Inside the Market’s roundup of some of today’s key analyst actions
Though its fourth-quarter financial results were largely in line with the expectations of the Street, Mediagrif Interactive Technologies Inc.’s (MDF-T) organic growth remains “weak,” according to Desjardins Securities analyst Maher Yaghi, leading him to downgrade his rating for its stock.
On Tuesday, the Longeuil, Que.-based e-commerce solutions provider reported revenue for the quarter of $20.5-million, meeting Mr. Yaghi’s projection despite narrowly missing the consensus estimate of $20.8-million. Organic growth dipped 4-5 per cent after a flat previous quarter, which the analyst attributed to lower revenue from a pair of its Quebec-based sites, LesPAC and Jobboom.
“Following last quarter’s results, we were cautiously optimistic that revenue growth was in the cards for FY19, but the pullback in revenue from LesPAC and the increased competition and advertising from other job search engines are likely to continue to exert pressure on MDF’s consumer platforms for the foreseeable future,” said Mr. Yaghi.
“While revenue growth remains difficult to achieve in many of the company’s business lines, we believe the integration of Orckestra could help consolidate revenue growth once the acquisition is lapped, as this industry (e-commerce platforms) still shows strong year-over-year growth.”
With the results, Mr. Yaghi lowered his 2019 revenue and EBITDA expectations to $80.9-million and 70.3 cents, respectively, from $ 81.4-million and 86 cents.
His rating for the stock fell to “hold” from “buy” with a target price of $13, down a loonie. The average target on the Street is $13.50, according to Bloomberg data.
“While MDF continues to generate solid free cash flows, the company’s assets are exhibiting weak underlying growth,” said Mr. Yaghi. “The acquisition of Orckestra could bring some growth to the mix although it requires significant investment. While the stock’s valuation is not expensive, until we see clear signs of sustainable revenue growth we do not expect the stock to show improved trends.”
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RBC Dominion Securities analyst Greg Pardy raised his target price for shares of Imperial Oil Ltd. (IMO-T) after a recent series of institutional meetings with chief executive officer Rich Kruger, which he called “candid and pointed toward a producer confident that it is regaining its operating stride.”
“What stood out most to us was Imperial’s recognition of the need for clear messaging and enhanced market disclosure,” said Mr. Pardy.
“Imperial’s investment above its sustaining capital of $1.1-billion (circa 75 per cent upstream) is mainly tied to its $2.4-billion Aspen (phase one) project. Over the 2017-21 time frame, Imperial pegs its average annual capital spending at $2.0-billion, inclusive of Aspen. BC LNG does not appear to be on Imperial’s radar for the foreseeable future.”
Mr. Pardy maintained a “sector perform” rating for Imperial Oil shares with a target of $45, up from $43 based on “increased confidence in its longer-term outlook.” The average on the Street is $42.45.
“Imperial Oil possesses an admirable upstream portfolio, weighted toward low-decline properties (dominated by oil sands), and attractive downstream assets,” he said. “The company’s aces in the deck remain its strong balance sheet, impressive FCF yield, and commitment to ongoing share buybacks. We can see ourselves becoming more bullish toward IMO amid a pullback in its share price and/or sustained operating improvements at Kearl.”
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Canaccord Genuity analyst Tom Gallo downgraded Nighthawk Gold Corp. (NHK-T) in response to its updated resource estimate from its Colomac project in the Northwest Territories, stating: “There is work to be done here.”
“The much lower-than-expected grade from Zone 1.5 has reduced the future economic viability of an operation, in our view,” said the analyst. “We reiterate our previous sentiment that sub 2 grams per ton gold material is not economic using standard milling practices due to the project’s remote location and assumed high operating cost. Further clarity is required surrounding the viability of heap leaching and grade domaining at Zone 1.5 and other zones, which may lead to higher grade in future resource updates. Until this time, we remain cautious. Exploration potential, however, is high in our opinion and we remain optimistic about management’s ability to uncover new gold targets and deposits.
“Though we see significant regional potential throughout Nighthawk’s camp-scale land package, we are taking a more watchful approach to valuing the company, stepping away from our theoretical mine model used previously as our base case …. We anticipated a resource estimate to crystalize some of the high-grade intercepts from Zone 1.5. Our estimate of 320,000 ounces averaging 5.5 g/t Au was conservative based on the drilling data available at the time and the initial understanding of zone orientation.”
Moving the Toronto-based company to “hold” from “speculative buy,” his target for its shares fell to 55 cents from $1. The average is currently $1.06.
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After a spending survey of chief information officers hinted at decline in sentiment toward Oracle Corp. (ORCL-N) and the possibility of “spending contraction” over the next year, JPMorgan analyst Mark Murphy downgraded its stock to “neutral” from “overweight.”
