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.
Credit Suisse analyst Kulbinder Garcha slapped International Business Machines Corp. with an "underperform" rating and substantially lowered his price target, saying the computer maker is "effectively in decline."
"While we commend IBM's operating performance in recent years, future organic growth will be challenging. We are also concerned by deteriorating fiscal cash flow and a less effective mix up to software revenue," Mr. Garcha said in a research note.
"We see rising headwinds ahead with: i) 34 per cent of gross profit dollars coming from Mainframe and UNIX hardware and associated software, which we believe are under pressure; ii) the shift to cloud continues to present risks given IBM's technology positioning; and iii) strategic portfolio management is likely to have less of an impact going forward given the smaller potential for divestitures (x86 and Microelectronics), and multiple expansion in the software space limits IBM's ability to acquire as effectively as in the past," he said.
Target: Mr. Garcha, who previously rated IBM as "neutral," cut his price target to $175 (U.S.) from $200. The average analyst target is $218.38, according to Bloomberg data.
Shares in IBM are down 2.3 per cent in morning trading in reaction to the downgrade.
CIBC World Markets analyst Alec Kodatsky upgraded Kinross Gold Corp. to “sector performer” from “sector underperformer” after the company announced adjusted earnings last week that beat Street expectations and deferred a decision on the expansion of its Tasiast mill in Mauritania to 2015 at the earliest.
The company last week also announced a big non-cash charge linked to the recent plunge in the price of gold and suspended its semi-annual dividend.
“Kinross continues to make hard decisions,” commented Mr. Kodatsky in a research note. “In the background, Kinross is establishing a reasonable operating track record, with Q2 representing the fourth consecutive quarterly beat vs. consensus.
“We expect the market to respond positively to the Tasiast decision and begin recognizing the improved operational performance,” he added.
But he cautions that while “elements of the story are improving,” Kinross lacks future growth, given that its once robust project pipeline has largely disappeared over the past year. The company also remains a higher-cost producer and carries greater political risk than some peers, while generating little in the way of free cash flow at current spot gold prices.
Target: Mr. Kodatsky raised his price target by $1 to $6.50 (U.S.). The average Street target is $6.63.
Raymond James analyst Alex Terentiew downgraded his rating on HudBay Minerals Inc. as costs continue to escalate at its Constancia project in Peru.
HudBay increased its capital expenditure guidance at Constancia by 15 per cent. But it also announced $100-million in cost savings elsewhere, including a long-awaited dividend cut. It also reworked its plans for its most promising project in Manitoba, Lalor, to better manage a widening funding gap, which has been aggregated by increasingly unattractive financing options given weak metal prices.
Mr. Terentiew thinks the increase in costs for Constancia suggests further delays at the project. He now estimates a net asset value per share of $10.92 for HudBay, down from $11.67. That implies a current price to net asset value of 0.60 times, which is below the average of other mid-tier copper producers of 0.74 times.
“Although we remain constructive on the company over the longer-term, given its strong asset base and robust long-term growth profile, we are downgrading our rating to ‘market perform,’ and recommend investors switch into Capstone or First Quantum, which also have attractive growth, yet carry fewer near-term funding risks,” he said.
Target: Mr. Terentiew cut his price target on HudBay to $8.25 (Canadian) from $9. The average target is $9.67.
Alacer Gold Corp. reported a solid second quarter from an operational standpoint, driven by stronger-than-expected production from its Copler project in Turkey, commented RBC Dominion Securities analyst Dan Rollins.
But uncertainty surrounding the company's ability to divest its Australian assets and lack of detail regarding the potential economics of the large sulphide resource at Copler are likely to remain overhangs on the company's share price, he cautioned.
Citing these headwinds, Mr. Rollins downgraded Alacer to "sector perform" from "outperform."
Target: Mr. Rollins cut his price target by $1 to $3 (Canadian). The average target is $3.37.
Western Potash Corp. has held up reasonably well since Russian potash producer Uralkali last week decided to break out of a trading venture with its Belarus partner, with shares down about 10 per cent versus about 20 per cent on average for its junior peers.
BMO Nesbitt Burns analyst Joel Jackson thinks this is about to change: "We are lowering our rating to 'underperform' as the apparent shift to a lower potash price dynamic diminishes financing prospects for all junior potash developments for many years until global demand catches up to existing supply," he said.
He notes, however, that Western Potash has about $30-million in cash - more than enough to ride out several years of a depressed market.
Target: Mr. Jackson no longer has a price target on the stock. The average analyst target is 82 cents.
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