Inside the Market’s roundup of some of today’s key analyst actions
Thursday’s bombshell announcement by Encana Corp. (ECA-T; ECA-N) that it would be moving its headquarters to the U.S. and renaming itself Ovintiv Inc. does little to address the company’s underperformance, said CIBC World Markets analyst Jon Morrison.
“Once again, we find ourselves a bit perplexed as to the path that Encana is taking,” Mr. Morrison said.
“While we view there to be some merit to the company re-domiciling in the U.S., we do not believe the fact that Encana has been a Canadian-headquartered entity has led to any material share price underperformance.”
Though the plan to relocate overshadowed the company’s financial results, Encana posted a modest earnings beat on Thursday, though analyst expectations had moderated in the lead-up to earnings season, Mr. Morrison said.
He added that share price performance is less likely to come from a name change than it will from operational execution, free cash flow generation, “and a decent passage of time.”
“Any steps that attempt to expedite the process in earnest might end up proving to deliver unintended consequences.”
He downgraded the stock to “underperformer” from “neutral” and lowered his target price to US$4 from US$5.
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IMAX Corp. (IMAX-N) is seeing signs that the Chinese market is stabilizing, including renewed strength in box office receipts, Canaccord Genuity analyst Aravinda Galappatthige said.
The company’s box office in China has climbed by 27 per cent year to date on a local currency basis, compared to 2.9 per cent overall industry growth.
“The company revised its programming strategy by expanding local language titles and gave itself more flexibility in picking the right films,” Mr. Galappatthige said, adding that strategy is “yielding results.”
IMAX reported third-quarter results on Thursday, meeting analyst expectations with US$0.21 in adjusted earnings per share, while largely maintaining 2019 guidance.
But continued improvements in China should be a key driver of share price growth in the year ahead, Mr. Galappatthige said.
Additionally, while the 2020 film slate is looking “light,” as many as five key titles are slated to be shot with IMAX cameras. The company’s management reported that the next installment of the James Bond franchise, Wonder Woman 1984, and Christopher Nolan’s Tenet, will all have extended IMAX footage.
“Empirically, we know that this can result in significantly greater IMAX box office share for those titles,” Mr. Galappatthige said.
He upgraded the stock to “buy” from “hold,” and maintained a US$25 price target.
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Norbord Inc. (OSB-T; OSB-N) is well positioned to capitalize on the improving North American housing market, while a tightening panel market should help raise pricing, Raymond James analyst Daryl Swetlishoff said.
“With signs of improvement in the North American market, as a result of lower mortgage rates, lower for sale inventory, first-time homebuyer incentives, and improved sentiment, we highlight Norbord’s strong earnings torque to expected commodity price strength heading into 2020.”
Norbord’s third-quarter results saw EBITDA decline by 8 per cent over the previous quarter, driven in part by lower panel prices in Europe, where a seasonal soft period is being exacerbated by slowing industrial production in Germany.
As a result, the company is “maintaining financial discipline,” Mr. Swetlishoff said. Norbord reduced its quarterly dividend to $0.20 per share from $0.40 per share, while also cutting 2020 capital expenditures to $100-million from about $150-million.
In October, the company also announced production curtailments at its mill in Georgia, which, combined with production cuts by competitors, should help improve prices for oriented strand board.
Norbord is highly sensitive to OSB prices, which in turn are positively correlated with improving U.S. housing demand.
Mr. Swetlishoff upgraded the stock to “strong buy” from “outperform” and raised his target price to $43 from $40.
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Constellation Software Inc. (CSU-T) is on pace for a record year in acquisitions, which should help drive share price gains, said RBC Dominion Securities analyst Paul Treiber.
In the third quarter, Constellation deployed $275-million on acquisitions, and another $79-million since the quarter ended.
“The strong pace of M&A … validates the scalability of Constellation’s model and the sustainability of the company’s ability to deploy capital at high rates,” Mr. Treiber said.
The company’s third-quarter financial results saw revenues rise by 15 per cent, close to what analysts were expecting, while higher margins lifted EBITDA to $247-million – 22 per cent higher than the same quarter last year.
Adjusted EBITDA margins rose by 160 basis points to 28.4 per cent for the quarter – a new high for the company.
“The expansion in Constellation’s margins validates the company’s ability to stabilize and restructure acquired businesses,” Mr. Treiber said.
The analyst raised his price target to $1,500 from $1,450 and maintained an “outperform” rating.
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Encouraging third-quarter results reported on Thursday by SNC-Lavalin Group Inc. (SNC-T) provided “considerable comfort” over the big risks facing the beleaguered company, said TD Securities analyst Michael Tupholme.
“Notwithstanding yesterday's 21% increase in SNC's share price, we see the stock's valuation as attractive and having room to expand.”
SNC-Lavalin’s adjusted EBITDA from engineering and construction was $184.9-million in the third quarter, which was well ahead of forecasts.
That outperformance more than offset losses from the company’s infrastructure projects segment, which also improved significantly as the company continues to exit from its lump-sum turnkey (LSTK) construction contracting to focus on engineering services.
“Although LSTK backlog risks persist, we are encouraged by the diminished project losses in Q3/19,” Mr. Tupholme said.
The analyst upgraded the stock to “buy” from “hold” and raised his target price to $31 from $25.
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RBC downgraded Pretium Resources Inc. (PVG-T, PVG-N) to “sector perform” from “outperform” and cut its price target to $16 from $20.
“We expect rebuilding investor confidence and demonstrating the true long-term potential of Brucejack is likely to be a slow process,” the bank said in a note. “While the market reaction to Q3 results could provide patient, risk-tolerant investors with an attractive entry point, we believe the near-term risks outweigh the current return potential.”
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In other analyst actions:
BMO upgraded Canadian National Railway to “outperform” with a price target of $130.
With files from Darcy Keith