Friday’s analyst upgrades and downgrades

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Inside the Market's roundup of some of today's key analyst actions. This file will be updated often during the trading day so check back for new details.

Alamos Gold Inc. (AGI-T) will have "overall characteristics that will be considered average to its peer group" over the next 12-18 months, said CIBC World Markets analyst Cosmos Chiu.

The production growth of the company, the result of a merger of Alamos Gold Inc. and AuRico Gold Inc., will be driven by improvements at its Young-Davidson mine in Northern Ontario and Mulatos mine in Mexico, according to Mr. Chiu. He forecasted a three-year compound annual growth rate of 10-per-cent  for production, versus a 9-per-cent peer group average.

"Longer term, we believe the new Alamos can only achieve a premium multiple when the Turkish growth strategy is executed, and when consistent positive cash accumulation can be demonstrated, which we calculate is at least five years away," said Mr. Chiu, who took over coverage of the stock following the merger. "Before that time, operating cash flow will likely be more than consumed by significant capital requirements including development expenditures in Turkey and Young-Davidson, and servicing costs related to the debt inherited from the AuRico portfolio."

He dropped his price target on the stock to $8 from $11 (Canadian). The analyst consensus price target is $11.80, according to Thomson Reuters.

"Despite gaining some size and portfolio diversity with the merger of equals, we believe the new Alamos will continue to trade at average multiples to the group," he said. "At this time, we conclude that shares of Alamos are not undervalued."
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The future growth for Canadian Western Bank (CWB-T) could be problematic given its "overweight" exposure to the economic slowdown in Western Canada and the potential for credit deterioration in the region, said Canaccord Genuity analyst Gabriel Dechaine.

Mr. Dechaine assumed coverage of the stock with a "hold" rating.

"Although CWB has historically traded at a premium to the group, it was primarily reflective of the bank's superior growth profile, which we believe has diminished in the current economic climate," he said.  "The discount we use to value CWB is similar to the one we apply to [CIBC] and [National Bank], which we believe is a reasonable (and consistent) approach to value bank stocks that we think are relatively more exposed to slower economic growth in Canada."

He noted that Canadian Western's trading premium, compared to the Big 6 banks, averaged 19 per cent over the last 10 years, alongside an average earnings per share growth of 15 per cent (or 8 per cent ahead of the Big 6). He said that premium became a discounted during the financial crisis by as much as 20 per cent.

"While there were more varied concerns plaguing the company's outlook back then (e.g. funding, credit, growth), we believe that at the very least it is unlikely that CWB will trade at a premium in the near term as its growth is hampered by weaker GDP growth in Western Canada, specifically Alberta (42% of loans)," said Mr. Dechaine, who is forecasting 2-per-cent earnings per share growth in 2015, followed by 7 per cent in 2016.

He set a price target for the stock of $29 (Canadian), compared to the consensus of $30.67.

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Based on its strong growth prospects, solid balance sheet and "highly cash-generative" business model, Richelieu Hardware Ltd. (RCH-T) should command a premium valuation, said Desjardins Securities analyst Chase Bethel.

The company reported "solid" second-quarter 2015 results, featuring a sales increase of 15.4 per cent with sales to Canadian retailers growing by 23.9 per cent on new retail lines and placements. Richelieu's earnings before interest, taxes, depreciation and amortization margin did decline by 15 basis points year over year as it made pricing adjustments related to currency, however Mr. Bethel summarized the company's handling of those changes as resulting in "transitory scratches and bruises … rather than a severe wound."

He is raising his 2016 EBITDA estimate to $99-million from $95-million. His primary drivers for the change are higher projected sales growth to Canadian retailers and a $5-million impact from the recent purchase of Single Source Cabinet Supplies, which provides a gateway into the Texas market.

Mr. Bethel maintained his "buy" rating and increased his price target to $71 (Canadian) from $69. The analyst consensus target is $69.67.

"By owning the stock, investors gain exposure to an extremely well-managed company [return on invested capital of approximately 18 per cent] that has a differentiated value proposition and generates solid profitability," he said. "We believe Richelieu has substantial room for further growth, particularly in the U.S. The company's recent entry into the Texas market appears to foreshadow increased focus on building out a national platform in the U.S."

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Raymond James analyst Chris Cox revised his estimates for Crescent Point Energy Corp. (CPG-T, CPG-N) following the announcement it intends to purchase Coral Hill Energy Ltd. in an all-share deal. It previously only had about 9 per cent of Coral Hill.

Under the agreement,  valued at approximately $250-million, Crescent Point will issue 4.28 million share  and assume $132-million in new debt. The company slightly increased its production guidance for 2015 while not altering its capital spending plans.

Mr. Cox raised his earnings before interest, taxes, depreciation and amortization forecast for 2015 to $1.963-billion from $1.951-billion and for 2016 to $2.168-billion from $2.131-billion. His revenue estimate for 2015 rose to $2.920-billion from $2.842-billion and for 2016 to $3.685-billion from $3.566-billion.

He maintained his "outperform" rating and $35 (Canadian) target. Consensus is $36.08.

"In our view, Crescent Point screens as one of the only high-yielding energy names with a sustainable business model in a prolonged lower oil price environment," said Mr. Cox. The combination of a strong balance sheet, disciplined hedging strategy, consistent operational execution and high quality asset base makes Crescent Point a relative standout, in our view."

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BMO Nesbitt Burns Mark Wilde initiated coverage of WestRock Corp. (WRK-N) with an "outperform" rating.

WestRock is a newly formed global packaging company resulting from the merger of MeadWestvaco Corp. and Rock-Tenn Co.

Mr. Wilde established preliminary earnings before interest, taxes, depreciation and amortization estimates of $2.52-billion for 2015 and $2.77-billion for 2016. He noted the possibility of a spin-off of the speciality chemicals business by the end of the calendar year, previously hinted at by MeadWestvaco, which he estimated will generate $270-million in EBITDA in 2015.

He set a price target of $73 (U.S.).

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In other analyst actions:

Acadian Timber Corp (ADN-T) was rated new "neutral" at Dundee by equity analyst Stephen Atkinson. The 12-month target price is $20 (Canadian) per share.

ZZ Inc (AZZ-N) was downgraded to "market perform" from "outperform" at Kansas City Capital by equity analyst Jonathan Braatz.

Chubb Corp (CB-N) was raised to "outperform" from "market perform" at Keefe Bruyette by equity analyst Meyer Shields. The 12-month target price is $141 (U.S.) per share.

Lightstream Resources Ltd. was upgraded to "neutral" from "sell" at Dundee Securities. The price target was unchanged at $1 (Canadian).

Texas Capital Bancshares Inc (TCBI-Q) was rated new "market perform" at Hovde Group by equity analyst Kevin Fitzsimmons. The target price is $66 (U.S.) per share.

United Bankshares Inc (UBSI-Q) was downgraded to "underperform" from "neutral" at Boenning & Scattergood by equity analyst Matthew Schultheis. The 12-month target price is $34 (U.S.) per share.

Xoom Corp (XOOM-Q) was downgraded to "neutral" from "outperform" at Robert Baird by equity analyst Colin Sebastian. The 12-month target price is $25 (U.S.) per share.

With files from Bloomberg News