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.
Facebook Inc. shares are up more than 5 per cent at midday after being treated to two upgrades from analysts who suggest now is a good time to buy stock in the social networking giant.
Jefferies raised its rating to “buy” from “hold,” and increased its price target to $32 (U.S.) from $31. It believes current valuation looks attractive, especially ahead of its launch of video advertising.
“We think recent pressure on the stock has created a buying opportunity ahead of the expected July launch of video ads, which could be the company’s next billion-dollar business,” StreetInsider.com quoted Jefferies analysts as saying. “Longer-term, we expect FB will enjoy nice operating leverage as it deploys new ad products across its massive 1-billion-plus user base.”
Meanwhile, BMO Nesbitt Burns upgraded Facebook to “outperform” from “market perform” and raised its target to $33 from $32.
Analyst Dan Salmon said his checks over the past week suggest sentiment around Facebook advertising remains “quite positive,” thanks in part to improved customer service. “Investor sentiment has grown overly negative on long-term usage concerns of younger users; we agree with this risk, but believe the Street is underestimating the ‘portfolio of social networks’ strategy that is emerging to address this over the long term,” he said.
Mr. Salmon also sees upgraded video advertising as a potential catalyst for the stock going forward. And “we could also see upside to our estimates from a better-than-expected ramp of Facebook Gifts into the holiday season, while the long-term opportunity to monetize Instagram (with ads or otherwise) remains a material one,” he said.
Target: The average target among analysts is $33.82 (U.S.), according to Bloomberg data.
Canaccord Genuity analyst David Tyerman is no longer recommending investors sell their shares of Canadian Pacific Railway Ltd.
He upgraded the stock today to “hold” from “sell,” citing the company’s prediction this week that a key metric for profitability will soon achieve the most favourable level in the industry.
Speaking on BNN Monday, CP CEO Hunter Harrison said CP should be able to achieve “crossover” – the point at which the railway would achieve the lowest operating ratio in the industry – in 18 months. Operating ratio is a measure of productivity by taking into account how much revenue is required to maintain operations, and the lower the number, the better.
“We think this means that CP is expecting to achieve an OR in the mid-60 per cent range in 2015, based on our subsequent discussion with CP,” Mr. Tyerman said in a note.
“We are now modelling a 65.1 per cent OR in 2015, which is about 3 per cent better than our previous forecast. We are also modelling CP’s OR to reach the 62 per cent range in the 2017-18 timeframe, also roughly 3 per cent better than our previous forecast,” he said. “We believe the company has a good chance of hitting its goals.”
He added, however, that he doesn’t expect “compelling” share price appreciation from current levels, and there is downside risk if the improvement in the operating ratio doesn’t materialize.
Target: Mr. Tyerman raised his price target to $137 (Canadian) from $111. The average target is $130.47.
Raymond James analyst Luc Mageau downgraded Strategic Oil & Gas Ltd. to “outperform” from “strong buy” after the company’s first-quarter earnings missed expectations.
The company saw lower production than anticipated and some operating and transportation costs were also significantly higher.
Still, Mr. Mageau sees reason for optimism.
“This is the second consecutive quarter that Strategic has posted a miss; however we are still optimistic about the long-term prospectivity of the asset base,” he said. “Most of the issues causing the miss in the first quarter were surface related and below ground performance still seems to be on track.”
Target: Mr. Mageau cut his price target to $1.40 from $1.75. The average target is $1.69.
The 2013 drilling season is expected to ramp up slower than in previous years as mining companies reduce exploration spending. That will make for a challenging year for Major Drilling Group International Inc., but the company still has a lot of things working in its favour, said RBC Dominion Securities analyst Sam Crittenden.
“We believe MDI is well positioned among drilling peers given its strong balance sheet ($30-million cash net of debt), 2.8 per cent dividend yield, and high percentage of business with senior miners (80 per cent),” said Mr. Crittenden.
Target: Mr. Crittenden cut his price target by $2 to $9 and reiterated a “sector perform” rating. The average target is $10.39.
UBS analyst Julien Dumoulin-Smith downgraded Teco Energy Inc. to “sell” from “neutral,” unimpressed with the company’s plans to acquire New Mexico Gas for $950-million.
He thinks the deal appears pricey under most metrics that he uses, and provides little by way of synergies other than gas marketing expertise. “The transaction both confirms the more limited earnings growth opportunity and suggests downside risk to our estimates,” he said.
Target: Mr. Dumoulin-Smith cut his price target by $1 to $16 (U.S.). The average target is $18.22.
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @ eyeonequities