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.

In reaction to commodity price revisions on Thursday morning, TD Securities analyst Scott Treadwell lowered his 2015 and 2016 forecasts for the oilfield services sector.

Mr. Treadwell noted that TD had previously forecast a "steady" rise in crude oil prices through 2015 and into 2016. However, given a recent pullback in the front-month and other futures contracts, the bank has scaled back its projections for the commodity.

"The net result is that the outlook for any meaningful uptick in activity is, in our view, pushed into the second half of 2016," he said. "Given the average 30-per-cent pullback in sector equities since May, we reiterate our market overweight recommendation, focusing on names with balance sheet and asset quality strength."

TD dropped its assumptions for commodity prices for 2015 through 2017. The changes included lowering projections for West Texas Intermediate crude to $51 (U.S.), $57.50 and $65 (from $57, $65 and $67.50, respectively).  Brent crude forecasts fell to $56.25, $62.50 and $70 (from $62.50, $70 and $72.50).

He explained: "We are updating our commodity price assumptions to reflect some of the recent changes to spot and strip oil prices. This decision was largely predicated on: 1) extreme volatility in oil prices; and 2) an [approximately $45 (U.S.) a barrel] WTI oil price that, in our view, renders certain oil plays uneconomic — in other words, the current spot prices are likely to prove unsustainable over the mid- to long-term."

Accordingly, he altered his price targets for shares of oilfield service sector companies. He did not change his ratings for the stocks.

The changes were:

Ensign Energy Services Inc. (ESI-T) to $10.50 from $12; hold rating

Precision Drilling Corp. (PD-T) to $8.50 from $ 11; action list buy rating

Savanna Energy Services Corp. (SVY-T) to $2.50 from $2; buy rating

Trinidad Drilling Ltd. (TDG-T) to  $3.50 from $4.50; buy rating

Western Energy Services Corp. (WRG-T) to  $6.50 from $7; buy rating

Calfrac Well Services Ltd. (CFW-T) to $6 from $8; buy rating

Trican Well Service Ltd. (TCW-T) to $2 from $2.50; hold rating

Canyon Service Group Inc. (FRC-T) to $6.50 from $8; buy rating

Enerflex Ltd. (EFX-T) to $15 from $17; buy rating

Horizon North Logistics Inc. (HNL-T) to $4 from $ 4.50; buy rating

Mullen Group Ltd. (MTL-T) to $19 from $ 21; hold rating

Newalta Corp. (NAL-T) to $15 from  $17; buy rating

ShawCor Ltd. (SCL-T) to  $35 from  $42; buy rating

Secure Energy Services Inc. (SES-T) to  $19 from $21; action list buy rating

"With reductions in producer cash flow and spending estimates, we have lowered our forecasts for both the rest of 2015 and for 2016 for almost all names under coverage," said Mr. Treadwell. "From a high level, we believe that producer budgeting activities for 2016 are underway, and without a major step-up in commodity prices, we expect the spending levels seen in 2015 to persist into 2016.

"We have also removed any pricing recovery in 2016, though Q4 may see some lift if Q1/17 appears to be sold out and funds are brought forward into 2016. Admittedly, that scenario seems wildly optimistic today, but it has been one of the catalysts to raise prices in the past cycles. We expect margins to generally improve in 2016; we had voiced concern that margin downside risk increases when a sharp jump in activity is layered on low prices and a reduced equipment base. The process of readying staff and equipment for re-entry into service typically hurts margins, and removing that event from our 2016 numbers reduces margin compression risk. That being said, the downside risk to margins remains if pricing continues to move lower, though we expect the major EBITDAS-generating activities of deep drilling and pad fracturing have already given up as much as can be expected."

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Though theScore Inc. (SCR-X) has built "a very high quality leading sports app with a sizeable user base," Beacon Securities analyst Vahan Ajamian is concerned about the user growth of the company's flagship product.

Given that user growth, which he called "the single-most important metric for the company," has slowed from 42 per cent in the fourth quarter of 2014 year over year to 9 per cent in the third quarter of 2015, Mr. Ajamian downgraded his rating for the stock to "hold" from "buy."

The analyst did note average revenue per user is trending higher, and the company has a cash balance that he believes will get them through the next two years. It also has two "growth" initiatives in its Swoopt daily fantasy product and theScore eSports.

However, those catalysts have not made an impact yet. Mr. Ajamian cautions that the company may not be in a position to take advantage of the coming National Football League season, which is lucrative to fantasy products.

As well, he is not expecting a breakout in the fourth quarter, projecting user growth of 8 per cent year over year.

"As a reminder, the fourth quarter typically represents the slowest quarter for theScore, as it is largely exposed to only the long stretch of the baseball season," he said. " We believe user growth this year will also face a headwind of a tough comp, as last year featured the FIFA World Cup – the loss of which we expect will not be offset by the FIFA Women's World Cup this year."

Mr. Ajamian added: "Other concerns include the recent extreme volatility in the company's trading multiple, which has been accompanied by reduced liquidity. Additionally, as we have the lowest estimates on the Street, we can envision scenarios where the company reports results in line with our estimates, but disappoints the Street overall."

He lowered his target price for the shares to 55 cents from 70 cents. The analyst consensus is 93 cents, according to Thomson Reuters.

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Reliability at the Syncrude oil sand development remains a concern for CIBC World Markets analyst Arthur Grayfer in the wake of a weekend fire.

Though Canadian Oil Sands Ltd. (COS-T) maintained its 2015 annual production guidance, it said volumes may come at the low end of the 97,000 to 108,000 barrels per day range. The previous single-point estimate was 103,700.

Accordingly, Mr. Grayfer lowered his third-quarter production estimates by 22 per cent (or 24,400 Bbl/d to 87,400). That change will result in a 6-per-cent drop (6,200 Bbl/d) in 2015 production of 97,100 Bbl/d.

"Notwithstanding that major projects are now complete, reliability issues at Syncrude continue to be a concern for us, and cause us to maintain our cautionary outlook on Canadian Oil Sands," he said. "Looking into 2016, we have a cautiously optimistic view as we assume uptime of [approximately] 105,400 Bbl/d or 82-per-cent utilization (in line with consensus at 82 per cent). However, given the track record over the last few years, there could be downside to both our and consensus estimates for 2016."

Mr. Grayfer maintained his "sector underperformer" rating and lowered his price target to $8 (Canadian) from $8.50. The average analyst target, according to Bloomberg, is $9.39.

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Expressing more confidence in the 2016 outlook for Polaris Industries (PII-N), RBC Capital Markets Joseph Spak said the valuation and risk/reward for investors are "attractive" at the current levels.

He upgraded his rating for the stock to "outperform" from "sector perform."

"We believe core [off-road vehicle] market is slowing to mid-single digit growth and competition is getting tougher," said Mr. Spak. "Thus handoff of the growth baton to motorcycles (particularly driven by Indian and Slingshot) is crucial. We now have greater confidence that Polaris can move past some supply issues to satisfy robust demand. After two years of flat gross margins, we see a clearer path to gross margin expansion in 2016, which historically has been a driver of stock performance. Finally, the company sounds closer towards using their strong balance sheet for accretive acquisitions (sweet-spot is $500-million to $1-billion in sales) which we believe would be well received as needed to hit $8-billion 2020 sales target."

Mr. Spak also raised his price target for the stock to $158 (U.S.) from $155. Consensus is $163.59.

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The acquisition of Amica Mature Lifestyles Inc. (ACC-T) by BayBridge Seniors Housing Inc., which is owned by the Ontario Teachers' Pension Plan Board, provides evidence of the demand for senior housing assets, said Canaccord Genuity analyst Jenny Ma.

She said the transaction has a "positive implication" for the valuation of Chartwell Retirement Residences (CSH.UN-T).

"With an exclusive focus on Canada, Chartwell owns a large and relatively high-quality portfolio of primarily retirement home communities and some long-term care facilities, and possesses scale in most of its markets," said Ms. Ma. "Demographic trends continue to support a positive long-term view of the Canadian seniors' housing space, and we favour Chartwell's strategy of growing its dominant Canadian portfolio."

Maintaining her "buy" rating, she raised her price target for the stock to $15 (Canadian) from $13.50. Consensus is $12.97.

She added:  "To be clear, our investment thesis and buy rating for Chartwell is not based on the REIT becoming a takeover target. However, it is evident from the Regal and Amica transactions that seniors' housing assets in Canada are in high demand from large institutional investors and should command a premium valuation."

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In other analyst actions:

Athabasca Oil Corp. (ATH-T) was downgraded to "speculative buy" from "buy" at TD Securities by equity analyst Menno Hulshof. The 12-month target price is $3.50 (Canadian) per share.

Halliburton Co. (HAL-N) was raised to "buy" from "hold" at HSBC by equity analyst Gregory Brown. The target price is $44 (U.S.) per share.

Seagate Technology PLC (STX-Q) was downgraded to "hold" from "buy" at Benchmark by equity analyst Mark Miller. The 12-month target price is $50 (U.S.) per share.

Seven Generations Energy Ltd. (VII-T) was rated new "equal-weight" at Barclays by equity analyst Grant Hofer. The target price is $17 (Canadian) per share.

WestRock Co. (WRK-N) was raised to "buy" from "neutral" at Longbow Research by equity analyst Sean Coleman. The 12-month target price is $69 (U.S.) per share.

Xylem Inc. (XYL-N) was raised to "buy" from "hold" at Stifel by equity analyst Nathan Jones. The 12-month target price is $37 (U.S.) per share.

RBC Capital cuts Boeing's (BA-N) stock price target to $145 (U.S.) from $159 due to concerns about emerging markets.

Barrington Research downgraded Ambarella Inc. (AMBA-Q) to "market perform" from "outperform."

Jefferies reiterated its "buy" rating and its price target of $25 (U.S.) on Planet Fitness Inc (PLNT-N) after the company reported its second-quarter earnings.

Piper Jaffray upgraded eBay Inc. (EBAY-Q) to "neutral" from "underweight."

Citi upgraded both Cameron International Corp. (CAM-N) and Schlumberger Ltd. (SLB-N), who are merging in a $14.8-billion (U.S.) deal, to "buy" from "neutral."

With files from Jennifer Dowty and Bloomberg