Market Blog's roundup of some of today's key analyst actions
Sun Life Financial Inc. shares have risen more than 15 per cent since the end of July. Desjardins Securities analyst Michael Goldberg thinks that’s about as far as the stock is going to ride over the near term given the low interest rate environment. He downgraded Sun Life today to “hold” from “buy” while reiterating a $24 price target.
Life insurance companies generate most of their profits from the returns on investment portfolios that can provide funds for paying future claims. The low interest rates have limited insurance companies’ returns for years now.
Nevertheless, TSX-listed insurers have provided very decent year-to-date returns, gaining 9.6 per cent as a whole versus a more modest 3.0 per cent for the S&P/TSX composite.
“Until interest rates increase to more stable levels and equity market volatility subsides, we expect that Canadian lifeco stocks will continue to move in tight correlation with fluctuations in bond yields and equity markets (and to a lesser extent credit spreads) rather than with company fundamentals,” Mr. Goldberg said in a note.
“In the near term, we prefer lifecos that have relatively low sensitivity to interest rates on the downside and relatively high sensitivity to interest rates on the upside, strong capital levels, potential for core earnings growth and management strength.”
He recommends both Industrial Alliance Insurance and Financial Services Inc. and Manulife Financial Corp., feeling especially upbeat about their long-term prospects. “Both companies have taken proactive measures to re-price certain products and to increase sales in higher-margin, lower-risk products,” he said.
As such, he raised his price target on Industrial Alliance to $28.50 from $27. His price target remains at $13 on Manulife. Both stocks are rated as buys.
Desjardins Securities analyst Keith Howlett has upgraded Jean Coutu Group (PJC) Inc. to “buy” from “hold,” after the company modestly beat earnings expectations for its fiscal second quarter. Even though Quebec generic drug reforms hurt sales revenues, the company saw volume growth thanks in part to more patients using generics, he said.
Upside: Mr. Howlett raised his price target by $1 to $16.
CIBC World Markets has downgraded oil and gas producer Arcan Resources Ltd. to “sector performer” from “sector outperformer” because of recent disappointing well results and a “strained” balance sheet. “With these issues, we expect Arcan will struggle to keep volumes flat in 2013. Given a lack of production growth, we believe there is no reason to be in the equity,” said CIBC analyst Adam Gill.
Upside: Mr. Gill also cut his price target to $1.45 from $1.90.
With booking orders for the upcoming holiday season up 12 per cent, the outlook for growth in Bauer Performance Sports Ltd.’s core ice hockey business remains solid, said CIBC World Markets analyst Mark Petrie. Meanwhile, the company has announced the purchase of a small Toronto-based uniform supplier named Inaria, which will bring Bauer a new level of expertise in the team apparel segment in North America, he said.
Upside: Mr. Petrie raised his price target by 50 cents to $12.50 and reiterated a “sector outperformer” rating.
Raymond James analyst Rafi Khouri downgraded Porto Energy Corp. to “underperform” from “market perform.” The stock surged after an operational update Monday on the drilling of the Alcobaça-1 Presalt well in Portugal, which provided some encouraging preliminary indications of a significant find. “Based on the limited amount of new information provided on Monday, we have little conviction that the sharp increase in Porto’s share price is underpinned by a fundamental change in the company’s underlying value,” he said.
Downside: Mr. Khouri maintained a 15-cent price target.
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