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People walk into Brookfield Place off Bay Street in Toronto in this file photo.© Mark Blinch / Reuters

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

Brookfield Infrastructure Partners LP's (BIP-N, BIP.UN-T) "big Brazilian buy" caps a "splendid" run, according to Raymond James analyst Frederic Bastien.

However, though he remains "highly constructive" on its prospects going forward, Mr. Bastien downgraded his rating to "outperform" from "strong buy" in reaction to its "impressive" run thus far in 2016.

"Our best pick for 2016 delivers in spades," he said. "We stress that our downgrade is mainly a valuation call as the units are up a healthy 60 per cent since Jan. 13, 2016, when the global stock rout pulled prompted us to upgrade our rating on BIP," he said. "Importantly this gain far outpaces the 15-per-cent return posted by the S&P 500 Index over that period. As a result BIP now commands a more reasonable forward EV/EBITDA [enterprise value to EBITDA] multiple of 13.2x, just as it did in 1Q13 when we officially launched coverage of the Brookfield LPs."

On Friday, Brookfield announced it was partnering with institutional clients, including CIC Capital Corp. and GIC Private Ltd., to purchase a 90-per-cent-stake in a Brazilian natural gas distribution network owned by Petroleo Brasileiro SA for $5.2-billion (U.S.).

"The purchase price is payable in two tranches with $4.3-billion due on closing, targeted for year-end, and the balance payable five years thereafter," said Mr. Bastien. "BIP is taking up 20 per cent of the deal, representing $825-million of the upfront payment, but also has priority rights to a portion of a 30-per-cent interest that Brookfield intends to syndicate. As the minimum equity commitment already exceeds the $700-million investment that we had already built into our model, we are increasing our forecasts yet again.

"NTS owns a 2,048-km pipeline system that supplies natural gas to Brazil's most populated states of Rio de Janeiro, São Paulo and Minas Gerais. This not only guarantees BIP stable and growing cash flows with no volume risk, but also positions BIP to capitalize on the substantial growth that is expected from the development of the Pre-Salt offshore oil fields in Southern Brazil."

Based on the deal, Mr. Bastien said an improved valuation is now warranted.

"We argue that today's persistently low interest rate environment, a healthy backlog of capital projects offering visibility into strong organic growth beyond 2017, and the utility-like attributes of the Petronas assets still make BIP one of the most desirable investments among the stocks we cover," the analyst said. "NTS notably operates under a stable regulatory framework with volumes fully contracted under long-term ship-or-pay gas transportation agreements (GTAs) that are indexed to inflation. To reflect all of this, we are comfortable lowering our target yield to 4.5 per cent from 4.75 per cent."

Mr. Bastien raised his target price for Brookfield units to $39 (U.S.) from $36. The analyst consensus price target is $34.59, according to Thomson Reuters.

Elsewhere, RBC Dominion Securities analyst Robert Kwan raised his target price by a dollar to $37 with an "outperform" rating (unchanged).

He said: "BIP had mentioned this potential investment as a major growth initiative underpinning its guidance for a potential distribution increase at the top end of its 11–13-per-cent range (with the typical timing for an increase in Q1/17). As such, assuming the transaction closes, we expect BIP to deliver a very attractive increase concurrent with the release of Q4/16 results.

"Expected returns should be quite attractive. While financial metrics were not disclosed, the magnitude of the investment coupled with the geography (i.e., Brazil) leads us to assume that the expected going-in FFO yields to be in excess of the 'low double digits' articulated on the Q2/16 conference call for recent acquisitions in developed countries. In our analysis, we have assumed a going-in FFO yield (i.e., cash on cash) of 13 per cent, which we estimate results in 8-per-cent accretion. As such, we have increased our 2017 and 2018 funds from operations/unit estimates to $3.21 and $3.49 (from $2.98 and $3.25), respectively."

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Desjardins Securities analyst Keith Howlett upgraded Cascades Inc. (CAS-T) in reaction to a likely increase in boxboard prices in both Europe and the United States, which he said have the potential to "substantially" increase its operating results.

