Friday's analyst upgrades and downgrades

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Inside the Market's roundup of some of today's key analyst actions

Following the $712-million (U.S.) sale of its Ni-Cu-PGE Kevitsa mine in Finland to Bolliden AB, Raymond James analyst Alex Terentiew moved his rating for First Quantum Minerals Ltd. (FM-T).

Though he said he remains confident in the company's debt reduction initiatives and the "successful" development of its Cobre Panama projection, Mr. Terentiew downgraded the stock to "outperform" from "strong buy," noting the sale means a positive catalyst for the stock is now "complete." He also emphasized the fact that First Quantum stock has increased in price by almost 30 per cent in the year to date, versus a 26-per-cent increase from the Diversified Mining Index.

"We view this transaction as favourable, as it reduces FM's net debt, which we now estimate at $4.1-billion (estimate second quarter 2016), and is in-line with management's previously stated $1-billion reduction in net debt for 2016," said Mr. Terentiew. "With FM's management continuing to advance other strategic initiatives, we could expect a relaxation of their debt covenants in the coming months as they work towards obtaining a Cobre Panama project debt facility before year-end.

"Despite selling Kevitsa for $712-million, which is below our carrying value (9-per-cent discount rate) of $1.173-billion, we view the sale price as fair, given current metal prices. For this transaction, we estimate the deal implies long-term metal prices of $2.75 per pound copper (Cu) and $5 per pound nickel (Ni) ... below our long-term price of $3/lb Cu and $7/lb Ni."

Mr. Terentiew reduced his earnings per share estimates for 2016 and 2017 to 25 cents and 39 cents from 35 cents and 44 cents, respectively. His revenue projections fell to $3.201-billion and $3.536-billion from $3.383-billion and $3.536-billion, respectively.

He maintained a price target for the stock of $9 (Canadian). The analyst average price target is $7.93, according to Bloomberg.

"Our $9.00 target price applies a 50-per-cent asset weighted multiple of 0.9 times to our 9-per-cent mine-site net asset value (NAV) estimate and a 6.0-times multiple to our next 12 months (NTM) EBITDA forecast, below its mid-tier base-metal peers at 1.1 times and 6.0 times, respectively," he said. "In our view, these multiples are appropriate given FM's strong asset base, management team and peer-leading growth profile, and reflect the high debt load on its balance sheet."

Elsewhere, the stock was upgraded to "buy" from "neutral" by Dundee analyst Joseph Gallucci. He raised his target to $8.25 from $5.25.

It was also upgraded to "outperform" from "sector perform" at National Bank by Shane Nagle, who increased his target to $11 from $6 per share.

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The skies are "cloudier" for Transat AT Inc. (TRZ-T), according to Desjardins Securities analyst Benoit Poirier.

Following weaker-than-expected first-quarter results in conjunction with an "uncertain" outlook, Mr. Poirier lowered his rating for the Montreal-based tour operator to "hold" from "buy."

On Thursday, Transat reported adjusted earnings per share of a loss of 98 cents, lower than Mr. Poirier's projection of a 57-cent loss and the consensus of an 83-cent loss. Revenue of $847-million topped his $831-million forecast and the consensus of $837-million. The increase of 7.3-per-cent year over year was due largely to an 8.7-per-cent increase in the number of travellers, he said.

"TRZ's more cautious outlook for the second quarter versus previous comments is driven mainly by the negative impact on bookings related to fears about the Zika virus and the threat of a pilot strike," said Mr. Poirier. "However, we are primarily concerned about the profitability outlook in the [second half of 2016], as the weak Canadian economy and increasing industry capacity on the transatlantic market this summer will likely result in fiercer competition on TRZ's most profitable segment."

In reaction to the results and management's outlook, the analyst dropped his earnings before interest, taxes, depreciation and amortization (EBITDA) projections for 2016 and 2017 to $68-million and $94-million from $112-million and $133-million, respectively. His EPS estimates fell to 55 cents and 94 cents from $1.31 and $1.62, respectively.

He also dropped his target price for the stock to $9 from $15. The analyst average is $10.07.

"While we see substantial value potential in the long term given its solid balance sheet, we are concerned about margin sustainability during the second half of 2016, given the weak Canadian economy and potential industry overcapacity in the transatlantic market," said Mr. Poirier. "We thus recommend investors stay on the sidelines pending more visibility on the outlook and M&A strategy."

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Premium Brands Holdings Corp. (PBH-T) provides investors "an attractive growth story" featuring margins poised to expand based on the completion of capital investments, according to Canaccord Genuity analyst Derek Dley, who raised his target price following better-than-expected fourth-quarter 2015 results.

On Thursday, the Richmond, B.C.-based company reported revenue grew 26 per cent year over year to $400-million. Led by stronger-than-anticipated performance from its retail division, EBITDA of $31.5-million topped Mr. Dley's projection of $27-million, and it represented a $12.5-million increase from the same period in the previous year.

EBITDA margins for 2015 came in at 7.5 per cent, which Mr. Dley noted was "not far" from the company's goal of 8.0-8.5 per cent from the end of 2016.

"Margin growth is expected to be driven by strong organic growth, an improvement in the operating efficiency at the newly commissioned Ohio sandwich facility, lower commodity costs, and growth from recent acquisitions," he said.

Mr. Dley added: "Overall, Premium Brands continues to execute on its growth strategy, with recent capital investments and restructuring initiatives beginning to demonstrate tangible results, namely at the retail division. Unfortunately, the food-service division remains challenged by a weak Alberta backdrop.