“Specific metrics in our large-scale CIO survey have arced over into negative territory, which makes us uncomfortable because the results of our CIO surveys over the years have been highly predictive,” said Mr. Murphy.
He dropped his target to US$53 from US$55, which is below the US$56.40 consensus.
“Oracle’s strength in database and middleware is countered by long-term uncertainty in applications and hardware as IT consumption preference shifts from traditional, on-premise solutions to public cloud models,” he said.
Meanwhile, ahead of the release of its fourth-quarter financial results on June 19, Nomura analyst Christopher Eberle lowered his Street-high target price of US$64 to US$60, citing the expectation of “quarterly volatility given the many moving parts.”
He maintained a “buy” rating.
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Despite reporting “mixed” first-quarter financial results, Roots Corp.’s (ROOT-T) plan “remains solidly on track,” said Canaccord Genuity analyst Camilo Lyon.
On Thursday, Roots reported an adjusted loss per share of 11 cents, a penny more than Mr. Lyon’s estimate and 2 cents higher than the consensus. Comparable same-store sales growth of 6.4 per cent missed the analyst’s estimate (15.6 per cent), which he attributed to poor April weather.
“That said, gross margin expansion of 315 basis points sharply exceeded our expectations of 153 bps,” he said. “Comps were negatively impacted by ice storms throughout April, which coincided with the company’s high volume customer appreciation four-day event that impacted 80 per cent of the store base and comps by negative 1.8 per cent. This had a correspondingly positive impact on gross margin as the company decided not to increase promotions at quarter end. Given the high quality of the inventory (i.e. aged inventory per cent is below last year) and strong reception to the spring/ summer product offering, we believe ROOT can manage through this inventory in Q2 and Q3. As such, we are not concerned with the 22-per-cent inventory growth in Q1 or about the year’s comp growth trajectory as the strategies in play should continue to drive solid sellthrus for the balance of the year.”
Mr. Lyon raised his 2018 EPS projection by a penny to 73 cents, while his 2019 expectation fell by 2 cents to $1.
He kept a “buy” rating and $16 target. The average target is now $15.06.
“ROOT continues to make solid progress on all strategic initiatives,” he said. “In product, we are encouraged to see the traction in women’s dresses (up 200 per cent), men’s novelty tops (up 90 per cent), and kids/toddlers (up 70 per cent). Bellwood, the first shoe launched in partnership with Stella, is also gaining strong traction which bodes well for the upcoming launches in fall ’18. Lastly, new offerings in leather bags are also driving strong consumer interest. On geographic expansion, the three U.S. stores comp’d up double digits in Q1, underscoring our belief that the brand is gaining recognition in the U.S., a long term revenue tailwind. As such, the forthcoming expansion in the U.S. (two new retail stores scheduled to open in Boston this month) should serve as a key brand awareness catalyst and thus create a launchpad for the brand in this key market. Finally, on margin enhancement, the company is still in early stages of realizing the full benefits from its UBR strategy, implying a significant long term opportunity.”
Meanwhile, CIBC World Markets’ Matt Bank lowered his target for Roots stock by a loonie to $14 with a “neutral” rating (unchanged).
Mr. Bank said: “Strong growth continues to be driven by operational improvements, but targets are lofty and the higher contribution needed from the U.S. and footwear adds uncertainty. Valuation does not leave sufficient upside to prefer ROOT over other discretionary names.”
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Declaring its “relative underperformance finished,” AltaCorp Capital Inc. analyst Nicholas Lupick upgraded Pengrowth Energy Corp. (PGF-T) to “sector perform” from “underperform” with a target of $1, or a penny less than the consensus.
“ The improvement in global oil prices and moderate tightening of Canadian heavy oil differentials have contributed to most oil-weighted equities outperforming the broader energy sector,” said Mr. Lupick. “While these elements initially cast wind in the sail of PGF shares along with other heavy oil producers, the stock has declined 20 per cent since we last changed our rating on it at the beginning of May, underperforming its peers by an average of 35 pe r cent. While we believed that a pullback was in the cards at price levels in early May, we now believe that it is overdone and the period of relative underperformance should end. As such, the current share price relative to our target warrants a rating change.”
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In other analyst actions:
TD Securities analyst Greg Barnes upgraded First Quantum Minerals Ltd. (FM-T) to “action list buy” from “buy” and raised his target to $30 from $25. The average target is currently $22.63.
National Bank Financial analyst Adam Shine initiated coverage of Yellow Pages Ltd. (Y-T) with a “sector perform” and $11.50 target. The average is $9.50.
TD Securities initiated coverage of eCobalt Solutions Inc. (ECS-T) with a “speculative buy” and $5.25 target, exceeding the consensus of $2.18.
David Leeder