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.
UBS has downgraded and cut price targets on several offshore drilling companies, worried that a “short-term bubble” may be forming as a result of a flood of new rig capacity.
UBS analyst Angie Sedita slapped “hold” ratings on Diamond Offshore Drilling Inc., Ensco Plc, Noble Corp. and Transocean Ltd. They were previously rated “buy.” She maintained a “buy” rating on a fifth drilling company she covers, Rowan Cos. Inc.
“Today we are increasingly cautious on the intermediate-term outlook for the floater market, which we believe will translate to modest multiple compression,” Ms. Sedita said in a note.
“We believe the long-term demand for the ultra-deepwater market is strong and growing. However, over the near-term a substantial amount of newbuild rig capacity is entering the market and we believe there is risk to the mid-water and deepwater markets both for utilization (idle time between contacts) and potentially some dayrate softness on the lower specification, non-harsh environment rigs,” she added.
Targets: UBS price targets of the firms are now as follows: Diamond Offshore $68; Ensco $60; Noble $41; Transocean $49; Rowan $43.
CIBC World Markets analyst Brad Sturges downgraded Partners Real Estate Investment Trust to “sector underperformer” from “sector performer,” reflecting above-average risks compared to its peers.
Some of these risks include the REIT’s high financial leverage of 66 per cent, versus 49 per cent for its Canadian shopping centre peers, and its external management structure, he said. Mr. Sturges also notes its distribution to unit holders exceeds his 2013 and 2014 estimates for adjusted funds from operations.
Target: Mr. Sturges cut his price target to $6.50 from $7.25. The average target among analysts is $7.35, according to Bloomberg data.
Susquehanna analysts downgraded Target Corp. to “neutral” from “positive” amid concerns about softening sales.
They believe Target sales from the second quarter of 2013 to the fourth quarter of this year will be weaker than expected in the “challenging” retail environment.
“In the event sales fall short, we do believe management will do an effective job of protecting earnings,” MarketWatch quoted Susquehanna analysts as saying. “Nevertheless, we believe the current valuation affords little flexibility and think sales shortfalls could have a disproportionate impact on valuation.”
Target: Susquehanna has a price target of $73 (U.S.). The average target is $73.54.
If Aureus Mining Inc. is able to secure financing to develop its high-grade New Liberty gold deposit in Liberia, RBC Dominion Securities analyst Jonathan Guy says it should provide a “key short-term catalyst” for shares in the African gold miner.
The financing has been delayed but management has said it expects to finalize the $110-million (U.S.) in project debt in the fourth quarter, he said.
New Liberty is one of the highest grade open pit gold projects in Africa and is poised to produce up to 132,000 ounces of gold a year when the mine enters production in 2015, noted Mr. Guy.
Target: Mr. Guy lowered his price target to $1.30 (Canadian) from $1.75 and rates the company as “outperform.” The average price target is 94 cents, according to Bloomberg data .
Despite record breaking rainfall in western and central parts of Alberta, Canyon Services Group Inc. has been keeping busy in the fracturing business, said Raymond James Analyst Andrew Bradford.
“We think Canyon has considerable torque to any uptick in Canadian fracturing demand,” said Mr. Bradford. “While we still see risk in the ‘conventional oilpatch’, we think that the unique focus on Canada makes it a differentiated investment choice.”
Target: Mr. Bradford is maintaining his “outperform” rating for the company and his price target of $14 (Canadian), which matches the average Street target.
Although management of IMRIS Inc. remains confident about the long-term outlook for the medical supply company, the near-term volatility has RBC Dominion Securities analyst Douglas Miehm more than a little concerned.
While $6.2-million (U.S.) in new orders recorded in the second quarter of 2013 was is a big improvement over the $1-million (U.S.) in the previous quarter, it was still “disappointing,” said Mr. Miehm.
“Considering the likely need for additional capital, we prefer to wait on the sidelines until significant new orders materialize,” he said.
The longer-term outlook does look good for the company, said Mr. Miehm, but in the short term the stock is likely to perform in line with peers.
Target: Mr. Miehm cut his price target to $3 (U.S.) from $4. The average target is $4.20 (U.S.)
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities