Disney World's Magic Kingdom
Inside the Market's roundup of some of today's key analyst actions. This file will be updated often during the trading day so check back for new details.
The current unit price for Boardwalk Real Estate Investment Trust (BEI.UN-T) is "pricing in an unlikely 'doomsday' scenario at the moment," according to Raymond James analyst Ken Avalos.
The REIT announced second-quarter funds from operations of 94 cents per unit, beating both the consensus of 93 cents and Mr. Avalos's estimate of 92 cents. Same property net operating income (NOI) grew 2.8 per cent from the previous quarter with rental revenue rising 2.4 per cent. Occupancy did fall 0.4 per cent to 97.4 per cent (with Calgary remaining flat while Edmonton fell 0.4 per cent).
"The bottom line is that everyone, including us, expects occupancy and rents to slip in the oil provinces. That said, the current stock price implies a decline in net operating income ($30 million or approximately 10 per cent) that is extremely unlikely in our view," said Mr. Avalos. "For this to happen, occupancy would need to decline 10 percentage points to 87 per cent. The portfolio's occupancy has never fallen below 94 per cent."
Maintaining his "strong buy" rating for the stock, he added: "Alberta is holding in strong and not showing signs of a substantial slowdown and the REIT should still be able to generate 1–4-per-cent [same property net operating income] growth in 2015. In our view, Boardwalk continues to provide investors with steady above-average growth and a solid balance sheet combined with among the highest quality governance, alignment, capital discipline and investment acumen that can be found in a Canadian REIT management group."
Boardwalk did cut the upper end of its 2015 guidance to reflect the sale of its Windsor portfolio, for which it will receive $135.2-million in a transaction expected to close in early September. Funds from operations are expected to be between $3.48-$3.62 (from $3.48-$3.65), and adjusted funds from operations is between $3.15–$3.29 (up from $3.15–$3.32).
"Considering the offer is 26 per cent above IFRS value, Boardwalk received solid pricing on a non-core group of assets," the analyst said. "Net proceeds will be [approximately] $116-million and much of this is expected to be used to buy back stock and pay a special distribution. Management estimates the taxable income and non-taxable capital gain portion is $0.90– $1.00 per unit. Our model assumes $60 million of unit buybacks over the next three quarters."
After adjusting his net asset value projections, Mr. Avalos lowered his price target for the units to $68 (Canadian) from $70. The analyst consensus price target is $66.39, according to Thomson Reuters.
"Boardwalk units trade at a 17-per-cent discount to our NAV – the largest such discount of any REIT in our coverage universe," he said. "This compares to a historical premium of 5 per cent over the past decade. The REIT also trades at a 5.9 per cent implied cap rate, a 90–125 basis point discount to the private market. Lastly, the equity trades at [about] $159,000/door while we think the portfolio replacement cost is closer to $250,000/door."
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In the wake of adjustments to his capital expenditure profile for Asanko Gold Inc. (AKG-T), Canaccord Genuity analyst Joe Mazumdar downgraded his rating for the stock to "hold" from "speculative buy."
Despite Asanko pre-announcing its cash position for the end of the second quarter of $229.5-million (U.S.), its cash flow from investing activities at its Phase 1 Obotan gold project did not meet his forecast.
"We note the previously stated guidance ($138-million U.S.) included $24.1-million of invoiced but unpaid expenditures tied up in accounts payable," he said.
Those unpaid expenditures caused him to lower his end-of-year capital position projection, and, accordingly, his net present value estimate.
"The impact of the additional unpaid capital (10-11 cents Canadian) and capital profile revision going forward (4-5 cents) dropped our target price down 15 cents to $2.45 which implies a 5-6-per-cent return," said Mr. Mazumdar.
In comparison, the analyst consensus price is $3.28.
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A recent share price pullback for Lucara Diamonds Corp. (LUC-T) "appears overdone," said BMO Nesbitt Burns analyst Edward Sterck.
Touting a "robust" outlook and an attractive 5-per-cent dividend yield, Mr. Sterck upgraded his rating for the stock to "outperform" from "market perform."
Due to plant optimization, Lucara recently lowered its 2015 diamond sales and revenue guidance to 350-400kcts (from 400-420kcts) and $200-220-million (U.S.) from $230-240-million, respectively. But Mr. Sterck does not expected a significant impact overall.
"The slowdown is expected to be resolvable," he said. "Furthermore, with [second half of 2015] processing being biased towards the central and southern lobes (known for higher value special diamonds), the overall diamond recovery profile is expected to be better than during [first half]. Incorporating [second-quarter 2015] results and adjusting for 2015 guidance, BMO continues to forecast earnings of $0.17 (U.S.)/share in 2015 (unchanged)."
He added: "The company's share price has decreased by 15 per cent since the Q2 results announcement. It appears the market is concerned about the plant optimization delay and potential impact to dividends and capex. In BMO's view, the balance sheet remains robust and can easily maintain the 2014 dividend level. With 8 cents (Canadian)/share total dividend forecast, Lucara currently trades on a 2015 yield of [approximately 5 per cent].
Mr. Sterck maintained his price target of $2.20. Consensus is $2.94.
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Wells Fargo Securities analyst Marci Ryvicker is taking a "little more cautious" stance on Walt Disney Co. (DIS-N).
Not expecting a bounce back for U.S. big media stocks, which have fallen since the release of underwhelming second-quarter results, she downgraded her rating for the media giant to "market perform" from "outperform."
She also lowered her rating for Twenty-First Century Fox Inc. (FOXA-Q) and CBS Corp. (CBS-N) to "market perform" from "outperform."
"After going through one of the worst earnings seasons we have ever had outside of the Great Recession, it's time to re-assess our entire coverage universe as clearly both fundamentals and sentiment have changed," Ryvicker said, according to Broadcasting & Cable. "We can't help but think some level of value is transferring from content to distribution."
She added: "We've clearly seen the fraying of the television ecosystem in ad revenue. What seems to have really shaken the market is the fact that we are finally seeing the fraying of the television ecosystem in affiliate fees – which is just tough, as subscription revenue is supposed to be the most stable and the highest margin of any media-type revenue stream."
On Disney, Ms. Ryvicker said, "We LOVE Disney as a company -- our kids LOVE Disney as a company -- and we do not think that ESPN is 'broken' as some have suggested," said Ms. Ryvicker, according to thestreet.com. "Yes, it's slowed -- which is important given that ESPN used to be a significant portion of this company's consolidated operating income -- but it really isn't broken."
"That all said, we are, quite frankly, having a tough time getting our numbers to justify an 'outperform' rating. While we did take our 2016 estimates higher -- primarily in Studio where we admittedly didn't give Disney enough credit for the strong schedule outside of Star Wars (i.e. Captain America: Civil War, Alice Through the Looking Glass, and Finding Dory) -- we still don't have all that much visibility into Star Wars and Shanghai - so we remain slightly below consensus."
She reduced the valuation range for Disney stock to $112-$119 (U.S.). The average analyst target, according to Bloomberg, is $120.25.
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Desjardins Securities analyst Michael Parkin expects stock of Rubicon Minerals Corp. (RMX-T) to be "under pressure" until investors gain clarity on the company's capital spending and guidance.
He downgraded his rating for Rubicon to "hold" from "buy."
The change comes following the release of the company's second-quarter results, which featured capital spending of $73.8-million, an increase from $59.1-million in the previous quarter, that "surprised" Mr. Parkin. He said the results also indicated the capital budget, released in April, will likely be exceeded.
"There was a lack of detail in the [management discussion and analysis] report regarding the progress of the ramp-up, which concerns us," said the analyst. "We will be looking for updates over the coming weeks as the mining conference season begins. Overall, we do not have strong conviction in a number of our operating assumptions, but believe they could prove bullish based on the results released for 2Q15 and our discussion with management."
He added: "We have updated our model to reflect the 2Q financial results. After speaking with the CFO, we have also reduced our assumed accounts payable balance over the course of the next few quarters by a total of $16-million (weighted more toward 2H15). With any major construction, accounts payable usually drops as hold-back payments for contractors come unlocked and payable as development work is completed and signed off. We have slightly softened our near-term operating estimates as well. Overall, it may be necessary for the company to raise additional capital.
"We have assumed a $40-million (priced at C$1.00/share) equity financing will be done in early [the fourth quarter]. Although the gold price is relatively weak compared with the start of the year, a great offset has been the weakness in the Canadian dollar."
Mr. Parkin reduced his price target for the stock to $1.40 (Canadian) from $2.20 after lowering his net asset value multiple "to better reflect the current uncertainty in the company's outlook." Consensus is $1.86.
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In other analyst actions:
Absolute Software Corp (ABT-T) was raised to "buy" from "neutral" at PI Financial by equity analyst Pardeep Sangha. The 12-month target price is $9.50 (Canadian) per share.
BorgWarner Inc (BWA-N) was raised to "buy" from "neutral" at UBS by equity analyst Colin Langan. The 12-month target price is $58 (U.S.) per share.
Coach Inc (COH-N) was raised to "buy" from "hold" at Jefferies by equity analyst Randal Konik. The 12-month target price is $50 (U.S.) per share.
Infinera Corp (INFN-Q) was rated new "outperform" at Northland Securities by equity analyst Tim Savageaux. The 12-month target price is $30 (U.S.) per share.
Lear Corp (LEA-N) was raised to "buy" from "neutral" at UBS by equity analyst Colin Langan. The 12-month target price is $124 (Canadian) per share.
Lydian International Ltd (LYD-T) was downgraded to "market perform" from "speculative outperform" at BMO Capital Markets by equity analyst Andrew Kaip. The target price is $1.00 (Canadian) per share.
Sherwin-Williams Co (SHW-N) was raised to "neutral" from "sell" at UBS by equity analyst John Roberts. The 12-month target price is $284 (U.S.) per share.
Trican Well Service Ltd (TCW-T) was raised to "buy" from "hold" at Paradigm Capital by equity analyst Jason Tucker. The 12-month target price is $1.75 (Canadian) per share.
Zions Bancorporation (ZION-Q) was raised to "overweight" from "equal-weight" at Barclays by equity analyst Matthew Keating. The target price is $40 (U.S.) per share.
With files from Bloomberg
David Leeder