Thursday'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.

The Canadian telecom sector has seen strong fundamentals over the past several years, despite a challenging economic backdrop, and should continue to produce better revenue growth than U.S. peers over the next few years, said Citibank analysts Kevin Toomey and Michael Rollins.

The Citibank analysts initiated coverage on three of Canada's biggest telecom players today, believing that both Telus Corp. and BCE Inc. would be better buys right now than Rogers Communications Inc.

Telus was assigned a "buy" rating and $49 (Canadian) price target. "We believe Telus deserves a premium multiple based on its stronger growth prospects and commitment to rising capital returns to shareholders," said Mr. Toomey.

Rogers was given a "neutral" rating and $47 (Canadian) price target. "Rogers recently completed its operational restructuring under new management, as the company has experienced declining wireless postpaid market share, lower ARPU (average revenue per user) and higher churn than its peers in its wireless segment, as well as share loss in its Cable segment to fiber rollout by the Telcos. However, progress could take some time and show volatility in performance from quarter-to-quarter," said Mr. Toomey.

And BCE received a "buy" rating and $60 (Canadian) price target. "Shareholder returns should rise over time," Mr. Toomey said. "BCE aspires to consistently reach a dividend payout ratio near the midpoint of its 65 per cent to 75 per cent of free cash flow. However, we believe the market underestimates BCE's ability to increase its shareholder returns over time through potential dividend growth above the consensus expectation of 5 per cent annually and/or share repurchases."

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Fourth-quarter 2014 results from Metro Inc. suggest that internal earnings growth is reviving, says Desjardins Securities' Keith Howlett, who is one of several analysts to hike his price target on the stock after impressive quarterly results.

Metro reported operating EPS of $1.32, ahead of consensus of $1.27 and up 14.8 per cent from $1.15 a year ago. "Metro reported better-than-expected 4Q FY14 EPS, driven below the EBITDA line by share buybacks, tax rate, interest expense and depreciation," Mr. Howlett said in a research note. "There were encouraging signs of renewed top-line growth and the ability to pass through food inflation. We consider the 4Q fiscal year14 results as a harbinger of a sustained revival of EBITDA growth in the quarters ahead."

Mr. Howlett maintains his "buy" rating and raised his target price to $98 (Canadian) from $76. RBC Dominion Securities also raised its target to $95 from $88 and maintained an "outperform" rating. BMO Nesbitt Burns upgraded its rating to "market perform" from "underperform" and raised its price target to $90 from $69.

There were downgrades as well, however. TD Securities downgraded Metro to "hold" from "buy" and maintained a $92 target price, and Credit Suisse downgraded Metro to "underperform" from "neutral" and maintained a $75 target price. Credit Suisse analyst D. Hartley cited valuation concerns for his lower rating, which is equivalent to a sell recommendation. "Our rating reflects concerns for a stretched stock valuation. MRU is trading at/near all-time highs on a P/E, EV/EBITDA and P/CF basis," he said.

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Now trading at its highest multiple since 2012, Alimentation Couche-Tard Inc.'s stock is due for a pause, Credit Suisse analyst David Hartley said.

Since beginning coverage on the stock 12 years ago, the share price has risen by more than 1,100 per cent, the analyst said.

"However, with limited visibility of appropriate/sufficient scale acquisitions, and the considerable run-up in the share price, we believe the stock is poised to take a breather," he said. "Furthermore, the extraordinary run-up in valuations in consumer stocks owing to fund flows is unlikely sustainable, in our view."

Traditionally, the company has realized aggressive expansion through acquisitions, an approach that becomes more challenging at Couche-Tard's size.

U.S. acquisitions have slowed, while there are few obvious European targets, Mr. Hartley said.

He downgraded Couche-Tard's stock to "underperform" from "neutral" and maintained a $33 (Canadian) price target. The analyst consensus price target over the next year is $36.90.

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The latest in a string of iron ore mine closures will likely reduce rail volumes of the mineral, which could in turn negatively affect Labrador Iron Ore Royalty Corp., Raymond James analyst Adam Low said.

On Thursday, Cliffs Natural Resources Inc. announced plans to close its Bloom Lake iron ore mine in northeastern Quebec, the third mine in the region to be shut down recently.

Labrador Iron Ore's exposure to the closure comes through its minority stake in Iron Ore Company of Canada, which in turn owns the Quebec North Shore and Labrador Railway.

Loss of the rail contracts with Cliffs could have a substantial impact on the railway's contribution to Iron Ore Company's earnings. That company would likely be less inclined to pay dividends to its owners, including Labrador Iron Ore.

Mr. Low estimates a reduction of that annual dividend to Labrador Iron Ore to $74-million, from $88-million over the last year.

He reduced his target price on Labrador Iron Ore to $33 (Canadian) from $35, and maintained an "outperform" rating.

"We expect Labrador Iron Ore's shares to trade at a premium given to these peers given its status as an established and growing iron ore producer, the royalty-based nature of its revenue, its scarcity value as the only iron ore producer listed on the TSX, and its consistent payment of a substantial dividend yield," Mr. Low said.

The analyst consensus price target over the next year is $28.21.

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In other analyst actions:

TD Securities initiated coverage on Morguard Real Estate Investment Trust with a "hold" rating and $19.50 (Canadian) price target.

Piper Jaffray boost its price target on Target to $76 (U.S.) from $68 and maintained an "overweight" rating.

RBC Dominion Securities downgraded athenahealth to "underperform' from "sector perform" and cut its price target to $80 (U.S.) from $115.

Janney Montgomery upgraded Yum! Brands to "buy" from "neutral" with a price target of $88 (U.S.).