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Transalta's Sundance power plant, located 70 kilometres west of Edmonton on the south shore of Wabamun Lake, is pictured in this file photo from 2004.Ian Jackson

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

The uncertainties surrounding the Alberta power market "are being addressed in a gradual and systematic fashion," said Credit Suisse analyst Andrew Kuse in a research note.

During this transition, Mr. Kuske said he favors "the incumbents," naming TransAlta Corp. (TA-T), Capital Power Corp. (CPX-T) and Canadian Utilities Ltd. (CU-T).

"We view Alberta's power market transition to a capacity market and the plans to compensate the legacy coal generators for an accelerated shutdown as being steps towards restoring market confidence," he said. "Yet, there are many questions and 'known unknowns' in relation to future developments. So while the developments are positive, we view Alberta's power market as the weakest relative sub-sector for certainty in our coverage universe. As a result, we reiterate Underperform ratings on CPX and TA, however, we note more aggressive traders may look to position around notable stock moves and longer-term investors (3-5 years-plus) may note interesting underlying value."

He added: "We believe Alberta's power market could be headed for a longer-term re-rating after a difficult 18 months. The plans to shut down coal fired generation on an accelerated basis created a major overhang on CPX and TA. The worst is clearly over, in our view, but even under the Alberta Electric System Operator's own guidance – rules will take multiple years to develop. Therefore, we see ongoing opportunities for outsized moves (up and down) in the current market environment for the major power players. Yet, for a long-dated industry, we believe this level of developmental uncertainty creates challenges for capital investment and attraction on relative basis versus other sub-industries."

In the report, Mr. Kuske raised his target price for Capital Power to $22 from $18 with an "underperform" rating. The analyst consensus target is $23.25, according to Thomson Reuters.

"Positively, on a near-term basis, the company's forthcoming investor day should help provide a better roadmap on their perspective for market transition possibilities," he said.

His target for TransAlta rose by a loonie to $7 with an "underperform" rating. Consensus is $6.95.

"The Alberta power market remains very topical and given the recent market changes that tend to have a positive bias," said Mr. Kuske. "Accordingly, we revised our targets upward for the most exposed Albertan Independent Power Producers (IPPs) … Clearly, we believe an aura of uncertainty is lessening for Alberta's major power market players. We view the situation as being 'less bad, but not necessarily good.' With further market clarity, an improvement in power pricing along with the passage of time, we could be more constructive on the stocks and Alberta's power market. Despite the positive progress, we believe questions still remain and believe there are better risk-adjusted rewards in other stocks and sub-sectors."

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Reacting to the release of its fourth-quarter 2016 results on Friday morning, Desjardins Securities analyst Maher Yaghi downgraded his rating for Sandvine Corp. (SVC-T) to "hold" from "buy."

"This morning, Sandvine announced that its 4Q FY16 results will be challenged by a slowing communications network solutions industry and extended sales cycles, resulting in expected revenues for the quarter of $27-million (U.S.)," said Mr. Yaghi. "Consensus heading into the quarter was for revenues of $35-million.

"While we believe SVC is well-positioned to participate in the 5G wireless upgrade cycle, we do not expect significant business to be generated by this technology before 2019– 20. In our view, this could create a potential void in the orders backlog, which will likely bring further sales volatility for the next 2–3 years. Past revenue volatility has hurt the stock as we believe the Street perceives that it has less visibility on the medium-term growth path."

Mr. Yaghi reduced his adjusted earnings per share projection for 2017 to 13 cents (U.S.) from 16 cents. His revenue estimate fell to $122-million from $140-million.

"Sandvine continues to have a very strong balance sheet, with $1.15 (Canadian) per share in excess cash and the potential for continued aggressive stock buybacks," he said. "However, we are lowering our forecasts for 2016 and 2017 this morning to reflect a more conservative outlook, with an overall year-over-year revenue growth rate of a decline of 2 per cent for 2016 and 1 per cent for 2017."

His target for the stock fell to $3.10 from $3.50. Consensus is $3.58.

"While the company still generates healthy FCF [free cash flow] and has a solid balance sheet, two consecutive quarters of year-over-year revenue declines and the increased volatility in results have tempered our outlook over the short to medium term," the analyst said. "Given our less optimistic outlook and lower target price, we see upside potential becoming more favourable with a stock price below $2.75."

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DavidsTea Inc.'s (DTEA-Q) outlook for store growth remains a risk, according to BMO Nesbitt Burns analyst Kelly Bania.

Citing a lack of visibility into 2017, she downgraded her rating for the Montreal-based company to "market perform" from "outperform."

"Following weaker-than-expected F3Q17 results & F4Q17 guidance, ongoing execution issues coupled with management changes and an interim CEO, we no longer have confidence in the outlook," said Ms. Bania.

