Wednesday’s analyst upgrades and downgrades

Wednesday’s analyst upgrades and downgrades

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

Equity analysts on the Street applauded Lightspeed POS Inc.’s (LSPD-T) second significant U.S. acquisition of the month on Wednesday, raising their target prices for the Montreal software company.

After the bell on Tuesday, Lightspeed announced it would pay US$430-million in cash and stock for Upserve Inc., a Rhode Island-based company that provides internet-based restaurant management software to 7,000 restaurants in the United States, generating US$40-million in revenue annually.

“Upserve’s customer base of complex restaurants in the U.S. is a fitting acquisition for Lightspeed from a product fit and geographic expansion perspective,” said CIBC World Markets analyst Todd Coupland in a research note.

“In particular, Upserve’s robust analytics platform is a highly significant module for high-end restaurants due to the transparency it provides into inventory and workforce management. This will help differentiate Lightspeed’s platform as one of the most competitive hospitality platforms in the market. Additionally, the high level of Payments integration among Upserve’s customer base will enable Lightspeed to further drive payments adoption and increase ARPU [average revenue per user] once the businesses combine. Both companies share similar go-to market strategies that include a centralized sales force and installation team, which should make for a smooth integration.”

Mr. Coupland said the acquisition is “strategically on point within the complex retail and restaurant industry, and also financially attractive.”

Expecting its share price to jump on the news, he increased his target for Lightspeed shares to $80 from $67, keeping an “outperformer” rating. The average target on the Street is $65.97, according to Refinitiv data.

“Our thesis is based on: 1) the SMB [small and medium-sized business] market for POS innovation is large with a low cloud adoption rate, 2) Lightspeed’s platform advantages render it a top choice, and 3) market adoption has been pulled forward by COVID-19,” said Mr. Coupland.

Other analysts raising their targets included:

* Scotia Capital’s Paul Steep to $70 from $56 with an “outperform” rating.

* JP Morgan’s Tien-Tsin Huang to $74 from $57 with a “neutral” rating.

* RBC Dominion Securities’ Paul Treiber to $67 from $56 with a “sector perform” rating.`

* National Bank’s Richard Tse to $70 from $60 with an “outperform” rating.

* Eight Capital’s Suthan Sukumar to $84 from $70 with a “buy” rating.

* TD Securities’ Daniel Chan to $82 from $65 with a “buy” rating.

=====

RBC Dominion Securities’ Darko Mihelic thinks Bank of Montreal (BMO-T) has entered “a recovery” phase following Tuesday’s release of better-than-expected fourth-quarter results.

Before the bell, BMO announced adjusted earnings per share of $2.41, exceeding the forecasts of both Mr. Mihelic ($1.85) and the Street ($1.91) due largely to lower-than-anticipated provisions for credit losses. PCLs declined 59 per cent from the third quarter to $432-million, easily beating Mr. Mihelic’s $736-million projection.

“PCLs positively surprised and we believe credit is turning the corner,” he said.

“We believe total provisions for credit losses (PCLs) have peaked and will fall in 2021.”

Mr. Mihelic now sees the bank having resolved credit and capital concerns, adding it’s “time to split hairs on revenue growth.”

“With an uneven economic recovery ahead of us, we are unsure if BMO’s commercial loan focus will help or hurt BMO’s revenue growth relative to consumer loan oriented peers,” he said.

Keeping a “sector perform” rating for BMO shares, he hiked his target to $110 from $86.

“We increased our forward target P/E [price-to-earnings] multiple to 10.5 times from 9.5 times,” he said. “We believe a higher valuation multiple is warranted for all the Canadian banks as the economy switches into recovery phase. We also roll forward our valuation to 2022 adjusted EPS estimates. Our EPS estimates increase to $9.24 (was $8.89) in 2021 and $10.49 (was $10.09) in 2022. Changes to our estimates mainly reflect Q4/20 actual results, lower assumed PCLs and modestly higher NIMs over our forecast period.”

Other analysts raising their targets include:

* Scotia Capital’s Meny Grauman to $106 from $104 with a “sector perform” rating.

* CIBC’s Paul Holden to $116 from $108 with an “outperformer” rating.

* National Bank Financial’s Gabriel Dechaine to $93 from $87 with a “sector perform” rating.

* Canaccord Genuity’s Scott Chan to $103.50 from $94.50 with a “buy” rating.

* Credit Suisse’s Mike Rizvanovic to $94 from $90 with a “neutral” rating.

* Desjardins Securities’ Doug Young to $100 from $93 with a “hold” rating.

* TD Securities’ Mario Mendonca to $110 from $105 with a “buy” rating.

=====

Analysts also reacted positively to Bank of Nova Scotia’s (BNS-T) better-than-anticipated fourth-quarter results.

“We believe BNS has turned the corner on credit. A higher valuation seems warranted, but to attain past premium valuation multiples, we need proof that its International segment will revert to the strong revenue growth trajectory of the past; PCLs must also improve,” said RBC Dominion Securities analyst Darko Mihelic.

Keeping a “sector perform” rating, he raised his target to $71 from $61, exceeding the current consensus of $68.55.

“We stop short of reestablishing BNS’s premium valuation multiple, as we are not yet convinced that its International segment can materially outperform Canadian bank peers’ International segments,” Mr. Mihelic added.

Others raising their targets included:

* Desjardins Securities analyst Doug Young increased his target to $70 from $67 with a “buy” rating, saying he’s “encouraged” by the outlook for the bank’s international operations.

