Julie Jacobson/The Associated Press
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.
The combination of the defensive nature of the stock and a recent pullback in prices has "significantly improved" the potential for investor returns for ARC Resources Ltd. (ARX-T), said Desjardins Securities analyst Kristopher Zack.
He upgraded his rating for the stock to "buy" from "hold."
On Wednesday, the company reported "solid" second-quarter results, featuring production results and cash flow that both beat consensus estimates. It maintained production guidance for both 2015 and 2016 and is on track to deliver growth through its new Sunrise plant, which is opening ahead of schedule and under budget. According to Mr. Zack, it's also making progress in reducing capital costs.
"The company is well positioned to manage both its balance sheet and monthly dividend, while still actively pursuing growth in the BC Montney," he said.
He added: "We expect ARX will act in a prudent and disciplined manner when it comes to maintaining a conservative balance sheet and payout in the current environment, which should provide continued support for the stock relative to peers."
Mr. Zack said the premium on the company's share price, compared to others in the sector, is warranted given ARC's "strong" growth visibility, consistent operational performance and "conservative" debt levels. He maintained his target price of $24.50 (Canadian). The average analyst target price is $26.61, according to Bloomberg.
"Valuation has historically been our one hang-up in recommending a potential entry point for investors, as we have always viewed the company's Montney resource base, disciplined operating strategy and healthy balance sheet attractively," said Mr. Zack. "However, following the recent commodity price–driven sell-off across the broader energy space, we believe the stock is now increasingly attractive at current levels."
"In our view, opportunities to own premier-quality producers like ARX at an attractive valuation do not come often, and investors should take advantage of the market correction to add exposure."
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There is now an "attractive risk-reward" on shares of Open Text Corporation (OTEX-Q, OTC-T), said RBC Dominion Securities analyst Paul Treiber.
He upgraded his rating for the stock of the tech company to "outperform" from "sector perform" based largely on four variables. They are: Open Text's ability to expand margins despite a shift to cloud computing; achievable organic growth expectations; mergers and acquisitions as a potential catalyst and a valuation below global peers and Canadian tech consolidators.
"Open Text is trading at 10 times [enterprise value to earnings before interest, taxes, depreciation and amortization] (after-hours), below global software peers at 12x and Canadian tech consolidators at 15x," said Mr. Treiber. "In the last year, OpenText's multiple has compressed 1 point, whereas Canadian tech consolidators have expanded four multiple points. Investor sentiment may improve on better quarterly execution, greater financial consistency, and improved visibility to margins despite higher mix of cloud revenue."
The company announced fourth-quarter 2015 results that were "well above" guidance announced in May. Revenue was $483-million, beating both the consensus of $448-million and guidance of $440-455-million. Mr. Treiber pointed to higher-than-expected license revenue ($97-million versus his estimate of $65-million) as the chief catalyst for the result. Adjusted earnings per share of 87 cents also beat the consensus (69 cents) and guidance (64-72 cents).
He raised his price target for the U.S. issue of the stock to $55 (U.S.) from $50.
"We've increased our target multiple to 12 times 2016 calendar year estimated [EV/EBITDA] from 11x previously to reflect better visibility to Open Text's margins in the cloud and our target multiple is justified less than Canadian. tech consolidators (15x) given Open Text's lower FTM EBITDA growth (7% versus peers at 17%)," he said.
Elsewhere, National Bank analyst Kris Thompson raised the stock to "outperform" from "sector perform" with an unchanged target price of $55 (U.S.) per share. Beacon Securities analyst Gabriel Leung raised his rating to "buy" from "hold" and bumped his target to $56 from $50.
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Canaccord Genuity analyst Aravinda Galappatthige said he's now comfortable with the sustainability of improvements made by Thomson Reuters Corp. (TRI-N, TRI-T) in the wake of "positive underlying trends" continuing through the second quarter.
Accordingly, he upgraded his rating for the stock to "buy" from "hold."
"Starting with [The Financial & Risk (F&R) segment], we continue to see organic revenue growth tick up," said Mr. Galappatthige. "Recall this was stuck at [negative 3 per cent] for nearly two years before 2015. We are now at [an increase of 1 per cent]. While we may not see a sequential improvement through the rest of the year due to pressure in the low-margin recoveries segment, we believe that the company is in a position to resume the uptrend in organic revenue growth in 2016.
"Note that the ongoing platform migration (foreign exchange and buy-side to the Eikon app) is still putting pressure on organic revenue growth. However, with half of this migration now complete, we can expect that this effect would be lapped by early 2016. Management indicated that excluding the impact of the migration, organic revenue growth would be closer to 2-3 per cent."
The company released second-quarter results on Wednesday featuring adjusted earnings per share of 52 cents (U.S.) which beat the consensus forecast of 49 cents.
He raised his price target to $45 (U.S.) from $43. The analyst consensus is $42.37.
"With the company now looking more and more like a 2-3-per-cent organic revenue growth business with a mid- to high-single-digit EBITDA growth outlook in the upcoming years, we believe the higher multiple is justified," he said. "On an EV/2016 EBITDA basis, both Reed Elsevier and Pearson trade at 11.4x, and these are low-single-digit revenue growth businesses."
TD Securities analyst Vince Valentini also upgraded his rating to "buy" from "hold." His target was bumped to $44.20 from $40.87.
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With the comparable same-store sales growth dwindling and perception of the company's value proposition and price investment not yielding anticipated results, Canaccord Genuity Scott Van Winkle downgraded Whole Foods Market Inc (WFM-Q) to "hold" from "buy."
The upscale grocer announced third-quarter revenue and earnings per share of $3.64-billion (U.S.) and 43 cents, in line with Mr. Van Winkle's forecast ($3.67-billion and 43 cents) but below the consensus estimates ($3.69-billion and 45 cents). Comparable same-store sales increase 1.3 per cent, 1.1 per cent less than the analyst predicted. He expressed concerned about an "abrupt" deceleration toward the end of the quarter following a product audit in New York City that found several stores overpriced food, calling it "the incremental shoe to drop leading to the overall comp shortfall."
"That issue aside, the 2.6-per-cent comp registered over the first 10 weeks (an increase of 20 basis points from run rates exiting Q2) of Q3 was below our expectations and growth initiatives haven't yet turned the trend," he said. "The quarter-to-date comp of 0.6 per cent is a continuation of the weak trends exiting Q3, while the challenges of more widespread price investment and intensifying cannibalization, which aren't bearing fruit, reduce our confidence in the continued earnings growth. We see a likely turn to negative comps in the near future, that we believe adds further valuation risk and could accelerate response that has a larger impact on margins."
He was also disappointed in the initial announcement of plans for the company's new line of stores, 365 by Whole Foods, which are meant to challenge competitor Trader Joe's. Mr. Van Winkle said the stores are larger than he expected.
"We have been taking a wait-and-see approach as to how to gauge the move to a secondary format.," he said. "While we have confidence in WFM's ability to develop retail concepts, we feel its risky given the current trends to wait to see the prospects of a new concept."
He lowered his revenue and EPS estimates for 2015 to $15.4-billion and $1.66 from $15.5-billion and $1.69 to reflect a drop in his comp forecast to 2.5 per cent from 3.5 per cent. For 2016, his revenue and EPS forecasts moved to $16.3-billion and $1.73 from $16.9-billion and $1.84.
He also decreased his price target for the shares to $38 from $51. The average analyst target is $40.71.
Elsewhere, Sterne Agee CRT analyst Charles Grom also downgraded the stock, to "neutral" from "buy," and lowered his target to $37 from $55. Morgan Stanley's Vincent Sinisi dropped his rating to "equalweight" from "overweight" with a target of $37, down from $56. Wedbush's Philip Terpolilli also lowered his rating, to "neutral" from "outperform," with a target of $40, down from $54.
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Street models for Facebook Inc. (FB-Q) are "too conservative" and "underestimate" the long-term monetization potential of its new products, said Credit Suisse analyst Stephen Ju.
The social media company reported second-quarter results that were largely in line with consensus forecasts and "modestly" topped Mr. Ju's expectations. Its revenue and adjusted earnings per share were $4.04-billion (U.S.) and 50 cents, compared to the consensus of $3.99-billion and 46 cents.
