Goldcorp Inc.MICHAEL DALDER/Reuters
Inside the Market's roundup of some of today's key analyst actions
Declining production and execution issues persist for Goldcorp Inc. (GG-N, G-T), said Citi analyst Brian Yu, who downgraded his rating for the stock to "neutral" from "buy" following "disappointing" fourth-quarter 2015 earnings and outlook.
"The production outlook is weaker than we were expecting although this is partially offset by lower costs," said Mr. Yu. "However, the company has faced a series of obstacles in the past few quarters and the latest major setback is the reclassification of its late-stage Cochenour project back to advance exploration as more recent drill results indicate that the mineralization is different than expected. Eleonore is also ramping at a slower pace than we initially projected and the company's core Penasquito mine is heading into a multi-year period of low-grade production. That said, GG still has a strong balance sheet with liquidity of $3.5-billion and should generate positive free cash flow. Weighing the positives and incremental negatives, we expect GG's valuation premium versus [Barrick Gold Corp., ABX-N] and [Newmont Mining Corp. NEM-N] to narrow."
Mr. Yu dropped his earnings before interest, taxes, depreciation and amortization (EBITDA) forecast for 2016 and 2017 to $1.246-billion and $1.233-billion from $1.408-billion and $1.411-billion, respectively, after incorporating the quarterly results and guidance into his forecasts.
"The revised estimates reflect lower production partially offset by lower cash costs," he said.
His EPS estimates for 2016 fell by a penny to a loss of four cents. His 2017 projection remains a loss of four cents, while his 2018 estimate is 32 cents, down six cents from his previous projections.
His target price for the stock remains $15 (U.S.) "in light of the recent strength in gold price." The analyst consensus is $18.13.
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Ahead of the release of its fourth-quarter 2015 financial results, Raymond James analyst Kenric Tyghe lowered his target price for Cara Operations Ltd. (CAO-T) to reflect "heightened" macro challenges and "low" prevailing consumer confidence.
Maintaining an "outperform" rating for the stock, Mr. Tyghe dropped his target to $28 from $38. The current analyst consensus target price is $33.88, according to Thomson Reuters.
"Where previously we applied the fast casual peer group average multiple, our new target multiple of 13.0 times (from 15.0x) is in line with the broader peer group (fast casual, full and limited service) average of 13.2x," said Mr. Tyghe. "We believe our new target multiple better captures the current mix and growth trajectory of the Cara business (clearly a higher growth acquisition of sufficient scale to positively impact the mix could necessitate our revisiting our target multiple).
"In terms of the quarter, while we expect relatively solid momentum in key banners, aided by Jays mania, the unseasonably warm weather and more people staying home (given the weak dollar), the (largely) macro-driven offsets result in the lowering of our 4Q15 estimated revenue from $90.1-million to $82.1-million, and operating EBITDA from $28.3-million to $27.3-million."
He maintained a fourth-quarter earnings per share projection of 34 cents, in line with the analyst consensus; however, his full-year 2015 estimate fell by a penny to $1.23. His 2016 and 2017 EPS forecasts fell to $1.41 and $1.54 from $1.51 and $1.64, respectively.
"Our revised 2016 and 2017 estimates reflect heightened macro challenges (and low prevailing consumer confidence), weighing on both the pipeline (increased deferrals) and same-store sales (SSS) growth," he said.
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Canaccord Genuity analyst Scott Chan lowered his sum-of-the-parts-based target for Onex Corp. (OCX-T) following the release of its fourth-quarter and full-year 2015 results to reflect a higher Canadian dollar and his net income projections.
For the fourth-quarter, the company's net asset value (NAV) increased 0.5 per cent year over year (19.9 per cent in Canadian dollars) to $54.39 (U.S.) per share, which Mr. Chan pointed out was lower than their long-term target.
"The slower growth mainly reflects its significant cash balance and mark-to-market losses in collateralized loan obligations (CLOs), offset by growth in the private equity (PE) segment (an increase of 12 per cent year over year), including realizations and distributions). In Q4/15, OCX recorded a mark-to-market CLO loss of $50-million (U.S.), with negative $94-million in total unrealized losses for 2015. OCX indicated they had four defaults from 220 loans, implying an annualized loss rate of less than 2 per cent.
"Management is optimistic about the rest of the portfolio and doesn't see more defaults over the next few months. Given all of the CLOs are considerably outside of their coverage tests, OCX believes unrealized losses should reverse and contribute to overall NAV growth in the future. That said, we believe OCX will be challenged to reached its NAV growth target in the near term due to: (1) challenging market conditions to source and finance new investments; and (2) considerable cash drag (approximately 36 per cent of current NAV)."
Mr. Chan also noted Onex's fee-generating capital growth was in line with targets, while its portfolio company earnings before interest, taxes, depreciation and amortization growth remains "strong."
Maintaining a "buy" rating for the stock, he lowered his target to $92 (Canadian) from $94. The analyst consensus is $87.83.
He said: "We believe OCX shares remain relatively attractive over the medium to long term due to: (1) potential to deploy significant cash into higher yielding investments supporting its medium-term net asset value (NAV) growth target of 15 per cent; (2) continued expected growth in its credit platform supporting asset management (and fee-generating asset growth target of 10 per cent); and (3) exposure to U.S. and global companies with the potential benefit of lower oil prices on portfolio companies."
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Recurring revenue provides a "modicum of stability" for Enerflex Ltd. (EFX-T), said BMO Nesbitt Burns analyst Michael Mazar in analyzing the Calgary-based company's "mixed" fourth-quarter results.
Enerflex reported adjusted earnings per share of 11 cents after accounting for one-time items, missing Mr. Mazar's 23-cent forecast but in line with the consensus expectation. The company announced EPS of a loss of 42 cents. Revenue of $359-million also missed the analyst's projection ($397-million) and the consensus forecast ($374-million). Gross margins of 28.6 per cent beat Mr. Mazar's estimate by 3.5 per cent, "benefiting from continued cost-cutting efforts, higher awarded margins and an increasing proportion of higher-margin service and rental-related revenue."
"The real story in Q4, apart from just how challenging the [oil field services or OFS] market has become, was the continued strength of recurring revenue," said Mr. Mazar. "While the market tends to focus on backlog and bookings numbers, the ongoing strength of recurring service and rental revenue is noteworthy, in our view. Both businesses provide stable baseline revenue and a healthy boost to margins in the current environment of fewer and smaller wins for the [EnerflexES segment]. Despite the backlog declining less than expected in Q4 (due mostly to lower revenues), we believe contributions from ES are likely to remain spotty in the near term."
He reduced his 2016 and 2017 EPS projections to 24 cents and 54 cents from 96 cents and $1.13, respectively.
Keeping his "outperform" rating, he also dropped his target price for the stock to $13 from $17. The analyst consensus is $15.22.
"We continue to believe that EFX provides a relatively low-risk way to gain exposure to the OFS group given the strong balance sheet, growing recurring revenue base and favourable competitive positioning," said Mr. Mazar. "EFX is one of only six companies in our coverage universe that are expected to deliver positive earnings in 2016. With strong recurring revenue and a low payout ratio, we see comparatively little risk of a dividend cut, a rarity in our coverage universe, and believe EFX remains one of the better-positioned names in our coverage universe."
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The current share price for Aecon Group Inc. (ARE-T) is "not particularly cheap" from a historical perspective, according to CIBC World Markets analyst Jacob Bout.
"Aecon stock has historically traded at a discount to peers," said Mr. Bout. "The company is less geographically diversified than peers, with 99 per cent of revenues derived in Canada, and results have been impacted in the past by poor project execution (Aecon has since implemented the One Aecon strategy that encourages co-ordination and co-operation between the infrastructure, energy and mining segments for large multi-disciplinary projects, i.e., Aecon leverages its vertical and horizontal integration capabilities). Aecon trades at 5.3 times enterprise value (EV)/EBITDA, on par with its peers, and at 12.7 times P/E compared to the group average of 10.4 times.
