Inside the Market's roundup of some of today's key analyst actions
National Bank Financial analyst Cameron Doerksen thinks the Street is going to be disappointed when Bombardier Inc. reports its third-quarter results Nov. 7.
He believes Bombardier’s deliveries of Challenger jets and Canadian Regional Jets will be softer than many expect amid sluggish customer demand, while the company’s free cash flows will be relatively weak as it spends heavily to keep its many development programs on track.
Citing those, and other concerns, he downgraded Bombardier today to “sector perform” from “outperform” while trimming his price target by 25 cents to $4.25.
The concensus analyst estimate is for Bombardier to report 11 cents a share in the third quarter. But Mr. Doerksen is forecasting 8 cents, and he cut his earnings prediction for the year to 44 cents from 48 cents.
One of his concerns is potential delays to the first flight of the C Series aircraft. The program is now in the critical stage, with final assembly of the first flight test vehicle well underway. “We believe that Bombardier must roll out a fully assembled aircraft in the next few weeks if it is to meet its target for first flight by year end,” Mr. Doerksen commented. “In our opinion, a short (several month) delay to first flight would not be a big setback for the program, but the announcement of a delay would likely have negative consequences for the stock in the near term.”
Meanwhile, he thinks margins in its transportation business will stay under pressure. “Transportation margins have been impacted in recent quarters due to lower volumes (which should correct in coming quarters) and due to lower margins on the start-up of new contracts. It is the latter issue that we believe will persist through 2013 as Bombardier ramps up on large new contracts, which are typically lower margin in their early production stages,” he said.
Mr. Doerksen points out these are all short-term concerns: “We continue to see longer-term upside on Bombardier shares.”
CIBC World Markets analyst Alec Kodatsky upgraded Yamana Gold Inc. to “sector outperformer” after the company reported solid quarterly results, with record production led by its El Penon mine in Chile.
Yamana’s Mercedes mine in Mexico is ramping up smoothly and is exceeding his expectations. “Yamana has demonstrated, through this mine, the ability to successfully bring assets into production. This should give the market a level of comfort about the next three growth projects,” Mr. Kodatsky said.
Upside: Mr. Kodatsky raised his price target by $5 to $28 (U.S.).
Citigroup Inc. analyst Ravi Sarathy downgraded Baidu Inc. by two notches, to “sell” from “buy,” concerned about the Chinese Internet search provider’s rising costs and a slowdown in PC search revenues. He’s also worried about weak monetization trends for mobile, given that advertisers are not flocking yet to that sector.
Downside: Mr. Sarathy slashed his price target all the way to $95.10 from $191 (U.S.).
Desjardins Securities analyst Michael Goldberg believes the Bank of Nova Scotia’s appointment of Brian Porter as its president should have little impact on the stock. Mr. Porter was previously Group head of International Banking, a position that will now be filled by Dieter Jentsch.
"We view these developments as neutral to the outlook for Scotia; they represent continuity with respect to succession, strategy and a continued focus on developing strong diversified franchises that can continue to generate relatively steady earnings and dividend growth,” said Mr. Goldberg. “As far as we can see, this means BNS should continue to be the ‘Bank of No Surprises’.”
Upside: Mr. Goldberg reiterated his “top pick” rating and $65 price target.
RBC Dominion Securities analyst Mark Friesen downgraded Petrobank Energy and Resources Ltd. (PBG-T) to “sector perform” from “outperform” after the oil and gas company launched a corporate reorganization this week. It plans to distribute its 57-per-cent interest in subsidiary PetroBakken Energy to its shareholders, followed by the creation of two new companies. The action removes the catalyst for significant price gains, he commented.
Upside: Mr. Friesen cut his price target by $3 to $16.
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