Friday’s analyst upgrades and downgrades

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

"What a difference a year makes" for Bombardier Inc. (BBD.B-T), said Raymond James analyst Steve Hansen.

Following the company's investor day in New York on Thursday, Mr. Hansene upgraded his rating for the stock to "outperform" from "market perform."

"In no uncertain terms, management has made tremendous strides over the past year, largely stemming from a series of hard, proactive decisions made early in its plan that have since translated into improved liquidity, lowered FCF [free cash flow] burn and stabilized the outlook — progress that's allowed management to declare the first de-risking phase of its plan now complete and the second 'build' phase as already in full effect," he said. "In this context, while we're cognizant that significant execution risk remains, we are comfortable increasing our target price to $2.75 (versus $2.25 prior) and upgrading our rating."

In junction with the event, Bombardier introduced its 2017 guidance, which Mr. Hansen said reflects its momentum and confidence going forward. Revenue is expected to increase 1-3 per cent year over year with earnings before interest and taxes rising 50 per cent from the previous year. Free cash flow is expected to improve by $400-million, while restructuring charges of $250- to $300-million are expected.

"Management also expects to exit 2016 with greater-than $4.5-billion in available liquidity, including greater-than $3.4-billion in cash and equivalents and $1.1-billion in revolving credit facilities — a sum that looks increasingly ample given the improving outlook in our view. Again, management expects to burn only $1.0-billion in FCF during 2017 (at the high end), followed by a breakeven year in 2018, and healthy cash generation in years thereafter. Coupled with recent news that the company has termed out all of its near-term debt maturities (earliest now due 2019), we are increasingly of the view that the company's liquidity position appears sound, with little 'need' now to pursue additional funding from the federal government."

He added: "As suggested, management delivered on all of the key de-risking milestones originally targeted for 2016. With the company platform now amply stabilized, management declared Phase 1 of its plan now complete, with Phase 2 (Build Phase) already in full motion. It also reiterated its commitment to achieving its previously outlined 2020 objectives."

Mr. Hansen raised his target price for the stock to $2.75 from $2.25. The analyst consensus price target is $2.24, according to Thomson Reuters.

Elsewhere, Citi analyst Stephen Trent upgraded Bombardier to "buy" from "neutral" and raised his target to $2.40 from $2.07, saying the company's 2017 growth "looks so much stronger than the street had previously anticipated. "

"Bombardier has made important strides in restructuring its operations, resetting its aircraft production to more sustainable levels and exercising greater control of its costs," said Mr. Trent. "Against this positive backdrop, Citi does not see Bombardier as being entirely out of the woods, as big questions remain about the long-term competitive dynamics of the company's flagship CSeries commercial aircraft program. Still, management's very strong 2017 guidance, some seasonal order flow tailwind and the shares' 54-per-cent decline since January 2015 support a tactical.

He added: "Bombardier's above consensus 2017 guidance is likely to get the market's attention on Thursday morning. The company has also seen recent improvements in order flow, particularly in its transportation division. Additional CSeries order flow could be a significant stock price catalyst, especially if Canadian plane and train manufacturer Bombardier wins such orders from non-Canadian commercial airlines that are not state-owned. From a trading perspective, we'd view large CSeries orders as shortterm catalysts. However, the fundamental impact of such order flow could be negative, as high-volume aircraft transactions are often associated with aggressive discounting."

Desjardins Securities analyst Benoit Poirier raised his 2017 earnings per share projection to 1 cent from a loss of 4 cents. He maintained a target price of $2.25 for the stock and a "hold" rating.

"While we are positive on BBD's long-term fundamentals (potential value of $5 per share in 2020) and the success of the C Series program, we are maintaining our neutral stance in the short term due to the unfavourable risk/ reward profile at current levels," said Mr. Poirier. "The path to FCF recovery is not without risk given the uncertainty around the profitability of the C Series, softness in the bizjet market and development of the Global 7000."

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It's "all systems go" for Capital Power Corp. (CPX-T), according to Raymond James analyst David Quezada.

"With much of the uncertainty on the Alberta regulatory front now addressed, Capital Power is turning its focus to growth," he said.

Following the Edmonton-based power producer's investor day in Toronto on Thursday, Mr. Quezada said its future plans "represent the foundation of a more diversified, lower risk, higher growth company."

