This Friday, May 16 2014 file photo shows the General Motors logo at the company's world headquarters in Detroit.PAUL SANCYA/The Associated Press
Inside the Market's roundup of some of today's key analyst actions. This file will be updated during the trading day.
After another unexpected interruption to production at its 37-per-cent owned Syncrude Canada operations, Canadian Oil Sands Ltd.'s dividend "continues to be at risk," according to CIBC World Markets.
An outage in a sour water treater at the Syncrude project in Alberta forced the company to trim full-year production guidance to 94 million barrels from a previous range of 95 to 100 million barrels.
"Syncrude continues to exhibit unexpected and unplanned downtime, which has caused inconsistent operations and reinforces our cautious view on the company," said analyst Arthur Grayfer.
Earlier this month, Canadian Oil Sands slashed its dividend by 42 per cent to $0.20 per quarter in an attempt to preserve its balance sheet in the face of tumbling oil prices. Mr. Grayfer thinks another dividend cut will be on the way shortly unless oil prices rebound.
"At current oil prices, we estimate that cash flow is not even enough to cover capex for 2015," he said.
The analyst lowered his price target to $8.50 from $15 (Canadian) and maintained a "sector underperformer" rating on the stock.
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A surging stock valuation has resulted in one analyst recommending investors offload their shares in Dollarama Inc.
Industrial Alliance Securities analyst Neil Linsdell believes that Dollarama shares, which have pushed past his $54.50 target price, do not offer near-term upside.
"Dollarama remains a favourite longer-term investment opportunity, although headwinds such as labour cost increases are offsetting some of the efficiency improvements that the company has been putting into place," he says. "The company will also face headwinds from the appreciating U.S. dollar, and will experience cannibalization at existing stores as it continues to open more locations and as Dollar Tree continues its Canadian expansion.
Mr. Linsdell downgraded Dollarama to "sell" from "hold" and maintaining his $54.50 (Canadian) price target.
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BMO Nesbitt Burns has initiated coverage on a trio of Canadian money managers: CI Financial Corp., AGF Management Ltd., and IGM Financial Inc.
Analyst Tom MacKinnon calls CI Financial an "industry leader across the board," praising its fund performance and expense management. He set a price target of $37 (Canadian) and "outperform" rating on the stock.
"CI's strong free cash flow generation provides it with financial flexibility for funding growth, acquisitions and a consistent track record of dividend increases," the analyst said.
However, Mr. MacKinnon is slightly more downbeat on IGM Financial, saying that it is "still a show-me story" as fund performance "remains challenging."
He initiated coverage with a "market perform" rating and price target of $47.
"We believe IG's operating model will cause it to be uniquely affected by potential regulatory changes; however, any chances are expected to occur gradually (i.e., over several years) and are expected to be manageable, although potentially disruptive," said Mr. Mackinnon.
AGF Management earns BMO's lowest grade of the three, with the analyst setting an "underperform" rating and price target of $8.50 on the stock.
"AGF faces major challenges in an industry increasingly dominated by the banks and larger independents, namely, chronic net outflows (since 2008), weak fund performance, a lack of scale, and no meaningful distribution relationships," he said.
Mr. MacKinnon remains skeptical of the company's prospects in light of its "unproven track record," and suggests that its recent hefty dividend cut demonstrates the need for the company to invest to rebuild its franchise.
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Slowing demand could bring about a new phase in the auto recovery, as the pace of auto sales growth looks set to fall, RBC Dominion Securities analyst Joseph Spak said.
The pent up demand that has supported auto sales in recent years is on the wane, and the "easier, cyclical" gains in the sector will be harder to come by, Mr. Spak said.
"When the cyclical growth isn't there, the only way to accelerate growth is via market share gains," he said. That kind of competitive environment could drive prices lower.
"So while volume may continue to rise, the profitability associated with that volume declines."
As a result, RBC reduced its forecasted earnings for General Motors Co., downgraded the company's stock to "sector perform" from "outperform," and reduced its target price to $35 (U.S.) from $41.
"The inexpensive valuation combined with the dividend yield should provide some cover," Mr. Spak said. "But valuation is too large a part of the bull story for our comfort."
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After a review of the sector and commodity prices, Credit Suisse has altered its price targets and ratings for a number of gold companies.
Analyst Anita Soni downgraded Yamana Gold and Kinross Gold to "neutral" from "outperform" on valuation concerns. She lowered her price target on the former to $4.50 (U.S.) from $5.50, and to $3.25 from $3.75 for the latter, which has roughly one-third of its gold production coming from Russia.
"We rate [Yamana] neutral as it works through a turn-around of its underperformance assets and potential balance sheet deleveraging," said the analyst. "We rate KGC neutral based on its current valuation in light of its geographic risk exposure as well as relatively shorter mine life at current production levels assuming it does not pursue a [Mauritania-based Tasiast mine] expansion."
Ms. Soni is more constructive on Franco Nevada Corporation, which she upgraded to "outperform" from "neutral" while lowering her target price to $61 from $62.
"FNV has significantly outperformed both the gold price and gold producer equities since its IPO in December 2007," she said. "We believe outperformance has been due to FNV's reduced operational risk royalty/streaming business model, which attracts a lower cost of capital and allows it to make accretive acquisitions."
Weak balance sheets in the junior miner space provides Franco Nevada with a favourable environment to make acquisitions, according to the analyst.
Credit Suisse also lowered its target prices for Agnico Eagles Mines Ltd., Eldorado Gold Corp., Barrick Gold Corp., Goldcorp, AuRico Gold Inc., Alamos Gold Inc., and Golden Star Resources Inc. by double digits.
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In other analyst actions:
Macquarie downgraded Caterpillar to "underperform" from "neutral" with a price target of $78 (U.S.).
FirstEnergy Capital downgraded Cenovus Energy to "market perform" from "outperform" with a price target of $25 (Canadian).
TD Securities upgraded Methanex to "buy" from "hold" with a price target of $60 (U.S.).
Raymond James upgraded Crombie Real Estate Investment Trust to "outperform" from "market perform" with a price target of $14 (Canadian).
Canaccord Genuity upgraded Tahoe Resources to "buy" from "hold" with a price target of $18 (Canadian).
M Partners initiated coverage on West Kirkland Mining with a "buy" rating and 20 cents (Canadian) price target.
Morgan Stanley upgraded SunPower to "overweight" from "equalweight" with a price target of $35 (U.S.).
UBS upgraded Rite Aid to "buy" from "neutral" with a price target of $8 (U.S.).
BB&T Capital upgraded Office Depot to "buy" from "hold" with a price target of $11 (U.S.).
With files from Bloomberg