Wednesday’s analyst upgrades and downgrades

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

Canaccord Genuity analyst John Bereznicki downgraded two oilfield services stocks - Calfrac Well Services Ltd. (CFW-T) and Source Energy Services Ltd. (SHLE-T) - saying their ability to pay off debt will become increasingly challenged through the balance of this year.

“In our view, oilfield fundamentals will remain extremely challenging with WTI below US$40/bbl,” Mr. Bereznicki said in a review of first quarter results from oilfield equipment and services firms (OFS). "We believe the longer this commodity environment continues, the more likely oilfield pricing will continue to migrate toward cash costs for many OFS companies. While we believe service providers with production related exposure (or true competitive advantage) may fair somewhat better, EBITDA generation will become increasingly challenging in the sector.

“We note that on consensus 2021 estimates, the sector is not particularly cheap at ~8.5x EV/EBITDA (with Street cash flow expectations trending down). Barring a significant move upward in strip oil pricing, we believe one must be willing to look toward a 2022 recovery (at the earliest) to see “value” from an investment perspective,” he said.

His target on Calfrac is 15 cents (down from 25 cents), and 5 cents on Source Energy (down from 7 cents).

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RBC Capital Markets says it sees an attractive opportunity to buy Gilead Sciences Inc. (GILD-Q) as the shares are now down about 14 per cent from the highs they touched last month, fueled by “overly optimistic expectations” for near-term sales of its COVID-19 treatment candidate remdesivir

RBC said it sees fair value for Gilead at US$88/shr, without any modeled contribution from remdesivir, and expects shares to appreciate towards that target as the company continues to execute commercially

RBC said Gilead’s fall could mean the market is recognizing the limited potential for meaningful monetization of remdesivir directly, given low initial supply and long-term pandemic/stockpiling uncertainties.

Gilead’s shares, which closed Tuesday at $73.18, are also looking particularly inexpensive on a multiples basis vs other large cap biotechs like Amgen Inc, Regeneron Pharma and Vertex Pharma, RBC said.

Gilead’s 12 month forward price to earnings ratio is 11.5 vs Regeneron Pharmaceuticals’ 18.9, Amgen’s 13.7 and Vertex Pharmaceutic’s 27.27

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Desjardins Securities analyst Doug Young liked what he saw in National Bank of Canada’s (NA-T) fiscal second quarter results released late Tuesday. He raised his price target by $1 to $59, but reiterated a “hold” rating.

“Cash EPS was above our estimate and consensus, although that was not the focus. More importantly, National Bank delivered this while recording a higher PCL (Provision for Credit Losses), mostly related to performing loans, and putting up an all-in CET1 ratio of 11.2%, in line with our estimate," Mr. Young said in a note.

Overall, he termed the results from National Bank as “encouraging.”

Many other sell-side analysts also raised their targets: Barclays raised its price target on National Bank to $54 from $52; Canaccord Genuity increased its target to $61 from $58.50; Credit Suisse raised its target to $58 from $55; RBC raised its target to $60 from $55; Scotiabank raised its target to $69 from $60; and TD Securities hiked its target to $63 from $62.

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CIBC downgraded Gibson Energy Inc. (GEI-T) to “neutral” from “outperform” but raised its price target to $22 from $20.

“The company has accomplished a lot in the last 18 months to reduce its risk profile, including significant asset sales. The result has been two investment grade credit ratings, a low payout ratio of 62%, and leverage of 2.7x, with the latter two below long-term targets of 70%-80% and 3.0x-3.5x, respectively,” said analyst Robert Catellier.

"The progress against its strategy has allowed the company to announce the resumption of dividend growth, starting with the dividend payable in April. The company’s shares have performed reasonably well in response, including the second-best three-month performance of our midstream and pipelines coverage list. Indeed, management actions to improve the company’s risk profile have resulted in the best performance over the last year.

“The road forward is more difficult for the entire industry, including uncertain growth prospects due to the energy market downturn. Although the price of oil has appreciated meaningfully since the trough, forward prices and a tight liquidity environment cause us to expect customers to be very circumspect with capital commitments, including making new storage commitments. That said, we see Gibson’s medium-term growth prospects as marginally stronger in the event either or both the Trans Mountain Expansion Project and KXL projects make credible strides towards completion,” the analyst said.

“The improved financial position causes us to bump our multiple by half a point, more in line with the company’s trading history and also more appropriately differentiating it among its peer group. Despite this increase, the share price appreciation leaves only modest room for gains relative to our revised price target. At 6.4% and supported by a low payout ratio, the company’s dividend yield is an offset for investors willing to ride through the uncertainty of the energy market,” he added.

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BofA Securities analyst Wamsi Mohan is getting more bullish on shares of Apple Inc. (AAPL-Q) as iPhone sales grow. He raised his price target to US$340 from $320 and maintained a “buy” rating.

With an iPhone installed base nearing 1 billion units, he sees significant upgrades ahead. The installed base is a key indicator of the potential of the Apple ecosystem, as this can drive higher consumption of services and sales of other Apple devices, he said.

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In other analyst actions:

Bank of Nova Scotia (BNS-T): National Bank of Canada raises target price to C$56 from C$53

Dream Unlimited Corp (DRM-T): TD Securities cuts target price to C$10.50 from C$11

Uranium Participation Corp (U-T): TD Securities raises to buy from hold

Vermilion Energy (VET-T): National Bank of Canada raises price target to C$8 from C$6

With files from Reuters