Friday’s analyst upgrades and downgrades

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

Canadian Imperial Bank of Commerce's (CM-T, CM-N) acquisition of PrivateBancorp Inc. "fulfills a strategic priority for the bank, improves earnings diversification and creates another avenue for growth," said Credit Suisse analyst Nick Stodgill.

On Thursday, CIBC raised his offer by 20 per cent with the new merger agreement valuing the U.S. regional bank at approximately $6.6-billion (Canadian), or $60.92 (U.S.) per share. The original offer was almost $50 (U.S).

"We believe the amended offer increases the likelihood the deal is completed, although the transaction requires PVTB shareholder approval with the special meeting set for mid-May," said Mr. Stodgill. "The revised offer has unanimous support from PVTB's board."

The higher offer price increases CIBC's earnings dilution, according to Mr. Stodgill. Accordingly, he lowered his 2017 and 2018 earnings per share projections by 1 per cent to $10.74  and $10.94, respectively, from $10.78 and $11.04.

He maintained a target price of $118 for the stock. The analyst average is $124.11, according to Bloomberg.

Elsewhere, CIBC's new bid reduces the uncertainty surrounding the pending acquisition, said RBC Dominion Securities analyst Darko Mihelic.

In reaction to the new bid, Mr. Mihelic lowered his 2017 and 2018 core earnings per share offer for CIBC to $10.59 and $10.75, respectively, from $10.63 and $10.80.

"CM now needs to close this acquisition, start executing and more than likely, acquire further in the U.S. to build out its strategy," said Mr. Mihelic. "All the while, CM must somehow keep up its relatively strong growth in Canada. The stock trades at a 10-per-cent discount to peers on our 2017 core EPS estimate, below a historical discount of 6 per cent. While valuation for the stock is somewhat interesting (and provides good support for the stock at this time), we remain on the sidelines until we see CM execute on its plans."

He maintained a "sector perform" rating and $119 target.

Desjardins Securities analyst Doug Young maintained a 2017 cash EPS projection of $10.75 and lowered his 2018 estimate to $10.94 from $11.

He kept a "buy" rating and $126 target.

"While we were not surprised that the bid was increased, it was a little higher than we had anticipated," said Mr. Young.

"Four reasons we rate CIBC a Buy: (1) clear and easy to understand strategy; (2) execution on its domestic banking strategy; (3) valuation (trades at a 7-per-cent discount to peers on estimated price to-fiscal 2018 EPS); and (4) dividend yield (4.4 per cent, highest of the group)."

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Dollarama Inc. (DOL-T) is in a "zone of its own, untouched by e-commerce," according to Desjardins Securities analyst Keith Howlett.

On Thursday prior to market open, the discount retailer posted fourth-quarter earnings per share of $1.24, ahead of Mr. Howlett's projection of $1.12 and up 24 per cent year over year.

"All operating parameters were better than forecast, against a very strong performance a year ago," the analyst said. "Same-store sales growth was 5.8 per cent on top of 7.9 per cent a year ago. Average transaction size increased by 7.8 per cent while traffic declined by 1.9 per cent. The lower traffic was attributed to the unusually high traffic growth (4.2 per cent) a year ago and the substantial increase in transaction size (with the side effect of reducing trips) in 4Q FY17. Gross margin rate increased by 52 basis points year over year to 41.4 per cent. Adjusted EBITDA margin rate was 26.5 per cent in 4Q."

"Dollarama reached an EBITDA margin of 26.5 per cent in 4Q FY17. While seasonally high sales volume typically achieved in 4Q drives attractive operating leverage across many, if not most, discretionary retailers, Dollarama's 4Q EBITDA margin is exceptional. Dollarama benefits from essentially no markdowns, and experiences no pyrrhic victories such as clearance-led surges in customer traffic."

With the results, Dollarama increased its fiscal 2018 guidance for both EBITDA margins and gross margins, which also exceeded fourth-quarter estimates, expecting improvement based on "favourable" buying conditions in China and lower logistics costs.

"Dollarama reached an EBITDA margin of 26.5 per cent in 4Q FY17," he said. "While seasonally high sales volume typically achieved in 4Q drives attractive operating leverage across many, if not most, discretionary retailers, Dollarama's 4Q EBITDA margin is exceptional. Dollarama benefits from essentially no markdowns, and experiences no pyrrhic victories such as clearance-led surges in customer traffic."

Mr. Howlett feels the company's decision to accept credit cards by the end of the second quarter is likely to have a "neutral" effect financially with higher transaction processing fees being offset by gross margin on incremental fees.

He raised his fiscal 2018 EPS projection to $4.27 from $4.15 and introduced a 2019 estimate of $4.95.

"Dollarama appears to be the only small-format discount retailer still expanding," said Mr. Howlett. "Dollarama has defined the dollar segment in Canada, grown the segment and increased its share within it. The leading U.S. chain, Dollar Tree, has 226 stores in the market, from B.C. to Ontario. In its most recent fiscal year, it added only one net new location. Going forward, we expect executive management of Dollar Tree to remain focused on integrating Family Dollar in the U.S. while simultaneously facing rapid store network expansion by Dollar General and Aldi, and the planned market entry this summer of Lidl."

He added: "Dollarama's same-store sales growth is outstripping that of its U.S. peer group. Dollarama has a different consumer proposition and business model than its U.S. peers. The U.S. peers consist of: (1) Five Below, a high-growth, trend-focused retailer offering a product assortment targeted at teenagers and tweens with prices per item at $5 (U.S.) or below; (2) Dollar General, a small-format discount retailer with its sales heavily weighted to consumables (grocery, HBA, household cleaning), and which is adding 1,000 stores per year; (3) Dollar Tree, an 'everything for a dollar' store in the midst of integrating Family Dollar, a financially less productive version of the Dollar General store concept."

Calling it "one of the top consumer growth stocks in North America," Mr. Howlett maintained a "buy" rating and raised his target to $120 from $116. The analyst average is currently $120.73, according to Bloomberg.

"Dollarama continues to execute against a proven concept," he said. "It is driving higher financial returns through increased scale and ongoing improvements to operating efficiency, while continuing to offer compelling product values to an expanding and increasingly loyal consumer base. The largest direct competitor, Dollar Tree Canada, added only one store during its recent fiscal year, ending with 226 stores vs 1,095 Dollarama stores. No external competitive impediment to Dollarama is currently visible."

Elsewhere, Raymond James analyst Kenric Tyghe kept "outperform" rating for the stock, raising his target to $120 from $115.

"In our opinion the credit card acceptance announcement is particularly positive given both the multiplier (at approximately 2.3 times) of average credit card to debit card spend, and a further increase in plastic (versus cash) share at the POS [point of sale]," said Mr. Tyghe. "We also believe that the increase in the long-term store footprint from 1,400 to 1,700 stores has as much to do with new census data, as it does with the opportunity created by a key U.S. competitor finding the integration of Family Dollar a little more challenging (and the Canadian market more competitive) than expected. In addition to delivering a solid beat and increasing the dividend by 10 per cent, management revised higher its 2018 gross margin guidance, with a range of 37.5- 38.5 per cent (versus 37.0-38.0 per cent previously)."

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BMO Nesbitt Burns analyst Edward Sterck upgraded Lucara Diamond Corp. (LUC-T) based on its recent retreat in share price.

Moving his rating to "outperform" from "market perform," Mr. Sterck said Lucara remains "relatively expensive" in comparison to its peers. However, he said a premium is warranted given the potential sale of the 1,109-carat "Lesedi La Rona" diamond as well as future large diamond recoveries.

"Over the last six months Lucara's share price softened by [approximately] 30 per cent and the current price of $3.00 per share is some 15 per cent lower than our target price of $3.50 per share," the analyst said. "The price performance in part reflects the overall weakness in the diamond market exaggerated by the impact of Indian demonetization. Furthermore, higher waste stripping costs in 2017 for deferred tax purposes, and uncertainty over the timing of the sale of the "Lesedi La Rona" may have caused some uncertainties over the likelihood of a special dividend.

"Our view is that these concerns are overdone, that the 4-per-cent yield off the basic dividend is attractive in its own right, and that additional special diamond recoveries and sales could provide further upside potential. This is before taking into account the significant cash injection to come when the company sells the 'Lesedi La Rona', although the timing of this is less certain."

His target remains $3.50. Consensus is $3.06.

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BMO Nesbitt Burns analysts remain constructive on the outlook for mining stocks, seeing a recent pull-back resulting in "good" entry points for investors.

"We have raised commodity prices by an average of 3 per cent, but this masks more significant increases in iron ore (16 per cent), aluminum (13 per cent), and copper (8 per cent), partially offset by reductions in metallurgical coal (8 per cent), and zinc (6 per cent, but only for 2017)," the firm said in a research report updating the sector's second quarter.

"In general, the revised forecasts imply expectations for a relatively sideways trend for most prices for the balance of 2017. Supply issues are an emerging theme in 2017, with copper/zinc experiencing disruptions/shortages, while aluminum, coal, and steel are exposed to China policy swings directed at domestic supplies. Preferred commodities: Zinc, Uranium, and Steel (U.S.)."

Concurrent with the report, BMO's Andrew Kaip upgraded Fortuna Silver Mines Inc. (FVI-T) to "outperform" from "market perform" based on relative valuation and its future growth prospects.

"FVI has declined 12 per cent [year to date], while the silver sector has grown 11 per cent particularly given the potential to beat 2017 production guidance at San Jose and future growth potential at Lindero," said Mr. Kaip.

His target price fell to $9 from $10.75. Consensus is $8.24.

"FVI maintains a strong balance sheet, while management has a proven track record of delivering projects on time and under budget and logging exploration results that drives year-over-year reserve growth," he said. "These fundamentals have not changed over the past 3-months, but share price declines related to the $65-million bought deal and year-end reporting delays are overdone in our view and support our strong value investment thesis going forward."

Mr. Kaip downgraded Pan American Silver Corp. (PAAS-Q, PAAS-T) to "market perform" from "outperform" on valuation, lowering his target to $19 from $21. The average is $20.94.

"Since November 2016, PAAS shares have held their value while silver equities have declined on average 22 per cent," he said. "[Year to date] PAAS is up 18 per cent versus peers at 11 per cent. We believe the company's strong share price performance has supported strong execution at La Colorada and Dolores."

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Expecting "stronger" upgrade sales for its "loyal" customer base when the iPhone 8 is released, Canaccord Genuity analyst T. Michael Walkley raised his estimates for Apple Inc. (AAPL-Q).

"Given the Galaxy Note 7 issues and strong demand for iPhone 7 Plus models, we believe Apple extended its leading market share of the premium-tier smartphone market installed base during 2016," said Mr. Walkley. "We believe these trends enabled the iPhone installed base to exceed 570 million users exiting calendar 2016, and this expanding based helped drive record December quarter services revenue. We also believe the impressive installed base should drive strong iPhone replacement sales and earnings, as well as cash flow generation to fund strong long-term capital returns. While we anticipate a stronger upgrade cycle in calendar 2018 with the 10-year anniversary iPhone 8, our surveys indicate solid iPhone 7 demand should bridge the gap until a new form factor iPhone that should capture higher ASPs [average selling prices] launches in September. We anticipate steady iPhone 7 sales through the first half of calendar 2017, and we anticipate strong iPhone 8 sales to drive year-over-year unit growth and ASP expansion."

Mr. Walkley said iPhone 8 sales could exceed the "strong" sales of iPhone 6 models, anticipating "a new form factor will spur strong replacement sales with improving ASPs." He is projecting 2018 iPhone sales of 246 million units, versus the 231 million units sold in 2015 during the iPhone 6 upgrade cycle.

"Given our expectations for higher-end models with OLED screens, wireless charging, and other features, we are also modeling fiscal 2018 ASPs of $681 versus the strong $671 in 2015," he said. "We believe these estimates could prove conservative as we assume a lower percent of the installed base will upgrade to the iPhone 8 than the iPhone 6 with potentially conservative ASP assumptions given our belief new OLED screen iPhone 8s will have strong demand despite an ASP premium to previous iPhone models."

In reaction to his new iPhone estimates, Mr. Walkley increased his calendar 2017 and 2018 EPS projections to $9.91 (U.S.) and $10.93, respectively, from $9.25 and $10.30.

He maintained a "buy" recommendation for Apple stock, raising his target to $165 from $154. The analyst consensus price target is $145.22, according to Thomson Reuters.

"While we believe a strong iPhone 8 cycle with increased ASPs and strong gross margins should drive Apple shares towards our increased price target, we believe the potential for a tax repatriation combined with Apple's growing services business could also serve as catalysts for the share price," said Mr. Walkley. "With $230-billion of Apple's $246-billion cash balance outside the United States, we believe the potential for a low tax repatriation would be positive for Apple shareholders, as this could enable Apple management to increase buybacks and dividends. With Apple management targeting to double services revenue over the next four years given the growing installed base with increased ARPU [average revenue per user] trends, we believe this high-margin business could provide upside to our estimates particularly if the iPhone 8 is successful in expanding Apple's installed base."

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Canadian asset managers continue to struggle through a "challenging" environment and competitive landscape, said BMO Nesbitt Burns analyst Nick Priebe.

"Fee compression remains a prominent industry headwind, and can be largely attributed to a combination of factors, including competitive pressure, greater fee transparency and periods of low investment returns," he said. "The rising popularity of passive strategies and a heightened level of regulatory interest in the sector are also key themes at the forefront of investor consciousness. In the context of a challenging and competitive wealth management landscape, we prefer asset managers displaying defensive characteristics and a reasonable growth outlook."

In a research report, Mr. Priebe initiated coverage of several small-cap asset managers.

"In general, the asset managers offer competitive dividend yields and attractive valuation multiples in the context of historic averages," he said. "Dividend yields of 5-6 per cent are largely covered by free cash flow, and while fee compression remains a prominent industry headwind, we see lower risk for asset managers that derive a significant share of revenue from lower-fee assets. The small-cap asset managers also provide a significant degree of insider ownership, which we view as a positive attribute supporting a better alignment of management interests with those of shareholders. Lastly, for investors concerned about the impact of new mutual fund regulations, the small-cap asset managers offer lower exposure owing to a diversified asset mix."

The analyst gave Fiera Capital Corp. (FSZ-T) an "outperform" rating and a target price of $16. Consensus is $15.57.

"In our view, Fiera Capital provides investors with exposure to a unique growth strategy, strong earnings momentum, and a competitive dividend yield," he said. "A desirable risk profile is supported by a diversified geographic focus and asset mix, as well as the company's lower exposure to new mutual fund regulation. We expect that the evolution of the relationship with National Bank will remain a key focal point for investors. National Bank assets currently represent 20 per cent of AUM [assets under management], but we expect the bank's influence to gradually diminish as Fiera Capital delivers on future M&A. In our view, Fiera Capital's track record of execution, earnings momentum, unique growth strategy, and attractive valuation make it a standout among the independent Canadian asset managers."

Mr. Priebe also gave Guardian Capital Group Inc. (GCG.A-T) an "outperform" rating. He set a price target of $30 for the stock, versus the analyst consensus of a loonie less.

"In our view, Guardian is a well-diversified wealth management business displaying strong fundamentals and a solid balance sheet," the analyst said. "The company has delivered multi-year growth across multiple lines of business and is well capitalized to continue reinvesting in attractive growth opportunities. Guardian also represents a unique opportunity for small-cap investors to gain exposure to large-cap financials through the company's significant ownership of BMO shares. Despite Guardian's above-average exposure to retail assets, we are encouraged by growth in the financial advisory business, a desirable risk profile (overall), and capacity for future dividend growth, which could appeal to a broader yield-oriented shareholder base. Overall, our constructive long-term outlook for Guardian shares is predicated on stable management fees, healthy margins, a reasonable growth outlook, a well-diversified business model and attractive valuation."

The analyst initiated coverage of Gluskin Sheff + Associates Inc. (GS-T) with a "market perform" rating and $18 target. Consensus is $19.50.

"Gluskin is well positioned to benefit from future growth in the high net worth segment of the Canadian wealth management industry, and represents a unique opportunity for investor exposure to this attractive channel," said Mr. Priebe. "However, near-term headwinds may continue to limit upside to the company's valuation, in our view. We expect investor concern surrounding the outcome of arbitration proceedings to remain an overhang on the company's shares through the first half of 2017. We also expect that negative investment flows will continue to dampen investor enthusiasm and limit share price upside in the near term."

He gave Sprott Inc. (SII-T) a rating of "market perform" and $2.25 target. Consensus is $2.47.

"Sprott remains one of the most active asset managers with respect to new product launches and business development efforts," said Mr. Priebe. "We are encouraged by Sprott's focus on cost reduction initiatives and strong balance sheet, which provides flexibility to pursue attractive growth opportunities and supports dividend sustainability in periods of market volatility. However, we remain cautious on the outlook for net sales, operating margins, and low AUM visibility. We await a more compelling entry point for Sprott shares, and continue to monitor for sustained momentum in net sales, operating margins, and further strength in resource equities that could enhance the outlook for future performance fees."

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In a research note on Canadian small and mid-cap exploration and production companies, Credit Suisse analyst David Phung downgraded Painted Pony Petroleum Ltd. (PPY-T) in conjunction with revisions to the firm's commodity price forecasts.

"We revise our natural gas price forecas, with our NYMEX assumption up to $3.44 (U.S) per million British Thermal Units, or mmBTU, (was $3.25) in 2017, with no changes to our 2018 projection of $3.50/mmBTU, and down to $3.25/mmBTU longer term (was $3.50/mmBTU)," said Mr. Phung. "In the near term, due to a number of considerations such as export demand growth and less than full pipelines that could lead to less storage fill this summer and next, which we believe could lead to near term upside with natural gas prices. However, longer term Credit Suisse believes that $3.50/mmBTU may be too high as infrastructure continues to be built out and may incent too much production growth.

"In Canada, we see little to no reason to believe that the longer term structural pressure on Western Canada will alleviate any time soon. As such, we further widen our AECO basis differential to roughly $1.00/mmBTU on our forecast. We believe that upstream producers will take advantage of any near term volatility and hedge AECO at C$3 or higher, and potentially render higher prices to be short lived. Our AECO forecast remains relatively accommodating when compared to the current strip, which is also in part a reflection of Credit Suisse's NYMEX projections also above strip. Given our longstanding views and concerns, we continue to have a bias to the downside for AECO in the longer term. However, that being said, we wonder if the current strip AECO forecast may be sustainable as relatively few assets in Western Canada may generate a reasonable full cycle return at low prices. We continue to believe that there may need to be a rebalancing of production and price, with higher cost legacy gas production declining to make room for lower cost Montney and Deep Basin volumes."

On Painted Pony, Mr. Phung lowered his rating to "underperform" from "neutral."

"In our prior publications, we have consistently expressed our concern over even wider basis differentials in northeast British Columbia, where gas prices are currently at a discount to AECO, which in turn is at a meaningful discount to NYMEX," he said. "Additionally, we have also stated that the company's well results appear variable on its acreage. Furthermore, we view the recent announcements of reduced guidance followed by its proposed acquisition of UGR to have relatively high risk, and combined with our more tempered view of AECO pricing, we believe the potential risks with Painted Pony to outweigh the rewards."

"Despite our downgrade, we believe that there are meaningful risks to our Underperform rating. The company's relatively higher cost structure combined with potential volatility in the commodity price can lead to significant risks in taking a short position. In a longer term timeframe, widening differentials may place meaningful pressure on the business."

His target for the stock fell to $5 from $7. Consensus is $10.35.

"Our target price continues to be based on our PD Plus NAV, which combines current production value with future drilling inventory, after taking into consideration a number of factors including balance sheet strength, facilities, cost structure and asset quality, among others," the analyst said. "For Painted Pony that has a relatively higher cost structure within our coverage space, risks to future drilling inventory and its attractiveness may become increasingly uncertain with lower gas prices. We continue to find it difficult to assign a large amount of future drilling inventory within our valuation with a high degree of confidence, which is somewhat in line with the company's recently announced reduction in capital spending and production guidance. In the near term, we look forward to the company successfully renewing its bank line in April 2017, which may also entail some degree of risk, depending on the commodity price forecast utilized."

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Based on BMO's higher iron ore price outlook, BMO Nesbitt Burns analyst Edward Sterck raised his rating for Vale S.A. (VALE-N) to "market perform" from "underperform."

On Friday, BMO raised its iron price forecast for 2017 by 16 per cent to $75 (U.S.) per ton from $64. Its 2018 and 2019 projections jumped by 22 per cent to $55 from $45, while its 2020 estimate rose 8 per cent to $60 from $55.

"Higher iron ore estimates for 2017 and 2018 result in substantial increases to Vale's EBITDA outlook (15 per cent and 30 per cent) and drive a significant improvement to the balance sheet," said Mr. Sterck. "Whilst Vale looks to be in a better position and offers leveraged exposure to iron ore, we continue to prefer Rio Tinto given the better risk profile and current 7-per-cent combined yield (dividend plus buyback)."

Mr. Sterck's EBITDA estimates for 2017 and 2018 rose by 15 per cent and 30 per cent, respectively. His earnings per share projection for 2017 rose 27 per cent to $1.29 (U.S.) from $1.02, while his 2018 estimate jumped to 76 cents from 41 cents (an 87-per-cent increase).

His target price for Vale stock rose to $10 from $7.  Consensus is $10.30.

"The new $10.00 (U.S.) per share target price represents a 5.3 times average 2017/2018 enterprise value/EBITDA," said Mr. Sterck. "The stock is currently trading on 5.1 times average 2017/2018 EV/EBITDA versus the peer group average of 4.1 times. Our NPV [net present value] estimate increases from $5.81 (U.S.) per share to $6.87 (on a 10-per-cent discount rate). Vale is trading at a premium to peers, which should be maintained if the iron ore market remains buoyant. However, we caution that softening in the iron ore price at a faster than expected pace will likely also be reflected in Vale's share price."

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A disconnect between "solid" aluminum and alumina price and "soft" Alcoa Corp. (AA-N) shares creates a "compelling" buying opportunity for investors, said BMO Nesbitt Burns analyst David Gagliano.

He raised his rating for Alcoa stock to "outperform" from "market perform."

"Overall, in our opinion global aluminum fundamentals continue to trend in the right direction, albeit slowly, and off a reasonably low base," said Mr. Gagliano. "To reflect a) the stronger than previously expected pricing start in 2017, b) the continued improvements in underlying fundamentals, and c) what we believe will be continued input cost pressures at the high end of the global cost curve, we have raised our 2017 aluminum price forecast to 85 cents per pound from 75 cents, and our 2018 and 2019 aluminum price forecasts to 85 cents from 80 cents (alumina: 2017 to $325/mt from $280/mt , 2018 and 2019 to $300/mt from $280/mt)."

"Aluminum prices remain supported by input cost pressures at the high end of the cost curve, with aluminum supply/demand and utilization rates continuing to slowly trend in the right direction. However, in our opinion aluminum prices will also continue to be capped in the near term by excessive inventories and idled (albeit smaller) production capacity."

In justifying his rating change for Alcoa, Mr. Gagliano pointed to four factors:

1. A "compelling" risk/reward, noting: "We estimate 30-40-per-cent upside in AA shares if aluminum and alumina prices remain flat, and 60 per cent if prices improve only 10 per cent versus current. Conversely, we estimate AA shares are already discounting a 10-15-per-cent decline in aluminum and alumina prices (based on 4.5-5.0x implied EBITDA)."

2. "Compelling" valuation.

3. Growth through delivering and dividend/buyback opportunities. "In our view the FCF will likely be used to a) fund bauxiterelated growth projects, b) reduce pension and OPEB liabilities, then c) pay a dividend / repurchase shares," he said.

4. The potential for upward revisions, noting consensus EBITDA expectations are 15 to 20 per cent below his 2017 and 2018 estimates.

Mr. Gagliano raised his target price for the stock to $45 from $35. Consensus is $42.40.

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Atlantic Gold Corp. (AGB-X) is "angling for the big catch in Nova Scotia" with its Moose River Consolidated project, said Raymond James analyst Tara Hassan.

She initiated coverage of the Vancouver-based exploration and development gold mining company with an "outperform" rating.

"Over the last three years, the management team of Atlantic has completed a number of critical milestones that have allowed for accelerated development of the project," she said. "The most notable accomplishment was the consolidation of multiple land positions hosting the deposits composing of MRC (Touquoy and Beaver Dam) and the satellite deposits Fifteen Mile Stream and Cochrane Hill. Previously the project claims had been held by a series of different owners and the deposits were largely evaluated as higher grade, underground targets. The consolidation of the land package and reevaluation of data provided the first opportunity to consider the MRC as a larger, medium grade open pit project with Fifteen Mile Stream and Cochrane Hill providing potential satellite feed opportunities. Completion of the project consolidation included inheriting a joint venture for the Touquoy project with Moose River Resources Inc. (MRRI, private), resulting in Atlantic owning a 63.5 per cent effective interest on this component of MRC. The remaining deposits are owned 100 per cent."

On schedule and budget to begin commissioning in September, MRC is expected to deliver 87,000 ounces of gold per year at an estimated all-in sustaining cost of $518 (U.S.) per ounce. Ms. Hassan called it "one of the lowest cost operations in North America."

"Ranking MRC against North American potential open pit exploration and development projects, shows that MRC on its own would be amongst the smaller on a resource basis, but it ranks near the upper half on grade," she said. "If the larger complex of Cochrane Hill and Fifteen Mile Stream are considered, Atlantic would rank in the top 30 per cent on scale, a notable move from the base case of just MRC. We also note that many of the higher grade projects that are included in the group may have higher strip ratios than MRC."

She added: "MRC is one of only a handful of projects set to be commissioned over the next 18 months, its valuation does not reflect the stage, or uniqueness of its asset base. We believe this discount can be attributed to a number of factors including (1) outdated views of the geological setting, (2) rapid advance to production coinciding with challenging market conditions, limiting marketing to potential investors, and (3) the company's tight share structure, which includes 37-per-cent FD ownership by management and insiders. While we expect the tight share structure to remain in the near term, the other factors will be addressed, which combined with a transition to production in 2H17, could lead to increased multiples."

Ms. Hassan set a target of $1.60. Consensus is $1.57.

"We believe the company is positioned for a valuation re-rating as it transitions to production in 2H17 and demonstrates the potential for an extended and optimized mine life through delivery of studies for satellite deposits," she said.

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In other analyst actions:

TransCanada Corp. (TRP-T) was rated new "outperform" at Wells Fargo by equity analyst Praneeth Satish without a specified target. The analyst average is $69.46.

Mr. Satish gave Enbridge Inc. (ENB-T) a new "market perform" rating without a target. The average target is $64.65.

Trilogy Energy Corp. (TET-T) was rated a new "buy" at Laurentian Securities with a target of $6.50. The average is $7.64.

Extendicare Inc. (EXE-T) was downgraded to "neutral" from "sector outperform" at CIBC with an unchanged target of $11. The average is $10.13.