Inside the Market's roundup of some of today's key analyst actions
Air Canada shares took flight today after Ottawa granted the airline more time to meet its pension funding obligations. CIBC World Markets analyst Kevin Chiang believes the stock has the potential to ascend much further.
The extension of Air Canada’s pension moratorium for seven additional years will improve its cash flow generation and visibility, he said.
“While the pension relief was slightly less generous than what was agreed upon between AC.B and its unions, we view this announcement as a significant positive. The extension will save AC.B $400 plus million/year in cash outflow (assuming the current pro-forma pension deficit),” Mr. Chiang said in a research note.
“This is supportive of the company’s initiative to de-leverage its balance sheet and re-fleeting opportunities,” he said.
Air Canada’s pension moratorium, which had been set to expire by the end of 2013, was extended for seven additional years. Past service payments will be capped at $1.4-billion over the next seven years, or about $200-million on average, with at least $150-million paid in any given year.
The Montreal-based carrier will also freeze executives’ compensation at the rate of inflation, ban special bonuses and limit management incentive programs.
Air Canada shares in afternoon trading were up about 3 per cent at $2.65.
Target: Mr. Chiang raised his price target by $1 to $4 and reiterated a “sector outperformer” rating. The average target among analysts is $3.55, according to Bloomberg data.
Great-West Lifeco Inc. received two analyst upgrades today as the company continued to win applause for its agreement last month to acquire Irish Life Group from the Irish government for $1.75-billion.
“While this deal is not transformational, it does provide incremental earnings growth through 2014,” said CIBC World Markets analyst Robert Sedran as he raised his rating to “sector performer” from “sector underperformer.”
“While the Irish economy remains significantly challenged, the outlook is at least stabilizing. Furthermore, the success of the deal is based on very modest economic growth assumptions, and the deal’s economics are not very sensitive to those variables in any event.”
Desjardins Securities analyst Michael Goldberg upgraded his rating to “buy” from “hold.”
“Great-West remains the lowest risk of the lifecos due to its below-average sensitivity to market variables,” Mr. Goldberg commented. “Irish Life significantly expands Great-West’s Irish platform with low-risk products, strengthened distribution and the potential to increase core earnings in 2014 and beyond.”
Target: CIBC raised its price target by $2 to $29; Desjardins increased its target by $1.50 to $29. The average Street target is $27.90.
Investors have fretted for two years now about declining revenues at Oracle Corp.’s hardware segment, but things are about to change, said Canaccord Genuity analyst Richard Davis.
He upgraded Oracle to “buy” from “hold,” forecasting that hardware revenues will start to increase year-over-year in the next quarter or two.
Oracle trades at a 10 per cent to 25 per cent discount to comparable large-cap software firms IBM and SAP. He thinks that gap is going to narrow, given that “IT spending is perfectly fine and Oracle has a degree of sales momentum that should show up” in next Wednesday’s quarterly results.
Target: Mr. Davis raised his price target to $42 (U.S.). The average analyst target is $38.
Thanks to strong revenues, Aecon Group Inc. delivered a solid fourth quarter that surpassed expectations in spite of lower-than-anticipated margins in both its infrastructure and industrial divisions, commented Desjardins Securities analyst Pierre Lacroix.
Aecon, which also announced plans to hike its dividend, did see a drop in its work backlog during the quarter, but the company believes it will be able to win multi-year projects in its key end markets.
“We continue to believe ARE offers investors good exposure to mega-projects throughout the Canadian construction industry, with diversified exposure to the eastern and western regions in the transportation, energy and resources sectors,” he said. “As project margins expand, management remains keenly focused on delivering bottom-line growth in 2013 and 2014.”
Target: Mr. Lacroix raised his price target by $1.50 to $16 and maintained a “buy” rating. The average analyst target is $15.55.
Raymond James analyst Ben Cherniavsky upgraded Rocky Mountain Dealerships Inc. to “outperform” from “market perform” after the company’s latest quarterly earnings beat Street expectations.
The better-than-expected profit resulted from a big boost in new machines sales.
“Management indicated that they have been very aggressive in pursuit of market share, which is evident in the strong new machine sales growth,” commented Mr. Cherniavsky.
But he said this has also resulted in underperforming gross margins, inflated used inventory levels and an increase in debt.
He said these negative factors are reflected in Rocky’s discounted valuation, and he likes the company’s exposure to the agriculture market.
Target: Mr. Cherniavsky raised his price target by $2 to $15. The average Street target is $16.19.
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities