Inside the Market's roundup of some of today's key analyst actions
Randy Eresman’s resignation as Encana Corp. CEO on Friday may have taken analysts by surprise – but there’s been little suggestion from them that investors should sell their shares on the leadership uncertainty that now lies ahead.
In fact, two analysts upgraded the stock today to “buy” ratings.
One is UBS Securities Canada’s George Toriola, who previously had a “neutral” rating. He believes there is “a greater than 50 per cent probability” that Clayton Woitas, who was appointed interim president and CEO, will remain in that role long term.
“We believe Clayton is a capable and seasoned executive, with a track record in the industry,” Mr. Toriola said in a research note.
Regardless, he believes Mr. Eresman’s resignation could lead to some other change in the current leadership within the company – and the resulting shift in strategy that could result may not be such a bad thing.
“The new CEO benefits from the lack of some of the issues that could have constrained his predecessor, providing the ability to change strategy without having to explain previous decisions. Areas where we see the potential for some change include: 1) Inorganic liquids growth, 2) LNG export related supply agreements, and 3) The potential supply response to rising natural gas prices,” he said.
He maintained a $22 (U.S.) price target. “The potential for some change in strategy makes an investment in Encana attractive, in our opinion, even though the macro environment remains challenging,” he added.
Société Générale also upgraded Encana, to “buy” from “hold,” and slightly raised its price target to $23.36 (U.S.) from $23.30, according to Bloomberg.
UBS and Société Générale are in the minority, however, in recommending the stock. In all, five analysts as of today rate Encana as a buy, 14 as a hold, and five as a sell. The average price target on the Street is $22.67, Bloomberg data say.
Citing expectations that higher interest rates are just around the corner, UBS analyst Peter Rozenberg upgraded Manulife Financial Corp. to “buy” from “neutral.”
Life insurance companies generate most of their profits from the returns on investment portfolios that can provide funds for paying future claims. The low interest rates have limited insurance companies’ returns for years now.
But Mr. Rozenberg projects “moderately” higher interest rates are ahead, which should support the stock. “More so, an improving macro outlook, higher equity markets, and lower sensitivities reduce downside risk, which supports higher valuation,” he said.
While earnings per share and book value growth will remain constrained in the shorter term by continued low rates, he believes this is factored into the stock price. He also thinks valuation is “reasonable,” with the stock trading at a price-to-book ratio of 1.1 times, based on an expected 11 per cent return on equity.
Upside: Mr. Rozenberg raised his price target to $15.50 from $12.50.
Methanex Corp. appears overvalued at its current share price, based on both its cash flow and earnings, according to CIBC World Markets analyst Jacob Bout.
Prices of methanol have traditionally tracked oil prices, which are likely to fall, Mr. Bout said, adding that a Trinidad gas supply issue that tightened the methanol market in 2012 is due to ease this year.
Downside : Mr. Bout lowered his rating to “sector underperform” from “sector perform.” He raised his target price to $31 from $30.
Talisman Energy Inc.’s production could be adversely affected this year by declines in North American gas production, permit delays in Colombia, and lower additions to output from projects such as Kinabalu, said Raymond James analyst Rafi Khouri.
“While Talisman’s shares remain well below our calculated asset value on a risked NAV basis, we believe capital markets will await some major transformational news prior to closing this gap. A potential take-out bid for the company would – in our view – qualify,” Mr. Khouri wrote in a research note. “Alternatively, capital markets could opt to apply a higher multiple in valuing the company on the back of delivering production growth and an improved balance sheet.”
Downside : Mr. Khouri lowered his rating on the stock to “market perform” from “outperform” and cut his target price to $12 from $16.
Deutsche Bank upgraded shares in Facebook Inc. to "buy" from "hold," encouraged by the social network's ad revenue momentum, which it expects to grow 40 per cent this year. It said Facebook's mobile news feed ads are a "game-changer" and the ramp-up is proceeding much faster than expected. "The future looks bright," it said.
Upside: Deutsche Bank raised its price target to $40 (U.S.) per share..
For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities