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.

With the exception of higher commodity prices and potential mergers and acquisitions, Raymond James analyst Alex Terentiew does not see any near-term catalysts to drive higher the share price of Teck Resources Ltd.  (TCK.A-T; TCK.B-T; TCK-N).

He expressed  skepticism when evaluating reports of the company's interest in Barrick Gold Corp.'s Zaldivar mine in Chile. He estimated a deal would be slightly dilutive on net asset value and bring an 8.5-per-cent benefit to earnings before interest, taxes, depreciation and amortization in 2016.

"We believe that Teck will not be the ultimate acquirer of the mine," he said. "With strong competition for Zaldivar likely bumping up its price, and the mine in our view falling slightly short of Teck's previously stated acquisition objectives, we think Teck is not likely to emerge as the buyer of a stake in the mine. Zaldivar's cost structure is competitive and would fit Teck's criteria, with the main obstacle, in our view, being the mine's remaining life of 13 years (plus two years of residual processing, and four more, we estimate, if existing resources are converted to reserves).

He added:  "M&A/Zaldivar could spur investor interest, but we expect would be accompanied by a silver stream sale, issuance of equity and potentially another dividend cut. Buying a quality, producing asset such as Zaldivar we think is unlikely to be done at a discount to NAV, implying a cost of [approximately] $1.7-billion U.S."

In the wake of recent commodity price weakness, Mr. Terentiew dropped his met coal price forecast by 4 per cent to the lowest benchmark in a decade. Accordingly, he lowered his target price for stock to $16 from $19 (Canadian). The analyst consensus is $18.33, according to Thomson Reuters.

He maintained a "market perform" rating.

"On a positive note, with met coal prices now at decade lows, the pace of mine closures should accelerate," he said. "To date, there have been fewer mine closures than we expected, contributing to the oversupply and depressed prices. With cash margins facing more pressure and the prospect of a near-term uplift in prices limited, however, we believe that the ability, or more importantly the willingness, of miners to continue subsidizing loss-making mines with cash generated from their cash flowing mines is getting stretched, which should lead to more closures and ultimately higher prices."

Elsewhere, Desjardins Securities analyst Jackie Przybylowski lowered her price target to $18.50 from $21 (Canadian) and maintained a "buy" rating.

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Despite the possibility of TransForce Inc. (TFI-T) lowering its 2015 earnings before interest, taxes, depreciation and amortization guidance when it reports second-quarter results on July 23, CIBC World Markets analyst Kevin Chiang said he believes its share price "has found a floor at current levels."

For the second quarter, Mr. Chiang is forecasting EBITDA of $143-million, compared to a consensus of $150-million and the $107-million result of the same period a year ago, largely based on recent acquisitions. Saying the stock price has been "under pressure" following a tough winter and a "softer" overall economy, he feels there's a risk of TransForce cutting its full year guidance from $540-million to $560-million.

However, he doesn't expect a significant drop in share prices due to several factors, including: the market not paying for recent synergies and asset divestitures; signs of recovery in Canadian shipping rates;  a "compelling" free cash flow yield; and the its break-up value.

"A key catalyst for TFI will be its ability to spin off/sell its waste and [truckload] operations," said Mr Chiang. "A blue sky break-up value for TFI suggests a share price north of $35."

To reflect a "more challenging" operating environment and reduced economic assumptions, the analyst lowered his 2015 and 2016 EBITDA forecasts to $530-million and $569-million from $536-million and $578-million, respectively. He also lowered his price target to $31.75 from $32.50. Consensus is $31.88.

He maintained a "sector outperform" rating.

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In downgrading Macy's Inc. (M-N) from "buy" to "sell," Deutsche Bank analyst Paul Trussell expressed skepticism in the company's ability to "bust out of its [same-store sales] rut."

Mr. Trussell also admitted concern about sales deleveraging and an increasing pressure faced by the company from shipping, health care and retirement expenses.

"Furthermore, as [earnings before interest, taxes, depreciation and amortization] should stay flattish with capex constant, we would expect pressure on [free cash flow] to translate to reduced share repurchase activity," he said. "While we acknowledge that real estate monetization is a key risk to our Sell rating, we think the probability of a significant event is low."

The analyst lowered his earnings per share forecasts for 2015 and 2016 to $4.67 and $5.03 from $4.73 and $5.42 to reflect a downward revision in both same-store sales and EBITDA margin.

He also reduced his price target to $63 from $71 (U.S.).  Consensus is $68.53

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There is "substantially more upside" for the stock of Tesla Motors Inc. (TSLA-Q), said Credit Suisse analyst Dan Galves.

He estimated that the electric vehicle company's April/May volume in North American and Europe was nearly double that of the level reported in January/February. Mr. Galves added that if June's results were flat versus March, 12,500 deliveries would be achievable (compared to a guidance of 10,000-11,000). He said: "we believe Tesla's intention to smooth out the monthly cadence of deliveries will lead to overall Q2 volumes in the 11k-11.5k range vs 10.0k in Q1."

"We believe overall guidance for 55k units in 2015 includes about 48k for Model S. Achievement of this would represent 52% growth in third full year of Model S sales, undercut the most prevalent short thesis, and would increase confidence for 100k -150k combined … sales over next couple years," said Mr. Galves. "We expect the necessary uptick to 13.5k [per quarter in the second half of 2015] will be driven by the lower-end Model S70D which only began reaching U.S. customers in mid-May and Europe in late June."

He said the company's recently closed $500-million (U.S.) asset-backed credit demonstrates "strong" access to credit markets, and it makes a near-term equity offering less likely.

"Assuming Tesla draws down $400-million end of 2015, we see [estimated] 2015Y cash balances in the $1.5-billion range, well above the $1.0-billion comfort level, with [free cash flow] looking to be only slightly negative in 2016," he said. "Although we do see moderation of [research and development] [selling, general and administrative expense] growth and incremental Model X volumes as major cash flow benefits versus recent levels, we've been wrong before on the pace of Tesla spending for future growth. If the company does require additional capital to fund the current plan to get to 500k units by 2020, we think straight debt is more likely than equity / convert given strong credit access demonstrated by the [asset-backed lending]."

Mr. Galves maintained his "outperform" rating while raising his target price to $325 from $290 (U.S.). Consensus is $274.94.

"Overall, we see a much cheaper stock today versus the all-time high of $282 in September 2014, as near-term risks surrounding the auto business have been substantially reduced," he said). "Incrementally, Tesla Energy has potential to add 15-35 per cent to late-decade auto revenues which we believe makes valuations as high as [approximately] $400 possible over the next 12-18 months."

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Admitting his previous second-quarter earnings per share estimates for Schlumberger NV (SLB-N) were "stale" following lower-than-expected U.S. rig counts and preannounced results of several competing companies,  Credit Suisse analyst James Wicklund lowered his forecast  for the period to 78 cents from 87 cents and for 2015 to $3.50 from $3.90.

"[The Gulf of Mexico] continues to be a much better market than onshore U.S., but is likely to see some margin decline on mix of higher workovers and completions in a flat activity market. As a result, we would expect NAM margins to decline by 300-400 bps sequentially," said Mr. Wicklund.

He expects similar results for the company in 2016, and, accordingly, dropped his 2016 EPS estimate to $3.51 from $3.88, predicting: "U.S. activity begins to recover, but with very little pricing improvement and international activity is flat to only slightly down, depending on the continuing stability of Brent oil prices."

Mr. Wicklund maintained his "outperform" rating and target price of $86 (U.S.). Consensus is $101.53.

"While we realize the stock is not cheap and our target price is limited, SLB is one of the two companies best able to not only weather the cyclical storm but also to change how the industry works and benefit from those changes," he said.

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In other analyst actions:

Assured Guaranty Ltd (AG-N) was downgraded to "neutral" from "buy" at BTIG by equity analyst Mark Palmer.

Black Knight Financial Services Inc (BKFS-N) was rated new "buy" at Monness Crespi by equity analyst Alexander Veytsman with a target price is $36 (U.S.) per share. It was rated new "overweight" at JPMorgan by equity analyst Tien-tsin Huang with a $35 target. per share. Keefe Bruyette analyst Bose George rated it a new "market perform" with a target price of $31 per share.

Popular Inc (BPOP-Q) was downgraded to "neutral" from "buy" at Guggenheim Securities by equity analyst Taylor Brodarick.

Chesapeake Energy Corp (CHK-N) was raised to "buy" from "underperform" at Sterne Agee CRT by equity analyst Tim Rezvan. The 12-month target price is $13 (U.S.) per share.

Claude Resources Inc (CRJ-T) was rated new "speculative buy" at Canaccord Genuity by equity analyst Joe Mazumdar. The 12-month target price is $0.80 (Canadian) per share.

CenturyLink Inc (CTL-N) was raised to "outperform" from "market perform" at Raymond James by equity analyst Frank Louthan. The 12-month target price is $34 (U.S.) per share.

F5 Networks Inc (FFIV-Q) was downgraded to "neutral" from "overweight" at Piper Jaffray by equity analyst Troy Jensen. The 12-month target price is $130 (U.S.) per share.

Old Dominion Freight Line Inc (ODLF-Q) was raised to "buy" from "hold" at Stifel by equity analyst David Ross. The 12-month target price is $80 (U.S.) per share.

Pacific Rubiales Energy Corp (PRE-T) was downgraded to "underperform" from "sector perform" at RBC Capital by equity analyst Nathan Piper. The 12- month target price is $3 (Canadian) per share.

West Fraser Timber Co Ltd (WFT-T) was downgraded to "hold" from "buy" at TD Securities by equity analyst Sean Steuart. The 12-month target price is $74 (Canadian) per share.