Inside the Market's roundup of some of today's key analyst actions
The Street is almost unanimous in calling Suncor Energy Inc. a buy right now. And today, bullish sentiment among analysts grew even louder, with UBS Securities naming the Canadian oil sands producer to its “key call” shortlist. Key calls are a handful of stocks that UBS has the highest conviction will rise and outperform peers over the next 12 to 18 months. In Canada, there are only four other stocks with that recommendation.
“We forecast increasing operating momentum from rising oil sands volumes, improving upgrader reliability, and an expectation for moderating operating cash costs,” UBS said in a note.
The brokerage notes that Suncor has an “exceptionally strong” balance sheet, with net debt to cash flow expected to hit 0.5 times at the end of this year. The peer group average is 1.3 times. Shares also trade below peers using other valuation metrics, including enterprise value in relation to debt-adjusted cash flow (4.3 times based on UBS 2013 estimates, compared to the group average of 6.3 times).
“With its balance sheet strength, we see a strong potential for continued dividend increases as the company demonstrates its focus on capital efficiency and capital allocation,” UBS added.
UBS analyst George Toriola has a $48 (Canadian) per share price target on Suncor. That’s higher than the average analyst one-year price target of $42.09.
But UBS is far from alone in recommending the stock, with 21 analysts giving Suncor a buy rating, according to Bloomberg data. Only three rate it as a hold. No analyst is recommending the stock as a sell.
UBS’s other key calls in Canada are: Bank of Nova Scotia, Barrick Gold Corp, Magna Interational Inc., and MEG Energy Corp.
Canaccord Genuity has downgraded Calfrac Well Services Ltd. to “hold” after shares appreciated by about 25 per cent since their lows in July. “We think Street expectations are still too high for the pressure pumping players,” commented analyst John Tasdemir. Significant lower year-over-year Canadian drilling levels and a continued decline in U.S. activity have put pressure on utilization levels and pricing among oilfield services providers, he noted.
Downside: Mr. Tasdemir cut his price target to $26.
UBS analyst Phil Skolnick downgraded Talisman Energy Inc. to “hold” from “buy,” believing the company will now have a tough time selling itself in light of Ottawa’s rejection of the takeover of Progress Energy by Malaysia’s Petronas. “We believe the perceived reduced take-out potential makes this a less exciting story to get new money interested in the stock over the next six to 12 months,” he said.
Downside: Mr. Skolnick cut his price target to $14.75 (U.S.).
Niko Resources Ltd. has indicated for the first time that it may issue equity to pay off $310-million in convertible debentures that expire at year-end. Canaccord Genuity analyst Christopher Brown is lowering his expectations for the stock given the possibility of the action, which would dilute shareholder value.
Upside: While affirming his rating as a “buy,” Mr. Brown cut his price target by $5 to $21.
Endeavour Mining Corp. has closed the acquisition of Avion Gold, giving the company a significant boost in current production and a much improved growth profile over the next three to five years, commented Canaccord Genuity analyst Nicholas Campbell. He sees production growing from 324,000 ounces of gold in 2013 to 431,000 ounces in 2014 through new development.
Upside: Mr. Campbell raised his price target to $4.70 from $3.50 and reiterated a “speculative buy” rating.
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities