Friday’s analyst upgrades and downgrades

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

Neighborly Pharmacy Inc.‘s (NBLY-T) “M&A machine continues to hum,” according to National Bank Financial analyst Zachary Evershed, who is expressing increased confidence in its ability to acquire at least 40 stores per year.

“COVID fatigue has translated into a significant uptick in the number of retirements, posing a benefit to the company as talks of succession planning stocks NBLY’s M&A pipeline and affords NBLY the chance to be more selective in choosing high-quality acquisitions,” he said.

In a research report released Friday reviewing its in-line fourth-quarter 2022 results, Mr. Evershed did lowered his store growth estimate for the remainder of the year to 15 locations, down from 24 and in line with management guidance. However, he raised his forecast moving forward to 40 locations annually, up from 32, and in line with past performance.

“This is supported by Neighbourly’s $ 160 million in dry powder and the abundance of opportunities in the pipeline,” he said. “Given the continued uptick in inbound calls related to succession planning as pandemic fatigue has prompted a higher than usual number of retirements, we expect NBLY can afford to be more selective, resulting in generally higher quality acquisitions. While the current macro and capital market environments remain choppy and of concern to investors, management reiterated that they foresee no need for equity to fund the acquisition pipeline given available. “

Before the bell on Thursday, the Toronto-based company reported revenue for the quarter of $ 112.3-million, up 34.9 per cent year-over-year and largely in-line with both Mr. Evershed’s $ 114.1-million projection and the consensus estimate of $ 111.7-million. Adjusted EBITDA of $ 11.3-million was a rise of 1.3 per cent year-over-year and also meeting the $ 11.2-million expectation from both the analyst and Street.

“As expected, staffing headwinds dragged on the quarter as Omicron-related absenteeism compounded existing COVID-related pharmacist fatigue,” said Mr. Evershed. “Management foresees tight labor availability over the next 12 months, likely resulting in continued relief pharmacist costs (albeit at lower levels) as the industry awaits two graduating classes of 1,500 pharmacists each to replenish supply. Even so, wage pressures remain relatively contained across the network on the pharmacy side (80 per cent of sales), though front shop operations (20 per cent of sales) are impacted by minimum wage hikes. “

After lowering his margin forecast “modestly” to account for staffing pressure and the cut to his near-term acquisition expectation, Mr. Evershed trimmed his target for Neighborly shares by $ 1 to $ 27, maintaining a “sector perform” rating. The average target on the Street is $ 35.56.

“Though we value steady organic growth with M&A upside, given the tight return to target, we rate NBLY Sector Perform,” he said.

Elsewhere, other analysts making changes include:

* Desjardins Securities’ Chris Li to $ 26 from $ 35 with a “hold” rating.

“4Q financial results were in line, partly offset by lighter script growth as new script volumes remain 15 per cent below pre-pandemic levels with COVID-19 continuing to limit in-person doctor visits,” said Mr. Li. “We continue to view NBLY as a high-quality, well-managed and defensive company with compelling long-term growth through M&A in a highly fragmented industry. However, relative valuation and limited near-term catalysts will likely keep the stock range-bound in the near term. “

* Scotia Capital’s Patricia Baker to $ 37 from $ 41 with a “sector outperform” rating.

“With the company’s very strong defensive positioning and minimal exposure to discretionary spend, coupled with a solid outlook for growth we think now is a great entry point for long term focused value investors,” said Ms. Baker. “We see NBLY well positioned to execute on its M&A strategy, drive robust growth and demonstrate ongoing operating leverage. We reiterate our Sector Outperform rating and do anticipate NBLY shares driving a significant outperformance in the back half and into 2023. “


Seeing Medexus Pharmaceuticals Inc. (MDP-T) “now in a firmly EBITDA positive position,” Canaccord Genuity analyst Tania Armstrong-Whitworth raised her rating for its shares to “speculative buy” from “hold” previously.

On Wednesday after the bell, the Toronto-based company reported revenue of $ 20.3-million, up 15 per cent year-over-year and exceeding the estimates of both the analyst ($ 19.1-million) and the Street ($ 18.2-million). Adjusted EBITDA improved to $ 1.1-million from a loss of $ 1.6-million during the same period a year ago and also beating forecasts (losses of $ 0.4-million and $ 0.5-million, respectively). “

Calling the results “healthy” and expecting gross margin expansion from current levels as it modernizes the manufacturing process for its IXINITY drug, which is used for the treatment and control of bleeding episodes, Ms. Armstrong-Whitworth maintained a $ 3.25 target for Medexus shares. The current average is $ 6.50.

“With the stock having now declined materially below this level, we are moving from a HOLD to a SPEC BUY rating,” she said. “The SPEC condition is based on the fact that almost all of the potential upside to our price target hinges on the approval of treosulfan in the US, which in our opinion remains a question mark.”


While the fourth-quarter results from Evertz Technologies Ltd. (ET-T) were stronger than expected, Canaccord Genuity analyst Robert Young is taking a “conservative view of estimates,” citing “market commentary around potential recessionary headwinds.”

After the bell on Thursday, the Burlington, Ont.-based provider of Software Defined Video Network technology reported revenue of $ 116.1-million, rising 24.4 per cent year-over-year and above the estimates of both the analyst ($ 105.9-million) and the Street ($ 104.7-million) as both its North American and International businesses saw growth (24 per cent nd 30 per cent year-over-year). Adjusted EBITDA of $ 29-million also topped estimates ($ 21.9-million and $ 22-million, respectively) due to a higher top line and strong gross margins.

“Evertz reported a beat across the board with 24.4-per-cent year-over-year top-line growth and strong gross margins despite supply chain challenges,” said Mr. Young. “Management noted that the order pipeline is robust, and demand remains strong in general, although it continues to see supply chain issues. We expect OpEx to grow in the near term with resumption of travel and trade shows, wage inflation and curtailed government subsidies. “

After narrow trims to his full-year earnings estimates due to wage inflation and travel costs, Mr. Young cut his target for Evertz shares to $ 16.50 from $ 17.25, maintaining a “buy” rating. The average is $ 16.25.

“On balance, we continue to rate Evertz a BUY given an improving demand environment, strong competitive position and robust balance sheet and a 5.3-per-cent annualized dividend yield (ignoring the $ 1 special dividend declared in September) at current levels,” he said.


Scotia Capital analyst Adam Buckham warns LifeSpeak Inc.‘s (LSPK-T) ability to regain the confidence of investors “will take time.”

“Although shares have rebounded to a degree from Q1′s floor (up 71 per cent post Q1 decline, down 80 per cent year-to-date), it’s clear that many questions remain around the near-term trajectory for LSPK,” he said in a research note released Friday. “In our conversations with investors, these questions have generally encompassed three themes: (1) Q1′s contract issue and its implications for product demand, (2) organic growth trends for the base business, and (3) normalized EBITDA / FCF. … We’d note that a great deal of LSPK’s near-term financial trajectory remains tied with its related contract issue, which at its peak provided the company with $ 9-million of ARR. This was the driver of Q1′s miss, along with revisions to estimates. We do not expect to gain clarity on this until late summer (August 31 renewal). “

Maintaining a “sector outperform” rating, he cut his target for the Toronto-based wellness software company’s shares to $ 4 from $ 7. The average is currently $ 3.46.

“Our updated valuation is based on a 4-times multiple on our 2023 sales estimate, which is in-line with the mean of our healthcare technology and Canadian software group (4 times and 3.5 times 2022 & 2023),” said Mr. Buckham. “While an in-line multiple may seem like a stretch given current headwinds, we would argue that even under our base case scenario (does not include contract renewal), the company should be able to maintain (1) solid growth (excl. Contract 48-per-cent organic in ARR in 2022), (2) robust gross margins (88-per-cent expected), and (3) positive and growing Adj. EBITDA. Thus, while the current situation will likely remain an overhang for shares, we believe that LSPK’s core qualities will inevitably shine through. “


In other analyst actions:

* Pushing back his first gold forecast for its Premier gold project to late 2023, Desjardins Securities analyst Jonathan Egilo cut his target for Ascot Resources Ltd. (AOT-T) shares to $ 1.15 from $ 1.50, maintaining a “buy” rating. Elsewhere, Stifel’s Ian Parkinson cut his target to $ 1.60 from $ 1.90 with a “buy” rating. The average is $ 1.29.

“We believe the near 30-per-cent discount to peers is too steep considering AOT is a standout in the developer peer group (permitted, prime jurisdiction, construction already advanced),” Mr. Egilo said.

* RBC Dominion Securities initiated coverage of Storagevault Canada Inc. (SVI-T) with an “outperform” rating and $ 8 target. The average on the Street is $ 7.86.

* CIBC World Markets’ Todd Coupland lowered his target for BlackBerry Ltd. (BB-N, BB-T) to US $ 5 from US $ 8, keeping an “underperformer” rating. The average is US $ 6.70.

* CIBC World Markets’ Nik Priebe cut his Onex Corp. (ONEX-T) target to $ 75 from $ 90, below the $ 104.40 average, with a “neutral” recommendation.


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