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Pedestrians wearing Nike Inc. shoes stand on a sidewalk in front of a store in San Francisco, Calif., in this file photo.David Paul Morris/Bloomberg

Inside the Market's roundup of some of today's key analyst actions

Raymond James analyst Ben Cherniavsky is "taking a pause" on Ritchie Bros. Auctioneers Inc. (RBA-N, RBA-T) stock, citing mounting near-term headwinds and share price strength over the past two years.

He downgraded his rating for the Burnaby, B.C.-based company to "market perform" from "outperform."

On Dec. 23, Ritchie Bros. reported 2016 gross auction proceeds of $4.328-billion (U.S.). The company touted the results as a new annual record and a 2-per-cent increase from 2015.

"This implies $502-million of GAP for December and $1.033-billion of GAP for 4Q16," said Mr. Cherniavksy. "These numbers represent year-over-year declines of 10 per cent and 9 per cent respectively, with the latter being well below our 4Q16 forecast of 4 per cent. This has effected substantial downward adjustments to our forecasts for the company.

"Using a 'pig in the python' metaphor, we have cautioned recently that the normalization of energy markets represents a near-term growth headwind for the company as it continues to lap large auctions that were fuelled by collapsing oil and gas prices during 2014/15 … We consider this to be a good problem to have, a problem nonetheless. The fact that growth from other regions of Ritchie's vast markets (Europe, for example, or Eastern U.S.) is not sufficiently filling the slack."

Mr. Cherniavksy said his rating change was not simply a reaction to a month or quarter of weaker-than-expected GAP results. Rather, he called his thesis "much more holistic."

"Two years ago, there were three key factors that caused us to upgrade our view on Ritchie … (i) the potential for lower energy prices to trigger a material dislocation in the equipment markets; (ii) the company's balance sheet 'optionality' to create an accretive transaction; and (iii) new management's opportunity to improve the company's returns," he said. "These catalysts have largely followed script with the stock returning [approximately] 40 per cent accordingly (versus a 12-per-cent rise for the S&P500). Longer-term, we see the potential for this stock to still move higher as the story evolves, but the risk-return profile looks different to us today versus Jan-2015.

"In addition to the normalization of energy markets there are other near-term challenges to consider, including the integration of IP and the full navigation of the multi-channel strategy. We will say more on this in the new year. Meantime, we view the 4Q16 GAP shortfall as another reason to recalibrate our thesis on the stock."

Ahead of the release of the company's full-year 2016 financial results, scheduled for Feb. 20, Mr. Cherniavksy lowered his 2016 and 2017 earnings per share projections to $1.13 and $1.36, respectively, from $1.22 and $1.56.

His target price for the stock fell to $35 (U.S.) from $42. The analyst consensus price target is $38.55, according to Thomson Reuters.

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Boralex Inc.'s (BLX-T) $238.5-million acquisition of a Niagara region wind farm reaffirms BMO Nesbitt Burns analyst Ben Pham's view it's "well positioned to deliver upside to growth expectations."

Upon resuming coverage of the stock following the closure of a $172.5-million public offering, Mr. Pham said the deal significantly expands the company's presence in the Ontario renewable energy market as well as diversifies its portfolio,

"We had previously assumed that BLX would acquire a 25-per-cent economic interest in the project pursuant to an option entered into on June 8, 2015," said Mr. Pham, in a research note released on Dec. 23. "The Niagara Region wind project was recently commissioned on November 2, 2016 and extends across the Regional Municipality of Niagara, the Township of West Lincoln, the Town of Wainfleet and Haldimand County in Ontario. Based on a guided run-rate EBITDA of $84-million, the implied valuation is [approximately] 12.2 times EBITDA. This appears consistent with where Canadian contracted wind assets have traded when commissioned. Management believes the acquisition will generate 'double-digit' free cash flow per share accretion to shareholders."

"In connection with the acquisition along with the visible growth backlog under construction (224MW), BLX raised its 2017 run-rate EBITDA 29 per cent to $375-million from $290-million and its free cash flow expectation 27 per cent to $95-million from $75-million. Further, the company is now targeting 2,000MW of net capacity by 2020 versus 1,650MW before. This compares to current net installed capacity of 1,338MW including the 230MW Niagara, implying an attractive 10.5-per-cent 4-year CAGR [compound annual growth rate] through late decade. Further, cash flow duration has been extended: the portfolio's weighted average PPA (power purchase agreement) term improves to 16 years versus 15 years previously."

Based on its confidence with its growth outlook and "strong" balance sheet, the company is expected to raise its annual dividend by 4 cents (or 7.1 per cent) to 60 cents from 56 cents when the acquisition closes in January.

"This new dividend implies a 3.5-per-cent yield and translates into a conservative cash payout ratio of 46 per cent," said Mr. Pham. "As BLX targets a 40-60-per-cent long-term payout ratio, we see room for further dividend upside and note that contracted power peers target a higher payout ratio of 70-80 per cent."

Mr. Pham raised his adjusted EBITDA estimates for 2017 and 2018 to $368-million and $392-million, respectively, from $285-million and $309-million.

With those changes, he raised his target price for the stock to $24 from $23, "implying an attractive total return expectation of 42 per cent." Consensus is $23.20.

