Inside the Market's roundup of some of today's key analyst actions
Facebook Inc. reported better-than-expected fourth-quarter profit late Wednesday and a near doubling in advertising revenue. The reaction from analysts? At least four downgrades.
Mobile advertising is widely seen as key to the company’s future given the rush of users to that platform. Facebook said its mobile business accounted for 23 per cent of its total ad revenue, up from 14 per cent in the third quarter — but some on Wall Street set the bar even higher in their expectations.
Dan Salmon of BMO Nesbitt Burns downgraded the stock to “market perform” from “outperform” and reiterated a $32 (U.S.) price target.
Unlike much of the Street, he thinks Facebook’s stock performance this year won’t be dictated by mobile growth — that’s what the stock has already traded on over the past few months.
“In-line mobile results this quarter suggest that catalyst is complete (for now),” Mr. Salmon said in a research note. “For FB stock to go higher, we believe new catalysts must emerge.”
He’d like to see more details about video advertising products, how it will make more money from Instagram, and Facebook’s new gift cards business before continuing to recommend the stock.
Citigroup analyst Neil Doshi also downgraded Facebook, to “neutral” from “buy,” concerned that mobile ads appear to be “cannibalizing” desktop sales.
“We view FB as a core long-term ‘Net stock. But with plans to invest heavily in the biz in 2013, and little expected contribution from new initiatives like Gifts or Graph Search, we don't see any near-term catalysts for the stock,” Mr. Doshi said.
Other brokerage houses to downgrade Facebook after the quarterly earnings include Jefferies and Stifel Nicolaus. Both now rate the stock as a “hold.”
There are plenty of analysts still suggesting investors purchase shares though: there are 23 buy ratings on Facebook, 15 holds and only 2 sells, according to Bloomberg data. The average price target among analysts is $34.29.
Trading in Facebook shares had been volatile since the earnings were released Wednesday night. After opening down more than 8 per cent this morning, shares are flat at mid-afternoon.
Raymond James analyst Kafi Khouri upgraded Niko Resources Ltd. by two notches, to “outperform” from “underperform,” citing increased speculation that the government of India will soon bump up the price of natural gas sold from the D6 block.
Niko has a 10 per cent stake in the block. Mr. Khouri raised his net asset value estimate on Niko to reflect the higher probability that the company will develop its contingent resources on the back of the potentially higher gas pricing.
“We recommend investors with a high tolerance for risk add shares at current levels,” he said.
Upside: Mr. Khouri raised his price target to $13 from $8.
Shares in Gildan Activewear Inc. have soared 74 per cent over the past year. RBC Dominion Securities analyst Tal Woolley believes the rally may now take a breather and downgraded the clothing manufacturer to “sector perform” from “outperform.”
“Based on current valuation, near-term earnings per share visibility and pricing and input cost trends, we believe GIL shares fairly price near-term growth,” he said.
Upside: Mr. Woolley maintained a $39 price target on the clothing manufacturer.
AGF Management Ltd. reported stronger-than-expected quarterly earnings, but Canaccord Genuity analyst Scott Chan is concerned with a pick-up in net redemptions at the fund company.
“Assets under management growth visibility remains low, which is one of our key stock selection themes,” said Mr. Chan.
Nevertheless, continued operational improvements, more stock buybacks and its attractive 10 per cent dividend yield should help support the stock, he said.
Upside: Mr. Chan raised his price target to $12 from $11.50 but maintained a “hold” rating.
CGI Group Inc. reported a solid first quarter, as its recently acquired U.K.-based information technology provider Logica PLC saw improvement in revenues, bookings and margins, noted Raymond James analyst Steven Li.
The stock’s price-to-earnings ratio remains at a discount to its IT services peers, but he believes this will continue to narrow, especially as Europe recovers from its funk.
Upside: Mr. Li raised his price target by $1 to $29 and maintained an “outperform” rating.
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities