Thursday's analyst upgrades and downgrades

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Inside the Market's roundup of some of today's key analyst actions

Aecon Group Inc. (ARE-T) has become one of the best performers among engineering and construction stocks thus far in 2016 due to "solid" fourth-quarter results and improving market fundamentals, according to Desjardins Securities analyst Benoit Poirier.

In a research note ahead of the release of its first-quarter 2016 earnings, Mr. Poirier said Aecon has benefited from higher commodity prices, a "strong" federal infrastructure budget and "solid" P3 project pipeline. However, he remains "neutral" prior to the results, noting the quarter is typically the company's weakest.

"We expect the softness in energy-related work (due to weak commodity prices) to be offset by extended outdoor construction activity, given mild winter conditions across Canada," he said. "However, we expect the backlog to reach a record $4.5-billion in 1Q with the inclusion of the nuclear reactor refurbishment contract at Darlington ($1.375-billion over 10 years)."

"While the company was already sitting on a record backlog as of 4Q15, we believe the higher federal infrastructure budget announced in March and the company's win of the Darlington project should secure its Infrastructure and Energy backlog for the foreseeable future. Meanwhile, several catalysts remain as ARE is currently shortlisted on six large infrastructure projects (worth about $6-billion) and is also well-positioned to win the Bruce power nuclear refurbishment contract. Finally, we believe the recent rebound in commodity prices could bring new contract opportunities for Mining and Energy."

Mr. Poirier said the company has a "solid" balance sheet which should be able to fuel organic growth initiatives. He added the Aecon has indicated a willingness to leverage its balance sheet if attractive M&A opportunities arise.

Despite that strength, he lowered his earnings per share projections after taking a more "cautious" stance on net interest expenses. His adjusted EPS estimate for 2016 fell to 94 cents from $1.32. For 2017, his projection declined to $1.23 from $1.60.

"Nevertheless, we believe our new estimates are conservative as strong booking activity expected in 2016 should further grow revenues and expand margins beyond 2017," he said.

Maintaining his "buy" rating, Mr. Poirier raised his target price for the stock to $20 from $18. The analyst consensus price target is $18.77, according to Thomson Reuters.

"We remain positive on ARE as the company is evolving toward being an almost pure construction player with a significantly improved balance sheet to pursue further bidding activities," the analyst said. "In addition, ARE is shortlisted for six large projects scheduled to be awarded by early 2017, which could further reinforce its growing backlog and the prospects for EBITDA margin improvement across the Energy and Infrastructure divisions."

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The second quarter of 2016 was "noisy" for Corus Entertainment Inc. (CJR.B-T), said BMO Nesbitt Burns analyst Tim Casey, emphasizing troubling advertising trends.

"Corus' Q2/F16 headline results were above expectations," he said. "However, adjusting for the exit of its Pay TV business (included in results, while we and consensus estimates appear to have excluded them) and associated one-time transition revenues, we estimate that Q2 results were relatively flat and in line. Underlying advertising trends remain soft, with radio and specialty television advertising revenues down 6 per cent and 8 per cent, respectively (down 2 per cent and 6 per cent, respectively, in Q1/F16)."

Mr. Casey said the $2.65-billion acquisition of Shaw Media Inc., completed on April 1, provides both scale and "clear" cost synergy opportunities for Corus. However, he said longer-term challenges remain amid structural and regulatory headwinds.

"A path to sustainable revenue growth is not clear to us, as illustrated by the underlying fundamental trends reported in the quarter," the analyst said. "That said, we believe the dividend is safe and should provide downside support for the stock."

He maintained his "market perform" rating for the stock. His target price rose by 50 cents to $11 "to reflect the dividend support." Consensus is $12.20

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The first-quarter results for JPMorgan Chase and Co. (JPM-N) "could have been so much worse," said BMO Nesbitt Burns analyst James Fotheringham.

"Considering that 1Q16 consensus for JPM came down 18 per cent since the start of this year (driven predominantly by fears over capital markets-related revenues), its 6-per-cent beat [Wednesday] morning was met by investors with an understandable sigh of relief," said Mr. Fotheringham.

Shares of the U.S. bank rose 4.23 per cent on Wednesday following the earnings release.

It reported core earnings per share of $1.34 (U.S.), topping both the consensus of $1.26 and the analyst's projection of $1.30.

"Relative to our estimate, JPM's beat was inspired by lower-than-expected non-interest expenses, higher net interest margin (NIM), and better corporate and investment (CIB) results (FICC trading, equities trading, and advisory fees all beat)," the analyst said.

In reaction to the results, Mr. Fotheringham raised his core EPS forecasts for 2016 by 1 per cent (to $5.95 from $5.88), by 2 per cent for 2017 (to $7.21 from $7.06), and up 3 per cent in 2018 (to $8.25 from $8.01).

Maintaining his "outperform" rating for the stock, he raised his target to $77 (U.S.) from $71. The analyst average is $70.70, according to Bloomberg.

He said: "Among the four money-center banks, our preference hierarchy remains: Citigroup, JP Morgan, Bank of America, and Wells Fargo. Despite exciting upside potential for JPM shares, we still prefer C shares due to C's superior growth prospects for regulatory capital and lower valuation."

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Silver Standard Resources Inc. (SSRI-Q, SSO-T) is on track to meet its 2016 production guidance, said CIBC World Markets analyst Cosmos Chiu.

On Tuesday, the Vancouver-based resource company released its first-quarter production results. It reported 50,520 ounces of gold from its Marigold mine in Nevada and 2.6 million ounces of silver and 381,000 pounds of zinc from Pirquitas in Argentina. Both results were in line with Mr. Chiu's projections.

The company's full-year guidance remains 200,000-210,000 ounces of gold from Marigold and 8-10 million ounces of silver from Pirquitas.

He noted the stock currently trades at 1.4 times price to net asset value (NAV) and 9.7 times price to cash flow, compared to 2.0 and 14.3 for its peers, respectively.

Mr. Chiu maintained his "sector performer" rating for the stock and raised his  target price to $7.50 (U.S.) from $7. Consensus is $6.67.

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Remaining  "positive" on stock of Chubb Ltd. (CB-N), RBC Dominion Securities analyst Mark Dwelle adjusted his financial estimates for the company in reaction to recent guidance following an 8-k filing.

"Over the next several months, all of the focus will be on integrating legacy ACE and Chubb to create Chubb Limited, which we believe will be a formidable combination. Chubb Limited is the second-largest commercial lines insurer in North America with a dominant share across most key categories and geographies," said Mr. Dwelle. "The company will also be one of the largest global players with strong market penetration in emerging markets that are growing more quickly than the world and have low insurance penetration rates. It's a deal that capitalizes on each company's historical strengths and figures to create new ones. Excellent core underwriting margins remain a hallmark of Chubb Limited and we expect reserves to remain solid."

He added: "Our adjustments incorporate guidance provided by management in its March 14th 8-k filing, which outlined among other things how the company intends to reflect integration, amortization and deferred policy acquisition costs in its results for 2016 and 2017 and anticipated amounts for such items. In addition, we have adjusted our prior estimates to take into account that legacy Chubb results will only be recorded as from the Jan.  14  2016 closing date. Estimates for all quarters and years were impacted by these adjustments."

Mr. Dwelle lowered his first-quarter 2016 operating earnings per share estimate to $2.08 (U.S.) from $2.12. His 2016 and 2017 projections moved to $9.82 and $10.25 from $9.10 and $10.

"In general, the net impact of unamortized premium reserve and deferred policy acquisitions costs was a negative to our 2016 estimates as was legacy Chubb quarterly underwriting and investment income for the January 1 to 14 period (only a Q1 impact)," he said. "These amounts were offset by a much lower-than-expected impact from other purchased intangibles and purchase accounting adjustments as well as the exclusion of integration costs from the company's definition of operating income (with which we concur).

"We expect to make further more comprehensive revisions to our earnings models as the company releases historical pro-forma segment information that corresponds to its revised future reporting segments. We wouldn't expect the segment revisions to significantly change our adjusted operating EPS estimates but given the number of moving pieces it's possible some adjustments would be required."

He maintained his "outperform" rating and raised his target price to $128 from $120. Consensus is $126.85.

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In other analyst actions:

Aflac Inc (AFL-N) was raised to "outperform" from "neutral" at Macquarie by equity analyst Sean Dargan. The 12-month target price is $76 (U.S.) per share.

Applied Materials Inc (AMAT-Q) was raised to "buy" from "neutral" at UBS by equity analyst Stephen Chin. The 12-month target price is $26 (U.S.) per share.

Baxter International Inc (BAX-N) was raised to "overweight" from "neutral" at Piper Jaffray by equity analyst Brooks West. The 12-month target price is $58 (U.S.) per share.

CF Industries Holdings Inc (CF-N) was downgraded to "underperform" from "market perform" at Cowen by equity analyst Charles Neivert. The 12-month target price is $25 (U.S.) per share.

Chipotle Mexican Grill Inc (CMG-N) was raised to "overweight" from "neutral" at JPMorgan by equity analyst John Ivankoe. The 12-month target price is $510 (U.S.) per share.

Intuit Inc (INTU-Q) was rated new "buy" at Brean Capital by equity analyst Yun Kim. The 12-month target price is $125 (U.S.) per share.

Lennox International Inc (LII-N) was downgraded to "sector weight" from "overweight" at KeyBanc by equity analyst Jeffrey Hammond.

Lincoln National Corp (LNC-N) was downgraded to "neutral" from "outperform" at Macquarie by equity analyst Sean Dargan. The 12-month target price is $44 (U.S.) per share.

Markel Corp (MKL-N) was raised to "outperform" from "market perform" at William Blair by equity analyst Adam Klauber.

Mosaic Co (MOS-N) was downgraded to "underperform" from "market perform" at Cowen by equity analyst Charles Neivert. The target price is $23 (U.S.) per share.

Omnicom Group Inc (OMC-N) was downgraded to "market perform" from "outperform" at Wells Fargo by equity analyst Peter Stabler.

People Corp (PEO-X) was raised to "buy" from "speculative buy" at Acumen Capital by equity analyst Brian Pow. The 12-month target price is $4.60 (Canadian) per share.

Polaris Industries Inc (PII-N) was downgraded to "hold" from "buy" at Stifel by equity analyst Drew Crum. The 12-month target price is $85 (U.S.) per share.

Perpetual Energy Inc (PMT-T) was raised to "market perform" from "underperform" at FirstEnergy Capital by equity analyst Michael Hearn. The 12- month target price is $1.50 (Canadian) per share.

Potash Corp of Saskatchewan Inc (POT-N) was downgraded to "underperform" from "market perform" at Cowen by equity analyst Charles Neivert. The target price is $14 (U.S.) per share.

Symantec Corp (SYMC-Q) was rated new "sell" at Evercore ISI by equity analyst Kenneth Talanian. The 12-month target price is $14 (U.S.) per share.

With files from Bloomberg News