Brookfield shares should double within 5 years: analyst

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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.

Desjardins Securities reiterated its "top pick" rating on Brookfield Asset Management Inc., saying it is "comfortable" the Toronto-company's shares have the potential to double in price within five years.

The company's focus on real estate, infrastructure, power generation and asset management make it attractive to institutional and retail investors who are in search of yield but wary of "fragile" equity markets, Desjardins analysts Michael Goldberg and Bradley Romain wrote in a research report today.

After the spinoff this year of Brookfield Property Partners, Brookfield has four pillars that Desjardins said will deliver returns for investors while generating asset management fees for investors.

Formerly known as Brascan, Brookfield's four main companies are: Brookfield Property Partners, Brookfield Renewable Energy Partners, Brookfield Infrastructure Partners and Brookfield Capital Partners. (The latter is privately held.)

Shares in the parent company are up 5 per cent this year on the New York Stock Exchange.

Target: Desjardins maintained a "top pick" rating with a share price target of $44 (U.S.). The average target among analysts is $41.09, according to Bloomberg data.

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Morgan Stanley upgraded Telus Corp. to "overweight" from "equalweight," believing that solid fundamentals in the wireless industry will support continued shareholder returns.

In a research note, Morgan Stanley analysts Simon Flannery and Daniel Rodriguez cited three key reasons for the upgrade:

1. Attractive industry dynamics with lower new entrant risk. "Canada has superior wireless growth prospects versus the U.S. in our view, and recent developments suggest that Verizon and other foreign telcos are less likely to enter the market.

2. Strong business momentum. "Telus reported 6 per cent revenue growth in the second quarter, the best of the North American integrated carriers. We see strong momentum into the second half of 2013, driven by new shared data plans in wireless and strong IPTV take up in wireline." Morgan Stanely increased its 2013/2014 adjusted earnings per share forecasts to $2.02 Canadian (prior: C$2.00) / C$2.32 (prior: C$2.23).

3. Superior cash returns. "Telus has already repurchased some 5 per cent of its outstanding shares this year, and still has a further $1.5-billion remaining under its program with relatively low leverage. Telus has committed to grow its dividend around 10 per cent per year for the next three years, with the next increase likely coming with third-quarter results."

Target: Morgan Stanley has a $38 (Canadian) price target. The average target is $37.03.

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BlackBerry Ltd.'s stunning announcement late Friday that it is cutting thousands of jobs after incurring a loss of nearly $1-billion (U.S.) in its latest quarter prompted a flurry of price target cuts among analysts this morning. The analyst actions were made prior to BlackBerry announcing a potential buyout deal with Fairfax Financial this afternoon.

At least three downgraded ratings on the stock: Jefferies reduced its target to "hold" from "buy" while slicing its price target to $8 (U.S.) from $15; RBC Dominion securities lowered its rating to "underperform" from "sector perform" while cutting its target to $5 from $15; and Paradigm downgraded its rating to "hold" from "speculative buy" with a reduced price target of $10.50.

According to a Reuters tally, at least 15 brokerages slashed their price targets in all. Most were in agreement that the main question now is whether the company will be sold in whole or in parts.

"BlackBerry will refocus the business towards only enterprise and professional consumers," noted Canaccord Genuity analyst T. Michael Walkley.

But, there's a big problem with that, he points out. The trend of businesses adopting a "bring your own devices" model, whereby company email can be seen on employees' own devices, means BlackBerry's consumer smartphone business is "paramount" for its enterprise franchise to be profitable.

"We maintain our belief BlackBerry will ultimately end up selling the company due to the difficult competitive smartphone market and low probability BlackBerry 10 can return BlackBerry to sustained profitability, even despite the deep cost cuts," Mr. Walkley said. He maintained a "sell" rating and an $8 price target.

Analysts also stressed there's now new urgency for BlackBerry to conclude its "strategic review" that could include a sale of all or parts of the company.

"We believe BBRY needs to act quickly and decisively in coming to a conclusion with regard to any potential sale of the company and should look to sell assets to bolster its cash position," Wells Fargo analysts said.

There were a couple of contrarian upgrades for BlackBerry this morning, however, including from Baird Equity Research. It now rates the stock "neutral" instead of "underperform." It argued that "the stock is now more likely to be driven by M&A rumors and sum-of-the-parts arguments."

Credit Suisse also upgraded BlackBerry to "neutral" from "underperform," but it did cut its price target to $8 from $9.

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Credit Suisse analyst Michael Nemeroff upgraded Open Text Corp. to "neutral" from "underperform," based on expectations of an improving deal environment for infrastructure software vendors in the second half of 2013.

Since January 25 of this year, Open Text shares have underperformed the broader market, rising 22 per cent versus 30 per cent for the S&P 500 and 36 per cent for the Nasdaq.

Mr. Nemeroff sees better days ahead. "Our upgrade is based on the potential for OTEX's organic growth to re-accelerate as Europe's largest economies begin to improve," he said.

Target: Mr. Nemeroff raised his price target to $75 (U.S.) from $61. The average target is $77.67.

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It appears that Peregrine Semiconductor Corp. has lost the contract to supply the main antenna switch in the new iPhone 5S and 5C, said Canaccord Genuity analyst T. Michael Walkley as he downgraded the stock to "hold" from "buy."

"Given Peregrine's customer concentration with Apple, we believe the loss of this design meaningfully impacts Peregrine's sales over the next several quarters and results in us lowering our estimates," Mr. Walkley said. "Longer term, we believe Peregrine's patented UltraCMOS technology provides competitive advantages such as better performance, improved integration, and lower power than competing technologies and should position Peregrine to benefit from the growing mix of LTE smartphones and from other technologies such as carrier aggregation."

Target: Mr. Walkley cut his target to $10 (U.S.) from $13. The average target is $12.33.

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CIBC World Markets has begun coverage of Granite Real Estate Investment Trust, which was once part of autos magnate Frank Stronach's empire, with a "sector perform" rating.

Until last year, Granite was known as MI Developments Inc., the real estate division of Magna International Inc. that was the subject of long-running battles and lawsuits between shareholders and Magna founder Frank Stronach.

Magna's automotive facilities are the main tenant for the REIT, whch owns 116 properties in North America and Europe. However, the company is trying to reduce its exposure to the former parent with acquisitions that could boost funds from operations in the next 18 months, analyst Brad Sturges wrote in a research note.

Target: Mr. Sturges initiated coverage of Granite REIT with a "sector perform" rating and a $39.50 (Canadian) price target. The average target is $40.

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Other analyst actions today:

BMO Nesbitt Burns raised its price target on Aurcana Corp. to $4 from $3 and upgraded its rating to "outperform from "market perform."

Credit Suisse upgraded Sherwin-Williams Co. to "outperform" from "neutral" and raised its price target to $215 (U.S.) from $185.

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.