Inside the Market’s roundup of some of today’s key analyst actions
Unless the strains on Canada’s agricultural sector let up soon, Rocky Mountain Dealerships Inc.'s (RME-T) balance sheet and dividend could be at risk, said Raymond James analyst Ben Cherniavsky.
On Wednesday, the country’s largest agricultural equipment dealer posted a big earnings miss, driven by difficult harvest conditions in the Prairies as well as international trade barriers, including a Chinese ban on Canadian canola.
“We expect the next few quarters to feature more heavy lifting around excess inventories, costs, and end market headwinds, the most notable of which is the prevailing trade dispute that is impacting Canada's ag sector,” Mr. Cherniavsky said.
The company reported flat third-quarter adjusted earnings, well below the analyst’s estimate of $0.21 per share in profit, while revenues declined by 21 per cent over the same quarter last year.
“We expect sales growth on a consolidated basis to remain well in negative territory for 4Q19,” Mr. Cherniavsky said.
Rain and snow in Alberta, Saskatchewan, and Manitoba stalled this year’s harvest, while the company said trade tensions continue to weigh on crop prices and farmer sentiment.
Amid a string of quarterly earnings disappointments, the company’s stock is on a prolonged downslide, having dropped by more than 35 per cent over the last year.
“Arguably, the only good news to report from Rocky's weak 3Q19 results is that the market appears to be growing numb to the disappointments,” Mr. Cherniavsky said.
He downgraded the stock to “market perform” from “outperform,” and lowered his target price to $7.50 from $10.50.
***
The selloff in shares of Centerra Gold Inc. (CG-T) following a large impairment charge is overdone, said Canaccord Genuity analyst Dalton Baretto.
On Wednesday, the company reported a US$230-million impairment charge as well as a warning on reserves at its Mount Milligan gold-copper mine in British Columbia.
Centerra’s stock subsequently declined by 16 per cent on Wednesday, implying a loss in market capitalization of around $700-million. That’s well in excess of the value of the Mount Milligan mine, which Mr. Baretto pegs at $557-million.
“We believe the ultimate impact to Mt. Milligan's economics will be no worse than the US$230-million implied by the write-down, given the planned incorporation of incremental drilling and optimization efforts,” Mr. Baretto said.
While the quarter was overshadowed by the impairment charge, which was attributed to Mount Milligan’s lower mine recoveries and rising costs, Centerra’s results were otherwise strong.
Both third-quarter earnings and production were well above forecast. The company’s other flagship asset, the Kumtor mine in the Kyrgyz Republic, “had a very strong quarter as head grades continue to remain well above our expectations,” Mr. Baretto said. The Oksut project in Turkey, meanwhile, remains on schedule and under budget, he added.
“Construction is now 79 per cent complete, and first ore is expected in early 2020 at 85 per cent completion.”
Mr. Baretto upgraded the stock to “buy” from “hold” while maintaining a share price target of $12.50.
**
Sustained weakness in shares of Badger Daylighting Ltd. (BAD-T) has created a buying opportunity, said Industrial Securities Alliance analyst Elias Foscolos.
The excavation services company has been squeezed both by weather-related difficulties as well as the slowdown in the oil and gas sector, which are likely to continue weighing on the company’s revenue and margins.
But looking into 2021, the company will probably need to add capacity, Mr. Foscolos said. “Badger will likely need additional manufacturing capacity, most likely in the U.S., in order to replenish the ageing fleet while pursuing aggressive organic growth.”
Additionally, the company seems to have stopped buying back its own stock recently, even as its share price has continued to decline.
“We believe either something material is in the works or the company is about to report a horrible Q3/19,” Mr. Foscolos said. “We believe the former is the case.”
He upgraded the stock to “buy” from “hold,” and held his target price at $43.
**
AltaGas Ltd.’s (ALA-T) Ridley Island propane export terminal (RIPET) in Prince Rupert, B.C., has much more volume upside than expected, CIBC World Markets analyst Robert Catellier said.
In its first full quarter of operation, the terminal shipped more than 40,000 barrels per day, contributing $37-million of normalized EBITDA in the third quarter.
That contribution was more than offset, however, by the lost earnings power from asset sales as the company has gone through a restructuring process.
The RIPET project, which provides Canadian gas producers with access to Asian export markets, is a key asset in AltaGas’s transformation.
The facility can ultimately double its capacity, with additional capital only required at about the 65,000-barrel-per-day mark, to add rail capacity, Mr. Catellier said.
“The success of RIPET can draw volumes through the company's facilities and ultimately lead to expansions.”
Mr. Catellier upgraded the stock to “outperformer” from “neutral” and kept his price target at $21.
***
Maple Leaf Foods Inc.'s (MFI-T) entry into the market for meat substitutes is likely to generate substantial losses going forward, said BMO Nesbitt Burns analyst Peter Sklar.
The company has invested hundreds of millions into the production of plant-based proteins, including a processing plant in Shelbyville, Indiana, that is the largest of its kind in North America.
“Previously, our thesis was that Maple Leaf’s stock price had little value attributed to its plant protein group,” Mr. Sklar said.
“However, we are now concerned that investors could attribute a negative value to Maple Leaf's plant protein group due to the expectation that there will be considerable losses for some period of time.”
He lowered his rating on the stock to “market perform” from “outperform,” while cutting his price target to $26 from $40.
**
In other analyst actions Thursday:
* Alamos Gold: CIBC cuts target price to C$10.5 from C$11.25
* Altagas Ltd: National Bank of Canada raises target price to C$21 from C$20
* Brp Inc.: CIBC raises target price to C$64 from C$56
* Centerra Gold Inc : CIBC cuts target price to C$12.25 from C$13.75. It cut its rating to neutral from outperformer
* Centerra Gold Inc: Credit Suisse cuts price target to C$13 from C$14.50
* First National Financial Corp: BMO raises target price to C$38 from C$36
* First National Financial Corp: Scotiabank raises target price to C$40 from C$38.
* First National Financial Corp: TD Securities ups price target to C$42 from C$41
* Genworth MI Canada Inc: CIBC cuts target price to C$56 from C$57
* Great Canadian Gaming Corp: RBC cuts target price to C$54 from C$55
* Great-West Lifeco Inc: TD Securities raises price target to C$32 from C$31
* Maple Leaf Foods Inc: CIBC cuts target price to C$33 from C$40
* Maple Leaf Foods Inc: Scotiabank cuts price target to C$35 from C$42.50
* Maple Leaf Foods Inc: TD Securities cuts price target to C$38 from C$47
* Morguard REIT: BMO cuts target price to C$11.50 from C$12.50
* PHX Energy Services Corp: BMO cuts target price to C$3 from C$3.50
* PHX Energy Services Corp: GMP Securities raises to buy from hold. It raised its target price to C$4 from C$3.75
* Pretium Resources Inc: BMO cuts target price to C$18 from C$24
* Quebecor Inc: Scotiabank raises target price to C$37 from C$36
* Sandstorm Gold Ltd: CIBC raises target price to C$11.25 from C$10. It raised its rating to outperformer from neutral
* Secure Energy Services: Canaccord Genuity cuts target price to C$7 from C$8
* Secure Energy Services: RBC cuts target price to C$6.50 from C$7.50
* Secure Energy Services: Scotiabank raises price target to C$5.50 from C$5. It also raised its rating to sector perform from sector underperform.
* Secure Energy Services Inc: BMO cuts target price to C$6 from C$8
* Secure Energy Services Inc: GMP cuts target price to C$7 from C$9
* Secure Energy Services Inc: National Bank of Canada cuts pt to C$9 from C$9.25
* Secure Energy Services Inc: TD Securities cuts price target to C$8 from C$10.50
* Slate Retail REIT: CIBC cuts target price to $10 from $10.25
* Suncor Energy Inc: National Bank of Canada cuts target price to C$47 from C$48
* Torstar Corp: RBC cuts target price to C$1 from C$1.50
* Yangarra Resources Ltd: LB Securities cuts target price to C$3.50
* Yangarra Resources Ltd: TD Securities cuts price target to C$2.50 from C$3
With a file from Thomson Reuters
Tim Shufelt