Believing the company will be able to drive revenue growth going forward without a substantial increase in advertising loads, he bumped his 2015 forecasts for revenue, adjusted EBITDA and EPS to $17.1-billion, $11.20-billion and $2.09 from $16.7-billion, $10.8-billion and $1.97.
"We increase our mid-term advertising forecasts, offset by incremental decreases to our payment segment estimate, and hence our consolidated revenue estimates remain essentially unchanged," said Mr. Ju. "As we look towards 2016 and beyond, we believe Facebook remains positioned to benefit from multiple initiatives which include: 1) Premium Video which should exert a greater impact in 2H15, 2) Instagram, and 3) the continued adoption of the Audience Network. Looking longer-term, there remains optionality from as-of-yet monetized properties such as WhatsApp."
His target price increased to $110 (U.S.) from $106. Consensus is $100.93.
"Following our product-by-product analysis for both existing and still nascent businesses, Facebook remains one of our highest-conviction ideas – particularly in context of the stacked product release slate we believe it has in store as well as the multiple paths to shareholder value creation via monetization of existing users."
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In other analyst actions:
Acadian Timber Corp (ADN-T) was raised to "buy" from "neutral" at Dundee by equity analyst Stephen Atkinson. The 12-month target price is $22 (Canadian) per share.
Baxter International Inc (BAX-N) was downgraded to "market perform" from "outperform" at Leerink Partners by equity analyst Danielle Antalffy. The 12- month target price is $40 (U.S.) per share.
BP PLC (BP-N) was raised to "buy" from "hold" at Argus by equity analyst Michael Burke. The target price is $42 (U.S.) per share.
Centerra Gold Inc (CG-T) was raised to "hold" from "reduce" at TD Securities by equity analyst Greg Barnes. The 12-month target price is $6 (Canadian) per share.
Golden Star Resources Ltd (GSC-T) was downgraded to "hold" from "buy" at Canaccord Genuity by equity analyst Rahul Paul. The 12-month target price is 35 cents (Canadian) per share.
HudBay Minerals Inc (HBM-T) was raised to "buy" from "market perform" at Cormark Securities by equity analyst Cliff Hale-sanders. The 12-month target price is $13 (Canadian) per share. The stock was raised to "outperform" from "sector perform" at National Bank by equity analyst Shane Nagle. The 12-month target price is $12 (Canadian) per share.
Horizon North Logistics Inc (HNL-T) was raised to "outperform" from "sector perform" at National Bank by equity analyst Greg Colman. The 12-month target price is $4 (Canadian) per share.
Intact Financial Corp (IFC-T) was downgraded to "market perform" from "buy" at Cormark Securities by equity analyst Jeff Fenwick. The 12-month target price is $94 (Canadian) per share.
Kinross Gold Corp (K-T) was raised to "buy" from "market perform" at Cormark Securities by equity analyst Richard Gray. The 12-month target price is $3.75 (Canadian) per share.
Kraft Heinz Co (KHC-Q) was raised to "outperform" from "market perform" at Bernstein by equity analyst Alexia Howard. The 12-month target price is $94 (U.S.) per share.
Oracle Corp (ORCL-N) was raised to "buy" from "hold" at Jefferies by equity analyst John Difucci. The 12-month target price is $50 (U.S.) per share.
Sherritt International Corp (S-T) was downgraded to "speculative buy" from "buy" at TD Securities by equity analyst Greg Barnes. The 12-month target price is $2.75 (Canadian) per share.
Torstar Corp (TS.B-T) was downgraded to "reduce" from "hold" at TD Securities by equity analyst Bentley Cross. The 12-month target price is $4.25 (Canadian) per share. It was raised to "speculative buy" from "market perform" at Cormark Securities by equity analyst David Mcfadgen with a target price of $6.20 per share.
Univar Inc (UNVR-N) was rated new "buy" at Jefferies by equity analyst Laurence Alexander. The 12-month target price is $29 U.S.) per share. It was rated new "neutral" at Credit Suisse by equity analyst Jamie Cook with a $25 target per share. It was also rated new "market perform" at Wells Fargo by equity analyst Allison Poliniak-cusic.
Wi-LAN Inc (WIN-T) was raised to "speculative buy" from "hold" at Canaccord Genuity by equity analyst Robert Young. The 12-month target price is $3.25 (Canadian) per share.
David Leeder