Tuesday'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.

Twitter Inc. is seeing a wave of analyst downgrades and price target cuts today in the wake of quarterly earnings that created fresh concerns over the company's engagement and growth rates.

Merrill Lynch downgraded the stock to "neutral" from "buy" and cut its price target to $50 (U.S.) from $60. RBC Dominion Securities downgraded its rating to "sector perform" from "outperform" and slashed its price target to $47 (U.S.) from $65. Stifel Nicolaus went a step further, downgrading Twitter to "sell" from "hold."

Out of 36 brokerages covering the stock, 14 now have a "buy" ratings, three have "strong buy" ratings, 17 have a "hold," one has a "sell" and one a "strong sell," according to Thomson Reuters. The average price target is now $52.48, according to Bloomberg data.

"Our point of view has been that in order for Twitter to outperform, the company needs to prove two things: 1) That it can successfully increase its reach with advertisers – very strong ad revenue growth over the last year and our survey results have provided clear evidence; and 2) That it can successfully increase its user base and engagement levels – here, the evidence is less clear. And that's the problem," RBC Dominion Securities analyst Mark S. Mahaney said in a research note.

After user trends improved in the second quarter, they deteriorated in the most recent quarter, and the fourth quarter guidance implies more deceleration, he notes. Usage trends, which includes such things as Timeline views, have also deteriorated.

"And all of this is occurring despite almost a year's worth of user interface/product improvements that should have 'mainstreamed' the user value proposition. Further, all of this is occurring with a company that has had little management consistency (unlike, say, AMZN and NFLX) and is too big market-cap-wise to be easily acquired (unlike, say, YELP and P). And, finally, all of this is occurring with a very-high-multiple stock that is likely to see sharp near-term revenue deceleration and toughening comps in 2015.

"No, we don't believe that TWTR is a broken story. But we believe it could take much, much longer to prove out than we had assumed," Mr. Mahaney said.

======

After a challenging first half of the year, Maple Leaf Foods Inc. earnings are set to improve substantially as a result of lower costs and higher prices, Canaccord Genuity analyst Derek Dley said.

Hog prices recently came off their peak, which combined with the implementation of about 8-per-cent price increases, could increase Maple Leaf's EBITDA to about $25-million in the third quarter, Mr. Dley said. Moreover, the analyst raised his estimated EBITDA margins for 2015 to 8.7 per cent from 8.0 per cent.

The first half of the year saw Maple Leaf post successive earnings misses, with a combined EBITDA loss of about $2-million.

Meanwhile, the company is nearing the latter stages of its long-term, $800-million restructuring plan. "We believe the program has largely been de-risked, with visibility improving over the near term," Mr. Dley said.

He upgraded Maple Leaf to a "buy" rating from "hold" and raised his target price to $22 (Canadian) from $17.

======

Precision Drilling Inc.'s solid earnings beat wasn't enough to overcome broader macro fears, as the stock continues to suffer from weak energy prices, BMO Nesbitt Burns analyst Michael Mazar said.

On Tuesday, the company reported its third-quarter results, which exceeded analyst expectations for the fourth straight quarter and showed improving margins. The company also implemented a dividend increase. The stock, however, has declined by about 7 per cent since the release.

"While we believe Precision Drilling represents attractive longer-term value, investors are probably better served by 'hiding' in infrastructure-oriented names like ShawCor Ltd., which are far less correlated with commodity prices, until crude prices stabilize and greater clarity emerges regarding 2015 exploration and production capex plans," Mr. Mazar said.

He lowered his target price on Precision Drilling's stock to $13 (Canadian) from $18 and reiterated an "outperform" rating. The analyst consensus price over the next year is $13.70.

======

Alimentation Couche-Tard Inc. should benefit from lower oil prices, which provide some household budget relief to the company's core customers, Credit Suisse analyst David Hartley said.

"The windfall would most greatly impact consumers at the low end of income levels, given the disproportionate burden of gasoline spending on low-income households."

Mr. Hartley raised his trading multiple on Couche-Tard's stock, also citing higher investor interest in the consumer sectors amid a "scarcity of growth/investable assets."

Finally, the analyst gave consideration to the company's strong history of growth through acquisitions, noting that investors are "awaiting the next big one," Mr. Hartley said. Enough time has passed since the last big one – the $2.8-billion (U.S.) acquisition of Norwegian gas-station operator Statoil Fuel & Retail – that Couche-Tard has paid down its debt substantially and the market is beginning to price in another potential acquisition, he said.

"Management has to be given credit for having the opportunity and ability for pulling it off," Mr. Hartley said. "However, we are weary that an acquisition that offers less than expected, may be detrimental to the stock given the premium embedded in the stock price today."

He raised his price target on Couche-Tard's stock to $33 (Canadian) from $28 and reiterated a "neutral" rating. The analyst consensus price target over the next year is $36.07.

======

Demand for GoPro Inc.'s products will see a massive spike as a growing number of social media users embrace the idea of sharing exciting experiences, says Wedbush Securities analyst Michael Pachter.

"I think the potential is immense," said Mr. Pachter in an interview with CNBC.  "When you start talking about 250 million Twitter users growing to 400 or 500 million, I think that's the potential market for GoPro. It really is people who are active outdoors and … want to capture a selfie. We are living in a Vine and Instagram society and GoPro makes it easy to do something spectacular when you're engaging in outdoor activity."

He says today's share price action (GoPro stock was up 7 per cent on Tuesday afternoon) shows that people see the company as a growth story that will leverage social media presence into free marketing and viral marketing.

Mr. Pachter has  initiated coverage on GoPro with an "outperform" rating and $81 (U.S.) 12-month price target. The analyst consensus price target is $78.90, according to Thomson Reuters.

======

In other analyst actions:

FirstEnergy Capital downgraded Baytex Energy to "market perform" from "outperform" with a price target of $37 (Canadian).

FirstEnergy downgraded Crew Energy to "market perform" from "outperform" with a price target of $8.50 (Canadian).

FirstEnergy Capital downgraded Lightstream Resources to "underperform" from "market perform" with a price target of $3.25 (Canadian).

FirstEnergy Capital downgraded MEG Energy to "market perform" from "outperform" with a price target of $32 (Canadian).

FirstEnergy Capital downgraded NuVista Energy to "market perform" from "outperform" with a price target of $10.25 (Canadian).

FirstEnergy Capital downgraded Yoho Resources to "market perform" from "outperform" with a price target of $2.15 (Canadian).

Wunderlich initiated coverage on NeuLion with a "buy" rating and $1.50 (Canadian) price target.

Euro Pacific Canada initiated coverage on Less Mess Storage with a "buy" rating and 12-month price target of $1.50 (Canadian).

Maxim Group upgraded Madison Square Garden to "buy" from "hold" with a price target of $85 (U.S.).

Wedbush Securities analyst Michael Pachter initiated coverage on GoPro with an "outperform" rating and $81 (U.S.) 12-month price target.

With files from Bloomberg