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TARGET AND ESTIMATE CHANGES NuVasive, Inc. (NUVA: NASDAQ | US$22.34 | US$1,018.3 M) Setting our sites on 2015: a clear path to margin expansion; reiterate BUY, raising price target to $29 COMPANY UPDATES Infrastructure TransAlta Corporation (TA: TSX | C$13.62 | C$3,569.8 M) Geothermal contract offers increased cash flow stability; maintaining BUY rating and C$18.00 target Life Sciences OraSure Technologies (OSUR: NASDAQ | US$4.15 | US$229.9 M) Several growth opportunities yet to unfold
US Economic Indicators Time Cons. MBA Mortgage Applications 14-Jun 07:00 -FOMC Rate Decision 19-Jun 14:00 0.25% Fed Releases Summary of Economic Projections 14:00 Canadian Economic Indicators Wholesale Sales MoM - Apr Equity Indices Ch. S&P/TSX +78.56(+0.64%) Dow Jones +138.38(+0.91%) NASDAQ +30.05(+0.87%) S&P 500 +12.77(+0.78%) Commodities Gold (US$/oz) Copper (US$/lb) WTI Oil (US$/bbl) Recently Published Raging River Exploration; Initiating Coverage With a BUY Rating and C$5.50 Target Price Whitecap Resources; Initiating Coverage With a BUY Rating and C$13.00 Target Price Steve Toth 15-June-2013 Cub Energy Inc.: Black Sea Strategy; Initiating Coverage With a BUY Rating and C$0.70 Target. Christopher Brown 10-June-2013 Argent Energy Trust: A Silver Star to Shine; Initiating Coverage With a BUY Rating and C$13.00 Target Price. Benny Wong 05-June-2013 Parallel Energy Trust: Valuation Looks Tempting But We Are Cautious; Initiating Coverage With a HOLD Rating and C$4.00 Target Price. Benny Wong 05 June-2013 Eagle Energy Trust: The Comeback Kid; Initiating Coverage With a BUY Rating and C$8.50 Target Price. Benny Wong 5-June-2013 Mosaic Capital Corp.: Building Value Through Acquired Growth; Initiating Coverage With a BUY Rating and C$9.75 Target Price. Chris Bowes 04-June-2013 Ch. $0.00 +$0.01 +$0.50 08:30 0.50% Level 12,367.46 15,318.23 3,482.18 1,651.81 Level $1,366.60 $3.16 $98.94
Canaccord Genuity is the global capital markets group of Canaccord Financial Inc. (CF : TSX | CF. : LSE) The recommendations and opinions expressed in this research report accurately reflect the Investment Analysts personal, independent and objective views about any and all the Designated Investments and Relevant Issuers discussed herein. For important information, please
see the Important Disclosures section in the appendix of this document or visit Canaccord Genuitys Online Disclosure Database.
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Annual EPS Annual Revenue 2013E $655.1M (No change) 2014E $702.8M (No change) Target $29.00 from $24.50
Todays Changes
NuVasive, Inc.
NUVA : NASDAQ : US$22.34
COMPANY STATISTICS:
52-week Range: Market Cap (M): Avg. Daily Vol. (000s): Shares Out diluted: US$12.35 - 25.99 US$1,018.3 351.9 45.3 2012A 1.73 7.7x 21.5x Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 151.7 154.4 148.4 165.8 620.3 0.20 0.27 0.23 0.34 1.04 2013E 1.638 8.4x 22.2x 159.5A 160.7 156.4 178.5 655.1 0.26A 0.26 0.24 0.25 1.01 2014E 1.526 7.8x 22.5x 702.8 1.00
EARNINGS SUMMARY:
FYE Dec EV/Revenue: EV/EBITDA: P/E: Revenue (M):
SETTING OUR SITES ON 2015; A CLEAR PATH TO MARGIN EXPANSION; REIT BUY, PT TO $29
Investment recommendation
We reiterate our BUY rating and are positioning NuVasive as our top new money pick. We believe the margin expansion story is tangible and expect investors to focus on 2015 margins and earnings given a significant portion of the IP royalty payments to Medtronic cease at that point. Furthermore, we believe the recent acquisition of a manufacturer and the initiation of product introduction in Japan offer additional margin expansion opportunities. All in, we believe operating margins could expand by ~480 basis points over the next two years.
Total EPS:
Total
Investment highlights
Expiration of patents in 2015 leads to cessation of ~$14.5M in annualized royalty payments to Medtronic in February 2015. This equates to a 160 bp improvement in GMs in 2015. The acquisition of manufacturing highlights a push to in-house manufacturing. The expected benefit is ~110 bp through 2015. International leverage on the back of successful commercialization in Japan combined with general operating expense leverage is expected to contribute ~310 bp of OM improvement through 2015.
COMPANY DESCRIPTION:
NuVasive is a pure-play differentiated spine company focused on the design, development and marketing of products for the surgical treatment of spine disorders. The company has gained significant mindshare in the spine community with its minimally invasive XLIF (extreme lateral interbody fusion) technique and proprietary nerve avoidance system. The company markets its products through a direct sales force.
All amounts in US$ unless otherwise noted.
