A condo complex under construction is seen in Whistler, B.C., on Thursday December 4, 2014.DARRYL DYCK/The Globe and Mail
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.
Canaccord Genuity has upgraded shares of CanWel Building Materials Group Ltd. (CWX-T) to "Speculative Buy" from "Hold" and raised its target price to $6.50 (Canadian) from $5.50, in light of its acquisition of California Cascade Industries.
The $56.6-million (U.S.) acquisition, financed by $52-million in equity and that closed on July 2, is CanWel's dip into the U.S. building products and pressure treated wood products markets. It provides CanWel with "exposure to the booming Californian housing market."
"The CCI acquisition and related financing address a number concerns we had with CanWel in the past: it reduces the company's financial leverage and adds a much needed growth angle to the CanWel story. The acquisition is accretive taking our target price higher and the 21% total return it implies, inclusive of a 9.6% dividend yield, justifies our SPEC. BUY," Canaccord said in a note.
Canaccord adds that it believes CanWel's current 56-cent dividend is "increasingly sustainable."
"We forecast a payout ratio of 96% in 2017E. While high, we are comfortable in the near term given the … balance sheet improvement, the potential for synergies, which we have not modeled, and the potential for CCI to outperform our conservative financial forecast. We note CanWel's CEO, Amar Doman, remains a major shareholder with ~25% of the company pro forma the financing," Canaccord said.
CanWel was also raised to "Buy" from "Speculative Buy" at Cormark Securities. The 12-month target price is $7.40 (Canadian) per share.
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Desjardins Capital Markets has upgraded EnerCare (ECI-T) to a "Buy" from a "Hold" while leaving its target price unchanged at $15.50.
"We rate ECI's shares Buy-Average Risk (previously Hold-Average Risk) with a target price of $15.50. Whereas our previous stance had been that ECI's shares were fairly valued, recent selling pressure on the shares has prompted us to revisit our recommendation. The company is benefiting from traction stemming from its strategy to add high-value customers (eg. through HVAC rentals), as well as less aggressive competition and favourable regulatory changes. We recommend purchase of the shares.
"ECI's shares have declined by ~16% from their 52-week high, which we speculate is primarily attributable to Augustus Advisors (owner of ~6.8 shares as of the last filing) selling down its position. At current levels, we believe the shares offer an attractive entry point for investors. Further, management's efforts to accelerate revenue growth could yield potential additional upside."
Some important notes in the Desjardins position include management's focus on accelerating revenue growth, and a payout ratio that could exceed 100-per-cent in light of a 15.9-per-cent dividend increase.
"The risk to our call is that the downward pressure on ECI's shares relates to investor anxiety about a more fundamental issue that — in the best-case scenario of rapid HVAC rentals growth (capex of ~$30million) — the company's all-in payout ratio could exceed 100% in the near term. In light of the company's recent 15.9% dividend increase, it may be somewhat confusing to investors that this scenario could play out."
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Desjardins Capital Markets is reducing its target price but maintain its Hold rating on Jean Coutu Group Inc. (PJC.A-T) by $2.50 to $23 as a "precautionary measure" after the drugstore chain headquartered in Longueuil, Québec warned that regulatory change may be coming in the province.
"The company's understanding is that the association representing pharmacists in Québec may have agreed with the Ministry of Health to a reduction in dispensing fees in return for a removal of the cap of 15% on professional allowances on generic drugs. This could lead, in our view, to materially larger allowances. Until more is known, we have reduced our target price by $2.50 to $23 as a precautionary measure.
"Jean Coutu Group is one of the most productive retail pharmacy networks in North America. In recent years, franchisor EBITDA growth has been driven more by generic drug manufacturing than by retail franchising activities. There are significant near-term risks to profits from manufacturing. Our rating is Hold–Average Risk."
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Desjardins Capital Markets has increased its price target of Crius Energy Trust (KWH.UN-T) to $10.25 after the United States-based provider of electricity, natural gas and solar products it closed a $46-million equity offering and used the majority of the proceeds to increase its indirect ownership stake to 43.1-per-cent from 26.8-per-cent in Crius Energy, LLC.
"Given an increased scale/float, we believe KWH.UN has lowered its cost of equity; for our DCF, we have lowered our cost of equity to 13.0% from 14.5% and increased our EV/EBITDA multiple on the base energy retail business to 5.0x from 4.5x. Coupled with the modest accretion from the buyout, our target increases to $10.25 from $9.50.
"We believe the financing and increased LLC ownership are positives. The public raise increases KWH.UN's float and brings the market cap above $100-million, which should translate into increased trading liquidity and investability. Further, operating results over the past several quarters have shown strong improvement and increased stability. We believe continued strong growth of the solar segment, soon-to-be-realized benefits from the TriEagle acquisition and potential positive impact of the Comcast deal provide strong momentum. We reiterate our Buy–Above-average Risk rating."
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Canaccord Genuity is maintaining its Hold rating but is increasing its target price on Alamos Gold (AGI-T; AGI-N) to $9 from $8.50 on the strength of its merger with AuRico Gold (AUQ-T; AUQ-N) which closed last week.
"In our opinion, the combination of both companies creates a higher quality intermediate gold producer than either of the companies on a standalone basis based on a combination of Alamos' strong balance sheet, AuRico's attractive asset base (underpinned by the long-life, low-cost Young-Davidson mine in Ontario) and Alamos' current growth pipeline. We have increased our target multiple to 0.90x (from 0.85x previously), reflecting an improved asset portfolio and free cash flow portfolio for the MergeCo."
"Our 12-month target price of $9.00 is based on 0.90x (previously 0.85x) our operating NAVPS estimate plus net working capital and other corporate adjustments."
Raymond James, however, is going the other way with its target price on Alamos Gold, decreasing it by $2 to $8 (U.S.) but will maintain its Market Perform rating.
"While the rationale on the surface of the combined company has its attractiveness, looking deeper into the composition of the new company leaves us less than enthused today (at least in the near term), primarily given the combination of the absence of a green-light in Turkey, the past and foreseeable operating form at Mulatos, and the yet achieved steady-state at Young Davidson."
In other analyst actions:
Capstone Infrastructure Corp. (CSE-T) was raised to "outperform" from "sector perform" at RBC Capital. The 12-month target price is $4 (Canadian) per share.
EnerCare Inc. (ECI-T) was raised to "Buy" from "Hold" at Desjardins Securities. The 12-month target price is $15.50 (Canadian) per share.
Ikkuma Resources Corp. (IKM-X) was rated new "Buy" at PI Financial. The 12-month target price is $1.30 (Canadian) per share.
Stingray Digital Group Inc. (RAY.A-T; RAY.B-T) was rated new "Outperform" at National Bank. The 12-month target price is $10 (Canadian) per share. The stock was also rated new "Market Perform" at BMO Capital Markets. The target price is $8 (Canadian) per share.
Aetna Inc. (AET US) was downgraded to "Market Perform" from "Outperform" at FBR Capital Markets. The 12-month target price is $130 (U.S.) per share.
Axovant Sciences Ltd. (AXON US) was rated new "Buy" at Jefferies. The 12-month target price is $31 (U.S.) per share. The stock was also rated new "Outperform" at RBC Capital. The 12-month target price is $40 (U.S.) per share.
Fortinet Inc. (FTNT US) was downgraded to "Underperform" from "Market Perform" at Cowen. The 12-month target price is $37 (U.S.) per share.
Guess? Inc. (GES US) was raised to "Neutral" from "Underweight" at Piper Jaffray. The 12-month target price is $20 (U.S.) per share.
Kraft Heinz Co. (KHC US) was rated new "Buy" at Stifel. The 12-month target price is $80 (U.S.) per share.
NetSuite Inc. (N US) was downgraded to "Underweight" from "Neutral" at Piper Jaffray. The 12-month target price is $79 (U.S.) per share.
Palo Alto Networks Inc. (PANW US) was raised to "Outperform" from "Market Perform" at Cowen. The 12-month target price is $205 (U.S.) per share.
Polaris Industries Inc. (PII US) was rated new "Neutral" at JPMorgan. The target price is $154 (U.S.) per share.
Union Pacific Corp. (UNP US) was raised to "Outperform" from "Market Perform" at Cowen. The 12-month target price is $111 (U.S.) per share.
VMware Inc. (VMW US) was downgraded to "Market Perform" from "Outperform" at FBR Capital Markets. The 12-month target price is $90 (U.S.) per share.
With files from Bloomberg News