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

RBC Dominion Securities analyst Douglas Miehm sees an adverse ruling from a Delaware district court in the patent dispute over its gastroenterology drug Xifaxan as “potentially one of the worst possible outcomes” for Bausch Health Companies Inc. (BHC-N, BHC-T).

Shares of the Quebec-based company, formerly Valeant Pharmaceuticals International Inc., plummeted by 50.6 per cent after a judge issued an oral order Thursday morning that some uses of Xifaxan were not covered by a drug patent.

“This could result in a potential generic Xifaxan entering the market as early as 2024 (post an appellate court ruling, which could take up to 18 months based on previous discussions with BHC management, and assuming that Norwich/Alvogen does not launch at-risk),” said Mr. Miehm. “As such, BHC may choose to delay/abandon the BLCO follow-on offering and the 80-per-cent distribution of BLCO shares to BHC shareholders, as this path would be highly contentious for debt holders.”

“We note that although [Thursday’s] Oral Order has invalidated the 2024 polymorph patents (which could potentially enable Norwich to launch gXifaxan in 2024 post FDA approval), BHC prevailed on certain HE patents. The stipulation agreement between BHC and Norwich for the remaining 19 patents that were not addressed during the March bench trial is valid for the current ANDA label. In a scenario where Norwich narrows the label (to exclude the HE indication), the stipulation agreement would likely become inapplicable and patent controversy may re-emerge, impacting the launch timelines of generic Xifaxan. Given this uncertainty, we currently expect generic Xifaxan entry in early 2025 and await further clarity on this issue.”

Mr. Miehm expects the litigation to remain “fluid over the next few weeks/months until further information is gathered and assessed by market participants.”

“Given the uncertainty around the potential path taken by BHC with respect to the BLCO asset, we value BHC shares as an average of two scenarios ... 1) BHC sells the entire BLCO asset to a strategic buyer; and 2) BHC explores other opportunities rather than pursuing an outright sale of BLCO,” he added.

In response to the impact of the ruling, Mr. Miehm downgraded Bausch to “sector perform” from “outperform” and cut his target to US$5 from US$12 based on his expectation for a generic Xifaxan entry in early 2025. The average target on the Street is US$21.86, according to Refinitiv data.

Elsewhere, JP Morgan’s Christopher Schott lowered Bausch to “neutral” from “overweight.”


Despite delivering another quarterly beat, Canadian Utilities Ltd. (CU-T) was downgraded by iA Capital Markets analyst Matthew Weekes on Friday based on recent share price appreciation, which he said has reduced its valuation gap relative to peers.

Before the bell on Thursday, the Calgary-based global energy infrastructure company reported adjusted earnings per share for its second quarter of 51 cents, up 19 per cent year-over-year and above the estimates of both Mr. Weekes (47 cents) and the Street (46 cents). He attributed the beat to outperformance in its Australian Gas Distribution business due to a positive impact from inflation indexing.

“CU’s stock has delivered a year-to-date total return of almost 15 per cent, outperforming peers within our Utilities sub-sector coverage,” said Mr. Weekes. “Stock price outperformance has been supported by strong H1 results, reflecting favourable regulatory mechanisms and efficient operations under the PBR 2 framework. Following the recent stock price outperformance, we believe that CU’s valuation discount to peers has become more reasonable based on our 2023 forecasts, which assume a moderation of earnings as we consider the effects of the cost of service (COS) re-basing on Distribution returns and assumed normalization of returns in Australia.”

Accordingly, Mr. Weekes moving the subsidiary of Atco Ltd. (ACO.X-T) to “hold” from “buy,” awaiting “further visibility on (a) the cadence of earnings growth into 2023 given that CU will be exiting PBR 2 and entering COS re-basing, (b) cost of capital parameters and approach for PBR3 rate-making, and (c) development of longer-lead growth opportunities to supplement rate base growth including hydrogen and pumped storage.”

The analyst raised his target for Canadian Utilities shares by $1 to $42 in response to an increase to his 2023 earnings estimate as well as lower debt.

“We note that CU’s strong cash flow is further enhancing its balance sheet and we forecast that the Company will maintain peer-leading leverage metrics in 2023,” he said.

Elsewhere, RBC’s Maurice Choy raised his target by $1 to $42 with a “sector perform” rating.

“Recent results (including Q2/22) have highlighted CU’s favourable exposure to inflation (notably through its Australian gas and Alberta distribution utilities),” he said. “Together with cost efficiencies, this positions CU to deliver a 15-per-cent EPS growth in 2022, up from the 11 per cent in 2021. Beyond 2022, we forecast a decline of 8% in 2023 as costs are rebased for the Alberta distribution utilities as a new regulatory period begins; however, with its balance sheet capacity yet to be fully deployed, and with CU seemingly active on building its energy transition portfolio, there is perhaps more growth to come.”


Seeing a recovery in occupancy “starting to take hold,” Canaccord Genuity analyst Mark Rothschild upgraded Allied Properties Real Estate Investment Trust (AP.UN-T) to “buy” from “hold.”

After the bell on Wednesday, the Toronto-based REIT reported funds from operations (FFO) per unit of 61 cents from its second quarter, up 1 cent year-over-year and a penny higher than Mr. Rothschild’s forecast. The growth was driven by a decline in expenses and “modest” internal growth of 0.6 per cent.

The analyst said leasing performance has “improved,” noting a pickup in tenant retention and occupancy “that appears to be showing initial signs of recovery.”

Calling the quarter “stable,” the analyst added: “Management continues to guide towards low-to-mid single-digit FFO per unit growth in 2022, which is achievable in our view. Longer term, we expect material cash flow growth as development projects are completed, with an additional boost from a recovery in occupancy. Management indicated on the conference call that there is no evidence of a decline in the value of its assets in the private market and does not expect to make any changes to the cap rates it utilizes to value its portfolio. However, we have taken a more aggressive view towards the impact of higher interest rates, and in our recent report Lowering target prices as higher cap rates become a reality, we increased the cap rate utilized to value Allied’s portfolio to 5.45 per cent (from 4.75 per cent), and our net asset value (NAV) per unit estimate is now $36.58. The REIT’s units currently trade at an implied cap rate of 5.9 per cent, or a 9.9-per-cent discount to our NAV estimate, or a 35.7-per-cent discount to the REIT’s IFRS NAV of $51.20.”

Mr. Rothschild maintained a $39.50 target, below the average on the Street of $43, which he said equates to a 10-per-cent premium to our NAV estimate.

“The premium reflects our expectation that NAV will rise over the next few years as development projects are completed and occupancy recovers,” he explained. “Though our view of value differs from management, and we have taken a more cautious view in regard to cap rates, we do believe that inflationary pressures and rising replacement costs should offset some of the negative impact of higher interest rates. Further, Allied owns a high-quality portfolio and benefits from a conservative capital structure.

“Allied’s unit price has declined 29.4-per-cent since April, and while it is difficult to see a near-term catalyst, we believe the current valuation is attractive. Reaching our target price implies a total return of 24.9 per cent, and we are upgrading our rating.”

Other analysts making target changes include:

* iA Capital Markets’ Gaurav Mathur to $44 from $53 with a “buy” rating.

“While the REIT showed signs of increasing occupancy and leasing levels, our visibility on the downtown office fundamentals leads us to believe that some strife may be instore for the sector ahead,” said Mr. Mathur. “Management is attuned to ongoing stress and has displayed the resiliency of the business through Q2/22 results. Based on the office market data provided by CRE brokers, we have decreased our NOI estimates while keeping our cap rates constant, bringing our NAV to $48.00 per unit. While the REIT has traded at a 6-per-cent premium to NAV over the long term (2011 to date), the oncoming slowdown in the sector leads us to apply an 8-per-cent discount to our NAV estimate, bringing our target price to $44.00/unit. The REIT still trades at an 30-per-cent discount to NAV and offers an attractive entry point for investors looking for a resilient blue-chip office REIT.”

* Scotia Capital’s Mario Saric to $46 from $47.25 with a “sector outperform” rating.

“We still believe AP is a high-quality REIT that no longer trades as one,” said Mr. Saric. “We point to expected higher occupancy (400bp+ ex. PUD transfers), development completions, return-to-work, and possible UDC capital recycling as catalysts. The key near-term risks = material acquisitions or economic recession (neither expected in 2022), along with limited NCIB interest (i.e., market is favouring buyers).”

