Key analyst upgrades and downgrades

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Inside the Market's roundup of some of Tuesday's key analyst actions. This file will be updated during the trading day. For breaking analyst actions prior to market open every day, read our Before the Bell morning report.

More than a dozen analysts have raised their price targets on shares of Netflix Inc. in the wake of the company's better-than-expected third quarter earnings report late Monday.

Even so, many of the targets remain well below the recent trading range of the online movie streaming service, and several analysts are expressing concern that shares are getting overheated.

These worries are filtering into the minds of investors. The stock initially rallied about 9 per cent at today's open, but by late afternoon was down by nearly the same amount as more analysts suggested the stock - with gains of about 300 per cent this year - is getting out of control. The stock closed down 9.1 per cent at $322.52 (U.S.). That's still above the average analyst target, as of this afternoon, of $314.60, according to Bloomberg.

"Netflix cannot maintain high growth and high profits at the same time," said Wedbush analyst Michael Pachter, as the company faces "ever increasing content costs while satisfying customer demands for ever increasing content quantity and quality." He "grudgingly" raised his price target to $160 from $140 while maintaining an "underperform" rating. He thinks Netflix will struggle to achieve its fourth-quarter domestic streaming subscriber targets.

Jefferies & Co. analysts echoed those concerns: "We find it difficult to justify this valuation given the risks of rising content costs, heavy competition, and the likelihood NFLX may need to raise additional capital to fund operations," they said in a note, according to Reuters. Jefferies raised its price target by $55 to $215 but maintained its "underperform" rating.

Netflix CEO Reed Hastings himself tried to temper some of the euphoria over the stock on Monday. "We have a sense of momentum investors driving the stock price more than we might normally," Mr. Hastings said during a webcast with analysts. "There's not a lot we can do about it, but I wanted to honestly reflect upon it."

Other analysts were more upbeat. Evercore Partners upgraded Netflix to "equalweight" from "underweight" and more than doubled its price target to $350 (U.S.) from $150.

RBC Dominion Securities raised its price target to $440 from $330 and maintained an "outperform" rating. The highest share price forecast on the Street appears to be at JPMorgan, which raised its target to $460 from $340 while maintaining an "overweight" rating.

"We believe that Netflix has achieved a level of sustainable scale, growth, and profitability that isn't currently reflected in its stock price," commented RBC analysts led by Mark Mahaney and David Bank. "This conclusion is based on our assessment of Netflix's 31 million U.S. Subscriber and 8 million international Subscriber bases, which makes Netflix one of the largest global entertainment subscription businesses."

"We also view Netflix as one of the best derivatives off the strong growth in online video viewing and in Internet-connected devices (tablets, smartphones, Internet TVs), with our proprietary survey data tracking significantly improved customer satisfaction levels," the RBC analysts said.

The company posted revenue of $1.11-billion, a little better than Street estimates, but earnings per share of 52 cents was well ahead of the 48 cents average forecast. Netflix also provided guidance suggesting many had been too conservative in their estimates for fourth-quarter new subscribers and earnings. The company has been investing heavily in original content and the bet appears to be paying off.

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Credit Suisse analyst Nathan Littlewood came away from North American Palladium Ltd.'s investor presentation on Monday with more questions than answers. As a result, he downgraded the stock to "neutral" from "outperform" while slashing his price target.

"Although the event marked the commissioning of the Phase 1 vertical shaft project, we left no wiser about the two- to three-year mine plan nor how it would be funded," commented Mr. Littlewood.

"We find the growth story at North American Palladium more challenging today than we did 12 months ago," he said. "A year ago, PDL was building a Phase 1 vertical shaft project which would move directly onto Phase 2, exploration opportunities represented production upside potential but needed more work, and we had a vague idea how project financing would work. Fast forward to today and the Phase 1 vertical shaft project has been completed (check), Phase 2 has been shelved, the same exploration targets still need more work, and we have low confidence in the balance sheet capacity."

Mr. Littlewood also notes that the company's cash balance at the end of September was likely in the $10-million to $20-million range, and "in the absence of a miracle, we suspect North American Palladium is in need of a capital injection within the next six months."

He also expressed concern about the low visibility of the company's chief financial officer during the presentation.

"CFO Dave Langille is perhaps the most important individual in the organisation at the moment, but Mr. Langille sat in the audience for the duration of the event while the CEO, COO and head of exploration reminded us about the Phase 1 vertical shaft and exploration potential at LDI (the Lac des Iles mine)," he said.

Target: Mr. Littlewood cut his target to $1.10 (Canadian) from $1.40. The average target among analysts is $1.25, according to Bloomberg data.

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A new name, corporate structure and financing deal have improved the outlook for Ivanhoe Mines Ltd., says CIBC World markets analyst Leon Esterhuizen.

He raised his share price target and rating for the African mining company formerly known as Ivanplats that was founded and is chaired by mining promoter Robert Friedland.

Mr. Esterhuizen says Ivanhoe Mines has the world's "best copper deposit" and the highest-grade zinc deposit, but until recently faced a deadly combination of high capital requirements and a stock overhang that depressed the stock price.

With those issues resolved, Mr. Esterhuizen says the share price of $2.30 (Canadian) is far too low.

Target: Mr. Esterhuizen upgraded Ivanhoe Mines to "sector outperformer" and raised the share price target to $4.50 from $4. The analyst average is $4.49, according to Bloomberg.

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CIBC World Markets analyst Robert Bek says it is time to take some profits in Transcontinental Inc., the printing and media company whose shares have risen by 70 per cent over the past 52 weeks to nearly $16 (Canadian).

Mr. Bek downgraded the Montreal-based company based on valuation, but says he expects margins to improve as the company continues to integrate the printing plants of former rival Quad/Graphics Canada Inc., which it purchased in 2011. Transcontinental has been responding to industry pressure and protecting cash flow by closing plants, moving printing capacity and renewing contracts, said Mr. Bek, who said in a research note he has a positive view of management.

"That said, valuation has now become fair, with the shares trading near our updated price target of $16.50. We would advise taking some profits on the name after its great run, and would revisit our ranking if the shares were to drift lower from these levels," he wrote.

Target: Mr. Bek downgraded Transcontinental to "sector performer" from "sector outperformer" and raised the share price target to $16.50 from $15.50. The average target among analysts is $14.28.

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CIBC World Markets downgraded Total Energy Services Inc. to "sector performer" from "sector outperformer," citing its recent strong share price surge and valuation relative to other names in the sector.

Since July 1, its shares have risen nearly 25 per cent, well ahead of the peer average.

"While we continue to view the company as being run by one of the most disciplined and pragmatic management teams in the Canadian services sector, our current price target implies an 8 per cent return, which is in line with our sector performer covered names, but below the 18 per cent return for our sector outperformer-rated universe," commented CIBC analyst Jon Morrison.

Target: Mr. Morrison raised his price target to $19.50 from $19.25. The average target is $19.81.

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CIBC World Markets' Mr. Morrison also downgraded Trinidad Drilling Ltd. to a "sector performer" rating, also because of its strong share price appreciation and relative valuation. Its shares are up about 35 per cent since July 1, which is roughly double the returns of the Canadian drilling services sector in general.

"Although we remain constructive on Trinidad's high-quality asset base, strong leverage to unconventional resource development and international growth, our current price target implies an 11 per cent return, which is in line with our sector performer covered names," he said.

Target: Mr. Morrison raised his price target to $11.50 from $11.

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CIBC World Markets analyst Todd Coupland has raised his share price target for Mitel Networks Corp., pointing to better fundamentals at the maker of communications technology.

Mitel is expected to boost profits with higher-margin software, improved sales channels and better valuation after debt repayment, said Mr. Coupland, who expects earnings growth of 10 per cent in 2014/15. Shares in the Kanata, Ont., company have risen by 82 per cent this year.

Target: Mr. Coupland raised the share price target to $8 (U.S.) from $6 and maintained a rating of "sector outperformer." The Bloomberg analyst average is $6.63.

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In other analyst actions today:

CIBC initiated coverage on Choice Properties REIT with a "sector performer" rating and a 12- to 18-month price target of $10.75.

Raymond James downgraded Platinum Group Metals to "market perform" from "outperform" and cut its price target to $1.25 (Canadian) from $1.50.

Barclays downgraded Baytex Energy to "equalweight" from "overweight" with a price target of $44.68 (U.S.).

M Partners set a $7.50 (Canadian) price target and "buy" rating for Partners REIT after last week placing it under review following its major shareholder filing for bankruptcy protection.

JPMorgan upgraded FedEx to "overweight" from "neutral" and raised its price target to $153 (U.S.) from $134.

UBS downgraded AK Steel Holding Corp. to "sell" from "neutral" but raised his price target to $3.50 (U.S.) from $3.

UBS raised its price target on Nucor Corp. to $56 (U.S.) from $50 and maintained a "buy" rating.

UBS downgraded Reliance Steel & Aluminum to "neutral" from "buy" and cut its price target to $75 (U.S.) from $80.

UBS downgraded United States Steel to "neutral" from "buy" but raised its price target to $25 (U.S.) from $22.

Credit Suisse upgraded Crosstex Energy to "outperform" from "neutral" and raised his price target to $32 (U.S.) from $22.

Credit Suisse upgraded Zimmer Holdings to "outperform" from "neutral" and raised its price target to $100 (U.S.) from $90.

Credit Suisse raised its price target on Devon Energy to $82 (U.S.) from $75 and maintained an "outperform" rating.

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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities