Wednesday'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.

Shares in U.S. Steel Corp. soared today - and an influential Wall Street analyst dramatically increased his price target on the stock - in the aftermath of the company announcing late Tuesday it is putting its Canadian unit in creditor protection and canceling more than $800-million (U.S.) of capital investments.

Shares closed up 9.8 per cent at $45.47 (U.S.) and have now nearly doubled since the start of June.

Goldman analyst Sal Tharani thinks shares have a lot further to climb over the next year. He raised his price target to $58 (U.S.) from $47 while reiterating a "buy" rating.

"These are the boldest steps by U.S. Steel management toward accelerating its transformation into a suitably profitable company," Mr. Tharani said, via StreetInsider.com. "We believe that U.S. Steel is truly following its vision of 'earn the right to grow' – a key pillar of its Carnegie Way Project."

The Carnegie Way project is its cost-cutting plan that is named for the company's founder Andrew Carnegie.

"Benefits of this positive transformation at the company level are magnified by the structural story in the North American flat rolled steel market allowing the U.S. producers to maintain a higher premium over global prices," added Mr. Tharani. "We see US Steel's decision to 'ring fence' its consistently unprofitable Canadian operations as value enhancing, reducing its underfunded pension and OPEB (Other Post-Employment Benefits) liabilities by $1-billion or 40 per cent."

U.S. Steel also announced separately that it won't proceed with an expansion of its Keetac iron-ore pellet operations in Keewatin, Minnesota, nor a carbon-alloy project in Gary, Indiana, so that it can redirect funding to products aimed at customers in the automotive and energy industries.

Mr. Tharani said the decision to cancel Keetac "makes good sense" in light of iron ore prices at multi-year lows and deteriorating fundamentals. "These steps should soon start to show results, as evidenced by U.S. Steel's third-quarter guidance."

U.S. Steel said its third-quarter operating income will improve "significantly," with profit excluding one-time items to be higher than analysts' estimates, which average about 88 cents a share.

U.S. Steel acquired its Canadian operations in 2007 when it purchased Hamilton, Ontario-based Stelco Inc. for $1.1-billion. The deal led Ottawa to sue U.S. Steel, saying the company hadn't complied with promises it made on spending and production levels.

The analyst consensus price target over the next year is $39.06 (U.S.).

Read more: A giant of the past resurrected as newest Wall Street hot stock.

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Spain's Banco Santander S.A.'s $11.25 per share agreement to buy Carfinco Financial Group Inc. is a "solid" deal for shareholders in the Canadian automobile financing firm, said Industrial Alliance Securities analyst Dylan Steuart.

The $298-million (Canadian) all-cash deal represents a 32 per cent premium to the 90 days volume weighted average trading price. A shareholder vote is scheduled for Nov. 3.

"The offer price of $11.25 is a 12.5x multiple to our forward EPS estimate of $0.90. This multiple is below historical transactions in the non-prime space, reflecting depressed valuation as Carfinco implemented its own U.S. expansion strategy over the past year," Mr. Steuart said in a statement.

"However, we view the likelihood of a superior offer as unlikely given management and the Board's support for the transaction (13 per cent insider ownership), CFN management's commitment to staying on post-transaction, and the $7.5-million break fee payable to Santander."

He increased his target price to $11.25 to reflect the offer price, and changed his recommendation to "tender" from "strong buy."

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One of two recent announcements by Taseko Mines Ltd. may prove problematic, says Raymond James Ltd. analyst Adam Low.

Taseko recently announced the proposed all-share acquisition of Curis Resources, as well as the summary details of a pre-feasibility study for its Aley niobium project in British Columbia. "While we viewed Aley's economic study favourably, we do not have as positive an outlook regarding the acquisition of Curis Resources," says Mr. Low. "While we believe that Curis' Florence in-situ copper project in Arizona appears attractive based on its technical and economic merits, the permitting is a major challenge, and one that has the potential to delay progress for many months or years. We do have some concern that Taseko has simply shifted the focus of its development pipeline from one project challenged by permitting (New Prosperity) to another (Florence)."

Mr. Low adds that Taseko does not have the financial means to develop both of these growth projects, at least not alone. He believes that Taseko will look to sell a minority interest in Aley to a potential joint venture partner, as it did with its flagship Gibraltar mine in 2009.

Mr. Low maintains his "outperform" rating and cut his target price to $2.75 (Canadian) from $3.00. The analyst consensus price target is $3.79, according to Thomson Reuters.

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The sale of a business segment has bolstered the war chest of McCoy Global Corp., says Canaccord Genuity analyst John Bereznicki.

McCoy's coatings and hydraulics segment was recently sold for roughly $9.3-million, which was more than Mr. Bereznicki had anticipated. He now expects McCoy to exit third quarter 2014 with a net cash position of about $30-million, or about $1.10 per share.

"With its cash position and access to an undrawn $50-million revolver, McCoy could easily undertake an $80-million acquisition without dilution," he says. "This provides the company with significant opportunity to augment its organic growth with an acquisition through our forecast horizon."

Mr. Bereznicki maintains his "buy" recommendation and $8 target price. The analyst consensus price target is $7.95, according to Thomson Reuters.

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Some investors were probably taken by surprise by news that TransForce Inc.'s $15 (Canadian) per share offer for Contrans Group Inc. has been extended until Oct. 7, commented Desjardins Securities analyst Benoit Poirier commented.

The delay, according to the company, was needed to give extra time for key stakeholders, including Contrans' shareholders and those related to the Competition Act, to make an informed decision.

The offer is conditional on approval by a number of Contrans shares that represent at least 66.6 per cent of the outstanding Class A and Class B shares, and at least a majority of the outstanding Class A shares. Contrans' board had unanimously accepted TransForce's offer.

"While we had some concerns about the premium on the offer, we believe some investors were expecting the transaction to move forward easily," Mr. Poirier said. "Therefore, we believe these investors will consider that the C$0.15 EPS accretion that we calculated from the transaction is now at risk. Applying a 13x P/E multiple on our EPS accretion, we believe the Contrans' acquisition added about $2 to the share price. However, as the share price is currently down C$2.10 from its 52-week high, we believe that market expectations were already pricing in some of the impact of this event.

"Nevertheless, given that Contrans has been for sale for almost two years and did not receive any other offer, we highly doubt that TransForce will raise its bid. In addition, we believe that many other acquisition targets exist for TransForce in the US truckload segment; therefore, even if the transaction is not concluded, we believe TFI will be able to make other strategic M&As that should eventually lead to the division's spin-off. Finally, if the Contrans acquisition does not go forward, we expect TFI's management to use some of its excess capital for additional share buybacks," he added.

He maintained a "buy" rating and $33 (Canadian) price target on TransForce shares. The analyst consensus price target over the next year is $31.31.

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In other analyst actions:

FirstEnergy Capital upgraded Precision Drilling to "outperform" from "market perform" with a price target of $16 (Canadian).

AltaCorp Capital Research cut its price target on Stonegate Agricom to 25 cents (Canadian) from $1.20.

Howard Weil upgraded Baker Hughes to "sector outperform" from "sector perform" with a price target of $81.

Mizuho Securities upgraded Bill Barrett to "buy" from "neutral" with a price target of $28 (U.S.).

Societe Generale downgraded General Mills to "sell" from "hold" with a price target of $50 (U.S.).