Fortis Inc. CEO Stan Marshall is shown at the Seal Cove power plant in St. John’s. The company says the deal will see Fortis’s assets grow by more than a third.Paul Daly/The Globe and Mail
Inside the Market's roundup of some of today's key analyst actions. This file will be updated during the trading day.
Fortis Inc.'s $4.3-billion (U.S.) acquisition of Arizona-based UNS Energy Corp. is a step closer to being finalized, which could occur by the end of August, CIBC World Markets analyst Paul Lechem said.
Last week, the gas and electric utility announced that the deal received a positive recommended opinion from the Arizona state regulator, which is expected to make a final decision in August.
"Given the imminent closing of the UNS acquisition, strong expected earnings growth and an in-line or even discounted valuation vs. its peers, we believe Fortis represents an appealing investment," Mr. Lechem said.
He upgraded the stock to "sector outperformer" from "sector performer" and raised his target price to $37 (Canadian) from $35.
======
With pulp markets more resilient than expected, Mercer International Inc. could realize "significant upside" over the next year, RBC Dominion Securities analyst Paul Quinn said.
Last week, the pulp producer missed analyst expectations on second-quarter earnings, but the rest of the year is looking stronger than expected.
"Mercer is well-positioned to serve China's growing pulp needs as the company continues to set mill production records," Mr. Quinn said.
He upgraded the stock to "outperform" from "sector perform" and raised his price target to $14 (U.S.) from $10.
The biggest risk to that scenario would be disappointing global economic growth, which would reduce demand for pulp, Mr. Quinn said.
======
Canaccord Genuity has downgraded two Canadian energy producers with operations in Ukraine, citing the announcement of a hike in royalties in the country at a time when the geopolitical conflict with Russia shows little sign of resolution.
Analyst Christopher Brown downgraded Cub Energy Inc. to "sell" from "buy" and removed his price target until more is known about the impact on the company's operations in Ukraine. All of Cub Energy's revenue is generated in the country.
On Aug. 1, the Ukrainian government passed a law increasing natural gas and condensate royalty rates to 55 per cent and 45 per cent from 28 per cent and 42 per cent, respectively, for a five-month period ending Jan. 1, 2015. Wells put on production after Aug. 1, 2014 will have a royalty rate of 30.25 per cent, and this will apply to new wells drilled over the next two years.
Cub Energy is re-evaluating its 2014 work program, as the royalty changes will result in reduced cash flow for the next five months.
Meanwhile, Mr. Brown downgraded Serinus Energy Inc. to "hold" from "buy" and slashed his price target to $1.75 (Canadian) from $4. He noted that Serinus Energy's management estimates that the new royalty regime will result in about a 45 per cent decline in the company's Ukraine after-tax cash flow over the five-month period.
======
Canadian Real Estate Investment Trust (CREIT) met second-quarter expectations of Raymond James analyst Ken Avalos, but aspects of the company's business remain worrisome, he says.
Mr. Avalos explains that while funds from operations and same-asset net operating income growth were in line with expectations, CREIT's office portfolio declined for a fifth straight quarter, and the Calgary and Halifax markets continue to underperform.
"Management is cautiously optimistic that elevated prospective tenant tours will lead to completed leases," he says. "That said, the current macro backdrop isn't conducive to large occupancy improvements and we expect the office portfolio to continue to struggle in the near-term, especially with a further 173,000 square feet (6 per cent of the portfolio) of space set to roll in the second half of 2014 and another 349,000 square feet in 2015 (12 per cent)."
Mr. Avalos maintains his "market perform" rating. Raymond James does not assign price targets to market perform-rated stocks.
======
Cantor Fitzgerald analyst Peter Prattas hiked his price target on Ritchie Bros. Auctioneers Inc. after the company reported increased gross auction proceeds, revenue and earnings.
"Revenue in the quarter was $142-million (+11 per cent year/year) compared to $128-million in Q2/13 and in-line with consensus at $142-million (we were at $144-million)," Mr. Prattas noted in a research note. "Management maintained its previous guidance however did concede that the top end is more likely. The company is tracking ahead of guidance and we believe it will be exceeded."
He credits a recovering construction sector, beneficial aging of equipment and improving workforce productivity for the positive results. The company also increased its quarterly dividend 8 per cent to 14 cents.
Mr. Prattas maintained his "buy" recommendation and raised his target price by a dollar to $27 (U.S.).
======
In other analyst actions:
Scotia upgraded SNC-Lavalin to "sector outperform" and raised its price target to $71 (Canadian) from $60.
CIBC World Markets upgraded Canyon Services Group to "sector outperformer" from "sector performer" and maintained a $22 (Canadian) price target, citing the recent drift in its share price.
Desjardins Securities downgraded Bonavista Energy to "hold" from "buy" and cut its price target to $16 (Canadian) from $17.
Canaccord Genuity downgraded Surge Energy to "hold" from "buy," but hiked its price target to $8.50 (Canadian) from $8, citing recent strong share price performance. CIBC World Markets also downgraded Surge Energy to "sector performer" from "sector outperformer" and hiked its price target to $9.50 from $9.
Editor's Note: An earlier online version of this article incorrectly stated that CREIT's industrial portfolio declined for a fifth straight quarter. It should have referred to its office portfolio instead. This version has been corrected.
Darcy Keith