Two CN locomotives are paired with a tank car fuel tender.
Inside the Market's roundup of some of today's key analyst actions. This file will be updated during the trading day.
Several analysts have upgraded their ratings on Industrial Alliance Insurance and Financial Services Inc. after an Investors Day event Wednesday left them with increased confidence in the company. The stock spiked 5 per cent at the open of trade.
Canaccord Genuity upgraded its rating on Industrial Alliance Insurance to "buy" from "hold" and raised its price target to $48 (Canadian) from $45. Desjardins Securities upgraded the insurer to "buy" from "hold" while reiterating its $51 (Canadian) price target. RBC Dominion Securities upgraded its rating to "outperform" from "sector perform" while raising its price target to $50 (Canadian) from $48. And National Bank Financial upgraded its rating to "outperform" from "sector perform" as it raised its target to $50 from $49.
"We are upgrading Industrial Alliance .... primarily as a result of our increased comfort on a few items that have concerned us over the past year," explained Desjardins analyst Doug Young. "For instance, the company plans to use a material reserve release, related to actuarial standard changes being implemented later in 2014, to boost reserves related to interest rate, equity market and lapse risks."
"As a result, the company will have a substantial cushion built into reserves, in our view, with which to absorb any unusual events that might materialize. And as a result, we are more confident in management's ability to achieve (or even exceed) its 2015 EPS target of $4.00. Year to date, the stock has underperformed (down 6.6 per cent vs 3.0 per centon average for its Canadian peers) and it trades at 10.9x our 2015 EPS estimate vs an average of 11.8x for its peers. We acknowledge there are still a few operational items of concern, including potentially slower growth at its individual insurance operation, struggles in the group-employee benefit market and weaker mutual fund net sales in the first quarter of 2014, which may persist. However, these are built into expectations and the stock price," Mr. Young said.
Canaccord Genuity analyst Gabriel Dechaine commented that "our upgrade reflects the following attributes that we believe IAG offers: (1) an improved outlook for reserve stability; (2) attractive EPS growth potential; and (3) potential for dividend increases."
The average analyst price target is $50.44, according to Thomson Reuters data.
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Investors should buy shares of both Canadian National Railway Co. and Canadian Pacific Railway Ltd. ahead of the release of their second-quarter earnings next month, urged Desjardins Securities analyst Benoit Poirier as he raised his price targets on the two stocks.
In light of a stronger-than-expected pickup in shipment volumes, he increased his second-quarter earnings per share forecasts for both railways, and also raised most of his 2014 and 2015 estimates.
"For CN, we expect the stock to continue to trade at rich multiples as CN benefits from several catalysts, including (1) ongoing market share gains, (2) ability to lower its operating ratio below 60 per cent over time, and (3) solid financial position that will allow CN to continue to buy back shares and potentially increase its dividend payout over 30 per cent over time," Mr. Poirier said in a research note
"For CP, we believe further upside in the story exists as a strong operating ratio and asset sales should lead to improved free cash flow, which should in turn provide the company with the flexibility to pursue numerous options, such as share buybacks and even M&A opportunities in the longer term. We expect the stock to continue to trade at rich multiples," he said.
Mr. Poirier raised his price target on CN Rail to $73 (Canadian) from $67 and on CP Rail to $215 (Canadian) from $182.
CN Rail is scheduled to report earnings July 21 and CP Rail on July 17.
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Evertz Technologies Ltd. was upgraded to "buy" from "hold" by Canaccord Genuity analyst Robert Young after the company reported stronger-than-expected fourth-quarter revenue and a near-record in backlog and shipments.
Young also raised his price target to $19.50 (Canadian) from $17.50.
"Evertz and other broadcast infrastructure players sell into broadcasters whose cash flow ebbs and flows along with advertising revenue. This has historically followed a four-year cycle, with peaks in the second half of even-numbered years. This is driven by Olympics, World Cup and Political spend," noted Mr. Young.
This year, the World Cup and the U.S. mid-term elections, which will see 36 state governor elections versus 11 in the last mid-term, has driven demand.
