Goldman downgrades Caterpillar; a warning on HBC earnings

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

Goldman Sachs downgraded Caterpillar Inc. to "neutral" from "buy," seeing limited upside for the stock given the depressed commodity prices that have weakened demand for its machinery.

"We remain constructive on Caterpillar's leading returns and franchise and its structurally higher construction-equipment margins, but in an over-supplied commodity environment we no longer see upside to consensus earnings expectations," Goldman Sachs said.

Target: Goldman cut its price target to $101 from $116 (U.S.). The average target among analysts is $111.40.

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Investors should brace for a disappointing fourth quarter at Hudson's Bay Co., warns BMO Nesbitt Burns analyst Wayne Hood.

Shares in the department store retailer went public last November at $17 each, and have been struggling ever since as the company attempts to mount a turnaround in its profitability.

HBC is scheduled to report its latest quarterly results on April 11. Mr. Hood believes the competitive retail environment faced by its Lord & Taylor unit in the U.S., and last winter's harsh weather conditions that left many consumers cocooning at home, will mean its turnaround will still be a work in progress.

"We believe the long-term transformation of HBC into a more productive and profitable department store remains intact, but expect 4Q12 results to have fallen below expectations, primarily on higher-than-expected merchandise markdowns, particularly at Lord & Taylor. Moreover, we believe 1Q13 sales and earnings results could be adversely affected by cold weather in the U.S. that has stalled the sales of early spring merchandise for many retailers," Mr. Hood said in a research note.

That said, he still expects adjusted earnings per share to come in 11 per cent higher than a year ago, to $1.15, with comparable store sales growth of 1.8 per cent.

He estimates fiscal 2013 and 2014 earnings per share at $1.38 and $1.63, respectively, which is well above the average estimates among analysts.

"We believe FY2013 and FY2014 consensus estimates of $1.50 and $1.74, respectively, are too high and are likely to come down unless analysts further back-end load their FY2013 forecasts," he said.

Target: Mr. Hood maintained a $19 price target and "market perform" rating. The average price target among analysts is $19.96, according to Bloomberg data.

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RBC Dominion Securities analyst Walter Spracklin has raised his earnings-per-share forecasts for Canadian Pacific Railway Ltd.'s first quarter, citing impressive gains in its long-haul business as well as improving operating metrics despite the rough winter.

"CP's management team has clearly managed through a tough Canadian winter and is poised to come out on the other end with flying colours," Mr. Spracklin said. "We had previously been of the view that winter would pose a risk to earnings/valuation. However based on reported metrics, the CP team has managed the winter brilliantly – prompting us to take up our numbers ahead of the quarter."

He now predicts first-quarter earnings per share of $1.24, up from $1.05, and ahead of the consensus call of $1.19.

"We continue to believe that CP's new operating plan will improve the company's operating efficiency and drive material earnings growth over the long-term. That said, we consider the company's earnings potential to be fully priced into the stock at current levels; therefore we reiterate our sector perform rating on CP shares."

Target: Mr. Spracklin raised his price target by $4 to $104 a share. The average target on the Street is $120.27.

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Reitmans (Canada) Ltd. is likely to announce a restructuring when it reports fourth-quarter results, but it will probably be limited to things like back-office functions, rather than store operations, said RBC Dominion Securities analyst Tal Woolley.

He thinks the quarterly results won't be very inspiring and will underline the need for a pronounced turnaround.

"After six years of negative same-store sales, Reitmans has gone longer than most retailers in 'dry patches' (e.g. Forzani Group, The Brick, Hudson's Bay Company, Rona) without a major strategic revamp. We increasingly believe that one is likely necessary," he said.

Target: Mr. Woolley cut his price target to $12 from $18 and reiterated an "outperform" rating. The average analyst target is $12.67.

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Shares in Absolute Software Corp. soared about 18 per cent on Wednesday after announcing Samsung Electronics Co. Ltd. will use its software that allows for tracking of stolen mobile devices in its Galaxy range of products. While there was reportedly no financial component to the deal, the company hopes it will pave the wave for future deals.

Several analysts raised their price targets on Absolute Software, including Cantor Fitzgerald's Tom Liston, who named the stock as a new "top pick," and BMO Nesbitt Burns analyst analyst Thanos Moschopoulos, who upgraded it to "outperform."

"With the Samsung announcement, Absolute is now in our view well on its way toward becoming a de-facto standard for mobile theft protection across smartphones and tablets (as it has been for laptops). We expect that this will significantly accelerate the company's growth prospects," said Mr. Moschopoulos.

Target: Mr. Moschopoulos raised his price target to $8.50 and Mr. Liston raised his to $9. The average analyst target is $7.31.

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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @ eyeonequities