The Canadian Press
Inside the Market's roundup of some of today's key analyst actions. This post will be updated with more analyst commentary during the trading day.
Canadian Real Estate Investment Trust has become a new favourite of Canaccord Genuity.
Citing the REIT's conservative payout ratio, "prudent" development and acquisition strategy, and history of cash flow growth, Canaccord elevated the REIT to its "focus list" - a selection of its top investment ideas.
At the same time, it downgraded Northern Property Real Estate Investment Trust to "hold" from "buy," concerned with that REIT's higher risks versus its peers and its lower expected returns to investors.
In a research report today on the sector, Canaccord analysts Mark Rothschild and Jenny Ma cited Canadian Real Estate Investment Trust as one of three Canadian REITs that offers "exceptional value." The other two are InterRent REIT and Pure Industrial REIT.
Pinpointing the best Canadian REITs for investors to buy is becoming increasingly important, they believe, even after total returns in the sector contracted by 10 per cent so far this year.
In part, that's because the analysts believe capitalization rates - the income generated from a property divided by its value - are going up. Higher cap rates lowers net asset values.
But Mr. Rothschild and Ms. Ma admit there is yet to be concrete evidence of the higher cap rates.
"Though there is a lack of strong evidence that cap rates have risen, we believe that the trend of cap rates declining has reversed," the analysts said in a research note. "However, there is likely to be a considerable lag before there are reliable data points to confirm that cap rates have moved higher. Typically, when there is a reversal in price movements, there is a delay until buyers and sellers reach agreement."
They believe there will be an average of a 50 basis point increase in cap rates. That would mean the average spread between the 10-year government of Canada bond yield and national cap rates will be about 375 basis points. (Read more from Scott Barlow here on the yield differential and what it may mean for REIT investors.)
"In our view, the move in cap rates will not be uniform across all property types and markets. Rather, we expect cap rates to rise more for lower quality assets, and remain relatively low for high quality and well-located assets such as prime grocery-anchored shopping centres and trophy office properties. We have adjusted our NAV estimates and target prices lower to account for the increase in cap rates," Canaccord wrote.
Targets: Canaccord has a $45.25 price target on Canadian REIT and $28.80 on Northern Property REIT.
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CIBC World Markets analyst Tony Rizzi has begun covering Sirius XM Canada Holdings Inc., rating the satellite and Internet radio company "sector outperformer."
The company, formed in 2011 by a merger of XM Radio Canada and Sirius Canada, is expected to enjoy higher profit margins and raise its dividend as it begins to tap into "under-penetrated" markets for its $250-a-year subscriptions.
Shares in the company have soared by 28 per cent this year to about $8 on Wednesday, and Mr. Rizzi says they have more room to rise.
"We believe the stock has further upside, with a long runway in the new car market and a growing opportunity in re-owned [autos]," Mr. Rizzi said in a research note on Wednesday.
Target: Mr. Rizzi has a $9 share price target and a "sector outperform" rating. The average price target among analysts is $8.43, according to Bloomberg data.
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CIBC World Markets analyst Jon Morrison has raised his share price target for Calfrac Well Services Ltd., saying in a research note that last week's acquisition in Texas will boost 2014 profit by 6 per cent.
Calfrac's $147-million (U.S.) deal for Mission Well Services gives it a presence in the Eagle Ford shale gas fields of the state. Both companies use rock fracturing techniques to extract petroleum.
"While we believe Calfrac has always had a long-term desire to eventually expand into Texas, we view entrance at this stage to be more a function of an opportunistic acquisition than a structural call on the market improving in the near-term," Mr. Morrison wrote.
Target: Mr. Morrison raised his share price target to $41 from $40 (Canadian) and rates the company "sector outperform." The average target is $40.08.
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Shares in Dollarama Inc. are set to continue their winning streak, said Industrial Alliance Securities analyst Neil Linsdell after the retailer posted another quarter of better-than-expected earnings.
Sales grew 16 per cent to $511.3-million, above the consensus forecast of $506.3-million, and earnings per share of 82 cents beat the consensus of 79 cents.
"While we see a potential market in Canada for 2,400 dollar stores, leaving approximately 10 more years of this growth rate, we expect growth to continue beyond the 10-year timeframe as we start to see contribution from the Company's expansion in Latin America, through Dollar City," said Mr. Linsdell.
Target: Mr. Linsdell raised his target price to $89 from $77 and reiterated a "buy" rating. The average target is $80.33.
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In other analyst actions today:
Credit Suisse, Merrill Lynch and UBS downgraded Apple Inc. to "neutral" ratings. Canaccord Genuity raised its price target on Apple to $550 from $530 and reiterated a "buy" rating. Nomura Equity Research raised its price target to $480 from $420. Lazard raised its price target to $570 from $500. (Read more on what analysts are saying on Apple here.)
RBC Dominion Securities upgraded Major Drilling Group International Inc. to "outperform" from "sector perform" and raised its price target to $9 from $8.
RBC Dominion Securities upgraded Nokia Corp. to "outperform" from "sector perform" and raised its price target to $7 (U.S.) from $5.
CIBC World Markets slashed its price target on Pinecrest Energy Inc. to 50 cents from $1.25 and reiterated a "sector performer" rating.
Canaccord Genuity raised its price target on Churchill Corp. to $10.75 from $9.50 and reiterated a "buy" rating.
Goldman Sachs upgraded ConAgra Foods Inc. to "buy" from "hold" and reiterated a price target of $42 (U.S.).
Goldman Sachs raised its price target on Texas Instruments Inc. to $40 (U.S.) from $38 and maintained a "neutral" rating.
UBS upgraded Morgan Stanley to "buy" from "neutral" and raised its price target to $33 (U.S.) from $28.
UBS downgraded BlackRock Inc. to "neutral" from "buy" and cut its price target to $280 from $310.
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(Note: An earlier version of this story had outdated Canaccord price targets for Canadian REIT and Northern Property REIT.)
Darcy Keith
Eric Atkins