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.

The current valuation for Intact Financial Corp. (IFC-T) presents an attractive entry point for investors, according to Raymond James analyst Michael Overvelde, who called the company a "high-quality investment."

Though he noted stronger-than-expected fourth-quarter 2016 results were driven by "favourable but transitory weather impacts," he said they bring more confidence to his earnings forecasts going forward. Accordingly, Mr. Overvelde upgraded his rating to "outperform" from "market perform."

"In our view, Intact remains a best-in-class competitor with an enviable market position and sustainable competitive position in a mature industry that still offers plenty of accretive consolidation potential," he said. "With net operating income outperforming expectations by a wide margin in 4Q15, organic premium growth continuing to accelerate and its book value of equity per share (and minimum capital test ratio) rebounding by 5 per cent quarter over quarter, we have a slightly higher level of confidence in our largely unchanged earnings forecasts."

Intact reported adjusted earnings per share of $1.54, below the consensus of $1.64 and Mr. Overvelde's estimate of $1.60, due to investment losses. Net operating income per share of $1.97 "comfortably" topped the consensus of $1.64 and the analyst's estimate of $1.58.

"Benign winter weather conditions were the main reason for the variance, resulting in extremely low claims in each of its property insurance divisions and zero catastrophe losses," he said.

He added: "Based on the strength and composition of its operating results, we consider this to be a much stronger-than-expected result that should calm investors, particularly following Intact's recent share price weakness, while strengthening our conviction in our 2016-2017 forecasts."

In reaction to the results, Mr. Overvelde did lower his 2016 and 2017 EPS projections to $6.38 and $7.30 from $6.61 and $7.32, respectively. While his net premiums earned forecasts rose, his book value per share estimates fell to $43.25 and $47.35 from $44.01 and $47.35, respectively.

The analyst maintained his target price for the stock of $99. He noted the target was "based on a target 2017 estimate price to earnings of 13.5 times, which is consistent with its one-year forward P/E of 13.7x and established at a premium to the average valuation of large Canadian financial peers to account for its relative earnings growth, defensive investment characteristics and M&A optionality."

The analyst average target price is $96.62, according to Bloomberg.

Elsewhere, GMP analyst Stephen Boland upgraded his Intact rating to "buy" from "hold" and moved his target to $94 from $90.

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CIBC World Markets analyst Robert Sedran moved his rating for Sun Life Financial Inc. (SLF-T) to "sector outperformer" from "sector performer," touting its "strong" balance sheet, "resilient" adjusted earnings and the potential for previous acquisitions to contribute to growth.

"We do not change our ratings frequently and the decision to upgrade Sun Life was not taken lightly – especially in a very tough market environment and against the backdrop of very good, but not uniformly positive, results this quarter (we're looking at you MFS)," he said. "However, the earnings have shown more than resilience in 2015, with growth of 29 per cent while the shares are down 10 per cent over the last year. We do not forecast anywhere near that level going forward … a meagre acquisition-assisted 1 per cent in 2016 and a growth rate in 2017 that rounds up to the bottom end of management's medium target range of between 8 per cent and 10 per cent. It is impossible to handicap the macro risks that have overwhelmed the underlying performance over the last year, but with a strong balance sheet, a reduced risk profile, mildly accretive acquisitions beginning to contribute to earnings and an improved valuation, we have decided to upgrade the shares. We expect volatility to continue in the near term and this is hardly an attempt to call the bottom on a stock that is down 12 per cent so far in 2016. It is, rather, a belief in the company's longer-term prospects."

Sun Life reported fourth-quarter 2015 headline earnings per share of 98 cents, topping Mr. Sedran's 79-cent estimate. Core EPS was $1.05, beating the analyst and consensus projection of 87 cents. The company's book value rose to $31.02 per share and the underlying return on equity was 13.8 per cent.

"We are not going to get carried away by the magnitude of the beat this quarter since it was partly owing to roughly 14  cents per share of unusually strong experience items (the average of the last 16 quarters rounds to zero)," said Mr. Sedran. "However, even without that benefit, earnings came in ahead of expectations with good performance on the expected profit line and lower-than-modeled strain on new business. To be sure, the operating environment was better in Q4/15 than it has been so far in a tumultuous 2016, but it was a good – if uneven – result. Having reduced our annual estimates earlier this year, our revisions were small."

He added: "At the segment level, the best that can be said of MFS is that earnings there have been resilient. A small quarter-over-quarter and year-over-year decline despite net redemptions is a solid, if uninspiring, performance. Canada and the United States benefited from some of the unusual experience items, but still showed relatively well. Asia took a step back after a period of strong growth, but that segment is still easily the smallest earnings contributor."

Mr. Sedran lowered his target price for the stock to $44 from $46. The average is $46.44.

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Raymond James analyst Frederic Bastien said he is "turning constructive" on FirstService Corp. (FSV-Q, FSV-T) as its valuation has recently returned to "more reasonable" levels.

Mr. Bastien upgraded his rating for the stock to "outperform" from "market perform."

On Wednesday, the Toronto-based provider of property services reported fourth-quarter 2015 earnings before interest, taxes, depreciation and amortization of $22.3-million (U.S.), in line with Mr. Bastien's estimate of $22.7-million but below the consensus of $24.5-million.

"We saw weaker-than-anticipated profitability at FirstService Residential offset a better-than-expected margin performance from FirstService Brands," the analyst said. "The company made up the lost ground below the EBITDA line as the earnings attributable to minority partners (who are mainly involved in seasonal pool and painting businesses) came in materially lower than projected. This pushed 4Q15 EPS to 28 cents — a penny above our target and two cents better than consensus."

Mr. Bastien noted the company's shares have fallen 16 per cent year to date, compared to a 9-per-cent decline for the S&P 500 and 6 per cent for its "closest" comparables. The shares traded at a forward enterprise value to EBITDA of 10.4 times.

"We see this valuation as reasonable for a firm that should grow EPS at an annual clip of 21 per cent through 2017, offers a unique angle on the expanding U.S. market for residential property management, and just established a trend of dividend increases," he said.

He maintained his 2016 EPS forecast of $1.45 but raised his 2017 projection by a nickel to $1.75.

Mr. Bastien also did not change his target price for the stock of $42 (U.S.). The analyst average is $38.60.

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It is still unclear whether Twitter Inc. (TWTR-Q) "can fly again," said RBC Dominion Securities analyst Mark Mahaney.

The social media company reported fourth-quarter revenue of $710-million (U.S.), narrowly missing Mr. Mahaney's projection of $713-milion. EBITDA of $191-million, a "solid" 27-per-cent margin, beat the Street's expectation of $175-million.

However, monthly active users (MAU) of 320 million fell below the consensus expectation of 323 million, and U.S. MAU fell quarter over quarter for the first time (down to 65 million from 66 million). Ad revenue growth also decelerated.

"Despite the sequential data points that management highlighted, the MAU trend is becoming more negative," said Mr. Mahaney. "Higher marketing spend (up 41 per cent quarter over quarter) likely played a material factor in stabilizing some of the positive MAU metrics, and marketing will be meaningfully lower in Q1. It's hard to see the stock outperforming near-term until there is more certainty around a change in trajectory of this metric. And we don't see that happening anytime soon."

In maintaining his "sector perform" rating, Mr. Mahaney said: "Our broad concerns remain two-fold: 1) It's not clear when/if product/user interface changes can stabilize or reaccelerate User & Usage metrics. 2) Channel checks and our last two surveys (new one pending) don't provide convincing evidence that a substantial number of advertisers will commit meaningful dollars to TWTR. Our published surveys have actually showed declining advertiser interest. Our concern for some time has been that Twitter's lack of real-time commercial intent (à la Google) or detailed, authentic profiles (a la Facebook) will eventually limit TWTR's growth potential. That said, we see the company aggressively experimenting with its product (e.g., making Timeline Tweets more relevance- than chron-based, expanding character limits. etc.), and that's a step in the right direction. Further  valuation (less-than 10 times estimated 2016 EV/EBITDA) would seem very reasonable for what remains a very sizeable platform, with a unique value proposition, strategic significance, still premium topline growth, and margin expansion capabilities."

Responding to the earnings, Mr. Mahaney dropped his revenue projections for 2016 and 2017 by 4 per cent and 9 per cent, respectively. His adjusted EBITDA estimates dropped by 3 per cent and 6 per cent.

He dropped his target price for the stock to $23 (U.S.) from $34. The analyst average is $21.38.

Elsewhere, Topeka Capital Markets analyst Blake Harper downgraded the stock to "hold" from "buy" and lowered his target to $15 from $35.

Pacific Crest Securities analyst Evan Wilson also downgraded Twitter, moving his rating to "sector weight" from "overweight" with a target of $36 (unchanged).

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Saying catalysts for the stock of RedKnee Solutions Inc. (RKN-T) are "few and far between in the near-term," Raymond James analyst Steven Li moved to his rating for the tech company to "market perform" from "outperform."

"This is the second quarter of the last three that license sales fell short given ongoing purchase decision delays from its telco customers. Valuation is inexpensive and should find a floor soon especially as restructuring savings buffer some of the revenue shortfall," said Mr. Li, who said he changed his rating until he sees signs of customer recovery or when restructuring starts to lift margins.

On Wednesday, RedKnee reported first-quarter 2016 revenue of $50.1-million, which fell below the consensus projection of $60-million. Adjusting earnings per share for the quarter were nil, compared to a 3-cent expectation.

"The revenue miss was largely from weak license sales (only $9.7-million versus $15–$16-million average over the last 12 months) following several purchase decision delays," said Mr. Li. "RKN telco customers in aggregate are struggling with their own lacklustre revenue growth compounded by negative FX impacts on U.S. dollar denominated capex loans."

He added: "Given the ongoing deterioration in its customers' spending patterns and also a lack of visibility (1Q turned out to be clearly worse than what management anticipated back in December, just a month before quarter end), we think this dynamic will take at least a couple of quarters to work itself out."

He lowered his revenue and EPS forecasts for 2016 to $211-million and 8 cents, respectively, from $242-million and 19 cents. For 2017, his projections dropped to $215-million and 15 cents from $252-million and 24 cents.

Mr. Li also dropped his target price for the stock to $3 from $6. The average is $4.93.

Elsewhere, Dundee Securities analyst Eyal Ofir moved the stock to "neutral" from "buy" with a target of $6 (unchanged).

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In other analyst actions:

Automotive Properties Real Estate Investment Trust (APR.UN-T) was rated new "buy" at TD Securities by equity analyst Jonathan Kelcher. The 12-month target price is $10.50 (Canadian) per share.

Birchcliff Energy Ltd (BIR-T) was raised to "outperform" from "sector perform" at RBC Capital by equity analyst Michael Harvey. The 12-month target price is $7 (Canadian) per share.

CI Financial Corp (CIX-T) was downgraded to "hold" from "buy" at Desjardins Securities by equity analyst Gary Ho. The 12-month target price is $31 (Canadian) per share.

Cisco Systems Inc (CSCO-Q) was raised to "buy" from "hold" at Jefferies by equity analyst George Notter. The 12-month target price is $27.50 (U.S.) per share.

Euronet Worldwide Inc (EEFT-Q) was raised to "market outperform" from "market perform" at Avondale Partners by equity analyst Peter Heckmann. The 12- month target price is $70.00 per share.

First Data Corp (FDC-N) was raised to "outperform" from "neutral" at Credit Suisse by equity analyst Paul Condra. The target price is $12 (U.S.) per share.

Keyera Corp (KEY-T) was raised to "outperform" from "sector perform" at Alta Corp Capital by equity analyst Dirk Lever. The 12-month target price is $45 (Canadian) per share.

Primero Mining Corp (P-T) was downgraded to "neutral" from "outperform" at Macquarie by equity analyst Michael Gray. The 12-month target price is $2.75 (Canadian) per share.

Whitecap Resources Inc (WCP-T) was raised to "top pick" from "buy" at Cormark Securities by equity analyst Garett Ursu. The 12-month target price is $12 (Canadian) per share.

With files from Bloomberg News