Canaccord warms up to Sprott, downgrades Gluskin

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Inside the Market's roundup of some of today's key analyst actions. This post will be updated with more analyst commentary during the trading day.

Canaccord Genuity's Scott Chan has jacked up his target price on shares in Sprott Inc. in light of improved precious metals markets and fund performance over the past three months.

He estimates Sprott, whose funds are focused on the resource sector and especially gold, generated a weighted average return of 13 per cent in the third quarter that ended in August. In August alone, he thinks returns got about a 9 per cent boost. He projects assets under management have risen to $8.0-billion from $7.1-billion at the end of the second quarter.

Target: Mr. Chan raised his target to $3 from $2.75 and maintained a "hold" rating. The average price target among analysts is $2.77, according to Bloomberg data.

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Money manager Gluskin Sheff + Associates Inc. delighted investors on Wednesday with a surprise special dividend as well as a hike in its regular payout to shareholders, but Canaccord Genuity is cautioning the outlook from here is nothing to celebrate.

Mr. Chan downgraded his rating on the stock to "hold" from "buy" and removed the company from Canaccord's so-called Canadian focus list - stocks that it considers its most compelling investing ideas.

Part of the reason for the downgrade was Gluskin Sheff altering its compensation structure by bumping up bonuses for employee performance in an effort to hold on to key employees. But Mr. Chan also believes that valuation "is no longer compelling" given that the stock has increased 74 per cent over the past year.

Meanwhile, "net sales were a bit disappointing at $7-million (vs. our $60-million estimate) and well down from $135-million last quarter, but quarterly portfolio performance was better than expected (0.9 per cent vs. our -1.3 per cent estimate)," he said.

Target: Mr. Chan cut his price target to $21.50 from $23.50. The average price target is $22.83.

Read more: The rich appeal of money manager Gluskin Sheff.

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Shares in Groupon Inc. are up 5 per cent at midday thanks to an upgrade from Morgan Stanley to an "overweight" recommendation.

Analysts led by Scott Devitt now see significant upside to the stock price after reviewing opportunities in the Internet sector.

"Our upgrade is based on the sizable opportunity that Groupon posses in North America and Europe for services and goods, and our growing confidence that Groupon can execute against this opportunity," Morgan Stanley said in a note. "With renewed momentum in the local deals segment in North America leading to two strong quarters of growth and the rollout of the deal bank to EMEA (Europe, Middle East and Africa) in its early stages, we believe that Groupon's turnaround will lead to accelerating growth in 2014 and that ultimately, Groupon can grow at rates comparable to overall e-commerce in the long term."

Target: Morgan Stanley has a $14 price target, up from $11. The average target is $11.47.

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RBC Dominion Securities analyst Robert Stallard downgraded Lockheed Martin Corp., believing that the rally that has propelled its stock up 35 per cent this year will soon stall as U.S. Department of Defense budget cuts take their toll.

"We think the full impact and extent of DoD budget cuts on the defense industry have not been appreciated," Mr. Stallard said in a research note. "A contractor like Lockheed generates much of its revenues from the Investment Accounts, and outlays from these accounts tend to lag the DoD budget by 1-plus years. This means that the impact of fiscal year 2013, fiscal year 2014 and fiscal year 2015 DoD budget cuts are still ahead of us - but investors appear to be assuming that the worst is behind us."

"We expect there to be continued scrutiny of major defense programs as savings are sought - and Lockheed's portfolio is unlikely to be immune," he said.

Mr. Stallard also notes that Lockheed's projected payout ratio is now close to 60 per cent of earnings per share, so major hikes in its dividend may be less likely going forward.

Target: Mr. Stallard maintained a $126 (U.S.) target price. The average target is $128.93.

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BMO Capital Markets analyst Andrew Kaip has revised his ratings on some miners that operate in Mexico, largely because of the rise in prices for gold and silver, up by 10 per cent and 24 cent cent, respectively, since the end of June.

Mr. Kaip upgraded Endeavour Silver Corp. to "market perform," also citing the company's efforts to manage costs and redevelopment at its El Cubo mine.

But he downgraded First Majestic Silver Corp. to "market perform." Mr. Kaip says the 54-per-cent rise in First Majestic's stock price since the end of June gives the miner a higher valuation than its peers, and is a sign the stock might not rise much further.

"Recent efforts to control costs have demonstrated First Majestic Silver's commitment to adapting to a lower metal price environment, but the company's premium valuation may limit [the] upside to the current share price," wrote Mr. Kaip.

Target: Mr. Kaip raised his price target on Endeavour Silver to $5.75 from $3 (average price target is $4.62) and on First Majestic Silver Corp. to $17.50 from $16.

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Other analyst actions today include:

Cormark downgraded BlackBerry Ltd. to "speculative buy" from "buy" and maintained a price target of $13.50.

Barclays downgraded Newmont Mining Corp. to "equalweight" from "overweight."

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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities