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 during the trading day. For breaking analyst actions prior to market open every day, read our Before the Bell morning report.

M Partners analyst Brendon Abrams initiated coverage on Inovalis Real Estate Investment Trust with a "buy" rating and a price target that would imply a 21.2 per cent return for investors over the next 12 months.

He believes the REIT offers investors quality European real estate assets at discount prices.

"Led by an experienced asset manager based in Paris, Inovalis is well-positioned to capitalize on the opportunity to acquire high-quality office properties in or near major European cities at wider cap rate/interest rate spreads than those available in Canada," Mr. Abrams said in a research note.

The REIT trades at a 12 per cent discount to Mr. Abrams' net asset value estimate of $10.90. He also estimates it trades at a discount to peers, with a unit price of 9.3 times adjusted funds from operations, versus peers at 13.0 times.

"We believe this discount is partially attributable to the REIT's relatively brief history as a public issuer (IPO was in April 2013), smaller market cap (about $120-million), and limited analyst coverage (previously two)," he said.

"We expect this discount to narrow as the REIT executes its growth strategy through accretive acquisitions. This should not only increase the REIT's cash flow per unit, but we believe investors will recognize the lower payout ratio, causing its yield to compress," he said. "Further, we expect that as analyst coverage increases, the REIT will gain better exposure with the investment community, which should translate into better liquidity and a higher multiple."

Mr. Abrams set a 12-month price target of $10.75 (Canadian), which is also the analyst consensus price target.

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The federal government's legislative changes to ease the grain backlog in Western Canada is "short-sighted" and could be bad news for the stock prices of the country's two major railways, a Bank of Montreal analyst says.

Ottawa responded on Wednesday to months of complaints from the grain industry about inadequate rail service by tabling changes to the laws that govern Canadian Pacific Railway Ltd. and Canadian National Railway Co. The changes include imposing a minimum weekly tonnage, service level arbitration and giving elevators expanded rights to use a rival's railway.

"We suspect that the railroads will challenge this proposed legislation," BMO analyst Fadi Chamoun said in a research note. "To the extent that it proceeds as-is, it could have negative implications to our investment thesis on the railroads, particularly CN Rail and CP Rail. We believe that the Canadian railroad stocks could come under pressure as a result of this proposed legislation."

The railways say the backlog at the grain terminals and on farms is due to the massive crop and extreme winter that slowed rail operations. Grain farmers and the companies that trade wheat, canola and other crops blame cost-cutting at the railways and a focus on more profitable sectors such as crude oil and intermodal shipments.

Mr. Chamoun said expanding the grain companies' ability to choose another railway gives U.S. carriers the chance to compete for all commodities in Alberta, Saskatchewan and Manitoba.

But Walter Spracklin, an analyst with Royal Bank of Canada, said because all railways' networks are bottlenecked, expanding the so-called interswitching area would not give one an advantage over another.

Mr. Spracklin said he has spoken with management of both railways and thinks they are committed to meeting the combined weekly minimum of one million tonnes. He said the effect of the Ottawa's move is "neutral" for either company.

Claude Mongeau, chief executive officer of CN, said the company is "disturbed" by Ottawa's response.

"The legislation does not address the root cause of the current grain situation and will do little to move more grain, now or in the future," Mr. Mongeau said in a statement. "This action could hit Canada's railways by opening their business to unfair poaching by U.S. railways without any reciprocity. Beyond causing financial harm to CN, it could drain traffic away from Canadian ports and cause the loss of jobs, reduce investment and undermine tax revenues across Canada."

Mr. Chamoun rates CN "outperform" with a $68 share-price target. He rates CP "market perform" with a $180 target.

Mr. Spracklin rates CN "outperform" with a target of $66. He rates CP "sector perform" with a target of $138.

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BMO Nesbitt Burns analyst Ben Pham upgraded Capstone Infrastructure Corp. to "outperform" from "market perform" after the company signed a new 20-year contract to supply electricity to the Ontario Power Authority from its 156-megawatt Cardinal natural gas-fired plant.

Mr. Pham said the deal significantly improves the sustainability of Capstone's long-term cash flows and he's no longer concerned about a potential cut to its dividend.

"Capstone is increasingly becoming an investable company given steady operating performance, a strong growth pipeline, and attractive valuation. Given our reduced concerns of a potential dividend cut, we see sentiment improving for the CSE shares and believe the stock should trade closer to fundamental net asset value, which we peg at about $5.50 a share in 2015," Mr. Pham said in a research note.

Starting in 2015, Cardinal will supply electricity to the Ontario grid only when needed. The new contract provides Cardinal with a fixed monthly payment, escalating annually according to a pre-defined formula, intended to cover Cardinal's fixed operating costs and return on capital.

Mr. Pham hiked his price target to $5.50 (Canadian) from $4. Canaccord Genuity also hiked its price target to $5 from $4.50 and reiterated a "buy" rating.

The analyst consensus price target over the next year is $4.19, according to Thomson Reuters.

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Canaccord Genuity analyst Derek Dley cut his price target on wireless provider Glentel Inc. following slightly softer-than-expected earnings results, but reiterated a "buy" rating in anticipation of better results ahead.

Adjusted earnings per share of 42 cents came in below last year's 52 cents and Mr. Dley's 51-cents estimate. He thinks results are poised for improvement, as consumers continue to shift towards higher-margin smartphones.

"Glentel's ability to sell a vast array of products and brands has the company well positioned to capitalize on increasing smartphone penetration," Mr. Dley said.

"We expect sales pressure at Retail Canada to moderate over the next two quarters as consumers adjust to the new two-year price plans," he said. Glentel's Retail Canada division provides personal wireless and wire communications products to consumers through retail outlets in shopping males and Costco Wholesale stores in Canada. Canadian regulators mandated two-year cellular pricing plans in the middle of last year.

Mr. Dley reduced his price target by $3 to $15 (Canadian). The consensus price target is $15.75.

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CIBC World Markets analyst Alec Kodatsky upgraded Turquoise Hill Resources Ltd. to "sector performer" from "sector underperformer," mostly because the stock's decline this month has made its valuation comparable to peers.

Turquoise Hill is controlled by Rio Tinto Group and its prized asset is the $6.2-billion Oyu Tolgoi copper and gold project in Mongolia.

The company is continuing discussions with the Mongolian government to resolve shareholder issues. While they appear to be making progress, there is not yet a timeline for restarting the mine's underground operations. Mr. Kodatsky believes an agreement could come in the second half of this year, when an underground feasibility study is expected to be completed.

"Turquoise Hill needs a successful resolution of the outstanding issues at OT and completion of project finance to re-start development and realize the potential value of the OT underground which contributes about 80 per cent of our net asset value," he said. "The key risk to our rating/PT remains the political/financing overhang."

He maintained a $4.85 (Canadian) price target. The consensus price target is $4.08.

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RBC Dominion Securities analyst Geoffrey Kwan downgraded AGF Management Ltd. to "underperform" from "sector perform," citing his belief that shares are fully valued for a company facing several challenges in the fund industry.

"We believe the share price fairly reflects AGF's risk-reward profile and while AGF has potentially significant valuation upside when fundamentals improve, we believe AGF's shares are likely to be constrained by several near-term challenges, some significant (six years of net redemptions in retail; net redemptions reducing institutional assets under management by about 50 per cent in the past two years) and some perceived or less significant (potential dividend cut, CRA tax dispute)," he said. "As a result, we see better risk-adjusted returns elsewhere in the sector."

He maintained a $12 (Canadian) price target. The consensus price target is $12.39.

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In other analyst actions:

Société Générale downgraded BlackBerry to "sell" from "hold" and maintained a price target of $6 (U.S.). It's expecting a big decline in Services revenues when BlackBerry reports earnings Friday morning, alongside a steep decline in handset sales since its new, cheaper BlackBerry devices aimed at emerging markets won't go on sale until April.

RBC Dominion Securities downgrades Bankers Petroleum to "sector perform" from "outperform" and hiked its price target to $5.50 (Canadian) from $5.

Bernstein downgraded Citibank to "market perform" from "outperform" and cut its price target to $52 (U.S.) from $61. KBW also downgraded Citigroup to "market perform" from "outperform" and cut its target to $52 from $58.

Merrill Lynch upgraded ExxonMobil to "buy" from "neutral" with a price target of $110 (U.S.).

Evercore Partners upgraded New York Times to "overweight" from "equalweight" with a price target of $18.50 (U.S.).

Morgan Stanley upgraded BankUnited to "overweight" from "equalweight" with a price target of $39 (U.S.)

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