* BMO’s Jenny Ma to $42 from $43 with an “outperform” rating.

“Given widespread macro uncertainty and risks, Allied has turned its focus inward over the near term, electing to focus on operations and development completions as opposed to acquisitions. Notwithstanding strong leasing figures achieved by Allied year-to-date, we remain cautious of the uncertainty in the broader office outlook. While Allied units are well below our NAV estimate and IFRS value, we think it will take some time for clarity to emerge in the market,” she said.

* CIBC’s Scott Fromson to $43 from $47.50 with an “outperformer” rating.

* Raymond James’ Brad Sturges to $45 from $52 with an “outperform” rating.


In response to an 8.1-per-cent jump in its share price on Thursday following the premarket announcement of improvements to its balance sheet through amendments to its credit facility, National Bank Financial analyst Mike Parkin lowered his recommendation for Equinox Gold Corp. (EQX-T) to “sector perform” from “outperform” based on its reduced implied return.

The Vancouver-based company increased the maximum amount available under the revolving facility to US$700-million from US$400-million. It also rolled US$73-million remaining on a term loan into the revolving facility, eliminating the need for principal payments through mid-2026, and added a US$100-million uncommitted accordion feature.

“We have adjusted our model to include the new RCF terms,” said Mr. Parkin. “We have built in the leased mine equipment from the Greenstone project update and tweaked down our capex to reflect the capex savings. By our revised estimates, the new RCF increases liquidity and greatly reduces the need for equity financing to fund Greenstone, but we still see a modest equity issuance (in 1H24) required as the interest charges from the RCF will weigh on Equinox’s cash flows.”

The analyst trimmed his target for Equinox shares to $7, matching the consensus on the Street, from $7.50 to account for “a modestly lower target EV/EBITDA target multiple, which was lowered to reflect the elevated financial leverage we estimate the company will enter as Greenstone is advanced.”


In other analyst actions:

* CIBC World Markets analyst Robert Catellier downgraded TC Energy Corp. (TRP-T) to “neutral” from “outperformer” with a $74 target, down from $76. Elsewhere, others making target changes include: Scotia’s Robert Hope to $76 from $78 with a “sector outperform” rating, BMO’s Ben Pham to $76 from $78 with an “outperform” rating, Raymond James’ Michael Shaw to $67 from $68 with a “market perform” rating and iA Capital Markets’ Matthew Weekes to $72 from $73 with a “buy” rating. The average on the Street is $71.03.

“Comparable earnings outperformed our estimates, but this was tempered by a bigger equity requirement for Coastal GasLink, requiring reactivation of the DRIP. As a result, we are reducing our DCF-based price target ... which causes us to downgrade our rating,” said Mr. Catellier.

* Mr. Catellier raised his target for AltaGas Ltd. (ALA-T) to $33 from $32, reiterating an “outperformer” rating. The average is $34.38.

“Solid quarterly results, operating momentum and a solid hedge book keeps us positive on the stock,” he said.

* RBC’s Paul Quinn cut his Acadian Timber Corp. (ADN-T) target by $1 to $17, keeping a “sector perform” rating. The average is $18.20.

“Acadian Timber reported Q222 results that were below RBC and consensus expectations in what is traditionally the weakest quarter of the year from a seasonality perspective,” he said.

* TD Securities’ Tim James lowered his Air Boss of America Corp. (BOS-T) target to $31, below the $32.29 average, from $34 with a “buy” rating.

* National Bank Financial’s Travis Wood trimmed his ARC Resources Ltd. (ARX-T) target by $1 to $26 with an “outperform” rating. The average is $24.17.

* CIBC’s Mark Jarvi increased his Atco Ltd. (ACO.X-T) target by $1 to $55, exceeding the $49.21 average, with an “outperformer” rating, while RBC Dominion Securities’ Maurice Choy raised his target to $52 from $49 with a “sector perform” rating.

“The Q2/22 result marked another quarterly result that showcased solid CU and S&L earnings. Big picture, we highlight the valuation gap that is opening up between ATCO and CU (note, ATCO’s roughly 53-per-cent stake in CU forms around 80 per cent of ATCO’s pre-Corporate earnings). Whether measured by discount to NAV or by P/E discount, the discounts are elevated. As such, whilst we continue to have neutral stances on both ATCO and CU’s shares, investors seeking exposure to CU’s stock may find better relative value via ATCO’s shares,” said Mr. Choy.

* RBC’s Keith Mackey raised his Calfrac Well Services Ltd. (CFW-T) target to $7 from $5.50 with a “sector perform” rating, while BMO’s John Gibson bumped his target to $6 from $5 with a “market perform” rating. The average is $6.58.

“CFW put up a strong Q2/22 print, driven by improving U.S. margins and stable operations out of Argentina. We expect 2H/22 will be even better for CFW (and all the pumpers generally) as higher pricing begins to impact more of its fleet. After the quarter, we are increasing our estimates and raising our target price ... which reflects approximately 5 times 2022 EV/EBITDA. We continue to rate CFW shares Market Perform, although we are warming to the company, particularly if it can continue on this growth trajectory,” said Mr. Gibson.

* Credit Suisse’s Ariel Rosa raised her Canadian Pacific Railway Ltd. (CP-N, CP-T) target to US$84 from US$75 with a “neutral” rating. Others making changes include: Wells Fargo’s Allison Poliniak-Cusic to US$85 from US$83 with an “overweight” rating, CIBC’s Kevin Chiang to $110 from $106 with an “outperformer” rating, Barclays’ Brandon Oglenski to $88 from $86 with an “overweight” rating and Stephens’ Justin Long to US$78 from US$73 with an “equal-weight” rating. The average on the Street is US$81.60.

* JP Morgan’s Phil Gresh bumped up his Cenovus Energy Inc. (CVE-T) target to $36 from $34 with an “overweight” rating. The average is $31.56.

* Scotia Capital’s Orest Wowkodaw reduced his target for Champion Iron Ltd. (CIA-T) shares to $7 from $7.50 with a “sector outperform” rating, while RBC’s Alexander Jackson trimmed his target to $8 from $8.50 with an “outperform” rating. The average is $7.31.

“We continue to like Champion for its strong near-term growth profile and pipeline of projects that show further margin expansion and exposure to high grade iron ore production. FQ1 results were below our estimates, and we have increased our cost expectations in the near term, however the Phase 2 ramp-up is progressing as planned and Champion shares have significant upside in our view,” said Mr. Jackson.

* Barclays’ John Aiken cut his targets for CI Financial Corp. (CIX-T, “overweight”) to $22 from $25, Fiera Capital Corp. (FSZ-T, “equal-weight) to $10 from $11 and IGM Financial Inc. (IGM-T, “underweight”) to $38 from $42. The averages on the Street are $20.56, $10.57 and $43.57, respectively.

“We are anticipating a sharp retracement of earnings for the asset managers in the second quarter, driven by the continued decline in both equity and fixed income markets as well as net redemptions weighing on assets. Heading into reporting, we have decreased our estimates for the group and have lowered our price targets,” he said.

* Mr. Wowkodaw also cut his Lundin Mining Corp. (LUN-T) target to $8.50 from $10, below the $10.80 average, with a “sector perform” rating.

* Calling it the “best value name” in cannabis, Raymond James’ Rahul Sarugaser raised his target for shares of Cronos Group Inc. (CRON-T) to $7, exceeding the $5.73 average, from $6 with an “outperform” rating ahead of the Aug. 9 release of its second-quarter results.

“CRON’s #7 market share position in Canada, its impressive cultivation assets, its innovative work with Ginkgo (DNA-N), and its very encouraging, (potentially) durable sales of cannabis into Israel, inform our view that CRON is a high growth-potential, well-insulated, value-priced name in the hyper-volatile cannabis sector (US$1-billion cash pile, relatively low $30-50-million per quarter burn, $160-million EV),” he said.

* Jefferies’ Brian Tanquilut cut his Dentalcorp Holdings Ltd. (DNTL-T) target to $17 from $22 with a “buy” rating. The average is $18.17

* CIBC’s Cosmos Chiu lowered his Eldorado Gold Corp. (EGO-N, ELD-T) target to US$13 from US$16, keeping an “outperformer” rating. The average is US$12.01.

“We expect a slightly negative market reaction to the earnings miss and cost guidance revision; however, with inflationary pressures impacting the majority of the broader group, we expect investor focus will remain on the pending financing decision for Skouries,” he said.

* Canaccord Genuity’s Yuri Lynk cut his Finning International Inc. (FTT-T) target to $42 from $46 with a “buy” rating. The average is $39.50.

“Finning shares have declined 32 per cent, underperforming the broader S&P/TSX Index’s 13-per-cent decline, Toromont’s 16-per-cent decline, and Caterpillar’s 19-per-cent decline,” said Mr. Lynk. “We are surprised Finning’s stock price continues to exhibit more volatility than peers despite the improvements management has made in the business. Presently, Finning’s P/BV multiple, our preferred downside measure, is 1.7 times and approaching cyclical troughs that have ranged from 1.4 times to 1.1 times over the last 22 years. Thus, it appears recession risk is at least partially reflected in Finning’s share price, yet fundamentals remain solid, creating a valuation disconnect. We continue to view Finning as well insulated from the cost pressures eroding the margins of several companies due to its pricing power and compelling customer value proposition. While supply chain issues are likely to weigh on the top line, Finning can use the rental, used equipment, and rebuild channels to get iron into the hand of its customers.”

* CIBC’s Kevin Chiang trimmed his GFL Environmental Inc. (GFL-T) target to $46 from $52, above the $45.89 average, with an “outperformer” rating.

“Despite the Q2 beat and increase in 2022 guidance, GFL’s shares underperformed its peers. We chalk this up to lowered EBTDA margin expectations for this year and the increase in the leverage ratio exiting Q2. That said, this does not change our view that the strong pricing environment will eventually more than offset the current inflationary pressures and keeps GFL on track to achieve its longer-term targets. While a pushback we often hear on GFL is that its earnings are “noisier” than its peers, we would argue that this noise is the low-hanging fruit the company can pluck to drive above-average growth and accelerate its deleveraging,” said Mr. Chiang.

* TD Securities’ Mario Mendonca raised his IA Financial Corp. Inc. (IAG-T) target to $84 from $81 with a “buy” rating. Other changes include: BMO’s Tom MacKinnon to $88 from $87 with an “outperform” rating, RBC’s Darko Mihelic to $88 from $86 with an “outperform” rating, Desjardins Securities’ Doug Young to $78 from $76 with a “buy” recommendation and Canaccord’s Scott Chan to $81.50 from $77 with a “buy” rating. The average is $82.39.

“Excellent Q2 all around,” said Mr. MacKinnon. “Solid high-quality beat, surprise 8-per-cent dividend increase, a more positive IFRS17 outlook, and good sales (continue to be exceptionally strong in Canadian individual insurance). At 7.5 times NTM [next 12-month] core EPS, well below the 10x averaged since GFC (or 9 times under IAG’s new definition of core) IAG is both a multiple re-rate story (as it continues to deliver better-than-expected results despite volatile markets, combined with the only Canadian lifeco with a net positive impact associated with transitioning to IFRS17) and a consistent 10-per-cent core EPS grower.”

* RBC’s Geoffrey Kwan increased his target for Intact Financial Corp. (IFC-T) to $219 from $216, above the $207.71 average, with an “outperform” rating, while National Bank Financial’s Jaeme Gloyn raised his target to $230 from $227 with an “outperform” rating.

* CIBC’s Anita Soni lowered her Kinross Gold Corp. (KGC-N, K-T) target to US$4.75 from US$6 with a “neutral” rating. The average is US$6.03.

* Piper Sandler’s Charles Neivert cut his Methanex Corp. (MEOH-Q, MX-T) target to US$40 from US$48, maintaining an “underweight” recommendation. Other changes include: Scotia’s Ben Isaacson to US$46 from US$50 with a “sector perform” rating, Raymond James’ Steve Hansen to US$50 from US$58 with a “market perform” rating and RBC’s Nelson Ng to US$55 from US$60 with an “outperform” rating. The average is US$50.

“We adjust our forecast to reflect lower methanol prices, increased logistics costs (bunker fuel), higher natural gas feedstock costs in the U.S., and lower production in 2022. Despite these changes, we continue to forecast strong free cash flow generation, supporting additional buybacks in the coming year,” said Mr. Ng.

* Previewing the Aug. 10 release of its third-quarter results, National Bank Financial’s Vishal Shreedhar bumped his Metro Inc. (MRU-T) target to $75 from $74, which is the current consensus. with a “sector perform” rating.

“We believe that Metro is a solid company which has delivered superior longterm returns supported by strong execution and excellent capital allocation; however, these favourable attributes are adequately reflected in valuation, in our view,” he said.

* Ahead of the Aug. 2 release of its first-quarter 2023 results, National Bank Financial’s Zachary Evershed trimmed his target for Neighbourly Pharmacy Inc. (NBLY-T) to $26.50 from $27, below the $32.15 average, with a “sector perform” rating.

“We still appreciate the potential for significant growth inherent in this roll-up story, with 3,500 independent pharmacies that fit NBLY’s criteria, providing a long runway,” he said. “However, we reiterate our Sector Perform rating as this potential appears well understood given NBLY’s premium valuation, even in the context of the rising cost of capital (which may throttle the company’s pace of growth) and legislative uncertainty (which could result in changes to baseline profitability assumptions). On the latter point, however, we remain cautiously optimistic as drug pricing has already seen significant cuts, and we do not believe dramatic industry restructuring is a likely outcome.”

* National Bank Financial’s Maxim Sytchev cut his target for North American Construction Group Ltd. (NOA-T) to $20 from $22, below the $24.20 average, with an “outperform” rating, while Canaccord Genuity’s Yuri Lynk reduced his target to $22 from $26 with a “buy” rating and CIBC’s Jacob Bout hiked his target to $17.50 from $17 with a “neutral” recommendation..

“It was not a great quarter amid labour shortages and escalating vendor pricing that culminated in 6-per-cent EBITDA guidance compression for 2022,” said Mr. Sytchev. “We do view these issues as relatively transient because, despite labour cost increases, this is a much more of an equipment-heavy business (hence paying more for labour is perfectly justifiable for having gear uptime). It looks like the bid pipeline is quite diverse, providing visibility as a result.”

* TD Securities’ Michael Tupholme reduced his Nutrien Ltd. (NTR-N, NTR-T) target to US$110 from US$130 with a “buy” rating. The current average is US$111.49.

* National Bank Financial’s Tal Woolley raised his StorageVault Canada Inc. (SVI-T) target to $7.50 from $7 with an “outperform” rating, while RBC’s Jimmy Shan bumped his target to $9 from $8 with an “outperform” rating and Raymond James’ Brad Sturges increased his target to $8 from $7.85 with an “outperform” rating. The average is $7.69.

“StorageVault Canada Inc. reported a strong quarter with FFO/share beating our estimate by 14 per cent, representing 29-per-cent year-over-year growth against a tough comp a year ago,” said Mr. Shan. “The growth was driven primarily by 14-per-cent SP NOI growth, consistently one of the highest in our coverage universe. Our expectation is that this pace of growth will eventually slow to mid-to-high single digit. Investors looking for names that can outpace inflation should be looking at SVI.”

* RBC’s Geoffrey Kwan raised his TMX Group Ltd. (X-T) target by $1 to $160 with an “outperform” rating, while National Bank’s Jaeme Gloyn increased his target to $143 from $138 with a “sector perform” rating. The average is $149.71.

“Q2/22 adjusted EPS was ahead of our forecast and consensus. TMX Group is one of our best ideas, reflecting positive fundamentals; potential catalysts (e.g., M&A); defensive attributes; and attractive valuation,” said Mr. Kwan.

* Believing its revised multi-year business plan “accelerates growth while accommodating meaningful capital returns,” Desjardins Securities’ Chris MacCulloch raised his Tourmaline Oil Corp. (TOU-T) target to $100 from $91 with a “buy” rating. The average is $92.96.

* RBC’s Paul Quinn hiked his West Fraser Timber Co. Ltd. (WFG-N, WGF-T) target to US$120 from US$105 with an “outperform” rating. The average is US$115.

“While record profitability and large return of capital events are likely in the rearview mirror for now, we continue to like West Fraser’s low-cost positioning as the cycle turns, and note potential valuation tailwinds as solid balance sheets across much of the sector help drive consolidation,” he said.

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