The one Canadian life insurance stock worth buying, according to Canaccord

The Globe and Mail

Manulife Financial headquarters in Toronto. The company reports earnings on Thursday. (KEVIN FRAYER/Canadian Press)

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.

Canaccord Genuity has jacked up its price targets on the four largest Canadian life insurance companies – but still thinks there’s only one stock investors should buy: Manulife Financial Corp.

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Life insurance stocks have been one of the few bright spots for the TSX in recent weeks as Federal Reserve bond-tapering talk drove up bond yields. While rising interest rates can hurt corporate earnings growth in general, they are good news for insurers who derive profits from rising yields on the bonds they must hold as investments.

Manulife has already risen about 25 per cent over the past three months, but Canaccord analyst Mario Mendonca thinks it still has good upside potential and remains one of the research firm’s top overall stock picks.

He likes Manulife’s improving core earnings power and its growing exposure to the wealth management business, especially in Asia. He also notes it has the highest exposure to a strengthening U.S. dollar and higher U.S. rates.

And he’s particularly encouraged about the stock's valuation when compared to peers.

“At 10.4 times our 2014 estimated core earnings per share, Manulife traders at a substantial discount to the other insurers, include Sun Life Financial, which trades at 12.1 times our core 2014 estimated EPS,” Mr. Mendonca said in a research note. “We continue to believe that on valuation alone, a pair trade favouring Manulfe over Sun Life ,ales sense at this time.”

He raised his Manulife earnings per share forecast for 2014 to $1.68 from $1.61.

Target: Mr. Mendonca increased his price target on Manulife to $19 from $17.50. The average price target among analysts is $17.85, according to Bloomberg data.

He rates Sun Life, Great West Lifeco Inc. and International Alliance Insurance and Financial Services Inc. all as “hold.”

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The launch of the Samsung Galaxy S4 has taken market share away from the iPhone at a time when demand for high-end smartphones in general is softening, Canaccord Genuity analyst T. Michael Walkley warned today as he cut his price target on Apple Inc.

Based on negative trends uncovered in Canaccord’s most recent global handset survey, Mr. Walkley reduced his iPhone sales estimates for the second half of this calendar year. His iPhone sales estimates for Apple’s fiscal fourth quarter, which ends at the end of September, were slashed to 28 million from 30 million. For the next fiscal year that starts in October, he now sees 173 million units sold, down from 181 million.

“Our global handset surveys indicated the iPhone has lost sell-through market share post the launch of the Samsung Galaxy S4,” Mr. Walkley said in a research note. “Further, with Samsung reporting high-tier smartphone sales below market expectations and already reducing prices of the Galaxy S4, our survey work indicates softening demand for high-tier smartphones.

“Given this, and the uncertain timing for the launch of an iPhone 5S and mid-tier iPhone, we are lowering our second half calendar year 2013 iPhone estimates,” he added.

He now sees Apple earning $39.29 a share in the fiscal 2013, down from an earlier estimate of $40.12. He cut his fiscal 2014 earnings forecast to $44.04 from $46.80.

But Mr. Walkley emphasized that while he doesn’t see much in terms of near-term gains in the stock, he is still bullish on Apple and reiterated a “buy” rating. The surveys, conducted in June, showed that the iPhone 5 remains a top selling global smartphone.

“Longer term, we maintain our belief Apple has a strong product pipeline, including a refreshed iPhone 5S, mid-tier iPhone, and iPad lineup that should result in re-accelerating earnings growth during fiscal 2014,” he said.

Target: Mr. Walkley cut his price target to $530 (U.S.) from $560. The average target is $531.41.

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At least one analyst is scaling back his targets on Alimentation Couche-Tard Inc. after the convenience store operator reported adjusted earnings this week that were well below Street forecasts.

“The company recorded a number of upfront costs during the quarter related to IT infrastructure and ERP (enterprise resource planning) implementation in Europe,” commented Canaccord Genuity analyst Derek Dley. “These items limited earnings growth during the quarter, but Couche-Tard expects to derive significant gains from these initiatives going forward.”

He found comfort in Couche-Tard reiterating its forecast for $150-million to $200-million in cost-saving synergies by the end of fiscal 2015 arising from its acquisition last year of of Statoil Fuel and Retail.

“Couche-Tard’s balance sheet remains robust, with the company commenting that it has current liquidity of roughly $1.6-billion,” added Mr. Dley. Aided by that strong balance sheet, he believes Couche-Tard is in discussions with various parties concerning future acquisition opportunities.

Target: Mr. Dley cut his price target to $68 from $70 and reiterated a “buy” rating. The average target is $64.75.

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Jean Coutu Group (PJC) Inc.’s significant accumulation of cash will likely prompt the company to pay a special dividend or make a significant acquisition, said BMO Nesbitt Burns analyst Peter Sklar.

“The potential for either of these outcomes should have a positive impact on the stock price,” said Mr. Sklar.

Target: Mr. Sklar raised his price target to $20 from $18 and reiterated an “outperform” rating. The average target is $17.75.

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As a small-cap, pure-play copper producer, Taseko Mines Ltd. offers higher leverage to copper commodity prices relative to the larger, diversified producers, said Desjardins Securities analyst Jackie Przybylowski.

Meanwhile, given that its flagship Gibraltar mine is a mature asset, the risks and uncertainties associated with the financing, construction and ramp-up of new development are mitigated, she noted.

Target: Ms. Przybylowski initiated coverage with a "buy" rating and a $4 price target. The average target is $3.75.

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Macquarie Capital analyst Liz Dunn cut her price target on Lululemon Athletica Inc. today to $62 (U.S.) from $74, citing concerns that the retailer still has not completely resolved the issue of its Luon pants being too sheer. Michael Babad has more in today's business briefing.

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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @ eyeonequities

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