His rating rose to "buy" from "hold" after a trade publication reported Friday that Mayr-Melnhof Karton AG, a Vienna-based manufacturer in the paper and packaging industry, told its customers it will increase prices by 60 euros per metric tonne as of Oct. 24.

"Two major potential price increases, if partially or wholly implemented, will have a significant impact on Cascades' financial results, all other factors held constant," said Mr. Howlett. "The price increases are both proposed by the leading company [Mayr-Melnhof] in the respective product segment and geography. … If successfully implemented, this would be a very positive development for Reno De Medici, which is 57.6 per cent owned by Cascades (and is consolidated in Cascades' financial statements).

"Unrelated to the recent announcement by Mayr-Melnhof, International Paper in the U.S. is proposing to increase containerboard prices by $50 (U.S.) per short ton on Oct. 1. Our existing earnings estimates assume $15 of the increase is implemented by 4Q17. This may prove conservative with respect to quantum and timing."

Mr. Howlett maintained his 2016 and 2017 earnings per share projections for Cascade at $1.40 (Canadian) and $1.33, respectively, waiting to determine if the price increases are implemented.

He raised his target price for the stock to $15 from $13.50 "to reflect [approximately] 20 per cent of the incremental value of the full implementation of both price increases, all other factors held constant." The analyst consensus is $13.46.

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AGF Management Ltd.'s (AGF.B-T) third-quarter earnings are likely to reflect continued stability, said Canaccord Genuity analyst Scott Chan.

In a research note ahead of the release of its financial results on Wednesday, Mr. Chan upgraded the stock to "hold" from "sell."

Mr. Chan is projecting quarterly earnings per share of 13 cents, an increase of 8 per cent from the previous quarter and in line with consensus estimates. He said the sequential earnings rise is due largely to higher assets under management, driven by market performance.

"We believe Alternative (i.e. Infrastructure) ramp up should help support EPS medium term," he said. "For our retail focused asset managers, our new pecking order is CI Financial Corp., AGF.b, and IGM Financial Inc. (all hold rated). We believe IG discontinuing DSC fund purchases will impact IG consultant retention and potentially lead to lower gross sales. The announcement could indirectly benefit AGF's Primerica channel (has high proportion of DSC purchases). We value AGF.b based on a [price-to-earnings] target multiple of 10.0x (versus average for the past year of greater-than 11 times) towards our 2017 EPS estimate of 51 cents (from 52 cents)."

Mr. Chan did not change his target price for the stock of $5. Consensus is $5.25.

"Our target price implies a total return of 6.4 per cent (including its dividend yield of 6.4 per cent), making a hold rating more appropriate," he said. "Year to date, AGF.b stock has stabilized, which we believe reflects better earnings stability."

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Arizona Mining Inc. (AZ-T) is "one of the newest, most exciting and most prospective zinc-focused investment opportunities in the base metal sector today," said Raymond James analyst Alex Terentiew.

He initiated coverage of the stock with an "outperform" rating.

"Although a relatively new discovery in the global mining industry, Arizona Mining is rapidly advancing its growing and prospective 100-per-cent-owned, Arizona-based Taylor Zn-Pb-Ag project along the development path," he said. "We note that our cost and production estimates are not based on a preliminary economic assessment (PEA), but rather limited disclosure by the company and our own analysis and expectations. As such, there is a risk that our estimates may not materialize, and future plans by Arizona Mining may be materially different."

He said the company is "climbing the global zinc deposit rankings," adding: "The Taylor deposit has only inferred resources to its credit, but with drilling regularly expanding the extent of known mineralization, it has the potential to become one of the largest (we think top 10 is within reach) undeveloped zinc deposits, at the very least on a ZnEq basis."

Mr. Terentiew said a new resource estimate is likely in January with a PEA set for the end of the first quarter of the 2017 fiscal year.

"A larger resource, with a higher-grade subset amenable to mining is what we will be watching for in future updates," he said. "We don't doubt that Taylor will see its tonnage grow, but rather look forward to the company's ability to put a mine plan together that supports a 15+ year mine life at a higher grade, enhancing cash flows and Arizona Mining's value."

"Permitting will be a necessary hurdle to overcome, but Arizona Mining's large land package of patented mining claims could provide sufficient land for surface facilities, potentially accelerating the permitting process and the basis of our 2023 start-date."

Mr. Terentiew set a target price of $3.50 for the stock. Consensus is $3.27.

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Eldorado Gold Corp.'s (EGO-N, ELD-T) fundamentals will be amongst the industry's best if it is able to deliver on its development plans, said RBC Dominion Securities analyst Dan Rollins.

"Should the development of Olympias and Skouries continue unimpeded, Eldorado's gold production would be backed by a portfolio of five mines with an average reserve life of 18 years, significantly higher than the industry average of 10 years," said Mr. Rollins. "Revenues would also be backed by lower cost operations with the average mine-site sustaining cash cost of Eldorado's mines/projects estimated at $555 (U.S.) per ounce at spot metal prices/currencies, which would place Eldorado towards the bottom end of the industry cost curve. Further upside could be generated through the development of Olympias Phase III, Perama Hill, Certej as well as later-stage exploration projects such as Sapes and Piavitsa."

Mr. Rollins said the company's recent investor day "substantially improved the level of detail and disclosure around the company's key growth projects."

"While we acknowledge political risk around the company's Greek build-out remains elevated, we anticipate Eldorado's shares could undergo a gradual re-rating over the next 12 to 24 months as the political environment in Greece improves, start-up of Olympias Phase II commences and development of Skouries continues unimpeded," he said. "Given our favourable view on Eldorado's re-rating potential, discounted long-term valuation relative to Tier II and III peers, attractive fundamentals and solid balance sheet, we reiterate our outperform rating. With improved clarity on the company's existing and future mines, we believe the biggest risk remains political risk in Greece, which is likely to influence Eldorado's ability to deliver on the growth projections it has outlined."

Mr. Rollins did lower his target price for the stock by $1 to $7 to reflect changes in his financial model as well as a "more conservative approach on valuation to better reflect elevated risk during construction and ramp-up of development stage projects as well as risk around timing of growth projects." Consensus is $5.78.

"Based on our estimates, Eldorado trades at a discount to its Tier II and III peers on long-term net asset value (0.94x versus 1.10x)," said the analyst. "However, if we were to assume zero value for any of the Eldorado's Greek assets, the company would trade at material premium to its peers (1.41x). Assuming a modest level of value for the company's Greek assets ($625-million based on a gold-equivalent resource value of $25/oz), the company's valuation would be closer to 1.09x.

"We believe a premium valuation on near-term sustaining free cash flow is warranted given the material impact low-cost and long-lived production from Eldorado's growth projects are forecast to have on the company's underlying fundamentals over the next few years."

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Drexel Hamilton analyst Anthony Wible lowered his rating for Walt Disney Co. (DIS-N) to "hold" from "buy" with a target of $102 (U.S.), down from $112. The analyst average is $108.35, according to Bloomberg.

"We believe the threats to the traditional ecosystem will increase as [multichannel video programming distributors] start to integrate [over-the-top content] offerings into set tops and as they shift focus to their data business," said Mr. Wible.

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In other analyst actions:

Oppenheimer analyst Jason Helfstein downgraded Twitter Inc. (TWTR-N) to "underperform" from "perform" with a price target of $17 (U.S.). The average is $16.54.

Longbow Research analyst Alton Stump downgraded Restaurant Brands International Inc. (QSR-N, QSR-T)  to "underperform" from "neutral" due to slowing comparable same-store sales and new store growth concerns. His target is $35 (U.S.), versus the average of $47.11.

Morgan Stanley analyst Thomas Allen downgraded Hyatt Hotels Corp. (H-N) to "underweight" from "equal-weight" and lowered his target to $46 (U.S.) from $49. The average is $53.11.

Mr. Allen upgraded Marriott International Inc. (MAR-Q) to "overweight" from "equal-weight" with a target of $78 (U.S.) from $73. The average is $79.15.

Elsewhere, Goldman's Stephen Grambling initiated coverage of U.S. lodging stocks with Marriott as the lone "buy" rating. He set a target of $81.

Mr. Grambling's lone "sell" rating was La Quinta Holdings Inc. (LQ-N) with a $9 target. The average is $11.96.

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