With the event, Capital Power released updated guidance, which including the inclusion of coal compensation payments and the impact of the Sundance C PPA. Mr. Quezada said the most notable change was the company's adjusted funds from operations guidance of $305-$345-million, compared to its 2016 target of $320-million. It included $52.4-million in annual coal compensation payments from the Alberta government.

"Reflecting these payments (included in adjusted EBITDA as other income) and some offsetting adjustments, we have increased our 2017 EBITDA estimate to $485-million from $460-million," he said. "The company reiterated its 7-per-cent annual dividend growth guidance, which we believe is abundantly achievable due to the company's rising contracted revenues, strong financial obligation coverage, and conservative payout ratio."

Mr. Quezada called the company's wind development projects an "impressive slate," noting: "With the addition of the 300 MW Whitla wind project in Alberta, CPX now has 450 MW of development projects in Canada (including the 150 MW Halkirk 2 project). In addition, the company noted an investment in 7 transformers in the U.S. could safe harbor between 800-1,000 MW of wind projects in the U.S. under the 100-per-cent wind Production Tax Credit (PTC). Over time we believe CPX could eventually develop 1,200-2,000 MW of wind capacity in Canada and the US, meaningfully diversifying the company, increasing its proportion of renewable capacity, and contributing to strong growth."

Saying the company is "well positioned" to benefit from coal to gas conversions, which will "meaningfully" extend the life of its coal assets, Mr. Quezada raised his 2017 and 2018 earnings per share projections to $1.15 and $1.28, respectively, from $1.06 and $1.07.

Maintaining an "outperform" rating, he raised his target price for the stock to $27.50 from $24. The analyst consensus is $23.65, according to Thomson Reuters.

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In a 2017 outlook on the global oilfield services industry, RBC Dominion Securities analyst Kurt Hallead said he expects activity levels to increase as exploration and production companies seek to grow production in an improved commodity price environment.

"Given our commodity price outlook (average of $56/$63 U.S. WTI in 2017/18), we think oilfield services stocks are still in the early innings of a cyclical recovery, although the recovery is likely to remain choppy in the near term.," said Mr. Hallead, RBC's co-head of global energy research. "We expect rig counts to begin to show year-over-year increases starting in 1Q17 as E&P budgets appear set to expand for the first time in two years. We are forecasting U.S. land rig count to rise 50 per cent year over year, Canada 50 per cent, and international rig count 2 per cent."

He added: "We recommend increasing exposure to North American land-focused names, with an emphasis on land drilling, frac sand and diversified services. We also recommend pressure pumping in Canada given a more concentrated market and accelerating capacity absorption. Fundamentals for the offshore space remain challenged through 2017 and we think a better risk-reward entry point will present itself later in 2017."

Mr. Hallead said "Fundamentals for the offshore space remain challenged throughout 2017" and said he sees higher upside in land-focused names.

Accordingly, he downgraded several stocks to "underperform" from "sector perform."

Those stocks are:

Atwood Oceanics Inc. (ATW-N) with a target of $15 (U.S.) from $10. Consensus is $8.46..

Diamond Offshore Drilling Inc. (DO-N) with a target of $22 (U.S.), up from $19. Consensus is $17.

Frank's International N.V. (FI-N) with a target of $14 (U.S.), up from $11. Consensus is $11.68.

Noble Corp plc (NE-N) with an unchanged target of $7 (U.S.). Consensus is $5.89.

Oceaneering International Inc. (OII-N) with a target of $34 (U.S.), up from $26. Consensus is $27.61

Rowan Companies Inc. (RDC-N) with a target of $23 (U.S.) from $16. Consensus is $15.33.

Transocean Ltd. (RIG-N)with a target of $17 (U.S.) from $11. Consensus is $10.32.

Mr. Hallead moved Helmerich & Payne Inc. (HP-N) to "sector perform" from "outperform" with a target of $94 (U.S.), up from $83. Consensus is $66.27.

He said: "We view HP as the top-quality land driller due to its strong balance sheet, high spec fleet, customer base, and low-cost advantage in both operations and newbuild construction. However, we view the company as fully valued at current levels and presenting a less attractive risk/reward than its US land drilling peers."

Tetra Technologies Inc. (TTI-N) was lowered to "sector perform" from "outperform" with a target of $5, down from $6. Consensus is $6.92.

He said: "We rate TTI Sector Perform (from Outperform) due to its high exposure to the offshore GOM deepwater fluids business, which we expect to remain challenged through 2017 and into 2018."

On the Canadian drilling sector, Mr. Hallead said: "We expect market dayrates and overall realized dayrates and margins to stabilize in 2017, given a mix of improving spot market conditions with increasing activity levels and the effects of any remaining contract roll-overs. Predicated on our expected recovery in commodity prices and activity, we expect dayrates in Canada to creep higher as the year progresses, especially for tier one equipment. We expect new build rigs to be minimal given that we believe that there is still a good stock of tier one rigs left to be upgraded to leading edge specifications before customers start demanding and paying a premium for new, purpose-built assets."

He made several target changes. They were:

Calfrac Well Services Ltd. (CFW-T, sector perform) to $5 from $4. Consensus is $4.16.

Trican Well Service Ltd. (TCW-T, outperform) to $6 from $5. Consensus is $4.55.

Precision Drilling Corp. (PD-T, outperform) to $9 from $8. Consensus is $8.11.

Trinidad Drilling Ltd. (TDG-T, outperform) to $5 from $4. Consensus is $3.44.

"Drilling contractors with deeper rig fleets have shown a more resilient market share through the downturn," he said.. We highlight PD in particular as achieving market share gains in 2016 to-date, although we would also attribute this to some extent to a better contracted status entering the year. We expect the trends towards a preference for land drilling contractors with deeper rig fleets to continue."

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Firan Technology Group Corp. (FTG-T) is a top pick candidate for 2017, said Acumen Capital analyst Brian Pow.

He raised his financial estimates and target price for stock of the Toronto-based supplier of aerospace and defense electronic products and subsystems after meeting with its management.

"From our update, the transition of business operations from the two acquired facilities is progressing ahead of schedule," said Mr. Pow. "The Teledyne acquisition continues to surprise (to the upside), with better than expected demand and strong retention rates exhibited. We still expect FTG to complete the Teledyne transition by early April 2017. Photo Etch has transitioned operations out of the Texas based plant and into FTG facilities ahead of the YE16 date that was originally announced.

"FTG is well positioned to deliver strong financial performance over our two forecast years, on the heels of successfully integrating the two key acquisitions of 2016. The A&D market appears to have bottomed out, and we expect the industry to experience single-digit growth in F17 and F18. Based on this backdrop we expect FTG to capitalize on its new customer relationships and increased facility utilization, and provide top line growth in excess of industry levels. Overall, the business looks to be transitioning favourably, and we see the potential for FTG to outperform our estimates on better efficiencies, new contract wins, and further M&A."

Citing "strong growth in revenues and EBITDA next year, and attractive potential return," Mr. Pow raised his target price to $4.95 per share from $4.45. Consensus is $4.93.

"FTG will benefit from positive industry tailwinds in the commercial aviation market, which indicates stable growth through 2018," the analyst said. "Additionally, military and defence spending looks to be picking up following the U.S. Republican victory, which bodes well for FTG's content on both fighter and cargo aircrafts. The business jet market has declined over the past couple years on weak emerging market growth and the industries propensity to wait on new aircraft models slated to be released in 2018 (likely). Despite these headwinds, the market looks to have troughed, and we see the potential for single digit growth in F17 before picking up further in F18. Lastly, the helicopter market has dropped precipitously over the last two years, and we don't expect a recovery near-term."

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In other analyst actions:

Goldman analyst James Schneider downgraded CGI Group Inc. (GIB.A-T) to "sell" from "neutral" and lowered his target to $55 (Canadian) from $67. The analyst average price target is $70.55.

Seeing long-term upside potential for Canadian Natural Resources Ltd. (CNQ-T), Wells Fargo analyst Roger Read gave the stock a new "outperform" rating with no specified target. The average is $48.77. He cited "meaningful" production growth as well as significant free cash flow generation and enhanced margins based on its long-life, low decline asset, according to Bloomberg.

Mr. Read also gave Suncor Energy Inc. (SU-T, SU-N) an "outperform" rating without a target, saying it is poised to deliver "modest" annual production growth. The average is $47.93.

Canadian Pacific Railway Ltd. (CP-N, CPR-T) was raised to "buy" from "hold" at Stifel by analyst John Larkin. His target rose to $166 (U.S.) from $153. The average is $167.69.

Taseko Mines Ltd. (TKO-T) was raised to "speculative buy" from "hold" by TD Securities analyst Craig Hutchison. His target rose to $1.65 from 85 cents. The average is 97 cents.

Lundin Mining Corp. (LUN-T) was raised to "buy" from "hold" by TD Securities analyst Greg Barnes with a target of $9.50, up from $7.50. The average is $8.10.