"Looking ahead to 2016, at retail, management expects organic growth to fall at or above the top end of the company's long-term targeted range of 6 per cent to 8 per cent due primarily to favourable consumer trends, including the preference for higher quality foods (organic, natural ingredients, raised without antibiotics and/or no added hormones) and a higher reliance on protein-based diets. At food-service, organic growth is expected to fall at or below management's long-term targeted range of 6 per cent to 8 per cent, due to continued economic weakness in Alberta."

Maintaining his "hold" rating, Mr. Dley raised his target price to $47 from $36. The average is $47.29.

"With a current valuation of 11.9 times our 2016 EBTIDA estimate, we believe the shares are fully valued at the current level," he said.

Elsewhere, EVA Dimensions analyst Neil Fonseca upgraded his rating for the stock to "overweight" from "hold."

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Ahead of the release of its fourth-quarter 2015 financial results on March 15, Industrial Alliance Securities analyst Neil Linsdell downgraded his rating for The North West Company Inc. (NWC-T) based on share price appreciation.

Despite the expectation of an 8.9-per-cent increase in revenue and 0.6-per-cent improvement in its EBITDA margin year over year, Mr. Linsdell reduced the stock to "hold" from "buy."

"As the company continues to focus on its Top 40 Market and Top Categories initiatives, we are expecting additional market share gains in the coming years while simultaneously focusing on lower-risk merchandise and services," said Mr. Linsdell. "The international operations in the Caribbean and Pacific regions appear to be on a positive trajectory, boosted by higher tourism spend, lower energy costs, and the benefit of the U.S. dollar f/x translation. NWC shares trade within a range and are supported by the dividend yield. With the recently increased annual dividend of $1.24, we expect the share price to be well supported in the $25.00-29.50 range, but at the current share price, we are reducing our rating."

He did raise his target price to $32 from $28.50. The analyst consensus price target is $29.17, according to Thomson Reuters.

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Though Detour Gold Corp. (DGC-T) reported fourth-quarter adjusted earnings per share that fell short of the consensus projection, Desjardins Securities analyst Michael Parkin raised his target for the Canadian company.

On Thursday, after the markets closed, Detour reported an adjusted 3-cents-per-share loss, better than Mr. Parkin's expectation of a 4-cent loss but falling short of the consensus projection of nil. Operating expenses $694 (U.S.) per ounce beat the Street ($659) and was in line with Mr. Parkin's estimate ($688).

"4Q15 was the strongest quarter of the year, with production of 146,400 ounces thanks to access to the higher-grade zones of the pit and total cash costs of $694 per ounce or AISC [all-in sustaining costs] of $858/oz," he said. "We expect the company to be able to increase production by 12 per cent this year versus 2015, and post a further improvement in its cost structure.

"We regard Detour as one of the best operators under coverage, but we believe the current share price is nearly fully valued and, thus, we are maintaining our hold rating. Detour exhibits superior leverage to rising gold prices and we believe the share price could rise further if gold continues to benefit from global investment demand; we believe this is a result of a recent change in the consensus outlook for the U.S. economy, which in our opinion is potentially driving a desire for a safe-haven investment."

He raised his price target to $21 from $18. The average is $22.14.

"We are moving to a set of higher valuation multiples given Detour is proving to be able to hold a higher valuation level to our base-case assumptions," said Mr. Parkin. "However, we are using a relatively conservative gold price for 2016 ($1,075 U.S.) per ounce versus spot at $1,272/oz); at spot prices, Detour is trading at 10.54 times enterprise value/EBITDA, more in line with what we would view as a peak multiple for a single-asset company that is performing well."

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In other analyst actions:

Alnylam Pharmaceuticals Inc (ALNY-Q) was raised to "overweight" from "neutral" at JPMorgan by equity analyst Anupam Rama. The 18-month target price is $81 (U.S.) per share.

Anacor Pharmaceuticals Inc (ANAC-Q) was rated new "buy" at Mizuho Securities USA by equity analyst Irina Koffler. The 12-month target price is $103 (U.S.) per share.

Cognex Corp (CGNX-Q) was downgraded to "market perform" from "outperform" at Raymond James by equity analyst Brian Gesuale.

Empire Co Ltd (EMP.A-T) was downgraded to "sector perform" from "outperform" at National Bank by equity analyst Vishal Shreedhar. The 12-month target price is $25 (Canadian) per share.

Finisar Corp (FNSR-Q) was raised to "buy" from "neutral" at B. Riley by equity analyst David Kang. The target price is $20 (U.S.) per share. It was also raised to "buy" from "hold" at Craig-Hallum by equity analyst Richard Shannon with a 12-month target price of $19.50 per share.

Harley-Davidson Inc (HOG-N) was rated new "neutral" at Sterne Agee CRT by equity analyst Lee Giordano. The 12-month target price is $52 (U.S.) per share.

ICU Medical Inc (ICUI-Q) was rated new "buy" at Gabelli & Co. by equity analyst Jennie Tsai.

Patterson-UTI Energy Inc (PTEN-Q) was downgraded to "market perform" from "outperform" at BMO Capital Markets by equity analyst Daniel Boyd. The target price is $17 (U.S.) per share.

ServiceMaster Global Holdings Inc (SERV-N) was downgraded to "neutral" from "outperform" at Robert Baird by equity analyst Andrew Wittmann. The 12-month target price is $42 (U.S.) per share.

Symantec Corp (SYMC-Q) was raised to "outperform" from "sector perform" at RBC Capital by equity analyst Matthew Hedberg. The 12-month target price is $23 (U.S.) per share.

Wynn Resorts Ltd (WYNN-Q) was downgraded to "neutral" from "buy" at Sterne Agee CRT by equity analyst David Bain. The 12-month target price is $85 (U.S.) per share.

ZAIS Financial Corp (ZFC-N) was downgraded to "market perform" from "market outperform" at JMP Securities by equity analyst Trevor Cranston.

With files from Bloomberg News