base metals peers.

“If the zinc outlook improves or if the relative valuation discount became more pronounced, we would be more constructive.,” he said.

He set a target price of US$12 for the stock, which falls short of the US$13.21 average currently on the Street.

“We would expect Nexa shares to move closely in line with the zinc price, but have the potential to outperform with the successful development of Aripuana," he said. Additionally, as the company demonstrates exploration success at its operating mines and development of its projects, we would expect the shares to reflect longer mine life and potential upside from projects that can be monetized in the future. The implied return to our target supports our Sector Perform rating.”

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Ahead of the release of its second-quarter results on Thursday after the bell, Deutsche Bank analyst Lloyd Walmsley sees Amazon.com Inc. (AMZN-Q) sitting “in a sweet spot of slightly accelerating revenue” as well as key performance indicators.

In a research note released Monday, Mr. Walmsley said he expects to see margin expansion “as the company benefits from continued efficiency improvements, despite the expensive shift to one-day Prime."

He raised his revenue and operating income expectations for the quarter, leading him to hike his target for Amazon shares to US$2,515 from US$2,315 with a “buy" rating. The average target on the Street is US$2,261.78.

“With easing comps over the balance of the year and a benefit from one-day Prime, we see revenue growth likely to accelerate again in 3Q,” he said.

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Seeing “early signs of memory stabilization” and predicting semiconductor companies could benefit a quicker-than-anticipated improvement in inventory levels, Goldman Sachs analyst Mark Delaney upgraded his rating for several companies.

“We are now more positive on global memory stocks as we believe that the excess inventory memory companies are carrying will be depleted faster than our previous expectations,” said Mr. Delaney, pointing to Toshiba Memory Corp.'s recent outage that reduced production.

Calling Micron Technology Inc. (MU-Q) “the best stock to express our view” on such improving memory trends, he upgraded industry giant to “buy” from “neutral” with a US$56 target, rising from US$40. The average on the Street is US$46.26.

He raised Applied Materials Inc. (AMAT-Q) to a “buy” rating and added it to the firm’s “Conviction List.” His target rose to US$56 from US$48, which exceeds the US$51.58 average.

Lam Research Corp. (LRCX-Q) also moved to a “buy” with a US$231 target up from US$197 and above the US$217.90 average.

“Not only have the memory producers reduced capex over the last 4 quarters, but they have also made adjustments to their factory utilization rates to combat the on-going challenging environment, and while the memory WFE market is likely to remain weak in 2H19, we now expect fundamentals to improve earlier than our prior expectations,” he said.

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Upon assuming coverage of the stock, Laurentian Bank Securities analyst Chris Martino raised his target for Boyd Group Income Fund (BYD-UN-T) units ahead of the release of its second-quarter financial results.

“Following a strong SSSG [same-store sales growth] performance and above-average location additions in Q1/19, we model a lighter Q2 to reflect a seasonal slowdown and industry softness in certain markets as indicated by management on the Q1 conference call,” said Mr. Martino in a research report released Monday. “In addition, a ransomware attack (announced June 27) resulted in a temporary interruption to some locations resulting in a minor loss of sales. We expect these factors to be somewhat offset by ongoing traction in Boyd’s efforts to improve technician capacity, which has helped to reduce levels of unprocessed work. As a result we look for a moderation in growth, and model 3.7-per-cent SSSG for Q2/19 along with revenue of $554.0-million, EBITDA of $53.5-million and EPU of $1.21, slightly below consensus.”

Maintaining the firm’s “buy” rating, Mr. Martino’s target for Boyd increased to $190 from $185. The current consensus among analysts covering the company is $185.18.

“Our valuation is based on 14.5 times our 2020 estimated EBITDA,” he said. “We believe a premium multiple is justified given the company’s acquisition runway, consistent growth in revenue, EBITDA and EPU, and low capital intensity corresponding to strong capacity to internally fund ongoing M&A. The company’s sustained premium is likely also a function of its status as a quality compounder in the Canadian small-mid cap space, which remains thin on similar assets. BYD currently trades at 15.8 times NTM [next 12-month] EBITDA, a 3.5-times premium to blended peers (3 times excluding Uni-Select), and 13.8 times 2020 estimated EBITDA. We believe Monro Inc. is the best public comp for Boyd, and note that the comparable group as a whole does not capture the company’s market leadership as the other large MSOs are private and PE-owned entities.”

