July 20, 2017

Thursday’s action saw the S&P 500 about unchanged and Toronto up 0.1%.

Limamar was up 4.4% to $71.56.

CRH Medical was down another 2.6% to $4.06 on Toronto. Scotia Bank precipitated the big plunge of last Friday when it warned about government-mandated reductions to the fees CRH receives for its services. It had closed last Thursday at $6.62. After the stock closed on Friday at $4.74, Scotia indicated its target was now $8.00 and rated the company a “Sector Perform” with a 69% upside to the target. It must be in one heck of a strong sector if a 69% upside is “sector perform”.

RBC meanwhile issued a report before the open on Monday lowering its price target from $10 to $8.50 on the news and also rating it “Sector Perform”. RBC however had a down side scenario of $3.75 and an upside of $10.

Some other analysts have spoken against the company including one at the Motley Fool.

It’s interesting that the stock has fallen so much with these $8.00 and $8.50 price targets. The company itself has now confirmed that revenue under the new billing codes on existing business would be down some 7.5% and EBITDA down 13.5%. The company expects the new lower billing codes to be in place on January 1, 2018. However, this would still appear to leave room for some of that to be offset by acquisitions and it appears to me also organic growth.

Certainly the lower billing codes are a negative for the company. And certainly some analysts are skeptical about its acquisition strategy. But it appears to me that the price reaction has been very much over done. But only time will tell if that is the case. Based on the timing of the Q1 report, I expect the Q2 earnings to be released around the middle to end of next week.

In terms of the Canadian economy I notice CP rail released earnings today that included some big increases in rail car traffic. I have a link to a site (toggle the radio buttons at this site to choose Canada, the U.S. or Mexico) that shows total rail car traffic in Canada and it is WAY up over 2016 levels and is back to similar levels as 2014. Any notion that the Canadian economy is stagnant is just not true.