"The dividend increase signals confidence in the growth outlook and valuation remains attractive," he said. "Accordingly, we continue to flag BLX as one of our top three best ideas in our Energy Infrastructure coverage universe and we reiterate our outperform rating."

On Dec. 23, RBC Dominion Securities analyst Nelson Ng raised his rating for the stock to "outperform" from "sector perform" with a target of $23, up from $21.

On Wednesday, TD Securities analyst Sean Steuart upgraded the company to "buy" from "hold" and bumped his target up by a loonie to $22.

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Following a $173-million equity financing, Shawcor Ltd. (SCL-T) is "one of the better-positioned companies" in the oil and gas services coverage universe of BMO Nesbitt Burns analyst Michael Mazar.

He cited a "healthy" back/bid/budget log and "stronger" balance sheet following the financing, which he said lays the groundwork for "solid" performance in the coming quarters.

"2017 estimated net debt to EBITDA now sits at 0.1 times, an improvement from 1.0 times prior to the financing," said Mr. Mazar in a Dec. 23 research report. "Beyond debt repayment, the financing permits incremental investment in working capital related to large pipe coating projects. We would not be surprised to see the company pursue additional acquisition opportunities in an ongoing effort to diversify its revenue base."

"While high beta names are likely to outperform in the near term given the current 'risk-on' mentality in the OFS space, SCL is a very high-quality company that represents a compelling opportunity for those investors with more of a full-cycle approach. Excellent visibility, a client list comprised of the largest energy companies in the world, and a strengthened balance sheet provide a margin of safety. Stronger commodity prices improve the likelihood of projects going forward, and we expect new contract awards to provide catalysts as projects in the huge bid/ budget log get converted to backlog."

In reaction to the financing, Mr. Mazar's 2017 and 2018 earnings per share projections fell to $1.15 and $1.26, respectively, from $1.21 and $1.32.

His target price for the stock rose to $40 from $37, compared to the consensus of $39. He maintained an "outperform" rating.

"In the current environment, valuation has taken a back seat as investors look to add torque to recovering commodity prices," he said. "However, value still has, well, value, over the longer term. SCL now trades at about 3.7 times backlog, a bit below the historical average of 4x, and we think offers investors concerned about rising U.S. production, OPEC compliance or other dynamics that could de-rail the commodity upswing an attractive alternative with longer-term upside."

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In reaction to its better-than-projected, second-quarter 2017 financial results, Credit Suisse analyst Christian Buss tweaked his projections for Nike Inc. (NKE-N).

On Dec. 20, the U.S. sportswear giant reported total revenue of $8.18-billion (U.S.), ahead of the Street's projection of $8.09-billion and up 6 per cent year over year. Earnings per share of 50 cents beat analysts' expectation of 43 cents.

"We adjust our estimates following Nike's earnings release given: 1) North America and European business performing better than expected; 2) gross margin degradation moderating as the company stabilizes its challenged North America business more quickly than previously anticipated; and 3) tighter SG&A expense control," said Mr. Buss. "We believe the company is managing competitive challenges better than feared and as a result, we believe that a return to mid- to high-single digit constant currency revenue growth is likely to occur sooner than anticipated. Unfortunately, currency is moving against the company, suggesting that underlying reported earnings growth is not likely to re-accelerate faster than anticipated."

His full-year 2017 and 2018 revenue projections rose to $34.524-billion and $36.96-billion, respectively, from $34.442-billion and $36.872-billion. His EPS estimates fell to $2.36 and $2.68 from $2.50 and $2.73.

With an "outperform" rating, his target remains $60 (U.S.). Consensus is $62.02.

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Credit Suisse analyst Kennen MacKay lowered his target price for stock of Seattle Genetics Inc. (SGEN-Q).

On Tuesday, the Bothell, Wa.-based company announced four people have died in trials testing its experimental cancer drug SGNCD33A. Six patients with acute myeloid leukemia (AML) have been diagnosed with liver toxicity and four have died.

The U.S. Food and Drug Administration reacted by imposing a clinical hold on several early-stage studies.

"This comes as a surprise to us given: 1) SGNCD33A was designed to address the antibody-drug conjugate (ADC) linker technology pitfalls of its predecessor Mylotarg, thought to be the cause of Mylotarg-associated HVOD, and 2) prior to this report no HVOD concerns had been observed in early stage SGN-CD33A testing," said Mr. MacKay. "Recall that it was a greater number of HVOD-related deaths which negatively skewed Mylotarg's risk/reward profile and drove Pfizer to voluntarily withdraw the product from the market after having received accelerated approval. Furthermore, while the incidence of Mylotarg's HVOD has been commonly attributed to premature cleavage of the cytotoxic payload, concern continues to exist surrounding potential CD33 target-mediated hepatotoxicity."

His target fell to $60 (U.S.) from $70 with a "neutral" rating. Consensus is $58.14.

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In other analyst actions:

Janney Montgomery analyst Ken Trbovich initiated coverage of Impax Laboratories Inc. (IPXL-Q) with a "neutral" rating and $15 (U.S.) target. The consensus average of $18.50, according to Bloomberg.

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