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A worker enters the Thomson Reuters building in the Canary Wharf financial district of London August 6, 2009. (SIMON NEWMAN/SIMON NEWMAN/REUTERS)
A worker enters the Thomson Reuters building in the Canary Wharf financial district of London August 6, 2009. (SIMON NEWMAN/SIMON NEWMAN/REUTERS)

Eye on Equities

Goldman downgrades Thomson Reuters to a 'sell' Add to ...

Shares in Thomson Reuters Corp. are under pressure today after Goldman Sachs downgraded the company to “sell” from “neutral,” citing concerns that job cuts at its banking and financial customers will hurt results through this year.

The information provider’s financial services clients account for nearly 50 per cent of its revenues and the New York-based investment bank believes the job cuts could amount to a 3 to 5 per cent drop in the number of users for its desktop products in 2012.

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“Thomson Reuters operates on a subscription model that means events from one year tend to impact the following year more profoundly, meaning deterioration from late last year will flow throughout 2012 results,” analyst Brian Karimzad said. He also believes operating expense pressure at banks will limit the company’s pricing power.

The company announced a restructuring last year to address weakness in the markets division, and in January chief operating officer Jim Smith replaced Tom Glocer as chief executive.

“While we have confidence in Thomson Reuters’ new management team, we see few ‘quick fixes’ addressing deteriorating market share resulting from misdirected product development in the space,” Goldman’s Karimzad said.

Karimzad is rated as a five-star analyst for the accuracy of his earnings estimates on Thomson Reuters, according to StarMine data. He’s in the minority, however, urging investors to sell. Of the 19 analysts covering the stock, three rate it “sell,” 13 have a “hold” and three a “buy” or a “strong buy” recommendation.

Downside: Goldman cut its six-month price target on the stock by $3 to $25.

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Shares in Encana Corp. are giving up some of Wednesday’s hefty 10 per cent gain, as profit takers enter the fray and natural gas futures retreat in New York.

Encana surged Wednesday as natural gas prices rose 7 per cent on news that ConocoPhillips and Occidental Petroleum Corp. would curtail their U.S. natural gas production because of low prices, which followed a similar move by Chesapeake Energy on Monday.

Buying in Encana Wednesday was also encouraged by an upgrade to “buy” from “hold” from Societe Generale analyst John Herrlin. He said natural gas prices were likely to rise and the company’s dividend would provide a return to investors while waiting for prices to recover.

Prior to the latest production curtailments, natural gas plunged to 10-year lows, prompted by mild weather and record high supplies. But more typical winter weather is filtering into North America and some analysts suggest the rapid decline in investment in extracting the commodity will eventually see prices rebound.

Related contentRelated: End to low natural gas prices 'inevitable'

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Canadian Pacific Railway Ltd. missed fourth-quarter earnings expectations due to higher-than-expected operating expenses, but UBS analyst Hilda Maraachlian is maintaining a “neutral” rating on the stock.

“We expect negative market reaction today given the operational miss,” says Ms. Maraachlian. “Going forward, we remain focused on CP’s operating metrics which are critical for CP’s earnings recovery.”

So far, the market impact hasn’t been substantial. Shares are down about 1 per cent at about $71.

Upside: Ms. Maraachlian reiterated her $73 (Canadian) price target.

Read more: CP profit rises 19%, but productivity worsens

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Versant Partners Inc. analyst Tom Liston has high expectations for CGI Group Inc.’s first-quarter results on Feb. 1.

Mr. Liston expects the company to announce approximately $652-million in deals for the quarter, including the recent $350-million renewal contract from National Bank. However, it is the prospect of a much larger business transformation contract from the State of California that could result in very good news for investors.

“We remind investors that the most tangible near term catalyst for the stock is the FI$Cal program, which is expected to be announced in February,” he says. “We believe that CGI is well positioned to compete for the FI$Cal contract given its work with L.A. County.”

Upside: Mr. Liston is maintaining his “buy” rating and $24.50 (Canadian) price target.

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A year of transition will likely correspond to lower earnings for AGF Management Ltd. , according to CIBC World Markets Inc. analyst Paul Holden.

Mr. Holden says AGF’s earnings miss in the fourth quarter was surprisingly large (24 cents vs. consensus of 30 cents), while management fees dropped by 11 per cent (quarter over quarter) compared with a 6 per cent decline in average assets under management.

He adds that a sale of AGF Trust and an acquisition outside of Canada would be viewed as positive catalysts.

Upside: Mr. Holden is maintaining his “sector perform” rating and $18 (Canadian) price target.

Related: AGF banks on expanded pension business in 2012

Related; AGF profit falls 29 per cent

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Caterpillar Inc.’s record fourth-quarter earnings, which easily surpassed Street expectations, bodes well for Finning International Inc. , said Desjardins Securities Inc. analyst Benoit Poirier.

Finning provides customer support services for Caterpillar equipment.

“Caterpillar’s results further support our belief that revenue at Finning will continue to grow in the double digits,” he said. “Combined with the current strength in copper, we believe Finning’s stock is poised for further share price appreciation.” Finning provides customer support services for Caterpillar equipment.

Upside: Mr. Poirier rates Finning as a “buy” with a price target of $34 (Canadian)

 
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