Valuation
We are raising our price target to $29.00 from $24.50. Our valuation is based on our 2015 non-GAAP EPS estimate of $1.40 applied to the group mean 2014E P/E multiple of 20.7x.
Canaccord Genuity is the global capital markets group of Canaccord Financial Inc. (CF : TSX | CF. : LSE) The recommendations and opinions expressed in this research report accurately reflect the Investment Analysts personal, inde pendent and objective views about any and all the Designated Investments and Relevant Issuers discussed herein. For important information,
please see the Important Disclosures section in the appendix of this document or visit Canaccord Genuitys Online Disclosure Database.
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TransAlta Corporation
TA : TSX : C$13.62 TAC : NYSE
Juan Plessis, MBA, CFA 1.604.643.0181 jplessis@canaccordgenuity.com Zayem Lakhani, CFA 1.604.643.7506 zlakhani@canaccordgenuity.com
COMPANY STATISTICS:
52-week Range: Avg. Daily Vol. (000s): Market Cap (M): Shares Out (M): Current Dividend: Current Dividend Yield %: C$13.4 - 17.8 786.9 C$3,569.8 262.1 C$1.16 8.5 2012A C$0.50 27.2 C$2.12 6.4 2013E C$0.80 17.0 C$2.80 4.9 2014E C$0.85 16.0 C$3.00 4.5
Infrastructure -- Power
EARNINGS SUMMARY:
FYE Dec EPS: P/E (x): CFPS: P/CF (x):
Valuation
Source: Interactive Data Corporation
COMPANY DESCRIPTION:
TransAlta is focused on generating electricity in Canada, the US and Australia through its portfolio of plants fuelled by coal, gas, hydro, wind and geothermal resources. The company owns and operates 8,245 MW of net electricity generation. The company also derives revenue from the wholesale trading of electricity and other energy related commodities and derivatives.
All amounts in C$ unless otherwise noted.
Our 12-month target price is primarily based on a discounted cash flow analysis, dividend discount model, and earnings and cash flow multiples relative to both historical valuations and power and pipeline peers. Note that our valuation assumes that the current level of the dividend is maintained. While we have an C$18.00 target price, we see the value of the stock in excess of that level on a discounted cash flow analysis; however, until the company wins back investor confidence and convinces the market that the dividend level is safe, the stock is unlikely to reach its intrinsic value. Should the shares continue to languish at current low levels, we believe there is an increased potential that TransAlta becomes an acquisition target.
Canaccord Genuity is the global capital markets group of Canaccord Financial Inc. (CF : TSX | CF. : LSE) The recommendations and opinions expressed in this research report accurately reflect the Investment Analysts personal, independent and objective views about any and all the Designated Investments and Relevant Issuers discussed herein. For important information,
please see the Important Disclosures section in the appendix of this document or visit Canaccord Genuitys Online Disclosure Database.
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OraSure Technologies
OSUR : NASDAQ : US$4.15
COMPANY STATISTICS:
Market Cap (M): 52-week Range: US$229.9 4.06 - 14.01 2012A 87.8 2.6 (0.29) NM Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 20.9 22.6 22.1 22.1 87.8 (0.07) (0.07) (0.04) (0.11) (0.29) 2013E 95.2 2.4 (0.55) NM 21.2A 23.5 24.5 26.0 95.2 (0.18)A (0.16) (0.12) (0.09) (0.55) 2014E 111.1 2.1 (0.34) NM 25.0 27.4 28.3 30.4 111.1 (0.11) (0.09) (0.07) (0.06) (0.34)
EARNINGS SUMMARY:
FYE Dec Revenue (M): P/Sales (x): EPS: P/E (x): Revenue (M):
Total EPS:
Total
COMPANY DESCRIPTION:
OraSure develops, manufactures, and markets HIV, HCV and drugs of abuse rapid test kits, primarily for the pointof-care setting to deliver immediate test results. Its business principally involves oral fluid technology (in addition to blood) as an alternative specimen collection. OraSure also has a legacy med-device business for the removal of warts and other benign skin lesions by cryosurgery, or freezing.
All amounts in US$ unless otherwise noted.
Valuation Our $10 price target uses a 4.5x P/S multiple on our 2016 sales estimate of $158M.
Canaccord Genuity is the global capital markets group of Canaccord Financial Inc. (CF : TSX | CF. : LSE) The recommendations and opinions expressed in this research report accurately reflect the Investment Analysts personal, inde pendent and objective views about any and all the Designated Investments and Relevant Issuers discussed herein. For important information,
please see the Important Disclosures section in the appendix of this document or visit Canaccord Genuitys Online Disclosure Database.
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Distribution of Ratings:
Global Stock Ratings (as of 28 March 2013)
BUY: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months. HOLD: The stock is expected to generate risk-adjusted returns of 0-10% during the next 12 months. SELL: The stock is expected to generate negative risk-adjusted returns during the next 12 months. NOT RATED: Canaccord Genuity does not provide research coverage of the relevant issuer. Risk-adjusted return refers to the expected return in relation to the amount of risk asso ciated with the designated investment or the relevant issuer.
Risk Qualifier:
SPECULATIVE: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in the stock may result in material loss.
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