Inside the Market's roundup of some of today's key analyst actions
Canaccord Genuity analyst T. Michael Walkley has become the latest analyst to weigh in on Research In Motion Ltd.’s turnaround prospects with the arrival of its BlackBerry 10 devices – and he’s not optimistic.
Mr. Walkley downgraded RIM today to “sell,” arguing that “fundamentals” do not support the stock’s recent share price appreciation. His price target is $10 (U.S.), which is $2 higher than his previous projection made in June.
“While initial sales of higher-ASP (average selling price) BlackBerry 10 smartphones should improve RIM’s January and May quarter device sales and ASP mix, our checks and analysis of the global competitive landscape suggest a very low probability BlackBerry 10 sales can turn around RIM’s long-term business trends,” Mr. Walkley said in a research note.
“While we believe BB10 is a dramatically improved user experience versus BB7 and RIM’s new hardware is more competitive with higher-end smartphones, our checks do not indicate the consumer pull, carrier push or developer excitement necessary for BlackBerry 10 to reverse the challenging trends faced by RIM in order to return the company to sustained profitability,” he said.
“We do not believe BB10 will return RIM to sustained profitability.”
Also troubling is that Canaccord’s latest checks with carriers suggest consumer demand for RIM’s existing smartphones is on the wane. “Our November checks indicated very weak global sell-through trends for BlackBerry 7 smartphones with many Western carriers stocking minimal inventory levels due to soft demand. Further, our checks indicated strong iPhone 5 and high-tier Android smartphones sales with little channel excitement about the January BB10 launch.
The popularity of BlackBerry products in emerging markets is often cited as a factor working in RIM's favour. Yet, Mr. Walkley's checks suggest increasing momentum for Android smartphones selling for less than $200 (U.S.) in emerging markets, and he expects increased competitive pressure for BlackBerry 6 and 7 models overseas.
"While our checks indicate BlackBerry is still very popular in certain international markets such as Indonesia, India, Venezuela, and several others where BBM loyalty remains strong, we believe RIM’s share in these markets may be unsustainable given the increasing Android competition," he said.
The Street is deeply divided on RIM’s chances for success with the BlackBerry 10. Some analysts, including those from Goldman Sachs, CIBC World Markets, Jefferies & Co. and National Bank suggest the stock’s risk/reward ratio has become more favourable with the BlackBerry 10. Many others, including Morgan Stanley and Wedge Partners, suggest it’s too little, too late.
RIM shares, which initially opened down nearly 2 per cent, are trading near unchanged at mid-morning.
Goldman Sachs upgraded Dell Inc. to buy from sell, expecting that market sentiment for the personal computer maker could begin to perk up in 2013. Analyst Bill Shope said that while there has been a shift to mobile and cloud computing, many investors and analysts are being overly skeptical about the personal computing segment.
"While we expect companies more exposed to traditional PCs like Dell will face continued pressure, we believe that expectations have become too bearish and imply an overly draconian outlook for the computer market," Mr. Shope said.
He also likes the “downside buffer” provided by Dell’s cash position.
Upside: Mr. Shope raised his price target to $13 (U.S.) from $9.
H&R Real Estate Investment Trust’s current price does not reflect its “high-quality portfolio, trading liquidity, limited leasing risk or earnings visibility,” according to National Bank Financial analyst Heather Kirk.
The REIT will have “unencumbered assets” worth close to $500-million after repaying about $70 million in mortgages in February, Ms. Kirk pointed out. It also has “significant liquidity” of about $745-million, which provides room for acquisitions.
Upside: Ms. Kirk rates the stock “outperform” and has a target price of $28.35.
RBC Dominion Securities analyst Robin B. Kozar downgraded Champion Iron Mines Ltd. to “sector perform” from “outperform,” citing near-term uncertainties surrounding its Fire Lake North project in Quebec. The company announced a slight delay in the release of the study to January, which resulted in Mr. Kozar pushing back his estimated start-up for the project from 2015 to mid-2016.
“Given increasing near-term uncertainty, including potential cost escalations in CHM’s upcoming feasibility study, financing and balance sheet risk, and uncertainty over the timing of rail solutions, we expect CHM’s shares to remain rangebound between $0.40 - $0.70 over the next 6-9 months,” Mr. Kozar said. But he added that “longer term, Champion's growth prospects and take-out potential remain intact.”
Upside: Mr. Kozar cut his 12-month price target to $1.10 from $1.50.
RBC’s Mr. Kozar upgraded Labrador Iron Ore Royalty Corp. to “outperform” from “sector perform,” expecting higher production volumes and lower costs to drive growth in free cash flow in 2013.
“LIF’s royalty stream provides investors with excellent leverage to iron ore while limiting exposure to rising input costs. In the near term, we expect rising sustainable sales volumes, lower unit costs and reduced capital requirements to provide a meaningful boost to LIF's distributions,” Mr. Kozar said.
Labrador Iron Ore owns a 15.1 per cent equity stake in Iron Ore Company of Canada and receives royalties and commissions from the producer.
Upside: Mr. Kozar raised his price target by $2 to $35.
Canaccord Genuity analysts are giving Lululemon Athletica Inc. a strong vote of confidence ahead of its third-quarter earnings report Thursday, with an initial “buy” rating and $91 (U.S.) price target. Read more here from Michael Babad’s Top Business Stories.
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities