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.
Shares in Facebook Inc. closed up nearly 30 per cent to their highest level since the day of the initial public offering more than a year ago, as investors celebrated its surprisingly strong second-quarter results.
Analysts moved quickly on jacking up their price targets on the social media giant, with at least one calling the quarter a turning point for the stock.
RBC Dominion Securities analyst Mark Mahaney called the quarter “an inflection point” that has decisively turned him more bullish on the company. He now sees the stock trading at above its $38 (U.S.) initial public offering price sometime over the next year.
“FB over the last four quarters has addressed and now likely defeated the biggest overhang issue from its IPO days – mobile monetization,” Mr. Mahaney said in a research note. “FB has gone from $0 to a $2.6-billion mobile revenue run rate in five quarters, without a negative impact on engagement AND while boosting its overall ad revenue growth rate. FB appears to have proven that mobile is nicely incremental/accretive to FB usage and revenue – a point the mobile bears have missed.”
He called Facebook “arguably the most under-levered name in the Internet sector,” explaining that the company has several growth avenues yet to come, including the yet-to-be-monetized Instagram.
BMO Nesbitt Burns analyst Dan Salmon commented he also sees more upside ahead for the stock, driven by two key catalysts: new video ad formats and Instagram monetization.
“Facebook remains our top pick across our entire media and Internet marketing universe,” he said.
Mr. Salmon listed the things that impressed him the most: monetization, cost control, consistent usage by U.S. teens, the lack of advertising overload on news feed items, and the higher number of users on Facebook during primetime TV hours. “This provides an enormous opportunity for second screen advertising initiatives,” he commented.
Targets: RBC’s Mr. Mahaney raised his price target to $40 (U.S.) from $32 and reiterated an “outperform” rating. BMO’s Mr. Salmon raised his target to $37 from $33 and reiterated an “outperform” rating. Other research firms hiking targets on Facebook today include Needham, which lifted its forecast to $37 from $33, and Credit Suisse, which hiked its target to $36 from $31.
The average Street target is now $36.62, up from about $32 prior to Wednesday's earnings release, according to Bloomberg data. Facebook shares closed up $7.85, or 29.6 per cent, at $34.36.
BMO Nesbitt Burns analyst Joel Tiss downgraded Caterpillar Inc. to “market perform” from “outperform” after the heavy equipment maker’s disappointing second-quarter results Wednesday.
Caterpillar’s operating earnings per share of $1.45 were well below the $1.70 the Street was expecting, and the company also reduced its 2013 guidance.
“Central to our rating downgrade to market perform is our view that much of Caterpillar’s end market exposure is to cycles that have passed their peaks or are certainly long into their recoveries such as mining, power generation equipment, global infrastructure spending, and energy. These cycles explain some 75 per cent of Caterpillar’s EBIT exposure,” Mr. Tiss said in a statement.
Target: Mr. Tiss cut his price target by $10 to $86 (U.S.). The average target is $95.14.
Dominion Securities downgraded Ford Motor Co. to “sector perform” from “outperform,” warning investors to be cautious in buying shares in the company despite its strong second-quarter results.
“In our view, Ford remains a world-class automaker with solid medium-term prospects. However, we would be careful about extrapolating better than expected second-quarter results and we see under-appreciated risk to North American margins in 2014 from price/cost,” Mr. Spak said in a research note. “We continue to like the company, but the stock has had a good run and at current levels it is harder to recommend new money.”
He also notes that more of the company’s growth is coming from international operations, which is encouraging – but also points to higher risks and volatility.
Target: Mr. Spak raised his price target by $1 to $19 (U.S.). The average target is $18.25.
TD Securities analyst Menno Hulshof upgraded Encana Corp. to "buy" from "hold," citing the company's positive operational outlook for the rest of this year and the "real steps" the company has taken to cut costs.
He also notes an attractive valuation, with the stock now the least expensive among Canadian energy large caps, trading at an enterprise value to debt adjusted cash flow ratio of 5.1 times, versus 6.0 on average for peers.
Target: Mr. Hulshof maintained a $22 (U.S.) price target. The average target is $20.57.
Although there remains a lot of "noise" about Boeing Co.'s 787 Dreamliner problems, investors' focus is now on the airplane maker's cash generation and deployment potential, commented RBC Dominion Securities analyst Robert Stallard.
"The generation is already looking good and likely to improve going forward," Mr. Stallard said after the company posted better-than-expected second-quarter earnings this week. "However, the deployment is lagging and we think Boeing could and should do more in this area."
He said the company's free cash flow of $3-billion could have sustained a higher share buyback in the quarter, when it bought back $1-billion worth of shares.
Target: Mr. Stallard raised his price target by $4 to $120 (U.S.) and reiterated an "outperform" rating. The average target is $119.14.
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @ eyeonequities