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Inside the Market

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A Nike Swoosh. (RICK BOWMER/AP)
A Nike Swoosh. (RICK BOWMER/AP)

Nike stock rally running on thin ice Add to ...

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

Nike Inc. shares have had a good run and appear ready to start slowing down, said Canaccord Genuity analyst Camilo Lyon.

The sportswear company “appears to have a much better handle on its gross margin and could manage a positive surprise in the third quarter with margin expansion for the first time in eight quarters,” the analyst pointed out.

“While all of this is true, we remain cautious at these levels (19x forward earnings) due to our belief that just in-line third-quarter sales and, more importantly, below-expectations futures orders, will disappoint.”

Target: Mr. Lyon rates the stock “hold” and has a $51 (U.S.) target. That’s below the average analyst target of $57.26, according to Bloomberg data.


Beacon Securities Ltd. downgraded Foraco International SA to “hold” from “buy” after it reported a lousy fourth quarter and cut its dividend by 20 per cent.

Drilling companies such as Foraco have been challenged to sign contracts at a time when junior explorers and other commodity producers have curtailed exploration activities alongside the drop in commodity prices.

Foraco will save cash by slashing the dividend and will have trimmed nearly 25 per cent, or 1,000 positions, by the end of the first quarter. But Beacon analyst Michael Mills believes the company’s order backlog is thinning and it’s hard to predict when conditions will improve.

“With the weakness experienced in Q4 and the continued lack of visibility with regard to contracted work in 2013, we are significantly lowering our estimates (including for earnings, revenues and margins),” he said. “The drag from underperforming Chilean contracts will continue through Q2 2013 and overall margin profile will be pressured throughout the year due to lower rig utilization driving lower contract pricing.”

Target: Mr. Mills cut his price target to $2.25 from $3.50. The average Street forecast is $2.90.


Stantec Inc.’s stock price, which has steadily been rising, reflects historical margins and acquisition-led growth, and investors “should be very selective about their entry point,” said Desjardins Securities analyst Pierre Lacroix.

“Since initiating its dividend policy in early 2012, STN has delivered a streak of better-than-expected results on the back of solid organic growth and improving gross margins that have been matched by steady appreciation in the shares. Meanwhile, STN continues to book increasing amounts of new business, as evidenced by the fact that its backlog was at an all-time high of $1.3-billion at the end of 2012,” he wrote in a research note.

“We believe that the premium valuation awarded to STN and headwinds to growth posed by political uncertainty in the near term are key hurdles to STN outperforming its peers,” he added.

Target: Mr. Lacroix has $40 target price on the stock, which he rates “hold.” The average analyst target is $43.71.


International Forest Products Ltd. is poised to benefit from its acquisition of Rayonier's Wood Products Business in the southern United States as well as a recovery in U.S. housing, said Raymond James analyst Daryl Swetlishoff.

“Despite strong share price appreciation, we continue to believe that we are in the early stages of a sustained lumber rally and see material upside in the stocks based on our fundamental outlook,” he said.

“In addition to the incremental earnings we see Interfor gaining from this accretive acquisition, we also expect the company to benefit from current robust lumber prices, which we believe could persist through the spring building season augmented by strong Chinese shipments. Longer term, we see profound valuation implications of strong free cash flows in 2013 and 2014 (due to lagging stumpage, tax loss carry forwards, and reduced duties) before the lumber industry enters what we believe will be cycle-peak earnings in subsequent years.”

Target: Mr. Swetlishoff rates the stock “outperform” and raised his target price from $11.00 to $12.50. The average Street target is $11.54.


Capital Power Corp. missed fourth-quarter earnings expectations, and faces weak power prices in Alberta and disappointing results from facilities in New England, said CIBC World Markets analyst Paul Lechem.

“While the long-term outlook is positive, we do not see a catalyst for the stock in the short to mid-term,” he said.

Target: Mr. Lechem lowered his price target from $25.50 (Canadian) to $24 and downgraded the stock from “sector outperform” to “sector perform.” The average Street target is $23.70.


For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities


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