Inside the Market's roundup of some of today's key analyst actions
RBC Dominion Securities has turned bullish on Cisco Systems Inc., believing the IT giant’s numerous headwinds are calming and that dividend increases are on the horizon.
Citing his more favourable risk/reward outlook, analyst Mark Sue upgraded the company to “outperform” from “sector perform.”
“Many of the negative issues related to Cisco have subsided,” Mr. Sue said in a research note. “Cisco’s core markets are no longer under attack from Huawei, HP and Juniper, and Cisco’s market shares have rebounded and stabilized.
“Cisco has also improved its sales execution and refocused its engineering talent. With OMs (operating margins) at about 28 per cent, we believe another $1-billion can be further reduced from Cisco’s cost structure which gives us added visibility to our forward earnings estimates. Macro swings are inevitable yet earnings are likely to be protected for Cisco.”
Cisco already generates about $10-billion in free cash flow annually and Mr. Sue expects this to grow over time as margins stabilize and the company limits growth in capital expeditures. The company is also sitting on $45-billion in cash and equivalents, mostly held overseas.
“Cisco’s capital allocation plan is to return at least 50 per cent to shareholders through the form of buybacks and dividends,” Mr. Sue added. “Cisco recently increased its quarterly dividend payment to $0.14/share from $0.08/share and it’s our view that Cisco may continue to increase the dividend over time.”
Upside: Mr. Sue raised his price target to $24 (U.S.) from $21.
Despite intensifying competition, Netflix Inc. will remain the dominant streaming video service provider by a wide margin for the foreseeable future, predicts BMO Nesbitt Burns analyst Edward Williams. “We believe the company’s long-term strategy and first-mover advantage remain intact as its streaming business continues to grow in the U.S. and abroad,” he said. “Netflix is poised to capitalize off the growth of streaming video over the next several years as the company expands the breadth of its streaming content and penetrates additional international markets.”
Upside: Mr. Williams raised his price target to $88 (U.S.) from $65 and reiterated a “market perform” rating.
It’s already been a happy new year for Parex Resources Inc., notes Raymond James analyst Rafi Khouri. PetroAmerica, its partner in the Los Ocarros block in Colombia, announced a new oil discovery at the Las Maracas field. This news “should provide increased confidence in Parex’s ability to sustainably deliver production and reserve growth,” Mr. Khouri commented.
Upside: Mr. Khouri maintained an “outperform” rating and raised his price target by $1 to $7.
Atlantic Power Corp. has added growth to its portfolio by completing its $88-million acquisition of Ridgeline Energy Holdings Inc., commented CIBC World Markets analyst Ian Tharp. The deal adds 150 net megawatts of operating capacity, but also gives Atlantic Power something it had previously lacked: a number of possible wind and solar development projects, he noted.
Upside: Mr. Tharp upgraded the stock to “sector performer” from “sector underperformer” but trimmed his price target to $12.50 from $13.
Over the past month, Algonquin Power & Utilities Corp. has acquired 320 net megawatts of operating wind capacity, giving management “sufficient ammunition” for another near-term dividend increase, said CIBC World Markets analyst Ian Tharp. He also notes the company is trading at a discount to Canadian clean power developer peers, based on enterprise value to earnings.
Upside: Mr. Tharp maintained a “sector outperformer” rating and $7.75 price target.
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