Thursday’s analyst upgrades and downgrades

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Inside the Market's roundup of some of today's key analyst actions. This file will be updated often during the trading day so check back for new details.

Slowing growth in its Canadian personal and commercial banking business offset a strong second quarter for Bank of Montreal (BMO-T, BMO-N), said RBC Dominion Securities analyst Darko Mihelic.

BMO reported core cash earnings per share of $1.71, beating both Mr. Mihelic's forecast of  $1.70 and the consensus of $1.65. It also reported both higher-than-estimated revenue and expenses.

Mr. Mihelic raised concern about the bank's net income from personal and commercial banking falling short of his estimate ($487-million versus $494-million).

"BMO incurred negative operating leverage of -2 per cent [year over year] in the quarter," he said. "Furthermore, loan growth came in at 3 per cent [year over year]  and growth across all loan products have been decelerating for BMO over the last several quarters. We continue to believe it will be challenging for BMO to re-gain momentum in this business, and absent a more positive outlook on domestic retail earnings growth prospects for the bank, we believe a Sector Perform rating is justified for BMO."

While maintaining his rating, he reduced his 2016 EPS forecast to $7.10 from $7.20 largely due to a projected drop in revenue from net interest income and trading.

He also lowered his price target to $78 from $79 (Canadian). The analyst consensus is $82.31.

In other analyst actions, Cormark Securities equity analyst Meny Grauman downgraded the stock to "market perform" from "buy" and lowered his price target to $79 from $81 (U.S.)

TD Securities analyst Mario Mendonca lowered his price target to $84 from $82 (Canadian) with a "hold" rating, while UBS analyst Brennan Hawken raised his price target to $84 from $83, keeping a "buy" rating.

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Despite liking its business performance and focus, Credit Suisse analyst Kevin Choquette finds the relative valuation of National Bank of Canada (NA-T) "not compelling."

On Wednesday, National Bank reported a second-quarter operating earnings per share of $1.15 (Canadian), beating the consensus estimate of $1.12 and an increase of 10 per cent year over year.  Driven by near-record trading revenue, which was up 48 per cent from the same period in 2014, financial markets sector performance led the bank's growth.

It raised its dividend to 52 cents (from 50 cents) per common share, and it reaffirmed its buyback program, aiming to repurchase 6 million common shares (or 1.8 per cent its outstanding shares).

Mr. Choquette raised his EPS estimate from $4.60 to $4.70 for 2015 and from $4.85 to $5 in 2016.  He also raised his price target to $56 from $55 (Canadian) while maintaining his "neutral" rating. The analyst consensus price target is $50.74, according to Thomson Reuters.

"We derive our $56 target price for NA using an 11.3x forward [price-earnings] multiple, which represents a 9-per-cent discount to our group valuation multiple," said Mr. Choquette. "We believe a discount is justified to reflect NA's greater reliance on wholesale revenues and relatively less attractive long-term growth profile. Our target implies a 1.8x multiple on forward estimated book value per share."

Elsewhere, BMO Nesbitt Burns analyst Sohrab Movahedi and CIBC World Markets analyst Robert Sedran raised their price targets by a loonie to $55 and $52, respectively.

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BMO Nesbitt Burns analyst John Morris remains "cautious" about Michael Kors Holdings Ltd. (KORS-N), believing limited near-term visibility will hinder the challenges it faces.

The designer brand reported fourth-quarter earnings per share of 90 cents (U.S.), compared to 78 cents in the same period a year ago and just shy of the consensus estimate of 91 cents. Same-store sales fell 5.8 per cent, after guidance estimated a mid-single digit increase and the consensus predicted an increase of 6 per cent year over year.

"Several headwinds contributed to the [comparable same-store sale] slowdown (forex, remodels removed from the comp base, migration towards e-commerce) but do not fully explain the magnitude of deceleration and we see the slowing comp trend as a sign of brand maturation," he said. "Given slowing top-line momentum, gross margin decline, higher long-term investments, and FX pressures, visibility for improvement is poor."

Mr. Morris lowered his 2016 EPS forecast to $4.37 from $4.61 and reduced his price target to $51 from $70 (U.S.). He maintained his "market perform" rating.

"Confirming our caution, a combination of factors including weakening tourism in the U.S., markdowns in its retail channel, competitive promotional activity in its wholesale channel, and weakness in its core watch category, all of which are likely to continue in the near-term, weigh on the company," he said. "In addition, we believe the fourth quarter results corroborate our view that the North American market is maturing, leading to decelerating comps combined with margin pressure."

Several analysts downgraded the stock, including Stephens Inc.'s Rick Patel (to "equal weight" from "over weight"); Goldman Sachs' Lindsay Drucker Mann ("neutral" from "buy") and Telsey Advisor Group's Dana Telsey ("market perform" from "outperform").

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A recent 15-per-cent drop in share price and the strong market position of Secure Energy Services Inc. (SES-T) led TD Securities analyst Scott Treadwell to upgrade the stock from "buy" to "action list buy."

Disappointing first-quarter results, which Mr. Treadwell blamed on largely on one-time severance costs, has caused Secure stock to decline since early May. However, the analyst remains confidence about the state of the company.

"We believe that the company's strong balance sheet could fund a number of accretive acquisitions (both producer-owned disposal wells and waste treatment facilities) that may, in our view, drive a step-change in [earnings before interest, taxes, depreciation, and amortization] estimates and likely equity valuation," he said.

He added: "We believe that as the company continues to expand into operations with long-term visibility and growth potential, Secure will trend up to and through its five-year [discounted cash flow-net asset value] value. It trades at a healthy premium to other logistics names in our universe, and we see little reason for the gap to close, as Secure's cash flow make-up, and long-term growth prospects present one of the lowest risk stories in our universe, in our opinion."

Forecasting an acceleration in the addition of high-return facilities over the next five years, Mr. Treadwell raised his net asset value per share estimates to $24.25 from $20.02. Accordingly, he boosted his target price to $23 from $20. The analyst consensus is $20.25.

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As it "matures into more of a real drug company with long-lived, highly profitable assets," Canaccord Genuity analyst Neil Maruoka expects long-term organic growth for Valeant Pharmaceuticals International Inc. (VRX-N, VRX-T) will lead to "upward earnings revisions."

Though he touted the "blockbuster potential" of the Xifaxan, a irritable bowel syndrome drug which was recently approved by the U.S. Food and Drug Administration, he feels the impact of the product is already priced into the stock. Mr. Maruoka said the drug called "the primary value driver" for the Salix Pharmaceuticals Inc. acquisition.

"The drug is already close to a $1-billion run rate from the current two indications in hepatic encephalopathy and Traveler's diarrhea, and we believe the IBS-d market should easily support an incremental greater than $1-billion opportunity," he said.

He added: "On the competitive front, Actavis' eluxadoline was also approved for the same indication," he said. "However, we think the market is more than sufficient to support two drugs, as Xifaxan presents several key advantages versus its competitor."

Maintaining his "buy" recommendation, Mr. Maruoka increased his price target to $275 (U.S.) from $250 after adjusting his forecasts to reflect a reduced regulatory risk. The consensus price target is $237.20.

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In other analyst actions:

Chipotle Mexican Grill Inc (CMG-N) was raised to "buy" from "hold" at Miller Tabak + Co by equity analyst Stephen Anderson. The 12-month target price is $725 (U.S.) per share.

Canadian Natural Resources Ltd (CNQ-T) was rated new "overweight" at JPMorgan by equity analyst Phil Gresh. The target price is $43 (Canadian) per share.

BRP Inc (DOO-T) was downgraded to "sector perform" from "outperform" at National Bank by equity analyst Cameron Doerksen. The 12-month target price is $28 (Canadian) per share.

Johnson Controls Inc (JCI-N) was raised to "buy" from "neutral" at UBS by equity analyst Colin Langan. The 12-month target price is $59 (U.S.) per share.

Magnum Hunter Resources Corp (MHR-N) was downgraded to "hold" from "buy" at Canaccord Genuity by equity analyst Karl Chalabala. The 12-month target price is $2 (U.S.) per share.

Vail Resorts Inc (MTN-N) was downgraded to "neutral" from "buy" at MKM Partners by equity analyst Christopher Agnew. The 12-month target price is $111 (U.S.)  per share.

Occidental Petroleum Corp (OXY-N) was rated new "overweight" at JPMorgan by equity analyst Phil Gresh. The target price is $85 (U.S.) per share.

Semtech Corp (SMTC-Q) was downgraded to "sell" from "neutral" at B. Riley by equity analyst Craig Ellis. The 12-month target price is $21 (U.S.) per share.

The Valspar Corp (VAL-N) was raised to "buy" from "hold" at Gabelli & Co. by equity analyst Rosemarie Morbelli.

With files from Bloomberg News