Thursday's analyst upgrades and downgrades

Share

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.

National Bank Financial upgraded Bank of Nova Scotia to "outperform" from "sector perform," applauding the company's decision to monetize all or part of its stake in CI Financial Corp.

It also raised its price target to $73 (Canadian) from $68.

Scotiabank said late Wednesday that it was exploring options for monetizing some or all of its 37 per cent stake in CI Financial, including a possible sale. The market value of the stake, prior to today's trading, was about $3.8-billion. The bank disclosed that the capital associated with its investment in CI will ultimately be redeployed to other strategic priorities.

"By liberating the capital and offering up to shareholders the potential to generate a much higher return on it, we think BNS has improved materially the outlook for its valuation," commented Peter Routledge in a research note. "In addition, the stock has traded below its historic premium for some time and we think this potential deal will push BNS' relative valuation higher."

Scotiabank shares are up 0.4 per cent in early afternoon TSX trading. CI Financial shares are down 4 per cent.

CI Financial said this morning that it may cut its dividend or borrow to raise cash to buy back stock from Scotiabank.

=======

Canaccord Genuity analyst Scott Chan downgraded CI Financial Corp. to "hold" from "buy" and cut his price target to $34.50 (Canadian) from $41.25, admitting that the Bank of Nova Scotia's announcement that it may sell its stake in the company took him by surprise. Canaccord also removed CI Financial from its focus list - its favourite investing ideas.

Mr. Chan had expected Scotiabank to ultimately be a buyer of the remaining stake, instead of selling what it already owns.

"In light of CIX's relatively higher valuation (to its historical average) and significant size of the stake (105 million shares or $3.8-billion), we believe that shares are likely to experience pressure in the near term, driving a lower valuation," Mr. Chan commented in a research note. "Until the monetization process concludes (unknown timing), we believe that there will be an overhang on CIX's share price, after which we believe shares will reflect the true strong fundamentals of the firm."

As of Wednesday night, CI Financial had an enterprise value 10.4 times forward EBITDA, which is a premium to the 9.4 times historical average.

Also in Street reaction to the news, Desjardins Securities reaffirmed its "buy" rating but dropped its price target $38.50 (Canadian), commenting that the stock offers an attractive risk-reward over the next 12 months given the pullback in its shares Thursday.

"While we believe the monetization process will be an overhang on CI in the near term, we believe the downside risk is limited. Furthermore, we cannot ignore CI's strong fundamentals over the past few years and we expect its momentum to continue. The upside potential is quite interesting,in our view," said Desjardins Securities analyst Gary Ho.

=======

Raymond James significantly raised its price targets on Canada's pressure pumpers and urged investors to overweight the specialized energy services sector in anticipation of better demand and pricing.

Analyst Andrew Bradford raised his price target on Calfrac Well Services Ltd. to $48 (Canadian) from $41; on Canyon Services Group Inc. to $20 from $15.50, and on Trican Well Service Ltd. to $21 from $17. He also upgraded all three to his highest rating of "strong buy" from "outperform."

Pressure pumpers are vital for hydraulic fracturing of oil and gas wells, technology that has revolutionized the oil and gas industry.

"We're gaining more conviction that effective pricing will lift off the cyclical bottoms set over the last six months," Mr. Bradford said in a research note. Effective pricing lumps cost recoveries and traditional price increases together.

"We expect enhanced cost recoveries in the third quarter of 2014 with some traditional pricing gains in the spot market taking hold later in the quarter. Our view is that pricing will take another step higher in the fourth quarter of this year in advance of winter drilling programs. As longer contracts are renewed over the next six to 12 months, their pricing will be reset in the context of a higher spot market," he said.

He notes that fracturing economics in the U.S. are gradually improving, as rising demand is narrowing the gap to excess supply.

"We're not suggesting a return to the frenzied days of less-than-1-year payouts on new equipment – only that sustained margins in the mid-to-high-teens looks reasonable," he said.

Mr. Bradford said he has a "modest preference" for Trican Well Service, citing the potential for its U.S. operations to improve faster than forecast.

=======

Solid first-quarter earnings support Jennings Capital Inc. analyst Russell Stanley's view of Hardwoods Distribution Inc. as an undervalued play on the recovery of the U.S. housing market.

Mr. Stanley noted that while revenue fell short of his expectations ($100.9-million versus estimate of $102.5-million), it was more than offset by strong gross margin and gross profit numbers.

"Management continues to work on expanding its imports of high quality import products to complement those it sources in North America," he says. "We also expect management to continue growing the commercial business in order to diversify the revenue base away from the residential segment, which still represents 60 per cent of total revenue."

Mr. Stanley maintains his "buy" rating and $14 (Canadian) target price. The analyst consensus price target over the next year is $14.13, according to Thomson Reuters.

=======

Aimia Inc.'s rollout of the new Aeroplan card was highly successful, but it has brought the loyalty management company's shares up to full valuation, according to RBC Dominion Securities analyst  Drew McReynolds.

In the first quarter, TD enrolled 275,000-plus active new cardholders, while the AMEX card portfolio increased 30 per cent year over year, said Mr. McReynolds of Aimia's banking partners.

At current levels, the stock adequately reflects the growth and risk profile of the company, he said.

"We see better risk-adjusted return opportunities elsewhere in the Canadian media sector," said Mr. McReynolds. "Although we remain positive on the longer-term growth outlook for Aimia, we expect the shares to be more rangebound in the near term, reflecting: (i) limited visibility around the growth in spend per new TD Aeroplan credit card within a highly competitive loyalty market; (ii) the absence of an obvious near-term catalyst, with a potential U.S. coalition launch and PLM liquidity event unlikely over the next 12 months; and (iii) relatively limited visibility on the free cash flow outlook in 2015, where 2014 cash inflows of $223-million (i.e., TD prepayment, tax refunds) will be non-recurring and with a potentially elevated Aeroplan redemption rate."

Mr. McReynolds downgraded Aimia to "sector perform" from "outperform" and maintained his $19 (Canadian)  price target. Credit Suisse also raised its price target to $22 from $20. The analyst consensus price target over the next year is $17.83, according to Thomson Reuters.

=======

In other analyst actions:

CIBC World Markets downgraded Sears Canada to "sector performer" from "sector outperformer" but raised its target to $17 (Canadian) from $16.

Industrial Alliance downgraded Carfinco Financial Group to "buy" from "strong buy" and cut its price target to $11 (Canadian) from $13.

AltaCorp Capital Research raised its price target on Canadian Energy Services & Technology to $45 (Canadian) from $35 and maintained an "outperform" rating.

BMO Nesbitt Burns upgraded Bear Creek Mining to "outperform" from "market perform" and raised its price target to $3 (Canadian) from $2.35.

Raymond James hiked its target on RioCan REIT to $29 (Canadian) from $27 and maintained an "outperform" rating.

AltaCorp Capital Research raised its target on High Arctic Energy Services to $7.50 from $6.50 and maintained an "outperform" rating.

BMO Nesbitt Burns downgraded Bristol-Myers Squibb to "market perform" from "outperform" and cut its price target to $55 (U.S.) from $60.

FBR Capital downgraded Urban Outfitters to "market perform" from "outperform" and cut it price target to $37 (Canadian) from $44.

Atlantic Equities upgraded Twitter to "neutral" from "underweight" and maintained a $35 (U.S.) price target.

Goldman Sachs upgraded Kinder Morgan to "conviction buy" from "neutral" with a price target of $44 (U.S.).

Goldman Sachs upgraded Range Resources to "conviction buy" from "neutral" and raised its price target to $110 (U.S.) from $104.