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.

IGM Financial Inc. (IGM-T) has under-performed in relation to the broader market by a "significant margin" in 2015, said CIBC World Markets analyst Paul Holden.

The stock has fallen approximately 13 per cent in the first six months of the year, compared to an overall decline of just one per cent.

"IGM is reinvesting in the business, resulting in high-cost inflation in the near term, and has pushed eligible clients into a fee discounted product, pressuring the top line, but improving the outlook for asset retention," the analyst said. "More strategic decisions that will negatively impact margins may be necessary, but we believe that lower earnings expectations and below-average valuation multiples look reasonable in that context."

Mr. Holden upgraded his rating for the stock to "sector performer" from "sector underperformer." He maintained a $45.50 (Canadian) price target. Consensus is $48.95.

In the same analyst note, Mr. Holden noted AGF Management Ltd. (AGF.B-T) has also under-performed (by 30 per cent), however he maintained his "sector underperformer" rating.

"We are less comfortable with the ability of the company to drive sustainable [assets under management] growth," he said. "Our [discounted cash flow] model suggests there is more downside risk to AGF."

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The recent fall in the share price of Oracle Corp. (ORCL-N) should be seen as a "good buying opportunity," according to Canaccord Genuity analyst Richard Davis.

Since the company announced fourth-quarter 2015 results two weeks ago, the price has dropped more than 10 per cent. The tech giant reported adjusted earnings per share of 78 cents (U.S.) on revenue of $10.71-billion, versus a consensus estimate of 86 cents and $10.92-billion. It blamed the strength of the U.S. dollar for the miss.

"The disappointment was largely driven by currency-muted revenue growth and a material earnings shortfall as customers opted for cloud purchases (with deferred revenue recognition) instead of paid-up licenses in the quarter," said Mr. Davis. "The bottom line is that the firm's transition to the cloud is happening faster than expected, which when viewed objectively is actually a good thing. We cannot stress enough that the economics of a cloud subscription, versus a license + maintenance deal, are more attractive by a factor of 2-3x over the long term."

Mr. Davis revised his EPS estimates for the first quarter of 2016 and going forward to better reflect the impact of changes in currency, noting foreign exchange was a 9-cent "drag" in the fourth quarter. His new Q1 EPS forecast is 52 cents from 54. He reduced his 2016 and 2017 projections by 5 cents and 3 cents, respectively.

"We … want to reiterate that our thesis on Oracle is unchanged: we continue to expect that ORCL shares will realize a several-point multiple expansion on its [free cash flow-based] valuation as investors gradually gain confidence in the firm's transition to the cloud. With more than $3.00 in [estimated free cash flow per share in 2017], we believe this multiple expansion should drive ORCL shares toward our $50 price target over the next 12-18 months."

He maintained that target price. The consensus is $46.57, according to Thomson Reuters.

His "buy" rating remained unchanged.

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Pipeline progress is a key driver for Africa Oil Corp. (AOI-T) going forward, said BMO Nesbitt Burns analyst Brendan Warn, who upgraded the stock to "outperform" from "market perform."

Mr. Warn justified the change by pointing to several factors in closing the "value gap," including: appraisal of the company's South Lokichar Basin in Kenya; pipeline route selection; development planning progress; new Kerio Valley basin test as well as the potential for mergers and acquisitions.

"The company is funded to at least end 2015, further access to funding remains tight, other than bringing in an industry partner," he said. "Africa Oil's Kenya annual site visit in September should grow interest and visibility towards the end of 2015."

Mr. Warn also raised his target price, bumping it to $3 from $2.60 (Canadian) to come into line with his core net asset value figure of $3.06 per share. The analyst consensus price target is $3.71.

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Though he acknowledges risk is involved, Desjardins Securities analyst Maher Yaghi said Amaya Inc. (AYA-T, AYA-Q) offers investors "significant upside potential" at its current level.

He initiated coverage of the stock with a "buy" rating.

"We view Amaya's poker assets as best in class," the analyst said. "We believe that player liquidity, choice of games and brand awareness create network effects, making it very difficult for competitors to gain market share. The most tangible catalyst for Amaya is the potential to cross-sell new products to its poker network. The rollout of casino and sportsbook should increase player yield for a considerable portion of the player base. We estimate an incremental $200-million [Canadian] in revenue for [the 2015 fiscal year] should the company achieve cross-sell levels similar to those in its pilot markets.

"Several states in the U.S. have also started to regulate gaming, and any entry into the US could significantly expand the addressable market. At this stage, however, our estimates do not include upside from this opportunity."

He noted another share catalyst is the company's affinity for mergers and acquisitions, pointing to the company's assistance in financing a deal to acquire b.win.party digital entertainment by GVC Holdings PLC. Mr. Yaghi feels those assets would be a good strategic fit, with its sportsbook business able to capitalize on Amaya's customer base.

"Amaya's strategic acquisitions and divestitures have drastically enhanced its position as a recognized global leader in the rapidly growing interactive gaming market," he said. "Its track record of capital markets execution has led to significant shareholder value creation. The company has a history of acquiring assets at valuations that are in line with industry acquisition multiples. We note that the price of the PokerStars asset is in line with other transactions; however, we view the strategic quality, player liquidity and brand value of this asset as best-in-class in terms of poker platforms, thus warranting a premium valuation."

The analyst set a price target of $47 (Canadian), compared to the analyst consensus price of $44.86.

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Following the $3.3-billion sale of royalty lands to the Ontario Teachers' Pension Plan, the balance sheet of Cenovus Energy (CVE-T, CVE-N) is now a "position of strength," said Raymond James analyst Chris Cox.

The energy company, according to Mr. Cox, should now have $5.1-billion in cash, before taxes related to the asset sale, which he said provides them the "strongest" balance sheet among its peers.  

"With the significantly improved balance sheet, we believe Cenovus is now in a position to provide investors with significantly improved visibility on its medium and long-term growth plans, with a restart of at least one of its previously deferred growth projects likely before year-end in our view," the analyst said. "In our view, Cenovus is now in an enviable position of having high-quality expansion projects that can still generate economic rates of return at today's oil prices, while also possessing the balance sheet and funding position to facilitate this growth."

Mr. Cox did lower his 2015 estimates for the company, dropping his earnings before interest, taxes, depreciation and amortization forecast to $2.65-billion from $2.72-billion and his revenue target to $14.12-billion from $14.17-billion. For 2016, his EBITDA estimate decreased to $2.35-billion from $2.41-billion, but his revenue projection rose to $15.43-billion from $15.39-billion.

He maintained his "outperform" rating and $27 (Canadian) target price. The analyst consensus target is $25.67.

"We remain constructive on shares of Cenovus, largely predicated upon the quality of the company's asset base, its industry-leading growth profile (even under a prolonged lower oil price environment) and a much stronger balance sheet," he said.

On Wednesday, Macquarie analyst Chris Feltin upgraded the stock to "outperform" from "neutral."

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In other analyst actions:

Columbia Banking System Inc (COLB-Q) was downgraded to "market perform" from "outperform" at Raymond James by equity analyst Donald Worthington.

EverBank Financial Corp (EVER-N) was downgraded to "outperform" from "strong buy" at Raymond James by equity analyst Michael Rose. The 12-month target price is $22 (U.S.) per share.

HealthSouth Corp (HLS-N) was raised to "market outperform" from "market perform" at JMP Securities by equity analyst Peter Martin. The 12-month target price is $54 (U.S.) per share.

Kosmos Energy Ltd (KOS-N) was raised to "outperform" from "market perform" at BMO Capital Markets by equity analyst Brendan Warn. The 12-month target price is $10 (U.S.) per share.

Noble Energy Inc (NBL-N) was downgraded to "neutral" from "overweight" at Atlantic Equities by equity analyst Barry Maccarthy. The 12-month target price is $48 (U.S.) per share.

Bank of the Ozarks Inc (OZRK-Q) was downgraded to "outperform" from "strong buy" at Raymond James by equity analyst Michael Rose. The 12-month target price is $51 (U.S.) per share.

Regions Financial Corp (RF-N) was downgraded to "outperform" from "strong buy" at Raymond James by equity analyst Michael Rose. The 12-month target price is $11.50 (U.S.) per share.

United Bankshares Inc (UBSI-Q) was downgraded to "market perform" from "outperform" at Raymond James by equity analyst William Wallace.

Zions Bancorporation (ZION-Q) was downgraded to "market perform" from "strong buy" at Raymond James by equity analyst David Long.

With files from Bloomberg News