On Thursday, the company reported adjusted earnings per share of a loss of 10 cents and comparable same-store sales growth of 0.8 per cent, both missing Ms. Bania's projections (an 8-cent loss and 2.5 per cent comps). Fiscal 2017 EPS guidance was cut to 35-40 cents from 50-54 cents.

"Following the company's Oct. 21 announcement that CEO Sylvain Toutant would be leaving at the end of the fiscal year, the company announced that Christine Bullen (hired in May 2016 as Managing Director of U.S. Markets) will serve as interim CEO," the analyst said. "With execution issues already a challenge, we believe a U.S.-focused interim CEO and lack of visibility on timing for a permanent CEO adds further uncertainty."

She added: "Management lowered its outlook for store growth in Canada to 15-18 stores (below our expectation for 20) and in the U.S. to 10-12 (below our expectation for 20) which implies 11 per cent year over year growth (down from 17 per cent prior). While the company is testing a new format in the U.S., we see risk that new store growth continues to slow. Our July 2016 upgrade had been predicated on the possibility for catalysts to support a strong outlook for 2017; however, this outlook has become far more uncertain."

Ms. Bania cut her 2017 and 2018 EPS outlook to 39 cents and 56 cents, respectively, from 52 cents and 56 cents.

She lowered her target price for the stock to $9 (U.S.) from $16. The analyst average price target is $11.50, according to Bloomberg.

"A return of the email issues that plagued F2Q17 and a weaker consumer backdrop (including U.S. election) led to the results and more cautious 4Q outlook," said Ms. Banaia. "Despite the 23-per-cent drop in the stock following the recent management change announcement, we see ongoing risks offset by valuation."

Elsewhere, William Blair & Co. analyst Sharon Zackfia downgraded the stock to "market perform" from "outperform" without a specified target.

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BMO Nesbitt Burns analyst Andrew Mikitchook initiated coverage of Osisko Mining Corp. (OSK-T) with an "outperform" rating, citing the potential of its Windfall project in Northern Quebec.

Mr. Mikitchook said 100-per-cent-owned Windfall could bring 2 mmoz of mineable gold mineralization.

"Osisko took advantage of the 2014/2015 mining downturn to acquire and consolidate top jurisdiction mining assets primarily in Quebec and Ontario," he said. "With the renewal of the sector in early 2016, Osisko ramped up exploration across its portfolio and prioritized its focus onto the Windfall property in Northern Quebec. What started as a 0.89 mmoz PEA mining inventory appears to be expanding significantly with visibility on 2mmoz-plus; sufficient to deliver 150-200,000-plus ounces per year. Drilling has ramped up significantly with 11 rigs targeting a resource update delivery in Q1/2017.

"The progress at Windfall is reminiscent of the progress at the Malartic deposit as reinterpreted by the original Osisko Mining company and advanced through engineering, construction and an eventual $3.6-billion sale. We expect Windfall to see a further ramp-up in exploration throughout 2017 and into 2018 to define the resource and advance engineering in parallel. With history repeating itself we expect the market to continue supporting a high quality asset and a proven management team."

Mr. Mikitchook said the company's "significant" cash position, which he estimates to be $95-million with further investments of $50-million, differentiates it from peers, and it allows for "aggressive" long-term exploration efforts.

"We suggest that parts of the Osisko exploration portfolio could be sold, contributing toward Windfall development costs," he said.

"Osisko management has built a track record of exploration and development success including selling the original Osisko for $3.6B in 2014. In our opinion, this team is well positioned to aggressively push Windfall in a simultaneous exploration-engineering effort to fast-track a potential development decision in 2018 or 2019. The Windfall project is still in a delineation stage and as such potential engineering development parameters are uncertain creating an intermediate level of risk for Osisko. We would contend that the market is comfortable with management's experience and track record in managing this exposure."

The analyst set a price target of $4 for the stock. The analyst consensus is $4.17.

"We expect Osisko to transition into a development story in 2017 post the resource update," he said.

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Raymond James analyst Steve Hansen raised his target price for stock of Exchange Income Corp. (EIF-T) in response to Thursday's news that the Canadian government selected a partnership between Airbus Group SE and Newfoundland-based Provincial Aerospace Ltd., a EI subsidiary, for a $2.4-billion contract to replace its search-and-rescue planes.

"[Thursday's] contract award follows a longstanding commitment by the Canadian government to replace its rapidly aging (nearly 50 year old) CC-115 Buffalo and CC-130 Hercules fixed wing search and rescue aircraft. Beating out two other major consortium's (Alenia, Embraer), the FWSAR contract will see the Royal Canadian Air Force (RCSF) receive 16 new Airbus C295W aircraft valued at $2.4-billion, and up to 20 years of contracted in-service support (ISS) provided through a JV between Airbus and PAL. Specifically, PAL will be responsible for all aspects of maintenance not undertaken by the RCAF, including repairs, advanced maintenance checks, deep level inspection and future modifications— services that, importantly, require very little fixed capital. While unconfirmed, recent media reports have indicated the value of the ISS contract at $2.3-billion."

He added: "Because the RCAF is not expected to receive its first aircraft until 2019, we do not anticipate any immediate impact on our EIC forecasts from this award. That said, we do foresee significant indirect benefits materializing while we wait for this long-term revenue stream to emerge— namely the potential growth opportunities associated with EIC's new Airbus partnership. This is critical, in our view, as Airbus and its C295 platform operate in more than 15 countries around the globe. While PAL has already demonstrated its ability to win ISS contracts in key international markets (i.e., UAE), we can only assume this new Tier 1 relationship will augment its pipeline of future opportunities. We like this optionality, particularly in a global environment where heightened regional turmoil continues to bolster demand for surveillance services."

He maintained an "outperform" rating for the stock, but his target rose to $48 from $43. Consensus is $43.40.

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Canaccord Genuity analyst Richard Davis said he "got what he needed" at the analyst day for Autodesk Inc. (ADSK-Q).

He upgraded his rating for the California-based design software and services company to "buy" from "hold."

"While we didn't get every item we'd like (things like a segment breakdown is coming soon), we combined 16 years of covering the space with a deep dive into the numbers to rebuild the model, which includes the new data from Tuesday," said Mr. Davis. "We now believe we can bridge our pre-existing understanding of Autodesk's fundamentals with a model that gets us to free cash flow of about $6 per share in calendar 2019, and quite likely $11 three years later (as management's long-term forecasts would suggest) … Autodesk will reach those numbers. We believe this stock is likely to deliver mid-20-per-cent compound annual appreciation over the next 2 years. Looking out further, we believe shares should double over the next 3-4 years and sustain 15-20-per-cent annual appreciation over the next 5 years.

"Are we late to this upgrade? Absolutely. We said as much in some of our past notes. However, you don't buy stocks in the past, and the point of our upgrade is to alert investors that it is now possible to draw a legitimately realistic path from today, through the coming profit trough, and onto an attractive path to 30-per-cent-plus operating margins and 9-13-per-cent organic trend line revenue growth from 2022 onward."

Mr. Davis believes the company is taking "important steps" to becoming an industry leader in cloud design solutions for manufacturing, engineering and construction. He did, however, emphasize it faces "impressive" competition in the industry.

"There is a breakout scenario for Autodesk," he said. "This is the world in which Autodesk transitions from a vendor of software that buyers view as commodity plumbing into a trusted advisor for all things product design. This is a rare and significant trick. Salesforce is about a decade into this transformation, and we would argue that Adobe is on the cusp of doing so as well in the digital content creation world. The stock prices of companies that make this transition almost always materially outperform their peers. The manifestation of such a change for Autodesk will be an increase in large, enterprise-wide deals. We will be watching for signs of this transition over the next five years."

Mr. Davis raised his target price for Autodesk shares to $95 (U.S.) from $70. Consensus is $77.06.

"For any company going through a transition to subscription, it is difficult for investors to come up with a reasonable valuation case as the firm's financials essentially nosedive before exiting the transition with what should be a more stable business model," he said. "For this reason, we applaud Autodesk for providing their FCF [free cash flow] goals of $6-plus per share and $11-plus per share in fiscal 2020 and 2023, respectively. The issue we previously had was the path the company would take to get there, as near-term trends, especially in ARPS, didn't readily support these expectations. The analyst day provided the incremental color we needed to give us confidence in the company's ability to achieve these goals."

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In other analyst actions:

TD Securities analyst Aaron Bilkowski upgraded Perpetual Energy Inc. (PMT-T) to "hold" from "reduce" and raised his target to $2.25 from $1.70. Consensus is $1.94. Mr. Bilkowski said: "The recently announced guidance provides a slew of positive catalysts, in our opinion. These include the resumption of positive cash flow (Perpetual forecasts $50-million based on our commodity price assumptions), exit-to-exit production growth of 60 per cent, and forecast year-end 2017 D/CF [debt to cash flow] of only 1.5x (company guidance). As such, we are cautiously optimistic that the current uncertainty surrounding liquidity will be resolved and permit Perpetual to realize the value associated with its East Edson Wilrich asset."

Ivanhoe Mines Ltd. (IVN-T) was rated a new "outperform" at Bernstein by analyst Paul Gait with a 12-month target price of $10 per share. The average is $3.96.

Aflac Inc. (AFL-N) was downgraded to "underperform" from "sector perform" by RBC Dominion Securities analyst Mark Dwelle. His target fell to $65 (U.S.) from $74. The average is $70.38. Mr. Dwelle said: "Combining our outlook for sluggish sales growth in the near-term, earnings headwinds in 2017 due to hedge costs and IT spend, and Aflac being among the least rate sensitive of our names, we are lowering our rating."

Waste Connections Inc. (WCN-N) was raised to "overweight" from "sector weight" by KeyBanc analyst Joe Box. His target is $85 (U.S.), while the average is $84.82.

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