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.
RBC Dominion Securities has significantly boosted its outlook for Research In Motion Ltd.’s bottom line, predicting a profit this fiscal year instead of a loss thanks to stronger-than-expected shipments of its new BlackBerry 10 devices.
It also thinks a short-covering rally may be looming – but warns the long-term outlook for the company remains cloudy.
The fresh views from RBC helped the stock to chalk up some further gains today, closing up 54 cents, or 3.7 per cent, at $14.84 on the Nasdaq.
RBC analysts Mark Sue and Paul Treiber raised their BlackBerry 10 shipment forecasts to 3.5 million units for the fiscal first quarter, which started March 3, from their previous forecast of 2.75 million. For the current second quarter, they predict 4 million units will be shipped, up from 3 million.
Just last week, Société Générale analyst Andy Perkins also raised his first-quarter sales forecasts - but he was even more optimistic, calling for sales of more than 5 million. Consensus has been around the 3 million to 4 million range.
The first-quarter results will be released on June 28.
For the calendar year in total, RBC now predicts 14 million BlackBerry 10 shipments, up from 11 million.
They cited faster sales at carriers for the revised forecasts, as well the earlier-than-expected launch of the entry level Q5 smartphone, which should be released by the end of summer.
RBC notes that the Z10 and Q10 smartphones that use the new BlackBerry 10 software are now being sold at 170 carriers in 72 countries, up from 60 carriers in 40 countries in March.
“In aggregate, we see BB10 sell-through increasing as distribution expands. BB10 demand appears to be mixed by region; Canada, the U.K. and the Middle East are seeing the strongest BB10 sell-through. The U.S., where BlackBerry has a diminished consumer presence, is seeing slower sell-through,” the analysts wrote.
“With higher BB10 revenue and 40 per cent gross margins, we expect BlackBerry to be profitable FY14, overcoming higher promotional expenses,” they said.
RBC sees RIM earning 35 cents per share in fiscal 2014, compared to its earlier forecast calling for a loss of 4 cents. “Cash flow may break even this quarter considering working capital requirements for the new launches,” they added.
RIM should benefit from consumers’ appetite in emerging markets to snap up mid-tier smartphones, thanks to BlackBerry‘s strong brand recognition in those countries.
“However, the strong emerging market growth notwithstanding, it’s getting increasingly difficult to generate meaningful profits,” they warn.
Given that 32 per cent of RIM shares are held by shorts – those betting the stock will go down – the RBC analysts think the stock is ripe for a short-covering rally.
But they urge caution for investors thinking the future will be a smooth ride for the BlackBerry maker.
“Beyond near-term positives, we’re looking for stabilization of BlackBerry’s subscriber base and uptake of new enterprise and consumer services to offset the shift away from its mandatory services model. Competition remains intense and BlackBerry has a significantly diminished market presence with just 3 per cent share (vs. 20 per cent peak),” they said.
Target: Mr. Sue and Mr. Treiber maintained a “sector perform” rating and $18 (U.S.) price target. The average price target among analysts is $12.96, according to Bloomberg data.
A “rock-bottom” valuation has prompted Raymond James analyst Ben Cherniavsky to upgrade Caterpillar equipment seller Finning International Inc. to “strong buy” from “outperform.”
He thinks Finning’s shares, languishing near 52-week lows, presents an opportunity for value investors as market sentiment may be a little too negative.
“Finning looks particularly beaten up to us,” Mr. Cherniavsky said in a research note. “Despite sustained year/year earnings per share growth right through the first quarter of 2013, the company’s shares are currently trading at a price/earnings multiple of 10.4 times, which has only been breached three other times in the past 15 years.”
Many factors are responsible for the poor sentiment, including a backlog of business that has drifted downwards for three straight quarters and isn’t likely to bottom for some time.
“Nevertheless, we believe many of these headwinds are now largely reflected in the price,” he said.
Target: Mr. Cherniavsky has a $25.50 price target. The average target is $28.55.
Encana Corp.'s shares have meaningfully lagged the improvement in natural gas prices as well as the performance of its peers as the market awaited for a new CEO to be appointed and the company's strategy clarified, noted BMO Nesbitt Burns analyst Randy Ollenberger.
Now that the new CEO, former BP executive Doug Suttles, is in place, “we believe that the CEO and board are firmly focused on growing shareholder value rather than production and achieving a sustainable balance between cash flow and capital spending," he commented. “We also believe that the outlook for North American natural gas prices continues to improve.”
“Taken together, we believe the shares are well positioned to outperform over the next 12 months as the new strategy is communicated to investors and its natural gas asset base gets positively re-valued.”
Target: Mr. Ollenberger maintained an “outperform” rating and $26 (U.S.) price target on the stock. The average target is $21.01.
A U.S. immigration bill that just cleared the Senate for debate – if passed in its current form – could materially boost the competitiveness of IBM Corp. against Indian IT services companies, said RBC Dominion Securities analyst Amit Daryanani.
The bill would increase the number of U.S. visas that are granted, giving IBM a greater ability to hire competent foreign employees, Mr. Daryanani said. It would also raise visa filing fees on certain competitors to IBM, which would undermine their ability to compete on pricing, he said.
“We believe the likely impact of the bill would not be realized until late 2014. While the eventual (if any) impact of this bill is far away we do believe this is a material catalysts that bears watching for IBM and its peers,” the RBC analyst said.
Target: Mr. Daryanani raised his price target by $10 to $210 (U.S.) and maintained a “sector perform” rating. The average target is $222.35.
Enterprise Group Inc.’s $12-million acquisition of Calgary Tunnelling & Horizontal Augering Ltd. will be transformative for the construction services company, as it has the potential to increase its revenue and EBITDA by about 50 per cent, said M Partners analyst Tom Varesh.
Calgary Tunnelling is a North American leader in the highly specialized tunnelling field, where competition is limited.
Target: Mr. Varesh raised his price target to $2.05 from $1.30 and reiterated a “buy” rating. The average target is $1.52.
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @ eyeonequities