Inside the Market's roundup of some of today's key analyst actions
Two of the most widely held dividend stocks in the U.S. were slapped with analyst downgrades today.
JPMorgan downgraded heavy equipment maker Caterpillar Inc. to “neutral” from “overweight” as it sliced its price target to $90 from $109 (U.S.).
"We cannot overlook the continued pressure the mining sector is facing to reduce capex, as well as the re-election of President Obama and the impact this could have on the U.S. coal and energy sectors," analyst Ann Duignan said in a note to clients, according to MarketWatch.
She’s also reportedly concerned that Caterpillar doesn’t have the balance sheet to support share repurchases that could boost earnings per share.
Johnson & Johnson, meanwhile, was downgraded to “hold” from “buy” at Jefferies, with its price target cut to $75 (U.S.) from $78. Jefferies believes the easy money has been made in the stock.
"We upgraded J&J to Buy in June on the back of the re-engineered financing of the Synthes merger, which was highly accretive in our view,” Jefferies was quoted by StreetInsider as saying. “We looked for the shares to re-rate to a 10-15 per cent market premium from the 1 per cent discount at the time. Most of this move has occurred now and with the MD&D day postponed and reimbursement pressures intensifying we see the shares as fairly valued."
Encouraged by the company’s latest quarterly results that showed strong growth in its wireless division, Desjardins Securities upgraded Telus Corp. today to “buy” from “hold.”
Telus Friday reported third-quarter revenue growth of 5.8 per cent and diluted earnings per share of $1.07, largely matching analysts’ expectations. Free cash flow jumped 23.5 per cent, which gave the company ample room to hike its quarterly dividend by 5 per cent to 64 cents.
“We expect Telus to post solid wireless performance metrics next year and to deliver significant wireline data revenue growth on the back of IPTV and Internet,” commented Desjardins analyst Maher Yaghi. “As the wireless division should continue to perform strongly next year, we also see significant potential for the trajectory of wireline EBITDA to turn drastically in coming years given strong data revenue growth.
“We continue to believe Telus’s free cash flow growth profile will allow it to implement annual dividend increases of 10 per cent and that the stock will continue to attract dividend-seeking investors,” he said.
Upside: Mr. Yaghi raised his price target to $69 from $64.
It’s time to buy shares of Atlantic Power Corp., after the stock dropped about 19 per cent over the past week, says Desjardins Securities analyst Jeremy Rosenfield.
“The risk-reward opportunity is compelling at current levels,” he wrote, pointing out that he considered the pullback overdone. “The shares have slid well below what we consider to be a reasonable floor prices (ie, $14), to the point where the intrinsic value of ATP’s cash flows now outweighs the risks associated with generating those cash flows in the future.”
The company “can maintain its current dividend as it pursues near-term growth opportunities; we believe the company would likely look to cut the dividend only if it cannot achieve accretive growth for an extended period of time (ie, more than a year).”
Upside: Mr. Rosenfield upgraded the stock to “buy” from “hold” and has a $16 price target.
Pan American Silver Corp. offers investors “modest growth” in 2013 and is already trading at a discount to most silver and gold producers, says CIBC World Markets analyst Barry Cooper.
“Government restrictions on imports and cash repatriation led to the deferral of some components of mining in Argentina. We like this strategy as it allows Manantial Espejo to be set up for optimum mining when conditions improve,” likely in 2013, Mr. Cooper wrote, referring to Pan American’s first mine in the country, in a note titled It's The Pits In Argentina.
“Unfortunately with a market thinking short term in politically risky regions, the reward for such a strategy is to sell the stock. Nevertheless, we think that silver stocks will enjoy a strong four-month run, as in the past decade, 66 per cent of the gains for the year have occurred between now and March.”
Upside: Mr. Cooper raised his price target to $25 from $21 and rates the stock “sector perform.”
Canadian Apartment Properties REIT should trade at a premium to its net asset value because of its strong internal growth, said Canaccord Genuity analyst Mark Rothschild.
The REIT reported exceptionally strong third-quarter results as it lowered costs and boosted income in the third quarter. “The growth was from a combination of same-property net operating income as well as lower interest expense from refinancing debt at lower rates, and an increase in investment income.”
Upside: Mr. Rothschild raised his target price to $26.50 from $26.00 and his rating to “buy” from “hold.”
CIBC World Markets analyst Jacob Bout downgraded Alliance Grain Traders Inc. to “sector performer” after the company’s latest earnings came in below Street forecasts. The miss was blamed on lower demand for core products, especially red lentils, as well as lower margins as the company changed its product mix in order to utilize excess capacity.
Upside: Mr. Bout cut his price target by $2 to $15.
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities