Inside the Market’s roundup of some of today’s key analyst actions
Raymond James analyst Brad Sturges has made three rating changes following a fresh review of the real estate investment trust sector.
Granite REIT (GRT-UN-T) was upgraded to “strong buy” from “outperformer.” The price target remains at C$96.
Mr. Sturges attributed the upgrade to a recent pull back in the unit price. “After a strong start to the year that partly benefited from capital rotation into Granite after the Summit Industrial Income REIT privatization by GIC and DIR in early 2023 YTD, Granite’s unit price has given back some ground in the past few months. We believe Granite is well positioned to generate +10-13% 2023-24 adjusted funds from operations/unit growth YoY, driven by capturing higher in-place rents YoY, contributions from its near-term development program, and F/X tailwinds from a relatively weaker Canadian dollar YoY.”
Canadian Apartment Properties REIT (CAR-UN-T) was downgraded to “outperform” from “strong buy”. The price target was raised by C$1 to C$61.
Mr. Sturges linked the downgrade to CAP REIT’s significant unit outperformance in the first half of 2023.
“Our outperform rating for CAPREIT still reflects CAPREIT’s active near-term capital rotation and allocation program that we believe can create further unitholder value,” he said.
StorageVault Canada Inc. (SVI-T) was downgraded to “market perform” from “outperform”.
The change was linked to StorageVault’s relative premium valuation.
“StorageVault is trading at ~32x 2023E adjusted funds from operations, versus ~19x for its US storage peers, and ~18x for TSX-listed residential and industrial REITs/REOCs. Further, StorageVault is trading in line with its $6.00/share net asset value estimate, while US storage and TSX-listed residential and industrial stocks are trading at ~14% and ~24% average net asset value estimate discounts, respectively. It is important to note that we still forecast StorageVault to deliver mid-to-high single-digit 2023E net operating income growth YoY,” the Raymond James analyst said.
His price target remains at C$6.75.
Broadly speaking, Raymond James analysts believe the real estate sector is a good buying opportunity for those with long-term horizons.
“We maintain our belief that the dislocation between public unit prices and underlying estimated NAVs may once again prove to be a very attractive buying opportunity. While we are encouraged by the deceleration of North American inflation rates YoY, it may yet take more time for clear evidence that we have reached a peak level for interest rates in this hiking cycle. Key potential near-term positive catalysts to keep in mind for the Canadian REIT sector include: a pause or pivot from a hawkish to more dovish stance by central banks including the Bank of Canada (BoC), supporting a view that we may have finally reached an interest rate peak; increasing transactional activity in the direct property market that validates estimated NAVs; solid SP-NOI reporting metrics, and accelerating AFFO/unit YoY realized by certain Canadian REITs, greater clarity surrounding Federal regulatory risks for the Canadian MFR property sector, and potential Canadian REIT/REOC M&A/privatization transactions.”
Raymond James ranks its preferred way to invest in the sector as follows: 1) Canadian multifamily rental (MFR); 2) industrial; 3) US residential; 4) retail; 5) storage; and 6) office. “Our Strong Buy rated stocks include InterRent, Tricon, Granite and Nexus. We also highlight Outperform rated stocks DIR, Flagship, Killam, Minto, and Primaris to round out our current list of preferred stocks. Our preferred Canadian REITs generally feature strong balance sheets (e.g., low financial leverage, ample balance sheet liquidity, and limited floating rate debt), below-average AFFO/unit payout ratios, portfolios weighted towards ‘high-growth’ markets, above-average organic growth prospects, NAV estimate discount valuations, and may benefit from 1 or more near-term positive catalysts,” Raymond James said in its note.
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A handful of analysts made major adjustments to their price targets on Organigram Holdings Inc. (OGI-T) in the wake of the cannabis company’s fiscal third quarter results.
Alliance Global Partners raised its target to C$2.25 from C$1 and Stifel raised its target to C$4 from C$1.25. But there were also meaningful price target cuts: Atb Capital Markets cut its target price to C$6.50 from C$9 and Canaccord Genuity cut its target price to C$4 from C$9.
“FQ3 saw revenues take a further step back with adj. EBITDA dipping back into negative territory as competition for high THC offerings and lower international shipments weighed notably on results,” Matt Bottomley, analyst for Canaccord, said in a note to clients. He is maintaining a “speculative buy” rating.
For the quarter, Organigram reported total net revenues of C$32.8-million, representing a decline from the previous quarter of about 17 per cent. Management had previously issued guidance for a sequentially higher quarter. The sequential decline was mainly driven by lower international shipments fulfilled during the period, while industry competition for higher THC flower products continues to increase.
“In terms of OGI’s operational segments, Canadian adult-use sales sequentially increased ~6.5% to C$29.2M; however, after coming down by ~24% in the prior quarter, we note that the company’s quarterly adult-use contribution is still well below its historical highs. The company experienced notable headwinds in the segment this quarter in relation to Health Canada’s decision to ban the production of OGI’s high-margin ingestible extracts products, as well as increased competition in products labelled as high THC throughout the country,” Mr. Bottomley said.
Stifel analyst Andrew Partheniou is expecting a quick rebound for the company.
“Management guided for positive EBITDA next quarter (excl. R&D expenses) and reiterated previous guidance of positive free cash flow by the end of CY23, suggesting Q3FY23 performance was a temporary headwind,” he said in a note. “We believe this is supported by a resumption of high-margin international sales to Israel this year with management likely targeting Q4FY23 aided by some diversification expected from Australia and Germany. In addition, management indicated the yield issues that arose in Q3FY23 have been rectified in the last month of the quarter, with yields normalized while THC levels remained strong.”
The average analyst price target is now C$5.24, which is down from C$6.46 a month ago, according to Refinitiv Eikon data.
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RBC analyst Irene Nattel cut her price target on Park Lawn Corp (PLC-T) to C$36 from C$41 amid a recent decline in the U.S. death rate as it starts to normalize following COVID-19. Her rating remains “outperform.”
“Channel checks indicate the decline in the US death rate normalized sequentially from -13% Y/Y in Q1 to -8% in Q2. While normalizing death rates from pandemic highs continue to muddle near-term visibility, COVID distortions should ease as we move through 2023,” Ms. Nattel said in a note to clients.
She also noted a couple of other negatives for the death care services company at the moment: tighter consumer spending impacting preneed sales, and the high fixed cost nature of the company, which is impacting operating leverage.
The average analyst target is C$34.31.
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Cogeco Communications Inc.’s (CCA-T) fiscal third quarter results were a “net positive” thanks to the robust performance in its Canadian business, said Canaccord Genuity analyst Aravinda Galappatthige. However, its U.S. business remains challenged, he said.
Mr. Galappatthige raised his price target on Cogeco Communications to C$70 from C$66 while reiterating a “hold” rating.
“The internet net adds rebound in Canada was a highlight of this quarter with subs coming in significantly ahead of expectations. Given the ongoing FTTH [Fibre to the Home] expansion on both sides of the border, we believe the strength seen in Canadian subs over the last couple of quarters could be viewed as a positive signal. With that said, U.S. operations continue to underperform largely impacted by incremental losses in Ohio and an uptick in price competition from FWA [Fixed Wireless Access],” he said.
He said he now values the Canadian operations at 5.75x on a EV/EBITDA basis for 2024 (up from 5.5x) and continues to value US at 4.75x. “Despite the challenges in the U.S., we recognize the inexpensive valuations for CCA, with free cash flow yield (even with the substantial network expansion capex) at 13%. We note that excluding network expansion capex, free cash flow yield rises to 18%. We believe the sustainability around its Canadian operations and recovery in their US business could be key catalysts to watch out for,” he added.
The average analyst price target is C$79.97.
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BMO analyst Thanos Moschopoulos resumed coverage of Coveo Solutions Inc. (CVO-T) with an “outperform” rating following a period of research restriction related to the company’s recently completed buyback of 3.5 per cent of its shares. The price target was raised to C$12.
“We believe the stock remains attractive given CVO’s execution since its IPO, its progress towards profitability, and our forecasts for both near-term and longer-term growth. We’re also of the view that large language models/generative AI are more likely to serve as complements, rather than alternatives, to CVO’s technology,” the analyst said in a note.
The average analyst price target is C$11.10.
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TD Cowen raised its price target on EQB Inc. (EQB-T) by C$1 to C$88 while reiterating a “buy” recommendation ahead of the bank’s second quarter results on Aug. 1.
TD Cowen analyst Graham Ryding is forecasting EQB to see EPS of $2.55 in the quarter, a little below consensus of $2.59. But he sees 2023 EPS at $10.55, which is at the high end of guidance and implies 15 per cent year over year growth.
“Net interest margin has been stronger than expected in recent quarters and is in part driving our constructive EPS growth forecast for 2023,” Mr. Ryding said in a note. “EQB looks well-positioned from a funding and liquidity perspective. Loan growth is expected to be muted in 2023. ... Credit trends are expected to continue to normalize, in our view.”
The average analyst price target is C$86.88.
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More analysts have been cutting their targets on both Telus Corp (T-T) and Telus International (TIXT-N) in the wake of the companies slashing their guidance last week.
For Telus Corp, BMO cut its target price to C$29 from C$33; Canaccord Genuity cut its target to C$31 from C$32; CIBC cut its target price to C$29 from C$31; and RBC cut its target to C$31 from C$32.
The average price target is now down to C$29.73.
For Telus International, Citigroup cut its price target to US$15 from US$24 and downgraded its rating to “neutral’ from “buy” while JP Morgan cut its target price to $14 from $21.
The average price target is now down to US$19.18.
Read more about how analysts have been reacting in Friday’s analyst upgrades and downgrades.
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In other analyst actions:
Boardwalk REIT (BEI-UN-T): TD Securities raises target price to C$77 from C$73
Ero Copper Corp (ERO-T): BMO raises target price to C$25 from C$24
First Quantum Minerals Ltd (FM-T): BMO raises target price to C$36 from C$33
Franco-Nevada Corp (FNV-T): BMO cuts target price to C$231 from C$240
Hudbay Minerals Inc (HBM-T): BMO cuts target price to C$10 from C$10.5
Lundin Mining Corp (LUN-T): BMO cuts target price to C$10.5 from C$11
Alphabet Inc (GOOGL-Q): Canaccord Genuity raises target price to US$150 from $140; Credit Suisse raises target price to $150 from $135
Citigroup Inc (C-N): Evercore ISI raises target price to US$51 from $49; Jefferies raises target price to $47 from $46; Piper Sandler cuts target price to $50 from $53
Amazon.com Inc (AMZN-Q): Canaccord Genuity raises target price to US$160 from $135 Evercore ISI raises target price to $158 from $156; Jefferies raises target price to $176 from $165; KBW raises target price to $175 from $155; Piper Sandler raises target price to $168 from $158; RBC raises target price to $158 from $147
Meta Platforms Inc (META-Q): Canaccord Genuity raises target price to US$360 from $315; Credit Suisse raises target price to $361 from $277; Goldman Sachs raises target price to $335 from $300
Microsoft (MSFT-Q): Mizuho raises target price to US$390 from $360
Wells Fargo & Co (WFC-N): BMO cuts target price to US$51 from $54; Citigroup raises price target to $52 from $50; Jefferies raises target price to $48 from $45; KBW raises target price to $54 from $46; Piper Sandler raises target price to $45 from $43; Raymond James raises target price to $52 from $51; RBC raises target price to $46 from $42
Tesla Inc (TSLA-Q): Wells Fargo raises target price to US$265 from $170
Netflix (NFLX-Q) Deutsche Bank raises price target to US$475 from $410