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A sale pending sign outside a house in Mount Lebanon, Pa. (Gene J. Puskar/AP Photo)
A sale pending sign outside a house in Mount Lebanon, Pa. (Gene J. Puskar/AP Photo)

Zillow shares fall hard as RBC downgrades high-flying stock Add to ...

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.

Shares in online real estate information provider Zillow Inc. have had an incredible run so far this year, posting a gain of more than 220 per cent.

RBC Dominion Securities analyst Mark Mahaney believes the good times may be coming to an end.

He downgraded Zillow today to “sector perform” from “outperform,” even while significantly jacking up his price target to reflect the powerful gains in the stock year-to-date.

Zillow released second-quarter revenues and EBITDA (earnings before interest, taxes, depreciation and amortization) Tuesday that easily beat Wall Street estimates. But its bottom line was a concern as costs more than doubled, with the company swinging to a loss of 30 cents per share, compared with a prior-year profit of 4 cents a share. The Street was expecting a loss of 11 cents per share.

“The risk-reward outlook no longer appears compelling...we believe continued sector outperformance is not likely,” Mr. Mahaney said in explaining his downgrade.

He stressed, however, that this was simply a valuation call, and that the stock’s robust fundamentals “remains very well intact.”

In a research note, he listed several reasons for that optimism: “Zillow faces a significant secular growth TAM (targeted advertising marketing). Zillow is further establishing itself as the emerging leader in the online real estate segment, based on its revenue and metrics growth trends. Zillow has demonstrated the ability to sustain high growth and high margins. Zillow is very well-situated to adapt to the dramatic shift towards mobile internet usage. And Zillow has demonstrated an ability to monetize adjacent businesses (mortgages) with rentals on the horizon. Finally, we believe that Zillow’s aggressive investment strategy is correct.

“The only thing not to like here is valuation.”

Zillow shares are down about 8 per cent at midday.

Target: Mr. Mahaney raised his price target to $90 (U.S.) from $64. The average price target among analysts is $86.13, according to Bloomberg data.


Canaccord Genuity, which already ranks B2Gold Corp. as one of its favourite stocks in Canada, is liking the company even more after its latest quarterly results.

B2Gold reported better-than-expected second-quarter operating results and raised its guidance for the rest of the year. It also announced a larger, higher-grade reserve at its Masbate project in the Philippines.

"We view the update as positive; in particular, we see the Masbate reserve update as a key de-risking catalyst which removes some uncertainty regarding the life-of-mine plan at the mine," said Canaccord analyst Rahul Paul.

"B2Gold remains a 2013 Canaccord Genuity Canadian Focus List pick based on a strong balance sheet, one of the best fully funded production growth profiles in the sector, and relatively low permitting, financing and new mine development risk," he added.

Target: Mr. Paul maintained a "buy" rating and raised his price target to $3.75 (U.S.) from $3.50. The average target is $3.72.


Foraco International SA predictably had a tough second quarter, with earnings taking a hit on two underperforming drillilng contracts in Chile, noted Canaccord Genuity analyst Yuri Lynk.

The company's debt position remains a key concern, but Mr. Lynk thinks investors who don't mind taking on risk could be rewarded for buying the stock, which is down about 7 per cent at mid-morning.

"We believe the company is most certainly going to trip its 2x debt/EBITDA covenant at year-end on debt related to the Servitec and JND acquisitions," he said in a research note. "Management is already working on obtaining a waiver and securing longer-term funding. We anticipate success on this front given a substantive asset base to barrow against.

"Taking a longer-term view, this could be a good entry point for risk-tolerant investors willing to wait for the next mining capex cycle," he added.

Target: Mr. Lynk cut his price target by $1 to $1.50 (Canadian) and reiterated a "buy" rating. The average target is $1.13.


The Alberta Energy Regulator’s approval of the Dover bitumen project in northern Alberta is going to mean good things for Athabasca Oil Corp., said Jared Dziuba, an analyst with BMO Nesbitt Burns

The project is a joint venture between Athabasca and PetroChina Company Ltd. and is expected to recover 1.7 billion barrels of bitumen over the next 45 years.

The Alberta cabinet still has to make a decision on the project before it breaks ground, but Mr. Dziuba expects that to happen next month.

Athabasca stands to collect 1.32-billion from the project by exercising its put option with PetroChina, a windfall that Mr. Dziuba said is not reflected in Athabasca’s share price.

Target: Mr. Dziuba is maintaining his “outperform” rating for Athabasca and his price target of $14, almost double its current value. The average target is $12.


While recent price cuts and a Chinese antitrust probe had most analysts predicting a tough future for Mead Johnson Nutrition Co., things are starting to turn around for the embattled baby formula manufacturer.

With Hong Kong poised to remove restrictions on cross-border sales this October, and competitors now caught up in a botulism scare that spurred a milk recall in China, the prospect of market share gains has set Mead Johnson up for a “better top-line finish to the calendar year in China,” said Credit Suisse analyst Robert Moskow.

Target: Mr. Moskow raised his rating to “outperform” from “neutral” and boosted his price target to $90 (US) from $76. The average target $81.60.


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


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