* CIBC’s Paul Holden to $72 from $70 with a “neutral” rating.

* Canaccord Genuity’s Scott Chan to $66.50 from $63.50 with a “hold” rating.

=====

IBI Group Inc.’s (IBG-T) acquisition of Cole Engineering Group is a “strategic fit that should be accretive for shareholders,” according to Desjardins Securities analyst Benoit Poirier, who expects management to “remain on the lookout for further M&A opportunities.

On Monday, the Toronto-based professional services company announced the deal for one one of the largest independent civil engineering firms in Ontario. It did not disclose financial terms of the agreement, but Mr. Poirier estimates it will bring to 2 cents of earnings per share accretion in 2021 and net revenue of $23–27-million per year.

“From a strategic standpoint, Cole’s water master planning practice will complement IBI’s current infrastructure expertise by contributing its background in water/wastewater demand modelling and planning,” he said. “These new capabilities should help strengthen IBI’s BlueIQ solution while opening new cross-selling opportunities. Management also indicated that Cole’s training and accreditation program for water facilities staff is aligned with its priorities to increase its exposure to operations optimization and asset management (recurring business). Finally, Cole’s expertise in urban development and land engineering will also solidify IBI’s strong urban capabilities by expanding the scope of its site development services offering.”

After raising his revenue and earnings expectations through 2022, Mr. Poirier increased his target for IBI shares to $9.75 from $9.50, keeping a “buy” rating. The average is $9.14.

“Bottom line, we are very pleased with the resumption of M&A, which should enable IBI to solidify its expertise in urban centres with Cole’s strong water expertise while opening new cross-selling opportunities for its Intelligence practice,” he said. “IBI currently trades at 6.8 times EV/FY1 EBITDA, a 6.0 times discount vs its engineering services peer group, which we view as unjustified given its stronger margin profile and growing Intelligence practice. We expect the stock to be re-rated as the SaaS business grows and management continues to strategically deploy capital toward M&A over the mid-term.”

Elsewhere, PI Financial analyst Devin Schilling increased his target to $9.50 from $9.25, keeping a “buy” rating.

=====

Premium Brands Holdings Corp. (PBH-T) landed “a prize catch” with its joint venture acquisition of Clearwater Seafoods Inc. (CLR-T), said Desjardins Securities analyst David Newman upon resuming coverage.

In early November, the Vancouver-based company announced a partnership with a group of seven Mi’kmaq First Nations to acquire the Bedford, N.S.-based seafood giant for $1-billion. It will own a 50-per-cent interest in the company.

On Tuesday, it closed its $230-million public equity offering and a $57.5-million private placement with Canada Pension Plan Investment Board. The proceeds will be used to fund the Clearwater deal.

“We believe this landmark deal should bring PBH multiple benefits: (1) Creation of an industry-leading global seafood platform. (2) Immediate double-digit EPS accretion (we estimate 14 per cent). (3) A synergistic growth platform given the highly complementary strengths of the three parties involved, which could drive synergies of $20–25-million over 3–5 years through (i) leveraging CLR’s upstream capabilities and international sales platform; (ii) PBH’s value-added processing capabilities, growing distribution platform (Ready Seafood, Allseas, etc) and strong North American account base, which could enhance margins on CLR’s products; (iii) ability to explore growth opportunities at CLR; and (iv) cost savings in time. (4) Stable cash flow generation (PBH receives $51.8-million per annum). (5) A groundbreaking First Nations partnership,” said Mr. Newman.

Maintaining a “buy” rating, he raised his target for Premium Brands shares to $124 from $118. The average on the Street is $117.88

“In addition to gaining critical mass on a number of fronts (new channels, products and customers), PBH continues to effectively execute on an active M&A pipeline including the accretive acquisition of CLR,” he said.

Elsewhere, BMO Nesbitt Burns’ Stephen MacLeod upgraded Premium Brands to “outperform” from “market perform” with a $125 target, rising from $112.

=====

In other analyst actions:

* Susquehanna initiated overage of Shopify Inc. (SHOP-N, SHOP-T) with a “neutral” rating and US$950 target. The average is currently US$1,123.55.

* CIBC’s Todd Coupland hiked his target for Blackberry Ltd. (BB-N, BB-T) to US$8 from US$5.50 with a “neutral” rating. The average on the Street is US$6.07.

* RBC Dominion Securities analyst Irene Nattel for Dollarama Inc. (DOL-T) to $64 from $60, keeping an “outperform” rating. The average is $55.62.

* Scotia Capital analyst Michael Doumet raised his target for Intertape Polymer Group Inc. (ITP-T) to $33 from $32.50 with a “sector outperform” rating. The current average on the Street is $27.19.

* Jefferies analyst Chris Lafemina cut his target for Barrick Gold Corp. (GOLD-N/ABX-T) to US$21 from US$27.50 with a “hold” rating. The average is US$33.41.

* Mr. Lafemina also lowered his target for Kinross Gold Corp. (KGC-N, K-T) to US$6.50 from US$9.25 with a “hold” rating. The average is US$12.64.

* CIBC World Markets analyst Raphael de Douza raised his target for Ero Copper Corp. (ERO-T) to $23.50 from $21 with a “neutral” recommendation. The average is $23.22.

* Citing “value creation optionality,” Industrial Alliance Securities analyst Frédéric Blondeau raised his target for Artis REIT (AX.UN-T) to $13 from $11.50 with a “buy” rating. The average is $11.36.

Published at Wed, 02 Dec 2020 12:08:18 +0000