A Toronto-Dominion Bank sign.
Inside the Market's roundup of some of today's key analyst actions
Although Toronto-Dominion Bank (TD-T) reported strong quarterly results, Canaccord Genuity said it is still downgrading the bank to "hold" from "buy" and reducing its price target to $59 (Canadian) from $61 due to softness in its Canadian retail banking division. The consensus is $60.26, according to Thomson Reuters.
"TD's largest segment (about 50 per cent of profits) delivered only 1 per cent growth this quarter, marking [it] the [third] consecutive quarter during which it has trailed the peer group. TD's domestic weakness is primarily the result of a weak top line, where 2 per cent of revenue growth will likely trail the peer group average this quarter. To be fair, it seems odd to criticize TD for its low growth in Canadian retail banking at a time when market concerns over consumer indebtedness and late cycle credit growth in certain segments (e.g. housing in overheated markets) are elevated. However, we also believe it is fair to compare TD's actual performance to targets it communicated to the Street, in this case for 7 per cent Canadian retail earnings growth," said analyst Gabriel Dechaine in a note.
However, TD's U.S. retail banking division "exceeded our expectations" with its U.S. personal and commercial (P&C) segment generating 14 per cent adjusted earnings growth. "The business was firing on all cylinders, with 13 per cent year-over-year loan growth, 4 per cent operating leverage and (surprisingly) good margin performance," he said.
"Although TD reported what we believe to be a fine quarter, we have difficulty believing the stock can reverse its year-to-date underperformance. Key considerations: (1) the Canadian P&C segment is falling short of peer results and the bank's own targets; (2) although this quarter's U.S. results were strong, we are less confident on the outlook especially with regards to the margins and a faded [foreign exchange] FX-tailwind; and (3) while TD's valuation isn't expensive, we believe that a lack of catalysts limit re-rating upside potential. While we are increasing our EPS primarily to reflect lower PCLs (offset by weaker margins), we are decreasing our target multiple to 11.5 times from 12.1 times. As a result, our target falls to $59 from $61. With a total implied return of 6 per cent, we believe a 'hold' rating is appropriate."
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The third quarter results of financial services and retail banking company Canadian Imperial Bank of Commerce (CM-T) had a cash earnings per share (EPS) well above estimates "driven by stronger results from capital markets and Canadian banking," says Desjardins Capital Markets analyst Doug Young. "Cash EPS was $2.67, above our estimate of $2.31 and consensus of $2.35."
"In our view, the main positive was the strength of CM's Canadian retail banking franchise, which recorded earnings growth of 6 per cent year-over-year driven by strong loan growth, lower (provision for credit losses) and good expense management. Credit was a non-event; and management provided interesting details on CM's potential risk to a Canadian housing market correction, which we found interesting," Mr. Young said.
The "buy-average risk" rating was unchanged and Mr. Young said it was due to the company's clear and easy to understand, strategy, "management has executed on its domestic banking strategy and we see room for further improvement near-term. Third, we like CM's strategy of having a dividend payout at the top of its 40 to 50 per cent target."
He increased his target price slightly to $110 from $109. The consensus is $100.14 according to Thomson Reuters.
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Wedbush raised its price target on Autodesk (ADSK-Q) to $60 (U.S.) from $57 after the company's second quarter results beat expectations. It also reiterated its "neutral" rating. The consensus is $64.
"ADSK posted an encouraging 2Q beat and guidance raise, which we attribute mostly to a last-chance effort to buy perpetual licenses for ADSK suites with strong attach of maintenance," analyst Steve Koenig said.
"New subscription additions appear to be tracking well, but we remain concerned about deteriorating pricing for ADSK's subscriptions, as evidenced by a continuing decline in average revenue per subscriber (ARPS) and an impending move to lower AutoCAD subscription pricing. We're optimistic that ARPS will begin to increase with the termination of suite perpetual licenses at the start of August, but we think ADSK's model transition faces a variety of demand uncertainties, including the extent of license pull-forward, competitive win rates without a license option, and shifting product preferences within ADSK's portfolio. We're more inclined to be constructive on ADSK shares, but we don't see any rush to accumulate at the present time."
UBS reiterated its "neutral" rating on Autodesk but raised its price target to $66 (U.S.) from $58 after the company's strong earnings report.
Canaccord Genuity kept its "hold" rating on Autodesk and boosted its price target to $65 from $60.
"This company has so many moving parts, many of which remain opaque, that our model, at best, is a rough approximation where too many items are 'last year x 1.15.' To its credit, management acknowledges the complexity and they have responded with greater transparency and a promise to provide clearer metrics at some point in the near future," said analyst Richard Davis.
"In the interim, we can say that our broad checks on this niche of the software industry support our view that Autodesk, while certainly not perfect, has taken the lead in terms of the customer perception that the company is committed to delivering fresh new functionality to a space where many deployments were installed when the first Clinton was President."
"To upgrade a stock we need good fundamentals, a reasonable valuation and a model that has at least some granularity upon which investors can agree or disagree with our work. Autodesk looks like it clears the first two hurdles, so we need to finish the latter. We would assign our massive team of Excel jockeys to accomplish this task – if we had one. We don't, so our answer will be sometime in as near of a future as we can muster. For now, therefore, we remain at 'hold.' "
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BMO Capital downgraded Dollar General (DG-N) to "market perform" from "outperform" and cut its price target to $78 (U.S.) from $95. However, UBS reiterated its "buy" rating for Dollar General but cut its price target to $92 (U.S.) from $101 after the company's second-quarter earnings report. The consensus is $99.71.
"While it was convenient for the market to try and pin DG's slower SSS [same-store sales] (-200 bps below the 2.7 per cent cons) on a share shift to Wal-Mart [WMT], we think that many factors are play," said analyst Michael Lasser.
"It's important to keep in mind that Food at Home CPI deflation reached its most intense level since January, 2010, and there were further reductions in SNAP benefits (even though this accounts for 5 per cent of DG's sales). These two factors accounted for 60-70 bps of comp headwinds alone. Also, DG wasn't alone in seeing a comp slowdown from 1Q to 2Q with HD, LOW, TSCO, ORLY, AAP and WSM all witnessing sequential softness and these retailers are hardly the target of WMT's price investments. Thus, we expect that DG's comp can accelerate as the overall spending environment improves. In the meantime, we think the stock has already priced in a lot of risk."
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Renewable energy projects company Polaris Infrastructure Inc. (PIF-T) "hit a boomer" with its San Jacinto drilling program, says Clarus Securities analyst Stephen Kammermayer. "Polaris has tied in its third expansion well (SJ 9-4) at a restricted flow rate, currently generating approximately 10 million watts, well ahead of our 5 million watts estimate. While still early, the well looks to be one of the larger wells in the field and has the potential to flow more than 10 million watts once fully opened. Once the (well's) pipe is replaced in October and maintenance on the separator unit is complete (in conjunction with planned turbine maintenance) in February 2017, we will have a better idea of the full capacity of the well."
He kept his "buy" rating and increased his price target to $23 from $14.50. The consensus is $15.93.
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In other analyst actions:
CIBC upgraded Golden Star Resources (GSS-N) to "sector perform" from "sector underperform."
Telsey downgraded Viacom (VIAB-Q) to "market perform" from "outperform."
HSBC has upgraded Southern Copper (SCCO-N) to "buy" from "hold."
MKM Partners downgraded Dollar Tree (DLTR-Q) to "neutral."