Monday’s analyst upgrades and downgrades

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Inside the Market's roundup of some of today's key analyst actions. This file will be updated often during the trading day so check back for new details.

Caterpillar Inc. (CAT-N)  was upgraded from "neutral" to "outperform" by Robert W. Baird analyst Mig Dobre, who said the cycle of commodity deflation may have passed.

On April 23, Caterpillar reported first-quarter net income of $1.11-billion (U.S.) or $1.81 per share, up 20 per cent from $922-million or $1.44 per share in 2014. The consensus EPS forecast was $1.35. The company warned it faces a trio of difficult factors for the remainder of 2015: strong U.S. dollar causing increased competition; weak oil prices and geopolitical tension.

However, Mr. Dobre feels commodity prices are unlikely to drop further, pointing to stimulus from central banks.

"Through two commodity busts experienced since 1950 - Caterpillar has never underperformed for five years in a row (this holds true going as far back as 1930); as it stands today 2015 would make history marking the fifth consecutive year of underperformance," he said. "In the past, losing streaks have also given way to strong snap-back rallies: following four years of consecutive underperformance in 1981-1984, Caterpillar outperformed by a cumulative 39 per cent over the next three years while outperforming a cumulative 94 per cent following four years of consecutive declines from 1988-1991."

He added: "Our mining equipment shipment volume data is somewhat more limited (only 12 years of data), but in examining both Caterpillar and Joy Global, we note that the stocks peak and bottom 3 to 5 quarters in advance of actual turns in mining equipment shipments - waiting for confirmation from meaningful improvement in bookings would feel 'safe' but it will also mean being late to the party."

Mr. Dobre raised his target price from $80 to $101 (U.S.). The analyst consensus is $83.

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In the wake of a reduced outlook for North American engineered systems demand, Raymond James analyst Andrew Bradford downgraded Enerflex Ltd. (EFX-T) from "outperform" to "market perform."

Enerflex reported first-quarter earnings before interest, taxes, depreciation and amortization of $53-million, below the consensus of $57-million but in line with Mr. Bradford's forecast. However, bookings reached a record low of $141-million, compared to the analyst's estimate of $205-million.

Mr. Bradford said: "We expect that low bookings levels in Canada will persist through [the second quarter] but should rebound to some degree in [the second half of 2015] as the rig count recovers."

Accordingly, Mr. Bradford reduced his North American bookings forecast by 20 per cent (to $730-million) for 2015 and 14 per cent (to $1.1-billion) in 2016. Those figures are in line with 2013 results.

Mr. Bradford also expects the company's backlog to persist. It finished the quarter with a global backlog of $715-million in its engineered systems business, a low since the third quarter of 2013.

"We expect that the backlog will continue to fall as the build rate outstrips the rate of bookings over the mid-term," he said. "This should contribute to slightly lower revenues going forward as the build rate is adjusted for the size of the backlog. As a result, we are lowering our engineered systems revenue estimates by 4 per cent in 2015 and 17 per cent in 2016."

The analyst adjusted his price target to $16 from $18 (Canadian). The analyst consensus is $18.28, according to Thomson Reuters

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IGM Financial Inc. (IGM-T), parent company to mutual fund giant Mackenzie Financial, has been downgraded to "hold" from "buy" by Canaccord Genuity. Canaccord also cut its price target to $47.50 from $50.

The downgrade reflects net redemption trends at Mackenzie's retail funds and constant management fee pressure, according to Canaccord Genuity.

"The quarter was a disappointing one as the earnings were a slight miss and we have seen this for seven consecutive quarters," says Scott Chan, an equity analyst with Canaccord Genuity.

The net sales challenges at Mackenzie could persist over the near term, added analysts at Desjardins Securities. Desjardins reiterated a "hold" rating and $47 price target.

Mutual fund sales for the first quarter of 2015 were $2.0-billion compared to $2.4-billion in the prior year. Mutual fund net redemptions for the first quarter were $106-million compared to net sales of $354 million a year ago.

After some positive net sales traction in the first half of 2014, Mackenzie's retail division has experienced net redemptions for three straight quarters with substantial net outflows in April 2015.

"When you look at their three-year performance numbers, only 25 per cent of assets under management is in the  top-two quartiles, and that is usually a leading indicator in the sales outlook," says Mr. Chan.

Analysts continue to have concerns around Mackenzie's net mutual fund redemptions and say that the net sales trend at Mackenzie was topical given challenges with its Cundill funds, Mackenzie's largest fund family.

Analysts predict this trend could continue over the next few quarters as current market valuations do not create an optimal environment for the deep-value funds. Value funds in the industry have fallen, with a seven per cent drop on an industry wide basis.

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Despite a winter of poor weather conditions causing a steep decline in visits from local skiers, CIBC World Markets Mark Petrie isn't worried about the possibility for a repeat in the winter of 2015-2016 for Whistler Blackcomb Holdings Inc. (WB-T).

Viewing the stock as having "attractive upside potential," Mr. Petrie upgraded it from "sector performer" to "sector outperformer."

Mr. Petrie was impressed that Whistler Blackcomb posted its second-best second-quarter earnings before interest, taxes, depreciation and amortization despite a drop of almost 30 per cent in visits from local skiers due to the poor weather. He pointed out that destination visits grew by 9 per cent, and a weaker Canadian dollar should assist in that respect next season.

Overall, second-quarter results slightly missed the analyst's expectations. EBITDA was $76-million, below his estimate of $80-million and the $79-million result in 2014.

"We view this as a solid result in the face of very tough conditions," he said. "In our view, it also highlights the resiliency of WB's business, where despite the 13-per-cent decline in skier visits, Ski School and Retail & Rental revenue were actually up. Expense control was impressive, and the decline in EBITDA was simply driven by the fall in revenue. Looking ahead to F2016, and a 'normal' weather pattern, we expect that most of the expected 12-per-cent growth in revenues should fall to EBITDA."

He feels the 5.2-per-cent dividend yield provides further incentive for investors.  He raised his price target to $22 from $21 (Canadian). The consensus is $21.56.

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Canaccord Genuity analyst Gary Lampard downgraded HudBay Minerals (HBM-T; HBM-N) from "buy" to "hold" as the company waits for environmental approval of its proposed Rosemont Mine in Arizona.

The company reported adjusted first-quarter earnings per share of 0 cents, in line with his estimate but below the consensus of 3 cents. Its adjusted earnings before interest, taxes, depreciation and amortization was $20-million, below Mr. Lampard's forecast of $30-million.

"The miss against our cash flow forecasts was largely related to lower-than-forecast Manitoba zinc production, compounded by timing of sales of copper concentrate," he said.

The analyst expects HudBay's Constancia copper project in Peru, which achieved commercial production on April 30, to be positive against guidance during the second quarter.

"We note the potential for much higher valuations from 2018, as cash is accumulated from Constancia, and production commences from Rosemont," he said.

"However, we highlight the vulnerability of valuation to the Rosemont permitting decision, essentially a yes/no binary outcome."

He increased his target price to $13 from $12.50 (Canadian). The analyst consensus target price is $13.26.

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In other analyst actions:

Canaccord Genuity upgraded Chartwell Retirement Residences (CSH.UN-T) to "buy" from "hold" and maintained a $13.50 (Canadian) price target.

Canaccord Genuity upgraded Ritchie Bros. Auctioneers (RBA-T; RBA-N) to "hold" from "sell" and raised its price target to $26 (U.S.) from $23.

Atlantic Power Corp. (ATP-T;AT-N) was downgraded to "underperform" from "sector perform" at RBC Capital. The 12-month target price is $3.50 (Canadian) per share.

Canadian Natural Resources Ltd. (CNQ-T; CNQ-N) was raised to "top pick" from "outperform" at FirstEnergy Capital. The 12-month target price is $44 (Canadian) per share.

Golden Star Resources Ltd. (GSC-T; GSS-A) was raised to "outperform" from "sector Perform" at National Bank. The 12-month target price is 75 cents (Canadian) per share.

JPMorgan Chase & Co. (JPM-N) was downgraded to "neutral" from "buy" at MKM Partners. The 12-month target price is $65 (U.S.) per share.

KemPharm Inc. (KMPH-Q) was rated new "outperform" at RBC Capital. The 12-month target price is $18 (U.S.) per share. Oppenheimer also rated it new "outperform" with a target price of $20 (U.S.). Canaccord Genuity rated it a new "buy" with a  target price of $18 (U.S.) per share.

Trimac Transportation Ltd. (TMA-T) was downgraded to "sector perform" from "outperform" at RBC Capital. The 12-month target price is $7 (Canadian) per share.

Yellow Pages Ltd. (Y-T) was raised to "outperform" from "sector perform" at RBC Capital. The 12-month target price is $24 (Canadian) per share.

Aduro Biotech Inc. (ADRO-Q) was rated new "buy" at Canaccord Genuity. The 12-month target price is $43 (U.S.) per share. William Blair rated the company new "outperform."

Etsy Inc. (ETSY-Q) was downgraded to "underperform" from "neutral" at Wedbush. The 12-month target price is $14 (U.S.) per share.

GoDaddy Inc. (GDDY-N) was rated new "market outperform" at JMP Securities. The 12-month target price is $30 (U.S.) per share. The stock was rated new "overweight" at Piper Jaffray with a target price of $36 (U.S.) per share. Oppenheimer rated it new "outperform" with an 18-month target price of $31 (U.S.) per share. JPMorgan rated it new "overweight" with a $33 (U.S.) per share target price. It was rated new "outperform" at RBC Capital with a target price of $30 (U.S.) per share. Barclays rated it new "overweight" with a target price of $32 (U.S.) per share. But it was rated a new "hold" at Stifel.

Virtu Financial Inc. (VIRT-Q) was rated new "market perform" at BMO Capital Markets. The target price is $24 (U.S.) per share. Evercore ISI, Sandler O'Neill and UBS rated it a new "buy" with a  target price of $25 per share.

With files from Bloomberg News