"Management indicates that the broad strength of the revenue and backlog is driven by sales execution and strong traction from new products," said Mr. Young, though he noted that a significant portion of the backlog was short-term in nature.
Young also noted that although a competitive playing field has led to a slight decline gross margins, he believed that margins would stabilize as U.S. spending improves.
The average price target among analysts is $18.14 according to Thomson Reuters data.
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Canaccord Genuity analyst Michael Walkley maintained a "buy" rating on Qualcomm Inc. and increased his price target to $95 (U.S.) from $90 in anticipation of continued demand for upgraded smartphones through 2014 and 2015.
"Our surveys over the past several months indicated continued strong adoption of the early upgrade or smartphone leasing-type programs in the U.S. … Further, our surveys indicated consumers opting for these early-upgrade programs were less price-sensitive," he said.
Qualcomm, the dominant supplier of LTE mobile chips, is well-positioned to benefit from the consumer trend towards more expensive smartphones in Western markets. China Mobile's push earlier this year towards integrating more phones on LTE networks will also work in Qualcomm's favour.
"We believe the TD-LTE smartphone ramp in China, increasing mix of early upgrade plans towards smartphones with higher ASPs, and a very strong iPhone 6 upgrade cycle could all contribute to stronger trends than Qualcomm's TRDS guidance and consensus estimates," said Mr. Walkley.
The average price target among analysts is $85.24 according to Thomson Reuters data.
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Amica Mature Lifestyles Inc. was downgraded to "market perform" from "outperform" by BMO Nesbitt Burns analyst Heather Kirk after a planned sale of excess property fell through.
Ms. Kirk also cut her price target to $8.60 (Canadian) from $9.
Funds from the sale of Arbutus Manor in Vancouver were expected to go towards paying down debt or funding future growth for the developer and operator of luxury senior residence homes.
"We had estimated that the Arbutus transaction could unlock about $30-million to $50-million of value or $1.00 to $1.65 per share. Due to execution risk of structuring and closing the transaction we had included only 40 cents per share of value for Arbutus in our net asset value, which we are removing until there is further clarity with respect to timing and structure of an alternate transaction," Kirk said in a research note.
The company's shares have been trading at their lowest level since late-2011 due to fear over the company's higher leverage, according to Ms. Kirk. Amica has also been restructuring debt on two of its properties, with plans to restructure a third.
"The recent restructuring of financings for two developments has attracted greater scrutiny," she said.
The average price target among analysts is $9.08, according to Thomson Reuters data.
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In other analyst actions:
Jefferies cut its price target on Lululemon to $41 (US) from $50 and maintained a "hold" rating. William Blair downgraded the stock to "market perform" from "outperform" and Citibank downgraded its rating to "neutral" from "buy." Topeka cut its price target to $55 from $70 but maintained a "buy" rating and ISI cut its price target to $37 from $50 and reiterated a "neutral" rating. The median price target for Lululemon now stands at $53.50, down from $56 a month ago, according to Reuters data
TD Securities cut its price target on Domtar to $100 (U.S.) from $110 and maintained a "hold" rating.
TD Securities raised its target on Enercare to $15 (Canadian) from $12.50 and reiterated a "buy" rating.
Goldman Sachs upgraded Hewlett-Packard to "neutral" from "sell" and raised its price target to $32 (U.S.) from $25.
Buckingham Research upgraded Goldman Sachs to "buy" from "neutral" with an unchanged price target of $183 (U.S.).
RBC Dominion Securities raised its price target on Apple to $100 (U.S.) from $96 and maintained an "outperform" rating.
Macquarie downgraded DIRECTV to "neutral" from "outperform" and cut its price target to $95 (U.S.) from $100.
Credit Suisse upgraded Sprouts Farmers Markets to "outperform" from "neutral" and raised its price target to $34 from $31.
Societe Generale upgraded National-Oilwell Varco to "buy" from "hold" with a price target of $93 (U.S.).
Darcy Keith