Wednesday’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 often during the trading day so check back for new details.

Baytex Energy Corp. (BTE-T) needs the price of oil to rise above $70 (U.S.) in order to justify "meaningful" capital expansion or an increased dividend in the near term, said Raymond James analyst Chris Cox.

"With limited hedging heading into 2016 (7 per cent of liquids production) and a leverage ratio that is likely to be at the upper-end of comfort levels under strip pricing, we believe Baytex could struggle to restart its growth trajectory and/or increase the dividend," said Mr. Cox.

Despite the questions about the company going forward, the analyst noted: "We view downside potential in the share price as limited at this juncture – a function of the improved balance sheet position and the low-cost nature of the company's core assets."

Baytex's first-quarter production was slightly higher than the consensus forecast, and its cash flow per share of 95 cents also topped Mr. Cox's estimate of 89 cents. Those results came largely from more activity than expected at its Eagle Ford facility in Texas.

He did note that the quarter was the first to show "noticeable" signs of the impact of reduced spending in Canadian operations, including an 8-per-cent drop in production compared to the fourth quarter of 2014. He forecasts total Canadian production to decline by 15 per cent this year.

Mr. Cox raised his price target to $22 from $21 (Canadian). The analyst consensus is $25.46.

He maintained his "market perform" rating.

Veritas Investment Research equity analyst Sam Labell downgraded the stock to "sell" from "buy" and set a target price of $21.50 per share.

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Avigilon Corp.'s (AVO-T) first quarter results fell short of expectations, and that led BMO Nesbitt Burns analyst Thanos Moschopoulos to downgrade the stock to "market perform."

Avigilon's revenues for the quarter were $75.4-million, lower than the consensus of $78.2-million.

"We estimate that constant currency revenue growth was roughly 28 per cent year over year, with 30 per cent year-over-year growth in the U.S.," the analyst said.

"Adjusted earnings per share was 17 cents, but benefited from a lower tax rate and a higher proportion of capitalized R&D costs. Adjusting for these items, we estimate EPS would have been 12 cents versus the consensus of 20 cents," the analyst said.

"Avigilon continues to deliver a robust level of organic growth with strong gross margins; however, its earnings quality has deteriorated due to a higher level of R&D capitalization, and opex is trending substantially higher than we had previously modeled. Given that Avigilon's revenues aren't recurring, we place considerably more focus on earnings-based valuation metrics relative to revenue-based metrics. The higher level of spending consequently has a significant impact con our forecasts and target price," the analyst said.

Mr. Moschopoulos lowered his target price to $22 from $28. The consensus is $28.38.

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The second-quarter guidance for WestJet Airlines Ltd. (WJA-T) was "worse than we expected," said Canaccord Genuity analyst David Tyerman. However, he recommends buying the stock to benefit from the company's "strong growth opportunities."

The outlook forecasts a 4-5-per-cent decline in revenue per available seat mile, though slightly offset by a better-than-projected adjusted cost per available seat mile, according to Mr. Tyerman.

"Net, we expect margins to narrow much faster than we had previously modeled," he said.

He added: "We cut our forecast to model more rapid normalization of margins. We had expected the benefit for much lower fuel prices to dissipate over time, but Q2/15 guidance suggests we were too optimistic.  We continue to model some margin expansion versus the pre-oil-price-collapse period, but the expansion is much more conservative in our new forecast."

WestJet reported a first-quarter earnings per share of $1.09, lower than his forecast of $1.14 but above the consensus of $1.00 and an increase of 58 per cent from the same period of 2014.

Going forward, Mr. Tyerman projects average annual EPS growth of 8.5 per cent from 2014-2017, and, accordingly, he forecasts an increased dividend. He points to four growth initiatives: margin expansion;  the regional Encore fleet; ongoing U.S. and international expansion and the launch of a new wide-body aircraft.

Mr. Tyerman cut his price target to $33 from $38 (Canadian). The analyst consensus is $38.59, according to Thomson Reuters.

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Sun Life Financial Inc. (SLF-T; SLF-N) had a "solid rebound" in the first quarter of 2015, said Scotia Capital analyst Sumit Malhotra in upgrading the stock to "sector outperform."

Sun Life reported underlying earnings per share of 84 cents in the quarter, an increase of 17 per cent year over year and beating both Mr. Malhotra's forecast (82 cents) and the consensus estimate (79 cents). He points out that a pair of factors that hurt fourth-quarter results, unfavourable policyholder experience and heavy expenses, improved, boding well for the future.

The company also announced it was boosting its quarterly dividend by 6 per cent, or 2 cents, to 38 cents a common share. It's the first increase since early 2008.

"While we acknowledge that the market will want to see consistent trends in both MFS [Investment Management] and U.S. Insurance prior to reinstating the healthy premium that SLF shares enjoyed for most of 2013-14, at current levels we think relative valuation has bottomed," he said. "Accordingly, with the stock implying a 15 per cent total return from current levels, we are moving to balance our lifeco ratings and are upgrading SLF."

Mr. Malhotra's price target is $44 (Canadian). The analyst consensus price is $43.63.

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The uncertainty of Alberta's economy coming off Tuesday's provincial election that brought the NDP to power has caused Credit Suisse Kevin Choquette to downgrade Canadian Western Bank (CWB-T) from "outperform" to "neutral."

In the wake of a 21-per-cent increase in share price since mid-March, coinciding with a slight rebound in oil prices, and a 12-per-cent outperformance versus its sector peers, Mr. Choquette projects the bank's total expected rate of return is now in line with other "neutral" stocks, like National Bank of Canada and Bank of Nova Scotia.

"CWB valuation has clawed its way back from a 15-per-cent [price-earnings] discount to the bank group multiple to a slight premium," said the analyst. "Restoration of a higher premium multiple in our view is predicated on high earnings growth expectations returning, which we believe requires a stronger Alberta economy, which is not likely in the near-term."

Mr. Choquette  also cited  the "political risk" of the election and the uncertain future of the province's economic policies. In particular, he questions the bank's ability to maintain double-digit loan growth given the fiscal questions.

He maintained his price target of $35. The analyst consensus price is $31.42

Other analyst actions:

Avigilon Corp. (AVO-T) was downgraded to "Market Perform" from "Outperform" at BMO Capital Markets by equity analyst Thanos Moschopoulos. The 12-month target price is C$22.00 per share.

Louisiana-Pacific Corp. (LPX-N) was downgraded to "Underperform" from "Neutral" at DA Davidson by equity analyst Steven Chercover. The 12-month target price is $14.00 per share.

Timmins Gold Corp. (TMM-T) was raised to "Buy" from "Neutral" at PI Financial by equity analyst Philip Ker. The 12-month target price is C$1.00 per share.

Sandstorm Gold Ltd. (SSL-T) was raised to "Outperform" from "Sector Perform" at National Bank by equity analyst Shane Nagle. The 12-month target price is C$5.25 per share. Sandstorm Gold was also raised to "Buy" from "Hold" at Canaccord Genuity by equity analyst Rahul Paul. The 12-month target price is C$5.25 per share.

Patient Home Monitoring Corp. (PHM-X) was rated new "Buy" at Mackie Research Capital by equity analyst Russell Stanley. The 12-month target price is C$2.25 per share.

Pacific Rubiales Energy Corp. (PRE-T) was raised to "Hold" from "Reduce" at TD Securities by equity analyst Jamie Somerville. The 12-month target price is C$6.50 per share.

Manitoba Telecom Services Inc. (MBT-T) was rated new "Hold" at Canaccord Genuity by equity analyst Sanford Lee. The 12-month target price is C$26.00 per share.

easyhome Ltd. (EH-T) was downgraded to "Buy" from "Top Pick" at Cormark Securities by equity analyst Jeff Fenwick. The 12-month target price is C$27.50 per share.

HudBay Minerals Inc. (HBM-T) was downgraded to "Market Perform" from "Buy" at Cormark Securities by equity analyst Cliff Hale-sanders. The 12-month target price is C$14.00 per share.

Bellatrix Exploration Ltd. (BXE-T) was raised to "buy" from "hold" at Paradigm Capital. The 12-month target price is $4.50 (Canadian) per share.

Canadian Western Bank (CWB-T) was downgraded to "neutral" from "outperform" at Credit Suisse. The target price is $35 (Canadian) per share.

DIRTT Environmental Solutions (DRT-T) was rated new "buy" at Haywood Securities. The 12-month target price is $11.50 (Canadian) per share.

Globalstar Inc. (GSAT-A) was rated new "buy" at Aegis Capital. The 12-month target price is $5 (Canadian) per share.

With files from Bloomberg News