Bank of Nova Scotia, Toronto-Dominion Bank and Bank of Montreal have bucked conventional wisdom and decided to keep three of the very first series of rate-reset shares that are nearing their anniversary.MARK BLINCH/Reuters
Inside the Market's roundup of some of today's key analyst actions. This file will be updated during the trading day.
Toronto-Dominion Bank has been the hardest hit of the Canadian bank stocks through the correction, opening up an opportunity to buy on weakness, Credit Suisse analyst Kevin Choquette said.
The stock selloff has not spared Canadian financials, which as one of the most liquid sectors, represents the "path of least resistance for investors to sell equities and raise cash, especially when they have been trading near all-time highs," Mr. Choquette said.
The bank group has declined by about 9 per cent from 52-week highs, while the Canadian life insurance sector, which is more vulnerable to a decline in bond yields, is down by 14 per cent, he said. "However, we view bank fundamentals as strong in a challenging environment and valuations remain attractive."
With TD off 12 per cent from its high, Mr. Choquette's target price of $66 (Canadian) implies a 31-per-cent expected return. He upgraded the stock to "outperform" from "neutral."
"We find TD's relative valuation as compelling with a negligible price-to-earnings multiple premium to the group and is at the low end of its range despite having one of the highest capital generation rates of the Canadian banks," Mr. Choquette said. "We would ideally prefer TD's business mix to have a higher wholesale and wealth component but its best in class retail platform is expected to manage best through the difficult low interest rate environment including balancing revenue and expenses in this sector."
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A combination of recent share price weakness and positive underlying fundamentals has resulted in upgrades for a trio of U.S. land drillers from UBS analyst Angie Sedita.
Ms. Sedita upgraded Helmerich & Payne Inc., Nabors Industries Ltd. and Patterson-UTI Energy Inc. to "buy" from "neutral."
"We are upgrading the U.S. land drillers given our view that sell-off in the stocks has been overdone, even assuming a more cautious North American environment," she said. "We believe upside risk of 40 per cent to 80 per cent exists if oil prices return to $90/bbl WTI. However, downside risk of 25 per cent exists if oil prices slide to $75/bbl for a sustained period of time. To be clear, buying the land drillers is partially a play on oil prices. However, underlying industry fundamentals due to U.S. unconventionals are also positive and the demand for pad-capable rigs will grow."
As for fundamentals, she believes that over the next three to five years, the industry will need 250 to 400 new higher-spec pad-capable drilling rigs. "Today 25 per cent of the U.S. rig fleet is able to handle multi-pad and 'multi-row' drilling (walking type rigs), vs 36 per cent of the rigs which are higher spec rigs but only capable of single row pad drilling (skid mounted rigs)," she said. "The remaining 42 per cent (about 800) of today's rigs are older legacy rigs (mechanical / SCR) of which we believe 30 per cent to 50 per cent of these rigs will be replaced by these newer, more capable rigs. Ultimately as newbuild land rigs are delivered we expect dayrates to flatten out (likely early-15) and for the newbuilds to replace the legacy rigs (likely mid-2015)."
Ms. Sedita has a $115 (U.S.) target price for Helmerich & Payne Inc., a $32 price target for Nabors Industries and a $41 price target for Patterson-UTI. The analyst consensus price targets for these stocks are $110.36, $ 32.44 and $39.14, respectively.
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In other analyst actions:
Macquarie initiated coverage on Sun Life Financial with an "outperform" rating with a 12-month target price is $46 (Canadian).
CIBC World Markets cut its price target on Martinrea International to $14.50 (Canadian) from $17 and reiterated a "sector outperformer" rating.
M Partners initiated coverage on Bedrocan Cannabis Corp. with a "buy" rating and one-year target price of $1.10 (Canadian).
Several analysts shaved their price targets on Google after it reported modestly weaker-than-expected third-quarter results Thursday, including Needham & Co. cutting its target to $625 from $675.
Canaccord Genuity downgraded Advanced Micro Devices to "hold" and slashed its price target to $2.75 (U.S.) from $4.50.
Nomura upgraded AK Steel to "buy" from "neutral" with a $10 (U.S.) price target, up from $7.
SunTrust Robinson Humphrey upgraded Hilton Worldwide to "buy" from "neutral" with a price target of $26 (U.S.).
Tim Shufelt