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U.S.-based Cresco Labs Inc. (CL-CN) is “putting the pieces together for market dominance,” according to Canaccord Genuity analyst Derek Dley.

“We are updating our estimates to account for the recent M&A activity within the cannabis space, notably for Cresco the acquisitions of Origin House and VidaCann,” he said. “Furthermore, with Illinois formally announcing plans to implement a recreational cannabis market at the beginning of 2020, we have updated our forecasts for the state.”

With a “speculative buy” rating, Mr. Dley hiked his target to $22 from $15. The average on the Street is $21.95.

“In our view, Cresco is well positioned to capitalize on the increasing acceptance of cannabis within its core states, boasts a best-in-class management team, and offers investors a differentiated cannabis opportunity through its focus on both wholesale and retail,” he said.

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Roth Capital Partners analyst Craig Irwin downgraded Tesla Inc. (TSLA-Q) to “neutral” from “buy” with a US$238 target. The average is US$265.31.

“We remain cautious about the higher long-term growth rates Tesla forecasts, as battery costs are high, but believe this is now largely understood by investors,” said Mr. Irwin, who expects shares “to remain range bound until these issues are resolved.“

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In other analyst actions:

RBC Dominion Securities analyst Geoffrey Kwan upgraded Equitable Group Inc. (EQB-T) to “outperform” from “sector perform” with a target of $96, rising from $84 and above the $86.50 consensus.

He also raised First National Financial Corp. (FN-T) to “sector perform” from “underperform” with a target of $32, up from $31, which is the current consensus.

Mr. Kwan downgraded Intact Financial Corp. (IFC-T) to “sector perform” from “outperform” with a $135 target, increasing from $122 and ahead of the $125.64 average.

He lowered ECN Capital Corp. (ECN-T) to “sector perform” from “outperform” and maintained a $5 target. The average is 7 cents higher.

TD Securities analyst Craig Hutchison downgraded Uranium Participation Corp. (U-T) to “hold” from “buy” and dropped his target by a loonie to $6. The average on the Street is $5.75.

Mr. Hutchison lowered Taseko Mines Ltd. (TKO-T) to “hold” from “speculative buy” with an 85-cent target, falling from $1.30 and below the $1.75 average.

TD’s Craig Barnes downgraded Teck Resources Ltd. (TECK-B-T) to “buy” from “action list buy” with a $38 target (unchanged). The average is $38.59.

GMP analyst Steven Butler downgraded Franco-Nevada Corp. (FNV-T) to “hold” from “buy” with a $125 target, rising from $120. The average is $119.78.

He also downgraded Iamgold Corp. (IMG-T) to “hold” from “buy” with a target of $5.30, up from $4.65 but below the $5.73 average.

Mr. Butler upgraded Wheaton Precious Metals Corp. (WPM-T) to “buy” from “hold” and raised his target to $41.50 from $32.75. The average is $39.36.

GMP’s Ian Parkinson downgraded Detour Gold Corp. (DGC-T) to “hold” from “buy” with a target of $20.50, jumping from $15.30. The average is $19.07.

Evercore ISI reinstated coverage of Sun Life Financial Inc. (SLF-T) with an “outperform” rating and $63 target, which exceeds the consensus target on the Street of $57.28.

With files from Bloomberg

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 27/03/24 4:00pm EDT.

SymbolName% changeLast
MU-Q
Micron Technology
+0.38%119.25
LRCX-Q
Lam Research Corp
-0.16%965.67
MAT-Q
Mattel Inc
+1.86%19.76
AMZN-Q
Amazon.com Inc
+0.86%179.83
MEOH-Q
Methanex Cp
+1.37%45.01
MX-T
Methanex Corp
+1.38%61.1
TSLA-Q
Tesla Inc
+1.22%179.83
FN-T
First National Financial Corp
+1.44%37.37
IFC-T
Intact Financial Corp
-0.09%220.49
ECN-T
Ecn Capital Corp
+4.37%1.91
TKO-T
Taseko Mines Ltd
+6.03%2.99
TECK-B-T
Teck Resources Ltd Cl B
+1.9%59.61
EQB-T
EQB Inc
+3.09%84.96
IMG-T
Iamgold Corp
+3.1%4.33
FNV-T
Franco-Nevada Corp
+2.98%159.13
WPM-T
Wheaton Precious Metals Corp
+3.56%62.79
CL-CN
Cresco Labs Inc
+8.54%3.05

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