"Given Aecon's significant exposure to Western Canada, its stock has been strongly correlated with crude oil prices over the last 15 years (0.76). However, that changed over the last year and Aecon's stock price showed little correlation with the WTI oil price. While the stock did move in line with oil prices from March to July, it significantly outperformed the oil price over the last year as a whole, demonstrating Aecon's revenue diversification. The Aecon stock price has also shown a high correlation with base metals prices over a long period of time."
Assuming coverage of the stock, Mr. Bout downgraded it to a "sector performer" rating from "sector outperformer."
"Aecon has a solid backlog, reaching record levels of $3.4-billion in Q3/15 (but note that recurring mining revenue is declining and the duration of backlog is increasing)," he said. "While Aecon will benefit from increased infrastructure spending, this will be somewhat mitigated by lower mining activity in the potash industry and oil sands. Historically, mining projects have had two times the margin of infrastructure projects (and, thus, as revenue mix changes we are expecting some margin compression). Recent wins for Aecon include the $1.275-billion Eglinton LRT project and the 10-year, $1.375-billion Darlington project. We also believe Aecon is well-positioned for the Pickering and Bruce Nuclear projects and it has been shortlisted for the Finch LRT (estimated budget $1.2-billion)."
He raised his price target to $17 from a previous projection of $16. Consensus is $17.38.
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In other analyst actions:
Baidu Inc(BIDU-Q) was raised to "buy" from "neutral" at GuoTai JunAn by equity analyst Ricky Lai. The target price is $210 (U.S.) per share.
EOG Resources Inc (EOG-N) was downgraded to "hold" from "buy" at Wunderlich by equity analyst Irene Haas. The 12-month target price is $64 (U.S.) per share.
Graco Inc (GGG-N) was raised to "sector perform" from "underperform" at RBC Capital by equity analyst Matthew Mcconnell. The 12-month target price is $81 (U.S.) per share.
Leucrotta Exploration Inc (LXE-X) was raised to "outperform" from "market perform" at Raymond James by equity analyst Kurt Molnar. The 12-month target price is $1.55 (Canadian) per share.
Newfield Exploration Co (NFX-N) was raised to "strong buy" from "market perform" at Raymond James by equity analyst Kevin Smith. The 12-month target price is $42 (U.S.) per share.
Nielsen Holdings PLC (NLSN-N) was rated new "buy" at Jefferies by equity analyst Ryan Cary. The 12-month target price is $58 (U.S.) per share.
RSP Permian Inc (RSPP-N) was raised to "positive" from "neutral" at Susquehanna by equity analyst Biju Perincheril. The 12-month target price is $29 (U.S.) per share.
Southwestern Energy Co (SWN-N) was downgraded to "underperform" from "market perform" at Raymond James by equity analyst Kevin Smith.
Taubman Centers Inc (TCO-N) was raised to "hold" from "underperform" at Jefferies by equity analyst Omotayo Okusanya. The target price is $65 (U.S.) per share.
Temple Hotels Inc (TPH-T) was downgraded to "hold" from "buy" at Laurentian Bank by equity analyst Nelson Mah. The 12-month target price is 75 cents (Canadian) per share.
Valeant Pharmaceuticals International Inc (VRX-N) was downgraded to "hold" from "buy" at TD Securities by equity analyst Lennox Gibbs. The 12-month target price is $110 (U.S.) per share.
Werner Enterprises Inc (WERN-Q) was rated new "overweight" at JPMorgan by equity analyst Brian Ossenbeck. The target price is $31 (U.S.) per share.
With files from Bloomberg News
Editor's note: An earlier version of this story incorrectly stated the target price for Aecon was lowered to $16 from $17. In fact, it was raised to $17 from $16. This version has been updated.
David Leeder