Inside the Market's roundup of some of today's key analyst actions
Citing disappointment over the lack of sales momentum for Windows 8 software, Merrill Lynch today downgraded Microsoft Corp. to “neutral” after having recommended the stock as a “buy” for nearly five years.
“We were hoping that MSFT would make a bold foray with Windows 8 into smartphones and tablets,” analyst Kash Ragan said in a research note. “Conventional product cycle wisdom dictates that the stock should peak before a Windows launch, but we remained optimistic because the limited availability of touch-based devices impaired an objective assessment of Windows 8. Now, six months post launch, despite more available touch-based devices, Windows 8 lacks momentum, challenging our optimism.”
Mr. Ragan cut his revenue and earnings per share estimates for fiscal 2013 and 2014. He now sees EPS of $2.77 this year, instead of $2.91. He now forecasts revenue for this year of $79.32-billion instead of $79.98-billion.
Target: Mr. Ragan trimmed his price target to $33 (U.S.) from $35. The average price target among analysts is $32.83, according to Bloomberg data.
RBC Dominion Securities analysts have downgraded Lululemon Athletica Inc. to “sector perform” from “outperform,” commenting that the announcement Wednesday of the departure of its chief product officer “brings a new level of uncertainty” to the company.
Analysts Howard Tubin and Tal Woolley made clear the downgrade was directly in response to Sheree Waterson leaving the company.
“Ms. Waterson has been at the company since 2008 and, in our view, has been a strong creative asset. We believe she was instrumental in the design process for the last 5 years and was also a strong creative leader,” the analysts wrote.
“While we continue to believe Ms. Waterson has a solid design team in place, the loss of her creative leadership adds a new level of uncertainty to the story. We prefer to move to the sidelines with our rating until we have better visibility on future product direction.”
RBC said it continues to view Lululemon as “an exceptional and differentiated brand with significant growth prospects ahead” and did not adjust any of its earnings estimates. But it conceded the stock has become riskier given the latest developments, which include the fiasco of pulling many of its signature black women’s yoga pants from stores beause they were too see-through.
Target: RBC cut its price target by $10 to $70 (U.S.). The average target on the Street is $73.12.
D-Box Technologies Inc. ‘s commercial theatre business has shown disappointing results, with lower-than-expected recurring revenues per auditorium despite high-quality films from studios, said Canacord Genuity analyst Aravinda Galappatthige.
“Moreover, new signings have slowed down considerably. We would need to see a meaningful uptick in recurring revenues alongside more robust signings before we could potentially recommend buying the stock,” he said.
Target: Mr. Galappatthige downgraded D-Box to a “hold” from “speculative buy” and slashed his price target to 20 cents (Canadian) from 60 cents. The average price target is 53 cents.
Canaccord Genuity analyst T. Michael Walkley believes Sumsung’s aggressive push to sell its REX feature phones, and an abundance of Android smartphones from Chinese and Indian original equipment manufacturers, is taking a bite out of Nokia Corp. ‘s sales.
Samsung probably gained market share in the first quarter of this year, particularly in India after the launch of the REX phones, said Mr. Walkley, who now predicts Nokia will post a loss per share of 7 cents this year, wider than his earlier estimate of 2 cents. He now thinks Nokia will only be able to post earnings per share of 3 cents in 2014, down from his earlier forecast of 11 cents.
“We maintain our belief 2013 remains a challenging transitional year for Nokia, as we believe Lumia sales must ramp and Windows 8 must prove itself a viable third ecosystem in order to offset the secular declining Mobile Phone business. In fact, we view Nokia’s ability to ramp its Windows 8 Lumia sales, maintain positive operating margins in its Mobile Phone business unit, and NSN's (Nokia Siemens Networks) ability to sustain the recent strong results as critical aspects for Nokia’s potential long-term recovery,” he said.
Target: Mr. Walkley cut his price target by 50 cents to $3.50 (U.S.). The average price target is $4.08.
Tahoe Resources Inc. has received a long-awaited final mine exploitation licence for its flagship Escobal silver project in Guatemala, prompting Raymond James analyst Chris Thompson to upgrade the stock to "outperform."
“We believe the licence removes an overhang on the stock, as its issuance had been delayed and subject to significant controversy from local communities and NGO groups,” he said.
But Mr. Thompson warns it may still be a bumpy road ahead for developing the project, as opposition to it in the local community remain.
Target: Mr. Thompson raised his price target by $2 to $23. The average target is $25.68.
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