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.

Canadian National Railway Corp. (CNR-T, CNI-N) continues to have solid growth prospects, said Canaccord Genuity analyst David Tyerman, noting the stock's valuation "now looks attractive" following a recent decline in price.

Accordingly, Mr. Tyerman raised his rating to "buy" from "hold."

The analyst said he projects the company's fourth-quarter results to be "solid" with weak volumes offset by "strong" margin expansion. He expects 11.1-per-cent earnings per share growth on a decline in revenue of 0.4 per cent alongside a 4.9-per-cent improvement in its operating ratio to 56.5 per cent, which he called "very good."

"Revenues are likely to be constrained by weak volumes (already reported), partially offset by benefits from the weak Canadian dollar," the analyst said. "Margins are expected to be very strong due to strong operating performance plus a benefit from lower fuel costs."

"The volume environment has been surprisingly weak, mainly due to weak bulk shipments. The volume prognosis remains uncertain so we have sliced our volume growth expectations for the next couple of years. However, we expect margins to remain robust, boosted by weak fuel prices. The weak Canadian dollar should also help."

Ahead of the release of the quarterly results, scheduled for Jan. 26, Mr. Tyerman did lower his target price for the stock to $84 from $86. The analyst consensus price target, according to Thomson Reuters, is $80.09.

He said the one-year projected investment return on his target has increased to "an attractive" 13.8 per cent, including a 1.7-per-cent dividend yield.

"We have modelled upside and downside scenarios," he said. "Our bear case assumes continued weak volumes in 2016 and related margin compression, resulting in a 3-per-cent decrease in EPS in 2016. We project a [negative] 5-per-cent shareholder return in our bear case. In our bull case, we assume a recovery in volumes to the mid-single-digit range and a commensurate improvement in margins. We project a very nice 21-per-cent shareholder downside in our bull case."

He added: "Our valuation multiple is a premium to CN's historical trading average, the valuation range for comparable rail companies and the broader stock market. We believe this multiple is warranted given CN's superior and improved ROIC. We believe our valuation multiple is appropriate as the resulting target is only in line with our $81.19 discounted cash flow valuation."

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Brookfield Intrastructure Partners LP (BIP-N, BIP.UN-T) is a "victim of indiscriminate selling," according to Raymond James analyst Frederic Bastien.

"We believe the recent price action in Brookfield Infrastructure is at odds with the firm's largely regulated and highly resilient cash flows, growing secular demand for world-class infrastructure assets, and our decision to select it as one of Raymond James Ltd.'s best picks for 2016," he said.

Mr. Bastien upgraded his rating for the stock to "strong buy" from "outperform" and noted that the recent global stock "rout" has pulled Brookfield's valuation to "unprecedented" levels.

"Based on our current year estimates the units are not only trading at an enterprise value-to-EBITDA multiple of 9.6 times, the lowest point on record since we started covering BIP three years ago, but also yielding 7.2 per cent," the analyst said. "That's the highest dividend yield for BIP since its transformational acquisition of Prime Infrastructure five years ago. While we acknowledge the U.S. Fed's path toward interest rate normalization and slowing global growth prospects will cause the valuations of high-yield stocks to reset lower for longer, we argue that BIP is fundamentally oversold at current levels."

Saying the company has the best organic growth prospects among the large-cap stocks he covers, Mr. Bastien is confident it can reach its annual distribution per unit growth goal of 5 to 9 per cent through 2017 despite China's declining demand for commodities.

"Supporting our call are the commissioning of a healthy $1.3-billion capital backlog over that timeframe, inflation indexation across the partnership's world-class utilities platform, and the modest volume gains we expect from its toll road and port businesses," he said. "We should stress that our internal growth target of 10 per cent isn't a pie-in-the-sky scenario; it extrapolates the low double-digit rate that BIP has averaged annually since its inception (by reinvesting anywhere from 30 per cent to 40 per cent of its funds from operations into existing operations)."

Mr. Bastien said the company's strong balance sheet "yields ton of flexibility," adding: "For proof, consider that Brookfield Infrastructure was swimming in approximately $3.3-billion of liquidity as of Sept. 30m 2015. A chunk of this is earmarked for the proposed Asciano transaction, which was recently revised to appease the competition watchdog's concerns over vertical integration. Under its new proposal, BIP would sell the Pacific National intermodal business (which includes above-rail operations in Western Australia) to an independent party and ensure the independent operation of its flagship Dalrymple Bay Coal Terminal. Should these latest permutations still fail to move the Asciano deal past the goal posts, we expect the partnership to have little problem moving the capital elsewhere. Look no further than Brazil or the midstream sector for 'once in a lifetime' opportunities for BIP to create long-term value for its unitholders."

He maintained a target price of $50 (U.S.) per unit. The analyst consensus is $48.71.

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Canaccord Genuity analyst Tony Lesiak commended the management of Eldorado Gold Corp. (ELD-T, EGO-N) for protecting shareholder interests with its decision to halt work on a mine in northern Greece due to the Greek government's confrontational "attitude."

Mr. Lesiak upgraded his rating for the stock to "buy" from "hold."

"We do not believe management and the ELD Board will support further investment in Greece without a long-term sustainable development plan, the delivery of key outstanding permits for both Olympias and Skouries, and a formal pledge of support from the [Ministry of Energy]," the analyst said. "The previous conciliatory approach which built support from locals, unions, government, and moreover, relied on the rule of law (Greek Council of State) has been insufficient, as were management's previous lines in the sand (as recently as August 20, 2015). Until the MoE and Syriza Government provide full definitive support (whatever form that takes), we believe the market will provide minimal value for ELD's Greek assets and, as such, we have removed them (previously 27 per cent of net asset value, or $1.72 per share) from our valuation."

Mr. Lesiak lowered his price target to $4.25 from $5.50 to reflect the removal of the assets from his valuation. The analyst consensus is $7.50.

"We highlight the imbedded 'free' optionality of the company's Greek portfolio and the potential for an accretive Chinese asset spinout or sale announcement in [the first half of 2016]," he said. "The potential sale of all or a portion of the Chinese assets (NAV of $710-million U.S.) would put ELD in a very strong position for accretive M&A based on current sector valuations."

Meanwhile, TD Securities analyst Steven Green raised the stock to "buy" from "hold" with a target price of $5.34 per share, down from $5.88. Macquarie analyst Michael Siperco downgraded the Canadian issue to "neutral" from "outperform" with a target price decline to $3.50 from $7 target. Paradigm Capital analyst Don Maclean downgraded his rating to "hold" from "buy" with a target of $4.25 from $7.

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The potential sale of its U.S. pressure pumping business would position Trican Well Service Ltd. (TCW-T) for survival, said CIBC World Markets analyst Jon Morrison.

On Tuesday, Trican said it was in active negotiations to sell to Keane Group, a private U.S. company.

In response to the news, Mr. Morrison upgraded his rating for the stock to "sector performer" from "sector underperformer."

"Trican noted in its press release that 'although talks are progressing, significant terms and conditions are still under negotiation'` and 'there can be no guarantee that the company will conclude this transaction,'" he said. "With that said, Trican believes that the offered price represents 'fair value' and that the sale of this business would be in the best interest of shareholders. As such, we believe it is safe to assume that negotiations are at a fairly advanced stage."

"Although no financial terms were provided in the release, even if we assume a relatively conservative range of $175-$225 million (U.S.) for the platform (the company had $713-million of U.S. assets, including $535-million of property, plant and equipment  at third-quarter 2015 exit), we estimate that the deal would position Trican to reduce a material amount of net debt and likely be in a strong position to renegotiate any of the financial covenants that it may trip in the coming quarters. Furthermore should the deal go ahead, we believe Trican would have a solid footing to make it through the trough and reposition itself largely as a pure-play Canadian pressure pumper. We also believe the transaction would leave Trican as one of the cheapest oilfield services companies in Canada on almost all financial metrics."

Mr. Morrison increased his price target for the stock to $1.50 from 75 cents. The analyst average is $1.18, according to Bloomberg.

Meanwhile, Raymond James analyst Andrew Bradford raised his rating to "outperform" from "market perform" while maintaining a $1 target.

"We don't know the price range being contemplated for its US business, but we can say that any price over $175-million (U.S.) could be transformative for Trican in terms of reducing its debt to reasonable levels and removing a significant drag on EBITDA performance," said Mr. Bradford. "Even though the price will probably be significantly discounted from TCW's cost, we envision the transaction adding materially to Trican's equity value."

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Credit Suisse analyst Anita Soni is "positive" on the gold sector, saying three years of lower prices have resulted in production curtailments and predicting mining supply peaked in 2015.

However, she said those changes will mean "a period of pain" for many producers as they release year-end results for 2015.

In a research note, Ms. Soni downgraded Goldcorp Inc. (GG-N, G-T) to "neutral"  from "outperform" based on valuation.

"Our [cash flow] multiple was reduced to 14 times from 15x to reflect a flow through of our reserve analysis," she said. "Previously, we had included a 1x multiple bump over the 14-year mine life … to reflect exploration upside. We have now modelled the upside and identified and modelled downside which largely offset each other. Our price/net asset value multiple was reduced slightly to 1.5x from 1.6x to reflect (i) uncertainty during the CEO transition period which, in our experience, could bring a rebasing of expectations (new CEO takes helm in April); (ii) Credit Suisse estimate for lower FCF in 2016 than consensus expectations; and (iii) risk to lower grade portions of reserves identified in our Ideas Engine report due to an elevated current grade/reserve grade ratio and base metals exposure (risk at $1,200/oz reserve price to lower grade material at Red Lake, Porcupine, and Los Filos) and the added risk to Red Lake complex production given the delays at Cochenour which will put pressure back on the High Grade Zone."

She lowered her target price for the stock of Goldcorp to $14 (U.S.) from $15.50. The analyst consensus is $19.61.

Ms. Soni raised her target price for Barrick Gold Corp. (ABX-N, ABX-T) to $10 from $9, compared to a consensus of $10.34. She maintained a "neutral" rating.

"Near term we see stronger positive catalysts for ABX than GG," the analyst said. "ABX's Feb. 22 investor day is the company's first since 2011. We see it as a positive catalysts as a platform to provide clarity on the $2-billion cost reduction target and future investment plans. ABX's reduced balance sheet risk provides improved ability to weather a further gold downturn. Finally, ABX has higher valuation leverage which provides better upside to CS's positive medium term gold price view."

For Newmont Mining Corp. (NEM-N), her target increased to $26 from $25.50. Consensus is $23.46. Her "outperform" rating did not change.

Ms. Soni said: "We rate NEM outperform due to (i) operational consistency which we expect to continue; (iii) longer than average reserve life vs. peers; (iii) attractive internal opportunities to add NAV vs. current CS expectations particularly at Tanami, Long Canyon, Carlin and Ahafo; and (iv) balance sheet which has strengthened significantly since 2013. Headwinds for NEM include geopolitical risk related to Batu Hijau which could impact production, inflation in Ghana and production replacement post-2017."

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Enerplus Corp. (ERF-T, ERF-N) produced "another impressive result for shareholders" on Tuesday, said Raymond James analyst Kurt Molnar.

The energy company announced the sale of non-core lean gas assets in Alberta's Deep Basin for $193-million. The transaction comes after an $80-million sale of a portion of its non-operating Bakken assets in North Dakota in late December, a move Mr. Molnar said "solidified their balance sheet."

On Tuesday's deal, he said: "These assets would contribute cash flow in the order of $20-million in our view, while a $200-million reduction in debt reduces interest expense by roughly $10-million, so we see the net effect to cash flow as only in the order of $10-million of cash flow. The headline result alone was impressive with Enerplus realizing in the order of 10 times cash flow."

"Enerplus didn't explicitly disclose reserves, but past slideshows listed the 2P reserves at 70 Bcfe and we expect that they had roughly $80-million of [finding and development costs] associated with this 2P reserves number. Ignoring FDC they realized a sale price of $16.50 per barrel of oil equivalent (Boed) against 2P reserves on lean gas. A very strong result in our view. The disposed assets are reported to be producing 5,400 Boed of lean gas. To put this into perspective, we already believed the Enerplus dividend was very safe, but this sale of less than 5 per cent of production and cash flow effectively pre-finances the next three years of corporate dividend payments. More importantly it opens still more room for either share buybacks or strategic acquisitions."

Maintaining his "outperform" rating for the stock, he raised his target price to $6.25 from $5.75. The analyst average is $7.90.

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In other analyst actions:

ACE Ltd (ACE-N) was raised to "outperform" from "market perform" at Wells Fargo by equity analyst John Hall.

Agnico Eagle Mines Ltd (AEM-T) was downgraded to "hold" from "buy" at TD Securities by equity analyst Greg Barnes. The 12-month target price is $33 (U.S.) per share.

Ameriprise Financial Inc (AMP-N) was downgraded to "market perform" from "outperform" at Wells Fargo by equity analyst John Hall.

Automotive Properties Real Estate Investment Trust (APR.UN-T) was rated new "buy" at Canaccord Genuity by equity analyst Mark Rothschild. The 12-month target price is $10 (Canadian) per share.

BOK Financial Corp (BOKF-Q) was downgraded to "underperform" from "neutral" at Macquarie by equity analyst John Moran. The 12-month target price is $50 (U.S.) per share.

Cascades Inc (CAS-T) was downgraded to "hold" from "buy" at TD Securities by equity analyst Sean Steuart. The 12-month target price is $14 (Canadian) per share.

Cullen/Frost Bankers Inc (CFR-N) was downgraded to "Underweight" from "Equal-weight" at Barclays by equity analyst Matthew Keating. The target price is $52 (U.S.) per share. It was also downgraded to "underperform" from "neutral" at Macquarie by equity analyst John Moran with a 12-month target price of $48 per share.

CME Group Inc (CME-Q) was raised to "overweight" from "neutral" at JPMorgan by equity analyst Kenneth Worthington. The 12-month target price is $96 (U.S.) per share.

DTE Energy Co (DTE-N) was raised to "overweight" from "equal-weight" at Barclays by equity analyst Daniel Ford. The target price is $89 (U.S.) per share.

Janus Capital Group Inc (JNS-N) was downgraded to "neutral" from "overweight" at JPMorgan by equity analyst Kenneth Worthington. The 12-month target price is $15 (U.S.) per share.

Middleby Corp (MIDD-Q) was raised to "outperform" from "neutral" at Macquarie by equity analyst James Clement. The 12-month target price is $120 (U.S.) per share.

Norbord Inc (NBD-T) was raised to "buy" from "hold" at TD Securities by equity analyst Sean Steuart. The 12-month target price is $31 (Canadian) per share.

PulteGroup Inc (PHM-N) was raised to "overweight" from "neutral" at JPMorgan by equity analyst Michael Rehaut. The target price is $22.50 (U.S.) per share.

PayPal Holdings Inc (PYPL-Q) was rated new "buy" at Mizuho Securities USA by equity analyst Neil Doshi. The 12-month target price is $40 (U.S.) per share.

QUALCOMM Inc (QCOM-Q) was raised to "positive" from "neutral" at Susquehanna by equity analyst Christopher Caso. The 12-month target price is $60 (U.S.) per share.

Twitter Inc (TWTR-N) was rated new "neutral" at Mizuho Securities USA by equity analyst Neil Doshi. The 12-month target price is $21 (U.S.) per share.

With files from Bloomberg News