Inside the Market’s roundup of some of today’s key analyst actions. This post will be updated with more analyst commentary during the trading day.
Enbridge Income Fund Holdings Inc. is likely to acquire new assets from its manager, Enbridge Inc., over the next six months – and investors who buy into the fund now should be able to profit from the transactions, said CIBC World Markets analyst David Noseworthy.
He upgraded Enbridge Income Fund to “sector outperformer” in anticipation of the acquisitions that would boost cash flows.
He believes there are several candidates for such so-called “drop down” acquisitions, including a 50 per cent interest in the 150 megawatt Lac Alfred phase 1 wind project, a 50 per cent interest in the 150 megawatt Massif du Sud wind project, the Peace River Arch midstream assets and the Ontario unregulated natural gas storage assets.
“Historically, ENF’s share price has not moved in anticipation of these drop downs, providing investors the opportunity to invest with the drop down or even subsequent to the drop down,” Mr. Noseworth said in a research note.
“Given ENB’s clear guidance that it plans to drop down $1-billion of assets every year for the next three years (including 2012), we believe investors may start to reflect the highly probable event of an accretive drop down asset acquisition by the fund in the coming six months,” he added.
Target: Mr. Noseworthy maintained a $26.50 price target. The average target is $25.70, according to Bloomberg data.
Shares in Netflix Inc. are trading lower today in the wake of its earnings report late Monday, but several analysts are moving their price targets in the opposite direction.
Netflix reported profit per share of 49 cents, better than the 11 cents of a year ago and the Street estimate of 40 cents. Revenue of $1.069-billion also was higher than $889-million a year ago but below the average Street forecast of $1.072-billion.
The company’s subscriber outlook for the third quarter failed to exceed consensus estimates, which sparked the selloff in shares.
But BMO analyst Edward Williams points out that a higher portion of subscribers were paid members relative to expectations. He raised his earnings per share estimates for 2013 and 2014 to $1.68 (U.S.) and $3.75, respectively.
And RBC Dominion Securities analyst Mark Mahaney also raised his earnings estimates on Netflix after taking a positive view.
“NFLX is successfully addressing two of its three key questions. 1. Can it grow its U.S. Streaming Sub base substantially? It appears to be on path to add 5MM+ subs a year for the foreseeable future. Competitive offerings remain a wild card. 2. Can it grow its U.S. Streaming biz profitably? Seems so, given 6 consecutive quarters of material Q/Q margin expansion. 3. Can NFLX successfully grow overseas? Still hard to prove, but an 8MM International Sub base suggests a positive answer. We continue to believe that NFLX has achieved a level of sustainable scale, growth, and profitability that isn’t fully reflected in its stock price,” Mr Mahaney said in a research note.
Credit Suisse analyst Stephen Ju was also feeling upbeat after the earnings report: “Despite the modest shortfall in domestic and international streaming subscribers versus our estimates, we do not feel that the 2Q13 results were thesis-changing in nature.”
Netflix shares were down about 4 per cent at midday.
Targets: RBC raised its price target to $280 from $250, BMO to $236 from $205, and Credit Suisse to $236 from $204. The average Street target is $217.79.
Needham & Co. analyst Laura Martin downgraded Yahoo Inc. to “hold” from “buy,” seeing higher risks for the stock after hedge fund manager Third Point sold most of its shares in the Internet giant this week and three directors – including Daniel Loeb – left its board.
Ms. Martin thinks the changes may suggest that “most of Yahoo’s near-term upside has been realized.” She’s also concerned that the actions this week suggest that Chinese e-commerce site Alibaba, owned 24 per cent by Yahoo, may be overvalued – or the timing of its initial public offering may be delayed.
“Third Point’s exit raises important questions relating to ‘why now?’” she commented.
Target: Ms. Martin maintained a $31 (U.S.) price target on Yahoo shares. The average target is $29.46.
Canadian National Railway Ltd.'s second-quarter earnings beat Street estimates, but because of "lower-quality drivers" such as less taxes, said RBC Dominion Securities analyst Walter Spracklin.
He suggests the shares are fully valued given their modest premium to U.S. peers.
"Given the somewhat uninspiring drivers behind Q2 results, we do not consider this to be a catalyst for an expansion in the company's current premium relative to U.S. peers (CNR shares are trading at 15.4x 2014E P/E vs. U.S. peers at 13.4x)," Mr. Spracklin said in a research note.
"Accordingly, we are maintaining our sector perform rating on the shares."
Target: Mr. Spracklin raised his price target by $3 to $99 (Canadian). The average target is $105.90.
CIBC World Markets analyst Jon Morrison downgraded Black Diamond Group Ltd. to “sector performer” from “sector outperformer,” believing the rise in shares of the oilfield equipment renter leaves it with limited upside.
The stock now trades above its peers and its historical trading range based on earnings and cash flow per share, he noted.
"Although we remain constructive on the company's near-term outlook and view BDI as one of the best-run services companies in Canada, given that our price target implies a current 16 per cent return and we see no reason to increase our estimates at this stage, we believe it is pragmatic to downgrade the stock,” Mr. Morrison said.
"With that said, as we gain additional clarity on the timing of a number of growth opportunities that should begin to unfold over the coming years, including Canadian liquefied natural gas development and further expansion in Australia, we believe BDI is a strong candidate for potential upgrades down the road.”
Target: Mr. Morrison maintained a $25.50 price target. The average target is $27.57.
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @ eyeonequities